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Hong Kong Financial Reporting Standards www.pwchk.com Illustrative HKFRS Consolidated Financial Statements 31 December 2016

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Page 1: Illustrative HKFRS Consolidated Financial Statements - … · Consolidated financial statements and Chapter 28 ... Foreign currencies ... Illustrative HKFRS Consolidated Financial

Hong Kong Financial Reporting Standards

www.pwchk.com

Illustrative HKFRS Consolidated Financial Statements31 December 2016

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IFRS Manual of Accounting (English with Chinese translation) IFRS Manual of Accounting is a comprehensive practical guide to IFRS and provides straightforward explanations on how to prepare financial statements in accordance with IFRS, with hundreds of practical examples. IFRS Manual of Accounting with Chinese translation has been released in different volumes. The following volumes have been published by China Financial & Economic Publishing House. Depending on the topic, each release may be a chapter or a combination of a number of chapters from the manual.

MoA Volume 14: Consolidated financial statements and joint arrangements This volume covers Chapter 24 – Consolidated financial statements and Chapter 28 – Joint arrangements of the English version and their translation.

MoA Volume 15: Employee benefits This volume covers Chapter 11 – Employee benefits of the English version and its translation.

MoA Volume 16: Insurance contracts and Fair value This volume covers Chapter 8 – Insurance contracts and Chapter 34 – Fair value of the English version and their translation.

The below volumes (English with Chinese translation) are also available:

IFRS Manual of Accounting - Volume 1: Revenue and construction contracts

IFRS Manual of Accounting - Volume 2: Accounting principles and applicability of IFRS; Presentation of financial statements; Accounting policies, accounting estimates and errors

IFRS Manual of Accounting - Volume 3: Taxation

IFRS Manual of Accounting - Volume 4: Share-based payment

IFRS Manual of Accounting - Volume 5: Business combinations

IFRS Manual of Accounting - Volume 6: Intangible assets and inventories

IFRS Manual of Accounting - Volume 7: Property, plant and equipment, investment property and lease accounting

IFRS Manual of Accounting - Volume 8: Impairment of assets

IFRS Manual of Accounting - Volume 9: Consolidated and separate financial statements and equity accounting

IFRS Manual of Accounting - Volume 10: Disposals of subsidiaries, business and non-current assets

IFRS Manual of Accounting - Volume 11: Foreign currencies IFRS Manual of Accounting - Volume 12: Earnings per share

IFRS Manual of Accounting - Volume 13: Service concession arrangements

IFRS Manual of Accounting - Financial Instruments (English with Chinese translation) Volume 1

IFRS Manual of Accounting - Financial Instruments (English with Chinese translation) Volume 2

IFRS Manual of Accounting - Financial Instruments (English with Chinese translation) Volume 3

Please visit www.pwccn.com/home/eng/ifrs_accounting_manual.html for details.

PwC’s Accounting Technical Publications

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Illustrative HKFRS Consolidated Financial Statements

Specimen Holdings Limited

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Specimen Holdings Limited Illustrative HKFRS Consolidated Financial Statements

31 December 2016

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Illustrative HKFRS Consolidated Financial Statements

Specimen Holdings Limited

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Introduction

This publication provides an illustrative set of consolidated financial statements, prepared in accordance with Hong Kong Financial Reporting Standards (HKFRS), for a fictional manufacturing, wholesale and retail group (Specimen Holdings Limited).

Specimen Holdings Limited is an existing preparer of HKFRS consolidated financial statements; HKFRS 1, First-time adoption of Hong Kong Financial Reporting Standards, is not applicable. This publication is based on the requirements of HKFRS standards and interpretations for financial years beginning on or after 1 January 2016. This publication includes the disclosures required by the Hong Kong Companies Ordinance (Cap. 622) and the Rules Governing the Listing Securities on The Stock Exchange of Hong Kong Limited and the Rules Governing the Listing of Securities on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited (the “Listing Rules”) published up to and including September 2016. Their related disclosures are marked in red and orange respectively. This publication has not included all the disclosures required by the Listing Rules. For example, the disclosure of corporate governance has not been included as it is expected to vary significantly from one company to another company and should be tailored to suit the particular circumstances of the company. Please refer to Appendix 14 of Main Board Listing rules / Appendix 15 of GEM Listing rules for detailed disclosure requirements of corporate governance report. PricewaterhouseCoopers’ commentary has been provided, in boxes, to explain the detail behind the presentation of a number of challenging areas. These commentary boxes relate to the presentation in: the consolidated balance sheet, the consolidated statement of profit or loss, the consolidated statement of comprehensive income, the consolidated statement of changes in equity, the consolidated statement of cash flows, the summary of significant accounting policies, and financial risk management. Areas in which presentation has changed significantly since 2015 have been highlighted in grey. We have attempted to create a realistic set of financial statements for a corporate entity. Certain types of transaction have been excluded, as they are not relevant to the group’s operations. The example disclosures for some of these additional items have been included in Appendices V to VI. The new and amended standards and interpretations, which are effective for financial year ending 31 December 2016 are summarised in the below section. The forthcoming HKFRS requirements are outlined in a table in Appendix X. We have included in Appendices VII, VIII and IX the links to the websites where illustrative disclosures required for the early adoption of Amendments to IAS 7 “Statement of Cash Flows”, IFRS 9 “Financial Instrument” and IFRS 15 “Revenue from contracts with customers” can be downloaded, respectively. The sample disclosures should not be considered the only acceptable form of presentation. The form and content of each reporting entity’s financial statements are the responsibility of the entity’s management. Alternative presentations to those proposed in this publication may be equally acceptable if they comply with the specific disclosure requirements prescribed in HKFRS. These illustrative financial statements are not a substitute for reading the standards and interpretations, the Hong Kong Companies Ordinance and the Listing Rules themselves, or for professional judgement as to the fairness of presentation. They do not cover all possible disclosures that HKFRS, the Hong Kong Companies Ordinance and the Listing Rules require. Further specific information may be required in order to ensure fair presentation under HKFRS depending on the circumstances. Additional disclosures may be required in order to comply with local laws and/or stock exchange regulations if the subject company is incorporated overseas and/or listed in an overseas stock exchange. Please refer to Disclosure Checklist 2016 for HKFRS, the Hong Kong Companies Ordinance and the Listing Rules for detailed disclosure requirements. Readers should refer to PricewaterhouseCoopers’ industry illustrative financial statements for industry specific transactions and presentations, including: Illustrative financial statements : Investment funds

Illustrative financial statements : Investment property

Illustrative financial statements : Private equity

Illustrative financial statements : Insurance

Illustrative financial statements for authorised institutions in Hong Kong

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Illustrative HKFRS Consolidated Financial Statements

Specimen Holdings Limited

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Introduction (Continued)

New and amended standards that have been issued and are effective for periods commencing on 1 January 2016

Standards Key requirements Early adoption and

transition provision, if any

(I) Changes effective for annual periods beginning on or after 1 January 2016

HKFRS 14

“Regulatory

Deferral

Accounts”

HKFRS 14 Regulatory Deferral Accounts, describes regulatory deferral

account balances as amounts of expense or income that would not be

recognised as assets or liabilities in accordance with other standards, but

that qualify to be deferred in accordance with HKFRS14 because the

amount is included, or is expected to be included, by the rate regulator in

establishing the price(s) that an entity can charge to customers for rate-

regulated goods or services.

HKFRS 14 permits eligible first- time adopters of HKFRS to continue their

previous GAAP rate-regulated accounting policies, with limited changes.

HKFRS 14 requires separate presentation of regulatory deferral account

balances in the balance sheet and of movements in those balances in the

statement of comprehensive income. Disclosures are required to identify

the nature of, and risk associated with, the form of rate regulation that has

given rise to the recognition of regulatory deferral account balances.

HKFRS 14 is effective for an

entity’s first annual HKFRS

financial statements for a period

beginning on or after 1 January

2016, with earlier application

permitted.

Amendment to

HKFRS 11

“Accounting for

acquisitions of

interests in

joint

operations”

The amendment requires an investor to apply the principles of business

combination accounting when it acquires an interest in a joint operation

that constitutes a ‘business’ (as defined in HKFRS 3, Business

combinations). Specifically, an investor will need to:

measure identifiable assets and liabilities at fair value;

expense acquisition-related costs;

recognise deferred tax; and

recognise the residual as goodwill.

All other principles of business combination accounting apply unless they

conflict with HKFRS 11.

The amendment is applicable to both the acquisition of the initial interest

and a further interest in a joint operation. The previously held interest is

not remeasured when the acquisition of an additional interest in the same

joint operation with joint control maintained.

Amendment to HKFRS 11 is

effective for an entity’s annual

HKFRS financial statements for

a period beginning on or after 1

January 2016, with earlier

application permitted.

Amendments to

HKAS 16 and

HKAS 38

“Clarification of

acceptable

methods of

depreciation

and

amortisation”

The amendments clarify when a method of depreciation or amortisation

based on revenue may be appropriate. The amendment to HKAS 16 clarifies

that depreciation of an item of property, plant and equipment based on

revenue generated by using the asset is not appropriate.

The amendment to HKAS 38 establishes a rebuttable presumption that

amortisation of an intangible asset based on revenue generated by using the

asset is inappropriate. The presumption may only be rebutted in certain

limited circumstances:

where the intangible asset is expressed as a measure of revenue; or

where it can be demonstrated that revenue and the consumption of the economic benefits of the intangible asset are highly correlated.

Amendments to HKAS 16 and

HKAS 38 are effective for an

entity’s annual HKFRS financial

statements for a period

beginning on or after 1 January

2016, with earlier application

permitted.

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Specimen Holdings Limited

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New and amended standards that have been issued and are effective for periods commencing on 1 January 2016 (continued)

Standards Key requirements Early adoption and transition provision, if any

(I) Changes effective for annual periods beginning on or after 1 January 2016 (continued)

Amendments to HKAS 16 and

HKAS 41

“Agriculture:

bearer plants”

The amendments change the reporting for bearer plants, such as grape vines, rubber trees and oil palms. Bearer plants should be accounted for in

the same way as property, plant and equipment because their operation is

similar to that of manufacturing. The amendments include them in the

scope of HKAS 16 rather than HKAS 41.

The produce on bearer plants will remain in the scope of HKAS 41.

Amendments to HKAS 16 and HKAS 41 are effective for an

entity’s annual HKFRS financial

statements for a period

beginning on or after 1 January 2016, with earlier application

permitted.

Amendment to

HKAS 27

“Equity method in separate

financial

statements”

The amendment allows entities to use equity method to account for

investments in subsidiaries, joint ventures and associates in their separate

financial statements.

Amendment to HKAS 27 is

effective for an entity’s annual

HKFRS financial statements for a period beginning on or after 1

January 2016, with earlier

application permitted.

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New and amended standards that have been issued and are effective for periods commencing on 1 January 2016 (continued)

Standards Key requirements Early adoption and

transition provision, if any

(I) Changes effective for annual periods beginning on or after 1 January 2016 (continued)

Annual

improvements 2014

The amendments include changes from the 2012-2014 cycle of the

annual improvements project that affect 4 standards:

HKFRS 5, ‘Non-current assets held for sale and discontinued operations’

It clarifies that when an asset (or disposal group) is reclassified

from ‘held for sale’ to ‘held for distribution’, or vice versa, this

does not constitute a change to a plan of sale or distribution, and

does not have to be accounted for as such. This means that the

asset (or disposal group) does not need to be reinstated in the

financial statements as if it had never been classified as ‘held for

sale’ or ‘held for distribution’ simply because the manner of

disposal has changed. It also explains that the guidance on

changes in a plan of sale should be applied to an asset (or

disposal group) which ceases to be held for distribution but is

not classified as ‘held for sale’.

HKFRS 7, ‘Financial instruments: Disclosures’

There are two amendments:

i) Service contracts

If an entity transfers a financial asset to a third party

under conditions which allow the transferor to

derecognise the asset, HKFRS 7 requires disclosure of all types of continuing involvement that the entity

might still have in the transferred assets. It provides

guidance about what is meant by continuing

involvement.

There is a consequential amendment to HKFRS 1 to

give the same relief to first time adopters.

ii) Interim financial statements

It clarifies the additional disclosure required by the amendments to HKFRS 7, ‘Disclosure – offsetting

financial assets and financial liabilities’ is not

specifically required for all interim periods, unless

required by HKAS 34.

An entity shall apply the

amendment to HKFRS 5

prospectively for annual periods beginning on or after 1 January

2016. Earlier application is

permitted.

An entity shall apply this

amendment to HKFRS 7

prospectively with an option to apply retrospectively, for annual

periods beginning on or after 1

January 2016. However, the

disclosures required would not be needed to be provided for any

period before the annual period

in which the entity first applies

the amendment.

An entity shall apply this

amendment to HKFRS 7 retrospectively for annual

periods beginning on or after 1

January 2016. Earlier

application is permitted.

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New and amended standards that have been issued and are effective for periods commencing on 1 January 2016 (continued)

Standards Key requirements Early adoption and

transition provision, if any

(I) Changes effective for annual periods beginning on or after 1 January 2016 (continued)

HKAS 19, ‘Employee benefits’

It clarifies when determining the discount rate for post-

employment benefit obligations, it is the currency that the

liabilities are denominated in that is important, not the country

where they arise. The assessment of whether there is a deep market in high-quality corporate bonds is based on corporate

bonds in that currency, not corporate bonds in a particular

country. Similarly, where there is no deep market in high-

quality corporate bonds in that currency, government bonds in the relevant currency should be used.

HKAS 34, ‘Interim financial reporting’

It clarifies what is meant by the reference in the standard to ‘information disclosed elsewhere in the interim financial report’.

It also amends HKAS 34 to require a cross-reference from the

interim financial statements to the location of that information.

An entity shall apply this amendment to HKAS 19

retrospectively for annual

periods beginning on or after 1

January 2016, limited to the beginning of the earliest

period presented. Earlier

application is permitted.

An entity shall apply the amendment to HKAS 34

retrospectively for annual

periods beginning on or after 1

January 2016. Earlier application is permitted.

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New and amended standards that have been issued and are effective for periods commencing on 1 January 2016 (continued)

Standards Key requirements Early adoption and

transition provision, if any

(I) Changes effective for annual periods beginning on or after 1 January 2016 (continued)

Amendments to

HKFRS 10,

HKFRS 12 and HKAS 28

“Investment

entities:

applying the consolidation

exception”

The amendments clarify the application of the consolidation exception for

investment entities and their subsidiaries.

The amendments to HKFRS 10 clarify that the exception from preparing consolidated financial statements is available to intermediate parent

entities which are subsidiaries of investment entities. The exception is

available when the investment entity parent measures its subsidiaries at fair

value. The intermediate parent would also need to meet the other criteria for exception listed in HKFRS 10.

The amendments also clarify that an investment entity should consolidate a

subsidiary which is not an investment entity and which provides services in

support of the investment entity’s investment activities, such that it acts as an extension of the investment entity. However, the amendments also

confirm that if the subsidiary is itself an investment entity, the investment

entity parent should measure its investment in the subsidiary at fair value

through profit or loss. This approach is required regardless of whether the subsidiary provides investment-related services to the parent or to third

parties.

The amendments to HKAS 28 allow an entity which is not an investment

entity, but has an interest in an associate or a joint venture which is an investment entity, a relief to retain the fair value measurement applied by

the investment entity associate or joint venture, or to unwind the fair value

measurement and instead perform a consolidation at the level of the investment entity associate or joint venture for their subsidiaries when

applying the equity method.

An entity shall apply those

amendments to HKFRS 10,

HKFRS 12, and HKAS 28 for

annual periods beginning on or

after 1 January 2016. Earlier

application is permitted.

Amendments to

HKAS 1

“Disclosure

initiative”

The amendments clarify guidance in HKAS 1 on materiality and

aggregation, the presentation of subtotals, the structure of financial

statements and the disclosure of accounting policies.

Although the amendments do not require specific changes, they clarify a number of presentation issues and highlight that preparers are permitted to

tailor the format and presentation of the financial statements to their

circumstances and the needs of users.

The key areas addressed by the changes are as follows:

Materiality: an entity should not aggregate or disaggregate

information in a manner that obscures useful information. An entity need not provide disclosures if the information is not material;

Disaggregation and subtotals: the amendments clarify what

additional subtotals are acceptable and how they should be presented;

Notes: an entity is not required to present the notes to the financial statements in a particular order, and management should tailor the

structure of their notes to their circumstances and the needs of their

users;

Accounting policies: how to identify a significant accounting policy that should be disclosed;

Other comprehensive income from equity accounted investments:

other comprehensive income of associates and joint ventures should be separated into the share of items that will subsequently be

reclassified to profit or loss and those that will not.

An entity shall apply those

amendments to HKAS 1 for

annual periods beginning on or

after 1 January 2016. Earlier application is permitted.

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The references in the left-hand margin of the financial statements represent the paragraph of the Hong Kong Financial Reporting Standards, Companies Ordinance or the Listing Rules in which the disclosure appears. The designation ‘DV’ (disclosure voluntary) indicates that disclosure is encouraged but not required and, therefore, represents best practice.

List of abbreviations used Abbreviations Hong Kong Accounting Standard No. 1, paragraph 1 1p1 Hong Kong Accounting Standard No. 1, paragraph 81, footnote 1p81* The Guidance on Implementing of Hong Kong Accounting Standard No. 1, paragraph 5 1IG5 Hong Kong Accounting Standard No. 1, Basis for Conclusions, paragraph 21 1BC 21 Hong Kong Financial Reporting Standard No. 2, paragraph 6 FRS2p6 Hong Kong Financial Reporting Standard No. 7, Appendix B, paragraph 1 FRS7AppxB1 HK(SIC) Interpretation No. 13, paragraph 4 SIC13p4 HK(IFRIC) Interpretation No. 6, paragraph 4 FRIC6p4 The Hong Kong Companies Ordinance (Cap. 622), Section 383 s383 The Hong Kong Companies Ordinance (Cap. 622), paragraph 1, part 1 of Schedule 4 4Sch.p1.1 Companies (Disclosure of Information about Benefits of Directors) Regulation (Cap. 622G),

Section 4 622G4

Companies (Directors’ Report) Regulation (Cap. 622D), Section 3 622D3 For listed companies only References to Listing Rules relating to Main Board: The Listing Rules, Practice Note No. 5, paragraph 5(3) PN5.5(3) The Listing Rules, Appendix 16, paragraph 4(1)(a) A4(1)(a) The Listing Rules, Chapter 14, paragraph 8 MB14.08 The Listing Rules, Appendix 14, paragraph C.1.2 MB Code C.1.2 Reference to Listing Rules relating to Growth Enterprise Market: The Listing Rules, Chapter 18, paragraph 15 GEM18.15 The Listing Rules, Appendix 16, paragraph 1 GEM Appendix 16(1) The Listing Rules, Appendix 15, paragraph C.1.2 GEM Code C.1.2

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Contents

Page Specimen Holdings Limited 1 – 156 Illustrative HKFRS Consolidated Financial Statements Auditor’s report 157 Appendices Appendix I Report of the directors 158 – 174 Appendix Ia Corporate governance report under the Code (for listed companies

only) 175 – 179

Appendix II Other information in the annual report (for listed companies only) 180 – 181 Appendix III Operating and financial review 182 – 186 Appendix IV Alternative presentation of primary statements 187 – 191 1. Consolidated statement of profit or loss – by nature of expense 2. Consolidated statement of comprehensive income – single statement, by

function of expense and income tax effect presented on an aggregate basis

3. Consolidated statement of cash flows – direct method Appendix V Policies and disclosures for areas not relevant to Specimen Holdings

Limited 192 – 219

1. Construction contracts 2. Leases: accounting by lessor 3. Investments: held-to-maturity financial assets 4. Government grants 5. Oil and gas exploration assets 6. Revenue recognition: multiple-element arrangements 7. Defaults and breaches of loans payable 8. Financial guarantee contracts 9. Properties under development and held for sale 10. Customer loyalty programmes 11. Put option arrangements 12. Share-based payments: modification and cancellation 13. Biological assets Appendix VI Critical accounting estimates and judgements not relevant to

Specimen Holdings Limited 220

- Critical accounting estimates Useful lives of technology division’s plant and equipment Warranty claims - Critical accounting judgements Held-to-maturity investments Appendix VII

Illustrative Amendments to IAS 7 disclosures 221

Appendix VIII

Illustrative IFRS 9 disclosures

222

Appendix IX

Illustrative IFRS 15 disclosures

223

Appendix X

Forthcoming requirements

224 – 227

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Index to the illustrative HKFRS consolidated financial statements Note Page Note Page

Consolidated statement of profit or loss – by

function of expense

3-4 5 Segment information 64-69

Consolidated statement of comprehensive

income

5-10 6 Exceptional items 70

Consolidated balance sheet 11-13 7 Other income 70

Consolidated statement of changes in equity 14-16 8 Other gains – net 70

Consolidated statement of cash flows 17-21 9 Expenses by nature 71

Notes to the consolidated financial statements 10 Employee benefit expense 71-72

1 General information 22 11 Finance income and costs 73

2 Summary of significant accounting policies: 22 12a Subsidiaries 74-76

2.1 Basis of preparation 22-25 12b Investments accounted for using the equity method 76-81

2.2 Subsidiaries 26-27 13 Income tax expense 82-83

2.3 Associates 27 14 Earnings per share 84

2.4 Joint arrangements 28 15 Net foreign exchange gains 85

2.5 Segment reporting 28

2.6 Foreign currency translation 28-29 16 Leasehold land and land use rights 85

2.7 Property, plant and equipment 29-30 16a Property, plant and equipment 86-87

2.8 Investment property 30 17 Investment properties 88-95

2.9 Intangible assets 30-31 18 Intangible assets 96-99

2.10 Impairment of non-financial assets 31 19a Financial instruments by category 99-100

2.11 Non-current assets (or disposal groups)

held-for-sale and discontinued

operations

31 19b Credit quality of financial assets 101

2.12 Financial assets 32 20 Available-for-sale financial assets 102-103

2.13 Offsetting financial instruments 32 21 Derivative financial instruments 104

2.14 Impairment of financial assets 33 22 Trade and other receivables 105-107

2.15 Derivative financial instruments and

hedging activities

33-34 23 Inventories 107

2.16 Inventories 35 24 Financial assets at fair value through profit or loss 107

2.17 Trade and other receivables 35 25 Cash and bank balances 108

2.18 Cash and cash equivalents 35 26 Non-current assets held for sale and discontinued

operations

108-109

2.19 Share capital 35 27 Share capital 110

2.20 Trade payables 35 27a Buy-back of shares 110

2.21 Borrowings 36 28 Share-based payments 111

2.22 Borrowing costs 36 29 Retained earnings 112

2.23 Compound financial instruments 37 30 Other reserves 113-115

2.24 Current and deferred Income tax 37-38 31 Trade and other payables 116

2.25 Employee benefits 38-39 32 Borrowings 116-119

2.26 Share-based payments 39 33 Deferred income tax 120-121

2.27 Provisions 40 34 Post – employment benefits

2.28 Revenue recognition Revenue recognition 40-41 (a)Defined benefit pension plans 122-125

2.29 Interest income 41 (b)Post - employment medical benefits 125-126

2.30 Dividend income 41 (c)Post - employment benefits (pension and medical) 127-128

2.31 Leases 41 35 Provisions for other liabilities and charges 129-130

2.32 Dividend distribution 41 36 Dividends 130

2.33 Exceptional items 41 37 Cash generated from operations 131

3 Financial risk management 38 Contingencies 132

3.1 Financial risk factors 44-48 39 Commitments 132

3.2 Capital management 48 40 Transactions with non-controlling interests 133

3.3 Fair value estimation 49-53 41 Business combinations 134-135

3.4 Offsetting financial assets and financial

liabilities

54-55 42 Related-party transactions 136-138

4 Critical accounting estimates and judgements 43 Events after the balance sheet date 139-140

4.1 Critical accounting estimates and

assumptions

61-62

44 Balance sheet and reserve movement of the holding

company

141-142

4.2 Critical judgements in applying the

company’s accounting policies

62-63 45 Benefits and interests of directors (disclosures required by

section 383 of the Hong Kong Companies Ordinance

(Cap. 622) and Companies (Disclosure of Information

about Benefits of Directors) Regulation (Cap. 622G))

143-156

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Commentary – financial statements

Accounting standard for financial statements presentation and disclosures

1p10 1. According to HKAS 1 Presentation of Financial Statements, a ‘complete set of financial statements’ comprises:

(a) a statement of financial position as at the end of the period (b) a statement of profit or loss and other comprehensive income for the period (c) a statement of changes in equity for the period (d) a statement of cash flow for the period (e) notes, comprising a summary of significant accounting policies and other explanatory notes, and (f) if the entity has applied an accounting policy retrospectively, made a retrospective restatement of

items or has reclassified items in its financial statements: a statement of financial position as at the beginning of the earliest comparative period.

1p10 2. The titles of the individual statements are not mandatory and an entity can, for example continue to refer to the statement of financial position as ‘balance sheet’ and to the statement of profit or loss as ‘income statement’.

Comparative information

1p38 3. Except when an HKFRS permits or requires otherwise, comparative information shall be disclosed in respect of the preceding period for all amounts reported in the financial statements. Comparative information shall be included for narrative and descriptive information when it is relevant to an understanding of the current period’s financial statements.

1p38B 4. In some cases, narrative information provided in the financial statements for the previous period(s) continues to be relevant in the current period. For example, details of a legal dispute, the outcome of which was uncertain at the end of the immediately preceding reporting period and that is yet to be resolved, are disclosed in the current period. Users benefit from information that the uncertainty existed at the end of the immediately preceding reporting period, and about the steps that have been taken during the period to resolve the uncertainty.

Three balance sheets required in certain circumstances

1p40A-40D 5. If an entity has (a) applied an accounting policy retrospectively, restated items retrospectively, or reclassified items in its

financial statements, and (b) the retrospective application, restatement or reclassification has a material effect on the information

presented in the balance sheet at the beginning of the preceding period, it must present a third balance sheet (statement of financial position) as at the beginning of the preceding

period (eg 1 January 2015 for 31 December 2016 reporters). However, where the retrospective change in policy or the restatement has no effect on this earliest statement of financial position, we believe that it would be sufficient for the entity merely to disclose that fact.

1p40D 6. The date of the third balance sheet must be the beginning of the preceding period, regardless of whether the entity presents additional comparative information for earlier periods.

1p40C,p41,8 7. Where the entity is required to include a third balance sheet, it must provide appropriate explanations about the changes in accounting policies, other restatements or reclassifications, as required under HKAS 1 paragraph 41 and HKAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. However, the entity does not need to include the additional comparatives in the related notes. This contrasts with the position where an entity chooses to present additional comparative information as permitted by HKAS 1 paragraphs 38C and 38D.

Consistency

1p45 8. The presentation and classification of items in the financial statements must be retained from one period to the next unless:

(a) it is apparent that another presentation or classification would be more appropriate based on the criteria for the selection and application of accounting policies in HKAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (eg following a significant change in the nature of the entity’s operations or a review of its financial statements), or

(b) HKFRS requires a change in presentation.

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Materiality and aggregation

1p7,1RpBC30F 9. Whether individual items or groups of items need to be disclosed separately in the primary financial statements or in the notes depends on their materiality. Materiality is judged by reference to the size and nature of the item. The deciding factor is whether the omission or misstatement could, individually or collectively, influence the economic decisions that users make on the basis of the financial statements. In particular circumstances either the nature or the amount of an item or an aggregate of items could be the determining factor. Preparers generally tend to be on the side of caution and disclose rather too much than too little. However, too much immaterial information could obscure useful information and hence should be avoided.

Each material class of similar items is presented separately in the financial statements. Items of a dissimilar nature or function are presented separately unless they are immaterial.

Disclosure not illustrated: not applicable to Specimen Holdings Limited

10. The following requirements are not illustrated in this publication as they are not applicable to Specimen Holdings Limited:

1p38C,p38D 27p17 27p16(a) 21p51,p53-p57 1p36

Item Nature of disclosure

Additional comparative information(eg third statement of profit or loss and other comprehensive income)

Include the additional comparative information also in the relevant notes

Separate financial statements Disclose why they are prepared, a list of significant investments and the policies applied in accounting for these investments

Exemption from preparing consolidated financial statements

Disclose the fact that the exemption has been used and details about the entity that produces consolidated financial statements which include the reporting entity in question

Foreign currency translation Disclose if the presentation currency is different to the functional currency, if there have been changes in the functional currency and clearly identify supplementary information that is presented in a currency other than the entity’s functional or presentation currency

Reporting period is shorter or longer than one year

Disclose the period covered, the reason for different period and the fact that the amounts are not entirely comparable

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Consolidated statement of profit or loss – by function of expense 1p81(b), 84

1p10(b), 12 Year ended 31 December

1p113, 1p38, A4(1),

A2

GEM18.50B(1)

GEM18.07

Note 2016 2015

HK$’000 HK$’000

Continuing operations

1p82(a), A4(1)(a), Revenue 5 211,034 112,360

1p99, 103 Cost of sales 6, 9 (80,707) (50,305)

Gross profit 130,327 62,055

1p99103 Distribution expenses 9 (54,814) (22,155)

1p99,103 Administrative expenses 9 (32,007) (11,938)

1p99, 103 Other income 7 1,587 764

1p85 Other gains – net 8 8,677 6,055

1p85 Operating profit1 53,770 34,781

1p85 Finance income 11 1,730 1,609

1p82(b) Finance expenses 11 (8,173) (12,197)

1p85 Finance expenses– net 11 (6,443) (10,588)

1p82(c) Share of profit of investments accounted for using the equity method 12b 1,293 1,022

1p85 Profit before income tax 48,620 25,215

1p82(d), 12p77

Income tax expense 13 (14,298) (8,175)

1p85 Profit for the year from continuing operations 34,322 17,040

FRS5p33(a) Discontinued operations

Profit for the year from discontinued operations 26 100 120

1p81A(a) Profit for the year 34,422 17,160

Profit attributable to:

1p81B(a)(ii) Owners of the company 31,874 16,304

1p81B(a)(i),FRS12p12

(e) Non-controlling interests 2,548 856

34,422 17,160

Profit attributable to owners of the company arises from:

Continuing operations 31,794 16,184

Discontinued operations 80 120

31,874 16,304

1 HKAS 1 does not prescribe the disclosure of operating profit on the face of the statement of profit or loss. However, entities are not prohibited from disclosing this or a

similar line item.

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Year ended 31 December

Note 2016 2015

Earnings per share from continuing and discontinued operations attributable to owners of the company for the year (expressed in HK$ per share)

Basic earnings per share 14

33p66 From continuing operations 1.35 0.79

33p68 From discontinued operations2 0.01 0.01

33p66 From profit for the year 1.36 0.80

Diluted earnings per share 14

33p66 From continuing operations 1.22 0.74

33p68 From discontinued operations 0.01 0.01

33p66 From profit for the year 1.23 0.75

The notes on pages x to x are an integral part of these consolidated financial statements.

2 EPS of discontinued operations may be given in the notes to the financial statements instead of in the statement of profit or loss .

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Consolidated statement of comprehensive income Year ended 31 December

Note 2016 2015

HK$’000 HK$’000

Profit for the year 34,422 17,160

Other comprehensive income:

1p82A Item that will not be reclassified subsequently to profit or loss

1p82A Share of other comprehensive income of investments accounted for using the equity method3 - -

19p120(c) Remeasurements of post-employment benefit obligations 29,13 83 (637)

1p82A Items that may be reclassified to profit or loss

FRS7p20(a)(ii) Change in value of available-for-sale financial assets 30 362 62

FRS3p42 Reclassification of revaluation of previously held interest in ABC Group 7, 30, 41 (850) -

1p85 Impact of change in [country name] tax rate on deferred tax 29,13 (10) -

FRS7p23(c) Cash flow hedges 30 64 (3)

1p85 Net investment hedge 30 (45) 40

21p52(b) Currency translation differences 30 3,011 (13)

1p82A Share of other comprehensive income of investments accounted for using the equity method 30 (12) (14)

2,520 72

Other comprehensive income for the year, net of tax4 2,603 (565)

1p81A Total comprehensive income for the year 37,025 16,595

Attributable to:

1p81B(b)(ii) – Owners of the company 34,225 15,779

1p81B(b)(i) – Non-controlling interests 2,800 816

Total comprehensive income for the year 37,025 16,595

FRS5p33(d) Total comprehensive income attributable to owners of the company arises from5:

Continuing operations 34,145 15,659

Discontinued operations 26 80 120

34,225 15,779

The notes on pages x to x are an integral part of these consolidated financial statements.

3 For illustrative purpose only, not relevant to Specimen Holdings Limited. 4 Items in the statement above are disclosed net of tax. The income tax relating to each component of other comprehensive income is disclosed in note 13. 5 HKFRS 5p33 (d) requires the disclosure of the amount of income from continuing operations and from discontinued operations attributable to owners of the

company. These disclosures may be presented either in the notes or in the statement of comprehensive income.

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Commentary –statement of profit or loss and statement of comprehensive income

The commentary that follows explains some of the key requirements in HKAS1, ‘Presentation of financial statements’, and other requirements that impact the statement of profit or loss/statement of comprehensive income.

1p10A 1. Entities have a choice of presenting a statement of profit and loss and other comprehensive income: (a) An entity may present a single statement of profit or loss and other comprehensive income, with

profit or loss and other comprehensive income presented in two sections. The sections shall be presented together, with the profit or loss section presented first followed directly by the other comprehensive income section; or

(b) An entity may present the profit or loss section in a separate statement of profit or loss. If so, the separate statement of profit or loss shall immediately precede the statement presenting comprehensive income, which shall begin with profit or loss. The main difference between these two options is that in option (a), profit for the year is shown as a sub-total rather than the 'bottom line', and the statement continues down to total comprehensive income for the year.

HKAS 1 permits entities to use titles for the statements other than those used in this standard. For example, an entity may use the title ‘statement of comprehensive income’ instead of ‘statement of profit or loss and other comprehensive income’; and entity may also use the title “income statement” instead of “statement of profit or loss”.

1p81A 2. The statement of profit and loss and other comprehensive income shall include: (a) profit or loss (b) total other comprehensive income (c) comprehensive income for the period, being the total of (a) and (b) 1p83 3. The following items are disclosed as allocations for the period: (a) Profit or loss attributable to: (i) non-controlling interests; and (ii) owners. (b) Total comprehensive income for the period attributable to: (i) non-controlling interests; and (ii) owners. FRS5p33(d) (c) The amount of income attributable to owners of the company from: (i) continuing operations; and (ii) discontinued operations.

1p82 4. The profit or loss section or the statement of profit and loss includes, as a minimum, the following line items: (a) revenue; (b) finance costs; (c) share of the profit or loss of associates and joint ventures accounted for using the equity method; (d) tax expense (e) a single amount for the total of discontinued operations. 1p85 5. Additional line items, headings and subtotals are presented in the statement of comprehensive income and

the statement of profit or loss (where presented) when such presentation is relevant to an understanding of the entity’s financial performance.

FrameworkQC4,QC1)

6. Having said that, additional sub-headings should be used with care. The Conceptual Framework for Financial Reporting states that to be useful, information must be relevant and faithfully represent what it purports to represent. That is, it must be complete, neutral and free from error. The apparent flexibility in HKAS 1 can, therefore, only be used to enhance users ’understanding of the company’s financial performance. It cannot be used to detract from the amounts that must be disclosed under HKFRS (statutory measures).

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1Rp85A 7. Amendments made to HKAS 1 in December 2014 clarify that additional subtotals must:

(a) be comprised of items that are recognised and measured in accordance with HKFRS.

(b) be presented and labelled such that they are clear and understandable

(c) be consistent from period to period

(d) not be displayed with more prominence than the mandatory subtotals and totals.

The amendments apply to annual reporting periods commencing on or after 1 January 2016

8. In addition, we recommend that entities consider the following principles:

(a) the subtotals should not introduce bias or overcrowd the statement of profit or loss.

(b) it is generally not permissible to mix natural and functional classifications of expenses where these categories of expenses overlap.

(c) additional line items or columns should contain only contain revenue or expenses of the entity itself.

(d) additional line items, columns and subtotals should only be presented when they are used internally

to manage the business.

(e) the overall message of the statement of profit or loss should not be distorted or confused.

9. Earnings before interest and tax (EBIT) may be an appropriate sub-heading to show in the statement of profit or loss. This line item usually distinguishes between the pre-tax profits arising from operating activities and those arising from financing activities.

10. In contrast, a sub-total for earnings before interest, tax, depreciation and amortisation (EBITDA) can only be included as a sub-total where the entity presents its expenses by nature and provided the sub-total does not detract from the GAAP numbers either by implying that EBITDA is the ‘real’ profit or by overcrowding the statement of profit or loss so that the reader cannot determine easily the entity’s GAAP performance. Where an entity presents its expenses by function, it will not be possible to show depreciation and amortisation as separate line items in arriving at operating profit, because depreciation and amortisation are types of expenses, not functions of the business. In this case, EBITDA can only be disclosed by way of supplemental information in a box, in a footnote, in the notes or in the review of operation.

11. Where an entity discloses alternative performance measures, these should not be given greater prominence than the HKFRS measure of performance. This might be achieved by including the alternative performance measure in the notes to the financial statements or as a footnote to the primary financial statement. Where an entity presents such a measure on the face of the primary statement, it should be clearly identified. Management should determine the overall adequacy of the disclosures and whether a specific presentation is misleading in the context of the financial statements as a whole. This judgement might be disclosed as a significant judgement in accordance with paragraph 122 of HKAS 1.

Material items of income and expense

1p97 12. When items of income and expense are material, their nature and amount is disclosed separately either in the statement of profit or loss or in the notes. In the case of Specimen Holdings Limited these disclosures are made in Note 6. Some entities produce this information on the face of the statement of profit or loss in the form of additional analyses, boxes or columns. Further discussion is available in PwC’s ‘IFRS manual of accounting’.

1p85,97 13. HKAS 1 does not provide a specific name for the types of items that should be separately disclosed. Where an entity discloses a separate category of ‘exceptional’, ‘significant’ or ‘unusual’ items either in the statement of profit or loss or in the notes, the accounting policy note should include a definition of the chosen term. The presentation and definition of these items should be applied consistently from year to year.

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Classification of expenses By nature or function

1p99,100 14. An analysis of expenses shall be presented using a classification based on either the nature of expenses or

their function within the entity, whichever provides information that is reliable and more relevant. Entities are encouraged, but not required, to present the analysis of expenses in the statement of comprehensive income (or statement of profit or loss, where applicable).

1p105 15. The choice of classification between nature and function will depend on historical and industry factors and the nature of the entity. The entity should choose the classification that provides the most relevant and reliable information about its financial performance.

16. Where an entity classifies its expenses by nature, it must take care to ensure that each class of expense includes all items related to that class. Material restructuring cost may, for example, include redundancy payments (employee benefit cost), inventory write-downs (changes in inventory) and impairments in property, plant and equipment. It is not normally acceptable to show restructuring costs as a separate line item in an analysis of expenses by nature where there is an overlap with other line items.

17. Within a functional statement of comprehensive income (statement of profit or loss), costs directly associated with generating revenues should be included in cost of sales. Cost of sales should include direct material and labour costs but also indirect costs that can be directly attributed to generating revenue; for example, depreciation of assets used in the production. Impairment charges should be classified according to how the depreciation or amortisation of the particular asset is classified. Entities should not mix functional and natural classifications of expenses by excluding certain expenses such as inventory write-downs, employee termination benefits and impairment charges from the functional classifications to which they relate.

1p104,105 18. Entities classifying expenses by function shall disclose additional information about the nature of their expenses in the notes to the financial statements, see note 5(c). According to HKAS 1 this includes disclosure of depreciation, amortisation and employee benefits expense. Other classes of expenses should also be disclosed where they are material, as this information assists users in predicting future cash flows.

Operating profit 1BC56 19. An entity may elect to include a sub-total for its result from operating activities. This is permitted, but care

should be taken that the amount disclosed is representative of activities that would normally be considered to be ‘operating’. Items that are clearly of an operating nature (for example, inventory write-downs, restructuring and relocation expenses) are not excluded simply because they occur infrequently or are unusual in amount. Nor can expenses be excluded on the grounds that they do not involve cash flows (for example, depreciation or amortisation). As a general rule, operating profit is the subtotal after ‘other expenses’ – that is, excluding finance expenses and the share of profits of equity-accounted investments – although in some circumstances it may be appropriate for the share of profits of equity-accounted investments to be included in operating profit (see paragraph 21 below).

Re-ordering of line items 1p86 20. This line items and descriptions of those items are re-ordered where this is necessary to explain the

elements of performance. However, entities are required to make a ‘fair presentation’ and should not make any changes unless there is a good reason to do so.

21. The share of profit of associates (and JV) is normally shown after finance expenses; this recognises that

the share of profits from associates (and JV) arises from what is essentially an investing activity, rather than part of the group’s operating activities. However, were associates (and joint ventures) are an integral vehicle for the conduct of the group’s operations and its strategy, it may be more appropriate to show finance expenses after the share of profit of associates and joint ventures. In such cases, it may be appropriate either to insert a sub-total ‘profit before finance expenses’ or to include the share of profits from associates and joint ventures in arriving at operating profit (if disclosed). It would not, however, be appropriate to include the share of associates and joint ventures within ‘revenue’ (and, therefore, within ‘gross profit’).

FRS7p20 22. Finance income cannot be netted against finance expenses; it is included in ‘other revenue/other income’ or

shown separately in the statement of profit or loss. Where finance income is an incidental benefit, it is acceptable to present finance income immediately before finance expenses and include a sub-total of ‘net finance expenses’ in the statement of profit or loss. However, where earning interest income is one of the entity’s main line of business, it is presented as ‘revenue’.

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Discontinued operations 1p82(ea)

FRS 5p33(a),(b)

23. As stated in paragraph 4(e) above, entities disclose a single amount in the statement of comprehensive income (or separate statement of profit or loss), comprising the total of discontinued operations. Paragraph 33 of HKFRS 5, 'Non-current assets held for sale and discontinued operations', also requires an analysis of this single amount. This analysis may be presented in the notes or in the statement of comprehensive income (or separate statement of profit or loss). If it is presented in the statement of profit or loss, it should be presented in a section identified as relating to discontinued operations – that is, separate from continuing operations. The analysis is not required for disposal groups that are newly acquired subsidiaries that meet the criteria to be classified as held for sale on acquisition.

24. HKFRS 5 is unclear as to whether entities need to separate out items of other comprehensive income

between continuing and discontinued operations. We believe that it would be consistent with the principles of HKFRS 5 to do so, as it would provide a useful base for predicting the future results of the continuing operations. We also note that entities must present separately any cumulative income or expense recognised in other comprehensive income that relates to a non-current asset or disposal group classified as held for sale.

Earnings per share 33p66 25. HKAS 33, ‘Earnings per share’, requires an entity to present in the statement of comprehensive income

basic and diluted earnings per share (EPS) for profit or loss from continuing operations attributable to the ordinary equity holders of the parent entity and for total profit or loss attributable to the ordinary equity holders of the parent entity for each class of ordinary shares. Basic and diluted EPS are disclosed with equal prominence for all periods presented.

33p67A 26. If an entity presents a separate statement of profit or loss, basic and diluted earnings per share are

presented at the end of that statement. 33p73 27. Earnings per share based on alternative measures of earnings may also be given if considered necessary

but should be presented in the notes to the financial statement only. The basis on which the numerator has been determined and whether the amounts per share are before or after tax should be given.

33p67 28. If diluted EPS is reported for at least one period, it should be reported for all periods presented, even if it

equals basic EPS. If basic and diluted EPS are equal, dual presentation can be accomplished in one line in the statement of comprehensive income.

33p68 29. An entity that reports a discontinued operation discloses the basic and diluted amounts per share for the

discontinued operation either in the statement of comprehensive income or in the notes to the financial statements.

33p69,41,43 30. Basic and diluted EPS are disclosed even if the amounts are negative (that is, a loss per share). However,

potential ordinary shares are only dilutive if their conversion would increase the loss per share. If the loss decreases, the shares are anti-dilutive.

Components of other comprehensive income 1p7 31. Components of other comprehensive income (OCI) are items of income and expense (including

reclassification adjustments) that are not recognised in profit or loss as required or permitted by other HKFRSs. They include: changes in the revaluation surplus relating to property, plant and equipment or intangible assets; measurements of post-employment defined benefit obligations; gains and losses arising from translating the financial statements of a foreign operation; gains and losses on re-measuring available-for-sale financial assets; the effective portion of gains and losses on hedging instruments in a cash flow hedge; the investor’s share of the other comprehensive income of equity-accounted investments; and current and deferred tax credits and charges in respect of items recognised in other comprehensive income.

1p91

1p90 32. Entities may present components of other comprehensive income either net of related tax effect or before

related tax effects. Specimen Holdings Limited has chosen to present the items net of tax. In this case the amount of income tax relating to each component of OCI, including reclassification adjustments, is disclosed in the notes.

1p92,94 33. An entity discloses separately any reclassification adjustments relating to components of other

comprehensive income either in the statement of comprehensive income or in the notes. 1p7,95 34. Reclassification adjustments are amounts reclassified to profit or loss in the current period that were

recognised in other comprehensive income in the current or previous periods. They arise, for example, on disposal of a foreign operation, on derecognition of an available-for-sale financial asset and when a hedged forecast transaction affects profit or loss.

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1p82A 35. Items of OCI, classified by nature (including share of the other comprehensive income of associates and joint ventures accounted for using the equity method) , should be grouped into those that will be reclassified subsequently to profit or loss when specific conditions are met and those that will not be reclassified to profit or loss. Also where entities present items of OCI before related tax effects with the aggregate tax shown separately, they should allocate the tax between the items that might be reclassified subsequently to the profit or loss section and those that will not be reclassified.

1p107 36. The amount of dividends recognised as distributions to owners during the period, and the related amount

per share are presented either in the statement of changes in equity or in the notes. Dividends cannot be displayed in the statement of comprehensive income or statement of profit or loss.

1Rp82A, 139q 37. HKAS 1 was amended in December 2014 as part of the Disclosure Initiative to clarify that items of OCI

arising from equity accounted investments should be presented in total for items which will and will not be reclassified to profit or loss. These amendments must be applied from 1 January 2016.

Offsetting 1p32 38. Assets and liabilities, and income and expenses, are not offset unless required or permitted by an

HKFRS. Examples of income and expenses that are required or permitted to be offset are as follows: 1p34(a) (a) Gains and losses on the disposal of non-current assets, including investments and operating

assets, are reported by deducting from the proceeds on disposal the carrying amount of the asset and related selling expenses.

1p34(b)

(b) Expenditure related to a provision that is recognised in accordance with HKAS 37, ‘Provisions,

contingent liabilities and contingent assets’ and reimbursed under a contractual arrangement with a third party (for example, a supplier’s warranty agreement) may be netted against the related reimbursement.

1p35 (c) Gains and losses arising from a group of similar transactions are reported on a net basis (for example, foreign exchange gains and losses or gains and losses arising on financial instruments held for trading). However, such gains and losses are reported separately if they are material.

Reclassification 1p41 39. Where an entity has reclassified comparative amounts because of a change in presentation, it must

disclose the nature and reason for the reclassification in the notes. Summary 40. The requirements surrounding components of other comprehensive income (“OCI”) can be summarised

as follows: Item

Reference Requirement in standard

Presentation in Specimen Holdings Limited

Each component of other comprehensive income recognised during the period, classified by nature and grouped into those that: - will not be reclassified subsequently to profit and loss; and - may be reclassified subsequently to profit and loss.

HKAS 1 p82(A) Statement of comprehensive income

Statement of comprehensive income

Reclassification adjustments during the period relating to components of other comprehensive income

HKAS 1 p92 Statement of comprehensive income or notes

Note 30

Tax relating to each component of other comprehensive income, including reclassification adjustments

HKAS 1 p90 Statement of comprehensive income or notes

Note 13

Reconciliation for each component of equity, showing separately

Profit/loss

Other comprehensive income

Transactions with owners.

HKAS 1 p106(d) Statement of changes in equity

Statement of changes in equity

For each component of equity, an analysis of other comprehensive income by item

HKAS 1 p106A Statement of changes in equity or notes

Statement of changes in equity

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Consolidated balance sheet As at 31 December

Note 2016 2015

HK$’000 HK$’000

1p10(a), 1p54, 1p113, 1p38, A4(2), A2 GEM18.50B(2), GEM18.07

Assets

1p60, 1p66 Non-current assets Leasehold land and land use rights 16 59,129 11,800 1p54(a) Property, plant and equipment 16a 70,008 70,300 1p54(b) Investment properties 17 25,000 17,000 1p54(c) Intangible assets 18 26,272 20,700 1p54(e), 28p38 Investments accounted for using the

equity method 12b 18,649 17,053

1p54(o), 1p56 Deferred income tax assets 33 3,546 3,383 1p54(d), FRS7p8(d) Available-for-sale financial assets 20 17,420 14,910 1p54(d), FRS7p8(a) Derivative financial instruments 21 395 245 1p54(h), FRSp8(c) Trade and other receivables 22 2,322 1,352 222,741 156,743 1p60, 1p66 Current assets 1p54(g) Inventories 23 24,700 18,132 1p54(h), FRS7p8(c) Trade and other receivables 22 19,765 18,330 1p54(d), FRS7p8(d) Available-for-sale financial assets 20 1,950 − 1p54(d), FRS7p8(a) Derivative financial instruments 21 1,069 951 1p54(d), FRS7p8(a) Financial assets at fair value through

profit or loss 24 11,820 7,972

1p54(i), FRS7p8 Cash and cash equivalents (excluding bank overdrafts)

25 14,928 32,062

1p55, FRS7p8 Restricted cash 25 3,000 2,000 77,232 79,447 FRS5p38, 40, 1p54(j)

Assets of disposal group classified as held for sale

26 3,333 −

80,565 79,447 Total assets 303,306 236,190 Equity and liabilities 1p54(r) Equity attributable to owners of

the company

Share capital 27 42,444 31,494 1p78(e) Other reserves 30 14,426 6,665 1p78(e), 1p55 Retained earnings 29 71,706 51,705 128,576 89,864 1p54(q) Non-controlling interests 7,188 1,766 Total equity 135,764 91,630

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As at 31 December

Note 2016 2015

HK$’000 HK$’000

Liabilities 1p60, 1p69 Non-current liabilities 1p54(m), FRS7p8(f) Borrowings 32 115,121 96,346 1p54(m), FRS7p8(e) Derivative financial instruments 21 135 129 1p54(o), 1p56 Deferred income tax liabilities 33 11,188 8,184 1p54(l), 1p78(d) Retirement benefit obligations 34 5,116 2,611 1p54(l), 1p78(d) Provisions for other liabilities and charges 35 1,320 274 132,880 107,544 1p60, 1p69 Current liabilities 1p54(k), FRS7p8(f) Trade and other payables 31 17,478 12,973 1p54(n) Current income tax liabilities 2,566 2,771 1p54(m), FRS7p8(f) Borrowings 32 11,716 18,258 1p54(m), FRS7p8(e) Derivative financial instruments 21 460 618 1p54(l) Provisions for other liabilities and charges 35 2,222 2,396 34,442 37,016 FRS5p38, 1p54(p) Liabilities of disposal group classified as

held-for-sale 26 220 −

34,662 37,016 Total liabilities 167,542 144,560 Total equity and liabilities 303,306 236,190 10p17

The notes on pages x to x are an integral part of these consolidated financial statements.

s387,10p17 The financial statements on pages x to x were approved by the Board of Directors on [DATE] and were

signed on its behalf6 _________________________ ____________________________

[Name of Director] [Name of Director]

6 Every balance sheet of a company shall be approved by the board of directors of the company and signed on behalf of the board by two of the directors or, in the case of private company having only one director, by the sole director. A company also needs to state the names of the person who signed the financial statement on the directors’ behalf.

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Commentary – balance sheet

The commentary explains some of the key requirements in HKAS 1, ‘Presentation of financial statements’, which impact the balance

sheet/statement of financial position.

1p10 1BC21

1. HKAS 1 refers to the balance sheet as the ‘statement of financial position’. This title is not mandatory, so Specimen Holdings Limited has elected to retain the better-known title of ‘balance sheet’.

1p54,55 2. Paragraph 54 of HKAS 1 sets out the line items that are, as a minimum, required to be presented in the balance sheet. Additional line items, headings and subtotals are presented in the balance sheet when such presentation is relevant to an understanding of the entity’s financial position.

1p77,78 3. An entity discloses, either in the balance sheet or in the notes, further sub-classifications of the line items presented, classified in a manner appropriate to the entity’s operations. The detail provided in sub-classifications depends on the requirements of HKFRSs requirements and on the size, nature and function of the amounts involved.

Current/non-current distinction

1p60 4. An entity presents current and non-current assets, and current and non-current liabilities, as separate classifications in its balance sheet except when a presentation based on liquidity provides information that is reliable and is more relevant. When that exception applies, all assets and liabilities are presented broadly in order of liquidity.

1p61 5. Whichever method of presentation is adopted, an entity discloses the amount expected to be recovered or settled after more than 12 months for each asset and liability line item that combines amounts expected to be recovered or settled (a) no more than 12 months after the reporting period, and (b) more than 12 months after the reporting period.

1p66-70 6. Current assets include assets (such as inventories and trade receivables) that are sold, consumed or realised as part of the normal operating cycle even when they are not expected to be realised within 12 months after the reporting period. Some current liabilities, such as trade payables and some accruals for employee and other operating costs, are part of the working capital used in the entity’s normal operating cycle. Such operating items are classified as current liabilities even if they are due to be settled more than 12 months after the reporting period.

1p68 7. The operating cycle of an entity is the time between the acquisition of assets for processing and their realisation in the form of cash or cash equivalents. When the entity’s normal operating cycle is not clearly identifiable, its duration is assumed to be 12 months.

Current and deferred tax assets and liabilities

1p54,56 8. Current and deferred tax assets and liabilities are presented separately from each other and from other assets and liabilities. When a distinction is made between current and non-current assets and liabilities in the balance sheet, deferred tax assets and liabilities are presented as non-current.

Offsetting

9. An entity does not offset assets and liabilities unless required or permitted to by an HKFRS. Measuring assets net of valuation allowances – for example, obsolescence allowances on inventories and doubtful debt allowances on receivables – is not offsetting.

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Consolidated statement of changes in equity

Attributable to owners of the company 1p10(c),106,108,109, 113 A2 GEM18.07

Note Share capital

Other reserves7

Retained earnings

Total Non-controlling

interests

Total equity

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Balance at 1 January

2015 30,424 6,553 50,932 87,909 1,500 89,409

Comprehensive

income

1p106(d)(i) Profit for the year − − 16,304 16,304 856 17,160 1p106(d)(ii) Other

comprehensive income8

FRS7p20(a)(ii) Available-for-sale financial assets

30 − 62 − 62 − 62

1p82(h) Share of other comprehensive income of investments accounted for using the equity method

30 − (14) − (14) − (14)

19p120(c) Remesurements of post-employment benefit obligations

29, 13 − − (637) (637) − (637)

1p82(g), FRS 7p23(c)

Cash flow hedges 30 − (3) − (3) − (3)

1p82(g),39p102(a)

Net investment hedge 30 − 40 − 40 − 40

1p82(g),21p52 (b)

Currency translation differences

30

- Group − (78) − (78) (40) (118) - Associates − 105 − 105 − 105 Total other

comprehensive income, net of tax

− 112 (637) (525) (40) (565)

1p106(a) Total comprehensive

income − 112 15,667 15,779 816 16,595

Transactions with

owners in their capacity as owners

Employees share option scheme:

FRS2p50 − Value of employee services

29 − − 822 822 − 822

FRS2p50 − Proceeds from shares issued

27 1,070 − − 1,070 − 1,070

− Tax credit relating to share option scheme

29 − − 20 20 − 20

1p106(d)(iii) Dividends relating to 2014

36 − − (15,736) (15,736) (550) (16,286)

1p106(d)(iii) Total transactions

with owners in their capacity as owners

1,070 − (14,894) (13,824) (550) (14,374)

Balance at 31

December 2015 31,494 6,665 51,705 89,864 1,766 91,630

7 Individual reserves can be grouped into ‘other reserves’ in the statement of changes in equity if these are similar in nature and can be regarded as a component of equity.

If the individual reserves are not shown in the statement of changes in equity, an analysis should be given in the notes. 8 Under the amendment to HKAS 1 arising from Improvements to HKFRSs issued in 2010, companies can implement this by either (a) showing each line item of other comprehensive income separately in the above statement (as shown above); or (b) by having a single-line presentation of other comprehensive income plus a separate note showing an analysis of each item of other comprehensive income for each component of equity. In these illustrative financial statements, we put this information in the statement of changes in equity.

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Attributable to owners of the company 1p106,108,109 A2 GEM18.07

Note Share capital

Other reserves9

Retained earnings

Total Non-controlling

interests

Total equity

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Comprehensive income 1p106(d)(i) Profit or loss − − 31,874 31,874 2,548 34,422 1p106(d)(ii) Other comprehensive

income10

1p82(h), FRS7p20(a)(ii)

Available-for-sale financial assets

30 − 362 − 362 − 362

Share of other comprehensive income of investments accounted for using equity method

30 − (12) − (12) − (12)

19p120(c) Remesurements of post-employment benefit obligations

29, 13

− − 83 83 − 83

1p82(g), FRS 7p23(c)

Cash flow hedges 30 − 64 − 64 − 64

1p82(g), 39p102(a)

Net investment hedge 30 − (45) − (45) − (45)

1p82(g), 21p52(b) Currency translation differences

30

- Group − 2,833 − 2,833 252 3,085 - Associates − (74) − (74) − (74) 12p80(d), 81(ab) Impact of the change in the

tax rate of [country name] on deferred tax

29, 13

− − (10) (10) − (10)

FRS3p42 1p82(g)

Reclassification of revaluation of previously held interest in ABC Group

30, 41

− (850) − (850) − (850)

Total other comprehensive income, net of tax

− 2,278 73 2,351 252 2,603

1p106(a) Total comprehensive income

− 2,278 31,947 34,225 2,800 37,025

Transactions with owners in their capacity as owners

Employee share option scheme:

FRS2p50 − Value of employee services

29 − − 690 690 − 690

FRS2p50 − Proceeds from shares issued

27 950 − − 950 − 950

− Tax credit relating to share option scheme

29 − − 30 30 − 30

1p106(d)(iii) Issue of ordinary shares related to business combination

27 10,000 − − 10,000 − 10,000

1p106(d)(iii) Buy-back of shares 27(a) − − (2,564) (2,564) − (2,564) Convertible bond – equity

component, net of tax 30 − 5,433 − 5,433 − 5,433

1p106(d)(iii) Dividends relating to 2015 36 − − (10,102) (10,102) (1,920) (12,022) Non-controlling interests

arising on business combination

41 − − − − 3,592 3,592

1p106(d)(iii) Changes in ownership interests in subsidiaries without change of control

40 − 50 − 50 950 1,000

1p106(d)(iii) Total transactions with owners in their capacity as owners

10,950 5,483 (11,946) 4,487 2,622 7,109

Balance at 31 December 2016

42,444 14,426 71,706 128,576 7,188 135,764

The notes on page x to x are an integral part of these consolidated financial statements.

9 Individual reserves can be grouped into ‘other reserves’ in the statement of changes in equity if these are similar in nature and can be regarded as a component of equity.

If the individual reserves are not shown in the statement of changes in equity, an analysis should be given in the notes. 10 Under the amendment to HKAS 1 arising from Improvements to HKFRSs issued in 2010, companies can implement this by either (a) showing each line item of other

comprehensive income separately in the above statement (as shown above); or (b) by having a single-line presentation of other comprehensive income plus a separate note showing an analysis of each item of other comprehensive income for each component of equity. In these illustrative financial statements, we put this information in the statement of changes in equity.

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Commentary – statement of changes in equity

The commentary that follows explains some of the key requirements in HKAS 1, ‘Presentation of financial statements’, and other aspects that impact the statement of changes in equity.

Disclosures

1p106(d) 1. Information to be included in the statement of changes in equity includes: (a) Total comprehensive income for the period, showing separately the total amounts attributable to

owners of the Company and to non-controlling interests. (b) For each component of equity, the effects of retrospective application or retrospective restatement

recognised in accordance with HKAS 8. (c) For each component of equity, a reconciliation between the carrying amount at the beginning and the

end of the period, separately disclosing changes resulting from: (i) profit or loss; (ii) each item of other comprehensive income; and (iii) transactions with owners in their capacity as owners, showing separately contributions by and

distributions to owners and changes in ownership interests in subsidiaries that do not result in a loss of control.

1p108 2. Components of equity include each class of contributed equity, the accumulated balance of each class of other comprehensive income and retained earnings. We believe that individual reserves can be disclosed as a single column ‘other reserves’ if they are similar in nature and can be regarded as a component of equity. The reserves grouped together in Specimen Holdings Limited’s statement of changes in equity are all accounting reserves which have arisen as a result of specific requirements in the accounting standards. This distinguishes them from other reserves that are the result of discretionary transfers within equity, for example capital realisation reserves. Disclosing the individual reserves in the notes rather than on the face of the statement of changes in equity reduces clutter and makes the statement more readable.

1p106A 3. The reconciliation of changes in each component of equity shall also show separately each item of comprehensive income. However, this information may be presented either in the notes or in the statement of changes in equity. Specimen Holdings Limited has elected to provide the detailed information in note 29 and 30.

Dividends

1p107 4.

The amount of dividends recognised as distributions to owners during the period and the related amount per share are now disclosed either in the statement of changes in equity or in the notes. Dividends cannot be displayed in the statement of comprehensive income or statement of profit or loss.

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Consolidated statement of cash flows 7p10, 18(b),

1p38, A2

GEM 18.07 Year ended 31

December

1p113 Note 2016 2015

HK$’000 HK$’000

Cash flows from operating activities

Cash generated from operations 37 59,334 41,776

7p31 Interest paid (7,835) (14,773)

7p35 Income tax paid (12,317) (10,526)

Net cash generated from operating activities 39,182 16,477

7p21, 7p10 Cash flows from investing activities

7p39 Acquisition of subsidiaries, net of cash acquired 41 (3,750) −

7p16(a) Purchases of property, plant and equipment (PPE) 16a (4,755) (6,042)

Purchases of leasehold land and land use rights 16 (4,929) -

7p16(b) Proceeds from sale of PPE 37 6,354 2,979

Purchases of investment properties (including interest capitalised) 17 (100) -

7p16(a) Purchases of intangible assets 18 (3,050) (700)

‘7p16(c) Purchases of available-for-sale financial assets 20 (4,037) (1,150)

Proceeds from disposal of available-for-sale financial assets 1,256 -

7p16(e) Loans granted to related parties 42 (1,343) (112)

7p16(f) Loan repayments received from related parties 42 63 98

7p7, 7p16 Restricted bank deposits 25 (1,000) 500

7p31 Interest received 983 1,217

7p31 Dividends received 1,180 1,120

Net cash used in investing activities (13,128) (2,090)

7p21, 7p10 Cash flows from financing activities

7p17(a) Proceeds from issuance of ordinary shares 27 950 1,070

7p17(b) Buy-back of shares 29 (2,564) −

7p17(c) Proceeds from issuance of convertible bonds 32(b) 50,000 −

7p17(c) Proceeds from issuance of redeemable preference shares 32(c) − 30,000

7p17(c) Proceeds from borrowings 8,500 18,000

7p17(d) Repayments of borrowings (83,117) (34,674)

7p31 Dividends paid to company’s shareholders 36 (10,102) (15,736)

7p31 Dividends paid to holders of redeemable preferences shares (1,950) (1,950)

Acquisition of interest in a subsidiary 40 (500) -

Sale of interest in a subsidiary 40 1,500 -

7p31 Dividends paid to non-controlling interests (1,920) (550)

Net cash used in financing activities (39,203) (3,840)

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Year ended 31

December

Note 2016 2015

HK$’000 HK$’000

Net (decrease)/increase in cash and cash equivalents (13,149) 10,547

Cash and cash equivalents at beginning of year 25 25,598 15,087

Exchange gains/(losses) on cash and cash equivalents (171) (36)

Cash and cash equivalents at end of year 25 12,278 25,598

The notes on pages x to x are an integral part of these consolidated financial statements.

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Commentary – Statement of cash flows

The commentary as follows explains some of the key requirements in HKAS 7, ‘Statements of cash flows’.

Reporting cash flows Cash flows from operating activities

7p18 1. Cash flows from operating activities are reported using either:

(a) The direct method, whereby major classes of gross cash receipts and gross cash payments are disclosed; or

(b) The indirect method, whereby profit or loss is adjusted for the effects of transactions of a non-cash nature, any deferrals or accruals of past or future operating cash receipts or payments, and items of income or expense associated with investing or financing cash flows.

7p19 2. Specimen Holdings Limited continues to use the indirect method. For an illustration of a statement of cash flows presented using the direct method, refer to Appendix IV.

Cash flows from investing and financing activities

7p21 3. Major classes of gross cash receipts and gross cash payments arising from investing and financing activities are reported separately, except to the extent that cash flows described in paragraphs 22 and 24 of HKAS 7 are reported on a net basis.

Sale of property, plant and equipment held for rental to others

7p14 4. Cash flows from the sale of property, plant and equipment are normally presented as cash flows from investing activities. However, cash payments to manufacture or acquire assets that will be held for rental to others and subsequently for sale are cash flows from operating activities. The cash receipts from rents and subsequent sales of such assets are also therefore cash flows from operating activities.

Reporting on a net basis

7p22,23 5. Cash flows arising from the following operating, investing or financing activities may be reported on a net basis:

(a) Cash receipts and payments on behalf of customers when the cash flows reflect the activities of the customer rather than those of the entity (for example, rents collected on behalf of, and paid over to, the owners of properties), and

(b) Cash receipts and payments for items in which the turnover is quick, the amounts are large, and the maturities are short (for example, advances made for, and repayment of, principal amounts relating to credit card customers).

7p24 6. Cash flows arising from each of the following activities of a financial institution may be reported on a net

basis:

(a) cash receipts and payments for the acceptance and repayment of deposits with a fixed maturity date;

(b) the placement of deposits with, and withdrawal of deposits from, other financial institutions; and

(c) cash advances and loans made to customers and the repayment of those advances and loans. Interest and dividends 7p31 7. Cash flows from interest and dividends received and paid are each disclosed separately. Each is classified in

a consistent manner from period to period as either operating, investing or financing activities.

7p33 8. Interest paid and interest and dividends received are usually classified as operating cash flows for a financial institution. However, there is no consensus on the classification of these cash flows for other entities. Interest paid and interest and dividends received may be classified as operating cash flows because they enter into the determination of net profit or loss. Alternatively, interest paid and interest and dividends received may be classified as financing cash flows and investing cash flows respectively, because they are costs of obtaining financial resources or returns on investments.

7p34 9. Dividends paid may be classified as ‘financing cash flows’ because they are a cost of obtaining financial

resources. Alternatively, they may be classified as operating cash flows to assist users to determine the ability of an entity to pay dividends out of operating cash flows.

Income taxes

7p35 10. Cash flows arising from income taxes are separately disclosed and classified as cash flows from operating

activities unless they can be specifically identified with financing and investing activities.

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Effects of exchange rate changes

7p28 11. Unrealised gains and losses arising from changes in foreign currency exchange rates are not cash flows.

However, the effect of exchange rate changes on cash and cash equivalents held or due in a foreign

currency are reported in the statement of cash flows in order to reconcile cash and cash equivalents at the

beginning and the end of the period. This amount is presented separately from cash flows from operating,

investing and financing activities. It also includes the differences, if any, had those cash flows been

reported at period-end exchange rates.

7p6, 7p46

7p7, 7p16, 7p11

Cash and cash equivalents

12. Cash equivalents are held for the purpose of meeting short-term cash commitments rather than for

investment or other purposes. For an investment to qualify as a cash equivalent it must be readily

convertible to a known amount of cash and be subject to an insignificant risk of changes in value. Therefore,

an investment normally qualifies as a cash equivalent only when it has a short maturity of, say, three months

or less from the date of acquisition. HKAS 7 requires an entity to disclose the policy that it adopts in

determining the composition of its cash equivalents.

13. Changes to cash and cash equivalents arising from changes to and deposits that do not meet the definition of

cash and cash equivalents generally meet the definition of an investing activity because they relate to the

acquisition or disposal of assets other than cash equivalents or financial instruments held for trading.

However, there might be circumstances when classification within investing activities does not reflect the

nature of the transaction, and classification within operating or financing might be more appropriate.

FRS5(33)(c) 14. Entities must disclose separately the net cash flows attributable to each of operating, investing and financing

activities of discontinued operations. There are different ways of presenting this information, but the

underlying principle is that the cash flow statement must give the cash flows for the total entity including both

continuing and discontinued operations. The additional information in relation to the discontinued operations

can be disclosed either on the face of the cash flow statement or in the notes. Specimen Holdings Limited is

providing the information in note 26.

Additional recommended disclosures

7p50 15. Additional information may be relevant to users in understanding the financial position and liquidity of an

entity. Disclosure of this information, together with a commentary by management, is encouraged and may

include:

7p50(a) (a) The amount of undrawn borrowing facilities that may be available for future operating

activities and to settle capital commitments, indicating any restrictions on the use of these

facilities.

7p50(c) (b) The aggregate amount of cash flows that represent increases in operating capacity separately

from those cash flows that are required to maintain operating capacity.

7p50(d) (c) The amount of the cash flows arising from the operating, investing and financing activities of

each reportable segment (see HKFRS 8, ‘Operating segments’).

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Commentary – content of the notes to the financial statements

Structure of the notes

1p114 1. According to HKAS 1, notes are normally presented in the following order:

(a) a statement of compliance with HKFRS (refer to paragraph 16 of HKAS 1)

(b) a summary of significant accounting policies applied (refer to paragraph 117 of HKAS 1)

(c) supporting information for items presented in the balance sheet, statement of comprehensive income, statement of changes in equity and statement of cash flows, in the order in which each statement and each line item is presented, and

(d) other disclosures, including:

(i) contingent liabilities (refer to HKAS 37) and unrecognised contractual commitments, and

(ii) non-financial disclosures; for example, the entity’s financial risk management objectives and policies (refer to HKFRS 7).

2. Most financial reports currently use the above structure without considering whether a different structure could provide more relevant information and be more user-friendly. However, financial report prepares increasingly consider annual reports to be an important tool in the communicating with stakeholders and not just a mere compliance exercise. As a consequence, there is a growing interest in alternative formats of the financial statements.

1R (as amended in December 2014)

3. This trend is supported by the HKICPA’s Disclosure Initiative. As part of this project, the HKICPA made narrow-scope amendments to HKAS 1 Presentation of Financial Statements in December2014. These provide preparers with more flexibility in presenting the information in their financial reports. Amongst others, the HKICPA has amended paragraph 114 of HKAS 1, to clarify that the order shown in that paragraph is not a requirement but only one that is commonly used. Instead, entities should consider the effect on both understandability and comparability when determining the order of the notes to the financial statements.

Materiality matters

1Rp30A (as amended in December 2014)

4. When drafting the disclosures in the notes to the financial statements, also remember that too much immaterial information could obscure the information that is actually useful to readers. Some of the disclosures in this publication would likely be immaterial if Specimen Holdings Limited was a ‘real life’ company. The purpose of this publication is to provide a broad selection of illustrative disclosures which cover most common scenarios encountered in practice. The underlying story of the company only provides the framework for these disclosures and the amounts disclosed are not always realistic. Disclosures should not be included where they are not relevant or not material in specific circumstances.

Hong Kong Companies Ordinance Cap. 622

5. The requirements of Part 9 "Accounts and Audit" of the Hong Kong Companies Ordinance (Cap. 622) come into operation since the first financial reporting year beginning on or after 3 March 2014. Q&As have been published by the Hong Kong Companies Registry and the Hong Kong Institute of Certified Public Accountants to address those frequently asked questions relating to the presentation and disclosures requirements under Cap.622.

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Notes to the consolidated financial statements 1 General information

1p138(b), (c)

1p51(a)(b)

Specimen Holdings Limited (‘the company’) and its subsidiaries (together ‘the group’) manufacture, distribute and sell shoes through a network of independent retailers. The group has manufacturing plants around the world and sells mainly in Hong Kong, the UK and the US. During the year, the group acquired control of ‘ABC Group’, a shoe and leather goods retailer operating in the US and most western European countries.

1p138(a) The company is a limited liability company incorporated in Hong Kong. The address of its registered office is 21/F Nice Building, City Plaza Three, 14 Taikoo Wan Road, Taikoo Shing, Island East, Hong Kong. The company has its primary listing on The Stock Exchange of Hong Kong Limited.

These financial statements are presented in HK dollars, unless otherwise stated.

2 Summary of significant accounting policies

Commentary – accounting policies

The following note is a complete reiteration of a large number of possible accounting policies. Management should only present information that relates directly to the business and should avoid boilerplate disclosure.

1p112(a)

1p117(b), 1p119

A2.2

GEM18.04

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

2.1 Basis of preparation

4Sch.p1.4

1p116

1p117(a)

A2.1, A5

GEM18.19

GEM18.20

GEM18.04

The consolidated financial statements of Specimen Holdings Limited have been prepared in accordance with all applicable Hong Kong Financial Reporting Standards (“HKFRS”) and requirements of the Hong Kong Companies ordinance Cap. 622. The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of available-for-sale financial assets, and financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss and investment properties, which are carried at fair value.

Commentary – Compliance Statement Paragraph 4(a) of Part 1 of Schedule 4 requires that the financial statements for a financial year must state whether they

have been prepared in accordance with applicable accounting standards within the meaning of section 380. Those accounting standards that are applicable to the financial statements are those as are, in accordance with their terms, relevant to company’s circumstances and to the financial statements. For Hong Kong incorporated companies, the applicable accounting standards are HKFRS, as they are the only accounting standards which are issued by the Hong Kong Institute of Certified Public Accountants. The preface to HKFRS (Revised 2015), paragraph 25B makes clear that a Hong Kong incorporated company will be in breach of section 380(4)(b) unless the statutory financial statements of the company contains an explicit and unreserved statement of compliance with HKFRS as issued by the HKICPA. This statement may be in addition to a statement of compliance with a basis or standard of accounting other than HKFRSs provided the financial statements satisfy the requirements of both accounting frameworks.

[Applicable for Hong Kong incorporated companies only, where Section 381 is not complied with

These consolidated financial statements comply with the applicable requirements of Hong Kong Companies Ordinance (Cap. 622), with the exception of Section 381 which requires a company to include all its subsidiary undertakings (within the meaning of Schedule 1 to Cap. 622) in the company’s annual consolidated financial statements. Section 381 is inconsistent with the requirements of HKFRS 10 Consolidated Financial Statements so far as Section 381 applies to subsidiary undertakings which are not controlled by the Group in accordance with HKFRS 10. For this reason, under the provisions of Section 380(6), the Company has departed from Section 381 and has not treated such companies as subsidiaries but they are accounted for in accordance with the accounting policies in notes [2.4]. Those excluded subsidiary undertakings of the Group are disclosed in note [12b]*. ]

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Commentary

For Hong Kong incorporated companies, the reporting entity should exclude an entity that is a subsidiary undertaking (within the meaning of Schedule 1 to the CO) from consolidation if it does not control it within the meaning of HKFRS 10, but to do so requires invoking the true and fair override in section 380(6) of the CO. When the true and fair override is invoked, section 380(6) requires the financial statements to provide the reasons for, and the particulars and effect of, the departure. Therefore the above disclosure is required. * It can be cross referenced to where the disclosures have been made which satisfy paragraphs 7 to 9 and 20 to 23 of HKFRS 12 ‘Disclosure of Interests in Other Entities’. For details, refer to “Questions and answers relating to consolidated and company level financial statements prepared under Part 9 of the CO (Cap. 622) - Topic 3 Subsidiary undertakings that are not controlled by the reporting entity under HKFRS 10” issued by the HKICPA. For Hong Kong incorporated companies which are investment entities under HKFRS 10, they are prohibited from consolidating its non-service subsidiaries but to account for these investments as financial assets at fair value through profit or loss (Paragraphs 31-32 of HKFRS 10). On the same basis as discussed above, similar disclosure is required. For details of disclosure, refer to “Questions and answers relating to consolidated and company level financial statements prepared under Part 9 of the CO (Cap. 622) – Topic 5 Investment entities.

The preparation of financial statements in conformity with HKFRS requires the use of certain critical accounting

estimates. It also requires management to exercise its judgement in the process of applying the group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 4.

2.1.1 Going concern

The group meets its day-to-day working capital requirements through its bank facilities. The current economic conditions continue to create uncertainty particularly over (a) the level of demand for the group’s products; and (b) the availability of bank finance for the foreseeable future. The group’s forecasts and projections, taking account of reasonably possible changes in trading performance, show that the group should be able to operate within the level of its current facilities. After making enquiries, the directors have a reasonable expectation that the group has adequate resources to continue in operational existence for the foreseeable future. The group therefore continues to adopt the going concern basis in preparing its consolidated financial statements. Further information on the group’s borrowings is given in Note 32.

2.1.2 Changes in accounting policy and disclosures11

8p28 (a) New and amended standards adopted by the group

The following amendments to standards have been adopted by the group for the first time for the financial year beginning on or after 1 January 2016:

Accounting for acquisitions of interests in joint operations – Amendments to HKFRS 11

Clarification of acceptable methods of depreciation and amortisation – Amendments to HKAS 16 and HKAS 38

Annual improvements to HKFRSs 2012 – 2014 cycle, and

Disclosure initiative – amendments to HKAS 1. The adoption of these amendments did not have any impact on the current period or any prior period and is not likely to affect future periods.

11 A detailed list of HKFRSs and HK(IFRIC) interpretations effective first time for the financial year beginning 1 January 2016 is included in pages iv to v of the “introduction” and of the forthcoming requirements that are effective for periods after 1 January 2016 is included in appendix IX.

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(c) New standards and interpretations not yet adopted

A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after 1 January 2016 and have not been applied in preparing these consolidated financial statements. None of these is expected to have a significant effect on the consolidated financial statements of the group, except the following set out below: HKFRS 9, ‘Financial instruments’ The new standard addresses the classification, measurement and derecognition of financial assets and financial liabilities, introduces new rules for hedge accounting and a new impairment model for financial assets. While the group has yet to undertake a detailed assessment of the classification and measurement of financial assets, debt instruments currently classified as available-for-sale (AFS) financial assets would appear to satisfy the conditions for classification as at fair value through other comprehensive income (FVOCI) and hence there will be no change to the accounting for these assets. The other financial assets held by the group include: equity instruments currently classified as AFS for which a FVOCI election is available equity investments currently measured at fair value through profit or loss (FVPL) which would likely continue to be

measured on the same basis under HKFRS 9, and

Accordingly, the group does not expect the new guidance to have a significant impact on the classification and measurement of its financial assets. There will be no impact on the group’s accounting for financial liabilities, as the new requirements only affect the accounting for financial liabilities that are designated at fair value through profit or loss and the group does not have any such liabilities. The derecognition rules have been transferred from HKAS 39 Financial Instruments: Recognition and Measurement and have not been changed. The new hedge accounting rules will align the accounting for hedging instruments more closely with the group’s risk management practices. As a general rule, more hedge relationships might be eligible for hedge accounting, as the standard introduces a more principles-based approach. While the group is yet to undertake a detailed assessment, it would appear that the group’s current hedge relationships would qualify as continuing hedges upon the adoption of HKFRS 9. Accordingly, the group does not expect a significant impact on the accounting for its heding relationships. The new impairment model requires the recognition of impairment provisions based on expected credit losses (ECL) rather than only incurred credit losses as is the case under HKAS 39. It applies to financial assets classified at amortised cost, debt instruments measured at FVOCI, contract assets under HKFRS 15 Revenue from Contracts with Customers, lease receivables, loan commitments and certain financial guarantee contracts. While the group has not yet undertaken a detailed assessment of how its impairment provisions would be affected by the new model, it may result in an earlier recognition of credit losses. The new standard also introduces expanded disclosure requirements and changes in presentation. These are expected to change the nature and extent of the group’s disclosures about its financial instruments particularly in the year of the adoption of the new standard. HKFRS 9 must be applied for financial years commencing on or after 1 January 2018. Based on the transitional provisions in the completed HKFRS 9, early adoption in phases was only permitted for annual reporting periods beginning before 1 February 2015. After that date, the new rules must be adopted in their entirety. The group does not intend to adopt HKFRS 9 before its mandatory date. HKFRS 15, 'Revenue from contracts with customers' The HKICPA has issued a new standard for the recognition of revenue. This will replace HKAS 18 which covers contracts for goods and services and HKAS 11 which covers construction contracts. The new standard is based on the principle that revenue is recognised when control of a good or service transfers to a customer. The standard permits either a full retrospective or a modified retrospective approach for the adoption. Management is currently assessing the effects of applying the new standard on the group’s financial statements and has identified the following areas that are likely to be affected: revenue from service - the application of HKFRS 15 may result in the identification of separate performance

obligations which could affect the timing of the recognition of revenue. accounting for certain costs incurred in fulfilling a contract - certain costs which are currently expensed may need to

be recognised as an asset under HKFRS 15, and rights of return HKFRS 15 requires separate presentation on the balance sheet of the right to recover the goods from

the customer and the refund obligation.

At this stage, the group is not able to estimate the impact of the new rules on the group’s financial statements. The group will make more detailed assessments of the impact over the next twelve months. HKFRS 15 is mandatory for financial years commencing on or after 1 January 2018. At this stage, the group does not intend to adopt the standard before its effective date.

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HKFRS 16, ‘Leases’ HKFRS 16 will result in almost all leases being recognised on the balance sheet, as the distinction between operating and finance leases is removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognised. The only exceptions are short-term and low-value leases. The accounting for lessors will not significantly change. The standard will affect primarily the accounting for group’s operating leases. As at the reporting date, the group has non-cancellable operating lease commitments of HK$73,025,000, see note 39. However, the group has not yet determined to what extent these commitments will result in the recognition of an asset and a liability for future payments and how this will affect the group’s profit and classification of cash flows. Some of the commitments may be covered by the exception for short-term and low value leases and some commitments may relate to arrangements that will not qualify as leases under HKFRS 16. The new standard is mandatory for financial years commencing on or after 1 January 2019. At this stage, the group does not intend to adopt the standard before its effective date.

There are no other HKFRSs or HK (IFRIC) interpretations that are not yet effective that would be expected to have a material impact on the group.

Commentary

Descriptions above of 'New standards and interpretations not yet adopted' are those that might be used just after the new standards have been published. However, where it is 12 months or less to go before adoption, for example, HKFRSs 9 and 15 by the time that financial statements for the year ended 31 Dec 2016 are published in 2017, listed companies should give further and better particulars about the expected impact of these standards in their 2016 financial statements. The Stock Exchange of Hong Kong Limited has indicated that it expects issuers to monitor closely the developments on the implementation of these new standards and perform a detailed review of these standards as soon as practicable.

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2.2 Subsidiaries

1p119 2.2.1 Consolidation

FRS10p7,

FRS10p20,

FRS10p25

A subsidiary is an entity (including a structured entity) over which the group has control. The group controls an entity when the group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability

to affect those returns through its power over the entity. Subsidiaries are consolidated from the date on which control is

transferred to the group. They are deconsolidated from the date that control ceases.

(a) Business combinations

FRS3p5

FRS3p37

FRS3p39

FRS3p18

The group applies the acquisition method to account for business combinations. The consideration transferred for the

acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the

acquiree and the equity interests issued by the group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and

contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition

date.

FRS3p19 The group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis. Non-

controlling interests in the acquiree that are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation are measured at either fair value or the present ownership

interests’ proportionate share in the recognised amounts of the acquiree’s identifiable net assets. All other components

of non-controlling interests are measured at their acquisition date fair value, unless another measurement basis is required by HKFRS.

FRS3p53 Acquisition-related costs are expensed as incurred.

FRS3p42 If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held

equity interest in the acquiree is re-measured to fair value at the acquisition date; any gains or losses arising from such re-measurement are recognised in profit or loss.

FRS3p58 Any contingent consideration to be transferred by the group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is

recognised in accordance with HKAS 39 in profit or loss. Contingent consideration that is classified as equity is not

remeasured, and its subsequent settlement is accounted for within equity.

FRS3p32,

FRS3 B63(a),

36p80

The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the

acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the identifiable net assets acquired is recorded as goodwill. If the total of consideration transferred, non-controlling interest recognised and

previously held interest measured is less than the fair value of the net assets of the subsidiary acquired in the case of a

bargain purchase, the difference is recognised directly in the statement of profit or loss (Note2.9).

FRS10B86(c) Intra-group transactions, balances and unrealised gains on transactions between group companies are eliminated.

Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. When necessary, amounts reported by subsidiaries have been adjusted to conform with the group’s accounting

policies

(b) Changes in ownership interests in subsidiaries without change of control

FRS10p23 Transactions with non-controlling interests that do not result in a loss of control are accounted for as equity transactions – that is, as transactions with the owners of the subsidiary in their capacity as owners. The difference

between fair value of any consideration paid and the relevant share acquired of the carrying amount of net assets of the

subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.

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(c) Disposal of subsidiaries

FRS10p25,

FRS10pB98,

FRS10pB99

When the group ceases to have control, any retained interest in the entity is re-measured to its fair value at the date when control is lost, with the change in carrying amount recognised in profit or loss. The fair value is the initial

carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or

financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the group had directly disposed of the related assets or liabilities. It means the amounts

previously recognised in other comprehensive income are reclassified to profit or loss or transferred to another

category of equity as specified/ permitted by applicable HKFRSs.

2.2.2 Separate financial statements

27p42(c) Investments in subsidiaries are accounted for at cost less impairment. Cost includes direct attributable costs of

investment. The results of subsidiaries are accounted for by the company on the basis of dividend received and

receivable.

36p12(h) Impairment testing of the investments in subsidiaries is required upon receiving a dividend from these investments if the dividend exceeds the total comprehensive income of the subsidiary in the period the dividend is declared or if the carrying amount of the investment in the separate financial statements exceeds the carrying amount in the consolidated financial statements of the investee’s net assets including goodwill.

1p119 2.3 Associates

28p5

28p10

An associate is an entity over which the group has significant influence but not control, generally accompanying a

shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the

equity method of accounting. Under the equity method, the investment is initially recognised at cost, and the carrying

amount is increased or decreased to recognise the investor’s share of the profit or loss of the investee after the date of

acquisition. The group's investments in associates include goodwill identified on acquisition. Upon the acquisition of

the ownership interest in an associate, any difference between the cost of the associate and the group’s share of the net

fair value of the associate’s identifiable assets and liabilities is accounted for as goodwill.

28p25 If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of

the amounts previously recognised in other comprehensive income is reclassified to profit or loss where appropriate.

28p38

28p39

The group's share of post-acquisition profit or loss is recognised in the statement of profit or loss, and its share of post-

acquisition movements in other comprehensive income is recognised in other comprehensive income with a

corresponding adjustment to the carrying amount of the investment. When the group's share of losses in an associate

equals or exceeds its interest in the associate, including any other unsecured receivables, the group does not recognise

further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associate.

28p40

28p42

The group determines at each reporting date whether there is any objective evidence that the investment in the

associate is impaired. If this is the case, the group calculates the amount of impairment as the difference between the

recoverable amount of the associate and its carrying value and recognises the amount adjacent to ‘share of profit of

investments accounted for using equity method’ in the statement of profit or loss.

28p28

28p34

Profits and losses resulting from upstream and downstream transactions between the group and its associate are

recognised in the group’s financial statements only to the extent of unrelated investor’s interests in the associates.

Unrealised losses are eliminated unless the transaction provides evidence of an impairment of the asset transferred.

Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted

by the group.

Gain or losses on dilution of equity interest in associates are recognised in the statement of profit or loss.

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2.4 Joint arrangements

The group has applied HKFRS 11 to all joint arrangements. Under HKFRS 11 investments in joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations of each investor. The group has assessed the nature of its joint arrangements and determined them to be joint ventures. Joint ventures are accounted for using the equity method.

28p10 Under the equity method of accounting, interests in joint ventures are initially recognised at cost and adjusted

thereafter to recognise the group’s share of the post-acquisition profits or losses and movements in other comprehensive income. The group's investments in joint ventures include goodwill identified on acquisition. Upon the acquisition of the ownership interest in a joint venture, any difference between the cost of the joint venture and the group’s share of the net fair value of the joint venture’s identifiable assets and liabilities is accounted for as goodwill. When the group’s share of losses in a joint venture equals or exceeds its interests in the joint ventures, including any other unsecured receivables, the group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the joint ventures.

FRS11pC2-3 28p28

Unrealised gains on transactions between the group and its joint ventures are eliminated to the extent of the group’s interest in the joint ventures. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of the joint ventures have been changed where necessary to ensure consistency with the policies adopted by the group.

1p119 2.5 Segment reporting FRS8p5(6) Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating

decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the steering committee that makes strategic decisions.

1p119 2.6 Foreign currency translation 1p119 (a) Functional and presentation currency 21p17 21p9, 18 1p51(d)

Items included in the financial statements of each of the group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in HK dollars (HK$), which is the company’s functional and the group’s presentation currency.

1p119 (b) Transactions and balances 21p21, 28 21p32 39p95(a) 39p102(a)

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of profit or loss, except when deferred in other comprehensive income as qualifying cash flow hedges and qualifying net investment hedges.

Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the

statement of profit or loss within ‘finance income or expenses’. All other foreign exchange gains and losses are presented in statement of profit or loss within ‘other gains – net’.

39AG83 Changes in the fair value of debt securities denominated in foreign currency classified as available for sale are analysed

between translation differences resulting from changes in the amortised cost of the security and other changes in the carrying amount of the security. Translation differences related to changes in amortised cost are recognised in profit or loss, and other changes in carrying amount are recognised in other comprehensive income.

21p30 Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit

or loss are recognised in profit or loss as part of the fair value gain or loss. Translation differences on non-monetary financial assets, such as equities classified as available for sale, are included in other comprehensive income.

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1p119 (c) Group companies 21p39 The results and financial position of all the group entities (none of which has the currency of a hyper-inflationary

economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

21p39(a) (a) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that

balance sheet; 21p39(b)

(b) income and expenses for each statement of profit or loss are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions); and

1p79(b), 21p39(c)

(c) all resulting currency translation differences are recognised in other comprehensive income.

21p47

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. Currency translation differences arising are recognised in other comprehensive income.

21p48, 48A, 48B, 48C

(d) Disposal of foreign operation and partial disposal On the disposal of a foreign operation (that is, a disposal of the group’s entire interest in a foreign operation, or a disposal involving loss of control over a subsidiary that includes a foreign operation, a disposal involving loss of joint control over a joint venture that includes a foreign operation, or a disposal involving loss of significant influence over an associate that includes a foreign operation), all of the currency translation differences accumulated in equity in respect of that operation attributable to the owners of the company are reclassified to profit or loss.

In the case of a partial disposal that does not result in the group losing control over a subsidiary that includes a foreign operation, the proportionate share of accumulated currency translation differences are re-attributed to non-controlling interests and are not recognised in profit or loss. For all other partial disposals (that is, reductions in the group’s ownership interest in associates or joint ventures that do not result in the group losing significant influence or joint control), the proportionate share of the accumulated exchange difference is reclassified to profit or loss.

1p119 2.7 Property, plant and equipment

16p73(a) 16p35(b) 16p15 16p17 39p98(b)

Land and buildings comprise mainly factories, retail outlets and offices. Leasehold land classified as finance lease and all other property, plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Cost may also include transfers from equity of any gains/losses on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment.

16p12, 13

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the statement of profit or loss during the financial period in which they are incurred.

16p73(b), 50 16p73(c)

Leasehold land classified as finance lease commences amortisation from the time when the land interest becomes available for its intended use. Amortisation on leasehold land classified as finance lease and depreciation on other assets is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives, as follows:

– Leasehold land classified as finance

lease Shorter of remaining lease term of 30-40 years or useful life

– Buildings 25-40 years – Machinery 10-15 years – Vehicles 3-5 years – Furniture, fittings and equipment 3-8 years

16p51 The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each

reporting period. 36p59 An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying

amount is greater than its estimated recoverable amount (Note 2.10).

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16p68, 71 Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are

recognised within ‘Other gains – net’ in the statement of profit or loss.

2.8 Investment property 40p75(a), (b) Investment property, principally comprising leasehold land and buildings, is held for long-term rental yields

or for capital appreciation or both, and that is not occupied by the group. It also includes properties that are being constructed or developed for future use as investment properties. Land held under operating leases are accounted for as investment properties when the rest of the definition of an investment property is met. In such cases, the operating leases concerned are accounted for as if they were finance leases. Investment property is initially measured at cost, including related transaction costs and where applicable borrowing costs. After initial recognition, investment properties are carried at fair value, representing open market value determined at each reporting date by external valuers. Fair value is based on active market prices, adjusted, if necessary, for any difference in the nature, location or condition of the specific asset. If the information is not available, the group uses alternative valuation methods such as recent prices on less active markets or discounted cash flow projections. Changes in fair values are recorded in the statement of profit or loss as part of a valuation gain or loss in ‘other gains – net’.

2.9 Intangible assets

1p119 (a) Goodwill

FRS3p32

FRS3pB63(a)

36p80

36p10(b)

36p104

36p124

38p108

Goodwill arises on the acquisition of subsidiaries represents the excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the identified net assets acquired. For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the cash-generating units (“CGUs”), or groups of CGUs, that is expected to benefit from the synergies of the combination. Each unit or group of units to which the goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes. Goodwill is monitored at the operating segment level12. Goodwill impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate a potential impairment. The carrying value of the CGU containing the goodwill is compared to the recoverable amount, which is the higher of value in use and the fair value less costs of disposal. Any impairment is recognised immediately as an expense and is not subsequently reversed.

1p119 (b) Trademarks and licences

38p74

38p97

38p118(a)(b)

Separately acquired trademarks and licences are shown at historical cost. Trademarks and licences acquired in a business combination are recognised at fair value at the acquisition date. Trademarks and licences have a finite useful life and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost of trademarks and licences over their estimated useful lives of 15 to 20 years.

38p4

38p118(a)(b)

Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised over their estimated useful lives of three to five years.

1p119 (c) Contractual customer relationships

Contractual customer relationships acquired in a business combination are recognised at fair value at the acquisition date. The contractual customer relations have a finite useful life and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method from three to five years over the expected life of the customer relationship.

12 HKAS 36 para 80 requires goodwill to be allocated to the lowest level within the entity at which the goodwill is monitored for internal management purposes and that level should not be larger than an operating segment as defined by HKFRS 8 para 5 before aggregation. Not all companies are having operating segment as the "lowest level". Management should consider company specific situation to determine this "lowest level" .

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1p119 (d) Computer software

38p57 Costs associated with maintaining computer software programmes are recognised as an expense as incurred. Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the group are recognised as intangible assets when the following criteria are met:

It is technically feasible to complete the software product so that it will be available for use;

Management intends to complete the software product and use or sell it;

There is an ability to use or sell the software product;

It can be demonstrated how the software product will generate probable future economic benefits;

Adequate technical, financial and other resources to complete the development and to use or sell the software product are available; and

The expenditure attributable to the software product during its development can be reliably measured.

38p66 Directly attributable costs that are capitalised as part of the software product include the software development employee costs and an appropriate portion of relevant overheads.

38p68,71 Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period.

38p97

38p118(a)(b)

Computer software development costs recognised as assets are amortised over their estimated useful lives, which does not exceed three years.

1p119 2.10 Impairment of non-financial assets12

36p9

36p10

Intangible assets that have an indefinite useful life or intangible assets not ready to use are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.

1p119 2.11 Non-current assets (or disposal groups) held-for-sale and discontinued operations

FRS5p6, 15

FRS5p31, 32

FRS5p33

Non-current assets (or disposal groups) are classified as held for sale when their carrying amount is to be recovered principally through a sale transaction and a sale is considered highly probable. The non-current assets (except for certain assets as explained below), (or disposal groups), are stated at the lower of carrying amount and fair value less costs to sell. Deferred tax assets, assets arising from employee benefits, financial assets (other than investments in subsidiaries and associates) and investment properties, which are classified as held for sale, would continue to be measured in accordance with the policies set out elsewhere in Note 2. A discontinued operation is a component of the group’s business, the operations and cash flows of which can be clearly distinguished from the rest of the group and which represents a separate major line of business or geographic area of operations, or is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations, or is a subsidiary acquired exclusively with a view to resale. When an operation is classified as discontinued, a single amount is presented in the statement of profit or loss, which comprises the post-tax profit or loss of the discontinued operation and the post-tax gain or loss recognised on the measurement to fair value less costs to sell, or on the disposal, of the assets or disposal group(s) constituting the discontinued operation.

12 An entity may be required to recognise impairment in an interim period, but by the end of the financial year the impairment may have reversed either in full or partially. HK (IFRIC) 10 ‘Interim reporting and impairment’ states that an impairment loss recognised in an interim period on goodwill should not be reversed.

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1p119 2.12 Financial assets

2.12.1 Classification

FRS7p21

39p9

The group classifies its financial assets in the following categories: at fair value through profit or loss, loans and receivables, and available for sale. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition.

(a) Financial assets at fair value through profit or loss

39p9

Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term. Derivatives are also categorised as held for trading unless they are designated as hedges. Assets in this category are classified as current assets if expected to be settled within 12 months; otherwise, they are classified as non-current.

(b) Loans and receivables

39p9

1p66, 68

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for the amounts that are settled or expected to be settled more than 12 months after the end of the reporting period. These are classified as non-current assets. The group's loans and receivables comprise “trade and other receivables” and ‘cash and cash equivalents' in the balance sheet (Notes 2.17 and 2.18).

(c) Available-for-sale financial assets

39p9

1p66, 68

FRS7 AppxB5(b)

Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless the investment matures or management intends to dispose of it within 12 months of the end of the reporting period.

2.12.2 Recognition and measurement

39p38

FRS7 AppxBp5

39p43

39p16

39p46

39p55(a),

FRS7

AppxB5(e)

39p55(b),

FRS7

AppxB5(e),

39AG83,

1p79(b)

Regular way purchases and sales of financial assets are recognised on the trade-date – the date on which the group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognised at fair value, and transaction costs are expensed in the statement of profit or loss. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the group has transferred substantially all risks and rewards of ownership. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables are subsequently carried at amortised cost using the effective interest method. Gains or losses arising from changes in the fair value of the ‘financial assets at fair value through profit or loss’ category are presented in the statement of profit or loss within ‘Other (losses)/gains – net’ in the period in which they arise. Dividend income from financial assets at fair value through profit or loss is recognised in the statement of profit or loss as part of other income when the group’s right to receive payments is established. Changes in the fair value of monetary and non-monetary securities classified as available for sale are recognised in other comprehensive income.

39p67 When securities classified as available for sale are sold or impaired, the accumulated fair value adjustments recognised in equity are included in the statement of profit or loss as “gains and losses from investment securities”.

Interest on available-for-sale securities calculated using the effective interest method is recognised in the statement of profit or loss as part of other income. Dividends on available-for-sale equity instruments are recognised in the statement of profit or loss as part of other income when the group's right to receive payments is established.

2.13 Offsetting financial instruments

32p42

AG38B

Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the company or the counterparty.

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2.14 Impairment of financial assets (a) Assets carried at amortised cost 39p58 39p59

The group assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

FRS7 AppxB5(f) Evidence of impairment may include indications that the debtors 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 where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

FRS7p16 39p63 39AG84

For loans and receivables category, the amount of the loss 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 been incurred) discounted at the financial asset's original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in the consolidated statement of profit or loss. If a loan or held- to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the group may measure impairment on the basis of an instrument's fair value using an observable market price.

FRS7 AppxB5(d) 39p65

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the reversal of the previously recognised impairment loss is recognised in the consolidated statement of profit or loss.

(b) Assets classified as available for sale

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.

39p67, 68, 70

For debt securities, if any such evidence exists the cumulative loss – measured as the difference between the acquisition

cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss – is reclassified from equity and recognised in profit or loss. If, in a subsequent period, the fair value of a debt instrument

classified as available for sale increases and the increase can be objectively related to an event occurring after the

impairment loss was recognised in profit or loss, the impairment loss is reversed through the consolidated statement of profit or loss.

39p67, 68, 69 For equity investments, a significant or prolonged decline in the fair value of the security below its cost is also evidence that the assets are impaired. If any such evidence exists the cumulative loss – measured as the difference between the

acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit

or loss – is reclassified from equity and recognised in profit or loss. Impairment losses recognised in the consolidated statement of profit or loss on equity instruments are not reversed through the consolidated statement of profit or loss.

1p119 2.15 Derivative financial instruments and hedging activities FRS7p21 FRS7p22 Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-

measured at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The group designates certain derivatives as either:

(a) hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedge); (b) hedges of a particular risk associated with a recognised asset or liability or a highly probable forecast

transaction (cash flow hedge); or (c) hedges of a net investment in a foreign operation (net investment hedge).

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39p88 The group documents at the inception of the transaction the relationship between hedging instruments and hedged

items, as well as its risk management objectives and strategy for undertaking various hedging transactions. The group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.

FRS7p23, 24 The fair values of various derivative instruments used for hedging purposes are disclosed in Note 21. Movements on the

hedging reserve in shareholders’ equity are shown in Note 30. The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining hedged item is more than 12 months, and as a current asset or liability when the remaining maturity of the hedged item is less than 12 months. Trading derivatives are classified as a current asset or liability.

39p89 (a) Fair value hedge Changes in the fair value of derivatives that are designated and qualified as fair value hedges are recorded in the

statement of profit or loss, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. The group only applies fair value hedge accounting for hedging fixed interest risk on borrowings. The gain or loss relating to the effective portion of interest rate swaps hedging fixed rate borrowings is recognised in the statement of profit or loss within ‘finance expenses’. The gain or loss relating to the ineffective portion is recognised in the statement of profit or loss within ‘other gains – net’. Changes in the fair value of the hedge fixed rate borrowings attributable to interest rate risk are recognised in the statement of profit or loss within ‘finance expenses’.

39p92 If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item

for which the effective interest method is used is amortised to profit or loss over the period to maturity.

39p95 (b) Cash flow hedge

1p79(b) The effective portion of changes in the fair value of derivatives that are designated and qualified as cash flow hedges is recognised in other comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in the statement of profit or loss within ‘other gains – net’.

39p99, 100

39p98(b)

Amounts accumulated in equity are reclassified to profit or loss in the period when the hedged item affects profit or loss (for example, when the forecast sale that is hedged takes place). The gain or loss relating to the effective portion of interest rate swaps hedging variable rate borrowings is recognised in the statement of profit or loss within ‘finance income/expenses’. However, when the forecast transaction that is hedged results in the recognition of a non-financial asset (for example, inventory or plant and equipment), the gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of the cost of the asset. The deferred amounts are ultimately recognised in cost of goods sold in the case of inventory or in depreciation in the case of fixed assets.

39p101 When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge

accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the statement of profit or loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the statement of profit or loss within ‘other gains - net’.

39p102(a)(b) (c) Net investment hedge

1p79(b)

Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised in other comprehensive income. The gain or loss relating to the ineffective portion is recognised in the statement of profit or loss.

Gains and losses accumulated in equity are included in the statement of profit or loss when the foreign operation is partially disposed of or sold.

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1p119 2.16 Inventories

2p36(a), 9

2p10, 25

23p6, 7

2p28, 30

39p98(b)

Inventories are stated at the lower of cost and net realisable value. Cost is determined using the first-in, first-out (FIFO) method. The cost of finished goods and work in progress comprises design costs, raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity). It excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. Costs of inventories include the transfer from equity of any gains/losses on qualifying cash flow hedges for purchases of raw materials13.

1p119

FRS7p21

2.17 Trade and other receivables

Trade receivables are amounts due from customers for merchandise sold or services performed in the ordinary course of business. If collection of trade and other receivables is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets.

39p43

39p46(a)

39p59

FRS7 Appx B5(f)

FRS7

Appx B5(d)

Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less allowance for impairment. See Note 2.12.2 for further information about the group’s accounting for trade receivables and Note 2.14 for a description of the group’s impairment policies.

1p119 2.18 Cash and cash equivalents

FRS7p21

7p46

In the consolidated statement of cash flows, cash and cash equivalents include cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. In the consolidated balance sheet, bank overdrafts are shown within borrowings in current liabilities.

1p119 2.19 Share capital

FRS7p21 32p18(a)

Ordinary shares are classified as equity. Mandatorily redeemable preference shares are classified as liabilities (Note 2.21).

32p37 Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax,

from the proceeds. 1p119 2.20 Trade payables Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from

suppliers. Trade payables are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities.

FRS7p21 39p43

Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

13 Management may choose to keep these gains/(loss) in equity until the acquired asset affects profit or loss. At this time, management should re-classify the gains/(loss) into profit or loss.

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1p119 2.21 Borrowings

FRS7p21

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the statement of profit or loss over the period of the borrowings using the effective interest method.

39p43 39p47

Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a pre-payment for liquidity services and amortised over the period of the facility to which it relates.

32p18(a) 32p35

Preference shares, if mandatorily redeemable at a specific date or redeemable at the option of the holder, are classified as liabilities. The dividends on these preference shares are recognised in the statement of profit or loss as interest expense.

32p18,28

AG31(a)

The fair value of the liability portion of a convertible bond is determined using a market interest rate for an equivalent non-convertible bond. This amount is recorded as a liability on an amortised cost basis until extinguished on conversion or maturity of the bonds. The remainder of the proceeds is allocated to the conversion option. This is recognised and included in shareholders’ equity, net of income tax effects. *

39p39,41 Borrowings are removed from the balance sheet when the obligation specified in the contract is discharged, cancelled or

expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in profit or loss as other income or finance costs. *

IFRIC19p9 Where the terms of a financial liability are renegotiated and the entity issues equity instruments to a creditor to

extinguish all or part of the liability (debt for equity swap), a gain or loss is recognised in profit or loss, which is measured as the difference between the carrying amount of the financial liability and the fair value of the equity instruments issued.*

1p69,71 Borrowings are classified as current liabilities unless the group has an unconditional right to defer settlement of the

liability for at least 12 months after the end of the reporting period. 1p119 2.22 Borrowing costs

23p8 General and specific borrowing costs directly attributable to the acquisition, construction or production of qualifying

assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.

23p12 Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.

All other borrowing costs are recognised in profit or loss in the period in which they are incurred.

23p6(e) Borrowing costs include interest expense, finance charges in respect of finance lease and exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs. The exchange gains and losses that are an adjustment to interest costs include the interest rate differential between borrowing costs that would be incurred if the entity had borrowed funds in its functional currency, and the borrowing costs actually incurred on foreign currency borrowings. Such amounts are estimated based on [interest rates on similar borrowings in the entity’s functional currency]*/[forward currency rates at the inception of the borrowings]*.

When the construction of the qualifying assets takes more than one accounting period, [the amount of foreign exchange differences eligible for capitalisation is determined for each annual period and are limited to the difference between the hypothetical interest amount for the functional currency borrowings and the actual interest incurred for foreign currency borrowings. Foreign exchange differences that did not meet the criteria for capitalisation in previous years should not be capitalised in subsequent years.]**

When the construction of the qualifying assets takes more than one accounting period, [the amount of foreign exchange differences eligible for capitalisation is determined on a cumulative basis based on the cumulative amounts of interest expenses that would have been incurred had the entity borrowed in its functional currency. The total amount of foreign exchange differences capitalised cannot exceed the amount of total net foreign exchange differences incurred on a cumulative basis at the end of the reporting period.]***

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* Delete where appropriate

** select this policy when the group adopts “discrete annual period approach” for capitalisation

*** select this policy when the group adopts “cumulative approach” for capitalisation

p119 2.23 Compound financial instruments 32p28 Compound financial instruments issued by the group comprise convertible notes that can be converted to

share capital at the option of the holder, and the number of shares to be issued does not vary with changes in their fair value.

32AG31 The liability component of a compound financial instrument is recognised initially at the fair value of a

similar liability that does not have an equity conversion option. The equity component is recognised initially at the difference between the fair value of the compound financial instrument as a whole and the fair value of the liability component, which is included in shareholders’ equity in other reserves. Any directly attributable transaction costs are allocated to the liability and equity components in proportion to their initial carrying amounts.

32p36 Subsequent to initial recognition, the liability component of a compound financial instrument is measured at

amortised cost using the effective interest method. The equity component of a compound financial instrument is not re-measured subsequent to initial recognition except on conversion or expiry.

1p69,71 The liability component of a convertible instrument is classified as current unless the group has an

unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting period.

1p119 2.24 Current and deferred income tax 12p58 12p61A

The tax expense for the period comprises current and deferred tax. Tax is recognised in the statement of profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively.

(a) Current income tax 12p12 12p46

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the company’s subsidiaries and associates operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

(b) Deferred income tax

12p24 12p15 12p47

Inside basis differences Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

12p24 12p34

Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

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12p39

Outside basis differences Deferred income tax liabilities are provided on taxable temporary differences arising from investments in subsidiaries, associates and joint arrangements, except for deferred income tax liability where the timing of the reversal of the temporary difference is controlled by the group and it is probable that the temporary difference will not reverse in the foreseeable future. Generally the group is unable to control the reversal of the temporary difference for associates. Only when there is an agreement in place that gives the group the ability to control the reversal of the temporary difference in the foreseeable future, deferred tax liability in relation to taxable temporary differences arising from the associate’s undistributed profits is not recognised.

12p44 Deferred income tax assets are recognised on deductible temporary differences arising from investments in subsidiaries, associates and joint arrangements only to the extent that it is probable the temporary difference will reverse in the future and there is sufficient taxable profit available against which the temporary difference can be utilised.

(c) Offsetting

12p74 Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets

against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

1p119 2.25 Employee benefits A26(1), &

(2)&(4),

GEM18.34(1),

&(2) &(4)

The group operates various post-employment schemes, including both defined benefit and defined contribution pension plans and post-employment medical plans.

(a) Pension obligations 19p26 1927 19p28 19p30 19p57,19p58, 19p59,19p60, 19p67,19p68, 19p83 19p103 19p57(d) 19p51

A defined contribution plan is a pension plan under which the group pays fixed contributions into a separate entity. The group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. A defined benefit plan is a pension plan that is not a defined contribution plan. Typically defined benefit plans define an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. The liability recognised in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension obligation. In countries where there is no deep market in such bonds, the market rates on government bonds are used. The current service cost of the defined benefit plan, recognised in the statement of profit or loss in employee benefit expense, except where included in the cost of an asset, reflects the increase in the defined benefit obligation results from employee service in the current year, benefit changes, curtailments and settlements. Past-service costs are recognised immediately in statement of profit or loss. Changes in the present value of the defined benefit obligation resulting from plan amendments or curtailments are recognised immediately in profit or loss as past service costs. The net interest cost is calculated by applying the discount rate to the net balance of the defined benefit obligation and the fair value of plan assets. This cost is included in employee benefit expense in the statement of profit or loss. Remeasurement arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise. For defined contribution plans, the group pays contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. The group has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expense when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available.

1p119 (b) Other post-employment obligations

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19p155 Some group companies provide post-retirement healthcare benefits to their retirees. The entitlement to these benefits is

usually conditional on the employee remaining in service up to retirement age and the completion of a minimum service period. The expected costs of these benefits are accrued over the period of employment using the same accounting methodology as used for defined benefit pension plans. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise. These obligations are valued annually by independent qualified actuaries.

1p119

(c) Termination benefits

19p159 Termination benefits are payable when employment is terminated by the group before the normal retirement date, or

whenever an employee accepts voluntary redundancy in exchange for these benefits. The group recognises termination benefits at the earlier of the following dates: (a) when the group can no longer withdraw the offer of those benefits; and (b) when the entity recognises costs for a restructuring that is within the scope of HKAS 37 and involves the payment of termination benefits. In the case of an offer made to encourage voluntary redundancy, the termination benefits are measured based on the number of employees expected to accept the offer. Benefits falling due more than 12 months after the end of the reporting period are discounted to their present value.

1p119 (d) Profit-sharing and bonus plans 19p19 The group recognises a liability and an expense for bonuses and profit-sharing, based on a formula that takes into

consideration the profit attributable to the company's shareholders after certain adjustments. The group recognises a provision where contractually obliged or where there is a past practice that has created a constructive obligation.

(e) Employee leave entitlements Employee entitlements to annual leave are recognised when they accrue to employees. A provision is made for the

estimated liability for annual leave as a result of services rendered by employees up to the balance sheet date. Employee entitlements to sick leave and maternity leave are not recognised until the time of leave.

1p119, MB17.08,

GEM23.08

2.26 Share-based payments

(a) Equity-settled share-based payment transactions

FRS2p15(b)

FRS2p19

FRS2p21

FRS2p20

FRS2p21A

FRS2p15

FRS2p20

The group operates a number of equity-settled, share-based compensation plans, under which the entity receives services from employees as consideration for equity instruments (options) of the group. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense. The total amount to be expensed is determined by reference to the fair value of the options granted: including any market performance conditions (for example, an entity's share price); excluding the impact of any service and non-market performance vesting conditions (for example, profitability, sales

growth targets and remaining an employee of the entity over a specified time period); and including the impact of any non-vesting conditions (for example, the requirement for employees to save or holding

shares for a specified period of time). At the end of each reporting period, the group revises its estimates of the number of options that are expected to vest based on the non-marketing performance and service conditions. It recognises the impact of the revision to original estimates, if any, in the statement of profit or loss, with a corresponding adjustment to equity.

In addition, in some circumstances employees may provide services in advance of the grant date and therefore the grant date fair value is estimated for the purposes of recognising the expense during the period between service commencement period and grant date.

When the options are exercised, the company issues new shares. The proceeds received net of any directly attributable transaction costs are credited to share capital.

(b) Share-based payment transactions among group entities

The grant by the company of options over its equity instruments to the employees of subsidiary undertakings in the group is treated as a capital contribution. The fair value of employee services received, measured by reference to the grant date fair value, is recognised over the vesting period as an increase to investment in subsidiary undertakings, with a corresponding credit to equity in the parent entity accounts. (c) Social security contributions on share options gains The social security contributions payable in connection with the grant of the share options is considered an integral part of the grant itself, and the charge will be treated as a cash-settled transaction.

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1p119 2.27 Provisions 37p14

37p72

37p63

Provisions for environmental restoration, restructuring costs, and legal claims are recognised when: the group has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Restructuring provisions comprise lease termination penalties and employee termination payments. Provisions are not recognised for future operating losses.

37p24 Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is

determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

37p45 Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using

a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense.

1p119 2.28 Revenue recognition

18p35(a) Revenue is measured at the fair value of the consideration received or receivable, and represents amounts receivable

for goods supplied, stated net of discounts, returns and value added taxes. The group recognises revenue when the amount of revenue can be reliably measured; when it is probable that future economic benefits will flow to the entity; and when specific criteria have been met for each of the group’s activities, as described below. The group bases its estimates of return on historical results, taking into consideration the type of customers, the type of transactions and the specifics of each arrangement.

18p14 (a) Sales of goods – wholesale

The group manufactures and sells a range of footwear products in the wholesale market. Sales of goods are recognised when a group entity has delivered products to the wholesaler, the wholesaler has full discretion over the channel and price to sell the products, and there is no unfulfilled obligation that could affect the wholesaler’s acceptance of the products. Certain wholesale customers are given a right of return if the goods are not accepted by their customers. Revenue is adjusted for the value of expected returns. Delivery occurs when the products have been shipped to the specified location, the risks of obsolescence and loss have been transferred to the wholesaler, and either the wholesaler has accepted the products in accordance with the sales contract, the acceptance provisions have lapsed, or the group has objective evidence that all criteria for acceptance have been satisfied.

The footwear products are often sold with volume discounts; customers have a right to return faulty products in the wholesale market. Sales are recorded based on the price specified in the sales contracts, net of the estimated volume discounts and returns at the time of sale. Accumulated experience is used to estimate and provide for the discounts and returns. The volume discounts are assessed based on anticipated annual purchases. No element of financing is deemed present as the sales are made with a credit term of 60 days, which is consistent with the market practice.

18p14 (b) Sales of goods – retail

The group operates a chain of retail outlets for selling shoes and other leather products. Sales of goods are recognised when a group entity sells a product to the customer. Retail sales are usually in cash or by credit card.

It is the group’s policy to sell its products to the retail customer with a right to return within 28 days. Accumulated experience is used to estimate and provide for such returns at the time of sale. Revenue is adjusted for the value of expected returns. The group does not operate any loyalty programmes.

18p14 (c) Internet revenue

Revenue from the sale of goods on the internet is recognised at the point that the risks and rewards of the inventory

have passed to the customer, which is the point of dispatch. Transactions are settled by credit or payment card.

Provisions are made for internet credit notes based on the expected level of returns, which in turn is based upon the historical rate of returns.

18p20 (d) Sales of services

The group sells design services and transportation services to other shoe manufacturers. For sales of services, revenue

is recognised in the accounting period in which the services are rendered, by reference to stage of completion of the specific transaction and assessed on the basis of actual services provided as a proportion of the total service to be provided.

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18p30(b) (e) Royalty income

Royalty income is recognised in the statement of profit or loss on an accruals basis in accordance with the substance of

the relevant agreements. 17p50 (f) Rental income

Rental income from investment property is recognised in the statement of profit or loss on a straight-line basis over the term of the lease.

18p30(a) 2.29 Interest income 39p63 Interest income is recognised using the effective interest method. When a loan and receivable is impaired, the group

reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loans and receivables is recognised using the original effective interest rate.

1p119 2.30 Dividend income 18p30(c) Dividend income is recognised when the right to receive payment is established. 1p119 2.31 Leases 17p33 SIC-15p5

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the statement of profit or loss on a straight-line basis over the period of the lease.

17p27 The group leases certain property, plant and equipment. Leases of property, plant and equipment where the group

has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease’s commencement at the lower of the fair value of the leased property and the present value of the minimum lease payments.

17p20 17p27

Each lease payment is allocated between the liability and finance charges. The corresponding rental obligations, net of finance charges, are included in other long-term payables. The interest element of the finance cost is charged to the statement of profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases is depreciated over the shorter of the useful life of the asset and the lease term.

1p119 2.32 Dividend distribution 10p12 Dividend distribution to the company’s shareholders is recognised as a liability in the group’s financial statements in

the period in which the dividends are approved by the company’s shareholders or directors, where appropriate.

1p119 2.33 Exceptional items Exceptional items are disclosed and described separately in the financial statements where it is necessary to do so to

provide further understanding of the financial performance of the group. They are material items of income or expense that have been shown separately due to the significance of their nature or amount.

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Commentary – Summary of significant accounting policies

Statement of compliance with HKFRS 1p119 1. In deciding whether a particular accounting policy should be disclosed, management considers whether disclosure

would assist users in understanding how transactions, other events and conditions are reflected in the reported financial performance and financial position. Disclosure of particular accounting policies is especially useful to users when those policies are selected from alternatives allowed in HKFRS.

1p16 2. An entity whose financial statements and notes comply with HKFRS makes an explicit and unreserved statement of such compliance in the notes. The financial statements and notes are not described as complying with HKFRS unless they comply with all the requirements of HKFRS.

Summary of accounting policies 3. A summary of significant accounting policies includes:

1p117(a) (a) The measurement basis (or bases) used in preparing the financial statements; and

1p117(b) () (b) The other accounting policies used that are relevant to an understanding of the financial statements.

1p116 4. The summary may be presented as a separate component of the financial statements.

Changes in accounting policies

Initial application of HKFRS

8p28 5. When initial application of an HKFRS: (a) has an effect on the current period or any prior period, (b) would have such an effect except that it is impracticable to determine the amount of the adjustment, or (c) might have an effect on future periods, an entity discloses:

i. the title of the HKFRS;

ii. when applicable, that the change in accounting policy is made in accordance with its transitional provisions;

iii. the nature of the change in accounting policy;

iv. when applicable, a description of the transitional provisions;

v. when applicable, the transitional provisions that might have an effect on future periods;

vi. for the current period and each prior period presented, to the extent practicable, the amount of the adjustment

- for each financial statement line item affected;

- if HKAS 33, ‘Earnings per share’, applies to the entity, for basic and diluted earnings per share,

vii. the amount of the adjustment relating to periods before those presented, to the extent practicable; and

viii. if retrospective application required by paragraph 19(a) or (b) of HKAS 8, ‘Accounting policies, changes in accounting estimates and errors’, is impracticable for a particular prior period, or for periods before those presented, the circumstances that led to the existence of that condition and a description of how and from when the change in accounting policy has been applied.

Financial statements of subsequent periods need not repeat these disclosures.

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Voluntary change in accounting policy

8p29 6. When a voluntary change in accounting policy:

(a) has an effect on the current period or any prior period,

(b) would have an effect on that period except that it is impracticable to determine the amount of the adjustment, or

(c) might have an effect on future periods,

an entity discloses:

(i) the nature of the change in accounting policy;

(ii) the reasons why applying the new accounting policy provides reliable and more relevant information;

(iii) for the current period and each prior period presented, to the extent practicable, the amount of the adjustment:

for each financial statement line item affected, and

if HKAS 33 applies to the entity, for basic and diluted earnings per share;

(iv) the amount of the adjustment relating to periods before those presented, to the extent practicable; and

(v) if retrospective application is impracticable for a particular prior period, or for periods before those presented, the circumstances that led to the existence of that condition and a description of how and from when the change in accounting policy has been applied.

Financial statements of subsequent periods need not repeat these disclosures.

Change during interim periods 1p112(c) 7. There is no longer an explicit requirement to disclose the financial effect of a change in accounting policy that

was made during the final interim period on prior interim financial reports of the current annual reporting period. However, where the impact on prior interim reporting periods is significant, an entity should consider explaining this fact and the financial effect.

HKFRSs issued but not yet effective

8p30 8. When an entity has not applied a new HKFRS that has been issued but is not yet effective, it discloses:

(a) this fact, and

(b) known or reasonably estimable information relevant to assessing the possible impact that application of the new HKFRS will have on the entity’s financial statements in the period of initial application.

8p31 9. An entity considers disclosing:

(a) the title of the new HKFRS;

(b) the nature of the impending change or changes in accounting policy;

(c) the date by which application of the HKFRS is required;

(d) the date as at which it plans to apply it initially; and

(e) either:

(i) a discussion of the impact that initial application of the HKFRS is expected to have on the entity’s financial statements, or

(ii) if that impact is not known or reasonably estimable, a statement to that effect.

10. Our view is that disclosures in the paragraph above are not necessary in respect of standards and interpretations that are clearly not applicable to the entity (for example industry-specific standards) or that are not expected to have a material effect on the entity. Instead, disclosure should be given in respect of the developments that are, or could be, significant to the entity. Management will need to apply judgement in determining whether a standard is expected to have a material effect. The assessment of materiality should consider the impact both on previous transactions and financial position and on reasonably foreseeable future transactions. For pronouncements where there is an option that could have an impact on the entity, the management expectation on whether the entity will use the option should be disclosed.

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3. Financial risk management 3.1 Financial risk factors FRS7p31 The group's activities expose it to a variety of financial risks: market risk (including currency risk, fair value

interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The group's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the group's financial performance. The group uses derivative financial instruments to hedge certain risk exposures.

Risk management is carried out by a central treasury department (group treasury) under policies approved

by the board of directors. Group treasury identifies, evaluates and hedges financial risks in close co-operation with the group's operating units. The board provides written principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments, and investment of excess liquidity.

(a) Market risk (i) Foreign exchange risk FRS7p33(a) The group operates internationally and is exposed to foreign exchange risk arising from various currency

exposures, primarily with respect to the US dollar and the UK pound. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations.

FRS7p33(b), 22(c) Management has set up a policy to require group companies to manage their foreign exchange risk against

their functional currency. The group companies are required to hedge their entire foreign exchange risk exposure with the group treasury. To manage their foreign exchange risk arising from future commercial transactions and recognised assets and liabilities, entities in the group use forward contracts, transacted with group treasury. Foreign exchange risk arises when future commercial transactions or recognised assets or liabilities are denominated in a currency that is not the entity's functional currency.

FRS7p22(c) The group treasury's risk management policy is to hedge between 75% and 100% of anticipated cash flows

(mainly export sales and purchase of inventory) in each major foreign currency for the subsequent 12 months. Approximately 90% (2015: 95%) of projected sales in each major currency qualify as `highly probable' forecast transactions for hedge accounting purposes.

FRS7p33(a)(b) FRS7p22(c)

The group has certain investments in foreign operations, whose net assets are exposed to foreign currency translation risk. Currency exposure arising from the net assets of the group's foreign operations is managed primarily through borrowings denominated in the relevant foreign currencies.

FRS7p40 FRS7 IG36

At 31 December 2016, if Hong Kong dollar had weakened/strengthened by x14% against the US dollar with all other variables held constant, post-tax profit for the year would have been HK$362,000 (2015: HK$51,000) higher/lower, mainly as a result of foreign exchange gains/losses on translation of US dollar-denominated trade receivables, financial assets at fair value through profit or loss, debt securities classified as available-for-sale and foreign exchange losses/gains on translation of US dollar-denominated borrowings. Profit is more sensitive to movement in Hong Kong dollar/US dollar exchange rates in 2016 than 2015 because of the increased amount of US dollar-denominated borrowings. Similarly, the impact on equity would have been HK$6,850,000 (2015: HK$6,650,000) higher/lower due to an increase in the volume of cash flow hedging in US dollars.

14 HKFRS 7p40 requires a sensitivity analysis to be disclosed, showing how profit or loss and equity would have been affected by “reasonably possible changes” in the relevant risk variable (e.g. foreign exchange risk). Please refer to HKFRS 7B19 for guidance on how to estimate the reasonably possible change in the risk variable.

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At 31 December 2016, if Hong Kong dollar had weakened/strengthened by x14% against the UK pound with

all other variables held constant, post-tax profit for the year would have been HK$135,000 (2015: HK$172,000) lower/higher, mainly as a result of foreign exchange losses/gains on translation of UK pound-denominated trade receivables, financial assets at fair value through profit or loss, debt securities classified as available-for-sale and foreign exchange losses/gains on translation of UK pound-denominated borrowings.

(ii) Price risk

FRS7p33(a)(b) The group is exposed to equity securities price risk because of investments held by the group and classified on the consolidated balance sheet either as available-for-sale or at fair value through profit or loss. The group is not exposed to commodity price risk. To manage its price risk arising from investments in equity securities, the group diversifies its portfolio. Diversification of the portfolio is done in accordance with the limits set by the group.

The group's investments in equity of other entities that are publicly traded are included in one of the

following three equity indexes: DAX equity index, Dow Jones equity index and FTSE 100 UK equity index.

FRS7p40

FRS7IG36

The table below summarises the impact of increases/decreases of the three equity indexes on the group's post-tax profit for the year and on equity. The analysis is based on the assumption that the equity indexes had increased/decreased by x15% with all other variables held constant and all the group's equity instruments moved according to the historical correlation with the index:

Impact on post-tax profit in HK$’000

Impact on other components of equity in

HK$’000

Index 2016 2015 2016 2015

DAX 200 120 290 290

Dow Jones 150 120 200 70

FTSE 100 UK 60 30 160 150

Post-tax profit for the year would increase/decrease as a result of gains/losses on equity securities classified as at fair value through profit or loss. Other components of equity would increase/decrease as a result of gains/losses on equity securities classified as available-for-sale.

(iii) Cash flow and fair value interest rate risk

FRS7p33(a)(b),

FRS7p22(c)

The group's interest rate risk arises from long-term borrowings. Borrowings obtained at variable rates expose the group to cash flow interest rate risk which is partially offset by cash held at variable rates. Borrowings obtained at fixed rates expose the group to fair value interest rate risk. Group policy is to maintain approximately 60% of its borrowings in fixed rate instruments. During 2016 and 2015, the group's borrowings at variable rate were denominated in the HK dollar and the UK pound.

FRS7p22(b)(c) The group analyses its interest rate exposure on a dynamic basis. Various scenarios are simulated taking into consideration refinancing, renewal of existing positions, alternative financing and hedging. Based on these scenarios, the group calculates the impact on profit and loss of a defined interest rate shift. For each simulation, the same interest rate shift is used for all currencies. The scenarios are run only for liabilities that represent the major interest-bearing positions.

Based on the simulations performed, the impact on post-tax profit of a x14% shift would be a maximum increase of HK$41,000 (2015: HK$37,000) or decrease of HK$34,000 (2015: HK$29,000), respectively. The simulation is done on a quarterly basis to verify that the maximum loss potential is within the limit given by the management.

15 HKFRS 7p40 requires a sensitivity analysis to be disclosed, showing how profit or loss and equity would have been affected by “reasonably possible changes” in the relevant risk variable (e.g. foreign exchange risk). Please refer to HKFRS 7B19 for guidance on how to estimate the reasonably possible change in the risk variable.

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FRS7p22(b)(c) Based on the various scenarios, the group manages its cash flow interest rate risk by using floating-to-fixed interest rate swaps. Such interest rate swaps have the economic effect of converting borrowings from floating rates to fixed rates. Generally, the group raises long-term borrowings at floating rates and swaps them into fixed rates that are lower than those available if the group borrowed at fixed rates directly. Under the interest rate swaps, the group agrees with other parties to exchange, at specified intervals (primarily quarterly), the difference between fixed contract rates and floating-rate interest amounts calculated by reference to the agreed notional amounts.

FRS7p22(b)(c) Occasionally the group also enters into fixed-to-floating interest rate swaps to hedge the fair value interest rate risk arising where it has borrowed at fixed rates in excess of the 60% target.

FRS7p40 FRS7IG36

At 31 December 2016, if interest rates on Hong Kong dollar-denominated borrowings had been x16 basis points higher/lower with all other variables held constant, post-tax profit for the year would have been HK$22,000 (2015: HK$21,000) lower/higher, mainly as a result of higher/lower interest expense on floating rate borrowings; other components of equity would have been HK$5,000 (2015: HK$3,000) lower/higher mainly as a result of a decrease/increase in the fair value of fixed rate financial assets classified as available-for-sale.

At 31 December 2016, if interest rates on UK pound-denominated borrowings at that date had been x15 basis points higher/lower with all other variables held constant, post-tax profit for the year would have been HK$57,000 (2015: HK$38,000) lower/higher, mainly as a result of higher/lower interest expense on floating rate borrowings; other components of equity would have been HK$6,000 (2015: HK$4,000) lower/higher mainly as a result of a decrease/increase in the fair value of fixed rate financial assets classified as available-for-sale.

(b) Credit risk FRS7p33(a)(b) FRS7p34(a)

Credit risk is managed on group basis, except for credit risk relating to accounts receivable balances. Each local entity is responsible for managing and analysing the credit risk for each of their new clients before standard payment and delivery terms and conditions are offered. Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to wholesale and retail customers, including outstanding receivables and committed transactions. For banks and financial institutions, only independently rated parties with a minimum rating of ‘A’ are accepted. If wholesale customers are independently rated, these ratings are used. If there is no independent rating, risk control assesses the credit quality of the customer, taking into account its financial position, past experience and other factors. Individual risk limits are set based on internal or external ratings in accordance with limits set by the board. The utilisation of credit limits is regularly monitored. Sales to retail customers are settled in cash or using major credit cards. See Notes 19b and 22 for further disclosure on credit risk.

No credit limits were exceeded during the reporting period, and management does not expect any losses

from non-performance by these counterparties.

(c) Liquidity risk FRS7p33(a)(b) FRS7p34(a)

Cash flow forecasting is performed in the operating entities of the group in and aggregated by group finance. Group finance monitors rolling forecasts of the group's liquidity requirements to ensure it has sufficient cash to meet operational needs while maintaining sufficient headroom on its undrawn committed borrowing facilities (Note 32) at all times so that the group does not breach borrowing limits or covenants (where applicable) on any of its borrowing facilities. Such forecasting takes into consideration the group's debt financing plans, covenant compliance, compliance with internal balance sheet ratio targets and, if applicable external regulatory or legal requirements – for example, currency restrictions.

16 HKFRS 7p40 requires a sensitivity analysis to be disclosed, showing how profit or loss and equity would have been affected by “reasonably possible changes” in the relevant risk variable (e.g. foreign exchange risk). Please refer to HKFRS 7B19 for guidance on how to estimate the reasonably possible change in the risk variable.

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FRS7p33(a)(b) 39(c) FRS7 B11E

Surplus cash held by the operating entities over and above balance required for working capital management are transferred to the group Treasury. Group Treasury invests surplus cash in time deposits, money market deposits and marketable securities, choosing instruments with appropriate maturities or sufficient liquidity to provide sufficient head-room as determined by the above-mentioned forecasts. At the reporting date, the group held cash and cash equivalents of HK$14,928,000 (2015: HK$32,062,000) (Note 25) and trade receivables of HK$18,065,000 (2015: HK$17,102,000) (Note 22) that are expected to readily generate cash inflows for managing liquidity risk. In addition, the group holds listed equity securities for trading of HK$11,820,000 (2015: HK$7,972,000) (Note 24), which could be readily realised to provide a further source of cash if the need arose.

FRS7p39(a)(b) The table below analyses the group’s and the company’s non-derivative financial liabilities and net-settled

derivative financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. Derivative financial liabilities are included in the analysis if their contractual maturities are essential for an understanding of the timing of the cash flows. The amounts disclosed in the table are the contractual undiscounted cash flows17.

Less than 3

months

Between 3 months and 1

year18

Between 1 and 2

years17

Between 2 and 5

years17

Over 5 years17

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Group

At 31 December 2016

Borrowings (exclude finance

lease liabilities)19

5,112 15,384 22,000 67,457 38,050

Finance lease liabilities 639 2,110 1,573 4,719 2,063 Trading and net settled

derivative financial instruments (interest rate swaps)

280

-

10

116

41

Trade and other payables 12,543 2,12520 - - -

18,574 19,619 23,583 72,292 40,154

Financial guarantee contracts20 - - - - -

At 31 December 2015

Borrowings (excluding finance

lease liability)18 4,061 12,197 11,575 58,679 38,103

Finance lease liabilities 697 2,506 1,790 5,370 2,891 Trading and net settled

derivative financial instruments (interest rate swaps)

317

-

15

81

50

Trade and other payables 9,214 2,30420 - - - 14,289 17,007 13,380 64,130 41,044

Financial guarantee contracts19 - - - - -

FRS7 B10A(a) Of the HK$67,457,000 disclosed in the 2016 borrowings time band ‘Between 2 and 5 years’ the group intends to repay HK$40,000,000 in the first quarter of 2016 (2015: nil).

FRS7p39(b) The group’s trading portfolio derivative instruments with a negative fair value have been included at their fair

17 HKFRS7 p39 (a) (b) The amounts included in the table are the contractual undiscounted cash flows, except for trading derivatives, which are included at their fair value (see below). As a result, these amounts will not reconcile to the amounts disclosed on the balance sheet except for short-term payables where discounting is not applied. 18 The specific time-buckets presented are not mandated by the standard but are based on a choice by management based on how the business is managed. Sufficient time buckets should be provided to give sufficient granularity to provide the reader with an understanding of the entity’s liquidity. 19 The maturity analysis applies to financial instruments only and therefore non-financial liabilities and statutory liabilities are not included. 20 The line item of financial guarantee contracts is shown for illustrative purpose. For details of the disclosure of financial guarantee contracts, please refer to Appendix V, note 8

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value of HK$268,000 (2015: 298,000) within the less than 1 year time bucket. This is because the contractual maturities are not essential for an understanding of the timing of the cash flows. These contracts are managed on a net-fair value basis rather than by maturity date. Net settled derivatives comprise interest rate swaps used by the group to manage the group’s interest rate profile.

FRS7p39(b) All of the non-trading group’s gross settled derivative financial instruments are in hedge relationships and are

due to settle within 12 months of the balance sheet date. These contracts require undiscounted contractual cash inflows of HK$78,756,000 (2015: HK$83,077,000) and undiscounted contractual cash outflows of HK$78,241,000 (2015: HK$83,366,000).

1p134,135, IG10

3.2 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 benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

Consistent with others in the industry, the group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including ‘current and non-current borrowings’ as shown in the consolidated balance sheet) less cash and cash equivalents. Total capital is calculated as ‘equity’ as shown in the consolidated balance sheet plus net debt.

During 2016, the group’s strategy, which was unchanged from 2015, was to maintain the gearing ratio within

45% to 50% and a BB credit rating. The BB credit rating has been maintained throughout the period. The gearing ratios at 31 December 2016 and 2015 were as follows:

2016

HK$’000 2015

HK$’000

Total borrowings (Note 32) 126,837 114,604

Less: cash and cash equivalents (Note 25) (14,928) (32,062)

Net debt 111,909 82,542

Total equity 135,764 91,630

Total capital 247,673 174,172

Gearing ratio 45% 47%

The decrease in the gearing ratio during 2016 resulted primarily from the issue of share capital as part of the consideration for the acquisition of a subsidiary (Notes 27 and 41).

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3.3 Fair value estimation

FRS13p93(b) The table below analyses the group’s financial instruments carried at fair value as at 31 December 2015 by

level of the inputs to valuation techniques used to measure fair value. Such inputs are categorised into

three levels within a fair value hierarchy as follows:

FRS13p76 FRS13p81 FRS13p86

Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).

Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2).

Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).

FRS13p93(b) See Note 17 for disclosures of the investment properties that are measured at fair value and Note 26 for

disclosures of the disposal groups held for sale that are measured at fair value.

Level 1 Level 2 Level 3 Total HK$’000 HK$’000 HK$’000 HK$’000

Assets Financial assets at fair value through profit or loss

Trading derivatives -Foreign exchange contracts - 250 111 361 Trading securities -Real estate industry 8,522 - - 8,522 - Retail industry 3,298 - - 3,298 Derivatives used for hedging - Interest rate contracts - 408 - 408 - Foreign exchange contracts - 695 - 695 Available-for-sale financial assets Equity securities - Real estate industry 13,369 - - 13,369 - Retail industry 5,366 - - 5,366 Debt investments - Debentures 210 - - 210 - Preferred shares 78 - - 78 - Debt securities with fixed interest rates - 347 - 347

Total assets 30,843 1,700 111 32,654

Liabilities

Financial liabilities at fair value through profit or loss

Trading derivatives - Foreign exchange contracts - 268 - 268 Contingent consideration - - 1,500 1,500 Derivatives used for hedging

- Interest rate contracts - 147 - 147 - Foreign exchange contracts - 180 - 180

Total liabilities - 595 1,500 2,095

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The following table presents the group’s assets and liabilities that are measured at fair value at 31 December 2015.

Level 1 Level 2 Level 3 Total

HK$’000 HK$’000 HK$’000 HK$’000

Assets Financial assets at fair value through profit or loss

Trading derivatives - Foreign exchange contracts - 321 - 321 Trading securities - Real estate industry 4,348 - - 4,348 - Retail industry 3,624 - - 3,624 Derivatives used for hedging

- Interest rate contracts - 269 - 269 - Foreign exchange contracts - 606 - 606 Available-for-sale financial assets

Equity securities - Real estate industries 8,087 - - 8,087 - Retail industry 6,559 - - 6,559 Debt investments - Debt securities with fixed interest rates - 264 - 264 Total assets 22,618 1,460 - 24,078 Liabilities

Financial liabilities at fair value through profit or loss

Trading derivatives - Foreign exchange contracts - 298 - 298 Derivatives used for hedging

- Interest rate contracts - 132 - 132 - Foreign exchange contracts - 317 - 317 Total liabilities - 747 - 747 FRS13p93(c) There were no transfers between levels 1 and 2 during the year (a) Financial instruments in level 1 FRS13p91 The fair value of financial instruments traded in active markets is based on quoted market prices at the

balance sheet date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm's length basis. The quoted market price used for financial assets held by the group is the current bid price. These instruments are included in level 1. Instruments included in level 1 comprise primarily DAX, FTSE 100 and Dow Jones equity investments classified as trading securities or available-for-sale.

FRS13p93(d)

(b) Financial instruments in level 2 The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3.

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Specific valuation techniques used to value financial instruments include:

Quoted market prices or dealer quotes for similar instruments.

The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows based on observable yield curves.

The fair value of forward foreign exchange contracts is determined using forward exchange rates at the balance sheet date, with the resulting value discounted back to present value.

Other techniques, such as discounted cash flow analysis, are used to determine fair value for the remaining financial instruments.

Note that all the resulting fair value estimates are included in level 2 except for certain forward foreign exchange contracts as explained below.

(c) Financial instruments in level 3

FRS13 p93(e) The following table presents the changes in level 3 instruments for the year ended 31 December 2016.

Contingent

consideration in a business combination

Trading derivative at fair value

through profit or loss Total

HK$’000 HK$’000 HK$’000 Opening balance - - - Acquisition of ABC group 1,000 - 1,000 Transfers into level 3 - 115 115 Gains and losses recognised in profit or loss 500 (4) 496 Closing balance 1,500 111 1,611 FRS 13p93(e)(i) Total gains or losses for the year included in

profit or loss for assets held at the end of the year, under “Other gains - net”

500 (4) 496

FRS 13p93(f) Changes in unrealised gains or losses for

the year included in profit or loss at the end of the year

500 (4) 496

The following table presents the changes in level 3 instruments for the year ended 31 December 2015. Trading derivative at fair

value through profit or loss Opening balance 62 Settlements (51) Gains and losses recognised in profit or loss (11) Closing balance - FRS 13p93(e)(i) Total gains or losses for the year included in profit or loss for

assets held at the end of the year, under “Other gains - net” (11)

FRS 13p93(f) Changes in unrealised gains or losses for the year included in

profit or loss at the end of the year -

See Note 41 for disclosures of the measurement of the contingent consideration.

FRS13p93(h)(i) In 2016, the group transferred a held-for-trading forward foreign exchange contract from level 2 into level 3. This is because the counterparty for the derivative encountered significant financial difficulties, which resulted in a significant increase to the discount rate due to increased counterparty credit risk, which is not based on observable inputs.

FRS13p93(h)(ii) If the change in the credit default rate would be shifted by 12%, the impact on profit or loss would be

HK$20,000.

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Commentary – Fair value estimation

Illustrative examples of quantitative information about fair value measurements using significant unobservable inputs can be found in HKFRS 13 and are reproduced here for reference.

IE63 For fair value measurements categorised within Level 2 and Level 3 of the fair value hierarchy, the HKFRS requires an entity to disclose a description of the valuation technique(s) and the inputs used in the fair value measurement. For fair value measurements categorised within Level 3 of the fair value hierarchy, information about the significant unobservable inputs used must be quantitative. An entity might disclose the following for assets to comply with the requirement to disclose the significant unobservable inputs used in the fair value measurement in accordance with paragraph 93(d) of the HKFRS:

Quantitative information about fair value measurements using significant unobservable inputs (Level 3)

(CU in millions) Description Fair value at 31/12/X9 Valuation

technique(s) Unobservable input Range (weighted average)

Other equity securities: Healthcare industry 53 Discounted cash flow weighted average cost

of capital 7%–16% (12.1%)

long-term revenue growth rate

2%–5% (4.2%)

long-term pre-tax operating margin

3%–20% (10.3%)

discount for lack of marketability(a)

5%–20% (17%)

control premium(a) 10%–30% (20%) Market comparable

companies EBITDA multiple(b) 10–13 (11.3)

revenue multiple(b) 1.5–2.0 (1.7) discount for lack of

marketability(a) 5%–20% (17%)

control premium(a) 10%–30% (20%) Energy industry 32 Discounted cash flow weighted average cost

of capital 8%–12% (11.1%)

long-term revenue growth rate

3%–5.5% (4.2%)

long-term pre-tax operating margin

7.5%–13% (9.2%)

discount for lack of marketability(a)

5%–20% (10%)

control premium(a) 10%–20% (12%) Market comparable

companies EBITDA multiple(b) 6.5–12 (9.5)

revenue multiple(b) 1.0–3.0 (2.0) discount for lack of

marketability(a) 5%–20% (10%)

control premium(a) 10%–20% (12%) Private equity fund

investments 25 Net asset value(c) n/a n/a

Debt securities: Residential mortgage-backed

securities 125 Discounted cash flow constant prepayment

rate 3.5%–5.5% (4.5%)

probability of default 5%–50% (10%) loss severity 40%–100% (60%) Commercial mortgage-backed

securities 50 Discounted cash flow constant prepayment

rate 3%–5% (4.1%)

probability of default 2%–25% (5%) loss severity 10%–50% (20%) Collateralised debt obligations 35 Consensus pricing offered quotes 20–45 comparability

adjustments (%) -10% – +15% (+5%)

Hedge fund investments: High-yield debt securities 90 Net asset value(c) n/a n/a Derivatives: Credit contracts 38 Option model annualised volatility

of credit(d) 10%–20%

counterparty credit risk(e)

0.5%–3.5%

own credit risk(e) 0.3%–2.0%

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Investment properties: Commercial—Asia 31 Discounted cash flow long-term net

operating income margin

18%–32% (20%)

cap rate 0.08–0.12 (0.10) Market comparable

approach price per square metre

(USD) $3,000–$7,000 ($4,500)

Commercial—Europe 27 Discounted cash flow long-term net operating

income margin

15%–25% (18%)

cap rate 0.06–0.10 (0.08) Market comparable

approach price per square metre

(EUR) €4,000–€12,000 (€8,500)

(a) Represents amounts used when the entity has determined that market participants would take into account these premiums and discounts when pricing the investments. (b) Represents amounts used when the entity has determined that market participants would use such multiples when pricing the investments. (c) The entity has determined that the reported net asset value represents fair value at the end of the reporting period. (d) Represents the range of the volatility curves used in the valuation analysis that the entity has determined market participants would use when the pricing contracts. (e) Represents the range of the credit default swap spread curves used in the valuation analysis that the entity has determined market participants would use when pricing the contracts. (Note: A similar table would be presented for liabilities unless another format is deemed more appropriate by the entity.)

IE64 In addition, an entity should provide additional information that will help users of its financial statements to evaluate the quantitative information disclosed. An entity might disclose some or all the following to comply with paragraph 92 of the HKFRS:

a. the nature of the item being measured at fair value, including the characteristics of the item being measured that are taken into account in the determination of relevant inputs. For example, for residential mortgage-backed securities, an entity might disclose the following:

(i) the types of underlying loans (eg prime loans or sub-prime loans) (ii) collateral

(iii) guarantees or other credit enhancements (iv) seniority level of the tranches of securities (v) the year of issue

(vi) the weighted-average coupon rate of the underlying loans and the securities (vii) the weighted-average maturity of the underlying loans and the securities

(viii) the geographical concentration of the underlying loans (ix) information about the credit ratings of the securities.

b. how third-party information such as broker quotes, pricing services, net asset values and relevant market data was taken into account when measuring fair value.

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3.4 Offsetting financial assets and financial liabilities

(a) Financial assets

FRS7p13C The following financial assets are subject to offsetting, enforceable master netting arrangements and similar agreements.

Related amounts not set off in the balance sheet

As at 31 December 2016

Gross amounts of recognised

financial assets

Gross amounts of recognised

financial liabilities set

off in the balance sheet

Net amounts of

financial assets

presented in the balance

sheet Financial

instruments

Cash collateral

received Net

amount

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Derivative financial assets 1,939 (475) 1,464 (701) - 763

Cash and cash equivalents 15,953 (1,025) 14,928 (5,033) - 9,895

Trade receivables 18,645 (580) 18,065 (92) - 17,973

Total 36,537 (2,080) 34,457 (5,826) - 28,631

As at 31 December 2015

Gross amounts of recognised

financial assets

Gross amounts of recognised

financial liabilities set

off in the balance sheet

Net amounts of

financial assets

presented in the balance

sheet Financial

instruments

Cash collateral

received Net

amount

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Derivative financial assets 1,801 (605) 1,196 (535) - 661

Cash and cash equivalents 32,927 (865) 32,062 (2,905) - 29,157

Trade receivables 17,172 (70) 17,102 (58) - 17,044

Total 51,900 (1,540) 50,360 (3,498) - 46,862

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(b) Financial liabilities

FRS7p13C The following financial liabilities are subject to offsetting, enforceable master netting arrangements and similar agreements

Related amounts not set off in the balance sheet

As at 31 December 2016

Gross amounts of recognised

financial liabilities

Gross amounts of recognised

financial assets set off

in the balance sheet

Net amounts of

financial liabilities

presented in the balance

sheet Financial

instruments

Cash collateral

pledged Net

amount

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Derivative financial liabilities 1,070 (475) 595 (276) - 319

Bank overdrafts 3,675 (1,025) 2,650 - - 2,650

Trade payables 10,371 (580) 9,791 (62) - 9,729

Total 15,116 (2,080) 13,036 (338) - 12,698

As at 31 December 2015

Gross amounts of recognised

financial liabilities

Gross amounts of recognised

financial assets set off in the

balance sheet

Net amounts of financial

liabilities presented in the balance

sheet Financial

instruments

Cash collateral

pledged Net amount

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Derivative financial liabilities 1,352 (605) 747 (182) - 565

Bank overdrafts 7,329 (865) 6,464 (2,947) - 3,517

Trade payables 10,060 (70) 9,990 (28) - 9,962

Total 18,741 (1,540) 17,201 (3,157) - 14,044

FRS7p13E For the financial assets and liabilities subject to enforceable master netting arrangements or similar arrangements

above, each agreement between the group and the counterparty allows for net settlement of the relevant financial

assets and liabilities when both elect to settle on a net basis. In the absence of such an election, financial assets and

liabilities will be settled on a gross basis, however, each party to the master netting agreement or similar agreement

will have the option to settle all such amounts on a net basis in the event of default of the other party. According to

the terms of each agreement, an event of default includes failure by a party to make payment when due; failure by a

party to perform any obligation required by the agreement (other than payment) if such failure is not remedied

within periods of 30 to 60 days after notice of such failure is given to the party; or bankruptcy.

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Commentary – disclosure of offsetting of financial assets and financial liabilities

Scope 1. Because of the broad scope of the offsetting requirements, the disclosures are relevant not only to financial

institutions but also corporate entities. FRS7p13A,pB40, 32p50

2. The offsetting disclosures also apply to recognised financial instruments that are subject to an enforceable master netting arrangement or similar agreements, irrespective of whether they are set off in accordance with paragraph 42 of HKAS 32. While there is no definition of ‘‘master netting arrangement’’, a master netting arrangement will commonly:

(a) provide for a single net settlement of all financial instruments covered by the agreement in the event of

default on, or termination of, any one contract (b) be used by financial institutions to provide protection against loss in the event of bankruptcy or other

circumstances that result in a counterparty being unable to meet its obligations, and (c) create a right of set-off that becomes enforceable and affects the realisation or settlement of individual

financial assets and financial liabilities only following a specified event of default or in other circumstances not expected to arise in the normal course of business.

FRS7pB41 3. The offsetting disclosures do not apply to arrangements, such as: (a) financial instruments with only non-financial collateral agreements (b) financial instruments with financial collateral agreements but no other rights of set-off, and (c) loans and customer deposits with the same financial institution, unless they are set off in the balance

sheet Master netting without offsetting FRS7p36(b) 4. An entity may have entered into one or more master netting arrangements that serve to mitigate its exposure to

credit loss but do not meet the criteria for offsetting. When a master netting arrangement significantly reduces the credit risk associated with financial assets not offset against financial liabilities with the same counterparty, the entity must provide additional information concerning the effect of the arrangement.

Collateral arrangements FRS7p13C(d), pB41

5. Where an entity has pledged financial instruments (including cash) as collateral, this is only required to be disclosed as part of the offsetting disclosures where there are other set off arrangements currently in place in relation to the same instrument(s). That is, disclosure is not required where the only potential effect of the set off relates to a collateral agreement. As a result, it is required to disclose other financial instrument collateral provided in relation to this borrowing.

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Commentary – financial risk management Accounting standard for presentation and disclosure of financial instruments FRS7p3 1. HKFRS 7, ‘Financial instruments: Disclosures’, applies to all reporting entities and to all types of financial instruments

except:

Those interests in subsidiaries, associates and joint ventures that are accounted for under HKFRS 10, `Consolidated Financial Statements', HKAS 27, `Separate financial statements', or HKAS 28, `Investments in associates and joint ventures'. However, entities should apply HKFRS 7 to an interest in a subsidiary, associate or joint venture that according to HKFRS 10, HKAS 27 or HKAS 28 is accounted for under HKAS 39, `Financial instruments: Recognition and measurement'. Entities should also apply HKFRS 7 to all derivatives on interests in subsidiaries, associates or joint ventures unless the derivative meets the definition of an equity instrument in HKAS 32.

Employers’ rights and obligations under employee benefit plans, to which HKAS 19, ‘Employee benefits’, applies.

Insurance contracts as defined in HKFRS 4, ‘Insurance contracts’. However, HKFRS 7 applies to derivatives that are embedded in insurance contracts if HKAS 39 requires the entity to account for them separately. It also applies to financial guarantee contracts if the issuer applies HKAS 39 in recognising and measuring the contracts.

Financial instruments, contracts and obligations under share-based payment transactions to which HKFRS 2, ‘Share-based payment’, applies, except for contracts within the scope of paragraphs 5-7 of HKAS 39, which must be disclosed under HKFRS 7.

Puttable financial instruments that are required to be classified as equity instruments in accordance with paragraphs 16A and 16B or 16C and 16D of HKAS 32.

Classes of financial instruments FRS7p6, B1-B3 2. Where HKFRS 7 requires disclosures by class of financial instrument, the entity groups its financial instruments

into classes that are appropriate to the nature of the information disclosed and that take into account the characteristics of those financial instruments. The entity should provide sufficient information to permit reconciliation to the line items presented in the balance sheet. Guidance on classes of financial instruments and the level of required disclosures is provided in Appendix B of HKFRS 7.

Level of detail and selection of assumptions – information through the eyes of management FRS7p34(a) 3. The disclosures in relation to an entity’s financial risk management should reflect the information provided

internally to key management personnel. As such, the disclosures that will be provided by an entity, their level of detail and the underlying assumptions used will vary greatly from entity to entity. The disclosures in this illustrative financial statement are only one example of the kind of information that may be disclosed; the entity should consider carefully what may be appropriate in its individual circumstances.

Derivative financial instruments Classification as current or non-current 1pBC38B,pBC38C,

1p66,p69

4. The classification of financial instruments as held for trading under HKAS 39 does not mean that they must necessarily be presented as current in the balance sheet. If a financial liability is primarily held for trading purposes it should be presented as current. If it is not held for trading purposes, it should be presented as current or non-current on the basis of its settlement date. Financial assets should only be presented as current assets if the entity expects to realise them within 12 months.

5. The treatment of hedging derivatives will be similar. Where a portion of a financial asset is expected to be realised

within 12 months of the end of the reporting period, that portion should be presented as a current asset; the remainder of the financial asset should be shown as a non-current asset. This suggests that hedging derivatives should be split into current and non-current portions. However, as an alternative, the full fair value of hedging derivatives could be classified as current if the hedge relationships are for less than 12 months and as non-current if those relationships are for more than 12 months.

Nature and extent of risks arising from financial instruments FRS 7p31, 32 6. The financial statement should include qualitative and quantitative disclosures that enable users to evaluate the

nature and extent of risks arising from financial instruments to which the entity is exposed at the end of the reporting period. These risks typically include, but are not limited to, credit risk, liquidity risk and market risk.

Qualitative disclosures FRS 7p33 7. An entity should disclose for each type of risk: (a) The exposures to the risk and how they arise; (b) The entity’s objectives, policies and processes for managing the risk and the methods used to measure the

risk; and (c) Any changes in (a) or (b) from the previous period.

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Quantitative disclosures

FRS7

p34(a), (c)

8. An entity should provide for each type of risk, summary quantitative data on risk exposure at the end of the reporting period, based on information provided internally to key management personnel and any concentrations of risk. This information can be presented in narrative form as is done in this publication. Alternatively, entities could provide the data in a table that sets out the impact of each major risk on each type of financial instruments. This table could also be a useful tool for compiling the information that should be disclosed under paragraph 34 of HKFRS 7.

FRS7p34(b) 9. If not already provided as part of the summary quantitative data, the entity should also provide the information in paragraphs 11-24 below, unless the risk is not material.

Credit risk

FRS7p36, 37 10. For each class of financial instrument, the entity should disclose: (a) the maximum exposure to credit risk and any related collateral held; (b) information about the credit quality of financial assets that are neither past due nor impaired;

(c) the carrying amount of financial assets that would otherwise be past due or impaired whose terms have been renegotiated;

(d) an analysis of the age of financial assets that are past due but not impaired; and (e) an analysis of financial assets that are individually determined to be impaired including the factors in

determining that they are impaired.

Liquidity risk

FRS7 11. Information about liquidity risk shall be provided by way of; p34(a), 39 (a) a maturity analysis for non-derivative financial liabilities (including issued financial guarantee contracts but

excluding statutory liabilities) that shows the remaining contractual maturities; (b) a maturity analysis for derivative financial liabilities (see paragraph 14 below for details); and (c) a description of how the entity manages the liquidity risk inherent in (a) and (b).

FRS7B11F 12. In describing how liquidity risk is being managed, an entity should consider discussing whether it: (a) has committed borrowing facilities or other lines of credit that it can access to meet liquidity needs; (b) holds deposits at central banks to meet liquidity needs; (c) has very diverse funding sources; (d) has significant concentrations of liquidity risk in either its assets or its funding sources; (e) has internal control processes and contingency plans for managing liquidity risk; (f) has instruments that include accelerated repayment terms (for example, on the downgrade of the entity’s credit

rating); (g) has instruments that could require the posting of collateral (for example, margin calls for derivatives); (h) has instruments that allow the entity to choose whether it settles its financial liabilities by delivering cash (or

another financial asset) or by delivering its own shares; and (i) has instruments that are subject to master netting agreements. Maturity analysis

FRS7 B11B 13. The maturity analysis for derivative financial liabilities should disclose the remaining contractual maturities if these maturities are essential for an understanding of the timing of the cash flows. For example, this will be the case for interest rate swaps in a cash flow hedge of a variable rate financial asset or liability and for all loan commitments. Where the remaining contractual maturities are not essential for an understanding of the timing of the cash flows, the expected maturities may be disclosed instead.

FRS7p39, B11D 14. For derivative financial instruments where gross cash flows are exchanged and contractual maturities are essential to understanding, the maturity analysis should disclose the contractual amounts that are to be exchanged on a gross basis. The amount disclosed should be the amount expected to be paid in future periods, determined by reference to the conditions existing at the end of the reporting period. However, HKFRS 7 does not specify whether current or forward rates should be used. We therefore recommend that entities explain which approach has been chosen. This approach should be applied consistently.

FRS7 B11C 15. The specific time buckets presented are not mandated by the standard but are based on what is reported internally to the key management personnel. The entity uses judgement to determine the appropriate number of time bands.

FRS7 B11D 16. If the amounts included in the maturity tables are the contractual undiscounted cash flows, these amounts will not reconcile to the amounts disclosed on the balance sheet for borrowings, derivative financial instruments and trade and other payables. Entities can choose to add a column with the carrying amounts that ties into the balance sheet and a reconciling column if they so wish, but this is not mandatory.

FRS 7 B10A 17. If an outflow of cash could occur either significantly earlier than indicated or be for significantly different amounts from those indicated in the entity’s disclosures about its exposure to liquidity risk, the entity should state that fact and provide quantitative information that enables users of its financial statements to evaluate the extent of this risk. This disclosure is not necessary if that information is included in the contractual maturity analysis.

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Financing arrangements

7p50(a),

FRS7p39(c)

18. Committed borrowing facilities are a major element of liquidity management. Entities should therefore consider providing information about their undrawn facilities. HKAS 7, ‘Statements of cash flows’, also recommends disclosure of undrawn borrowing facilities that may be available for future operating activities and to settle capital commitments, indicating any restrictions on the use of these facilities.

Market risk

FRS7p40(a), (b) 19. Entities should disclose a sensitivity analysis for each type of market risk (currency, interest rate and other price risk) to which an entity is exposed at the end of the reporting period, showing how profit or loss and equity would have been affected by ‘reasonably possible’ changes in the relevant risk variable, as well as the methods and assumptions used in preparing such an analysis.

FRS7p40(c) 20. If there have been any changes in methods and assumptions from the previous period, this should be disclosed together with the reasons for the change.

Foreign currency risk

FRS7 B23 21. Foreign currency risk can only arise on financial instruments that are denominated in a currency other than the functional currency in which they are measured. Translation related risks are therefore not included in the assessment of the entity’s exposure to currency risks. Translation exposures arise from financial and non-financial items held by an entity (for example, a subsidiary) with a functional currency different from the group’s presentation currency. However, foreign currency denominated inter-company receivables and payables that do not form part of a net investment in a foreign operation are included in the sensitivity analysis for foreign currency risks, because even though the balances eliminate in the consolidated balance sheet, the effect on profit or loss of their revaluation under HKAS 21 is not fully eliminated.

FRS7 B23 22. For the purpose of HKFRS 7, currency risk does also not arise from financial instruments that are non-monetary items. The foreign currency exposure arising from investing in non-monetary financial instruments is reflected in the other price risk disclosures as part of the fair value gains and losses.

Interest rate risk – fixed rate borrowings

23. Sensitivity to changes in interest rates is relevant to financial assets or financial liabilities bearing floating interest rates due to the risk that future cash flows will fluctuate. However, sensitivity will also be relevant to fixed rate financial assets and financial liabilities that are re-measured to fair value.

Fair value disclosures

Financial instruments carried at other than fair value

FRS7p25,29 24. An entity should disclose the fair value for each class of financial assets and financial liabilities (see paragraph 3 above) in a way that permits it to be compared with its carrying amount. Fair values do not need to be disclosed for the following:

(a) when the carrying amount is a reasonable approximation of fair value. A statement that the carrying amount of financial assets or financial liabilities is a reasonable approximation of their fair value should only be made if it can be substantiated. That is, entities must have made a formal assessment of the carrying amounts of their financial assets and liabilities in comparison to their fair values and documented this assessment. If the fair values are not a reasonable approximation of the carrying amounts, the fair values must be disclosed.

(b) investments in equity instruments (and derivatives linked to such equity instruments) that do not have a quoted market price in an active market and that are measured at cost in accordance with HKAS 39 because their fair value cannot be measured reliably; or

(c) a contract containing a discretionary participation feature (as described in HKFRS 4, ‘Insurance contracts’) where the fair value of that feature cannot be measured reliably.

25. The information about the fair values can be provided either in a combined financial instruments note or in the individual notes. However, fair values should be separately disclosed for each class of financial instrument (see paragraph 3 above), which means that each line item in the table would have to be broken down into individual classes. For that reason, Specimen Holdings Limited has chosen to provide the information in the relevant notes.

Methods and assumptions in determining fair value

FRS13p91 26. An entity shall disclose information that helps users of its financial statements assess both of the following:

(a) for assets and liabilities that are measured at fair value on a recurring or non-recurring basis in the statement of financial position after initial recognition, the valuation techniques and inputs used to develop those measurements. (b) for recurring fair value measurements using significant unobservable inputs (Level 3), the effect of the measurements on profit or loss or other comprehensive income for the period.

Financial instruments measured at cost where fair value cannot be determined reliably

FRS 7p30 27. If the fair value of investments in unquoted equity instruments, derivatives linked to such equity instruments or a contract containing a discretionary participation feature (as described in HKFRS 4, ‘Insurance contracts’) cannot be measured reliably, the entity should disclose:

(a) the fact that fair value information has not been disclosed because it cannot be measured reliably;

(b) a description of the financial instruments, their carrying amount and an explanation of why fair value cannot be measured reliably;

(c) information about the market for the instruments;

(d) information about whether and how the entity intends to dispose of the financial instruments; and

(e) if the instruments are subsequently derecognised, that fact, their carrying amount at the time of derecognition and the amount of gain or loss recognised.

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Fair value measurements recognised in the balance sheet

FRS13p93 28. For fair value measurements recognised in the balance sheet, the entity should also disclose for each class of financial instruments:

(a) the level in the fair value hierarchy into which the fair value measurements are categorised;

(b) any significant transfers between level 1 and level 2 of the fair value hierarchy and the reasons for those transfers;

(c) for fair value measurements in level 3 of the hierarchy, a reconciliation from the beginning balances to the ending balances, showing separately changes during the period attributable to the following:

(i) total gains or losses for the period recognised in profit or loss and the line item(s) which they are recognised, together with a description of where they are presented in the statement of comprehensive income or the statement of profit or loss (as applicable);

(ii) total gains or losses recognised in other comprehensive income;

(iii) purchases, sales issues and settlements (each type disclosed separately); and

(iv) transfers into or out of level 3 and the reasons for those transfers;

(d) for recurring fair value measurements categorised within Level 3 of the fair value hierarchy, the amount of the total gains or losses for the period included in profit or loss that is attributable to the change in unrealised gains or losses relating to those assets and liabilities held at the end of the reporting period, and the line item(s) in profit or loss in which those unrealised gains or losses are recognised.

(e) for recurring fair value measurements in level 3:

(i) for all such measurements, a narrative description of the sensitivity of the fair value measurement to changes in unobservable inputs if a change in those inputs to a different amount might result in a significantly higher or lower fair value measurement. If there are interrelationships between those inputs and other unobservable inputs used in the fair value measurement, an entity shall also provide a description of those interrelationships and of how they might magnify or mitigate the effect of changes in the unobservable inputs on the fair value measurement. To comply with that disclosure requirement, the narrative description of the sensitivity to changes in unobservable inputs shall include, at a minimum, the unobservable inputs disclosed.

(ii) for financial assets and financial liabilities, if changing one or more of the unobservable inputs to reflect reasonably possible alternative assumptions would change fair value significantly, an entity shall state that fact and disclose the effect of those changes. The entity shall disclose how the effect of a change to reflect a reasonably possible alternative assumption was calculated. For that purpose, significance shall be judged with respect to profit or loss, and total assets or total liabilities, or, when changes in fair value are recognised in other comprehensive income, total equity.

FRS13p93(b) 29. Entities should classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy should have the following levels:

(a) Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.

(b) Level 2: inputs other than quoted prices that are observable for the asset or liability, either directly (for example, as prices) or indirectly (for example, derived from prices).

(c) Level 3: inputs for the asset or liability that are not based on observable market data.

The appropriate level is determined on the basis of the lowest level input that is significant to the fair value measurement.

Additional information where quantitative data about risk exposure is unrepresentative FRS7p35, 42 30. If the quantitative data disclosed is unrepresentative of the entity’s exposure to risk during the period, the entity should

provide further information that is representative. If the sensitivity analyses are unrepresentative of a risk inherent in a financial instrument (for example, where the year-end exposure does not reflect the exposure during the year), the entity should disclose that fact and the reason why the sensitivity analyses are unrepresentative.

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4 Critical accounting estimates and judgements

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

1p125 4.1 Critical accounting estimates and assumptions

The group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below.

(a) Estimated impairment of goodwill

The group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated in Note 2.6. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of estimates (Note18).

1p129,

36p134(f)(i)-(iii)

An impairment charge of HK$4,650,000 arose in the wholesale CGU in Step-land (included in the Russian operating segment) during the course of the 2016 year, resulting in the carrying amount of the CGU being written down to its recoverable amount. If the budgeted gross margin used in the value-in-use calculation for the wholesale CGU in Step-land had been 10% lower than management’s estimates at 31 December 2016 (for example, 46% instead of 56%), the group would have recognised a further impairment of goodwill by HK$100,000 and would need to reduce the carrying value of property, plant and equipment by HK$300,000.

If the estimated cost of capital used in determining the pre-tax discount rate for the wholesale CGU in Step-land had been 1% higher than management’s estimates (for example, 13.8% instead of 12.8%), the group would have recognised a further impairment against goodwill of HK$300,000 and would need to reduce the carrying value of property, plant and equipment by HK$400,000.

(b) Income taxes

The group is subject to income taxes in numerous jurisdictions. Significant judgement is required in determining the worldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain. The group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made.

Were the actual final outcome (on the judgement areas) of expected cash flows to differ by 10% from management’s estimates, the group would need to:

Increase the income tax liability by HK$120,000 and the deferred tax liability by HK$230,000, if unfavourable; or

Decrease the income tax liability by HK$110,000 and the deferred tax liability by HK$215,000, if favourable.

(c) Fair value of derivatives and other financial instruments

FRS13p91 The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined by using valuation techniques. The group uses its judgement to select a variety of methods and make assumptions that are mainly based on market conditions existing at the end of each reporting period. The group has used discounted cash flow analysis for various foreign exchange contracts that are not traded in active markets.

The carrying amount of foreign exchange contracts would be an estimated HK$12,000 lower or HK$15,000 higher were the discount rate used in the discount cash flow analysis to differ by 10% from management's estimates.

(d) Fair value of investment properties

40p46(c)

40p75(d) The fair value of investment properties is determined by using valuation technique. Details of the judgement and assumptions have been disclosed in Note 17.

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(e) Revenue recognition

The group uses the percentage-of-completion method in accounting for its fixed-price contracts to deliver design services. Use of the percentage-of-completion method requires the group to estimate the services performed to date as a proportion of the total services to be performed. Were the proportion of services performed to total services to be performed to differ by 10% from management’s estimates, the amount of revenue recognised in the year would be increased by HK$1,175,000 if the proportion performed were increased, or would be decreased by HK$1,160,000 if the proportion performed were decreased.

(f) Pension benefits

The present value of the pension obligations depends on a number of factors that are determined on an actuarial basis using a number of assumptions. The assumptions used in determining the net cost (income) for pensions include the discount rate. Any changes in these assumptions will impact the carrying amount of pension obligations.

The group determines the appropriate discount rate at the end of each year. This is the interest rate that should be used to determine the present value of estimated future cash outflows expected to be required to settle the pension obligations. In determining the appropriate discount rate, the group considers the interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating the terms of the related pension obligation.

Other key assumptions for pension obligations are based in part on current market conditions. Additional information is disclosed in Note 34.

Were the discount rate used to differ by x% from management’s estimates, the carrying amount of pension obligations would be an estimated HK$425,000 lower or HK$450,000 higher.

1p122 4.2 Critical judgements in applying the company’s accounting policies

(a) Revenue recognition

The group has recognised revenue amounting to HK$950,000 for sales of goods to L&Co in the UK during 2016. The buyer has the right to return the goods if their customers are dissatisfied. The group believes that, based on past experience with similar sales, the dissatisfaction rate will not exceed 3%. The group has, therefore, recognised revenue on this transaction with a corresponding provision against revenue for estimated returns. If the estimate changes by x%, revenue will be reduced/increased by HK$10,000.

(b) Impairment of available-for-sale equity investments

The group follows the guidance of HKAS 39 to determine when an available-for-sale equity investment is impaired. This determination requires significant judgement. In making this judgement, the group evaluates, among other factors, the duration and extent to which the fair value of an investment is less than its cost; and the financial health of and short-term business outlook for the investee, including factors such as industry and sector performance, changes in technology and operational and financing cash flow.

If all of the declines in fair value below cost were considered significant or prolonged, the group would suffer an additional loss of HK$1,300,000 in its 2016 financial statements, being the transfer of the accumulated fair value adjustments recognised in equity on the impaired available-for-sale financial assets to the statement of profit or loss.

FRS12p9 (c) Consolidation of entities in which the group holds less than 50%

Management consider that the group has de facto control of Delta Inc. even though it has less than 50% of the voting rights. The group is the majority shareholder of Delta Inc. with a 40% equity interest, while all other shareholders individually own less than 1% of its equity shares. There is no history of other shareholders forming a group to exercise their votes collectively.

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FRS12p9 (d) Investment in Alfa Limited

Management has assessed the level of influence that the Group has on Alfa Limited and determined that it has significant influence even though the shareholding is below 20% because of the board representation and contractual terms. Consequently, this investment has been classified as an associate.

FRS12p9 (e) Joint arrangements

The group holds 50% of the voting rights of its joint arrangement. The group has joint control over this arrangement as under the contractual agreements, unanimous consent is required from all parties to the agreements for all relevant activities. The group’s joint arrangement is structured as a limited company and provides the group and the parties to the agreements with rights to the net assets of the limited company under the arrangements. Therefore, this arrangement is classified as a joint venture.

Commentary – critical accounting estimates and judgements

Goodwill acquired in a business combination is allocated to a CGU or groups of CGUs, from the acquisition date, that is expected to benefit from the synergies of the combination, for impairment assessment purpose. Goodwill is tested for impairment at a level that reflects the way an entity manages its operations and with which the goodwill would be naturally associated. The allocation of goodwill can be an area of judgement depends on facts and circumstances. If it is a critical judgement, disclosure of the basis on which management make these judgements should be disclosed in the financial statements in accordance with HKAS 1 para. 122.

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5 Segment information FRS8 p22(a)

The strategic steering committee is the group’s chief operating decision-maker. Management has determined the operating segments based on the information reviewed by the strategic steering committee for the purposes of allocating resources and assessing performance.

FRS8 p22(a)(b)

The strategic steering committee considers the business from both a geographic and product perspective. Geographically, management considers the performance in HK, UK, US, China and Russia. From a product perspective, management separately considers the wholesale and retail activities in these geographies. The group only has retail activities in the HK and US. The wholesale segments derive their revenue primarily from the manufacture and wholesale sale of the group's own brand of shoes, Footsy Tootsy. The HK and US retail segments derive their revenue from retail sales of shoe and leather goods including the group's own brand and other major retail shoe brands.

FRS8 p22(a) FRS8 p18 FRS8 p22(aa)

Although the China segment does not meet the quantitative thresholds required by HKFRS 8 for reportable segments, management has concluded that this segment should be reported, as it is closely monitored by the strategic steering committee as a potential growth region and is expected to materially contribute to group revenue in the future. During 2015, US retail did not qualify as a reportable operating segment. However, with the acquisition in 2016 of ABC group (see Note 41), US retail qualifies as a reportable operating segment; the comparatives have been restated. Since January 2016, the group has expanded its wholesale activity to Macau. While the committee receives separate reports for each region, the wholesale in Macau and wholesale in HK have been aggregated into one reportable segment as they have similar average gross margins and similar expected growth rates.

FRS8p16 All other segments primarily relate to the sale of design services and goods transportation services to other shoe

manufacturers in the UK and HK and wholesale shoe revenue from the Central American region. These activities are excluded from the reportable operating segments, as these activities are not reviewed by the strategic steering committee.

FRS8 p27(b), 28

The strategic steering committee assesses the performance of the operating segments based on a measure of adjusted EBITDA. This measurement basis excludes discontinued operations and the effects of non-recurring expenditure from the operating segments such as restructuring costs, legal expenses and goodwill impairments when the impairment is the result of an isolated, non-recurring event. The measure also excludes the effects of equity-settled share-based payments and unrealised gains/losses on financial instruments. Interest income and expenditure are not allocated to segments, as this type of activity is driven by the central treasury function, which manages the cash position of the group.

Revenue FRS8p27(a) Sales between segments are carried out at arm's length. The revenue from external parties reported to the strategic

steering committee is measured in a manner consistent with that in the statement of profit or loss.

2016 2015 (Restated)

Total segment

revenue

HK$’000

Inter-

segment

revenue

HK$’000

Revenue from

external

customers

HK$’000

Total

segment

revenue

HK$’000

Inter-

segment

revenue

HK$’000

Revenue from

external

customers

HK$’000

HK and Macau

wholesale 46,638 (11,403) 35,235 57,284 (11,457) 45,827

HK retail 43,257 – 43,257 1,682 - 1,682

US wholesale 28,820 (7,364) 21,456 33,990 (6,798) 27,192

US retail 42,672 – 42,672 2,390 - 2,390

Russia 26,273 (5,255) 21,018 8,778 (1,756) 7,022

China 5,818 (1,164) 4,654 3,209 (642) 2,567

UK 40,273 (8,055) 32,218 26,223 (5,245) 20,978

All other segments 13,155 (2,631) 10,524 5,724 (1,022) 4,702

Total 246,906 (35,872) 211,034 139,280 (26,920) 112,360

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FRS8 p28(b) Adjusted EBITDA

2016 HK$’000

2015 (Restated)

HK$’000 Adjusted

EBITDA Adjusted EBITDA

HK and Macau wholesale 17,298 17,183 HK retail 9,550 800 US wholesale 9,146 10,369 US retail 9,686 1,298 Russia wholesale 12,322 3,471 China wholesale 2,323 1,506 UK wholesale 16,003 10,755 All other segments 3,291 1,973 Total 79,619 47,355 Depreciation (24,654) (16,248) Amortisation (1,900) (765) Restructuring costs (1,986) - Legal expenses (737) (855) Goodwill impairment (4,650) - Fair value gains on investment properties - net 7,900 6,000 Unrealised financial instrument gains 102 101 Share options granted to directors and employees (690) (822) Finance expenses – net (6,443) (10,588) Other 2,059 1,037 Profit before tax and discontinued operations 48,620 25,215 FRS8p23

Other profit and loss disclosures21

Year ended 31 December 2016 Year ended 31 December 2015 (Restated)

Depreciation

and

amortisation

HK$’000

Goodwill

impairment

HK$’000

Restructuring

costs

HK$’000

Income tax

expense

HK$’000

Share of profit

from

associates and

joint ventures

HK$’000

Depreciation and

amortisation

HK$’000

Income tax

expense

HK$’000

Share of

profit from

associates

and joint

ventures

HK$’000

HK and Macau

wholesale (4,617) - - (2,550) 200

(6,323) (2,772) 155

HK retail (5,481) - - (2,780) -

(334) (650) –

US wholesale (2,711) - - (1,395) -

(4,072) (1,212) –

US retail (5,423) - - (3,040) -

(331) (489) –

Russia (3,512) (4,650) (1,986) (1,591) -

(754) (509) –

China (552) - - (365) -

(476) (150) –

UK (3,873) - - (2,490) 1,078

(4,493) (2,201) 877

All other

segments (385) - - (87) 15

(230) (192) (10)

Total (26,554) (4,650) (1,986) (14,298) 1,293

(17,013) (8,175) 1,022

FRS8p23(i) See Note 18 for details of the impairment of goodwill of HK$4,650,000 in the Russian operating segment in 2016 relating to the decision to reduce manufacturing output. There has been no further impact on the measurement of the group’s assets and liabilities. See note 35 for details of the restructuring costs incurred in the Russia wholesale segment. There was no impairment charge or restructuring costs recognised in 2015.

FRS8p27(f) Due to the UK operations utilising excess capacity in certain Russian assets that are geographically close to

the UK region, a portion of the depreciation charge of HK$197,000 (2015: HK$50,000) relating to the Russian assets has been allocated to the UK segment to take account of this.

21 HKFRS 8 para 23 requires disclosures of interest revenue and expense, even if not included in the measure of segment profit and loss. This disclosure has not been included in the illustrative because these balances are not allocated to segments.

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FRS8p23,24, 28(c)

Assets22

2016 2015 (Restated)

Total

assets

HK$’000

Investments

accounted

for using

equity

method

HK$’000

Additions to

non-current

assets23

HK$’000

Total assets

HK$’000

Investments

accounted for

using equity

method

HK$’000

Additions to

non-current

assets20

HK$’000

HK and Macau

wholesale 45,201 18,649 –

43,320 17,053 –

HK retail 24,495 – 35,543

9,580 – 47

US wholesale 41,195 – –

32,967 – –

US retail 13,988 – 39,817

8,550 – 46

Russia wholesale 15,067 – –

5,067 – –

China wholesale 24,899 – 11,380

20,899 – 2,971

UK wholesale 33,571 – –

36,450 – –

All other segments 65,357 - 1,500

51,896 - 3,678

Total 263,773 18,649 88,240

208,729 17,053 6,742

Unallocated

Deferred income tax 3,546

3,383

Available-for-sale

financial assets 19,370

14,910

Financial assets at fair

value through the

profit and loss 11,820

7,972

Derivative financial

instruments 1,464

1,196

Assets of disposal

group classified as

held for sale 3,333

Total assets per the

balance sheet 303,306

236,190

FRS8p27(c) The amounts provided to the strategic steering committee with respect to total assets are measured in a

manner consistent with that of the financial statements. These assets are allocated based on the operations of the segment and the physical location of the asset.

Investment in shares (classified as available-for-sale financial assets or financial assets at fair value through profit or loss) held by the group are not considered to be segment assets but rather are managed by the treasury function. The measure of assets reviewed by the CODM does not include assets held for sale. The group’s interest-bearing liabilities are not considered to be segment liabilities but rather are managed by the treasury function.

22 The measures of assets and liabilities have been disclosed for each reportable segment as they are regularly provided to the chief operating decision-maker. If the chief operating decision-maker does not review a measure of assets or liabilities, they need not be disclosed. These disclosures are for illustrative purposes. 23 The additions to non-current assets excludes financial instruments, deferred tax assets, net defined benefit assets and rights arising under insurance contracts.

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FRS8 p28(d)

Liabilities24 2016

HK$’000

(Restated) 2015

HK$’000 HK and Macau wholesale 7,459 6,857 HK retail 2,651 2,094 US wholesale 9,110 7,783 US retail 3,254 3,565 Russia wholesale 5,806 4,086 China wholesale 2,583 1,971 Europe wholesale 1,241 624 All other segments 5,596 4,643 Total 37,700 31,623 Unallocated Deferred income tax 11,188 8,184 Borrowings (exclude finance leases) 117,839 104,006 Derivative financial instruments 595 747 Liabilities of disposal group classified as held for sale 220 - Total liabilities per the balance sheet 167,542 144,560 The group’s borrowings, excluding finance leases and derivative financial liabilities are not considered to

be segment liabilities for reporting to the strategic steering committee as they are managed by the central treasury function.

24 The measures of assets and liabilities have been disclosed for each reportable segment as they are regularly provided to the chief operating decision-maker. If the chief operating decision-maker does not review a measure of assets or liabilities, they need not be disclosed. These disclosures are for illustrative purposes.

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Entity-Wide information FRS8p32 Breakdown of the revenue from all services is as follows:

18p35(b) Analysis of revenue by category 2016

HK$’000 2015

HK$’000

Sales of goods 202,884 104,495

Revenue from services 8,000 7,800

Royalty income 150 65

211,034 112,360 FRS8p33(a)

Revenue from external customers by country, based on the destination of the customer:

2016 HK$’000

2015 HK$’000

HK 50,697 48,951 US 46,843 8,403 Russia 21,148 8,039 China 7,233 3,840 Germany 14,365 13,717 France 10,655 6,999 Other European countries 35,949 14,168 Other countries 24,144 8,243 Total 211,034 112,360 Revenues from the individual countries included in Other European countries and Other countries are not

material. FRS8p33(b) Non-current assets, other than financial instruments and deferred income tax assets (there are no

employment benefit assets and rights arising under insurance contracts), by country:

2016

HK$’000 2015

HK$’000 HK 61,855 39,567 US 69,037 34,055 Russia 7,531 4,269 China 4,523 4,983 Germany 19,526 17,459 France 15,179 15,757 Other European countries 8,652 7,372 Other countries 15,077 14,743 Total 201,380 138,205 Non-current assets in the individual countries included in Other European countries and Other countries are

not material. FRS8p34 Revenues of approximately HK$32,023,000 (2015: HK$28,034,000) are derived from a single external

customer. These revenues are attributable to the US retail and HK wholesale segments.

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Commentary – Segment information Entity-wide information requirements FRS 8p31-34 FRS 8p22

1. The standard requires all entities that report in accordance with HKFRS 8 to make certain entity-wide disclosures, that is disclosures for the entity as a whole rather than by segment. This requirement also applies to those entities with only one reportable segment. The reason for requiring this additional information is that some entities’ business activities are not organised on the basis of differences in products and services or differences in geographical areas of operations. For example, an entity might be organised around markets and those markets might encompass different types of products or different geographical areas. Similarly several of the entity’s reportable segments might provide similar products and services (if the reportable segments are based on geographical areas) or several reportable segments might cover the same geographical areas (if the entity’s reportable segments are based on different products and services). [HKFRS 8p31]. The types of entity wide disclosures are mainly information on the entity’s products and services and information on the entity’s geographical areas of operation. These are the types of information that analysts and other users find useful for assessing trends in performance, concentrations of risk or other purposes. Entity-wide information should be comparable from period to period. For example, where a previously material product grouping becomes immaterial, it would continue to be reported in the current period and then reassessed as to whether it is material in the next period. The disclosures required in HKFRS8p32-34 are not required if they are otherwise provided as part of the reportable segment information required by the standard. [HKFRS 8 p31]. For example, an entity whose operating segments are based on products and services is not required to provide additional information on its products and services. The disclosures are also not required where the necessary information is not available and the cost to develop it would be excessive, but in such a situation that fact must be disclosed. [HKFRS 8 p32, 33].

HKFRS 8 does not prescribe how revenue should be allocated to geographic areas. An entity may choose to allocate revenue on the basis of either the customer's location, the location to which the product is shipped (which may differ from the location in which the customer resides) or the location in which the sale originated. An entity must disclose the basis it has selected for attributing revenue to geographic areas. The standard does not define the term ‘material’ for the purpose of determining whether an individual country’s revenue or non-current assets should be separately disclosed. The entity should consider materiality from both quantitative and qualitative perspectives. When considering quantitatively, as the standard uses the threshold of ten percent or more in determining whether an operating segment is a reportable segment or not, it seems reasonable to apply the same test to determine whether an individual country’s revenue or assets are material for the purpose of separate disclosure. HKFRS8p33 requires the disclosure of revenue and non-current asset information to be analysed by (a) the entity’s country of domicile and (b) all foreign counties in total. There is no further explanation as to the meaning of the entity’s “country of domicile” when the disclosures are made on a consolidated basis. In our view, if a parent company is an investment holding company incorporated in an overseas jurisdiction at where the group does not have any activities, the required disclosure may be referred to the country which the group regards as its “home country”, for example, where it has the majority of its operations, workforce and/ or central of management. Further disclosure should be given about how the entity has identified its “country of domicile” if the determination of the “country of domicile” is not that straightforward. Description of segments

2. Entities shall disclose factors used to identify its reportable segments, including the basis of organisation, and types of products and services from which each reportable segment derives its revenues. From 1 July 2014, they must also disclose the judgements made by management in applying the aggregation criteria of the standard, including a description of the aggregated segments and the economic indicators that have been assessed in determining that the aggregated segments share similar economic characteristics.

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6 Exceptional items

An analysis of the amount presented as an exceptional item in these financial statements is given below.

2016

HK$’000

2015

HK$’000

Operating items

Inventory write-down 6,117 –

The inventory write-down of HK$6,117,000 relates to leather accessories that have been destroyed by fire

in an accident. This amount is included within cost of sales in the statement of profit or loss.

7 Other income

2016

HK$’000 2015

HK$’000 18p35(b)(v) Dividend income on available-for-sale financial assets 1,100 388 18p35(b)(v) Dividend income on financial assets at fair value through profit or

loss 487 310 Investment income 1,587 698 Insurance reimbursement − 66 1,587 764 The insurance reimbursement relates to the excess of insurance proceeds over the carrying values of goods

damaged.

8 Other gains – net 2016

HK$’000 2015

HK$’000

FRS7p20(a)(i), Financial assets at fair value through profit or loss (Note 24):

– Fair value losses (508) (238)

– Fair value gains 593 −

FRS7p20(a)(i) Foreign exchange forward contracts:

– Held for trading 86 88

21p52(a) – Net foreign exchange (losses)/ gains (Note 15) (277) 200

FRS7p24(a) Ineffectiveness on fair value hedges (Note 21) (1) (1)

FRS7p24(b) Ineffectiveness on cash flow hedges (Note 21) 17 14 A4(1)(a), GEM18.50B(1)(a)

Profit/(loss) on disposal of property, plant and equipment

17

(8)

Net gains from fair value adjustment on investment properties (Note 17) 7,900 6,000

Gain on remeasuring existing interest in ABC Group on acquisition (Note 41)

850 −

8,677 6,055

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9 Expenses by nature

2016

HK$’000 2015

HK$’000

1p104 Changes in inventories of finished goods and work in progress 6,950 (2,300)

1p104 Raw materials and consumables used 47,185 31,845

Inventory write-down (Note 6) 6,117 −

1p104 Employee benefit expense (Note 10) 40,310 15,577

1p104, Depreciation, amortisation and impairment charges (Notes 16, 16a and 18) 31,204 17,013

1p104 Transportation expenses 8,584 6,112

1p104 Advertising costs 12,759 6,000

1p104, Operating lease payments (Note 16a) 10,604 8,500

4sch.p2.1 Auditors’ remuneration25

MB Code M/GEM Code M

- Audit services 1,000 1,000

- Non-audit services 500 300

Other restructuring costs (Note 35) 1,187 -

1p104 Other expenses 1,128 351

Total cost of sales, distribution expenses and administrative expenses

167,528 84,398

10 Employee benefit expense

2016

HK$’000 2015

HK$’000 19p171 Wages and salaries, including restructuring costs HK$799,000 (2015: nil)

(Note 35) and other termination benefits HK$1,600,000 (2015: nil) 28,363 10,041 Social security costs 9,369 3,802 FRS2p51(a) Share options granted to directors and employees (Notes 28 and 29) 690 822 19p53 Pension costs – defined contribution plans 756 232 19p141 Pension costs – defined benefit plans (Note 34) 948 561 19p141 Other post-employment benefits (Note 34) 184 119 1p104 Total employee benefit expense 40,310 15,577

(a) Pensions – defined contribution plans

A26 (2), GEM18.34(2)

Forfeited contributions totalling HK$56,000 (2015: HK$15,000) were utilised during the year leaving HK$nil available at the year-end to reduce future contributions.

Contributions totalling HK$65,000 (2015: HK$20,000) were payable to the fund at the year-end.

25 As an explanation or reconciliation should be provided if the details of the auditor’s remuneration in the Corporate Governance Report were different from

information on audit fees disclosed in the financial statements, listed companies can choose to disclose fees for audit services and non-audit services in the financial statements to be consistent with those disclosed in the Corporate Governance Report.

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Commentary:

The disclosures of “Directors’ and chief executive’s emoluments” are included in a separate note Note 45 “Benefits and interests of directors (disclosures required by section 383 of the Hong Kong Companies Ordinance (Cap. 622) and Companies (Disclosure of Information about Benefits of Directors) Regulation (Cap. 622G))”

(b) Five highest paid individuals The five individuals whose emoluments were the highest in the group for the year include three (2015: four) directors

whose emoluments are reflected in the analysis shown in Note 45. The emoluments payable to the remaining two (2015: one) individuals during the year are as follows:

2016 2015 HK$’000 HK$’000 A25(1)-(5) GEM18.30(1)-(5)

Basic salaries, housing allowances, share options, other allowances and benefits in kind

1,500 1,850

Contribution to pension scheme 25 -

Bonuses 600 250

Inducement fee 20 -

Compensation for loss of office:

- contractual payments 1,000 -

- other payment 10 -

3,155 2,100 A25(6) GEM18.30(6)

The emoluments fell within the following bands:

Number of individuals

2016 2015

Emolument bands (in HK dollar)

HK$1,000,001 - HK$1,500,000 2 -

HK$2,000,000 - HK$2,500,000 - 1

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11 Finance income and costs

2016

HK$’000 2015

HK$’000 FRS7p20(b) Interest expense:

– Bank borrowings (5,314) (10,644) – Dividend on redeemable preference shares (Note 32) (1,950) (1,950)

– Convertible bond (Note 32) (3,083) −

– Finance lease liabilities (550) (648) 37p84(e) – Provisions: unwinding of discount (Note 35) (44) (37)

– Allowance for impairment of trade receivables: unwinding of discount (Note 22) (3) (2)

21p52(a) Net foreign exchange gains on financing activities (Note 15) 2,594 996

Fair value gains on financial instruments:

FRS7p23(d) – Interest rate swaps: cash flow hedges, transfer from equity 102 88 FRS7

p24(a)(i) – Interest rate swaps: fair value hedges 16 31 FRS7

p24(a)(ii) Fair value adjustment of bank borrowings attributable to interest rate risk (16) (31)

Finance expenses (8,248) (12,197) Less: amounts capitalised on qualifying assets 75 –

Total finance expenses (8,173) (12,197)

Finance income:

– Interest income on short-term bank deposits 550 489 – Interest income on available-for-sale financial assets 963 984

– Interest income on loans to related parties (Note 42) 217 136

FRS7p20(b) Finance income 1,730 1,609

Net finance expenses (6,443) (10,588)

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74

12a Subsidiaries

FRS12

p10(a),

12(a-c)

A9, GEM

18.10

The following is a list of the principal subsidiaries at 31 December 2016:

Name Place of

incorporation and kind of legal

entity2627

Principal activities

and place of operation2828

Particulars of issued share capitaland debt

securities29

Proportion

of ordinary shares

directly held

by parent

(%)

Proportion

of ordinary shares held

by the

group (%)

Proportion

of ordinary shares held

by non-

controlling

interests

(%)

Proportion

of preference

shares held

by the

group (%)

Black

Limited

Hong Kong,

Limited liability company

Investment

holding and shoes manufacturing in

Hong Kong

10,000 Ordinary shares

HK$ 20,000

100% 100% - -

Blue

Limited

Hong Kong,

limited liability

company

Shoes

manufacturing in

Hong Kong and Mainland China

2,000,000 Ordinary shares

HK$ 2,000,000

2,000 Preference shares

HK$ 2,000

- 100% - 100%

Red

Limited U.S.A., limited liability company

Shoes wholesale and retailing in

Canada and the

United States

2,000,000 Ordinary shares of 1 US dollar each

US$ 2,000,000

Debenture of US$500,000 repayable from 1

January 2016 to 31 December 2016.

- 60% 40% -

ABC

Group U.S.A., limited liability company

Shoes wholesale and retailing in the

United Kingdom

10,000 Ordinary shares of 1 UK pound each.

£10,000

- 70% 30% -

Pink

Limited

United Kingdom,

limited liability

company

Shoes wholesale

and retailing in the

United Kingdom

10,000 Ordinary shares of 1 UK pound each.

£10,000

- 100% - -

Green

Limited

Japan, limited

liability company

Shoes wholesales

and retailing in

Mainland China,

Japan and

Singapore

1,000,000 ordinary shares of 10,000

Japanese yen each

JPY 10,000,000,000

- 40% 60% -

Delta

Inc

U.S.A limited

liability company

Shoe and leather

goods retailer

1,000,000 Ordinary shares of 1 US dollar

each

US$ 1,000,000

- 40% 60% -

FRS12

p7(a),9

(b)

Although the group owns less than half of the equity interests in Green Ltd and Delta Inc, it is able to gain power over more than one half of the voting rights by virtue

of an agreement with other investors. Consequently, the group consolidates Green Ltd and Delta Inc.

26 kind of legal entity information and nature of business is re quired to be shown f or each subsidiary.

A9(1), GEM18.10(1)

27 For a MB listed parent company the kind of legal entity information is required only for its subsidiaries established in the PRC. For GEM listed parent company, the kind of legal entity information and nature of business is required to be shown for each subsidiary. 28 Unlisted companies need not disclose the place of operation of subsidiaries. 29 Unlisted companies need not disclose the particulars of subsidiaries’ debt securities and classes of issued share capital not held by them.

PN600.1(17)

Where subsidiaries are not audited by the principal auditor, that fact is recommended to be disclosed by notes along the following lines, with an asterisk marked against the appropriate subsidiary:-

“Subsidiaries not audited by PricewaterhouseCoopers. The aggregate net assets of subsidiaries not audited by PricewaterhouseCoopers amounted to approximately x% of the group’s total assets/turnover/profits.”

27p40(e)

Disclose the reporting date of the financial statements of a subsidiary when such financial statements are used to prepare consolidated financial statements and are as of a reporting date or for a period that is different from that of the parent, and the reason for using a different reporting date or period.

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(a) Material non-controlling interests

FRS12p12 (f) The total non-controlling interest for the period is HK$7,188,000 (2015: HK$1,766,000), of which HK$5,327,000 (2015: nil) is for ABC Group and HK$2,466,000 (2015: HK$2,392,000) is attributed to Delta Inc. The non-controlling interests in respect of Red Limited and Green Limited are not material.

Significant restrictions

FRS12p10(b)(

i)

Cash and short-term deposits of HK$1,394,000 (2015: HK$1,006,000) are held in China and are subject to local exchange control regulations. These local exchange control regulations provide for restrictions on exporting capital from the country, other than through normal dividends.

Summarised financial information on subsidiaries with material non-controlling interests

FRS12p12(g),

B10(b)

Set out below are the summarised financial information for each subsidiary that has non-controlling interests that are material to the group. See Note 40 for transactions with non-controlling interests.

Summarised balance sheet

Delta Inc ABC Group

2016 2015 2016 2015

HK$’000 HK$’000 HK$’000 HK$’000

Current

Assets 5,890 4,828 16,935 14,742

Liabilities (3,009) (2,457) (4,514) (3,686)

Total current net assets 2,881 2,371 12,421 11,056

Non-current

Assets 3,672 2,357 10,008 8,536

Liabilities (2,565) (1,161) (3,848) (1,742)

Total non-current net assets 1,107 1,196 6,160 6,794

Net assets 3,988 3,567 18,581 17,850

Summarised statement of profit or loss

Delta Inc ABC Group

2016 2015 2016 2015

HK$’000 HK$’000 HK$’000 HK$’000

Revenue 19,602 17,883 29,403 26,825

Profit before income tax 4,218 3,007 6,327 6,611

Income tax expense (1,692) (1,411) (2,838) (2,667)

Post-tax profit from continuing operations 2,526 1,596 3,489 3,944

Post-tax profit from discontinued operations – – 23 19

Other comprehensive income 369 (203) 554 495

Total comprehensive income 2,895 1,393 4,066 4,458

Total comprehensive income allocated to Non- Controlling Interests 1,737 836 1,138 -

Dividends paid to Non-Controlling Interests 1,770 550 150 -

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Summarised cash flows

Delta Inc. Delta Inc. ABC Group ABC Group

2016 2015 2016 2015

HK$’000 HK$’000 HK$’000 HK$’000

Cash flows from operating activities

Cash generated from operations 6,854 5,350 6,586 5,523

Interest paid (134) (82) (86) (78)

Income tax paid (1,534) (1,256) (2,748) (2,589)

Net cash generated from operating activities 5,186 4,012 3,752 2,856

Net cash used in investing activities (1,218) (1,745) (1,225) (1,567)

Net cash used in financing activities (3,502) (2,643) (478) (691)

Net increase in cash and cash equivalents 466 (376) 2,049 598

Cash, cash equivalents and bank overdrafts at beginning of year 576 997 1,576 933

Exchange (losses)/gains on cash and cash equivalents (56) (45) 38 45

Cash and cash equivalents at end of year 986 576 3,663 1,576

FRS12pB11 The information above is the amount before inter-company eliminations.

12b Investments accounted for using the equity method

The amounts recognised in the balance sheet are as follows:

2016 2015

HK$’000 HK$’000

Associates 13,373 13,244

Joint ventures 5,276 3,809

At 31 December 18,649 17,053

The amounts recognised in the statement of profit or loss are as follows:

2016 2015

HK$’000 HK$’000

Associates (174) 145

Joint ventures 1,467 877

For the year ended 31 December 1,293 1,022

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Investment in associates

FRS 12p21(a) Set out below are the associates of the group as at 31 December 2016 which, in the opinion of the directors, are material to the group. The associates as listed below have share capital consisting solely of ordinary shares, which are held directly by the group; the country of incorporation or registration is also their principal place of business.

Nature of investment in associates as at 31 December 2016 and 2015

Name of entity

Place of business/country of incorporation

% of ownership interest

Nature of the relationship

Measurement method

Alpha Limited Cyprus 18 Note 1 Equity

Beta SA Greece 30 Note 2 Equity

Note 1: Alpha Limited provides products and services to the footwear industry. Alpha is a strategic partnership for the group, providing access to new customers and markets in Europe.

Note 2: Beta SA manufactures parts for the footwear industry and distributes its products globally. Beta SA is strategic for the group’s growth in the European market and provides the group with access to expertise in efficient manufacturing processes for its footwear business and access to key fashion trends.

FRS 12p21(b)(iii) As at 31 December 2016, the fair value of the groups interest in Beta SA, which is listed on the Euro Money Stock Exchange, was HK$13,513,000 (2015: HK$12,873,000) and the carrying amount of the group's interest was HK$11,997,000 (2015: HK$11,240,000).

Alpha Limited is a private company and there is no quoted market price available for its shares.

FRS12p23(b) There are no contingent liabilities relating to the group's interest in the associates.

Summarised financial information for associates

Set out below are the summarised financial information for Alpha Limited and Beta SA which are accounted for using the equity method.

Summarised balance sheet

Alpha Limited Beta SA Total

2016 2015 2016 2015 2016 2015

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Current

DV Cash and cash equivalents 1,170 804 5,171 8,296 6,341 9,100

DV Other current assets (excluding cash) 2,433 2,635 7,981 9,722 10,414 12,357

FRS12pB12(b)(i) Total current assets 3,603 3,439 13,152 18,018 16,755 21,457

DV Financial liabilities (excluding trade payables) (808) (558) (8,375) (8,050) (9,183) (8,608)

DV Other current liabilities (including trade payables) (2,817) (2,635) (6,017) (14,255) (8,834) (16,890)

FRS12pB12(b)(iii) Total current liabilities (3,625) (3,193) (14,392) (22,305) (18,017) (25,498)

Non-current

FRS12pB12(b)(ii) Assets 13,340 14,751 53,201 54,143 66,541 68,894

DV Financial liabilities (4,941) (3,647) (9,689) (8,040) (14,630) (11,687)

DV Other liabilities (733) (217) (2,282) (4,349) (3,015) (4,566)

FRS12Pb12(b)(iv) Total non-current liabilities (5,674) (3,864) (11,971) (12,389) (17,645) (16,253)

DV Net assets 7,644 11,133 39,990 37,467 47,634 48,600

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78

Summarised statement of comprehensive income

Alpha Limited Beta SA Total

2016 2015 2016 2015 2016 2015

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

FRS12pB12(b)(v) Revenue 11,023 15,012 26,158 23,880 37,181 38,892

DV Depreciation and amortisation (2,576) (1,864) (3,950) (3,376) (6,526) (5,240)

DV Interest income30 - - - - - -

DV Interest expense (1,075) (735) (1,094) (1,303) (2,169) (2,038)

FRS12pB12(b)(vi) Profit or loss from continuing operations (3,531) (2,230) 3,443 2,109 (88) (121)

DV Income tax income/(expense) 175 208 (713) (412) (538) (204)

FRS12pB12(b)(vi) Post-tax profit from continuing operations (3,356) (2,022) 2,730 1,697 (626) (325)

FRS12pB12(b)(vii) Post-tax profit from discontinued operations30 - - - - - -

FRS12pB12(b)(viii) Other comprehensive income - - (40) (47) (40) (47)

FRS12pB12(b)(ix) Total comprehensive (loss)/income (3,356) (2,022) 2,690 1,650 (666) (372)

FRS12pb12(a) Dividends received from associate30 - - - - - -

FRS12pB14 The information above reflects the amounts presented in the financial statements of the associates (and not Specimen Holdings Limited’s share of those amounts) adjusted for differences in accounting policies between the group and the associates.

Commentary - summarised financial information

Summarised financial information is required for the group's interest in material associates; however, Specimen Holdings Limited has provided the total amounts voluntarily.

30 Some of the line items above have a nil balance but have still been included for illustrative purpose only.

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Reconciliation of summarised financial information

FRS12 pB14(b) Reconciliation of the summarised financial information presented to the carrying amount of its interest in associates

Alpha Limited Beta SA Total

Summarised financial information 2016 2015 2016 2015 2016 2015

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Opening net assets 1 January 11,133 12,977 37,467 35,573 48,600 48,550

(Loss)/profit for the period (3,356) (2,022) 2,730 1,697 (626) (325)

Other Comprehensive Income - - (40) (47) (40) (47)

Currency translation differences (133) 178 (167) 243 (300) 421

Closing net assets 7,644 11,133 39,990 37,466 47,634 48,599

Interest in associates (18%; 30%) 1,376 2,004 11,997 11,240 13,373 13,244

Goodwill2929 - - - - - -

Carrying value 1,376 2,004 11,997 11,240 13,373 13,244

Investment in joint venture

2016 2015

HK$’000 HK$’000

At 1 January 3,809 2,932

Share of profit 1,467 877

Other comprehensive income30 - -

At 31 December 5,276 3,809

FRS 12p21(a) The joint venture listed below has share capital consisting solely of ordinary shares, which is held directly by the group.

29 Some of the line items above have a nil balance but have still been included for illustrative purposes only. 29 Some of the line items above have a nil balance but have still been included for illustrative purposes only.

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Nature of investment in joint ventures 2016 and 2015

Name of entity

Place of business/country of incorporation

% of ownership

interest Nature of the relationship Measurement

method

Gamma Ltd United Kingdom 50 Note 1 Equity

Note 1: Gamma Ltd provides products and services to the footwear industry in the UK. Gamma Ltd is a strategic partnership for the group, providing access to new technology and processes for its footwear business.

FRS 12p21(b)(iii) Gamma Ltd is a private company and there is no quoted market price available for its shares.

Commentary – fair value of interest in joint venture

Where there is a quoted market price for an entity’s investment in a joint venture, the fair value of that interest should be disclosed.

Commitments and contingent liabilities in respect of joint ventures

FRS12p23(a) The group has the following commitments relating to its joint ventures.

2016 2015

HK$’000 HK$’000

Commitment to provide funding if called 100 100

FRS12p23(b) There are no contingent liabilities relating to the group’s interest in the joint venture. Gamma Ltd has a contingent liability relating to an unresolved legal case relating to a contract dispute with a customer. As the case is at an early stage in proceedings it is not possible to determine the likelihood or amount of any settlement should Gamma Ltd not be successful.

Summarised financial information for joint ventures

FRS12p21(b)(ii) Set out below are the summarised financial information for Gamma Ltd which is accounted for using the equity method.

Summarised balance sheet

2016 2015

HK$’000 HK$’000

Current

FRS12pB13(a) Cash and cash equivalents 1,180 780

DV Other current assets (excluding cash) 7,368 4,776

FRS12pB12(b)(i) Total current assets 8,548 5,556

FRS12pB13(b) Financial liabilities (excluding trade payables) (1,104) (1,094)

DV Other current liabilities (including trade payables) (890) (726)

FRS12pB12(b)(iii) Total current liabilities (1,994) (1,820)

Non-current

FRS12pB12(b)(ii) Assets 11,016 9,786

FRS12pB13(c) Financial liabilities (6,442) (5,508)

DV Other liabilities (576) (396)

FRS12pB12(b)(iv) Total non-current liabilities (7,018) (5,904)

DV Net assets 10,552 7,618

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Summarised statement of comprehensive income

2016 2015

HK$’000 HK$’000

FRS12pB12(b)(v) Revenue 23,620 23,158

FRS12pB13(d) Depreciation and amortisation

FRS12pB13(e) Interest income 206 648

FRS12pB13(f) Interest expense (1,760) (2,302)

FRS12pB12(b)(vi) Profit or loss from continuing operations 5,750 5,206

FRS12pB13(g) Income tax expense

(2,816) (3,452)

FRS12pB12(b)(vi) Post-tax profit from continuing operations 2,934 1,754

FRS12pB12(b)(vii) Post-tax profit from discontinued operations30 - -

FRS12pB12(b)(viii) Other comprehensive income30 - -

FRS12pB12(b)(ix) Total comprehensive income 2,934 1,754

FRS12pb12(a) Dividends received from joint venture or associate - -

FRS12pB14 The information above reflects the amounts presented in the financial statements of the joint ventures, adjusted for differences in accounting policies between the group and the joint ventures, and not Specimen Holdings Limited’s share of those amounts.

Reconciliation of summarised financial information

FRS12 pB14(b) Reconciliation of the summarised financial information presented to the carrying amount of its interest in the joint venture.

Summarised financial information 2016 2015

HK$’000 HK$’000

Opening net assets 1 January 7,618 5,864

Profit for the period 2,934 1,754

Other comprehensive income30 - -

Closing net assets 10,552 7,618

Interest in Joint Venture @50% 5,276 3,809

Goodwill30 - -

Carrying value 5,276 3,809

30 Some of the line items above have a nil balance but have still been included for illustrative purposes only.

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13 Income tax expense Hong Kong profits tax has been provided at the rate of 16.5% (2015: 16.5%) on the estimated assessable profit

for the year. Taxation on overseas profits has been calculated on the estimated assessable profit for the year at the rates of taxation prevailing in the countries in which the group operates31.

2016 HK$’000

2015 HK$’000

Current tax:

12p80(a),

12p80(b),

Current tax on profits for the year 14,046 6,050

Adjustments in respect of prior years 150 −

Total current tax 14,196 6,050

Deferred tax (Note 33):

12p80(c),

12p80(d),

Origination and reversal of temporary differences 199 2,125

Impact of change in the [country name] tax rate (97) −

Total deferred tax 102 2,125

Income tax expense 14,298 8,175

12p81(c)

The tax on the group’s profit before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to profits of the consolidated entities as follows:

2016 HK$’000

2015 HK$’000

Profit before tax 48,620 25,215

Tax calculated at domestic tax rates applicable to profits in the respective countries

15,924 7,709

Tax effects of:

– Associates and Joint Ventures’ results reported net of tax (414) (278)

– Income not subject to tax (1,385) (707)

– Expenses not deductible for tax purposes 1,540 1,104

– Utilisation of previously unrecognised tax losses (1,450) −

– Tax losses for which no deferred income tax asset was recognised 30 347

Re-measurement of deferred tax – change in the [country name] tax rate (97) −

Adjustment in respect of prior years 150 −

Tax charge 14,298 8,175

12p81(d) The weighted average applicable tax rate was 33% (2015: 31%). The increase is caused by a change in the profitability of the group’s subsidiaries in the respective countries partially offset by the impact of the reduction in the tax rate of [country name] (see below).

12p81(d) During the year, as a result of the change in the corporation tax rate of [country name] from 30% to 28% that was substantively enacted on 26 June 2016 and that will be effective from 1 April 2017, the relevant deferred tax balances have been re-measured. Deferred tax expected to reverse in the year to 31 December 2016 has been measured using the effective rate that will apply in [country name] for the period (28.5%)32.

1p125

10p22(h)

Further reductions to the [country name] tax rate have been announced. The changes, which are expected to be enacted separately each year, propose to reduce the rate by 1% per annum to 24% by 1 April 2019. The changes had not been substantively enacted at the balance sheet date and, therefore, are not recognised in these financial statements.

31 HKCO does not require such disclosure, however such information is useful to the understanding of the users of financial statements, it is recommended to be kept. 32 If the effect of the proposed changes is material, disclosure should be given of the effect of the changes, either as disclosure of events after the reporting period or as future material adjustment to the carrying amounts of assets and liabilities. This disclosure needs to be tailored but does not need to be reconciled to the statement of profit or loss.

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12p81(ab)

The tax (charge)/credit relating to components of other comprehensive income is as follows: 2016 2015

Before

tax

Tax (charge/

credit After tax Before

tax

Tax (charge)/

credit After tax

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

1p90 Fair value gains on available-for-sale financial assets 524 (162) 362 185 (123) 62

1p90 Share of other comprehensive income of investments accounted for using equity method (12) − (12) (14) − (14)

1p90 Remeasurements of post-employment benefit obligations (Note 34) 119 (36) 83 (910) 273 (637)

1p90 Impact of change in the [country name] tax rate on deferred tax33 − (10) (10) − − −

1p90 Cash flow hedges 97 (33) 64 (3) − (3) 1p90 Net investment hedge (45) − (45) 40 − 40 1p90 Currency translation differences 3,011 − 3,011 (13) − (13) FRS3 p42 Reclassification of revaluation of

previously held interest in ABC Group (850) - (850) - - -

Other comprehensive income 2,844 (241) 2,603 (715) 150 (565)

Current tax34 − −

Deferred tax (Note 33) (241) 150

(241) 150

12p81(a) The income tax (charged)/credited directly to equity during the year is as follows:

2016 HK$’000

2015 HK$’000

Current tax35:

Share option scheme – –

Deferred tax:

Share option scheme (Note 29) 30 20

Convertible bond – equity component36 (Note 30) (2,328) −

(2,298) 20

33 The impact of change in tax rate is shown for illustrative purposes. Companies will need to consider the impact of future reductions in tax rates in their tax disclosures. 34 HKAS 12 requires disclosure of current tax charged/credited to other comprehensive income, in addition to deferred tax. There are no current tax items relating to other comprehensive income in these financial statements, but the line item is shown for illustrative purposes. 35 HKAS 12 requires disclosure of current tax charged/credited to equity, in addition to deferred tax. There are no current tax items shown in equity in these financial statements, but the line items are shown for illustrative purposes. 36 It is assumed that the tax base on the convertible bond is not split between the debt and equity elements. If the tax base were split, this would impact the deferred tax position.

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14 Earnings per share (a) Basic Basic earnings per share is calculated by dividing the profit attributable to owners of the company by the weighted

average number of ordinary shares in issue during the year excluding ordinary shares purchased by the company (Note 27a).

2016

HK$’000 2015

HK$’000 33p70(a) Profit attributable to owners of the company 31,794 16,184 Profit from discontinued operation attributable to owners of the company 80 120 31,874 16,304 33p70(b) Weighted average number of ordinary shares in issue (thousands) 23,454 20,500

(b) Diluted Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to

assume conversion of all dilutive potential ordinary shares. The company has two categories of dilutive potential ordinary shares: convertible debt and share options. The convertible debt is assumed to have been converted into ordinary shares, and the net profit is adjusted to eliminate the interest expense less the tax effect. For the share options, the number of shares that would have been issued assuming the exercise of the share options less the number of shares that could have been issued at fair value (determined as the average market price per share for the year) for the same total proceeds is the number of shares issued for no consideration. The resulting number of shares issued for no consideration is included in the weighted average number of ordinary shares as the denominator for calculating diluted earnings per share.

2016

HK$’000 2015

HK$’000 Earnings Profit attributable to owners of the company 31,794 16,184 Interest expense on convertible debt (net of tax) 2,158 − 33p70(a) Profit used to determine diluted earnings per share 33,952 16,184 Profit from discontinued operations attributable to owners of the company 80 120 34,032 16,304 Weighted average number of ordinary shares in issue (thousands) 23,454 20,500 Adjustments for: – Assumed conversion of convertible debt (thousands) 3,030 − – Share options (thousands) 1,213 1,329 33p70(b) Weighted average number of ordinary shares for diluted earnings per share

(thousands) 27,697 21,829

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15 Net foreign exchange gains 21p52(a) The exchange differences (charged)/credited to the statement of profit or loss are included as follows:

2016 HK$’000

2015 HK$’000

Other (losses)/gains – net (Note 8) (277) 200

Net finance expenses (Note 11) 2,594 996

2,317 1,196

16 Leasehold land and land use rights 17p35 The group’s interests in leasehold land and land use rights represent prepaid operating lease payments and

their net book value are analysed as follows:

2016 HK$’000

2015 HK$’000

At 1 January 11,800 12,000

Additions 4,929 -

Acquisition of subsidiaries (Note 41) 43,500 -

Amortisation of prepaid operating lease payment (1,100) (200)

At 31 December 59,129 11,800

16p74(a) Bank borrowings are secured on land for the carrying amount of HK$29,148,000 (2015: Nil) (Note 32).

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16a Property, plant and equipment 1p78(a)

Land and Buildings38

HK$’000

Vehicles and

machinery HK$’000

Furniture, fittings

and equipment

HK$’000

Construction

in progress HK$’000

Total HK$’000

16p73(d) At 1 January 2015 Cost 16,450 71,072 20,025 - 107,547 Accumulated depreciation (1,333) (17,524) (3,690) - (22,547) Net book amount 15,117 53,548 16,335 - 85,000 16p73(e) Year ended 31 December

2015

Opening net book amount 15,117 53,548 16,335 - 85,000 16p73(e)(viii) Currency translation differences (381) (703) (423) - (1,507) 16p73(e)(i) Additions 1,588 2,970 1,484 - 6,042 16p73(e)(ix) Disposals (Note 37) − (2,607) (380) - (2,987) 16p73(e)(vii) Depreciation charge (Note 9) (436) (7,576) (8,236) - (16,248) Closing net book amount 15,888 45,632 8,780 - 70,300 16p73(d) At 31 December 2015 Cost 17,648 68,125 20,026 - 105,799 Accumulated depreciation (1,760) (22,493) (11,246) - (35,499) Net book amount 15,888 45,632 8,780 - 70,300 Year ended 31 December

2016 16p73(d) Opening net book amount 15,888 45,632 8,780 - 70,300 16p73(e)(viii) Currency translation differences 1,601 1,280 342 - 3,223 16p73(e)(iii) Acquisition of subsidiaries (Note

41) 5,572 5,513 13,199 - 24,284 16p73(e)(i) Additions 1,126 427 2,202 1,000 4,755 16p73(e)(ix) Disposals (Note 37) (2,000) (3,729) (608) - (6,337) Transfers 500 - - (500) - 16p73(e)(vii) Depreciation charge (Note 9) (3,445) (7,768) (13,441) - (24,654) FRS5p38 Transferred to disposal group

classified as held for sale (Note 26) (341) (1,222) – - (1,563) Closing net book amount 18,901 40,133 10,474 500 70,008 16p73(d) At 31 December 2016 Cost 23,546 58,268 26,927 500 109,241 Accumulated depreciation (4,645) (18,135) (16,453) - (39,233) Net book amount 18,901 40,133 10,474 500 70,008 38 If the company chooses the revaluation model to measure its buildings, add the following disclosures.

16p77(e) If buildings were stated on the historical cost basis, the amounts would be as follows:

2016

HK$’000

2015

HK$’000

Cost xxx xxx

Accumulated depreciation (xxx) (xxx)

Net book amount xxx xxx

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DV Property, plant and equipment transferred to the disposal group classified as held-for-sale amounts to HK$1,563,000 and relates to assets which are used by Shoes Limited (part of the wholesale segment). See Note 26 for further details regarding the disposal group held for sale.

DV 1p104 Depreciation expense of HK$10,295,000 (2015: HK$8,675,000) has been charged in 'cost of goods sold',

HK$8,242,000 (2015: HK$4,138,000) in 'selling and marketing costs' and HK$6,117,000 (2015: HK$3,435,000) in 'administrative expenses'.

17p35(c) Lease rentals amounting to HK$1,172,000 (2015: HK$895,000) and HK$9,432,000 (2015: HK$7,605,000) relating to the lease of machinery and property, respectively, are included in the statement of profit or loss (Note 9).

Construction work in progress as at 31 December2016 mainly comprises new shoe manufacturing equipment being constructed in the UK.

23p26 During the year, the group has capitalised borrowing costs amounting to HK$75,000 (2015: nil) on

qualifying assets. Borrowing costs were capitalised at the weighted average rate of its general borrowings of 7.5%.

16p74(a) Bank borrowings are secured on buildings for the value of HK$8,532,000 (2015: HK$Nil) (Note 32).

Vehicles and machinery includes the following amounts where the group is a lessee under a finance lease:

2016 HK$’000

2015 HK$’000

17p31(a) Cost – capitalised finance leases 13,996 14,074

Accumulated depreciation (5,150) (3,926)

Net book amount 8,846 10,148

17p31(e) The group leases various vehicles and machinery under non-cancellable finance lease agreements. The lease

terms are between 3 and 15 years, and ownership of the assets lie within the group.

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17 Investment properties

2016 2015

HK$’000 HK$’000

At fair value 40p76 Opening balance at 1 January 17,000 11,000 40p76(a) Acquisitions 90 - 40p76(a) Capitalised subsequent expenditure 10 - 40p76(c) Classified as held for sale or disposals37 - - 40p76(d) Net gains from fair value adjustment (Note 8) 7,900 6,000 40p76(f) Transfer (to)/from inventories and owner-occupied propert37 - -

40p76 Closing balance at 31 December 25,000 17,000

40p75(f) (a) Amounts recognised in profit and loss for investment properties

2016 2015 HK$’000 HK$’000 40p75(f)(i) Rental income 180 165 40p75(f)(ii) Direct operating expenses from property that generated rental income (7) (6) 40p75(f)(iii) Direct operating expenses from property that did not generate rental

income (3) (3)

170 156

40p75(h)

As at 31 December 2016, the group had no unprovided contractual obligations for future repairs and maintenance (2015: Nil).

The Group's investment properties are held within a business model whose objective is to consume substantially all of the economic benefits embodied in the investment properties through sale. The Group has measured the deferred tax relating to the temporary differences of these investment properties using the tax rates and the tax bases that are consistent with the expected manner of recovery of these investment properties (Note 33).

An independent valuation of the group’s investment properties was performed by the valuer, ABC Property Surveyors Limited, to determine the fair value of the investment properties as at 31 December 2016 and 2015. The revaluation gains or losses is included in `Other gains - net' in statement of profit or loss (Note 8). The following table analyses the investment properties carried at fair value, by valuation method.

FRS13p93(a),( b)

Fair value measurements at

31 December 2016 using

Description

Quoted prices in

active markets for

identical assets

(Level 1)

Significant other

observable inputs

(Level 2)

Significant unobservable

inputs (Level 3) Total HK$’000 HK$’000 HK$’000 HK$’000 Recurring fair value

measurements Investment properties: - Office units- UK - 3,678 - 3,678 - Shopping malls - US - - 14,519 14,519 - Shopping malls - Asia

Pacific - - 6,803 6,803

- 3,678 21,322 25,000

37 The line items are shown for illustrative purpose only.

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FRS13p93(a),( b)

Fair value measurements at

31 December 2015 using

Description

Quoted prices in

active markets for

identical assets

(Level 1)

Significant other

observable inputs

(Level 2)

Significant unobservable

inputs (Level 3) Total HK$’000 HK$’000 HK$’000 HK$’000 Recurring fair value

measurements Investment properties: - Office units- UK - 1,872 - 1,872 - Shopping malls - US - - 8,573 8,573 - Shopping malls - Asia

Pacific - - 6,555 6,555

- 1,872 15,128 17,000

FRS13p93c,

e(iv)

The group’s policy is to recognise transfers into and transfers out of fair value hierarchy levels as of the date of the event or change in circumstances that caused the transfer.

FRS13p93c,

e(iv)

There were no transfers between Levels 1, 2 and 3 during the year.

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FRS13p93e

Fair value measurements using significant unobservable inputs (Level 3)

31 December 2016 Shopping malls

US Asia

Pacific Total

HK$’000 HK$’000 HK$’000 Opening balance 8,573 6,555 15,128 FRS13p93e(iii) Additions - 90 90 Capitalised subsequent expenditure - 10 10 Net gains from fair value adjustment 5,946 148 6,094 Closing balance 14,519 6,803 21,322 FRS13p93e(i) Total gains or losses for the year included in profit

or loss for assets held at the end of the year, under ‘Other gains - net’ 5,946 148 6,094

FRS13p93f Change in unrealised gains or losses for the year included in profit or loss for assets held at the end of the year 5,946 148 6,094

31 December 2015 Shopping malls

US Asia

Pacific Total

HK$’000 HK$’000 HK$’000 Opening balance 5,621 4,507 10,128 FRS13p93e(iii) Additions - - - Capitalised subsequent expenditure - - - Net gains from fair value adjustment 2,952 2,048 5,000 Closing balance 8,573 6,555 15,128 FRS13p93e(i) Total gains or losses for the year included in profit

or loss for assets held at the end of the year, under ‘Other gains - net’ 2,952 2,048 5,000

FRS13p93f Change in unrealised gains or losses for the year included in profit or loss for assets held at the end of the year 2,952 2,048 5,000

FRS13p93g Valuation processes of the group

FRS13.IE65 The group’s investment properties were valued at 31 December 2016 and 2015 by independent

professionally qualified valuers who hold a recognised relevant professional qualification and have

recent experience in the locations and segments of the investment properties valued. For all

investment properties, their current use equates to the highest and best use. The group’s finance department includes a team that review the valuations performed by the

independent valuers for financial reporting purposes. This team reports directly to the chief financial officer (CFO) and the audit committee (AC). Discussions of valuation processes and results

are held between the CFO, AC, the valuation team and valuers at least once every six months, in

line with the group’s interim and annual reporting dates. As at 31 December 2016 and 2015, the fair values of the properties have been determined by ABC Property Surveyors Limited.

At each financial year end the finance department:

Verifies all major inputs to the independent valuation report;

Assess property valuations movements when compared to the prior year valuation report; Holds discussions with the independent valuer.

Changes in Level 2 and 3 fair values are analysed at each reporting date during the bi-annual valuation discussions between the CFO, AC and the valuation team. As part of this discussion, the

team presents a report that explains the reasons for the fair value movements.

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FRS13p93d

Valuation techniques

For UK office units, the valuation was determined using the sale comparison approach. Sales prices

of comparable properties in close proximity are adjusted for differences in key attributes such as property size. The most significant input into this valuation approach is price per square foot.

For completed shopping malls in US, the valuation was determined using discounted cash flow

(“DCF”) projections based on significant unobservable inputs. These input include: Future rental cash inflows Based on the actual location, type and quality of the properties and

supported by the terms of any existence lease, other contracts and external evidence such as current market rents for similar properties;

Discount rates Reflecting current market assessments of the uncertainty in the amount and timing of cash flows;

Estimated vacancy rates Based on current and expected future market conditions after expiry of any current lease;

Maintenance costs Including necessary investments to maintain functionality of the property for its expected useful life;

Capitalisation rates Based on actual location, size and quality of the properties and taking into account market data at the valuation date;

Terminal value Taking into account assumptions regarding maintenance costs, vacancy rates and market rents.

For completed shopping malls in Asia Pacific, the valuations were based on income capitalisation

approach (term and reversionary method) which largely used observable inputs (e.g. market rent, yield, etc.) and taking into account the significant adjustment on term yield to account for the risk upon reversionary and the estimation in vacancy rate after expiry of current lease.

For shopping mall in Asia Pacific which is still under redevelopment, the valuation was based on

a DCF model taking into account the following estimates (in addition to the inputs noted above):

Costs to complete These are largely consistent with internal budgets developed by the

group’s finance department, based on management’s experience and knowledge of market conditions. Costs to complete also include a reasonable profit margin;

Completion dates Properties under construction require approval or permits from oversight bodies at various points in the development process, including approval or permits in respect of initial design, zoning, commissioning, and compliance with environmental regulations. Based on management’s experience with similar developments, all relevant permits and approvals are expected to be obtained. However, the completion date of the development may vary depending on, among other factors, the timeliness of obtaining approvals and any remedial action required by the group.

There were no changes to the valuation techniques during the year.

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FRS13p93d,h(i)

Information about fair value measurements using significant unobservable inputs (Level 3)

Description

Fair value at 31 Dec 2016

(HK$’000) Valuation

technique(s) Unobservable

inputs38

Range of unobservable

inputs (probability-

weighted average)

Relationship of unobservable inputs to fair

value Shopping

malls - US 14,519 Discounted

cash flow Rental value HK$175-HK$235

per month per square

meter(HK$195 per month per square

meter)

The higher the rental value, the

higher the fair value

Discount rate 5%-7 %( 6%) The higher the discount rate, the

lower the fair value

Capitalisation rate

5.5%-7.5% (6.5%) The higher the capitalisation

rate, the lower the fair value

Shopping malls – Asia Pacific

5,256 Income approach (term

and reversionary

method)

Vacancy rate

9-11 %( 10%)

The higher the

vacancy rate, the lower the fair

value

Adjustment on term yield

0.5% to 2 %( 1%) The higher the reversionary yield , the lower the fair

value Shopping

malls – Asia Pacific (under development)

1,547 Discounted cash flows

with estimated

costs to complete

Rental value HK$520-HK$700 per month per

square meter(HK$595 per

month per square meter)

The higher the rental value, the

higher the fair value

Discount rate 6.25%-7.25 %( 6.75%)

The higher the discount rate, the

lower the fair value

Capitalisation rate

4%-4.5% (4.25%) The higher the capitalisation

rate, the lower the fair value

Estimated costs to completion

HK$409,000 – HK$474,000

(HK$427,000)

The higher the estimated costs,

the lower the fair value.

Estimated profit margin required

to hold and develop

property to completion

10%-15% (14%) of property value

The higher the profit margin required, the lower the fair

value.

38 There were no significant inter-relationships between unobservable inputs that materially affect fair values, except for those stated in these financial statements.

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Description

Fair value at 31 Dec 2015

(HK$’000) Valuation

technique(s) Unobservable

inputs39

Range of unobservable

inputs (probability-

weighted average)

Relationship of

unobservable inputs to fair

value Shopping malls -

US 8,573 Discounted

cash flow Rental value HK$175-HK$235

per month per square

meter(HK$195 per month per square meter)

The higher the rental value, the

higher the fair value

Discount rate 5%-7 %( 6%) The higher the discount rate, the

lower the fair value

Capitalisation rate

5.5%-7.5% (6.5%) The higher the capitalisation

rate, the lower the fair value

Shopping malls – Asia Pacific

5,256 Income approach (term

and reversionary

method)

Vacancy rate 9-11 %( 10%)

The higher the vacancy rate, the

lower the fair value

Adjustment on term yield

0.5% to 2 %( 1%) The higher the reversionary yield , the lower the fair

value Shopping malls –

Asia Pacific (under development)

1,547 Discounted cash flows

with estimated

costs to complete

Rental value HK$520-HK$700 per

month per square meter(HK$595 per month per square meter)

The higher the rental value, the

higher the fair value

Discount rate 6.25%-7.25 %( 6.75%)

The higher the discount rate, the

lower the fair value

Capitalisation rate

4%-4.5% (4.25%) The higher the capitalisation

rate, the lower the fair value

Estimated costs to completion

HK$409,000 – HK$474,000

(HK$427,000)

The higher the estimated costs,

the lower the fair value.

Estimated profit margin required

to hold and develop

property to completion

10%-15% (14%) of property value

The higher the profit margin required, the lower the fair

value.

FRS13p93h(i)

There are inter-relationships between unobservable inputs. Expected vacancy rates may impact the yield with higher vacancy rates resulting in higher yields. For investment property under construction, increases in construction costs that enhance the property’s features may result in an increase of future rental values. An increase in future rental income may be linked with higher costs. If the remaining lease term increases, the yield may decrease.

Commentary

HKFRS 13 does not explicitly require a quantitative sensitivity analysis, however, such a sensitivity

analysis may be necessary in order to satisfy the requirements of HKAS1 paragraph 129 in relation to the sources of estimation uncertainty.

39 There were no significant inter-relationships between unobservable inputs that materially affect fair values, except for those stated in these financial statements.

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Commentary You are recommended to refer to “A practical guide to amended IAS 40 – Accounting for investment properties under construction” for more guidance. http://www.pwc.com/gx/en/asset-management/assets/practical-guide-to-amended-ias-40.pdf

Definition

40p5

1. An investment property is property (land or a building – or part of a building – or both) held (by the

owner or by the lessee under a finance lease) to earn rentals or for capital appreciation or both, rather than for:

(a) use in the production or supply of goods or services or for administrative purposes, or

(b) sale in the ordinary course of business

40p6 2. A property interest that is held by a lessee under an operating lease may be classified and accounted for as investment property if, and only if, the property would otherwise meet the definition of an investment property above and the lessee uses the fair value model.

Reconciliation

40p76

3. An entity that applies the fair value model in HKAS 40 Investment Property shall disclose a

reconciliation between the carrying amounts of investment property at the beginning and end of the period, showing the following:

(a) additions, disclosing separately those additions resulting from acquisitions and those resulting from subsequent expenditure recognised in the carrying amount of an asset

(b) additions resulting from acquisitions through business combinations

(c) assets classified as held for sale or included in a disposal group in accordance with HKFRS 5 Non-current Assets Held for Sale and Discontinued Operations and other disposals

(d) net gains or losses from fair value adjustments

(e) the net exchange differences arising on the translation of the financial statements into a different presentation currency, and on translation of a foreign operation into the presentation currency of the reporting entity

(f) transfers to and from inventories and owner-occupied property, and

(g) other changes.

Disclosures not illustrated: not applicable

40p75(c) 4. Where classification is difficult When it is difficult to determine whether a property qualifies for classification as an investment property, disclosure is required of the criteria used to distinguish investment property from owner-occupied property and property held for sale in the ordinary course of business.

40p75(f)(iv)

5. Sale of investment property between pools of assets measured using different models

An entity shall disclose the amounts recognised in profit or loss for the cumulative change in fair

value recognised in profit or loss on a sale of an investment property from a pool of assets in which

the cost model is used into a pool in which the fair value model is used (refer to paragraph 32C of

HKAS 40).

40p77 6.

Where valuation adjusted for financial statements

When a valuation obtained for investment property is adjusted significantly for the purposes of

the financial statements, for example to avoid double-counting of assets or liabilities that are

recognised as separate assets and liabilities as described in paragraph 50 of HKAS 40, the

entity shall disclose a reconciliation between the valuation obtained and the adjusted valuation

included in the financial statements, showing separately the aggregate amount of any recognised

lease obligations that have been added back, and any other significant adjustments.

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40p78

7.

Where fair value not reliably determinable on a continuing basis

In exceptional cases, referred to in paragraph 53 of HKAS 40, there may be clear evidence that the

fair value of the investment property is not reliably determinable on a continuing basis. The entity

then measures investment property using the cost model in HKAS 16 Property, Plant and

Equipment. In these cases, the reconciliation required by paragraph 76 of HKAS 40 shall disclose

amounts relating to that investment property separately from amounts relating to other investment

property. In addition, an entity shall disclose:

(a) a description of the investment property

(b) an explanation of why fair value cannot be determined reliably

(c) if possible, the range of estimates within which fair value is highly likely to lie, and

(d) on disposal of investment property not carried at fair value:

(i) the fact that the entity has disposed of investment property not carried at fair value

(ii) the carrying amount of that investment property at the time of sale, and

(iii) the amount of gain or loss recognised.

40p79(a)-(e) 40p79(e)

8. Use of cost model

An entity that applies the cost model in paragraph 56 of HKAS 40 shall not apply the disclosure

requirements of paragraphs 76 to 78 of HKAS 40. Instead it shall disclose:

(a) the depreciation methods used

(b) the useful lives or the depreciation rates used

(c) the gross carrying amount and the accumulated depreciation (aggregated with accumulated

impairment losses) at the beginning and end of the period

(d) a reconciliation of the carrying amount of investment property at the beginning and end of

the period, showing the following:

(i) additions, disclosing separately those additions resulting from acquisitions and those

resulting from subsequent expenditure recognised as an asset

(ii) additions resulting from acquisitions through business combinations

(iii) assets classified as held for sale or included in a disposal group in accordance with HKAS

5 and other disposals

(iv) depreciation

(v) the amount of impairment losses recognised, and the amount of impairment losses

reversed, during the period in accordance with HKAS 36 Impairment of Assets

(vi) the net exchange differences arising on the translation of the financial statements into a

different presentation currency, and on translation of a foreign operation into the

presentation currency of the reporting entity

(vii) transfers to and from inventories and owner-occupied property, and

(viii) other changes, and

(e) the fair value of the investment property (f) in the exceptional cases described in paragraph 53 of HKAS 40, where an entity cannot

determine the fair value of the investment property reliably, it shall disclose:

(i) a description of the investment property

(ii) an explanation of why fair value cannot be determined reliably, and

(iii) if possible, the range of estimates within which fair value is highly likely to lie.

12p51C 9. Deferred tax arising from investment properties measured at fair value

There is a rebuttable presumption that the carrying amount of the investments property that is measured using the fair value model in HKAS 40, will be recovered entirely through sale. This presumption is rebutted if the investment property is depreciable and is held within a business model whose objective is to consume substantially all of the economic benefits embodied in the investment properties over time, rather than through sale. Sufficient details should be provided to reader with an understanding of the entity's business model.

As of 31 December 2016, investment properties located in [location A] amounted to HK$[x] (2015: HK$[x]) are held by certain subsidiaries with a business model to consume substantially all of the economic benefits embodied in the investment properties over time, rather than through sale. The investment properties located in [location B] amounted to HK$[x] (2015: HK$[x]) are held by certain subsidiaries and expected to be recovered entirely through sale. The group has measured the deferred tax relating to the temporary differences of these investment properties using the tax rates and the tax bases that are consistent with the expected manner of recovery of these investment properties (Note 33).

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18 Intangible assets

38p118 Goodwill HK$’000

Trademarks and licences

HK$’000

Contractual customer

relationships HK$’000

Internally generated

software development

costs HK$’000

Total HK$’000

38p118(c) At 1 January 2015

Cost 12,546 8,301 − 1,455 22,302 Accumulated amortisation and impairment − (330) − (510) (840) Net book amount 12,546 7,971 − 945 21,462

38p118(e) Year ended 31 December 2015 Opening net book amount 12,546 7,971 − 945 21,462

38p118(e)(vii) Currency translation differences (546) (306) − (45) (897) 38p118(e)(i) Additions − 700 − − 700 38p118(e)(vi) Amortisation charge (Note 9) − (365) − (200) (565) Closing net book amount 12,000 8,000 − 700 20,700 At 31 December 2015

38p118(c) Cost 12,000 8,710 − 1,400 22,110 Accumulated amortisation and impairment − (710) − (700) (1,410) Net book amount 12,000 8,000 − 700 20,700

38p118(e) Year ended 31 December 2016 Opening net book amount 12,000 8,000 − 700 20,700 38p118(e)(vii) Currency translation differences 341 96 − 134 571

38p118(e)(i) Additions − 684 − 2,366 3,050 38p118(e)(i) Acquisition of subsidiaries (Note 41) 4,501 3,000 1,000 − 8,501 38p118(e)(iv) Impairment charge (Note 9) (4,650) − − − (4,650) 38p118(e)(vi) Amortisation charge (Note 9) − (402) (278) (120) (800)

FRS5p38, 38p118(e)(ii)

Transferred to disposal group classified as held for sale (Note 26) (100) (1,000) − - (1,100)

Closing net book amount 12,092 10,378 722 3,080 26,272 38p118(c) At 31 December 2016 Cost 16,742 11,480 1,000 3,900 33,122 Accumulated amortisation and impairment (4,650) (1,102) (278) (820) (6,850)

Net book amount 12,092 10,378 722 3,080 26,272

36p126(a) The carrying amount of the segment (Russia - wholesale) has been reduced to its recoverable amount through

recognition of an impairment loss against goodwill. This loss has been included in ‘cost of goods sold’ in the statement of profit or loss.

38p118(d) Amortisation of HK$40,000 (2015: HK$100,000) is included in the ‘cost of goods sold’ the statement of profit or loss;

HK$680,000 (2015: HK$365,000) in ‘distribution expenses’; and HK$80,000 (2015: HK$100,000) in ‘administrative expenses’.

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DV

The trademark transferred to the disposal group classified as held for sale relates to the Shoes Limited trademark (part of the wholesale segment), which was previously recognised by the group on the acquisition of the entity in 2006. A further net book amount of HK$100,000 transferred to the disposal group relates to software that was specifically developed for Shoes Limited. See Note 26 for further details regarding the disposal group held-for-sale.

Impairment tests for goodwill 36p130(d) Management reviews the business performance based on geography and type of business. It has identified HK,

UK, US, China and Russia as the main geographies. There are both retail and wholesale segments in HK and the

US. In all other geographies, the group has only wholesale business. Goodwill is monitored by the management

at the operating segment level. The following is a summary of goodwill allocation for each operating segment:

36p134(a)

2016

Opening

HK$’000

Addition

HK$’000

Transferred

to disposal

group

classified as

held for sale

HK$’000

Impairment

HK$’000

Other

adjustments

HK$’000

Closing

HK$’000

HK wholesale 5,970 - (100) - 285 6,155

HK retail 120 - - - - 120

US wholesale 125 - - - - 125

US retail 30 3,597 - - - 3,627

UK wholesale 705 904 - - - 1,609

Russia wholesale 4,750 - - (4,650) - 100

China wholesale 100 - - - 46 146

All other segments 200 - - - 10 210

12,000 4,501 (100) (4,650) 341 12,092

2015 (Restated)

Opening

HK$’000

Addition

HK$’000

Transferred

to disposal

group

classified as

held for sale

HK$’000

Impairment

HK$’000

Other

adjustments

HK$’000

Closing

HK$’000

HK wholesale 6,270 - - - (300) 5,970

HK retail 120 - - - - 120

US wholesale 125 - - - - 125

US retail 131 - - - (101) 30

UK wholesale 705 - - - - 705

Russia wholesale 4,750 - - - - 4,750

China wholesale 175 - - - (75) 100

All other segments 270 - - - (70) 200

12,546 - - - (546) 12,000

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During 2015, as US retail did not qualify as a reportable operating segment. However, with the acquisition in 2016 of ABC Group (Note 41), US retail qualifies as a separate reportable operating segment, and therefore the comparatives have been restated to be consistent.

36p130(e) 36p134(c) 36p134(d)(iii)

The recoverable amount of a CGU is determined based on value-in-use calculations. These calculations use pre-tax cash flow projections based on financial budgets approved by management covering a five-year period. Cash flows beyond the five-year period are extrapolated using the estimated growth rates stated below. The growth rate does not exceed the long-term average growth rate for the shoe business in which the CGU operates.

36p134(d)(i), (iv),(v), 130(e)

For each of the CGUs with significant amount of goodwill, the key assumptions, long term growth rate and discount rate used in the value-in-use calculations in 2016 are as follows. In addition, where there has been an impairment loss in a CGU, the recoverable amount is also disclosed below.

Wholesale HK UK Russia US Retail 36p134(d)(i) Sales volume (% annual growth rate) 2.7% 3.2% 1.7% 4.1% 36p134(d)(i) Sales price (% annual growth rate) 3.5% 3.5% 5.2% N/A 36p134(d)(i) Gross margin (% of revenue) 56%-60% 58%-62% 59%-63% 65%-68% 36p134(d)(i) Other operating costs (HK$’000) 10,500 9,200 5,250 18,500 36p134(d)(i) Annual capital expenditure (HK$’000) N/A N/A N/A 1,200 36p134 (d)(iv) Long term growth rate40 1.8% 1.8% 2.0% 2.3% 36p134 (d)(v) 36p130(g)

Pre-tax discount rate 12.5% 12.7% 13.8% 14.0%

36p130(e) Recoverable amount of the CGU N/A N/A 22,659 N/A 36p134(d)(i) For each of the CGUs with significant amount of goodwill the key assumptions, long term growth rate and

discount rate used in the value-in-use calculations in 2015 are as follows. Wholesale HK UK Russia 36p134(d)(i) Sales volume (% annual growth rate) 2.6% 3.0% 2.5% 36p134(d)(i) Sales price (% annual growth rate) 3.5% 3.2% 6.2% 36p134(d)(i) Gross margin (% of revenue) 56%-59% 59%-61% 60%-65% 36p134(d)(i) Other operating costs (HK$’000) 10,300 9,000 5,000 36p134 (d)(iv)

Long term growth rate40 2.0% 2.0% 2.5%

36p134 (d)(v) 36p130(g)

Pre-tax discount rate 12.0% 12.1% 13.5%

36p134(d)(ii) These assumptions have been used for the analysis of each CGU within the operating segment. 36p134(d)(ii) Sales volume is the average annual growth rate over the five-year forecast period. It is based on past performance

and management's expectations of market development. 36p134(d)(ii) Sales price is the average annual growth rate over the five-year forecast period. It is based on current industry trends

and includes long term inflation forecasts for each territory. 36p134(d)(ii) Gross margin is the average margin as a percentage of revenue over the five-year forecast period. It is based on the

current sales margin levels and sales mix, with adjustments made to reflect the expected future price rises in leather, a key raw material, which management does not expect to be able to pass on to customers through price increases. Leather prices are expected to increase over the five year period by an average of 4.4% per year.

40 Weighted average growth rate used to extrapolate cash flows beyond the budget period.

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36p134(d)(ii)

Other operating costs are the fixed costs of the CGUs, which do not vary significantly with sales volumes or prices. Management forecasts these costs based on the current structure of the business, adjusting for inflationary increases and these do not reflect any future restructurings or cost saving measures. The amounts disclosed above are the average operating costs for the five-year forecast period.

36p134(d)(ii) Annual capital expenditure is the expected cash costs in the US Retail segment for refurbishing stores. This is

based on the historical experience of management in the ABC group and the planned refurbishment expenditure required post acquisition. No incremental revenue or cost savings are assumed in the value-in-use model as a result of this expenditure.

36p134(d)(ii) The long term growth rates used are consistent with the forecasts included in industry reports. The discount

rates used are pre-tax and reflect specific risks relating to the relevant operating segments. 36p130(a) The impairment charge arose in a wholesale CGU in Step-land (included in the Russian operating segment)

following a decision in early 2016 to reduce the manufacturing output allocated to these operations (Note 35). This was a result of a redefinition of the group’s allocation of manufacturing volumes across all CGUs in order to benefit from advantageous market conditions. Following this decision, the group reassessed the depreciation policies of its property, plant and equipment in this country and estimated that their useful lives would not be affected. No other class of asset other than goodwill was impaired. The pre-tax discount rate used in the previous years for the wholesale CGU in Step-land was 13.5%.

36p134(f) In European Wholesale, the recoverable amount calculated based on value in use exceeded carrying value by C705.

An annual sales volume growth rate of 1.5%, an annual sales price rate of 1.2%, a gross margin of 55%, annual operating costs of HK$8,900,000, a fall in long term growth rate to 1.6% or a rise in discount rate to 14.9%, all changes taken in isolation, would remove the remaining headroom.

Commentary

HKAS 36 paragraph 134 requires disclosure of information for CGUs for which the carrying amount of goodwill or intangible assets is significant in relation to the entity's total goodwill or intangible assets. HKAS 36 paragraph 134(d)(i) requires disclosure of each of the key assumptions on which management has based its forecasts and to which the recoverable amounts are most sensitive and HKAS 36 paragraph 134(f)(iii) requires disclosure of the amounts by which these values must change for the recoverable amount to be equal to the carrying amount. The relevant assumptions will vary for each reporting entity dependent upon the individual facts and circumstances of the reported cash-generating units. The disclosures of key assumptions have been

enhanced in these illustrative financial statements.

19a Financial instruments by category

FRS7p6

Loans and receivables

HK$’000

Assets at fair value

through the profit & loss

HK$’000

Derivatives used for hedging

HK$’000

Available-for-sale

HK$’000 Total

HK$’000

31 December 2016

Assets as per balance sheet

Available-for-sale financial assets − − − 19,370 19,370

Derivative financial instruments − 361 1,103 − 1,464

Trade and other receivables excluding prepayments41 20,787 − − − 20,787

Financial assets at fair value through profit or loss − 11,820 − − 11,820

Cash and cash equivalents 14,928 − − − 14,928

Restricted cash 3,000 − − − 3,000

Total 38,715 12,181 1,103 19,370 71,369

Liabilities at Derivatives Other Total

41 Prepayments are excluded from the trade and other receivables balance as this analysis is required only for financial instruments.

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fair value through the profit & loss

HK$’000

used for hedging

HK$’000

financial liabilities at

amortised cost

HK$’000

HK$’000

Liabilities as per balance sheet

Borrowings (excluding finance lease liabilities)42 − − 117,839 117,839

Finance lease liabilities42 − − 8,998 8,998

Derivative financial instruments 268 327 − 595

Trade and other payables excluding non-financial liabilities43 − − 15,668 15,668

Total 268 327 142,505 143,100

Loans and receivables

HK$’000

Assets at fair value

through the profit

& loss HK$’000

Derivatives used for hedging

HK$’000

Available-for-sale

HK$’000 Total

HK$’000

31 December 2015

Assets as per balance sheet

Available-for-sale financial assets − − − 14,910 14,910

Derivative financial instruments − 321 875 − 1,196

Trade and other receivables excluding prepayments44 18,536 − − − 18,536

Financial assets at fair value through profit or loss − 7,972 − − 7,972

Cash and cash equivalents 32,062 − − − 32,062

Restricted cash 2,000 − − − 2,000

Total 52,598 8,293 875 14,910 76,676

Liabilities at fair value

through the profit

and loss HK$’000

Derivatives used for hedging

HK$’000

Other financial

liabilities at

amortised cost

HK$’000 Total

HK$’000

Liabilities as per balance sheet

Borrowings (excluding finance lease liabilities)42 − − 104,006 104,006

Finance lease liabilities42 − − 10,598 10,598

Derivative financial instruments 298 449 − 747

Trade and other payables excluding non-financial liabilities43 − − 11,518 11,518

Total 298 449 126,122 126,869

42 The categories in this disclosure are determined by HKAS 39. Finance leases are mostly outside the scope of HKAS 39, but they remain within the scope of HKFRS 7. Therefore, finance leases have been shown separately. 43 Non-financial liabilities are excluded from the trade payables balance, as this analysis is required only for financial instruments. 44 Prepayments are excluded from the trade and other receivables balance as this analysis is required only for financial instruments.

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19b Credit quality of financial assets FRS7p36(c) The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to

external credit ratings (if available) or to historical information about counterparty default rates:

2016

HK$’000 2015

HK$’000

Trade receivables

Counterparties with external credit rating (Moody’s)

A 5,895 5,757

BB 3,200 3,980

BBB 1,500 1,830

10,595 11,567

2016 HK$’000

2015 HK$’000

Counterparties without external credit rating

Group 1 750 555

Group 2 4,832 3,596

Group 3 1,770 1,312

7,352 5,463

Total unimpaired trade receivables 17,947 17,030

2016 HK$’000

2015 HK$’000

DV Available-for-sale debt securities

AA 347 264

347 264

DV Derivative financial assets

AAA 1,046 826

AA 418 370

1,464 1,196

2016 HK$’000

2015 HK$’000

Loans to related parties

Group 2 2,501 1,301

Group 3 167 87

2,668 1,388

● Group 1 – new customers/related parties (less than 6 months). ● Group 2 – existing customers/related parties (more than 6 months) with no defaults in the past. ● Group 3 – existing customers/related parties (more than 6 months) with some defaults in the past. All

defaults were fully recovered. Note: None of the loans to related parties is past due but not impaired.

45 The rest of the balance sheet item ‘cash and cash equivalents’ is cash on hand.

Cash at bank and short-term bank deposits45

2016 2015

HK$’000 HK$’000

AAA 8,790 13,890

AA 5,300 7,840 7,840

A 3,038 9,832

17,128 31,562

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20 Available-for-sale financial assets46

2016

HK$’000 2015

HK$’000

At 1 January 14,910 14,096

Currency translation differences 646 (459)

Acquisition of subsidiaries (Note 41) 473 −

Additions 4,037 1,150

Disposals (1,256) -

Net losses transfer from equity (Note 30) (130) (152)

Revaluation of previously held interest in ABC Group (Note 7) 850 -

Reclassification of revaluation of previously held interest in ABC Group (Note 30) (850) -

1p79(b) Net gains transfer to equity (Note 30) 690 275

At 31 December 19,370 14,910

1p66 Less: non-current portion (17,420) (14,910)

1p66 Current portion 1,950 −

FRS7p20(a)(ii) The group reclassified profits of HK$217,000 (2015: HK$187,000) and losses HK$87,000 (2015: HK$35,000) from equity into the statement of profit or loss. Losses in the amount of HK$55,000 (2015: HK$20,000) were due to impairments.

FRS7p31, 34 Available-for-sale financial assets include the following:

2016

HK$’000 2015

HK$’000

Listed securities:

– Equity securities – UK 8,335 8,300

– Equity securities – Europe 5,850 2,086

– Equity securities – US 4,550 4,260

– Debentures with fixed interest of 6.5% and maturity date of 27 August 2016 210 −

– Non-cumulative 9.0% non-redeemable preference shares 78 −

19,023 14,646

Unlisted securities:

– Debt securities with fixed interest ranging from 6.3% to 6.5% and maturity dates between July 2017 and May 2019 347 264

19,370 14,910

46 It is presumed that where an investor holds less than 20% of the voting power of an entity, either directly or indirectly, it does not have significant influence over that entity. However, despite the investor’s interest in an entity’s voting shares, this presumption can be rebutted where an investor can demonstrate that it has significant influence, e.g. with representation on the board of directors or equivalent governing body of the investee.

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FRS7p34(c) Available-for-sale financial assets are denominated in the following currencies:

2016

HK$’000 2015

HK$’000 HK dollar 7,897 8,121 UK pound 5,850 2,086 US dollar 4,550 4,260 Other currencies 1,073 443 19,370 14,910

FRS13p93(b), (d) The fair values of unlisted securities are based on cash flows discounted using a rate based on the market

interest rate and the risk premium specific to the unlisted securities (2016: 6%; 2015: 5.8%). The fair values are within level 2 of the fair value hierarchy (see Note 3.3).

FRS7p36(a) The maximum exposure to credit risk at the reporting date is the carrying value of the debt securities

classified as available-for-sale. FRS7p36(c) None of these financial assets is either past due or impaired. 24p20 Available-for-sale financial assets of aggregated carrying amount of HK$200,000 are in shares of fellow

subsidiaries. 24p21(h) Listed securities of aggregate carrying amount of HK$1.2 million have been pledged to a bank to secure

loan and overdraft facilities for XX Limited, a fellow subsidiary.

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21 Derivative financial instruments 2016 2015

Assets Liabilities Assets Liabilities

HK$’000 HK$’000 HK$’000 HK$’000

FRS7p22(a)(b) Interest rate swaps – cash flow hedges 351 110 220 121

FRS7p22(a)(b) Interest rate swaps – fair value hedges 57 37 49 11

FRS7p22(a)(b) Forward foreign exchange contracts – cash flow hedges 695 180 606 317

Forward foreign exchange contracts – held-for-trading 361 268 321 298

Total 1,464 595 1,196 747

1p66, 69 Less non-current portion:

Interest rate swaps – cash flow hedges 345 100 200 120

Interest rate swaps – fair value hedges 50 35 45 9

395 135 245 129

1p66, 69 Current portion 1,069 460 951 618

Derivatives holding for trading purpose are classified as a current asset or liability. The full fair value of a hedging derivative is classified as a non-current asset or liability if the remaining maturity of the hedged item is more than 12 months and, as a current asset or liability, if the maturity of the hedged item is less than 12 months.

FRS7p24 The ineffective portion recognised in the profit or loss that arises from fair value hedges amounts to a loss of HK$1,000 (2015: loss of HK$1,000) (Note 8). The ineffective portion recognised in the profit or loss that arises from cash flow hedges amounts to a gain of HK$17,000 (2015: a gain of HK$14,000) (Note 8). There was no ineffectiveness to be recorded from net investment in foreign entity hedges.

39p91(a),101(a) During the year the Group's derivative financial instruments were novated to a central counterparty following a change in the law. This had no impact on the Group's hedge accounting.

(a) Forward foreign exchange contracts

FRS7p31 The notional principal amounts of the outstanding forward foreign exchange contracts at 31 December 2016 were HK$92,370,000 (2015: HK$89,689,000).

FRS7p23(a)

39p100, 1p79(b)

The hedged highly probable forecast transactions denominated in foreign currency are expected to occur at various dates during the next 12 months. Gains and losses recognised in the hedging reserve in equity (Note 30) on forward foreign exchange contracts as of 31 December 2016 are recognised in the statement of profit or loss in the period or periods during which the hedged forecast transaction affects the statement of profit or loss. This is generally within 12 months from the end of the reporting period unless the gain or loss is included in the initial amount recognised for the purchase of fixed assets, in which case recognition is over the lifetime of the asset (five to ten years).

(b) Interest rate swaps

FRS7p31 The notional principal amounts of the outstanding interest rate swap contracts at 31 December 2016 were HK$4,314,000 (2015: HK$3,839,000).

FRS7p23(a),

1p79(b)

At 31 December 2016, the fixed interest rates vary from 6.9% to 7.4% (2015: 6.7% to 7.2%), and the main floating rates are EURIBOR and LIBOR. Gains and losses recognised in the hedging reserve in equity (Note 30) on interest rate swap contracts as of 31 December 2016 will be continuously released to the statement of profit or loss until the repayment of the bank borrowings (Note 32).

(c) Hedge of net investment in foreign entity

FRS7p22, 1p79(b) A proportion of the group’s US dollar-denominated borrowing amounting to HK$321,000 (2015: HK$321,000) is designated as a hedge of the net investment in the group’s US subsidiary. The fair value of the borrowing at 31 December 2016 was HK$370,000 (2015: HK$279,000). The foreign exchange loss of HK$45,000 (2015: gain of HK$40,000) on translation of the borrowing to currency at the end of the year is recognised in other comprehensive income.

FRS7p36(a) The maximum exposure to credit risk at the reporting date is the fair value of the derivative assets in the balance sheet.

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22 Trade and other receivables

2016

HK$’000 2015

HK$’000 FRS7p36, 1p77 Trade receivables 18,174 17,172 FRS7p16 Less: allowance for impairment of trade

receivables (109) (70) 1p78(b) Trade receivables – net 18,065 17,102 1p78(b) Prepayments 1,050 911 1p78(b), 24p18(b)

Receivables from related parties (Note 42) 54 46

4Sch.p1.1 Loans to employees 593 620 -Loans to key management 343 385 -Loans to other employees 250 235

1p78(b), 24p18(b) Loans to other related parties (Note 42) 2,325 1,003 22,087 19,682 1p78(b), 1p66

Less non-current portion: loans to related parties (2,322) (1,352)

1p66 Current portion 19,765 18,330 All non-current receivables are due within five years from the end of the year. FRS7p25 The fair values of trade and other receivables are as follows:

2016

HK$’000 2015

HK$’000 Trade receivables 18,065 17,102 Receivables from related parties 54 46 Loans to related parties 2,722 1,398 20,841 18,546 4Sch.p1.1 The loans to employees given by the company is for the purpose of enabling the selected employees to acquire the shares

of the company.

Commentary: s280, s281, s282

The loans made under the authority s280 and s281 include loans given by the company (and not include its subsidiaries) to employees of the company and its subsidiaries for the purpose of an employee share scheme or acquisition of beneficial ownership of shares in the company or its holding company by the employees. Employees also include the former employees, as well as those employees’ spouses, widows, widowers, or minor children.

FRS13p93 (b),(d), FRS13p97

The fair values of loans to related parties are based on cash flows discounted using a rate based on the borrowings rate of 7.5% (2015: 7.2%). The discount rate equals to LIBOR plus appropriate credit rating. The fair values are within level 2 of the fair value hierarchy.

24p18(b) (i) The effective interest rates on non-current receivables were as follows: 2016 2015 Loans to related parties 6.5-7.0% 6.5-7.0% FRS7p14 Certain UK subsidiaries of the group transferred receivable balances amounting to HK$1,014,000 to a bank in exchange

for cash during the year ended 31 December 2016. The transaction has been accounted for as a collateralised borrowing (Note 32). In case the entities default under the loan agreement, the bank has the right to receive the cash flows from the receivables transferred. Without default, the entities will collect the receivables and allocate new receivables as collateral.

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GEM18.50B

(2)(a)

A4(2)(a)

The majority of the group’s sales are on letter of credit or documents against payment. The remaining amounts are with credit terms of 60 days and which are mostly covered by customers’ standby letters of credit or bank guarantees. At 31 December 2016 and 2015, the ageing analysis47 of the trade receivables based on invoice date were as follows:

2016 2015

HK$’000 HK$’000 Up to 3 months 17,881 16,997 3 to 6 months 297 187 Over 6 months 50 34 18,228 17,218

DV As of 31 December 2016, trade receivables of HK$17,670,000 (2015: HK$16,595,000) were fully performing.

FRS7 p37(a) As of 31 December 2016, trade receivables of HK$277,000 (2015: HK$207,000) were past due but not

impaired. These relate to a number of independent customers for whom there is no significant financial difficulty and based on past experience, the overdue amounts can be recovered. The ageing analysis of these trade receivables is as follows:

2016 2015 HK$’000 HK$’000

Up to 3 months 177 108 3 to 6 months 100 99

277 207

FRS7 p37(b) As of 31 December 2016, trade receivables of HK$227,000 (2015: HK$142,000) were impaired. The amount

of the provision was HK$109,000 as of 31 December 2016 (2015: HK$70,000). The individually impaired receivables mainly relate to wholesalers, which are in unexpectedly difficult economic situations. It was assessed that a portion of the receivables is expected to be recovered. The ageing of these receivables is as follows:

2016 2015

HK$’000 HK$’000

3 to 6 months 177 108

Over 6 months 50 34

227 142

The carrying amounts of the group’s trade and other receivables are denominated in the following currencies:

2016 2015

HK$’000 HK$’000

HK dollar 9,846 8,669

UK pound 5,987 6,365 US dollar 6,098 4,500

Other currencies 156 148

22,087 19,682

47 A4(2)(4.2), GEM18.50B(2)(Note) The disclosure requirement of the Listing Rules for ageing analysis of trade debtors should include the amounts due by related companies which are trading in nature. Moreover, the ageing analysis should be presented on the basis of the date of the relevant invoice and categorised into time-bands based on analysis used by an issuer’s management to monitor the issuer’s financial position (e.g. where the credit period is 30 days from the date of invoice, the ageing analysis could be categorised into 30 days, 60 days, 90 days, 120 days, etc.). The basis on which the ageing analysis is presented should be disclosed.

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FRS7p16 Movements on the group’s allowance for impairment of trade receivables are as follows:

2016 HK$’000

2015 HK$’000

At 1 January 70 38 FRS7p20(e) Provision for receivables impairment 74 61 Receivables written off during the year as uncollectible (28) (23) Unused amounts reversed (10) (8) Unwind of discount 3 2

At 31 December 109 70

The creation and release of provision for impaired receivables have been included in ‘other expenses’ in the statement of profit or loss (Note 9). Unwind of discount is included in ‘finance expenses’ in the statement of profit or loss (Note 11). Amounts charged to the allowance account are generally written off, when there is no expectation of recovering additional cash.

FRS7p16 The other classes within trade and other receivables do not contain impaired assets.

FRS7p36(a) The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable mentioned above. The group does not hold any collateral as security.

23 Inventories 2p36(b), 1p78(c) 2016

HK$’000 2015

HK$’000

Raw materials 7,622 7,562

Work in progress 1,810 1,796

Finished goods48 15,268 8,774

24,700 18,132

2p36(d), 38 The cost of inventories recognised as expense and included in ‘cost of sales’ amounted to HK$60,252,000 (2015: HK$29,545,000), which included inventory write-down of HK$6,117,000 (2015: Nil).

2p36 (f),(g) As at 31 December 2015, a batch of finished goods with cost of HK$1,003,000 was considered as obsolete. A provision of HK$603,000 was made as at 31 December 2015. The group reversed HK$603,000 of a previous inventory write-down in July 2016. The group has sold all the goods that were written down to an independent retailer in Australia at original cost. The amount reversed has been included in ‘cost of sales’ in the statement of profit or loss.

24 Financial assets at fair value through profit or loss - 2016

HK$’000 2015

HK$’000

FRS7p8(a), 31, 34(c)

Listed securities – held-for-trading

– Equity securities – UK 5,850 3,560

– Equity securities – Europe 4,250 3,540

– Equity securities – US 1,720 872

11,820 7,972

7p15 Financial assets at fair value through profit or loss are presented within 'operating activities' as part of changes in working capital in the statement of cash flows (Note 37).

FRS7p20(a)(i) Changes in fair values of financial assets at fair value through profit or loss are recorded in ‘other gains – net’ in the statement of profit or loss (Note 8).

FRS13p91 The fair value of all equity securities is based on their current bid prices in an active market.

48 Separate disclosure of finished goods at fair value less cost to sell is required, where applicable.

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25 Cash and bank balances

(a) Cash and cash equivalents

2016

HK$’000 2015

HK$’000

Cash at bank and on hand 8,398 26,648

Short-term bank deposits 6,530 5,414

Cash and cash equivalents (excluding bank overdrafts) 14,928 32,062

7p45 Cash, cash equivalents and bank overdrafts include the following for the purposes of the statement of cash flows:

2016 HK$’000

2015 HK$’000

(Restated)

Cash and cash equivalents 14,928 32,062

7p8 Bank overdrafts (Note 32) (2,650) (6,464)

Cash and cash equivalents 12,278 25,598

(b) Restricted cash

7p48 As at 31 December 2016, HK$3,000,000 (2015: HK$2,000,000) are restricted deposits held at bank as reserve for serving of debt for revolving loans provided by the bank.

26 Non-current assets held-for-sale and discontinued operations FRS5p41

(a)(b)(d)

The assets and liabilities related to Company Shoes Limited(part of the UK wholesale segment),a 80% owned subsidiary of the company, have been presented as held for sale following the approval of the group’s management and shareholders on 23 September 2016 to sell Company Shoes Limited in the UK. The completion date for the transaction is expected by May 2017.

FRS5p38 (a) Assets of disposal group classified as held for sale

2016

HK$’000 2015

HK$’000

Property, plant and equipment 1,563 −

Goodwill 100 −

Other intangible assets 1,000 −

Inventory 442 −

Other current assets 228 −

Total 3,333 −

FRS5p38 (b) Liabilities of disposal group classified as held for sale

2016 HK$’000

2015 HK$’000

Trade and other payables 104 −

Other current liabilities 20 −

Provisions 96 −

Total 220 −

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FRS5p38 (c) Cumulative income or expense recognised in other comprehensive income relating to disposal group classified as held for sale

2016 HK$’000

2015 HK$’000

Foreign exchange translation adjustments49 - −

Total - −

FRS13p93(a),(b), (d)

In accordance with HKFRS 5, the assets and liabilities held for sale were written down to their fair value less costs to sell of HK$3,113,000. This is a non-recurring fair value which has been measured using observable inputs, being the prices for recent sales of similar businesses, and is therefore within level 2 of the fair value hierarchy. The fair value has been measured by calculating the ratio of transaction price to annual revenue for the similar businesses and applying the average to Shoes Limited.

FRS5p33 (b) Analysis of the result of discontinued operations, and the result recognised on the re-measurement of assets or disposal group, is as follows50:

2016 HK$’000

2015 HK$’000

Revenue 1,200 1,150

Expenses (960) (950)

Profit before tax of discontinued operations 240 200

12p81(h)(ii) Tax (96) (80)

Profit after tax of discontinued operations 144 120

Pre-tax loss recognised on the re-measurement of assets of disposal group (73) -

12p81(h)(ii) Tax 29 -

After tax loss recognised on the re-measurement of assets of disposal group (44) -

Profit for the year from discontinued operations 100 120

Profit for the year from discontinued operations attributable to:

- Owners of the company 80 120

- Non-controlling interests 20 -

Profit for the year from discontinued operations 100 120

(d) Cash flows

2016

HK$’000 2015

HK$’000

FRS5p33(c) Operating cash flows51 300 190

FRS5p33(c) Investing cash flows51 (103) (20)

FRS5p33(c) Financing cash flows51 (295) (66)

Total cash flows (98) 104

49 HKFRS 5 requires the separate presentation of any cumulative income or expense recognised in other comprehensive income relating to a non-current asset (or disposal group) classified as held for sale. There are no items recognised in equity relating to the disposal group classified as held-for-sale, but the line items are shown for illustrative purposes. 50 These disclosures can also be given on the face of the primary financial statements. 51 Under this approach, the entity presents the statement of cash flows as if no discontinued operation has occurred and makes the required HKFRS 5 para 33 disclosures in the notes. It would also be acceptable to present the three categories separately on the face of the statement of cash flows and present the line-by-line breakdown of the categories, either in the notes or on the face of the statement of cash flows. It would not be acceptable to present all cash flows from discontinued operations in one line either as investing or operating activity.

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27 Share capital

Ordinary shares, issued and fully paid:

1p79

Number of shares

(thousands) Share capital

HK$’000

At 1 January 2015 20,000 30,424

Employee share option scheme:

1p106,(d)(iii) – Proceeds from shares issued (Note 28) 1,000 1,070

At 31 December 2015 21,000 31,494

Employee share option scheme:

1p106(d)(iii) – Proceeds from shares issued (Note 28) 750 950

FRS3pB64(f)(iv) Acquisition of subsidiaries (Note (a)) (Note 41) 3,550 10,000

1p79(a) At 31 December 2016 25,300 42,444

52 In accordance with section 257 of the Hong Kong Companies Ordinance (Cap. 622), the payment for buy-back of shares of companies incorporated and listed in Hong Kong from the stock market may be made (a) out of the Company’s distributable profits; (b) out of the proceeds of a fresh issue of shares made for the purpose of the buy-back.

(a) The group issued 3,550,000 shares on 1 March 2016 (14.0% of the total ordinary share capital issued) to the shareholders of ABC Group as part of the purchase consideration for an additional 65% of its ordinary share capital. The ordinary shares issued have the same rights as the other shares in issue. The fair value of the shares issued amounted to HK$10,050,000 (HK$2.83 per share). The related transaction costs amounting to HK$50,000 have been netted off with the deemed proceeds.

27a Buy-back of shares

1p79(a), A10(4), GEM18.14

The Company acquired 875,000 of its own shares through purchases on the Hong Kong Stock Exchange on 18 April 2016. The total amount paid to acquire the shares was HK$2,564,000 and has been deducted from retained earnings52 within shareholders’ equity (Note 29).

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28 Share-based payments

FRS2p45(a), A10(1)&(2), GEM18.11&18.12

Share options are granted to directors and to selected employees. The exercise price of the granted options is equal to the market price of the shares less 15% on the date of the grant. Options are conditional on the employee completing three years’ service (the vesting period). The options are exercisable starting three years from the grant date, subject to the group achieving its target growth in earnings per share over the period of inflation plus 4%; the options have a contractual option term of five years. The group has no legal or constructive obligation to repurchase or settle the options in cash.

Movements in the number of share options outstanding and their related weighted average exercise prices are as follows:

2016 2015

Average exercise price in

HK$ per share

option

Number of share

options (thousands)

Average exercise price in

HK$ per share

option

Number of share options

(thousands)

FRS2p45 (b)(i) At 1 January 1.73 4,744 1.29 4,150 FRS2p45 (b)(ii) Granted 2.95 964 2.38 1,827 FRS2p45 (b)(iii) Forfeited 2.30 (125) 0.80 (33) FRS2p45 (b)(iv) Exercised 1.28 (750) 1.08 (1,000) FRS2p45 (b)(v) Expired - - 2.00 (200)

FRS2p45 (b)(vi) At 31 December 2.03 4,833 1.73 4,744

FRS2p45 (b)(vii), FRS2p45(c)

Out of the 4,833,000 outstanding options (2015: 4,744,000), 1,875,000 options (2015: 1,400,000) were exercisable. Options exercised in 2016 resulted in 750,000 shares (2015: 1,000,000 shares) being issued at a weighted average price of HK$1.28 each (2015: HK$1.08 each). The related weighted average share price at the time of exercise was HK$2.85 (2015: HK$2.65) per share. The related transaction costs amounting to HK$10,000 (2015: HK$10,000) have been netted off with the proceeds received.

FRS2p45(d) Share options outstanding at the end of the year have the following expiry date and exercise prices:

Expiry date – 1 July Exercise price

in HK$ per share option

Number of share options (thousands)

2016 2015

2016 1.10 − 500 2017 1.20 800 900 2018 1.35 1,075 1,250 2019 2.00 217 267 2020 2.38 1,777 1,827 2021 2.95 964 −

4,833 4,744

FRS2p46 FRS2p47(a)

The weighted average fair value of options granted during the period determined using the Black-Scholes valuation model was HK$0.86 per option (2015: HK$0.66). The significant inputs into the model were weighted average share price of HK$3.47 (2015: HK$2.8) at the grant date, exercise price shown above, volatility of 30% (2015: 27%), dividend yield of 4.3% (2015: 3.5%), an expected option life of three years, and an annual risk-free interest rate of 5% (2015: 4%). The volatility measured at the standard deviation of continuously compounded share returns is based on statistical analysis of daily share prices over the last three years. See Note 10 for the total expense recognised in the statement of profit or loss for share options granted to directors and employees.

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29 Retained earnings

A2, GEM18.07

HK$’000

1p106(d) At 1 January 2015 50,932

Profit for the year 16,304

1p106(d) Dividends paid relating to 2014 (15,736)

FRS2p50 Value of employee services53 822

12p68C Tax credit relating to share option scheme 20

19p120(c) Remeasurements of post-employment benefit liabilities net of tax (637)

At 31 December 2015 51,705

1p106(d) At 1 January 2015 51,705

Profit for the year 31,874

1p106(d) Dividends relating to 2015 (10,102)

FRS2p50 Value of employee services 53(Note 10) 690

12p68C Tax credit relating to share option scheme 30

1p97(a) Buy-back of shares54 (2,564)

19p120(c) Remeasurements of post-employment benefit liabilities net of tax 83

12p81(a), (d) Impact of change in [country name] tax rate on deferred tax55 (10)

At 31 December 2016 71,706

Commentary: The movement of retain earnings of the holding company is included in note 44 as a footnote to the company’s balance sheet.

53 The credit entry to equity in respect of the HKFRS 2 charge should be recorded in accordance with local company law and practice. This may be a specific reserve, retained earnings or share capital. 54 The accounting treatment of buy-back of shares should be recorded in accordance with local company law and practice. National law may require to deduct

distributable profits. In the absence of any legal requirement, the amount is debited to a separate component of equity. Paid-in capital is not reduced. In accordance with section 257 of the Hong Kong Companies Ordinance (cap. 622), the payment for buy-back of shares of companies incorporated and listed in Hong Kong from the stock market may be made (a) out of the Company’s distributable profits; (b) out of the proceeds of a fresh issue of shares made for the purpose of the buy back.

55 Solely for illustrative purposes, a change in tax rates has been assumed to have taken place in 2016.

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30 Other reserves A2, GEM18.07

Convertible bond

HK$’000

Hedging reserve

HK$’000

Available-for-sale

Investments HK$’000

Translation HK$’000

Total HK$’000

At 1 January 2015 − 65 1,320 5,168 6,553 FRS7p20(a)(ii) Revaluation – gross (Note 20) − − 275 − 275 Revaluation transfer – gross

(Note 20) − − (152) − (152) 12p61A, 81(ab) Revaluation – tax (Note 13) − − (61) − (61) 28p10 Revaluation – associates (Note

12b) − − (14) − (14) Cash flow hedges: FRS7p23(c) – Fair value gains − 300 − − 300 12p61A, 81(ab) – Tax on fair value gains (Note

13) − (101) − − (101) FRS7p23(d) – Transfers to sales − (236) − − (236) 12p61A, 81(ab) – Tax on transfers to sales

(Note 13) − 79 − − 79 FRS7p23(e) – Transfers to inventory − (67) − − (67) 12p61A, 81(ab) – Tax on transfers to inventory

(Note 13) − 22 − − 22 39p102(a) Net investment hedge (Note

21) − − − 40 40 Currency translation

differences: 21p52(b) – Group − − − (78) (78) 21p52(b), 28p10 – Associates − − − 105 105

At 31 December 2015 − 62 1,368 5,235 6,665

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A2, GEM18.07

Convertible

bond

HK$’000

Hedging

reserve

HK$’000

Available-for-

sale

investments

HK$’000

Capital

reserve

HK$’000

Translation

HK$’000

Total

HK$’000

At 1 January2016 − 62 1,368 − 5,235 6,665

FRS7p20(a)(ii)

Revaluation – gross (Note 20) − − 690 − − 690

Revaluation transfer – gross (Note 20) − − (130) − (130)

12p61A, 81(ab) Revaluation – tax (Note 13) − − (198) − − (198)

28p10 Revaluation – associates (Note 12b) − − (12) − − (12)

Cash flow hedges:

FRS7p23(c) – Fair value gains − 368 − − − 368

12p61A, 81(ab) – Tax on fair value gains (Note 13) − (123) − − − (123)

FRS7p23(d) – Transfers to sales − (120) − − − (120)

12p61A, 81(ab) – Tax on transfers to sales (Note 13) − 40 − − − 40

FRS7p23(e) – Transfers to inventory − (151) − − − (151)

12p61A, 81(ab) – Tax on transfers to inventory (Note 13) − 50 − − − 50

39p102(a) Net investment hedge (Note 21) − − − − (45) (45)

Currency translation differences:

21p52(b) – Group − − − − 2,833 2,833

21p52(b), 28p10 – Associates − − − − (74) (74)

1p106(d)(iii) Changes in ownership interests in subsidiaries without change of control − − − 50 − 50

FRS3p42 Reclassification of revaluation of previously held interest in ABC Group (Note 41) - - (850) − − (850)

32p28 Convertible bond – equity component (Note 32b)56 7,761 − − − − 7,761

12p61A Tax on equity component on convertible bond (Note 13) (2,328) − − − − (2,328)

At 31 December 2016 5,433 126 868 50 7,949 14,426

Commentary: The reserves movement of the holding company is included in Note 44 as a footnote to the company’s balance sheet.

56 Temporary taxable difference for the liability component of the convertible bond is determined in accordance with para 23 of HKAS 12. It is assumed that the tax base on the convertible bond in note 32(b) is not split between the debt and equity elements. If the tax base were split, this would impact the deferred tax position.

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Other comprehensive income, net of tax

Other

reserves Retained earnings Total

Non-controlling

interests

Total other comprehensive

income

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

31 December 2016

DV Items that will not be reclassified to profit or loss

19p120(c) Remeasurement of post-employment benefit obligations - 83 83 - 83

- - - - -

DV Items that may be subsequently reclassified to profit or loss

Change in value of available-for-sale financial assets 362 - 362 - 362

FRS3p42 Reclassification of revaluation of previously held interest in ABC Group (850) - (850) - (850)

28p10 Share of other comprehensive income of investments accounted for using equity method (12) - (12) - (12)

Impact of change in [country name] tax rate on deferred tax - (10) (10) - (10)

Cash flow hedges 64 - 64 - 64

39p102(a) Net investment hedge (45) - (45) - (45)

21p52(b) Currency translation differences 2,759 - 2,759 252 3,011

DV 2,278 (10) 2,268 252 2,520

Total 2,278 73 2,351 252 2,603

31 December 2015

DV Items that will not be reclassified to profit or loss

19p102(c) Remeasurement of post-employment benefit obligations - (637) (637) - (637)

DV Items that may be subsequently reclassified to profit or loss

Change in value of available-for-sale financial assets 62 - 62 - 62

28p10 Share of other comprehensive income of investments accounted for using equity method (14) - (14) - (14)

Cash flow hedges (3) - (3) - (3)

39p102(a) Net investment hedge 40 - 40 - 40

21p52(b) Currency translation differences 27 - 27 (40) (13)

DV 112 - 112 (40) 72

Total 112 (637) (525) (40) (565)

FRS7p20, 1p106A

Commentary

Entities are allowed to show the disaggregation of changes in each component of equity arising from transactions recognised in other comprehensive income in either the statement of changes in equity or in the notes. In these illustrative financial statements, we present this information in the notes.

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31 Trade and other payables

2016 HK$’000

2015 HK$’000

1p77 Trade payables 9,791 9,990

24p18 Amounts due to related parties (Note 42) 2,202 1,195

Social security and other taxes 2,002 960

Other liabilities – contingent considerations (Note 41) 1,500 -

Accrued expenses 1,983 828

17,478 12,973

A4(2), GEM18.50B (2)

At 31 December 2016, the ageing analysis57 of the trade payables (including amounts due to related parties of trading in nature) based on invoice date were are follows:

2016

HK$’000 2015

HK$’000

[insert ageing, e.g.]

0-30 days 9,808 10,099

31-60 days 1,120 1,080

61-90 days 1,065 6

11,993 11,185

32 Borrowings

Group

2016

HK$’000 2015

HK$’000

Non-current

Bank borrowings 32,193 40,244

Convertible bond 42,822 −

Debentures and other loans 3,300 18,092

Redeemable preference shares 30,000 30,000

Finance lease liabilities 6,806 8,010

115,121 96,346

Current

Bank overdrafts (Note 25) 2,650 6,464

Collateralised borrowings (Note 22) 1,014 −

Bank borrowings 3,368 4,598

Debentures and other loans 2,492 4,608

Finance lease liabilities 2,192 2,588

11,716 18,258

Total borrowings 126,837 114,604

57 A4(2)(4.2), GEM18.50B(2)(Note)

The disclosure requirement of the Listing rule for ageing analysis of trade payables should include the amounts due to related companies which are trading in nature. Moreover, the ageing analysis should be presented on the basis of the date of the relevant invoice and categorised into time-bands based on analysis used by an issuer’s management to monitor the issuer’s financial position (e.g. where the credit period is 30 days from the date of invoice, the ageing analysis could be categorised into 30 days, 60 days, 90 days, 120 days, etc.). The basis on which the ageing analysis is presented should be disclosed.

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FRS7p14

Total borrowings include secured liabilities (bank and collateralised borrowings). Bank borrowings are secured by the land and buildings of the group of HK$37,680,000 (2015: Nil) (Notes 16 and 16a). Collateralised borrowings are secured by trade receivables of HK$1,014,000 (2015: Nil) (Note 22).

FRS7p31 The exposure of the group’s borrowings to interest rate changes and the contractual repricing dates at the end of the

year are as follows:

2016 HK$’000

2015 HK$’000

6 months or less 10,496 16,748 6-12 months 36,713 29,100 1-5 years 47,722 38,555 Over 5 years 31,906 30,201

126,837 114,604

FRS7p25 The carrying amounts and fair value of the non-current borrowings are as follows:

Carrying amount Fair Value

2016

HK$’000 2015

HK$’000 2016

HK$’000 2015

HK$’000 Bank borrowings 32,193 40,244 32,590 39,960 Redeemable

preference shares 30,000 30,000 28,450 28,850 Debentures and

other loans 3,300 18,092 3,240 17,730 Convertible bond 42,822 - 42,752 - Finance lease

liabilities 6,806 8,010 6,205 7,990 115,121 96,346 113,237 94,530

FRS13p93(b),(d), FRS13p97, FRS7p25

The fair value of current borrowings equals their carrying amount, as the impact of discounting is not significant. The fair values are based on cash flows discounted using a rate based on the borrowing rate of 7.5% (2015: 7.2%) and are within level 2 of the fair value hierarchy.

(a) Borrowings FRS7p31, A22, GEM18.21

Bank borrowings mature until 2020 and bear average coupons of 7.5% annually (2015: 7.4% annually).

At 31 December 2016, the group’s borrowings were repayable as follows:

Bank borrowings

and overdrafts Other loans and ts 2016 2015 2016 2015 HK$’000 HK$’000 HK$’000 HK$’000 Within 1 year 6,018 11,062 3,506 4,608 Between 1 and 2 years 3,870 35,238 2,000 5,059 Between 2 and 5 years 28,323 5,006 43,122 9,900 Over 5 years - - 31,000 33,133 38,211 51,306 79,628 52,700

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FRS7p31, 34(c) The carrying amounts of the group’s borrowings are denominated in the following currencies:

2016

HK$’000 2015

HK$’000 HK dollar 80,100 80,200 UK pound 28,353 16,142 US dollar 17,998 17,898 Other currencies 386 364 126,837 114,604

DV, 7p50(a) The group has the following undrawn borrowing facilities:

2016

HK$’000 2015

HK$’000 Floating rate: – Expiring within one year 6,150 4,100 – Expiring beyond one year 14,000 8,400 Fixed rate: – Expiring within one year 18,750 12,500 38,900 25,000

The facilities expiring within one year are annual facilities subject to review at various dates during 2016. The

other facilities have been arranged to help finance the proposed expansion of the group’s activities in UK.

(b) Convertible bonds FRS7p17, 1p79(b), 32p28, 32p31, A10(1)&(2), GEM18.11& 18.12

The company issued 500,000 5.0% convertible bonds at a par value of HK$50 million on 2 January 2016. The bonds mature five years from the issue date at their nominal value of HK$50 million or can be converted into shares at the holder’s option at the maturity date at the rate of 33 shares per HK$500. The values of the liability component and the equity conversion component were determined at issuance of the bond.

The convertible bond recognised in the balance sheet is calculated as follows:

2016

HK$’000 2015

HK$’000 Face value of convertible bond issued on 2 January 2016 50,000 – 32p28 Equity component (Note 30) (7,761) – Liability component on initial recognition at 2 January 2016 42,239 – Interest expense (Note 11) 3,083 – Interest paid (2,500) – Liability component at 31 December 2016 42,822 –

FRS13p93(b), (d), FRS13p97

The fair value of the liability component of the convertible bond at 31 December 2016 amounted to HK$42,617,000. The fair value is calculated using cash flows discounted at a rate based on the borrowings rate of 7.5% and are within level 2 of the fair value hierarchy.

(c) Redeemable preference shares 32p15, 32p18(a) The company issued 30 million cumulative redeemable preference shares with a par value of HK$1 per share

on 4 January 2015. The shares are mandatorily redeemable at their par value on 4 January 2020, and pay dividends at 6.5% annually.

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(d) Finance lease liabilities

The rights to the leased asset are reverted to the lessor in the event of default of the lease liabilities by the Group.

2016

HK$’000 2015

HK$’000

17p31(b) Gross finance lease liabilities – minimum lease payments

No later than 1 year 2,749 3,203

Later than 1 year and no later than 5 years 6,292 7,160

Later than 5 years 2,063 2,891

11,104 13,254

Future finance charges on finance leases (2,106) (2,656)

Present value of finance lease liabilities 8,998 10,598

17p31(b) The present value of finance lease liabilities is as follows:

No later than 1 year 2,192 2,588

Later than 1 year and no later than 5 years 4,900 5,287

Later than 5 years 1,906 2,723

8,998 10,598

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33 Deferred income tax The analysis of deferred tax assets and deferred tax liabilities is as follows:

2016

HK$’000 2015

HK$’000 1p61 Deferred tax assets: – Deferred tax asset to be recovered after

more than 12 months (2,899) (3,319) – Deferred tax asset to be recovered within

12 months (647) (64) (3,546) (3,383) Deferred tax liabilities: – Deferred tax liability to be recovered

after more than 12 months 9,561 7,147 – Deferred tax liability to be recovered

within 12 months 1,627 1,037 11,188 8,184 Deferred tax liabilities (net) 7,642 4,801

The gross movement on the deferred income tax account is as follows:

2016

HK$’000 2015

HK$’000

At 1 January 4,801 3,000 Currency translation differences (1,753) (154) Acquisition of subsidiaries (Note 41) 1,953 − Statement of profit or loss charge/(credit) (Note

13) 102 2,125 Tax charge/(credit) relating to components of

other comprehensive income (Note 13) 241 (150) Tax charged/(credited) directly to equity (Note 13) 2,298 (20) At 31 December 7,642 4,801

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Deferred tax assets

Retirement benefit

obligation HK$’000

Provisions HK$’000

Impairment losses

HK$’000 Tax losses HK$’000

Other HK$’000

Total HK$’000

At 1 January 2015 (428) (962) (732) (1,072) (373) (3,567)

12p81(g)(ii) Charged/(credited) to the statement of profit or loss − 181 − − (146) 35

12p81(ab) Credited to other comprehensive income (211) − − − − (211)

12p81(a) Credited directly to equity − − − − (20) (20)

Currency translation differences − (35) − (460) − (495)

12p81(g)(i) At 31 December 2015 (639) (816) (732) (1,532) (539) (4,258)

12p81(g)(ii) (Credited)/charged to the statement of profit or loss − (538) (322) 1,000 (95) 45

12p81(ab) Charged to other comprehensive income 10 − − − − 10

12p81(a) Credited directly to equity − − − − (30) (30)

Acquisition of subsidiaries (Note 41) (250) − − − − (250)

Currency translation differences − (125) (85) (350) (236) (796)

12p81(g)(i) At 31 December 2016 (879) (1,479) (1,139) (882) (900) (5,279)

12p81(e) Deferred income tax assets are recognised for tax loss carry-forwards to the extent that the realisation of the related

tax benefit through future taxable profits is probable. The group did not recognise deferred income tax assets of HK$333,000 (2015: HK$1,588,000) in respect of losses amounting to HK$1,000,000 (2015: HK$5,294,000) that can be carried forward against future taxable income. Losses amounting to HK$900,000 (2015: HK$5,294,000) and HK$100,000 (2015: nil) expire in 2017 and 2018 respectively.

12p81(f) Deferred income tax liabilities of HK$3,141,000 (2015: HK$2,016,000) have not been recognised for the withholding

tax and other taxes that would be payable on the unremitted earnings of certain subsidiaries. Such amounts are permanently reinvested. Unremitted earnings totalled HK$30,671,000 at 31 December 2015 (2015: HK$23,294,000).

12p81(g)(i) 12p81(g)(ii)

The movement in deferred income tax assets and liabilities during the year, without taking into consideration the offsetting of balances within the same tax jurisdiction, is as follows:

Deferred tax liabilities

Accelerated tax

depreciation

HK$’000

Fair value gains

HK$’000

Convertible bond

HK$’000

Other

HK$’000

Total

HK$’000

At 1 January 2015 6,058 272 − 237 6,567

12p81(g)(ii)

Charged to the statement of profit or loss 1,786 − − 304 2,090

12p81(ab)

Charged to other comprehensive income − 61 − − 61

12p81(a) Charged directly to equity − − − − −

Currency translation differences 241 100 − − 341

12p81(g)(i) At 31 December 2015 8,085 433 − 541 9,059

12p81(g)(ii) Charged/(credited) to the statement of profit or loss 250 − (193) − 57

12p81(ab) Charged to other comprehensive income − 231 − − 231

12p81(a) Charged directly to equity − − 2,328 − 2,328

Acquisition of subsidiaries (Note 41) 553 1,375 − 275 2,203

Currency translation differences (571) (263) − (123) (957)

12p81(g)(i) At 31 December 2016 8,317 1,776 2,135 693 12,921

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34 Post-employment benefits

The table below outlines where the group's post-employment amounts and activity are included in the financial statements.

2016 2015

HK$’000 HK$’000

Balance sheet obligations for:

- Defined pension benefits 3,684 1,900

- Post-employment medical benefits 1,432 711

Liability in the balance sheet 5,116 2,611

Statement of profit or loss charge included in operating profit for [1]:

- Defined pension benefits 948 561

- Post-employment medical benefits 184 119

1,132 680

Remeasurements for:

- Defined pension benefits (84) 717

- Post-employment medical benefits (35) 193

(119) 910

[1] The statement of profit or loss charge included within operating profit includes current service cost, interest cost, past service costs and gains and losses on settlement and curtailment.

34(a) Defined benefit pension plans

DV, 19p136, 19p138 19p139

The group operates defined benefit pension plans in the UK and US under broadly similar regulatory frameworks. All of the plans are final salary pension plans, which provide benefits to members in the form of a guaranteed level of pension payable for life. The level of benefits provided depends on members’ length of service and their salary in the final years leading up to retirement. In the UK plans, pensions in payment are generally updated in line with the retail price index, whereas in the US plans, pensions generally do not receive inflationary increases once in payment. With the exception of this inflationary risk in the UK, the plans face broadly similar risks, as described below. The majority of benefit payments are from trustee-administered funds; however, there are also a number of unfunded plans where the company meets the benefit payment obligation as it falls due. Plan assets held in trusts are governed by local regulations and practice in each country, as is the nature of the relationship between the group and the trustees (or equivalent) and their composition. Responsibility for governance of the plans - including investment decisions and contribution schedules - lies jointly with the company and the board of trustees. The board of trustees must be composed of representatives of the company and plan participants in accordance with the plan’s regulations.

19p140(a) The amounts recognised in the balance sheet are determined as follows:

2016 2015

HK$’000 HK$’000

Present value of funded obligations 6,155 2,943

Fair value of plan assets (5,211) (2,797)

Deficit of funded plans 944 146

Present value of unfunded obligations 2,426 1,549

Total deficit of defined benefit pension plans 3,370 1,695

Impact of minimum funding requirement/asset ceiling 314 205

Liability in the balance sheet 3,684 1,900

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19p140 (a), 141(a-h)

The movement in the defined benefit liability over the year is as follows:

Present value of

obligation

Fair value of plan assets Total

Impact of minimum

funding requirement/

asset ceiling Total

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

At 1 January 2015 3,479 (2,264) 1,215 120 1,335

Current service cost 498 - 498 - 498

Interest expense/(income) 214 (156) 58 5 63

712 (156) 556 5 561

Remeasurements:

- Return on plan assets, excluding amounts included in interest income - (85) (85) - (85)

- Loss from change in demographic assumptions 20 - 20 - 20

- Loss from change in financial assumptions 61 - 61 - 61

- Experience losses 641 - 641 - 641

- Change in asset ceiling, excluding amounts included in interest expense - - - 80 80

722 (85) 637 80 717

Currency translation differences (324) 22 (302) - (302)

Contributions:

- Employers - (411) (411) - (411)

- Plan participants 30 (30) - - -

Payments from plans:

- Benefit payments (127) 127 - - -

At 31 December 2015 4,492 (2,797) 1,695 205 1,900

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Present value of

obligation

Fair value of plan assets Total

Impact of minimum

funding requirement/

asset ceiling Total

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

At 1 January 2016 4,492 (2,797) 1,695 205 1,900

Current service cost 751 - 751 - 751

Interest expense/(income) 431 (308) 123 9 132

Past service cost and gains and losses on settlements 65 - 65 - 65

1,247 (308) 939 9 948

Remeasurements:

- Return on plan assets, excluding amounts included in interest income - (187) (187) - (187)

- Loss from change in demographic assumptions 32 - 32 - 32

- Loss from change in financial assumptions 121 - 121 - 121

- Experience gains (150) - (150) - (150)

- Change in asset ceiling, excluding amounts included in interest expense - - - 100 100

3 (187) (184) 100 (84)

Currency translation differences (61) (25) (86) - (86)

Contributions:

- Employers - (908) (908) - (908)

- Plan participants 55 (55) - - -

Payments from plans:

- Benefit payments (566) 566 - - -

- Settlements (280) 280 - - -

Acquired in a business combination (Note 41) 3,691 (1,777) 1,914 - 1,914

At 31 December 2016 8,581 (5,211) 3,370 314 3,684

19p141

One of our US plans has a surplus that is not recognised on the basis that future economic benefits are not available to the entity in the form of a reduction in future contributions or a cash refund.

19p139 (c)

In connection with the closure of a factory, a curtailment loss was incurred and a settlement arrangement agreed with the plan trustees, effective December 30, 2015, which settled all retirement benefit plan obligations relating to the employees of that factory.

19p138 (a)

The defined benefit obligation and plan assets are composed by country as follows:

2016 2015

UK US Total UK US Total

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Present value of obligation 4,366 4,215 8,581 3,442 1,050 4,492

Fair value of plan assets (3,109) (2,102) (5,211) (2,403) (394) (2,797)

1,257 2,113 3,370 1,039 656 1,695

Impact of minimum funding requirement/asset ceiling - 314 314 - 205 205

Total 1,257 2,427 3,684 1,039 861 1,900

19p137(a)

As at the last valuation date, the present value of the defined benefit obligation was comprised of approximately HK$3,120,000 relating to active employees, HK$3,900,000 relating to deferred members and HK$1,560,000 relating to members in retirement.

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19p144 The significant actuarial assumptions were as follows:

2016 2015

UK US UK US

Discount rate 5.1% 5.2% 5.5% 5.6%

Inflation 3.0% 4.0% 3.5% 4.2%

Salary growth rate 4.0% 4.5% 4.5% 4.0%

Pension growth rate 3.0% 2.8% 3.1% 2.7%

Assumptions regarding future mortality are set based on actuarial advice in accordance with published statistics and experience in each territory. These assumptions translate into an average life expectancy in years for a pensioner retiring at age 65:

2016 2015

UK US UK US

Retiring at the end of the year:

- Male 22 20 22 20

- Female 25 24 25 24

Retiring 20 years after the end of the year

- Male 24 23 24 23

- Female 27 26 27 26

19p145 (a)

The sensitivity of the defined benefit obligation to changes in the weighted principal assumptions is:

Impact on defined benefit obligation

Change in assumption

Increase in assumption Decrease in assumption

Discount rate 0.50% Decrease by 8.2% Increase by 9.0%

Salary growth rate 0.50% Increase by 1.8% Decrease by 1.7%

Pension growth rate 0.25% Increase by 4.7% Decrease by 4.4%

Increase by 1 year in assumption Decrease by 1 year in assumption

Life expectancy Increase by 2.8% Decrease by 2.9%

19p145 (b)

The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as when calculating the pension liability recognised within the statement of financial position.

19p145 (c)

The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to the previous period.

34(b) Post-employment medical benefits

DV, 19p144

The group operates a number of post-employment medical benefit schemes, principally in the US. The majority of these plans are unfunded. The method of accounting, significant assumptions and the frequency of valuations are similar to those used for defined benefit pension schemes set out above with the addition of actuarial assumptions relating to the long-term increase in healthcare costs of 8.0% a year (2015:7.6%) and claim rates of 6% (2015: 5.2%).

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19p140 (a)

The amounts recognised in the balance sheet are determined as follows:

2016 2015

HK$’000 HK$’000

Present value of funded obligations 727 350

Fair value of plan assets (605) (294)

Deficit of the funded plans 122 56

Present value of unfunded obligations 1,310 655

Liability in the balance sheet 1,432 711

19p140(a),

The movement in the defined benefit liability over the year is as follows:

141(a-h) Present value of obligation

Fair value of plan assets Total

HK$’000 HK$’000 HK$’000

At 1 January 2015 708 (207) 501

Current service cost 107 - 107

Interest expense/(income) 25 (13) 12

132 (13) 119

Remeasurements:

- Return on plan assets, excluding amounts included in interest income - (11) (11)

- Loss from change in demographic assumptions 3 - 3

- Loss from change in financial assumptions 7 - 7

- Experience losses 194 - 194

204 (11) 193

Currency translation differences (31) 2 (29)

Contributions/premiums paid:

- Employers - (73) (73)

Payments from plans:

- Benefit payments (8) 8 -

At 31 December 2015 1,005 (294) 711

At 1 January 2016 1,005 (294) 711

Current service cost 153 - 153

Interest expense/(income) 49 (18) 31

202 (18) 184

Remeasurements:

- Return on plan assets, excluding amounts included in interest income - (33) (33)

- Loss from change in demographic assumptions 4 - 4

- Loss from change in financial assumptions 10 - 10

- Experience gains (16) - (16)

(2) (33) (35)

Currency translation differences 37 (5) 32

Contributions/premiums paid:

- Employers - (185) (185)

Payments from plans:

- Benefit payments (7) 7 -

Acquired in a business combination (Note 41) 802 (77) 725

At 31 December 2016 2,037 (605) 1,432

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34(c)

Post-employment benefits (pension and medical)

19p142 Plan assets are comprised as follows:

2016 2015

Quoted Unquoted Total % Quoted Unquoted Total %

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Equity instruments 1,824 31% 1,216 39%

Information technology 502 - 502 994 - 994

Energy 557 - 557 - - -

Manufacturing 746 - 746 194 - 194

Other - 19 19 - 28 28

Debt instruments 2,161 37% 571 18%

Government 916 - 916 321 - 321

Corporate bonds (Investment grade) 900 - 900 99 - 99

Corporate bonds (Non-investment grade) 68 277 345 41 110 151

Property 1,047 18% 943 31%

in US - 800 800 - 697 697

in UK - 247 247 - 246 246

Qualifying insurance policies - 496 496 9% - 190 190 6%

Cash and cash equivalents 177 - 177 3% 94 - 94 3%

Investment funds 111 - 111 2% 77 - 77 2%

Total 3,977 1,839 5,816 100% 1,820 1,271 3,091 100%

19p143 Pension and medical plan assets include the company's ordinary shares with a fair value of HK$136,000 (2015: HK$126,000) and US real estate occupied by the group with a fair value of HK$612,000 (2015: HK$609,000).

19p139(b) Through its defined benefit pension plans and post-employment medical plans, the group is exposed to a number of risks, the most significant of which are detailed below:

Asset volatility

The plan liabilities are calculated using a discount rate set with reference to corporate bond yields; if plan assets underperform this yield, this will create a deficit. Both the UK and US plans hold a significant proportion of equities, which are expected to outperform corporate bonds in the long-term while providing volatility and risk in the short-term. As the plans mature, the group intends to reduce the level of investment risk by investing more in assets that better match the liabilities. The first stage of this process was completed in FY12 with the sale of a number of equity holdings and purchase of a mixture of government and corporate bonds. The government bonds represent investments in UK and US government securities only. The corporate bonds are global securities with an emphasis on the UK and US. However, the group believes that due to the long-term nature of the plan liabilities and the strength of the supporting group, a level of continuing equity investment is an appropriate element of the group’s long term strategy to manage the plans efficiently. See below for more details on the group's asset-liability matching strategy.

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Changes in bond yields

A decrease in corporate bond yields will increase plan liabilities, although this will be partially offset by an increase in the value of the plans’ bond holdings.

Inflation risk

The some of the group pension obligations are linked to inflation, and higher inflation will lead to higher liabilities (although, in most cases, caps on the level of inflationary increases are in place to protect the plan against extreme inflation). The majority of the plan’s assets are either unaffected by (fixed interest bonds) or loosely correlated with (equities) inflation, meaning that an increase in inflation will also increase the deficit. In the US plans, the pensions in payment are not linked to inflation, so this is a less material risk.

Life expectancy

The majority of the plans’ obligations are to provide benefits for the life of the member, so increases in life expectancy will result in an increase in the plans’ liabilities. This is particularly significant in the UK plan, where inflationary increases result in higher sensitivity to changes in life expectancy.

19p146 In case of the funded plans, the group ensures that the investment positions are managed within an asset-liability matching (ALM) framework that has been developed to achieve long-term investments that are in line with the obligations under the pension schemes. Within this framework, the Group's ALM objective is to match assets to the pension obligations by investing in long-term fixed interest securities with maturities that match the benefit payments as they fall due and in the appropriate currency. The company actively monitors how the duration and the expected yield of the investments are matching the expected cash outflows arising from the pension obligations. The group has not changed the processes used to manage its risks from previous periods. The group does not use derivatives to manage its risk. Investments are well diversified, such that the failure of any single investment would not have a material impact on the overall level of assets. A large portion of assets in 2015 consists of equities and bonds, although the group also invests in property, bonds, cash and investment (hedge) funds. The group believes that equities offer the best returns over the long term with an acceptable level of risk. The majority of equities are in a globally diversified portfolio of international blue chip entities, with a target of 60% of equities held in the UK and Europe, 30% in the US and the remainder in emerging markets.

19p147(a) The group has agreed that it will aim to eliminate the pension plan deficit over the next nine years. Funding levels are monitored on an annual basis and the current agreed contribution rate is 14% of pensionable salaries in the UK and 12% in the US. The next triennial valuation is due to be completed as at 31 December 2016. The group considers that the contribution rates set at the last valuation date are sufficient to eliminate the deficit over the agreed period and that regular contributions, which are based on service costs, will not increase significantly.

19p147(b) Expected contributions to post-employment benefit plans for the year ending 31 December 2017 are HK$1,150.

19p147(c) The weighted average duration of the defined benefit obligation is 25.2 years.

19p147(c) Expected maturity analysis of undiscounted pension and post-employments medical benefits:

At 31 December 2016

Less than a year

Between 1-2 years

Between 2-5 years Over 5 years Total

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Pension benefits 628 927 2,004 21,947 25,506

Post-employment medical benefits 127 174 714 4,975 5,990

Total 755 1,101 2,718 26,922 31,496

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35 Provisions for other liabilities and charges 1p78(d)

Environmental restoration

HK$000 Restructuring

HK$’000

Legal claims

HK$’000

Profit-sharing

and bonuses

HK$’000

Contingent liability

arising on a business

combination HK$’000

Total HK$’000

37p84(a) At 1 January 2016 842 − 828 1,000 − 2,670 Charged/(credited) to the

statement of profit or loss: 37p84(b) – Additional provisions 316 1,986 2,405 500 − 5,207 – On acquisition of ABC Group − − − − 1,000 1,000 37p84(d) – Unused amounts reversed (15) − (15) (10) − (40) 37p84(e) – Unwinding of discount (Note

11) 40 − − − 4 44 37p84(c) Used during year (233) (886) (3,059) (990) − (5,168) Currency translation differences (7) − (68) − − (75) FRS5p38 Transferred to disposal

group/classified as held for sale (96) − − − − (96) 37p84(a) At 31 December 2016 847 1,100 91 500 1,004 3,542

Analysis of total provisions:

2016

HK$’000 2015

HK$’000 1p69 Non-current (environmental restoration) 1,320 274 1p69 Current 2,222 2,396 3,542 2,670 (a) Environmental restoration 37p85 (a)-(c)

The group uses various chemicals in working with leather. A provision is recognised for the present value of costs to be incurred for the restoration of the manufacturing sites. It is expected that HK$531,000 will be used during 2017 and HK$320,000 during 2018. Total expected costs to be incurred are HK$880,000 (2015: HK$760,000).

DV The provision transferred to the disposal group classified as held for sale amounts to HK$96,000 and relates to an

environmental restoration provision for Shoes Limited (part of the wholesale segment). See Note 26 for further details regarding the disposal group held for sale.

(b) Restructuring 37p85(a)-(c) The reduction of the volumes assigned to manufacturing operations in Step-land (a subsidiary) will result in the

reduction of a total of 155 jobs at two factories. An agreement was reached with the local union representatives that specifies the number of staff involved and the voluntary redundancy compensation package offered by the group, as well as amounts payable to those made redundant, before the financial year-end. The estimated staff restructuring costs to be incurred are HK$799,000 at 31 December 2016 (Note 10). Other direct costs attributable to the restructuring, including lease termination, are HK$1,187,000. These costs were fully provided for in 2016. The provision of HK$1,100,000 at 31 December 2016 is expected to be fully utilised during the first half of 2017.

36p130 A goodwill impairment charge of HK$4,650,000 was recognised in the cash-generating unit relating to Step-land

as a result of this restructuring (Note 18).

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(c) Legal claims 37p85(a)-(c) The amounts represent a provision for certain legal claims brought against the group by customers of the

wholesale segment. The provision charge is recognised in profit or loss within ‘administrative expenses’. The balance at 31 December 2016 is expected to be utilised in the first half of 2017. In the directors’ opinion, after taking appropriate legal advice, the outcome of these legal claims will not give rise to any significant loss beyond the amounts provided at 31 December 2016.

(d) Profit-sharing and bonuses DV, 19p9(c),11 37p85(a)-(c)

The provision for profit-sharing and bonuses is payable within three month of finalisation of the audited financial statements.

(e) Contingent liability 37p85(a)-(c) A contingent liability of HK$1,000,000 has been recognised on the acquisition of ABC Group for a pending

lawsuit in which the entity is a defendant. The claim has arisen from a customer alleging defects on products supplied to them. It is expected that the courts will have reached a decision on this case by the end of 2016. The potential undiscounted amount of all future payments that the group could be required to make if there was an adverse decision related to the lawsuit is estimated to be between HK$500,000 and HK$1,500,000. As of 31 December 2016, there has been no change in the amount recognised (except for the unwinding of the discount of HK$4,000) for the liability at 31 March 2016, as there has been no change in the probability of the outcome of the lawsuit.

FRS3B64(g), p57

The selling shareholders of ABC Group have contractually agreed to indemnify Specimen Holdings Limited for the claim that may become payable in respect of the above-mentioned lawsuit. An indemnification asset of HK$1,000,000, equivalent to the fair value of the indemnified liability, has been recognised by the group. The indemnification asset is deducted from consideration transferred for the business combination. As is the case with the indemnified liability, there has been no change in the amount recognised for the indemnification asset as at 31 December 2016, as there has been no change in the range of outcomes or assumptions used to develop the estimate of the liability.

36 Dividends 1p107, 1p137(a) 10p12

The dividends paid in 2016 and 2015 were HK$10,102,000 (HK$0.48 per share) and HK$15,736,000 (HK$0.78 per share) respectively. A dividend in respect of the year ended 31 December 2016 of HK$0.51 per share, amounting to a total dividend of HK$12,945,000, is to be proposed at the annual general meeting on 30 April 2017. These financial statements do not reflect this dividend payable.

2016

HK$’000 2015

HK$’000 Interim dividend paid of HK$- (2015:HK$nil) per ordinary share - -

Proposed final dividend of HK$0.51 (2015:HK$0.48) per ordinary share 12,945

10,102 12,945 10,102

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37 Cash generated from operations

2016

HK$’000 2015

HK$’000 7p18(b), 20 Profit before income tax including discontinued operations 48,860 25,415 Adjustments for: – Amortisation of prepaid operating lease payment (Note 16) 1,100 200 – Depreciation of property, plant and equipment (Note 16a) 24,654 16,248 – Fair value gains on investment properties (Note 17) (7,900) (6,000) – Amortisation (Note 18) 800 565 – Goodwill impairment charge (Note 18) 4,650 − – (Profit)/loss on disposal of property, plant and equipment (see below) (17) 8 – Share-based payment 690 822 –Post-employment benefits 39 196 – Fair value gains on derivative financial instruments (Note 9) (86) (88) – Fair value (gains)/losses on financial assets at fair value through profit

or loss (Note 9) (85) 238 – Dividend income on available-for-sale financial assets (Note 7) (1,100) (388) – Dividend income on financial assets at fair value through profit or loss

(Note 7) (487) (310) – Finance expenses – net (Note 11) 6,443 10,588 – Share of profit from investments accounted for using equity method

(Note 12b) (1,293) (1,022)

– Foreign exchange losses on operating activities 277 200 – Gains on revaluation of existing investments (Note 41) (850) − Changes in working capital (excluding the effects of acquisition and

currency translation differences on consolidation): – Inventories 44 (966) – Trade and other receivables 1,592 (2,829) – Financial assets at fair value through profit or loss (3,883) (858) – Trade and other payables (14,114) (243) Cash generated from operations 59,334 41,776 In the statement of cash flows, proceeds from sale of property, plant and equipment comprise:

2016

HK$’000 2015

HK$’000 Net book amount (Note 16a) 6,337 2,987 Profit/(loss) on disposal of property, plant and equipment 17 (8) Proceeds from disposal of property, plant and equipment 6,354 2,979 Non-cash transactions 7p43 The principal non-cash transaction is the issue of shares as consideration for the acquisition discussed in

Note 41.

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38 Contingencies

37p86 Since 2010, the group has been defending an action brought by an environment agency in Europe. The group has

disclaimed the liability. No provision in relation to this claim has been recognised in these consolidated financial statements, as legal advice

indicates that it is not probable that a significant liability will arise. Further claims for which provisions have been made are reflected in Note 35.

39 Commitments (a) Capital commitments

Capital expenditure contracted for at the end of the year but not yet incurred is as follows:

2016

HK$’000 2015

HK$’000 16p74(c) Property, plant and equipment 3,593 3,667 38p122(e) Intangible assets 460 474 40p75(h) Investment properties 290 200 4,343 4,341 40p75(h) Investment properties - repairs and maintenance 140 130 4,483 4,471 (b) Operating lease commitments – group company as lessee 17p35(d) The group leases various retail outlets, offices and warehouses under non-cancellable operating lease agreements.

The lease terms are between 5 and 10 years, and the majority of lease agreements are renewable at the end of the lease period at market rate.

17p35(d) The group also leases various plant and machinery under cancellable operating lease agreements. The group is

required to give a six-month notice for the termination of these agreements. The lease expenditure charged to the statement of profit or loss during the year is disclosed in Note 9.

17p35(a) The future aggregate minimum lease payments under non-cancellable operating leases are as follows:

2016

HK$’000 2015

HK$’000 No later than 1 year 11,664 10,604 Later than 1 year and no later than 5 years 45,651 45,651 Later than 5 years 15,710 27,374 73,025 83,629

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40 Transactions with non-controlling interests

(a) Acquisition of additional interest in a subsidiary FRS12p18 On 21 April 2016, the company acquired an additional 5% of the issued shares of XYZ Group for a purchase

consideration of HK$500,000. The carrying amount of the non-controlling interests in XYZ Group on the date of acquisition was HK$710,000. The group recognised a decrease in non-controlling interests of HK$300,000 and a decrease in equity attributable to owners of the company of HK$200,000. The effect of changes in the ownership interest of ABC Group on the equity attributable to owners of the company during the year is summarised as follows:

As at 31 December 2016 2015 HK$’000 HK$’000 Carrying amount of non-controlling interests acquired 300 - Consideration paid to non-controlling interests (500) - Excess of consideration paid recognised within equity (200) - FRS12p18 (b) Disposal of interest in a subsidiary without loss of control On 5 September 2016, the company disposed of 10% of interest in Red Limited at a consideration of

HK$1,500,000. The carrying amount of the non-controlling interests in Red Limited on the date of disposal was HK$2,000,000. The group recognised an increase in non-controlling interests of HK$1,250,000 and an increase in equity attributable to owners of the company of HK$250,000. The effect of changes in the ownership interest of Red Limited on the equity attributable to owners of the company during the year is summarised as follows:

As at 31 December 2016 2015 HK$’000 HK$’000 Carrying amount of non-controlling interests disposed of (1,250) - Consideration received from non-controlling interests 1,500 - Gain on disposal within equity 250 - There were no transactions with non-controlling interests in 2015. FRS12p18 (c) Effects of transactions with non-controlling interests on the equity attributable to owners of the

company for the year ended 31 December 2016 31

December 2016

HK$’000

Changes in equity attributable to owners of the company arising from: - Acquisition of additional interests in subsidiary (200) - Disposal of interests in a subsidiary without loss of control 250 Net effect for transactions with non-controlling interests

on equity attributable to owners of the company 50

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41 Business combinations FRS3B64 (a-d)

On 30 June 2015, the group acquired 15% of the share capital of ABC Group for HK$1,150,000 (Note 20). On 1 March 2016, the group acquired a further 65% of the share capital and obtained the control of ABC Group, a shoe and leather goods retailer operating in the US and most western European countries.

FRS3B64(e) As a result of the acquisition, the group is expected to increase its presence in these markets. It also expects to reduce costs through economies of scale. The goodwill of HK$4,501,000 arising from the acquisition is attributable to acquired customer base and economies of scale expected from combining the operations of the group and ABC Group. None of the goodwill recognised is expected to be deductible for income tax purposes.

The following table summarises the consideration paid for ABC Group, the fair value of assets acquired, liabilities assumed and the non-controlling interest at the acquisition date.

Consideration:

At 1 March 2016 HK$’000

FRS3B64(f)(i) – Cash 4,050

FRS3B64f(iv) – Equity instruments (3,550,000 ordinary shares) 10,000 FRS3B64f(iii), (g)(i)

– Contingent consideration 1,000

FRS3B64(f) Total consideration transferred 15,050 FRS3B64(g) Indemnification asset (1,000) FRS3 B64(p)(i)

Fair value of equity interest in ABC Group held before the business combination

2,000

Total consideration 16,050

FRS3B64(i) Recognised amounts of identifiable assets acquired and liabilities assumed

Cash and cash equivalents 300 Leasehold land and land use rights (Note 16) 43,500 Property, plant and equipment (Note 16a) 24,284 Trademarks (included in intangibles) (Note 18) 2,000 Licences (included in intangibles) (Note 18) 1,000 Contractual customer relationship (included in intangibles)

(Note 18)

1,000 Investment in associates (Note 12b) 389 Available-for-sale financial assets (Note 20) 473 Inventories 1,122 Trade and other receivables 585 Trade and other payables (12,461) Retirement benefit obligations: – Pensions (Note 34) (1,914) – Other post-retirement obligations (Note 34) (725) Borrowings (41,459) Contingent liability (Note 35) (1,000) Deferred tax liabilities (Note 33) (1,953)

Total identifiable net assets 15,141

FRS3B64 (o)(i)

Non-controlling interest (3,592)

Goodwill (Note 18) 4,501

16,050

FRS3B64(m) Acquisition-related costs of HK$200,000 have been charged to administrative expenses in the consolidated statement of profit or loss for the year ended 31 December 2016.

FRS3 B64(f)(iv) FRS3 B64(m)

The fair value of the 3,550,000 ordinary shares issued as part of the consideration paid for ABC Group (HK$10,050,000) was based on the published share price on 1 March 2016. Issuance costs totalling HK$50,000 have been netted against the deemed proceeds.

FRS3 B64(f)(iii), (g) FRS3 B67(b)

The contingent consideration arrangement requires the group to pay in cash the former owners of ABC Group 10% of the average profit of ABC Group for three years from 2016 to 2018, in excess of HK$7,500,000, up to a maximum undiscounted amount of HK$2,500,000.

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FRS3B64(g) (ii)

The potential undiscounted amount of all future payments that the group could be required to make under this arrangement is between HK$0 and HK$2,500,000.

FRS3B64(g) (i), (ii), FRS13p93(h)(i)

The fair value of the contingent consideration arrangement of HK$1,000,000 was estimated by applying the income approach. The fair value estimates are based on a discount rate of 8% and assumed probability-adjusted profit in ABC Group of HK$10,000,000 to HK$20,000,000. This is a level 3 fair value measurement. The key unobservable assumptions in calculating this profit are:

FRS13p93(d) Assumption Range Sales (HK$’000) 6,000-10,000 Gross margin (%) 40%-50% Distribution costs and administrative expenses

(HK$’000) 1,000-2,250

FRS3 B67(b) FRS13p93(h) (ii)

As of 31 December 2016, there was an increase of HK$500,000 (Note 31) recognised in the statement of profit or loss for the contingent consideration arrangement, as the assumed probability- adjusted profit in ABC Group was recalculated to be approximately HK$20,000,000 to HK$30,000,000.

Assuming all other variables are held constant; an increase in revenue by HK$5,000,000 each year would increase the liability by a further HK$100,000, an increase in gross margin by 5% each year would increase the liability by HK$200,000 and an increase in distribution costs and administrative expenses by HK$1,000,000 each year would decrease the liability by HK$80,000.

FRS3 B64(h)

The fair value of trade and other receivables is HK$585,000 and includes trade receivables with a fair value of HK$510,000. The gross contractual amount for trade receivables due is HK$960,000, of which HK$450,000 is expected to be uncollectible.

FRS3 B67(a)

The fair value of the acquired identifiable intangible assets of HK$4,000,000 (including trademarks, licences and contractual customer relationship) is provisional pending receipt of the final valuations for those assets.

FRS3B64(j), B67(c), 37p84, 85

A contingent liability of HK$1,000,000 (Note 35) has been recognised for a pending lawsuit in which ABC Group is a defendant. The claim has arisen from a customer alleging defects on products supplied to them. It is expected that the courts will have reached a decision on this case by the end of 2017. The potential undiscounted amount of all future payments that the group could be required to make if there was an adverse decision related to the lawsuit is estimated to be between HK$500,000 and HK$1,500,000. As of 31 December 2016, there has been no change in the amount recognised (except for unwinding of the discount HK$4,000) for the liability at 31 March 2016, as there has been no change in the range of outcomes or assumptions used to develop the estimates.

FRS3 B64(g), p57 FRS3B64(o)

The selling shareholders of ABC Group have contractually agreed to indemnify the group for the claim that may become payable in respect of the above-mentioned lawsuit. An indemnification asset of HK$1,000,000, equivalent to the fair value of the indemnified liability, has been recognised by the group. The indemnification asset is deducted from consideration transferred for the business combination. As is the case with the indemnified liability, there has been no change in the amount recognised for the indemnification asset as at 31 December 2016, as there has been no change in the range of outcomes or assumptions used to develop the estimate of the liability. The fair value of the non-controlling interest in ABC Group, an unlisted company, was estimated by using the purchase price paid for acquisition of 65% stake in ABC group. This purchase price was adjusted for the lack of control and lack of marketability that market participants would consider when estimating the fair value of the non-controlling interest in ABC Group.

FRS3 B64(p)(ii)

The group recognised a gain of HK$850,000 as a result of measuring at fair value its 15% equity interest in ABC Group held before the business combination. The gain is included in other gains in the group's statement of profit or loss for the year ended 31 December 2016.

FRS3 B64(q)(i)

The revenue included in the consolidated statement of profit or loss since 1 March 2016 contributed by ABC Group was HK$44,709,000. ABC Group also contributed profit of HK$12,762,000 over the same period.

FRS3 B64(q)(ii)

Had ABC Group been consolidated from 1 January 2016, the consolidated statement of profit or loss would show pro-forma revenue58 of HK$220,345,000 and profit of HK$33,565,000.

58 The information on combined revenue and profit does not represent actual results for the year and is therefore labelled as pro-forma. Under HKAS 1, comparative information must be given for all numerical information reported in the financial statements, including narratives. However, HKFRS 3 does not separately require comparative information in respect of business combinations. In our view, the HKFRS 3 disclosures are required only for business combinations occurring during the period. This means that in the period following the combination, the disclosures required in paragraph B64 of HKFRS 3 do not need to be repeated. However, the disclosures that are required in relation to a prior business combination in paragraph B67 of HKFRS 3 must be made.

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42 Related party transactions59 1p138(c)

24p13,

4Sch.p1.3

The group is controlled by M Limited (incorporated in the UK), which owns 57% of the company’s shares. The remaining 43% of the shares are widely held. The ultimate parent62 of the group is G Limited (incorporated in the UK). The ultimate controlling party of the group is Mr Power.

24p 18, 19, 24 In addition to those disclosed elsewhere in the financial statements, the following transactions were carried

out with related parties:

24p18(a) (a) Sales of goods and services

2016

HK$’000 2015

HK$’000

Sales of goods: – Associates 1,002 204

– Associates of G Limited 121 87

Sales of services: – The ultimate parent (legal and administration services) 67 127

– Close family members of the ultimate controlling party (design services) 100 104

Total 1,290 522

Goods are sold based on the price lists in force and terms that would be available to third parties63. Sales of

services are negotiated with related parties on a cost-plus basis, allowing a margin ranging from 15% to 30% (2015: 10% to 18%).

24p18(a) (b) Purchases of goods and services

2016

HK$’000 2015

HK$’000

Purchases of goods:

– Associates 3,054 3,058

Purchases of services: – An entity controlled by key management personnel 83 70

– The immediate parent (management services) 295 268

Total 3,432 3,396

24p23 Goods and services are bought from associates and an entity controlled by key management personnel on

normal commercial terms and conditions. The entity controlled by key management personnel is a firm belonging to Mr Chamois, a non-executive director of the company. Management services are bought from the immediate parent on a cost-plus basis, allowing a margin ranging from 15% to 30% (2015: 10% to 24%).

24p17 (c) Key management compensation Key management includes directors (executive and non-executive), members of the Executive Committee,

the Company Secretary and the Head of Internal Audit. The compensation paid or payable to key management for employee services is shown below:

2016

HK$’000 2015

HK$’000

24p17(a) Salaries and other short-term employee benefits 2,200 1,890 24p17(d) Termination benefits 1,600 – 24p17(b) Post-employment benefits 123 85 24p17(c) Other long-term benefits 26 22 24p17(e) Share-based payments 150 107

Total 4,099 2,104

59 All contracts with related parties are required to be disclosed, including commitments to do something if a particular event occurs or does not occur in the future, including executory contracts (recognised and unrecognised) (HKAS 24 p21(i)). 62 Paragraph 3 of Part 1 of Schedule 4 of the Hong Kong Companies Ordinance (Cap. 622) requires disclosure of the name of the “ultimate parent undertaking”.

The term “undertaking” as defined in the section 367 to the Hong Kong Companies Ordinance (Cap. 622), includes a partnership or an unincorporated association carrying on a trade or business, whether for profit or not, as well as a body corporate. If the ultimate parent undertaking is a body corporate, then the country of its incorporation should be disclosed, whereas if it is not a body corporate, then the address of its principal place of its business should be disclosed.

Although the disclosure requirements under Paragraph 3 of Part 1 of Schedule 4 of the Hong Kong Companies Ordinance (Cap. 622) and HKAS 24Rp13 are similar, it should be noted that where the ultimate parent undertaking is controlled by an individual, additional disclosure will be required to meet both the requirements of the Hong Kong Companies Ordinance (Cap. 622) and HKAS24.

63 Management should disclose that related-party transactions were on an arm’s length basis only when such terms can be substantiated (HKAS24p23)

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24p18(b) In addition to the above amounts, the Group is committed to pay the members of the Executive Committee up to HK1, 250,000 in the event of a change in control of the Group.

24p18(b), 1p77 (d) Year-end balances arising from sales/purchases of goods/services

2016

HK$’000 2015

HK$’000 Receivables from related parties (Note 22): – Associates 26 32 – Associates of G Limited 24 8 – Close family members of key management personnel 4 6 Payables to related parties (Note 31): – Immediate parent 200 190 – Associates 1,902 1,005 – Entity controlled by key management personnel 100 - The receivables from related parties arise mainly from sale transactions and are due two months after the

date of sales. The receivables are unsecured in nature and bear no interest. No provisions are held against receivables from related parties (2015: nil).

The payables to related parties arise mainly from purchase transactions and are due two months after the

date of purchase. The payables bear no interest. 24p18, 1p77 (e) Loans to related parties

2016

HK$’000 2015

HK$’000 Loans to key management of the company (and their families) 64: At 1 January 196 168 Loans advanced during year 343 62 Loan repayments received (49) (34) Interest charged 30 16 Interest received (30) (16) At 31 December 490 196 Loans to associates: At 1 January 1,192 1,206 Loans advanced during year 1,000 50 Loan repayments received (14) (64) Interest charged 187 120 Interest received (187) (120) At 31 December 2,178 1,192 Total loans to related parties: At 1 January 1,388 1,374 Loans advanced during year 1,343 112 Loan repayments received (63) (98) Interest charged 217 136 Interest received (Note 11) (217) (136) At 31 December (Note 22) 2,668 1,388

64 None of the loans made to members of key management has been made to directors.

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24p18(b)(i) The loans advanced to key management have the following terms and conditions:

Amount of loan 4Sch.p1.1

Name of key management

At end of year

At beginning of

year Term Interest rate HK$’000 HK$’000 2016 Mr Brown 173 173 Repayable monthly over 2 years 6.3% Mr White 170 212 Repayable monthly over 2 years 6.3%

2015 Mr Black 20 20 Repayable monthly over 2 years 6.5% Mr White 42 60 Repayable monthly over 1 year 6.5%

FRS7p15, Certain loans advanced to associates during the year amounting to HK$1,500,000 (2015: HK$500,000) are

collateralised by shares in listed companies. The fair value of these shares was HK$1,650,000 at the end of the year (2015: HK$590,000).

The loans to associates are due on 1 January 2016 and carry interest at 7.0% (2015: 8%). The fair values and

the effective interest rates of loans to associates are disclosed in Note 22.

24p18(c) No provision has been required in 2016 and 2015 for the loans made to key management personnel and

associates.

Commentary – related party transactions

KMP services provided by management entity

24p9(b)(viii),p17A,p18A

If an entity hires key management personnel services from another entity (eg a responsible entity or management entity), the entity does not need to disclose any compensation paid by the management entity to its employees or directors. However, the management entity is specifically identified as a related party and amounts payable to the management entity for the provision of key management personnel services must be separately disclosed. This was clarified by the HKICPA with amendments made in the 2010-12 improvements cycle. The amendments are applicable for financial years commencing on or after 1 July 2014.

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43 Events after the reporting period (a) Business combinations 10p21, FRS3B64(a)-(d), (m)

The group acquired 100% of the share capital of K&Co, a group of companies specialising in the manufacture of shoes for extreme sports, for a cash consideration of HK$5,950,000 on 1 February 2017.

Details of net assets acquired and goodwill are as follows: On acquisition HK$’000 FRS3B64(f),(i) Purchase consideration: – Cash paid 5,800 FRS3B64(m) – Direct cost relating to the acquisition – charged in profit or loss 150 7p40(a) Total purchase consideration 5,950 Fair value of assets acquired (see below) (5,145) Goodwill 805 FRS3B64(e) The above goodwill is attributable to K&Co’s strong position and profitability in trading in the niche market

for extreme-sports equipment. FRS3B64(i) The assets and liabilities arising from the acquisition, provisionally determined, are as follows:

Fair value HK$’000

Cash and cash equivalents 195 Property, plant and equipment 29,056 Trademarks 1,000 Licences 700 Customer relationships 1,850 Favourable lease agreements 800 Inventories 995 Trade and other receivables 855 Trade and other payables (9,646) Retirement benefit obligations (1,425) Borrowings (19,259) Deferred tax assets 24 Net assets acquired 5,145

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(b) Associates 10p21 The group acquired 40% of the share capital of L&Co, a group of companies specialising in the manufacture

of leisure shoes, for a cash consideration of HK$2,050,000 on 25 January 2017.

Details of net assets acquired and goodwill are as follows: On acquisition HK$’000 Purchase consideration: – Cash paid 2,050 – Direct cost relating to the acquisition 70 Total purchase consideration 2,120 Share of fair value of net assets acquired (see below) (2,000) Goodwill 120 DV The goodwill is attributable to L&Co’s strong position and profitability in trading in the market of leisure

shoes and to its workforce, which cannot be separately recognised as an intangible asset. DV The assets and liabilities arising from the acquisition, provisionally determined, are as follows:

Fair value HK$’000

Contractual customer relationships 380 Property, plant and equipment 3,200 Inventory 500 Cash 220 Trade creditors (420) Borrowings (1,880)

Net asset acquired 2,000

(c) Equity transactions 10p21 33p71(e) 10p21, 22(f)

On 1 January 2017, options on 1,200 shares were granted to directors and employees with an exercise price set at the market share prices less 15% on that date of HK$3.13 per share (share price: HK$3.68) (expiry date: 31 December 2020).

(d) Borrowings 10p21 On 1 February 2017, the group issued HK$6,777,000 6.5% US dollar bonds to finance its expansion

programme and working capital requirements in the US. The bonds are repayable on 31 December 2020.

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44 Balance sheet and reserve movement of the Company

4Sch.p1.2(1)(a), 4Sch.p1.2(3) Balance sheet of the Company As at 31 December

Note 2016 2015 1p10(a), 1p54, 1p113, 1p38, A2, A4(2), GEM18.07, GEM18.50B(2)

HK$’000 HK$’000

Assets

1p60, 1p66 Non-current assets

Investments in subsidiaries 67,206 66,310

FRS7p8(c) Loans to subsidiaries 89,794 25,000

157,000 91,310

1p60, 1p66 Current assets

1p54(i), FRS7p8 Cash and cash equivalents 5,039 7,230

Total assets 162,039 98,540

Equity and liabilities

1p54(r) Equity attributable to owners of the company

1p78(e), Share capital 42,444 31,494

1p78(e), 1p55

1p78(e) Other reserves (Note (a)) 5,433 -

1p78(e), 1p55 Retained earnings (Note (a)) 39,205 37,046

Total equity 87,082 68,540

Liabilities

1p60, 1p69 Non-current liabilities

1p54 (m), FRS7p8(f)

Borrowings 72,822 30,000

1p54(o), 1p56 Deferred income tax liabilities 2,135 -

Total liabilities 74,957 30,000

Total equity and liabilities 162,039 98,540

s387 The balance sheet of the Company was approved by the Board of Directors on [DATE] and

was signed on its behalf: _________________________ ____________________________

[Name of Director] [Name of Director]

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44 Balance sheet and reserve movement of the Company (continued)

Note (a) Reserve movement of the Company 4Sch.p1.2(1)(b)

Retained earnings HK$’000

Other reserves HK$’000

1p106(d) At 1 January 2015 41,934 -

Profit for the year 10,026 -

1p106(d) Dividends paid relating to 2014 (15,736) -

FRS2p50 Value of employee services 822 -

At 31 December 2015 37,046 -

1p106(d) At 1 January 2016 37,046 -

Profit for the year 14,135 -

1p106(d) Dividends relating to 2015 (10,102) -

FRS2p50 Value of employee services 690 -

1p97(a) Buy-back of shares (2,564) -

Convertible bonds – equity component − 7,761

12p61A Tax on equity component − (2,328)

At 31 December 2016 39,205 5,433

Commentary – holding company’s balance sheet

1. The holding company’s balance sheet is no longer required to be presented as one of the primary

financial statements. Paragraph 2(1)(a)&(b) of part 1 of Schedule 4 requires the holding company’s balance sheet and reserve movements to be contained in the notes to annual financial statements for the financial year,. Paragraph 2(2) of part 1 of Schedule 4 specifies that the holding company’s balance sheet to be contained in the notes to the annual consolidated financial statements for a financial year is not required to contain any notes.

27p38A

36p12(h)

2. An investor is required to recognise dividends received from a subsidiary, joint venture or associate in its separate financial statements as income. The receipt of a dividend from a subsidiary, joint venture or associate may be an internal indicator that the related investment could be impaired. The investor is, therefore, required to test the related investment for impairment where a dividend is received and

there is evidence available that the carrying amount of the investment exceeds the carrying amount in the consolidated financial statements of the investee’s net assets including associated goodwill; or

the dividend exceeds the total comprehensive income of the subsidiary, joint venture or associate in the period that the dividend is declared.

3. Except for the note disclosing the movement of the holding company’s reserves, the balance sheet of

the holding company is not required to contain any other notes. 4Sch.p1.2(1), 4Sch.p1.2(2) Section 387 of the CO states that the directors must sign a statement of financial position that “forms part of any financial statements”. As Schedule 4 to the CO requires the company level statement of financial position of the holding company to be included in the notes to its consolidated financial statements, it follows that this is a statement of financial position that falls under the scope of section 387. It must therefore be approved by the directors and signed on their behalf by 2 directors, or in the case of a company having only one director, by that director, despite the fact that the directors have already approved the entire set of consolidated financial statements (which includes notes to the consolidated financial statements) by signing on the consolidated statement of financial position.

4. There are Q&As issued by the Hong Kong Companies Registry and the Hong Kong institute of Certified Public Accountants for frequently asked questions relating to holding company’s balance sheet.

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45 Benefits and interests of directors (disclosures required by section 383 of the Hong Kong Companies Ordinance (Cap. 622), Companies (Disclosure of Information about Benefits of Directors) Regulation (Cap. 622G) and HK Listing Rules)

Commentary – Meaning of “company”, “director”, “subsidiary undertakings” and “person” in the Companies (Disclosure of Information about Benefits of Directors) Regulation (C(DIBD)R or Cap. 622G)

1. The C(DIBD)R sets out explicit disclosure requirements relating to directors’ benefits which should be

interpreted literally. In these requirements, the reference to “the company” refers to the company preparing the financial statements and references to “director” should be construed as references to a director of that company only. There is no requirement to extend these disclosures to directors of subsidiary undertakings of the company unless explicitly required to do so by the C(DIBD)R, even if the company is preparing consolidated financial statements.

The particulars of any directors’ benefits provided by a subsidiary undertaking of the company for a person who at any time during the financial year was a director of the company must be contained in the notes to the financial statements of the company for a financial year.

2. The C(DIBD)R refers to “subsidiary undertakings”. It means any investee which satisfies the definition of

“subsidiary undertaking” set out in Schedule 1 to the CO (as per section 2 of the C(DIBD)R). It therefore includes non-controlled subsidiaries. It is possible that an investee could meet the legal definition of “subsidiary undertaking” in the CO without the reporting entity meeting the control criteria set out in HKFRS 10 in respect of that investee, such an investee, for example, may be a joint venture under HKFRS 11.

The C(DIBD)R also widens the definition of “subsidiary undertakings” for the purpose of Part 2 of the C(DIBD)R (directors’ remuneration disclosure) to include any other undertaking to which a director of a company has been nominated by their company (whether direct or indirect) as a director of that other undertaking (section 3 (4)(a)). An example is a director of a company who is appointed as a director of an associate.

3. Directors remuneration must include all relevant sums paid by or receivable from the company, its subsidiary

undertakings and any other person (section 10(1) of the C(DIBD)R). Section 3 of the Interpretation and General Clauses Ordinance Cap.1 defines “person” to include any body of persons, corporate or unincorporate. “Any other person” therefore includes the company’s holding or parent companies or undertakings or ultimate controlling party, fellow subsidiaries, associates, joint ventures or in fact any other company, body corporate, partnership, trust or individuals. A payment to or receivable by a director includes: - (a) a payment to or receivable by a connected entity of the director; (b) a payment to a person made or to be made at the direction of, or for the benefit of, the director or a

connected entity of the director (section 10(2) of the C (DIBD)R). A reference to a payment by a person includes a payment by another person made at the direction of, or on behalf of, the person (section 10(3) of the C (DIBD)R).

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45 Benefits and interests of directors (disclosures required by section 383 of the Hong Kong Companies Ordinance (Cap. 622), Companies (Disclosure of Information about Benefits of Directors) Regulation (Cap. 622G) and HK Listing Rules) (continued)

A24(1)-(6) GEM18.28(1)-(6) S383(1)(a)

(A) Directors’ 69 and chief executive’s66 emoluments65

622G4 The remuneration65 of every director69 and the chief executive66 is set out below [For listed companies only]:

For the year ended 31 December 2016:

Name

Fees

622G4(6)(a)(i)

Salary

622G4(6)(a)(i) (Note a)

Discretionary

bonuses

622G4(6)(a)(i), 67

Allowances

and benefits

in kind

622G4(5), (6)(a)(iv)

(Note (b))

Employer’s

contribution to a

retirement benefit

scheme 622G4(6)(a)(iii),68

Other emoluments paid or

receivable in respect of

director’s other services in

connection with the

management of the affairs of

the company or its subsidiary

undertaking

622G4(3)(b)

(Note (e)) Total

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Chairman

Mr. C 150 - - - - - 150

Executive directors

Mr. A 40 400 - - 20 - 460

Mr. B (Note(c)) 75 3,000 1,000 125 150 200 4,550

Mr. D (Note(d)) 40 1,250 - 155 63 - 1,508

Mr. F 75 1,500 200 100 75 - 1,950

Independent non-

executive directors

Mr. E 100 - - - - - 100

Mr. G 100 - - - - - 100

Mr. H

(Note (e)) 100 - - - - - 100

Chief executive66

Mr. I - 4,800 2,000 200 240 - 7,240

Total 680 10,950 3,200 580 548 200 16,158

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45 Benefits and interests of directors (disclosures required by section 383 of the Hong Kong

Companies Ordinance (Cap. 622), Companies (Disclosure of Information about Benefits of Directors) Regulation (Cap. 622G) and HK Listing Rules) (continued)

For the year ended 31 December 2015:

Name

Fees

622G4(6)(a)(i)

Salary

622G4(6)(a)(i)

(Note a)

Discretionary

bonuses

622G4(6)(a)(i), 67

Allowances and

benefits in kind

622G4(5), (6)(a)(iv)

(Note (b))

Employer’s

contribution to a

retirement benefit

scheme

622G4(6)(a)(iii), 68

Other emoluments paid or

receivable in respect of

director’s other services in

connection with the

management of the affairs

of the company or its

subsidiary undertaking

622G4(3)(b)

(Note (g)) Total

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Chairman

Mr. C 150 - - - - - 150

Executive directors

Mr. A 40 400 - - 20 - 460

Mr. B 75 3,000 800 100 150 200 4,325

Mr. F 75 1,500 100 - 75 - 1,750

Independent non-

executive directors

Mr. E 100 - - - - - 100

Mr. G 100 - - - - - 100

Mr. H 100 - - - - - 100

Chief executive66

Mr. I - 4,800 1,200 200 240 - 6,440

Total 640 9,700 2,100 300 485 200 13,425

Notes: (a) Salary paid to a director is generally an emolument paid or receivable in respect of that person’s other services in connection with the

management of the affairs of the company or its subsidiary undertakings.622G4(3)(b) (b) Includes housing allowances and estimated money value of other non-cash benefits: share options, car, insurance premium and club

membership 622G4(2)(b) (c) Resigned on [Date]. (d) Appointed on [Date]. (e) Retired on [Date]. (f) Represents the payments made to a management service company connected to Mr. I in respect of Mr. I’s services in connection with the

management of the affairs of the group. (g) Discretionary bonuses are determined on [state the basis of determining the discretionary bonuses].

(h) Disclosure should also be for any emoluments paid or receivable in respect of a person accepting office as a director are to be treated as emoluments paid or receivable in respect of that person’s services as a director622G4, A24(5)

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45 Benefits and interests of directors (disclosures required by section 383 of the Hong Kong Companies Ordinance (Cap. 622), Companies (Disclosure of Information about Benefits of Directors) Regulation (Cap. 622G) and HK Listing Rules) (continued)

Directors’emoluments65 [For both listed and unlisted companies]

Aggregate emoluments paid to or

receivable by directors in respect of

their services as directors, whether of

the company or its subsidiary

undertaking622G4(3)(a)

Aggregate emoluments paid to or

receivable by directors in respect of their

other services in connection with the

management of the affairs of the

company or its subsidiary

undertaking622G4(3)(b)

(Note (ii))

Total Total

2016 2015 2016 2015 2016 2015

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

1,060 740 7,858 6,245 8,918 6,985

Notes:

i) Emoluments above include estimated money value of non-cash benefits: share options, car, insurance premium and club

membership 622G4(2)(b).

ii) Includes the payments made to a management service company connected to Mr. I in respect of Mr. I’s services in connection with

the management of the affairs of the group.

iii) As Mr. I is not the Company’s director, his emoluments have been excluded from above table.

A24A

GEM18.29

During the year, Mr. B waived emoluments of HK$1 million and has agreed to waive 2015 emoluments of HK$1 million.

Commentary 622G4(3) requires the information about directors’ emoluments must distinguish between (a) the emoluments paid or receivable in respect of a person’s services as a director, whether of the company or its subsidiary undertaking; and (b) the emoluments paid or receivable in respect of that person’s other services in connection with the management of the affairs of the company or its subsidiary undertaking. Disclosure of emoluments by name of director is requirement under listing rule.

Commentary – Estimated money value of a non-cash benefit 622G4(5) specifies that, if any emoluments consist of a non-cash benefit otherwise, then the reference to the amount of emoluments is a reference to the estimated money value of that benefit. However, the term “estimated money value” is not defined under either the old CO or the new CO. HKICPA is now revising AB3 to provide some guidance in respect of the determination of the "estimated money value" under the new CO. There are a number of different acceptable approaches to estimating the money value of share options granted to directors for the purposes of disclosure under the Regulation. These include the following approaches:

the amount recognized as an expense in the period in accordance with HKFRS 2 Share-based Payment; or

the amount of the gain if the options are exercised, or as if they were exercised, at the time of vesting, for those options which vested during the year. The amount of the gain is the difference between the market price of the shares on the day of vesting and the price paid, if any, for the shares.

It is not appropriate to measure the money value of the benefit on the basis of gains realised by directors on the exercise of options at the time of their exercise, as such amounts would include gains or losses experienced by the directors after the vesting period had ended. Once the options have vested, any further gains or losses are experienced by the directors as holders of the options, rather than in their capacity as directors of the company. Companies should apply a consistent measurement approach, from one director to the next and from one year to the next in accordance with the general principles set out in HKAS 1. The emoluments note should also disclose the approach chosen.

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45 Benefits and interests of directors (disclosures required by section 383 of the Hong Kong

Companies Ordinance (Cap. 622), Companies (Disclosure of Information about Benefits of Directors) Regulation (Cap. 622G) and HK Listing Rules) (continued)

Included in the directors’ emoluments disclosed above, directors Mr. A and Mr. B of the company receive emoluments from the parent company, amounting to HK$1.25 million each (2015: HK$1 million each), part of which is in respect of their services to the parent company and its subsidiaries. No apportionment has been made as the directors consider that it is impracticable to apportion this amount between their services to the group and their services to the company’s parent company.

Commentary

In practice, apportionment may only be done on an arbitrary basis and therefore some directors may decide not to apportion their remuneration. According to Accounting Bulletin 3 “Guidance on Disclosure of Directors’ Remuneration” issued by the HKICPA, in these circumstances, the whole of the sums received by the director from the holding company would have to be shown in the holding company's as well as the subsidiary's financial statements. Additional disclosure would need to be made in the subsidiary's financial statements to explain that the amount consists of remuneration for the directors' services to the group unapportioned. Section 383(5) places an obligation on a director to notify his/her company of the details of any remuneration paid to or receivable by that director from any person other than the Company in connection with his/her services to the Company and/or its subsidiary undertakings.

Footnotes:

65. In making the above disclosures, reference can be made to AB 3 which discusses the minimum disclosure that directors remuneration would

include remuneration from the company’s holding companies, fellow subsidiaries, associates or any other company and also that directors’

remuneration be apportioned between the parent company and subsidiaries. Reference should be also made to Companies (Disclosure of

Information about Benefits of Directors) Regulation (Cap. 622G), which specifically addresses the detailed disclosure requirements in respect of

directors’ emoluments.

Particularly, 622G10 specifies that the directors’ emoluments should include all relevant sums, whether paid by or receivable from the company

or its subsidiary undertaking or any other person. A reference to a payment to or receivable by a director includes: a) a payment to or receivable

by a connected entity of the director; and b) a payment to a person made or to be made at the direction of, or for the benefit of, the director or a

connected entity of the director. A reference to a payment by a person includes a payment by another person made at the direction of, or on

behalf of, the person. Connected entity of the director is defined in section 486 of the CO, which is not the same as the definition of related party

under HKAS24. Please refer to Section D of the HK - Annual Report Checklist (Unlisted / Listed) – 2016 for extracts of section 486 of the CO.

622G9 specifies directors emoluments must be the amount of (a) all relevant sums receivable in respect of that year (whenever paid); or (b) in

the case of sums not receivable in respect of a period, the sums paid during that year. It also requires that the corresponding amount for the

immediately preceding financial year must also be shown in the notes.

66. The disclosure refers to the remuneration of a chief executive who is not a director. If the director who is also the chief executive, no separate

disclosure in respect of the remuneration of the chief executive is required, but a note should be added to indicate that the director is also the

chief executive.

67. In addition to discretionary bonus payments, all bonus payments to which a director is contractually entitled and which are not fixed in amount,

together with the basis upon which they are determined must be disclosed here.

68. According to 622G4(6)(a)(iii) and 622G4(6)(b), this includes any contributions paid under a retirement benefits scheme, by any person other

than the director, in respect of the director; and excludes any retirement benefits to which the director is entitled under any retirement benefits

scheme. The retirement benefits to which the director is entitled under any retirement benefit scheme are disclosed in accordance with 622G5

separately in Note 45(B).

69. In the case of a PRC issuer, references to directors or past directors shall also mean and include supervisors and past supervisors (as

appropriate).

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45 Benefits and interests of directors (disclosures required by section 383 of the Hong Kong Companies Ordinance (Cap. 622), Companies (Disclosure of Information about Benefits of Directors) Regulation (Cap. 622G) and HK Listing Rules) (continued)

S383(1)(b) (B) Directors’ retirement benefits 622G5(3)(a), 622G5(3)(b) The retirement benefits paid to [or receivable by] Mr.H during the year ended 31 December 2016

by a defined benefit pension plan operated by the group in respect of Mr. H’s services as a director of the company and its subsidiaries is HK$200,000 (2015: nil). No other retirement benefits were paid to [or receivable by] Mr. H in respect of Mr. H’s other services in connection with the management of the affairs of the company or its subsidiary undertaking (2015: same).

Commentary: 622G5(4), 622G4(6)(a) (iii)

For the purpose of disclosure of the retirement benefits paid to or receivable by the directors, 622G5(4) states that any amount of the retirement benefits paid or receivable under a retirement benefits scheme is to be disregarded if the contributions made under the scheme are substantially adequate for the maintenance of the scheme. Accordingly, retirement benefits paid to or receivable by the directors through the defined contribution schemes are not required to be disclosed as directors’ retirement benefits. According to 622G4(6)(a)(iii), the contributions made by the company to the defined contribution schemes for the benefits of directors are considered as directors’ emoluments.

S383(1)(c) (C) Directors’ termination benefitsA24(6) On 10 September 2016, the Board made a resolution to terminate the appointment of Mr. B as the

director of the company and certain subsidiaries. The company, subsidiaries of the company and the controlling shareholder M Limited made the following payments to Mr. B as compensation for the early termination of the appointment:

Paid by or receivable from:

622G6(4)(a), 622G6(4)(b), 622G6(4)(c)

the company622G6(4)(a)

the subsidiary

undertakings622G6(4)(b)

the controlling

shareholder622G6(4)(c) Total

HK$’000 HK$’000 HK$’000 HK$’000

622G6(3)(a)

for the loss of office as a

director622G6(3)(a) 100 - 20 120 622G6(3)(b)

for the loss of any other office in

connection with the management

of the affairs of the company

and[/or] its subsidiaries622G6(3)(b) 50 100(Note (a)) - 150

150 100 20 270 622G6(2)(b), 622G6(5) Included in the HK$100,000 paid to Mr. B, HK$80,000 is estimated money value 622G6(5) of one

year’s free use of an apartment of a subsidiary622G6(2)(b). 622G7(1) (D) Consideration provided to third parties for making available directors’ services During the year ended 31 December 2016, the company paid HK$250,000622G7(2) to the former

employer of Mr. D for making available the services of Mr. D as a director of the Company622G7(1) (2015: nil).

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45 Benefits and interests of directors (disclosures required by section 383 of the Hong Kong Companies Ordinance (Cap. 622), Companies (Disclosure of Information about Benefits of Directors) Regulation (Cap. 622G) and HK Listing Rules) (continued)

Commentary:

According to section 383(2)(a) of the CO, the directors’ retirement benefits should include former directors.

According to section 383(2)(a)(ii), the directors’ termination benefits should include former directors and shadow directors.

Shadow director (幕后董事), in relation to a body corporate, is defined in section 2 of the CO as a person in accordance with

whose directions or instructions (excluding advice given in a professional capacity) the directors, or a majority of the directors,

of the body corporate are accustomed to act.

Reference should be made to Part 2 of 622G (622G2 – 622G12) for detailed requirements of the disclosure of directors’

emoluments and retirement benefits, payments in respect of termination of directors’ services and consideration for directors’

services. Those requirements have been reproduced in Section D of the HK - Annual Report Checklist (Unlisted / Listed) –

2016.

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45 Benefits and interests of directors (disclosures required by section 383 of the Hong Kong Companies Ordinance (Cap. 622), Companies (Disclosure of Information about Benefits of Directors) Regulation (Cap. 622G) and HK Listing Rules) (continued)

S383

(1)(d)

622G15

(2),

622G15

(3)(a),

622G15

(3)(b),

622G16

(2)(a)

(E) Information about loans, quasi-loans and other dealings in favour of directors,

controlled bodies corporate by and connected entities with such directors

(a) The information about loans, quasi-loans and other dealings entered into by the company622G15(2)(a) or subsidiary undertaking of the company622G15(2)(b), where applicable, in favour of directors622G15(2)(a)(i) is as follows:

Name of director

622G15(3)(a)

Total amount

payable

622G15(3)(b)(i)

Outstanding

622G15(3)(b)(ii)/

Aggregate

outstanding

amount

622G16(2)(a)(i) at

the beginning

of the year

Outstanding

622G15(3)(b)(iia)/

Aggregate

outstanding

amounts

622G16(2)(a)(ia) at

the end of the

year

Maximum

outstanding

during the

year

622G15(3)(b)(iii)

Amounts

622G15(3)(b)(iv)/

Aggregate

amounts

622G16(2)(a)(ii)

fallen due but

not been paid

Provisions

622G15(3)(b)(v)/

Aggregate

provisions

622G16(2)(a)(iii) for

doubtful/bad

debts made

Term

622G15(3)(b)(i)

Interest rate

622G15(3)(b)(i)

Security 622G15(3)(b)(i)

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

At 31 December 2016:

Loans:

Mr. E 200 150 100 150 - -

Repayable

quarterly over

4 years 6.3% Nil

Mr. F 240 120 - 120 - -

Repayable

monthly in 2

years 5.5% Nil

Quasi-loans or credit transactions:

Mr. F 180 120 60 120 - -

Repayable

annually over

3 years 6.0% Nil

Mr. G

Quasi-loan 1: 80;

Quasi-loan 2: 80 120 80

Quasi-loan 1:

60;

Quasi-loan 2:

60 - -

Quasi-loan 1:

Repayable

monthly over

2 years;

Quasi-loan 2:

Repayable

monthly over

4 years

Quasi-loan 1:

5.5%;

Quasi-loan 2:

6.3% Nil

At 31 December 2015:

Loans:

Mr. E 200 - 150 200 - -

Repayable

quarterly over

4 years 6.3% Nil

Mr. F 240 - 120 240 - -

Repayable

monthly in 2

years 5.5% Nil

Quasi-loans or credit transactions:

Mr. F 180 - 120 180 - -

Repayable

annually over

3 years 6.0% Nil

Mr. G

Quasi-loan 1:

80;

Quasi-loan 2:

80 - 120

Quasi-loan 1:

80;

Quasi-loan 2:

80 - -

Quasi-loan 1:

Repayable

monthly over

2 years;

Quasi-loan 2:

Repayable

monthly over

4 years

Quasi-loan 1:

5.5%;

Quasi-loan 2:

6.3% Nil

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45 Benefits and interests of directors (disclosures required by section 383 of the Hong Kong Companies Ordinance (Cap. 622), Companies (Disclosure of Information about Benefits of Directors) Regulation (Cap. 622G) and HK Listing Rules) (continued)

622G15(2),

622G15(3)(a),

622G15(3)(b)

(b) The information about loans, quasi-loans and other dealings entered into by the company622G15(2)(a)

or subsidiary undertaking of the company622G15(2)(b), where applicable, in favour of a controlled body corporate of Mr. A622G15(2)(a)(ii) is as follows:

Name of the

borrower622G15(3)(a)

Total amount

payable

622G15(3)(b)(i)

Outstanding

622G15(3)(b)(ii)/

Aggregate

outstanding

amounts

622G16(2)(a)(i) at

the beginning

of the year

Outstanding

622G15(3)(b)(iia)/

Aggregate

outstanding

amounts

622G16(2)(a)(ia) at

the end of the

year

Maximum

outstanding

during the

year

622G15(3)(b)(iii)

Amounts622G15

(3)(b)(iv)/Aggre

gate amounts

622G16(2)(a)(ii)

fallen due but

not been paid

Provisions

622G15(3)(b)(v)/

Aggregate

provisions

622G16(2)(a)(iii)

for doubtful/

bad debts

made

Term

622G15(3)(b)(i)

Interest rate

622G15(3)(b)(i)

Security

622G15(3)(b)(i)

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

At 31 December 2016:

Loan:

A Limited 1,000 800 600 800 - -

Repayable

annually over

5 years 6.5%

Pledge of a

property

Quasi-loans or credit transactions:

A Limited

Quasi-loan 1:

400;

Quasi-loan 2:

400 - 400

Quasi-loan 1:

400;

Quasi-loan 2:

400 - -

Quasi-loan 1:

Repayable

quarterly over

1 year;

Quasi-loan 2:

Repayable

quarterly over

2 years

Quasi-loan 1:

5%; Quasi-

loan 2: 5.5%

Quasi-loan 1:

Secured by a

piece of land

of A Limited;

Quasi-loan 2:

Nil

At 31 December 2015:

Loan:

A Limited 1,000 - 800 1,000 - -

Repayable

annually over

5 years 6.5%

Pledge of a

property

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45 Benefits and interests of directors (disclosures required by section 383 of the Hong Kong Companies Ordinance (Cap. 622), Companies (Disclosure of Information about Benefits of Directors) Regulation (Cap. 622G) and HK Listing Rules) (continued)

622G15(2),

622G15(3)(a),

622G15(3)(b)

(c) The information about loans, quasi-loans and other dealings entered into by the

company622G15(2)(a) or subsidiary undertaking of the company622G15(2)(a), where applicable, in favour of certain connected entities622G15(2)(a)(iii) of Mr. K, a director of the holding company of the company622G15(2)(a)(i), is as follows:

Name of the

borrower

622G15(3)(a)

Nature of

connection

622G15(3)(a)(ii)

Total amount

payable

622G15(3)(b)(i)

Outstanding

622G15(3)(b)(ii)/

Aggregate

outstanding

amounts

622G16(2)(a)(i) at the

beginning of the

year

Outstanding

622G15(3)(b)(iia)/

Aggregate

outstanding

amounts

622G16(2)(a)(ia) at

the end of the

year

Maximum

outstanding

during the year

622G15(3)(b)(iii)

Amounts

622G15(3)(b)(iv)/

Aggregate

amounts

622G16(2)(a)(iia)

fallen due but

not been paid

Provisions

622G15(3)(b)(v)/

Aggregate

provisions

622G16(2)(a)(iii) for

doubtful/

bad debts made

Term

622G15(3)(b)(i)

Interest rate

622G15(3)(b)(i)

Security

622G15(3)(b)(i)

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

At 31 December 2016:

Loan:

Mr. K Junior Son of Mr. K 100 - 80 100 - -

Repayable

monthly over

1 year 5.0% Nil

Quasi-loans or credit transactions:

K Limited

Associate of

Mr. K where

Mr. K holds

30% shares

Quasi-loan 1:

1,250;

Quasi-loan 2:

1,250 2,500 2,500

Quasi-loan 1:

1,250;

Quasi-loan 2:

1,250 - -

Quasi-loan 1:

Repayable on

maturity over

2 years;

Quasi-loan 2:

Repayable on

maturity over

4 years

Quasi-loan 1:

6.0%; Quasi-

loan 2: 6.3%

Quasi-loan 1:

Pledge of

properties;

Quasi-loan 2:

Machineries

At 31 December 2015:

Quasi-loans or credit transactions:

K Limited

Associate of

Mr. K where

Mr. K holds

30% shares

Quasi-loan 1:

1,250;

Quasi-loan 2:

1,250 - 2,500

Quasi-loan 1:

1,250;

Quasi-loan 2:

1,250 - -

Quasi-loan 1:

Repayable on

maturity over

2 years;

Quasi-loan 2:

Repayable on

maturity over

4 years

Quasi-loan 1:

6.0%; Quasi-

loan 2: 6.3%

Quasi-loan 1:

Pledge of

properties;

Quasi-loan 2:

Machineries

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45 Benefits and interests of directors (disclosures required by section 383 of the Hong Kong

Companies Ordinance (Cap. 622), Companies (Disclosure of Information about Benefits of Directors) Regulation (Cap. 622G) and HK Listing Rules) (continued)

622G15(2),

622G15(3)(a),

622G15(3)(c)

(d) The information about the guarantee or security622G13(6)(a) provided to certain controlled body corporates622G15(2)(a)(ii) and connected entities622G15(2)(a)(iii) of Mr. G in respect of their loan, quasi-loans or credit transactions is as follows:

Maximum liability that may be incurred

under the guarantee

Name of the borrower

622G15(3)(a)

Nature of

connection

622G15(3)(a)(ii)

Nature of

guarantee or

security622G15(2)

Individually

622G15(3)(c)(i)/

in aggregate

622G16(2)(b)(i) at the

beginning of the

year

Individually

622G15(3)(c)(ia)/

in aggregate

622G16(2)(b)(ia) at the

end of the year

During the year

622G15(3)(c)(ii)

Amounts

622G15(3)(c)(iii)/

Aggregate

amounts

622G16(2)(b)(ii)

paid or liability/

aggregate

liabilities

incurred during

the financial year

for the purpose

of fulfilling the

guarantee or

discharging the

security

HK$’000 HK$’000 HK$’000

As at 31 December 2016:

Loan:

G Limited

Controlled body

corporate of Mr.

G Guarantee 2,000 3,000 3,000 -

Quasi-loans or credit transactions:

G Associate Limited

Associate of Mr.

G where Mr. G

holds 25% shares

Quasi-loan 1:

Pledge of

properties;

Quasi-loan 2:

Machineries 5,500 4,000

Quasi-loan 1:

2,500;

Quasi-loan 2:

3,000 -

As at 31 December 2015:

Loan:

G Limited

Controlled body

corporate of Mr.

G Guarantee 3,500 2,000 3,500 -

Quasi-loans or credit transactions:

G Associate Limited

Associate of Mr.

G where Mr. G

holds 25% shares

Quasi-loan 1:

Pledge of

properties;

Quasi-loan 2:

Machineries 6,500 5,500

Quasi-loan 1:

3,500;

Quasi-loan 2:

3,000 -

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45 Benefits and interests of directors (disclosures required by section 383 of the Hong Kong Companies Ordinance (Cap. 622), Companies (Disclosure of Information about Benefits of Directors) Regulation (Cap. 622G) and HK Listing Rules) (continued)

Commentary:

According to section 383(2)(a)(iii), loans, quasi-loans and other dealings in favour of director of the company and of a holding company of the company, or bodies corporate controlled by such directors, or entities connected with such directors, also include a shadow director of that director.

According to 622G15(2)(a), if the loans, quasi-loans and other dealings were entered into by the company, the scope of disclosure includes relevant information of the loans, quasi-loans and other dealings in favour of the following person who at any time during the financial year was: (i) a director of the company or of its holding company; (ii) a controlled body corporate of such a director; or (iii) in the case of a specified company, a connected entity of such a director; According to 622G15(2)(b), if the loans, quasi-loans and other dealings were entered into by the subsidiary undertaking of the company, the scope of disclosure only includes the relevant information of the loans, quasi-loans and other dealings in favour of a person who at any time during the financial year was a director of the company.

According to 622G16(2), in relation to all quasi-loans or credit transactions, and guarantees or securities in connection with quasi-loans or credit transactions entered into by the company or its subsidiary undertakings with each person as listed under 622G15(3)(a), where applicable, the information required by 622G15(3)(b)(ii), 622G15(3)(b)(iia), 622G15(3)(b)(iv), 622G15(3)(b)(v), 622G15(3)(c)(i), 622G15(3)(c)(ia) and 622G15(3)(c)(iii) can be disclosed in aggregate, i.e.

outstanding amount at the beginning of the financial year;

outstanding amount at the end of the year;

amount fallen due but not been paid;

provision for doubtful and bad debts;

maximum liability that may be incurred under the guarantee or security at the beginning of the

financial year;

maximum liability that may be incurred under the guarantee or security at the end of the

financial year;

amount paid and liability incurred during the financial year for the purpose of fulfilling the

guarantee or discharging the security

For each of the loans, guarantees or securities in connection with loans, the information required by 622G15 should be disclosed separately.

Reference should be made to Part 3 of 622G (622G13-622G19) for detailed requirements of the disclosure of information about loans, quasi-loans and other dealings in favour of directors, controlled bodies corporate and connected entities. Those requirements have been reproduced in Section D of the HK - Annual Report Checklist (Unlisted / Listed) – 2016. Please refer to that section for the definitions of quasi-loan, credit transactions, controlled bodies corporate and connected entities.

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45 Benefits and interests of directors (disclosures required by section 383 of the Hong Kong Companies Ordinance (Cap. 622), Companies (Disclosure of Information about Benefits of Directors) Regulation (Cap. 622G) and HK Listing Rules) (continued)

Commentary: Disclosures applicable to companies that are authorised financial institutions or where their subsidiary undertakings are authorised financial institutions:

Please refer to 622G17(1) – 622G17(3) in Section D of the HK - Annual Report Checklist (Unlisted / Listed) – 2016.

S383(1)(e),

622G20

(F) Directors’ material interests in transactions, arrangements or contracts

No significant transactions, arrangements and contracts in relation to the group’s business to which the Company was a party and in which a director of the Company had a material interest, whether directly or indirectly, subsisted at the end of the year or at any time during the year.

[OR

Pursuant to an agreement dated 28 February 2010 (the “Agreement”) made between the Company 622G20(3)(c), and LMF Holdings Limited (“LMF”)622G20(3)(c), the Company agreed to pay LMF an annual fee for the provision of consultancy services in accordance with the terms of the Agreement. LMF was paid a fee of HK$83,000 for the year ended 31 December 2016 (2015: HK$70,000) 622G20(3)(a),622G20(3)(b). Mr E 622G20(3)(d), a non-executive director of the Company, is interested in this transaction to the extent that LMF is controlled by him 622G20(3)(d).

Save for contracts amongst group companies and the aforementioned transaction, no other significant transactions, arrangements and contracts to which the Company was a party and in which a director of the Company had a material interest, whether directly or indirectly, subsisted at the end of the year or at any time during the year.]

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45 Benefits and interests of directors (disclosures required by section 383 of the Hong Kong Companies Ordinance (Cap. 622), Companies (Disclosure of Information about Benefits of Directors) Regulation (Cap. 622G) and HK Listing Rules) (continued)

Commentary:

The disclosures relating to directors’ material interests in contracts required by Schedule 162 and 129D(3)(j) in the old CO were previously disclosed in the Directors’ Report. According to section 383(1)(e) of the new CO and in accordance with section 20 of 622G, the scope has been expanded to cover the directors’ material interests in transactions, arrangements or contracts. In respect of the location of the disclosure, if the transaction, arrangement or contract involves the company, it is required by section 383(1)(e) and 622G22(1)(1) to be disclosed in the notes to the financial statements. If the transaction, arrangement or contract involves a “specified undertaking of the company”, it is required by 622D10(1) to be disclosed in the Directors’ Report. A “specified undertaking of the company” is defined in section 1 of 622D, which includes: (i) a parent company of the company; (ii) a subsidiary undertaking of the company; or (iii) a subsidiary undertaking of the company’s parent company.

According to section 383(2)(a)(iii), the information about material interests of director’s in transactions, arrangements or contracts entered into by the company also include a shadow director of that director.

622G22(5) refers a transaction, arrangement or contract to that is significant in relation to the company’s business. The directors of the company should consider if a transaction, arrangement or contract is significant in relation to the company’s business. 622G22(7) states that the directors of the company should consider if the director’s interest in a transaction, arrangement or contract is material or not.

Reference should be made to Part 4 of 622G(622G20 – 622G23) for detailed requirements of the

disclosure of directors’ material interests in transactions, arrangements or contracts. Those requirements have been reproduced in Section D of the HK - Annual Report Checklist (Unlisted / Listed) – 2016.

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Independent Auditor’s Report To the Members of Specimen Holdings Limited (incorporated in Hong Kong with limited liability)

The audit report will be provided by the entity’s auditor upon completion of the audit of the financial report. We have not included an illustrative report in this publication.

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Appendix I – Report of the Directors

REPORT OF THE DIRECTORS

s388(1), s388(2) The directors submit their report together with the audited financial statements for the year ended 31 December 2016.

Principal activities and geographical analysis of operations

s390(1)(b), s390(3) The principal activity of the company is investment holding. The activities of the subsidiaries are set out in Note 12a to the financial statements.

An analysis of the group’s performance for the year by operating segment is set out in Note 5 to the financial statements.

Sch5 Business review

[Insert business review disclosures as required by Schedule 5 of the CO.

Commentary This illustrative “Report of Directors” does not include the Business Review as required by s388(1)(a). When preparing the business review, an entity is required to follow the requirements in Schedule 5 and make reference to the guidance in Accounting Bulletin 5 issued by HKICPA (“AB5”). For companies listed in Hong Kong, the Listing Rules require the issuer to disclose a discussion and analysis of its performance (MD&A) in its annual report (not necessarily in the director's report section). To a certain extent, the business review disclosures required by Schedule 5 of the CO overlaps with the MD&A disclosures required by the Listing Rules, If the listed issuer wants to rely on the MD&A disclosures made outside the directors' report section to fulfill part of the business review disclosures required by the CO, a cross reference to the relevant part of the MD&A should be made in the directors' report. While there is a degree of overlap between the two, the MD&A disclosures may not cover all the business review disclosures required by Schedule 5 of the CO, and vice versa. Hence, the company should be careful in making the required disclosures. The company may also refer to “Clear and Concise - A director’s guide to writing a Business Review of an Annual Report” issued by the Hong Kong Institute of Directors for the preparation of business review. There are Q&As issued by the Hong Kong Companies Registry and the Hong Kong Institute of Certified Public accountants for frequently asked questions relating to Business Review.

Please refer to the “Commentary” set out in this appendix for a high-level comparison between the

business review disclosures required by the CO and MD&A disclosures required by the Listing Rules.

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Results and appropriations

The results of the group for the year are set out in the consolidated statement of profit or loss on pages 1-

2.

622D7 The directors recommend the payment of a final dividend of HK$0.51 per ordinary share, totalling HK$12,945,000 (2015: HK$0.48 per ordinary share, totalling HK$10,102,000).

OR

622D7 [The directors do not recommend the payment of a dividend.]

A17 GEM18.31

[Note: Where the shareholders have waived or agreed to waive any dividends under any agreement, particulars of such arrangements are required.]

Donations

622D4 Charitable and other donations made by the group during the year amounted to HK$500,000 (2015: HK$500,000).

Commentary: 622D4 The amount of donations made by the Company and its subsidiary undertakings which are exempted

from disclosure is raised to HK$10,000 from HK$1,000 in section 129D(3)(e) of the old Companies Ordinance (Cap.32).

Principal properties

A23, GEM18.23 Details of the principal properties held for development and/or sale and for investment purposes are set

out on page 160 of the annual report.

Shares issued in the year

622D5 Details of the shares issued in the year ended 31 December 2016 are set out in Note 27 and Note 28 to the financial statements.

Commentary: 622D5 If, in any financial year of a company, the company has issued any shares, a directors’ report for the

financial year must state: (a)the reason for making the issue; (b) the classes of shares issued; and (c) for each class of shares, the number of shares issued and the consideration received by the company for the issue.

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Appendix I – Report of the Directors (Continued)

Distributable reserves60

A29 GEM18.37

Distributable reserves of the company at 31 December 2016, calculated under Part 6 of the Hong Kong Companies Ordinance (Cap. 622) [or legislation applicable in company’s place of incorporation], amounted to HK$37,693,000 (2015: HK$36,224,000).

Debentures issued in the year 622D5A The group issued 20,000 6% debentures at a par value of $2,000,000 on 2 January 2016622D5A(b). After

deducting the issuance costs, the group received net consideration of HK$1,950,000622D5A(c) from the issuance. The reason for issuing the debentures is [state the reason]622D5A(a).

Equity linked agreements (a) Convertible bonds 622D6 The Company issued 500,000 5.0% convertible bonds at a par value of HK$50 million on 2 January 2016.

The bonds mature five years from the issue date at their nominal value of HK$50 million or can be converted into shares at the holder’s option at the maturity date at the rate of 33 shares per HK$500.622D6(1)(b)(i),622D6(1)(b)(ii),622D6(2)(d) The maximum number of ordinary shares622D6(2)(a) to be issued at the maturity date is 3,300,000 shares622D6(2)(b) and none of them was issued up to 31 December 2016.

622D6(1)(d),622D(2)(b) The net proceeds received from the issuance of convertible bonds was HK$50 million.

622D6(1)(b)(iii) The group will not receive further consideration when the holders determines to convert the bonds into ordinary shares of the Company at maturity date. 622D6(2)(c) The reason for issuance of the convertible bonds is [state the reason]. 622D6(1)(a)

(b) Share options granted to directors and selected employees 622D6 Details of the share options granted in prior years and current year is set out in Note 28 of the financial

statements and “Share options” section contained in this Directors’ Report. For the share options granted during the year ended 31 December 2016, no shares were issued during the year. 622D6(1)(d)

Commentary: 622D6(1) 622D6(2)

622D6 requires to disclose the information for equity linked agreements entered into by the group during the financial year and those subsisted at the end of the financial year.

A20

[Pre-emptive rights There is no provision for pre-emptive rights under the company’s by-laws and there was no restriction against such rights under the laws of [country of incorporation], which would oblige the company to offer new shares on a pro-rata basis to existing shareholders.]

Five year financial summary

A19 GEM18.33

A summary of the results and of the assets and liabilities of the group for the last five financial years is set out on page [X] of the annual report.

60 For further guidance, please refer to Accounting Bulletin 4 – Guidance on the Determination of Realised Profits and Losses in the context of Distributions under the Hong Kong Companies Ordinance.

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Appendix I – Report of the Directors (Continued)

Purchase, sale or redemption of securities

A10(4) GEM18.14

[The company has not redeemed any of its shares during the year. Neither the company nor any of its subsidiaries has purchased or sold any of the company’s shares during the year.]

OR

MB10.06(4)(b) A6(6.3)(b) A10(4) GEM18.14 GEM13.13(2)

On 18 April 2016, the company purchased 875,000 ordinary shares of HK$1 each of the company at prices of HK$2.93 per share on The Hong Kong Stock Exchange. The purchase involved a total cash outlay of HK$2,564,000 and was for the purpose of [state the reason]. The aggregate price of the purchased shares was charged to equity as treasury shares. The company reissued 500,000 treasury shares for a total consideration of HK$1.5 million on 15 January 2016.

Save as disclosed above, neither the company nor its subsidiary companies has purchased or sold any of the company’s shares during the year ended 31 December 2016 and the company has not redeemed any of its shares during the year ended 31 December 2016.

A11 GEM18.32

[The following disclosures should be made for any issue of equity securities for cash otherwise than shareholders in proportion to their shareholdings and which has not been specifically authorised by the shareholders: reasons for making the issue

classes of equity securities issued

as respect each class of equity securities, number issued and their aggregate normal value

the issue price of each security net price to listed issuer of each security

if less than 6 in number, the names of allottees. If equal to or more than 6 allottees, a brief generic description of them

market price of the securities concerned on a named date, being the date on which the terms of the issue were fixed

use of the proceeds] Share options MB17.09 A6(6.3)(j) GEM23.09 GEM18.07(note4(i)) 622D6

Share options are granted to directors, executives, employees with more than three years of service and business partners at the invitation of the directors under the Executive Share Option Scheme approved by shareholders at an Extraordinary General Meeting on 1 July 2006. The Executive Share Option Scheme is designed to motivate executives and key employees and other persons who make a contribution to the group and enable the group to attract and retain individuals with experience and ability and to reward them for their past contributions622D6(1)(a).

The options were granted at nil consideration622D6(1)(b)(iii), 622D6(2)(c). The exercise price of the granted options is equal to or higher than the market price of the shares on the date

of the grant. Each option gives the holder the right to subscribe for one share of the company622D6(1)(c),

622D6(2)(a). Options are conditional on the employee completing three years’ service. The options are exercisable starting three years from the grant date only if the group achieves its target growth; the options have a contractual option term of five years.622D6(1)(b)(i), 622D6(1)(b)(ii), 622D6(2)(d)

The company can issue options so that the total number of shares that may be issued upon exercise of all

options to be granted under all the share option schemes does not in aggregate exceed 10% of the shares in issue on the date of approval of the Executive Share Option Scheme. The company may renew this limit at any time, subject to shareholders’ approval and the issue of a circular and in accordance with the Listing Rules provided that the number of shares to be issued upon exercise of all outstanding options granted and yet to be exercised under all the share option schemes does not exceed 30% of the shares in issue from time to time.

As at [the latest practicable date prior to the issue of the annual report], options to subscribe for a total of

4,833,000 option shares were still outstanding under the Executive Share Option Scheme which represents approximately 19.1% of the issued ordinary shares of the company.622D6(2)(b)

The Executive Share Option Scheme shall be valid and effective for a period of 10 years commencing from

the approval of the Scheme.

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Appendix I – Report of the Directors (Continued)

MB17.07 A6(6.3)(j) GEM23.07 GEM18.07(note4(i)) GEM18.28(7) 622D6

Details of the shares outstanding on which options are granted as at 31 December 2016 under the scheme are as follows:

Number of options (in thousands)61

held at 1 January

2016

granted during the year (Note

(1))

expired

during the year

exercised during the

year622D6(1)(d)

held at 31 December

2016622D6(2)(b)

Exercise

price HK$

Grant

date

Exercisable

from

Exercisable

until

Chairman Mr C 150 - - - 150 1.20 2 July 2011 2 July 2012 1st July 2016

- 200 - - 200 2.95 2 July 2016 2 July 2016 1st July 2020

Executive directors

Mr A 500 - - 50062 - 1.10 2 July 2010 2 July 2011 1st July 2015

(resigned as director on [specify date]) but still employee of the company at

31/12/2015.

800 - - - 800 1.35 2 July 2013 2 July 2014 1st July 2018

- 100 - - 100 2.95

2 July 2015

2 July 2016

1st July 2020

Mr B 100 - - - 100 1.20 2 July 2011 2 July 2012 1st July 2016

400 - - - 400 2.38 2 July 2012 2 July 2013 1st July 2017

- 200 - - 200 2.95 2 July 2015 2 July 2016 1st July 2020

Mr D - 200 - - 200 2.95 2 July 2015 2 July 2016 1st July 2020

Mr F 150 - - 10072 50 1.20 2 July 2011 2 July 2012 1st July 2016

Continuous contract employees 500 - - - 500 1.20

2 July 2011

2 July 2012

1st July 2016

(excluding resigned Director Mr A) 450 - 125 5072 275 1.35

2 July 2013

2 July 2014

1st July 2018

155 - - - 155 2.00 2 July 2014 2 July 2015 1st July 2019

1,277 - - - 1,277 2.38 2 July 2012 2 July 2013 1st July 2017

- 214 - - 214 2.95 2 July 2015 2 July 2016 1st July 2020

Suppliers 150 - - 5063 100 2.38 2 July 2012 2 July 2013 1st July 2017

- 50 - - 50 2.95 2 July 2015 2 July 2016 1st July 2020

Others 112 - - 5073 62 2.00 2 July 2014 2 July 2015 1st July 2019

4,744 964 125 750 4,833

61 Where options lapse or are cancelled during the year, these movements should also be disclosed, including exercise price in respect of those cancelled. 62 Exercise date was 5 May 2015. At the date before the options were exercised, the market value per share was HK$2.78. 63 Exercise date was 27 May 2015. At the date before the options were exercised, the market value per share was HK$2.95.

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Appendix I – Report of the Directors (Continued)

MB17.07, MB17.08 A6(6.3)(j) GEM23.07 GEM23.08 GEM18.07(note4(i))

(1) At 30 June 2016, the date before the options were granted, the market value per share was HK$3.47. The value of the options granted to the respective parties is as follows:

HK$’000 Director Mr A: 61 Director Mr B: 125 Chairman Mr C: 125 Director Mr D: 125 Continuous contract employees: 133 Suppliers: 31 600 MB17.08 A6(6.3)(j) GEM23.08 GEM18.07(note4(i))

The value of the options granted during the year is HK$830,000, based on the Black-Scholes valuation model. The significant inputs into the model were share price of HK$3.47 at the grant date, exercise price shown above, standard deviation of expected share price returns of 30%, expected life of options of 3 years (2015: 3 years), expected dividend paid out rate of 4.3% and annual risk-free interest rate of 5%. The volatility measured at the standard deviation of expected share price returns is based on statistical analysis of daily share prices over the last three years. The Black-Scholes model is developed to estimate the fair value of European share options. The fair values calculated are inherently subjective and uncertain due to the assumptions made and the limitations of the model used. The value of an option varies with different variables of certain subjective assumptions. Any change in variables so adopted may materially affect the estimation of the fair value of an option.

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Appendix I – Report of the Directors (Continued)

Directors (a) Directors of the company s390(1)(a) The directors of the company during the year and up to the date of this report were: Mr. C (Chairman)

Executive directors Mr. A (resigned on [specify date]) Mr. B Mr. F Mr. D (appointed on [specify date]) Independent non-executive directors Mr. E Mr. G Mr. H

In accordance with Article 20 of the company’s Articles of Association, Mr. B and Mr. F retire by rotation at the

forthcoming Annual General Meeting and, being eligible, offer themselves for re-election. In accordance with Article 21 of the company’s Articles of Association, Mr. D retires at the forthcoming Annual

General Meeting but, being eligible, offers himself for re-election. 622D8 Mr. A resigned on [specify date] as executive director of the company due to [state the reason for the

resignation if the Company has received a notice in writing from the director specifying that the resignation or refusal of standing for re-election is due to reasons relating to the affairs of the Company (whether or not other reasons are specified)]. [OR Mr. A resigned on [specify date] as executive director of the company. Mr. A has confirmed that he has no disagreement with the Board and nothing relating to the affairs of the company needed to be brought to the attention of the shareholders of the company.]

MB Appendix14K GEM18.24(2) GEM Appendix15K

Mr. E, Mr. G and Mr. H are independent non-executive directors and were appointed for a two-year term expiring on [31 December 2018].

[OR There being no provision in the company’s Articles of Association for retirement by rotation, all directors

continue in office.] A28.2 [Applicable for HK incorporated companies only:

(b) Directors of the company’s subsidiaries s390(1)(a), s390(3) During the year and up to the date of this report, Mr. A, B, F and D are also directors in certain subsidiaries of

the company. Other directors of the company’s subsidiaries during the year and up to the date of this report include: Mr. J, K and L [OR A list of names of all the directors who have served on the boards of the Company’s subsidiaries during the year and up to the date of this report is available on the Company’s website at www.xxx.xxx.]

Commentary: In the FAQ series of Companies Registry, the Companies Registry has the following position on the disclosures

of the names of the directors of the subsidiaries: The names of directors of all subsidiary undertakings included in the annual consolidated financial statements may be disclosed on a consolidated basis, without further setting out specifically the directorship of each individual subsidiary undertaking. If the number of names of directors of all subsidiary undertakings is, in the opinion of the directors of the holding company, of excessive length, disclosure of the names of directors of subsidiary undertakings may be made by way of inclusion by reference, provided that the information on the relevant directors' names is clearly contained in the directors' report by making a list of such names readily available to the reader. This may include, for example, by providing a link to the relevant website(s) which contains a full list of the names. The above does not affect the requirement to disclose the names of the directors of the holding company and other particulars required under section 390, such information must be contained fully in the directors' report. There are Q&As issued by the Hong Kong Companies Registry and the Hong Kong Institute of Certified Public Accountants for frequently asked quantities relating to Directors’ names.

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Appendix I – Report of the Directors (Continued)

Directors’ service contracts

A14* GEM18.24(1)*

None of the directors who are proposed for re-election at the forthcoming Annual General Meeting has a service contract with the company which is not determinable within one year without payment of compensation, other than statutory compensation.

OR

A14* GEM18.24(1)* A14A GEM18.24A MB13.69 GEM17.91

Mr. B has a service contract with the company with remaining unexpired period of [3] years which is not determinable within one year without payment of compensation. As the contract was signed on 31 December 2004 in accordance with the Listing Rule, no shareholders’ approval is required.

[Note:* Only applicable to directors proposed for re-election at the forthcoming Annual General Meeting.]. 622D10 A15, GEM18.25

Directors’ material** interests in transactions, arrangements and contracts that are significant in relation to the company’s business

No transactions, arrangements and contracts of significance* in relation to the group’s business to which the company’s subsidiaries, fellow subsidiaries or its parent company was a party and in which a director of the company [applicable for public company: and the director’s connected party***] had a material interest, whether directly or indirectly, subsisted at the end of the year or at any time during the year.

[OR

622D10(2) A15 GEM18.25

Pursuant to an agreement dated 28 February 2014 (the “Agreement”) made between Orange Limited, a subsidiary of the group, and LMF Holdings Limited (“LMF”)622D10(2)(c), Orange Limited agreed to pay LMF an annual fee for the provision of consultancy services in accordance with the terms of the Agreement.622D10(2)(a) LMF was paid a fee of HK$83,000 for the year ended 31 December 2016 (2015: HK$70,000).622D10(2)(b) Mr E622D10(2)(d), a non-executive director of the company, is interested in this transaction to the extent that LMF is controlled by him.622D10(2)(e) Save for contracts amongst group companies and the aforementioned transaction, no other transactions, arrangements and contracts of significance to which the company’s subsidiaries, fellow subsidiaries or its parent company was a party and in which a director of the company [applicable to public company: and the director’s connected party] had a material interest, whether directly or indirectly, subsisted at the end of the year or at any time during the year.

A15.2 & A15.3 GEM18.25(note 2,3) 622D10(5)

[Note:* A “contract of significance” is one where any of the percentage ratios (as defined under MB14.04(9)/GEM19.04(9)) of the transaction is 1% or more or the omission of information relating to that contract could have changed / influenced the judgement / decision of a person relying on the relevant information. According to 622D10(5), a transaction, arrangement or contract is not significant in relation to the company’s business if, after consideration, the directors of the company are of the opinion that it is not significant in relation to the company’s business.]

622D10(6) [Note**: According to 622D10(6), an interest that a director of a company has in a transaction,

arrangement or contract is not material if, after consideration, the directors of the company are of the opinion that it is not material.]

622D10(8)(b), s486 A15.4, GEM18.25(note4)

[Note***: According to 622D10(8)(b), a reference to a connected entity, in relation to a director, is a reference to an entity connected with the director within the meaning of s486. ]

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Appendix I – Report of the Directors (Continued)

Biographical details of directors and senior management

A12 MB13.51B(1) A6(6.3)(h) GEM18.39 GEM17.50A(1) GEM18.07(note4(f))

Brief biographical details of directors and senior management are set out on page [x].

[Such details will include: full name (which should normally be the same as that stated in the declaration and undertaking of the

director or supervisor in the form set out in Form B, H or I in Appendix 5 to MB rules and the form set out in Appendix 6 to GEM Rule) and age;

positions held with the company and other members of the group;

experience including (i) other directorships held in the last three years in public companies the securities of which are listed on any securities market in Hong Kong or overseas, and (ii) other major appointments and professional qualifications;

length or proposed length of service with the company; relationship with any directors, senior management or substantial or controlling shareholders of the

issuer; and such other information (which may include business experience) of which shareholders should be

aware, pertaining to the ability or integrity of such persons…etc. Where any of the directors or senior managers is related that fact should be stated. Details of disclosure requirements of the biographical of directors and senior management should be referred to Rules 13.51 to 13.51C of Main Board Listing Rules / Rules 17.50 to 17.50B and 18.39 of GEM Listing Rules.

Where there is a change in any of the information below during the course of the director’s or supervisor’s term of office, the change and the updated information regarding the director or supervisor should be disclosed in the next published annual or interim report (whichever is the earlier): full name (which should normally be the same as that stated in the declaration and undertaking of the

director or supervisor in the form set out in Form B, H or I in Appendix 5 to MB rules and the form set out in Appendix 6 to GEM Rule);

positions held with the company and other members of the group; experience including (i) other directorships held in the last three years in public companies the securities

of which are listed on any securities market in Hong Kong or overseas, and (ii) other major appointments and professional qualifications;

proposed length of service with the issuer;

relationship with any directors, senior management or substantial or controlling shareholders of the issuer; and

amount of the director’s or supervisor’s emoluments and the basis of determining the director’s or supervisor’s emoluments (including any bonus payments, whether fixed or discretionary in nature, irrespective of whether the director or supervisor has or does not have a service contract) and how much of the emoluments are covered by a service contract.

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Appendix I – Report of the Directors (Continued)

622D3 A13(1)&(2) PN 5(3.1),(3.2),(3.2) GEM18.15, 18.17 GEM18.17A

Directors’ and chief executives’ interests and / or short positions in the shares, underlying shares and debentures of the company or any specified undertaking of the company* or any other associated corporation At 31 December 2016, the interests and short positions of each director and chief executive (should include supervisors in case of a PRC issuer) in the shares, underlying shares and debentures of the company and its associated corporations (within the meaning of the Securities and Futures Ordinance (“SFO”), as recorded in the register required to be kept by the company under Section 352 of Part XV of the SFO were as follows:

(a) Ordinary shares of HK$x each in [state the company’s name, i.e. the company or its associated corporation] at 31 December 2016.

Number of shares held

Personal interests

Family interests

**Corporate interests

**Trusts and

similar interests

**Persons acting in

concert Other

interests Total

% of the Issued share

capital of the

company Director Mr B Long positions x x x x x x x x Short positions x x x x x x x x Director Mr C Long positions x x x x x x x x Short positions x x x x x x x x Chief Executive Mr I Long positions x x x x x x x x Short positions x x x x x x x x 622D2 * Note: Specified undertaking, in relation to a company, is defined in 622D2, with the meaning of: (a)

a parent company of the company; (b) a subsidiary undertaking of the company; or (c) a subsidiary undertaking of the company’s parent company. Compared with the meaning of associated corporation defined under Section 352 of Part XV of the SFO, apart from specified undertaking of the listed corporation as defined by 622D2, associated corporation also includes a corporation (not being a subsidiary of the listed corporation) in which the listed corporation has an interest in the shares of a class comprised in its share capital exceeding in number one-fifth of the number of the issued shares of that class.

** Note: The nature of such interests should be provided. Where corporate interests that are not

wholly owned by the directors or chief executives, the percentage interests held by them in such corporation should be disclosed.

622D3 (b) x% redeemable preferences shares of HK$x each in [state the company’s name, i.e. the company or its associated corporation] at 31 December 2016.

Number of shares held

Personal interest

Family interests

*Corporate interests

*Trusts and

similar interests

*Persons acting in

concert Other

interests Total

% of the Issued share

capital of the

company

Director Mr B Long positions x x x x x x x x Short positions x x x x x x x x Director Mr C Long positions x x x x x x x x Short positions x x x x x x x x Chief Executive Mr I Long positions x x x x x x x x Short positions x x x x x x x x *Note: The nature of such interests should be provided. Where corporate interests that are not wholly owned by

the directors or chief executives, the percentage interests held by them in such corporation should be disclosed. (1) x shares are held by DEF Limited, a company in which Mr. B holds x% equity interests and has a controlling

interest. (2) x shares are held by discretionary trusts of which Mr. C and members of his family are beneficiaries.

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622D3

(c) derivative to ordinary shares of HK$x each in [state the company’s name, i.e. the company or its

associated corporation] Listed Warrants

(physically settled equity derivatives) Unlisted Options

(physically settled equity derivatives)

As at 31 December 2016 As at 31 December 2016 Director Mr B Long positions x x Director Mr C Long positions x x Short positions x x Chief executive Mr I Long positions x x Short positions x x

622D3 Share options are granted to directors and chief executives under the Executive Share Option Scheme approved by shareholders at an Extraordinary General Meeting on 1 July 2006. Refer details under Share Options above.

OR Saved as disclosed above, at no time during the year, the directors and chief executives (including

their spouse and children under 18 years of age) had any interest in, or had been granted, or exercised, any rights to subscribe for shares (or warrants or debentures, if applicable) of the company, its specified undertakings and its other associated corporations required to be disclosed pursuant to the SFO and the Hong Kong Companies Ordinance (Cap. 622).

(d) Other than those interests and short positions disclosed above, the directors and chief executives

also hold shares of certain subsidiaries solely for the purpose of ensuring that the relevant subsidiary has more than one member.

OR 622D3 At no time during the year was the company, its subsidiaries, its fellow subsidiaries, its parent

company or its other associated corporations a party to any arrangement to enable the directors and chief executives of the company (including their spouse and children under 18 years of age) to hold any interests or short positions in the shares or underlying shares in, or debentures of, the company or its specified undertakings or other associated corporation.

A13(3) GEM18.16 GEM18.17 GEM18.17B PN5(3.4) A6(6.3)(m)

Substantial shareholders’ interests and / or short positions in the shares, underlying shares of the company

At 31 December 2016, the register of substantial shareholders required to be kept under Section 336 of Part XV of the SFO shows that the company had not been notified of any substantial shareholders’ interests and short positions, being 5% or more of the company’s issued share capital, other than those of the directors and chief executives as disclosed above.

OR

The register of substantial shareholders required to be kept under section 336 of Part XV of the SFO shows that as at 31 December 2016, the company had been notified of the following substantial shareholders’ interests and short positions, being 5% or more of the company’s issued share capital. These interests are in addition to those disclosed above in respect of the directors and chief executives.

(a) ordinary shares of HK$x each in the company Number of shares

Personal interests

Family interests

*Corporate interests

*Trusts and

similar interests

*Persons acting in

concert Other

interests Total

% of the Issued share capital of the

company

Mr X Long positions x x x x x x x x Short positions x x x x x x x x Mrs Y Long positions x x x x x x x x Short positions x x x x x x x x Mr Z Long positions x x x x x x x x

Short positions x x x x x x x x

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Appendix I – Report of the Directors (Continued)

*Note: The nature of such interests should be provided. Where corporate interests that are not wholly owned by the

substantial shareholders, the percentage interests held by them in such corporation should be disclosed. A13(3) GEM18.17 GEM18.17C PN5(3.5) A6(6.3)(m)

[Same disclosures as those of substantial shareholders should be made for other persons whose interests are recorded in the register to be kept under section 336 of the SFO.]

Management contracts s543 No contracts concerning the management and administration of the whole or any substantial part of the

business of the company were entered into or existed during the year.

OR

s543 There exist agreements for management and payroll services, in respect of which BXK Management Services Limited provides services to various companies in the group and under which costs are reimbursed and fees are payable. These agreements can be terminated by either party giving not less than twelve months’ notice of termination expiring on 31 December 2017 or any subsequent 31st December. Mr. C is one of the directors and shareholders who holds 25% shares of BXK Management Services Limited.

[Notes: A16(1) GEM18.26

- Details are required for any contract of significance between the company or any one of its subsidiaries, and a controlling shareholder* or any subsidiaries of the controlling shareholder.

A16(2) GEM18.27

- Details are also required for any contract of significance for the provision of services to the group by a controlling shareholder or any of the subsidiaries of the controlling shareholder.

*For the purpose of this requirement, “controlling shareholder” mean any shareholder entitled to exercise, or control the exercise of: (i) in the case of a PRC issuer, 30 per cent (or such other amount as may from time to time be specified in applicable PRC law as being the level for triggering a mandatory general offer or for otherwise establishing legal or management control over a business enterprise); (ii) in other cases, 30 per cent (or such other amount as may from time to time be specified in the Takeovers Code as being the level for triggering a mandatory general offer); or more of the voting power at general meetings of the listed issuer or one which is in a position to control the composition of a majority of the board of directors of the listed issuer.]

A31 GEM18.40

Major suppliers and customers

A31(6), A31(7) GEM18.40(6) &18.40(7)

During the year, the group purchased less than 30% of its goods and services from its 5 largest suppliers and sold less than 30% of its goods and services to its 5 largest customers.

OR

A31(1)-(4) GEM18.40(1)-GEM18.40(4)

The percentages of purchases and sales for the year attributable to the group’s major suppliers and customers are as follows:

Purchases - the largest supplier - five largest suppliers in aggregate

x% x%

Sales - the largest customer - five largest customers in aggregate

x% x%

A31(5) GEM18.40(5)

None of the directors, their associates or any shareholder (which to the knowledge of the directors owns more than 5% of the company’s share capital) had an interest in these major suppliers or customers.

OR

A31(5) GEM18.40(5)

[Director Mr. B held a 20% interest in the share capital of the group’s largest supplier.]

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Appendix I – Report of the Directors (Continued)

Connected transactions MB14A.72 GEM20.70

A summary of the related party transactions entered into by the group during the year ended 31 December 2016 is contained in Note 42 to the consolidated accounts. The transactions in relation to the acquisition of a further 65% of the share capital of ABC Group as described in Note 41 fall under the definition of connected transactions under the Listing Rules.

The following transactions between certain connected parties (as defined in the Listing Rules) and the company have been entered into and/or are ongoing for which relevant announcements, if necessary, had been made by the company in accordance with [Main Board: Chapter 14A / GEM: Chapter 20] of the Listing Rules.

(1) Connected transactions A8(1), MB14A. 49 GEM18.09(1) GEM20. 47

On 1 March 2016, the group acquired a further 65% of the share capital of ABC Group, a shoe and leather goods retailer operating in the US and most western European countries. The consideration was settled through the issue of 3.55 million ordinary shares of the company at HK$1 each and cash. ABC Group is a subsidiary of EFG Corporation, a company which is controlled by Mr X who is a substantial shareholder of a subsidiary of the company. The contingent consideration arrangement requires the group to pay the former owners of ABC Group 10% of the average profit of ABC Group for three years from 2016 to 2018, in excess of HK$ 7,500,000 for 2016, up to a maximum undiscounted amount of HK$2,500,000.

(2) Continuing connected transactions A8(2), MB14A. 49 GEM18.09(2) GEM20. 47 MB14A. 71 GEM20. 69

On 30 June 2015, Pink Limited, a subsidiary of the company, has entered into a tenancy agreement with ABC Limited. Mr. E is a director of Pink Limited and Miss L, a spouse of Mr E, is the substantial shareholder of ABC Limited. The group leased a flat as office at 8/F, London Tower, King’s Road, London with an area of approximately 2,800 square metre for a term of 24 months from 1 July 2015 to 30 June 2017 at a monthly rental of HK$1,280,000.

GL73-14

[Note: According to GL73-14 issued by the HKEx, listed issuers should disclose whether they have followed the pricing policies and guidelines set out in their continuing connected transaction announcement(s) and the circular(s) (if any) when determining the price and terms of the continuing connected transactions conducted during the year. Sample wording is set out below:

“The price and the terms of the above transaction have been determined in accordance with the pricing policies and guideline set out in the relevant announcement dated [date] and the relevant circular dated [date].”]

MB14A. 55 MB14A,71(6)(a) GEM20. 53 GEM20.69.60(a)

The aforesaid continuing connected transaction has been reviewed by independent non-executive directors of the company. The independent non-executive directors confirmed that the aforesaid connected transaction were entered into (a) in the ordinary and usual course of business of the group; (b) on normal commercial terms or better; (c) according to the agreements governing them on terms that are fair and reasonable and in the interests of the shareholders of the company as a whole.

MB14A. 56 MB14A.71(6)(b) GEM20. 54 GEM20.69(6)(b)

The company’s auditor was engaged to report on the group’s continuing connected transactions in accordance with Hong Kong Standard on Assurance Engagements 3000 “Assurance Engagements Other Than Audits or Reviews of Historical Financial Information” and with reference to Practice Note 740 “Auditor’s Letter on Continuing Connected Transactions under the Hong Kong Listing Rules” issued by the Hong Kong Institute of Certified Public Accountants. The auditor has issued his unqualified letter containing his findings and conclusions in respect of the continuing connected transactions disclosed by the group on page [x] of the Annual Report in accordance with [paragraph 14A. 56 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited/paragraph 20. 54 of the Rules Governing the Listing of Securities on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited]. A copy of the auditor’s letter has been provided by the company to The Stock Exchange of Hong Kong Limited

[Note: Give details of connected transactions disclosed pursuant to Listing Rules and specify which

transactions disclosed as related party transactions also constitute connected transactions as defined under the Listing Rules. Note that related party and connected transactions have different definitions, albeit with a high degree of overlapping.]

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Appendix I – Report of the Directors (Continued)

Financial assistance and guarantees to affiliated companies MB13.16 MB13.22 A6(6.3)(g) GEM17.18, 17.24 GEM18.07(note4(e))

Based on the disclosure obligations under [Main Board: Chapter 13/GEM: Chapter 17 of the Listing Rules] as at 31 December 2016, details of advances (including guarantee given by the group) which are non-trading in nature, made by the group to the following entity (which amount exceeds 8% of the total assets of the group as at 31 December 2016 were as follows:

Name of company Relationship with

the group Advances HK$’000

Corporate guarantee HK$’000

Alfa Limited Associated

company X (Note 1) x (Note 2)

Beta S.A. Associated

company X (Note 3)

Notes: 1. This advance to Alfa Limited was made on 1 July 2015 for working capital purposes which is

unsecured, bearing interest at the rate of 6.5% per annum and is repayable on or before 30 June 2017.

2. This represents a corporate guarantee secured by a fixed deposit of HK$[x] for a bank loan of

HK$[x] granted to Alfa Limited on 31 December 2016 for working capital purposes. The aforesaid bank loan has been fully utilized by Alfa Limited.

3. This advance to Beta S.A. was made during the periods from 1 January 2012 to 31 December

2017.

Combined balance sheet of affiliated companies as at the [latest practicable date subsequent to year end]

Alfa Limited Beta S.A. Total

Interest held 15% 30%

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Intangible assets x x x x x

Trade and other receivables x x x x x

Other assets x x x x x

Trade and other payables x x x x x

Borrowing x x x x x

Other liabilities x x x x x

Net assets x x x x x]

Sufficiency of public float A34A, MB8.08 MB13.35 GEM17.38A, GEM18.08B GEM11.23(7)

Based on the information that is publicly available to the company and within the knowledge of the Directors, it is confirmed that there is sufficient public float of at least 25% of the company’s issued shares at [the latest practicable date prior to the issue of the annual report].

MB8.10 A6(6.3)(a) GEM11.04

Competing business

Set out below is information disclosed pursuant to paragraph [8.10 of Main Board Listing Rules/paragraph 11.04 of GEM Listing Rules]*of the Listing Rules:-

Mrs. Y is an executive director of Colour Limited. The wholesale and manufacturing activities of leather

goods of Colour Limited constitutes a competing business to the group. Mr. Z is a director and beneficial owner of Competitor Limited. Leather products retailing activities of

Competitor Limited constitute a competing business to the group.

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Appendix I – Report of the Directors (Continued)

Both Mrs. Y and Mr. Z are controlling shareholders of the company but not involved in any way in the

managing of the group’s wholesale and manufacturing of leather products. The group is therefore capable of carrying on such business independently of, and at arm’s length from the said competing business.

Compliance adviser’s Interests GEM18.45

As at 31 December 2016, as notified by the company’s compliance adviser[, insert name of the compliance adviser,] neither the compliance adviser nor any of its directors, employees or associates (as referred to in Note 3 Rule 6A.31 of the GEM Listing Rules) had any interest in the securities of the company.

Pursuant to the compliance adviser agreement dated [insert agreement date] entered into between the

company and the compliance adviser, the compliance adviser has received and shall receive an annual fee for acting as the company’s retained compliance adviser for the period from [insert commencement date] to [insert termination date].

s390(2), s390(3) Subsequent events

On [specify date after year end], the group acquired 100% interest in K & Co. which is specialising in the

manufacture of shoes for extreme sports. The consideration of HK$5,950,000 was settled in cash on 1 February 2017. The estimated goodwill on acquisition of the subsidiary is approximately HK$805,000.

Permitted indemnity provisions s470, 622D9 At no time during the financial year and up to the date of this Directors’ Report, there was or is, any

permitted indemnity provision being in force for the benefit of any of the directors of the Company (whether made by the Company or otherwise) or an associated company* (if made by the Company).

[OR s470, 622D9 The Directors’ Report needs to disclose if a permitted indemnity provision is, or was, in force in any

of the following situations: (i) if at the date that the directors approved this Directors’ Report a permitted indemnity provision

is in force for the benefit of: one or more of the directors of the Company (whether made by the Company or otherwise); or one or more directors of an associated company* (if made by the Company) (ii) if at any time during the financial year to which this Directors’ Report relates a permitted

indemnity provision is in force for the benefit of: one or more of the directors of the Company (whether made by the Company or otherwise); or one or more directors of an associated company* (if made by the Company)] s2(1) [Note*: An associated company is defined in Section 2(1): (a) a subsidiary of the body corporate; (b) a

holding company of the body corporate; or (c) a subsidiary of such holding company.]

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Appendix I – Report of the Directors (Continued)

Other matters

s390(2), s390(3) [Consider: Matters that are material for a proper appreciation of the state of affairs of the company

and/or results of the year. For example: (a) Significant events occurring during the year, which have had an effect on the trading results in

specific areas. (b) Additional explanations of large and unusual/ extraordinary items. (c) Additional explanations of reasons for changes in accounting policies. (d) Additional explanations of significant related party transactions if not provided elsewhere.]

A18, GEM 18.18 [An explanation of the difference if net income shown in the financial statements differs materially

from any profit forecast published by the company]. [Professional qualifications of: GEM18.44(1) (a) the company secretary; and

(b) the compliance officer.] Auditors

s394

The financial statements have been audited by PricewaterhouseCoopers who retire and, being eligible, offer themselves for re-appointment.

A30 GEM18.42

[For listed companies only: if there has been any change in the auditors of the company in any of the preceding three years then a statement of that fact is necessary.]

s391

On behalf of the Board By order of the Board

OR

Name of Chairman Name of Company Secretary Hong Kong, [ specify date ]

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Commentary: Comparison between the mandatory and recommended disclosures in the MD&A required by the current Listing Rules and mandatory disclosures required by Schedule 5.

MD&A under the Listing Rules Business review under the CO Mandatory disclosures (Para 32 of Main Board Rule

Appendix 16/ Para 41 of GEM Rule Chapter 18):

Schedule 5 of CO:

the group’s liquidity and financial resources a fair review of the group’s business; capital structure of the group in terms of maturity profile of debt

and obligation, type of capital instruments used, currency and interest rate structure

a description of the principal risks and uncertainties facing the group;

state of group’s order book (where applicable) and prospects for new business

particulars of important events affecting the group that have occurred since the end of the financial year;

significant investments held, their performance and future prospects

an indication of likely future development in the group’s business; and

details of material acquisitions and disposals of subsidiaries and associated companies

to the extent necessary for an understanding of the development, performance or position of the group’s business, a business review must include:

comment on segmental information (a) an analysis using financial key performance indicators;

where applicable, details of number and remuneration of employees, remuneration policies, bonus and share option schemes and training schemes

(b) a discussion on:

details of charges on group assets - the group’s environmental policies and performance; and

details of future plans for material investments or capital assets and their expected sources of funding in the coming year

- the group’s compliance with the relevant laws and regulations that have a significant impact on the group; and

gearing ratio (the basis on which the gearing ratio is computed should be disclosed)

(c) an account of the group’s key relationships with its employees, customers and suppliers and others that have a significant impact on the group and on which the group’s success depends

exposure to fluctuations in exchange rates and any related hedges; and

details of contingent liabilities, if any Recommended additional disclosures (Para 52 of Main

Board Rule Appendix 16/ Para 83 of GEM Rule Chapter 18):

efficiency indicators (e.g. return on equity, working capital ratios)

for the last five financial years indicating the bases of computation;

industry specific ratios, if any, for the last five financial years indicating the bases of computation

a discussion of the listed issuer’s purpose, corporate strategy and principal drivers of performance

an overview of trends in the listed issuer’s industry and business; a discussion on the listed issuer’s policies and performance on

community, social, ethical and reputational issues

receipts from, and returns to shareholders

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Appendix Ia – Corporate Governance Report under the Code (for Listed Companies only)

A34,GEM18.44(2) General

MB Appendix 14 GEM Appendix 15

1. Issuers must include a Corporate Governance Report prepared by the board of directors in their summary financial reports (if any) under paragraph 50 of Appendix 16 (GEM: paragraph 81 of Chapter 18) and annual reports under paragraph 34 of Appendix 16 (GEM: paragraph 44 of Chapter 18). The Corporate Governance Report must contain all the information set out in Paragraphs G to Q of Appendix 14 (GEM: Appendix 15). Any failure to do so will be regarded as a breach of the Exchange Listing Rules.

To a reasonable and appropriate extent, the Corporate Governance Report included in an issuer’s

summary financial report may be a summary of the Corporate Governance Report contained in the annual report and may also incorporate information by reference to its annual report. The references must be clear and unambiguous and the summary must not contain only a cross-reference without any discussion of the matter. The summary must contain, as a minimum, a narrative statement indicating overall compliance with and highlighting any deviation from the code provisions.

Issuers are also encouraged to disclose information set out in Paragraphs R to T of Appendix 14 (GEM:

Appendix 15) in their Corporate Governance Reports.

What is “comply or explain”? 1. The Code sets out a number of “principles” followed by code provisions and recommended best practices. It is important to recognise that the code provisions and recommended best practices are not mandatory rules. The Exchange does not envisage a “one size fits all” approach. Deviations from code provisions are acceptable if the issuer considers there are more suitable ways for it to comply with the principles. 2. Therefore the Code permits greater flexibility than the Rules, reflecting that it is impractical to define in detail the behaviour necessary from all issuers to achieve good corporate governance. To avoid “box ticking”, issuers must consider their own individual circumstances, the size and complexity of their operations and the nature of the risks and challenges they face. Where an issuer considers a more suitable alternative to a code provision exists, it should adopt it and give reasons. However, the issuer must explain to its shareholders why good corporate governance was achieved by means other than strict compliance with the code provision. 3. Shareholders should not consider departures from code provisions and recommended best practices as breaches. They should carefully consider and evaluate explanations given by issuers in the “comply or explain” process, taking into account the purpose of good corporate governance. 4. An informed, constructive dialogue between issuers and shareholders is important to improving corporate governance.

Mandatory Disclosure Requirements 2. To provide transparency, the issuers must include the following information for the accounting period

covered by the annual report and significant subsequent events for the period up to the date of publication of the annual report, to the extent possible:

MB Appendix 14G GEM Appendix 15G

(a) Corporate governance practices

(i) a narrative statement explaining how the issuer has applied the principles in the Code, enabling its shareholders to evaluate how the principles have been applied;

(ii) a statement as to whether the issuer meets the code provisions. If an issuer has adopted its own

code that exceeds the code provisions, it may draw attention to this fact in its annual report; and (iii) for any deviation from the code provisions, details of the deviation during the financial year

(including considered reasons). MB Appendix 14H GEM Appendix 15H

(b) Directors’ securities transactions

For the Model Code set out in Appendix 10 (GEM: paragraph 48-67 of Chapter 5): (i) whether the issuer has adopted a code of conduct regarding directors’ securities transactions on

terms no less exacting than the required standard set out in the Model Code; (ii) having made specific enquiry of all directors, whether the directors of the issuer have complied

with, or whether there has been any non-compliance with, the required standard set out in the Model Code and its code of conduct regarding directors’ securities transactions; and

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(iii) for any non-compliance with the required standard set out in the Model Code, if any, details of these and an explanation of the remedial steps taken by the issuer to address them.

MB Appendix 14I GEM Appendix 15I

(c) Board of directors

(i) Composition of the board, by category of directors including name of chairman, executive directors, non-executive directors and independent non-executive directors;

(ii) number of board meetings held during the financial year; (iii) attendance of each director, by name, at the board and general meetings;

Notes: 1 Subject to the issuer’s constitutional documents and the law and regulations of its place of incorporation, attendance by a director at a meeting by electronic means such as telephonic or video-conferencing may be counted as physical attendance.

2 If a director is appointed part way during a financial year, his attendance should be

stated by reference to the number of board meetings held during his tenure.

(iv) for each named director, the number of board or committee meetings he attended and separately the number of board or committee meetings attended by his alternate. Attendance at board or committee meetings by an alternate director should not be counted as attendance by the director himself;

(v) a statement of the respective responsibilities, accountabilities and contributions of the board

and management. In particular, a statement of how the board operates, including a high level statement on the types of decisions taken by the board and those delegated to management.

MB3.10(1)-(2), 3.10A GEM5.05(1)-(2), 5.05A

(vi) details of non-compliance (if any) with rules 3.10(1) & (2) and 3.10A (GEM: 5.05 (1) & (2) and 5.05A) and an explanation of the remedial steps taken to address non-compliance. This should cover non-compliance with appointment of a sufficient number of independent non-executive directors and appointment of an independent non-executive director with appropriate professional qualifications, or accounting or related financial management expertise, respectively;

MB3.13 A12A GEM18.39A GEM5.09

(vii) reasons why the issuer considers an independent non-executive director to be independent where he/she fails to meet one or more of the guidelines for assessing independence set out in rule 3.13 (GEM: 5.09);

MB3.13 A12B GEM18.39B GEM5.09

Note: Under paragraph 12B of Appendix 16 (GEM: paragraph 39B of Chapter 18), a listed issuer must confirm whether it has received from each of its independent non-executive directors an annual confirmation of his independence pursuant to rule 3.13 (GEM: 5.09) and whether it still consider the independent non-executive directors to be independent.

(viii) relationship (including financial, business, family or other material/relevant relationship(s)), if

any, between board members and in particular, between the chairman and the chief executive; and

(ix) how each director, by name, complied with MB Code A.6.5 (GEM Code A.6.5) on directors’

training.

MB Appendix 14J GEM Appendix 15J

(d) Chairman and chief executive

(i) The identity of the chairman and chief executive; and (ii) whether the roles of the chairman and chief executive are separate and exercised by different

individuals. MB Appendix 14K GEM Appendix 15K

(e) Non-executive directors

The term of appointment of non-executive directors.

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Appendix Ia – Corporate Governance Report under the Code (for Listed Companies only) (continued) MB Appendix 14L GEM Appendix 15L

(f) Board committees

The following information for each of the remuneration committee, nomination committee, audit committee, risk committee, and corporate governance functions:

(i) the role and function of the committee;. (ii) the composition of the committee and whether it comprises independent non-executive

directors, non-executive directors and executive directors(including names and identifying in particular the chairman of the remuneration committee);

(iii) the number of meeting held by the committee during the year to discuss matters and the record

of attendance of members, by name, at meetings held during the year; and MB Code A.5.6 GEM Code A.5.6

(iv) a summary of the work during the year, including:

(1) for the remuneration committee, determining the policy for the remuneration of executive directors, assessing performance of executive directors and approving the terms of executive directors’ service contracts, performed by the remuneration committee. Disclose which of the two models of remuneration committee described in MB Code B.1.2(c) (GEM Code B.1.2(c) ) was adopted;

(2) for the nomination committee, determining the policy for the nomination of directors,

performed by the nomination committee or the board of directors (if there is no nomination committee) during the year. The nomination procedures and the process and criteria adopted by the nomination committee or the board of directors (if there is no nomination committee) to select and recommend candidates for directorship during the year. The nomination committee (or the board) should have a policy concerning diversity of board members, and should disclose the policy or a summary of the policy in the corporate governance report. If the nomination committee (or the board) has a policy concerning diversity, this section should also include the board’s policy or a summary of the policy on board diversity, including any measurable objectives that it has set for implementing the policy, and progress on achieving those objectives;

Note: Board diversity will differ according to the circumstances of each issuer. Diversity of board

members can be achieved through consideration of a number of factors, including but not limited to gender, age, cultural and educational background, or professional experience. Each issuer should take into account its own business model and specific needs, and disclose the rationale for the factors it uses for this purpose.

(3) for corporate governance, determining the policy for the corporate governance of the

issuer, and duties performed by the board or the committee(s) under MB Code D.3.1(GEM Code D.3.1);

(4) for the audit committee, a report on how it met its responsibilities in its review of the

quarterly (if relevant), half-yearly and annual results, and unless expressly addressed by a separate risk committee, or the board itself, its review of the risk management and internal control systems, the effectiveness of the issuer’s internal audit function, and its other duties under the Code. Details of non-compliance with MB rule 3.21 (GEM rule 5.28) (if any) and an explanation of the remedial steps taken by the issuer to address non-compliance with establishment of an audit committee; and

(5) for the risk committee (if any), a report on how it met its responsibilities in its review of the

risk management and internal control systems and the effectiveness of the issuer’s internal audit function.

MB Appendix 14M GEM Appendix 15M

(g) Auditors’ remuneration

An analysis of remuneration in respect of audit, and non-audit services provided by the auditors (including any entity that is under common control, ownership or management with the audit firm or any entity that a reasonable and informed third party having knowledge of all relevant information would reasonably conclude as part of the audit firm nationally or internationally) to the issuer. The analysis must include, in respect of each significant non-audit service assignment, details of the nature of the services and the fees paid.

Note: An explanation or reconciliation should be provided if the details of auditors’ remuneration in

the Corporate Governance Report were different from information on audit fees disclosed in the financial statements.

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Appendix Ia – Corporate Governance Report under the Code (for Listed Companies only) (continued)

Note: The code provisions expect issuers to make certain specified disclosures in the Corporate

Governance Report. Where issuers choose not to make the expected disclosure, they must give considered reasons for not doing so under paragraph G(c). For ease of reference, the specific disclosure expectations of the code provisions are:

MB Code C.1.3 GEM Code C.1.3

(1) directors’ acknowledgement of their responsibility for preparing the accounts and a statement by the auditors about their reporting responsibilities;

MB Code C.1.3 GEM Code C.1.3

(2) report on material uncertainties, if any, relating to events or conditions that may cast significant doubt upon the issuer’s ability to continue as a going concern;

MB Code C.2.1 GEM Code C.2.1

(3) a statement that the board has conducted a review of the effectiveness of risk management and internal control systems of the issuer and its subsidiaries; and

MB Code C.3.5 GEM Code C.3.5

(4) a statement from the audit committee explaining its recommendation and the reason(s) why the board has taken a different view from the audit committee on the selection, appointment, resignation or dismissal of external auditors.

MB Appendix 14N GEM Appendix 15N

(h) Company secretary

(a) Where an issuer engages an external service provider as its company secretary, its primary corporate contact person at the issuer (including his/her name and position); and

(b) details of non-compliance with MB rule 3.29 (GEM rule 5.15).

MB Appendix 14O GEM Appendix 15O MB Appendix 14P GEM Appendix 15P

(i) Shareholders’ rights

(a) How shareholders can convene an extraordinary general meeting;

(b) the procedures by which enquiries may be put to the board and sufficient contact details to

enable these enquiries to be properly directed; and (c) the procedures and sufficient contact details for putting forward proposals at shareholders’

meetings.

(j) Investors relations

Any significant changes in the issuer’s constitutional documents during the year.

MB Appendix 14Q GEM Appendix 15Q MB Code C.2.1 GEM Code C.2.1

(k) Risk Management and internal control (i) Where an issuer includes the board’s statement that it has conducted a review of its risk

management and internal control systems in the annual report under MB Code C.2.1 (GEM Code C.2.1), it must disclose the following:

(1) whether the issuer has an internal audit function; (2) how often the risk management and internal control systems are reviewed, the period covered,

and where an issuer has not conducted a review during the year, an explanation why not; and (3) a statement that a review of the effectiveness of the risk management and internal control

systems has been conducted and whether the issuer considers them effective and adequate.

MB Code C.2.4- C.2.5 GEM Code C.2.4- C.2.5

(ii) A narrative statement on how the issuer has complied with the risk management and internal control code provisions during the reporting period. In particular, they should disclose: (1) the process used to identify, evaluate and manage significant risks; (2) the main feature of the risk management and internal control systems; (3) an acknowledgement by the board that it is responsible for the risk management and internal

control systems and reviewing their effectiveness. It should also explain that such systems are designed to manage rather than eliminate the risk of failure to achieve business objectives, and can only provide reasonable and not absolute assurance against material misstatement or loss;

(4) the process used to review the effectiveness of the risk management and internal control systems; and to resolve material internal control defects; and

(5) the procedures and internal controls for the handling and dissemination of inside information.

Note: The issuer should have an internal audit function. Issuers without an internal audit function should review the need for one on an annual basis and should disclose the reasons for the absence of such a function in the Corporate Governance Report.

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Appendix Ia – Corporate Governance Report under the Code (for Listed Companies only) (continued)

Recommended Disclosures 3. The disclosures set out in this paragraph on corporate governance matters are provided for issuers’

reference. They are not intended to be exhaustive or mandatory. They are intended to show the areas which issuers may comment on in their Corporate Governance Report. The level of details needed varies with the nature and complexity of issuers’ business activities. Issuers are encouraged to include the following information in their Corporate Governance Report:

(a) Share interests of senior management MB Appendix 14R GEM Appendix 15R

The number of shares held by senior management (i.e. those individuals whose biographical details are disclosed in the annual report).

MB Appendix 14S GEM Appendix 15S

(b) Investor relations

(i) Details of shareholders by type and aggregate shareholding; (ii) Details of the last shareholders’ meeting, including the time and venue, major items discussed

and voting particulars; (iv) Indication of important shareholders’ dates in the coming financial year; and (v) Public float capitalisation at the year end.

MB Appendix 14T GEM Appendix 15T

(c) Management functions The division of responsibility between the board and management. Note:Issuers may consider that some of the information recommended under paragraph 3 is too

lengthy and detailed to be included in the Corporate Governance Report. As an alternative to full disclosure in the Corporate Governance Report, issuers may choose to include some or all of this information:

(a) on its website and highlight to investors where they can:

(i) access the soft copy by giving a hyperlink direct to the relevant webpage; and/or (ii) collect a hard copy of the relevant information free of charge; or

(b) where the information is publicly available, by stating where the information can be

found. Any hyperlink should be direct to the relevant webpage.

MB Code C.2.6- C.2.7 GEM Code C.2.6- C.2.7

(d) Risk management and internal control (i) The board may disclose in the Corporate Governance Report that it has received a confirmation

from management on the effectiveness of the issuer’s risk management and internal control systems.

(ii) The board may disclose in the Corporate Governance Report details of any significant areas of

concern.

MB Code B.1.6 GEM Code B.1.6

(e) Remuneration of directors and senior management and board evaluation If Code Provision B.1.2(c)(ii)* is adopted, and the board resolves to approve any remuneration or compensation arrangements with which the remuneration committee disagrees, the board should disclose the reasons for its resolution in its next Corporate Governance Report.

*Under Code Provision B.1.2(c)(ii), the remuneration committee will make recommendations to the

board on the remuneration packages of individual executive directors and senior management.

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Appendix II - Other Information in the Annual Report (for Listed Companies Only) (i) Environmental, Social and Governance Report MB

Appendix 27

GEM

Appendix

20

General

An issuer must report on the “comply or explain” provisions of the Environmental, Social and Governance Reporting Guide (the “ESG Guide”) set out in Appendix 27 (Appendix 20 for GEM). If the issuer does not report on one or more of these provisions, it must provide reasons in its ESG report. The issuer is encouraged, but not required, to report on the recommended disclosures of the ESG Guide. An issuer must disclose ESG information on an annual basis and regarding the same period covered in its annual report. An ESG report may be presented as information in the issuer’s annual report, in a separate report, or on the issuer’s website. Regardless of the format adopted, the ESG report should be published on the Exchange’s website and the issuer’s website. Where not presented in the issuer’s annual report, the issuer should publish this information as close as possible to, and in any event no later than three months after, the publication of the issuer’s annual report. The ESG report should state the issuer’s ESG management approach, strategy, priorities and objectives and explain how they relate to its business. It would be useful to discuss the issuer’s management, measurement and monitoring system employed to implement its ESG strategy. An ESG report should also state which entities in the issuer’s group and/ or which operations have been included in the report. If there is a change in the scope, the issuer should explain the difference and reason for the change. “Comply or explain” Provisions The issuer should disclose: (a) the policies; and (b) compliance with relevant laws and regulations that have a significant impact on the issuer for each of the following ESG aspect: “Environmental” - Emissions - Use of Resources - The Environment and Natural Resources - Labour Standards “Social” Employment and Labour Practices - Employment - Health and Safety - Development and Training

- Labour Standards Operating Practices - Supply Chain Management - Product Responsibility - Anti-corruption Community - Community Investment Recommended disclosures The issuers are encouraged to disclose the key performance indicators for each of the above ESG aspects. Note: The disclosure of the key performance indicator for “Environmental” subject areas will be upgraded to “comply or explain” provision for financial years beginning on or after 1 January 2017. Please refer to Appendix 27 (Appendix 20 for GEM) for details.

(ii) Five year financial summary Year ended 31 December 2016 2015 2014 2013 2012 A19

GEM18.33 Results HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Profit/loss attributable to: - Owners of the company

x

x

x

(x)

x

- Non-controlling interest

x

x

x

(x)

x Assets and liabilities Total assets x x x x x Total liabilities (x) (x) (x) (x) (x)

Total equity x

x

(x)

(x)

x

A19, GEM18.33 [Where the published results and statement of assets and liabilities have not been prepared on a consistent

basis this must be explained.]

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Appendix II - Other Information in the Annual Report (for Listed Companies Only) (continued) (iii) Schedule of principal properties

A23

GEM18.23

(a) Properties held for development and/or sale

Description

Lot number

State of completion

Estimated completion date

Type

Site and gross floor area

Group’s interests

xxx x x x x x x xxx x x x x x x xxx x x x x x x (b) Investment properties

Description Lot number

Type

Lease term

xxx x x x xxx x x x xxx x x x [Note: Required disclosure if any of percentage ratios as defined under MB 14.04(9) or GEM19.04

(9) of the listed Group’s properties held for development and/or sale or for investment properties exceeds 5%.]

(iv) Senior management remuneration by band64 MB Code B.1.5 The emoluments fell within the following bands: A6(6.3)(n)

GEM Code B.1.5

Number of individuals

GEM18.07(note4

(j))

2016 2015

Emolument bands65 (in HK dollar) [e.g. HK$1,000,001 – HK$1,500,000] 3 4 [e.g. HK$2,000,000 – HK$2,500,000] 2 1 DV [Under MB Code B.1.8 (GEM B.1.8), it is recommended best practice to disclose details of any remuneration payable to members of

senior management, on an individual and named basis, in their annual reports.]

64 Senior management is defined as the same persons whose biographical details are disclosed as required by Appendix 16 (GEM Chapter 18). 65 The Code does not specify the banding in which the senior management remuneration should be disclosed. The issuers should customise the banding based on its

own circumstances.

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Appendix III – Operating and financial review

A32(1) - A32(12) GEM18.41

For companies listed in Hong Kong, according to the Hong Kong Listing Rules, a listed issuer shall include in its annual report a separate statement containing a discussion and analysis of the group’s performance during the financial year and the material factors underlying its results and financial position. It should emphasise trends and identify significant events or transactions during the financial year under review. As a minimum the directors of the listed issuer should comment on the followings:

the group’s liquidity and financial resources

capital structure of the group in terms of maturity profile of debt and obligation, type of capital instruments used, currency and interest rate structure

state of group’s order book (where applicable) and prospects for new business

significant investments held, their performance and future prospects

details of material acquisitions and disposals of subsidiaries and associated companies

comment on segmental information

where applicable, details of number and remuneration of employees, remuneration policies, bonus and share option schemes and training schemes

details of charges on group assets

details of future plans for material investments or capital assets and their expected sources of funding in the coming year

gearing ratio (the basis on which the gearing ratio is computed should be disclosed)

exposure to fluctuations in exchange rates and any related hedges; and

details of contingent liabilities, if any.

A52 GEM18.83

The Hong Kong Listing Rules also encouraged the listed issuers to disclose the following additional commentary on management discussion and analysis in their annual reports:

(i) efficiency indicators (e.g. return on equity, working capital ratios) for the last five financial years indicating the bases of computation;

(ii) industry specific ratios, if any, for the last five financial years indicating the bases of computation;

(iii) a discussion of the listed issuer’s purpose, corporate strategy and principal drivers of performance;

(iv) an overview of trends in the listed issuer’s industry and business;

(v) a discussion on the listed issuer’s policies and performance on community, social, ethical and reputational issues;

(vi) receipts from, and returns to shareholders.

Business model and the corporate strategy MB Code C.1.4 A6(6.3)(n) GEM Code C.1.4

GEM18.07(note4(

j))

The directors should include in the separate statement containing a discussion and analysis of the group’s performance in the annual report, an explanation of the basis on which the issuer generates or preserves value over the longer term (the business model) and the strategy for delivering the issuer’s objectives.

Note: An issuer should have a corporate strategy and a long term business model. Long term financial performance as opposed to short term rewards should be a corporate governance objective. An issuer’s board should not take undue risks to make short term gains at the expense of long term objectives.

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Appendix III – Operating and financial review (continued) For mining companies listing in Hong Kong MB18.14 A6(6.3)(k) GEM18A.14

GEM18.07(note4(g))

A Mineral Company must include in its interim (half-yearly) and annual reports details of its exploration, development and mining production activities and a summary of expenditure incurred on these activities during the period under review. If there has been no exploration, development or production activity, that fact must be stated. Guidance under GL47-13: For "details of exploration, development and mining production activities", a Mineral Company must disclose the following details in its interim and annual reports:

• Details of exploration activities including number, average size, total length of holes drilled during the review period.

• Details of development activities including progress on the mining structure or infrastructure.

• Details of mining activities including quantity of mineral ore being mined during the period under review by project or at least a separate discussion on major projects.

• Details of new contracts and commitments entered into during the period including those related to infrastructure projects (road and railway), subcontracting arrangements and purchases of equipment.

If a Mineral Company has several mineral assets/ projects on hand, it should consider presenting the above information on a project basis. For the "summary of expenditure incurred", a Mineral Company must disclose both the operating expenses (i.e. costs that were directly charged to statement of profit or loss during the period they were incurred) and capital expenditures incurred. A Mineral Company, depending on its own situation, should consider providing a further breakdown of expenses incurred in order to provide more meaningful information to its shareholders and enhance the transparency of its activities (e.g. separately disclose labour costs incurred for mining activities and processing activities).

Statements on Resources and/or Reserves

MB18.15 A6(6.3)(k) GEM18A.15

GEM18.07(note4(g))

A Mineral Company66 that publicly discloses details of Resources67 and/or Reserves68 must give an update of those Resources and/or Reserves once a year in its annual report, in accordance with the reporting standard under which they were previously disclosed or a Reporting Standard69.

MB18.16 A6(6.3)(k) GEM18A.16

GEM18.07(note4(g)) MB18.17 A6(6.3)(k) GEM18A.17

GEM18.07(note4(g))

A Mineral Company must include an update of its Resources and/or Reserves in its annual report in accordance with the Reporting Standard under which they were previously disclosed. Annual updates of Resources and/or Reserves must comply with rule 18.18 (GEM 18A.18).

66 A Mineral Company is defined as a listed issuer whose principal activity, whether directly or through its subsidiaries, involves the exploration for and/or extraction

of natural resources including minerals, oil and gas or solid fuels, or a listed issuer that has acquired or disposed of mineral or exploration assets by a transaction classified as major or above after 3 June 2010. Principal activity is determined by whether the activity represented 25 per cent or more of the company's assets, revenue or operating expenses.

67 Resource is defined as: with regard to minerals, a concentration or occurrence of material of intrinsic economic interest in or on the Earth’s crust in such form, quality and

quantity that there are reasonable prospects for their eventual economic extraction. The location, quantity, grade, geological characteristics and continuity of a Mineral Resource are known, estimated or interpreted from specific geological evidence and knowledge. Mineral Resources are sub-divided, in order of increasing geological confidence, into Inferred, Indicated and Measured Resources, as defined in the JORC Code.

with regard to Petroleum, Contingent Resources and/or Prospective Resources. Please refer to MB Chapter 18/GEM Chapter 18A for definitions of the technical terms used for a Mineral Company.

68 Reserve is defined as: with regard to minerals, the economically mineable part of a Measured, and/or Indicated Resource, taking into account diluting materials and

allowances for losses, which may occur when the material is mined. Appropriate assessments to a minimum of a Pre-feasibility Study must have been carried out. Mineral Reserves are subdivided in order of increasing confidence into Probable Reserves and Proved Reserves.

with regard to Petroleum, those quantities of Petroleum anticipated to be commercially recoverable by the application of development projects to known accumulations from a given date forward under defined conditions.

Please refer to MB Chapter 18/GEM Chapter 18A for definitions of the technical terms used for a Mineral Company. 69 Reporting Standard refers to a recognised standard acceptable to the Stock Exchange, including:

the JORC Code, NI 43-101, and the SAMREC Code, with regard to mineral Resources and Reserves; PRMS with regard to Petroleum Resources and Reserves; and CIMVAL, the SAMVAL Code, and the VALMIN Code, with regard to valuations.

Please refer to MB Chapter 18/GEM Chapter 18A for definitions of the technical terms used for a Mineral Company.

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Appendix III – Operating and financial review (continued)

Note: Annual updates are not required to be supported by a Competent Person's Report70 and may take the form of a no material change statement.

MB18.18 GEM18A.18

Any data presented on Resources and/or Reserves by a Mineral Company in the annual report, must be presented in tables in a manner readily understandable to a non-technical person. All assumptions must be clearly disclosed and statements should include an estimate of volume, tonnage and grades.

Additional disclosure requirements under GL 47-13: A Mineral Company should disclose in its annual reports:

• the assumptions adopted for the resources and reserves estimates; and

• the reasons for any material change of assumptions as compared with previous disclosed estimates. Examples include changes in geological confidence level, additional drilling information becoming available, amount of mineral mined during the period etc.

MB18.19 GEM18A.19

All statements referring to Resources and/or Reserves must at least be substantiated by the issuer’s internal experts.

International Organisation of Securities Commissions In 1998, the International Organisation of Securities Commissions (IOSCO) issued `International disclosure

standards for cross-border offerings and initial listings by foreign issuers', comprising recommended disclosure standards, including an operating and financial review and discussion of future prospects. IOSCO standards for prospectuses are not mandatory, but they are increasingly incorporated in national stock exchange requirements for prospectuses and annual reports. The text of IOSCO's standard on operating and financial reviews and prospects is reproduced below. Although the standard refers to a ‘company' throughout, we consider that, where a company has subsidiaries, it should be applied to the group.

Standard Discuss the company's financial condition, changes in financial condition and results of operations for each

year and interim period for which financial statements are required, including the causes of material changes from year to year in financial statement line items, to the extent necessary for an understanding of the company's business as a whole. Information provided also shall relate to all separate segments of the group. Provide the information specified below as well as such other information that is necessary for an investor's understanding of the company's financial condition, changes in financial condition and results of operations.

70 Competent Person's Report is a public report prepared by a Competent Person that satisfies the requirements as set out in MB18.21 and MB18.22 (GEM18A.21 and GEM18A.22) on Resources and/or Reserves, in compliance with MB Chapter 18/GEM Chapter 18A and the applicable Reporting Standard.

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Appendix III – Operating and financial review (continued) A Operating results. Provide information regarding significant factors, including unusual or infrequent events

or new developments, materially affecting the company's income from operations, indicating the extent to which income was so affected. Describe any other significant component of revenue or expenses necessary to understand the company's results of operations.

(1) To the extent that the financial statements disclose material changes in net sales or revenues, provide a

narrative discussion of the extent to which such changes are attributable to changes in prices or to changes in the volume or amount of products or services being sold or to the introduction of new products or services.

(2) Describe the impact of inflation, if material. If the currency in which financial statements are presented is of a country that has experienced hyperinflation, the existence of such inflation, a five-year history of the annual rate of inflation and a discussion of the impact of hyperinflation on the company's business shall be disclosed.

(3) Provide information regarding the impact of foreign currency fluctuations on the company, if material, and the extent to which foreign currency net investments are hedged by currency borrowings and other hedging instruments.

(4) Provide information regarding any governmental economic, fiscal, monetary or political policies or factors that have materially affected, or could materially affect, directly or indirectly, the company's operations or investments by host country shareholders.

B Liquidity and capital resources. The following information shall be provided: (1) Information regarding the company's liquidity (both short and long term), including:

(a) a description of the internal and external sources of liquidity and a brief discussion of any material

unused sources of liquidity. Include a statement by the company that, in its opinion, the working capital is sufficient for the company's present requirements, or, if not, how it proposes to provide the additional working capital needed.

(b) an evaluation of the sources and amounts of the company's cash flows, including the nature and extent

of any legal or economic restrictions on the ability of subsidiaries to transfer funds to the parent in the form of cash dividends, loans or advances and the impact such restrictions have had or are expected to have on the ability of the company to meet its cash obligations.

(c) information on the level of borrowings at the end of the period under review, the seasonality of

borrowing requirements and the maturity profile of borrowings and committed borrowing facilities, with a description of any restrictions on their use.

(2) Information regarding the type of financial instruments used, the maturity profile of debt, currency and

interest rate structure. The discussion also should include funding and treasury policies and objectives in terms of the manner in which treasury activities are controlled, the currencies in which cash and cash equivalents are held, the extent to which borrowings are at fixed rates, and the use of financial instruments for hedging purposes.

(3) Information regarding the company's material commitments for capital expenditures as of the end of the latest

financial year and any subsequent interim period and an indication of the general purpose of such commitments and the anticipated sources of funds needed to fulfil such commitments.

C Research and development, patents and licenses, etc. Provide a description of the company's research

and development policies for the last three years, where it is significant, including the amount spent during each of the last three financial years on group-sponsored research and development activities.

D Trend information. The group should identify the most significant recent trends in production, sales and inventory, the state of the order book and costs and selling prices since the latest financial year. The group also should discuss, for at least the current financial year, any known trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect on the group's net sales or revenues, income from continuing operations, profitability, liquidity or capital resources, or that would cause reported financial information not necessarily to be indicative of future operating results or financial condition.

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Appendix III – Operating and financial review (continued)

Management commentary The IASB issued a non-mandatory practice statement on management commentary in December 2010 that provides

principles for the presentation of a narrative report on an entity's financial performance, position and cash flows. The IASB's practice statement provides a broad framework of principles, qualitative characteristics and elements that might be used to provide users of financial reports with decision-useful information. The practice statement recommends that the commentary is entity-specific and may include the following components:

A description of the business including discussion of matters such as the industries, markets and competitive

position; legal, regulatory and macro-economic environment; and the entity's structure and economic model. Management's objectives and strategies to help users understand the priorities for action and the resources

that must be managed to deliver results. The critical financial and non-financial resources available to the entity and how those resources are used in

meeting management's objectives for the entity. The principal risks, and management's plans and strategies for managing those risks, and the effectiveness of

those strategies. The performance and development of the entity to provide insights into the trends and factors affecting the

business and to help users understand the extent to which past performance may be indicative of future performance.

The performance measures that management uses to evaluate the entity's performance against its objectives, which helps users to assess the degree to which goals and objectives are being achieved.

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Appendix IV – Alternative presentation of primary statements 1 Consolidated statement of profit or loss – by nature of expense As an alternative to the presentation of costs by function shown in the above illustrative HKFRS

consolidated financial statements, the group is permitted to present the analysis of costs using the nature of expenditure format. The following disclosures would be made on the face of the statement of profit or loss:

1p81(b), 84

1p10(b), 12

1p102,113, 1p38

A4(1), A2,

GEM18.50B(1),

GEM18.07

Note

Year ended 31 December

2016 2015

HK$’000 HK$’000

1p82(a) Revenue 5 211,034 112,360

1p99, 103 Other income 7 2,437 764

Changes in inventories of finished goods and work in progress 9 (6,950) 2,300

Raw materials and consumables used 9 (47,185) (31,845)

Employee benefits expense 10 (40,310) (15,577)

A4(1)(k),

GEM18.50B(1)(f)

Depreciation and amortisation 16, 16a, 18

(26,554) (17,013)

Transportation expense (8,584) (6,112)

Advertising costs (12,759) (6,000)

Operating lease payments (10,604) (8,500)

Impairment charges 18 (4,650) -

1p85, A4(1)(h)

GEM18.50B(1)(b)

Other gains net 8 7,827 6,055

1p85 Inventory write-down 6 (6,117)

1p85 Other expenses (3,815) (1,651)

1p85 Operating profit 53,770 34,781

1p85 Finance income 11 1,730 1,609

1p82(b) Finance expenses 11 (8,173) (12,197)

1p85 Finance expenses – net 11 (6,443) (10,588)

1p82(c), A4(1)(m)

GEME18.50B(1)(n)

Share of profit of investments accounted for using the equity method

12(b) 1,293 1,022

1p85, A4(1)(b)

GEM18.50B(1)(g)

Profit before income tax 48,620 25,215

1p82(d), 12p77, A4(1)(c)

GEM18.50B(1)(h)

Income tax expense 13 (14,298) (8,175)

1p82 Profit for the year from continuing operations

34,322 17,040

FRS5p33(a) Discontinued operations

Profit for the year from discontinued operations 26 100 120 1p82(f) Profit for the year 34,422 17,160

Profit attributable to:

1p83(a)(ii) Owners of the company 31,874 16,304

1p83(a)(i) Non-controlling interests 2,548 856

34,422 17,160

Profit attributable to owners of the company arises from:

Continuing operations 31,794 16,184

1p83(a)(i) Discontinued operations 80 120

31,874 16,304

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Appendix IV – Alternative presentation of primary statements (Continued)

2 Consolidated statement of profit or loss and other comprehensive income – single statement, by function of expense and income tax effect presented on an aggregate basis

Year ended 31 December

1p10(b), 10A A4(1), A2, GEM18.50B(1), GEM18.07

Note

2016

HK$’000

2015

HK$’000

Continuing operations

1p82(a) Revenue

5

211,034

112,360

1p99,103 Cost of sales 6,9 (80,707) (50,305)

Gross profit 130,327 62,055

1p99,103 Distribution expenses 9 (54,814) (22,155)

1p99,103 Administrative expenses 9 (32,007) (11,938)

1p99,103 Other income 7 2,437 764

1p85 Other gains – net 8 7,827 6,055

1p85 Operating profit 53,770 34,781

1p85 Finance income 11 1,730 1,609

1p82(b) Finance expenses 11 (8,173) (12,197)

1p85 Finance expenses – net 11 (6,443) (10,588)

1p82(c) Share of profit of investments accounted for using the equity method

12b 1,293 1,022

1p85 Profit before income tax 48,620 25,215

1p82(d), 12p77 Income tax expense 13 (14,298) (8,175)

1p85 Profit for the year from continuing operations 34,322 17,040

FRS5p33(a) Discontinued operations:

Profit for the year from discontinued operations 26 100 120

1p81A(a) Profit for the year 34,422 17,160

Other comprehensive income:

1p82A Items that will not be reclassified to profit or loss

19p120(c) Remeasurements of post-employment benefit obligations 29, 13 119 (910)

1p82A Items that may be subsequently reclassified to profit or loss

FRS7p20(a)(ii) Change in value of available-for-sale financial assets 30 524 185

FRS3p59

Reclassification of revaluation of previously held interest in ABC Group

7, 30, 41

(850) -

FRS7p23(c) Cash flow hedges 30 97 (3)

1p85 Net investment hedge 30 (45) 40

21p52(b) Currency translation differences 3,011 (13)

1p82A

Share of other comprehensive income of investments accounted for using the equity method

30 (12) (14)

Total other comprehensive income, before tax 2,844 (715)

1p90

Income tax relating to components of other comprehensive income

(241) 150

Other comprehensive income for the year, net of tax71 2,603 (565)

1p81A(c) Total comprehensive income for the year 37,025 16,595

71 The income tax effect has been presented on an aggregate basis; therefore, an additional note disclosure presents the income tax effect of each component. Alternatively, this information could be presented within the statement of comprehensive income.

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Appendix IV – Alternative presentation of primary statements (Continued)

Year ended

31 December 2016 2015 HK$’000 HK$’000 Profit attributable to: 1p81B(a)(ii)

Owners of the company 31,874 16,304

1p81B(a)(i), FRS12p12(e)

Non-controlling interests 2,548 856

34,422 17,160 Profit attributable to owners of the company

arises from:

Continuing operations 31,794 16,184

FRS5p33(d) Discontinued operations 80 120

31,874 16,304

Total comprehensive income attributable to:

1p81B(b)(ii) Owners of the company 34,225 15,779 1p81B(b)(i) Non-controlling interests 2,800 816 37,025 16,595

Total comprehensive income attributable to

owners of the company arises from72:

Continuing operations 34,145 15,659

FRS5p33(d) Discontinued operations 26 80 120

34,225 15,779

Earnings per share from continuing and discontinued operations to the owners of the

company for the year (expressed in HK$ per share) 2016 2015 Basic earnings per share 14 33p66 From continuing operations 1.35 0.79 33p68 From discontinued operations73 0.01 0.01 From profit for the year 1.36 0.80 2016 2015 Diluted earnings per share 14 33p66 From continuing operations 1.22 0.74 33p68 From discontinued operations 0.01 0.01 From profit for the year 1.23 0.75

The notes on pages x to x are an integral part of these consolidated financial statements.

72 HKFRS 5p33 (d) requires the disclosure of the amount of income from continuing operations and from discontinued operations attributable to owners of the Company. These disclosures may be presented either in the notes or in the statement of comprehensive income. 73 EPS for discontinued operations may be given in the notes to the accounts instead of the face of the statement of profit or loss.

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Appendix IV – Alternative presentation of primary statements (Continued) Note – Income tax expense

Tax effects of components of other comprehensive income

12p81(ab)

Year ended 31 December

2016 2015

Before tax

Tax (charge) credit After tax

Before tax

Tax (charge)

credit After

tax

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

1p90 Fair value gains on available-for-sale financial assets 524 (162) 362 185 (123) 62

1p90 Share of other comprehensive income of associates (12) – (12) (14) – (14)

1p90 Remeasurements of post-employment benefit obligations 119 (36) 83 (910) 273 (637)

1p90 Impact of change in the [country name] tax rate on deferred tax – (10) (10) – – –

1p90 Cash flow hedges 97 (33) 64 (3) – (3)

1p90 Net investment hedge (45) – (45) 40 – 40

1p90 Currency translation differences 3,011 – 3,011 (13) – (13)

FRS3p42 Reclassification of revaluation of previously held interest in ABC Group

(850) –

(850) –

– –

Other comprehensive income 2,844 (241) 2,603 (715) 150 (565)

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Appendix IV – Alternative presentation of primary statements (Continued)

3 Consolidated statement of cash flows – direct method

HKAS 7 encourages the use of the `direct method' for the presentation of cash flows from operating activities. The presentation of cash flows from operating activities using the direct method in accordance with HKAS 7, paragraph 18, is as follows:

Consolidated statement of cash flows

A2, GEM18.07 1p113, 7p10

Year ended 31 December

2016 2015

HK$’000 HK$’000

7p18(a) Cash flows from operating activities

Cash receipts from customers 212,847 114,451

Cash paid to suppliers and employees (153,513) (72,675)

Cash generated from operations 59,334 41,776

Interest paid (7,835) (14,773)

Income taxes paid (12,317) (10,526)

Net cash flows from operating activities 39,182 16,477

7p21, 7p10 Cash flows from investing activities

7p39 Acquisition of subsidiaries, net of cash acquired (3,950) –

7p16(a) Purchases of property, plant and equipment (PPE) (5,555) (6,042)

Purchases of leasehold land and land use rights (4,929) –

7p16(b) Proceeds from sale of PPE 6,354 2,979

Purchase of investment properties (100) -

7p16(a) Purchases of intangible assets (3,050) (700)

7p16(c) Purchases of available-for-sale financial assets (2,781) (1,150)

7p16(e) Loans granted to associates (1,000) (50)

7p16(f) Loan repayments received from associates 14 564

7p31 Interest received 983 1,217

7p31 Dividends received 1,180 1,120

Net cash used in investing activities (12,834) (2,062)

7p21, 7p10 Cash flows from financing activities

7p17(a) Proceeds from issuance of ordinary shares 950 1,070

7p17(b) Buy-back of shares (2,564) –

7p17(c) Proceeds from issuance of convertible bond 50,000 –

7p17(c) Proceeds from issuance of redeemable preference shares

– 30,000

7p17(c) Proceeds from borrowings 8,500 18,000

7p17(d) Repayments of borrowings (83,117) (34,674)

7p31 Dividends paid to company’s shareholders (10,102) (15,736)

7p31 Dividends paid to holders of redeemable preference shares

(1,950) (1,950)

Acquisition of interest in a subsidiary (500) -

Sale of interest in a subsidiary 1,500 -

7p31 Dividends paid to non-controlling interests (1,920) (550)

Net cash used in financing activities (39,203) (3,840)

Net (decrease)/increase in cash and cash equivalents

(12,855) 10,575

7p28 Cash and cash equivalents at beginning of the year 25,598 15,087

Exchange losses on cash and cash equivalents (465) (64)

7p28 Cash and cash equivalents at end of the year

12,278 25,598

The notes on pages x to x are an integral part of these consolidated financial statements.

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Appendix V – Policies and disclosures for areas not relevant to Specimen Holdings Limited 1 Construction contracts Note – Accounting policies

11p3 A construction contract is defined by HKAS 11, ‘Construction contracts’, as a contract specifically

negotiated for the construction of an asset.

11p22 When the outcome of a construction contract can be estimated reliably and it is probable that the contract

will be profitable, contract revenue is recognised over the period of the contract by reference to the stage

of completion. Contract costs are recognised as expenses by reference to the stage of completion of the

contract activity at the end of the reporting period. When it is probable that total contract costs will exceed

total contract revenue, the expected loss is recognised as an expense immediately.

When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised

only to the extent of contract costs incurred that are likely to be recoverable.

Variations in contract work, claims and incentive payments are included in contract revenue to the extent

that may have been agreed with the customer and are capable of being reliably measured.

The group uses the ‘percentage-of-completion method to determine the appropriate amount to recognise

in a given period. The stage of completion is measured by reference to the contract costs incurred up to

the end of the reporting period as a percentage of total estimated costs for each contract. Costs incurred in

the year in connection with future activity on a contract are excluded from contract costs in determining

the stage of completion.

On the balance sheet, the group reports the net contract position for each contract as either an asset or a

liability. A contract represents an asset where costs incurred plus recognised profits (less recognised

losses) exceed progress billings; a contract represents a liability where the opposite is the case. Consolidated balance sheet (extracts) 2016 2015 Note HK$’000 HK$’000

1p60 Current assets

1p54(h) Trade and other receivables 22 23,303 20,374

1p60 Current liabilities

1p54(k) Trade and other payables 31 17,667 13,733

Consolidated statement of profit or loss (extracts) 2016 2015

HK$’000 HK$’000

11p39(a) Contract revenue 58,115 39,212

11p16 Contract costs (54,729) (37,084)

1p103 Gross profit 3,386 2,128

1p103 Selling and marketing costs (386) (128)

1p103 Administrative expenses (500) (400)

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Appendix V – Policies and disclosures for areas not relevant to Specimen Holdings Limited (continued)

1 Construction contracts (Continued)

Note – Trade and other receivables (extracts)74 2016 2015

HK$’000 HK$’000

FRS7p36,

1p78(b) Trade receivables 18,174 16,944

Less: Allowance for impairment of receivables (109) (70)

Trade receivables – net 18,065 16,874 11p42(a) Amounts due from customers for contract work 1,216 920

Prepayments 1,300 1,146

1p77, 24p18 Receivables from related parties (Note 42) 54 46 1p77, 24p18 Loans to related parties (Note 42) 2,668 1,388

Total 23,303 20,374

Note – Trade and other payables (extracts)75 2016 2015

HK$’000 HK$’000

1p77 Trade payables 10,983 9,495

24p18 Amounts due to related parties (Note 42) 2,202 1,195

11p42(b) Amounts due to customers for contract work 997 1,255

Social security and other taxes 2,002 960

Accrued expenses 1,483 828

17,667 13,733

Note – Construction contracts 2016 2015

HK$’000 HK$’000

11p40(a) The aggregate costs incurred and recognised profits

(less recognised losses) to date 69,804 56,028

Less: Progress billings (69,585) (56,383)

Net balance sheet position for ongoing contracts 219 (355)

74 At 31 December 2016, trade and other receivables include retentions of HK$232,000 (2015: HK$132,000) related to construction contracts in progress. 75 At 31 December 2016, trade and other payables include customer advances of HK$142,000 (2015: HK$355,000) related to construction contracts in progress.

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Appendix V – Policies and disclosures for areas not relevant to Specimen Holdings Limited (continued) 2 Leases: Accounting by lessor

17p4 A lease is an agreement whereby the lessor conveys to the lessee in return for a payment, or series of

payments, the right to use an asset for an agreed period of time.

Note – Accounting policies

1p119 When assets are leased out under a finance lease, the present value of the lease payments is recognised

as a receivable. The difference between the gross receivable and the present value of the receivable is

recognised as unearned finance income.

The method for allocating gross earnings to accounting periods is referred to a as the ’actuarial method’.

The actuarial method allocates rentals between finance income and repayment of capital in each

accounting period in such a way that finance income will emerge as a constant rate of return on the

lessor's net investment in the lease.

17p49 When assets are leased out under an operating lease, the asset is included in the balance sheet based on

the nature of the asset.

17p50 Lease income on operating leases is recognised over the term of the lease on a straight-line basis.

Commentary

Additional disclosure is required of the following for a lease:

(a) reconciliation between the gross investment in the lease and the present value of the minimum lease

payments receivable at the end of the reposting period. An entity discloses the gross investment in

the lease and the present value of the minimum lease payments receivable at the end of the

reporting periods:

(i) not later than one year;

(ii) later than one year and not later than five years; and

(iii) later than five years;

(b) unearned finance income;

(c) the unguaranteed residual values accruing to the benefit of the lessor;

(d) the accumulated allowance for uncollectible minimum lease payments receivable;

(e) contingent rents recognised as income in the period;

(f) a general description of the lessor's material leasing arrangements;

Note – Property, plant and equipment

The category of vehicles and equipment includes vehicles leased by the group to third parties under

operating leases with the following carrying amounts:

17p57 2016 2015

HK$’000 HK$’000

Cost 70,234 83,824

Accumulated depreciation at 1 January (14,818) (9,800)

Depreciation charge for the year (5,058) (3,700)

Net book amount 50,358 70,324

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Appendix V – Policies and disclosures for areas not relevant to Specimen Holdings Limited (continued) 2 Leases: Accounting by lessor (Continued)

1p78(b) Note – Trade and other receivables 2016 2015

HK$’000 HK$’000

Non-current receivables

17p47(a) Finance leases – gross receivables 1,810 630

17p47(b) Unearned finance income (222) (98)

1,588 532

1p78(b) Current receivables

17p47(a) Finance leases – gross receivables 1,336 316

17p47(b) Unearned finance income (140) (38)

1,196 278

1p78(b) Gross receivables from finance leases:

17p47(a) − No later than 1 year 1,336 316

− Later than 1 year and no later than 5 years 1,810 630

− Later than 5 years – –

3,146 946

1p78(b),

17p47(b) Unearned future finance income on finance leases (362) (136)

Net investment in finance leases 2,784 810

1p78(b) The net investment in finance leases may be analysed as follows:

17p47(a) No later than 1 year 1,196 278

Later than 1 year and no later than 5 years 1,588 532

Later than 5 years – –

Total 2,784 810

Note – Operating leases

17p56(a) Operating leases rental receivables – group company as lessor

The future minimum lease payments receivable under non-cancellable operating leases are as follows:

2016 2015

HK$’000 HK$’000

No later than 1 year 12,920 12,920

Later than 1 year and no later than 5 years 41,800 41,800

Later than 5 years 840 10,840

55,560 65,560

17p56(b ) Contingent-based rents recognised in the statement of profit or loss were HK$235,000 (2015:

HK$40,000).

17p56(c ) The company leases vehicles under various agreements which terminate between 2016 and 2020. The

agreements do not include an extension option.

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Appendix V – Policies and disclosures for areas not relevant to Specimen Holdings Limited (continued) 3 Investments: held-to-maturity financial assets

Note – Accounting policies

Investments

Held-to-maturity financial assets

1p119 39p9

Held-to-maturity financial assets are non-derivative financial assets with fixed or determinable payments and fixed maturities that the group's management has the positive intention and ability to hold to maturity. If the group were to sell other than an insignificant amount of held-to-maturity financial assets, the whole category would be tainted and reclassified as available for sale. Held-to-maturity financial assets are included in non-current assets, except for those with maturities less than 12 months from the end of the reporting period, which are classified as current assets.

Consolidated balance sheet 2016

HK$’000 2015

HK$’000 1p60 Non-current assets 1p54(d) Held-to-maturity financial assets 3,999 1,099 Note – Held-to-maturity financial assets

FRS7p27(b) Held-to-maturity financial assets 2016

HK$’000 2015

HK$’000 39AG71-73 Listed securities:

– Debentures with fixed interest of 5% and maturity date of 15 June 2019 – UK

4,018 984

– Debentures with fixed interest of 5.5% and maturity date of 15 June 2016 – US

– 160

Allowance for impairment (19) (45) 3,999 1,099 The movement in held to maturity of financial assets may be summarised as follows: 2016

HK$’000 2015

HK$’000 At 1 January 1,099 390 Currency translation differences 81 56 Additions 3,003 978 Disposals (165) (280) Allowance for impairment (19) (45) At 31 December 3,999 1,099

1p66 Less: non-current portion (3,999) (939) 1p66 Current portion – 160

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Appendix V – Policies and disclosures for areas not relevant to Specimen Holdings Limited (continued) 3 Investments: held-to-maturity financial assets (Continued)

FRS7p16 Movements on the provision for impairment of held-to-maturity financial assets are as follows:

2016

HK$’000 2015

HK$’000 At 1 January 45 30 FRS7 p20(e)

Allowance for impairment – 16

Unused amounts reversed (26) (3) Unwind of discount (Note 11) – 2 At 31 December 19 45 FRS7 p12(b)

The group has not reclassified any financial assets measured amortised cost rather than fair value during the year (2015: nil).

FRS7 p20(a)(iii)

There were no gains or losses realised on the disposal of held to maturity financial assets in 2016 and 2015, as all the financial assets were disposed of at their redemption date.

FRS7p25 The fair value of held to maturity financial assets is based on quoted market bid prices (2016: HK$3,901,000; 2015: HK$976,000).

FRS7 p34(c)

Held-to-maturity financial assets are denominated in the following currencies:

2016

HK$’000 2015

HK$’000 UK pound 2,190 990 US dollar 1,809 109 Total 3,999 1,099

FRS7p36(a) The maximum exposure to credit risk at the reporting date is the carrying amount of held to maturity financial assets.

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Appendix V – Policies and disclosures for areas not relevant to Specimen Holdings Limited (continued) 4 Government grants

Note – Accounting policies

Government grants

20p39(a)

20p12

Grants from the government are recognised at their fair value where there is a reasonable assurance that

the grant will be received and the group will comply with all attached conditions.

Government grants relating to costs are deferred and recognised in the statement of profit or loss over the

period necessary to match them with the costs that they are intended to compensate.

Government grants relating to property, plant and equipment are included in non-current liabilities as

deferred government grants and are credited to the statement of profit or loss on a straight- line basis

over the expected lives of the related assets.

Note – Other gains - net

20p39(b)

20p39(c)

The group obtained and recognised as income a government grant of HK$100,000 (2015: nil) to

compensate for losses caused by flooding incurred in the previous year. The group is obliged not to reduce

its average number of employees over the next three years under the terms of this government grant.

The group benefits from government assistance for promoting in international markets products made in

the UK; such assistance includes marketing research and similar services provided by various UK

government agencies free of charge.

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Appendix V – Policies and disclosures for areas not relevant to Specimen Holdings Limited (continued)

5 Oil and gas exploration assets

Note – Accounting policies

FRS6p24 Oil and natural gas exploration and evaluation expenditures are accounted for using the “successful

efforts” method of accounting. Costs are accumulated on a field-by-field basis. Geological and geophysical

costs are expensed as incurred. Costs directly associated with an exploration well, and exploration and property leasehold acquisition costs, are capitalised until the determination of reserves is evaluated. If it is

determined that commercial discovery has not been achieved, these costs are charged to expense.

Capitalisation is made within property, plant and equipment or intangible assets according to the nature

of the expenditure.

Once commercial reserves are found, exploration and evaluation assets are tested for impairment and

transferred to development tangible and intangible assets. No depreciation and/or amortisation is

charged during the exploration and evaluation phase.

(a) Development tangible and intangible assets

Expenditure on the construction, installation or completion of infrastructure facilities such as platforms,

pipelines and the drilling of commercially proven development wells, is capitalised within property, plant

and equipment and intangible assets according to nature. When development is completed on a specific field, it is transferred to production or intangible assets. No depreciation or amortisation is charged

during the exploration and evaluation phase.

(b) Oil and gas production assets

Oil and gas production properties are aggregated exploration and evaluation tangible assets, and development expenditures associated with the production of proved reserves.

(c) Depreciation/amortisation

Expenditure on the construction, installation or completion of infrastructure facilities such as platforms, pipelines and the drilling of commercially proven development wells, is capitalised within property, plant and equipment and intangible assets according to nature. When development is completed on a specific field, it is transferred to production or intangible assets. No depreciation or amortisation is charged during the exploration and evaluation phase.

Oil and gas properties intangible assets are depreciated or amortised using the unit-of- production method. Unit-of-production rates are based on proved developed reserves, which are oil, gas and other

mineral reserves estimated to be recovered from existing facilities using current operating methods. Oil

and gas volumes are considered produced once they have been measured through meters at custody transfer or sales transaction points at the outlet valve on the field storage tank.

(d) Impairment – exploration and evaluation assets

Exploration and evaluation assets are tested for impairment when reclassified to development tangible or

intangible assets, or whenever facts and circumstances indicate impairment. An impairment loss is recognised for the amount by which the exploration and evaluation assets' carrying amount exceeds their

recoverable amount. The recoverable amount is the higher of the exploration and evaluation assets' fair

value less costs to sell and their value in use.

(e) Impairment – proved oil and gas production properties and intangible assets

Proven oil and gas properties and intangible assets are reviewed for impairment whenever events or

changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss

is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and its value in use. For the

purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately

identifiable cash flows.

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Appendix V – Policies and disclosures for areas not relevant to Specimen Holdings Limited (continued)

5 Oil and gas exploration assets (Continued)

Note – Property, plant and equipment76

Capitalised

exploration

and

evaluation

expenditure

Capitalised

development

expenditure

Subtotal –

assets

under

construction

Production

assets

Other

businesses

and

corporate

assets Total

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

At 1 January 2016

Cost 218 12,450 12,668 58,720 3,951 75,339

Accumulated amortisation and

impairment (33) – (33) (5,100) (77) (5,210)

Net book amount 185 12,450 12,635 53,620 3,874 70,129

Year ended 31 December

2016

Opening net book amount 185 12,450 12,635 53,620 3,874 70,129

Currency translation differences 17 346 363 1,182 325 1,870

Acquisitions – 386 386 125 4 515

Additions 45 1,526 1,571 5,530 95 7,196

Transfers (9) (958) (967) 1,712 – 745

Disposals (12) (1,687) (1,699) – – (1,699)

Depreciation charge – – – (725) (42) (767)

Impairment charge (7) (36) (43) (250) (3) (296)

Closing net book amount 219 12,027 12,246 61,194 4,253 77,693

At 31 December 2016

Cost 264 12,027 12,291 67,019 4,330 83,640

Accumulated amortisation and

impairment (45) – (45) (5,825) (77) (5,947)

Net book amount 219 12,027 12,246 61,194 4,253 77,693

76 For the purpose of this illustrative appendix, comparatives for the year ended 31 December 2015 are not disclosed, although they are required by HKAS 1

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Appendix V – Policies and disclosures for areas not relevant to Specimen Holdings Limited (continued)

5 Oil and gas exploration assets (Continued)

Note – Intangible assets77

Capitalised

exploration

and

evaluation

expenditure

Capitalised

development

expenditure

Subtotal –

intangible

assets in

progress

expenditure

Production

assets Goodwill78 Other Total

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

At 1 January 2016

Cost 5,192 750 5,942 3,412 9,475 545 19,374

Accumulated amortisation and

impairment (924) – (924) (852) (75) (19) (1,870)

Net book amount 4,268 750 5,018 2,560 9,400 526 17,504

Year ended 31 December 2016

Opening net book amount 4,268 750 5,018 2,560 9,400 526 17,504

Currency translation differences 152 8 160 195 423 28 806

Acquisitions 26 32 58 5 – 5 68

Additions 381 8 389 15 – 86 490

Transfers (548) 548 – – – – -

Transfers to production – (850) (850) 105 – – (745)

Disposals – (28) (28) (15) – – (43)

Amortisation charge – – – (98) – (42) (140)

Impairment charge (45) – (45) – (175) (5) (225)

Closing net book amount 4,234 468 4,702 2,767 9,648 598 17,715

At 31 December 2016

Cost 5,203 468 5,671 3,717 9,898 659 19,945

Accumulated amortisation and

impairment (969) – (969) (950) (250) (61) (2,230)

Net book amount 4,234 468 4,702 2,767 9,648 598 17,715

Assets and liabilities related to the exploration and evaluation of mineral resources other than those

presented above are as follows:

2016 2015

HK$’000 HK$’000

Receivables from joint venture partners 25 22

Payable to subcontractors and operators 32 34

Exploration and evaluation activities have led to total expenses of HK$59,000,000 (2015:

HK$57,000,000), of which HK$52,000,000 (2015: HK$43,000,000) are impairment charges.

In 2016, the disposal of a 16.67% interest in an offshore exploration stage “Field X” resulted in post-tax

profits on sale of HK$93,000,000 (2015: nil).

Cash payments of HK$415,000,000 (2015: HK$395,000,000) have been incurred related to exploration

and evaluation activities. The cash proceeds due to the disposal of the interest in Field X were

HK$8,000,000 (2015: nil).

77 For the purpose of this illustrative appendix, comparatives for the year ended 31 December 2015 are not disclosed, although they are required by HKAS 1. 78 Disclosures required by HKAS 36 for impairment tests relating to indefinite life intangible assets have not been included in this appendix.

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Appendix V – Policies and disclosures for areas not relevant to Specimen Holdings Limited (continued)

6 Revenue recognition: multiple-element arrangements

Note – Accounting policies

The group offers certain arrangements whereby a customer can purchase a personal computer together

with a two-year servicing agreement. Where such multiple-element arrangements exist, the amount of

revenue allocated to each element is based upon the relative fair values of the various elements. The fair

values of each element are determined based on the current market price of each of the elements when

sold separately. The revenue relating to the computer is recognised when risks and rewards of the

computer are transferred to the customer which occurs on delivery. Revenue relating to the service

element is recognised on a straight-line basis over the service period.

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Appendix V – Policies and disclosures for areas not relevant to Specimen Holdings Limited (continued)

7 Defaults and breaches of loans payable79

79 These events or conditions may cast significant doubt about the entity's ability to continue as a going concern. When events or conditions have been identified that may cast significant doubt on an entity's ability to continue as a going concern, the auditor should: (1) Review management's plans for future actions based on its going concern assessment; (2) Gather sufficient appropriate audit evidence to confirm or dispel whether or not a material uncertainty exists through carrying out audit procedures considered necessary, including considering the effect of any plans of management and other mitigating factors; (3) Seek written representations from management regarding its plans for future action. If a material uncertainty related to events or conditions that may cast significant doubt on a company's ability to continue as a going concern exists, disclosure is required in the auditor's report. ISA/HKSA 570, ‘Going concern', establishes standards and provides guidance on the auditor's responsibility in the audit of financial statements with respect to the going concern assumption used in the preparation of the financial statements, including considering management's assessment of the entity's ability to continue as a going concern. 80 The reclassification of non-current debt to current liabilities would still be required if the terms of the loan were successfully renegotiated after the end of the

reporting period.

Borrowings (extract)

FRS7p18 The company was overdue paying interest on bank borrowings with a carrying amount of HK$10,000,000. The company experienced a temporary shortage of currencies because cash outflows in the second and third quarters for business expansions in the UK were higher than anticipated. As a result, interest payables of HK$700,000 due by 30 September 2016 remained unpaid.

The company has paid all outstanding amounts (including additional interests and penalties for the late payment) during the fourth quarter.

Management expects that the company will be able to meet all contractual obligations from borrowings on a timely basis going forward.

FRS7p19 Covenants

Some of the company's credit contracts are subject to covenant clauses, whereby the company is required to meet certain key performance indicators. The company did not fulfil the debt/equity ratio as required in the contract for a credit line of HK$30,000,000, of which the company has currently drawn an amount of HK$15,000,000. Due to this breach of the covenant clause, the bank is contractually entitled to request early repayment of the outstanding amount of HK$15,000,000. The outstanding balance was reclassified as a current liability80. Management started renegotiating the terms of the loan agreement when it became likely that the covenant clause may be breached. The bank has not requested early repayment of the loan as of the date when these financial statements were approved by the board of directors. Management expects that a revised loan agreement will be in place during the first quarter of 2017.

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Appendix V – Policies and disclosures for areas not relevant to Specimen Holdings Limited (continued)

8 Financial guarantee contracts

39p9 39p43, 47 39AG4(a) FRS 7p3(d)

Note – Accounting policies (under HKAS 39) Financial guarantee contracts are contracts that require the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due, in accordance with the terms of a debt instrument. Such financial guarantees are given to banks, financial institutions and other bodies on behalf of subsidiaries or associates to secure loans, overdrafts and other banking facilities. Financial guarantees are initially recognised in the financial statements at fair value on the date the guarantee was given. The fair value of a financial guarantee at the time of signature is zero because all guarantees are agreed on arm’s length terms, and the value of the premium agreed corresponds to the value of the guarantee obligation. No receivable for the future premiums is recognised. Subsequent to initial recognition, the company’s liabilities under such guarantees are measured at the higher of the initial amount, less amortisation of fees recognised in accordance with HKAS 18, and the best estimate of the amount required to settle the guarantee. These estimates are determined based on experience of similar transactions and history of past losses, supplemented by management’s judgement. The fee income earned is recognised on a straight-line basis over the life of the guarantee. Any increase in the liability relating to guarantees is reported in the consolidated statement of profit or loss within other operating expenses. Where guarantees in relation to loans or other payables of subsidiaries or associates are provided for no compensation, the fair values are accounted for as contributions and recognised as part of the cost of the investment in the financial statements of the company.

Note – Financial risk factors

FRS7p34(a), 36(a) FRS 7 Appx B9,10 FRS7 IG21

Maximum exposure to credit risk before collateral held or other credit enhancements

Maximum exposure

2016 2015 HK$’000 HK$’000

Credit risk exposure relating to off-balance sheet items

Financial guarantees 141 100

At 31 December 141 100

Liquidity risk (extracts)

Less than1 year Between 1 and 2 years

HK$’000 HK$’000

At 31 December 2016

Financial guarantee contracts 141 -

At 31 December 2015

Financial guarantee contracts 100 -

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Appendix V – Policies and disclosures for areas not relevant to Specimen Holdings Limited (continued)

8 Financial guarantee contracts (continued)

Note – Other financial liabilities (extracts)

2016

HK$’000

2015

HK$’000

Current

Liabilities for financial guarantees 90 10

Total current other financial liabilities 90 10

Non-current

Liabilities for financial guarantees 30 80

Total non-current other financial liabilities 30 80

Note – Financial guarantees

The Group has guaranteed the bank overdrafts and drawn components of bank loans of a third party

customer. Under the terms of the financial guarantee contracts, the Group will make payments to

reimburse the lenders upon failure of the guaranteed entity to make payments when due.

Terms and face values of the liabilities guaranteed were as follows:

31 December 2016 31 December 2015

Year of maturity Face value Face value

HK$’000 HK$’000

Bank term loans of:

- a third party customer 2016-2017 141 100

The method used in determining the fair value of these guarantees has been disclosed in the accounting

policy ‘Financial guarantee contracts’. See Note x.

2016

HK$’000

2015

HK$’000

Amortisation of financial guarantee contracts 3 2

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Appendix V – Policies and disclosures for areas not relevant to Specimen Holdings Limited (continued)

8 Financial guarantee contracts (continued)

Commentary

HKAS 39 requires the financial guarantee contract to be initially recorded at fair value, which is likely to equal

the premium received (HKAS 39 AG4(a)). Where the issuer of a financial guarantee is entitled to receive

recurring future premiums over the life of the contract, HKFRS allows but does not require recognition of a

gross receivable for future premiums not yet due, together with a liability for the guarantee. The entity should

select a presentation policy and apply it consistently to all issued financial guarantee contracts.

If the group has previously asserted explicitly that it regards issued financial guarantee contracts as insurance

contracts and has used accounting applicable to insurance contracts, it may elect to apply either HKAS 39 or

HKFRS 4 to such financial guarantee contracts.

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Appendix V – Policies and disclosures for areas not relevant to Specimen Holdings Limited (continued) 9 Properties under development and held for sale

Note - Accounting policies

Properties under development and held for sale

Properties under development and held for sale are stated at the lower of cost and net realisable value.

Development cost of properties comprises cost of land use rights, construction costs and borrowing costs

incurred during the construction period. Upon completion, the properties are transferred to completed

properties held for sale.

Net realisable value takes into account the price ultimately expected to be realised, less applicable

variable selling expenses and the anticipated costs to completion.

Properties under development and held for sale are classified as current assets unless the construction period of the relevant property development project is expected to complete beyond normal operating cycle.

Note – Properties under development and held for sale

2016 2015

HK$’000 HK$’000

As at 1 January 46,100 47,600

Additions 1,500 1,000

Properties sold (500) (2,500)

As at 31 December 47,100 46,100

2016 2015

HK$’000 HK$’000

Properties under development and held for sale comprise:

2p36(b) Land use rights 36,000 35,500

Construction cost and capitalised expenditures 10,850 10,400

Finance cost capitalised 250 200

47,100 46,100

1p66(a) Amounts are expected to be completed:

Within the normal operating cycle included under current assets81 37,000 36,100

Beyond normal operating cycle included under non-current assets 10,100 10,000

47,100 46,100

1p61 The amount of properties under development and held for sale expected to be recovered after more than one

year is HK$30,000 (2015: HK$31,100). The remaining balance is expected to be recovered within one year.

81 Issue 6 of the financial reporting and auditing alert issued by the HKICPA in January 2010 set out that, properties under development which are intended to be held for sale within an entity’s normal operating cycle are included in current assets (HKAS p66(a)). The carrying value of the properties that are expected to be completed and available for sale more than twelve months after the balance sheet date should be disclosed (HKAS 1 p61).

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Appendix V – Policies and disclosures for areas not relevant to Specimen Holdings Limited (continued) 10 Customer loyalty programmes

Note – Accounting policy The group operates a loyalty programme where customers accumulate points for purchases made which

entitle them to discounts on future purchases. The reward points are recognised as a separately

identifiable component of the initial sale transaction by allocating the fair value of the consideration

received between the award points and the other components of the sale such that the reward points are

initially recognised as deferred income at their fair value. Revenue from the reward points is recognised

when the points are redeemed. Breakage is recognised as reward points are redeemed based upon

expected redemption rates. Reward points expire 12 months after the initial sale. Note – Current liabilities – Other liabilities

2016

HK$’000 2015

HK$’000

Deferred revenue: customer loyalty

programme 395 370

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Appendix V – Policies and disclosures for areas not relevant to Specimen Holdings Limited (continued) 11 Put option arrangements The potential cash payments related to put options issued by the group over the equity of subsidiary

companies are accounted for as financial liabilities when such options may only be settled other than by exchange of a fixed amount of cash or another financial asset for a fixed number of shares in the subsidiary. The amount that may become payable under the option on exercise is initially recognised at fair value within borrowings with a corresponding charge directly to equity. The charge to equity is recognised separately as written put options over non-controlling interests, adjacent to non-controlling interests in the net assets of consolidated subsidiaries. The group recognises the cost of writing such put options, determined as the excess of the fair value of the option over any consideration received, as a financing cost. Such options are subsequently measured at amortised cost, using the effective interest rate method, in order to accrete the liability up to the amount payable under the option at the date at which it first becomes exercisable. The charge arising is recorded as a financing cost. In the event that the option expires unexercised, the liability is derecognised with a corresponding adjustment to equity.

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Appendix V – Policies and disclosures for areas not relevant to Specimen Holdings Limited (continued) 12 Share-based payments: modification and cancellation

FRS2p27 If the terms of an equity-settled award are modified, at a minimum an expense is recognised as if the

terms had not been modified. An additional expense is recognised for any modification that increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to the employee, as measured at the date of modification.

FRS2p28(a),(c)

If an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new award are treated as if they were a modification of the original award, as described in the previous paragraph.

If an equity award is cancelled by forfeiture, when the vesting conditions (other than market conditions)

have not been met, any expense not yet recognised for that award, as at the date of forfeiture, is treated as if it had never been recognised. At the same time, any expense previously recognised on such cancelled equity awards are reversed from the accounts effective as at the date of forfeiture.

The dilutive effect, if any, of outstanding options is reflected as additional share dilution in the

computation of earnings per share.

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Appendix V – Policies and disclosures for areas not relevant to Specimen Holdings Limited (continued) 13 Biological assets

1p10(b),10A Consolidated statement of profit or loss (extract) Notes 2016 2015 Restated * HK$’000 HK$’000 Revenue 26,240 27,548 41p40 Change in fair value of biological assets 5 22,500 18,028 Cost of sales of livestock and palm oil 5 (23,180) (24,348) 1p10(a) Consolidated balance sheet (extract) Notes 31 December 31 December 1 January 2016 2015 2015 Restated * Restated * HK$’000 HK$’000 HK$’000 1p60 Non-current assets 1P54(a) Property, plant and equipment 4 X X X 1p54(f) Biological assets 5 4,300 5,760 3,500 1p60 Current assets 1p54(f) Biological assets 5 19,188 12,437 18,920

*See note 8 for details about restatements for changes in accounting policies Note 1 – General information

1p138(b),

41p46(a)

The group is engaged in the business of farming sheep and poultry, primarily for sale to meat processors. The group is also engaged in the business of growing and managing palm oil plantations for the sale of palm oil. The group earns ancillary income from various agricultural produce, such as wool.

Note 2 – Accounting policies

Basis of preparation 1p117(a) The financial statements have been prepared on a historical cost basis, except for the following:

available-for-sale financial assets, financial assets and liabilities (including derivative instruments) certain classes of property, plant and equipment and investment property – measured at fair value

assets held for sale – measured at fair value less cost of disposal certain biological assets – measured at fair value less cost to sell, and

defined benefit pension plans – plan assets measured at fair value.

8p28 New and amended standards adopted by the Group The group has elected to adopt the amendments made to HKAS 16 and HKAS 41 in relation to bearer plants. The

resulting changes to the accounting policies and retrospective adjustments made to the financial statements are explained in note 8.

1p117 Land and buildings and palm oil trees 16p73(a)

16p50,73(b) 16p73(c)

Land and buildings are recognised at fair value based on periodic, but at least triennial, valuations by external independent valuers, less subsequent depreciation for buildings. A revaluation surplus is credited to other reserves in shareholders’ equity. All other property, plant and equipment, including oil palm trees is recognised at historical cost less depreciation. Depreciation is calculated using the straight-line method to allocate their cost or revalued amounts, net of their residual values, over their estimated useful lives or, in the case of leasehold improvements and certain leased plant and equipment, the shorter lease term as follows:

Buildings

Oil palm trees Corporate assets

25-40 years 25 years 3-10 years

Oil palm trees are classified as immature until the produce can be commercially harvested. At that point they are reclassified and depreciation commences. Immature palm oil trees are measured at accumulated cost.

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Appendix V – Policies and disclosures for areas not relevant to Specimen Holdings Limited (continued) 13 Biological assets (continued)

Biological assets

1p117 41p43 41Rp7,13 16Rp8 41p26

Biological assets are measured at fair value less cost to sell, see Note 5(iii) below for further information on determining the fair value. Costs to sell include the incremental selling costs, including auctioneers’ fees, commission paid to brokers and dealers and estimated costs of transport to the market but excludes finance costs and income taxes. Sheep held for slaughter are classified as immature until they are ready for slaughter. Livestock are classified as current assets if they are to be sold within one year. The palm oil trees are bearer plants and are therefore presented and accounted for as property, plant and equipment, see note 8(a). However, the fresh fruit bunches (“FFB”) growing on the trees is accounted for as biological assets until the point of harvest. Harvested FFB are transferred to inventory at fair value less costs to sell when harvested. Changes in fair value of livestock and oil palm FFB on trees are recognised in the statement of profit or loss. Farming costs such as feeding, labour costs, pasture maintenance, veterinary services and sheering are expensed as incurred. The cost of purchase of sheep plus transportation charges are capitalised as part of biological assets.

Note 3 – Segment information

(a) Description of segments and principal activities

1p138(b)

41p46(a)

The group is engaged in the business of farming sheep primarily for sale to meat processors. The group is also

engaged in the business of growing and managing palm oil plantations for the sale of palm oil. The group earns ancillary income from various agricultural produce, such as wool.

FRS8p22(a),(

b),(aa)

The group’s strategic steering committee, consisting of the chief executive officer, the chief financial officer and the manager for corporate planning, receives separate reports for each sheep farm and palm oil plantation.

However, the farms and the plantations have been aggregated into two operating segments, being sheep and

palm oil, as they have the same economic characteristics.

Revenue

FRS8p23(a) The group derives the following types of revenue by operating segment: 2016 2015 HK$’000 HK$’000 Sheep 18p35(b)(i) Sale of livestock (note 8(b)) 9,225 12,096 18p35(b)(i) Sale of wool 2,500 2,350 18p35(b)(i) Sale of palm oil (note 8(b)) 14,515 13,102 Total revenue 26,240 27,548

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Appendix V – Policies and disclosures for areas not relevant to Specimen Holdings Limited (continued)

13 Biological assets (Continued)

Note 4 – Property, plant and equipment

Mature oil

palm trees

Immature

oil palm

trees

Freehold

land

Freehold

buildings

Other

corporate

assets Total

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Non-current

At 1 January 2015

(Restated, see (iv) below)

16p73(d) Cost or fair value 8,200 2,000 X X X X

16p73(d) Accumulated depreciation - - X X X X

Net book amount 8,200 2,000 X X X X

Year ended 31 December

2015

16p73(e) Opening net book amount 8,200 2,000 X X X X

16p73(e)(i),74(b) Additions - 2,503 X X X X

16p73(e)(ix) Transfer 3,000 (3,000) X X X X

16p73(e)(vi) Depreciation charge (2,000) - X X X X

16p73(e)

16p74(b) Closing net book amount 9,200 1,503 X X X X

At 31 December 2015

(Restated, see (vi) below)

16p73(d) Cost or fair value 11,200 1,503 X X X X

16p73(d) Accumulated depreciation (2,000) - X X X X

Net book amount 9,200 1,503 X X X X

Year ended 31 December

2016

16p73(e) Opening net book amount 9,200 1,503 X X X X

16p73(e)(i),74(b) Additions - 4,309 X X X X

16p73(e)(ix) Transfer 2,700 (2,700) X X X X

16p73(e)(vi) Depreciation charge (2,400) - X X X X

16p73(e)(v)

36p125(a),(b) Impairment loss - - X X X X

16p73(e) Closing net book amount 9,500 3,112 X X X X

At 31 December 2016

16p73(d) Cost or fair value 13,900 3,112 X X X X

16p73(d) Accumulated depreciation (4,400) - X X X X

1p77, 16p74(b) Net book amount 9,500 3,112 X X X X

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Appendix V – Policies and disclosures for areas not relevant to Specimen Holdings Limited (continued)

13 Biological assets (Continued)

Note 5 – Biological assets

(i) Analysis by group of biological assets

41p41 Biological assets comprise sheep and oil palm fresh fruit bunches (FFB) growing on palm trees.

2016 2015

FRS13p93(e)

Sheep

Oil palm

FFB Total Sheep

Oil palm

FFB Total

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

41p50 Opening balance at 1 January 11,450 6,747 18,197 18,781 3,639 22,420

41p50(b) Increase due to purchase 5,971 - 5,971 2,097 - 2,097

41p50(a) Livestock losses (480) - (480) (350) - (350)

41p50(a),51 Change in fair value due to

biological transformation 3,444 18,006 21,450 1,430 15,500 16,930

41p50(a),51 Change in fair value due to

price changes 1,180 350 1,530 1,088 360 1,448

41p50(d) Transfer of harvested fresh

fruit bunches (FFB) to

inventory - (14,115) (14,115) - (12,752) (12,752)

41p50(c) Decrease due to sale of lambs

for slaughter (9,065) - (9,065) (11,596) - (11,596)

41p50 Closing balance at

31 December 12,500 10,988 23,488 11,450 6,747 18,197

Current assets:

- Sheep held for slaughter 8,200 - 8,200 5,690 - 5,690

- Oil palm FFB on trees - 10,988 10,988 - 6,747 6,747

8,200 10,988 19,188 5,690 6,747 12,437

Non-current assets:

- breeding stock - mature 3,950 - 3,950 5,190 - 5,190

- breeding stock - immature 350 - 350 570 - 570

Total non-current 4,300 - 4,300 5,760 - 5,760

41p45(b) As at 31 December 2016 the group had 6,500 sheep (2015 - 5,397 sheep) and 3,123 sheep were sold during the year (2015 -4,098 sheep sold).

As at 31 December 2016 there were 2,600,000 hectares of palm oil plantations (2015 -2,170,000 hectares). During the year the group sold 550,000 kgs of palm oil (2015 - 545,000 kgs).

1p117 (ii) Measuring biological assets at fair value

FRS13p93(d) Sheep are measured at fair value less cost to sell, based on market prices at auction of livestock of similar age,

breed and genetic merit with adjustments, where necessary, to reflect the differences, Market prices are obtained from the weekly auctions at the local market, which is considered the principal market for the purpose of the

valuation.

FRS13p93(d) The fair value of growing oil palm FFB is determined using a discounted cash flow model based on the expected

palm oil yield by plantation size, the market price for crude palm oil and palm kernel oil and after allowing for

harvesting costs, contributory asset charges for the land and palm trees owned by the entity and other costs yet to be incurred in getting the fruit bunches to maturity.

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Appendix V – Policies and disclosures for areas not relevant to Specimen Holdings Limited (continued) 13 Biological assets (Continued)

Note 5 – Biological assets (Continued)

1p117 (ii) Measuring biological assets at fair value (Continued)

Significant estimates and judgements

1p122,125

FRS13p93(d)

In measuring the fair value of sheep and oil palm FFB various management estimates and judgements are

required:

Sheep

Estimates and judgements in determining the fair value of sheep relate to market prices, average weight and quality of animals and mortality rates.

The sheep grow at different rates and there can be a considerable spread in the quality and weight of animals that affects the price achieved. An average weight is assumed for the slaughter sheep livestock that are not yet at

marketable weight.

Oil palm FFB on oil palm trees

Estimates and judgements in determining the fair value of the FFB growing on palm trees include the volume

and stages of maturity of FFB at balance date, palm oil yield, the long term crude palm oil price, palm kernel oil price and the discount rates. See below for key assumptions about unobservable inputs and their relationship to

fair value.

Fair value hierarchy

This note explains the judgements and estimates made in determining the fair values of the biological assets that

are recognised and measured at fair value in the financial statements, To provide an indication about the reliability of the inputs used in determining fair value, the group has classified its non-financial and assets and

liabilities into the three levels prescribed under the accounting standards, An explanation of each level is

provided in note 3.3.

FRS13p193(a),

(b)

Level 1 Level 2 Level 3 Total

Notes HK$’000 HK$’000 HK$’000 HK$’000

At 31 December 2016

Sheep

Mature - breeding stock 3,950 3,950

Immature - breeding stock 350 350

Held for slaughter 8,200 8,200

Oil palm FFB on trees 10,988 10,988

Total biological assets 12,500 10,988 23,488

FRS13p93(a),(

b)

Level 1 Level 2 Level 3 Total

Notes HK$’000 HK$’000 HK$’000 HK$’000

At 31 December 2015

Sheep

Mature - breeding stock 5,190 5,190

Immature - breeding stock 570 570

Held for slaughter 5,690 5,690

Oil palm FFB on trees 6,747 6,747

Total biological assets 11,450 6,747 18,197 There were no transfers between any levels during the year.

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Appendix V – Policies and disclosures for areas not relevant to Specimen Holdings Limited (continued)

13 Biological assets (Continued)

Note 5 – Biological assets (Continued)

1p117 (ii) Measuring biological assets at fair value (Continued)

The quality of livestock sold at the local markets is considered to approximate the group’s breeding and slaughter

livestock. Sheep have therefore been classified as level 2 in the fair value hierarchy, since no significant

adjustments need to be made to the prices obtained from the local markets.

FRS13p93(e) The movements in the fair value of assets within level 3 of the hierarchy, being the FFB growing on trees, can be

seen from the table in (i) above. The gains or (losses) recognised in relation to the palm fruit bunches are as

follows:

2016 2015

HK$’000 HK$’000

FRS13p93(e)(

i)

Total gains for the period recognised in profit or loss under ‘Change in

fair value of biological assets’ 18,356 15,860

FRS13p93(f) Change in un realised gains or losses for the period recognised in profit

or loss attributable to palm fruit bunches held at the end of the

reporting period 9,300 5,900

Valuation inputs and relationships to fair value

FRS13p93(d),(9

9)

The following table summarises the quantitative information about the significant unobservable inputs used in

the fair value measurements of the palm fruit bunches on trees. The fair values are determined based on

discounted cash flows.

FRS13p91(a),

93(d),(h)(i) Fair value at Range of inputs Relationship of

31 Dec

2016

31 Dec

2015 Unobservable

(probability ~

weighted average) unobservable inputs

Description HK$’000 HK$’000 Input * 2016 2015 to fair value

Oil palm FFB on

trees

10,988 6,747 Palm oil yield -

tonnes per

hectare

20-30 (24)

per year

20-30

(25)

per year

The higher the palm oil

yield, the higher the fair

value

Crude palm oil

price

US$800-

$1,100

($900) per

tonne

US$750-

$1,070

($900)

per

tonne

The higher the market

price, the higher the fair

value

Palm Kernel Oil

price

US$1,000-

$1,200

($1,050)

per tonne

US$900 -

$1,150

($1,030)

per tonne

Discount rate 9%-11%

(10.5%)

9%-11%

(10.5%)

The higher the discount

rate, the lower the fair

value

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Appendix V – Policies and disclosures for areas not relevant to Specimen Holdings Limited (continued)

13 Biological assets (Continued)

Note 5 – Biological assets (Continued)

1p117 (ii) Measuring biological assets at fair value (Continued)

Valuation processes

FRS13p93(g) The group’s finance department includes a team that performs the valuations of the group’s biological assets for

financial reporting purposes, including level 3 fair values. This team reports directly to the chief financial officer

(CFO) and the audit committee (Ae). Discussions of valuation processes and results are held between the CFO,

AC and the valuation team at least once every six months, in fine with the group’s half-yearly reporting

requirements.

The main level 3 inputs used by the group are derived and evaluated as follows:

Palm oil yield is determined based on the age of the plantation, historical yields, climate-induced variations

such as severe weather events, plant losses and new areas coming into production.

Crude palm oil prices and palm kernel oil prices are quoted prices for the relevant region.

Discount rates are determined using a capital asset pricing model to calculate a pre-tax rate that reflects

current market assessments of the time value of money and the risk specific to the asset.

Changes in level 2 and 3 fair values are analysed at the end of each reporting period during the half-yearly

valuation discussion between the CFO, AC and the valuation team. As part of this discussion the team presents a

report that explains the reason for the fair value movements.

The cash outflows include notional cash flows (contributory asset charges) for the land and palm trees owned by

the entity. They are based on market rental payable for orchards of similar size and maturity.

Note 6 – Financial risk management

41p149(c) (a) Financial risk management strategies for biological assets

The group is exposed to risks arising from environmental and climatic changes, commodity prices and financing

risks.

The group’s geographic spread of farms allows a high degree of mitigation against adverse climatic conditions

such as droughts and floods and disease outbreaks. The group has strong environmental policies and procedures

in place to comply with environmental and other laws.

The group is exposed to risks arising from fluctuations in the price and sales volume of sheep. Where possible,

the group enters into supply contracts for sheep to ensure sales volumes can be met by meat processing

companies. The group has long-term contracts in place for supply of palm oil to its major customers.

The seasonal nature of the sheep farming business requires a high level of cash flow in the second half of the

year. The group actively manages the working capital requirements and has secured sufficient credit facilities to

meet the cash flow requirements.

Note 7 – Commitments

41p49(b) The group has entered into a contract to acquire 250 breeding sheep at 31 December 2016 for HK$1,250,000

(2015 - nil).

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Appendix V – Policies and disclosures for areas not relevant to Specimen Holdings Limited (continued)

13 Biological assets (Continued)

Note 8 – Changes in accounting policies

As explained in Note 2, the group has adopted the amendments made to HKAS 16 and HKAS 41 in relation to

bearer plants this year. These amendments have resulted in changes in accounting policies and adjustments to

the amounts recognised in the financial statements.

(a) Bearer plants

8p28(a),(c) In August 2014, the HKICPA made amendments to HKAS 16 Property, Plant and Equipment and HKAS 41

Agriculture which distinguish bearer plants from other biological assets. Bearer plants are solely used to grow

produce over their productive lives and are seen to be similar to an item of machinery. They will therefore now

be accounted for under HKAS 16. However, agricultural produce growing on bearer plants will remain within the

scope of HKAS 41 and continue to be measured at fair value less cost to sell.

8p28(b) The group’s oil palm trees qualify as bearer plants under the new definition in HKAS 41. As required under

HKAS 8, the change in accounting policy has been applied retrospectively. As a consequence, the trees were

reclassified to property, plant and equipment effective 1 January 2016 and comparative figures have been

restated accordingly.

16Rp80C

8p28(b),(d)

The trees are now measured at amortised cost and depreciated over their useful life which is estimated to be 25

years. As permitted under the transitional rules, the fair value of the trees at 1 January 2016 (HK$10,200,000)

was deemed to be their cost going forward. The difference between the fair value and the previous carrying

amount (fair value less costs of sale; HK$10,000,000) of CU200,000 was recognised in retained earnings on

transition.

8p28(f),(g) (i) Impact on financial statements

16Rp80B,

R41p63

As a result of the changes in the entity’s accounting policies, prior year financial statements had to be restated.

The following tables show the adjustments recognised for each individual line item. Line items that were not

affected by the change have not been included. As a result, the sub-totals and totals disclosed cannot be

recalculated from the numbers provided. As permitted under the transitional rules, the impact on the current

period is not disclosed.

8p28(f),(i),(g) Consolidated statement of profit or loss

(extract) Prior year restatement

2015 2015 (Previously

stated)

Increase/

(Decrease) (Restated)

HK$’000 HK$’000 HK$’000

Change in fair value of biological assets 19,028 (1,000) 18,028

Depreciation X (2,000) X

Profit before income tax X (3,000) X Income tax expense X X X

Profit for the period X X X

Profit is attributable to:

Owners of Specimen Holdings Limited X X X

Non-controlling interests X X X

X X X

8p28(f),(ii) Basic earnings per share X X X

Diluted earnings per share X X X

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Appendix V – Policies and disclosures for areas not relevant to Specimen Holdings Limited (continued)

13 Biological assets (Continued)

Note 8 – Changes in accounting policies (Continued)

(a) Bearer plants (Continued)

8p28(f),(g) (i) Impact on financial statements (Continued)

8p28(f)(ii),(g) Consolidated balance sheet

(extract) Prior years restatements

31 December

2015

31 December

2015

1 January

2015

1 January

2015

(Prev.

stated)

Increase/

(decrease) (Restated)

(Prev.

stated)

Increase/

(decrease) (Restated)

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Biological assets 31,700 (13,503) 18,197 32,420 (10,000) 22,420

Property, plant and equipment X 10,703 X X 10,200 X

Total assets X (2,800) X X 200 X

Deferred ta liabilities X X X X X X

Total liabilities X X X X X X

Net assets X X X X X X

Retained earnings X (2,800) X X 200 X

Total equity X (2,800) X X 200 X

Commentary - Biological assets

Change in accounting policy

1. In this appendix, we have assumed that the group has applied the amendments to the standards that

were made in relation to bearer plants and have illustrated the disclosures required for a retrospective

change in accounting policy. However, please note that the disclosures do not cover all of the associated

requirements. For example, the segment note will also need to explain the impact of the change on the

reported segment results, assets and other segment measures as applicable, and any impact on deferred

taxes has been ignored. See note 8 for further guidance on disclosures required in relation to a change in

accounting policy.

Disclosures not illustrated: not applicable to Specimen Holdings Limited

2. The following disclosure requirements of HKAS 41 Agriculture are not illustrated above:

Item Nature of disclosure

41p(49)(a)

Biological assets with restricted title and/or

pledged as security

Disclose existence and carrying amount.

41p(50)(e),(f)

Reconciliation of carrying amount of biological assets

Show separately increases due to business

combinations and net exchange differences.

31p(53),

AS1(97)

Material items of income or expense as result of climatic, disease and other natural risks

Disclose amount and nature.

41p(54)-(56)

The fair value of biological assets cannot be measured reliably

Provide additional information.

41p(57)

Government grants received in relation to agricultural activity

Disclose the nature and extent of the grants, any

unfulfilled conditions and other contingencies and

if there are significant decreases expected in the

level of government grants.

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Appendix VI – Critical accounting estimates and judgements not relevant to Specimen Holdings Limited

Critical accounting estimates 1p125 The following critical accounting estimates may be applicable, among many other possible areas not

presented in Specimen Holdings Limited’s consolidated financial statements.

(a) Useful lives of technology division's plant and equipment

The group's management determines the estimated useful lives and related depreciation charges for its plant and equipment. This estimate is based on projected product lifecycles for its high-tech segment. It could change significantly as a result of technical innovations and competitor actions in response to severe industry cycles. Management will increase the depreciation charge where useful lives are less than previously estimated lives, or it will write-off or write-down technically obsolete or non-strategic assets that have been abandoned or sold.

Were the actual useful lives of the technology division plant and equipment to differ by 10% from management's estimates, the carrying amount of the plant and equipment would be an estimated HK$1,000,000 higher or HK$970,000 lower.

(b) Warranty claims

The group generally offers three-year warranties for its personal computer products. Management estimates the related provision for future warranty claims based on historical warranty claim information, as well as recent trends that might suggest that past cost information may differ from future claims.

Factors that could impact the estimated claim information include the success of the group's productivity and quality initiatives, as well as parts and labour costs.

Were claims costs to differ by 10% from management's estimates, the warranty provisions would be an estimated HK$2,000,000 higher or HK$1,875,000 lower.

Critical accounting judgements

1p122 The following critical accounting judgements may be applicable, among many other possible areas not presented in Specimen Holdings Limited’s consolidated financial statements.

(a) Held-to-maturity investments

The group follows the HKAS 39 guidance on classifying non-derivative financial assets with fixed or determinable payments and fixed maturity as held to maturity. This classification requires significant judgement. In making this judgement, the group evaluates its intention and ability to hold such investments to maturity.

If the group fails to keep these investments to maturity other than for specific circumstances explained in HKAS 39, it will be required to reclassify the whole class as available-for-sale. The investments would, therefore, be measured at fair value not amortised cost.

If the class of held-to-maturity investments is tainted, the fair value would increase by HK$2,300,000, with a corresponding entry in the fair value reserve in shareholders' equity.

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Appendix VII – Illustrative Amendments to IAS 7 Disclosures This appendix is included in the Illustrative IFRS consolidated financial statements December 2016 issued by PwC Global Accounting Consulting Services illustrates the net debt reconciliation disclosures that would be required if a fictitious company, VALUE IFRS Plc, had decided to adopt Amendments to IAS 7 for its reporting period ending 31 December 2016. Supporting commentary is also provided. https://inform.pwc.com/inform2/s/Illustrative_IFRS_consolidated_financial_statements_for_2016_year_ends/informContent/1634220906099945#ic_1634220906099945

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Appendix VIII – Illustrative IFRS 9 Disclosures This appendix to "Illustrative disclosures: IFRS 9 Financial Instruments" issued by PwC Global Accounting Consulting Services

illustrates the types of disclosures that would be required if a fictitious company, VALUE IFRS Plc, had decided to adopt IFRS 9 for its reporting period ending 31 December 2016. Supporting commentary is also provided. https://inform.pwc.com/inform2/s/Illustrative_IFRS_consolidated_financial_statements_for_2016_year_ends/informContent/1634220906099945#ic_1634220906099945

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Appendix IX – Illustrative IFRS 15 Disclosures This appendix to "Illustrative IFRS consolidated financial statements for 2016 year ends" issued by PwC Global Accounting

Consulting Services illustrates the types of disclosures that would be required if a fictitious company, VALUE IFRS Plc, had decided to adopt IFRS 15,' Revenue from contracts with customers', for its reporting period ending 31 December 2016. Supporting commentary is also provided. https://inform.pwc.com/inform2/s/Illustrative_IFRS_consolidated_financial_statements_for_2016_year_ends/informContent/1634220906099945#ic_1634220906099945

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Appendix X – Forthcoming requirements

A. New and amended standards that have been issued and are effective for periods commencing after 1 January

2016

Standards Key requirements Early adoption and

transition provision, if any

(I) Changes effective for annual periods beginning on or after 1 January 2017

Amendments to

HKAS 12, 'Income

taxes'

The HKICPA has issued amendments to HKAS 12,'Income taxes'.

These amendments on the recognition of deferred tax assets for

unrealised losses clarify how to account for deferred tax assets

related to debt instruments measured at fair value.

An entity shall apply those

amendments to HKAS 12 for

annual periods beginning on

or after 1 January 2017.

Amendments to

HKAS 7 - Statement

of cash flows

The HKICPA has issued an amendment to HKAS 7 introducing an

additional disclosure that will enable users of financial statements

to evaluate changes in liabilities arising from financing activities.

The amendment is part of the HKICPA’s Disclosure Initiative,

which continues to explore how financial statement disclosure can

be improved.

An entity shall apply those

amendments to HKAS 7 for

annual periods beginning on

or after 1 January 2017.

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Appendix X – Forthcoming requirements (continued)

A. New and amended standards that have been issued and are effective for periods commencing after 1 January

2016 (continued)

Standards Key requirements Early adoption and

transition provision, if any

(II) Changes effective for annual periods beginning on or after 1 January 2018

HKFRS15 “Revenue

from Contracts with

Customers”

HKFRS 15 establishes a comprehensive framework for determining

when to recognise revenue and how much revenue to recognise

through a 5-step approach : (1) Identify the contract(s) with

customer; (2) Identify separate performance obligations in a

contract (3) Determine the transaction price (4) Allocate

transaction price to performance obligations and (5) recognise

revenue when performance obligation is satisfied. The core

principle is that a company should recognise revenue to depict the

transfer of promised goods or services to the customer in an

amount that reflects the consideration to which the company

expects to be entitled in exchange for those goods or services. It

moves away from a revenue recognition model based on an

‘earnings processes to an ‘asset-liability’ approach based on

transfer of control.

HKFRS 15 provides specific guidance on capitalisation of contract

cost and licence arrangements. It also includes a cohesive set of

disclosure requirements about the nature, amount, timing and

uncertainty of revenue and cash flows arising from the entity’s

contracts with customers.

HKFRS 15 replaces the previous revenue standards: HKAS 18

Revenue and HKAS 11 Construction Contracts, and the related

Interpretations on revenue recognition:

IFRIC/HK(IFRIC) 13 Customer Loyalty Programmes,

IFRIC/HK(IFRIC) 15 Agreements for the Construction of Real

Estate, IFRIC/HK(IFRIC) 18 Transfers of Assets from Customers

and SIC-31 Revenue— Barter Transactions Involving Advertising

Services.

An entity shall apply HKFRS 15

for annual reporting periods

beginning on or after 1 January

2018. Earlier application is

permitted.

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Appendix X – Forthcoming requirements (continued)

A. New and amended standards that have been issued and are effective for periods commencing after 1 January

2016 (continued)

Standards Key requirements Early adoption and

transition provision, if any

(II) Changes effective for annual periods beginning on or after 1 January 2018 (continued)

HKFRS 9

“Financial Instruments”

HKFRS 9 (2014), "Financial instruments" replaces the whole of HKAS

39.

HKFRS 9 has three financial asset classification categories for

investments in debt instruments: amortised cost, fair value through

other comprehensive income (“OCI”) and fair value through profit or

loss. Classification is driven by the entity’s business model for

managing the debt instruments and their contractual cash flow

characteristics. Investments in equity instruments are always

measured at fair value. However, management can make an

irrevocable election to present changes in fair value in OCI, provided

the instrument is not held for trading. If the equity instrument is held

for trading, changes in fair value are presented in profit or loss. For

financial liabilities there are two classification categories: amortised

cost and fair value through profit or loss. Where non-derivative

financial liabilities are designated at fair value through profit or loss,

the changes in the fair value due to changes in the liability’s own

credit risk are recognised in OCI, unless such changes in fair value

would create an accounting mismatch in profit or loss, in which case,

all fair value movements are recognised in profit or loss. There is no

subsequent recycling of the amounts in OCI to profit or loss. For

financial liabilities held for trading (including derivative financial

liabilities), all changes in fair value are presented in profit or loss.

HKFRS 9 introduces a new model for the recognition of impairment

losses – the expected credit losses (ECL) model, which constitutes a

change from the incurred loss model in HKAS 39. HKFRS 9 contains

a ‘three stage’ approach, which is based on the change in credit

quality of financial assets since initial recognition. Assets move

through the three stages as credit quality changes and the stages

dictate how an entity measures impairment losses and applies the

effective interest rate method. The new rules mean that on initial

recognition of a non-credit impaired financial asset carried at

amortised cost a day-1 loss equal to the 12-month ECL is recognised

in profit or loss. In the case of accounts receivables this day-1 loss will

be equal to their lifetime ECL. Where there is a significant increase in

credit risk, impairment is measured using lifetime ECL rather than

12-month ECL.

HKFRS 9 applies to all hedging relationships, with the exception of

portfolio fair value hedges of interest rate risk. The new guidance

better aligns hedge accounting with the risk management activities of

an entity and provides relief from the more “rule-based” approach of

HKAS39.

HKFRS 9 is effective for

annual periods beginning on

or after 1 January

2018. Earlier application is

permitted.

If an entity elects to apply

HKFRS 9 (2014) early it must

disclose that fact and apply all

of the requirements at the same

time.

All previous versions of HKFRS

9 are superseded.

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Appendix X – Forthcoming requirements (continued)

A. New and amended standards that have been issued and are effective for periods commencing after 1 January

2016 (continued)

Standards Key requirements Early adoption and

transition provision, if any

(III) Changes effective for annual periods beginning on or after 1 January 2019

HKFRS 16 “Leases”

HKFRS 16, ‘Leases’ addresses the definition of a lease, recognition

and measurement of leases and establishes principles for reporting

useful information to users of financial statements about the leasing

activities of both lessees and lessors. A key change arising from

HKFRS 16 is that most operating leases will be accounted for on

balance sheet for lessees. The standard replaces HKAS 17 ‘Leases',

and related interpretations.

An entity shall apply HKFRS 16

for annual periods beginning on

or after 1 January 2019 and

earlier application is permitted

subject to the entity adopting

HKFRS 15 'Revenue from

contracts with customers' at the

same time.

Amendments to

HKFRS 10 and HKAS

28 “Sale or

contribution of

assets between an

investor and its

associate or joint

venture”

The amendments address an inconsistency between HKFRS 10 and

HKAS 28 in the sale and contribution of assets between an investor

and its associate or joint venture.

A full gain or loss is recognised when a transaction involves a

business. A partial gain or loss is recognised when a transaction

involves assets that do not constitute a business, even if those assets

are in a subsidiary.

The amendments were originally

intended to be effective for

annual periods beginning on or

after 1 January 2016. The

effective date has now been

deferred/removed. Early

application of the amendments

continues to be permitted.

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