Comba Telecom Systems Holdings Limited - Interim / Quarterly Report 2019

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Persistent Focus 繼往開來凝心聚力

Innovation Brilliant 創新發展再創煇煌

2019 INTERIM REPORT 中期報告

Corporate Information	2–3
Management Discussion and Analysis	4–21
Interim Condensed Consolidated Statement of Profit or Loss	22
Interim Condensed Consolidated Statement of
Comprehensive Income	23
Interim Condensed Consolidated Statement of Financial Position	24–25
Interim Condensed Consolidated Statement of
Changes in Equity	26–27
Interim Condensed Consolidated Statement of Cash Flows	28–30
Notes to Interim Condensed Consolidated Financial Statements	31–68

CORPORATE INFORMATION

BOARD OF DIRECTORS

EXECUTIVE DIRECTORS

Fok Tung Ling (Chairman) Zhang Yue Jun (Vice Chairman) Xu Huijun (President) Chang Fei Fu Bu Binlong Wu Tielong

Huo Xinru

(appointed with effect from 22 March 2019)

INDEPENDENT NON-EXECUTIVE

DIRECTORS

AUDIT COMMITTEE

AND REMUNERATION COMMITTEE

Lau Siu Ki, Kevin (Chairman) Lin Jin Tong Ng Yi Kum (appointed with effect from 22 March 2019) Leung Hoi Wai

(appointed with effect from 14 June 2019)
Qian Ting Shuo
(resigned with effect from 15 January 2019)

Lau Siu Ki, Kevin

Lin Jin Tong

Ng Yi Kum

(appointed with effect from 22 March 2019)

Leung Hoi Wai

(appointed with effect from 14 June 2019)

Qian Ting Shuo

(resigned with effect from 15 January 2019)

COMPANY SECRETARY

Chan Siu Man

NOMINATION COMMITTEE

Lin Jin Tong (Chairman)

Lau Siu Ki, Kevin

Ng Yi Kum

(appointed with effect from 22 March 2019)

Leung Hoi Wai

(appointed with effect from 14 June 2019)

Qian Ting Shuo

(resigned with effect from 15 January 2019)

AUTHORIZED

REPRESENTATIVES

Fok Tung Ling Chang Fei Fu

COMBA TELECOM SYSTEMS HOLDINGS LIMITED

CORPORATE INFORMATION (CONT’D)

REGISTERED OFFICE

Cricket Square Hutchins Drive P.O. Box 2681 Grand Cayman KY1-1111 Cayman Islands

HEAD OFFICE AND PRINCIPAL

PLACE OF BUSINESS IN HONG KONG 611 East Wing No. 8 Science Park West Avenue Hong Kong Science Park Tai Po Hong Kong

CAYMAN ISLANDS PRINCIPAL SHARE REGISTRAR AND TRANSFER OFFICE SMP Partners (Cayman) Limited Royal Bank House-3rd Floor 24 Shedden Road P.O. Box 1586 Grand Cayman KY1-1110 Cayman Islands

HONG KONG BRANCH SHARE REGISTRAR AND TRANSFER OFFICE Computershare Hong Kong Investor Services Limited Shops 1712-1716 17th Floor Hopewell Centre 183 Queen’s Road East Wanchai Hong Kong

Interim Report 2019

MANAGEMENT DISCUSSION AND ANALYSIS

BUSINESS AND FINANCIAL REVIEW

In the first half of 2019, with the continuous increase in the number of global mobile users and the rapid growth in demand for the mobile internet access traffic data, the telecommunication operators continued to strengthen 4G network’s deep coverage and quality optimization to meet the demands of mobile users. Meanwhile, the official issuance of the 5G commercial license in Mainland China marked that China has officially entered the first year of the 5G era. Leveraging on the advantages of broad bandwidth, high speed, and low latency, 5G will thoroughly change the industry landscape and drive telecommunication operators to gradually increase capital expenditures to propel further rapid development of the communication industry.

REVENUE

Comba Telecom Systems Holdings Limited (the ”Company”) and its subsidiaries (collectively referred to as the “Group”) reported the interim revenue of HK$2,751,224,000 (2018: HK$2,493,733,000) for the six months ended 30 June 2019 (the “Current Period”), representing an increase of 10.3% compared to the six months ended 30 June 2018 (the “Prior Period”). The increase in revenue was mainly benefited from the growth in Mainland China mobile network operators’ capital expenditure in 4G network construction, which resulted from the continuous enhancement of the 4G network’s capacity expansion and optimization.

BY CUSTOMERS

To strengthen the coverage of the 4G network, the main mobile operators in Mainland China continued to enhance the frequency spectrum re-farming and the construction of projects such as NB-IoT during the Current Period. Meanwhile, in order to better prepare for the large-scale commercial use of 5G, the demands for the co-constructing and sharing deployment in the different network frequency spectra and the network modes also made a contribution to the growth of the business of the Group.

During the Current Period, revenue generated from China Mobile Communications Corporation and its subsidiaries increased by 17.0% over the Prior Period to HK$797,019,000 (2018: HK$681,214,000), accounting for 29.0% of the Group’s revenue in the Current Period, compared to 27.3% in the Prior Period.

COMBA TELECOM SYSTEMS HOLDINGS LIMITED

MANAGEMENT DISCUSSION AND ANALYSIS (CONT’D)

Revenue generated from China United Telecommunications Corporation and its subsidiaries significantly increased by 118.1% over the Prior Period to HK$455,551,000 (2018: HK$208,891,000), accounting for 16.6% of the Group’s revenue in the Current Period, compared to 8.4% in the Prior Period.

Revenue generated from China Telecommunications Corporation and its subsidiaries decreased by 32.0% over the Prior Period to HK$266,997,000 (2018: HK$392,901,000), accounting for 9.7% of the Group’s revenue in the Current Period, compared to 15.8% in the Prior Period.

During the Current Period, revenue from other customers, mainly including China Tower Corporation Limited (“China Tower”) and Rail Transit Communication customers, increased by 128.7% over the Prior Period to HK$377,213,000 (2018: HK$164,965,000) and represented 13.7% (2018: 6.6%) of the Group’s revenue. Among these, revenue generated from China Tower increased by 33.4% over the Prior Period to HK$106,029,000 (2018: HK$79,486,000) and revenue generated from Rail Transit Communication customers significantly increased by 384.5% over the Prior Period to HK$94,977,000 (2018: HK$19,604,000). Due to increasing demand for the indoor coverage business by China Tower and growing demand for Rail Transit Communication wireless solutions, the management has great confidence in the revenue contribution by China Tower and Rail Transit Communication customers in the future.

On the international front, during the Current Period, revenue generated from international customers and core equipment manufacturers decreased by 18.1% over the Prior Period to HK$774,153,000 (2018: HK$945,318,000), accounting for 28.1% of the Group’s revenue in the Current Period, compared to 37.9% in the Prior Period. The decrease was mainly due to the slowing demands for the construction of the 4G network in certain regions (such as India market). However, the Group continued to further deepen the strategic cooperation with international leading operators and core equipment manufacturers. During the Current Period, the great breakthroughs have been made in certain important regions and the management has confidence in the future prospect of the international market.

During the Current Period, revenue from ETL Company Limited (“ETL”), a middle and small-sized telecom operator in Laos and non-wholly-owned subsidiary of the Group, decreased by 20.1% over the Prior Period to HK$80,291,000 (2018: HK$100,444,000), accounting for 2.9% of the Group’s revenue in the Current Period (2018: 4.0%). The decrease in revenue was mainly affected by the transformation and upgrade of networks in certain regions. During the Current Period, the Group has completed the building of the local 4G network and the corresponding supporting construction in Laos and is in the process of active preparation for its pre-commercial use.

Interim Report 2019

MANAGEMENT DISCUSSION AND ANALYSIS (CONT’D)

BY BUSINESSES

During the Current Period, revenue generated from the antennas and subsystems business increased by 13.9% over the Prior Period to HK$1,516,423,000 (2018: HK$1,331,931,000), accounting for 55.1% (2018: 53.4%) of the Group’s revenue in the Current Period. The increase in revenue was mainly due to the increasing demands for capacity expansion of the 4G network and the small-scale commercial use of 5G in domestic market.

During the Current Period, revenue generated from the network system (including wireless enhancement and wireless access) business decreased by 8.4% over the Prior Period to HK$376,098,000 (2018: HK$410,720,000), accounting for 13.7% (2018: 16.5%) of the Group’s revenue in the Current Period. Among which, revenue generated from the wireless enhancement business decreased by 12.4% over the Prior Period to HK$300,135,000 (2018: HK$342,811,000). With the increasing demands for mobile data traffic, the traditional indoor coverage will gradually develop into the new digital indoor coverage, and revenue generated from the wireless access business increased by 11.9% over the Prior Period to HK$75,963,000 (2018: HK$67,909,000). With the implementation of large-scale commercial use of wireless access products represented by small cells, the management believes that revenue generated from the wireless access business will gradually increase.

During the Current Period, revenue from services increased by 12.9% over the Prior Period to HK$649,249,000 (2018: HK$575,028,000), accounting for 23.6% (2018: 23.1%) of the Group’s revenue. The increase in revenue was mainly due to the increase in the number of construction projects in the domestic indoor coverage business.

During the Current Period, revenue from other business (including wireless transmission and specialized enterprise network) increased by 70.8% over the Prior Period to HK$129,163,000 (2018: HK$75,610,000), accounting for 4.7% (2018: 3.0%) of the Group’s revenue. Among which, revenue from the wireless transmission business decreased by 39.0%, mainly due to the shrinking of the traditional microwave business. Meanwhile, revenue from Rail Transit Communication business increased significantly by 384.5% over the Prior Period to HK$94,977,000 (2018: HK$19,604,000) which was mainly due to the further expansion and development of the Company’s railway communications business.

COMBA TELECOM SYSTEMS HOLDINGS LIMITED

MANAGEMENT DISCUSSION AND ANALYSIS (CONT’D)

GROSS PROFIT

During the Current Period, the Group’s gross profit increased by 11.4% over the Prior Period to HK$840,253,000 (2018: HK$753,992,000). The Group’s gross profit margin was 30.5% in the Current Period (2018: 30.2%), an increase of 0.3 percentage points compared to the Prior Period. Despite of the maturity of 4G products, the Group has proactively developed new products and optimized production systems so as to improve gross profit margin of its products.

The Group will continue to launch new products and solutions, enhance the level of automated and intelligent production to further improve competitiveness and gross profit margin.

RESEARCH AND DEVELOPMENT (“R&D”) COSTS

In order to better embrace 5G and master the industry-leading technology, the Group actively increased R&D investment, continuously propelled innovation and built the competitiveness of existing products and accelerated the process of launch and commercialization of 5G new products. During the Current Period, R&D costs increased by 24.6% over the Prior Period to HK$176,718,000 (2018: HK$141,820,000), accounting for 6.4% (2018: 5.7%) of the Group’s revenue.

Through its strong commitment to R&D, the Group has realized significant achievements in creating its own solutions with proprietary intellectual property and has applied for more than 3,800 patents as at the end of the Current Period (As at 31 December 2018: approximately 3,700 patents).

SELLING AND DISTRIBUTION (“S&D”) EXPENSES

During the Current Period, S&D expenses increased by 10.1% over the Prior Period to HK$279,763,000 (2018: HK$254,031,000), accounting for 10.2% (2018: 10.2%) of the Group’s revenue. The increase in S&D expenses was mainly due to the increase in sales revenue of the Group.

ADMINISTRATIVE EXPENSES

During the Current Period, administrative expenses decreased by 8.0% over the Prior Period to HK$280,968,000 (2018: HK$305,565,000), accounting for 10.2% (2018: 12.3%) of the Group’s revenue. The decrease in administrative expenses was mainly benefited from the improved operating efficiency of the Company as a result of optimizing the organization structure and human resources during the prior year.

Interim Report 2019

MANAGEMENT DISCUSSION AND ANALYSIS (CONT’D)

FINANCE COSTS

During the Current Period, finance costs increased by 83.2% over the Prior Period to HK$53,679,000 (2018: HK$29,299,000), accounting for 2.0% (2018: 1.2%) of the Group’s revenue. The increase in finance costs was mainly due to the conversion of most of short-term loans to 3-Year syndicated loan in the first quarter of 2019 and higher interest rates on bank borrowings.

The management has constantly exercised prudence in managing credit risk and the level of bank borrowings as well as improving cash flow. To cope with the business growth, the management has closely monitored the latest developments of the financing market and has arranged the most appropriate financing for the Group.

In addition, the management has utilized the advantages of interest and foreign exchange rate differentiation among different countries in order to minimize finance costs. As of 30 June 2019, the gross gearing ratio of the Group, defined as total interest-bearing bank borrowings divided by total assets, stood at a level of 16.6% compared with 17.7% as at 31 December 2018.

OPERATING PROFIT

During the Current Period, the operating profit of the Group increased by 120.1% over the Prior Period to HK$117,252,000 (2018: HK$53,271,000). The increase in operating profit was mainly benefited from the increase in the Group’s revenue during the Current Period.

TAX

During the Current Period, the Group’s overall taxation charge of HK$24,535,000 (2018: HK$16,417,000) comprised an income tax expense of HK$22,334,000 (2018: HK$20,116,000) and a deferred tax charge of HK$2,201,000 (2018: deferred tax credit of HK$3,699,000). The increase in overall taxation charge was mainly due to the increase in operating profit of the Group.

Details of preferential tax rate enjoyed by major operating subsidiaries are set out in note 8 to these interim condensed consolidated financial statements.

COMBA TELECOM SYSTEMS HOLDINGS LIMITED

MANAGEMENT DISCUSSION AND ANALYSIS (CONT’D)

NET PROFIT

During the Current Period, with the increase of revenue, profit attributable to owners of the parent of the Group was HK$82,214,000 (2018: HK$21,028,000), representing an increase of 291.0% compared to the Prior Period.

DIVIDEND

In view of the Group’s operating results in the first half of 2019 and taking into consideration its long-term future development and the interests of the shareholders of the Company (the “Shareholders”), particularly those of minority Shareholders, the board of directors (the “Board” or the “Director(s)”) proposes an interim dividend for 2019 of HK1 cent per ordinary share (2018: Nil). The total dividend payout ratio, on the basis of basic earnings per share, is 29.9% (2018: N/A).

PROSPECTS

As the national economic development power transformation booster, the mobile telecommunication technology is expected to drive technological innovation and industrial upgrade continuously. Currently, the global operators are deploying 5G networks in a proactive manner. During the Current Period, the Ministry of Industry and Information Technology of the People’s Republic of China (MIIT) has officially granted 5G licenses to the major operators in China on 6 June, symbolizing that Mainland China is officially entering the 5G commercialization era, and the mass commercial use of 5G is expected to commence in 2020. Therefore, the Group is optimistic about the prospect of the business development.

PRODUCTS AND SOLUTIONS

ANTENNA AND BASE STATION SUBSYSTEMS

The Group has a long-established leading position in the base station antenna market. Leveraging its extensive experience in network construction with the evolvement of mobile telecommunication technologies for over 20 years and its cutting-edge technology in miniaturized multi-system multi-mode shared antenna, the Group has been named as a “Global Tier 1 Base Station Antenna Supplier” for eight consecutive years since 2011 by EJL Wireless Research, an industry analyst firm, and ranked among top 3 in terms of its shipments of base station antenna worldwide since 2009. With its global presence, the Group has also been widely recognized by domestic and overseas operators, given its competitive core technology R&D capability and advanced automatic production capacity, enabling it to provide customized products and solutions with higher cost performance to its global customers.

Interim Report 2019

MANAGEMENT DISCUSSION AND ANALYSIS (CONT’D)

To maintain its core competitiveness in base station antenna, the Group proactively strengthens its in-house R&D. For better cooperation with operators on 5G deployment, during the Current Period, the Group continued to launch various integrated multi-frequency and multi-mode antennas, including “4488” and “4+6” which targeted to different operators in order to meet all non-5G antenna needs and release valuable location spaces for 5G development. Meanwhile, with the progress of 5G network construction throughout the world, the demand for 5G antenna products is growing. In view of the demands from customers, the Group has made great efforts in the R&D of various 5G antennas for the frequencies under 6 Gigahertz (sub6G) and delivered the supply.

In addition, as a key component of the base station radio frequency units, the base station filter is developing toward a smaller and lighter one, driven by the 5G Massive MIMO antenna. The dielectric filter is expected to be a main solution to the base station antenna filter in the 5G era. After years of R&D and deployment, the Group has made outstanding breakthrough in the 5G medium-and-high frequency base station dielectric filter, based on which, the Group’s competitive advantages in 5G Massive MIMO antenna will be significantly enhanced, further promoting the market share of 5G Massive MIMO antenna and thus expanding the scale of the Group’s revenue.

NETWORK PRODUCT SYSTEM SOLUTIONS

During the Current Period, the growing mobile user base and rapidly increasing average monthly dataflow of usage per user (DOU) presented a significant challenge to the operators for network construction. Over years, the Group has been committed to the R&D and technology innovation of indoor coverage network products and launched the small cell products, which not only effectively satisfy the medium-to-small in-depth indoor coverage requirements, but also enables the telecommunication operators to reduce construction costs.

Meanwhile, with the upcoming 5G commercial use and in view of the poor signal coverage due to 5G high frequency range, the traditional indoor coverage network products cannot meet the new requirements. Therefore, during the Current Period, in association with China Mobile Research Institute and Intel, the Group demonstrated 5G Cloud Small Cell, the world’s first 5G open small cell for commercial use in the industry ever, at the Mobile World Congress Shanghai (MWCS) to propel the development of 5G industry. Considering the difference between 4G and 5G, signaling coverage is transforming to capacity coverage. Characterized by high flexibility, high cost performance and easy to deployment, 5G Cloud Small Cell will become an important solution to the indoor coverage in the 5G era and provide strong support to a number of new businesses and new applications of 5G.

COMBA TELECOM SYSTEMS HOLDINGS LIMITED

MANAGEMENT DISCUSSION AND ANALYSIS (CONT’D)

In the 5G era, various hot spots or industrial applications will be emerged continuously as the introduction of various new business patterns. 5G will not only meet the“human needs” in depth, but also the “connection of things”. 5G will bring the comprehensive reconstruction of network architecture. The Group is also seeking for collaboration with other manufacturers to launch more flexible and reliable open indoor solutions to more applications of indoor vertical industries, thereby integrating with more industry applications to constitute a new environment of 5G and provide opportunity to the Group for its business expansion in the 5G era.

MARKET EXPANSION

OPERATOR BUSINESS IN MAINLAND CHINA

During the Current Period, the later 4G stage network expansion and blind area coverage remained a key investment priority of the three major operators in Mainland China. Driven by the policy of “speed upgrade and tariff reduction” and the user package of “unlimited mobile data”, in order to further improve user experience, the operators have been committed to improving the depth and width of 4G network coverage, as well as the quality of mobile network service to ensure user stickiness.

Meanwhile, with the approach of 5G commercial development, the three major telecom operators in Mainland China have been laying out 5G plans for preparation of industrial structure reform and upgrade. Accompanied by the launch of “5G+” plans, 5G networking in SA (Standalone), NSA (Non-standalone) modes, 5G commercial use scenarios and the formal issuance of 5G commercial license, the Group expects the capital expenditure on wireless networks by the major mainland operators to return to growth gradually.

During the Current Period, capturing the opportunity from cost control and expense reduction by operators in Mainland China, the Group proactively strengthened its deep cooperation with operators and provided them with all-around comprehensive solutions. In order to respond to the explosive growth of mobile data traffic, the Group followed the pace of operators tightly, not only providing customized products and solutions in the base station antennas, but also providing all-round business support for the operators in R&D, manufacturing and execution on the projects by taking advantage of the Group’s advanced technologies over the past years in indoor coverage products and solutions. In addition, in order to fully prepare for 5G, the Group has been working with the operators and advancing the lab tests and field tests on each 5G indoor coverage strategic projects towards 5G development.

Interim Report 2019

MANAGEMENT DISCUSSION AND ANALYSIS (CONT’D)

RAIL TRANSIT COMMUNICATION BUSINESS

Along with the increasing investment efforts in urban public transportation, among other infrastructure construction, in each big city of Mainland China, progress of the rail transit construction has also been accelerated, boosting the development of the rail transit communication business. The Group has been committed to providing communication system integration and product supply services for the rail transit industry. During the Current Period, the Group has proactively expanding the rail transit communication business and won the tenders for a number of rail transit communication projects in Kunming, Hangzhou, Beijing, Nanning, and Guiyang, which further laid a solid foundation for the continuous development of the Group’s rail transit communication business. Looking forward, the Group will continue to provide more scenario-based and customized products and solutions to its customers.

INTERNATIONAL BUSINESS

During the Current Period, the Group’s international marketing platform focused on market expansion by exploring customer demands. Capitalizing on its comprehensive advantages in both product and technology, the Group achieved significant breakthrough in some developed markets and realized stable growth in some regional markets. Meanwhile, the Group continued to put more efforts in technology R&D and developed target markets and has made various impressive achievements, which included but not limited to a high-density wireless solution to the major large-scale venues in Brazil, the deployment of indoor wireless network for YAS Mall, the largest shopping center of an international operator in Abu Dhabi and the launch of 4G and 5G Open vRAN solution in collaboration with Parallel Wireless, Inc., a global leading network solution supplier, enabling global mobile network operators to realize best cost performance.

In addition, the Group has made breakthroughs in the cooperation with leading international mobile operators, and has also made remarkable progress in the cooperation with telecom core equipment suppliers in the field of 5G. Looking to the future, the Group will continue to cooperate with global leading telecommunication operators and core equipment suppliers in a strategic manner and jointly develop 5G products so as to provide more solutions to 5G application and improve the market position and competitive edge of the Group in the world.

COMBA TELECOM SYSTEMS HOLDINGS LIMITED

MANAGEMENT DISCUSSION AND ANALYSIS (CONT’D)

ETL BUSINESS

During the Current Period, pursuant to its ETL network construction plan, the Group continued to deploy wireless network and related supporting system in the capital and major cities in the South and North District of Laos, following the completion of construction of the backbone optical cable carrier network, core network and integrated billing operation system at the end of last year, so as to provide full businesses and services in Laos, including network 2G/3G/4G voice, data, home broadband and group specialized cables.

NEW BUSINESS

Globally, 5G is entering a crucial period for commercial use. It will be a brand-new network connecting everything and give birth to a brand-new business pattern. 5G technologies will release its value in various industries, including agriculture, manufacturing, transportation, education and healthcare. The Group has also proactively explored new industry-oriented businesses in, among others, intelligent manufacturing and facial recognition during the Current Period. The success of providing fast and secure face recognition access control solutions to the Mobile World Congress fully demonstrates that the Group is actively incubating new business opportunities outside its core business.

CONCLUSION

During the Current Period, against the backdrop of a mixed external environment and the pressure of a downward economy, the business environment of the communications industry showed both opportunities and challenges. As a major development trend of the new generation of information and communication technology, 5G will be further integrated into each industry vertically and horizontally to fuel the transformation and development of future economy. Sticking to the core value of “creating ideal values for customers”, the Group will be determined to expand market and capture business opportunities, develop 5G new products and technologies and facilitate deep inter-sector cooperation in a bid to capture the initial 5G opportunities and promote the Group’s business to scale new heights.

Last but not least, the Board would like to take this opportunity to express its heartfelt thanks to all staffs for their efforts and contributions to the Group. We also wish to thank our customers, suppliers, Shareholders and business partners for their continuous support. The Group will make full use of its technology, product and market advantages, develop clearly new strategies, enhance operational efficiency and concentrate on operating profits to maximize its enterprise value.

Interim Report 2019

MANAGEMENT DISCUSSION AND ANALYSIS (CONT’D)

LIQUIDITY, FINANCIAL RESOURCES AND CAPITAL STRUCTURE

The Group generally finances for its operations from cash flows generated internally and bank borrowings. As at 30 June 2019, the Group had net current assets of HK$3,235,270,000. Current assets comprised inventories of HK$1,332,223,000, trade receivables of HK$4,427,565,000, notes receivable of HK$82,778,000, tax recoverable of HK$46,416,000, prepayments, other receivables and other assets of HK$1,123,261,000, restricted bank deposits of HK$169,083,000 and cash and cash equivalents of HK$1,497,971,000. Current liabilities comprised trade and bills payables of HK$4,319,624,000, other payables and accruals of HK$996,080,000, interest-bearing bank borrowings of HK$56,737,000 and provision for product warranties of HK$71,586,000.

The average receivable turnover for the Current Period was 285 days compared to 331 days for the Prior Period. The Group’s trading terms with its customers are mainly on credit. The credit period is generally 3 months, except for certain customers which are granted with longer credit term. Credit term is extendable up to over 1 year depending on the credit worthiness of customers. The balances also include retention money, which is for assurance that the product and service comply with agreed-upon specifications, of approximately 10% to 20% of the total contract sum of each project, and are generally receivable after final certification of products by customers, which would be performed 6 to 12 months after sale, or upon completion of the warranty periods of 1 to 2 years granted to customers. The average payable turnover for the Current Period was 412 days compared to 386 days for the Prior Period. The average inventory turnover for the Current Period was 126 days compared to 156 days for the Prior Period.

As at 30 June 2019, the Group’s cash and bank balances were mainly denominated in RMB, HK$ and US$ while the Group’s bank borrowings were mainly denominated in RMB and HK$. The interest rates on the Group’s bank borrowings are principally on a floating basis at prevailing market rates.

In addition to the short-term interest-bearing facilities, the Group had entered into a 3-year term loan facility agreement with certain financial institutions with the principal amount of HK$980,000,000 on 30 January 2019 which was further increased to HK$1,458,000,000 by way of accession. Details of bank borrowings are set out in note 14 to these interim condensed consolidated financial statements.

COMBA TELECOM SYSTEMS HOLDINGS LIMITED

MANAGEMENT DISCUSSION AND ANALYSIS (CONT’D)

The Group’s revenue and expenses, assets and liabilities are mainly denominated in RMB, HK$ and US$. In view of the anticipation of a period of volatility in RMB, the Group will closely monitor the fluctuations of the RMB exchange rate and give prudent consideration as to entering into any arrangement as and when appropriate for hedging corresponding risks. As at 30 June 2019, the Group has not engaged in hedging activities for managing RMB exchange rate risk.

The Group’s gross gearing ratio, defined as total interest-bearing bank borrowings divided by total assets, was 16.6% as at 30 June 2019 (31 December 2018: 17.7%).

MATERIAL ACQUISITIONS AND DISPOSALS

The Group has not conducted any material acquisitions and disposals of subsidiaries and associated companies during the Current Period.

RESTRICTED BANK DEPOSITS

Deposit balances of HK$254,824,000 (31 December 2018: HK$285,507,000) represented the restricted deposits given to banks in respect of bills payable and performance bonds.

CONTINGENT LIABILITIES

As at 30 June 2019, the Group had contingent liabilities of HK$300,247,000 (31 December 2018: HK$289,341,000), which mainly included guarantees given to banks in respect of performance bonds.

Interim Report 2019

MANAGEMENT DISCUSSION AND ANALYSIS (CONT’D)

EMPLOYEES AND REMUNERATION POLICIES

As at 30 June 2019, the Group had approximately 6,500 staffs, out of which 1,400 staffs from ETL (31 December 2018: 6,700 staffs, out of which 1,400 staffs from ETL). The total staff costs, excluding capitalized development cost, for the Current Period were HK$581,862,000 (31 December 2018: HK$1,161,962,000). The Group offers competitive remuneration schemes to its employees based on industry practices, legal and regulatory requirements, as well as the employees’ and the Group’s performance. In addition, share options, awarded shares and discretionary bonuses are granted to eligible employees based on the employees’ performance, the Group’s results, legal and regulatory requirements and in accordance with the share option scheme and the share award scheme of the Company. Mandatory provident fund or staff pension schemes are also provided to relevant staffs in Hong Kong, the Mainland China or elsewhere in accordance with relevant legal requirements in such jurisdiction. The Group also provides training to the staffs to improve their skills and develop their respective expertise. The remuneration committee of the Company advised and recommended to the Board on the remuneration policy for all Directors and senior management of the Group.

An employees incentive scheme is adopted by a subsidiary of the Company for the purpose of recognizing the contributions of its certain employees and persons.

PURCHASE, REDEMPTION OR SALE OF LISTED SECURITIES OF THE COMPANY

The Company has not redeemed any of its shares during the Current Period. Neither the Company nor any of its subsidiaries has purchased, sold or redeemed any of the Company’s listed securities during the Current Period.

COMBA TELECOM SYSTEMS HOLDINGS LIMITED

MANAGEMENT DISCUSSION AND ANALYSIS (CONT’D)

DIRECTORS’ INTERESTS AND SHORT POSITIONS IN SHARES, UNDERLYING SHARES AND DEBENTURES

As at 30 June 2019, the interests and short positions of the Directors and chief executive of the Company in the shares, underlying shares and debentures 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 pursuant to 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 (the “Model Code”) under the Rules Governing the Listing of Securities on the Stock Exchange (the “Listing Rules”), were as follows:

Long positions in ordinary shares of the Company:

Name of Directors Mr. Fok Tung Ling (“Mr. Fok”) Mr. Zhang Yue Jun Mr. Xu Huijun (“Mr. Xu”) Mr. Chang Fei Fu Mr. Bu Binlong (“Mr. Bu”) Mr. Wu Tielong (“Mr. Wu”)	Notes	Number of ordinary shares held, capacity and nature of interest	Number of ordinary shares held, capacity and nature of interest	Number of ordinary shares held, capacity and nature of interest	Percentage of the Company’s issued share capital (Approximately)
		Directly beneficially owned	Through controlled corporation	Total
	(a) (b)	24,864,339 – 10,000,000 2,450,000 3,578,284 1,842,049	710,115,129 248,225,410 – – – –	734,979,468 248,225,410 10,000,000 2,450,000 3,578,284 1,842,049	29.65 10.01 0.40 0.09 0.14 0.07

Interim Report 2019

MANAGEMENT DISCUSSION AND ANALYSIS (CONT’D)

Long positions in share options of the Company:

Name of Directors Mr. Xu Mr. Chang Fei Fu Mr. Bu Mr. Wu Ms. Huo Xinru Mr. Lau Siu Ki, Kevin Dr. Lin Jin Tong Ms. Ng Yi Kum	Number of share options directly beneficially owned
	15,000,000 10,300,000 10,100,000 8,450,000 6,050,000 510,000 455,000 200,000

Notes:

(a) These shares are beneficially owned by Prime Choice Investments Limited. By virtue of 100% shareholding of Prime Choice Investments Limited, Mr. Fok is deemed or taken to be interested in the 710,115,129 shares owned by Prime Choice Investments Limited under the SFO.
(b) These shares are beneficially owned by Wise Logic Investments Limited. By virtue of 100% shareholding in Wise Logic Investments Limited, Mr. Zhang Yue Jun is deemed or taken to be interested in the 248,225,410 shares owned by Wise Logic Investments Limited under the SFO.

Save as disclosed above, as at 30 June 2019, none of the Directors or chief executive of the Company had any interests or short positions in the shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO), as recorded in the register required to be kept under Section 352 of the SFO, or as otherwise notified to the Company and the Stock Exchange under the Model Code.

Save as disclosed above, at no time during the Current Period, the Directors or chief executive of the Company (including their spouses and children under the age of 18) had any interests in or was granted any right to subscribe for the shares of the Company or its associated corporations (within the meaning of Part XV of the SFO), or had exercised any of such rights, required to be disclosed under the SFO.

COMBA TELECOM SYSTEMS HOLDINGS LIMITED

MANAGEMENT DISCUSSION AND ANALYSIS (CONT’D)

DIRECTORS’ RIGHTS TO ACQUIRE SHARES OR DEBENTURES

Save as disclosed in the share option scheme and share award scheme in note 16 to these interim condensed consolidated financial statements, at no time during the Current Period were rights to acquire benefits by means of the acquisition of shares in, or debentures of, the Company granted to any Director, the chief executive of the Company or their respective spouses or children, or were any such rights exercised by them; or was the Company, its holding company, or any of its subsidiaries or fellow subsidiaries a party to any arrangements to enable the Directors to acquire such rights in any other body corporate.

SHARE OPTION SCHEME AND SHARE AWARD SCHEME

Details of the share option scheme and share award scheme of the Company are set out in note 16 to these interim condensed consolidated financial statements.

SUBSTANTIAL SHAREHOLDERS’ AND OTHER PERSONS’ INTERESTS AND SHORT POSITIONS IN SHARES AND UNDERLYING SHARES

As at 30 June 2019, the following substantial Shareholders (other than a Director or the chief executive of the Company) had interests or short positions in the shares or underlying shares of the Company as recorded in the register required to be kept pursuant to Section 336 of the SFO or otherwise notified to the Company and/or the Stock Exchange as follows:

Long positions:

Name Prime Choice Investments Limited Madam Chen Jing Na Wise Logic Investments Limited Madam Cai Hui Ni	Notes (a) (b)	Capacity and nature of interest	Number of ordinary shares held	Percentage of the Company’s issued share capital (Approximately)
		Beneficial owner Interest of spouse Beneficial owner Interest of spouse	710,115,129 734,979,468 248,225,410 248,225,410	28.65 29.65 10.01 10.01

Interim Report 2019

MANAGEMENT DISCUSSION AND ANALYSIS (CONT’D)

Notes:

(a) Madam Chen Jing Na is the spouse of Mr. Fok and is deemed to be interested in the 734,979,468 shares in which Mr. Fok is interested or deemed to be interested for the purpose of the SFO.
(b) Madam Cai Hui Ni is the spouse of Mr. Zhang Yue Jun and is deemed to be interested in the 248,225,410 shares in which Mr. Zhang Yue Jun is interested or deemed to be interested for the purpose of the SFO.

There are duplications of interests in the issued share capital of the Company in respect of:

(i) 710,115,129 shares between Prime Choice Investments Limited and Madam Chen Jing Na; and
(ii) 248,225,410 shares between Wise Logic Investments Limited and Madam Cai Hui Ni.

Save as disclosed above, as at 30 June 2019, no other persons (other than the Directors or chief executive of the Company) had any interests or short positions in the shares or underlying shares of the Company as recorded in the register required to be kept under Section 336 of the SFO, or as otherwise notified to the Company and/or the Stock Exchange.

COMPLIANCE WITH CORPORATE GOVERNANCE CODE

The Board reviewed daily governance of the Company from time to time in accordance with the code provisions (the “Code Provisions”) as set out in the Corporate Governance Code contained in Appendix 14 of the Listing Rules and considered that, during the Current Period, the Company has complied with all Code Provisions.

DIRECTORS’ SECURITIES TRANSACTIONS

The Company has adopted the Model Code as its own code of conduct for dealings in securities transactions of the Company by its Directors. Specific enquiries have been made to all Directors, and they have confirmed that they have complied with the required standard as set out in the Model Code and its code of conduct regarding directors’ securities transactions during the Current Period.

COMBA TELECOM SYSTEMS HOLDINGS LIMITED

MANAGEMENT DISCUSSION AND ANALYSIS (CONT’D)

CHANGE IN PARTICULARS OF THE DIRECTORS

Pursuant to rule 13.51B(1) of the Listing Rules, change of Directors’ particulars since the publication of the Company’s 2018 Annual Report is set out below:

(a) Mr. Lau Siu Ki, Kevin, an independent non-executive Director, has been appointed as an independent non-executive director of IVD Medical Holding Limited, the shares of which are listed on the Stock Exchange since 12 July 2019.
(b) Ms. Ng Yi Kum, an independent non-executive Director:
(i) has been appointed, with effect from 16 July 2019, as an independent non-executive director of CT Vision (International) Holdings Limited, the shares of which are listed on the Stock Exchange; and
(ii) is an independent non-executive director of China Power Clean Energy Development Company Limited as disclosed in the Company’s 2018 Annual Report, the shares of which were delisted from the Stock Exchange with effect from 21 August 2019.

AUDIT COMMITTEE

The audit committee of the Company (the “Audit Committee”), together with the management, have reviewed the accounting principles, standards and practices adopted by the Company, and discussed matters relating to auditing, risk management and internal control and financial reporting, including the review of these interim condensed consolidated financial statements for the Current Period. The Audit Committee has given its consent to the accounting principles, standards and practices adopted by the Company for these interim condensed consolidated financial statements for the Current Period and has not given any disagreement.

RECORD DATE FOR INTERIM DIVIDEND

The record date for determination of entitlements under the interim dividend will be on 30 August 2019. Shareholders whose names appear on the register of members of the Company on 30 August 2019 will be entitled to receive the interim dividend. In order to qualify for the interim dividend, all transfers accompanied by the relevant share certificates must be lodged with the Company’s Hong Kong branch share registrar and transfer office, Computershare Hong Kong Investor Services Limited at Shops 1712-1716, 17/F, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong for registration no later than 4:30 p.m. on 30 August 2019. Dividend warrants will be despatched to the Shareholders on 10 September 2019.

Interim Report 2019

INTERIM CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS

For the six months ended 30 June 2019

REVENUE Cost of sales	Notes	For the six months ended 30 June 2019 2018 (Unaudited) (Unaudited) HK$’000 HK$’000 2,751,224 2,493,733 (1,910,971) (1,739,741) 840,253 753,992 92,027 66,560 (176,718) (141,820) (279,763) (254,031) (280,968) (305,565) (77,579) (65,865) (53,679) (29,299) 63,573 23,972 (24,535) (16,417) 39,038 7,555 82,214 21,028 (43,176) (13,473) 39,038 7,555 HK3.35 cents HK0.86 cents HK3.32 cents HK0.86 cents	For the six months ended 30 June 2019 2018 (Unaudited) (Unaudited) HK$’000 HK$’000 2,751,224 2,493,733 (1,910,971) (1,739,741) 840,253 753,992 92,027 66,560 (176,718) (141,820) (279,763) (254,031) (280,968) (305,565) (77,579) (65,865) (53,679) (29,299) 63,573 23,972 (24,535) (16,417) 39,038 7,555 82,214 21,028 (43,176) (13,473) 39,038 7,555 HK3.35 cents HK0.86 cents HK3.32 cents HK0.86 cents
		2019
		(Unaudited)
		HK$’000

	5		2,493,733 (1,739,741)
		2,751,224

		(1,910,971)

Gross profit Other income and gains Research and development costs Selling and distribution expenses Administrative expenses Other expenses Finance costs	5 7		753,992 66,560 (141,820) (254,031) (305,565) (65,865) (29,299)
		840,253

		92,027
		(176,718)
		(279,763)
		(280,968)
		(77,579)
		(53,679)

PROFIT BEFORE TAX Income tax expense	6 8		23,972 (16,417)
		63,573

		(24,535)

PROFIT FOR THE PERIOD			7,555
		39,038

Attributable to: Owners of the parent Non-controlling interests			21,028 (13,473)

		82,214
		(43,176)

			7,555
		39,038

EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE PARENT Basic	10		HK0.86 cents


		HK3.35 cents

Diluted			HK0.86 cents
		HK3.32 cents

COMBA TELECOM SYSTEMS HOLDINGS LIMITED

INTERIM CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the six months ended 30 June 2019

PROFIT FOR THE PERIOD OTHER COMPREHENSIVE LOSS Other comprehensive loss that may be reclassified to profit or loss in subsequent periods: Exchange differences on translation of foreign operations	For the six months ended 30 June 2019 2018 (Unaudited) (Unaudited) HK$’000 HK$’000 39,038 7,555 (52,548) (77,760) (52,548) (77,760) (52,548) (77,760) (13,510) (70,205) 34,376 (52,555) (47,886) (17,650) (13,510) (70,205)	For the six months ended 30 June 2019 2018 (Unaudited) (Unaudited) HK$’000 HK$’000 39,038 7,555 (52,548) (77,760) (52,548) (77,760) (52,548) (77,760) (13,510) (70,205) 34,376 (52,555) (47,886) (17,650) (13,510) (70,205)
	2019
	(Unaudited)
	HK$’000

		7,555 (77,760)
	39,038




	(52,548)

Net other comprehensive loss that may be reclassified to profit or loss in subsequent periods		(77,760)
	(52,548)

OTHER COMPREHENSIVE LOSS FOR THE PERIOD, NET OF TAX		(77,760)
	(52,548)

TOTAL COMPREHENSIVE LOSS FOR THE PERIOD		(70,205)
	(13,510)

Attributable to: Owners of the parent Non-controlling interests		(52,555) (17,650)

	34,376
	(47,886)

		(70,205)
	(13,510)

Interim Report 2019

INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

30 June 2019

NON-CURRENT ASSETS Property, plant and equipment Right-of-use assets Prepaid land lease payments Goodwill Deferred tax assets Intangible assets Equity instruments designated at fair value through profit or loss Restricted bank deposits Prepayments	Notes	30 June 2019	31 December 2018 (Audited) HK$’000
		(Unaudited)
		HK$’000

			1,128,259 — 117,889 253,077 102,013 856,050 33,540 77,596 8,888

		1,175,305
		211,055
		—
		253,077
		97,217
		843,667
		27,384
		85,741
		—

Total non-current assets			2,577,312
		2,693,446

CURRENT ASSETS Inventories Trade receivables Notes receivable Prepayments, other receivables and other assets Tax recoverable Restricted bank deposits Cash and cash equivalents	11 12		1,306,831 4,164,595 118,950 984,853 48,330 207,911 1,893,859

		1,332,223
		4,427,565
		82,778
		1,123,261
		46,416
		169,083
		1,497,971

Total current assets			8,725,329
		8,679,297

CURRENT LIABILITIES Trade and bills payables Other payables and accruals Interest-bearing bank borrowings Provision for product warranties	13 14		4,313,799 960,834 1,624,499 63,831

		4,319,624
		996,080
		56,737
		71,586

Total current liabilities			6,962,963
		5,444,027

24 COMBA TELECOM SYSTEMS HOLDINGS LIMITED

INTERIM CONDENSED CONSOLIDATED

STATEMENT OF FINANCIAL POSITION (CONT’D)

30 June 2019

NET CURRENT ASSETS	Notes	30 June 2019	31 December 2018 (Audited) HK$’000
		(Unaudited)
		HK$’000

			1,762,366
		3,235,270

TOTAL ASSETS LESS CURRENT LIABILITIES			4,339,678
		5,928,716

NON-CURRENT LIABILITIES Interest-bearing bank borrowings Lease liabilities Deferred tax liabilities	14		375,557 — 158,507

		1,827,668
		63,043
		155,891

Total non-current liabilities			534,064
		2,046,602

Net assets			3,805,614
		3,882,114

EQUITY Equity attributable to owners of the parent Issued capital Treasury shares Reserves	15 17		241,948 (22,818) 3,059,023


		247,817
		(22,818)
		3,177,540

Non-controlling interests			3,278,153 527,461
		3,402,539

		479,575

Total equity			3,805,614
		3,882,114

Interim Report 2019 25

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the six months ended 30 June 2019

				Total	equity	HK$’000	4,307,838	7,555					(77,760)		(70,205)		7,592	716			—	—	(71,757)	4,174,184
			Non-	controlling	interests	HK$’000	565,179	(13,473)					(4,177)		(17,650)		—	—			—	—	—	547,529
					Total	HK$’000	3,742,659	21,028					(73,583)		(52,555)		7,592	716			—	—	(71,757)	3,626,655
				Retained	profits	HK$’000	2,269,180	21,028					—		21,028		—	—			(986)	(4,303)	—	2,284,919
	Fair value	reserve	of equity	instruments	at FVOCI	HK$’000	(7,240)	—					—		—		—	—			—	—	—	(7,240)
			Exchange	fluctuation	reserve	HK$’000	273,459	—					(73,583)		(73,583)		—	—			—	—	—	199,876
Attributable to owners of the parent			Asset	Capital revaluation Statutory	reserve reserve reserve	HK$’000 HK$’000 HK$’000	45,827 54,146 175,045	— — —					— — —		— — —		— — —	— — —			— — —	— (1,805) 6,108	(347) — —	45,480 52,341 181,153
		Share-	based	compensation	reserve	HK$’000	44,071	—					—		—		7,592	(273)			986	—	—	52,376
			Share	premium	account	HK$’000	664,031	—					—		—		—	935			—	—	(66,335)	598,631
				Treasury	shares	HK$’000	(22,818)	—					—		—		—	—			—	—	—	(22,818)
				Issued	capital	HK$’000	246,958	—					—		—		—	54			—	—	(5,075)	241,937
						Notes											16(a)
							At 1 January 2018	Profit for the period	Other comprehensive loss for	the period:	Exchange differences	on translation of foreign	operations	Total comprehensive loss for	the period	Share option scheme	– value of services	– exercise of share options	– transfer of share option reserve	upon the forfeiture or	expiry of share options	Transfer to/from retained profits	Repurchase of shares	At 30 June 2018 (unaudited)

COMBA TELECOM SYSTEMS HOLDINGS LIMITED

INTERIM CONDENSED CONSOLIDATED STATEMENT OF

CHANGES IN EQUITY (CONT’D)

For the six months ended 30 June 2019

Total equity HK$’000	Total equity HK$’000	3,805,614	39,038 (52,548)	(13,510) 12,149 77,861 — —	3,882,114
Non- controlling interests HK$’000		527,461	(43,176) (4,710)	(47,886) — — — —	479,575
Attributable to owners of the parent	Total HK$’000	3,278,153	82,214 (47,838)	34,376 12,149 77,861 — —	3,402,539
	Retained profits HK$’000	2,092,350*	82,214 —	82,214 — — 803 (15,144)	2,160,223*
	Fair value reserve of equity instruments at FVOCI HK$’000	(7,240)*	— —	— — — — —	(7,240)*
	Exchange fluctuation reserve HK$’000	35,188*	— (47,838)	(47,838) — — — —	(12,650)*
	Statutory reserve HK$’000	189,104*	— —	— — — — 16,949	206,053*
	Asset revaluation reserve HK$’000	46,634*	— —	— — — — (1,805)	44,829*
	Capital reserve HK$’000	45,480*	— —	— — — — —	45,480*
	Share- based compensation reserve HK$’000	58,710*	— —	— 12,149 (32,792) (803) —	37,264*
	Share premium account HK$’000	598,797*	— —	— — 104,784 — —	703,581*
	Treasury shares HK$’000	(22,818)	— —	— — — — —	(22,818)
	Issued capital HK$’000	241,948	— —	— — 5,869 — —	247,817

Interim Report 2019 27

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

For the six months ended 30 June 2019

	Notes	For the six months ended 30 June 2019 2018 (Unaudited) (Unaudited) HK$’000 HK$’000 63,573 23,972 (6,001) (4,891) 53,679 29,299 83,013 88,160 16,006 1,455 46,009 60,279 218 (75) 12,149 7,592 (4,607) (20,661) (1,301) — 262,738 185,130 (26,092) (280,560) (279,202) (80,335) 36,108 10,404 (148,450) (97,250) (11,863) 51,980 7,872 (235,727) 7,913 3,409 (150,976) (442,949) (14,612) (29,603) (5,834) (8,046)	For the six months ended 30 June 2019 2018 (Unaudited) (Unaudited) HK$’000 HK$’000 63,573 23,972 (6,001) (4,891) 53,679 29,299 83,013 88,160 16,006 1,455 46,009 60,279 218 (75) 12,149 7,592 (4,607) (20,661) (1,301) — 262,738 185,130 (26,092) (280,560) (279,202) (80,335) 36,108 10,404 (148,450) (97,250) (11,863) 51,980 7,872 (235,727) 7,913 3,409 (150,976) (442,949) (14,612) (29,603) (5,834) (8,046)
		2019
		(Unaudited)
		HK$’000

CASH FLOWS FROM OPERATING ACTIVITIES Profit before tax Adjustments for: Interest income Finance costs Depreciation of property, plant and equipment Depreciation of right-of-use assets/ recognition of prepaid land lease payments Amortization of intangible assets Loss/(gain) on disposal of items of property, plant and equipment Equity-settled share option expense Gain on equity instruments designated at fair value through profit or loss Gain on disposal of part of equity investment designated at fair value through profit or loss	5 7 6 6 6 6 6 6		23,972 (4,891) 29,299 88,160 1,455 60,279 (75) 7,592 (20,661) —

		63,573

		(6,001)
		53,679
		83,013
		16,006
		46,009
		218
		12,149
		(4,607)
		(1,301)

Increase in inventories Increase in trade receivables Decrease in notes receivable Increase in prepayments, other receivables and other assets (Decrease)/increase in trade and bills payables Increase/(decrease) in other payables and accruals Increase in provision for product warranties			185,130 (280,560) (80,335) 10,404 (97,250) 51,980 (235,727) 3,409
		262,738
		(26,092)
		(279,202)
		36,108
		(148,450)
		(11,863)
		7,872
		7,913

Cash used in operations Mainland China profits tax paid Overseas profits taxes paid			(442,949) (29,603) (8,046)
		(150,976)
		(14,612)
		(5,834)

28 COMBA TELECOM SYSTEMS HOLDINGS LIMITED

INTERIM CONDENSED CONSOLIDATED STATEMENT OF

CASH FLOWS (CONT’D)

For the six months ended 30 June 2019

	Notes	For the six months ended 30 June 2019 2018 (Unaudited) (Unaudited) HK$’000 HK$’000 (171,422) (480,598) 6,001 4,891 (129,119) (46,086) (33,789) (86,849) (4,051) — 697 11,098 15,889 — 30,530 45,926 (113,842) (71,020) 1,458,000 763,237 (1,573,517) (252,730) 77,861 716 (53,679) (29,299) (15,857) — — (71,757) (107,192) 410,167	For the six months ended 30 June 2019 2018 (Unaudited) (Unaudited) HK$’000 HK$’000 (171,422) (480,598) 6,001 4,891 (129,119) (46,086) (33,789) (86,849) (4,051) — 697 11,098 15,889 — 30,530 45,926 (113,842) (71,020) 1,458,000 763,237 (1,573,517) (252,730) 77,861 716 (53,679) (29,299) (15,857) — — (71,757) (107,192) 410,167
		2019
		(Unaudited)
		HK$’000

Net cash flows used in operating activities			(480,598)
		(171,422)

CASH FLOWS FROM INVESTING ACTIVITIES Interest received Purchases of items of property, plant and equipment Addition of intangible assets Purchase of equity investments designated at fair value through profit or loss Proceeds from disposal of items of property, plant and equipment Proceeds from disposal of part of equity investment at fair value through profit or loss Decrease in restricted bank deposits			4,891 (46,086) (86,849) — 11,098 — 45,926

		6,001
		(129,119)
		(33,789)
		(4,051)
		697
		15,889
		30,530

Net cash flows used in investing activities			(71,020)
		(113,842)

CASH FLOWS FROM FINANCING ACTIVITIES New bank borrowings Repayment of bank borrowings Exercise of share options Interest paid Principal portion of lease payments Repurchase of shares	15(iii)		763,237 (252,730) 716 (29,299) — (71,757)

		1,458,000
		(1,573,517)
		77,861
		(53,679)
		(15,857)
		—

Net cash flows (used in)/from financing activities			410,167
		(107,192)

Interim Report 2019

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (CONT’D)

For the six months ended 30 June 2019

	For the six months ended 30 June 2019 2018 (Unaudited) (Unaudited) HK$’000 HK$’000 (392,456) (141,451) 1,893,859 1,176,129 (3,432) (22,427) 1,497,971 1,012,251 1,497,696 1,010,816 275 1,435 1,497,971 1,012,251	For the six months ended 30 June 2019 2018 (Unaudited) (Unaudited) HK$’000 HK$’000 (392,456) (141,451) 1,893,859 1,176,129 (3,432) (22,427) 1,497,971 1,012,251 1,497,696 1,010,816 275 1,435 1,497,971 1,012,251
	2019
	(Unaudited)
	HK$’000

NET DECREASE IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at beginning of period Effect of foreign exchange rate changes, net		(141,451) 1,176,129 (22,427)
	(392,456)
	1,893,859
	(3,432)

CASH AND CASH EQUIVALENTS AT END OF PERIOD		1,012,251
	1,497,971

ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances Non-pledged time deposits with original maturity of less than three months when acquired		1,010,816 1,435

	1,497,696
	275

Cash and cash equivalents as stated in the condensed consolidated statement of financial position		1,012,251
	1,497,971

COMBA TELECOM SYSTEMS HOLDINGS LIMITED

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 30 June 2019

1. CORPORATE INFORMATION

The Company was incorporated as an exempted company with limited liability in the Cayman Islands on 17 May 2002 under the Companies Law, Cap. 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands.

The head office and principal place of business of the Company is located at 611 East Wing, No. 8 Science Park West Avenue, Hong Kong Science Park, Tai Po, Hong Kong.

During the period, the Group was principally engaged in the research, development, manufacture and sale of wireless telecommunications network system equipment, the provision of related engineering services and the provision of telecommunication services and their value added services.

2. BASIS OF PREPARATION

The interim condensed consolidated financial statements for the six months ended 30 June 2019 have been prepared in accordance with Hong Kong Accounting Standard (“HKAS”) 34 Interim Financial Reporting issued by the Hong Kong Institute of Certified Public Accountants.

The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group’s annual financial statements for the year ended 31 December 2018.

3. CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES

The accounting policies adopted in the preparation of the interim condensed consolidated financial information are consistent with those applied in the preparation of the Group’s annual consolidated financial statements for the year ended 31 December 2018, except for the adoption of the new and revised Hong Kong Financial Reporting Standards (“HKFRSs”) effective as of 1 January 2019.

Interim Report 2019

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) 30 June 2019

3. CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES (Cont’d)

Amendments to HKFRS 9	Prepayment Features with Negative
	Compensation
HKFRS 16	Leases
Amendments to HKAS 19	Plan Amendment, Curtailment or Settlement
Amendments to HKAS 28	Long-term Interests in Associates and Joint
	Ventures
HK(IFRIC)-Int 23	Uncertainty over Income Tax Treatments
Annual Improvements	Amendments to HKFRS 3, HKFRS 11, HKAS
2015-2017 Cycle	12 and HKAS 23

Other than as explained below regarding the impact of HKFRS 16 Leases , the new and revised standards are not relevant to the preparation of the Group’s interim condensed consolidated financial information. The nature and impact of the new and revised HKFRS is described below:

HKFRS 16 replaces HKAS 17 Leases , HK(IFRIC)-Int 4 Determining whether an Arrangement contains a Lease , HK(SIC)-Int 15 Operating Leases – Incentives and HK(SIC)-Int 27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease . The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model. Lessor accounting under HKFRS 16 is substantially unchanged from HKAS 17. Lessors will continue to classify leases as either operating or finance leases using similar principles as in HKAS 17. Therefore, HKFRS 16 did not have any financial impact on leases where the Group is the lessor.

The Group adopted HKFRS 16 using the modified retrospective method of adoption with the date of initial application of 1 January 2019. Under this method, the standard is applied as no adjustment to the opening balance of retained earnings at 1 January 2019, and the comparative information for 2018 was not restated and continues to be reported under HKAS 17.

COMBA TELECOM SYSTEMS HOLDINGS LIMITED

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) 30 June 2019

3. CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES (Cont’d)

NEW DEFINITION OF A LEASE

Under HKFRS 16, a contract is, or contains a lease if the contract conveys a right to control the use of an identified asset for a period of time in exchange for consideration. Control is conveyed where the customer has both the right to obtain substantially all of the economic benefits from use of the identified asset and the right to direct the use of the identified asset. The Group elected to use the transition practical expedient allowing the standard to be applied only to contracts that were previously identified as leases applying HKAS 17 and HK(IFRIC)-Int 4 at the date of initial application. Contracts that were not identified as leases under HKAS 17 and HK(IFRIC)-Int 4 were not reassessed. Therefore, the definition of a lease under HKFRS 16 has been applied only to contracts entered into or changed on or after 1 January 2019.

At inception or on reassessment of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease and non-lease component on the basis of their standard-alone prices. A practical expedient is available to a lessee, which the Group has adopted, not to separate non-lease components and to account for the lease and the associated non-lease components as a single lease component.

AS A LESSEE – LEASES PREVIOUSLY CLASSIFIED AS OPERATING LEASES Nature of the effect of adoption of HKFRS 16

The Group has lease contracts for various items of prepaid land lease payment, property, vehicles and other equipment. As a lessee, the Group previously classified leases as either finance leases or operating leases based on the assessment of whether the lease transferred substantially all the rewards and risks of ownership of assets to the Group. Under HKFRS 16, the Group applies a single approach to recognize and measure right-of-use assets and lease liabilities for all leases, except for one elective exemption for leases of short-term leases (elected by class of underlying asset). The Group has elected not to recognize right-of-use assets and lease liabilities for leases, that at the commencement date, have a lease term of 12 months or less. Instead, the Group recognizes the lease payments associated with those leases as an expense on a straight-line basis over the lease term.

Interim Report 2019

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)

30 June 2019

3. CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES (Cont’d)

AS A LESSEE – LEASES PREVIOUSLY CLASSIFIED AS OPERATING LEASES (Cont’d)

Impacts on transition

Lease liabilities at 1 January 2019 were recognized based on the present value of the remaining lease payments, discounted using the incremental borrowing rate at 1 January 2019 and included in other payables and lease liabilities.

The right-of-use assets were measured at the amount of the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to the lease recognized in the statement of financial position immediately before 1 January 2019. All these assets were assessed for any impairment based on HKAS 36 on that date. The Group elected to present the right-ofuse assets separately in the statement of financial position.

The Group has used the following elective practical expedients when applying HKFRS 16 at 1 January 2019:

Applied the short-term lease exemptions to leases with a lease term that ends within 12 months from the date of initial application
Used hindsight in determining the lease term where the contract contains options to extend/terminate the lease

COMBA TELECOM SYSTEMS HOLDINGS LIMITED

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)

30 June 2019

3. CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES (Cont’d)

AS A LESSEE – LEASES PREVIOUSLY CLASSIFIED AS OPERATING LEASES (Cont’d)

Impacts on transition (Cont’d)

The impacts arising from the adoption of HKFRS 16 as at 1 January 2019 are as follows:

Assets Increase in right-of-use assets Decrease in prepaid land lease payments Decrease in other receivables	Increase/ (decrease) (Unaudited) HK$’000
	215,589 (117,889) (2,788)
Increase in total assets	94,912
Liabilities Increase in other payables and accruals Increase in lease liabilities	23,750 71,162
Increase in total liabilities	94,912

The lease liabilities as at 1 January 2019 reconciled to the operating lease commitments as at 31 December 2018 is as follows:

Operating lease commitments as at 31 December 2018 Weighted average incremental borrowing rate as at 1 January 2019	(Unaudited) HK$’000
	119,926 4.64%
Discounted operating lease commitments as at 1 January 2019 Less: Commitments relating to short-term leases and those leases with a remaining lease term ending on or before 31 December 2019	109,347 (14,435)
Lease liabilities as at 1 January 2019	94,912

Interim Report 2019

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) 30 June 2019

3. CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES (Cont’d)

SUMMARY OF NEW ACCOUNTING POLICIES

The accounting policy for leases as disclosed in the annual financial statements for the year ended 31 December 2018 is replaced with the following new accounting policies upon adoption of HKFRS 16 from 1 January 2019:

RIGHT-OF-USE ASSETS

Right-of-use assets are recognized at the commencement date of the lease. Right-of-use assets are measured at cost, less any accumulated depreciation and any impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Unless the Group is reasonably certain to obtain ownership of the leased asset at the end of the lease term, the recognized right-of-use assets are depreciated on a straight-line basis over the shorter of the estimated useful life and the lease term.

LEASE LIABILITIES

Lease liabilities are recognized at the commencement date of the lease at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for termination of a lease, if the lease term reflects the Group exercising the option to terminate. The variable lease payments that do not depend on an index or a rate are recognized as an expense in the period in which the event or condition that triggers the payment occurs.

COMBA TELECOM SYSTEMS HOLDINGS LIMITED

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) 30 June 2019

3. CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES (Cont’d)

LEASE LIABILITIES (Cont’d)

In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in future lease payments arising from change in an index or rate, a change in the lease term, a change in the in-substance fixed lease payments or a change in assessment to purchase the underlying asset.

SIGNIFICANT JUDGEMENT IN DETERMINING THE LEASE TERM OF CONTRACTS WITH RENEWAL OPTIONS

The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised.

The Group applies judgement in evaluating whether it is reasonably certain to exercise the option to renew. It considers all relevant factors that create an economic incentive for it to exercise the renewal. After the lease commencement date, the Group reassesses the lease term if there is a significant event or change in circumstances that is within the control of the Group and affects its ability to exercise the option to renew.

The Group included the renewal period as part of the lease term for leases of machinery due to the significance of these assets to its operations. These leases have a short non-cancellable period and there will be a significant negative effect on production if a replacement is not readily available.

Interim Report 2019

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) 30 June 2019

3. CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES (Cont’d)

A M O U N T S R E C O G N I Z E D I N T H E I N T E R I M C O N D E N S E D CONSOLIDATED STATEMENT OF FINANCIAL POSITION AND PROFIT OR LOSS

The carrying amounts of the Group’s right-of-use assets and lease liabilities (included within ‘other payables’ and ‘lease liabilities’) and the movement during the period are as follow:

As at 1 January 2019 Additions Depreciation charge Interest expense Payments Exchange realignment		Right-of-use assets	Right-of-use assets
	Prepaid land lease payments (Unaudited)	Buildings (Unaudited)	Others (Unaudited)	Sub-total (Unaudited)	Lease liabilities (Unaudited)
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000


	117,889	96,130	1,570	215,589	94,912
	—	10,817	793	11,610	9,703
	(1,401)	(14,107)	(498)	(16,006)	—
	—	—	—	—	2,262
	—	—	—	—	(15,857)
	(61)	(40)	(37)	(138)	(88)

As at 30 June 2019
	116,427	92,800	1,828	211,055	90,932

4. OPERATING SEGMENT INFORMATION

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

(a) Wireless telecommunications network system equipment
(b) Telecommunication services

Management monitors the results of the Group’s operating segments separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on profit before tax.

COMBA TELECOM SYSTEMS HOLDINGS LIMITED

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) 30 June 2019

4. OPERATING SEGMENT INFORMATION (Cont’d)

Period ended 30 June 2019 Revenue Profit/(loss) before tax Segment assets Elimination	Wireless telecommunications network system equipment (Unaudited)	Telecommunication services (Unaudited)	Total (Unaudited)
	HK$’000	HK$’000	HK$’000


	2,670,933	80,291	2,751,224

	147,619	(84,046)	63,573

	10,151,683	1,747,476	11,899,159
			(526,416)

Total assets
			11,372,743

Segment liabilities Elimination
	7,344,682	672,363	8,017,045
			(526,416)

Total liabilities
			7,490,629

Period ended 30 June 2018 Revenue Profit/(loss) before tax Segment assets Elimination	Wireless telecommunications network system equipment (Unaudited) HK$’000	Telecommunication services (Unaudited) HK$’000	Total (Unaudited) HK$’000
	2,393,289 50,818 9,770,003 6,807,318	100,444 (26,846) 1,525,315 313,816	2,493,733 23,972 11,295,318 (295,963)
Total assets			10,999,355
Segment liabilities Elimination			7,121,134 (295,963)
Total liabilities			6,825,171

Interim Report 2019 39

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)

30 June 2019

4. OPERATING SEGMENT INFORMATION (Cont’d) GEOGRAPHICAL INFORMATION

(a) Revenue from external customers

Mainland China Other countries/areas in Asia Pacific Americas European Union Middle East Other countries	For the six months ended 30 June 2019 2018 (Unaudited) (Unaudited) HK$’000 HK$’000 2,031,144 1,501,195 354,018 654,977 193,968 207,054 118,638 87,091 45,308 40,092 8,148 3,324 2,751,224 2,493,733	For the six months ended 30 June 2019 2018 (Unaudited) (Unaudited) HK$’000 HK$’000 2,031,144 1,501,195 354,018 654,977 193,968 207,054 118,638 87,091 45,308 40,092 8,148 3,324 2,751,224 2,493,733
	2019
	(Unaudited)
	HK$’000

		1,501,195 654,977 207,054 87,091 40,092 3,324
	2,031,144
	354,018
	193,968
	118,638
	45,308
	8,148

		2,493,733
	2,751,224

The revenue information above is based on the locations of the customers.

(b) Non-current assets

Mainland China Lao People’s Democratic Republic Other countries/regions	30 June 2019	31 December 2018 (Audited) HK$’000
	(Unaudited)
	HK$’000

		1,112,091 1,432,947 32,274
	1,039,497
	1,617,492
	36,457

		2,577,312
	2,693,446

COMBA TELECOM SYSTEMS HOLDINGS LIMITED

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) 30 June 2019

4. OPERATING SEGMENT INFORMATION (Cont’d)

INFORMATION ABOUT MAJOR CUSTOMERS

Revenue of approximately HK$797,019,000 (six months ended 30 June 2018: HK$681,214,000), HK$455,551,000 (six months ended 30 June 2018: HK$208,891,000) and HK$266,997,000 (six months ended 30 June 2018: HK$392,901,000) was derived from 3 major customers, which accounted for 29.0% (six months ended 30 June 2018: 27.3%), 16.6% (six months ended 30 June 2018: 8.4%) and 9.7% (six months ended 30 June 2018: 15.8%) of the total revenue of the Group, respectively.

5. REVENUE, OTHER INCOME AND GAINS

Revenue represents the net invoiced value of goods sold and services rendered during the period, net of value-added tax (the “VAT”), and after allowances for returns and trade discounts. All significant intra-group transactions have been eliminated on consolidation.

An analysis of revenue is as follows:

Revenue Manufacture and sale of wireless telecommunications network system equipment and provision of related installation services Maintenance services Provision of telecommunication services	For the six months ended 30 June 2019 2018 (Unaudited) (Unaudited) HK$’000 HK$’000 2,656,856 2,348,238 14,077 45,051 80,291 100,444 2,751,224 2,493,733	For the six months ended 30 June 2019 2018 (Unaudited) (Unaudited) HK$’000 HK$’000 2,656,856 2,348,238 14,077 45,051 80,291 100,444 2,751,224 2,493,733
	2019
	(Unaudited)
	HK$’000

		2,348,238 45,051 100,444

	2,656,856
	14,077
	80,291

		2,493,733
	2,751,224

Interim Report 2019

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)

30 June 2019

5. REVENUE, OTHER INCOME AND GAINS (Cont’d) REVENUE FROM CONTRACTS WITH CUSTOMERS

Type of customers PRC state-owned telecommunication operator groups Other customers	For the six months ended 30 June 2019
	(Unaudited)
	HK$’000



	1,519,567
	1,231,657

Total revenue from contracts with customers
	2,751,224

Timing of revenue recognition Goods transferred at a point in time Services transferred over time

	2,656,856
	94,368

Total revenue from contracts with customers
	2,751,224

COMBA TELECOM SYSTEMS HOLDINGS LIMITED

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) 30 June 2019

5. REVENUE, OTHER INCOME AND GAINS (Cont’d)

An analysis of other income and gains is as follows:

Other income and gains Bank interest income Exchange gain, net Government subsidies# VAT refunds* Gain on equity instruments designated at fair value through profit or loss Gain on disposal of part of equity investment designated at fair value through profit or loss Gain on disposal of items of property, plant and equipment Gross rental income Others	For the six months ended 30 June 2019 2018 (Unaudited) (Unaudited) HK$’000 HK$’000 6,001 4,891 6,174 — 59,649 25,239 2,946 3,666 4,607 20,661 1,301 — — 75 2,536 9,338 8,813 2,690 92,027 66,560	For the six months ended 30 June 2019 2018 (Unaudited) (Unaudited) HK$’000 HK$’000 6,001 4,891 6,174 — 59,649 25,239 2,946 3,666 4,607 20,661 1,301 — — 75 2,536 9,338 8,813 2,690 92,027 66,560
	2019
	(Unaudited)
	HK$’000

		4,891 — 25,239 3,666 20,661 — 75 9,338 2,690

	6,001
	6,174
	59,649
	2,946
	4,607
	1,301
	—
	2,536
	8,813

		66,560
	92,027

The government subsidies represent various cash payments and subsidies provided by the government authorities to the Group as encouragement to its technological innovation, intellectual property and investment of research and development. There are no unfulfilled conditions or contingencies relating to these subsidies.

During the periods ended 30 June 2018 and 2019, Comba Software Technology (Guangzhou) Limited (“Comba Software”), being designated as a software enterprise, was entitled to VAT refunds on the effective VAT rate in excess of 3% after the payment of statutory net output VAT of 16% in 2019 (17% before May 2018). Such VAT refunds were approved by the Guangzhou State Tax Bureau (廣州市國家稅務局) and received by Comba Software.

Interim Report 2019

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)

30 June 2019

6. PROFIT BEFORE TAX

The Group’s profit before tax is arrived at after charging/(crediting):

Cost of inventories sold and services provided Depreciation of property, plant and equipment Depreciation of right-of-use assets/recognition of prepaid land lease payments Amortization of computer software, technology and operating license Research and development costs: Deferred expenditure amortized^ Current period expenditure	Note	For the six months ended 30 June 2019 2018 (Unaudited) (Unaudited) HK$’000 HK$’000 1,782,756 1,682,183 83,013 88,160 16,006 1,455 13,911 17,718 32,098 42,561 176,718 141,820 208,816 184,381 497,984 440,390 33,853 40,846 12,149 7,592 37,876 43,812 581,862 532,640 (6,174) 14,138 13,412 10,058 79,497 1,431 15,226 3,912 703 230 218 (75) (4,607) (20,661) (1,301) —	For the six months ended 30 June 2019 2018 (Unaudited) (Unaudited) HK$’000 HK$’000 1,782,756 1,682,183 83,013 88,160 16,006 1,455 13,911 17,718 32,098 42,561 176,718 141,820 208,816 184,381 497,984 440,390 33,853 40,846 12,149 7,592 37,876 43,812 581,862 532,640 (6,174) 14,138 13,412 10,058 79,497 1,431 15,226 3,912 703 230 218 (75) (4,607) (20,661) (1,301) —
		2019
		(Unaudited)
		HK$’000

			1,682,183 88,160 1,455 17,718 42,561 141,820
		1,782,756
		83,013
		16,006
		13,911

		32,098
		176,718

			184,381
		208,816

Employee benefit expense (including directors’ remuneration): Salaries and wages Staff welfare expenses Equity-settled share option expense Pension scheme contributions (defined contribution scheme)#	16(a)		440,390 40,846 7,592 43,812

		497,984
		33,853
		12,149
		37,876

			532,640
		581,862

Exchange (gain)/loss, net* Provision for product warranties^ Write-down of inventories to net realizable value^ Impairment of trade receivables Impairment of other receivables Loss/(gain) on disposal of items of property, plant and equipment Gain on equity instruments designated at fair value through profit or loss Gain on disposal of part of equity investment designated at fair value through profit or loss			14,138 10,058 1,431 3,912 230 (75) (20,661) —
		(6,174)
		13,412
		79,497
		15,226
		703
		218
		(4,607)
		(1,301)

COMBA TELECOM SYSTEMS HOLDINGS LIMITED

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)

30 June 2019

6. PROFIT BEFORE TAX (Cont’d)

^ The amortization of deferred development costs, provision for product warranties and write-down of inventories to net realizable value for the period were included in “Cost of sales” in the condensed consolidated statement of profit or loss.

At 30 June 2019, the Group had no forfeited contributions available to reduce its contributions to the pension schemes in future years (30 June 2018: Nil).

Net exchange gain and net exchange loss are included in “Other income and gains” and “Administrative expenses” in the condensed consolidated statement of profit or loss, respectively.

7. FINANCE COSTS

Interest on bank borrowings Interest on factored trade receivables Interest on lease liabilities	For the six months ended 30 June 2019 2018 (Unaudited) (Unaudited) HK$’000 HK$’000 48,269 29,290 3,148 9 2,262 — 53,679 29,299	For the six months ended 30 June 2019 2018 (Unaudited) (Unaudited) HK$’000 HK$’000 48,269 29,290 3,148 9 2,262 — 53,679 29,299
	2019
	(Unaudited)
	HK$’000

		29,290 9 —
	48,269
	3,148
	2,262

Total		29,299
	53,679

Interim Report 2019

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) 30 June 2019

8. INCOME TAX

Hong Kong profits tax has been provided at the rate of 16.5% (2018: 16.5%) on the estimated assessable profits arising in Hong Kong during the period. Taxes on profits assessable elsewhere have been calculated at the rates of tax prevailing in the jurisdictions in which the Group operates, based on existing legislation, interpretations and practices in respect thereof.

Current – charge for the period Hong Kong Mainland China Elsewhere Current – overprovision in prior periods Deferred	For the six months ended 30 June 2019 2018 (Unaudited) (Unaudited) HK$’000 HK$’000 — 693 25,262 3,801 3,525 15,622 (6,453) — 2,201 (3,699) 24,535 16,417	For the six months ended 30 June 2019 2018 (Unaudited) (Unaudited) HK$’000 HK$’000 — 693 25,262 3,801 3,525 15,622 (6,453) — 2,201 (3,699) 24,535 16,417
	2019
	(Unaudited)
	HK$’000

		693 3,801 15,622 — (3,699)

	—
	25,262
	3,525
	(6,453)
	2,201

Total tax charge for the period		16,417
	24,535

Under the relevant income tax law, the subsidiaries in Mainland China are subject to corporate income tax at a statutory rate of 25% on their respective taxable income during the period.

Comba Telecom Technology (Guangzhou) Limited, Comba Telecom Systems (China) Limited and Comba Software were entitled to the preferential tax rate of 15% for the period ended 30 June 2019 based on the designation as High-New Technology Enterprises by the Guangdong Provincial Department of Science and Technology which remained effective for the period ended 30 June 2019.

COMBA TELECOM SYSTEMS HOLDINGS LIMITED

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) 30 June 2019

9. DIVIDENDS

On 15 August 2019, the board of directors declared an interim dividend of HK1 cent (six months ended 30 June 2018: Nil) per ordinary share, amounting to a total of approximately HK$24,782,000.

10. EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE PARENT

The calculation of the basic earnings per share amounts is based on the profit for the period attributable to ordinary equity holders of the parent, and the weighted average number of ordinary shares of 2,452,931,000 (six months ended 30 June 2018: 2,452,934,000) in issue during the period.

The calculation of the diluted earnings per share amounts is based on the profit for the period attributable to ordinary equity holders of the parent. The weighted average number of ordinary shares used in the calculation is the number of ordinary shares in issue during the period, as used in the basic earnings per share calculation, and the weighted average number of ordinary shares assumed to have been issued at no consideration on the deemed exercise or conversion of all dilutive potential ordinary shares into ordinary shares.

The calculations of basic and diluted earnings per share are based on:

Earnings Profit attributable to ordinary equity holders of the parent, used in the basic and diluted earnings per share calculations	For the six months ended 30 June 2019 2018 (Unaudited) (Unaudited) HK$’000 HK$’000 82,214 21,028	For the six months ended 30 June 2019 2018 (Unaudited) (Unaudited) HK$’000 HK$’000 82,214 21,028
	2019
	(Unaudited)
	HK$’000

		21,028

	82,214

Interim Report 2019

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) 30 June 2019

10. EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE PARENT (Cont’d)

Shares Weighted average number of ordinary shares in issue during the period used in the basic earnings per share calculations Effect of dilution – weighted average number of ordinary shares: Share options	Number of shares For the six months ended 30 June 2019 2018 (Unaudited) (Unaudited) 2,452,931,000 2,452,934,000 24,595,000 — 2,477,526,000 2,452,934,000 30 June 2019 31 December 2018 (Unaudited) (Audited) HK$’000 HK$’000 230,828 250,696 182,276 66,959 70,806 52,188 425,291 506,048 423,022 430,940 1,332,223 1,306,831	Number of shares For the six months ended 30 June 2019 2018 (Unaudited) (Unaudited) 2,452,931,000 2,452,934,000 24,595,000 — 2,477,526,000 2,452,934,000 30 June 2019 31 December 2018 (Unaudited) (Audited) HK$’000 HK$’000 230,828 250,696 182,276 66,959 70,806 52,188 425,291 506,048 423,022 430,940 1,332,223 1,306,831
	2019
	(Unaudited)

		2,452,934,000 —

	2,452,931,000


	24,595,000

		2,452,934,000
	2,477,526,000

INVENTORIES
Raw materials Project materials Work in progress Finished goods Inventories on site	30 June 2019	31 December 2018 (Audited) HK$’000
	(Unaudited)
	HK$’000

		250,696 66,959 52,188 506,048 430,940
	230,828
	182,276
	70,806
	425,291
	423,022

		1,306,831
	1,332,223

COMBA TELECOM SYSTEMS HOLDINGS LIMITED

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) 30 June 2019

12. TRADE RECEIVABLES

The Group’s trading terms with its customers are mainly on credit. The credit period is generally 3 months, except for certain customers which are granted with a longer credit term. Credit term is extendable to over 1 year depending on the credit worthiness of customers. The balances also include retention money, which is for assurance that the product and services comply with agreed-upon specifications, of approximately 10% to 20% of the total contract sum of each project, and are generally receivable after final certification of products by customers, which would be performed 6 to 12 months after sale, or upon completion of the warranty periods of 1 to 2 years granted to customers. The credit terms for major customers are reviewed regularly by senior management. The Group seeks to maintain strict control over its outstanding receivables and has a credit control department to minimize the credit risk. Overdue balances are reviewed regularly by senior management. The Group does not hold any collateral or other credit enhancements over these balances. Trade receivables are non-interestbearing.

An ageing analysis of the trade receivables as at the end of the reporting period, based on the invoice date and net of loss allowance, is as follows:

Within 3 months 4 to 6 months 7 to 12 months More than 1 year	30 June 2019	31 December 2018 (Audited) HK$’000
	(Unaudited)
	HK$’000

		1,759,833 437,993 550,142 1,853,222
	1,581,625
	466,953
	1,026,062
	1,805,001

Provision for impairment		4,601,190 (436,595)
	4,879,641
	(452,076)

		4,164,595
	4,427,565

Interim Report 2019 49

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) 30 June 2019

13. TRADE AND BILLS PAYABLES

An ageing analysis of the trade and bills payables as at the end of the reporting period, based on the invoice date, is as follows:

Within 3 months 4 to 6 months 7 to 12 months More than 1 year	30 June 2019	31 December 2018 (Audited) HK$’000
	(Unaudited)
	HK$’000

		2,180,906 865,447 571,499 695,947
	2,423,687
	662,937
	579,797
	653,203

		4,313,799
	4,319,624

The trade payables are non-interest-bearing and are normally settled within a period of 3 months and are extendable to a longer period.

COMBA TELECOM SYSTEMS HOLDINGS LIMITED

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) 30 June 2019

14. INTEREST-BEARING BANK BORROWINGS

Analyzed into: Within 1 year or on demand In the 2nd year In the 3rd to 5th years, inclusive Beyond 5 years	30 June 2019	31 December 2018 (Audited) HK$’000
	(Unaudited)
	HK$’000

		1,624,499 11,381 136,566 227,610

	56,737
	448,774
	1,208,278
	170,616

		2,000,056
	1,884,405

As at 30 June 2019, loans denominated in Hong Kong dollars, RMB and EURO amounted to HK$1,504,500,000 (31 December 2018: HK$1,410,400,000), HK$379,905,000 (31 December 2018: HK$589,560,000) and Nil (31 December 2018: HK$96,000), respectively.

The Company and three of its wholly-owned subsidiaries, namely Comba Telecom Systems Investments Limited, Praises Holdings Limited and Comba Telecom Limited, were parties to the bank loans acting as guarantors, to guarantee punctual performance of the obligations under the loan facilities.

Bank loans as at 30 June 2019 bear interest at rates ranging from 2.3% to 5.4% (31 December 2018: from 1.1% to 5.4%) per annum.

Interim Report 2019 51

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)

30 June 2019

15. SHARE CAPITAL

Authorized: 1 January 2018, 31 December 2018, 1 January 2019 and 30 June 2019	Notes	Number of ordinary shares of HK$0.10 each	HK$’000
		5,000,000,000	500,000
Issued and fully paid or credited as fully paid: At 1 January 2018 Exercise of share options Cancellation of repurchased shares	(i) (ii)	2,469,580,860 646,000 (50,752,000)	246,958 65 (5,075)
At 31 December 2018 and 1 January 2019 Exercise of share options	(iii)	2,419,474,860 58,686,558	241,948 5,869
At 30 June 2019		2,478,161,418	247,817

As at 30 June 2019, the total number of issued ordinary shares of the Company was 2,478,161,418 shares (31 December 2018: 2,419,474,860 shares) which included 16,637,136 shares (31 December 2018: 16,637,136 shares) held under a share award scheme (the “Share Award Scheme”) adopted by the Company on 25 March 2011 (the “Adoption Date”) (note 16(b)).

COMBA TELECOM SYSTEMS HOLDINGS LIMITED

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)

30 June 2019

15. SHARE CAPITAL (Cont’d)

Notes:

(i) During the year ended 31 December 2018, the subscription rights attaching to 404,000 share options and 242,000 share options were exercised at the adjusted exercise prices of HK$1.354 per share and HK$1.255 per share respectively, resulting in the issue of 646,000 shares of HK$0.10 each for a total cash consideration, before expenses of approximately HK$851,000.
(ii) During the year ended 31 December 2018, the Company repurchased a total of 50,752,000 shares on the Stock Exchange for an aggregate amount of approximately HK$71,410,000 before expenses ranging from HK$1.140 to HK$1.530 per share. The repurchased shares were subsequently cancelled.
(iii) During the period ended 30 June 2019, the subscription rights attaching to 43,600,308 share options, 13,817,750 share options and 1,268,500 share options were exercised at the adjusted exercise prices of HK$1.354 per share, HK$1.255 per share and HK$1.170 per share respectively, resulting in the issue of 58,686,558 shares of HK$0.10 each for a total cash consideration, before expenses of approximately HK$77,861,000.

Interim Report 2019

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) 30 June 2019

16. SHARE OPTION SCHEME AND SHARE AWARD SCHEME

(a) SHARE OPTION SCHEME

The Company operates a share option scheme adopted on 3 June 2013 (the “2013 Scheme”) which, unless otherwise cancelled or amended in accordance with the terms therein, will remain in force for 10 years from that date.

The purposes of the 2013 Scheme are to provide incentives and rewards to eligible persons who contribute to the success of the Group’s operations. Eligible persons of the 2013 Scheme include Directors (including independent non-executive Directors), employees, holders of any securities, business or joint venture partners, contractors, agents or representatives of, persons or entities that provide research, development or technological support or any advisory, consultancy, professional services for the business of the Group, investors, vendors, suppliers, developers or licensors of, or customers, licencees, wholesalers, retailers, traders or distributors of goods or services of members of the Group, the controlling Shareholders or companies controlled by the controlling Shareholders.

The maximum number of shares which may be issued upon exercise of all outstanding options granted and yet to be exercised under the 2013 Scheme, the Share Award Scheme (note 16(b)) and any other incentive or share option schemes of the Company shall not exceed 30% of the shares of the Company in issue at any time. The maximum number of shares already issued and to be issued upon exercise of share options granted to each eligible person under the 2013 Scheme and any other share option schemes of the Company (including cancelled, exercised and outstanding share options) in any 12-month period is limited to 1% of the shares of the Company in issue at any time. Any further grant of share options in excess of this limit is subject to Shareholders’ approval in a general meeting.

COMBA TELECOM SYSTEMS HOLDINGS LIMITED

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) 30 June 2019

16. SHARE OPTION SCHEME AND SHARE AWARD SCHEME (Cont’d)

(a) SHARE OPTION SCHEME (Cont’d) Share options granted under the 2013 Scheme to a Director, chief executive or substantial Shareholder, or to any of their respective associates, are subject to approval in advance by the independent non-executive Directors. In addition, any share options granted under the 2013 Scheme and any other share option schemes of the Company (including share options exercised, cancelled and outstanding) to a substantial Shareholder or an independent nonexecutive Director, or to any of their respective associates, in excess of 0.1% of the shares of the Company in issue at any time and with an aggregate value (based on the closing price of the Company’s shares at the date of grant of the share options) in excess of HK$5 million, in any 12-month period up to and including the date of such grant, are subject to Shareholders’ approval in advance in a general meeting.

The offer of a grant of share options under the 2013 Scheme may be accepted within 21 days from the date of offer, upon payment of a nominal consideration of HK$10 in total by the grantee. The exercise period of the share options granted under the 2013 Scheme is determinable by the Directors, and commences after a certain vesting period and ends on a date which is not later than 10 years from the date of offer of the share options.

The exercise price of the share options granted under the 2013 Scheme is determinable by the Directors, but shall not be less than the highest of: (i) the nominal value of the Company’s shares; (ii) the closing price of the Company’s shares as stated in the daily quotations sheet issued by the Stock Exchange on the date of offer of the share options; and (iii) the average closing prices of the Company’s shares as stated in the daily quotations sheets issued by the Stock Exchange for the 5 trading days immediately preceding the date of offer of the share options.

Share options granted under the 2013 Scheme do not confer rights on the holders to dividends or to vote at Shareholders’ meetings.

Interim Report 2019

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) 30 June 2019

16. SHARE OPTION SCHEME AND SHARE AWARD SCHEME (Cont’d)

(a) SHARE OPTION SCHEME (Cont’d)

The following number of share options were outstanding under the 2013 Scheme during the six months ended 30 June 2019:

At 1 January Exercised during the period Expired during the period Forfeited during the period Granted during the period	For the six months ended 30 June 2019 2018 Weighted average exercise price of each share option Number of share options Weighted average exercise price of each share option Number of share options HK$ HK$ 1.258 169,213,454 1.294 119,585,162 1.327 (58,686,558) 1.329 (538,000) 1.354 (1,369,728) — — 1.234 (4,371,668) 1.281 (1,493,770) 1.890 80,000,000 1.170 50,000,000 1.510 184,785,500 1.257 167,553,392	For the six months ended 30 June 2019 2018 Weighted average exercise price of each share option Number of share options Weighted average exercise price of each share option Number of share options HK$ HK$ 1.258 169,213,454 1.294 119,585,162 1.327 (58,686,558) 1.329 (538,000) 1.354 (1,369,728) — — 1.234 (4,371,668) 1.281 (1,493,770) 1.890 80,000,000 1.170 50,000,000 1.510 184,785,500 1.257 167,553,392	For the six months ended 30 June 2019 2018 Weighted average exercise price of each share option Number of share options Weighted average exercise price of each share option Number of share options HK$ HK$ 1.258 169,213,454 1.294 119,585,162 1.327 (58,686,558) 1.329 (538,000) 1.354 (1,369,728) — — 1.234 (4,371,668) 1.281 (1,493,770) 1.890 80,000,000 1.170 50,000,000 1.510 184,785,500 1.257 167,553,392	For the six months ended 30 June 2019 2018 Weighted average exercise price of each share option Number of share options Weighted average exercise price of each share option Number of share options HK$ HK$ 1.258 169,213,454 1.294 119,585,162 1.327 (58,686,558) 1.329 (538,000) 1.354 (1,369,728) — — 1.234 (4,371,668) 1.281 (1,493,770) 1.890 80,000,000 1.170 50,000,000 1.510 184,785,500 1.257 167,553,392
	2019
	Weighted average exercise price of each share option	Number of share options
	HK$

			1.294 1.329 — 1.281 1.170	119,585,162 (538,000) — (1,493,770) 50,000,000
	1.258	169,213,454
	1.327	(58,686,558)
	1.354	(1,369,728)
	1.234	(4,371,668)
	1.890	80,000,000

At 30 June			1.257	167,553,392
	1.510	184,785,500

COMBA TELECOM SYSTEMS HOLDINGS LIMITED

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)

30 June 2019

16. SHARE OPTION SCHEME AND SHARE AWARD SCHEME (Cont’d)

(a) SHARE OPTION SCHEME (Cont’d)

Movements in the number of the Company’s share options under the 2013 Scheme during the six months ended 30 June 2019 are as follows:

Name or category of participant Executive Directors Mr. Fok Tung Ling			Number of share options	Number of share options			Date of grant of share options*	Exercise period of share options	Exercise price of share options HK$ per share
	At 1 January 2019	Granted during the period	Exercised during the period	Expired during the period	Forfeited during the period	At 30 June 2019


							11 Apr 14	11 Apr 15– 10 Apr 19	1.354

	805,253	—	(805,253)	—	—	—

Mr. Zhang Yue Jun							11 Apr 14	11 Apr 15– 10 Apr 19	1.354
	805,253	—	(805,253)	—	—	—

Mr. Xu Huijun							28 Aug 18 8 Apr 19	28 Aug 19– 27 Aug 23 8 Apr 20- 7 Apr 24	1.300 1.890
	5,000,000	—	—	—	—	5,000,000
	—	10,000,000	—	—	—	10,000,000


	5,000,000	10,000,000	—	—	—	15,000,000

Mr. Chang Fei Fu							26 Aug 16 10 Apr 18 8 Apr 19	26 Aug 17– 25 Aug 21 10 Apr 19– 9 Apr 23 8 Apr 20– 7 Apr 24	1.255 1.170 1.890
	3,300,000	—	—	—	—	3,300,000
	2,000,000	—	—	—	—	2,000,000
	—	5,000,000	—	—	—	5,000,000


	5,300,000	5,000,000	—	—	—	10,300,000

Mr. Bu Binlong							11 Apr 14 26 Aug 16 10 Apr 18 8 Apr 19	11 Apr 15– 10 Apr 19 26 Aug 17– 25 Aug 21 10 Apr 19– 9 Apr 23 8 Apr 20– 7 Apr 24	1.354 1.255 1.170 1.890
	1,288,408	—	(1,288,408)	—	—	—
	3,300,000	—	—	—	—	3,300,000
	1,800,000	—	—	—	—	1,800,000
	—	5,000,000	—	—	—	5,000,000


	6,388,408	5,000,000	(1,288,408)	—	—	10,100,000

Interim Report 2019 57

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)

30 June 2019

16. SHARE OPTION SCHEME AND SHARE AWARD SCHEME (Cont’d)

(a) SHARE OPTION SCHEME (Cont’d)

Movements in the number of the Company’s share options under the 2013 Scheme during the six months ended 30 June 2019 are as follows: (Cont’d)

Name or category of participant Executive Directors (Cont’d) Mr. Wu Tielong			Number of share options	Number of share options			Date of grant of share options*	Exercise period of share options	Exercise price of share options HK$ per share
	At 1 January 2019	Granted during the period	Exercised during the period	Expired during the period	Forfeited during the period	At 30 June 2019


							11 Apr 14 26 Aug 16 10 Apr 18 8 Apr 19	11 Apr 15– 10 Apr 19 26 Aug 17– 25 Aug 21 10 Apr 19– 9 Apr 23 8 Apr 20– 7 Apr 24	1.354 1.255 1.170 1.890

	644,204	—	(644,000)	(204)	—	—
	1,650,000	—	—	—	—	1,650,000
	1,800,000	—	—	—	—	1,800,000
	—	5,000,000	—	—	—	5,000,000


	4,094,204	5,000,000	(644,000)	(204)	—	8,450,000

Ms. Huo Xinru (appointed on 22 March 2019)							10 Apr 18 8 Apr 19	10 Apr 19– 9 Apr 23 8 Apr 20– 7 Apr 24	1.170 1.890
	1,050,000	—	—	—	—	1,050,000
	—	5,000,000	—	—	—	5,000,000


	1,050,000	5,000,000	—	—	—	6,050,000

COMBA TELECOM SYSTEMS HOLDINGS LIMITED

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)

30 June 2019

16. SHARE OPTION SCHEME AND SHARE AWARD SCHEME (Cont’d)

(a) SHARE OPTION SCHEME (Cont’d)
Movements in the number of the Company’s share options under the 2013 Scheme during the six months ended 30 June 2019 are as follows: (Cont’d)

Name or category of participant Independent non- executive Directors Mr. Lau Siu Ki, Kevin			Number of share options	Number of share options			Date of grant of share options*	Exercise period of share options	Exercise price of share options HK$ per share
	At 1 January 2019	Granted during the period	Exercised during the period	Expired during the period	Forfeited during the period	At 30 June 2019


							11 Apr 14 26 Aug 16 10 Apr 18 8 Apr 19	11 Apr 15– 10 Apr 19 26 Aug 17– 25 Aug 21 10 Apr 19– 9 Apr 23 8 Apr 20- 7 Apr 24	1.354 1.255 1.170 1.890

	161,049	—	(161,049)	—	—	—
	110,000	—	—	—	—	110,000
	200,000	—	—	—	—	200,000
	—	200,000	—	—	—	200,000


	471,049	200,000	(161,049)	—	—	510,000

Dr. Lin Jin Tong							11 Apr 14 26 Aug 16 10 Apr 18 8 Apr 19	11 Apr 15– 10 Apr 19 26 Aug 17– 25 Aug 21 10 Apr 19– 9 Apr 23 8 Apr 20- 7 Apr 24	1.354 1.255 1.170 1.890
	161,049	—	(161,049)	—	—	—
	110,000	—	(55,000)	—	—	55,000
	200,000	—	—	—	—	200,000
	—	200,000	—	—	—	200,000


	471,049	200,000	(216,049)	—	—	455,000

Ms. Ng Yi Kum (appointed on 22 March 2019)							8 Apr 19	8 Apr 20- 7 Apr 24	1.890
	—	200,000	—	—	—	200,000

Mr. Qian Ting Shuo (resigned on 15 January 2019)							11 Apr 14 26 Aug 16 10 Apr 18	11 Apr 15– 10 Apr 19 26 Aug 17– 25 Aug 21 10 Apr 19– 9 Apr 23	1.354 1.255 1.170
	161,049	—	(161,049)	—	—	—
	110,000	—	—	—	—	110,000
	200,000	—	—	—	—	200,000


	471,049	—	(161,049)	—	—	310,000

Interim Report 2019 59

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) 30 June 2019

16. SHARE OPTION SCHEME AND SHARE AWARD SCHEME (Cont’d)

(a) SHARE OPTION SCHEME (Cont’d)

Movements in the number of the Company’s share options under the 2013 Scheme during the six months ended 30 June 2019 are as follows: (Cont’d)

		Number of share options	Number of share options			Date of grant of share options*	Exercise period of share options	Exercise price of share options HK$ per share
At 1 January 2019	Granted during the period	Exercised during the period	Expired during the period	Forfeited during the period	At 30 June 2019


						11 Apr 14 26 Aug 16 10 Apr 18 8 Apr 19	11 Apr 15– 10 Apr 19 26 Aug 17– 25 Aug 21 10 Apr 19– 9 Apr 23 8 Apr 20- 7 Apr 24	1.354 1.255 1.170 1.890
41,508,939	—	(39,574,247)	(1,369,524)	(565,168)	—
60,098,250	—	(13,762,750)	—	(2,063,000)	44,272,500
42,750,000	—	(1,268,500)	—	(1,743,500)	39,738,000
—	49,400,000	—	—	—	49,400,000


144,357,189	49,400,000	(54,605,497)	(1,369,524)	(4,371,668)	133,410,500


169,213,454	80,000,000	(58,686,558)	(1,369,728)	(4,371,668)	184,785,500

The vesting period of the share options is from the date of grant until the commencement of the exercise period.

80,000,000 share options were granted on 8 April 2019 with an exercise price of HK$1.890 under the 2013 Scheme during the current period. The closing price of the Company’s shares immediately before the date on which the options were granted is HK$1.880.

The fair value of the share options granted during the current period was approximately HK$49,007,000 (HK$0.61 each), of which the Group recognized a share option expense of approximately HK$5,411,000 during the current period.

COMBA TELECOM SYSTEMS HOLDINGS LIMITED

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) 30 June 2019

16. SHARE OPTION SCHEME AND SHARE AWARD SCHEME (Cont’d)

(a) SHARE OPTION SCHEME (Cont’d)

The fair value of equity-settled share options granted during the current period was estimated as at the date of grant using a binomial model, taking into account the terms and conditions upon which the share options were granted. The following table lists the inputs to the model used:

Dividend yield (%)	—
Expected volatility (%)	46.00
Risk-free interest rate (%)	2.05
Expected life of the share options (years)	1.35-1.40
Weighted average share price (HK$ per share)	1.890

The expected life of the share options is based on the historical data and is not necessarily indicative of the exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome.

No other feature of the share options granted was incorporated into the measurement of fair value.

Interim Report 2019

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) 30 June 2019

16. SHARE OPTION SCHEME AND SHARE AWARD SCHEME (Cont’d)

(a) SHARE OPTION SCHEME (Cont’d)

The exercise prices and exercise periods of the share options outstanding under the 2013 Scheme as at the end of the reporting period are as follows:

30 June 2019 Number of share options	Exercise price of share options	Exercise period
	HK$ per share

		26 August 2017 to 25 August 2021 10 April 2019 to 9 April 2023 28 August 2019 to 27 August 2023 8 April 2020 to 7 April 2024
52,797,500	1.255
46,988,000	1.170
5,000,000	1.300
80,000,000	1.890


184,785,500

30 June 2018 Number of share options	Exercise price of share options HK$ per share	Exercise period
46,826,142 70,727,250 50,000,000	1.354 1.255 1.170	11 April 2015 to 10 April 2019 26 August 2017 to 25 August 2021 10 April 2019 to 9 April 2023
167,553,392

The expense recognized in the condensed consolidated statement of profit or loss for employee services received during the six months ended 30 June 2019 is approximately HK$12,149,000 (six months ended 30 June 2018: HK$7,592,000).

COMBA TELECOM SYSTEMS HOLDINGS LIMITED

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) 30 June 2019

16. SHARE OPTION SCHEME AND SHARE AWARD SCHEME (Cont’d)

(a) SHARE OPTION SCHEME (Cont’d)
At the end of the reporting period, the Company had 184,785,500 share options outstanding under the 2013 Scheme, of which 29,621,000 were vested and 155,164,500 were unvested. The exercise in full of the outstanding share options would, under the present capital structure of the Company, result in the issue of 184,785,500 additional ordinary shares of the Company and additional share capital of approximately HK$18,479,000 and share premium of approximately HK$260,458,000 (before issue expenses).

At the date of approval of these interim condensed consolidated financial statements, the Company had 182,991,830 share options outstanding under the 2013 Scheme, which represented approximately 7.38% of the Company’s shares in issue as at that date.

According to the scheme limit of the 2013 Scheme as refreshed at the annual general meeting held on 28 May 2018, the Company may further grant 246,516,486 share options (being 10% of the total number of issued shares of the Company as at 28 May 2018). Since 5,000,000 share options and 80,000,000 share options were granted on 28 August 2018 and 8 April 2019 respectively, the total number of unissued share options under the scheme limit became 161,516,486, representing approximately 6.52% of the Company’s shares in issue as at 30 June 2019.

(b) SHARE AWARD SCHEME

The Company adopted a Share Award Scheme on the Adoption Date. The purposes and objectives of the Share Award Scheme are to recognize the contributions made by certain employees and persons to the Group (the “Selected Person(s)”) and to provide them with incentives in order to retain them for the continual operation and development of the Group and to attract suitable personnel for further development of the Group.

Unless it is early terminated by the Board in accordance with the terms therein, the Share Award Scheme shall be valid and effective for a term of 10 years commencing on the Adoption Date.

Interim Report 2019

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) 30 June 2019

16. SHARE OPTION SCHEME AND SHARE AWARD SCHEME (Cont’d)

(b) SHARE AWARD SCHEME (Cont’d)

Pursuant to the Share Award Scheme, (i) awarded shares (the “Awarded Shares”) will be acquired by the trustee and/or the administrator of the Share Award Scheme (“Trustee/Administrator”) at the cost of the Company at the prevailing market price and be held in trust for the Selected Persons until the end of each vesting period; or (ii) new Awarded Shares may be allotted and issued to the Trustee/ Administrator under general mandates granted or to be granted by the Shareholders at general meetings from time to time and be held in trust for Selected Persons until the end of each vesting period.

The Board shall not make any further award of the Awarded Shares which will result in the nominal value of the shares awarded by the Board under the Share Award Scheme exceeding 5% of the issued share capital of the Company as at the Adoption Date (or the refreshed or amended limit as approved by the Shareholders). The maximum number of shares which may be awarded to a Selected Person under the Share Award Scheme shall not exceed 1% of the issued share capital of the Company as at the Adoption Date (or the refreshed or amended limit as approved by the Shareholders). The aforesaid limit may be refreshed or amended by approval of the Shareholders in a general meeting. Nevertheless, the total number of the Awarded Shares which may be issued under the Share Award Scheme and the exercise of all options to be granted under other incentive and option schemes of the Company (including the 2013 Scheme) as so refreshed shall not exceed 10% of the shares in issue as at the date of approval of the refreshed limit. Awarded Shares or share options previously granted under the Share Award Scheme or the 2013 Scheme (including those vested, outstanding, cancelled and forfeited) will not be counted for the purpose of calculating the limit as refreshed. The Company will not issue any Awarded Shares under the Share Award Scheme which would result in the total number of the Awarded Shares together with shares which may be issued upon exercise of all outstanding share options granted and yet to be exercised under the 2013 Scheme or any other incentive or share option schemes of the Company representing in aggregate over 30% of the shares in issue as at the date of such grant.

COMBA TELECOM SYSTEMS HOLDINGS LIMITED

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) 30 June 2019

16. SHARE OPTION SCHEME AND SHARE AWARD SCHEME (Cont’d)

(b) SHARE AWARD SCHEME (Cont’d)

On 12 April 2011, the Board resolved to award 26,000,000 Awarded Shares to 365 Selected Persons under the Share Award Scheme by way of issue and allotment of new Awarded Shares pursuant to the general mandate granted by the Shareholders at the annual general meeting of the Company held on 24 May 2010.

Movements in the number of treasury shares held for the Share Award Scheme for the six months ended 30 June 2018 and 2019 are as follows:

At 1 January 2018, 30 June 2018, 1 January 2019 and 30 June 2019	Treasury shares held for the Share Award Scheme


	16,637,136

No Awarded Shares held for the Selected Persons were outstanding as at 30 June 2019.

17. RESERVES

The amounts of the Group’s reserves and the movements therein for the period are presented in the condensed consolidated statement of changes in equity.

Interim Report 2019 65

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT’D) 30 June 2019

18. CONTINGENT LIABILITIES

At the end of the reporting period, contingent liabilities not provided for in the financial statements were as follows:

Guarantees given to banks in respect of performance bonds	30 June 2019	31 December 2018 (Audited) HK$’000
	(Unaudited)
	HK$’000

		289,341
	300,247

19. OPERATING LEASE ARRANGEMENTS

AS LESSOR

The Group leases certain of its properties under operating lease arrangements, with leases negotiated for terms mainly ranging from 1 to 7 years. The terms of the leases generally also require the tenants to pay security deposits and provide for periodic rent adjustments according to the then prevailing market conditions.

As at 30 June 2019, the Group had total future minimum lease receivables under non-cancellable operating leases with its tenants falling due as follows:

Within 1 year In the 2nd to 5th years, inclusive After 5 years	30 June 2019	31 December 2018 (Audited) HK$’000
	(Unaudited)
	HK$’000

		3,867 9,414 5,518
	8,484
	17,064
	4,576

		18,799
	30,124

COMBA TELECOM SYSTEMS HOLDINGS LIMITED

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)

30 June 2019

20. COMMITMENTS

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

Contracted, but not provided for: Plant and machinery	30 June 2019	31 December 2018 (Audited) HK$’000
	(Unaudited)
	HK$’000

		22,632

	20,688

21. RELATED PARTY TRANSACTIONS

(a) The Group had no significant transactions with related parties during the period and had no significant outstanding balances with related parties as at the end of the reporting period.
(b) Compensation of key management personnel of the Group (all being the Directors):

Short-term employee benefits Pension scheme contributions Equity-settled share option expense	For the six months ended 30 June 2019 2018 (Unaudited) (Unaudited) HK$’000 HK$’000 10,001 20,819 108 107 3,281 1,095 13,390 22,021	For the six months ended 30 June 2019 2018 (Unaudited) (Unaudited) HK$’000 HK$’000 10,001 20,819 108 107 3,281 1,095 13,390 22,021
	2019
	(Unaudited)
	HK$’000

		20,819 107 1,095
	10,001
	108
	3,281

		22,021
	13,390

Interim Report 2019

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)

30 June 2019

21. RELATED PARTY TRANSACTIONS (Cont’d)

(b) (Cont’d)

Note: During the six months ended 30 June 2019, one additional executive director was appointed on 22 March 2019 and two additional nonexecutive directors were appointed on 22 March 2019 and 14 June 2019 respectively (during the six months ended 30 June 2018, one additional executive director was appointed on 23 February 2018 and two additional executive directors were appointed on 12 April 2018). On the other hand, one non-executive director was resigned on 15 January 2019 (during the six months ended 30 June 2018, two executive directors were resigned on 23 March 2018 and 24 May 2018 respectively).

22. EVENT AFTER THE REPORTING PERIOD

No significant events occurred after the end of the reporting period and up to the date of approval of the financial statements.

23. APPROVAL OF THE FINANCIAL STATEMENTS

These condensed consolidated interim financial statements were approved and authorized for issue by the Board on 15 August 2019.

By order of the Board COMBA TELECOM SYSTEMS HOLDINGS LIMITED

Fok Tung Ling Chairman

Hong Kong, 15 August 2019

COMBA TELECOM SYSTEMS HOLDINGS LIMITED

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AI assistant

Comba Telecom Systems Holdings Limited — Interim / Quarterly Report 2019

50537_rns_2019-09-09_c971d82b-b9b5-42ef-890f-86b89962c8e8.pdf

CONTENTS

CORPORATE INFORMATION

BOARD OF DIRECTORS

INDEPENDENT NON-EXECUTIVE

AUDIT COMMITTEE

COMPANY SECRETARY

NOMINATION COMMITTEE

AUTHORIZED

REPRESENTATIVES

REGISTERED OFFICE

MANAGEMENT DISCUSSION AND ANALYSIS

BUSINESS AND FINANCIAL REVIEW

REVENUE

BY CUSTOMERS

MANAGEMENT DISCUSSION AND ANALYSIS (CONT’D)

BY BUSINESSES

GROSS PROFIT

RESEARCH AND DEVELOPMENT (“R&D”) COSTS

SELLING AND DISTRIBUTION (“S&D”) EXPENSES

ADMINISTRATIVE EXPENSES

FINANCE COSTS

OPERATING PROFIT

TAX

NET PROFIT

DIVIDEND

PROSPECTS

PRODUCTS AND SOLUTIONS

ANTENNA AND BASE STATION SUBSYSTEMS

MANAGEMENT DISCUSSION AND ANALYSIS (CONT’D)

NETWORK PRODUCT SYSTEM SOLUTIONS

MANAGEMENT DISCUSSION AND ANALYSIS (CONT’D)

MARKET EXPANSION

OPERATOR BUSINESS IN MAINLAND CHINA

RAIL TRANSIT COMMUNICATION BUSINESS

INTERNATIONAL BUSINESS

ETL BUSINESS

NEW BUSINESS

CONCLUSION

LIQUIDITY, FINANCIAL RESOURCES AND CAPITAL STRUCTURE

MANAGEMENT DISCUSSION AND ANALYSIS (CONT’D)

MATERIAL ACQUISITIONS AND DISPOSALS

RESTRICTED BANK DEPOSITS

CONTINGENT LIABILITIES

EMPLOYEES AND REMUNERATION POLICIES

PURCHASE, REDEMPTION OR SALE OF LISTED SECURITIES OF THE COMPANY

DIRECTORS’ INTERESTS AND SHORT POSITIONS IN SHARES, UNDERLYING SHARES AND DEBENTURES

MANAGEMENT DISCUSSION AND ANALYSIS (CONT’D)

DIRECTORS’ RIGHTS TO ACQUIRE SHARES OR DEBENTURES

SHARE OPTION SCHEME AND SHARE AWARD SCHEME

SUBSTANTIAL SHAREHOLDERS’ AND OTHER PERSONS’ INTERESTS AND SHORT POSITIONS IN SHARES AND UNDERLYING SHARES

Long positions:

MANAGEMENT DISCUSSION AND ANALYSIS (CONT’D)

COMPLIANCE WITH CORPORATE GOVERNANCE CODE

DIRECTORS’ SECURITIES TRANSACTIONS

CHANGE IN PARTICULARS OF THE DIRECTORS

AUDIT COMMITTEE

RECORD DATE FOR INTERIM DIVIDEND

INTERIM CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS

INTERIM CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

INTERIM CONDENSED CONSOLIDATED

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

INTERIM CONDENSED CONSOLIDATED STATEMENT OF

CHANGES IN EQUITY (CONT’D)

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

INTERIM CONDENSED CONSOLIDATED STATEMENT OF

CASH FLOWS (CONT’D)

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (CONT’D)

1. CORPORATE INFORMATION

2. BASIS OF PREPARATION

3. CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES

3. CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES (Cont’d)

3. CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES (Cont’d)

NEW DEFINITION OF A LEASE

3. CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES (Cont’d)

Impacts on transition

3. CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES (Cont’d)

Comba Telecom Systems Holdings Limited Interim / Quarterly Report 2019