Comtec Solar Systems Group Limited - Annual Report 2015

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(Incorporated in the Cayman Islands with limited liability) Stock code: 712

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Annual Report
2015
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Corporate Information	2
Chairman’s Statement	4
Management Discussion and Analysis	8
Biographical Details of Directors and Senior Management	20
Report of the Directors	24
Corporate Governance Report	43
Independent Auditor’s Report	54
Consolidated Statement of Profit or Loss and Other Comprehensive Income	56
Consolidated Statement of Financial Position	57
Consolidated Statement of Changes in Equity	59
Consolidated Statement of Cash Flows	60
Notes to the Consolidated Financial Statements	62
Five Years Summary	140
Definitions	141

Corporate Information

DIRECTORS

Executive Directors

Mr. John Zhang (Chairman) Mr. Chau Kwok Keung Mr. Shi Cheng Qi

Non-executive Director

Mr. Donald Huang

Independent non-executive Directors

Mr. Daniel DeWitt Martin Mr. Kang Sun Mr. Leung Ming Shu

COMPANY SECRETARY

Mr. Chau Kwok Keung (HKICPA, ACCA, CFA)

CORPORATE GOVERNANCE COMMITTEE

Mr. John Zhang (Chairman) Mr. Chau Kwok Keung Mr. Leung Ming Shu Mr. Donald Huang

SIGNIFICANT PAYMENTS COMMITTEE

Mr. John Zhang (Chairman) Mr. Chau Kwok Keung Mr. Donald Huang

REGISTERED OFFICE

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

AUTHORISED REPRESENTATIVES

Mr. John Zhang Mr. Chau Kwok Keung

AUDIT COMMITTEE

Mr. Leung Ming Shu (Chairman) Mr. Daniel DeWitt Martin Mr. Kang Sun Mr. Donald Huang

NOMINATION COMMITTEE

Mr. John Zhang (Chairman) Mr. Daniel DeWitt Martin Mr. Kang Sun Mr. Donald Huang Mr. Leung Ming Shu

HEADQUARTER

16 Yuan Di Road Nanhui Industrial Zone Shanghai 201314 PRC

PRINCIPAL PLACE OF BUSINESS IN HONG KONG

Suite 28 35/F Central Plaza 18 Harbour Road Wanchai Hong Kong

COMPANY’S WEBSITE

www.comtecsolar.com

REMUNERATION COMMITTEE

Mr. Leung Ming Shu (Chairman) Mr. John Zhang Mr. Kang Sun Mr. Donald Huang Mr. Daniel DeWitt Martin

AUDITOR

Deloitte Touche Tohmatsu

02 Comtec Solar Systems Group Limited

Corporate Information

LEGAL ADVISERS AS TO

HONG KONG LAW

Orrick, Herrington & Sutcliffe

PRINCIPAL BANKS

Agriculture Bank of China The Hongkong and Shanghai Banking Corporation Limited Hang Seng Bank Limited

CAYMAN ISLANDS PRINCIPAL SHARE REGISTRAR AND TRANSFER OFFICE

Royal Bank of Canada Trust Company (Cayman) Limited 4th Floor, Royal Bank House 24 Shedden Road, George Town Grand Cayman KY1-1110 Cayman Islands

HONG KONG SHARE REGISTRAR

Computershare Hong Kong Investor Services Limited Shops 1712–1716, 17th Floor Hopewell Centre 183 Queen’s Road East Wanchai Hong Kong

Annual Report 2015 03

Chairman’s Statement

Dear Shareholders,

On behalf of Comtec Solar Systems Group Limited, I am pleased to present the audited annual results of the Group for the year ended 31 December 2015. Here are some financial and business highlights for the year:

Revenue for the year was approximately RMB1,091.2 million, representing a year-on-year increase of 20.4% from approximately RMB906.6 million for the year ended 31 December 2014;
Gross loss for the year was approximately RMB94.4 million for the year ended 31 December 2015, comparing to gross profits of approximately RMB60.0 million for the year ended 31 December 2014. The gross losses were mainly due to the write-down of inventory and decrease of average selling price;
Gross loss margin for the year was approximately 8.7%, decreased from the gross profit margin of 6.6% for the year ended 31 December 2014;
Net loss for the year was approximately RMB434.7 million, increased from the net loss of RMB90.5 million for the year ended 31 December 2014. The loss was mainly due to write-down of inventory, the impairment on advance to suppliers, the stock compensation expenses and the losses from disposal of certain property, plant and equipment etc;
Net loss margin for the year was approximately 39.8%, increased from 10.0% for the year ended 31 December 2014;
Our loss per share for the year was RMB31.23 cents, increased from the loss per share of RMB6.58 cents for the year ended 31 December 2014;
Total ingot and wafer shipments for the year was approximately 426.8 MW, increased by 14.5% from 372.7 MW in 2014;
Achieved net cash inflow from operating activities of approximately RMB82.4 million and maintained cash and restricted cash balances of approximately RMB220.8 million.

04 Comtec Solar Systems Group Limited

Chairman’s Statement

On 11 January 2016, the Company entered into a subscription agreement with Guolian Financial and Mr. Li Wanbin (the “Subscribers”), pursuant to which the Company has conditionally agreed to issue, and the Subscribers have conditionally agreed to subscribe for a total 928,138,250 shares of the Company at a gross subscription price of HK$0.66 per Share (the “Subscription”). The subscription price for the subscription represented a discount of 20.48% to the closing price of HK$0.83 per Share as stated in the Stock Exchange’s daily quotations sheet on 8 January 2016. The Subscription was approved by the shareholders of the Company in the extraordinary general meeting of the Company on 26 February 2016. The net proceeds from the Subscription (after deducting related professional fees and related expenses) are expected to be approximately HK$611.1 million, representing a net subscription price of approximately HK$0.66 per Share. Further details of these transactions are set out in the Company’s announcement dated 11 January 2016. The Company intends to use the net proceeds for expanding into downstream solar power business and explore opportunities to integrate with existing upstream solar business of the Group. We believe the transaction represents a valuable opportunity for the Company to bring in renowned investors with strong financial resources and backgrounds and wide business networks, which in turn would bring strategic values to the Company.

Guolian Financial is the joint venture between Guolain Group, China First Capital and Xin Zhong Xin. Guolian Group is principally engaged in the investment holding of wide range of investments in the financial sector, including but not limited to, banks, securities firms, insurance, trust and funds. Guolian Group was named as “Top 500 Service Enterprises in China in 2014 and as of 31 December 2015, Guolian Group managed assets of over RMB400 billion. Guolian Group also possess strong expertise and experience in investing in green energy businesses and has a strong track record in this regard, including investment in Wuxi Guolian Environmental Science & Technology Co., Ltd., whose shares are traded on the National Equities Exchange and Quotations, and Wuxi Huaguang Boiler Co., Ltd., whose shares are listed on the Shanghai Stock Exchange. China First Capital and Mr. Li are well experienced in financial sectors and energy sectors respectively.

The Board believes that by leveraging on the investors’ strong expertise, experience and business network in the financial and energy sectors, the Company will be well-equipped to continue to grow and expand its business. In particular, the Board believes the investors could contribute their strong experiences and business networks to enable the Company to identify potential project opportunities. Furthermore, the investors could contribute their expertise and business networks to exploring financial institutions for project financing and negotiating with financial institutions for obtaining financing terms which would be more suited to the needs of the Company in downstream solar projects. More importantly, their profound experiences in the financial and energy sectors would be of value to the Company in formulating the strategies of the Company to expand into the downstream solar business. The Company plans to invest for approximately 200MW downstream solar projects, mainly distributed generation projects, within 2016. Depending on and subject to the market conditions and opportunities, the Company contemplates the investment to be either in the form of green field self-developed projects and/or by way of acquisitions of downstream projects. We believe the expansion to downstream business would be earning accretive to the Group and enable us to steadily improve the operating results.

Annual Report 2015 05

Chairman’s Statement

We are also in the process to ramp up production facilities of approximately 300MW in Malaysia which would enable the Group to lower production costs and to expand our scale of operation. The cost of electricity, average salaries per workers and the tax incentive policies in Malaysia are very competitive and would enable us to materially reduce the cost of production. To further enhance the competitiveness of the Company, we would continue to increase our production capacities in Malaysia. The strategy to expand production capacities in Malaysia not only enables us to lower our production cost and to increase production capacity, but also help our customers to mitigate their risks and costs in relation to international trade conflicts between PRC and overseas countries. We expect the uncertainties from potential trade conflicts would continue to exist. We are one of the few PRC-based companies with overseas production facilities and we would benefit from the pioneer advantages. The production in Malaysia facilities have commenced and substantial amount of the production capacities in Malaysia are expected to be up and running within second quarter of 2016. The completion of ramp up was delayed mainly due to slower than expected progress on training of new staffs in Malaysia. The Group has already relocated certain of its experienced staff to Malaysia to speed up the training and ramp up process.

In addition to the strategy of the Group to expand production capacities in low costs region, we also continued to execute our cost reduction strategy on the supply chain management. In prior years, in order to secure a stable supply of raw materials, the Group has entered into several non-cancellable purchase agreements with two major suppliers, independent parties not related to the Group, whereby the Group committed a “take or pay” obligation to purchase the minimum annual quantity of raw materials at pre-determined prices over the contractual periods up to 2018. In early 2016, the Group has reached into agreements with the two major suppliers, of which one has unconditionally agreed to waive the terms relating to minimum annual quantity and pre-determined purchase price and the other has unconditionally agreed to reduce the pre-determined purchase price for the forthcoming purchases. It would enable the Group, starting from 2016 onwards, to substantially mitigate the risks and costs related to the long term purchase agreements which led to the substantial amount of losses in 2015 and the operating losses in last few years. It would allow the Group to be more flexible in managing its supply chain to adapt to the market situations and benefit from the decreasing spot prices of raw materials.

Our continual efforts to improve technology, manufacturing process and conversion efficiency of our wafers, and expansion of production capacities in Malaysia would enable us to continuously reduce our costs of production. We expect to see further costs reduction in the coming few quarters after achieving the full operation of our production facilities in Malaysia. Cost competitiveness driven by technical advancement would be crucial to the continuous development of the Company. We will focus on combining innovative products and manufacturing efficiency to respond to the fast growing and competitive landscape of solar industry. We would also leverage our advantages in wafer technology to reduce cost without compromising quality and to generate value for customers. This strategy enabled us to differentiate our Company in the market and would ensure our long term sustainability.

With the continuous cost reduction and improvement of conversion efficiency, our customers increasingly realize the benefits of buying high efficient “Super Mono Wafers” to assist them to reduce the overall system costs and to maximize their investment returns. It would continuously strengthen the demand on our high efficient solar products. Based on the feedback from our major customer, the conversion efficiency of solar cell with our “Super Mono Wafers” reached approximately 25%. The thickness of such wafers is now reduced to approximately 140 micron.

06 Comtec Solar Systems Group Limited

Chairman’s Statement

During 2015, we completed qualification process with a new Japan-based customer for the sale of our high quality “Super Mono” products and pilot shipments commenced during the second quarter of 2015. Also, our massive shipment to Mission Solar Energy LLC (“Mission Solar”) pursuant to the long term sales agreement signed in December 2013 continued during the year. In order to further strengthen our long term strategic relations and to ensure both companies can be more flexible to adapt to the fast changing industry environment, we signed an amendment agreement in early 2016 to waive the take or pay terms of the long term agreement. Credit to our proven abilities to manufacture more advanced and efficient products and our successful track record to complete qualification process with global leading solar cell manufacturers, we established strong reputations and marketing channels to attract increasing number of new customers and demands for our products of premium quality and reliability. We are in the process of obtaining qualification with two sizable and reputable customers that are both headquartered in the United States as well as certain potential customers located in Japan, Korea and Taiwan. Also, we note that there has been an increasing number of PRC-based solar cell manufacturing companies which are committed to developing their N-type solar cell products and were able to raise money from the capital market in China to fund their expansion. We believe our sounding track record differentiates us from our competitors in the market and strengthens the entry barrier to the market.

During the year, there were further decreases in module and total system costs, which drove the growth of global demand. Also, the installation of PV systems is becoming increasingly affordable. The cost of solar power is now below user-paid rates for increasing number of markets and user categories. We believe that lower PV system costs will continuously drive the adoption of solar power and long-term market growth. While China, U.S.A. and Japan represent the leading end markets for solar energy, we see a ramping up in PV adoption and planning in emerging markets in South America, the Southeast Asia, Australia, Africa, and the Middle East. We are also excited to see the increasing commitments on distributed generation projects from various emerging markets. We expect that it would further strengthen the barrier to entry to our business as few suppliers can meet the rigorous standards of product quality and reliabilities for such projects. Our deep commitments on research and development (“R&D”) and to delivering high conversion efficiency wafers ensure our leading position in the market. Going forward, we expect the Group will benefit from this trend of increasing demand for high efficiency products.

The Group intends to maintain its existing business of manufacturing and sales of high efficient monocrystalline solar wafers. And we intends to explore opportunities with the expansion into downstream solar business to integrate with our existing upstream solar business.

On behalf of the Board, I would like to express my sincere gratitude to our Shareholders and business partners for their support and trust in us, and also to our management and employees for their hard work. We look forward to creating greater value and return for our Shareholders.

John Zhang

Chairman

Shanghai, 31 March 2016

Annual Report 2015 07

Management Discussion and Analysis

BUSINESS REVIEW

During the year, there were further decreases in module and total system costs, which drove the growth of global demand. Also, the installation of PV systems is becoming increasingly affordable. The cost of solar power is now below user-paid rates for increasing number of markets and user categories. We believe that lower PV system costs will continuously drive the adoption of solar power and long-term market growth. While China, U.S.A. and Japan represent the leading end markets for solar energy, we see a ramping up in PV adoption and planning in emerging markets in South America, the Southeast Asia, Australia, Africa, and the Middle East. We are also excited to see the increasing commitments on distributed generation projects from various emerging markets. We expect that it will increase the demand for high efficiency monocrystalline products and will benefit our Group.

Our customers increasingly realize the benefits of buying high efficient “Super Mono Wafers” to assist them to reduce the overall system costs and to maximize their investment returns. Credit to our proven abilities to manufacture more advanced and efficient products and our successful track record to complete qualification process with global leading solar cell manufacturers, we established strong reputations and marketing channels to attract increasing number of new customers and demands for our products of premium quality and reliability.

During 2015, business with our largest customer for Super Mono wafers continued to grow. We also completed qualification process with a new Japan-based customer for the sale of our high quality “Super Mono” products and pilot shipments commenced during the second quarter of 2015. In additions, our massive shipment to Mission Solar Energy LLC (“Mission Solar”) pursuant to the long term sales agreement signed in December 2013 continued during the year ended 31 December 2015. In order to further strengthen our long term strategic relations with Mission Solar and to ensure both companies can be more flexible to adapt to the fast changing industry environment, we signed an amendment agreement in early 2016 to waive the “take-or-pay” terms of the long term agreement. We expect our business would continue to grow in coming years. We are also currently in the process of obtaining qualification with two sizable and reputable customers that are both headquartered in the United States as well as certain potential customers located in Japan, Korea and Taiwan. Also, we note that there has been an increasing number of PRCbased solar cell manufacturing companies which are committed to developing their N-type solar cell products and were able to raise money from the capital market in China to fund their expansion. We expect there will be increasing demands on the premium Super Mono Wafers from increasing number of customers. We would continue to expand our customer bases to drive the further growth of our business.

08 Comtec Solar Systems Group Limited

Management Discussion and Analysis

Revenues from our top five customers in 2015 represented approximately 63.2% of our total revenues, compared to approximately 70.4% in the last year. The sales to our largest customer in Philippines and Malaysia with the high quality “Super Mono Wafers” accounted for approximately 39.7% of our total revenues in 2015 as compared to approximately 48.7% in 2014. The remaining of our sales in 2015 was mainly shipped to PRC (including Hong Kong), Japan, U.S.A. and Korea.

In additions, we continued to execute our cost reduction strategy during the year. We continued to focus on cost saving from our improvements in technology, manufacturing process and conversion efficiency of our wafers. Based on the feedback from our major customer, the conversion efficiency of solar cell with our “Super Mono Wafers” reached approximately 25%. The thickness of “Super Mono Wafers” was reduced to approximately 140 micron. Our target is to reduce the thickness to below 120 micron. The accumulated experiences from massive production of “Super Mono Wafers” as well as our strategic research and development cooperation with existing customers would help to drive down our production costs by technology advancements. After our 300MW facilities in Malaysia are fully up and running, we expect our production cost would be further reduced. We would leverage our advantages in wafer technology to reduce cost without compromising quality and to generate higher value for our customers.

We are in the process to ramp up production facilities of approximately 300MW in Malaysia which would enable the Group to lower production costs and to expand our scale of operation. The cost of electricity, average salaries per workers and the tax incentive policies in Malaysia are very competitive and would enable us to materially reduce the cost of production. To further enhance the competitiveness of the Company, we would continue to increase our production capacities in Malaysia. The strategy to expand production capacities in Malaysia not only enables us to lower our production cost and increase production capacity, but also help our customers to mitigate their risks and costs in relation to international trade conflicts between PRC and overseas countries. We expect the uncertainties from potential trade conflicts would continue to exist. We are one of the few PRC-based companies with overseas production facilities and we would benefit from the pioneer advantages. The production in Malaysia facilities have commenced and substantial amount of the production capacities in Malaysia are expected to be up and running within second quarter of 2016. The completion of ramp up was delayed mainly due to slower than expected progress on training of new staffs in Malaysia. The group has relocated certain of well experienced staff to Malaysia to speed up the training and ramp up process.

In addition to the strategy of the Group to expand production capacities in low costs region, we also continued to execute our cost reduction strategy on the supply chain management. In prior years, in order to secure a stable supply of raw materials, the Group has entered into several non-cancellable purchase agreements with two major suppliers, independent parties not related to the Group, whereby the Group committed a “take or pay” obligation to purchase the minimum annual quantity of raw materials at pre-determined prices over the contractual periods up to 2018. In early 2016, the Group has reached into agreements with the two major suppliers, of which one of has agreed to waive the terms relating to minimum annual quantity and pre-determined price terms and the other has agreed to reduce the pre-determined purchase price for the forthcoming purchases. It would enable the Group, starting from 2016 onwards, to substantially mitigate the risks and costs related to the long term purchase agreements which led to the substantial amount of losses in 2015 and the operating losses in last few years. It would allow the Group to be more flexible in managing its supply chain to adapt to the market situations and benefit from the decreasing spot prices of raw materials.

Annual Report 2015 09

Management Discussion and Analysis

We have a strong foundation of advanced technological capabilities, high quality product offerings, premium customer bases. We would further strengthen our competitive advantages through continuous technology advancements and cost reduction. We would further expand our production capacities in Malaysia to lower our production costs and to expand our scale of operation.

10 Comtec Solar Systems Group Limited

Management Discussion and Analysis

The Group intends to maintain its existing business of manufacturing and sales of high efficient monocrystalline solar wafers. And we intend to explore opportunities with the expansion into downstream solar business to integrate with our existing upstream solar business. To leverage on our advanced technological capabilities, high quality product offerings, premium customer bases and the strategic partnership with reputable institutional investors, we are confident to capture enormous opportunities in the solar industry and to drive continued and healthy growth for the Group in the future.

FINANCIAL REVIEW

Revenue

Revenue increased by RMB184.6 million, or 20.4%, from RMB906.6 million for the year ended 31 December 2014 to RMB1,091.2 million for the year ended 31 December 2015, primarily as a result of the increase in shipment volume while the increase was partially offset by the decrease in average selling prices.

Sales of 125 mm by 125 mm monocrystalline solar wafers

Revenue from sales of 125 mm by 125 mm monocrystalline solar wafers decreased by RMB45.8 million, or 9.2%, from RMB497.0 million for the year ended 31 December 2014 to RMB451.2 million for the year ended 31 December 2015, primarily due to the decrease in its average selling price by 13.4% from RMB1.72 per watt for the year ended 31 December 2014 to RMB1.49 per watt for the year ended 31 December 2015. The decrease was partially offset by the increase of sales volume of 125 mm by 125 mm monocrystalline wafers, which accounts for an increase of approximately 4.7% from 289.5MW for the year ended 31 December 2014 to 303.1MW for the year ended 31 December 2015 and is primarily due to the increase in demand from customers and the ramp up of new production facilities in Malaysia during the year ended 31 December 2015.

Sales of 156 mm by 156 mm monocrystalline wafers

Revenue from sales of 156 mm by 156 mm monocrystalline solar wafers increased by RMB82.8 million, or 95.2%, from RMB87.0 million for the year ended 31 December 2014 to RMB169.8 million for the year ended 31 December 2015, primarily as a result of the increase of sales volume from 51.8MW for the year ended 31 December 2014 to 101.3MW for the year ended 31 December 2015. It was mainly due to the increase in demand from customers with whom the Company has signed long term agreements fixing the selling prices.

Processing services of monocrystalline solar products

Revenue from processing fees on monocrystalline solar products was approximately RMB6.6 million for the year ended 31 December 2015, decreased from approximately RMB7.3 million in the corresponding period in 2014. The Company considered processing services as value-added services provided by the Company to its major customers and such services were not the major focus of the Company.

Annual Report 2015 11

Management Discussion and Analysis

Others

The remaining revenue, mainly composed of revenues from the sales of excess inventory of polysilicon which were purchased under the long term agreements with our major polysilicon suppliers, of RMB463.6 million for the year ended 31 December 2015 recorded an increase of RMB148.3 million or 47.0%, from RMB315.3 million for the year ended 31 December 2014. The increase was mainly due to the increase of the sales volume by approximately 101.5% during the year ended 31 December 2015 when compared with that of 2014, while the increase was partially offset by the decrease in average selling price by approximately 25.2% for the year ended 31 December 2015 when compared with that for the corresponding period in 2014.

In relation to the analysis of our revenue by geographical market, approximately 39.7% of total revenue for the year ended 31 December 2015 was generated from our Philippines and Malaysia customer (2014: 48.7%). Remaining portion was mainly generated from our sales in PRC (including Hong Kong), U.S.A., Japan and Korea.

Cost of sales

Cost of sales for the year ended 31 December 2015 was approximately RMB1,185.6 million, representing an increase of RMB339.0 million or 40.0% from RMB846.6 million for the year ended 31 December 2014. The increase was mainly due to the write-down of inventory, increase in production cost and the increase in shipment volume during the year ended 31 December 2015.

The write-down of inventory were approximately RMB112.7 million for the year ended 31 December 2015 while the write-down of inventory were RMB11.2 million for the year ended 31 December 2014. When the Group identifies items of inventories which have a net realizable value that is lower than its carrying amount, the Group would write down of inventories in that year. During the year ended 31 December 2015, the average selling price of the 125 mm by 125 mm monocrystalline solar wafers and the polysilicon decreased by approximately 13.4% and 25.2% respectively. In addition, there were negative impacts on production yield during the transition period to ramp up the new production facilities in Malaysia which resulted in higher production and inventory costs. Thus, there was an increase in amount of inventories which have net realizable values that are lower than their carrying amounts, resulting in the increase in the write-down of inventories for the year ended 31 December 2015.

The negative impacts on production yield, as mentioned above, during the transition period to ramp up the new production facilities in Malaysia also increased the inventory costs and hence cost of sales when the inventories were sold and charged to profits and losses account during the year.

Furthermore, the increase in cost of sales was also attributable to the increase of shipment volumes for the year ended 31 December 2015. The shipment volume of ingot and wafers as well as of the excess inventory of polysilicon increased by 13.3% and 101.5% respectively for the year ended 31 December 2015 when compared with that of the year ended 31 December 2014.

12 Comtec Solar Systems Group Limited

Management Discussion and Analysis

Gross losses

The Company recorded gross losses of RMB94.4 million for the year ended 31 December 2015, while the Company recorded gross profits of approximately RMB60.0 million for the year ended 31 December 2014.

The gross losses was mainly attributable to the increase in cost of sales resulting from the increase in write-down of inventory from RMB11.2 million for the year ended 31 December 2014 to RMB112.7 million for the year ended 31 December 2015. In addition, the 13.4% decrease in average selling prices for the Group’s 125mm by 125mm monocrystalline solar wafers, which accounted for over 71.5% of the Group’s total revenue excluding revenue generated from sale of excess inventory of polysilicon, also contributes to the gross losses. Notwithstanding the Group recorded a 4.7% increase in sales of 125mm by 125mm monocrystalline solar wafers, the decrease in average selling price of RMB0.23 per watt resulted in the decrease of gross profit of approximately RMB69.7 million.

On the other hand, while the Company recorded an increase of 20.4% in revenue of the Company for the year ended 31 December 2015, which was mainly attributable to the 47.0% increase in the Group’s sales of excess inventory of polysilicon, the Company did not record any profit or loss in such sales after the offset of impairment provision on advances to suppliers and the cost of sale of the excess inventory of polysilicon.

As a result of the foregoing, the Company recorded gross losses of RMB94.4 million for the year ended 31 December 2015.

Other income

Other income for the year ended 31 December 2015 was approximately RMB9.5 million, representing an increase of approximately RMB1.1 million, or 13.1%, from RMB8.4 million for the year ended 31 December 2014, mainly due to the compensation from local government for removal from a leased factory in Shanghai.

Other gains and losses, expenses and provision

Other losses increased by RMB136.7 million from RMB63.6 million for the year ended 31 December 2014 to RMB200.3 million for the year ended 31 December 2015. It was mainly due to (i) the increase in impairment losses on advance to suppliers of approximately RMB69.9 million, (ii) the increase in losses from disposal of fixed assets of approximately RMB34.9 million, (iii) the increase in net foreign exchange losses of approximately RMB15.8 million and (iv) the decrease in gain from fair value changes of the outstanding warrants of approximately RMB24.5 million recorded for the year ended 31 December 2015.

Annual Report 2015 13

Management Discussion and Analysis

(i) Impairment losses on advance to suppliers

In relation to the increase in impairment losses of approximately RMB69.9 million, as disclosed in the announcement of the Company dated 21 September 2015 and note 11 to the consolidated financial statements, the Group had entered into several purchase agreements (the “Purchase Agreements”) with two major suppliers, who are independent parties not related to the Group, pursuant to which, among other things, the Group committed to purchase a minimum quantity of polysilicon virgins (to be used in the manufacture of its products) each year during the period from 1 January 2008 to 31 December 2018 at pre-determined prices. According to the terms of the Purchase Agreements, the Group has paid the equivalent of approximately RMB516.8 million of prepayments in aggregate during the period from January 2007 to December 2011 (collectively, the “Advances”), to these suppliers. In purchasing polysilicon virgins from these two major suppliers, the Group utilized part of the Advances in settlement of part, but not in full, of the purchase price payable such that only a portion of the Advances shall be utilized on each purchase. The Group has not made any further prepayments to these suppliers since December 2011.

Due to the volatility of the solar industry, the management of the Company has adopted a consistent review process to assess the sufficiency of impairment recognized in respect of the Advances and provision for the Purchase Agreements on a regular basis. Such reviews included the reviews conducted for the Company’s interim results and the audit of the Company’s annual results every year, with reference to a number of factors, including: the Group’s budgeted annualized production capacity is expected to gradually increase to approximately 1,000MW in 2017; the Group’s product mix would mainly comprise 125mm x 125mm and 156mm x 156mm “Super Mono” wafers; recent market demand for the Group’s products continued to increase; the average selling prices of the polysilicons are expected to be approximately USD13 per kg during 2016, reflecting current market assessments; and the negotiations between the Company with the two major suppliers in early 2016, during which one of the major suppliers has agreed to waive the terms relating to minimum annual quantity and pre-determined purchase price and the other major supplier has agreed to lower the pre-determined purchase price for the forthcoming purchases.

Based on the result of the said review, the Group recognized impairment losses on advances to suppliers of approximately RMB152.8 million for the year ended 31 December 2015, representing an increase of impairment losses of approximately RMB69.9 million from impairment losses of approximately RMB83.0 million during the year ended 31 December 2014. The impairment represents the incremental impairment recognized for the year ended 31 December 2015 in respect of the Advances and provision for the Purchase Agreements, which was primarily attributable to the substantial decrease in the market price of polysilicon of approximately 25.2% during the year ended 31 December 2015 as compared to the market price of polysilicon during the year ended 31 December 2014.

14 Comtec Solar Systems Group Limited

Management Discussion and Analysis

The balances of advances to suppliers decreased from approximately RMB120.4 million as at 31 December 2014 to approximately RMB111.2 million as at 31 December 2015. The drop of approximately RMB9.2 million was mainly due to additional impairment provision of approximately RMB152.8 million during the year ended 31 December 2015 and the usage of approximately RMB88.0 million to offset the payables for purchase of materials from these long term suppliers, and the transfer from the provision on onerous contracts of approximately RMB7.6 million. These decreases were partially offset by an increase of approximately RMB239.2 million in relation to utilization of impairment provision on such advances during the period. The utilization of the impairment provision represents an offset of such provision with the cost of sale of the excess inventory of polysilicon which resulted in an increase in the net balance of advance to suppliers by the utilized impairment provision amount.

(ii) Losses from disposal of property, plant and equipments

The increases in losses from disposals of property, plant and equipments were mainly due to the disposal of certain wire saws during the year which could not be modified to utilize diamond wires. The Company believes diamond wires slicing technologies would be the major production technologies of monocrystalline solar products in the future due to its significant rooms for further cost reduction, and has phased out the use of old equipments which could not utilize diamond wires.

(iii) Net foreign exchange losses

The increase in net foreign exchange losses was mainly due to appreciation of USD and Euro against RMB during the year ended 31 December 2015 and certain amount of bank loans were denominated in USD and Euro.

(iv) Decrease in gain from fair value change of outstanding warrants

The gain from fair value changes of the outstanding warrants of approximately decreased RMB24.5 million for the year ended 31 December 2015, comparing for the amount of such gain in 2014. In 2012, the Company and an independent third party not related to the Group (the “Investor”) entered into warrant subscription agreement, pursuant to which the Company agreed to issue the Investor detachable and transferrable warrants (“2012 Warrants”), exercisable for a period of four years ending 13 March 2016, to the Investor who was entitled to subscribe for up to 94,354,839 shares at a price of HKD1.24 per share. The fair values of the 2012 Warrants of the Company were calculated using the Binominal pricing model. The inputs into the model were mainly share price, exercise price, warrant volatility, warrant life and risk free interest rate etc. Changes in variables and assumptions may result in changes in the fair values of the 2012 Warrants and hence the gain or losses derived from such changes in fair value. The changes in share price of the Group during the year ended 31 December 2015 and the impacts of approaching to the expiry dates of the warrants reduced the amount of gain from fair value changes of the outstanding warrants.

Annual Report 2015 15

Management Discussion and Analysis

Distribution and selling expenses

The distribution and selling expenses accounted for approximately 1.9% of the revenue for the year ended 31 December 2015, while it accounted for approximately 1.8% of the revenue for the year ended 31 December 2014. The distribution and selling expenses increased by approximately RMB4.3 million, or 27.0%, from RMB15.9 million for the year ended 31 December 2014 to RMB20.2 million for the year ended 31 December 2015. The increase was primarily due to the increase in scale export sales of “Super Mono Wafers” to overseas customers.

Administrative and general expenses

Administrative and general expenses increased by RMB47.6 million, or 70.7%, from RMB67.3 million for the year ended 31 December 2014 to RMB114.9 million for the year ended 31 December 2015. It was mainly due to the increase in the recognising stock compensation expenses of approximately RMB39.4 million incurred for the share options newly grant during the year ended 31 December 2015 and the expenses to ramp up the production capacity in Malaysia.

Interest expenses

Interest expenses were approximately RMB14.8 million for the year ended 31 December 2015, representing an increase by RMB2.9 million from RMB11.9 million for the year ended 31 December 2014, which was mainly due to interests expenses from discounting the bank bills received from selling of excess polysilicon inventory during the year ended 31 December 2015.

Loss before taxation

Loss before taxation of RMB435.1 million for the year ended 31 December 2015, increased from the loss before taxation of RMB90.3 million for the year ended 31 December 2014, as a result of the foregoing.

Taxation

The Group did not incur significant tax expenses for the year 31 December 2015 and corresponding period in 2014 since no assessable profits were derived or tax losses were incurred from the Group entities.

Loss for the year

The Group recorded a loss of RMB434.7 million, increased from the loss of RMB90.5 million for the year ended 31 December 2014, as a result of the foregoing. Net loss margin of 39.8% for the year ended 31 December 2015, increased from the net loss margin of 10.0% for the year ended 31 December 2014.

Inventory turnover days

The inventories of the Group mainly comprised of raw materials (namely polysilicon, crucibles and other auxiliary materials) for production requirements, work in process and finished goods. There was a decrease in inventories balance of 51.0% from RMB537.8 million for the year ended 31 December 2014 to RMB263.6 million for the year ended 31 December 2015. The decrease was mainly due to increase in sales volume, improvement of inventory turnover and the write down of inventory by comparing the costs of inventory against its net realizable values. The inventory turnover days as at 31 December 2015 were 81 days in total (2014: 232 days).

16 Comtec Solar Systems Group Limited

Management Discussion and Analysis

Trade receivable turnover days

The trade receivable turnover days as at 31 December 2015 totaled 60 days (2014: 57 days). For the year ended 31 December 2015, the Group has focused on “Super Mono Wafers” which were mainly sold to overseas customers. The credit period granted to customers is approximately 7 to 180 days on case-by-case basis. The average receivable turnover days were approximately 60 days which was within the credit periods of the Group grants to its customers.

Trade payable turnover days

The trade payable turnover days as at 31 December 2015 totaled 62 days (2014: 54 days). We mainly focused on the long term and high quality suppliers during the year ended 31 December 2015 and the credit terms offered by them were 60 days or less.

Advances to suppliers

The balances of advances to suppliers decreased from approximately RMB120.4 million as at 31 December 2014 to approximately RMB111.2 million as at 31 December 2015. The drop of approximately RMB9.2 million was mainly due to additional impairment provision of approximately RMB152.8 million during the year ended 31 December 2015 and the usage of approximately RMB88.0 million to offset the payables for purchase of materials from these long term suppliers, and the transfer from the provision on onerous contracts of approximately RMB7.6 million. These decreases were partially offset by an increase of approximately RMB239.2 million in relation to utilization of impairment provision on such advances during the year. The utilization of the impairment provision represents an offset of such provision with the cost of sale of the excess inventory of polysilicon which resulted in an increase in the net balance of advance to suppliers by the utilized impairment provision amount.

Liquidity and financial resources

The Group’s principal sources of working capital included cash flow from operating activities, bank borrowings and the proceeds from the share placements. As at 31 December 2015, the Group’s current ratio (current assets divided by current liabilities) was 1.0 (31 December 2014: 1.4) and it was in a net debt position of approximately RMB282.0 million (2014: approximately RMB286.8 million). The Group’s financial position remains healthy.

On 11 January 2016, the Company entered into a subscription agreement with each of Guolian Financial Holding Group Co., Limited and Mr. Li Wanbin (the “Subscribers”), respectively, both being independent third parties, pursuant to which the Company has conditionally agreed to issue, and the Subscribers have conditionally agreed to subscribe for a total 928,138,250 Shares (“Subscription Shares”) at a gross subscription price of HK$0.66 per Share (the “Subscriptions”). The subscription price of HK$0.66 represented a discount of 20.48% to the closing price of HK$0.83 per Share as stated in the Stock Exchange’s daily quotations sheet on 8 January 2016. The Subscriptions have been approved by the shareholders of the Company in the extraordinary general meeting of the Company held on 26 February 2016. The net proceeds from the Subscriptions (after deducting related professional fees and related expenses) are expected to be approximately HK$611.1 million, representing a net subscription price of approximately HK$0.66 per Share. Please refer to the announcement of the Company dated 11 January 2016 and circular of the Company dated 11 February 2016 for further details.

We would implement a balanced financing plan to support the operation of our solar wafer business.

Annual Report 2015 17

Management Discussion and Analysis

Capital Commitments

As at 31 December 2015, the Group had capital commitments of approximately RMB205.2 million (2014: RMB216.9 million). It was mainly related to the plan to expand production capacity of the Group in Malaysia.

The capital commitments in relation to the downstream business would be finalized after the closing of Subscriptions. The Group plans to invest of approximately 200MW downstream solar projects, mainly distributed generation projects, within 2016. Depending on and subject to the market conditions and opportunities, the Company contemplates the investment to be either in the form of green field self-developed projects and/or by way of acquisitions of downstream projects.

Contingent liabilities

As at 31 December 2015, there was no material contingent liability (2014: Nil).

Related Party Transactions

Other than remuneration that the Group paid to the Directors and key management, the Group did not have any related party transactions for the year ended 31 December 2015.

Charges on Group Assets

As at 31 December 2015, other than the restricted cash of approximately RMB171.1 million (31 December 2014: RMB171.2 million), the Group pledged its buildings and prepaid lease payments having net book values of approximately RMB152.3 million (31 December 2014: RMB82.8 million) and approximately RMB19.6 million (31 December 2014: RMB13.9 million), respectively, to banks to secure banking facilities granted to the Group.

Save as disclosed above, as at 31 December 2015, no Group asset was under charge to any financial institution.

Acquisition of subsidiary

No subsidiary of the Company was acquired during the year ended 31 December 2015.

Disposal of subsidiary

No subsidiary of the Company was disposed during the year ended 31 December 2015.

Reference is made to the announcement of the Company dated 28 March 2016. On 25 March 2016, Comtec Solar (Cayman) Limited, a wholly-owned subsidiary of the Company, and New Energy Management Limited entered into the termination agreement to terminate the disposal of Comtec New Energy (Shanghai) Limited* ( 卡姆丹克新能源科技（上海）有限公司 ) in view of certain closing conditions of the under the relevant transfer agreement have not been fulfilled.

18 Comtec Solar Systems Group Limited

Management Discussion and Analysis

Fund Raising And Use Of Proceeds

On 11 January 2016, the Company entered into a subscription agreement with the Subscribers, respectively, both being independent third parties, pursuant to which the Company has conditionally agreed to issue, and the Subscribers have conditionally agreed to subscribe for, an aggregate of 928,138,250 Shares of the Company at a gross subscription price of HK$0.66 per Share. The Subscriptions have been approved by the shareholders of the Company at the extraordinary general meeting of the Company held on 26 February 2016. The net proceeds from the Subscriptions (after deducting related professional fees and related expenses) are expected to be approximately HK$611.1 million, representing a net subscription price of approximately HK$0.66 per Share, among which HK$488.9 million would be used for expansion into downstream solar power business, including investment in green field self-developed projects and/or by way of acquisitions of downstream projects and HK$122.2 million would be used for general working capital of the Group.

Save as disclosed above, the Company has not conducted any other equity fund raising activities during the year ended 31 December 2015.

Human resources

As at 31 December 2015, the Group had 1,140 (2014: 1,067) employees. The remuneration of the existing employee includes basic salaries, discretionary bonuses and social security contributions. Pay levels of the employees are commensurate with their responsibilities, performance and contribution.

Details of the future investment plans for material investment

The Group is expanding production capacity in Malaysia which would enable the Group to lower production costs and to increase the scale of operation. We are still in the process to evaluate various opportunities to further expand the production facilities in Malaysia. In additions, the Group is planning to expand to the downstream business. Due to the rapid changing market environment, the Group prefers to maintain flexibilities throughout the expansion process and avoid fixing a capacity target under a pre-determined timeline. We believe this strategy would enable the Group to maximize its advantages from the industry consolidation process.

Exposure to fluctuations in exchange rates and any related hedges

The Group recognised net exchange losses of approximately RMB21.8 million (2014: approximately RMB6.0 million), which mainly arose from monetary assets and liabilities of the group entities denominated in foreign currencies. The Group currently does not have a foreign currency hedging policy but the management has been monitoring foreign exchange exposure and will consider hedging significant foreign currency exposure should the need arise.

Annual Report 2015 19

Biographical Details of Directors and Senior Management

EXECUTIVE DIRECTORS

Mr. John Zhang, aged 53, is as an executive Director, the chairman of the Board and the chief executive officer of the Company, responsible for the overall strategy and operation of our Group. Mr. John Zhang is also a director of each of the Group members. Mr. Zhang has accumulated over ten years of experience in the semiconductor and solar industries from both his founding and development of the Group and his prior professional experience. Prior to founding the Group, Mr. Zhang joined Silicon Systems Inc. which was a semiconductor technology company in California, U.S., in 1992 as an engineer and was responsible for developing and designing communication firmware used in silicon chips. Mr. Zhang graduated from 清華大學 (Tsinghua University) in July 1985 with a Bachelor’s degree in Electrical Engineering and from Utah State University with a Master’s degree in Electrical Engineering in August 1988.

Mr. Chau Kwok Keung, aged 39, is an executive Director, the chief financial officer of the Group and the company secretary of the Company, responsible for corporate financial and general management. He is also a director of Comtec Solar (Hong Kong) Limited and Comtec Semiconductor (Hong Kong) Limited, both of which are subsidiaries of the Group. He was also appointed as (i) an independent non-executive director and the chairman of the audit committee of Qingdao Port International Co., Ltd., a listed company on the Stock Exchange (Stock Code: 6198), in May 2014; (ii) an independent director of The9 Limited, whose shares are listed by way of American Depository Shares on the NASDAQ (NASDAQ: NCTY), in October 2015. He acted as a member of supervisory board of RIB Software AG, a software company in Germany, which was listed in Frankfurt Stock Exchange, from May 2010 to June 2013. Prior to joining the Group, Mr. Chau served in various positions at China.com Inc., a company listed on the Stock Exchange (Stock Code: 8006) from October 2005 to October 2007, including vice president of the finance department, chief financial officer, company secretary and authorised representative. Prior to joining China.com Inc., he was the deputy group financial controller of China South City Holdings Limited, a company listed on the Stock Exchange (Stock Code: 1668) from August 2003 to April 2005 and the financial controller of Shanghai Hawei New Material and Technology Co., Ltd. from June 2002 to August 2003. Mr. Chau Kwok Keung was employed by Andersen & Co. initially as an experienced staff accountant and then he was subsequently promoted to be a senior consultant in the Global Corporate Finance Division of Andersen & Co. in March 2002. Mr. Chau has been a fellow member of the Association of Chartered Certified Accountants since June 2002, a member of Hong Kong Institute of Certified Public Accountants since July 2005 and a Chartered Financial Analyst of CFA Institute since September 2003. Mr. Chau received a bachelor’s degree in Business Administration from the Chinese University of Hong Kong in May 1998.

Mr. Shi Cheng Qi, aged 72, is an executive Director and the chief technology officer of the Group, responsible for production, technology and research and development. He is in charge of the production technology and equipment design of the Group. Mr. Shi has over 30 years of experience in semiconductor, solar and materials engineering, which was accumulated from the multiple engineering and management positions held by Mr. Shi in the production, technology and research and development departments of 上海半導體材料廠 (Shanghai Semiconductor Materials Factory) in the PRC from 1969 to 2000. He was accredited by 上海市有色金屬總公司 (Shanghai Non-Ferrous Metals Company) as a senior engineer in March 1993 based on the review and evaluation of 高級評委委員會 (senior appraisal committee) of Shanghai Non-Ferrous Metals Company.

20 Comtec Solar Systems Group Limited

Biographical Details of Directors and Senior Management

NON-EXECUTIVE DIRECTOR

Mr. Donald Huang, aged 35, is a non-executive Director. He is an investor focused on investments in Greater China. Previously, he was with TPG Capital, executing private equity investments across the United States and Asia, and Goldman Sachs, focusing on mergers and acquisitions. Mr. Huang also served on the Board of Directors of HCP Packaging.

INDEPENDENT NON-EXECUTIVE DIRECTORS

Mr. Leung Ming Shu, aged 40, is an independent non-executive Director. Mr. Leung is currently the chief financial officer and company secretary of China ITS (Holdings) Co., Ltd. He is also an independent non-executive director of Cabbeen Fashion Limited, a listed company on the Stock Exchange (code: 2030). He acted as an independent nonexecutive director of 勝利油氣管道控股有限公司 (Shengli Oil & Gas Pipe Holdings Limited) , a company listed on the Stock Exchange (code: 1080) from January 2011 to April 2013. Mr. Leung is experienced in the areas of corporate finance and accounting from his various roles detailed below. From November 2006 to January 2008, Mr. Leung served as the chief financial officer of Beijing Lingtu Spacecom Technology Co., Ltd, a subsidiary of Beijing Lingtu Software Co., Ltd, a PRC digital mapping and navigation software company. From February 2006 to October 2006, Mr. Leung served as the chief financial officer of Beijing Xinwei Telecom Technology Co., Ltd, a related party of 大唐電信科技股份有限公司 (Datang Telecom Technology Co., Ltd, a company listed on the Shanghai Stock Exchange) which is engaged in the development of a telecommunications standard and the manufacturer of telecommunications equipment. Prior to that, Mr. Leung spent approximately three years from February 2003 at CDC Corporation, a NASDAQ-listed company, as a senior manager in the mergers and acquisitions department, and as the chief financial officer of China.com Inc., a subsidiary of CDC Corporation and a company listed on the Stock Exchange. Mr. Leung started his professional career at PricewaterhouseCoopers in Hong Kong in auditing in 1998, and subsequently worked at the global corporate finance division of Arthur Andersen & Co. in Hong Kong, which subsequently merged with PricewaterhouseCoopers, until December 2000. From July 2001 to February 2003, he also worked as a business consultant in Market Catalyst International (Hong Kong) Limited, where he advised companies on issues of strategy, organisation and operations. Mr. Leung obtained a First Class Honours Bachelor’s degree in accountancy from the City University of Hong Kong in June 1998 and a Master’s degree in accountancy from the Chinese University of Hong Kong in November 2001. He is a Fellow of the Association of Chartered Certified Accountants since February 2007 and a Certified Public Accountant of the Hong Kong Institute of Certified Public Accountants since March 2006.

Mr. Daniel DeWitt Martin, aged 77, is an independent non-executive Director. Mr. Martin was the executive vice president of Semiconductor Equipment & Materials International from 1998 to January 2012. During such period, Mr. Matin was mainly responsible for the global standards development activity, and leading Semiconductor Equipment & Materials International into the photovoltaic industry. From July 1984 to March 1996, he worked in Siltec Corporation (Mitsubishi Silicon America) as the vice president of operations, mainly responsible for manufacturing, process engineering, facilities engineering, facilities and equipment maintenance,etc. Mr. Martin graduated from Washington State University in June 1961 and received a bachelor degree in Physical Metallurgy.

Annual Report 2015 21

Biographical Details of Directors and Senior Management

Mr. Kang Sun, aged 61, is an independent non-executive Director. Mr. Sun is currently the president and chief executive officer of RayTracker Inc., Pasadena, California, USA and a venture partner of WI Harper Group, San Francisco, California USA. Prior to that, Mr. Sun worked from September 2007 to August 2008 as the president and chief operating officer of JA Solar Holding Ltd, China, a company listed on NASDAQ (Code: JASO), managing director of new business development at Applied Materials Inc., USA since 2005. Prior to that, in different periods of time between 1990 and 2005, he had served as the vice president of Microfabrica Inc., the vice president of Honeywell International Inc., USA and the general manager of Optical Devices Business, AlliedSignal Inc., USA, respectively. Mr. Sun received a Ph.D. degree in Materials Science from Brown University, USA in 1988, a M.S. degree in Physical Chemistry from University of Georgia, USA in 1983 and a B.S. degree in Polymer Chemistry from 南京大學 (Nanjing University), China in 1978.

SENIOR MANAGEMENT

Mr. Wu Cheng Xian, aged 68, is the vice general manager and the head of the manufacturing department of the Group. He is mainly responsible for stipulating and implementing manufacturing plan, supervising quality control, coordinating manufacturing and the operations of the other departments in our Group. He joined the Group in October 2008. Mr. Wu has approximately 40 years of experience in the related industry. Prior to joining the Group, Mr. Wu worked as the vice general manager in 麥斯克電子材料有限公司 (MCL Electronic Materials Co. Ltd.) from October 1999 to September 2008, responsible for daily manufacturing and sales, quality control and human resources management. He worked in 洛陽單晶硅廠 (Luoyang Monocrystalline Silicon Factory), which is now 洛陽單晶硅有限責任公司 (Luoyang Monocrystalline Silicon Co., Ltd.) from August 1968 to September 2008, as the manufacturing department head and then promoted to vice general manager in February 1994, responsible for daily manufacturing and sales of semiconductor materials, quality control and human resources management. Mr. Wu studied in 建德冶金工業學校 (Jiande Metallurgy Industrial School), which is now 嘉興學院 (Jiaxing Institute) since September 1963, majoring in Statistics and graduated in August 1968 with a secondary technical school degree. Mr. Wu received a junior college degree in Statistics in December 1988 by National self-taught examination. Mr. Wu was appraised as the senior economist in November 2006 by 中國有色金屬工業協會 (China Nonferrous Metals Industry Committee) according to nonferrous metals industry credential requirements.

Ms. Yi Xin, aged 40, is the head of the import and export department of the Group. She is mainly in charge of importing and exporting and keeping communication documents with customers. She joined us in July 2002. Ms. Yi has over five years of experience in the trading industry and she is in charge of our imports and exports. Prior to joining the Group, Ms. Yi Xin worked in the marketing department of 上海智率醫療器械有限公司 (Shanghai Intelligent Medical Apparatus Company Limited) responsible for market survey and analysis from February 2000 to July 2002. Ms. Yi received a junior college degree in economy and trading from 上海冶金高等專科學校 (Shanghai College of Metallurgy), which is now 上海應用技術學院 (Shanghai Institute of Technology) in July 1997.

22 Comtec Solar Systems Group Limited

Biographical Details of Directors and Senior Management

Mr. Cheng Yu Wei, aged 64, is the head of the equipment department of the Group. He is mainly responsible for daily operation of electromechanical department and equipment maintenance. He joined us in October 2000. Mr. Cheng has approximately 15 years of experience in the electrical engineering industry. Prior to joining the Group, he worked in 中南地質勘查局實業公司 (Zhongnan Geological Prospecting Bureau Industrial Company) as an electrical engineer in 1992 and as a vice chief engineer in 1993. From June 1994 to December 1996, Mr. Cheng worked as an engineer in 中南金剛石工業公司 (Zhongnan Diamond Industry Co., Ltd.). Mr. Cheng majored in electrical engineering of 湖北廣播電視大學 (Hubei TV & Radio University) and graduated in July 1987.

COMPANY SECRETARY

Mr. Chau Kwok Keung. Please refer to the biography of Mr. Chau above.

Annual Report 2015 23

Report of the Directors

The Directors have pleasure in presenting their report together with the audited consolidated financial statements for the year ended 31 December 2015.

PRINCIPAL ACTIVITIES

The Company and its subsidiaries are principally engaged in the design, development, manufacture and marketing of solar wafers and ingots, with a focus on high quality monocrystalline solar wafers.

SUBSIDIARIES

Details of the principal subsidiaries of the Group as at 31 December 2015 are set out in note 36 to the consolidated financial statements.

FINANCIAL STATEMENTS

The summary of the results, assets and liabilities of the Group for the year ended 31 December 2015 and the state of the Company’s and the Group’s affairs as at that date are set out in the consolidated financial statements on pages 56 to 139 of this annual report.

RESULTS AND DIVIDENDS

The results of the Group for the year ended 31 December 2015 are set out in the audited consolidated statement of comprehensive income.

The Board recommended that since the Company plans to reserve the cash for working capital requirement and any potential investment opportunities in the future, no dividend will be declared for the year ended 31 December 2015. The Company may consider its dividend policy in the future according to the financial results and performance of the Company, and the general industry and economic environment.

RESERVES

Details of movements in reserves of the Group and the Company for the year ended 31 December 2015 are set out in the consolidated statement of changes in equity and note 30 to the financial statement, respectively.

DISTRIBUTABLE RESERVES

As at 31 December 2015, the Company’s reserves available for distribution, calculated in accordance with the Companies Law, Chapter 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands, amounted to approximately RMB1,210,671,000. The amount of approximately RMB1,210,671,000 represents the Company’s share premium account of approximately RMB1,317,003,000 which is offsetted by accumulated losses of approximately RMB106,332,000 in aggregate as at 31 December 2015, which may be distributed provided that immediately following the date on which the dividend is proposed to be distributed, the Company will be in a position to pay off its debts as and when they fall due in the ordinary course of business.

24 Comtec Solar Systems Group Limited

Report of the Directors

CHARITABLE DONATIONS

The Company did not make any charitable and other donations during the year under review.

PROPERTY, PLANT AND EQUIPMENT

Movements in property, plant and equipment of the Group for the year ended 31 December 2015 are set out in note 15 to the consolidated financial statements.

SHARE CAPITAL

Details of the movements in share capital of the Company during the financial year are set out in note 28 to the consolidated financial statements.

DIRECTORS

The Directors during the financial year and as of the date of this annual report were:

Executive Directors

Mr. John Zhang (Chairman) Mr. Chau Kwok Keung Mr. Shi Cheng Qi

Non-Executive Director

Mr. Donald Huang

Independent Non-Executive Directors

Mr. Daniel DeWitt Martin

Mr. Kang Sun Mr. Leung Ming Shu

The Company has received annual confirmations of independence from each of the existing independent nonexecutive Directors in accordance with Rule 3.13 of the Listing Rules. The Company considers that all the independent non-executive Directors are independent in accordance with the Listing Rules.

In accordance with article 84 of the Company’s articles of association, Mr. Chau Kwok Keung, Mr. Shi Cheng Qi and Mr. Kang Sun will retire from the Board by rotation at the forthcoming annual general meeting. Save for Mr. Shi Cheng Qi who will not offer himself for re-election due to retirement, Mr. Chau Kwok Keung and Mr. Kang Sun, being eligible, offer themselves for re-election. No Director proposed for re-election at the forthcoming annual general meeting has an unexpired service contract which is not determinable by the Company or any of its subsidiaries within one year without payment of compensation, other than statutory compensation.

Annual Report 2015 25

Report of the Directors

DIRECTORS’ AND SENIOR MANAGEMENT’S BIOGRAPHIES

Biographical details of the Directors and senior management are set out on pages 20 to 23 of this annual report.

DIRECTORS’ MATERIAL INTERESTS IN TRANSACTIONS, ARRANGEMENTS OR CONTRACTS

No transactions, arrangements or contracts to which the Company or any of its subsidiaries was a party to and in which a Director or its connected entity (within the meaning of section 486 of the Companies Ordinance) had a material interest in, whether directly or indirectly, and subsisted as of 31 December 2015 or at any time during the year ended 31 December 2015.

DIRECTORS’ SERVICE CONTRACTS

Each of the executive Directors of the Company has entered into a service contract with the Company for a specific term of two years commencing form the Listing Date and will automatically continue thereafter until terminated by not less than three months’ notice in writing served by either party on the other, which notice shall not expire until after the fixed term.

The non-executive Director of the Company, Mr. Donald Huang has entered into a service contract with the Company for a specific term of two years commencing from 17 June 2011 and will continue thereafter until terminated by not less than three months’ notice in writing served by either party on the other, which notice shall not expire until after the fixed term.

Each of the independent non-executive Directors of the Company has entered into a service contract with the Company for a specific term of two years commencing form the Listing Date and will automatically continue for another three years thereafter until terminated by not less than three months’ notice in writing served by either party on the other, which notice shall not expire until after the fixed term.

The above service contracts are subject to retirement by rotation and reelection at an annual general meeting at least once every three years in accordance with the articles of association of the Company.

No Director proposed for re-election at the forthcoming annual general meeting has an unexpired service contract which is not determinable by the Company or any of its subsidiaries within one year without payment of compensation, other than normal statutory obligations.

26 Comtec Solar Systems Group Limited

Report of the Directors

DIRECTORS’ AND CHIEF EXECUTIVE’S INTERESTS AND SHORT POSITIONS IN SHARES, UNDERLYING SHARES AND DEBENTURES

As at 31 December 2015, the Directors and the chief executive of the Company and their respective associates had the following interests or short positions in the shares, underlying shares and debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO) which have been notified to the Company and the Stock Exchange pursuant to Division 7 and 8 of Part XV of the SFO, including interests and short positions which the Directors and the chief executive of the Company are taken and deemed to have under such provisions of the SFO, or which are required to be and are 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 pursuant to the Model Code:

Long positions in the Company:

			Approximate
			percentage of
			interest in the
		Number of	issued share
		shares	capital of the
Name of Director	Nature of interest	interested	Company
Mr. John Zhang1	Beneficiary of a trust, interest in a controlled	629,283,550	45.21%
	corporation, interest of spouse and interest
	of children under 18
Mr. Chau Kwok Keung2	Beneficial owner	13,228,000	0.95%
Mr. Shi Cheng Qi3	Beneficial owner	900,000	0.06%
Mr. Kang Sun4	Beneficial owner	549,574	0.04%
Mr. Daniel DeWitt Martin5	Beneficial owner	499,659	0.04%
Mr. Leung Ming Shu6	Beneficial owner	362,787	0.03%

Annual Report 2015 27

Report of the Directors

Notes:

(1) Fonty, which is 100% beneficially owned by Mr. Zhang, held 576,453,844 Shares. For the purposes of the SFO, Mr. Zhang is also deemed to be interested in 47,829,706 Shares which are beneficially owned by Mr. Alan Zhang, Mr. Zhang’s child under the age of 18, as beneficiary of Zhang Trusts For Descendants, which is an irrevocable trust set up by Mr. Zhang for the benefit of his descendants and of which J.P. Morgan Trust Company of Delaware is the trustee. For the purpose of the SFO, Mr. Zhang is also deemed to be interested in 5,000,000 underlying Shares by virtue of share options granted to him to subscribe for 5,000,000 Shares under the Company’s Share Option Scheme on 28 June 2012.
(2) The Shares in which Mr. Chau Kwok Keung is deemed to be interested represent 13,228,000 Shares which may be issued to him upon the exercise of the Share Options (as defined below) granted to him on 28 June 2012 and on 31 March 2014 under the Share Option Scheme (as defined below).
(3) The 900,000 Shares in which Mr. Shi Cheng Qi is deemed to be interested represent 900,000 Shares which may be issued to him upon the exercise of the Share Options granted to him on 24 May 2010 and 11 May 2015 under the Share Option Scheme.
(4) The 549,574 Shares in which Mr. Kang Sun is deemed to be interested represent 549,574 Shares which may be issued to him upon the exercise of the Pre-IPO Share Options (as defined below) granted to him on 3 August 2009 and 2 October 2009 under the Pre-IPO Share Option Scheme and the Share Options (as defined below) granted to him on 27 December 2012 under the Share Option Scheme.
(5) The 499,659 Shares in which Mr. Daniel DeWitt Martin is deemed to be interested represent 499,659 Shares which may be issued to him upon the exercise of the Pre-IPO Share Options (as defined below) granted to him on 3 August 2009 and 2 October 2009 under the Pre-IPO Share Option Scheme and the Share Options (as defined below) granted to him on 27 December 2012 under the Share Option Scheme.
(6) The 362,787 Shares in which Mr. Leung Ming Shu is deemed to be interested represent 362,787 Shares which may be issued to him upon the exercise of the Pre-IPO Share Options (as defined below) granted to him on 3 August 2009 and 2 October 2009 under the Pre-IPO Share Option Scheme and the Share Options (as defined below) granted to him on 27 December 2012 under the Share Option Scheme.

Save as disclosed above, as at 31 December 2015, none of the Directors or chief executive of the Company had or was deemed to have any interests or short position in the shares, underlying shares or debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO), which had been recorded in the register maintained by the Company pursuant to section 352 of the SFO or which had been notified to the Company and the Stock Exchange pursuant to the Model Code.

At no time was the Company, its holding company, or any of its subsidiaries a party to any arrangements to enable the Directors and chief executive of the Company (including their spouse and children under 18 years of age) to hold any interest or short positions in the shares or underlying shares in, or debentures of, the Company or its associated corporations (within the meaning of Part XV of the SFO).

28 Comtec Solar Systems Group Limited

Report of the Directors

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

So far as is known to any Director or chief executive of the Company, as at 31 December 2015, the persons or corporations (other than Director or chief executive of the Company) who had interest or short positions in the Shares and underlying shares of the Company which were required to be disclosed to the Company under the provisions of Division 2 and 3 of Part XV of the SFO, or which were recorded in the register required to be kept under section 336 of the SFO were as follows:

			Approximate
			percentage of
			interest in the
		Number of	issued share
		shares	capital of the
Name of Shareholders	Nature of interest	interested	Company
Mr. John Yi Zhang1	Beneficiary of a trust, interest in a controlled	629,283,550	45.21%
	corporation, interest of spouse and interest
	of children under 18
Fonty Holdings Limited	Beneficial owner	576,453,844	41.42%
Ms. Carrie Wang2	Spouse interest	629,283,550	45.21%

Note:

(1) Fonty, which is 100% beneficially owned by Mr. Zhang, held 576,453,844 Shares. For the purposes of the SFO, Mr. Zhang is also deemed to be interested in 47,829,706 Shares which are beneficially owned by Mr. Alan Zhang, Mr. Zhang’s child under the age of 18, as beneficiary of Zhang Trusts For Descendants, which is an irrevocable trust set up by Mr. Zhang for the benefit of his descendants and of which J.P. Morgan Trust Company of Delaware is the trustee. For the purpose of the SFO, Mr. Zhang is also deemed to be interested in 5,000,000 underlying Shares by virtue of share options granted to him to subscribe for 5,000,000 Shares under the Company’s Share Option Scheme on 28 June 2012.
(2) Ms. Carrie Wang is the spouse of Mr. John Zhang, therefore, pursuant to the SFO, she is deemed to be interested in all the Shares in which Mr. John Zhang is interested.

Save as disclosed above, as at 31 December 2015, the Directors of the Company are not aware of any other person or corporation having an interest or short position in shares and underlying shares of the Company which would require to be recorded in the register required to be kept by the Company pursuant to Section 336 of the SFO.

Annual Report 2015 29

Report of the Directors

SHARE OPTION SCHEMES

Pre-IPO Share Option Scheme

The Company has adopted a share option scheme on 2 June 2008 (the “Pre-IPO Share Option Scheme”) for the purpose of giving its employees an opportunity to have a personal stake in the Company and helping motivate its employees to optimize their performance and efficiency, and retaining its employees whose contributions are important to the long-term growth and profitability of the Group. Options to subscribe for an aggregate of 574,020 Shares (the “Underlying Shares”) were granted to three independent non-executive Directors on 3 August 2009 and 2 October 2009, in respect of 230,000 Underlying Shares and 344,020 Underlying Shares, respectively. The exercise price per Share is HK$2.51, which is at a 19.5% premium to the final Offer Price in the Global Offering. No further options would be granted under the Pre-IPO Share Option Scheme on or after the Listing Date.

All options granted under the Pre-IPO Share Option Scheme (the “Pre-IPO Share Options”) can only be exercised in the following manner: (a) Shares representing 1/12th of the Shares which may be issued upon the exercise of options granted under the Pre-IPO Share Option Scheme shall vest on 1 November 2009; (b) from 1 November 2009 onwards, the remaining 11/12th of the Underlying Shares shall vest in equal quarterly instalments of 1/12th of the Underlying Shares at the end of each three-month period subject to continued employment with our Company during that period and all other terms and conditions as described in the Pre-IPO Share Option Scheme; and (c) all outstanding Pre-IPO Share Options shall lapse on the date falling 10 years from the offer date of the Pre-IPO Share Options.

Details of the movement of the share options granted under the Pre-IPO Share Option Scheme as at 31 December 2015 are as follows:

Grantee Date of Grant Exercise price per Share Director Kang Sun 3 August 2009 HK$2.51 Daniel DeWitt Martin 3 August 2009 HK$2.51 Leung Ming Shu 3 August 2009 HK$2.51 Total	Balance as at 1 January 2015 Exercised during 2015 Lapsed during 2015 Cancelled during 2015 Balance as at 31 December 2015 249,574 – – – 249,574 166,659 – – – 166,659 62,787 – – – 62,787
	512,020 – – – 512,020

Save as disclosed above, no Pre-IPO Share Options was granted, lapsed or cancelled for the year ended 31 December 2015.

30 Comtec Solar Systems Group Limited

Report of the Directors

Share Option Scheme

The Company has adopted the share option scheme (the “Share Option Scheme”) on 2 October 2009 for the purpose of motivating eligible persons to optimize their future contributions to the Group and/or reward them for their past contributions, attracting and retaining or otherwise maintaining on-going relationships with such eligible persons who are significant to and/or whose contributions are or will be beneficial to the performance, growth or success of the Group.

Upon adoption, the maximum number of Shares which may be issued upon exercise of all options to be granted under the Share Option Scheme and any other schemes of the Group shall not in aggregate exceed 10% of the Shares in issued as at the Listing Date, that is, 100,000,000 Shares.

At the extraordinary general meeting of the Company held on 24 December 2015, the scheme mandate limit under the Share Option Scheme was refreshed. As at the date of this annual report, the maximum number of Shares which may be issued upon exercise of all options to be granted under the Share Option Scheme and other share option schemes of the Company is 139,186,175 Shares, being 10% of the Shares in issue as at the date of the extraordinary general meeting of the Company held on 24 December 2015 and 10% of the Shares in issue as at the Latest Practicable Date.

No option may be granted to any participant of the Share Option Scheme such that the total number of Shares issued and to be issued upon exercise of the options granted and to be granted to that person in any 12-month period up to the date of the latest grant exceeds 1% of the Company’s issued share capital from time to time.

An option may be exercised in accordance with the terms of the Share Option Scheme at any time during a period as determined by the Board and not exceeding 10 years from the date of the grant. There is no minimum period for which an option must be held before it can be exercised. Participants of the Share Option Scheme are required to pay the Company HK$1.0 upon acceptance of the grant on or before the 28 days after the offer date. The exercise price of the options is determined by the Board in its absolute discretion and shall not be less than whichever is the highest of:

(a) the nominal value of a Share;
(b) the closing price of a Share as stated in the Stock Exchange’s daily quotations sheets on the offer date; and
(c) the average closing price of a Share as stated in the Stock Exchange’s daily quotation sheets for the five Business Days immediately preceding the offer date.

The Share Option Scheme shall be valid and effective for a period of 10 years from the Listing Date, after which no further options will be granted or offered.

Annual Report 2015 31

Report of the Directors

Details of the share options granted, exercised and lapsed under the Share Option Scheme as at 31 December 2015 are as follows:

Grantee Date of grant Exercise price per Share Other participants in aggregate 25 November 2015 HK$0.736 Other participants in aggregate 26 June 2015 HK$1.500 Director Mr. Shi Cheng Qi 11 May 2015 HK$1.390 Other participants in aggregate 11 May 2015 HK$1.390 Director Mr. Chau Kwok Keung 31 March 2014 HK$1.386 Other participants in aggregate 31 March 2014 HK$1.386 Other participants in aggregate 30 September 2013 HK$1.870 Director Mr. Kang Sun 27 December 2012 HK$1.262 Mr. Daniel DeWitt Martin 27 December 2012 HK$1.262 Mr. Leung Ming Shu 27 December 2012 HK$1.262 Other participants in aggregate 27 December 2012 HK$1.262 Director Mr. John Zhang 28 June 2012 HK$0.980 Mr. Chau Kwok Keung 28 June 2012 HK$0.980 Other participants in aggregate 28 June 2012 HK$0.980 Director Mr. Shi Cheng Qi 24 May 2010 HK$1.490 Other participants in aggregate 24 May 2010 HK$1.490	Balance as at 1 January 2015 Share options granted during 2015 Exercised during 2015 Lapsed during 2015 Balance as at 31 December 2015 – 59,000,000 – – 59,000,000 – 20,000,000 – – 20,000,000 – 600,000 – – 600,000 – 59,200,000 – – 59,200,000 13,000,000 – – – 13,000,000 22,650,000 – – – 22,650,000 4,020,000 – – – 4,020,000 300,000 – – – 300,000 300,000 – – – 300,000 300,000 – – – 300,000 6,638,000 – – – 6,638,000 5,000,000 – – – 5,000,000 228,000 – – – 228,000 3,756,000 – (30,000) (170,000) 3,556,000 300,000 – – – 300,000 1,940,000 – – – 1,940,000
	58,432,000 138,800,000 (30,000) (170,000) 197,032,000

Grantee
Date of grant
Exercise price
per Share
Other participants in aggregate
25 November 2015
HK$0.736
Other participants in aggregate
26 June 2015
HK$1.500
Director
Mr. Shi Cheng Qi
11 May 2015
HK$1.390
Other participants in aggregate
11 May 2015
HK$1.390
Director
Mr. Chau Kwok Keung
31 March 2014
HK$1.386
Other participants in aggregate
31 March 2014
HK$1.386
Other participants in aggregate
30 September 2013
HK$1.870
Director
Mr. Kang Sun
27 December 2012
HK$1.262
Mr. Daniel DeWitt Martin
27 December 2012
HK$1.262
Mr. Leung Ming Shu
27 December 2012
HK$1.262
Other participants in aggregate
27 December 2012
HK$1.262
Director
Mr. John Zhang
28 June 2012
HK$0.980
Mr. Chau Kwok Keung
28 June 2012
HK$0.980
Other participants in aggregate
28 June 2012
HK$0.980
Director
Mr. Shi Cheng Qi
24 May 2010
HK$1.490
Other participants in aggregate
24 May 2010
HK$1.490

Balance as at
1 January
2015
Share options
granted during
2015
Exercised
during
2015
Lapsed
during
2015
Balance as at
31 December
2015
–
59,000,000
–
–
59,000,000
–
20,000,000
–
–
20,000,000
–
600,000
–
–
600,000
–
59,200,000
–
–
59,200,000
13,000,000
–
–
–
13,000,000
22,650,000
–
–
–
22,650,000
4,020,000
–
–
–
4,020,000
300,000
–
–
–
300,000
300,000
–
–
–
300,000
300,000
–
–
–
300,000
6,638,000
–
–
–
6,638,000
5,000,000
–
–
–
5,000,000
228,000
–
–
–
228,000
3,756,000
–
(30,000)
(170,000)
3,556,000
300,000
–
–
–
300,000
1,940,000
–
–
–
1,940,000

58,432,000
138,800,000
(30,000)
(170,000)
197,032,000

32 Comtec Solar Systems Group Limited

Report of the Directors

Notes:

(1) Share options granted under the Share Option Scheme on 24 May 2010 shall vest in the relevant grantee in accordance with the timetable below with a 10-year exercise period (for the purpose, the date or each such date on which the share options are to vest being hereinafter referred to as a “Vesting Date”):

Vesting Date Percentage of Share Options to vest 24 May 2010 50% of the total number of Share Options granted 30 June 2011 50% of the total number of Share Options granted

(2) Share options granted under the Share Option Scheme on 28 June 2012 shall vest in the grantees in accordance with the timetable below with a 10-year exercise period (for the purpose, the date or each such date on which the share options are to vest being hereinafter referred to as a “Vesting Date”):

Vesting Date	Percentage of Share Options to vest
28 June 2012	50% of the total number of Share Options granted
28 September 2012	12.5% of the total number of Share Options granted
28 December 2012	12.5% of the total number of Share Options granted
28 March 2013	12.5% of the total number of Share Options granted
28 June 2013	12.5% of the total number of Share Options granted

(3) Share options granted under the Share Option Scheme on 27 December 2012 shall vest in the grantees in accordance with the timetable below with a 10-year exercise period (for this purpose, the date or each such date on which the share options are to vest being hereinafter referred to as a “Vesting Date”):

Vesting Date	Percentage of Share Options to vest
27 December 2012	50% of the total number of Share Options granted
27 March 2013	12.5% of the total number of Share Options granted
27 June 2013	12.5% of the total number of Share Options granted
27 September 2013	12.5% of the total number of Share Options granted
27 December 2013	12.5% of the total number of Share Options granted

(4) Share options granted under the Share Option Scheme on 30 September 2013 shall vest in the grantees in accordance with the timetable below with a 10-year exercise period (for this purpose, the date or each such date on which the share options are to vest being hereinafter referred to as a “Vesting Date”):

Vesting Date	Percentage of Share Options to vest
30 September 2013	50% of the total number of Share Options granted
30 December 2013	12.5% of the total number of Share Options granted
30 March 2014	12.5% of the total number of Share Options granted
30 June 2014	12.5% of the total number of Share Options granted
30 September 2014	12.5% of the total number of Share Options granted

Annual Report 2015 33

Report of the Directors

(5) Share options granted under the Share Option Scheme on 31 March 2014 vest in the relevant grantee in accordance with the timetable below with a 10-year exercise period (for the purpose, the date or each such date on which the Share Options are to vest being hereinafter referred to as a “Vesting Date”):

The 30,800,000 share options (including the Share Option granted to Mr. Chau Kwok Keung) shall be subject to a vesting period as followings:

Vesting Date

Percentage of Share Options to vest

31 March 2014 50% of the total number of Share Options granted 30 June 2014 12.5% of the total number of Share Options granted 30 September 2014 12.5% of the total number of Share Options granted 31 December 2014 12.5% of the total number of Share Options granted 31 March 2015 12.5% of the total number of Share Options granted

The remaining 5,850,000 share options shall be subject to a vesting period as followings:

Vesting Date	Percentage of Share Options to vest
31 March 2014	1/3 of the total number of options granted
30 June 2014	1/12 of the total number of options granted
30 September 2014	1/12 of the total number of options granted
31 December 2014	1/12 of the total number of options granted
31 March 2015	1/12 of the total number of options granted
30 June 2015	1/12 of the total number of options granted
30 September 2015	1/12 of the total number of options granted
31 December 2015	1/12 of the total number of options granted
31 March 2016	1/12 of the total number of options granted

(6) Share options granted under the Share Option Scheme on 11 May 2015 shall vest in the grantees in accordance with the timetable below with a 10-year exercise period (for this purpose, the date or each such date on which the share options are to vest being hereinafter referred to as a “Vesting Date”):

Vesting Date Percentage of Share Options to vest 11 May 2015 50% of the total number of Share Options granted 11 August 2015 12.5% of the total number of Share Options granted 11 November 2015 12.5% of the total number of Share Options granted 11 February 2016 12.5% of the total number of Share Options granted 11 May 2016 12.5% of the total number of Share Options granted

34 Comtec Solar Systems Group Limited

Report of the Directors

(7) Share options granted under the Share Option Scheme on 26 June 2015 shall vest in the grantees in accordance with the timetable below with a 10-year exercise period (for this purpose, the date or each such date on which the share options are to vest being hereinafter referred to as a “Vesting Date”):

Vesting Date Percentage of Share Options to vest 26 June 2015 50% of the total number of Share Options granted 26 September 2015 12.5% of the total number of Share Options granted 26 December 2015 12.5% of the total number of Share Options granted 26 March 2016 12.5% of the total number of Share Options granted 26 June 2016 12.5% of the total number of Share Options granted

(8) Share options granted under the Share Option Scheme on 25 November 2015 shall vest in the grantees in accordance with the timetable below with a 10-year exercise period (for this purpose, the date or each such date on which the share options are to vest being hereinafter referred to as a “Vesting Date”):

Vesting Date Percentage of Share Options to vest 25 November 2015 50% of the total number of Share Options granted 25 February 2015 12.5% of the total number of Share Options granted 25 May 2016 12.5% of the total number of Share Options granted 25 August 2016 12.5% of the total number of Share Options granted 25 November 2016 12.5% of the total number of Share Options granted

During the year ended 31 December 2015, save as disclosed above, no options granted under the Share Option Scheme were lapsed or cancelled.

Further details of the Pre-IPO Share Option Scheme and the Share Option Scheme are set out in note 29 to the financial statements.

ARRANGEMENT FOR DIRECTORS TO PURCHASE SHARES OR DEBENTURES

Save as disclosed in “Share Option Schemes” above, at no time during the year were rights to acquire benefits by means of the acquisition of Share in or debentures of the Company granted to any Director of the Company or their respective spouses or minor children, or were such rights exercised by them, or was the Company, its holding company or any of its subsidiaries a party to any arrangements to enable the Directors of the Company to acquire benefits by means of the acquisition of Shares in, or debt securities (including debentures) of the Company or any other body corporate.

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

During the year of 2015, neither the Company nor any of its subsidiaries has purchased, sold or redeemed any of the Company’s listed securities.

Annual Report 2015 35

Report of the Directors

FUND RAISING AND USE OF PROCEEDS

On 11 January 2016, the Company entered into a subscription agreement with the Subscribers, respectively, both being independent third parties, pursuant to which the Company has conditionally agreed to issue, and the Subscribers have conditionally agreed to subscribe for, an aggregate of 928,138,250 Shares of the Company at a gross subscription price of HK$0.66 per Share. The Subscriptions have been approved by the shareholders of the Company at the extraordinary general meeting of the Company held on 26 February 2016. The net proceeds from the Subscriptions (after deducting related professional fees and related expenses) are approximately HK$611.1 million, representing a net subscription price of approximately HK$0.66 per Share.

We intend to utilize the net proceeds from the Subscriptions for the following purposes:

Expansion into downstream solar power business, including investment in green field self-developed projects and/or by way of acquisitions of downstream projects HK$488.9 million
General working capital of the Company HK$122.2 million

Total HK$611.1 million

Save as disclosed above, the Company has not conducted any other equity fund raising activities during the year ended 31 December 2015 and up to the date of this annual report.

NON-COMPETE UNDERTAKINGS

Each of the Controlling Shareholders has confirmed to the Company of his/her compliance with the non-compete undertakings provided to the Company under the Non-competition Deeds (as defined in the Prospectus). The independent non-executive Directors of the Company have reviewed the status of compliance and confirmed that all the undertakings under the Non-competition Deeds have been complied with by the Controlling Shareholders.

DIRECTORS’ INTEREST IN COMPETING BUSINESS

None of the Directors is or was interested in any business apart from the Group’s business, that competes or competed or is or was likely to compete, either directly or indirectly, with the Group’s business at any time during the year ended 31 December 2015 and up to and including the date of this annual report.

36 Comtec Solar Systems Group Limited

Report of the Directors

MANAGEMENT CONTRACTS

No contracts concerning the management and administration of the whole or any substantial part of the business of the Company were entered into or existed during the year of 2015.

CONNECTED TRANSACTION

The Company has not entered into connected transactions during the year ended 31 December 2015.

CODE ON CORPORATE GOVERNANCE PRACTICES

The Company is committed to the establishment of good corporate governance practices and procedures with a view to being a transparent and responsible organization which is open and accountable to the Shareholders. The Board strives for adhering to the principles of corporate governance and has adopted sound corporate governance practices to meet the legal and commercial standards, focusing on areas such as internal control, fair disclosure and accountability to all Shareholders to ensure the transparency and accountability of all operations of the Company. The Company believes that effective corporate governance is an essential factor to create more value for its Shareholders. The Board will continue to review and improve the corporate governance practices of the Group from time to time to ensure that the Group is led by an effective Board in order to optimize return for Shareholders.

Except for the deviations from code provision A.2.1 of Corporate Governance Code, during the year 31 December 2015, the Company has complied with the Corporate Governance Code. The Group’s principal corporate governance practices are set out on pages 43 to 53 of the annual report.

EQUITY-LINKED AGREEMENTS

Save as disclosed in the sections headed “Share Option Schemes”, as at the end of and during the year ended 31 December 2015, the Company did not enter into (i) any agreement that will or may result in the Company issuing Shares; or (ii) any agreement requiring the Company to enter into any agreement specified in (i).

PERMITTED INDEMNITY PROVISION

Pursuant to Article 164 of the Articles of Association of the Company, the Directors shall be indemnified and secured harmless out of the assets and profits of the Company from and against all actions, costs, charges, losses, damages and expenses which the Directors or any of the Directors shall or may incur or sustain by or by reason of any act done, concurred in or omitted in or about the execution of their duty, or supposed duty, in their respective offices or trusts; and none of the Directors shall be answerable for the acts, receipts, neglects or defaults of the other or others of them or for joining in any receipts for the sake of conformity, or for any bankers or other persons with whom any moneys or effects belonging to the Company shall or may be lodged or deposited for safe custody, or for insufficiency or deficiency of any security upon which any moneys of or belonging to the Company shall be placed out on or invested, or for any other loss, misfortune or damage which may happen in the execution of their respective offices or trusts, or in relation thereto; provided that the indemnity shall not extend to any matter in respect of any fraud or dishonesty which may attach to any of the Directors.

Annual Report 2015 37

Report of the Directors

PRE-EMPTIVE RIGHTS

There are no provisions for pre-emptive rights under the Company’s articles of association or the laws of Cayman Islands where the Company is incorporated applicable to the Company.

PRINCIPAL RISKS AND RISK MANAGEMENT

The Board acknowledges its responsibility for the effectiveness of the internal control and risk management systems of the Group, which are designed to manage the risk of failure to achieve business objectives and provide reasonable assurance against material misstatement or loss.

The principal risks related to the Group are set forth as below:

Business Risk

The Group’s business risks includes rapid change in the market conditions of the solar industry, downturn pressure on the government subsidies to the industry and selling price of solar products. The Board is responsible for the overall management of the business and review of material business decisions involving material risks exposures from time to time.

Financial Risk

The Group adopts financial risk management policies to manage its currency risk, interest rate risk, credit risk and liquidity risk. The Board also reviews monthly management accounts, capital structure and key operating data of the Group.

Compliance Risk

The Board adopts procedures to ensure the Company is in compliance with the applicable laws, rules and regulations. The Company engages professional advisors and consultants to keep the Company abreast of the latest developments in the regulatory environment, including legal, financial, environmental and operational developments. The Company also adopts a strict policy in prohibiting any unauthorized use or dissemination of confidential or inside information.

Operational Risk

The Company adopts procedures to manage its operational risk such as inadequate management efficiency, inefficient raw material procurement and production facilities utilization.

The Board has conducted a review of the effectiveness of the Group’s internal control and risk management systems covering business, financial, compliance and operational risks of the Group and is satisfied that such systems are effective and adequate.

38 Comtec Solar Systems Group Limited

Report of the Directors

EMPLOYEES

Human resources are one of the greatest assets of the Group and the Group regards the personal development of its employees as highly important. The Group wants to continue to be an attractive employer for committed employees. The Group strives to motivate its employees with a clear career path and trainings for advancement and improvement of their skills. The Group has also adopted the Share Option Scheme to recognize and reward the contribution of the employees to the growth and development of the Group.

Emolument Policy

The Group’s emolument policies are based on the merit, qualifications and competence of individual employees and are reviewed by the remuneration committee periodically.

The emoluments of the Directors are recommended by the remuneration committee and are decided by the Board, having regard to the Group’s operating results, individual performance and comparable market statistics. Details of Directors’ remuneration are set out in note 11 to the financial statements.

The Company has adopted two share option schemes to motivate and reward its Directors and eligible employees. Details of the scheme are set out in the paragraph headed “Share Option Schemes” above and note 29 to the consolidated financial statements.

None of the directors waived any emoluments during the year ended 31 December 2015.

Retirement Benefits Schemes

The Group participates in a defined contribution mandatory provident fund scheme (the “MPF Scheme”) established under the Mandatory Provident Fund Schemes Ordinance in December 2000 for eligible employees. Contributions by the Group, which are matched by the employees, are made based on a percentage of the employees’ basic salaries and are charged to the consolidated income statements as they become payable in accordance with the rules of the MPF Scheme. The assets of the MPF Scheme are held separately from those of the Group and are invested in funds under the control of independent trustees. The Group’s employer contributions vest fully with the employees when contributed into the MPF Scheme.

The employees of the PRC subsidiaries are members of the state-managed retirement benefits scheme operated by the PRC government. The PRC subsidiaries are required to contribute certain percentages of basic salaries of the employees to the retirement benefits scheme to fund the benefits. The only obligation of the Group with respect to the retirement benefits scheme is to make the required contributions under the scheme. The contributions are charged to the consolidated income statements as they become payable in accordance with the rules of the statemanaged retirement benefits scheme.

The Group has no other material obligation for the payment of pension benefits beyond the annual contributions described above.

Annual Report 2015 39

Report of the Directors

MAJOR CUSTOMERS AND SUPPLIERS

Aggregate sales attributable to the Group’s largest and five largest customers during the year of 2015 were 39.7% and 63.2% of the Group’s total sales, respectively.

Aggregate purchases attributable to the Group’s largest and five largest suppliers during the year of 2015 were 51.9% and 85.4% of the Group’s total purchases, respectively.

So far as is known to the Directors, at no time during the year did a Director, his/her associate(s) or a Shareholder, which to the knowledge of the Director owns more than 5% of the Company’s share capital) have an interest in any of the Group’s five largest customers and suppliers.

The Group built long term relations with suppliers and customers and the Group treasures the technical and cost competitiveness of each other and provides supports to each other.

The Group has established strong relationships with numerous suppliers of high quality virgin polysilicon feedstock. The Group has an average of approximately twelve years of relationships with the Group’s major suppliers. The Group has been able to rely on these relationships with its suppliers to provide the Group with a stable supply of polysilicon feedstock to meet the current production requirements. The strength of the relationships with long-term suppliers allows the Group to manage the raw materials procurement efficiently.

The Group has also established a number of long-term relationships with key customers in the solar power industry. The Company believes its strong customer base will provide the Group with the critical support necessary for further expanding the Group’s business and ensure that the Group is well-positioned to capture future growth opportunities in the solar power industry.

ENVIRONMENTAL PROTECTION

The Group is specialized in providing energy saving and environmentally-friendly products. In addition, the Group is committed to building an environmentally-friendly corporation that pays close attention to conserving energy.

The Group strives to operate in compliance with the relevant environmental regulations and rules and has instituted various measures to comply with applicable laws and regulations, including measures to monitor and control waste water and waste chemicals. The Group currently has in-house waste water treatment facilities and external waste chemicals processing facilities. The facility maintenance team oversees the Group’s compliance with environmental and waste treatment laws and regulations.

The Company believes that there are no environmental protection laws and regulations which may adversely affect the Group’s production in any material respect, and the Group is currently in compliance in all material aspects with all applicable environmental laws and regulations for the year ended 31 December 2015.

40 Comtec Solar Systems Group Limited

Report of the Directors

COMPLIANCE WITH LAWS AND REGULATIONS

During the year ended 31 December 2015 and up to the date of this report, the Group has complied with the relevant laws and regulations that have a significant impact on the Company.

AUDITOR

Deloitte Touche Tohmatsu will retire and, being eligible, offer themselves for re-appointment. A resolution for their reappointment as auditors of the Company will be proposed at the forthcoming annual general meeting of the Company.

REVIEW OF THE FINANCIAL STATEMENTS

The audit committee of the Company had reviewed together with the management and external auditors the accounting principles and policies adopted by the Group and the audited annual consolidated financial statements for the year ended 31 December 2015.

SUFFICIENCY OF PUBLIC FLOAT

Based on the information that is publicly available to the Company and within the knowledge of the Directors, as at the date of this annual report, the Company has maintained the prescribed public float of not less than 25% of the Company’s issued Shares as required under the Listing Rules for the period from the Listing Date to 31 December 2015.

BANK LOANS AND OTHER BORROWINGS

Particulars of bank loans of the Group as at 31 December 2015 are set out in note 25 to the consolidated financial statements.

BUSINESS REVIEW

The business review of the Group for the year ended 31 December 2015 as set out in the section headed “Management Discussion and Analysis — Business Review” in this annual report is expressly included in this directors’ report and forms part of this directors’ report.

IMPORTANT EVENTS SINCE THE END OF THE FINANCIAL YEAR

Annual Report 2015 41

Report of the Directors

SUMMARY FINANCIAL INFORMATION

A summary of the results and of the assets and liabilities of the Group for the five financial years ended 31 December 2015 is set out on page 140 of this annual report.

On behalf of the Board

John Zhang Chairman

Shanghai, PRC, 31 March 2016

42 Comtec Solar Systems Group Limited

Corporate Governance Report

CORPORATE GOVERNANCE CODE

Except for the following deviations from code provision A.2.1 of the Corporate Governance Code, the Company has complied with the Corporate Governance Code for the year ended 31 December 2015.

Under provision A.2.1 of the Corporate Governance Code, the roles of the chairman and chief executive officer should be separate and should not be performed by the same individual. The Group does not at present separate the roles of the chairman and chief executive officer. Mr. John Zhang is the chairman and chief executive officer of the Group. He has extensive experience in solar wafer industry and is responsible for the overall corporate strategies, planning and business management of the Group. The Board considers that vesting the roles of chairman and chief executive officer in the same individual is beneficial to the business prospects and management of the Group. The balance of power and authorities is ensured by the operation of the Board and the senior management, which comprise experienced and high caliber individuals. The Board currently comprises three executive Directors, one non-executive Director and three independent non-executive Directors and has a strong independence element in its composition.

BOARD OF DIRECTORS

The overall management of the Company’s operation is vested in the Board.

The Board takes overall responsibility to oversee all major matters of the Group, including the formulation and approval of all policy matters, overall strategic development of the Group, monitoring and controlling the Group’s operation and financial performance, internal control and risk management systems, and monitoring of the performance of the senior management. The Directors have to make decisions objectively in the interests of the Company.

The day-to-day management, administration and operation of the Company are delegated to the chief executive officer and the senior management of the Company. The delegated functions and work tasks are periodically reviewed.

Annual Report 2015 43

Corporate Governance Report

The Board comprises seven Directors, consisting of three executive Directors, Mr. John Zhang (the chairman of the Board), Mr. Chau Kwok Keung and Mr. Shi Cheng Qi, one non-executive Director, Mr. Donald Huang and three independent non-executive Directors, Mr. Kang Sun, Mr. Daniel DeWitt Martin and Mr. Leung Ming Shu. All Directors have given sufficient time and attention to the affairs of the Group. Each executive Director is suitably qualified for his position, and has sufficient experience to hold the position so as to carry out his duties effectively and efficiently. Biographical information of the Directors are set out in the section headed “Directors and Senior Management” of this annual report.

To the best knowledge of the Company, there is no other financial, business or family relationship among the members of the Board.

The Company has complied with Rule 3.10(1) of the Listing Rules to appoint at least three independent nonexecutive Directors. In addition, at least one independent non-executive Director possesses appropriate professional accounting qualifications or financial management expertise in accordance with Rule 3.10(2) of the Listing Rules. The Company has appointed three independent non-executive Directors representing more than onethird of the Board and is in compliance with Rule 3.10A of the Listing Rules.

Board Diversity Policy

Pursuant to the new code provisions of the Corporate Governance Code relating to board diversity which has come into effect since 1 September 2013, the Board approved a new board diversity policy (the “Board Diversity Policy”) in August 2013. The Company recognises and embraces the benefits of diversity of Board members. While all Board appointments will continue to be made on a merit basis, the Company will ensure that the Board has a balance of skills, experience and diversity of perspectives appropriate to the needs of the Company’s business. Selection of candidates will be based on a range of diversity perspectives, including but not limited to gender, age, cultural and educational background, experience (professional or otherwise), skills and knowledge.

Model Code

The Company has also adopted the Model Code set out in Appendix 10 of the Listing Rules as its code of conduct regarding securities transactions by the Directors. Having made specific enquiry with all Directors of the Company, all Directors confirmed that they have complied with the required standard set out in the Model Code regarding directors’ securities transactions for the year ended 31 December 2015.

Independent Non-Executive Directors

Independent non-executive Directors have played a significant role in the Board by bringing their independent judgment at the Board meeting and scrutinizing the Group’s performance. Their views carry significant weight in the Board’s decision, in particular, they bring an impartial view to bear on issues of the Group’s strategy, performance and control. All independent non-executive Directors possess extensive academic, professional and industry expertise and management experience and have provided their professional advices to the Board. The independent non-executive Directors provide independent advice on the Group’s business strategy, results and management so that all interests of Shareholders can be taken into account, and the interests of the Company and its Shareholders can be protected.

44 Comtec Solar Systems Group Limited

Corporate Governance Report

The Board has three independent non-executive Directors with one of them, Mr. Leung Ming Shu, possessing appropriate professional accounting qualifications and financial management expertise in compliance with the requirements set out in Rule 3.10(2) of the Listing Rules.

The Company has received annual confirmations of independence from each of the existing independent nonexecutive Directors in accordance with Rule 3.13 of the Listing Rules. Based on the contents of such confirmations, the Company considers that all the independent non-executive Directors are independent and that they have met the specific independence guidelines as set out in Rule 3.13 of the Listing Rules.

Training and Support for Directors

All Directors must keep abreast of their collective responsibilities. Any newly appointed Director would receive an induction package covering the Group’s operations, businesses, governance policies and the statutory regulatory obligations and responsibilities of a director of a listed company. The Directors have been informed of the requirement under code provision A.6.5 of the Corporate Governance Code regarding continuous professional development. According to the records maintained by the Company, the current Directors received the following training with an emphasis on the roles, functions and duties of a director of a listed company in compliance with the new requirement of the New Code on continuous professional development for the year ended 31 December 2015:

	Corporate Governance/	Corporate Governance/	Accounting/Financial/	Accounting/Financial/
	Updates on Laws,		Management	or
	Rules and	Regulations	Other Professional Skills
		Attend		Attend
	Read	Seminars/	Read	Seminars/
Name of Director	materials	Briefings	materials	Briefings
Executive Directors
Mr. John Zhang	3	3	3	3
Mr. Chau Kwok Keung	3	3	3	3
Mr. Shi Cheng Qi	3	3	3	3
Non-executive Director
Mr. Donald Huang	3	3	3	3
Independent non-executive Directors
Mr. Daniel DeWitt Martin	3	3	3	3
Mr. Kang Sun	3	3	3	3
Mr. Leung Ming Shu	3	3	3	3

Annual Report 2015 45

Corporate Governance Report

Directors’ and Officers’ Insurance

The Company has arranged appropriate insurance cover in respect of potential legal actions against its Directors and officers.

Meetings

The Board meets to discuss the overall strategy as well as the operation and financial performance of the Group from time to time. Directors may participate either in person or through electronic means of communications.

The individual attendance record of each Director at the meetings of the Board and the general meetings during the year ended 31 December 2015 is set out below:

	Attendance/	Attendance/
	Number of	Number of
	Board	General
Name of Director	Meeting(s)	Meeting(s)
Executive Directors
Mr. John Zhang_(Chairman and chief executive officer)_	10/10	2/2
Mr. Chau Kwok Keung	10/10	2/2
Mr. Shi Cheng Qi	10/10	2/2
Non-executive Director
Mr. Donald Huang	10/10	2/2
Independent non-executive Directors
Mr. Kang Sun	10/10	2/2
Mr. Daniel DeWitt Martin	10/10	2/2
Mr. Leung Ming Shu	10/10	2/2

All Directors are provided with relevant materials relating to the matters brought before the meetings. They have separate and independent access to the senior management and the company secretary of the Company at all time and may seek independent professional advice at the Company’s expense. Where queries are raised by Directors, steps would be taken to respond as promptly and fully as possible. All Directors have the opportunity to include matters in the agenda for Board meetings. Notices of at least 14 days of Board meetings are given to the Directors and Board procedures comply with the articles of association of the Company, as well as relevant rules and regulations.

46 Comtec Solar Systems Group Limited

Corporate Governance Report

Appointments, Re-election and removal of Directors

The above service contracts are subject to retirement by rotation and re-election at an annual general meeting at least once every three years in accordance with the articles of association of the Company.

The articles of association of the Company provide that any Director appointed by the Board to fill a casual vacancy in the Board shall hold office until the first general meeting of the Company after his/her appointment and be subject to re-election at such meeting, and any Director appointed by the Board as an addition to the existing Board shall hold office only until the next following annual general meeting of the Company and shall then be eligible for reelection.

Board Committees

The Board has established (i) audit committee, (ii) remuneration committee; (iii) nomination committee and (iv) corporate governance committee, with defined terms of reference. The terms of reference of the board committees which explain their respective role and the authority delegated to them by the Board are available on the website of the Company at www.comtecsolar.com and the website of the Stock Exchange at www.hkexnews.hk. The board committees are provided with sufficient resources to discharge their duties and, upon reasonable request, are able to seek independent professional advice and other assistance in appropriate circumstances, at the Company’s expenses.

Annual Report 2015 47

Corporate Governance Report

Audit Committee

The Company established an audit committee pursuant to a resolution of the Directors passed on 2 October 2009. The primary duties of the audit committee are to make recommendation to the Board on the appointment and removal of external auditors, review the financial statements and material advice in respect of financial reporting, and oversee the risk management and internal control systems of the Company. Their composition and written terms of reference are in line with the Corporate Governance Code. The audit committee comprises of four members, namely, a non-executive Director, Mr. Donald Huang and three independent non-executive Directors, Mr. Leung Ming Shu, Mr. Daniel DeWitt Martin and Mr. Kang Sun. Mr. Leung Ming Shu is the chairman of the audit committee.

The Group’s unaudited financial data for the three months ended 31 March 2015, unaudited interim results for the six months ended 30 June 2015, unaudited financial data for the three months ended 30 September 2015 and the audited annual results for the year ended 31 December 2015 have been reviewed by the audit committee, which was of the opinion that the preparation of the relevant financial statements complied with the applicable accounting standards and requirements and that adequate disclosure has been made. The audit committee has also reviewed the accounting principles and practices adopted by the Group, and selection and appointment of the external auditors. In addition, the audit committee reviewed the unaudited quarterly financials and the internal control of the Group during the year of 2015.

On 25 November 2015, the terms of reference of the audit committee were amended to cover the oversee of the risk management system of the Group.

During the year ended 31 December 2015, four meetings were held by the audit committee. The individual record of each member of the audit committee at the meetings of the audit committee is set out below:

	Attendance/
	Number of
	Committee
Name of Director	Meeting(s)
Mr. Donald Huang	4/4
Mr. Daniel DeWitt Martin	4/4
Mr. Kang Sun	4/4
Mr. Leung Ming Shu	4/4

48 Comtec Solar Systems Group Limited

Corporate Governance Report

Remuneration Committee

The Company established a remuneration committee on 2 October 2009 with written terms of reference. The primary duties of the remuneration committee to make recommendations to the Board on the remuneration packages of all executive Directors and senior management, including benefits in kind, pension rights and compensation payments (including any compensation payable for loss or termination of their office or appointment), and make recommendations to the Board on the remuneration of non-executive Directors. Their composition and written terms of reference are in line with the CG Code. The remuneration committee comprises of five members, namely, Mr. John Zhang, an executive Director, Mr. Donald Huang, a non-executive Director, and three independent nonexecutive Directors, Mr. Daniel DeWitt Martin, Mr. Kang Sun, and Mr. Leung Ming Shu. Mr. Leung Ming Shu is the chairman of the remuneration committee.

During the year ended 31 December 2015, the remuneration Committee reviewed the remuneration packages of the Directors and the senior management.

During the year ended 31 December 2015, three meetings were held by the remuneration committee. The individual record of each member of the remuneration committee at the meeting of the remuneration committee is set out below:

	Attendance/
	Number of
	Committee
Name of Director	Meeting(s)
Mr. John Zhang	3/3
Mr. Donald Huang	3/3
Mr. Daniel DeWitt Martin	3/3
Mr. Kang Sun	3/3
Mr. Leung Ming Shu	3/3

Nomination Committee

The Company established a nomination committee on 2 October 2009 with written terms of reference. The primary duties of the nomination committee are to review the structure, size and composition of the Board on a regular basis and to recommend to the Board the suitable candidates for directors after consideration of the nominees’ independence and quality in order to ensure the fairness and transparency of all nominations. In identifying suitable director candidates and making such recommendations to the Board, the nomination committee would also take into account various aspects of a candidate, including but not limited to his/her education background, professional experience, experience with the relevant industry and past directorships. Their composition and written terms of reference are in line with the CG Code. The nomination committee comprises of five members, namely, Mr. John Zhang, an executive Director and the chairman of the Board, Mr. Donald Huang, a non-executive Director, and three independent non-executive Directors, Mr. Daniel DeWitt Martin, Mr. Kang Sun, and Mr. Leung Ming Shu. Mr. John Zhang is the chairman of the nomination committee.

Annual Report 2015 49

Corporate Governance Report

The nomination committee reviewed the structure, size and composition of the Board, during the year of 2015.

During the year ended 31 December 2015, one meeting was held by the nomination committee. The individual record of each member of the nomination committee at the meeting of the nomination committee is set out below:

	Attendance/
	Number of
	Committee
Name of Director	Meeting(s)
Mr. John Zhang	1/1
Mr. Donald Huang	1/1
Mr. Daniel DeWitt Martin	1/1
Mr. Kang Sun	1/1
Mr. Leung Ming Shu	1/1

Corporate Governance Committee

The Company’s corporate governance function is carried out by the corporate governance committee established pursuant to a resolution of the Board passed on 30 March 2012. The duties of the corporate governance committee include: (a) to develop and review the Company’s policies and practices on corporate governance and make recommendations to the Board; (b) to review and monitor the training and continuous professional development of the Directors and senior management of the Group; (c) to review and monitor the Company’s policies and practices on compliance with legal and regulatory requirements; (d) to develop, review and monitor the code of conduct and compliance manual (if any) applicable to employees of the Group and the Directors; and (e) to review the Company’s compliance with the CG Code and disclosure in the corporate governance report. The corporate governance committee of the Board comprises four Directors, namely Mr. John Zhang, an executive Director, Mr. Chau Kwok Keung, an executive Director, Mr. Donald Huang, a non-executive Director, and Mr. Leung Ming Shu, an independent non-executive Director. Mr. John Zhang is the Chairman of the corporate governance committee.

During the year of 2015, the corporate governance committee reviewed the Company’s policies and practices on corporate governance and; reviewed the training and continuous professional development of the Directors and senior management of the Group; reviewed and monitored the Company’s policies and practices on compliance with legal and regulatory requirements; reviewed the compliance manual applicable to employees of the Group and the Directors; and reviewed the Company’s compliance with the Corporate Governance Code and disclosure in the corporate governance report.

50 Comtec Solar Systems Group Limited

Corporate Governance Report

During the year ended 31 December 2015, two meetings were held by the corporate governance committee. The individual record of each member of the corporate governance committee at the meeting of the corporate governance committee is set out below:

	Attendance/
	Number of
	Committee
Name of Director	Meeting(s)
Mr. John Zhang	2/2
Mr. Chau Kwok Keung	2/2
Mr. Donald Huang	2/2
Mr. Leung Ming Shu	2/2

Company Secretary

The secretary of the Company is Mr. Chau Kwok Keung, whose biography details are set out in the section headed “Directors and Senior Management” in this annual report. Mr. Chau Kwok Keung has been informed of the requirement of the Rule 3.29 of the Listing Rules. Mr. Chau Kwok Keung has informed the Company that he took approximately 20 hours of training covering corporate governance and accounting matters. The Company considers that the training of the company secretary is in compliance with the requirements under Rule 3.29 of the Listing Rules.

FINANCIAL REPORTING

The Board, supported by the chief financial officer and the finance department, is responsible for the preparation of the financial statements of the Company and the Group for each financial year which shall give a true and fair view of the financial position, performance and cash flow of the Company and its subsidiaries for that period. The Board is not aware of any material uncertainties relating to events or conditions that may cast significant doubt upon the Group’s ability to continue as a going concern.

The responsibilities of Deloitte Touche Tohmatsu, the Company’s external auditors, on the financial statements are set out in the section headed “Independent Auditors’ Report” in this annual report.

Annual Report 2015 51

Corporate Governance Report

Auditor’s Remuneration

The audit committee of the Board is responsible for making recommendation to the Board on the appointment, reappointment and removal of the authorized external auditors and to approve the remuneration and terms of engagement of the external auditors, and any questions of resignation or dismissal of the external auditors. The Company engages Deloitte Touche Tohmatsu as its external auditors. Details of the fees paid/payable to Deloitte Touche Tohmatsu during the year ended 31 December 2015 are as follows.

Audit services Non-audit services	RMB’000 1,200 600
	1,800

Note: The non-audit services mainly covered interim review.

INTERNAL CONTROLS

The Board acknowledges its responsibility to ensure that sound and effective internal control systems are maintained so as to safeguard the Group’s assets and the interest of Shareholders. The Board has developed its systems of internal control and risk management and is also responsible for reviewing and maintaining an adequate internal control system to safeguard the interests of the shareholders and the assets of the Company.

During the year of 2015, the Board has conducted reviews of the internal control system of the Company and considered the internal control system of the Company has implemented effectively. Such review covered financial, compliance and operational controls as well as risk management mechanisms.

SHAREHOLDERS’ RIGHTS

Procedures for shareholders to convene an extraordinary general meeting and putting forward proposals at shareholders’ meeting

Pursuant to the Article 58 of the articles of association of the Company, any one or more member(s) of the Company (“Shareholder(s)”) holding at the date of deposit of the requisition not less than one-tenth of the paid up capital of the Company carrying the right of voting at general meetings of the Company shall at all times have the right, by written requisition to the Board or the company secretary of the Company by mail at Suite 28, 35/F, Central Plaza, 18 Harbour Road, Wanchai, Hong Kong, to require an extraordinary general meeting to be called by the Board for the transaction of any business specified in such requisition; and such meeting shall be held within two months after the deposit of such requisition. If within 21 days of such deposit the Board fails to proceed to convene such meeting the requisitionist(s) himself (themselves) may do so in the same manner, and all reasonable expenses incurred by the requisitionist(s) as a result of the failure of the Board shall be reimbursed to the requisitionist(s) by the Company.

52 Comtec Solar Systems Group Limited

Corporate Governance Report

Procedures by which enquiries may be put to the Board

Shareholders may send their enquiries and concerns to the Board by addressing them to the secretary of the Company by mail at Suite 28, 35/F, Central Plaza, 18 Harbour Road, Wanchai, Hong Kong or by email at catherine_ [email protected]. The company secretary of the Company is responsible for forwarding communications relating to matters within the Board’s direct responsibilities to the Board and communications relating to ordinary business matters, such as suggestions and inquiries, to the chief executive officer of the Company.

Constitutional documents

There has been no significant change in the Company’s constitutional documents during the year ended 31 December 2015.

Communications with Shareholders

The Board recognizes the importance of maintaining clear, timely and effective communication with Shareholders of the Company and investors. Therefore, the Group is committed to maintaining a high degree of transparency to ensure the investors and the shareholders of the Company receiving accurate, clear, comprehensive and timely information of the Group by the publication of annual reports, announcements and circular. The Company also publishes all corporate correspondence on the Company’s website www.comtecsolar.com. The Board maintains regular dialogues with institutional investors and analysts from time to time to keep them informed of the Group’s strategy, operations, management and plans. Members of the Board and of the various board committees will attend the annual general meeting of the Company and answer questions raised during the meeting. Separate resolutions would be proposed at the general meeting on each substantially separate issue.

The chairman of the general meetings of the Company would explain the procedures for conducting poll before putting a resolution to vote. The results of the voting by poll will be declared at the meeting and published on the websites of the Stock Exchange and the Company respectively.

Annual Report 2015 53

Independent Auditor’s Report

==> picture [136 x 65] intentionally omitted <==

TO THE MEMBERS OF COMTEC SOLAR SYSTEMS GROUP LIMITED

(Incorporated in the Cayman Islands with limited liability)

We have audited the consolidated financial statements of Comtec Solar Systems Group Limited and its subsidiaries (collectively referred to as the “Group”) set out on pages 56 to 139, which comprise the consolidated statement of financial position as at 31 December 2015 and the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.

MANAGEMENT’S RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL STATEMENTS

Management of the Company is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards and the disclosure requirements of the Hong Kong Companies Ordinance, and for such internal control as management of the Company determines is necessary to enable the preparation of the consolidated financial statements that are free from material misstatement, whether due to fraud or error.

AUDITOR’S RESPONSIBILITY

Our responsibility is to express an opinion on these consolidated financial statements based on our audit and to report our opinion solely to you, as a body, in accordance with our agreed terms of engagement, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. We conducted our audit in accordance with the International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement.

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

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

54 Comtec Solar Systems Group Limited

Independent Auditor’s Report

OPINION

In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Group as at 31 December 2015, and of its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards and have been properly prepared in compliance with the disclosure requirements of the Hong Kong Companies Ordinance.

Deloitte Touche Tohmatsu

Certified Public Accountants

Hong Kong

31 March 2016

Annual Report 2015 55

Consolidated Statement of Profit or Loss and Other Comprehensive Income

for the year ended 31 December 2015

NOTES Revenue 6 Cost of sales Gross (loss) profit Other income 7 Other gains and losses, expenses and provision 8 Distribution and selling expenses Administrative expenses Finance costs 9 Loss before taxation 10 Taxation 12 Loss and total comprehensive expense for the year, attributable to the owners of the Company Loss per share 14 — Basic — Diluted	2015 2014 RMB’000 RMB’000 1,091,200 906,620 (1,185,615) (846,594) (94,415) 60,026 9,508 8,358 (200,334) (63,612) (20,199) (15,882) (114,893) (67,301) (14,762) (11,910) (435,095) (90,321) 381 (170) (434,714) (90,491) RMB cents RMB cents (31.23) (6.58) (31.23) (6.58)

56 Comtec Solar Systems Group Limited

Consolidated Statement of Financial Position

at 31 December 2015

NOTES Non-current assets Property, plant and equipment 15 Prepaid lease payments-non-current 16 Prepaid assignment fee-non-current 35 Deposits paid for acquisition of property, plant and equipment Advance to suppliers 17 Deferred tax assets 18 Current assets Inventories 19 Trade and other receivables 20 Bills receivable 20 Advance to suppliers 17 Prepaid lease payments-current 16 Prepaid assignment fee-current 35 Pledged bank deposits 21(A) Bank balances and cash 21(B) Assets classified as held for sale 22 Current liabilities Trade and other payables 23 Customers’ deposits received 24 Short-term bank loans 25 Tax liabilities Deferred revenue 27 Liabilities associated with assets classified as held for sale 22 Net current (liabilities) assets Total assets less current liabilities	2015 2014 RMB’000 RMB’000 1,018,072 1,071,163 26,179 27,175 – 145,225 31,370 37,004 108,256 71,449 – 638
	1,183,877 1,352,654
	263,645 537,815 251,832 231,565 6,971 15,964 2,920 48,926 600 600 175,546 52,067 171,084 171,188 49,715 52,123
	922,313 1,110,248 19,129 21,776
	941,442 1,132,024
	286,048 207,281 178,676 57,285 509,793 524,113 400 275 287 287
	975,204 789,241 – 11
	975,204 789,252
	(33,762) 342,772
	1,150,115 1,695,426

Annual Report 2015 57

Consolidated Statement of Financial Position

at 31 December 2015

NOTES Capital and reserves Share capital 28 Reserves Total equity Non-current liabilities Deferred tax liabilities 18 Customers’ deposits received-non-current 35 Long-term bank loans 25 Provision for onerous contracts 17 Warrants 26 Deferred revenue 27	2015 2014 RMB’000 RMB’000 1,205 1,205 1,135,707 1,513,310
	1,136,912 1,514,515
	8,620 9,568 – 145,225 – 3,072 – 7,576 – 10,600 4,583 4,870
	13,203 180,911
	1,150,115 1,695,426

The consolidated financial statements on pages 56 to 139 were approved and authorised for issue by the Board of Directors on 31 March 2016 and are signed on its behalf by:

DIRECTOR

58 Comtec Solar Systems Group Limited

Consolidated Statement of Changes in Equity

for the year ended 31 December 2015

At 1 January 2014
Loss and total comprehensive
expense for the year
Issue of ordinary shares
Transaction costs attributable
to issue of shares
Recognition of equity-settled
share-based payments
Exercise of share options
At 31 December 2014
Loss and total comprehensive
expense for the year
Recognition of equity-settled
share-based payments
Exercise of share options
At 31 December 2015

Share
Statutory
Share
Share
options
Special
surplus
Retained
capital
premium
reserve
reserve
reserve
earnings
Total
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
(note a)
(note b)
1,157 1,254,225
11,739
11,012
84,583
162,097 1,524,813
–
–
–
–
–
(90,491)
(90,491)
47
62,126
–
–
–
–
62,173
–
(192)
–
–
–
–
(192)
–
–
17,670
–
–
–
17,670
1
809
(268)
–
–
–
542
1,205 1,316,968
29,141
11,012
84,583
71,606 1,514,515
–
–
–
–
–
(434,714) (434,714)
–
–
57,087
–
–
–
57,087
–
35
(11)
–
–
–
24
1,205 1,317,003
86,217
11,012
84,583
(363,108)1,136,912

Notes:

a. Special reserve

This reserve arises on a group reorganisation which took place in the year ended 31 December 2007. The difference between the nominal value of the shares acquired and the acquisition consideration arising on the group reorganisation is recorded in special reserve.

b. Statutory surplus reserve

In accordance with the relevant laws and regulations for foreign investment enterprises in The People’s Republic of China (the “PRC”), the PRC subsidiaries are required to transfer 10% of their profit after taxation reported in their statutory financial statements prepared under the PRC GAAP to the statutory surplus reserve. Allocation shall be approved by the shareholders. The appropriation to statutory surplus reserve may cease if the balance of the statutory surplus reserve has reached 50% of the PRC subsidiaries’ registered capital.

The PRC subsidiaries may, upon the approval by a resolution, convert their surplus reserves into capital in proportion to their then existing shareholdings. However, when converting the PRC subsidiaries’ statutory surplus reserve fund into capital, the balance of such reserve remaining unconverted must not be less than 25% of the registered capital.

Annual Report 2015 59

Consolidated Statement of Cash Flows

for the year ended 31 December 2015

Operating activities
Loss before taxation
Adjustments for:
Allowance for inventories
Interest income
Interest expenses
Loss on disposal of property, plant and equipment
Impairment loss (reversed) recognised in respect to prepaid assignment fee
Other losses
Gain on fair value change of 2012 Warrants
Depreciation of property, plant and equipment
Share-based payment expenses
Impairment losses recognised in respect of advance to suppliers
Utilisation of allowance for advance to suppliers
Release of prepaid lease payments
Release of deferred revenue
Gain on fair value changes of other financial instruments
Operating cash flows before movements in working capital
Decrease (increase) in inventories
(Increase) decrease in trade and other receivables
Decrease in bills receivable
Decrease in advance to suppliers
Decrease in prepaid assignment fee
Increase (decrease) in trade and other payables
Decrease in customers’ deposits received
Cash generated (used in) from operations
Tax paid
Tax refunded
Net cash from (used in) operating activities

2015
2014
RMB’000
RMB’000
(435,095)
(90,321)
112,667
11,178
(5,731)
(6,491)
14,762
11,910
35,617
733
(5,190)
5,190
5,990
2,195
(10,600)
(35,100)
74,178
79,862
57,087
17,670
152,758
82,929
(239,165)
(73,869)
996
925
(287)
(287)
–
(500)
(242,013)
6,024
161,503
(165,367)
(23,610)
54,673
8,993
47,448
88,030
79,748
26,936
10,909
86,258
(153,621)
(23,834)
(14,659)
82,263
(134,845)
–
(164)
196
–
82,459
(135,009)

60 Comtec Solar Systems Group Limited

Consolidated Statement of Cash Flows

for the year ended 31 December 2015

Investing activities
Interest received
Proceeds from disposal of other financial assets
Proceeds from disposals of property, plant and equipment
Proceeds from disposal of held-to-maturity investments
Placement of pledged bank deposits
Withdrawal of pledge bank deposits
Deposits paid and purchase of property, plant and equipment
Purchase of property, plant and equipment
Net cash used in investing activities
Financing activities
Proceeds from issue of new shares
Expenses on issue of shares
Bank loans raised
Interest paid
Repayment of bank loans
Net cash (used in) from financing activities
Decrease in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Cash and cash equivalents at end of the year,
represented by bank balances and cash

2015
2014
RMB’000
RMB’000
5,731
6,491
–
39,173
13,868
190
–
14,054
(171,084)
(171,188)
171,188
1,019
(31,370)
(37,004)
(41,070)
(132,922)
(52,737)
(280,187)
59
62,715
(35)
(192)
588,800
771,262
(14,762)
(11,910)
(606,192)
(688,034)
(32,130)
133,841
(2,408)
(281,355)
52,123
333,478
49,715
52,123

Annual Report 2015 61

Notes to the Consolidated Financial Statements

for the year ended 31 December 2015

1. GENERAL

The Company is a public limited company incorporated in the Cayman Island, and its shares are listed on the Main Board of The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) on 30 October 2009. Its parent company and ultimate holding company is Fonty Holdings Limited (“Fonty”) incorporated in the British Virgin Islands with limited liability. Its ultimate controlling party is Mr. John Zhang (“Mr. Zhang”) who is the Chief Executive and director of the Company. The addresses of the registered office and principal place of business of the Company are disclosed in the annual report.

The Company is an investment holding company. The principal activities of the Company’s subsidiaries are the manufacturing and sales of solar wafers and related products and provision of processing services for the solar products. The details of the Company’s subsidiaries are set out in note 36.

The consolidated financial statements are presented in Renminbi (“RMB”), the functional currency of the Company.

2. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRSs”)

The Group has not early applied the following new and revised IFRSs that have been issued but are not yet effective:

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

62 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2015

2. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRSs”) (continued)

1 Effective for annual periods beginning on or after 1 January 2018
2 Effective for first annual IFRS financial statements beginning on or after 1 January 2016
3 Effective for annual periods beginning on or after 1 January 2019
4 Effective for annual periods beginning on or after 1 January 2016
5 Effective for annual periods beginning on or after a date to be determined
6 Effective for annual periods beginning on or after 1 January 2017

IFRS 9 Financial Instruments

IFRS 9 issued in 2009 introduced new requirements for the classification and measurement of financial assets. IFRS 9 was subsequently amended in 2010 to include requirements for the classification and measurement of financial liabilities and for derecognition, and further amended in 2013 to include the new requirements for general hedge accounting. Another revised version of IFRS 9 was issued in 2014 mainly to include a) impairment requirements for financial assets and b) limited amendments to the classification and measurement requirements by introducing a ‘fair value through other comprehensive income’ (FVTOCI) measurement category for certain simple debt instruments.

Key requirements of IFRS 9 are described as follows:

All recognised financial assets that are within the scope of IAS 39 Financial Instruments: Recognition and Measurement are subsequently measured at amortised cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortised cost at the end of subsequent accounting periods. Debt instruments that are held within a business model whose objective is achieved both by collecting contractual cash flows and selling financial assets, and that have contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding, are measured at FVTOCI. All other debt investments and equity investments are measured at their fair value at the end of subsequent accounting periods. In addition, under IFRS 9, entities may make an irrevocable election to present subsequent changes in the fair value of an equity investment (that is not held for trading) in other comprehensive income, with only dividend income generally recognised in profit or loss.
With regard to the measurement of financial liabilities designated as at fair value through profit or loss, IFRS 9 requires that the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability is presented in other comprehensive income, unless the recognition of the effects of changes in the liability’s credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. Changes in fair value of financial liabilities attributable to changes in the financial liabilities’ credit risk are not subsequently reclassified to profit or loss. Under IAS 39, the entire amount of the change in the fair value of the financial liability designated as fair value through profit or loss was presented in profit or loss.

Annual Report 2015 63

Notes to the Consolidated Financial Statements

for the year ended 31 December 2015

2. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRSs”) (continued)

IFRS 9 Financial Instruments (continued)

Key requirements of IFRS 9 are described as follows: (continued)

In relation to the impairment of financial assets, IFRS 9 requires an expected credit loss model, as opposed to an incurred credit loss model under IAS 39. The expected credit loss model requires an entity to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition. In other words, it is no longer necessary for a credit event to have occurred before credit losses are recognised.
The new general hedge accounting requirements retain the three types of hedge accounting. However, greater flexibility has been introduced to the types of transactions eligible for hedge accounting, specifically broadening the types of instruments that qualify for hedging instruments and the types of risk components of non-financial items that are eligible for hedge accounting. In addition, the effectiveness test has been overhauled and replaced with the principle of an ‘economic relationship’. Retrospective assessment of hedge effectiveness is also no longer required. Enhanced disclosure requirements about an entity’s risk management activities have also been introduced.

The directors of the Company (the “Directors”) anticipate that the adoption of IFRS 9 will have a material effect on the Group’s consolidated financial statements.

IFRS 15 Revenue from Contracts with Customers

IFRS 15 was issued which establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. IFRS 15 will supersede the current recognition guidance including IAS 18 Revenue , IAS 11 Construction Contracts and the related interpretations when it becomes effective.

The core principle of IFRS 15 is that an entity should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Specifically, the Standard introduces a 5-step approach to revenue recognition:

Step 1: Identify the contract(s) with a customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations in the contract
Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation

64 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2015

2. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRSs”) (continued)

IFRS 15 Revenue from Contracts with Customers (continued)

Under IFRS 15, an entity recognises revenue when (or as) a performance obligation is satisfied, i.e. when ‘control’ of the goods or services underlying the particular performance obligation is transferred to the customer. Far more prescriptive guidance has been added in IFRS 15 to deal with specific scenarios. Furthermore, extensive disclosures are required by IFRS 15.

The Directors are in the process of evaluating the financial impact on IFRS 15, which may have an impact on the amounts reported and disclosures made in the Group’s consolidated financial statements. However, it is not practicable to provide a reasonable estimate of the effect of IFRS 15 until the Group performs a detailed review.

Amendments to IAS 1 Disclosure Initiative

The amendments to IAS 1 Presentation of Financial Statements give some guidance on how to apply the concept of materiality in practice.

The amendments to IAS 1 are effective for annual periods beginning on or after 1 January 2016. The Directors do not anticipate that the application of these amendments to IAS 1 will have a material impact on the amounts recognised in the Group’s consolidated financial statements.

Annual Improvements to IFRSs 2012–2014 Cycle

The Annual Improvements to IFRSs 2012–2014 Cycle include a number of amendments to various IFRSs, which are summarised below.

The amendments to IFRS 5 introduce specific guidance in IFRS 5 for when an entity reclassifies an asset (or a disposal group) from held for sale to held for distribution to owners (or vice versa). The amendments clarify that such a change should be considered as a continuation of the original plan of disposal and hence requirements set out in IFRS 5 regarding the change of sale plan do not apply. The amendments also clarify the guidance for when held-for-distribution accounting is discontinued.

The amendments to IFRS 7 provide additional guidance to clarify whether a servicing contract is continuing involvement in a transferred asset for the purpose of the disclosures required in relation to transferred assets.

The amendments to IAS 19 clarify that the rate used to discount post-employment benefit obligations should be determined by reference to market yields at the end of the reporting period on high quality corporate bonds. The assessment of the depth of a market for high qualify corporate bonds should be at the currency level (i.e. the same currency as the benefits are to be paid). For currencies for which there is no deep market in such high quality corporate bonds, the market yields at the end of the reporting period on government bonds denominated in that currency should be used instead.

The Directors do not anticipate that the application of these amendments will have a material effect on the amounts recognised in the Group’s consolidated financial statements.

Annual Report 2015 65

Notes to the Consolidated Financial Statements

for the year ended 31 December 2015

3. SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The Group experienced a net loss of RMB435 million in the year ended 31 December 2015 and had a working capital deficit (total consolidated current liabilities exceeded total consolidated current assets) of RMB34 million although a net assets of RMB1,137 million are maintained as of that date. These factors initially raised doubt as to the Group’s ability to continue as a going concern. However, the Group has developed and implemented the following liquidity plan:

While there can be no assurance that the Group will be able to refinance its short-term bank loans as they become due, historically, the Group has rolled over or obtained replacement borrowings from existing credit for most of its short-term bank loans upon the maturity date of the loans. The Group has assumed it will continue to be able to do so for the foreseeable future.
In early 2016, the Company had secured approximately HK$611 million of additional capital by way of issuing 928 million of new shares in the Company to new investors (see note 37), and
The Group is adopting strict control of operating and investing activities.

Based on the business forecast, secured additional capital, refinanced short-term bank loans and the liquidity plan, the accompanying consolidated financial statements have been prepared assuming the Group will continue as a going concern.

Statement of compliance

The consolidated financial statements have been prepared in accordance with the following accounting policies which conform to IFRSs issued by IASB. In addition, the consolidated financial statements include applicable disclosures required by the Rules Governing the Listing of Securities on the Hong Kong Stock Exchange of Hong Kong Limited (“Listing Rules”) and by the Hong Kong Companies Ordinance (“CO”).

The provisions of the new Hong Kong Companies Ordinance (Cap 622) regarding preparation of accounts and directors’ reports and audits because effective for the Company for the financial year ended 31 December 2015. Further, the disclosure requirements set out in the Listing Rules regarding annual account have been amended with reference to the new CO and to streamline with HKFRSs. According the presentation and disclosure of information in the consolidated financial statements for the financial year ended 31 December 2015 have been changed to comply with these new requirements. Comparative information in respect of the financial year ended 31 December 2014 are presented or disclosed in the consolidated financial statements based on the new requirements. Information previously required to be disclosed under the predecessor CO or Listing Rules but not under the new CO or amended Listing Rules are not disclosed in these consolidated financial statements.

66 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2015

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Basis of preparation

The consolidated financial statements have been prepared on the historical cost basis except for certain properties and financial instruments that are measured at revalued amounts or fair values at the end of each reporting period, as explained in the accounting policies below.

Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these consolidated financial statements is determined on such a basis, except for share-based payment transactions that are within the scope of IFRS 2, leasing transactions that are within the scope of IAS 17, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in IAS 2 or value in use in IAS 36.

In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;
Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and
Level 3 inputs are unobservable inputs for the asset or liability.

The significant accounting policies are set out below.

Annual Report 2015 67

Notes to the Consolidated Financial Statements

for the year ended 31 December 2015

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company and its subsidiaries. Control is achieved when the Company:

has power over the investee;
is exposed, or has rights, to variable returns from its involvement with the investee; and
has the ability to use its power to affect its returns.

The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.

When the Company has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The Company considers all relevant facts and circumstances in assessing whether or not the Company’s voting rights in an investee are sufficient to give it power, including:

the size of the Company’s holding of voting rights relative to the size and dispersion of holdings of the other vote holders;
potential voting rights held by the Company, other vote holders or other parties;
rights arising from other contractual arrangements; and
any additional facts and circumstances that indicate that the Company has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders’ meetings.

Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of profit or loss and other comprehensive income from the date the Group gains control until the date when the Group ceases to control the subsidiary.

Profit or loss and each item of other comprehensive income are attributed to the owners of the Company and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

68 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2015

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Basis of consolidation (continued)

When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies.

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

Revenue recognition

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

Revenue from the sale of goods is recognised when the goods are delivered and titles have passed, at which time all the following conditions are satisfied:

The Group has transferred to the buyer the significant risks and rewards of ownership of the goods;
The Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;
The amount of revenue can be measured reliably;
It is probable that the economic benefits associated with the transaction will flow to the Group; and
costs incurred or to be incurred in respect of the transaction can be measured reliably.

Revenue from provision of service is recognised when service is provided.

Deposits received from customers prior to meeting the above criteria on revenue recognition are included in the consolidated statement of financial position under current liabilities.

Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably. Interest income from a financial asset is accrued on a time basis, by reference to the principal outstanding and at the effective interest applicable, which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount on initial recognition.

Annual Report 2015 69

Notes to the Consolidated Financial Statements

for the year ended 31 December 2015

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Property, plant and equipment

Property, plant and equipment including buildings held for use in the production or supply of goods and services, or administrative purposes (other than construction in progress) are stated in consolidated statement of financial position at cost less subsequent accumulated depreciation and accumulated impairment losses, if any.

Depreciation is recognised to write off the cost of items of property, plant and equipment other than construction in progress over their estimated useful lives and after taking into account of their estimated residual values, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

Properties in the course of construction for production, supply or administrative purposes are carried at cost, less any recognised impairment loss. Costs include professional fees and, for qualifying assets, borrowing costs capitalised in accordance with the Group’s accounting policy. Such properties are classified to the appropriate categories of property, plant and equipment when completed and ready for intended use. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss.

Leasing

Leases are classified as finance leases wherever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

The Group as lessee

Operating lease payments are recognised as an expense on a straight-line basis over the term of the relevant lease, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.

Prepaid lease payments

Upfront prepayments made for the land use rights and leasehold land are initially recognised in the consolidated statement of financial position as lease payments and are expensed in the consolidated statement of profit or loss and other comprehensive income on a straight-line basis over the periods of the respective lease.

70 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2015

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Non-current assets held for sale

Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the non-current asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification.

When the Group is committed to a sale plan involving loss of control of a subsidiary, all of the assets and liabilities of that subsidiary are classified as held for sale when the criteria described above are met, regardless of whether the Group will retain a non-controlling interest in its former subsidiary after the sale.

Non-current assets (and disposal groups) classified as held for sale are measured at the lower of their previous carrying amount and fair value less costs to sell.

Government grants

Government grants are not recognised until there is reasonable assurance that the Group will comply with the conditions attaching to them and that the grants will be received.

Government grants are recognised in profit or loss on a systematic basis over the periods in which the Group recognises as expenses the related costs for which the grants are intended to compensate. Specifically, government grants whose primary condition is that the Group would purchase, construct or otherwise acquire non-current assets are recognised as deferred revenue in the consolidated statement of financial position and transferred to profit or loss on a systematic and rational basis over the useful lives of the related assets. Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the Group with no future related costs are recognised in profit or loss in the period in which they become receivable.

Foreign currencies

In preparing the financial statements of each individual group entity, transactions in currencies other than the entity’s functional currency (foreign currency) are recorded in the respective functional currency (ies) (i.e. the currency of the primary economic environment in which the entity operates) at the rates of exchange prevailing on the dates of the transactions. At the end of the reporting period, monetary items denominated in foreign currencies are re-translated at the rates prevailing at that date. Non-monetary items that are measured in terms of historical cost in a foreign currency are not re-translated.

Exchange differences arising on the settlement of monetary items, and on the re-translation of monetary items, are included in profit or loss in the period in which they arise.

Annual Report 2015 71

Notes to the Consolidated Financial Statements

for the year ended 31 December 2015

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.

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

Retirement benefit costs

Payments to state-managed retirement benefit schemes and the Mandatory Provident Fund are recognised as expenses when employees have rendered service entitling them to the contributions.

Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from “profit before taxation” as reported in the consolidated statement of profit or loss and other comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have enacted or substantively enacted by the end of the reporting period.

Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary difference to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

72 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2015

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Taxation (continued)

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

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset is realised, based on tax rate (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Current and deferred tax is recognised in to profit or loss, except when it relates to items that are recognised in other comprehensive income or directly in equity, in which case the current and deferred tax is also recognised in other comprehensive income or directly in equity respectively.

Impairment losses

At the end of the reporting period, the Group reviews the carrying amounts of its assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. When it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cashgenerating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or a cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or a cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or a cashgenerating unit) in prior years. A reversal of an impairment loss is recognised as income immediately.

Annual Report 2015 73

Notes to the Consolidated Financial Statements

for the year ended 31 December 2015

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is calculated using the weighted average method.

Research and development expenditure

Expenditure on research activities is recognised as an expense in the year in which it is incurred.

An internally-generated intangible asset arising from development activities (or from the development phase of an internal project) is recognised if, and only if, all of the following have been demonstrated:

the technical feasibility of completing the intangible asset so that it will be available for use or sale;
the intention to complete the intangible asset and use or sell it;
the ability to use or sell the intangible asset;
how the intangible asset will generate probable future economic benefits;
the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and
the ability to measure reliably the expenditure attributable to the intangible asset during its development.

The amount initially recognised for internally-generated intangible asset is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Where no internallygenerated intangible asset can be recognised, development expenditure is charged to profit or loss in the period in which it is incurred.

Subsequent to initial recognition, internally-generated intangible asset is measured at cost less accumulated amortisation and accumulated impairment losses (if any), on the same basis as intangible assets acquired separately.

74 Comtec Solar Systems Group Limited

for the year ended 31 December 2015

Notes to the Consolidated Financial Statements

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Financial instruments

Financial assets and financial liabilities are recognised in the consolidated statement of financial position when a group entity becomes a party to the contractual provisions of the instrument.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.

Financial assets

The Group’s financial assets are classified into loans and receivables at fair value through profit or loss (“FVTPL”). The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees on points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset, or where appropriate, a shorter period to the net carrying amount on initial recognition.

Income is recognised on an effective interest basis for debt instruments.

Financial assets at fair value through profit or loss

Financial assets at FVTPL of the Group comprise those designated as at FVTPL upon initial recognition.

A financial asset may be designated as at FVTPL upon initial recognition if:

such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or
the financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Group’s documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or

Annual Report 2015 75

Notes to the Consolidated Financial Statements

for the year ended 31 December 2015

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Financial instruments (continued)

Effective interest method (continued)

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

it forms part of a contract containing one or more embedded derivatives, and IAS 39 permits the entire combined contract (asset or liability) to be designated as at FVTPL.

Financial assets at FVTPL are measured at fair value, with changes in fair value arising from remeasurement recognised directly in profit or loss in the period in which they arise. The net gain or loss recognised in profit or loss includes any dividend or interest earned on the financial assets.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans and receivables (including trade and other receivables, bills receivable, pledged bank deposits and bank balances and cash) are carried at amortised cost using the effective interest method, less any identified impairment losses (see accounting policy on impairment loss on financial assets below).

Held-to-maturity investments

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity dates that the Group has the positive intention and ability to hold to maturity other than:

a) those that the entity upon initial recognition designates as at fair value through profit or loss;
b) those that the entity designates as available for sale; and
c) those that meet the definition of loans and receivables.

Subsequent to initial recognition, held-to-maturity investments are measured at amortised cost using the effective interest method, less any impairment (see accounting policy on impairment losses on financial assets below).

Impairment of financial assets

Financial assets are assessed for indicators of impairment at the end of the reporting period. Financial assets are impaired where there is objective evidence that, as a result of one of more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the financial assets have been affected.

76 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2015

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Impairment of financial assets (continued)

Objective evidence of impairment could include:

significant financial difficulty of the issuer or counterparty; or
breach of contract, such as default or delinquency in interest or principal payments; or
it becoming probable that the borrower will enter bankruptcy or financial reorganisation; or
the disappearance of an active market for that financial asset because of financial difficulties.

For financial assets carried at amortised cost, the amount of impairment loss recognised is the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the financial asset’s original effective interest rate.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade and other receivables, where the carrying amount is reduced through the use of an allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. When a receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited to profit or loss.

For financial assets measured at amortised cost, if, in a subsequent period, the amount of impairment loss decreased and the decrease can be related objectively to an event occurring after the impairment losses was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

Financial liabilities and equity

Financial liabilities and equity instruments issued by a group entity are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument.

An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.

Annual Report 2015 77

Notes to the Consolidated Financial Statements

for the year ended 31 December 2015

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Impairment of financial assets (continued)

Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees and points or received that form an integral part of the effective interest rate transaction costs and other premiums or discounts) through the expected life of the financial liability, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

Interest expense is recognised on an effective interest basis.

Financial liabilities

Financial liabilities at FVTPL

Financial liabilities are classified as at FVTPL when the financial liabilities are either held for trading or those designated as at FVTPL on initial recognition.

A financial liability other than a financial liability held for trading may be designated as at FVTPL upon initial recognition if:

such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or
the financial liability forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Group’s documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or
it forms part of a contract containing one or more embedded derivatives, and IAS 39 permits the entire combined contract (asset or liability) to be designated as at FVTPL.

Financial liabilities at FVTPL are measured at fair value, with any gains or losses arising on remeasurement recognised directly in profit or loss in the period in which they arise. The net gain or loss is included in the other gains and losses’ line item in profit or loss and includes any interest paid on the financial liabilities.

Financial liabilities at amortised cost

Financial liabilities at amortised cost including trade and other payables, short-term and long-term bank loans are subsequently measured at amortised cost, using the effective interest method.

78 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2015

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Impairment of financial assets (continued)

Effective interest method

Warrants

Warrants that will be settled other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of the Company’s own equity instruments are derivatives.

At the date of issue and in subsequent periods, the warrants are measured at fair value with changes in fair value recognised in profit or loss. Transaction costs relating to the warrants are charged to profit or loss immediately.

Equity instruments

Equity instruments issued by the Company are recorded as the proceeds received, net of direct issue costs.

Derecognition

The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group continues to recognise the asset to the extent of its continuing involvement and recognises an associated liability. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.

On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised in other comprehensive income and accumulated in equity is recognised in profit or loss.

Financial liabilities are derecognised when the obligation specified in the relevant contract is discharged, cancelled or expires. The difference between the carrying amount of the financial liability derecognised and the consideration paid or payable is recognised in profit or loss.

Provision

Provisions are recognised when the Group has a present obligation as a result of a past event, and it is probable that the Group will be required to settle that obligation and a reliable estimate can be made of the amount of the obligation. Provisions are measured at the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (where the effect of time value of money is material).

Annual Report 2015 79

for the year ended 31 December 2015

Notes to the Consolidated Financial Statements

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Provision (continued)

Provision for onerous contract

Present obligations arising under onerous contracts are recognised and measured as provisions. An onerous contract is considered to exist where the Group has a contract under which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received from the contract.

Share-based payment transactions

Equity-settled share-based payment transactions

Share options granted to the directors and employees of the Company

The fair values of services received in exchange for awards of share options determined by reference to the grant-date fair value of those share options is recognised as expense over the vesting period on a straight-line basis with a corresponding increase in share options reserve.

At the end of the reporting period, the Group revises its estimates of the number of share options that are expected to ultimately vest. The impact of the original revision of the estimates of the number of share options during the vesting period, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to share options reserve (for share options).

At the time when the share options are exercised, the amount previously recognised in share options reserve will be transferred to share premium. When the share options are forfeited after the vesting date or are still not exercised at the expiry date, the amount of share options previously recognised in share options reserve will be transferred to retained profits.

At the time when the terms of share options are modified during the vesting period, the incremental fair value granted, which represents the excess of fair value of the share options immediately after modification over those of immediately before modification, is expensed over the remaining vesting period of the share options, in addition to the amount based on the grant date fair value of the original share options. At the time when the terms of share options are modified after the vesting period, the incremental fair value granted is recognised immediately in profit or loss.

At the time when the share options are cancelled during the vesting period, the Group accounts for the cancellation as an acceleration of vesting, and recognises immediately the amount that otherwise would have been recognised for services received over the remainder of the vesting period. The amount previously recognised in share options reserve will be transferred to retained profits.

Share options granted to consultants

Share options issued in exchange of services are measured at the fair values of the services received, unless that fair value cannot be reliably measured, in which services received are measured by reference to the fair value of the share options granted. The fair values of the services received are recognised as expenses, with a corresponding increase in equity (share options reserve), when the counterparties render services, unless the services qualify for recognition as assets.

80 Comtec Solar Systems Group Limited

for the year ended 31 December 2015

Notes to the Consolidated Financial Statements

4. KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Group’s accounting policies, which are described in note 3, the Directors are required to make estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

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

(a) Impairment of property, plant and equipment

In assessing the impairment of property, plant and equipment, the Group requires to estimate the recoverable amount of the cash-generating units or the underlying assets. The recoverable amount, which is determined by the value-in-use calculation, requires the Group to estimate the future cash flows expected to arise from the cash-generating units or the underlying assets and a suitable discount rate in order to calculate the present value. Where the actual future cash flows are less than expected, a material impairment loss may arise. No impairment losses were considered necessary during the year ended 31 December 2015 and 2014 after the Group reviewed its analysis performed.

(b) Impairment of advance to suppliers, prepaid assignment fee and provision for onerous contracts

As detailed in note 17, the Group makes non-refundable advance payments to raw material suppliers under non-cancellable long-term and short-term purchase agreements which are to be offset against future purchases. As detailed in note 35, the Group had paid to an independent third party to enjoy rights and assume obligations as seller for a long-term wafer supply agreement to a customer.

In the event when the economic benefits expected to be received under these purchase agreements are less than the unavoidable costs of meeting the contractual obligations; or the financial conditions of these suppliers deteriorate, the Group would impair advance payments to these suppliers and contract assignor and make necessary provision for the present obligation under the agreements. The Group does not require collateral or other security against its advance to suppliers or prepaid assignment fees. The Group performs ongoing evaluation of impairment of advance to suppliers and prepaid assignment fees and provision for commitment that may become onerous due to a change of market conditions and the financial conditions of its suppliers. The evaluation takes into account the projected revenue, related expenses, capital spending and other costs. When the advance or prepaid assignment fee would not be settled as expected, the Group would impair the advance to suppliers and prepaid assignment fee and make necessary provision for the present obligation under the agreements.

Annual Report 2015 81

Notes to the Consolidated Financial Statements

for the year ended 31 December 2015

4. KEY SOURCES OF ESTIMATION UNCERTAINTY (continued)

(b) Impairment of advance to suppliers, prepaid assignment fee and provision for onerous contracts

(continued)

As discussed in note 17 and 35, as at 31 December 2015, the Group has made provision for impairment on advance to suppliers, provision for onerous contracts and provision for impairment on prepaid assignment fee amount to RMB 95,690,000 (31 December 2014 RMB174,521,000), RMB Nil (31 December 2014 RMB7,576,000) and RMB Nil (31 December 2014 RMB5,190,000) respectively.

(c) Write-down of inventories

Inventories are valued at the lower of cost and net realisable value. The Group inspects and reviews its inventories to identify slow-moving and obsolete inventories. When the Group identifies items of inventories which have a net realisable value that is lower than its carrying amount or are slow-moving or obsolete, the Group would write down of inventories in that year. During the year ended 31 December 2015, write-down of inventories to net realisable value of approximately RMB112,667,000 (2014: RMB11,178,000) was recognised.

(d) Useful lives and residual value of property, plant and equipment

The Group’s management determines the residual values, useful lives and related depreciation charges for its property, plant and equipment. This estimate is based on the historical experience of the actual residual value and useful lives of property, plant and equipment of similar nature and functions and may vary significantly as a result of technical innovations and keen competitions from competitors, resulting in higher depreciation charge and/or write-off or write-down of technically obsolete assets when residual value or useful lives are less than previously estimated.

At 31 December 2015, the carrying amount of property, plant and equipment amounted to approximately RMB1,018,072,000 (2014: RMB1,071,163,000).

5. FINANCIAL INSTRUMENTS

The Group’s major financial instruments include trade and other receivables, bills receivable, pledged bank deposits, bank balances and cash, trade and other payables, bank loans and warrants. Details of these financial instruments are disclosed in respective notes. The risk associated with these financial instruments include market risk (including currency risk and interest rate risk), credit risk and liquidity risk. The management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

82 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2015

5. FINANCIAL INSTRUMENTS (continued)

Categories of financial instruments

The carrying amounts of financial assets and financial liabilities are as follows:

Financial assets Trade and other receivables Bills receivable Pledged bank deposits Bank balances and cash Total loans and receivables Financial liabilities Trade and other payables Short-term bank loans Long-term bank loans Total liabilities measured at amortised costs FVTPL	2015 2014 RMB’000 RMB’000 179,634 141,297 6,971 15,964 171,084 171,188 49,715 52,123
	407,404 380,572
	255,746 184,813 509,793 524,113 – 3,072
	765,539 711,998
	– 10,600

Currency risk

The primary economic environment which most of the principal subsidiaries of the Company operate is the PRC and their functional currency is RMB. However, these principal subsidiaries sometimes collect their trade receivables and settle their purchases of materials, machinery and equipment supplies and certain expenses in foreign currencies.

Details of the Group’s other financial assets, pledged bank deposits, bank balances and cash, trade and other receivables, trade and other payables and bank loans that are denominated in foreign currencies, mainly in Hong Kong dollars (“HK$”), United States dollars (“USD”), Japanese yen (“JPY”), Malaysian Ringgit (“MYR”) and European dollars (“Euro”) as at 31 December 2015 and 31 December 2014 are set out in respective notes.

The Group had foreign currency denominated monetary assets and monetary liabilities amounting to approximately RMB199,216,000 and RMB692,906,000, respectively (31 December 2014: RMB158,539,000 and RMB433,922,000) as at 31 December 2015.

Annual Report 2015 83

for the year ended 31 December 2015

Notes to the Consolidated Financial Statements

5. FINANCIAL INSTRUMENTS (continued)

Sensitivity analysis

This sensitivity analysis details the Group’s sensitivity to a 5% appreciation and depreciation in each relevant foreign currency against functional currency, RMB. 5% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currencies denominated monetary items and adjusts their translation at the end of the year end for a 5% change in foreign currency rates. A positive number below indicates a decrease in post-tax loss for the year and a negative number below indicates an increase in post-tax loss for the year where the relevant foreign currencies fluctuate 5% against RMB.

	2015	2014
	RMB’000	RMB’000
Euro impact
— Euro strengthens against RMB	2,107	1,286
— Euro weakens against RMB	(2,107)	(1,286)
HK$ impact
— HK$ strengthens against RMB	(173)	(201)
— HK$ weakens against RMB	173	201
USD impact
— USD strengthens against RMB	15,335	7,618
— USD weakens against RMB	(15,335)	(7,618)
MYR impact
— MYR strengthens against RMB	1,089	1,811
— MYR weakens against RMB	(1,089)	(1,811)
JPY impact
— JPY strengthens against RMB	155	(187)
— JPY weakens against RMB	(155)	187

Interest rate risk

The Group is exposed to cash flow interest rate risk in relation to variable-rate bank balances and bank loans (see notes 21(B) and 25 for details of these bank balances and bank loans). The management monitors interest rate exposures and will consider hedging significant interest rate risk should the need arise.

84 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2015

5. FINANCIAL INSTRUMENTS (continued)

Sensitivity analysis

The sensitivity analysis below has been determined based on the exposure to interest rates for interest-bearing bank balances and bank loans at the end of each reporting periods and the stipulated changes taking place at the beginning of the financial year and held constant throughout the reporting period in the case of bank balances and bank loans.

A 10 basis points increase or decrease on variable-rate bank balances and variable-rate composite of other financial instruments and 100 basis points increase or decrease on variable-rate bank loans are used when reporting interest rate risk internally to key management personnel and represents managements’ assessment of the reasonably possible change in interest rates.

If interest rates on bank balances and composite of other financial assets had been 10 basis points higher and all other variables were held constant, a positive number below indicates a decrease in post-tax loss for the year.

	2015	2014
	RMB’000	RMB’000
Decrease in post-tax loss for the year	165	167

The post-tax loss for the year would be increased by an equal and opposite amount if interest rate on bank balances and composite of other financial assets had been 10 basis points lower and all other variables were held constant.

If the interest rate on bank loans had been 100 basis points higher and all other variables were held constant, a negative number below indicates an increase in post-tax loss for the year.

Increase in post-tax loss for the year	2015 2014 RMB’000 RMB’000 (1,193) (1,935)

The post-tax loss for the year would be decreased by an equal and opposite amount if interest rate on variable-rate bank loans had been 100 basis points lower and all other variables were held constant.

Annual Report 2015 85

Notes to the Consolidated Financial Statements

for the year ended 31 December 2015

5. FINANCIAL INSTRUMENTS (continued)

Credit risk

The Group’s principal financial assets are trade and other receivables, bills receivable, pledged bank deposits and bank balances and cash. The Group’s maximum exposure to credit risk which will cause a financial loss to the Group due to failure to discharge an obligation by the counterparties arising from the carrying amount of the respective recognised financial assets as stated in the Group’s consolidated statements of financial position.

The Group’s credit risk is primarily attributable to the trade and other receivables and bills receivable. In order to minimise the credit risk, the Group’s management continuously monitors the credit quality and financial conditions of the customers and the level of exposure to ensure that follow-up action is taken to recover overdue debts. In addition, the Group reviews the recoverable amount of each individual trade debt at the end of each reporting period to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the Directors consider that the Group’s credit risk is significantly reduced.

There is concentration of credit risk on bank balances and pledged bank deposits for the Company as at 31 December 2015 and 31 December 2014. As at 31 December 2015 and 2014, balances with the largest bank accounted for 74% (2014: 84%) of aggregate balance of bank balances, pledged bank deposits and other financial assets bank balances of the Group. The credit risk on liquid funds is limited because majority of counterparties are banks with high credit-ratings assigned by international credit-rating agencies and stateowned banks with good reputation.

The Group purchased interest-bearing bonds which are principal-protected and issued by a sizeable entity. In addition, the bonds are listed on the Stock Exchange. Therefore, the credit risk is minimal.

The credit risk of the Group is concentrated on trade receivables from one of the Group’s customers, which was the Group’s major customers engaged in the sales and manufacturing of solar cells and modules in Malaysia and Philippines at 31 December 2015 and 31 December 2014 which amounted to approximately RMB87,759,000 (2014: RMB92,577,000) and accounted for 48.4% (2014: 65.5%) of the Group’s total trade receivables. This has good repayment history and credit quality with reference to the track records under internal assessment by the Group. In addition, the Group’s credit risk on bills receivable was concentrated on counterparties which were reputable banks in the PRC. In order to minimise the credit risk, the Directors continuously monitor the level of exposure by frequent review of the credit evaluation of the financial condition and credit quality of its customers and banks to ensure that prompt actions will be taken to lower exposure.

86 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2015

5. FINANCIAL INSTRUMENTS (continued)

Liquidity risk management

The Directors have adopted an appropriate liquidity risk management framework for the management of the Group’s funding and liquidity management requirements. The Group manages liquidity risk by closely and continuously monitoring the Group’s consolidated financial position. The Directors maintain the sufficiency of cashflows with availability of unutilized banking facilities, internally generated funds and funds arose from financing activities, such as issue of convertible debts or equity instruments, if necessary. The Directors also review the forecasted cashflows on an on-going basis to ensure that the Group will be able to meet its financial obligations falling due and have sufficient capital for operation and expansion. Maturity of financial obligations will be re-negotiated with creditors and changes on capital expansion plan will be made should the need arise.

The following tables detail the Group’s remaining contractual maturity for its non-derivative financial liabilities based on the agreed repayment terms. The table has been drawn up based on the undiscounted cash flows on financial liabilities based on the earliest date in which the Group can be required to pay. The table includes both interest and principal cash flows. To the extent that interest flows are floating rate, the discounted amount is derived from interest rate curve at the end of the reporting period:

Weighted average effective interest rate % At 31 December 2015 Financial liabilities Non-interest bearing instruments – Fixed interest bearing instruments 5.31 Variable interest bearing instruments 1.93 At 31 December 2014 Financial liabilities Non-interest bearing instruments – Fixed interest bearing instruments 5.80 Variable interest bearing instruments 1.42	Less than 6 months 1 year 2 years Total undiscounted Carrying 6 months to 1 year to 2 years to 5 years cash flows amounts RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 121,061 134,674 – – 255,735 255,735 228,908 128,000 – – 356,908 350,687 162,878 2,489 4,978 7,260 177,605 159,106
	512,847 265,163 4,978 7,260 790,248 765,528
	139,726 45,087 – – 184,813 184,813 136,554 146,006 – – 282,560 269,162 192,405 63,745 12,993 7,260 276,403 258,023
	468,685 254,838 12,993 7,260 743,776 711,998

Note: At 31 December 2015 and 31 December 2014, the weighted average effective interest rates were based on the variable interest rates of the bank loans outstanding at the end of each reporting period.

Annual Report 2015 87

Notes to the Consolidated Financial Statements

for the year ended 31 December 2015

5. FINANCIAL INSTRUMENTS (continued)

Liquidity risk management (continued)

The amount for variable interest rate instruments for non-derivative financial liabilities is subject to changes if changes in variable interest rates differ to those estimates of interest rates determined at the end of the reporting period.

In addition, the management did not estimate the cash inflows, if any, to be derived from the warrants of the Company as at 31 December 2015 and 31 December 2014 which would be matured on 13 March 2016 as the cash flows were not predictable with reference to interest rates and other input parameters.

Fair value measurements

Some of the Group’s financial assets and financial liabilities are measured at fair value at the end of each reporting period. The following table gives information about how the fair values of these financial assets and financial liabilities are determined (in particular, the valuation technique(s) and inputs used), as well as the level of the fair value hierarchy into which the fair value measurements are categorised (levels 1 to 3) based on the degree to which the inputs to the fair value measurements is observable.

Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active market for identical assets or liabilities;
Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

88 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2015

5. FINANCIAL INSTRUMENTS (continued)

Fair value measurements (continued)

					Significant	Relationship of
Financial assets/			Fair value	Valuation technique(s)	unobservable	unobservable inputs
financial liabilities	Fair value as at		hierarchy	and key input(s)	input(s)	to fair value
	31/12/2015	31/12/2014
Warrants classified as	Liabilities —	Liabilities —	Level 3	Binomial Model with parameters of	Expected volatility	Expected volatility
derivative financial	RMB28	RMB		the Company’s shares, including	of the warrants,	of the warrants,
instruments in the		10,600,000		share prices, expected volatility,	which is made	which is made
consolidated statement				dividend yield, etc, at the end of the	reference to the	reference to the
of financial position				reporting period and expected life	historical volatility to	historical volatility to
				of the warrants, discounted at a rate	the share prices of	the share prices of
				that reflected credit risk of the	the Company	the Company
				Company.

The Directors consider that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the consolidated financial statements approximate their fair values.

Reconciliation of Level 3 fair value measurements of warrants

At 1 January 2014 Gain on fair value change At 31 December 2014 Gain on fair value change At 31 December 2015	RMB’000 45,700 (35,100)
	10,600 (10,600)
	–

Fair value gain on warrants of approximately RMB10,600,000 (2014: RMB35,100,000) are included in other gains and losses for the year ended 31 December 2015.

There were no transfers between Level 1 and Level 2 in the year ended 31 December 2015 and 31 December 2014.

Annual Report 2015 89

Notes to the Consolidated Financial Statements

for the year ended 31 December 2015

5. FINANCIAL INSTRUMENTS (continued)

Fair value measurements (continued)

Fair value measurements and valuation processes

The board of Directors has set up a team, which is headed up by the Chief Financial Officer of the Company, to determine the appropriate valuation techniques and inputs for fair value measurements. In estimating the fair value of the financial assets and liabilities of the Group, the Group uses market-observable data to the extent it is available. Where Level 1 inputs are not available, the Group engages third party qualified valuers to perform the valuation. The team works closely with the qualified external valuers to establish the appropriate valuation techniques and inputs to the model. The Chief Financial Officer reports the valuation findings to the board of regularly to explain the cause of fluctuations in the fair value of the related financial assets and liabilities.

Information about the valuation techniques and inputs used in determining the fair value of the financial assets and liabilities are disclosed above.

Capital risk management

The Group manages its capital to ensure that the group entities will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance. The Group’s overall strategy remains unchanged from prior year.

The capital structure of the Group consists of debt, which includes the bank loans and equity attributable to owners of the Company, which includes the share capital, various reserves and retained earnings, as disclosed in the consolidated financial statements.

The management of the Group reviews the capital structure regularly. The Group considers the cost of capital and the risks associated with each class of capital, and will balance its overall capital structure through the payment of dividends, issuance of new shares as well as raising of bank loans.

6. SEGMENT INFORMATION

The Group is mainly operating in manufacturing and sales of solar wafers and related products and provision of processing services for the solar products. Mr. Zhang, the chief operating decision maker of the Group, regularly reviews revenue analysis and the results of the Group as a whole for the purposes of performance assessment and making decisions about resources allocation. Accordingly, the Group has only one operating and reporting segment for financial reporting purpose. The Group’s segment loss is the loss before taxation of the Group.

90 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2015

6. SEGMENT INFORMATION (continued)

Entity-wide disclosures

Revenue analysis

The following table sets forth a breakdown of the Group’s revenue from manufacturing and sales of solar wafers and related products and provision of processing services for the year:

Manufacturing and sales of solar products: Monocrystalline solar wafers Monocrystalline solar ingots Trading of solar products: Monocrystalline silicon Others Provision of processing services: Processing service for solar products Total revenue	2015 2014 RMB’000 RMB’000 620,990 583,961 3,631 5,959
	624,621 589,920
	459,788 305,021 224 4,356
	460,012 309,377
	6,567 7,323
	1,091,200 906,620

Revenue reported above represents revenue generated from external customers.

Annual Report 2015 91

Notes to the Consolidated Financial Statements

for the year ended 31 December 2015

6. SEGMENT INFORMATION (continued)

Revenue analysed by the locations of external customers

PRC including Hongkong SAR Philippines and Malaysia Japan USA Korea Singapore Other countries_(note)_ Total revenue	2015 2014 RMB’000 RMB’000 418,088 318,812 433,656 441,383 25,368 64,569 137,884 46,859 10,880 24,880 9,294 – 56,030 10,117
	1,091,200 906,620

Note: The customers located in other countries are mainly from other Asian countries and Switzerland.

Information about major customers

Details of the customers accounting for 10% or more of total revenue of the Group are as follows:

Customer A Customer B	2015 2014 RMB’000 RMB’000 433,657 441,383 137,357 39,045
	571,014 480,428

92 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2015

6. SEGMENT INFORMATION (continued)

Information about the geographical location of assets

All of the Group’s non-current assets, including property, plant and equipment, prepaid lease payments, deposits paid for acquisition of property, plant and equipment, advance to suppliers, prepaid assignment fee and deferred tax assets are located in the Group entities’ countries of domicile at the end of each reporting period. The following table sets forth details:

PRC including Hongkong SAR Malaysia	2015 2014 RMB’000 RMB’000 647,450 1,020,217 536,427 332,437
	1,183,877 1,352,654

7. OTHER INCOME

Government grant_(Note 1) Compensation(Note 2)_ Interest income	2015 2014 RMB’000 RMB’000 292 1,867 3,485 – 5,731 6,491
	9,508 8,358

Note 1: The government grant mainly represented the amount received from the local government by an operating subsidiary of the Group to encourage activities carried out by the Group in solar business and high-technology advancement. No specific conditions were attached to the grant.

Note 2: The compensation mainly represented the amount received from the local government by an operating subsidiary of the Group in connection with the removal from a leased factory in Shanghai.

Annual Report 2015 93

Notes to the Consolidated Financial Statements

for the year ended 31 December 2015

8. OTHER GAINS AND LOSSES, EXPENSES AND PROVISION

Net foreign exchange losses
Settlement of other financial instruments
Loss on disposal of property, plant and equipment
Gain on fair value changes of 2012 Warrants (defined in note 26)
Gain on fair value changes of other financial instruments
Impairment losses reversed (recognised) in respect of
prepaid assignment fee_(note 35)
Impairment losses recognised in respect of advance to suppliers(note 17)_
Other losses
FINANCE COSTS
Borrowing costs
Less: amounts capitalised in the cost of qualifying assets

2015
2014
RMB’000
RMB’000
(21,759)
(6,039)
–
(2,126)
(35,617)
(733)
10,600
35,100
–
500
5,190
(5,190)
(152,758)
(82,929)
(5,990)
(2,195)
(200,334)
(63,612)
2015
2014
RMB’000
RMB’000
25,505
20,588
(10,743)
(8,678)
14,762
11,910

9. FINANCE COSTS

94 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2015

10. LOSS BEFORE TAXATION

Loss before taxation has been arrived at after charging: Directors’ remuneration_(note (i)) Other staff costs(note (i)) Other staff’s retirement benefits scheme contributions Share-based payments expense for other staff(note (i)) Total staff costs Auditor’s remuneration Cost of inventories recognised as expense(note (ii))_ Depreciation of property, plant and equipment Release of prepaid lease payments Research and development expenses Operating lease rentals in respect of rented premises	2015 2014 RMB’000 RMB’000 4,554 9,066 55,231 51,929 8,407 7,410 4,228 1,480
	72,420 69,885
	1,800 1,800
	1,185,615 846,594 74,178 79,862 996 925 7,157 7,163 1,513 1,936

Notes:

i. During the year ended 31 December 2015, share-based payments expenses totalling RMB57,087,000 (2014: RMB17,670,000) which was recognised in administrative expenses included directors’ remuneration of RMB1,029,000 (2014: RMB5,543,000), other staff cost of RMB4,228,000 (2014: RMB1,480,000) and compensation to independent consultants of RMB51,830,000 (2014: RMB10,647,000). Details of transactions are set out in note 29.

ii. Included in cost of inventories recognised as expense represented write-down of inventories of approximately RMB112,667,000 (2014: RMB11,178,000) to their net realisable values.

Annual Report 2015 95

Notes to the Consolidated Financial Statements

for the year ended 31 December 2015

11. DIRECTORS’ AND CHIEF EXECUTIVE’S EMOLUMENTS

Executive directors — fees — basic salaries and allowance — share-based payments expense in relation to share options — Retirement benefits scheme contributions Independent non-executive directors — fees	2015 2014 RMB’000 RMB’000 – – 2,685 2,689 1,029 5,543 14 18 826 816
	4,554 9,066

Directors’ and chief executive’s remuneration for the year, disclosed pursuant to the applicable Listing Rules and Companies Ordinance, is as follows:

EXECUTIVE DIRECTORS: Other emoluments: Basic salaries and allowance Share-based payments expense Retirement benefits scheme contributions Sub-total	Chief Executive Mr. John Mr. Chau Mr. Shi Zhang Kwok Keung Cheng Qi Total (“Mr. Zhang”) (“Mr. Chau”) (“Mr. Shi”) 2015 RMB’000 RMB’000 RMB’000 RMB’000 600 1,920 165 2,685 – 792 237 1,029 – 14 – 14
	600 2,726 402 3,728

A) EXECUTIVE DIRECTORS:

96 Comtec Solar Systems Group Limited

for the year ended 31 December 2015

Notes to the Consolidated Financial Statements

11. DIRECTORS’ AND CHIEF EXECUTIVE’S EMOLUMENTS (continued)

The executive directors’ emoluments shown above were mainly for their services in connection with the management of the affairs of the Company and the Group.

Mr. Leung Mr. Daniel Mr. Kang Ming Shu DeWitt Martin Sun Total (“Mr. Leung”) (“Mr. DeWitt”) (“Mr. Kang”) 2015 RMB’000 RMB’000 RMB’000 RMB’000 B) INDEPENDENT NON-EXECUTIVE DIRECTORS: Fees 200 313 313 826 Sub-total 200 313 313 826 The independent non-executive directors’ emoluments shown above were mainly for their services as directors of the Company. Total 4,554 Chief Executive Total Mr. Zhang Mr. Chau Mr. Shi 2014 RMB’000 RMB’000 RMB’000 RMB’000 A) EXECUTIVE DIRECTORS: Other emoluments: Basic salaries and allowance 600 1,920 169 2,689 Share-based payments expense – 5,543 – 5,543 Retirement benefits scheme contributions – 18 – 18 Sub-total 600 7,481 169 8,250	Mr. Leung Mr. Daniel Mr. Kang Ming Shu DeWitt Martin Sun Total (“Mr. Leung”) (“Mr. DeWitt”) (“Mr. Kang”) 2015 RMB’000 RMB’000 RMB’000 RMB’000 200 313 313 826	Mr. Leung Mr. Daniel Mr. Kang Ming Shu DeWitt Martin Sun Total (“Mr. Leung”) (“Mr. DeWitt”) (“Mr. Kang”) 2015 RMB’000 RMB’000 RMB’000 RMB’000 200 313 313 826
	200 313 313 826
		Total 2014 RMB’000 2,689 5,543 18
	600 7,481 169	8,250

Annual Report 2015 97

for the year ended 31 December 2015

Notes to the Consolidated Financial Statements

11. DIRECTORS’ AND CHIEF EXECUTIVE’S EMOLUMENTS (continued)

The executive directors’ emoluments shown above were mainly for their services in connection with the management of the affairs of the Company and the Group.

			Total
Mr. Leung	Mr. DeWitt	Mr. Kang	2014
RMB’000	RMB’000	RMB’000	RMB’000

B) INDEPENDENT NON-EXECUTIVE DIRECTORS:

Fees Sub-total	200 308 308 816
	200 308 308 816

The independent non-executive directors’ emoluments shown above were mainly for their services as directors of the Company.

Total 9,066

The five highest paid individuals included two (2014: two) directors of the Company for the year ended 31 December 2015. Details of whose emoluments are set out above. The emoluments of the remaining three (2014: three) individuals during the years are as follows:

Employees — basic salaries and allowance — share-based payments expense	2015 2014 RMB’000 RMB’000 1,309 1,210 1,338 1,237
	2,647 2,447

98 Comtec Solar Systems Group Limited

for the year ended 31 December 2015

Notes to the Consolidated Financial Statements

11. DIRECTORS’ AND CHIEF EXECUTIVE’S EMOLUMENTS (continued)

The emoluments of the five highest paid individuals were within the following bands:

	2015	2014
Nil to HK$1,000,000	3	2
HK$1,000,001 to HK$1,500,000	1	2
HK$3,000,001 to HK$3,500,000	1	–
HK$9,000,001 to HK$9,500,000	–	1

During the year ended 31 December 2015 and 31 December 2014, no discretionary bonus was paid or payable to the directors, the Chief Executive nor the other five highest paid individuals.

During the year ended 31 December 2015 and 31 December 2014, no emoluments were paid by the Group to the directors of the Company and five highest paid individuals as an inducement to join or upon joining the Group or as compensation for loss of office. Neither the Chief Executive nor any of the directors waived any emoluments during the year ended 31 December 2015 and 31 December 2014.

12. TAXATION

Current tax: PRC Enterprise Income Tax — Current year — Overprovision in prior years Deferred tax credit_(note 18):_ — Current year	2015 2014 RMB’000 RMB’000 – 752 (71) (582)
	(71) 170 (310) –
	(381) 170

No Hong Kong Profits Tax was provided for the year ended 31 December 2015 and 31 December 2014 as the group entities either had no relevant assessable profits or incurred tax losses in Hong Kong.

Annual Report 2015 99

for the year ended 31 December 2015

Notes to the Consolidated Financial Statements

12. TAXATION (continued)

PRC income tax is calculated at the applicable tax rates in accordance with the relevant laws and regulations in the PRC. Under the Law of the People’s Republic of China on Enterprise Income Tax (the “EIT Law”) and Implementation Regulation of the EIT Law, the tax rate of the PRC subsidiaries is 25%.

During the year ended 31 December 2015 and 31 December 2014, the applicable tax rate of Shanghai Comtec Solar Technology Co., Ltd. (“Comtec Solar”) was 15% as it was qualified as a New High-Tech enterprise for the period of five years form 1 January 2014 to 31 December 2018.

Upon the EIT Law, dividends paid out of the net profits derived by the Company’s PRC operating subsidiaries to non-PRC residents shareholders for financial years since 1 January 2008 are subject to applicable PRC withholding tax in a rate of 10% or lower rates as provided in tax treaties in accordance with relevant tax laws in the PRC. Withholding tax has been provided for based on the anticipated dividends to be distributed by the Company’s PRC operating subsidiaries to non-PRC resident shareholders with relevant withholding tax rate of 10%.

The deferred tax balance has already reflected the tax rates that are expected to apply to the respective periods when the asset is realised or the liability is settled.

The taxation for the year is reconciled to loss before taxation as follows:

Loss before taxation
Tax at domestic income tax rate (25%)
Tax effect of expenses not deductible for tax purpose
Tax effect of income not taxable for tax purpose
Tax effect of temporary difference not recognised
Utilisation of temporary difference previously not recognised
Effect of tax exemptions granted to a PRC subsidiary
Overprovision in prior years
Overprovision on withholding tax on undistributed dividends
Taxation for the year

2015
2014
RMB’000
RMB’000
(435,095)
(90,321)
(108,774)
(22,580)
12,617
5,942
(3,587)
(14,733)
100,668
34,252
(286)
(1,282)
–
(847)
(71)
(582)
(948)
–
(381)
170

100 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2015

13. DIVIDENDS

No dividends were paid, declared or proposed during the year ended 31 December 2015 and 31 December 2014.

The Directors do not recommend the payment of a final dividend.

14. LOSS PER SHARE

The calculation of basic and diluted loss per share attributable to the owners of the Company is based on the following data:

Loss Loss for the year attributable to owners of the Company for the purposes of basic loss per share Number of shares Weighted average number of ordinary shares for the purpose of basic loss per share	2015 2014 RMB’000 RMB’000 (434,714) (90,491) 1,391,849,832 1,374,285,091

The Company’s outstanding 2012 Warrants (defined in note 26) did not have a dilutive effect on the Company’s loss per share for years ended 31 December 2015 and 31 December 2014 since their potential conversion to ordinary shares would decrease loss per share.

The outstanding share options of the Company have not been included in the computation of diluted loss per share as they are anti-diluted to the net loss for the year ended 31 December 2015 and 31 December 2014.

Annual Report 2015 101

Notes to the Consolidated Financial Statements

for the year ended 31 December 2015

15. PROPERTY, PLANT AND EQUIPMENT

COST At 1 January 2014 Additions Transfers Disposals At 31 December 2014 Additions Transfers Disposals At 31 December 2015 DEPRECIATION AND IMPAIRMENT At 1 January 2014 Provided for the year Eliminated on disposals At 31 December 2014 Provided for the year Eliminated on disposals At 31 December 2015 CARRYING VALUES At 31 December 2015 At 31 December 2014	Plant and Furniture, fixtures and Motor Construction Buildings machinery equipment vehicles in progress Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 254,181 832,814 1,819 3,363 116,876 1,209,053 – 860 93 599 321,787 323,339 221 22,187 15 173 (22,596) – (632) (2,948) (192) (311) (401) (4,484)
	253,770 852,913 1,735 3,824 415,666 1,527,908 – 1,044 197 119 69,212 70,572 1,948 14,951 84 – (16,983) – – (120,101) – (321) – (120,422)
	255,718 748,807 2,016 3,622 467,895 1,478,058
	70,509 307,038 1,137 1,760 – 380,444 12,887 66,318 118 539 – 79,862 (569) (2,551) (172) (269) – (3,561)
	82,827 370,805 1,083 2,030 – 456,745 12,918 60,718 123 419 – 74,178 – (70,733) – (204) – (70,937)
	95,745 360,790 1,206 2,245 – 459,986
	159,973 388,017 810 1,377 467,895 1,018,072
	170,943 482,108 652 1,794 415,666 1,071,163

102 Comtec Solar Systems Group Limited

for the year ended 31 December 2015

Notes to the Consolidated Financial Statements

15. PROPERTY, PLANT AND EQUIPMENT (continued)

The above items of property, plant and equipment, other than construction in progress, are depreciated on a straight-line basis over the following estimated useful lives:

Buildings	Over the shorter of the period
	of the respective land use
	rights in which the buildings
	are erected on or 20 years
Plant and machinery	10 years
Furniture, fixtures and equipment	5 years
Motor vehicles	5 years

The Group’s buildings are located on land in the PRC which is under a lease term of 50 years.

As at 31 December 2015, the Group pledged its buildings having net book values of approximately RMB152,259,000 (2014: RMB82,804,000) to banks to secure banking facilities granted to the Group.

16. PREPAID LEASE PAYMENTS

Carrying values At beginning of the year Released to profit or loss At end of the year Reclassified as held for sale_(note 22)_ Total Current portion Non-current portion	2015 2014 RMB’000 RMB’000 46,904 47,829 (996) (925) 45,908 46,904 (19,129) (19,129) 26,779 27,775 600 600 26,179 27,175

The lease payments represent the land use rights situated in the PRC and Malaysia which are under mediumterm leases.

As at 31 December 2015, prepaid lease payments with carrying amount of approximately RMB19,640,000 (2014: RMB13,919,000) was pledged to banks to secure banking facilities granted to the Group.

Annual Report 2015 103

Notes to the Consolidated Financial Statements

for the year ended 31 December 2015

17. ADVANCE TO SUPPLIERS/PROVISION FOR ONEROUS CONTRACTS

In prior years, in order to secure a stable supply of raw materials, the Group has entered into several noncancellable purchase agreements with two major suppliers, independent parties not related to the Group, whereby the Group committed a “take or pay” obligation to purchase the minimum annual quantity of raw materials, mainly polysilicon virgins (to be used in the manufacture of its products) at pre-determined prices over the contractual periods up to 2018 (can be extended to 2021 with prior written notice to the supplier). According to the terms of these agreements, the Group were required to made upfront advances to these suppliers. The advances are unsecured, interest-free and non-refundable but could be utilised to reduce the invoice amount of purchases up to those agreed minimum annual quantities. Therefore, at the end of each reporting period, the Directors estimate the amount of advances that is expected to be settled by the offset of the purchases of the agreed contract quantity in the next twelve months and classify it as current asset at the end of each reporting period. The remaining balance is classified as non-current asset in the consolidated statement of financial position. In early 2016, the Group has reached into agreements with the two major suppliers, of which one has unconditionally agreed to waive the term relating to minimum annual quantity and pre-determined purchase price and the other has unconditionally agreed to reduce the pre-determined purchase price for the forthcoming purchases.

The Group has periodically performed an analysis of the sufficiency of impairment recognised in respect of advance to suppliers and provision for onerous contracts, due to volatility of the solar industry which the Group is engaged in. The analysis has made reference to the Group’s budgeted annualised production capacity, the Group’s product mix, recent market demand for the Group’s products, updated forecasted selling prices of the products that reflected current market assessments; and the Group’s committed delivery of solar products including terms governed the take or pay supply agreements referred above, etc. Based on such analysis, the Group recognised impairment provision/onerous contracts provision, which represented expected losses to be suffered or future payments that the Group is presently obliged to make under the above-mentioned noncancellable take or pay agreements, after taking into account the revenue expected to be earned and costs to be incurred in production over the contractual periods, and the movement of which are as follow:

104 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2015

17. ADVANCE TO SUPPLIERS/PROVISION FOR ONEROUS CONTRACTS (continued)

At 1 January 2014 Utilise Transfer Provision At 31 December 2014 Utilise Transfer Provision At 31 December 2015	Provision for impairment on Provision for advance to suppliers onerous contracts Total RMB’000 RMB’000 RMB’000 133,930 39,107 173,037 (73,869) – (73,869) 31,531 (31,531) – 82,929 – 82,929 174,521 7,576 182,097 (239,165) – (239,165) 7,576 (7,576) – 152,758 – 152,758 95,690 – 95,690

the provision was utilised as a reduction of cost of sales on disposal of the excessive polysilicon virgins which were purchased from the above suppliers and in turn resold to the free market.

The balance of advance to suppliers are analysed as follows:

Gross amounts Provision Less: Amounts recoverable within one year shown under current assets Amounts shown under non-current assets	2015 2014 RMB’000 RMB’000 206,866 294,896 (95,690) (174,521) 111,176 120,375 (2,920) (48,926) 108,256 71,449

Annual Report 2015 105

Notes to the Consolidated Financial Statements

for the year ended 31 December 2015

18. DEFERRED TAX

The following is the deferred tax assets (liabilities) recognised by the Group and movements thereon during the year.

At 1 January 2014 and At 31 December 2014 Credit (Charge) to profit or loss At 31 December 2015	Withholding Allowance tax on Write-down for doubtful undistributed of inventories debts dividends Total RMB’000 RMB’000 RMB’000 RMB’000 86 552 (9,568) (8,930) (86) (552) 948 310 – – (8,620) (8,620)

The following is the analysis of the deferred tax balance for financial report presentation purposes.

Deferred tax assets Deferred tax liabilities	2015 2014 RMB’000 RMB’000 – 638 (8,620) (9,568) (8,620) (8,930)

At 31 December 2015 and 31 December 2014, except for the deferred tax liabilities provided for the undistributed profits of certain PRC operating subsidiaries of approximately RMB86 million and RMB96 million, respectively, deferred tax liabilities have not been recognised in respect of the aggregate amount of temporary differences associated with undistributed earnings of the PRC operating subsidiaries of approximately RMB246 million and RMB356 million, respectively, as the Group is in a position to control the timing of the reversal of the temporary differences and the Group has determined that this portion of the profits derived from those PRC operating subsidiaries will be retained by those subsidiaries and not distributed in the foreseeable future. Therefore, it is probable that such differences will not reverse nor be subject to withholding tax in the foreseeable future.

At the end of the reporting period, the Group has unrecognised deductible temporary differences of approximately RMB401,157,000 (2014: RMB386,334,000), representing allowance of inventories, allowance of doubtful debts, provision of onerous contracts and impairment losses recognised in respect to advance to suppliers and prepaid assignment fee.

106 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2015

19. INVENTORIES

Raw materials Work-in-progress Finished goods	2015 2014 RMB’000 RMB’000 127,061 266,833 46,311 127,399 90,273 143,583
	263,645 537,815

20. TRADE AND OTHER RECEIVABLES AND BILLS RECEIVABLE

Trade receivables Less: allowance for doubtful debts Utility deposits Value-added-tax recoverable Other receivables and prepayments Bills receivable	2015 2014 RMB’000 RMB’000 183,894 144,041 (4,260) (2,744)
	179,634 141,297 2,988 3,320 49,091 53,259 20,119 33,689
	251,832 231,565
	6,971 15,964

Annual Report 2015 107

for the year ended 31 December 2015

Notes to the Consolidated Financial Statements

20. TRADE AND OTHER RECEIVABLES AND BILLS RECEIVABLE (continued)

The Group requested prepayment from customers before delivery of goods and allows a credit period of 7 to 180 days on case-by-case basis. The following is an aged analysis of trade receivables net of allowance for doubtful debts presented based on the invoice date at the end of the reporting period, which approximated the respective revenue recognition dates:

Age 0 to 30 days 31 to 60 days 61 to 90 days 91 to 180 days Over 180 days	2015 2014 RMB’000 RMB’000 41,402 55,748 40,043 55,604 29,849 26,015 54,294 2,827 14,046 1,103
	179,634 141,297

Included in the Group’s trade receivables are debtors with aggregate carrying amount of approximately RMB14,046,000 (2014: RMB1,103,000) which are past due as at the reporting date for which the Group has not provided for impairment losses. The Directors, after considering the trade relationship, credit status and past settlement history of these individual trade debtors, had concluded that these outstanding balances would be recovered. The Group does not hold any collateral over these balances.

Ageing of trade receivables which are past due but not impaired:

Overdue by: 61 to 90 days 91 to 180 days Over 180 days Average overdue days	2015 2014 RMB’000 RMB’000 6,400 – 7,543 – 103 1,103
	14,046 1,103
	97 672

108 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2015

20. TRADE AND OTHER RECEIVABLES AND BILLS RECEIVABLE (continued)

The following is an aged analysis of bills receivable presented based on the invoice date at the end of the reporting period:

Age 0 to 30 days 31 to 60 days 61 to 90 days 91 to 180 days	2015 2014 RMB’000 RMB’000 5,800 10,604 871 2,710 – 2,500 300 150
	6,971 15,964

No interest is charged on the trade receivables and bills receivable. The Group has provided fully for all receivables over 365 days as historical experience indicates that such amount may not be recoverable. Trade receivables and bills receivable aged between 30 and 365 days are provided for based on estimated irrecoverable amounts from the sales of goods, determined by reference to subsequent settlement, past default experience and objective evidences of impairment.

Movement in the allowance for trade receivables:

Balance at 1 January 2014 and 31 December 2014 Impairment losses recognised in profit or loss Balance at 31 December 2015 Movement in the allowance for other receivables and value-added taxes recoverable:	RMB’000 2,744 1,516
	4,260

Balance at 1 January 2014 Impairment losses recognised in profit or loss Balance at 31 December 2014 and 31 December 2015	RMB’000 19,260 –
	19,260

The Group did not hold any collateral over the above balances at the end of each reporting period.

Annual Report 2015 109

for the year ended 31 December 2015

Notes to the Consolidated Financial Statements

20. TRADE AND OTHER RECEIVABLES AND BILLS RECEIVABLE (continued)

The Group’s trade and other receivables and bills receivable that were denominated in USD and JPY, foreign currencies of the relevant group entities, were re-translated in RMB and stated for financial reporting purposes as:

	2015	2014
	RMB’000	RMB’000
Trade and other receivables denominated in USD	175,259	127,846
Trade and other receivables denominated in JPY	227	2,511

21. PLEDGED BANK DEPOSITS/BANK BALANCES AND CASH

(A) Pledged bank deposits

As at 31 December 2015, the Group pledged its bank deposits of approximately RMB170,279,000 (2014: RMB170,279,000) as security for short-term borrowings and the pledged bank deposits carry variable interests at rates ranging from 2.35% to 2.75% per annum (2014: 2.35% to 2.75%). The pledged bank deposits will be released upon the settlement of relevant short-term borrowings.

(B) Bank balances and cash

Bank balances and cash comprise cash held by the Group and short-term bank deposits with an original maturity of three months or less which carry interest at market rates ranging from 0.10% to 0.50% per annum and 0.10% to 0.50% per annum at 31 December 2015 and 31 December 2014, respectively.

The Group’s bank balances and cash that were denominated in Euro, HKD ,USD, JPY and MYR, foreign currencies of the relevant group entities, were re-translated in RMB and stated for reporting purposes as:

	2015	2014
	RMB’000	RMB’000
Bank balances and cash denominated in:
Euro	467	425
HK$	744	2,472
USD	15,077	18,211
JPY	111	2,740
MYR	1,637	299

Certain bank balances and cash of approximately RMB31,679,000 and RMB27,976,000 at 31 December 2015 and 31 December 2014, respectively, were denominated in RMB which is not a freely convertible currency in the international market. The exchange rate of RMB is determined by the Government of the PRC and the remittance of these funds out of the PRC is subject to exchange restrictions imposed by the Government of the PRC.

110 Comtec Solar Systems Group Limited

for the year ended 31 December 2015

Notes to the Consolidated Financial Statements

22. ASSETS CLASSIFIED AS HELD FOR SALE

In 2012, the Group entered into an agreement with an independent third party (the “Original Buyer”) to dispose of the entire equity interests in a subsidiary, Comtec New Energy (Shanghai) Limited (“Comtec SH”), which principal asset is the prepaid lease payments for a parcel of land, at a cash consideration of RMB28,500,000 (the “Original Transaction”).

The Original Transaction was not completed during the year ended 31 December 2014 due to unexpected time spent for the group restructuring before disposal of Comtec SH.

On 26 January 2015, the Group entered into an agreement with the Original Buyer to terminate the Original Transaction and entered into another share transfer agreement with another independent third party (the “Second Buyer”) to dispose of the entire equity interests in Comtec SH for a consideration of RMB28,500,000 (the “Second Transaction”). Pursuant to the terms of the Second Transaction, the Second Transaction shall be completed within 180 days from 26 January 2015. Towards the beginning of March 2016, however, in view of certain closing conditions under the terms of the Second Transactions have not been satisfied, both contractual parties have verbally agreed to unconditionally terminate the Second Transaction and such termination agreement were formally entered into on 25 March 2016.

Concurrently, on 11 March, 2016, Comtec SH has entered into a written agreement with an independent third party to dispose of the entire parcel of land it owns for a cash consideration of RMB19,823,000. Therefore, the prepaid lease payments for the parcel of land is classified as asset held for sale as of December 31, 2015.

Prepaid lease payments Other assets Liabilities directly associated with assets classified as held for sale	2015 2014 RMB’000 RMB’000 19,129 19,129 – 2,647 19,129 21,776 – (11)

Annual Report 2015 111

Notes to the Consolidated Financial Statements

for the year ended 31 December 2015

23. TRADE AND OTHER PAYABLES

Trade payables Payables for acquisition of property, plant and equipment Other payables and accrued charges	2015 2014 RMB’000 RMB’000 202,450 124,591 52,720 60,222 30,878 22,468
	286,048 207,281

The following is an aged analysis of trade payables presented based on the invoice date at the end of each reporting period:

Age 0 to 30 days 31 to 60 days 61 to 90 days 91 to 180 days Over 180 days	2015 2014 RMB’000 RMB’000 47,758 51,987 21,952 19,275 16,119 3,820 34,667 4,422 81,954 45,087
	202,450 124,591

The average credit period on purchases of goods is 7 days to 180 days and certain suppliers grant longer credit period on case-by-case basis.

The Group’s trade and other payables that were denominated in MYR, USD, and JPY the foreign currencies of the relevant group entities, were re-translated in RMB and stated for reporting purposes as:

	2015	2014
	RMB’000	RMB’000
Trade and other payables denominated in:
MYR	217	49,735
USD	164,806	86,726
JPY	4,486	275

112 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2015

24. CUSTOMERS’ DEPOSITS RECEIVED

The balances of the customers’ deposits received are analysed as:

Mission_(note 35)_ Other customers	2015 2014 RMB’000 RMB’000 175,546 57,257 3,130 28
	178,676 57,285

Customers’ deposits received are unsecured, interest-free and will be settled by the delivery of the Group’s products.

25. BANK LOANS

Bank loans — secured — unsecured Carrying amounts repayable: Within one year One to two years Less: Amounts due within one year shown under current liabilities Amounts shown under non-current liabilities	2015 2014 RMB’000 RMB’000 423,912 435,599 85,881 91,586
	509,793 527,185
	509,793 524,113 – 3,072
	509,793 527,185 (509,793) (524,113)
	– 3,072

The loans as at 31 December 2015 and 31 December 2014 carried interest at variable market rates benchmark to the interest rates of the People’s Bank of China or London Interbank Offer Rate.

Annual Report 2015 113

for the year ended 31 December 2015

Notes to the Consolidated Financial Statements

25. BANK LOANS (continued)

The carrying amounts of the Group’s fixed-rate borrowings and their relevant contractual maturity dates (or reset dates) are as follows:

	2015	2014
	RMB’000	RMB’000
Fixed rate borrowings:
Within one year	247,286	269,162

The ranges of effective interest rates per annum (which are also equal to contracted interest rates) on the Group’s borrowings are as follows:

	2015	2014
	RMB’000	RMB’000
Effective interest rate:
Fixed-rate	2.67% to 6.24%	2.67% to 6.52%
Variable-rate	1.75% to 2.78%	0.78% to 2.84%

The Group’s bank loans that were denominated in USD and Euro, foreign currencies of the relevant group entities, were re-translated in RMB and stated for financial reporting purposes as:

	2015	2014
	RMB’000	RMB’000
Denominated in USD	245,146	262,468
Denominated in Euro	56,647	34,716

114 Comtec Solar Systems Group Limited

for the year ended 31 December 2015

Notes to the Consolidated Financial Statements

26. WARRANTS

In 2012, the Company and an independent third party not related to the Group (the “Investor”) entered into a warrant subscription agreement, pursuant to which the Company agreed to issue the Investor detachable and transferrable warrants (“2012 Warrants”), exercisable for a period of four years ending on 13 March 2016, to the Investor who was entitled to subscribe for up to 94,354,839 shares at a price of HKD1.24 per share.

The 2012 Warrants have expired on 13 March 2016 and the Investor of all of the 2012 Warrants, has not exercised the subscription rights attached to any of the 2012 Warrants.

The movement of the fair value of the 2012 Warrants was set out below:

Carrying amount at 1 January 2014 Gain on fair value change recognised in profit or loss Carrying amount at 31 December 2014 Gain on fair value change recognised in profit or loss Carrying amount at 31 December 2015	RMB’000 45,700 (35,100)
	10,600 (10,600)
	–

The fair values of the 2012 Warrants of the Company at 31 December 2015 and 31 December 2014 were calculated using the Binominal pricing model. The inputs into the model were as follows:

	2015	2014
	RMB’000	RMB’000
Share price	HK$0.69	HK$1.03
Exercise price	HK$1.24	HK$1.24
Volatility	31.40%	47.46%
Warrant life	0.2 years	1.2 years
Risk-free interest rate	0.028%	0.228%

The risk-free interest rates were based on yield of Hong Kong government bonds at the date of valuation. Expected volatility was determined by using the historical volatility of the Company’s share prices over the previous years. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of behavioural considerations. Changes in variables and assumptions may result in changes in the fair values of the 2012 Warrants.

Annual Report 2015 115

Notes to the Consolidated Financial Statements

for the year ended 31 December 2015

27. DEFERRED REVENUE

Government grants Analysed for reporting purpose as: Current liabilities Non-current liabilities	2015 2014 RMB’000 RMB’000 4,870 5,157
	287 287 4,583 4,870
	4,870 5,157

In 2012, the Group received certain government subsidies which was related to compensation of acquisition of plant and equipment. The amount was treated as deferred revenue and amortised to income over the useful lives of related assets upon such assets were ready for their intended use and depreciation commenced. During the year ended 31 December 2015, RMB287,000 (2014: RMB287,000) was recognised.

28. SHARE CAPITAL

The share capital of the Group represented the issued and fully paid share capital of the Company.

	Number
Authorised:	of shares	Amount
		HK$’000
Ordinary shares
Ordinary shares of HKD0.001 each at 1 January 2014,
31 December 2014 and 31 December 2015	7,600,000,000	7,600

116 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2015

28. SHARE CAPITAL (continued)

Issued and fully paid: Ordinary shares Ordinary shares of HK$0.001 each at 1 January 2014 Issue of shares_(note 1) Exercise of share options(note 2) Ordinary shares of HK$0.001 each at 31 December 2014 Exercise of share options(note 3) Ordinary shares of HK$0.001 each at 31 December 2015 Presented as RMB: Ordinary shares _Notes:	Number of shares Amount HK$’000 1,331,589,765 1,332 59,541,985 60 700,000 1
	1,391,831,750 1,393 30,000 –
	1,391,861,750 1,393
	2015 2014 RMB’000 RMB’000 1,205 1,205

(1) In April 2014, the Company issued 59,541,985 ordinary shares of HK$0.001 each for a consideration of HK$1.31 per share. The allotment was in the form of a private placement with shares subscribed by independent third parties not related to the Group.
(2) During the year ended 31 December 2014, the Company issued 700,000 new shares upon exercise of share options at the exercise price of HK$0.98 per share.
(3) During the year ended 31 December 2015, the Company issued 30,000 new shares upon exercise of share options at the exercise price of HK$0.98 per share.

All the shares issued by the Company during the year ended 31 December 2015 and 31 December 2014 ranked pari passu with the then existing shares in all respects.

Annual Report 2015 117

Notes to the Consolidated Financial Statements

for the year ended 31 December 2015

29. SHARE-BASED COMPENSATION

(a) Pre-IPO Share Option Scheme

The Company’s share option scheme (the “Pre-IPO Share Option Scheme”) was adopted pursuant to a resolution passed on 2 June 2008 for the primary purpose of giving the grantees an opportunity to have personal stake in the Company and motivating the grantees to optimise their performance and efficiency, and retaining the grantees whose contributions are important to the Group’s long-term growth and profitability. Under the Pre-IPO Share Option Scheme, the board of Directors may grant options to eligible employees, including Directors and its subsidiaries, to subscribe for shares in the Company.

The total number of shares in respect of which options may be granted under the Pre-IPO Share Option Scheme is not permitted to exceed 3% of the shares of the Company in issue at any point in time, without prior approval from the Company’s shareholders. Option granted must be taken up within 30 days from the date of grant, upon payment of HK$1.00. Subject to the vesting as detailed below, options may be exercised at any time from the grant date of the share options to the 10th anniversary of the date of grant. The exercise price of the shares in the Company shall be a price determined by the board of Directors with reference to future earnings potential of the Company and notified to the eligible participants.

(1) All options granted are at an exercise price of HK$2.51 per share.
(2) All holders of options granted may only exercise their options in the following manner:
(i) 1/12th of the share options vested on 1 November 2009 and become exercisable; and
(ii) from 1 November 2009 onwards, for the remaining 11/12th share options, every 1/12th of the granted share options will vest at the end of each three-month period on a quarterly basis.
(3) The options will be lapsed automatically and not be exercisable (to the extent not already exercised) when the grantees ceased to be employees of the Group.

118 Comtec Solar Systems Group Limited

for the year ended 31 December 2015

Notes to the Consolidated Financial Statements

29. SHARE-BASED COMPENSATION (continued)

(a) Pre-IPO Share Option Scheme (continued)

Set out below are details of movements of the outstanding options granted under the Pre-IPO Share Option Scheme during the year ended 31 December 2015 and 31 December 2014:

Directors: Mr. Leung Mr. DeWitt Mr. Kang Exercisable at the end of the year Weighted average exercise price (HK$)	Number of options	Outstanding as at 31 December 2015 62,787 199,659 249,574 512,020 512,020 2.510
	Outstanding as at 1 January 2014, 31 December 2014 and 1 January 2015 Issue during the year Exercised during the year Forfeited in the year 62,787 – – – 199,659 – – – 249,574 – – –
	512,020 – – –
	512,020 2.510

At 31 December 2015, the number of shares in respect of which options under the Pre-IPO Share Option Scheme remained outstanding was 512,020 (2014: 512,020), representing 0.04% (2014: 0.04%) of the shares of the Company in issue at that date.

Annual Report 2015 119

Notes to the Consolidated Financial Statements

for the year ended 31 December 2015

29. SHARE-BASED COMPENSATION (continued)

(b) Share Option Scheme

Set out below are the details of movements of the outstanding options granted under the Share Option Scheme during the year ended 31 December 2015 and 31 December 2014:

Granted on 24 May 2010

For the year ended 31 December 2015 and 31 December 2014:

Director: Mr. Shi Employees Exercisable at the end of the year Weighted average exercise price (HK$)	Number of options
	Outstanding as at 1 January 2014, 31 December 2014 and 1 January 2015 Exercised during the year Forfeited during the year Lapsed in the year 300,000 – – – 1,940,000 – – –	Outstanding as at 31 December 2015 300,000 1,940,000
	2,240,000 – – –	2,240,000
	2,240,000 1.490	2,240,000
		1.490

At 31 December 2015, the number of shares in respect of which options granted on 24 May 2010 under the Share Option Scheme remained outstanding was 2,240,000 (31 December 2014: 2,240,000), representing 0.16% (31 December 2014: 0.16%) of the shares of the Company in issue at that date.

120 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2015

29. SHARE-BASED COMPENSATION (continued)

(b) Share Option Scheme (continued)

Granted on 28 June 2012

For the year ended 31 December 2015:

Director: Mr. Zhang Mr. Chau Mr. Shi Employees Consultants Exercisable at the end of the year Weighted average exercise price (HK$)	Number of options	Outstanding as at 31 December 2015 5,000,000 228,000 – 3,506,000 50,000 8,784,000 8,784,000 0.980
	Outstanding as at 1 January 2015 Issue during the year Exercised during the year Forfeited during the year 5,000,000 – – – 228,000 – – – – – – – 3,706,000 – (30,000) (170,000) 50,000 – – –
	8,984,000 – (30,000) (170,000)
	8,984,000 0.980

Annual Report 2015 121

for the year ended 31 December 2015

Notes to the Consolidated Financial Statements

29. SHARE-BASED COMPENSATION (continued)

(b) Share Option Scheme (continued)

Granted on 28 June 2012 (continued)

For the year ended 31 December 2014:

Director: Mr. Zhang Mr. Chau Mr. Shi Employees Consultants Exercisable at the end of the year Weighted average exercise price (HK$)	Number of options
	Outstanding as at 1 January 2014 Issue during the year Exercised during the year Forfeited during the year 5,000,000 – – – 228,000 – – – 210,000 – (210,000) – 4,196,000 – (490,000) – 50,000 – – –	Outstanding as at 31 December 2014 5,000,000 228,000 – 3,706,000 50,000
	9,684,000 – (700,000) –	8,984,000
	9,684,000 0.980	8,984,000
		0.980

At 31 December 2015, the number of shares in respect of which options granted on 28 June 2012 under the Share Option Scheme remained outstanding was 8,784,000 (31 December 2014: 8,984,000), representing 0.63% (31 December 2014: 0.65%) of the shares of the Company in issue at that date.

122 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2015

29. SHARE-BASED COMPENSATION (continued)

(b) Share Option Scheme (continued)

Granted on 27 December 2012

For the year ended 31 December 2015 and 31 December 2014:

Director: Mr. Leung Mr. DeWitt Mr. Kang Employees Consultants Exercisable at the end of the year Weighted average exercise price (HK$)	Number of options	Outstanding as at 31 December 2015 300,000 300,000 300,000 600,000 6,038,000 7,538,000 7,538,000 1.262
	Outstanding as at 1 January 2014 31 December 2014 and 1 January 2015 Issue during the year Exercised during the year Forfeited during the year 300,000 – – – 300,000 – – – 300,000 – – – 600,000 – – – 6,038,000 – – –
	7,538,000 – – –
	7,538,000 1.262

At 31 December 2015, the number of shares in respect of which options granted on 27 December 2012 under the Share Option Scheme remained outstanding was 7,538,000 (31 December 2014: 7,538,000), representing 0.54% (31 December 2014: 0.54%) of the shares of the Company in issue at that date.

Annual Report 2015 123

Notes to the Consolidated Financial Statements

for the year ended 31 December 2015

29. SHARE-BASED COMPENSATION (continued)

(b) Share Option Scheme (continued)

Granted on 30 September 2013

For the year ended 31 December 2015 and 31 December 2014:

Consultants Exercisable at the end of the year Weighted average exercise price (HK$)	Number of options
	Outstanding as at 1 January 2014, 31 December 2014 and 1 January 2015 Issue during the year Exercised during the year Forfeited during in the year 4,020,000 – – –	Outstanding as at 31 December 2015 4,020,000
	4,020,000 – – –	4,020,000
	4,020,000 1.870	4,020,000
		1.870

At 31 December 2015, the number of shares in respect of which options granted on 30 September 2013 under the Share Option Scheme remained outstanding was 4,020,000, (2014: 4,020,000), representing 0.29% (2014: 0.29%) of the shares of the Company in issue at that date.

124 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2015

29. SHARE-BASED COMPENSATION (continued)

(b) Share Option Scheme (continued)

Granted on 31 March 2014

For the year ended 31 December 2015:

Director: Mr. Chau Employees Consultants Exercisable at the end of the year Weighted average exercise price (HK$)	Number of options	Outstanding as at 31 December 2015 13,000,000 4,850,000 17,800,000 35,650,000 34,787,500 1.386
	Outstanding as at 1 January 2015 Issue during the year Exercised during the year Forfeited during the year 13,000,000 – – – 4,850,000 – – – 17,800,000 – – –
	35,650,000 – – –
	29,487,500 1.386

Annual Report 2015 125

for the year ended 31 December 2015

Notes to the Consolidated Financial Statements

29. SHARE-BASED COMPENSATION (continued)

(b) Share Option Scheme (continued)

Granted on 31 March 2014 (continued)

For the year ended 31 December 2014:

Director: Mr. Chau Employees Consultants Exercisable at the end of the year Weighted average exercise price (HK$)	Number of options
	Outstanding as at 1 January 2014 Issue during the year Exercised during the year Forfeited during the year – 13,000,000 – – – 5,850,000 – (1,000,000) – 17,800,000 – –	Outstanding as at 31 December 2014 13,000,000 4,850,000 17,800,000
	– 36,650,000 – (1,000,000)	35,650,000
	– 1.390	29,487,500
		1.390

At 31 December 2015, the number of shares in respect of which options granted on 31 March 2014 under the Share Option Scheme remained outstanding was 35,650,000, (2014: 35,650,000), representing 2.56% (2014:2.56%) of the shares of the Company in issue at that date.

126 Comtec Solar Systems Group Limited

for the year ended 31 December 2015

Notes to the Consolidated Financial Statements

29. SHARE-BASED COMPENSATION (continued)

(b) Share Option Scheme (continued)

Granted on 11 May 2015, 26 June 2015 and 25 November 2015

Pursuant to a board resolution dated 11 May 2015, 26 June 2015 and 25 November 2015, the Company granted 59,800,000, 20,000,000 and 59,000,000 share options of the Company, which respectively represent 4.30%, 1.44% and 4.24% of the shares of the Company in issue at the respective grant dates, to a director, certain employees and consultants of the Company under the Share Option Scheme. Set out below were details of the outstanding options granted under the Share Option Scheme on 11 May 2015, 26 June 2015 and 25 November:

(1) Options granted on 11 May 2015, 26 June 2015 and 25 November 2015 were at an exercise price of HK$1.390 per share, HK$1.500 and HK$0.736 per share, respectively. Except for the expenses in relation to share options granted to certain consultants which are fully charged to profit or loss upon their grant, holders of options granted on 11 May 2015, 26 June 2015 and 25 November 2015 might only exercise their options in the following manner:
(i) Half of the share options vested and exercisable on date of grant and
(ii) The remaining share options will have one-eighth to be vested every three months since the date of grant.
(2) The options will be lapsed or forfeited automatically and not be exercisable (to the extent not already exercised) to the earlier of the end of their exercisable periods or when the grantees ceased to be employees of the Group.

Annual Report 2015 127

for the year ended 31 December 2015

Notes to the Consolidated Financial Statements

29. SHARE-BASED COMPENSATION (continued)

(b) Share Option Scheme (continued)

Granted on 11 May 2015, 26 June 2015 and 25 November 2015 (continued)

Set out below are details of movements of the outstanding options granted under the Share Option Scheme on 11 May 2015, 26 June 2015 and 25 November 2015 during 2015:

Granted on 11 May 2015

Director: Mr. Shi Employees Consultants Exercisable at the end of the year Weighted average exercise price (HK$)	Number of options
	Outstanding as at 1 January 2015 Issue during the year Exercised during the year Forfeited during the year – 600,000 – – – 10,200,000 – – – 49,000,000 – –	Outstanding as at 31 December 2015 600,000 10,200,000 49,000,000
	– 59,800,000 – –	59,800,000
		47,341,666
		1.390

128 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2015

29. SHARE-BASED COMPENSATION (continued)

(b) Share Option Scheme (continued)

Granted on 11 May 2015, 26 June 2015 and 25 November 2015 (continued)

Granted on 26 June 2015

Number of options Outstanding as at 1 January 2015 Issue during the year Exercised during the year Forfeited during the year Consultants – 20,000,000 – – Exercisable at the end of the year Weighted average exercise price (HK$) Granted on 25 November 2015	Number of options	Outstanding as at 31 December 2015 20,000,000 15,000,000 1.500
	Outstanding as at 1 January 2015 Issue during the year Exercised during the year Forfeited during the year – 20,000,000 – –

Consultants Exercisable at the end of the year Weighted average exercise price (HK$)	Number of options	Outstanding as at 31 December 2015 59,000,000 31,958,333 0.736
	Outstanding as at 1 January 2015 Issue during the year Exercised during the year Forfeited during the year – 59,000,000 – –

Annual Report 2015 129

for the year ended 31 December 2015

Notes to the Consolidated Financial Statements

29. SHARE-BASED COMPENSATION (continued)

(b) Share Option Scheme (continued)

Granted on 11 May 2015, 26 June 2015 and 25 November 2015 (continued)

At 31 December 2015, the number of shares in respect of which options granted on 11 May 2015, 26 June 2015 and 25 November 2015 under the Share Option Scheme remained outstanding were 59,800,000, 20,000,000 and 59,000,000, representing 4.30%, 1.44% and 4.24% respectively of the shares of the Company in issue at that date.

The estimated fair value of share options granted on 11 May 2015, 26 June 2015 and 25 November 2015 were approximately RMB32 million, RMB9 million and RMB16 million, respectively. The fair value was calculated using the Binomial model. The inputs into the model are as follows:

	Granted on	Granted on	Granted on
	11 May 2015	26 June 2015	11 November 2015
Share price	HK$1.39	HK$1.25	HK$0.70
Exercise price	HK$1.390	HK$1.500	HK$0.736
Expected volatility	60.70%	61.00%	60.70%
Expected life	1.0	1.0	1.0
Risk-free interest rate	1.65%	1.79%	1.57%

The risk-free interest rate was based on the interpolated market yield rates of Hong Kong government bond as of the valuation date. Expected volatility was determined by using the historical volatility of the Company’s share prices. The suboptimal exercise multiple used in the model represents the estimated ratio of future share price over the exercise price when the grantees will exercise the options and has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioral considerations. Changes in variables and assumptions may result in changes in the fair values of the share options.

The Group recognised an expense of approximately RMB57,087,000 (2014: RMB17,670,000) for the year ended 31 December 2015 in relation to the share options granted by the Company under the Share Option Scheme.

130 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2015

30. INFORMATION OF THE STATEMENT OF FINANCIAL POSITION OF THE COMPANY

Non-current assets Investments in subsidiaries and amounts due from subsidiaries Current assets Other receivables Amounts due from subsidiaries Bank balances and cash Current liabilities Other payables Short-term borrowings Net current assets Total assets less current liabilities Capital and reserves Share capital_(see note 28) Reserves(note) Total equity Non-current liabilities Warrants(note 26)_ Long-term borrowings Equity and non-current liabilities	2015 2014 RMB’000 RMB’000 1,285,569 1,225,707
	3,455 2,994 5,479 4,424 163,998 167,104
	172,932 174,522
	1,302 866 159,106 151,702
	160,408 152,568
	12,524 21,954
	1,298,093 1,247,661
	1,205 1,205 1,296,888 1,232,784
	1,298,093 1,233,989
	– 10,600 – 3,072
	– 13,672
	1,298,093 1,247,661

Annual Report 2015 131

for the year ended 31 December 2015

Notes to the Consolidated Financial Statements

30. INFORMATION OF THE STATEMENT OF FINANCIAL POSITION OF THE COMPANY

(continued)

Note: Reserves

At 1 January 2014 Profit and total comprehensive expense for the year Issue of ordinary shares Transaction costs attributable to issue new shares Exercise of share options Recognition of equity-settled share-based payments At 31 December 2014 Profit and total comprehensive expense for the year Issue of ordinary shares Transaction costs attributable to issue new shares Exercise of share options Recognition of equity-settled share-based payments At 31 December 2015	The Company
	Share Share options Accumulated premium reserve losses Total RMB’000 RMB’000 RMB’000 RMB’000 1,254,225 11,739 (136,117) 1,129,847 – – 22,792 22,792 62,126 – – 62,126 (192) – – (192) 809 (268) – 541 – 17,670 – 17,670
	1,316,968 29,141 (113,325) 1,232,784 – – 6,993 6,993 – – – – – – – – 35 (11) – 24 – 57,087 – 57,087
	1,317,003 86,217 (106,332) 1,296,888

31. OPERATING LEASE COMMITMENTS

At the end of each reporting period, the Group was committed to make the following future minimum leases payments in respect of rented premises under non-cancellable operating leases which fall due as follows:

Within one year In the second to fifth year inclusive	2015 2014 RMB’000 RMB’000 476 537 100 2
	576 539

Operating lease payments represented rentals payable by the Group for certain of its office properties and factory premises. Except for the lease for the Group’s factory with a term of twenty years, leases are negotiated for an average term from one to two years.

132 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2015

32. CAPITAL COMMITMENTS

Capital expenditure in the consolidated financial statements in respect of the acquisition of property, plant and equipment — Contracted for but not provided — Authorised but not contracted for	2015 2014 RMB’000 RMB’000 5,160 16,877 200,000 200,000
	205,160 216,877

33. RETIREMENT BENEFITS SCHEMES

The Group participates in a Mandatory Provident Fund Scheme in Hong Kong which was established under the Mandatory Provident Fund Ordnance in December 2000 (the “MPF Scheme”). The assets of the schemes are held separately from those of the Group and are invested in funds under the control of independent trustees. For members of the MPF Scheme, the Group contributes 5%, with maximum of HK$1,500 per person of relevant payroll costs to the MPF Scheme since June, 2014 (HK$1,250 per person before), which contribution is matched by employees.

The employees of the PRC subsidiaries are members of the state-managed retirement benefits scheme operated by the PRC government. The PRC subsidiaries are required to contribute 20% to 22% of basic salaries of the employees to the retirement benefits scheme to fund the benefits. The only obligation of the Group with respect to the retirement benefits scheme is to make the required contributions under the scheme.

Annual Report 2015 133

Notes to the Consolidated Financial Statements

for the year ended 31 December 2015

34. RELATED PARTY TRANSACTIONS

The Group did not have any outstanding balances with related parties at 31 December 2015 and 31 December 2014.

Compensation of key management personnel

The remuneration of directors and other members of key management during the year were as follows:

Basic salaries and allowances Retirement benefits scheme contributions Share-based payments expense	2015 2014 RMB’000 RMB’000 5,695 5,635 174 168 3,119 6,780
	8,988 12,583

The remuneration of key management is determined by the remuneration committee of the Company having regard to the performance to individual and market trends.

35. MAJOR CONTRACTS

On 27 December 2013, a wholly-owned subsidiary of the Company, namely Comtec Solar (Hong Kong) Limited (“Comtec Solar HK”), entered into a wafer supply agreement (the “Wafer Supply Agreement”) with Mission Solar Energy LLC, a Delaware limited liability company (“Mission”) which is an independent third party, pursuant to which Comtec Solar HK will supply solar wafers with capacity of approximately 500MW to Mission from June 2014 to July 2017 at pre-determined delivery schedule and supply price.

In addition, Mission paid non-refundable deposits of USD35 million (equivalent to approximately RMB213,391,000) to Comtec Solar HK which will be used to offset the related consideration payable from June 2014 to July 2017 upon delivery of the solar wafers under the Wafer Supply Agreement. As a result, the Group recognised such deposits as customers’ deposits received in the consolidated statement of financial position. At each reporting date, the Directors estimate the amount of advances that is expected to be settled by the offset of the sales of the agreed contract quantity in the next twelve months and classify it as current liability. The remaining balance is classified as non-current liability in the consolidated statement of financial position. In early 2016, Comtec Solar HK has reached into an agreement with Mission under which neither parties under the Wafer Supply Agreement shall be bounded by the pre-determined delivery schedule and supply price terms for the forthcoming supply/purchase. As the revised delivery schedule has not been reached as to the date of this financial statements, the full amount of the deposit received from Mission is classified as current liabilities as of 31 December 2015.

134 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2015

35. MAJOR CONTRACTS (continued)

Carrying amounts of deposits received from Mission:

Within one year One to two years More than two years, but not exceeding five years Less: Amounts due within one year shown in note 24 Amounts shown under non-current liabilities	2015 2014 RMB’000 RMB’000 175,546 57,257 – 78,736 – 66,489 175,546 202,482 (175,546) (57,257) – 145,225

Immediately before the conclusion of the Wafer Supply Agreement between Comtec Solar (HK) and Mission, Comtec Solar (HK) entered into an agreement with an independent third party (the “Assignor” or the former seller of Mission) and paid an amount of USD35 million (equivalent to approximately RMB213,391,000) to the Assignor as an assignment fee that Comtec Solar (HK) assumed obligations as seller and the Assignor assigned its rights to Comtec Solar (HK) under the Wafer Supply Agreement over the relevant contractual period.

The Group recognised such prepaid assignment fee in the consolidated statement of financial position. At 31 December 2015 and 31 December 2014, the Directors estimate the amount of assignment fee that is expected to be released to the consolidated statement of profit or loss and other comprehensive income over the sales of the agreed contract quantity in the next twelve months and classify it as current asset. The remaining balance is classified as non-current asset in the consolidated statement of financial position.

Carrying amounts of prepaid assignment fee:

Current portion Non-current portion	2015 2014 RMB’000 RMB’000 175,546 52,067 – 145,225
	175,546 197,292

Annual Report 2015 135

for the year ended 31 December 2015

Notes to the Consolidated Financial Statements

35. MAJOR CONTRACTS (continued)

The Directors assessed provision for onerous contract in relation to the Wafer Supply Agreement and prepaid assignment fee on regular basis. Details of parameters of analysis are set out in note 17.

The Group recognised impairment losses in respect of prepaid assignment fee of nil during the year ended 31 December 2015 (2014: RMB5,190,000).

Movement in the allowance for prepaid assignment fee:

Balance at 1 January 2014 Provision Balance at 31 December 2014 Reversal Balance at 31 December 2015	RMB’000 – 5,190 5,190 (5,190) –

136 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2015

36. SUBSIDIARIES

Details of the Company’s subsidiaries, which are all wholly-owned, at 31 December 2015 and 31 December 2014 are as follows:

Place and date of incorporation/ Name of company establishment/operations

Issued and fully paid share capital/ registered capital at the date of this report

Principal activities

Comtec Semiconductor (Cayman) Limited*
Cayman Islands 23 April 2007

US$2 (Note 1)

Investment holding

Comtec Semiconductor Hong Kong (Hong Kong) Limited 12 October 2007

HK$2 (Note 1)

Investment holding

Comtec Solar (Cayman) Cayman Islands Limited* 23 April 2007

US$2 (Note 1)

Investment holding

Comtec Solar (HK) Hong Kong 12 October 2007

HK$2 (Note 1)

Investment holding, provision of sourcing, invoicing and support services for group companies

Comtec Solar BVI International Limited 2 January 2013

US$50,000 (Note 1)

Investment holding

Comtec Solar Malaysia MYR266,600,002 International (M) 7 February 2013 (Note 1) Sdn Bhd

Manufacturing and sales of semiconductors, solar wafers and related products

Comtec Solar Trading Hong Kong Limited 4 December 2013

HK$2 (Note 1)

Investment holding

Comtec Solar (China) Hong Kong Investment Holdings 4 December 2013 Limited

HK$2 (Note 1)

Investment holding

Comtec New Energy Hong Kong China Holdings Limited 25 November 2013

RMB46,972,960 (Note 1)

Investment holding

Annual Report 2015 137

Notes to the Consolidated Financial Statements

for the year ended 31 December 2015

36. SUBSIDIARIES (continued)

Issued and fully Place and date of paid share capital/ incorporation/ registered capital at the Name of company establishment/operations date of this report Principal activities Comtec Solar Systems BVI USD $50,000 Investment holding Limited 18 March 2014 (Note 1) Comtec Solar Systems BVI USD $50,000 Investment holding China Limited 20 March 2014 (Note 1) Comtec Solar Systems BVI USD $50,000 Investment holding International Limited 20 March 2014 (Note 1) Comtec Solar Systems Hong Kong HK$1 Investment holding HK Limited 2 May 2014 (Note 1) Comtec Solar (Jiangxi)[#] PRC US$6,064,000 Inactive 22 March 2006 (Note 1) Comtec Semi[#] PRC US$4,040,000 Manufacturing and sales of 21 December 1999 (Note 1) semiconductors, solar wafers and related products Comtec Solar[#] PRC US$18,500,000 Manufacturing and sales of 5 July 2005 (Note 1) solar wafers and related products Comtec New Energy PRC US$16,000,000 Manufacturing and sales of (Shanghai) Limited[#] 7 January 2012 (Note 1) solar wafers and related products Comtec Solar (Jiangsu) PRC US$66,500,020 Manufacturing and sales of Co., Limited[#] 11 February 2012 (Note 1) solar wafers and related products

Directly held by the Company
Wholly foreign-owned enterprise

Notes

The issued and fully paid share capital of the entity remained unchanged as at 31 December 2015 and 31 December 2014.

None of the subsidiaries has issued any debt securities at the end of the reporting period.

138 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2015

37. SUBSEQUENT EVENT

On 11 January 2016, the Company entered into a subscription agreement with two independent third parties (the “Subscribers”), pursuant to which the Company has conditionally agreed to issue, and the Subscribers have conditionally agreed to subscribe for a total 928,138,250 shares of the Company at a price of HK$0.66 per share (the “Subscription”). The Subscription was approved by the shareholders of the Company in an extraordinary general meeting of the Company dated 26 February 2016 and the estimated net proceeds from the Subscription (after deducting related professional fees and related expenses) are approximately HK$611.1 million. The Subscription shares will rank pari passu in all respects with the existing issued shares of the Company.

Annual Report 2015 139

Five Years Summary

Results
Turnover
(Loss) Profit before interest
expenses and taxation
Interest expense
(Loss) Profit before taxation
Taxation
(Loss) Profit and total comprehensive
income for the year, attributable
to the owners of the Company
Assets and liabilities
Total assets
Total liabilities
Net assets

Year ended 31 December
2011
2012
2013
2014
2015
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
1,016,746
1,025,615
937,479
906,620
1,091,200
20,597
(124,793)
(113,755)
(78,411)
(420,333)
(38,596)
(39,036)
(18,585)
(11,910)
(14,762)
(17,999)
(163,829)
(132,340)
(90,321)
(435,095)
(28,328)
(1,220)
(737)
(170)
381
(46,327)
(165,049)
(133,077)
(90,491)
(434,714)
Year ended 31 December
2011
2012
2013
2014
2015
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
2,654,773
2,440,099
2,608,545
2,484,678
2,125,319
(1,000,996)
(975,413)
(1,083,732)
(970,163)
(988,407)
1,653,777
1,464,686
1,524,813
1,514,515
1,136,912

140 Comtec Solar Systems Group Limited

Definitions

In this report, unless the context otherwise requires, the following terms shall have the following meanings:

“associate(s)” has the meaning ascribed to it under the Listing Rules “Board” or “Board of Directors” the board of Directors “Company” Comtec Solar Systems Group Limited “Controlling Shareholder(s)” the controlling shareholders (as defined in the Listing Rules) of the Company, namely Mr. John Zhang and Fonty “Corporate Governance Code” code on corporate governance practices contained in Appendix 14 to the or “CG Code” Listing Rules “Directors(s)” the director(s) of the Company “Fonty” Fonty Holdings Limited, a company incorporated under the laws of the BVI with limited liability on 5 September 2007 “Global Offering” or “IPO” the listing of the Shares on the Stock Exchange on 30 October 2009 “Group” the Company and its subsidiaries “HK$” and “HK cents” Hong Kong dollars and cents respectively, the lawful currency of Hong Kong

“Hong Kong” the Hong Kong Special Administrative Region of the PRC “Latest Practicable Date” 12 April 2016, being the latest practicable date prior to the printing of this annual report for ascertaining certain information in this annual report “Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange “Listing Date” 30 October 2009, the date on which dealings in the Shares first commenced on the Stock Exchange “Model Code” model code for securities transactions by directors of listed issuers contained in Appendix 10 to the Listing Rules “Mr. Zhang” or “Mr. John Zhang” Mr. John Yi Zhang, an executive Director, the chairman of the Board, the chief executive officer and the controlling shareholder of the Company

Annual Report 2015 141

Definitions

“PRC” or “China” the People’s Republic of China “Prospectus” the prospectus of the Company dated 19 October 2009 “RMB” Renminbi, the lawful currency of the PRC “SFO” the Securities and Future Ordinance, Chapter 571 of the Laws of Hong Kong “Share(s)” ordinary share(s) of HK$0.001 each in the share capital of the Company “Shareholder(s)” shareholder(s) of the Company “Stock Exchange” The Stock Exchange of Hong Kong Limited “substantial shareholder(s)” has the meaning ascribed to it under the Listing Rules “U.S.A.” the United States of America “%” per cent.

142 Comtec Solar Systems Group Limited

AI assistant

Comtec Solar Systems Group Limited — Annual Report 2015

49415_rns_2016-04-21_8b5c290a-5b36-4706-bb65-097d22995dce.pdf

Contents

Corporate Information

DIRECTORS

Executive Directors

Non-executive Director

Independent non-executive Directors

COMPANY SECRETARY

CORPORATE GOVERNANCE COMMITTEE

SIGNIFICANT PAYMENTS COMMITTEE

REGISTERED OFFICE

AUTHORISED REPRESENTATIVES

AUDIT COMMITTEE

NOMINATION COMMITTEE

HEADQUARTER

PRINCIPAL PLACE OF BUSINESS IN HONG KONG

COMPANY’S WEBSITE

REMUNERATION COMMITTEE

AUDITOR

LEGAL ADVISERS AS TO

HONG KONG LAW

PRINCIPAL BANKS

CAYMAN ISLANDS PRINCIPAL SHARE REGISTRAR AND TRANSFER OFFICE

HONG KONG SHARE REGISTRAR

Chairman’s Statement

Chairman’s Statement

Chairman’s Statement

Chairman’s Statement

Management Discussion and Analysis

BUSINESS REVIEW

Management Discussion and Analysis

Management Discussion and Analysis

Management Discussion and Analysis

FINANCIAL REVIEW

Revenue

Sales of 125 mm by 125 mm monocrystalline solar wafers

Sales of 156 mm by 156 mm monocrystalline wafers

Processing services of monocrystalline solar products

Management Discussion and Analysis

Others

Cost of sales

Management Discussion and Analysis

Gross losses

Other income

Other gains and losses, expenses and provision

Management Discussion and Analysis

(i) Impairment losses on advance to suppliers

Management Discussion and Analysis

(iv) Decrease in gain from fair value change of outstanding warrants

Distribution and selling expenses

Administrative and general expenses

Interest expenses

Loss before taxation

Taxation

Loss for the year

Inventory turnover days

Trade receivable turnover days

Trade payable turnover days

Advances to suppliers

Liquidity and financial resources

Capital Commitments

Contingent liabilities

Related Party Transactions

Charges on Group Assets

Acquisition of subsidiary

Disposal of subsidiary

Fund Raising And Use Of Proceeds

Human resources

Details of the future investment plans for material investment

Exposure to fluctuations in exchange rates and any related hedges

EXECUTIVE DIRECTORS

NON-EXECUTIVE DIRECTOR

INDEPENDENT NON-EXECUTIVE DIRECTORS

SENIOR MANAGEMENT

Biographical Details of Directors and Senior Management

COMPANY SECRETARY

PRINCIPAL ACTIVITIES

SUBSIDIARIES

Comtec Solar Systems Group Limited Annual Report 2015