3SBio Inc. - Annual Report 2016 | FinancialReports.eu

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2015/2016
ANNUAL REPORT
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	Page
Corporate Information	2
Chairman’s Statement	3
Report of the Directors	4
Corporate Governance Report	30
Independent Auditors’ Report	40
Consolidated Statement of Profit or Loss	42
Consolidated Statement of Comprehensive Income	43
Consolidated Statement of Financial Position	44
Consolidated Statement of Changes in Equity	46
Consolidated Statement of Cash Flows	48
Notes to the Financial Statements	50
Particulars of Principal Subsidiaries	123
Particulars of Principal Associates	127
Particulars of Principal Joint Ventures	128
Schedule of Major Properties	129
Summary of Financial Information	131
Supplementary Financial Information	132

2 Hongkong Chinese Limited

Corporate Information

BOARD OF DIRECTORS

Executive Directors

Dr. Stephen Riady (Chairman) Mr. John Lee Luen Wai, BBS, JP (Chief Executive Officer) Mr. Kor Kee Yee

PRINCIPAL BANKERS

China CITIC Bank International Limited Standard Chartered Bank The Bank of East Asia, Limited Oversea-Chinese Banking Corporation Limited

SOLICITORS

Non-executive Director

Howse Williams Bowers

Mr. Leon Chan Nim Leung

PRINCIPAL SHARE REGISTRAR

Independent non-executive Directors

Mr. Albert Saychuan Cheok Mr. Victor Yung Ha Kuk Mr. Tsui King Fai

COMMITTEES

Audit Committee

Mr. Tsui King Fai (Chairman) Mr. Leon Chan Nim Leung Mr. Albert Saychuan Cheok Mr. Victor Yung Ha Kuk

Remuneration Committee

Mr. Tsui King Fai (Chairman) Dr. Stephen Riady Mr. Leon Chan Nim Leung Mr. Albert Saychuan Cheok Mr. Victor Yung Ha Kuk

Nomination Committee

Mr. Tsui King Fai (Chairman) Dr. Stephen Riady Mr. Leon Chan Nim Leung Mr. Albert Saychuan Cheok Mr. Victor Yung Ha Kuk

SECRETARY

Mr. Andrew Hau Tat Kwong

AND TRANSFER OFFICE

Butterfield Fulcrum Group (Bermuda) Limited Rosebank Centre 11 Bermudiana Road Pembroke HM 08 Bermuda

HONG KONG BRANCH SHARE REGISTRAR

AND TRANSFER OFFICE

Tricor Tengis Limited Level 22, Hopewell Centre 183 Queen’s Road East Hong Kong

REGISTERED OFFICE

Clarendon House Church Street Hamilton HM 11 Bermuda

PRINCIPAL PLACE OF BUSINESS

24th Floor, Tower One Lippo Centre 89 Queensway Hong Kong

STOCK CODE

655

AUDITORS

Ernst & Young

WEBSITE

www.hkchinese.com.hk

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Annual Report 2015/2016

Hongkong Chinese Limited 3

Chairman’s Statement

I am pleased to present the annual report of the Company (together with its subsidiaries, the “Group”) for the year ended 31st March, 2016 (the “Year”).

The Year was not only challenging, but also it was more difficult and volatile than many expected. The global economy was hit hard by the continuation of a sharp decline in oil and commodity prices, the slowdown of the mainland China economy and intensifying geopolitical tension in various regions. The sharp correction of the stock market in mainland China and other Asian countries in the first half of the Year dampened investor confidence and adversely affected the operating environment. The performance of the Group was within expectation for the Year. The Group recorded a consolidated profit attributable to shareholders of approximately HK$204 million for the Year, as compared to a consolidated profit of approximately HK$655 million (restated) for the year ended 31st March, 2015.

The economic prospects for Asia remain positive but the outlook of the global economy is clouded with considerable uncertainties. The unexpected vote of the United Kingdom (the “UK”) to leave the European Union (the “EU”) in a historic referendum held on 23rd June, 2016 generated instant repercussions across the global stock and currency markets. Growing uncertainties over the UK’s negotiations with the EU on the exit arrangements will continue to bring volatility to financial markets. The Group will continue to be watchful of these developments. With a strong financial position, the Group is well positioned to meet the challenges ahead and take advantage of any suitable investment opportunity that may arise.

The Directors have proposed a final cash dividend of HK2 cents per share for the Year. Together with the interim distribution of HK1 cent per share, total distributions/dividends for the Year will be HK3 cents per share.

On behalf of the Board of Directors of the Company, I would like to thank our shareholders and stakeholders for their support. I would also like to take this opportunity to thank my fellow Directors, management team and staff members for their diligent work and dedication during the Year. We would continue our efforts to create value for our shareholders and stakeholders.

Stephen Riady Chairman

29th June, 2016

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4 Hongkong Chinese Limited

Report of the Directors

The Directors hereby present their report together with the audited financial statements for the year ended 31st March, 2016 (the “Year”).

BUSINESS REVIEW

Overview

Stepping into the second quarter of the year 2015, financial market volatility around the world increased dramatically. The outlook for the global economy was clouded with considerable uncertainties which included low commodity prices, U.S. Federal Reserve “dragging its feet” on the pace of U.S. interest rate rise, gloomy economic outlook for mainland China as well as intensifying geopolitical tension in various regions. The U.S. Federal Reserve finally raised the interest rate towards the end of December 2015. Overall, the instability in global stock markets adversely affected the general economic climate, the sharp stock market correction in mainland China and devaluation of the Renminbi dampened investor confidence in the region.

Mainland China continues to be the leading economic performer in the region, despite its National Bureau of Statistics reported disappointing investment and export figures. A 6.9 per cent. growth in gross domestic product was recorded for the year 2015, the lowest in the last 25 years. Although the Central Government reacted decisively and promptly embarked on intervention policies to stabilise the market, the pace of economic growth in mainland China decelerated further.

On the positive side, the quantitative easing programmes adopted by, among others, the European Central Bank, Japan and mainland China, coupled with the prevailing low interest rate and surplus fund environment, contributed to help to maintain a more stable economic environment in the Asia region.

Results for the Year

The Company (together with its subsidiaries, the “Group”) recorded a consolidated profit attributable to shareholders of approximately HK$204 million for the Year, as compared to a consolidated profit of approximately HK$655 million (restated as mentioned below) for the year ended 31st March, 2015 (the “Last Year” or “2015”). Such profit was mainly attributable to recognition of profit upon completion of a property development project of the Group and the disposal of equity interest in a subsidiary during the Year, after setting off against the share of loss of the results of joint ventures arising mainly from the impairment loss on a development property of a joint venture, the impairment loss on goodwill arising from the acquisition of a subsidiary by a joint venture and finance costs incurred by the joint ventures during the Year.

During the Year, OUE Limited (“OUE”, together with its subsidiaries, the “OUE Group”, held under Lippo ASM Asia Property Limited (“LAAPL”), a principal joint venture of the Company) finalised a purchase price allocation review and recorded a share of gain from a bargain purchase in relation to the acquisition of shares in a listed company by its joint venture in the Last Year. Accordingly, the Company retrospectively adjusted the share of profit of LAAPL for the Last Year from HK$369 million to HK$660 million and the net profit attributable to equity holders of the Company became HK$655 million after the adjustment.

Revenue for the Year increased to HK$1,327 million (2015 — HK$229 million), which was mainly attributable to the revenue from the property sale of a development project in Macau completed during the Year.

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Annual Report 2015/2016

Hongkong Chinese Limited

Report of the Directors (continued)

BUSINESS REVIEW (continued)

Results for the Year (continued)

Property development

The segment recorded a revenue and net profit of HK$1,226 million (2015 — HK$117 million) and HK$392 million (2015 — HK$39 million), respectively for the Year, mainly from the completion of sale of properties of “M Residences”.

“M Residences” is a residential property development at 83 Estrada de Cacilhas, Macau, in which the Group has 100 per cent. interest. “M Residences”, with a site area of approximately 3,398 square metres, has been developed into 311 residential units with a total saleable area of approximately 26,025 square metres. Occupation permit of “M Residences” was obtained in June 2015. As at 31st March, 2016, only 5 residential units and some carparks remained unsold.

Property investment

LAAPL, a principal joint venture of the Company, is the vehicle holding the controlling stake of OUE, a listed company in Singapore principally engaged in property investment and development and hotel operation. The OUE Group has substantial and stable recurrent income stream from its high quality properties. Asset enhancement initiatives at OUE Downtown in Singapore are underway. OUE Skyspace LA, California’s tallest open-air observation deck situated atop the iconic U.S. Bank Tower, was opened in June 2016. OUE Skyspace LA is part of comprehensive asset enhancement works spearheaded by OUE to transform U.S. Bank Tower, which was acquired in 2013, from a commercial building into a vibrant business, social and tourist destination. As at 31st March, 2016, LAAPL had an aggregate equity interest of approximately 68.52 per cent. in OUE.

OUE Hospitality Trust (“OUE H-Trust”), a real estate investment trust established by OUE in 2013, is listed on the Main Board of the Singapore Exchange Securities Trading Limited (the “SGX-ST”). Its portfolio includes Mandarin Orchard Singapore, Mandarin Gallery and Crowne Plaza Changi Airport Hotel (“Crowne Plaza”) in Singapore. As at 31st March, 2016, LAAPL and its subsidiaries held approximately 42.87 per cent. of the total number of stapled securities units of OUE H-Trust in issue.

In March 2016, OUE H-Trust successfully launched an underwritten and renounceable rights issue (the “Rights Issue”) of 441,901,257 new stapled securities in OUE H-Trust (the “Rights Stapled Securities”) at the rights ratio of 33 new stapled securities for every 100 existing stapled securities held at S$0.54 per rights unit to raise funds of approximately S$238.6 million. The proceeds from the Rights Issue would be utilised by OUE H-Trust mainly to finance its acquisition of the extension to Crowne Plaza and for working capital purpose. The Rights Issue was completed in April 2016. LAAPL, OUE and a fellow subsidiary of the Company took up in full their respective pro-rata entitlements to the Rights Stapled Securities. LAAPL’s subscription amount of approximately S$18 million was funded by the Group in April 2016 by way of interest free exchangeable loans in exchange for the OUE H-Trust stapled securities subscribed by LAAPL under the Rights Issue (the “Exchangeable Loans”). After the completion of the Rights Issue, the exchange right under the Exchangeable Loans was exercised to fully settle the Exchangeable Loans.

OUE Commercial Real Estate Investment Trust (“OUE C-REIT”) was established by OUE in early 2014 and is listed on the Main Board of the SGX-ST. Its property portfolio includes OUE Bayfront and One Raffles Place in Singapore as well as the properties at Lippo Plaza in Shanghai. The occupancy rates of its property portfolio are high. The acquisition of an additional indirect interest in One Raffles Place was completed in October 2015. As at 31st March, 2016, the OUE Group held approximately 64.98 per cent. of the total number of OUE C-REIT units in issue.

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6 Hongkong Chinese Limited

Report of the Directors (continued)

BUSINESS REVIEW (continued)

Results for the Year (continued)

Property investment (continued)

In May 2015, the Group advanced a loan of S$54 million to a subsidiary of LAAPL (the “LAAPL Subsidiary”) and made equity subscription in LAAPL in proportion to its existing interest in LAAPL for a consideration of S$23 million. In addition, the Group further advanced loans in a total of S$147 million to the LAAPL Subsidiary during the Year. As a result, the Group injected a total of approximately HK$1.2 billion during the Year. All these proceeds were applied to repay part of the indebtedness under LAAPL and for working capital purposes. The Group recorded a share of loss of HK$306 million from the investment in LAAPL for the Year (2015 — a profit of HK$660 million, restated). The share of loss recognised during the Year was mainly attributable to the impairment loss on a property under development, the impairment loss on goodwill arising from the acquisition of a subsidiary and finance costs incurred by the joint ventures. Besides, affected by the decrease in fair value of available-for-sale financial assets under OUE during the Year, the Group shared a decrease in investment reserve of HK$179 million (2015 — increase of HK$25 million) during the Year. The total interests in LAAPL increased from HK$8.0 billion (restated) as at 31st March, 2015 to HK$8.9 billion as at 31st March, 2016.

Total segment revenue from the property investment business for the Year amounted to HK$51 million (2015 — HK$11 million). Coupled with the net fair value gain on investment properties for the Year of HK$29 million (2015 — HK$32 million), the segment profit increased to HK$75 million for the Year (2015 — HK$36 million) before accounting for the results from the Group’s joint ventures.

Banking business

The Macau Chinese Bank Limited (“MCB”), a licensed bank in Macau and previously a wholly-owned subsidiary of the Company, maintained steady performance during the Year.

In July 2015, the Group completed the disposal of an aggregate of 49 per cent. equity interest in MCB to 南粵(集團)有限公司 (Nam Yue (Group) Company Limited) (“Nam Yue”) and Mr. Yang Jun (“Mr. Yang”) (together, the “Purchasers”) for an aggregate consideration of MOP441 million (the “First Disposal”). Upon completion of the First Disposal, the Group owned 51 per cent. of the issued share capital of MCB and entered into a shareholders’ agreement with the Purchasers and MCB (the “Shareholders’ Agreement”) to, among other things, regulate the relationships among shareholders of MCB. After entering into the Shareholders’ Agreement, as a result of the change of composition of the board of directors of MCB and the quorum of directors’ meeting and other terms and in compliance with the current accounting standards, MCB is accounted for as a joint venture of the Company and its results, assets and liabilities ceased to be consolidated in the accounts of the Company even though MCB continues to be a subsidiary of the Company under the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

As provided in the Shareholders’ Agreement, in the event of the Group holding 20 per cent. or less of the issued share capital of MCB, the Group will be entitled to a put option to require Nam Yue to purchase all the remaining shares in MCB held by the Group (the “Put Option”). The Put Option is exercisable at any time during a period of 5 years from the date when the Group’s shareholding interest in MCB becomes 20 per cent. or less. The fair value of the Put Option of HK$25 million was included in “Other financial asset” of the consolidated statement of financial position.

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Annual Report 2015/2016

Hongkong Chinese Limited 7

Report of the Directors (continued)

BUSINESS REVIEW (continued)

Results for the Year (continued)

Banking business (continued)

The Group recognised a gain on disposal of subsidiary of HK$202 million during the Year (which included the fair value of the Put Option at completion date).

Besides, at completion of the First Disposal, the Group entered into a loan agreement (the “Loan Agreement”) pursuant to which an unsecured loan of an aggregate amount of MOP279 million was advanced to the Group by Nam Yue and Mr. Wong Garrick Jorge Kar Ho (“Mr. Wong”) for 10 years. The Group may at its sole discretion (i) repay the loan in cash; or (ii) set off the loan amount by way of transferring 31 per cent. equity interest in MCB to Nam Yue and Mr. Wong.

In October 2015, the Group entered into sale and purchase agreements for the disposal of a further 31 per cent. equity interest in MCB to Nam Yue and Mr. Wong (the “Second Disposal Agreements”) at an aggregate consideration of MOP279 million (the “Second Disposal”). The Second Disposal is subject to the approval of The Monetary Authority of Macau. Upon completion of the Second Disposal, the Group will own 20 per cent. of the issued share capital of MCB.

Upon signing of the Second Disposal Agreements, Nam Yue and Mr. Wong had fully paid the aggregate consideration as deposit, by the set-off of the outstanding loan amount under the Loan Agreement. The Loan Agreement was terminated in accordance with its terms upon signing of the Second Disposal Agreements.

Treasury and securities investments

Treasury and securities investments businesses recorded a total revenue of HK$16 million during the Year (2015 — HK$47 million), mainly attributable to the interest and dividend income received from the investment portfolio. The Group cautiously managed its investment portfolio and looked for opportunities to enhance yields and seek gains. However, due to the substantial downturn of global stock market in the third quarter of year 2015, the Group recorded net fair value loss on its investment portfolio. As a result, the treasury and securities investments businesses recorded a net profit of HK$9 million for the Year (2015 — HK$30 million).

Corporate finance and securities broking

Lippo Securities Holdings Limited is a wholly-owned subsidiary of the Company and its subsidiaries are principally engaged in underwriting, securities brokerage, corporate finance, investment advisory and other related financial services.

The turbulent and volatile stock markets in Hong Kong and mainland China have made the local operating environment of corporate finance and securities broking business challenging. The outlook for the local stock market will be dependent on the market conditions in mainland China and economic developments globally. This segment registered a revenue of HK$19 million for the Year (2015 — HK$21 million) and the loss of this segment was HK$9 million for the Year (2015 — HK$10 million).

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8 Hongkong Chinese Limited

Report of the Directors (continued)

BUSINESS REVIEW (continued)

Financial Position

The Group’s financial position remained healthy. As at 31st March, 2016, its total assets decreased to HK$11.4 billion (2015 — HK$12.7 billion, restated). Property-related assets stood at HK$9.8 billion (2015 — HK$9.8 billion, restated), representing 86 per cent. (2015 — 77 per cent.) of the total assets. The Group maintained a strong cash position. Total cash and bank balances as at 31st March, 2016 amounted to HK$0.9 billion (2015 — HK$1.7 billion). Current ratio as at the end of the reporting period increased to 1.9 (2015 — 1.7).

As at 31st March, 2015, total bank and other borrowings amounted to HK$465 million. The Group fully repaid all the outstanding bank and other borrowings during the Year.

The net asset value attributable to equity holders of the Group remained robust and amounted to HK$10.5 billion as at 31st March, 2016 (2015 — HK$10.4 billion, restated). This was equivalent to HK$5.3 per share (2015 — HK$5.2 per share, restated).

The Group monitors the foreign exchange position of its assets and liabilities to minimise foreign currency risk. When appropriate, hedging instruments including forward contracts, swap and currency loans would be used to manage the foreign exchange exposure.

To secure bank overdraft facilities made available to the Group’s securities broking operation, bank deposits of HK$1 million were pledged as at 31st March, 2016. Such overdraft facilities had not been utilised at the end of the reporting period. Aside from the abovementioned, the Company and its subsidiaries had neither material contingent liabilities outstanding nor charges on the Group’s assets at the end of the Year. As at 31st March, 2015, the Group had contingent liabilities relating to MCB of approximately HK$36 million comprising guarantees and other endorsements of approximately HK$34 million and liabilities under letters of credit on behalf of customers of approximately HK$2 million. MCB was no longer a subsidiary of the Company and has become a joint venture of the Group after the First Disposal under the current accounting standards.

The Group’s commitments as at 31st March, 2016 amounted to HK$116 million, mainly relating to the Exchangeable Loans granted to certain joint ventures of the Group. Commitments as at 31st March, 2015 of HK$123 million mainly arose from the Group’s property development projects. The investments or capital assets will be financed by the Group’s internal resources and/or external bank financing, as appropriate.

Staff and Remuneration

The Group had 95 employees as at 31st March, 2016 (2015 — 160 employees). Staff costs (including directors’ emoluments) charged to the statement of profit or loss during the Year amounted to HK$54 million (2015 — HK$67 million). The Group ensures that its employees are offered competitive remuneration packages. The Group also provides benefits such as medical insurance and retirement funds to employees to sustain competitiveness of the Group.

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Annual Report 2015/2016

Hongkong Chinese Limited 9

Report of the Directors (continued)

PROSPECTS

The economic prospects for Asia remain positive but the outlook of the global economy is clouded with considerable uncertainties, including the extent and timing on increase of the U.S. interest rates, and the economic growth of mainland China and the impact of geopolitical tension in various regions. United Kingdom’s decision to leave the European Union has added a new element of uncertainty to the global economic and political climate. Hopefully, the quantitative easing programmes adopted by, among others, the European Central Bank, Japan and mainland China and prevailing low interest rates and surplus funds environment will be a compensatory positive influence to help maintaining investor confidence and create new business opportunities. The Group will continue to be watchful of market developments and will manage its portfolio with a view to further improving overall asset quality.

BUSINESS STRATEGY

The business activities of the Group are diversified. The principal activities of the subsidiaries, associates and joint ventures are investment holding, property investment, property development, hotel operation, project management, fund management, underwriting, corporate finance, securities broking, securities investment, treasury investment, money lending, banking and other related financial services.

The Group is committed to achieve long term sustainable growth of its businesses in preserving and enhancing the shareholders’ value. The Group is focused on selecting attractive investment opportunities to strengthen and extend its business scope and has maintained prudent and disciplined financial management to ensure its sustainability.

KEY RISKS AND UNCERTAINTIES

The Group’s financial condition, results of operations, businesses and prospects may be affected by a number of risks and uncertainties. The followings are the key risks and uncertainties identified by the Group. There may be other risks and uncertainties in addition to those shown below which are not known to the Group or which may not be material now but could turn out to be material in the future.

Operational Risk

Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. Responsibility for managing operational risks basically rests with every function at divisional and departmental levels. The Group recognises that operational risks cannot be eliminated completely and that it may not always be cost effective to do so.

Key functions in the Group are guided by their standard operating procedures, limits of authority and reporting framework. The Internal Audit Department will identify and assess key operational exposures and report such risk issues to senior management as early as possible so that appropriate risk response can be taken.

Investment Risk

Balancing risk and return across investment types and geographic location are key considerations of investment framework. Risk assessment is an important aspect of the investment decision process. An Investment Committee was formed and authority matrix was set up to approve the investments to be made by the Group. Regular updates on the progress of the investments of the Group would be submitted to the Board of Directors of the Company.

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10 Hongkong Chinese Limited

Report of the Directors (continued)

KEY RISKS AND UNCERTAINTIES (continued)

Financial Risks

In the course of business activities, the Group is exposed to a variety of financial risks, including market, liquidity and credit risks. The currency environment, interest rates cycles and mark to market value of investment securities may pose significant risks to the Group’s financial condition, results of operations and businesses. In particular, income from treasury investment is dependent upon the capital markets, currency environment, interest rate and global economic conditions.

Market risk is the risk that the Group’s earnings and capital or its ability to meet its business objectives will be adversely affected by movement in foreign exchange rates, interest rates and equity prices. The Group monitors the relative foreign exchange positions of its assets and liabilities and allocates accordingly to minimise foreign currency risk. When appropriate, hedging instruments including forward contracts, swaps and currency loans would be used to manage the foreign exchange exposure. The foreign currency risk is managed and monitored on an on-going basis by senior management of the Group. The Group monitors its interest-sensitive products and investments and limits interest rate exposure through management of maturity profile, currency mix and choice of fixed or floating interest rates. When appropriate, interest rate swaps would be used to manage this risk in a cost-effective manner. The interest rate risk is managed and monitored regularly by senior management of the Group. Equity price risk arises from fluctuation in market prices of the Group’s investment in financial assets. Senior management regularly reviews and monitors the mix of securities in its investment portfolio based on its fair value to ensure the loss arising from the changes in the market values of the investment portfolios is capped within an acceptable range.

Liquidity risk is the potential that the Group will be unable to meet its obligations when they fall due because of an ability to obtain adequate funding or liquidate assets. In managing liquidity risk, the Group monitors cash flows and maintains an adequate level of cash and credit facilities to ensure the ability to finance the Group’s operations and reduce the effects of fluctuation in cash flows.

Credit risk is the risk of losses arising from a counterparty defaulting on an obligation which will result in an economic loss to the Group. It arises from lending, treasury, investment and other activities undertaken by the Group. The credit policies for banking and margin lending businesses set out in details the credit approval and monitoring mechanism, the loan classification criteria and provision policy. Credit approval is conducted in accordance with the credit policies, taking into account the type and tenor of loans, creditworthiness and repayment ability of prospective borrowers, collateral available and the resultant risk concentration in the context of the Group’s total assets. Day-to-day credit management is performed by management of individual business units. Credit policies with guidelines on credit terms and limits set the basis for risk control. New customers are subject to credit evaluation while the Group continues to monitor its existing customers, especially those with repayment issues. The Group has established guidelines to ensure that all new debt investments are properly made, taking into account factors such as credit rating requirements and maximum exposure limit. All relevant departments within the Group are involved to ensure that appropriate processes, systems and controls are set in place before and after the investments are acquired. The bank balances are deposited with creditworthy banks with no recent history of default.

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Annual Report 2015/2016

Hongkong Chinese Limited 11

Report of the Directors (continued)

KEY RISKS AND UNCERTAINTIES (continued)

Strategic Direction Risk

Taking into consideration the territories that the Group operates in, the Group faces risk in its application of its assets and capital towards suitable investments and seizure of business and investment opportunities when such opportunities arise.

Manpower and Retention Risk

The competition for talents in the countries that the Group operates has led to the risk that the Group is not being able to attract and retain key personnel and talents with appropriate and required skills, experience and competence which would meet the business objectives of the Group. The manpower regulations in the respective jurisdictions which the Group operates increases the risk of the Group obtaining and retaining manpower to meet its operational needs. The Group will provide attractive remuneration package to suitable candidates and personnel.

Business Risks

Property Investment

The rental rates and the occupancy rates will depend on various factors, including but not limited to, prevailing supply and demand conditions, economic conditions as well as the quality of the properties. There is no assurance that the Group is able to look for new tenants within a short period of time or procure new leases or renew existing leases at the prevailing market rates.

Property Development

Economic conditions, availability of external financing and the performance of property markets in which the Group’s property development projects are located may affect the pace of development of the projects. Rising construction costs, labour shortage and the increase in material prices will affect the budget and the timing for completion of the development projects.

Joint Venture Partners Risk

Some of the businesses of the Group are conducted through non-wholly owned subsidiaries, associates and joint ventures in which the Group shares control with the joint venture partners. There is no assurance that any of these joint venture partners will continue their relationships with the Group in the future or their goals or strategies are in line with the Group. Such joint venture partners may have business interests or goals which are different from the Group. They may experience financial and other difficulties or may be unable to fulfil their obligations under the joint ventures which may affect the Group’s businesses and operations.

Information Technology Risk

Information technology risk arises from system downtime or breach in security, and such risks may have an adverse impact on the integrity, accuracy and completeness of data and information. The Group has engaged professionals to manage these risks and conducts regular reviews and testing.

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12 Hongkong Chinese Limited

Report of the Directors (continued)

ENVIRONMENTAL, SOCIAL AND GOVERNANCE REPORT

Other than financial performance, the Group believes that a high standard of corporate social responsibility is essential for building up a good corporate and social relationship and motivating staff and creating a sustainable return to the Group.

Workplace Quality

Working conditions

As at 31st March, 2016, the Group employed a total of 95 employees.

The Group provides competitive remuneration package to attract and motivate the employees. It offers competitive remuneration, retirement and medical benefits, insurance and generous paid leave. The Group regularly reviews the remuneration package of employees and makes necessary adjustments to conform to the market standard.

Training and Development

Employees of the Group are encouraged to attend training and development courses to have the right knowledge and skills. The relevant divisions and departments would set aside a budget for the employees to attend training and development courses. The Group provides continuous professional development training for the Directors and senior management to develop and refresh their knowledge and skills which includes seminars and workshops, updates on regulatory requirements and development and corporate governance practices.

Equal Opportunity and Diversity

The Group treats the employees with respect and fairness and encourages a culture of equal opportunity and diversity regardless of age, gender, marital status and race. A Board Diversity Policy, with the aim of enhancing the quality of the Board’s performance by diversity, was adopted in August 2013.

Health and Safety

To provide a safe working environment, risk assessments of workstations for all users are performed at regular intervals. Upgrades and maintenance of tools and equipment are performed to cope with the needs and demands of employees. In order to provide a hygienic working conditions, cleaning of carpets and air conditioning systems are carried out at regular intervals.

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Annual Report 2015/2016

Hongkong Chinese Limited 13

Report of the Directors (continued)

ENVIRONMENTAL, SOCIAL AND GOVERNANCE REPORT (continued)

Environmental Protection

Environmental conservation remains a key focus for the Group. The conscientious use of resources and adoption of best practices across the Group’s businesses underlie its commitment to safeguarding the environment. The Group encourages environmental protection and comply with environmental legislation and promote awareness towards environmental protection to the employees. The Group adheres to the principle of Recycling and Reducing. It implements green office practices such as double-sided printing and copying, setting up recycling bins, promoting using recycled paper and reducing energy consumption by switching off idle lightings and electrical appliances. To conserve the environment, the Company encourages its shareholders to receive corporate communications electronically via the websites of The Stock Exchange of Hong Kong Limited and the Company and an automatic footnote had been appended on all the Group’s emails requesting the recipients to consider the environment before printing.

The Group will review its environmental practices from time to time and will consider implementing further eco-friendly measures and practices in the operation of the Group’s businesses to move towards adhering the 3Rs – Reduce, Recycle and Reuse and enhance environmental sustainability.

Community Involvement

The Group is committed to invest in the communities where it operates by setting a donation foundation. The Group has made donations to various charitable bodies, educational bodies and cultural societies from time to time.

Operating Practices

Employees are expected to observe the highest standard of ethical, personal and professional conduct. A whistleblowing policy was adopted by the Group. The Internal Audit Department has conducted an ongoing review of the effectiveness of the internal control system on a regular basis. As far as the Group is aware, there are no concluded legal cases regarding corrupt practices brought to the Group or its employees during the year under review.

As far as the Company is aware, it has complied in material respects with the relevant laws and regulations that have a significant impact on the business and operation of the Company.

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14 Hongkong Chinese Limited

Report of the Directors (continued)

PRINCIPAL ACTIVITIES

The principal activity of the Company is investment holding. Its subsidiaries, associates and joint ventures are principally engaged in investment holding, property investment, property development, hotel operation, project management, fund management, underwriting, corporate finance, securities broking, securities investment, treasury investment, money lending, banking and other related financial services.

The activities and other particulars of the principal subsidiaries, principal associates and principal joint ventures are set out in the financial statements on pages 123 to 126, page 127 and page 128, respectively.

There were no significant changes in the nature of these activities during the Year.

RESULTS AND DISTRIBUTIONS/DIVIDENDS

The results of the Group for the Year and the financial position of the Group and the Company as at 31st March, 2016 are set out in the financial statements on pages 42 to 128.

An interim distribution of HK1 cent (2015 — HK1 cent) per share for the Year was paid on 27th January, 2016. The Directors have resolved to recommend the payment of a final dividend of HK2 cents (2015 — a final distribution of HK2 cents) per share amounting to approximately HK$40 million (2015 — approximately HK$40 million) for the Year. Total distributions/dividends for the Year will be HK3 cents (2015 — HK3 cents) per share amounting to approximately HK$60 million (2015 — approximately HK$60 million).

SUMMARY OF FINANCIAL INFORMATION

A summary of the published results and of the assets, liabilities and non-controlling interests of the Group for the last five financial years is set out on page 131.

SHARE CAPITAL

Details of the share capital of the Company are set out in Note 30 to the financial statements.

SHARE OPTION SCHEME

Details of the share option scheme of the Company are set out in Note 31 to the financial statements.

DISTRIBUTABLE RESERVES

Details of the distributable reserves of the Company are set out in Note 45 to the financial statements.

INVESTMENT PROPERTIES

Details of movements in the investment properties during the Year are set out in Note 16 to the financial statements.

DONATIONS

During the Year, the Group made charitable and other donations of HK$1,325,000 (2015 — HK$776,000).

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Annual Report 2015/2016

Hongkong Chinese Limited 15

Report of the Directors (continued)

DIRECTORS

The Directors of the Company during the Year and up to the date of this report were as follows:

Executive Directors

Dr. Stephen Riady (Chairman) Mr. John Lee Luen Wai, BBS, JP (Chief Executive Officer) Mr. Kor Kee Yee

Non-executive Director

Mr. Leon Chan Nim Leung

Independent non-executive Directors

Mr. Albert Saychuan Cheok Mr. Victor Yung Ha Kuk Mr. Tsui King Fai

In accordance with Bye-law 87 of the Bye-laws of the Company (the “Bye-laws”), Messrs. John Lee Luen Wai and Albert Saychuan Cheok will retire from office by rotation and, being eligible, will offer themselves for re-election at the forthcoming annual general meeting.

Each of Messrs. Victor Yung Ha Kuk and Tsui King Fai entered into a letter agreement with the Company for his appointment as a Director of the Company for a term of two years commencing from 30th September, 2014. Each of Dr. Stephen Riady and Messrs. John Lee Luen Wai and Kor Kee Yee entered into a letter agreement with the Company for his appointment as a Director of the Company for a term of two years commencing from 1st January, 2015. Following the expiry of the term under their respective former letter agreements with the Company, each of Messrs. Leon Chan Nim Leung and Albert Saychuan Cheok entered into a new letter agreement with the Company for his appointment as a Director of the Company for a term of two years commencing from 1st January, 2016. All the above letter agreements are terminable by either party by giving three months’ prior written notice. The term of office of the Directors is also subject to the provisions of the Bye-laws. In accordance with the Bye-laws, one-third of the Directors of the Company must retire from office at each annual general meeting and their re-election is subject to a vote of shareholders. In addition, every Director is subject to retirement by rotation at least once every three years notwithstanding that the total number of Directors to retire at the relevant annual general meeting would as a result exceed one-third of the Directors. In addition, each of Dr. Stephen Riady and Messrs. John Lee Luen Wai and Kor Kee Yee entered into an employment agreement with the Company with effect from 1st January, 2015 in respect of their executive role in the Company, which are terminable by either party by giving three months’ prior written notice.

None of the Directors proposed for re-election at the forthcoming annual general meeting has a service contract with the Company or any of its subsidiaries which is not determinable by the employing company within one year without payment of compensation, other than statutory compensation.

The Company has received from each independent non-executive Director an annual confirmation of his independence pursuant to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, and the Company considers such Directors to be independent.

Under the Company’s Bye-laws, every Director or other officer of the Company acting in relation to any of the affairs of the Company shall be entitled to be indemnified out of the assets of the Company against all costs, charges, expenses, losses or liabilities which he may sustain or incur in or about the execution of the duties of his office or otherwise in relation thereto. A Directors’ and Officers’ Liability Insurance is in place to protect the Directors and officers of the Group against any potential liability arising from the Group’s activities which such Directors and officers may be held liable.

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16 Hongkong Chinese Limited

Report of the Directors (continued)

BRIEF BIOGRAPHICAL DETAILS OF DIRECTORS AND SENIOR MANAGEMENT

Dr. Stephen Riady , aged 56, was appointed a Director of the Company in 1992 and is the Chairman of the board of directors of the Company. He is also an executive director and the Chairman of the board of directors of each of Lippo Limited (“Lippo”) and Lippo China Resources Limited (“LCR”), both are public listed companies in Hong Kong. He has been the Executive President of each of the Company, Lippo and LCR since January 2015. Dr. Riady is a director of Lanius Limited and Lippo Capital Limited. He is a member of the Remuneration Committee and Nomination Committee of each of the Company, Lippo and LCR. He also holds directorships in certain subsidiaries of the Company, Lippo and LCR. Dr. Riady is the Executive Chairman of OUE Limited and an executive director of Auric Pacific Group Limited (“Auric”), both are public listed companies in Singapore. He serves as a member of the Nomination Committee of Auric. Dr. Riady is a graduate of the University of Southern California, United States of America and holds a Master Degree of Business Administration from Golden Gate University, United States of America and an Honorary Degree of Doctor of Business Administration from Edinburgh Napier University, United Kingdom. He is one of the first Honorary University Fellows installed by the Hong Kong Baptist University in September 2006. Dr. Riady is a son of Dr. Mochtar Riady and Madam Lidya Suryawaty. The interests of Dr. Mochtar Riady and Madam Lidya Suryawaty in the Company are disclosed in the section headed “Interests and short positions of shareholders discloseable under the Securities and Futures Ordinance” below.

Mr. John Lee Luen Wai , BBS, JP, aged 67, was appointed a Director of the Company in 1992 and is the Chief Executive Officer of the Company. Mr. Lee is the Managing Director and the Chief Executive Officer of Lippo and an executive director and the Chief Executive Officer of LCR, as well as an independent non-executive director of New World Development Company Limited, New World China Land Limited and UMP Healthcare Holdings Limited, all are public listed companies in Hong Kong. He is a director of Prime Success Limited and Hennessy Holdings Limited. Mr. Lee is an authorised representative of the Company, Lippo and LCR. In addition, he holds directorships in certain subsidiaries of the Company, Lippo and LCR. Mr. Lee is a Fellow of The Institute of Chartered Accountants in England and Wales, the Association of Chartered Certified Accountants and the Hong Kong Institute of Certified Public Accountants. He was a partner of Pricewaterhouse (now known as PricewaterhouseCoopers) in Hong Kong and has extensive experience in corporate finance and capital markets. Mr. Lee is an Honorary Fellow of the City University of Hong Kong, a Justice of Peace in Hong Kong and an awardee of the Bronze Bauhinia Star by the Government of the Hong Kong Special Administrative Region. Mr. Lee is active in public service and currently serves as a Trustee of the Board of the Hospital Authority Provident Fund Scheme and a member of the Appeal Boards Panel (Education). He was appointed a member of the Public Service Commission on 1st May, 2016.

Mr. Leon Chan Nim Leung , aged 60, was appointed a Director of the Company in 1992 and was re-designated from independent non-executive Director to non-executive Director of the Company in September 2004. He is a practising lawyer and presently the principal partner of Messrs. Y.T. Chan & Co. He was admitted as a solicitor of the Supreme Court of Hong Kong in 1980 and was also admitted as a solicitor in England in 1984 and in Victoria, Australia in 1985. He was a member of the Solicitors Disciplinary Tribunal from May 1993 to April 2008. He is also a non-executive director of Lippo and LCR. Mr. Chan is a member of the Audit Committee, Remuneration Committee and Nomination Committee of each of the Company, Lippo and LCR. He is also a director of a subsidiary of the Company and a member of the supervisory board of a former subsidiary of the Company. Mr. Chan is an independent non-executive director of Midland Holdings Limited, a public listed company in Hong Kong. He was an independent non-executive director of PanAsialum Holdings Company Limited, a public listed company in Hong Kong.

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Annual Report 2015/2016

Hongkong Chinese Limited 17

Report of the Directors (continued)

BRIEF BIOGRAPHICAL DETAILS OF DIRECTORS AND SENIOR MANAGEMENT (continued)

Mr. Albert Saychuan Cheok , aged 65, was appointed an independent non-executive Director of the Company in 2002. Mr. Cheok is a member of the Audit Committee, Remuneration Committee and Nomination Committee of the Company. Mr. Cheok graduated from the University of Adelaide, Australia, with a First Class Honours degree in Economics. He is a Fellow of the Australian Society of Certified Public Accountants and is a banker with over 40 years of experience in banking in the Asia-Pacific region, particularly in Australia, Hong Kong, Philippines and Malaysia. Mr. Cheok is the independent non-executive Chairman of Auric, a food group listed in Singapore. Mr. Cheok is the independent non-executive Chairman of AcrossAsia Limited and International Standard Resources Holdings Limited, and an independent non-executive director of China Aircraft Leasing Group Holdings Limited, all are public listed companies in Hong Kong. He is also the independent non-executive Chairman of Bowsprit Capital Corporation Limited (“Bowsprit”), the Manager of First REIT, a listed healthcare REIT in Singapore and the independent non-executive Chairman of Amplefield Limited (“Amplefield”). Both Bowsprit and Amplefield are public listed companies in Singapore. Mr. Cheok is the independent non-executive Chairman of LMIRT Management Limited, the Manager of Lippo Malls Indonesia Retail Trust which is a listed Singapore based real estate investment trust. Mr. Cheok is an independent non-executive director of Adavale Resources Limited, a company listed on Australian Securities Exchange. Mr. Cheok is currently a Vice Governor of the Board of Governors of the Malaysian Institute of Corporate Governance in Malaysia. Mr. Cheok is an independent non-executive director of MIDAN City Development Co., Ltd. in Korea. He was the Chairman of Bangkok Bank Berhad in Malaysia for the period from September 1995 to November 2005.

Mr. Kor Kee Yee , aged 68, was appointed a Director of the Company in 2002. Mr. Kor holds a Master’s Degree in Business Administration from Asia International Open University (Macau). He has over 30 years’ comprehensive banking experience.

Mr. Victor Yung Ha Kuk , aged 62, was appointed an independent non-executive Director of the Company in September 2004. Mr. Yung is a professional accountant with over 30 years of working experience in the financial and accounting fields, and served in management positions in various multinational companies in Asia. Mr. Yung holds a Master of Science Degree in Corporate Governance and Directorship from the Hong Kong Baptist University, and is a member of the Hong Kong Institute of Certified Public Accountants. He is also an independent non-executive director of Lippo and LCR. Mr. Yung is a member of the Audit Committee, Remuneration Committee and Nomination Committee of the Company. He is also the Chairman of the Audit Committee and a member of the Remuneration Committee and Nomination Committee of each of Lippo and LCR. Mr. Yung is an independent non-executive director of Travel Expert (Asia) Enterprises Limited, a public listed company in Hong Kong. He was an independent non-executive director of Magnum Entertainment Group Holdings Limited, a public listed company in Hong Kong.

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18 Hongkong Chinese Limited

Report of the Directors (continued)

BRIEF BIOGRAPHICAL DETAILS OF DIRECTORS AND SENIOR MANAGEMENT (continued)

Mr. Tsui King Fai , aged 66, was appointed an independent non-executive Director of the Company in September 2004. Mr. Tsui is a director and senior consultant of a registered financial services company in Hong Kong. He is an independent non-executive director of Vinda International Holdings Limited, China Aoyuan Property Group Limited and Newton Resources Ltd, all are public listed companies in Hong Kong. He has over 30 years of extensive experience in accounting, finance and investment management, particularly in investments in mainland China. Mr. Tsui worked for two of the Big Four audit firms in the United States of America and Hong Kong and served in various public listed companies in Hong Kong in a senior capacity. He is a Fellow of the Hong Kong Institute of Certified Public Accountants, a member of the Chartered Accountants Australia and New Zealand and a member of the American Institute of Certified Public Accountants. He graduated from the University of Houston, Texas, the United States of America and holds a Master of Science in Accountancy and a Bachelor of Business Administration with first class honours. Mr. Tsui is an independent non-executive director of Lippo and LCR. He is the Chairman of the Audit Committee, Remuneration Committee and Nomination Committee of the Company. He is also a member of the Audit Committee and the Chairman of the Remuneration Committee and Nomination Committee of each of Lippo and LCR.

Details of the interests of the Directors in the Company are disclosed in the section headed “Directors’ and chief executive’s interests and short positions in shares, underlying shares and debentures of the Company and associated corporations” below.

Save as disclosed herein and in the section headed “Directors’ and chief executive’s interests and short positions in shares, underlying shares and debentures of the Company and associated corporations” below, the Directors do not have any other relationships with any Directors, senior management or substantial or controlling shareholders of the Company.

DIRECTORS’ AND FIVE HIGHEST PAID EMPLOYEES’ EMOLUMENTS

Details of the emoluments of the Directors on a named basis and the five highest paid employees in the Group are set out in Notes 7 and 8 to the financial statements, respectively.

The emoluments of the Directors are determined by reference to the market rates, time commitment and their duties and responsibilities as well as employment conditions elsewhere in the Group.

The emoluments of the Directors for the Year have been covered by their respective letter agreements and/or employment agreements (as applicable) with the Company and/or paid under the relevant statutory requirement save for those as disclosed herein below:

(a) the director’s fees of Mr. John Lee Luen Wai in the total amount of approximately HK$49,000 for serving as director of subsidiary/former subsidiary of the Company;
(b) the director’s fee of Mr. Leon Chan Nim Leung in an amount of HK$30,000 for serving as director of a subsidiary of the Company; and
(c) the director’s fee of Mr. Albert Saychuan Cheok in an amount of approximately HK$13,000 for serving as the Chairman of the General Assembly of a former subsidiary of the Company.

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Annual Report 2015/2016

Hongkong Chinese Limited 19

Report of the Directors (continued)

DIRECTORS’ AND FIVE HIGHEST PAID EMPLOYEES’ EMOLUMENTS (continued)

Dr. Stephen Riady, Mr. John Lee Luen Wai and Mr. Kor Kee Yee are entitled to receive salaries, discretionary bonuses and other fringe benefits for the executive role in the Company under their respective employment agreements with the Company.

Further details of the above Directors’ emoluments are disclosed in Note 7 to the financial statements.

Each of the Directors of the Company is entitled to receive a director’s fee from the Company. The director’s fee paid to each of the Directors of the Company was HK$216,000 for the Year. A non-executive Director will also receive additional fees for duties assigned to and services provided by him as Chairmen and/or members of various board committees of the Company. The fees paid to the non-executive Directors for serving as the Chairmen and/or members of various board committees of the Company for the Year were as follows:

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HK$
----- End of picture text -----

Audit Committee
Chairman	72,000
Member	48,000
Other Committees
Chairman	48,000
Member	48,000

With effect from 1st April, 2016, the director’s fee payable to each of the Directors of the Company was adjusted from HK$216,000 per annum to HK$223,200 per annum and the fees payable to the non-executive Directors per annum for serving as Chairmen and/or members of various board committees of the Company were adjusted as follows:

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HK$
----- End of picture text -----

Audit Committee
Chairman	74,400
Member	49,200
Other Committees
Chairman	49,200
Member	49,200

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20 Hongkong Chinese Limited

Report of the Directors (continued)

DIRECTORS’ AND CHIEF EXECUTIVE’S INTERESTS AND SHORT POSITIONS IN SHARES, UNDERLYING SHARES AND DEBENTURES OF THE COMPANY AND ASSOCIATED CORPORATIONS

As at 31st March, 2016, the interests or short positions of the Directors and chief executive of the Company in the shares and underlying shares of the Company or any of its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (the “SFO”)) as recorded in the register required to be kept by the Company under Section 352 of the SFO or as otherwise notified to the Company and The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers under the Rules Governing the Listing of Securities on the Stock Exchange (the “Model Code”), were as follows:

Interests in shares and underlying shares of the Company and associated corporations

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----- Start of picture text -----

Personal Approximate
interests Family percentage of
(held as interests total interests
beneficial (interest of Other Total in the
Name of Director owner) spouse) interests interests issued shares
----- End of picture text -----

Number of ordinary shares of HK$1.00 each in the Company	Number of ordinary shares of HK$1.00 each in the Company	Number of ordinary shares of HK$1.00 each in the Company
Stephen Riady	–	–	1,315,707,842	1,315,707,842	65.84
			Note (i)
John Lee Luen Wai	2,000,270	270	–	2,000,540	0.10
Tsui King Fai	600,000	75,000	–	675,000	0.03
Kor Kee Yee	606,000	–	–	606,000	0.03
Number of ordinary shares in Lippo Limited (“Lippo”)
Stephen Riady	–	–	343,983,219	343,983,219	69.75
			Notes (i) and (ii)
John Lee Luen Wai	1,031,250	–	–	1,031,250	0.21
Number of ordinary shares in Lippo China Resources Limited (“LCR”)
Stephen Riady	–	–	6,544,696,389	6,544,696,389	71.24
			Notes (i), (ii)
			and (iii)

Note:

(i) As at 31st March, 2016, Lippo Capital Limited (“Lippo Capital”), an associated corporation (within the meaning of Part XV of the SFO) of the Company, was indirectly interested in 1,315,707,842 ordinary shares of HK$1.00 each in, representing approximately 65.84 per cent. of the issued shares of, the Company. Lanius Limited (“Lanius”), an associated corporation (within the meaning of Part XV of the SFO) of the Company, is the holder of 705,690,001 ordinary shares of HK$1.00 each in, representing the entire issued shares of, Lippo Capital. Lanius is the trustee of a discretionary trust which was founded by Dr. Mochtar Riady, who does not have any interest in the issued shares of Lanius. The beneficiaries of the trust include, inter alia, Dr. Stephen Riady and other members of the family. Dr. Stephen Riady was taken to be interested in Lippo Capital under the provisions of the SFO.
(ii) As at 31st March, 2016, Lippo Capital, and through its wholly-owned subsidiary, J & S Company Limited, was directly and indirectly interested in an aggregate of 343,983,219 ordinary shares in, representing approximately 69.75 per cent. of the issued shares of, Lippo.
(iii) As at 31st March, 2016, Lippo was indirectly interested in 6,544,696,389 ordinary shares in, representing approximately 71.24 per cent. of the issued shares of, LCR.

Annual Report 2015/2016

Hongkong Chinese Limited 21

Report of the Directors (continued)

DIRECTORS’ AND CHIEF EXECUTIVE’S INTERESTS AND SHORT POSITIONS IN SHARES, UNDERLYING SHARES AND DEBENTURES OF THE COMPANY AND ASSOCIATED CORPORATIONS (continued)

Interests in shares and underlying shares of the Company and associated corporations (continued)

For the reasons outlined above, through his deemed interest in Lippo Capital as mentioned in Note (i) above, Dr. Stephen Riady was also taken to be interested in the issued shares of the following associated corporations (within the meaning of Part XV of the SFO) of the Company:

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Approximate
percentage
Number of of interest
shares in the
Name of associated corporation Class of shares interested issued shares
----- End of picture text -----

Abital Trading Pte. Limited	Ordinary shares	2	100
Auric Pacific Group Limited	Ordinary shares	61,927,335	49.28
Blue Regent Limited	Ordinary shares	100	100
Boudry Limited	Ordinary shares	10	100
	Non-voting	1,000	100
	deferred shares
Brimming Fortune Limited	Ordinary shares	1	100
Broadwell Overseas Holdings Limited	Ordinary shares	1	100
First Tower Corporation	Ordinary shares	1	100
Gemdale Properties and Investment	Ordinary shares	4,706,452,795	29.80
Corporation Limited
Grand Peak Investment Limited	Ordinary shares	2	100
Great Honor Investments Limited	Ordinary shares	1	100
Greenorth Holdings Limited	Ordinary shares	1	100
Hennessy Holdings Limited	Ordinary shares	1	100
HKCL Investments Limited	Ordinary shares	1	100
Honix Holdings Limited	Ordinary shares	1	100
International Realty (Singapore) Pte. Limited	Ordinary shares	2	100
J & S Company Limited	Ordinary shares	1	100
Lippo Assets (International) Limited	Ordinary shares	1	100
	Non-voting	15,999,999	100
	deferred shares
Lippo Finance Limited	Ordinary shares	6,176,470	82.35
Lippo Investments Limited	Ordinary shares	2	100
Lippo Realty Limited	Ordinary shares	2	100
Multi-World Builders & Development	Ordinary shares	4,080	51
Corporation
Prime Success Limited	Ordinary shares	1	100
Skyscraper Realty Limited	Ordinary shares	10	100
The HCB General Investment (Singapore)	Ordinary shares	100,000	100
Pte Ltd.
Valencia Development Limited	Ordinary shares	800,000	100
	Non-voting	200,000	100
	deferred shares
Winroot Holdings Limited	Ordinary shares	1	100

22 Hongkong Chinese Limited

Report of the Directors (continued)

DIRECTORS’ AND CHIEF EXECUTIVE’S INTERESTS AND SHORT POSITIONS IN SHARES, UNDERLYING SHARES AND DEBENTURES OF THE COMPANY AND ASSOCIATED CORPORATIONS (continued)

Interests in shares and underlying shares of the Company and associated corporations (continued) As at 31st March, 2016, Dr. Stephen Riady, as beneficial owner and through his nominee, was interested in 5 ordinary shares in, representing approximately 16.67 per cent. of, the issued shares of, Lanius which is the holder of the entire issued shares of Lippo Capital. Lanius is the trustee of a discretionary trust which was founded by Dr. Mochtar Riady (father of Dr. Stephen Riady), who does not have any interest in the issued shares of Lanius. The beneficiaries of the trust include, inter alia, Dr. Stephen Riady and other members of the family.

As at 31st March, 2016, Mr. Kor Kee Yee, as beneficial owner, was interested in 2,444,000 ordinary shares in, representing approximately 9.29 per cent. of, the issued shares of TechnoSolve Limited, an associated corporation (within the meaning of Part XV of the SFO) of the Company.

As at 31st March, 2016, none of the Directors or chief executive of the Company had any interests in the underlying shares in respect of physically settled, cash settled or other equity derivatives of the Company or any of its associated corporations (within the meaning of Part XV of the SFO).

All the interests stated above represent long positions. Save as disclosed herein, as at 31st March, 2016, none of the Directors or chief executive of the Company had any interests or short positions in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required to be recorded in the register kept by the Company under Section 352 of the SFO or which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code.

As at 31st March, 2016, none of the Directors or chief executive of the Company nor their spouses or minor children (natural or adopted), were granted or had exercised any rights to subscribe for any equity or debt securities of the Company or any of its associated corporations (within the meaning of Part XV of the SFO).

ARRANGEMENTS TO ACQUIRE SHARES OR DEBENTURES

At no time during the Year was the Company or any of its subsidiaries, holding companies or fellow subsidiaries a party to any arrangement to enable a Director of the Company to acquire benefits by means of the acquisition of shares in, or debentures of, the Company or any other body corporate.

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Annual Report 2015/2016

Hongkong Chinese Limited 23

Report of the Directors (continued)

INTERESTS AND SHORT POSITIONS OF SHAREHOLDERS DISCLOSEABLE UNDER THE SECURITIES AND FUTURES ORDINANCE

As at 31st March, 2016, so far as is known to the Directors of the Company, the following substantial shareholders (as defined under the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”)) and other person, other than the Directors or chief executive of the Company, had interests or short positions in the shares and underlying shares of the Company as recorded in the register required to be kept by the Company under Section 336 of the Securities and Futures Ordinance (the “SFO”) and/or as notified to the Company as follows:

Interests of substantial shareholders (as defined under the Listing Rules) and other person in shares of the Company

Name	Number of ordinary shares of HK$1.00 each	Approximate percentage of interests in the issued shares
Substantial shareholders:
Hennessy Holdings Limited (“Hennessy”)	1,315,707,842	65.84
Prime Success Limited (“Prime Success”)	1,315,707,842	65.84
Lippo Limited (“Lippo”)	1,315,707,842	65.84
Lippo Capital Limited (“Lippo Capital”)	1,315,707,842	65.84
Lanius Limited (“Lanius”)	1,315,707,842	65.84
Dr. Mochtar Riady	1,315,707,842	65.84
Madam Lidya Suryawaty	1,315,707,842	65.84
Other person:
Farallon Capital Management, L.L.C. (“Farallon”)	199,620,650	9.98

Note:

Hennessy, the immediate holding company of the Company, as beneficial owner, directly held 1,315,707,842 ordinary shares of HK$1.00 each in, representing approximately 65.84 per cent. of the issued shares of, the Company.
Hennessy is wholly owned by Prime Success which in turn is wholly owned by Lippo.
Lippo Capital, the holding company of Lippo, together with its wholly-owned subsidiary, J & S Company Limited, owns ordinary shares representing approximately 69.75 per cent. of the issued shares of Lippo.
Lanius is the holder of the entire issued shares of Lippo Capital and is the trustee of a discretionary trust which was founded by Dr. Mochtar Riady, who does not have any interest in the issued shares of Lanius. Dr. Mochtar Riady and his wife Madam Lidya Suryawaty were taken to be interested in Lippo Capital under the provisions of the SFO.
Hennessy’s interests in the ordinary shares of the Company were recorded as the interests of Prime Success, Lippo, Lippo Capital, Lanius, Dr. Mochtar Riady and Madam Lidya Suryawaty. The above 1,315,707,842 ordinary shares in the Company related to the same block of shares that Dr. Stephen Riady was interested, details of which are disclosed in the above section headed “Directors’ and chief executive’s interests and short positions in shares, underlying shares and debentures of the Company and associated corporations”. Dr. Mochtar Riady, his wife Madam Lidya Suryawaty and Dr. Stephen Riady were taken to be interested in the shares of the Company under the provisions of the SFO.

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24 Hongkong Chinese Limited

Report of the Directors (continued)

INTERESTS AND SHORT POSITIONS OF SHAREHOLDERS DISCLOSEABLE UNDER THE SECURITIES AND FUTURES ORDINANCE (continued)

Interests of substantial shareholders (as defined under the Listing Rules) and other person in shares of the Company (continued)

Note: (continued)

Farallon, through the entities and accounts managed by it as investment adviser (both directly and through its wholly-owned subsidiary Farallon Capital Asia Pte. Ltd. (formerly known as Noonday Asset Management Pte. Ltd.)), namely Farallon Capital Partners, L.P., Farallon Capital Institutional Partners, L.P., Farallon Capital Institutional Partners II, L.P., Farallon Capital Institutional Partners III, L.P., Farallon Capital (AM) Investors, L.P., Farallon Capital Offshore Investors II, L.P., Noonday Capital Partners, L.L.C., Noonday Offshore, Inc. and Farallon Capital AA Investors, L.P., was indirectly interested in an aggregate of 199,620,650 ordinary shares of HK$1.00 each in, representing approximately 9.98 per cent. of the issued shares of, the Company.
The percentage of interests of “other person” in the issued shares stated in this section is based on the disclosure form filed with the Company.

All the interests stated above represent long positions. Save as disclosed herein, as at 31st March, 2016, none of the substantial shareholders (as defined under the Listing Rules) or other person, other than the Directors or chief executive of the Company, had any interests or short positions in the shares and underlying shares of the Company as recorded in the register required to be kept by the Company under Section 336 of the SFO.

DIRECTORS’ INTERESTS IN COMPETING BUSINESS

The Lippo Group (a general reference to the companies in which Dr. Stephen Riady and his family members have a direct or indirect interest) is not a legal entity and does not operate as one. Each of the companies in the Lippo Group operates within its own legal, corporate and financial framework. As at 31st March, 2016, the Lippo Group might have had or developed interests in business in Hong Kong and other parts in Asia similar to those of the Group and there was a chance that such businesses might have competed with the businesses of the Group.

Dr. Stephen Riady and Messrs. John Lee Luen Wai, Leon Chan Nim Leung, Victor Yung Ha Kuk and Tsui King Fai are also directors of Lippo Limited (“Lippo”), an intermediate holding company of the Company, and Lippo China Resources Limited (“LCR”), a fellow subsidiary of the Company. Further details of the Directors’ interests in Lippo and LCR are disclosed in the above section headed “Directors’ and chief executive’s interests and short positions in shares, underlying shares and debentures of the Company and associated corporations”. Subsidiaries of Lippo and LCR are also engaged in property investment and property development.

The Directors of the Company are fully aware of, and have been discharging, their fiduciary duty to the Company. The Company and its Directors would comply with the relevant requirements of the Company’s Byelaws and the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) whenever a Director has any conflict of interest in the transaction(s) with the Company.

Save as disclosed herein, during the Year and up to the date of this report, none of the Directors are considered to have interest in any business which competes or is likely to compete, either directly or indirectly, with the business of the Group required to be disclosed under the Listing Rules.

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Annual Report 2015/2016

Hongkong Chinese Limited 25

Report of the Directors (continued)

CONTINUING CONNECTED TRANSACTIONS AND CONNECTED TRANSACTION

Continuing connected transactions and connected transaction disclosed in accordance with the Rules Governing the Listing of Securities (the “Listing Rules”) on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) are as follows:

Continuing Connected Transactions

(A) On 30th August, 2013, service agreements were entered into between Lippo Securities Holdings Limited (“Lippo Securities”), a wholly-owned subsidiary of the Company, and:
(1) Lippo Capital Limited (“Lippo Capital”) for itself and its subsidiaries (other than Lippo Limited (“Lippo”), Lippo China Resources Limited (“LCR”), the Company and their respective subsidiaries);
(2) Lippo for itself and its subsidiaries (other than LCR, the Company and their respective subsidiaries); and
(3) LCR for itself and its subsidiaries.

Both Lippo Capital and Lippo are indirect controlling shareholders of the Company. LCR is a fellow subsidiary of the Company.

Pursuant to the above service agreements, Lippo Securities agreed to provide securities and futures broking and trading services, corporate finance, securities investment, treasury investment, and other incidental financial services (the “Services”) to each of Lippo Capital, Lippo and LCR and their respective subsidiaries in making securities and futures investments through their respective trading accounts opened and/or maintained with Lippo Securities Limited (“LSL”) and Lippo Futures Limited (“Lippo Futures”), both of which are wholly-owned subsidiaries of Lippo Securities. The term of each of the above service agreements commenced from 1st April, 2013 to 31st March, 2016 with trading commissions, brokerage service fees, collection fees and/or other incidental fees (“Fees”) paid and payable to Lippo Securities and its subsidiaries, including, inter alia, LSL and Lippo Futures (“Lippo Securities Group”) in respect of the Services provided by LSL and/or Lippo Futures (as the case may be), based on the fees received from relevant market customers of comparable standing and in the ordinary course of business of Lippo Securities Group. The rate of commissions and/or brokerage services fees payable to Lippo Securities Group for each securities or futures transaction (as the case may be) is charged based on the size of each trade, whilst that for each futures transaction is fixed at a specified rate, both on terms no more favourable to the relevant connected persons than those offered to or available from independent third parties. Such rates of Fees are charged at market rates comparable to that of other securities service providers in Hong Kong. The maximum aggregate service fees for the Year under the service agreements between Lippo Securities and each of Lippo Capital, Lippo and LCR were HK$400,000, HK$2,200,000 and HK$4,000,000 respectively.

Further details of the above transactions are disclosed in Note 39(c) to the financial statements.

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26 Hongkong Chinese Limited

Report of the Directors (continued)

CONTINUING CONNECTED TRANSACTIONS AND CONNECTED TRANSACTION (continued)

Continuing Connected Transactions (continued)

(A) (continued)

The independent non-executive Directors have confirmed that the above transactions had been entered into (i) in the ordinary and usual course of business of the Group; (ii) on normal commercial terms or better; and (iii) according to the above agreements governing them on terms that are fair and reasonable and in the interests of the shareholders of the Company as a whole. Messrs. Ernst & Young, the Company’s auditors, were engaged to report on the Group’s continuing connected transactions in accordance with Hong Kong Standard on Assurance Engagements 3000 (Revised)“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. In accordance with rule 14A.56 of the Listing Rules, Messrs. Ernst & Young have issued their unqualified letter containing their findings and conclusions in respect of the continuing connected transactions disclosed above by the Company and a copy of the auditors’ letter has been provided by the Company to the Stock Exchange.

Connected Transaction

(B) On 28th October, 2015, Winwise Holdings Limited (the “Vendor”) and 南粵（集團）有限公司 (Nam Yue (Group) Company Limited) (the “Purchaser”) entered into a sale and purchase agreement (the “Sale and Purchase Agreement”), pursuant to which the Vendor agreed to sell and the Purchaser agreed to purchase 416,000 shares of MOP100 each in, representing 16 per cent. of the issued shares of, The Macau Chinese Bank Limited (“MCB”), a company owned as to 51 per cent. by the Vendor, for a consideration of MOP144 million (equivalent to approximately HK$140 million) (the “Disposal”).

Upon signing of the Sale and Purchase Agreement, the Purchaser has fully paid the above consideration as non-refundable deposit, which was used to set off against the outstanding loan amount under the loan agreement dated 27th July, 2015 entered into between, inter alia, the Vendor as borrower and the Purchaser as lender.

The Vendor is a wholly-owned subsidiary of the Company and the Purchaser is a substantial shareholder holding 40 per cent. interest in MCB.

Completion of the Disposal is conditional upon, among others, the obtaining of the approval of Autoridade Monetaria e Cambial de Macau, the Monetary Authority of Macau, on or before 31st December, 2016. The above disposal of shares to an existing shareholder with strong Macau and Guangdong Provincial connections can help broadening the business horizon and improve the long term growth potential of MCB.

The Directors of the Company are of the view that the terms of the above agreements are determined on fair and reasonable basis and in accordance with normal commercial terms and that such transactions are in the ordinary and usual course of business of the Group and in the interests of the Company and its shareholders as a whole.

The Company has complied with all the reporting, announcement and other requirements under Chapter 14A of the Listing Rules in respect of the continuing connected transactions and connected transaction disclosed herein.

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Annual Report 2015/2016

Hongkong Chinese Limited 27

Report of the Directors (continued)

DISCLOSURE PURSUANT TO RULE 13.20 OF THE RULES GOVERNING THE LISTING OF SECURITIES ON THE STOCK EXCHANGE OF HONG KONG LIMITED

During the Year, the Group, through Pacific Landmark Holdings Limited (“PLHL”), its indirect wholly-owned subsidiary, had granted financial assistance to Fortune Code Limited (“FCL”), a subsidiary of Lippo ASM Asia Property Limited (“LAAPL”) which in turn is a principal joint venture of the Company, pursuant to the following loan agreements:

(i) a loan agreement dated 29th May, 2015 entered into between FCL and PLHL pursuant to which PLHL agreed to advance a loan of S$53,920,839.43 to FCL for a term up to 19th October, 2015. At 28th August, 2015, PLHL and FCL agreed to amend the loan agreement to extend the repayment date to 19th October, 2017;
(ii) a loan agreement dated 28th August, 2015 entered into between FCL and PLHL pursuant to which PLHL agreed to make available a loan facility of S$7,000,000 to FCL, which is repayable on demand;
(iii) a loan agreement dated 28th August, 2015 entered into between FCL and PLHL pursuant to which PLHL agreed to advance a further loan of S$100,000,000 to FCL for a term up to 19th October, 2017;
(iv) a loan agreement dated 12th October, 2015 entered into between FCL and PLHL pursuant to which PLHL agreed to make available a loan facility of S$2,000,000 to FCL, which is repayable on demand; and
(v) a loan agreement dated 30th November, 2015 entered into between FCL and PLHL pursuant to which PLHL agreed to make available a new loan facility of S$38,000,000 to FCL for a term up to 19th October, 2017.

Besides, an unsecured loan of approximately S$10,314,000 was advanced by PLHL to FCL on 20th June, 2013 for a term up to 19th October, 2015. At 28th August, 2015, PLHL and FCL agreed to amend the loan agreement to extend the repayment date to 19th October, 2017.

All the above advances from PLHL to FCL are unsecured and are subject to an interest rate of 6.5 per cent. per annum.

In March 2016, in order to provide the funding required by two subsidiaries of LAAPL (the “LAAPL Subsidiaries”) to subscribe for their entire pro-rata entitlements under the rights issue (the “OUE H-Trust Rights Issue”) of OUE Hospitality Trust (“OUE H-Trust”), a wholly-owned subsidiary of the Company (the “HKC Subsidiary”) entered into exchangeable loan agreements (the “EL Agreements”) with each of the LAAPL Subsidiaries to make available to the LAAPL Subsidiaries interest free loan facilities in an aggregate amount of approximately S$18,400,000 (the “Exchangeable Loans”). The Exchangeable Loans were drawn by the LAAPL Subsidiaries after the end of the reporting period. Under the terms of the EL Agreements, the LAAPL Subsidiaries had the exchange rights to settle the outstanding amount of the Exchangeable Loans in full by transferring all the new stapled securities in OUE H-Trust they would receive under the OUE H-Trust Rights Issue to the HKC Subsidiary.

Therefore, at the end of the reporting period, LAAPL was indebted to the Group an aggregate outstanding principal amount of approximately S$211,235,000 (equivalent to approximately HK$1,212,975,000).

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28 Hongkong Chinese Limited

Report of the Directors (continued)

DIRECTORS’ AND CONTROLLING SHAREHOLDERS’ INTERESTS IN CONTRACTS

Save as disclosed above and in Note 39 to the financial statements, there were no other contracts of significance in relation to the Company’s business, to which the Company or any of its subsidiaries, holding companies or fellow subsidiaries was a party, subsisting at the end of the Year or at any time during the Year, and in which a Director or the controlling shareholders or any of their respective subsidiaries, directly or indirectly, had a material interest.

During the Year, no contract of significance for the provision of services to the Group by a controlling shareholder or any of its subsidiaries has been made.

MANAGEMENT CONTRACTS

No contracts concerning the management and/or administration of the whole or any substantial part of the business of the Company were entered into or existed during the Year.

PURCHASE, SALE OR REDEMPTION OF THE COMPANY’S LISTED SECURITIES

During the Year, there was no purchase, sale or redemption of the Company’s listed securities by the Company or any of its subsidiaries.

MAJOR SUPPLIERS AND CUSTOMERS

During the Year, the percentage of sales attributable to the Group’s five largest customers combined was less than 30 per cent. of the Group’s aggregate sales. Purchases from the Group’s five largest suppliers combined accounted for 89 per cent. of the total purchases for the Year and purchases from the largest supplier included therein amounted to 70 per cent.

None of the Directors of the Company, their close associates, or any shareholder (which to the knowledge of the Directors own more than 5 per cent. of the Company’s issued share capital) had any interest in the Group’s five largest suppliers or customers.

RELATIONSHIPS WITH EMPLOYEES, SUPPLIERS AND CUSTOMERS

The Group understands that employees are valuable assets. The Group provides competitive remuneration package to attract and motivate the employees. The Group regularly reviews the remuneration package of employees and makes necessary adjustments to conform to the market standard.

The Group also understands that it is important to maintain good relationship with its suppliers and customers to fulfil its immediate and long-term goals. To maintain its brand competitiveness and dominant status, the Group aims at delivering constantly high standards of quality in the products and service to its customers. During the Year, there was no material and significant dispute between the Group and its suppliers and/or customers.

RETIREMENT BENEFITS SCHEME

Details of the retirement benefits scheme of the Group and the employer’s retirement benefits costs charged to the consolidated statement of profit or loss for the Year are set out in Notes 2.4(v) and 6 to the financial statements, respectively.

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Annual Report 2015/2016

Hongkong Chinese Limited 29

Report of the Directors (continued)

CORPORATE GOVERNANCE

The Company is committed to maintaining a high standard of corporate governance practices. The Company’s Corporate Governance Report is set out on pages 30 to 39.

SUFFICIENCY OF PUBLIC FLOAT

Based on information that is publicly available to the Company and within the knowledge of the Directors, as at the date of this report, the Company has maintained sufficient public float as required under the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

PRE-EMPTIVE RIGHTS

There are no provisions for pre-emptive rights under the Company’s Bye-laws or the laws of Bermuda which would oblige the Company to offer new shares on a pro-rata basis to existing shareholders.

AUDITORS

The financial statements for the Year were audited by Messrs. Ernst & Young who will retire at the conclusion of the forthcoming annual general meeting and, eligible, will offer themselves for re-appointment.

On behalf of the Board John Lee Luen Wai Chief Executive Officer

Hong Kong, 29th June, 2016

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30 Hongkong Chinese Limited

Corporate Governance Report

CORPORATE GOVERNANCE PRACTICES

The Company is committed to ensuring a high standard of corporate governance practices. The Board of Directors of the Company (the “Board”) believes that good corporate governance practices are increasingly important for maintaining and promoting investor confidence. Corporate governance requirements keep changing, therefore the Board reviews its corporate governance practices from time to time to ensure they meet public and shareholders’ expectation, comply with legal and professional standards and reflect the latest local and international developments. The Board will continue to commit itself to achieving a high quality of corporate governance so as to safeguard the interests of shareholders and enhance shareholders’ value.

During the year ended 31st March, 2016 (the “Year”), the Company continued to take measures to closely monitor and enhance its corporate governance practices so as to comply with the requirements of the code provisions of the Corporate Governance Code (the “CG Code”) contained in Appendix 14 of the Rules Governing the Listing of Securities (the “Listing Rules”) on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”).

To the best knowledge and belief of the Directors, the Directors consider that the Company has complied with the code provisions of the CG Code for the Year.

DIRECTORS’ SECURITIES TRANSACTIONS

The Company has adopted the Model Code for Securities Transactions by Directors of Listed Issuers (the “Model Code”) contained in Appendix 10 of the Listing Rules as the code for securities transactions by Directors. Having made specific enquiry of all Directors, all Directors have fully complied with the required standard set out in the Model Code throughout the Year.

To enhance corporate governance, the Company has also established written guidelines no less exacting than the Model Code for the relevant employees of the Group in respect of their dealings in the Company’s securities.

BOARD OF DIRECTORS

The Board currently comprises seven members (the composition of the Board is shown on page 15), including three executive Directors and four non-executive Directors of whom three are independent as defined under the Listing Rules (brief biographical details of the Directors are set out on pages 16 to 18). A list containing the names of the Directors and their roles and functions can also be found on the Company’s website (www.hkchinese.com.hk) and the Stock Exchange’s website (www.hkexnews.hk). To the best knowledge of the Directors, the Board members have no financial, business, family or other material/relevant relationships with each other.

The Company has three independent non-executive Directors, representing more than one-third of the Board. All the independent non-executive Directors have appropriate professional qualifications or accounting or related financial management expertise under rule 3.10 of the Listing Rules. All the independent non-executive Directors have signed the annual confirmation of independence pursuant to rule 3.13 of the Listing Rules to confirm their independence. The Company considers that all independent non-executive Directors have met the independence guidelines of rule 3.13 of the Listing Rules.

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Annual Report 2015/2016

Hongkong Chinese Limited 31

Corporate Governance Report (continued)

BOARD OF DIRECTORS (continued)

Messrs. Victor Yung Ha Kuk, Tsui King Fai and Albert Saychuan Cheok have served as independent non-executive Director of the Company for more than nine years. In addition to their confirmation of independence in accordance with rule 3.13 of the Listing Rules, each of them continues to demonstrate the attributes of an independent non-executive Director by providing independent views and advice and there is no evidence that their tenure have had any impact on their independence. The Directors are of the opinion that Messrs. Victor Yung Ha Kuk, Tsui King Fai and Albert Saychuan Cheok remain independent notwithstanding the length of their service and they believe that their valuable knowledge and experience in the Group’s business and their external experience continue to generate significant contribution to the Company and its shareholders as a whole.

Under the Company’s Bye-laws, one-third of the Directors must retire from office at each annual general meeting and their re-election is subject to a vote of shareholders. In addition, every Director is subject to retirement by rotation at least once every three years notwithstanding that the total number of Directors to retire at the relevant annual general meeting would as a result exceed one-third of the Directors. Under the Listing Rules, if an independent non-executive Director serves more than nine years, his further appointment should be subject to a separate resolution to be approved by shareholders. All the Directors have entered into letter agreements and/or employment agreements with the Company setting out the key terms and conditions of their respective appointment as directors and/or executive role in the Company.

The Board oversees the Group’s strategic development and determines the objectives, strategies and policies of the Group. The Board also monitors and controls the operating and financial performance in pursuit of the Group’s strategic objectives. The Board has delegated certain functions to the relevant Board committees, details of which are disclosed below. Day-to-day management of the Group’s business is delegated to the management of the Company under the supervision of the executive Directors. The functions and powers that are so delegated are reviewed periodically to ensure that they remain appropriate. Matters reserved for the Board are those affecting the Group’s overall strategic policies, dividend policy, material policies and decisions, significant changes in accounting policies, material contracts, major investments and approval of interim reports, annual reports and announcements of interim and final results. Management provides the Directors with management updates of the Group’s operation, performance and position. All Directors are kept informed of and duly briefed of major changes and information that may affect the Group’s businesses in a timely manner. Legal and regulatory updates are provided to the Directors from time to time for their information so as to keep them abreast of the latest rule requirements and assist them in fulfilling their responsibilities. The Company Secretary may advise the Directors on queries raised or issues which arise in performance of their duties as directors. The Board members have access to appropriate business documents and information about the Group on a timely basis. All Directors and Board committees have recourse to external legal counsel and other professionals for independent advice at the Group’s expense upon their request.

Three Board committees, namely, the Audit Committee, the Remuneration Committee and the Nomination Committee, have been established to oversee particular aspects of the Group’s affairs.

The Board meets regularly to review the financial and operating performance of the Group and other business units, and formulate future strategy. Five Board meetings were held during the Year.

During the Year, the Chairman held a meeting with the non-executive Directors (including independent non-executive Directors) without the executive Directors present.

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32 Hongkong Chinese Limited

Corporate Governance Report (continued)

BOARD OF DIRECTORS (continued)

Individual attendance of each Director at the Board meetings and general meeting and each committee member at meetings of the Audit Committee, the Remuneration Committee and the Nomination Committee during the Year are set out below:

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----- Start of picture text -----

Attendance/Number of Meetings
Audit Remuneration Nomination General
Directors Board Committee Committee Committee Meeting
----- End of picture text -----*

Executive Directors
Dr. Stephen Riady_(Chairman)_	4/5	N/A	3/3	2/3	1/1
Mr. John Lee Luen Wai	5/5	N/A	N/A	N/A	1/1
(Chief Executive Officer)
Mr. Kor Kee Yee	5/5	N/A	N/A	N/A	1/1
Non-executive Director
Mr. Leon Chan Nim Leung	5/5	3/3	3/3	3/3	1/1
Independent non-executive Directors
Mr. Tsui King Fai	5/5	3/3	3/3	3/3	1/1
(Chairman of the Audit Committee,
Remuneration Committee and
Nomination Committee)
Mr. Albert Saychuan Cheok	5/5	3/3	3/3	3/3	1/1
Mr. Victor Yung Ha Kuk	5/5	3/3	3/3	3/3	1/1

the only general meeting of the Company held during the Year was the annual general meeting held on 10th September, 2015 (the “2015 AGM”)

CHAIRMAN AND CHIEF EXECUTIVE OFFICER

The roles of the Chairman and the Chief Executive Officer of the Company are segregated. Dr. Stephen Riady is the Chairman of the Board. The primary role of the Chairman is to provide leadership for the Board and to ensure that it works effectively in the discharge of its responsibilities. Mr. John Lee Luen Wai is the Chief Executive Officer of the Company. The Chief Executive Officer is responsible for the day-to-day management of the Group’s business. Their respective roles and responsibilities are set out in writing which have been approved by the Board.

NON-EXECUTIVE DIRECTORS

There are currently four non-executive Directors of whom three are independent. Under the Company’s Bye-laws, every Director, including the non-executive Directors, shall be subject to retirement by rotation at least once every three years. All the non-executive Directors have a fixed term of contract of two years with the Company.

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Annual Report 2015/2016

Hongkong Chinese Limited 33

Corporate Governance Report (continued)

REMUNERATION OF DIRECTORS

A Remuneration Committee was established by the Board in June 2005. It has clear terms of reference and is accountable to the Board. Its terms of reference can be found on the Company’s website (www.hkchinese.com.hk) and the Stock Exchange’s website (www.hkexnews.hk). The Committee has been delegated with the authority and responsibility to determine the remuneration packages of individual Directors and senior management. Senior management of the Company comprises Directors of the Company only.

The principal role of the Committee is to exercise the powers of the Board to review and determine or make recommendations to the Board on the remuneration packages of individual Directors and senior management, including salaries, bonuses, share options and benefits in kind. Salaries paid by comparable companies, time commitment and responsibilities and employment conditions elsewhere in the Group have been considered in determining the remuneration packages so as to align management incentives with shareholders’ interests. During the Year, the Remuneration Committee reviewed and determined, with delegated responsibility, inter alia, (i) the remuneration packages of the Directors and senior staff; and (ii) service contracts of certain Directors.

Majority of the Committee members are non-executive Directors and three of them are independent. The Remuneration Committee comprises five members including three independent non-executive Directors, namely Messrs. Tsui King Fai (being the Chairman of the Remuneration Committee), Albert Saychuan Cheok and Victor Yung Ha Kuk, a non-executive Director, namely Mr. Leon Chan Nim Leung and an executive Director, namely Dr. Stephen Riady. The composition of the Remuneration Committee meets the requirements of chairmanship and independence of the Listing Rules. Three meetings were held during the Year and the individual attendance of each member is set out above.

Details of Directors’ emoluments and retirement benefits are disclosed in Notes 7 and 2.4(v) to the financial statements, respectively.

NOMINATION OF DIRECTORS

The Board has the power to appoint Director(s) pursuant to the Company’s Bye-laws. No new Director was appointed during the Year.

A Nomination Committee was established by the Board in June 2005. It has clear terms of reference and is accountable to the Board. Its terms of reference can be found on the Company’s website (www.hkchinese.com.hk) and the Stock Exchange’s website (www.hkexnews.hk). The principal role of the Committee includes, inter alia, review of the structure, size and composition (including the skills, knowledge, experience and diversity of perspectives) of the Board at least annually and making recommendations on any proposed changes to the Board to complement the Company’s corporate strategy; assessment of the independence of independent non-executive Directors; and making recommendations to the Board on the appointment or re-appointment of Directors and succession planning for Directors in particular the Chairman of the Board and the chief executive. Only the most suitable candidates who are experienced and competent and able to fulfill the fiduciary duties and duties of skill, care and diligence would be recommended to the Board for selection. Appointments are first considered by the Nomination Committee and recommendation of the Nomination Committee is then put to the Board for decision. During the Year, the Nomination Committee reviewed, inter alia, the eligibility of the Directors seeking for re-election at the 2015 AGM and assessed the independence of the independent nonexecutive Directors. The Nomination Committee also reviewed the existing structure, size, composition, diversity and efficiency of the Board and reviewed the objectives set for implementing the Diversity Policy (as defined below).

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34 Hongkong Chinese Limited

Corporate Governance Report (continued)

NOMINATION OF DIRECTORS (continued)

The Board considers its diversity is essential to the sustainable success of the Company and adopted a board diversity policy (the “Diversity Policy”) in August 2013. The Nomination Committee undertakes the function to review the Diversity Policy and make recommendations on any required changes to the Board. The Diversity Policy sets out the approach to achieve diversity on the board which will include and make good use of the difference in skills, professional experience, educational background, gender, age, knowledge, length of service and other qualities of the members of the Board. These differences will be considered in determining the optimum composition of the Board and all board appointments will be based on merit and contribution, having due regard to the overall effective function of the Board as a whole. The Company will also take into account factors based on its own business model and specific needs from time to time. The Nomination Committee monitors the implementation of the Diversity Policy and will at appropriate time set measurable objectives for achieving diversity under the Diversity Policy. The Nomination Committee will review the Diversity Policy from time to time to ensure its continued effectiveness. A copy of the Diversity Policy can be found on the Company’s website (www.hkchinese.com.hk). The Company believes that diversity can strengthen the performance of the Board, and promote effective decision-making and better corporate governance and monitoring.

Majority of the Committee members are non-executive Directors and three of them are independent. The Nomination Committee comprises five members including three independent non-executive Directors, namely Messrs. Tsui King Fai (being the Chairman of the Nomination Committee), Albert Saychuan Cheok and Victor Yung Ha Kuk, a non-executive Director, namely Mr. Leon Chan Nim Leung and an executive Director, namely Dr. Stephen Riady. The composition of the Nomination Committee meets the requirements of chairmanship and independence of the Listing Rules. Three meetings were held during the Year and the individual attendance of each member is set out above.

Shareholders may propose a candidate for election as a Director in accordance with the Bye-laws of the Company. The procedures for such proposal are published on the Company’s website (www.hkchinese.com.hk).

DIRECTORS’ TIME COMMITMENT AND TRAINING

The Company has received confirmation from each Director that he had sufficient time and attention to the affairs of the Company for the Year. Directors are encouraged to participate in professional, public and community organisations. Directors have disclosed to the Company the number and nature of offices held in Hong Kong or overseas listed public companies or organisations and other significant commitments, with the identity of the public companies and organisations and an indication of the time involved. They are also reminded to notify the Company in a timely manner of any change of such information. In respect of those Directors who would stand for re-election at the forthcoming 2016 annual general meeting of the Company (the “2016 AGM”), all their directorships held in listed public companies in the past three years are to be set out in the circular to shareholders regarding, inter alia, proposed re-election of retiring Directors. Other details of Directors are set out in the brief biographical details of Directors and senior management on pages 16 to 18.

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Annual Report 2015/2016

Hongkong Chinese Limited 35

Corporate Governance Report (continued)

DIRECTORS’ TIME COMMITMENT AND TRAINING (continued)

Directors are also encouraged to attend seminars and conferences to enrich their knowledge in discharging their duties as a director. The Company has arranged from time to time at its cost seminars and/or conferences conducted by professional bodies for the Directors relating to, inter alia, directors’ duties, corporate governance and regulatory updates. Directors’ knowledge and skills are continuously developed and refreshed by, inter alia, the following means:

(1) participation in continuous professional training seminars and/or conferences and/or courses and/or workshops on subjects relating to, inter alia, corporate governance, directors’ duties and legal and regulatory changes organised and/or arranged by the Company and/or professional bodies and/or lawyers;
(2) reading materials provided from time to time by the Company to the Directors regarding legal and regulatory changes and matters of relevance to the Directors in the discharge of their duties; and
(3) reading news, journals, magazines and/or other reading materials regarding legal and regulatory changes and matters of relevance to the Directors in the discharge of their duties.

According to the training records provided by the Directors to the Company, all Directors participated in continuous professional development during the Year through the above means (1), (2) and (3). Records of the Directors’ training during the Year are as follows:

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----- Start of picture text -----

Directors Training received
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Executive Directors
Dr. Stephen Riady_(Chairman)_	(1), (2) and (3)
Mr. John Lee Luen Wai_(Chief Executive Officer)_	(1), (2) and (3)
Mr. Kor Kee Yee	(1), (2) and (3)
Non-executive Director
Mr. Leon Chan Nim Leung	(1), (2) and (3)
Independent non-executive Directors
Mr. Albert Saychuan Cheok	(1), (2) and (3)
Mr. Victor Yung Ha Kuk	(1), (2) and (3)
Mr. Tsui King Fai	(1), (2) and (3)

DIRECTORS’ AND OFFICERS’ LIABILITY INSURANCE

The Company has arranged directors’ and officers’ liability insurance for years to indemnify the directors and officers of the Group against any potential liability arising from the Group’s activities which such directors and officers may be held liable.

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36 Hongkong Chinese Limited

Corporate Governance Report (continued)

AUDITORS’ REMUNERATION

Messrs. Ernst & Young has been appointed by the shareholders annually as the Company’s auditors. During the Year, the fees charged to the financial statements of the Group for the statutory audit and non-statutory audit services provided by Messrs. Ernst & Young (which for the purpose includes any entity under common control, ownership or management with the auditors or any entity that a reasonable and informed third party having knowledge of all relevant information would reasonably conclude as part of the auditors nationally and internationally) amounted to approximately HK$2.7 million (2015 — HK$3.0 million) and approximately HK$0.2 million (2015 — HK$0.1 million), respectively.

AUDIT COMMITTEE

The Board established an Audit Committee in December 1998. The Audit Committee has clear terms of reference and is accountable to the Board. Its terms of reference can be found on the Company’s website (www.hkchinese.com.hk) and the Stock Exchange’s website (www.hkexnews.hk). The Audit Committee assists the Board in meeting its responsibilities for ensuring an effective system of risk management, internal control and compliance, and in meeting its external financial reporting objectives. The Audit Committee is also responsible for the Company’s corporate governance functions. All Committee members are non-executive Directors and three of them including the Chairman are independent. The Audit Committee comprises four members including three independent non-executive Directors, namely Messrs. Tsui King Fai (being the Chairman of the Audit Committee), Albert Saychuan Cheok and Victor Yung Ha Kuk and a non-executive Director, namely Mr. Leon Chan Nim Leung. Three meetings were held during the Year and the individual attendance of each member is set out above.

The Committee members possess diversified industry experience and the Chairman of the Audit Committee has appropriate professional qualifications and experience in accounting matters. Under its current terms of reference, the Committee will meet at least twice each year. Management and auditors shall normally attend the meetings.

During the Year, the Audit Committee discharged its duties by reviewing financial, audit, risk management and corporate governance matters of the Group, including management accounts, financial statements, interim and annual reports, corporate governance report and internal audit reports and discussing with executive Directors, management, external auditors and internal audit department (the “IA Department”) regarding financial matters, corporate governance policies and practices and internal audit, control and risk management matters of the Group, and making recommendations to the Board on financial-related matters. The Audit Committee also recommended to the Board that, subject to the shareholders’ approval at the 2016 AGM, Messrs. Ernst & Young be re-appointed as the Company’s external auditors for the ensuing year; and reviewed the fees charged by the Company’s external auditors.

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Annual Report 2015/2016

Hongkong Chinese Limited 37

Corporate Governance Report (continued)

RISK MANAGEMENT AND INTERNAL CONTROLS

The Board recognises its responsibility for maintaining adequate systems of risk management and internal control and prompt and transparent reporting of the Company’s activities to the shareholders and to the public.

The risk management and internal control systems are designed to facilitate the effectiveness and efficiency of operations, safeguard assets against unauthorised use and disposition, ensure the maintenance of proper accounting records and the truth and fairness of the financial statements, and ensure compliance with relevant legislation and regulations.

During the Year, a review of the effectiveness of the Group’s internal control system covering all material controls and risk management functions was conducted and such review will be conducted on an annual basis.

An Inside Information Policy was adopted by the Company which sets out guidelines to the Directors, officers and all relevant employees of the Group to ensure inside information (as defined in the Listing Rules) (the “Inside Information”) of the Group would be disseminated to the public in equal and timely manner in accordance with applicable laws and regulations. The Company also established Group Internal Notification Policies and Procedures for setting out guidelines for identification and notification of Inside Information and notifiable transactions (as defined in the Listing Rules). A Whistleblowing Policy was also adopted by the Group.

During the Year, the Board reviewed the adequacy of resources, qualifications and experience of staff of the Company’s internal audit function as well as its accounting and financial reporting function, and their training programmes and budgets. The review will be conducted annually in accordance with the requirements of the CG Code.

INTERNAL AUDIT

The IA Department was set up in 2007 to perform internal audit and to review the internal control system of the Group.

The principal roles of the internal audit are to ensure the effectiveness of internal control procedures and strict compliance with different standards and policies across different businesses and operations of the Group. The IA Department audits and evaluates the Group’s internal control operation and management activities so as to establish that there are no significant misrepresentations of risks and faults in the Group. The Board and the Audit Committee will actively take actions based on the findings from the IA Department. The IA Department is also responsible for providing improvement procedures to different operation teams and departments so as to minimise the risk exposure in the future. Ongoing enhancement and revision on the risk management and internal control systems will have to be made from time to time so as to cope with the growth of the Group.

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38 Hongkong Chinese Limited

Corporate Governance Report (continued)

COMPANY SECRETARY

The Company Secretary is an employee of the Company. The Company Secretary is responsible for facilitating the Board’s processes and communications among Board members, with shareholders and with management. During the Year, the Company Secretary had taken the necessary professional training.

COMMUNICATION WITH SHAREHOLDERS

The Company has established a shareholders’ communication policy and will review it on a regular basis to ensure its effectiveness.

The Company’s annual general meeting (the “AGM”) is one of the principal channels of communication with its shareholders. It provides an opportunity for shareholders to ask questions about the Company’s performance. Separate resolutions will be proposed for each substantially separate issue at the AGM. Board members, including the Chairmen of the Board and Board committees, and the Company’s external auditors are invited to attend the AGM and answer questions from shareholders.

Under the Listing Rules, all resolutions proposed at shareholders’ meetings must be voted by poll except where the chairman of a general meeting, in good faith and in compliance with the Listing Rules, decides to allow resolutions to be voted on by the shareholders on a show of hands. Details of the poll procedures will be explained during the proceedings of shareholders’ meetings. The poll voting results will be released and posted on the websites of the Stock Exchange (www.hkexnews.hk) and the Company (www.hkchinese.com.hk).

To provide effective communication, the Company maintains a website at www.hkchinese.com.hk. All the financial information and other disclosures including, inter alia, annual reports, interim reports, announcements, circulars, notices and Memorandum of Association and Bye-laws are available on the Company’s website.

Shareholders may direct their questions about their shareholdings to the Company’s Hong Kong Branch Share Registrar, Tricor Tengis Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong (the “Registrar”) or contact the Customer Service Hotline of the Registrar at (852) 2980 1333. Shareholders may send their enquiries to the Board or the Company Secretary in written form to the principal place of business of the Company at 24th Floor, Tower One, Lippo Centre, 89 Queensway, Hong Kong.

SHAREHOLDERS’ RIGHTS

Under Bye-law 58 of the Bye-laws of the Company, members holding at the date of deposit of the requisition not less than one-tenth of the paid up capital of the Company carrying the right of voting at general meetings of the Company shall at all times have the right, by written requisition to the Board or the Company Secretary of the Company, to require a special general meeting to be called by the Board for the transaction of any business specified in such requisition; and such meeting shall be held within two (2) months after the deposit of such requisition. If within twenty-one (21) days of such deposit, the Board fails to proceed to convene such meeting, the requisitionists themselves may do so in accordance with the provisions of the Companies Act 1981 of Bermuda.

Shareholders may send the requisition and request to the Board or the Company Secretary in written form to the principal place of business of the Company at 24th Floor, Tower One, Lippo Centre, 89 Queensway, Hong Kong.

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Annual Report 2015/2016

Hongkong Chinese Limited 39

Corporate Governance Report (continued)

FAIR DISCLOSURE AND INVESTOR RELATIONS

The Company uses its best endeavours to distribute material information about the Group to all interested parties as widely as possible. When announcements are made through the Stock Exchange, the same information will be available to the public on the Company’s website. The Company recognises its responsibility to disclose its activities to those with a legitimate interest and to respond to their questions. In all cases, great care has been taken in handling Inside Information of the Group. An Inside Information Policy was adopted by the Board which sets out guidelines to ensure Inside Information of the Group is to be disseminated to the public in equal and timely manner in accordance with applicable laws and regulations.

Management of the Group maintains regular contacts with the investment community. A shareholders’ communication policy was adopted by the Group.

During the Year, no amendments were made to the Company’s Memorandum of Association and Bye-laws. An updated and consolidated version of the Company’s Memorandum of Association and Bye-laws is available on the Company’s website (www.hkchinese.com.hk) and the Stock Exchange’s website (www.hkexnews.hk).

FINANCIAL REPORTING

The Board recognises its responsibility to prepare the Company’s financial statements which give a true and fair view and are in compliance with Hong Kong Financial Reporting Standards, Listing Rules and other regulatory requirements. As at 31st March, 2016, the Board was not aware of any material misstatement or uncertainties that might put doubt on the Group’s financial position or continue as a going concern. The Board selected appropriate accounting policies and applied consistently. Judgments and estimates were reasonably and prudently made. The external auditors are responsible for audit and report, if any, material misstatement or non-compliance with Hong Kong Financial Reporting Standards or other regulations. The Board uses its best endeavours to ensure a balanced, clear and understandable assessment of the Group’s performance, position and prospects in financial reporting.

The responsibilities of the auditors with respect to financial reporting are set out in the Independent Auditors’ Report on pages 40 and 41.

CORPORATE SOCIAL RESPONSIBILITY

The Group is conscious of its role as a socially responsible group of companies. It cares for and supports the communities where it operates. The Group makes donations for community well-being from time to time.

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40 Hongkong Chinese Limited

Independent Auditors’ Report

To the shareholders of Hongkong Chinese Limited

(Incorporated in Bermuda with limited liability)

We have audited the consolidated financial statements of Hongkong Chinese Limited (the “Company”) and its subsidiaries set out on pages 42 to 128, which comprise the consolidated statement of financial position as at 31st March, 2016, and the consolidated statement of profit or loss, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.

DIRECTORS’ RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL STATEMENTS

The Directors of the Company are responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants and the disclosure requirements of the Hong Kong Companies Ordinance, and for such internal control as the Directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

AUDITORS’ RESPONSIBILITY

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. Our report is made solely to you, as a body, in accordance with section 90 of the Bermuda Companies Act 1981, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgement, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation of consolidated financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Directors, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

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Annual Report 2015/2016

Hongkong Chinese Limited 41

Independent Auditors’ Report (continued)

OPINION

In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Company and its subsidiaries as at 31st March, 2016, and of their financial performance and cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards and have been properly prepared in compliance with the disclosure requirements of the Hong Kong Companies Ordinance.

Ernst & Young

Certified Public Accountants 22/F CITIC Tower 1 Tim Mei Avenue Central, Hong Kong

Hong Kong, 29th June, 2016

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42 Hongkong Chinese Limited

Consolidated Statement of Profit or Loss

For the year ended 31st March, 2016

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2016 2015
Note HK$’000 HK$’000
(Restated) [(1)]
Revenue 5 1,326,874 228,679
Cost of sales 6 (827,557) (75,967)
Gross profit 499,317 152,712
Administrative expenses (78,929) (93,768)
Other operating expenses (70,877) (50,808)
Gain on disposal of subsidiaries 34 202,355 501
Net fair value gain on investment properties 29,193 31,555
Net fair value gain/(loss) on financial instruments at
fair value through profit or loss 6,461 (9,464)
–
Provision for impairment losses on an associate (6,986)
Finance costs 9 (417) (3,478)
Share of results of associates 8,450 2,962
Share of results of joint ventures 10 (317,997) 675,834
Profit before tax 6 277,556 699,060
Income tax 11 (71,653) (33,665)
Profit for the year 205,903 665,395
Attributable to:
Equity holders of the Company 203,931 655,067
Non-controlling interests 1,972 10,328
205,903 665,395
HK cents HK cents
(Restated) [(1)]
Earnings per share attributable to
equity holders of the Company 12
Basic and diluted 10.2 32.8
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(1) Refer to Note 44

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Annual Report 2015/2016

Hongkong Chinese Limited 43

For the year ended 31st March, 2016

Consolidated Statement of Comprehensive Income

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2016 2015
Note HK$’000 HK$’000
(Restated) [(1)]
Profit for the year 205,903 665,395
Other comprehensive income/(loss)
Other comprehensive income/(loss) to be reclassified to
profit or loss in subsequent periods:
Available-for-sale financial assets:
Changes in fair value (1,288) (1,980)
Adjustments for disposal 70 4
–
Adjustment for impairment losses 3,187
Income tax effect 557 1,025
(661) 2,236
Share of other comprehensive income/(loss) of
joint ventures:
Share of changes in fair value of available-for-sale
financial assets (179,067) 25,210
Share of effective portion of changes in fair value of
cash flow hedges (39,605) 10,198
Share of exchange differences on translation of
foreign operations 41,356 (550,456)
(177,316) (515,048)
Share of exchange differences on translation of
a foreign associate (43) (1,482)
Exchange differences on translation of foreign operations 21,485 (66,860)
Adjustments relating to disposal of subsidiaries:
Available-for-sale financial assets (2,715) –
Exchange differences on translation of foreign
operations 202 7
Income tax effect 327 –
34 (2,186) 7
Net other comprehensive loss to be reclassified to
profit or loss in subsequent periods and
other comprehensive loss for the year, net of tax (158,721) (581,147)
Total comprehensive income for the year 47,182 84,248
Attributable to:
Equity holders of the Company 50,698 73,684
Non-controlling interests (3,516) 10,564
47,182 84,248
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(1) Refer to Note 44

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44 Hongkong Chinese Limited

Consolidated Statement of Financial Position

As at 31st March, 2016

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2016 2015
Note HK$’000 HK$’000
(Restated) [(1)]
Non-current assets
Goodwill 14 – 71,485
Fixed assets 15 48,566 65,327
Investment properties 16 119,340 245,178
Interests in associates 17 456,824 439,456
Interests in joint ventures 18 9,186,042 8,053,618
Available-for-sale financial assets 19 6,039 88,904
Loans and advances 20 – 111,256
Other financial asset 24 25,295 –
9,842,106 9,075,224
Current assets
Properties held for sale 141,350 115,571
Properties under development 21 28,613 816,766
Loans and advances 20 15,917 280,847
Debtors, prepayments and deposits 22 143,949 119,355
Available-for-sale financial assets 19 – 24,047
Financial assets at fair value through profit or loss 23 44,173 108,760
Tax recoverable 13 223
Client trust bank balances 295,784 324,982
Restricted cash 25 1,004 70,099
–
Treasury bills 38,800
Cash and bank balances 904,015 1,748,980
1,574,818 3,648,430
Current liabilities
Bank and other borrowings 26 – 464,542
Creditors, accruals and deposits received 27 698,460 935,700
Current, fixed, savings and other deposits of customers 28 – 444,582
Tax payable 114,357 296,220
812,817 2,141,044
Net current assets 762,001 1,507,386
Total assets less current liabilities 10,604,107 10,582,610
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(1) Refer to Note 44

Annual Report 2015/2016

Hongkong Chinese Limited 45

Consolidated Statement of Financial Position (continued)

As at 31st March, 2016

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2016 2015
Note HK$’000 HK$’000
(Restated) [(1)]
Non-current liabilities
Deferred tax liabilities 29 23,526 50,742
Net assets 10,580,581 10,531,868
Equity
Equity attributable to equity holders of the Company
Share capital 30 1,998,280 1,998,280
Reserves 32 8,502,720 8,426,489
10,501,000 10,424,769
Non-controlling interests 79,581 107,099
10,580,581 10,531,868
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(1) Refer to Note 44

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Stephen Riady Director

John Lee Luen Wai Director

46 Hongkong Chinese Limited

Consolidated Statement of Changes in Equity

For the year ended 31st March, 2016

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Attributable to equity holders of the Company
Share Capital Investment Other asset Exchange Non-
Share premium redemption Legal Regulatory revaluation revaluation Hedging equalisation Distributable controlling Total
capital account reserve reserve reserve reserve reserve reserve reserve reserves Total interests equity
(Note 32(c)) (Note 32(d)) (Note 32(e)) (Note 32(f)) (Note 32(b))
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
At 1st April, 2015
As previously reported 1,998,280 92,775 22,144 20,114 2,691 460,839 36,074 6,540 335,986 7,163,717 10,139,160 107,099 10,246,259
Prior year adjustment (Note 44) – – – – – – – – (5,439) 291,048 285,609 – 285,609
At 1st April, 2015 (restated) 1,998,280 92,775 22,144 20,114 2,691 460,839 36,074 6,540 330,547 7,454,765 10,424,769 107,099 10,531,868
Profit for the year – – – – – – – – – 203,931 203,931 1,972 205,903
Other comprehensive income/(loss) for the year:
Available-for-sale financial assets:
Changes in fair value – – – – – (1,288) – – – – (1,288) – (1,288)
Adjustments for disposal – – – – – 70 – – – – 70 – 70
Income tax effect – – – – – 557 – – – – 557 – 557
Share of other comprehensive income/(loss) of
joint ventures – – – – – (179,067) – (39,605) 41,356 – (177,316) – (177,316)
Share of exchange differences on translation of
a foreign associate – – – – – – – – (43) – (43) – (43)
Exchange differences on translation of foreign operations – – – – – – – – 26,973 – 26,973 (5,488) 21,485
Adjustments relating to disposal of a subsidiary – – – – – (2,388) – – 202 – (2,186) – (2,186)
Total comprehensive income/(loss) for the year – – – – – (182,116) – (39,605) 68,488 203,931 50,698 (3,516) 47,182
Share of equity movements arising on equity
transactions of joint ventures – – – – – 6,388 – 4,556 7,966 66,572 85,482 – 85,482
Transfer of reserve upon disposal of a subsidiary – – – (20,114) (2,691) – (36,074) – – 58,879 – – –
2014/2015 final distribution declared and
paid to shareholders of the Company – – – – – – – – – (39,966) (39,966) – (39,966)
2015/2016 interim distribution declared and
paid to shareholders of the Company – – – – – – – – – (19,983) (19,983) – (19,983)
Dividend declared and paid to non-controlling
shareholder of a subsidiary – – – – – – – – – – – (24,002) (24,002)
At 31st March, 2016 1,998,280 92,775 22,144 – – 285,111 – (28,509) 407,001 7,724,198 10,501,000 79,581 10,580,581
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Annual Report 2015/2016

Hongkong Chinese Limited 47

Consolidated Statement of Changes in Equity (continued)

For the year ended 31st March, 2016

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Attributable to equity holders of the Company
Share Capital Investment Other asset Exchange Non-
Share premium redemption Legal Regulatory revaluation revaluation Hedging equalisation Distributable controlling Total
capital account reserve reserve reserve reserve reserve reserve reserve reserves Total interests equity
(Note 32(c)) (Note 32(d)) (Note 32(e)) (Note 32(f)) (Note 32(b)) (Restated) [ (1)]
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
At 1st April, 2014 1,998,280 92,775 22,144 9,840 2,691 433,393 36,074 (3,242) 949,559 6,850,001 10,391,515 248,033 10,639,548
Profit for the year (restated) – – – – – – – – – 655,067 655,067 10,328 665,395
Other comprehensive income/(loss) for the year:
Available-for-sale financial assets:
Changes in fair value – – – – – (1,980) – – – – (1,980) – (1,980)
Adjustments for disposal – – – – – 4 – – – – 4 – 4
Adjustment for impairment losses – – – – – 3,187 – – – – 3,187 – 3,187
Income tax effect – – – – – 1,025 – – – – 1,025 – 1,025
Share of other comprehensive income/(loss) of
joint ventures (restated) – – – – – 25,210 – 10,198 (550,456) – (515,048) – (515,048)
Share of exchange differences on translation of
a foreign associate – – – – – – – – (1,482) – (1,482) – (1,482)
Exchange differences on translation of foreign operations – – – – – – – – (67,096) – (67,096) 236 (66,860)
Adjustments relating to disposal of subsidiaries – – – – – – – – 7 – 7 – 7
Total comprehensive income/(loss) for the year (restated) – – – – – 27,446 – 10,198 (619,027) 655,067 73,684 10,564 84,248
Share of equity movements arising on equity
transactions of joint ventures – – – – – – – (416) 15 19,920 19,519 – 19,519
Transfer of reserve – – – 10,274 – – – – – (10,274) – – –
2013/2014 final distribution declared and
paid to shareholders of the Company – – – – – – – – – (39,966) (39,966) – (39,966)
2014/2015 interim distribution declared and
paid to shareholders of the Company – – – – – – – – – (19,983) (19,983) – (19,983)
Dividend declared and paid to non-controlling
shareholder of a subsidiary – – – – – – – – – – – (151,498) (151,498)
At 31st March, 2015 (restated) 1,998,280 92,775 22,144 20,114 2,691 460,839 36,074 6,540 330,547 7,454,765 10,424,769 107,099 10,531,868
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(1) Refer to Note 44

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48 Hongkong Chinese Limited

Consolidated Statement of Cash Flows

For the year ended 31st March, 2016

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2016 2015
Note HK$’000 HK$’000
Cash flows from operating activities
Cash generated from/(used in) operations 35(a) 689,370 (235,297)
Interest received 28,055 80,651
Dividends received from:
Listed and unlisted investments 3,228 3,532
Joint ventures 5,742 112,684
Taxes refunded/(paid):
Hong Kong 182 71
Overseas (247,600) (404,519)
Net cash flows from/(used in) operating activities 478,977 (442,878)
Cash flows from investing activities
Proceeds from disposal of:
Fixed assets – 40
–
Investment properties 5,436
Available-for-sale financial assets 40,398 3,860
Payments to acquire:
Fixed assets (1,418) (55,215)
Available-for-sale financial assets (16,328) (12,745)
–
Repayment from associates 39,439
Advances to associates (58) (23,311)
Repayment from joint ventures 2,116 1,544
Advances to joint ventures (1,218,800) (23,425)
Disposal of subsidiaries, net of cash and
cash equivalents disposed of 34 108,797 2,040
Decrease in time deposits with original maturity of
more than three months – 925,397
Net cash flows from/(used in) investing activities (1,085,293) 863,060
Cash flows from financing activities
Interest paid (1,328) (3,047)
Drawdown of bank and other borrowings (Note) 45,000 378,120
Repayment of bank and other borrowings (Note) (509,542) (221,972)
–
Advances from shareholders of a joint venture 35(b) 270,630
Distributions paid to shareholders of the Company (59,949) (59,949)
Dividend paid to non-controlling shareholder of a subsidiary (24,002) (151,498)
Decrease in pledged bank deposits 69,095 25,786
Net cash flows used in financing activities (210,096) (32,560)
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Annual Report 2015/2016

Hongkong Chinese Limited 49

Consolidated Statement of Cash Flows (continued)

For the year ended 31st March, 2016

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2016 2015
HK$’000 HK$’000
Net increase/(decrease) in cash and cash equivalents (816,412) 387,622
Cash and cash equivalents at beginning of year 1,787,780 1,398,913
Exchange realignments (67,353) 1,245
Cash and cash equivalents at end of year 904,015 1,787,780
Analysis of balances of cash and cash equivalents:
Cash and bank balances 904,015 1,748,980
–
Treasury bills 38,800
904,015 1,787,780
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Note: The amounts exclude bank loans drawn down by the Group for lending to its margin clients in respect of the initial public offerings. All such bank loans were fully repaid during the year.

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50 Hongkong Chinese Limited

Notes to the Financial Statements

1. CORPORATE AND GROUP INFORMATION

Hongkong Chinese Limited is a limited liability company incorporated in Bermuda. The registered office of the Company is located at Clarendon House, Church Street, Hamilton HM 11, Bermuda.

The immediate holding company of the Company is Hennessy Holdings Limited, a company incorporated in the British Virgin Islands. In the opinion of the Directors, the ultimate holding company of the Company is Lippo Capital Limited (“Lippo Capital”), a company incorporated in the Cayman Islands.

Details of the principal subsidiaries are set out on pages 123 to 126.

2.1 BASIS OF PREPARATION

These financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) (which include all Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (“HKASs”) and Interpretations) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”), accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. They have been prepared under the historical cost convention, except for investment properties and certain financial instrument which have been measured at fair value. These financial statements are presented in Hong Kong dollars (“HK$”) and all values are rounded to the nearest thousand (“HK$’000”) except when otherwise indicated.

Basis of consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiaries (collectively referred to as the “Group”) for the year ended 31st March, 2016. A subsidiary is an entity (including a structured entity), directly or indirectly, controlled by the Company. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee (i.e., existing rights that give the Group the current ability to direct the relevant activities of the investee).

When the Company has, directly or indirectly, less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

(a) the contractual arrangement with the other vote holders of the investee;
(b) rights arising from other contractual arrangements; and
(c) the Group’s voting rights and potential voting rights.

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Annual Report 2015/2016

Hongkong Chinese Limited 51

Notes to the Financial Statements (continued)

2.1 BASIS OF PREPARATION (continued)

Basis of consolidation (continued)

The financial statements of the subsidiaries are prepared for the same reporting period as the Company, using consistent accounting policies. The results of subsidiaries are consolidated from the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases.

Profit or loss and each component of other comprehensive income are attributed to the owners of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance.

All significant intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control described above. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.

If the Group loses control over a subsidiary, it derecognises (i) the assets (including goodwill) and liabilities of the subsidiary, (ii) the carrying amount of any non-controlling interest and (iii) the cumulative translation differences recorded in equity; and recognises (i) the fair value of the consideration received, (ii) the fair value of any investment retained and (iii) any resulting surplus or deficit in profit or loss. The Group’s share of components previously recognised in other comprehensive income is reclassified to profit or loss or distributable reserves, as appropriate, on the same basis as would be required if the Group had directly disposed of the related assets or liabilities.

2.2 CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES

The Group has adopted the following revised HKFRSs for the first time for the current year:

Amendments to HKAS 19 Defined Benefit Plans: Employee Contributions Annual Improvements 2010-2012 Cycle Amendments to a number of HKFRSs Annual Improvements 2011-2013 Cycle Amendments to a number of HKFRSs

The adoption of the above revised standards has had no significant impact on the Group’s financial performance and financial position for the current and prior years.

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52 Hongkong Chinese Limited

Notes to the Financial Statements (continued)

2.3 ISSUED BUT NOT YET EFFECTIVE HONG KONG FINANCIAL REPORTING STANDARDS

The Group has not applied the following new and revised HKFRSs, that have been issued but are not yet effective, in these financial statements:

HKFRS 9 Financial Instruments[3] Amendments to HKFRS 10 and Sale or Contribution of Assets between an Investor and HKAS 28 (2011) its Associate or Joint Venture[6] Amendments to HKFRS 10, HKFRS 12 and Investment Entities: Applying the Consolidation Exception[1] HKAS 28 (2011) Amendments to HKFRS 11 Accounting for Acquisitions of Interests in Joint Operations[1] HKFRS 14 Regulatory Deferral Accounts[5] HKFRS 15 Revenue from Contracts with Customers[3] HKFRS 16 Leases[4] Amendments to HKAS 1 Disclosure Initiative[1] Amendments to HKAS 7 Disclosure Initiative[2] Amendments to HKAS 12 Recognition of Deferred Tax Assets for Unrealised Losses[2] Amendments to HKAS 16 and HKAS 38 Clarification of Acceptable Methods of Depreciation and Amortisation[1] Amendments to HKAS 16 and HKAS 41 Agriculture: Bearer Plants[1] Amendments to HKAS 27 (2011) Equity Method in Separate Financial Statements[1] Annual Improvements 2012–2014 Cycle Amendments to a number of HKFRSs[1]

1 Effective for annual periods beginning on or after 1st January, 2016 2 Effective for annual periods beginning on or after 1st January, 2017 3 Effective for annual periods beginning on or after 1st January, 2018 4 Effective for annual periods beginning on or after 1st January, 2019

5 Effective for an entity that first adopts HKFRSs for its annual financial statements beginning on or after 1st January, 2016 and therefore is not applicable to the Group

6 The original effective date of 1st January, 2016 has been deferred/removed and early adoption of the amendments continues to be permitted

Further information about those HKFRSs that are expected to be applicable to the Group is as follows:

In September 2014, the HKICPA issued the final version of HKFRS 9, bringing together all phases of the financial instruments project to replace HKAS 39 and all previous versions of HKFRS 9. The standard introduces new requirements for classification and measurement, impairment and hedge accounting. The Group expects to adopt HKFRS 9 from 1st April, 2018. The Group is currently assessing the impact of the standard.

The amendments to HKFRS 10 and HKAS 28 (2011) address an inconsistency between the requirements in HKFRS 10 and in HKAS 28 (2011) in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The amendments require a full recognition of a gain or loss when the sale or contribution of assets between an investor and its associate or joint venture constitutes a business. For a transaction involving assets that do not constitute a business, a gain or loss resulting from the transaction is recognised in the investor’s profit or loss only to the extent of the unrelated investor’s interest in that associate or joint venture. The amendments are to be applied prospectively to transactions occurring in annual periods beginning on or after a date to be determined.

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Hongkong Chinese Limited 53

Notes to the Financial Statements (continued)

2.3 ISSUED BUT NOT YET EFFECTIVE HONG KONG FINANCIAL REPORTING STANDARDS (continued)

The amendments to HKFRS 11 require that an acquirer of an interest in a joint operation in which the activity of the joint operation constitutes a business must apply the relevant principles for business combinations in HKFRS 3. The amendments also clarify that a previously held interest in a joint operation is not remeasured on the acquisition of an additional interest in the same joint operation while joint control is retained. In addition, a scope exclusion has been added to HKFRS 11 to specify that the amendments do not apply when the parties sharing the joint control, including the reporting entity, are under common control of the same ultimate controlling party. The amendments apply to both the acquisition of the initial interest in a joint operation and the acquisition of any additional interests in the same joint operation. The amendments are not expected to have any impact on the financial position or performance of the Group upon adoption on 1st April, 2016.

HKFRS 15 establishes a new five-step model that will apply to revenue arising from contracts with customers. Under HKFRS 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The principles in HKFRS 15 provide a more structured approach for measuring and recognising revenue. The standard also introduces extensive qualitative and quantitative disclosure requirements, including disaggregation of total revenue, information about performance obligations, changes in contract asset and liability account balances between periods and key judgements and estimates. The standard will supersede all current revenue recognition requirements under HKFRSs. In September 2015, the HKICPA issued an amendment to HKFRS 15 regarding a one-year deferral of the mandatory effective date of HKFRS 15 to 1st January, 2018. The Group expects to adopt HKFRS 15 on 1st April, 2018 and is currently assessing the impact of HKFRS 15 upon adoption.

HKFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases for the lessee and the lessor to a contract. For the lessee, HKFRS 16 introduces a single accounting model for all leases, with certain exemptions, which requires lessees to recognise most leases on their statements of financial position. For the lessor, HKFRS 16 substantially carries forward the lessor accounting requirements in HKAS 17. The Group expects to adopt HKFRS 16 on 1st April, 2019 and is currently assessing the impact of the standard upon adoption.

Amendments to HKAS 1 include narrow-focus improvements in respect of the presentation and disclosure in financial statements. The amendments clarify:

(i) the materiality requirements in HKAS 1;
(ii) that specific line items in the statement of profit or loss and the statement of financial position may be disaggregated;
(iii) that entities have flexibility as to the order in which they present the notes to financial statements; and
(iv) that the share of other comprehensive income of associates and joint ventures accounted for using the equity method must be presented in aggregate as a single line item, and classified between those items that will or will not be subsequently reclassified to profit or loss.

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54 Hongkong Chinese Limited

Notes to the Financial Statements (continued)

2.3 ISSUED BUT NOT YET EFFECTIVE HONG KONG FINANCIAL REPORTING STANDARDS (continued)

Furthermore, the amendments clarify the requirements that apply when additional subtotals are presented in the statement of financial position and the statement of profit or loss. The Group expects to adopt the amendments from 1st April, 2016. The amendments are not expected to have any significant impact on the Group’s financial statements.

Amendments to HKAS 16 and HKAS 38 clarify the principle in HKAS 16 and HKAS 38 that revenue reflects a pattern of economic benefits that are generated from operating business (of which the asset is part) rather than the economic benefits that are consumed through the use of the asset. As a result, a revenuebased method cannot be used to depreciate fixed assets and may only be used in very limited circumstances to amortise intangible assets. The amendments are to be applied prospectively. The amendments are not expected to have any impact on the financial position or performance of the Group upon adoption on 1st April, 2016 as the Group has not used a revenue-based method for the calculation of depreciation of its non-current assets.

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Interests in associates and joint ventures

An associate is an entity in which the Group has a long term interest of generally not less than 20 per cent. of the equity voting rights and over which it is in a position to exercise significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies.

A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.

The Group’s interests in associates and joint ventures are stated in the consolidated statement of financial position at the Group’s share of net assets under the equity method of accounting, less any impairment losses. Adjustments are made to bring into line any dissimilar accounting policies that may exist.

The Group’s share of the post-acquisition results and other comprehensive income of associates and joint ventures is included in the consolidated statement of profit or loss and consolidated other comprehensive income, respectively. In addition, when there has been a change recognised directly in the equity of the associate or joint venture, the Group recognises its share of any changes, when applicable, in the consolidated statement of changes in equity. Unrealised gains and losses resulting from transactions between the Group and its associates or joint ventures are eliminated to the extent of the Group’s interests in the associates or joint ventures, except where unrealised losses provide evidence of an impairment of the assets transferred. Goodwill arising from the acquisition of associates or joint ventures is included as part of the Group’s interests in associates or joint ventures.

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Hongkong Chinese Limited 55

Notes to the Financial Statements (continued)

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(a) Interests in associates and joint ventures (continued)

If an interest in an associate becomes an interest in a joint venture or vice versa, the retained interest is not remeasured. Instead, the investment continues to be accounted for under the equity method. In all other cases, upon loss of significant influence over the associate or joint control over the joint venture, the Group measures and recognises any retained investment at its fair value. Any difference between the carrying amount of the associate or joint venture upon loss of significant influence or joint control and the fair value of the retained investment and proceeds from disposal is recognised in profit or loss.

(b) Business combinations and goodwill

Business combinations are accounted for using the acquisition method. The consideration transferred is measured at the acquisition date fair value which is the sum of the acquisition date fair values of assets transferred by the Group, liabilities assumed by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. For each business combination, the Group elects whether to measure the non-controlling interests in the acquiree that are present ownership interests and entitle their holders to a proportionate share of net assets in the event of liquidation at fair value or at the proportionate share of the acquiree’s identifiable net assets. All other components of non-controlling interests are measured at fair value. Acquisition-related costs are expensed as incurred.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.

If the business combination is achieved in stages, the previously held equity interest is remeasured at its acquisition date fair value and any resulting gain or loss is recognised in profit or loss.

Any contingent consideration to be transferred by the acquirer is recognised at fair value at the acquisition date. Contingent consideration classified as an asset or liability is measured at fair value with changes in fair value either recognised in profit or loss. Contingent consideration that is classified as equity is not remeasured and subsequent settlement is accounted for within equity.

Goodwill is initially measured at cost being the excess of the aggregate of the consideration transferred, the amount recognised for non-controlling interests and any fair value of the Group’s previously held equity interests in the acquiree over the net identifiable assets acquired and liabilities assumed. If the sum of this consideration and other items is lower than the fair value of the net assets acquired, the difference is, after reassessment, recognised in profit or loss as a gain on bargain purchase.

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56 Hongkong Chinese Limited

Notes to the Financial Statements (continued)

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(b) Business combinations and goodwill (continued)

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units (“CGU”), or groups of CGU, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units.

Impairment is determined by assessing the recoverable amount of the CGU (group of CGU) to which the goodwill relates. Where the recoverable amount of the CGU (group of CGU) is less than the carrying amount, an impairment loss is recognised. An impairment loss recognised for goodwill is not reversed in a subsequent period.

Where goodwill has been allocated to a CGU (or group of CGU) and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on the disposal. Goodwill disposed of in these circumstances is measured based on the relative value of the operation disposed of and the portion of the CGU retained.

(c) Fair value measurement

The Group measures its investment properties and certain financial instruments at fair value at the end of each reporting period. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either in the principal market for the asset or liability, or in the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible by the Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.

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Notes to the Financial Statements (continued)

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(c) Fair value measurement (continued)

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

Level 1 — based on quoted prices (unadjusted) in active markets for identical assets or liabilities

Level 2 — based on valuation techniques for which the lowest level input that is significant to the fair value measurement is observable, either directly or indirectly
Level 3 — based on valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable

For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by reassessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

(d) Impairment of non-financial assets

Where an indication of impairment exists, or when annual impairment testing for an asset is required (other than financial assets, investment properties, properties under development, properties held for sale and goodwill), the asset’s recoverable amount is estimated. An asset’s recoverable amount is the higher of the asset’s or CGU’s value in use and its fair value less costs of disposal, and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case the recoverable amount is determined for the CGU to which the asset belongs.

An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is charged to the statement of profit or loss in the period in which it arises, unless the asset is carried at a revalued amount, in which case the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

An assessment is made at the end of each reporting period as to whether there is an indication that previously recognised impairment losses may no longer exist or may have decreased. If such an indication exists, the recoverable amount is estimated. A previously recognised impairment loss of an asset other than goodwill is reversed only if there has been a change in the estimates used to determine the recoverable amount of that asset, but not to an amount higher than the carrying amount that would have been determined (net of any depreciation/amortisation) had no impairment loss been recognised for the asset in prior years. A reversal of such an impairment loss is credited to the statement of profit or loss in the period in which it arises, unless the asset is carried at a revalued amount, in which case the reversal of the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

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58 Hongkong Chinese Limited

Notes to the Financial Statements (continued)

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(e) Related parties

A party is considered to be related to the Group if:

(a) the party is a person or a close member of that person’s family and that person
(i) has control or joint control over the Group;
(ii) has significant influence over the Group; or
(iii) is a member of the key management personnel of the Group or of a parent of the Group;

or

(b) the party is an entity where any of the following conditions applies:
(i) the entity and the Group are members of the same group;
(ii) one entity is an associate or joint venture of the other entity (or of a parent, subsidiary or fellow subsidiary of the other entity);
(iii) the entity and the Group are joint ventures of the same third party;
(iv) one entity is a joint venture of a third entity and the other entity is an associate of the third entity;
(v) the entity is a post-employment benefit plan for the benefit of employees of either the Group or an entity related to the Group;
(vi) the entity is controlled or jointly controlled by a person identified in (a);
(vii) a person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity); and
(viii) the entity, or any member of a group of which it is a part, provides key management personnel services to the Group or to the parent of the Group.

(f) Fixed assets and depreciation

Fixed assets are stated at cost less accumulated depreciation and any impairment losses. When an item of fixed assets is classified as held for sale or when it is part of a disposal group classified as held for sale, it is not depreciated and is accounted for in accordance with HKFRS 5. The cost of an item of fixed assets comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use.

Expenditure incurred after items of fixed assets have been put into operation, such as repairs and maintenance, is normally charged to the statement of profit or loss in the period in which it is incurred. In situations where the recognition criteria are satisfied, the expenditure for a major inspection is capitalised in the carrying amount of the asset as a replacement. Where significant parts of fixed assets are required to be replaced at intervals, the Group recognises such parts as individual assets with specific useful lives and depreciate them accordingly.

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Hongkong Chinese Limited 59

Notes to the Financial Statements (continued)

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(f) Fixed assets and depreciation (continued)

Depreciation is calculated on the straight-line basis to write off the cost of each item of fixed assets to its residual value over its estimated useful life. The principal annual rates used for this purpose are as follows:

Leasehold land under finance leases and buildings Over the remaining lease terms Leasehold improvements Over the unexpired terms of the leases or useful life, whichever is shorter Furniture, fixtures and equipment 10 per cent. to 331/3 per cent. Motor vehicles 20 per cent. to 25 per cent. Yacht 10 per cent.

Where parts of an item of fixed assets have different useful lives, the cost of that item is allocated on a reasonable basis among the parts and each part is depreciated separately. Residual values, useful lives and the depreciation method are reviewed, and adjusted if appropriate, at least at each financial year end.

An item of fixed assets including any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss on disposal or retirement recognised in the statement of profit or loss in the year the asset is derecognised is the difference between the net sales proceeds and the carrying amount of the relevant asset.

(g) Investment properties

Investment properties are interests in land and buildings (including the leasehold interest under an operating lease for a property which would otherwise meet the definition of an investment property) held to earn rental income and/or for capital appreciation, rather than for use in the production or supply of goods or services or for administrative purposes; or for sale in the ordinary course of business. Such properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are stated at fair value, which reflects market conditions at the end of the reporting period. When fair value is not reliably determinable for the properties under development, the property is measured at cost until the earlier of the date construction is completed and the date at which fair value becomes reliably determinable.

Gains or losses arising from changes in the fair values of investment properties are included in the statement of profit or loss in the year in which they arise.

Any gains or losses on the retirement or disposal of investment properties are recognised in the statement of profit or loss in the year of the retirement or disposal.

For a transfer from investment properties to owner-occupied properties, the deemed cost of a property for subsequent accounting is its fair value at the date of change in use. If a property occupied by the Group as an owner-occupied property becomes an investment property, the Group accounts for such property in accordance with the policy stated under “Fixed assets and depreciation” up to the date of change in use, and any difference at that date between the carrying amount and the fair value of the property is dealt with as movements in the other asset revaluation reserve. On disposal of the asset, the relevant portion of the other asset revaluation reserve realised in respect of previous valuations is transferred to the distributable reserves as a movement in reserves.

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60 Hongkong Chinese Limited

Notes to the Financial Statements (continued)

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(h) Operating leases

Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Where the Group is the lessor, assets leased by the Group under operating leases are included in non-current assets and rentals receivable under the operating leases are credited to the statement of profit or loss on the straight-line basis over the lease terms. Where the Group is the lessee, rentals payable under operating leases net of any incentives received from the lessor are charged to the statement of profit or loss on the straight-line basis over the lease terms.

Prepaid land lease payments under operating leases are initially stated at cost and subsequently recognised on the straight-line basis over the lease terms. When the lease payments cannot be allocated reliably between the land and buildings elements, the entire lease payments are included in the cost of the land and buildings as a finance lease in fixed assets.

(i) Investments and other financial assets

Initial recognition and measurement

Financial assets are classified, at initial recognition, as financial assets at fair value through profit or loss, loans and receivables and available-for-sale financial assets, as appropriate. When financial assets are recognised initially, they are measured at fair value plus transaction costs that are attributable to the acquisition of the financial assets, except in the case of financial assets recorded at fair value through profit or loss.

The Group’s financial assets at fair value through profit or loss which are under regular way of purchases or sales are recognised on the trade date, that is, the date the Group commits to purchase or sell the asset. All regular way purchases or sales of loans and receivables and available-for-sale financial assets are recognised on the settlement date, that is, the date the asset is received or delivered by the Group. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace.

Subsequent measurement

The subsequent measurement of financial assets depends on their classification as follows:

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designated upon initial recognition as at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of sale in the near term. Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments as defined by HKAS 39.

Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with positive net changes in fair value recognised in the statement of profit or loss. These net fair value changes do not include any dividends or interest earned on these financial assets, which are recognised in accordance with the policies set out for “Revenue recognition” below.

Financial assets designated upon initial recognition as at fair value through profit or loss are designated at the date of initial recognition and only if the criteria in HKAS 39 are satisfied.

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Notes to the Financial Statements (continued)

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(i) Investments and other financial assets (continued)

Subsequent measurement (continued)

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such assets are subsequently measured at amortised cost using the effective interest rate method less any allowance for impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and includes fees or costs that are an integral part of the effective interest rate. The effective interest rate amortisation is included in the statement of profit or loss. The loss arising from impairment is recognised in the statement of profit or loss.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets in listed and unlisted equity securities, debt securities and investment funds. Equity investments and investment funds classified as available for sale are those which are neither classified as held for trading nor designated as at fair value through profit or loss. Debt securities in this category are those which are intended to be held for an indefinite period of time and which may be sold in response to needs for liquidity or in response to changes in market conditions.

After initial recognition, available-for-sale financial assets are subsequently measured at fair value with unrealised gains or losses recognised as other comprehensive income in the investment revaluation reserve until the financial assets are derecognised, at which time the cumulative gain or loss is recognised in the statement of profit or loss, or until the financial assets are determined to be impaired, when the cumulative gain or loss is reclassified from the investment revaluation reserve to the statement of profit or loss. Interest and dividends earned are reported as interest income and dividend income, respectively and are recognised in the statement of profit or loss as revenue in accordance with the policies set out for “Revenue recognition” below.

When the fair value of unlisted equity securities and investment funds cannot be reliably measured because (a) the variability in the range of reasonable fair value estimates is significant for that financial asset, or (b) the probabilities of the various estimates within the range cannot be reasonably assessed and used in estimating fair value, such securities and funds are stated at cost less any impairment losses.

The Group evaluates whether the ability and intention to sell its available-for-sale financial assets in the near term are still appropriate. When, in rare circumstances, the Group is unable to trade these financial assets due to inactive markets, the Group may elect to reclassify these financial assets if management has the ability and intention to hold the assets for the foreseeable future or until maturity.

For a financial asset reclassified from the available-for-sale category, the fair value carrying amount at the date of reclassification becomes its new amortised cost and any previous gain or loss on that asset that has been recognised in equity is amortised to profit or loss over the remaining life of the investment using the effective interest rate. Any difference between the new amortised cost and the maturity amount is also amortised over the remaining life of the asset using the effective interest rate. If the asset is subsequently determined to be impaired, then the amount recorded in equity is reclassified to the statement of profit or loss.

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62 Hongkong Chinese Limited

Notes to the Financial Statements (continued)

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(j) Derecognition of financial assets

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognised (i.e. removed from the Group’s consolidated statement of financial position) when:

(i) the rights to receive cash flows from the asset have expired; or
(ii) the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a “pass-through” arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risk and rewards of ownership of the asset. When it has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the Group continues to recognise the transferred assets to the extent of the Group’s continuing involvement. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.

(k) Impairment of financial assets

The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. An impairment exists if one or more events that occurred after the initial recognition of the asset have an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that a debtor or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and observable data indicating that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

Financial assets carried at amortised cost

For financial assets carried at amortised cost, the Group first assesses whether impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment.

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Notes to the Financial Statements (continued)

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(k) Impairment of financial assets (continued)

Financial assets carried at amortised cost (continued)

The amount of any impairment loss identified is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate (i.e., the effective interest rate computed at initial recognition).

The carrying amount of the asset is reduced through the use of an allowance account and the loss is recognised in the statement of profit or loss. Interest income continues to be accrued on the reduced carrying amount using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. Loans and receivables together with any associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to the Group.

If, in a subsequent period, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a write-off is later recovered, the recovery is credited to the statement of profit or loss.

Assets carried at cost

If there is objective evidence that an impairment loss has been incurred on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument, 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 discounted at the current market rate of return for a similar financial asset. Impairment losses on these assets are not reversed.

Available-for-sale financial assets

For available-for-sale financial assets, the Group assesses at the end of each reporting period whether there is objective evidence that an investment or a group of investments is impaired.

If an available-for-sale financial asset is impaired, an amount comprising the difference between its cost (net of any principal payment and amortisation) and its current fair value, less any impairment loss previously recognised in the statement of profit or loss, is removed from other comprehensive income and recognised in the statement of profit or loss.

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64 Hongkong Chinese Limited

Notes to the Financial Statements (continued)

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(k) Impairment of financial assets (continued)

Available-for-sale financial assets (continued)

In the case of equity investments classified as available for sale, objective evidence would include a significant or prolonged decline in the fair value of an investment below its cost. “Significant” is evaluated against the original cost of the investment and “prolonged” against the period in which the fair value has been below its original cost. Where there is evidence of impairment, the cumulative loss — measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognised in the statement of profit or loss — is removed from other comprehensive income and recognised in the statement of profit or loss. Impairment losses on equity instruments classified as available for sale are not reversed through the statement of profit or loss. Increases in their fair value after impairment are recognised directly in other comprehensive income.

The determination of what is “significant” or “prolonged” requires judgement. In making this judgement, the Group evaluates, among other factors, the duration or extent to which the fair value of an investment is less than its cost.

In the case of debt instruments classified as available for sale, impairment is assessed based on the same criteria as financial assets carried at amortised cost. However, the amount recorded for impairment is the cumulative loss measured as the difference between the amortised cost and the current fair value, less any impairment loss on that investment previously recognised in the statement of profit or loss. Future interest income continues to be accrued based on the reduced carrying amount of the asset using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of finance income. Impairment losses on debt instruments are reversed through the statement of profit or loss if the subsequent increase in fair value of the instruments can be objectively related to an event occurring after the impairment loss was recognised in the statement of profit or loss.

(l) Financial liabilities

Initial recognition and measurement

Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss or loans and borrowings, as appropriate.

All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings, net of directly attributable transaction costs.

The Group’s financial liabilities include financial liabilities included in creditors, accruals and deposits received, bank and other borrowings and current, fixed, savings and other deposits of customers.

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Annual Report 2015/2016

Hongkong Chinese Limited 65

Notes to the Financial Statements (continued)

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(l) Financial liabilities (continued)

Subsequent measurement

The subsequent measurement of financial liabilities depends on their classification as follows:

Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss.

Financial liabilities are classified as held for trading if they are acquired for the purpose of repurchasing in the near term. This category includes derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships as defined by HKAS 39. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Gains or losses on liabilities held for trading are recognised in the statement of profit or loss. The net fair value gain or loss recognised in the statement of profit or loss does not include any interest charged on these financial liabilities.

Financial liabilities designated upon initial recognition at fair value through profit or loss are designated at the date of initial recognition and only if the criteria in HKAS 39 are satisfied.

Loans and borrowings

After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost, using the effective interest rate method unless the effect of discounting would be immaterial, in which case they are stated at cost. Gains and losses are recognised in the statement of profit or loss when the liabilities are derecognised as well as through the effective interest rate amortisation process.

Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest rate amortisation is included in finance costs in the statement of profit or loss.

Financial guarantee contracts

Financial guarantee contracts issued by the Group are those contracts that require a payment to be made to reimburse the holder for a loss it incurs because the specified debtor fails to make a payment when due in accordance with the terms of a debt instrument. A financial guarantee contract is recognised initially as a liability at its fair value, adjusted for transaction costs that are directly attributable to the issuance of the guarantee. Subsequent to initial recognition, the Group measures the financial guarantee contract at the higher of: (i) the amount of the best estimate of the expenditure required to settle the present obligation at the end of the reporting period; and (ii) the amount initially recognised less, when appropriate, cumulative amortisation.

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66 Hongkong Chinese Limited

Notes to the Financial Statements (continued)

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(m) Derecognition of financial liabilities

A financial liability is derecognised when the obligation under the liability is discharged or cancelled, or expires.

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and a recognition of a new liability, and the difference between the respective carrying amounts is recognised in the statement of profit or loss.

(n) Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount is reported in the statement of financial position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously.

(o) Derivative financial instruments

Initial recognition and subsequent measurement

When appropriate, the Group uses derivative financial instruments, such as forward currency contracts and interest rate swaps, to hedge its foreign currency risk and interest rate risk, respectively. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.

Any gains or losses arising from changes in fair value of derivatives are taken directly to the statement of profit or loss, except for the effective portion of cash flow hedges, which is recognised in other comprehensive income and later reclassified to profit or loss when the hedged item affects profit or loss.

Current versus non-current classification

Derivative instruments that are not designated as effective hedging instruments are classified as current or non-current or separated into current and non-current portions based on an assessment of the facts and circumstances (i.e., the underlying contracted cash flows). Where the Group expects to hold a derivative as an economic hedge (and does not apply hedge accounting) for a period beyond twelve months after the end of the reporting period, the derivative is classified as non-current (or separated into current and non-current portions) consistently with the classification of the underlying item.

(p) Properties held for sale

Properties held for sale are stated at the lower of cost and net realisable value which is determined by reference to prevailing market prices, on an individual property basis.

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Annual Report 2015/2016

Hongkong Chinese Limited 67

Notes to the Financial Statements (continued)

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(q) Properties under development

Properties under development intended for sale are classified as current assets and stated at the lower of cost and net realisable value. Properties being constructed or developed as investment properties are classified as investment properties and accounted for in accordance with the policy stated under “Investment properties”. Other properties under development are stated at cost less any impairment losses. Costs comprise the cost of land, development expenditure, other attributable costs and borrowing costs capitalised. Net realisable value is based on estimated selling prices less any estimated costs to be incurred to completion and disposal.

(r) Cash and cash equivalents

For the purpose of the consolidated statement of cash flows, cash and cash equivalents comprise cash on hand, cash at banks, demand deposits, treasury bills, and short term highly liquid investments that are readily convertible into known amounts of cash, are subject to an insignificant risk of changes in value, and have a short maturity of generally within three months when acquired, less bank overdrafts which are repayable on demand and form an integral part of the Group’s cash management.

For the purpose of the consolidated statement of financial position, cash and bank balances comprise cash on hand, cash at banks and demand deposits which are not restricted as to use.

(s) Provisions

A provision is recognised when a present obligation (legal or constructive) has arisen as a result of a past event and it is probable that a future outflow of resources will be required to settle the obligation, provided that a reliable estimate can be made of the amount of the obligation.

When the effect of discounting is material, the amount recognised for a provision is the present value at the end of the reporting period of the future expenditures expected to be required to settle the obligation. The increase in the discounted present value amount arising from the passage of time is included in finance costs in the statement of profit or loss.

A contingent liability recognised in a business combination is initially measured at its fair value. Subsequently, it is measured at the higher of (i) the amount that would be recognised in accordance with the general guidance for provisions above; and (ii) the amount initially recognised less, when appropriate, cumulative amortisation recognised in accordance with the guidance for revenue recognition.

(t) Income tax

Income tax comprises current and deferred tax. Income tax relating to items recognised outside profit or loss is recognised outside profit or loss, either in other comprehensive income or directly in equity.

Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period, taking into consideration interpretations and practices prevailing in the countries in which the Group operates.

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68 Hongkong Chinese Limited

Notes to the Financial Statements (continued)

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(t) Income tax (continued)

Deferred tax is provided, using the liability method, on all temporary differences at the end of the reporting period between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognised for all taxable temporary differences, except:

(i) where the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
(ii) in respect of taxable temporary differences associated with interests in subsidiaries, associates and joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, the carryforward of unused tax credits and any unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, the carryforward of unused tax credits and unused tax losses can be utilised, except:

(i) when the deferred tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
(ii) in respect of deductible temporary differences associated with interests in subsidiaries, associates and joint ventures, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at the end of each reporting period and are recognised to the extent that it has become probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

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Annual Report 2015/2016

Hongkong Chinese Limited 69

Notes to the Financial Statements (continued)

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(u) Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amounts received or receivable for goods sold and services provided in the normal course of business, net of discounts and sales-related taxes.

Revenue is recognised when it is probable that the economic benefits will flow to the Group and when revenue can be measured reliably, on the following bases:

(i) rental income, on a straight-line basis over the lease terms;
(ii) income from the sale of properties, on the exchange of legally binding unconditional sales contracts or when the relevant completion certificates are issued by the respective government authorities, whichever is later;
(iii) dealings in securities and sale of investments, on the transaction dates when the relevant contract notes are exchanged or the settlement dates when the securities are delivered;
(iv) interest income, on an accrual basis using the effective interest method by applying the rate that discounts the estimated future cash receipts over the expected life of the financial instruments to the net carrying amount of the financial assets;
(v) dividend income, when the shareholders’ right to receive payment has been established;
(vi) commission income, in the period when the relevant services are rendered, unless it is charged to cover the costs of a continuing service to, or risk borne for, customers, or is interest income in nature. In this case, commission income is recognised on a pro-rata basis over the relevant period; and
(vii) investment advisory, management and service fee income, when the services have been rendered.

(v) Employee benefits

Paid leave entitlement

The Group provides paid annual leave to its employees under their employment contracts on a calendar year basis. Under certain circumstances, such leave which remains untaken as at the end of each reporting period is permitted to be carried forward and utilised by the respective employees in the following year. An accrual is made at the end of the reporting period for the expected future cost of such paid leave earned during the year by the employees and carried forward at the end of each reporting period.

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70 Hongkong Chinese Limited

Notes to the Financial Statements (continued)

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(v) Employee benefits (continued)

Retirement benefits

The Group participates in the national pension schemes as defined by the laws of the countries in which it has operations. In Hong Kong, the Group operates defined contribution Mandatory Provident Fund retirement benefit schemes (the “MPF Schemes”) under the Mandatory Provident Fund Schemes Ordinance for those employees who are eligible to participate in the MPF Schemes. Contributions are made based on a percentage of the employees’ relevant income and are charged to the statement of profit or loss as they become payable in accordance with the rules of the MPF Schemes. The assets of the MPF Schemes are held separately from those of the Group in independently administered funds. The Group’s employer contributions vest fully with the employees when contributed into the MPF Schemes except for the Group’s employer voluntary contributions forfeited when the employees leave employment prior to fully vesting in such contributions, which can be used to reduce the amount of future employer contributions or to offset against future administration expenses or to refund to the Group, in accordance with the rules of the MPF Schemes.

The employees of the Group’s subsidiaries which operate in mainland China are required to participate in a central pension scheme operated by the local municipal government. Contributions are made to the central pension scheme based on a percentage of the employees’ relevant income and are charged to the statement of profit or loss as they become payable in accordance with the rules of the central pension scheme.

The Singapore companies in the Group make contributions to the Central Provident Fund Scheme (“CPF”) in Singapore, a defined contribution pension scheme. Contributions to the CPF are recognised as an expense in the statement of profit or loss in the period in which the related service is performed.

Share-based payments

The Company operates a share option scheme for the purpose of providing incentives and rewards to eligible participants who contribute to the success of the Group’s operations. Employees (including directors) of the Group receive remuneration in the form of share-based payments, whereby employees render services as consideration for equity instruments (“equity-settled transactions”).

The cost of equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted. The fair value is determined by using an adjusted Black-Scholes model.

The cost of equity-settled transactions is recognised in employee benefit expense, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled. The cumulative expense recognised for equity-settled transactions at the end of each reporting period until the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. The charge or credit to the statement of profit or loss for a period represents the movement in the cumulative expense recognised as at the beginning and end of that period.

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Annual Report 2015/2016

Hongkong Chinese Limited 71

Notes to the Financial Statements (continued)

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(v) Employee benefits (continued)

Share-based payments (continued)

Service and non-market performance conditions are not taken into account when determining the grant date fair value of awards, but the likelihood of the conditions being met is assessed as part of the Group’s best estimate of the number of equity instruments that will ultimately vest. Market performance conditions are reflected within the grant date fair value. Any other conditions attached to an award, but without an associated service requirement, are considered to be non-vesting conditions. Non-vesting conditions are reflected in the fair value of an award and lead to an immediate expensing of an award unless there are also service and/or performance conditions.

For awards that do not ultimately vest because non-market performance and/or service conditions have not been met, no expense is recognised. Where awards include a market or non-vesting condition, the transactions are treated as vesting irrespective of whether the market or non-vesting condition is satisfied, provided that all other performance and/or service conditions are satisfied.

Where the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified, if the original terms of the award are met. In addition, an expense is recognised for any modification that increases the total fair value of the share-based payments, or is otherwise beneficial to the employee as measured at the date of modification.

Where 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. This includes any award where non-vesting conditions within the control of either the Group or the employee are not met. However, if a new award is substituted for the cancelled award, and is designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph.

The dilutive effect of outstanding options is reflected as additional share dilution in the computation of earnings per share.

(w) Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, i.e., assets that necessarily take a substantial period of time to get ready for their intended use or sale, are capitalised as part of the cost of those assets. The capitalisation of such borrowing costs ceases when the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs capitalised. All other borrowing costs are expensed in the period in which they are incurred. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.

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72 Hongkong Chinese Limited

Notes to the Financial Statements (continued)

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(x) Dividends and distributions

Final dividends and distributions proposed by the Directors after the end of the reporting period are not recognised as a liability at the end of the reporting period. When these dividends and distributions have been approved by the shareholders and declared in a general meeting, they are recognised as a liability.

Interim dividends and distributions are simultaneously proposed and declared because the Company’s memorandum of association and bye-laws grant the Directors the authority to declare interim dividends and distributions. Consequently, interim dividends and distributions are recognised immediately as a liability when they are proposed and declared.

(y) Foreign currencies

These financial statements are presented in Hong Kong dollars, which is the Company’s functional currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Foreign currency transactions recorded by the entities in the Group are initially recorded using their respective functional currency rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency rates of exchange ruling at the end of the reporting period. Differences arising on settlement or translation of monetary items are recognised in the statement of profit or loss.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was measured. The gain or loss arising on translation of a non-monetary item measured at fair value is treated in line with the recognition of the gain or loss on change in fair value of the item (i.e., translation difference on the item whose fair value gain or loss is recognised in other comprehensive income or profit or loss is also recognised in other comprehensive income or profit or loss, respectively).

The functional currencies of certain overseas subsidiaries, joint ventures and associates are currencies other than Hong Kong dollar. As at the end of the reporting period, the assets and liabilities of these entities are translated into Hong Kong dollars at the exchange rates prevailing at the end of the reporting period and their statements of profit or loss are translated into Hong Kong dollars at the weighted average exchange rates for the year. The resulting exchange differences are recognised in other comprehensive income and accumulated in the exchange equalisation reserve. On disposal of a foreign operation, the component of other comprehensive income relating to that particular foreign operation is recognised in the statement of profit or loss.

Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on acquisition are treated as assets and liabilities of the foreign operation and translated at the closing rate.

For the purpose of the consolidated statement of cash flows, the cash flows of overseas subsidiaries are translated into Hong Kong dollars at the exchange rates ruling at the dates of the cash flows or at an approximation thereto, the weighted average exchange rates for the year. Frequently recurring cash flows of overseas subsidiaries which arise throughout the year are translated into Hong Kong dollars at the weighted average exchange rates for the year.

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Annual Report 2015/2016

Hongkong Chinese Limited 73

Notes to the Financial Statements (continued)

3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES

The preparation of the Group’s financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and their accompanying disclosures and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amounts of the assets or liabilities affected in the future.

(a) Judgements

In the process of applying the Group’s accounting policies, management has made the following judgements, apart from those involving estimations, which have the most significant effect on the amounts recognised in the financial statements:

Operating lease commitments — Group as lessor

The Group has entered into commercial property leases on its investment property portfolio. The Group has determined, based on an evaluation of the terms and conditions of the arrangements, that it retains all the significant risks and rewards of ownership of these properties which are leased out on operating leases.

Classification between investment properties and owner-occupied properties

The Group determines whether a property qualifies as an investment property, and has developed criteria in making that judgement. Investment property is a property held to earn rentals or for capital appreciation or both. Therefore, the Group considers whether a property generates cash flows largely independently of the other assets held by the Group. Some properties comprise a portion that is held to earn rentals or for capital appreciation and another portion that is held for use in the production or supply of goods or services or for administrative purposes. If these portions could be sold separately (or leased out separately under a finance lease), the Group accounts for the portions separately. If the portions could not be sold separately, the property is an investment property only if an insignificant portion is held for use in the production or supply of goods or services or for administrative purposes. The Group may provide ancillary services to the occupants of properties it holds. Judgement is made on an individual property basis to determine whether ancillary services are so significant that a property does not qualify as an investment property. The property is an investment property only if the ancillary services are insignificant to the arrangement as a whole.

(b) Estimation uncertainty

The key assumptions concerning the future and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below.

Estimation of fair value of investment properties

In the absence of current prices in an active market for similar properties, the Group considers information from a variety of sources, including:

(i) current prices in an active market for properties of a different nature, condition or location, adjusted to reflect those differences;
(ii) recent prices of similar properties on less active markets, with adjustments to reflect any changes in economic conditions since the date of the transactions that occurred at those prices; and

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74 Hongkong Chinese Limited

Notes to the Financial Statements (continued)

3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES (continued)

(b) Estimation uncertainty (continued)

Estimation of fair value of investment properties (continued)

(iii) discounted cash flow projections based on reliable estimates of future cash flows, supported by the terms of any existing lease and other contracts and (when possible) by external evidence such as current market rents for similar properties in the same location and condition, and using discount rates that reflect current market assessments of the uncertainty in the amount and timing of the cash flows.

The carrying amount of investment properties as at 31st March, 2016 was HK$119,340,000 (2015 — HK$245,178,000). Further details, including the key assumptions used for fair value measurement and a sensitivity analysis, are given in Note 16 to the financial statements.

Impairment of non-financial assets

The Group assesses whether there are any indicators of impairment for non-financial assets at the end of each reporting period. Non-financial assets are tested for impairment when there are indicators that the carrying amounts may not be recoverable. An impairment exists when the carrying value of an asset or a CGU exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. The calculation of the fair value less costs of disposal is based on available data from binding sales transactions in an arm’s length transaction of similar assets or observable market prices less incremental costs for disposing of the asset. When value in use calculations are undertaken, management must estimate the expected future cash flows from the asset or CGU and choose a suitable discount rate in order to calculate the present value of those cash flows.

Impairment of available-for-sale financial assets

The Group classifies certain assets as available for sale. Management makes assessment about the decline in value of available-for-sale financial assets to determine whether there is an impairment that should be recognised in the statement of profit or loss. No impairment loss (2015 — HK$3,187,000) was provided for available-for-sale financial assets for the year. The carrying amount of available-for-sale financial assets as at 31st March, 2016 was HK$6,039,000 (2015 — HK$112,951,000).

Fair value of retained interest resulting from the partial disposal of a subsidiary

The retained interest resulting from the partial disposal of a subsidiary is recognised at fair value based on valuation methodologies and techniques that involved the use of expertise of external, independent and professionally qualified valuers. The judgements and assumptions used in that valuation have an effect on the financial statements.

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Annual Report 2015/2016

Hongkong Chinese Limited 75

Notes to the Financial Statements (continued)

4. SEGMENT INFORMATION

For management purposes, the Group is organised into business units based on their products and services, and has reportable operating segments as follows:

(a) the property investment segment includes investments relating to letting and resale of properties;
(b) the property development segment includes development and sale of properties;
(c) the treasury investment segment includes investments in money markets;
(d) the securities investment segment includes dealings in securities and financial assets available-for-sale;
(e) the corporate finance and securities broking segment provides securities and futures brokerage, investment banking, underwriting and other related advisory services;
(f) the banking business segment engages in the provision of commercial and retail banking services; and
(g) the “other” segment comprises principally the development of computer hardware and software, money lending and the provision of project and fund management and investment advisory services.

Management monitors the results of the Group’s operating segments separately for the purpose of making decisions about resources allocation and performance assessment. Segment performance is evaluated based on reportable segment profit/(loss) and comprises segment results of the Company and its subsidiaries, the Group’s share of results of associates and joint ventures.

Segment results are measured consistently with the Group’s profit/(loss) before tax except that the Group’s share of results of associates and joint ventures, unallocated corporate expenses and certain finance costs are excluded from such measurement.

Segment assets exclude interests in associates and joint ventures, deferred tax assets, tax recoverable and other head office and corporate assets which are managed on a group basis.

Segment liabilities exclude tax payable, deferred tax liabilities and other head office and corporate liabilities which are managed on a group basis.

Inter-segment transactions are on an arm’s length basis in a manner similar to transactions with third parties.

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76 Hongkong Chinese Limited

Notes to the Financial Statements (continued)

4. SEGMENT INFORMATION (continued) Year ended 31st March, 2016

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Corporate
finance and Inter-
Property Property Treasury Securities securities Banking segment
investment development investment investment broking business Other elimination Consolidated
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
Revenue
External 51,147 1,225,954 10,836 5,149 18,603 8,062 7,123 – 1,326,874
Inter-segment – – – – – – 464 (464) –
Total 51,147 1,225,954 10,836 5,149 18,603 8,062 7,587 (464) 1,326,874
Segment results 75,439 391,781 10,638 (1,448) (8,799) 216,085 (5,440) (464) 677,792
(Note (a))
Unallocated corporate expenses (90,301)
Finance costs (388)
Share of results of associates – 8,534 – – – – (84) – 8,450
Share of results of joint ventures (306,288) 953 – – – (12,662) – – (317,997)
Profit before tax 277,556
Segment assets 151,988 254,984 847,595 68,979 357,768 25,295 8,939 – 1,715,548
Interests in associates 6,465 450,341 – – – – 18 – 456,824
Interests in joint ventures 8,940,899 9,746 – – – 235,397 – – 9,186,042
Unallocated assets 58,510
Total assets 11,416,924
Segment liabilities 4,942 48,274 – – 339,080 270,630 5,460 – 668,386
Unallocated liabilities 167,957
Total liabilities 836,343
Other segment information:
Capital expenditure (Note (b)) – 8 – – 12 999 55 – 1,074
– – –
Depreciation (92) (156) (1,095) (504) (65) (1,912)
Interest income 41,144 – 10,836 1,921 – 6,791 276 – 60,968
Finance costs – – – – (29) – – – (29)
Gain on disposal of a subsidiary – – – – – 202,355 – – 202,355
Gain on disposal of available-for-sale
financial assets – – – 1,872 – – – – 1,872
Write-back of provision/(Provisions) for
impairment losses on:
A joint venture – 2,076 – – – – – – 2,076
– – – – – – –
Properties under development (134) (134)
Properties held for sale 310 – – – – – – – 310
Loans and receivables – – – – (282) (779) – – (1,061)
Net fair value gain/(loss) on
financial instruments at
fair value through profit or loss – – – (6,248) – 12,709 – – 6,461
Net fair value gain on
investment properties 29,193 – – – – – – – 29,193
Unallocated:
Capital expenditure (Note (b)) 344
Depreciation (6,055)
Finance costs (388)
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Annual Report 2015/2016

Hongkong Chinese Limited 77

Notes to the Financial Statements (continued)

4. SEGMENT INFORMATION (continued)

Year ended 31st March, 2015 (restated)

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Corporate
finance and Inter-
Property Property Treasury Securities securities Banking segment
investment development investment investment broking business Other elimination Consolidated
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
Revenue
External 11,151 116,509 37,564 9,875 20,581 22,280 10,719 – 228,679
– – – – – – –
Inter-segment 1,366 (1,366)
Total 11,151 116,509 37,564 9,875 20,581 22,280 12,085 (1,366) 228,679
Segment results 35,548 38,624 37,398 (7,738) (10,045) 2,104 (9,407) (1,366) 85,118
(Note (a))
Unallocated corporate expenses (61,398)
Finance costs (3,456)
Share of results of associates – 17,916 – – – – (14,954) – 2,962
– – – – – –
Share of results of joint ventures 660,109 15,725 675,834
Profit before tax 699,060
–
Segment assets 266,825 1,061,111 1,717,948 221,710 378,315 510,223 10,597 4,166,729
Interests in associates 6,180 433,276 – – – – – – 439,456
– – – – – –
Interests in joint ventures 8,039,381 14,237 8,053,618
Unallocated assets 63,851
Total assets 12,723,654
– – –
Segment liabilities 4,129 571,573 336,253 450,669 5,041 1,367,665
Unallocated liabilities 824,121
Total liabilities 2,191,786
Other segment information:
Capital expenditure (Note (b)) 129 160 – – 1,909 427 188 – 2,813
– – –
Depreciation (199) (244) (1,044) (1,301) (43) (2,831)
Interest income – – 37,564 6,186 – 18,566 6,289 – 68,605
Finance costs – – – – (22) – – – (22)
Gain on disposal of subsidiaries – – – – – – 501 – 501
Gain on disposal of
an investment property 395 – – – – – – – 395
Write-back of provision/(Provisions) for
impairment losses on:
An associate – – – – – – (6,986) – (6,986)
A joint venture – 233 – – – – – – 233
Available-for-sale financial assets – – – (3,187) – – – – (3,187)
– – – – – – –
Properties under development (248) (248)
Properties held for sale 465 – – – – – – – 465
Loans and receivables – – – – 724 (487) (2,572) – (2,335)
Net fair value loss on financial assets at
– – – – – – –
fair value through profit or loss (9,464) (9,464)
Net fair value gain on
– – – – – – –
investment properties 31,555 31,555
Unallocated:
Capital expenditure (Note (b)) 52,402
Depreciation (4,138)
Finance costs (3,456)
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Note:

(a) The amount included gain on disposal of a subsidiary of HK$202,355,000 (2015 — Nil).

(b) Capital expenditure includes additions to fixed assets.

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78 Hongkong Chinese Limited

Notes to the Financial Statements (continued)

4. SEGMENT INFORMATION (continued) Geographical information

(a) Revenue from external customers

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2016 2015
HK$’000 HK$’000
Hong Kong 24,235 28,301
Macau 1,213,943 27,875
Mainland China 37,301 157,699
Republic of Singapore 46,922 9,466
Other 4,473 5,338
1,326,874 228,679
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The revenue information above is based on the location of the customers.

(b) Non-current assets

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2016 2015
HK$’000 HK$’000
(Restated)
Hong Kong 2,426 4,334
Macau 235,397 203,233
Mainland China 83,119 90,123
Republic of Singapore 9,446,216 8,536,206
Other 43,614 41,168
9,810,772 8,875,064
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The non-current asset information above is based on the location of the assets and excludes financial instruments.

Information about a major customer

No revenue from a single customer accounted for 10 per cent. or more of the total revenue for the years ended 31st March, 2016 and 2015.

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Annual Report 2015/2016

Hongkong Chinese Limited 79

Notes to the Financial Statements (continued)

5. REVENUE

Revenue represents the aggregate of gross rental income, proceeds from sales of properties, income on treasury investment which includes interest income on bank deposits, income from securities investment which includes gain/(loss) on sales of securities investment, dividend income and related interest income, income from underwriting and securities broking, gross interest income, commissions, dealing income and other revenue from a banking subsidiary, gross income from project management, and interest and other income from money lending and other businesses, after eliminations of all significant intra-group transactions.

An analysis of the revenue of the Group is as follows:

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2016 2015
HK$’000 HK$’000
Property rental income 10,003 11,151
Sales of properties (Note) 1,225,954 116,509
Interest income 54,177 50,039
Dividend income 3,228 3,532
Corporate finance and securities broking 18,603 20,581
Banking business 8,062 22,280
Other 6,847 4,587
1,326,874 228,679
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Note: The revenue from sale of properties for the year ended 31st March, 2016 mainly came from sales of properties of the property development project in Macau which was completed during the year (2015 — sale of properties of the property development project in Beijing).

Revenue attributable to the banking business represents revenue generated from The Macau Chinese Bank Limited (“MCB”), a licensed credit institution under the Financial System Act of the Macao Special Administrative Region of the People’s Republic of China.

In July 2015, the Group completed the disposal of an aggregate of 49 per cent. equity interest in MCB (the “First Disposal”) and entered into a shareholders’ agreement with the purchasers and MCB (the “Shareholders’ Agreement”) to, among other things, regulate the relationship among shareholders of MCB. As a result of the change of composition of the board of directors and the quorum of directors’ meeting, MCB has become a joint venture of the Group since then. Revenue attributable to the banking business up to completion of the First Disposal is analysed as follows:

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2016 2015
HK$’000 HK$’000
Interest income 6,791 18,566
Commission income 1,271 3,714
8,062 22,280
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80 Hongkong Chinese Limited

Notes to the Financial Statements (continued)

6. PROFIT BEFORE TAX

Profit before tax is arrived at after crediting/(charging):

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2016 2015
HK$’000 HK$’000
Cost of sales:
Cost of properties sold (Note (a)) (815,243) (60,286)
Other (12,314) (15,681)
(827,557) (75,967)
Employee benefit expense (Note (b)) :
Wages and salaries (50,702) (62,900)
Retirement benefit costs (Note (c)) (3,400) (4,416)
Total staff costs (54,102) (67,316)
Interest income:
Available-for-sale financial assets 1,921 6,186
Loans and advances 41,420 6,289
Banking business 6,791 18,566
Other 10,836 37,564
Net fair value gain/(loss) on:
Financial assets at fair value through profit or loss (6,248) (9,464)
Derivative financial instrument 12,709 –
Gain on disposal of:
Available-for-sale financial assets 1,872 –
An investment property – 395
Write-back of provision/(Provisions) for impairment losses on (Note (d)) :
A joint venture 2,076 233
Available-for-sale financial assets – (3,187)
Properties under development (134) (248)
Properties held for sale 310 465
Loans and receivables (1,061) (2,335)
Interest expense attributable to the banking business (1,928) (5,121)
Depreciation (7,967) (6,969)
Foreign exchange losses — net (13,841) (6,853)
Auditors’ remuneration (3,959) (4,191)
Minimum lease payments under operating lease rentals (13,291) (15,748)
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Note:

(a) The amount for the year ended 31st March, 2016 mainly represented cost of properties sold of the property development project in Macau which was completed during the year (2015 — cost of properties sold of the property development project in Beijing).

(b) The amounts include Directors’ emoluments disclosed in Note 7 to the financial statements.

(c) The Group had no forfeited voluntary contributions available to offset future employer contributions against the pension schemes at the year end.

(d) The amounts are included in “Other operating expenses” in the consolidated statement of profit or loss.

Annual Report 2015/2016

Hongkong Chinese Limited 81

Notes to the Financial Statements (continued)

7. DIRECTORS’ EMOLUMENTS

Directors’ emoluments for the year, disclosed pursuant to the Rules Governing the Listing of Securities (the “Listing Rules”) on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) and section 383(1) (a), (b), (c) and (f) of the Hong Kong Companies Ordinance and Part 2 of the Companies (Disclosure of Information about Benefits of Directors) Regulation, are as follows:

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2016 2015
HK$’000 HK$’000
Directors’ fees 2,204 1,552
Basic salaries, allowances and benefits in kind 2,980 3,552
Retirement benefit costs 36 37
5,220 5,141
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The emoluments paid to each of the Directors during the year ended 31st March, 2016 are as follows:

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Basic salaries,
allowances
Directors’ and benefits Retirement
2016 fees in kind benefit costs Total
HK$’000 HK$’000 HK$’000 HK$’000
Executive directors:
Stephen Riady 216 1,085 18 1,319
John Lee Luen Wai 265 584 18 867
Kor Kee Yee 216 1,311 – 1,527
697 2,980 36 3,713
Non-executive director:
Leon Chan Nim Leung 390 – – 390
Independent non-executive directors:
Albert Saychuan Cheok 373 – – 373
Victor Yung Ha Kuk 360 – – 360
Tsui King Fai 384 – – 384
– –
1,117 1,117
2,204 2,980 36 5,220
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82 Hongkong Chinese Limited

Notes to the Financial Statements (continued)

7. DIRECTORS’ EMOLUMENTS (continued)

The emoluments paid to each of the Directors during the year ended 31st March, 2015 are as follows:

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Basic salaries,
allowances
Directors’ and benefits Retirement
2015 fees in kind benefit costs Total
HK$’000 HK$’000 HK$’000 HK$’000
Executive directors:
Stephen Riady 51 1,256 18 1,325
John Lee Luen Wai 110 825 18 953
Kor Kee Yee 51 1,471 1 1,523
212 3,552 37 3,801
Non-executive director:
Leon Chan Nim Leung 361 – – 361
Independent non-executive directors:
Albert Saychuan Cheok 331 – – 331
Victor Yung Ha Kuk 312 – – 312
Tsui King Fai 336 – – 336
979 – – 979
1,552 3,552 37 5,141
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There were no arrangements under which a Director waived or agreed to waive any emoluments during the year.

During the year, no share options were granted to the Directors.

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Annual Report 2015/2016

Hongkong Chinese Limited 83

Notes to the Financial Statements (continued)

8. FIVE HIGHEST PAID EMPLOYEES’ EMOLUMENTS

The five highest paid employees during the current and prior years did not include any Director. Details of the emoluments of the five (2015 — five) non-director, highest paid employees for the year are as follows:

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2016 2015
HK$’000 HK$’000
Basic salaries, allowances and benefits in kind 6,655 7,215
Discretionary bonuses paid and payable 5,358 3,479
Retirement benefit costs 162 104
12,175 10,798
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The number of non-director, highest paid employees whose emoluments fell within the following bands is as follows:

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2016 2015
Number of Number of
Emoluments bands (HK$): employees employees
1,500,001 – 2,000,000 1 3
2,000,001 – 2,500,000 2 1
2,500,001 – 3,000,000 1 –
3,000,001 – 3,500,000 1 1
5 5
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9. FINANCE COSTS

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2016 2015
HK$’000 HK$’000
Interest on bank and other borrowings 6,406 17,250
Less : Interest capitalised (5,989) (13,772)
417 3,478
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The amount excluded interest expense incurred by a banking subsidiary of the Group.

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84 Hongkong Chinese Limited

Notes to the Financial Statements (continued)

10. SHARE OF RESULTS OF JOINT VENTURES

Lippo ASM Asia Property Limited (“LAAPL”) is a material joint venture of the Group, further details are given in Note 18 to the financial statements. For the year ended 31st March, 2016, the Group’s share of loss in LAAPL amounted to approximately HK$306,288,000 (2015 — share of profit of HK$660,109,000, restated with details disclosed in Note 44 to the financial statements). The share of loss recognised during the year was mainly attributable to the impairment loss on a property under development, the impairment loss on goodwill arising from the acquisition of a subsidiary and finance costs incurred by the joint ventures. The restated share of profit for the year ended 31st March, 2015 was mainly attributable to the net fair value gain on properties and investment portfolio, profit from the pre-sale units of a property development project upon completion and the share of gain from a bargain purchase in relation to the acquisition of shares in a listed company by its joint venture during the last year.

11. INCOME TAX

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2016 2015
HK$’000 HK$’000
Hong Kong:
– –
Charge for the year
Overseas:
Charge for the year 80,473 89,192
–
Overprovision in prior years (537)
Deferred (Note 29) (8,820) (54,990)
71,653 33,665
Total charge for the year 71,653 33,665
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Hong Kong profits tax has been provided at the rate of 16.5 per cent. (2015 — 16.5 per cent.) on the estimated assessable profits arising in Hong Kong during the year. Taxes on profits assessable elsewhere have been calculated at the rates of tax prevailing in the countries/jurisdictions in which the Group operates.

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Annual Report 2015/2016

Hongkong Chinese Limited 85

Notes to the Financial Statements (continued)

11. INCOME TAX (continued)

A reconciliation of the tax charge applicable to profit before tax at the statutory rates for the countries/ jurisdictions in which the Company and the majority of its subsidiaries are domiciled to the tax charge at the effective tax rate is as follows:

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2016 2015
HK$’000 HK$’000
(Restated)
Profit before tax 277,556 699,060
Tax at the statutory tax rate of 16.5 per cent.
(2015 — 16.5 per cent.) 45,797 115,345
Effect of different tax rates in other jurisdictions (18,780) 6,953
–
Adjustments in respect of current tax of previous years (537)
Profits and losses attributable to joint ventures and associates 51,076 (112,002)
Income not subject to tax (45,206) (11,301)
Expenses not deductible for tax 18,549 15,950
Effect of withholding tax on the distributable profits of
the Group’s subsidiary in mainland China 12,247 3,638
Tax losses utilised from previous years (1,087) (1,057)
Tax losses not recognised 7,448 8,225
Land appreciation tax 2,146 11,268
Tax effect of land appreciation tax (537) (2,817)
Tax charge at the Group’s effective rate 71,653 33,665
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For the companies operating in the mainland China, Republic of Singapore and Macau, corporate taxes have been calculated on the estimated assessable profits for the year at the rates of 25 per cent., 17 per cent. and 12 per cent. (2015 — 25 per cent., 17 per cent. and 12 per cent.), respectively.

The share of tax charge attributable to an associate and joint ventures amounting to HK$744,000 (2015 — HK$3,711,000) and HK$115,805,000 (2015 — HK$155,894,000), respectively, is included in “Share of results of associates” and “Share of results of joint ventures” on the face of the consolidated statement of profit or loss.

12. EARNINGS PER SHARE ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY

(a) Basic earnings per share

Basic earnings per share is calculated based on (i) the consolidated profit for the year attributable to equity holders of the Company; and (ii) the weighted average number of approximately 1,998,280,000 ordinary shares (2015 — approximately 1,998,280,000 ordinary shares) in issue during the year.

(b) Diluted earnings per share

The Group had no potentially dilutive ordinary shares in issue during the years ended 31st March, 2016 and 2015.

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86 Hongkong Chinese Limited

Notes to the Financial Statements (continued)

13. DISTRIBUTIONS/DIVIDENDS

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2016 2015
HK$’000 HK$’000
Interim distribution, declared, of HK1 cent
(2015 — HK1 cent) per ordinary share 19,983 19,983
Final dividend, proposed, of HK2 cents
(2015 — final distribution of HK2 cents) per ordinary share 39,966 39,966
59,949 59,949
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The proposed final dividend for the year is subject to the approval of the Company’s shareholders at the forthcoming annual general meeting.

14. GOODWILL

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2016 2015
HK$’000 HK$’000
Cost:
Balance at beginning of year 74,815 74,815
–
Disposal of subsidiaries (Note 34) (74,815)
–
Balance at end of year 74,815
Accumulated impairment:
Balance at beginning of year 3,330 3,330
–
Disposal of subsidiaries (Note 34) (3,330)
–
Balance at end of year 3,330
–
Net carrying amount 71,485
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Impairment testing of goodwill

Goodwill acquired through business combination has been allocated to the banking business CGU, which is a reportable segment, for impairment testing.

As at 31st March, 2015, the recoverable amount of the banking business CGU was determined based on a value in use calculation using cash flow projections based on financial budgets approved by senior management covering a five-year period. The discount rate applied to the cash flow projection was 6.5 per cent. The growth rate used to extrapolate the cash flows of the banking business beyond the five-year period was assumed to be nil.

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Annual Report 2015/2016

Hongkong Chinese Limited 87

Notes to the Financial Statements (continued)

15. FIXED ASSETS

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Leasehold
improvements,
furniture,
fixtures,
Leasehold equipment
land and and motor
buildings vehicles Yacht Total
HK$’000 HK$’000 HK$’000 HK$’000
2016
Cost:
At 1st April, 2015 8,051 49,051 52,262 109,364
– –
Additions during the year 1,418 1,418
– –
Disposals during the year (10) (10)
–
Disposal of a subsidiary (Note 34) (8,051) (19,184) (27,235)
Exchange adjustments – (183) 1,003 820
–
At 31st March, 2016 31,092 53,265 84,357
Accumulated depreciation:
At 1st April, 2015 913 40,051 3,073 44,037
Depreciation provided for the year 27 2,747 5,193 7,967
– –
Disposals during the year (9) (9)
–
Disposal of a subsidiary (Note 34) (940) (15,301) (16,241)
Exchange adjustments – (155) 192 37
–
At 31st March, 2016 27,333 8,458 35,791
Net book value:
–
At 31st March, 2016 3,759 44,807 48,566
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88 Hongkong Chinese Limited

Notes to the Financial Statements (continued)

15. FIXED ASSETS (continued)

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Leasehold
improvements,
furniture,
fixtures,
Leasehold equipment
land and and motor
buildings vehicles Yacht Total
HK$’000 HK$’000 HK$’000 HK$’000
2015
Cost:
–
At 1st April, 2014 8,051 78,909 86,960
–
Additions during the year 2,953 52,262 55,215
– –
Disposals during the year (32,797) (32,797)
– –
Exchange adjustments (14) (14)
At 31st March, 2015 8,051 49,051 52,262 109,364
Accumulated depreciation:
At 1st April, 2014 830 69,215 – 70,045
Depreciation provided for the year 83 3,597 3,289 6,969
– –
Disposals during the year (32,746) (32,746)
–
Exchange adjustments (15) (216) (231)
At 31st March, 2015 913 40,051 3,073 44,037
Net book value:
At 31st March, 2015 7,138 9,000 49,189 65,327
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16. INVESTMENT PROPERTIES

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2016 2015
HK$’000 HK$’000
Balance at beginning of year 245,178 219,917
–
Disposal during the year (5,041)
–
Disposal of a subsidiary (Note 34) (150,350)
Fair value adjustments 29,193 31,555
Exchange adjustments (4,681) (1,253)
Balance at end of year 119,340 245,178
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Annual Report 2015/2016

Hongkong Chinese Limited 89

Notes to the Financial Statements (continued)

16. INVESTMENT PROPERTIES (continued)

The Group engages external, independent and professionally qualified valuers to determine the fair value of the Group’s investment properties for financial reporting purposes. The Group’s management has reviewed the valuation results by verifying the major inputs and assumptions made by the independent valuers and assessing the reasonableness of property valuation.

Based on professional valuations as at 31st March, 2016 made by Asian Appraisal Company, Inc., CBRE, Inc. and RHL Appraisal Limited, independent qualified valuers, the investment properties were revalued on an open market, existing use basis at HK$119,340,000 (2015 — HK$245,178,000).

Fair value hierarchy

The following table illustrates the fair value measurement hierarchy of the Group’s investment properties:

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Fair value measurement using
Quoted prices Significant Significant
in active observable unobservable
markets inputs inputs
(Level 1) (Level 2) (Level 3) Total
HK$’000 HK$’000 HK$’000 HK$’000
Recurring fair value measurement for:
Completed investment properties in
mainland China and overseas
– –
At 31st March, 2016 119,340 119,340
– –
At 31st March, 2015 245,178 245,178
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During the year, there were no transfers of fair value measurements between Level 1 and Level 2 and no transfers into or out of Level 3 (2015 — Nil).

Reconciliation of fair value measurements categorised within Level 3 of the fair value hierarchy:

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2016 2015
HK$’000 HK$’000
Carrying amount at beginning of year 245,178 219,917
Disposals (150,350) (5,041)
Net gain from fair value adjustments 29,193 31,555
Exchange adjustments (4,681) (1,253)
Carrying amount at end of year 119,340 245,178
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90 Hongkong Chinese Limited

Notes to the Financial Statements (continued)

16. INVESTMENT PROPERTIES (continued)

Fair value hierarchy (continued)

Below is a summary of the valuation techniques used and key inputs to the valuation of investment properties:

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Significant
Class of property Valuation techniques unobservable inputs Range
Completed properties Market approach Price per square metre HK$13,000 to HK$38,000
(2015 — HK$7,500 to HK$53,500)
Income approach Rental per square metre HK$110 to HK$3,100
per month (2015 — HK$126 to HK$258)
Capitalisation rate 5.0 per cent. to 9.2 per cent.
(2015 — 4.5 per cent. to 5.0 per cent.)
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Under the market approach, fair value is estimated by the direct comparison method on the assumption of the sale of the property interest with the benefit of vacant possession and by referring to comparable sales transactions as available in the market. The key input was the market price per square metre. A significant increase/decrease in the market price would result in a significant increase/decrease in the fair value of the investment properties.

Under the income approach, fair value is estimated on the basis of capitalisation of the net income and has allowed for outgoings and, in appropriate cases, made provisions for reversionary income potential. The key inputs were market rent and the capitalisation rate. A significant increase/decrease in the market rent in isolation would result in a significant increase/decrease in the fair value of the investment properties and a significant increase/decrease in the capitalisation rate in isolation would result in a significant decrease/ increase in the fair value of the investment properties.

17. INTERESTS IN ASSOCIATES

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2016 2015
HK$’000 HK$’000
Share of net assets 402,042 389,401
Due from associates 73,979 72,805
476,021 462,206
Provisions for impairment losses (19,197) (22,750)
456,824 439,456
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The balances with the associates are unsecured, interest-free and have no fixed terms of repayment and are considered as part of the Group’s net investments in the associates.

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Annual Report 2015/2016

Hongkong Chinese Limited 91

Notes to the Financial Statements (continued)

17. INTERESTS IN ASSOCIATES (continued)

During the year, the Directors reviewed the carrying amount of the associates with reference to their business performances prepared by the investees’ management. No impairment loss (2015 — HK$6,986,000) has been charged to the consolidated statement of profit or loss for the year.

Details of the principal associates are set out on page 127.

Greenix Limited and its subsidiaries, which are considered material associates of the Group, are engaged in property development in Singapore and are accounted for using the equity method.

The following table illustrates the summarised consolidated financial information of Greenix Limited adjusted for any differences in accounting policies, and reconciled to the carrying amount in the financial statements:

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2016 2015
HK$’000 HK$’000
Current assets 907,042 887,452
Current liabilities (6,358) (20,900)
Non-current liabilities (88,289) (86,628)
Net assets 812,395 779,924
Reconciliation to the Group’s interest in the associate:
Group’s share of net assets of the associate 406,197 389,962
Due from the associate 44,144 43,314
Carrying amount of the investment 450,341 433,276
Revenue for the year 20,636 110,074
Profit and total comprehensive income for the year 17,068 35,832
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The following table illustrates the aggregate financial information of the Group’s associates that are not individually material:

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2016 2015
HK$’000 HK$’000
Share of the associates’ loss for the year (84) (14,954)
Share of the associates’ other comprehensive loss for the year (43) (1,482)
Share of the associates’ total comprehensive loss for the year (127) (16,436)
Aggregate carrying amount of the Group’s interests
in the associates 6,483 6,180
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92 Hongkong Chinese Limited

Notes to the Financial Statements (continued)

18. INTERESTS IN JOINT VENTURES

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2016 2015
HK$’000 HK$’000
(Restated) [(1)]
Share of net assets 7,911,177 7,945,906
Due from joint ventures 1,289,420 124,343
9,200,597 8,070,249
Provisions for impairment losses (14,555) (16,631)
9,186,042 8,053,618
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(1) Refer to Note 44

At 31st March, 2016, the amount due from joint ventures included balances of HK$1,215,358,000 (2015 — HK$71,634,000), which are unsecured, bear interest at rates ranging from nil to 6.5 per cent. (2015 — rates ranging from nil to 9.5 per cent.) per annum and are repayable in October 2017 (2015 — October 2015). The amount due from joint ventures also included balances of HK$53,614,000 (2015 — Nil), which are unsecured, bear interest at rates ranging from nil to 6.5 per cent. per annum and are repayable on demand. The remaining balances with the joint ventures are unsecured, interest-free and have no fixed terms of repayment. The amounts due from joint ventures are considered as part of the Group’s net investments in the joint ventures.

During the year, the Directors reviewed the carrying amount of the joint ventures with reference to their business performances prepared by the investees’ management. Reversal of impairment loss of HK$2,076,000 (2015 — HK$233,000) has been credited to the consolidated statement of profit or loss for the year.

The Group’s trade receivable and trade payable balances with joint ventures are disclosed in Notes 22 and 27 to the financial statements, respectively.

Details of the principal joint ventures are set out on page 128.

LAAPL is considered a material joint venture of the Group and is accounted for using the equity method. LAAPL is a joint venture set up to hold the controlling stake in OUE Limited (“OUE”), a listed company in Singapore. OUE focuses its business across commercial, hospitality, retail and residential property segments. Certain bank facilities under LAAPL were secured by certain listed shares held under it.

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Annual Report 2015/2016

Hongkong Chinese Limited 93

Notes to the Financial Statements (continued)

18. INTERESTS IN JOINT VENTURES (continued)

The following table illustrates the summarised financial information of LAAPL adjusted for any differences in accounting policies, and reconciled to the carrying amount in the financial statements:

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2016 2015
HK$’000 HK$’000
(Restated)
Non-current assets 43,937,321 35,766,878
Cash and cash equivalents 1,531,343 1,891,722
Other current assets 6,475,088 7,063,661
Current assets 8,006,431 8,955,383
Financial liabilities, excluding trade and other payables (6,619,553) (6,374,791)
Other current liabilities (1,378,201) (1,602,066)
Current liabilities (7,997,754) (7,976,857)
Non-current financial liabilities, excluding trade and
other payables and provisions (21,333,011) (14,760,601)
Other non-current liabilities (1,179,487) (719,957)
Non-current liabilities (22,512,498) (15,480,558)
Net assets 21,433,500 21,264,846
Reconciliation to the Group’s interest in the joint venture:
Net assets 21,433,500 21,264,846
Less: Non-controlling interests (13,295,812) (12,845,312)
Net assets attributable to equity holders of the joint venture 8,137,688 8,419,534
Group’s share of net assets of the joint venture 7,671,927 7,937,563
Due from the joint venture 1,268,972 101,818
Carrying amount of the investment 8,940,899 8,039,381
Revenue 2,671,786 3,341,666
Interest income 53,147 53,026
Depreciation and amortisation (144,220) (139,976)
Interest expenses (1,083,053) (793,844)
Tax (192,550) (258,903)
Profits/(Loss) for the year attributable to equity holders of
the joint venture (324,946) 700,320
Other comprehensive loss for the year attributable to
equity holders of the joint venture (187,586) (546,413)
Total comprehensive income/(loss) for the year attributable to
equity holders of the joint venture (512,532) 153,907
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94 Hongkong Chinese Limited

Notes to the Financial Statements (continued)

18. INTERESTS IN JOINT VENTURES (continued)

The following table illustrates the aggregate financial information of the Group’s joint ventures that are not individually material:

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2016 2015
HK$’000 HK$’000
Share of the joint ventures’ profit/(loss) for the year (11,709) 15,725
–
Share of the joint ventures’ other comprehensive loss for the year (498)
Share of the joint ventures’ total comprehensive
income/(loss) for the year (12,207) 15,725
Aggregate carrying amount of the Group’s interests in
the joint ventures 245,143 14,237
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As at 31st March, 2016, the Group’s share of joint ventures’ own capital commitment amounted to HK$580,181,000 (2015 — HK$840,282,000).

In March 2016, the Company entered into an undertaking pursuant to which, amongst other things, it agreed that it or its wholly-owned subsidiary shall provide funding to certain subsidiaries of LAAPL (the “LAAPL Subsidiaries”) to enable them to take up in full their respective entitlements under the rights issue (the “OUE H-Trust Rights Issue”) of OUE Hospitality Trust (“OUE H-Trust”) for an aggregate subscription amount of approximately S$18,400,000 (equivalent to approximately HK$105,600,000). OUE H-Trust is a subsidiary of LAAPL listed on the Main Board of the Singapore Exchange Securities Trading Limited.

In order to provide the funding required by the LAAPL Subsidiaries under the OUE H-Trust Rights Issue, in March 2016, a wholly-owned subsidiary of the Company (the “HKC Subsidiary”) entered into the exchangeable loan agreements (the “EL Agreements”) with each of the LAAPL Subsidiaries to make available to the LAAPL Subsidiaries loan facilities in an aggregate amount of approximately S$18,400,000 (equivalent to approximately HK$105,600,000) (the “Exchangeable Loans”). The Exchangeable Loans were drawn by the LAAPL Subsidiaries after the end of the reporting period.

In April 2016, the OUE H-Trust Rights Issue was successfully completed and the LAAPL Subsidiaries were issued with the new stapled securities in OUE H-Trust they entitled under the OUE H-Trust Rights Issue. Subsequently, the LAAPL Subsidiaries exercised their respective exchange right under each of the EL Agreements and settled the outstanding amount of the Exchangeable Loans in full by transferring all the new stapled securities in OUE H-Trust they received under the OUE H-Trust Rights Issue to the HKC Subsidiary in accordance with the terms of the EL Agreements.

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Annual Report 2015/2016

Hongkong Chinese Limited 95

Notes to the Financial Statements (continued)

19. AVAILABLE-FOR-SALE FINANCIAL ASSETS

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2016 2015
HK$’000 HK$’000
Financial assets stated at fair value:
Equity securities 38 55
Debt securities 3,075 89,143
Investment funds 2,926 7,478
6,039 96,676
Financial assets stated at cost:
Equity securities 64,000 80,275
Provisions for impairment losses (64,000) (64,000)
–
16,275
6,039 112,951
Less: Amount classified under current portion – (24,047)
Non-current portion 6,039 88,904
----- End of picture text -----

The debt securities as at 31st March, 2016 are non-interest-bearing. As at 31st March, 2015, the debt securities bore interest at effective rates ranging from nil to 14 per cent. per annum.

During the year, the gross loss in respect of the Group’s available-for-sale financial assets recognised in consolidated other comprehensive income amounted to HK$1,288,000 (2015 — HK$1,980,000), of which loss of HK$70,000 (2015 — HK$4,000) was reclassified from consolidated other comprehensive income to the consolidated statement of profit or loss for the year upon disposal.

The available-for-sale financial assets consist of investments in equity securities and investment funds which were designated as available-for-sale financial assets and have no fixed maturity date or coupon rate.

Apart from the above, certain available-for-sale financial assets issued by private entities are measured at cost less impairment at the end of the reporting period because the range of reasonable fair value estimates is so significant that the Directors are of the opinion that their fair values cannot be measured reliably.

During the year, the Directors reviewed the carrying amount of available-for-sale financial assets with reference to their business performances prepared by the investees’ management. No impairment loss (2015 — HK$3,187,000, which included a reclassification from other comprehensive income of HK$3,187,000) has been charged to the consolidated statement of profit or loss for the year.

20. LOANS AND ADVANCES

The loans and advances to customers of the Group bear interest at effective rates ranging from 1.7 per cent. to 8.0 per cent. (2015 — 1.8 per cent. to 14.0 per cent.) per annum. Certain balances arising from securities broking operation are secured by clients’ securities being held as collateral with a carrying amount of HK$56,979,000 (2015 — HK$78,376,000). At 31st March, 2015, certain balances arising from banking operation were secured by clients’ properties, deposits and securities being held as collateral with a carrying amount of HK$816,998,000.

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96 Hongkong Chinese Limited

Notes to the Financial Statements (continued)

20. LOANS AND ADVANCES (continued)

At the end of the reporting period, the overdue or impaired balances related to securities broking and money lending operations. Movements in the allowance for bad and doubtful debts during the year are as follows:

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2016 2015
HK$’000 HK$’000
Balance at beginning of year 7,290 6,845
Impairment losses recognised 782 487
–
Impairment allowance released (10)
Amount written off as uncollectible (6,073) (32)
–
Disposal of a subsidiary (1,789)
Balance at end of year 210 7,290
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Except for the above, the remaining balances are neither overdue nor impaired and are related to a range of customers for whom there is no recent history of default.

21. PROPERTIES UNDER DEVELOPMENT

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2016 2015
HK$’000 HK$’000
Land and buildings situated outside Hong Kong, at cost:
Balance at beginning of year 826,921 645,002
Additions during the year 53,108 188,144
–
Reclassified to properties held for sale (842,960)
Exchange adjustments 2,525 (6,225)
Balance at end of year 39,594 826,921
Provisions for impairment losses:
Balance at beginning of year (10,155) (11,580)
Impairment during the year (134) (248)
Exchange adjustments (692) 1,673
Balance at end of year (10,981) (10,155)
28,613 816,766
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As at 31st March, 2016, all properties under development are expected to be recovered for more than twelve months after the end of the reporting period.

As at 31st March, 2015, certain properties under development had been mortgaged to secure banking facilities made available to the Group as set out in Note 26 to the financial statements. The bank loans were fully repaid during the year.

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Annual Report 2015/2016

Hongkong Chinese Limited 97

Notes to the Financial Statements (continued)

22. DEBTORS, PREPAYMENTS AND DEPOSITS

Included in the balances are trade debtors with an aged analysis, based on the invoice date and net of provisions, as follows:

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2016 2015
HK$’000 HK$’000
Outstanding balances with ages:
Repayable on demand 10,580 10,293
Within 30 days 32,200 19,849
Between 31 and 60 days – 37
42,780 30,179
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Trading terms with customers are either on a cash basis or on credit. For those customers who trade on credit, a credit period is allowed according to relevant business practice. Credit limits are set for customers. The Group seeks to maintain tight control over its outstanding receivables in order to minimise credit risk. Overdue balances are regularly reviewed by senior management.

Except for receivables from certain securities brokers which are interest-bearing, the balances of trade debtors are non-interest-bearing.

Included in the trade debtors is an amount of HK$195,000 (2015 — HK$683,000) due from joint ventures of the Group. The amount due from the joint ventures arose from management services provided to the joint ventures, and is unsecured, non-interest-bearing and repayable within normal trade credit terms and is to be settled in cash.

At the end of the reporting period, the individually impaired receivables relate to securities broking operation and property development projects with an aggregate carrying amount of HK$20,476,000 (2015 — HK$20,376,000). The Group does not hold sufficient collateral or other credit enhancements over these balances. Movements in the allowance for bad and doubtful debts for these individually impaired receivables during the year are as follows:

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2016 2015
HK$’000 HK$’000
Balance at beginning of year 19,722 17,917
Impairment losses recognised 279 2,572
–
Impairment allowance released (714)
Amount written off as uncollectible – (53)
Balance at end of year 20,001 19,722
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Except for the above, the remaining balances are neither overdue nor impaired and are related to a range of customers for whom there is no recent history of default. The Group does not hold any collateral or other credit enhancements over these balances.

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98 Hongkong Chinese Limited

Notes to the Financial Statements (continued)

23. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

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2016 2015
HK$’000 HK$’000
Held for trading:
Equity securities 35,696 95,968
Investment funds 8,477 12,792
44,173 108,760
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24. OTHER FINANCIAL ASSET

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2016 2015
HK$’000 HK$’000
–
Put Option (Note) 25,295
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Note: As provided in the Shareholders’ Agreement for the joint arrangement for investment in MCB, in the event of the Group holding 20 per cent. or less of the issued share capital of MCB, the Group will be entitled to exercise a put option to require one of the shareholders of MCB to purchase all the remaining shares in MCB held by the Group (the “Put Option”). The Put Option is exercisable at any time during a period of 5 years from the date when the Group’s shareholding interest in MCB becomes 20 per cent. or less. The right to exercise the Put Option survives any termination or expiry of the Shareholders’ Agreement.

25. RESTRICTED CASH

The balance represents bank deposits pledged to secure bank overdraft facilities made available to the Group’s securities broking operation. The facilities had not been utilised as at the end of the reporting period. As at 31st March, 2015, the balance included bank deposits pledged to secure banking facilities made available to the Group as set out in Note 26 to the financial statements.

26. BANK AND OTHER BORROWINGS

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2016 2015
HK$’000 HK$’000
Repayable within one year:
Secured bank loans (Note (a)) – 362,583
–
Unsecured other borrowings (Note (b)) 101,959
–
464,542
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Note:

(a) At 31st March, 2015, the bank loans were secured by first legal mortgages over certain properties under development of the Group and certain bank deposits of the Group with carrying amounts of HK$790,041,000 and HK$70,099,000, respectively.

(b) The Group’s other borrowings as at 31st March, 2015 comprised unsecured loans advanced from Lippo Limited (“Lippo”), an intermediate holding company of the Company, of HK$101,959,000.

At 31st March, 2015, the Group’s bank and other borrowings were denominated in Hong Kong dollar and bore interest at floating rates ranging from 2.8 per cent. to 3.7 per cent. per annum. The bank and other borrowings were fully repaid during the year.

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Annual Report 2015/2016

Hongkong Chinese Limited 99

Notes to the Financial Statements (continued)

27. CREDITORS, ACCRUALS AND DEPOSITS RECEIVED

Creditors, accruals and deposits received mainly comprised deposits received for the further disposal of a 31 per cent. equity interest in MCB (the “Second Disposal”), which is subject to the approval of The Monetary Authority of Macau of HK$270,630,000 (2015 — Nil), sales deposits of HK$1,515,000 (2015 — HK$426,706,000) received from the property development project in Macau, which was completed during the year, and trade payables relating to cash balances held on trust for the customers in respect of the Group’s securities broking operation of HK$336,481,000 (2015 — HK$333,434,000). As at 31st March, 2016, total client trust bank balances amounted to HK$295,784,000 (2015 — HK$324,982,000).

An aged analysis of trade creditors, based on the invoice date, is as follows:

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2016 2015
HK$’000 HK$’000
Outstanding balances with ages:
Repayable on demand 288,677 308,577
Within 30 days 47,856 24,857
336,533 333,434
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Trade creditors are generally settled on their normal trade terms. Except for certain client payables relating to cash balances held on trust for the customers in respect of the Group’s securities broking operation which are interest-bearing, the balances of creditors are non-interest-bearing.

Included in the trade creditors is an amount of HK$9,306,000 (2015 — Nil) due to a joint venture of the Group. The balance is unsecured, non-interest-bearing and repayable within normal trade credit terms.

28. CURRENT, FIXED, SAVINGS AND OTHER DEPOSITS OF CUSTOMERS

As at 31st March, 2015, the current, fixed, savings and other deposits of customers attributable to MCB bore interest at effective rates ranging from 0.01 per cent. to 3.0 per cent. per annum. In July 2015, the Group completed the First Disposal and MCB has become a joint venture of the Group since then.

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100 Hongkong Chinese Limited

Notes to the Financial Statements (continued)

29. DEFERRED TAX

The movements in deferred tax liabilities during the year are as follows:

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Fair value
Depreciation gains on
allowance available-
in excess of for-sale
related Revaluation of financial
depreciation properties assets Others Total
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
2016
At 1st April, 2015 3,205 41,175 884 5,478 50,742
Deferred tax charged/(credited) to the
statement of profit or loss
–
during the year (Note 11) (7) (11,313) 2,500 (8,820)
Deferred tax credited to equity
– – –
during the year (557) (557)
–
Disposal of a subsidiary (Note 34) (497) (16,117) (327) (16,941)
–
Exchange adjustments (70) (503) (325) (898)
–
At 31st March, 2016 2,631 13,242 7,653 23,526
2015
At 1st April, 2014 3,132 39,323 1,909 62,360 106,724
Deferred tax charged/(credited) to the
statement of profit or loss
during the year (Note 11) 68 1,843 – (56,901) (54,990)
Deferred tax credited to equity
– – –
during the year (1,025) (1,025)
Exchange adjustments 5 9 – 19 33
At 31st March, 2015 3,205 41,175 884 5,478 50,742
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The Group has tax losses of HK$546,484,000 (2015 — HK$479,849,000) that are available indefinitely for offsetting against future taxable profits of the companies in which the losses arose. Deferred tax assets have not been recognised in respect of these tax losses as it is not considered probable that taxable profits will be available against which the tax losses can be utilised.

Pursuant to the People’s Republic of China Corporate Income Tax Law, a 10 per cent. withholding tax is levied on dividends declared to foreign investors from the foreign investment enterprises established in mainland China. The requirement has become effective from 1st January, 2008 and applies to earnings after 31st December, 2007. A lower withholding tax rate may be applied if there is a tax treaty between mainland China and the jurisdiction of the foreign investors. The Group is therefore liable for withholding taxes on dividends distributed by those subsidiaries established in mainland China in respect of earnings generated from 1st January, 2008.

At 31st March, 2016, except for withholding tax provided for under deferred tax liabilities, there were no significant unrecognised deferred tax liabilities (2015 — Nil) for taxes that would be payable on the unremitted earnings of certain of the Group’s subsidiaries, associates or joint ventures as the Group has no liability to additional tax should such amounts be remitted.

There are no income tax consequences attaching to the payments of dividends of the Company to its shareholders.

Annual Report 2015/2016

Hongkong Chinese Limited 101

Notes to the Financial Statements (continued)

30. SHARE CAPITAL

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2016 2015
HK$’000 HK$’000
Authorised:
4,000,000,000 (2015 — 4,000,000,000)
ordinary shares of HK$1.00 each 4,000,000 4,000,000
Issued and fully paid:
1,998,280,097 (2015 — 1,998,280,097)
ordinary shares of HK$1.00 each 1,998,280 1,998,280
----- End of picture text -----

There were no movements in share capital during the years ended 31st March, 2016 and 2015.

31. SHARE OPTION SCHEME

Pursuant to the share option scheme of the Company (the “Share Option Scheme”) adopted and approved by the shareholders of the Company, Lippo, an intermediate holding company of the Company, and Lippo China Resources Limited (“LCR”), a fellow subsidiary of the Company and formerly an intermediate holding company of the Company, on 7th June, 2007 (the “Adoption Date”), the board of the Directors of the Company (the “Board”) may, at its discretion, offer to grant to any eligible employee (including director, officer and/or employee of the Group or any member of it); or any consultant, adviser, supplier, customer or sub-contractor of the Group or any member of it; or any other person whomsoever is determined by the Board as having contributed to the development, growth or benefit of the Group or any member of it or as having spent any material time in or about the promotion of the Group or its business (together, the “Eligible Persons”) an option to subscribe for shares in the Company. The purpose of the Share Option Scheme is to provide Eligible Persons with the opportunity to acquire proprietary interests in the Company and to encourage Eligible Persons to work towards enhancing the value of the Company and its shares for the benefit of the Company and its shareholders as a whole. The Share Option Scheme shall be valid and effective for the period of ten years commencing on the Adoption Date. Under the rules of the Share Option Scheme, no further options shall be granted on and after the tenth anniversary of the Adoption Date. The options can be exercised at any time during the period commencing on the date of grant and ending on the date of expiry which shall not be later than the day last preceding the tenth anniversary of the date of grant. The Share Option Scheme does not specify a minimum period for which an option must be held nor a performance target which must be achieved before an option can be exercised. However, the rules of the Share Option Scheme provide that the Board may determine, at its sole discretion, such term(s) on the grant of an option. No grantee of option is required to pay for the grant of the relevant option.

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102 Hongkong Chinese Limited

Notes to the Financial Statements (continued)

31. SHARE OPTION SCHEME (continued)

The overall limit on the number of shares which may be issued upon exercise of all outstanding options granted and yet to be exercised under the Share Option Scheme and other share option schemes must not exceed 30 per cent. of the issued shares of the Company from time to time. The maximum number of shares in respect of which options may be granted under the Share Option Scheme shall not (when aggregated with any shares subject to options granted after the Adoption Date pursuant to any other share option scheme(s) of the Company) exceed 10 per cent. of the issued share capital of the Company on the Adoption Date, that is, 134,682,909 shares (the “Scheme Mandate Limit”). The Scheme Mandate Limit may be renewed with prior approval of the shareholders of the Company. The total number of shares issued and to be issued upon exercise of options granted and to be granted under the Share Option Scheme to any single Eligible Person, whether or not already a grantee, in any 12-month period shall be subject to a limit that it shall not exceed one per cent. of the issued shares of the Company at the relevant time. The exercise price for the shares under the Share Option Scheme shall be determined by the Board at its absolute discretion but in any event shall not be less than the highest of (i) the closing price of the shares of the Company on the date of grant of the option, as stated in the daily quotations sheets of the Stock Exchange; (ii) the average closing price of the shares of the Company for the five trading days immediately preceding the date of grant of the option, as stated in the daily quotations sheets of the Stock Exchange; and (iii) the nominal value of the shares of the Company on the date of grant of the option.

At the beginning and end of the year, there were no outstanding options granted under the Share Option Scheme to subscribe for ordinary shares of HK$1.00 each in the Company.

No option of the Company was granted, exercised, cancelled or lapsed during the year.

32. RESERVES

The amounts of the Group’s reserves and movements therein for the current and prior years are presented in the consolidated statement of changes in equity on pages 46 and 47.

Note:

(a) Cancellation of the share premium account and transfer to distributable reserves: Pursuant to a special resolution passed at a special general meeting of the Company on 2nd December,1997, the entire amount standing to the credit of the share premium account of HK$3,630,765,000 was cancelled (the “Cancellation”). The credit arising from the Cancellation was transferred to distributable reserves. The balance of the reserves arising from the Cancellation could be applied towards any capitalisation issues of the Company in future, or for making distributions to shareholders of the Company.
(b) Distributable reserves of the Group as at 31st March, 2016 comprised retained profits of HK$6,979,223,000 (2015 — HK$6,649,841,000, restated) and the remaining balance arising from the Cancellation of HK$744,975,000 (2015 — HK$804,924,000). Included in the distributable reserves of the Group as at 31st March, 2016 were an amount of final dividend for the year then ended of HK$39,966,000 (2015 — final distribution of HK$39,966,000) proposed after the end of the reporting period.
(c) The capital redemption reserve is not available for distribution to shareholders.
(d) The legal reserve represents the part of reserve generated by MCB which may only be distributable in accordance with certain limited circumstances prescribed by the statute of the country in which MCB operates.
(e) The regulatory reserve represents the part of reserve generated by MCB arising from the difference between the impairment allowance made under HKAS 39 and for regulatory purpose.
(f) The hedging reserve relates to the Group’s share of the hedging reserve under joint ventures.

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Annual Report 2015/2016

Hongkong Chinese Limited 103

Notes to the Financial Statements (continued)

33. PARTLY-OWNED SUBSIDIARIES WITH MATERIAL NON-CONTROLLING INTERESTS

Beijing Lippo Century Realty Co., Ltd. is considered a subsidiary that has material non-controlling interests. The percentage of equity interest held by its non-controlling interests as at 31st March, 2016 is 20 per cent. (2015 — 20 per cent.). Details of the Group’s subsidiary that has material non-controlling interests are set out below:

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2016 2015
HK$’000 HK$’000
Profit for the year allocated to non-controlling interests 441 11,609
Dividend paid to non-controlling interests 24,002 151,498
Accumulated balances of non-controlling interests
at the end of the reporting period 82,842 111,942
----- End of picture text -----

The following tables illustrate the summarised financial information of the above subsidiary. The amounts disclosed are before any inter-company eliminations:

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----- Start of picture text -----

2016 2015
HK$’000 HK$’000
Current assets 480,609 1,550,961
Non-current assets 226 392
Current liabilities (66,166) (991,133)
Revenue 32,453 188,612
Total expenses (30,250) (130,566)
Profit for the year 2,203 58,046
Total comprehensive income/(loss) for the year (24,077) 59,429
Net cash flows used in operating activities (411,867) (1,416,772)
Net cash flows from/(used in) investing activities (8) 925,238
Net cash flows used in financing activities (628,863) (151,498)
Net decrease in cash and cash equivalents (1,040,738) (643,032)
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104 Hongkong Chinese Limited

Notes to the Financial Statements (continued)

34. DISPOSAL OF SUBSIDIARIES

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2016 2015
HK$’000 HK$’000
Net assets disposed of:
Goodwill 71,485 –
Fixed assets 10,994 –
–
Investment properties 150,350
Available-for-sale financial assets 84,294 –
Loans and advances 363,609 –
Debtors, prepayments and deposits 13,586 1,534
Cash and bank balances 279,634 –
–
Treasury bills 38,800
Other payables, accruals and deposits received (5,848) (2)
–
Current, fixed, savings and other deposits of customers (501,532)
–
Tax payable (227)
Deferred tax liabilities (16,941) –
488,204 1,532
Release of cumulative exchange difference on
translation of foreign operations 202 7
Release of cumulative changes in fair value of
–
available-for-sale financial assets, net of income tax effect (2,388)
(2,186) 7
486,018 1,539
Gain on disposal 202,355 501
688,373 2,040
Satisfied by:
Cash consideration received 427,231 2,040
–
Increase in interest in a joint venture 248,556
Other financial asset 12,586 –
688,373 2,040
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An analysis of the net inflow of cash and cash equivalents in respect of the disposal of subsidiaries is as follows:

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2016 2015
HK$’000 HK$’000
Cash consideration received 427,231 2,040
–
Cash and bank balances disposed of (279,634)
–
Treasury bills disposed of (38,800)
Net inflow of cash and cash equivalents in respect of the disposal of subsidiaries 108,797 2,040
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Annual Report 2015/2016

Hongkong Chinese Limited 105

Notes to the Financial Statements (continued)

35. NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS

(a) Reconciliation of profit before tax to cash generated from/(used in) operations

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2016 2015
Note HK$’000 HK$’000
(Restated)
Profit before tax 277,556 699,060
Adjustments for:
Share of results of associates (8,450) (2,962)
Share of results of joint ventures 317,997 (675,834)
Loss/(Gain) on disposal of:
Fixed assets 1 11
Available-for-sale financial assets 6 (1,872) –
An investment property 6 – (395)
Subsidiaries 34 (202,355) (501)
Provisions/(Write-back of provision) for
impairment losses on:
An associate – 6,986
A joint venture 6 (2,076) (233)
Available-for-sale financial assets 6 – 3,187
Properties under development 6 134 248
Properties held for sale 6 (310) (465)
Loans and receivables 6 1,061 2,335
Net fair value loss/(gain) on financial instruments at
fair value through profit or loss (6,461) 9,464
Net fair value gain on investment properties (29,193) (31,555)
Finance costs 9 417 3,478
Interest income (60,968) (68,605)
Dividend income 5 (3,228) (3,532)
Depreciation 6 7,967 6,969
290,220 (52,344)
Increase in properties under development (53,108) (188,144)
Decrease in properties held for sale 812,301 58,175
Decrease/(Increase) in loans and advances 11,516 (24,982)
Decrease/(Increase) in debtors, prepayments and deposits (56,338) 32,619
Decrease in financial instruments at fair value through profit or loss 58,339 5,250
Decrease/(Increase) in client trust bank balances 29,139 (13,753)
Decrease in restricted cash – 78,476
Decrease in creditors, accruals and deposits received (459,649) (242,996)
Increase in current, fixed, savings and other deposits of customers 56,950 112,402
Cash generated from/(used in) operations 689,370 (235,297)
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(b) Major non-cash transactions

At completion of the First Disposal, the Group entered into a loan agreement (the “Loan Agreement”) pursuant to which an unsecured loan of an aggregate amount of MOP279,000,000 (equivalent to HK$270,630,000) was advanced to the Group by the new shareholders of MCB for 10 years. Upon signing of the disposal agreements for the Second Disposal, the new shareholders had fully paid the aggregate consideration as deposit, by the set-off of the outstanding loan amount under the Loan Agreement and the Loan Agreement was terminated.

106 Hongkong Chinese Limited

Notes to the Financial Statements (continued)

36. CONTINGENT LIABILITIES

As at 31st March, 2015, the Group had contingent liabilities relating to MCB of HK$36,247,000 comprising guarantees and other endorsements of HK$34,273,000 and liabilities under letters of credit on behalf of customers of HK$1,974,000. MCB has become a joint venture of the Group after the First Disposal. As at 31st March, 2016, the Group’s share of contingent liabilities relating to MCB amounted to HK$18,840,000, comprising share of guarantees and other endorsements of HK$17,636,000 and share of liabilities under letters of credit on behalf of customers of HK$1,204,000.

37. OPERATING LEASE ARRANGEMENTS

(a) As lessor

The Group leases its investment properties under operating lease arrangements with leases negotiated for terms ranging from one to five years. The terms of the leases generally also require the tenants to pay security deposits and provide for periodic rent adjustments according to the prevailing market condition.

As at 31st March, 2016, the Group had total future minimum lease receivables under non-cancellable operating leases with its tenants falling due as follows:

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2016 2015
HK$’000 HK$’000
Within one year 4,698 13,581
In the second to fifth years, inclusive 3,436 16,594
8,134 30,175
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(b) As lessee

The Group leases certain properties under operating lease agreements which are non-cancellable. The leases expire on various dates until 15th September, 2017 and the leases for properties contain the provision for rental adjustments.

As at 31st March, 2016, the Group had total future minimum lease payments under non-cancellable operating leases in respect of land and buildings falling due as follows:

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2016 2015
HK$’000 HK$’000
Within one year 7,827 12,392
In the second to fifth years, inclusive 1,772 10,290
9,599 22,682
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Annual Report 2015/2016

Hongkong Chinese Limited 107

Notes to the Financial Statements (continued)

38. COMMITMENTS

The Group had the following commitments at the end of the reporting period:

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2016 2015
HK$’000 HK$’000
Commitments in respect of properties under development:
Contracted, but not provided for 9,840 55,666
Other commitments:
Contracted, but not provided for (Note) 106,128 67,667
115,968 123,333
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Note: The balance as at 31st March, 2016 included commitment in relation to the Exchangeable Loans granted to certain joint ventures of the Group as disclosed in Note 18 to the financial statements. The balance as at 31st March, 2015 included the Group’s capital commitments in respect of the joint ventures and associates for certain property projects in the Republic of Singapore of approximately HK$67 million.

39. RELATED PARTY TRANSACTIONS

In addition to the transactions detailed elsewhere in the financial statements, the Group had the following transactions with related parties during the year:

(a) During the year, the Company paid rental expenses (including service charges) of HK$2,888,000 (2015 — HK$2,928,000) to fellow subsidiaries of the Company, in respect of office premises occupied by the Company. The rental was determined by reference to the then prevailing open market rentals. Such lease will expire on 15th September, 2017. The Company expects the total future minimum lease payables for the years ending 31st March, 2017 and 31st March, 2018 to be approximately HK$2,580,000 and HK$1,183,000, respectively.
(b) During the year, the Group paid rental expenses (including service charges) of HK$3,850,000 (2015 — HK$2,074,000) to a joint venture of the Group. The rental was determined by reference to the then prevailing open market rentals. Such lease will expire on 31st May, 2017. The Group expects the total future minimum lease payables for the years ending 31st March, 2017 and 31st March, 2018 to be approximately HK$3,538,000 and HK$590,000, respectively.
(c) During the year, the Group received trading commissions, brokerage service fees, collection fees and/or other incidental fees (the “Fees”) in the total amount of HK$694,000, HK$36,000 and HK$226,000 (2015 — HK$735,000, HK$784,000 and HK$20,000) from LCR and its subsidiaries, Lippo and its subsidiaries (other than the Group and LCR and its subsidiaries) and Lippo Capital and its subsidiaries (other than Lippo and its subsidiaries), respectively. The Fees were determined by reference to the prevailing fees offered to relevant market customers of comparable standing.

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108 Hongkong Chinese Limited

Notes to the Financial Statements (continued)

39. RELATED PARTY TRANSACTIONS (continued)

(d) During the year, the Group received project management income of HK$1,782,000 (2015 — HK$731,000) and HK$1,305,000 (2015 — Nil) from certain joint ventures of the Group and Lippo, respectively.
(e) During the year, the Group received interest income of HK$41,144,000 (2015 — HK$5,911,000) from a joint venture of the Group.
(f) During the year, the Group received service fee income and commission income and handling fee of HK$927,000 (2015 — Nil) and HK$204,000 (2015 — Nil), respectively from a joint venture of the Group.
(g) During the year, certain joint ventures of the Group received rental income (including service charge) in the total amount of HK$4,027,000 (2015 — HK$4,727,000) from certain fellow subsidiaries of the Company. The rentals were determined by reference to the then prevailing open market rentals.
(h) During the year, certain joint ventures of the Group purchased food and beverage products of HK$1,300,000 (2015 — HK$1,218,000) from certain fellow subsidiaries of the Company. The purchases were made on normal commercial terms in line with, and by reference to, the industry practice.
(i) As at 31st March, 2016, the Group had balances with its associates and joint ventures, further details of which are set out in Notes 17, 18, 22 and 27 to the financial statements.
(j) The key management personnel of the Group are its Directors. Details of the Directors’ emoluments are disclosed in Note 7 to the financial statements.

The transactions in respect of item (c) above are also continuing connected transactions of the Company as defined under Chapter 14A of the Listing Rules. Further details of these transactions are disclosed in the section headed “Continuing Connected Transactions and Connected Transaction” in the Report of the Directors. The transaction referred to in item (a) above was a continuing connected transaction exempted from reporting, annual review and independent shareholders’ approval under Chapter 14A of the Listing Rules.

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Annual Report 2015/2016

Hongkong Chinese Limited 109

Notes to the Financial Statements (continued)

40. FINANCIAL INSTRUMENTS BY CATEGORY

The carrying amounts of each of the categories of financial instruments as at the end of the reporting period are as follows:

Financial assets

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Financial assets
at fair value Available-
through for-sale Derivative
profit or loss Loans and financial financial
held for trading receivables assets instrument Total
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
At 31st March, 2016
Available-for-sale financial assets – – 6,039 – 6,039
– – –
Financial assets at fair value through profit or loss 44,173 44,173
Loans and advances – 15,917 – – 15,917
Financial assets included in debtors,
– – –
prepayments and deposits 143,088 143,088
Other financial asset – – – 25,295 25,295
Client trust bank balances – 295,784 – – 295,784
Restricted cash – 1,004 – – 1,004
Cash and bank balances – 904,015 – – 904,015
44,173 1,359,808 6,039 25,295 1,435,315
At 31st March, 2015
Available-for-sale financial assets – – 112,951 – 112,951
– – –
Financial assets at fair value through profit or loss 108,760 108,760
Loans and advances – 392,103 – – 392,103
Financial assets included in debtors,
– – –
prepayments and deposits 114,917 114,917
Client trust bank balances – 324,982 – – 324,982
Restricted cash – 70,099 – – 70,099
– – –
Treasury bills 38,800 38,800
Cash and bank balances – 1,748,980 – – 1,748,980
–
108,760 2,689,881 112,951 2,911,592
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110 Hongkong Chinese Limited

Notes to the Financial Statements (continued)

40. FINANCIAL INSTRUMENTS BY CATEGORY (continued)

The carrying amounts of each of the categories of financial instruments as at the end of the reporting period are as follows: (continued)

Financial liabilities

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Financial liabilities
at amortised cost
2016 2015
HK$’000 HK$’000
–
Bank and other borrowings 464,542
Financial liabilities included in creditors, accruals and
deposits received 391,358 499,831
–
Current, fixed, savings and other deposits of customers 444,582
391,358 1,408,955
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41. FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS

The carrying amounts and fair values of the Group’s financial instruments carried at fair value, other than those with carrying amounts that reasonably approximate to fair values, are as follows:

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Carrying amounts Fair values
2016 2015 2016 2015
HK$’000 HK$’000 HK$’000 HK$’000
Financial assets
Available-for-sale financial assets 6,039 96,676 6,039 96,676
Financial assets at fair value through
profit or loss 44,173 108,760 44,173 108,760
Other financial asset 25,295 – 25,295 –
75,507 205,436 75,507 205,436
----- End of picture text -----

Management has assessed that the fair values of cash and bank balances, treasury bills, restricted cash, client trust bank balances, financial assets included in debtors, prepayments and deposits, loans and advances, financial liabilities included in creditors, accruals and deposits received and current, fixed, savings and other deposits of customers approximate to their carrying amounts largely due to the short term maturity of these instruments. In addition, the fair values of interest-bearing bank and other borrowings approximate to their carrying amounts as they are floating rate instruments that are repriced to market interest rates on or near to end of the reporting period and the Group’s non-performance risk is considered to be minimal.

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Annual Report 2015/2016

Hongkong Chinese Limited 111

Notes to the Financial Statements (continued)

41. FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS (continued)

The Group’s management is responsible for determining the policies and procedures for the fair value measurement of significant financial instruments. At each reporting date, the finance team analyses the movements in the values of financial instruments and determines major inputs applied in the valuation.

The fair values of the financial assets and liabilities are included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.

The following methods and assumptions were used to estimate the fair values:

The fair values of listed equity investments and debt securities are based on quoted market prices.

The fair values of unlisted investments funds are assessed to approximate the net asset values indicated on the net asset value statements issued by the investment fund managers, which take into consideration the fair value of the underlying properties and assets held under the investments.

For unlisted available-for-sale investment funds and investment funds at fair value through profit or loss classified under Level 3 of the fair value measurement hierarchy, the fair values are determined based on the net asset values of those investment funds. When the net asset value increases/decreases 3 per cent. (2015 — 3 per cent.), the fair value will be increased/decreased by HK$336,000 (2015 — HK$521,000).

The fair value of the Put Option is determined by Monte-Carlo simulation, which is the capitalisation of discounted cash flows generated by possible share price paths simulated by the model.

Below is a summary of significant observable inputs to the valuation of the Put Option used in Level 3 fair value measurements as at 31st March, 2016.

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Significant Range Sensitivity of
Valuation unobservable (weighted fair value
techniques inputs average) to the input
Other financial asset: Monte-Carlo Volatility of 26.4 per cent. to When the volatility of
Put Option simulation method underlying 27.4 per cent. the underlying shares
shares (2015 — N/A) increases/decreases
5 per cent.,
the fair value will be
increased/decreased by
HK$1,313,000 and
HK$394,000, respectively
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112 Hongkong Chinese Limited

Notes to the Financial Statements (continued)

41. FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS (continued)

Fair value hierarchy

The following table illustrates the fair value measurement hierarchy of the Group’s financial instruments:

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Fair value measurement using
Quoted prices Significant Significant
in active observable unobservable
markets inputs inputs
(Level 1) (Level 2) (Level 3) Total
HK$’000 HK$’000 HK$’000 HK$’000
At 31st March, 2016
Available-for-sale financial assets:
Equity securities 38 – – 38
Debt securities – 3,075 – 3,075
Investment funds – – 2,926 2,926
Financial assets at fair value
through profit or loss:
– –
Equity securities 35,696 35,696
Investment funds – 192 8,285 8,477
Other financial asset:
Derivative financial instrument – – 25,295 25,295
35,734 3,267 36,506 75,507
At 31st March, 2015
Available-for-sale financial assets:
Equity securities 55 – – 55
Debt securities 86,068 3,075 – 89,143
Investment funds 2,605 – 4,873 7,478
Financial assets at fair value
through profit or loss:
– –
Equity securities 95,968 95,968
Investment funds – 294 12,498 12,792
184,696 3,369 17,371 205,436
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Annual Report 2015/2016

Hongkong Chinese Limited 113

Notes to the Financial Statements (continued)

41. FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS (continued)

The movements in fair value measurements in Level 3 during the year are as follows:

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Available- Investment
for-sale funds at fair Other
investment value through financial
funds profit or loss asset
HK$’000 HK$’000 HK$’000
2016
–
At 1st April, 2015 4,873 12,498
Total gains/(losses) recognised in
–
the statement of profit or loss (1,545) 12,709
Total losses recognised in
– –
other comprehensive income (1,048)
Additions – – 12,586
–
Disposals (898) (2,668)
– –
Exchange adjustments (1)
At 31st March, 2016 2,926 8,285 25,295
2015
–
At 1st April, 2014 7,400 18,903
Total losses recognised in
–
the statement of profit or loss (3,187) (1,412)
Total gains recognised in
other comprehensive income 907 – –
–
Disposals (247) (4,986)
– –
Exchange adjustments (7)
–
At 31st March, 2015 4,873 12,498
----- End of picture text -----

During the year, there were no transfers of fair value measurements between Level 1 and Level 2 and no transfers into or out of Level 3 (2015 — Nil). The Group’s policy is to recognise transfers between levels of fair value hierarchy as at the end of the reporting period in which they occur.

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114 Hongkong Chinese Limited

Notes to the Financial Statements (continued)

42. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Group has established policies and procedures for risk management which are reviewed regularly by the Executive Directors and senior management of the Group to ensure the proper monitoring and control of all major risks arising from the Group’s activities at all times.

The main risks arising from the Group’s financial instruments are credit risk, liquidity risk, interest rate risk, foreign currency risk and equity price risk. The risk management function is carried out by individual business units and regularly overseen by the Group’s senior management with all the risk limits approved by the Executive Directors of the Group, which are summarised below. The Group’s accounting policies in relation to derivatives are set out in Note 2.4 to the financial statements.

(a) Credit risk

Credit risk arises from the possibility that the counterparty in a transaction may default. It arises from lending, treasury, investment and other activities undertaken by the Group.

The credit policies for margin lending business set out in detail the credit approval and monitoring mechanism, the loan classification criteria and provision policy. Credit approval is conducted in accordance with the credit policies, taking into account the type and tenor of loans, creditworthiness and repayment ability of prospective borrowers, collateral available and the resultant risk concentration in the context of the Group’s total assets. Day-to-day credit management is performed by management of individual business units.

The Group has established guidelines to ensure that all new debt investments are properly made, taking into account factors such as the credit rating requirements and the maximum exposure limit to a single corporate or issuer. All relevant departments within the Group are involved to ensure that appropriate processes, systems and controls are set in place before and after the investments are acquired.

The Group’s exposure to credit risk arising from loans and advances and trade debtors at the end of the reporting period based on the information provided to key management is as follows:

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2016 2015
HK$’000 HK$’000
By geographical area:
Hong Kong 50,849 119,242
Macau – 294,683
Others 7,848 8,357
58,697 422,282
----- End of picture text -----

The bank balances are deposited with creditworthy banks with no recent history of default.

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Annual Report 2015/2016

Hongkong Chinese Limited 115

Notes to the Financial Statements (continued)

42. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

(b) Liquidity risk

The Group manages the liquidity structure of its assets, liabilities and commitments in view of market conditions and its business needs, as well as to ensure that its operations meet the statutory requirement for the minimum liquidity ratio whenever applicable.

Management comprising Executive Directors and senior managers monitors the liquidity position of the Group on an on-going basis to ensure the availability of sufficient liquid funds to meet all obligations as they fall due and to make the most efficient use of the Group’s financial resources. As at 31st March, 2015, all of the Group’s debts would mature in less than one year based on the carrying values of bank and other borrowings. The Group fully repaid all the outstanding bank and other borrowings during the year.

An analysis of the maturity profile of liabilities of the Group analysed by the remaining period at the end of the reporting period to the contractual maturity date is as follows:

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1 year or less
Repayable 3 months but over
on demand or less 3 months Total
HK$’000 HK$’000 HK$’000 HK$’000
At 31st March, 2016
Creditors, accruals and deposits received 297,350 61,224 32,784 391,358
At 31st March, 2015
– –
Bank and other borrowings 464,542 464,542
Creditors, accruals and deposits received 316,773 138,070 44,988 499,831
Current, fixed, savings and other deposits of
customers 155,195 210,579 78,808 444,582
471,968 348,649 588,338 1,408,955
----- End of picture text -----

(c) Interest rate risk

Interest rate risk primarily results from timing differences in the repricing of interest-bearing assets and liabilities. The Group’s interest rate positions mainly arise from treasury, banking and other investment activities undertaken.

The Group monitors its interest-sensitive products and investments and net repricing gap and limits interest rate exposure through management of maturity profile, currency mix and choice of fixed or floating interest rates. When appropriate, interest rate swaps would be used to manage this risk in a cost-effective manner. The interest rate risk is managed and monitored regularly by senior management of the Group.

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116 Hongkong Chinese Limited

Notes to the Financial Statements (continued)

42. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

(c) Interest rate risk (continued)

The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, of the Group’s profit before tax and equity (through the impact on interest-bearing monetary assets and liabilities).

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2016 2015
Increase/ Increase/
Increase/ (Decrease) Increase/ Increase/ (Decrease) Increase/
(Decrease) in in profit (Decrease) (Decrease) in in profit (Decrease)
basis points before tax in equity basis points before tax in equity
HK$’000 HK$’000 HK$’000 HK$’000
Hong Kong dollar +50 1,214 1,214 +50 (1,125) (1,125)
United States dollar +50 279 279 +50 152 (1,229)
Singapore dollar +50 6 6 +50 71 71
Renminbi +50 1,388 1,388 +50 6,882 6,678
Hong Kong dollar –50 (1,214) (1,214) –50 1,125 1,125
United States dollar –50 (279) (279) –50 (152) 1,343
Singapore dollar –50 (6) (6) –50 (71) (71)
Renminbi –50 (1,388) (1,388) –50 (6,882) (6,675)
----- End of picture text -----

(d) Foreign currency risk

Foreign currency risk is the risk to earnings or capital arising from movements in foreign exchange rates. The Group’s foreign currency risk primarily arises from currency exposures originating from its banking activities, foreign exchange dealings and other investment activities.

The Group monitors the relative foreign exchange positions of its assets and liabilities to minimise foreign currency risk. When appropriate, hedging instruments including forward contracts, swaps and currency loans would be used to manage the foreign exchange exposure. The foreign currency risk is managed and monitored on an on-going basis by senior management of the Group.

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Annual Report 2015/2016

Hongkong Chinese Limited 117

Notes to the Financial Statements (continued)

42. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

(d) Foreign currency risk (continued)

The following table demonstrates the sensitivity at the end of the reporting period to a reasonably possible change in the United States dollar, Singapore dollar and Renminbi exchange rates, with all other variables held constant, of the Group’s profit before tax (due to changes in the fair value of monetary assets and liabilities).

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Increase/(Decrease)
in profit before tax
2016 2015
HK$’000 HK$’000
United States dollar against Hong Kong dollar
—
strengthened 3 per cent. (2015 — 3 per cent.) 2,065 3,696
—
weakened 3 per cent. (2015 — 3 per cent.) (2,065) (3,696)
Singapore dollar against Hong Kong dollar
—
strengthened 3 per cent. (2015 — 3 per cent.) 4,330 2,515
—
weakened 3 per cent. (2015 — 3 per cent.) (4,330) (2,515)
Renminbi against Hong Kong dollar
— strengthened 3 per cent. (2015 — 3 per cent.) 341 1,131
—
weakened 3 per cent. (2015 — 3 per cent.) (341) (1,131)
----- End of picture text -----

At the end of the reporting period, the cash and bank balances of the Group’s subsidiaries in mainland China denominated in Renminbi amounted to HK$331,307,000 (2015 — HK$1,370,024,000). The conversion of these Renminbi balances into foreign currencies is subject to the rules and regulations of foreign exchange control promulgated by the government in mainland China.

(e) Equity price risk

Equity price risk is the risk that the fair values of financial assets decrease as a result of changes in the levels of equity indices and the values of individual financial assets. The Group is exposed to equity price risk mainly arising from individual financial assets classified as available-for-sale financial assets (Note 19), financial assets at fair value through profit or loss (Note 23) and other financial asset (Note 24) as at 31st March, 2016. The Group’s listed financial assets are mainly listed on the Hong Kong and Singapore stock exchanges and are valued at quoted market prices at the end of the reporting period.

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118 Hongkong Chinese Limited

Notes to the Financial Statements (continued)

42. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

(e) Equity price risk (continued)

The market equity indices for the following stock exchanges, at the close of business of the nearest trading day to the end of the reporting period, and their respective highest and lowest points during the year were as follows:

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----- Start of picture text -----

31st March, High/Low 31st March, High/Low
2016 2016 2015 2015
Hong Kong — Hang Seng Index 20,777 28,589/18,278 24,901 25,363/21,680
Republic of Singapore — Straits Times Index 2,841 3,550/2,528 3,447 3,469/3,150
----- End of picture text -----

The senior management of the Group regularly reviews and monitors the mix of securities in the Group’s investment portfolio based on the fair value to ensure the loss arising from the changes in the market values of the investment portfolios is capped within an acceptable range.

The following table demonstrates the sensitivity to every 3 per cent. change in the fair values of the equity investments and investment funds, with all other variables held constant and before any impact on tax, based on their carrying amounts at the end of the reporting period. For the purpose of this analysis, for the available-for-sale equity investments, the impact is deemed to be on the investment revaluation reserve and no account is given for factors such as impairment which might impact on the statement of profit or loss.

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2016 2015
Increase/ Increase/
(Decrease) Increase/ (Decrease) Increase/
in profit (Decrease) in profit (Decrease)
before tax in equity before tax in equity
HK$’000 HK$’000 HK$’000 HK$’000
Available-for-sale financial assets
Global and other – 89 – 226
Financial instruments at fair value
through profit or loss
Hong Kong 20 – 791 –
– –
Republic of Singapore 1,051 2,088
Global and other 1,013 – 384 –
– –
2,084 3,263
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Excluding retained profits

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Annual Report 2015/2016

Hongkong Chinese Limited 119

Notes to the Financial Statements (continued)

42. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

(f) Capital management

The primary objectives of the Group’s capital management are to safeguard the Group’s ability to continue as a going concern and to maintain healthy capital ratios in order to support its business and maximise shareholders’ value.

The Group manages its capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares.

Certain subsidiaries of the Company are regulated by the Securities and Futures Commission (the “SFC”) and are required to comply with certain minimum capital requirements according to the rules of the SFC. Management monitors, on a daily basis, these subsidiaries’ liquid capital to ensure they meet the minimum liquid capital requirement in accordance with the Securities and Futures (Financial Resources) Rule.

Under the terms of Macau banking legislation, MCB is required to transfer to a legal reserve an amount equal to a minimum of 20 per cent. of its annual profit after tax until the amount of the reserve is equal to 50 per cent. of its issued and fully paid up share capital. Thereafter, transfers must continue at a minimum annual rate of 10 per cent. of its annual profit after tax until the reserve is equal to MCB’s issued and fully paid up share capital. This reserve is only distributable in accordance with certain limited circumstances prescribed by statute. MCB monitors solvency ratio under the requirement of Autoridade Monetária de Macau, the Monetary Authority of Macau, and keeps the ratio at not less than 8 per cent. throughout the current year.

No changes were made in the objectives, policies or processes for managing capital during the years ended 31st March, 2016 and 2015.

The Group monitors capital using a gearing ratio, which is calculated by dividing its total borrowings, net of non-controlling interests, by total shareholders’ equity. Total borrowings include current and non-current bank and other borrowings. Total shareholders’ equity represents equity attributable to equity holders of the Company.

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2016 2015
HK$’000 HK$’000
(Restated)
Bank and other borrowings, net of
–
non-controlling interests (Note 26) 464,542
Equity attributable to equity holders of the Company 10,501,000 10,424,769
Gearing ratio N/A 4.5 per cent.
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120 Hongkong Chinese Limited

Notes to the Financial Statements (continued)

43. EVENTS AFTER THE REPORTING PERIOD

In March 2016, the Group entered into the EL Agreements which were drawn and settled in full after the reporting period, details of which are disclosed in Note 18 to the financial statements. It is expected that a fair value gain on financial assets at fair value through profit or loss of HK$31,275,000 shall be recorded in the consolidated statement of profit or loss for the year ending 31st March, 2017 upon receipt of the new stapled securities of OUE H-Trust by the Group.

44. COMPARATIVE AMOUNTS

In February 2015, a joint venture of OUE, which in turn is a subsidiary of LAAPL, a principal joint venture of the Group, acquired an equity interest in a listed company (the “Acquisition”). As at 31st March, 2015, the purchase price allocation review in respect of the Acquisition was not completed. Such purchase price allocation review was completed during the year ended 31st March, 2016 and OUE recorded a share of gain from a bargain purchase in relation to the Acquisition. This gain from a bargain purchase represents the excess of fair value of assets and liabilities acquired over the consideration paid.

As a consequence, the Group has made certain adjustments to retrospectively adjust the impact of the Acquisition, which led to an increase in share of profit of joint ventures and net profit attributable to equity holders of HK$291,048,000 in the consolidated statement of profit or loss for the year ended 31st March, 2015, an increase in interests in joint ventures of HK$285,609,000 and a decrease in the exchange equalisation reserve of HK$5,439,000 in the Group’s consolidated statement of financial position as at 31st March, 2015. As a result, the equity attributable to equity holders of the Company was increased by HK$285,609,000 as at 31st March, 2015 and the earnings per share attributable to equity holders of the Company was increased by HK14.6 cents for the year ended 31st March, 2015.

Besides, certain comparative amounts have been reclassified and restated to conform with the current year’s presentation and disclosures.

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Annual Report 2015/2016

Hongkong Chinese Limited 121

Notes to the Financial Statements (continued)

45. STATEMENT OF FINANCIAL POSITION OF THE COMPANY

Information about the statement of financial position of the Company at the end of the reporting period is as follows:

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2016 2015
HK$’000 HK$’000
Non-current assets
Fixed assets 1,829 2,657
Interests in subsidiaries 2,863,338 3,104,277
Available-for-sale financial assets 3,075 3,075
2,868,242 3,110,009
Current assets
Debtors, prepayments and deposits 1,219 1,246
Financial assets at fair value through profit or loss 4 4,742
Cash and bank balances 365,989 30,753
367,212 36,741
Current liabilities
–
Bank and other borrowings 101,959
Creditors, accruals and deposits received 6,730 9,763
6,730 111,722
Net current assets/(liabilities) 360,482 (74,981)
Net assets 3,228,724 3,035,028
Equity
Share capital 1,998,280 1,998,280
Reserves (Note) 1,230,444 1,036,748
3,228,724 3,035,028
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122 Hongkong Chinese Limited

Notes to the Financial Statements (continued)

45. STATEMENT OF FINANCIAL POSITION OF THE COMPANY (continued)

Note:

A summary of the Company’s reserves is as follows:

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Share Capital
premium redemption Distributable
account reserve reserves Total
(Note 32(c))
HK$’000 HK$’000 HK$’000 HK$’000
2016
At 1st April, 2015 92,275 22,144 922,329 1,036,748
Profit for the year and total comprehensive income
for the year – – 253,645 253,645
2014/2015 final distribution declared and
paid to shareholders of the Company – – (39,966) (39,966)
2015/2016 interim distribution declared and
paid to shareholders of the Company – – (19,983) (19,983)
At 31st March, 2016 92,275 22,144 1,116,025 1,230,444
2015
At 1st April, 2014 92,275 22,144 976,789 1,091,208
Profit for the year and total comprehensive income
for the year – – 5,489 5,489
2013/2014 final distribution declared and
paid to shareholders of the Company – – (39,966) (39,966)
2014/2015 interim distribution declared and
paid to shareholders of the Company – – (19,983) (19,983)
At 31st March, 2015 92,275 22,144 922,329 1,036,748
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Distributable reserves of the Company as at 31st March, 2016 comprised contributed surplus of HK$134,329,000 (2015 — HK$134,329,000), retained earnings of HK$236,721,000 (2015 — accumulated losses of HK$16,924,000) and the remaining balance arising from the Cancellation of HK$744,975,000 (2015 — HK$804,924,000).

Included in the distributable reserves of the Company as at 31st March, 2016 was an amount of final dividend for the year then ended of HK$39,966,000 (2015 — final distribution HK$39,966,000) proposed after the end of the reporting period.

46. APPROVAL OF THE FINANCIAL STATEMENTS

The financial statements were approved and authorised for issue by the Board of Directors on 29th June, 2016.

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Annual Report 2015/2016

Hongkong Chinese Limited 123

Particulars of Principal Subsidiaries

PARTICULARS OF PRINCIPAL SUBSIDIARIES AS AT 31ST MARCH, 2016 ARE AS SET OUT BELOW.

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Issued and Approximate
fully paid percentage of equity
Place of ordinary attributable to the
incorporation/ share capital Company/Group
registration and (unless otherwise (unless otherwise
Name of company operations stated) stated) [#] Principal activities
----- End of picture text -----

Allyield Limited	British Virgin Islands	US$1	–	100	Investment holding
Beaming Empire Limited	British Virgin Islands	US$1	–	100	Investment holding
Capital Place International Limited**	British Virgin Islands/	US$50,000	–	100	Property investment
	Republic of the Philippines
成都力寶置業有限公司	People’s Republic of China	US$3,000,000*	–	100	Property investment
(Chengdu Lippo Realty Limited)**					and management
Conrich Inc.	British Virgin Islands	US$1	–	100	Investment holding
Cyberspot Limited	British Virgin Islands	US$1	–	100	Investment holding
Cyfield Limited	British Virgin Islands	US$1	–	100	Property investment
Dragonjoy Investment Limited	Hong Kong	HK$10,000	–	100	Securities trading
Everwin Pacific Ltd.	British Virgin Islands	US$1	–	100	Property investment
Fairseas 1 Pte. Ltd.**	Republic of Singapore	S$1	–	100	Owner of
					a motor yacht
Fiatsco Limited	British Virgin Islands	US$1	–	100	Investment holding
Firstclass Real Estate Development Limited	Macau	MOP25,000	–	100	Property development
Golden Stellar Limited	British Virgin Islands	US$1	100	100	Investment holding
Green Assets Investments Limited	British Virgin Islands	US$1	–	100	Investment holding
HCL Management Limited	Hong Kong	HK$1	–	100	Management services

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124 Hongkong Chinese Limited

Particulars of Principal Subsidiaries (continued)

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HKC Property Investment Holdings Limited	British Virgin Islands/	US$1	100	100	Investment holding
	Hong Kong
HKC Realty LLC**	United States of America	US$2,250,000*	–	100	Property investment
Hong Kong Housing Loan Limited	Hong Kong	HK$40,000,000	–	100	Money lending
ImPac Asset Management (HK) Limited	Hong Kong	HK$8,500,000	–	100	Investment advisory
					and asset management
ImPac Asset Management (Holdings) Ltd.	British Virgin Islands	US$2,000,100	–	100	Investment holding
Lippo Asia Limited	Hong Kong	HK$120,000,000	–	100	Investment holding
Lippo Asset Management (HK) Limited	Hong Kong	HK$400,000	–	100	Fund management
Lippo Futures Limited	Hong Kong	US$2,000,000	–	100	Commodities brokerage
Lippo Securities Holdings Limited	Hong Kong	US$23,000,000	–	100	Investment holding
Lippo Securities, Inc.**	Republic of the Philippines	Pesos 69,500,000	–	100	Investment holding
Lippo Securities Limited	Hong Kong	HK$220,000,000	–	100	Securities brokerage
L.S. Finance Limited	Hong Kong	HK$5,000,000	–	100	Money lending
Masuda Limited	British Virgin Islands	US$10,000	–	100	Investment holding

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Annual Report 2015/2016

Hongkong Chinese Limited 125

Particulars of Principal Subsidiaries (continued)

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MGS Ltd.	British Virgin Islands	US$1	–	100	Investment holding
Norfyork International Limited	Hong Kong	HK$25,000,000	–	100	Investment holding
One Realty Pte. Limited**	Republic of Singapore	S$2	–	100	Investment holding
					and provision of
					project and
					management services
Pacific Bond Limited	British Virgin Islands	US$1	–	100	Investment holding
Pacific Landmark Holdings Limited	British Virgin Islands	US$1	–	100	Investment holding
Peakmillion Asia Limited	British Virgin Islands	US$1	–	100	Investment
Sinogain Asia Limited	British Virgin Islands	US$1	–	100	Property investment
Sinorite Limited	British Virgin Islands/	US$1	100	100	Investment
	Hong Kong
Stargala Limited	British Virgin Islands	US$1	–	100	Property investment
Topbest Asia Inc.	British Virgin Islands/	US$1	–	100	Investment
	Hong Kong
Uchida Limited	British Virgin Islands/	US$1	–	100	Investment holding
	Hong Kong
Wealtop Limited	British Virgin Islands/	US$1	–	100	Investment holding
	Hong Kong
Winluck Asia Limited	British Virgin Islands	US$1	–	100	Property investment
Winluck Pacific Limited	British Virgin Islands	US$1	–	100	Property investment
Winrider Limited	British Virgin Islands	US$1	–	100	Investment holding

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126 Hongkong Chinese Limited

Particulars of Principal Subsidiaries (continued)

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Wonder Plan Holdings Limited	British Virgin Islands	US$1	–	100	Investment
Yield Point Limited	British Virgin Islands	US$1	–	100	Investment holding
北京力寶世紀置業有限公司	People’s Republic of China	US$36,000,000*	–	80	Property development
(Beijing Lippo Century Realty Co., Ltd.)**
TechnoSolve Limited	Hong Kong	HK$26,296,000	–	68.65	Development of
					computer hardware
					and software
科慧（珠海）軟件有限公司**	People’s Republic of China	RMB800,000*	–	68.65	Development and sale
					of banking software
					and technical advisory
Kingtek Limited	British Virgin Islands	US$100	–	60	Investment holding

based on the number of issued shares carrying voting rights and represents the effective holding of the Group after non-controlling interests therein

paid up registered capital ** audited by certified public accountants other than Messrs. Ernst & Young, Hong Kong

Note:

MOP — Macau patacas Pesos — Philippines pesos RMB — People’s Republic of China renminbi S$ — Singapore dollars US$ — United States dollars

The above table includes the subsidiaries of the Company which, in the opinion of the Directors, principally affected the results for the year or formed a substantial portion of the net assets of the Group. To give details of all subsidiaries would, in the opinion of the Directors, result in particulars of excessive length.

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Annual Report 2015/2016

Hongkong Chinese Limited 127

Particulars of Principal Associates

PARTICULARS OF PRINCIPAL ASSOCIATES AS AT 31ST MARCH, 2016 ARE AS SET OUT BELOW.

Name of company	Form of business structure	Place of incorporation and operations	Issued and fully paid ordinary share capital	Approximate percentage of equity attributable to the Group (unless otherwise stated)#	Principal activities
Greenix Limited	Corporate	British Virgin Islands	US$100,000	50	Investment holding
Lippo Marina Collection Pte. Ltd.	Corporate	Republic of Singapore	S$1,000,000	50	Property development
Goldfix Pacific Ltd.	Corporate	British Virgin Islands	US$16,286.6	36.84	Investment holding
Rebound Power Limited	Corporate	British Virgin Islands	US$300	Note (b)	Investment holding
Proton Power Asia Limited	Corporate	Hong Kong	HK$90	Note (c)	Investment holding
Proton Power Pte. Ltd.	Corporate	Republic of Singapore	S$1	Note (c)	Green energy
					development

based on the number of issued shares carrying voting rights and represents the effective holding of the Group after non-controlling interests therein

Note:

(a) S$ — Singapore dollars US$ — United States dollars
(b) Its issued share capital comprised of (i) 100 voting, non-participating class “A” shares of US$1.00 each; (ii) 100 non-voting, participating class “B” shares of US$1.00 each; (iii) 50 non-voting, participating class “C” shares of US$1.00 each; and (iv) 50 non-voting, participating class “D” shares of US$1.00 each. The Group was interested in 50 per cent. of all the class “A” shares in issue, 100 per cent. of all the class “B” shares in issue and approximately 36.32 per cent. of all the class “C” shares in issue which entitled the Group to 50 per cent. of the voting rights and approximately 75.45 per cent. of the profit sharing of this company.
(c) This company is a wholly-owned subsidiary of Rebound Power Limited.

The above table includes the associates of the Company which, in the opinion of the Directors, principally affected the results for the year or formed a substantial portion of the net assets of the Group. To give details of all associates would, in the opinion of the Directors, result in particulars of excessive length.

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128 Hongkong Chinese Limited

Particulars of Principal Joint Ventures

PARTICULARS OF PRINCIPAL JOINT VENTURES AS AT 31ST MARCH, 2016 ARE AS SET OUT BELOW.

Name of company	Form of business structure	Place of incorporation and operations	Issued and fully paid ordinary share capital	Percentage of equity attributable to the Group (unless otherwise stated)#	Principal activities
The Macau Chinese Bank Limited	Corporate	Macau	MOP260,000,000	51	Banking
Sunning Asia Limited	Corporate	British Virgin Islands	US$50,000	50	Investment holding
Lippo Real Estate Pte. Limited	Corporate	Republic of Singapore	S$2	50	Property development
Yamoo Bay Project Limited	Corporate	British Virgin Islands	US$2	50	Investment holding
Lippo ASM Asia Property Limited	Corporate	Cayman Islands	US$1,200	Note (b)	Investment holding
Wealthy Place Limited	Corporate	British Virgin Islands	US$2	30	Investment holding
Lippo Project Pte. Limited	Corporate	Republic of Singapore	S$2	30	Property development

based on the number of issued shares carrying voting rights and represents the effective holding of the Group after non-controlling interests therein

Note:

(a) MOP — Macau patacas S$ — Singapore dollars US$ — United States dollars

(b) Its issued share capital comprised of (i) 800 voting, non-participating class “A” shares of US$1.00 each; (ii) 200 non-voting, participating class “B” shares of US$1.00 each; and (iii) 200 non-voting, participating class “C” shares of US$1.00 each. The Group was interested in 50 per cent. of all the class “A” shares in issue and 100 per cent. of all the class “B” shares in issue which entitled the Group to 50 per cent. of the voting rights and approximately 94.26 per cent. of the profit sharing of this company.

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Annual Report 2015/2016

Hongkong Chinese Limited 129

Schedule of Major Properties

(1) PROPERTIES HELD FOR INVESTMENT AS AT 31ST MARCH, 2016

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Percentage of
Approximate the Group’s
Description Use gross floor area Status interest
(square metres)
People’s Republic of China
5 floors of Unit 1 Commercial 5,421 Rental 100
Building 1, Lippo Tower
No. 62 North Kehua Road
Wuhou District
Chengdu
The above property is held under medium term lease.
Overseas
31st Floor Commercial 885 Rental 100
Rufino Pacific Tower
Ayala Avenue Corner
Herrera Street, Makati
Metropolitan Manila
Republic of the Philippines
522 S. Sepulveda Boulevard Commercial 925 Rental 100
Los Angeles, CA 90049
United States of America
The above properties are freehold.
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130 Hongkong Chinese Limited

Schedule of Major Properties (continued)

(2) PROPERTY HELD FOR DEVELOPMENT AS AT 31ST MARCH, 2016

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----- Start of picture text -----

Percentage Stage of
Approximate of the Estimated development
Approximate gross floor Group’s completion at 31st
Description Use site area area interest date March, 2016
(square metres) (square metres)
Overseas
3 pieces of land at Residential 12,484 N/A 100 N/A Vacant land
Minakami Heights
Golf Residence
Gumma
Japan
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(3) PROPERTIES HELD FOR SALE AS AT 31ST MARCH, 2016

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Percentage of
Approximate the Group’s
Description Use gross floor area interest
(square metres)
People’s Republic of China
Certain residential units and Residential 883 100
car parking spaces at
83 Estrada de Cacilhas
Macau
Certain units and car parking spaces at Commercial/ 15,385 80
No. 8 Ronghua Middle Road Residential
Yizhuang
Beijing Economic-Technological
Development Area
(北京經濟技術開發區)
Beijing
Overseas
854 West Adams Boulevard Residential 723 100
Los Angeles, CA 90007
United States of America
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Annual Report 2015/2016

Hongkong Chinese Limited 131

Summary of Financial Information

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Fifteen-month
Year ended Year ended Year ended ended Year ended
31st March, 31st March, 31st March, 31st March, 31st December,
2016 2015 2014 2013 2011
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
(Restated) (Restated)
Profit/(Loss) attributable to
equity holders of the Company 203,931 655,067 313,577 (209,464) 1,022,294
Total assets 11,416,924 12,723,654 13,176,213 14,747,736 12,369,201
Total liabilities (836,343) (2,191,786) (2,536,665) (4,409,342) (2,356,375)
Net assets 10,580,581 10,531,868 10,639,548 10,338,394 10,012,826
Non-controlling interests (79,581) (107,099) (248,033) (61,768) (89,153)
Equity attributable to
equity holders of the Company 10,501,000 10,424,769 10,391,515 10,276,626 9,923,673
----- End of picture text -----

The Group has made certain adjustments to retrospectively adjust the financial information for the year ended 31st March, 2015 following the completion of the purchase price allocation review in respect of the acquisition of equity interest under the Group’s joint venture. Details regarding the adjustments are provided in Note 44 to the financial statements for the year ended 31st March, 2016.

The financial information for the year ended 31st December, 2011 is not restated upon the adoption of HKFRS 10 Consolidated Financial Statements , which became effective for financial years beginning on or after 1st April, 2013 as restating the financial information would involve delay and expenses out of proportion to the benefits of the shareholders.

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132 Hongkong Chinese Limited

Supplementary Financial Information

DISCLOSURE PURSUANT TO RULE 13.22 OF THE RULES GOVERNING THE LISTING OF SECURITIES ON THE STOCK EXCHANGE OF HONG KONG LIMITED

Set out below is a pro forma combined statement of financial position of the Group’s affiliates as at 31st March, 2016 (being the latest practicable date for determining the relevant figures) required to be disclosed under the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited:

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HK$’000
Pro forma combined statement of financial position
Intangible assets 1,190,339
Fixed assets 3,945,530
Investment properties 35,676,904
Interests in equity-accounted investees 2,405,004
Properties held for sale 828,807
Properties under development 4,402,360
Available-for-sale financial assets 1,024,151
Financial assets at fair value through profit or loss 1,555,648
Loans and advances 701,197
Debtors, prepayments and deposits 593,883
Treasury bills 29,100
Cash and bank balances 2,156,089
Other assets 47,848
Bank and other borrowings (26,505,456)
Creditors, accruals and deposits received (1,732,901)
Current, fixed, savings and other deposits of customers (1,010,143)
Tax payable (197,794)
Shareholders’ advance (1,559,892)
Deferred tax liabilities (764,830)
Other financial liabilities (111,831)
Non-controlling interests (13,292,024)
9,381,989
Group’s attributable interest (Note) 9,642,866
----- End of picture text -----

Note: The Group’s attributable interest represents that portion attributable to the Group before non-controlling interests included therein.

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AI assistant

3SBio Inc. — Annual Report 2016

49981_rns_2016-07-28_599966c9-95df-42a3-8950-7a51408e0d41.pdf

Contents

Corporate Information

BOARD OF DIRECTORS

Executive Directors

PRINCIPAL BANKERS

SOLICITORS

Non-executive Director

PRINCIPAL SHARE REGISTRAR

Independent non-executive Directors

COMMITTEES

Audit Committee

Remuneration Committee

Nomination Committee

SECRETARY

AND TRANSFER OFFICE

HONG KONG BRANCH SHARE REGISTRAR

AND TRANSFER OFFICE

REGISTERED OFFICE

PRINCIPAL PLACE OF BUSINESS

STOCK CODE

AUDITORS

WEBSITE

Chairman’s Statement

Report of the Directors

BUSINESS REVIEW

Overview

Results for the Year

Report of the Directors (continued)

BUSINESS REVIEW (continued)

Results for the Year (continued)

Property development

Property investment

Report of the Directors (continued)

BUSINESS REVIEW (continued)

Results for the Year (continued)

Property investment (continued)

Banking business

Report of the Directors (continued)

BUSINESS REVIEW (continued)

Results for the Year (continued)

Banking business (continued)

Treasury and securities investments

Corporate finance and securities broking

Report of the Directors (continued)

BUSINESS REVIEW (continued)

Financial Position

Staff and Remuneration

Report of the Directors (continued)

PROSPECTS

BUSINESS STRATEGY

KEY RISKS AND UNCERTAINTIES

Operational Risk

Investment Risk

Report of the Directors (continued)

KEY RISKS AND UNCERTAINTIES (continued)

Financial Risks

Report of the Directors (continued)

KEY RISKS AND UNCERTAINTIES (continued)

Strategic Direction Risk

Manpower and Retention Risk

Business Risks

Property Investment

Property Development

Joint Venture Partners Risk

Information Technology Risk

Report of the Directors (continued)

ENVIRONMENTAL, SOCIAL AND GOVERNANCE REPORT

Workplace Quality

Working conditions

Training and Development

Equal Opportunity and Diversity

Health and Safety

Report of the Directors (continued)

ENVIRONMENTAL, SOCIAL AND GOVERNANCE REPORT (continued)

Environmental Protection

Community Involvement

Operating Practices

3SBio Inc. Annual Report 2016