Comtec Solar Systems Group Limited - Annual Report 2017

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

2017 Annual Report

Contents
Corporate Information	02
Chairman’s Statement	04
Management Discussion and Analysis	09
Biographical Details of Directors and Senior Management	22
Report of the Directors	26
Corporate Governance Report	46
Environmental, Social and Governance Report	59
Independent Auditor’s Report	71
Consolidated Statement of Profit or Loss and Other Comprehensive Income	78
Consolidated Statement of Financial Position	80
Consolidated Statement of Changes in Equity	82
Consolidated Statement of Cash Flows	83
Notes to the Consolidated Financial Statements	85
Five Years Summary	176
Definitions	177

Corporate Information

DIRECTORS

Executive Directors

Mr. John Yi Zhang (Chairman) Mr. Zhang Zhen Mr. Chau Kwok Keung

CORPORATE GOVERNANCE COMMITTEE

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

SIGNIFICANT PAYMENTS COMMITTEE

Non-executive Director

Mr. Wang Yixin

Independent non-executive Directors

Mr. Kang Sun Mr. Leung Ming Shu Mr. Xu Erming

COMPANY SECRETARY

Mr. John Yi Zhang (Chairman) Mr. Chau Kwok Keung

REGISTERED OFFICE

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

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

HEADQUARTERS

AUTHORISED REPRESENTATIVES

Mr. John Yi Zhang Mr. Chau Kwok Keung

16 Yuan Di Road Nanhui Industrial Zone Shanghai 201314 PRC

AUDIT COMMITTEE

Mr. Leung Ming Shu (Chairman) Mr. Kang Sun Mr. Xu Erming

NOMINATION COMMITTEE

Mr. John Yi Zhang (Chairman) Mr. Kang Sun Mr. Leung Ming Shu Mr. Xu Erming

PRINCIPAL PLACE OF BUSINESS IN HONG KONG

Suite 33 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 Yi Zhang Mr. Kang Sun Mr. Xu Erming

AUDITOR

Deloitte Touche Tohmatsu

02 Comtec Solar Systems Group Limited

Corporate Information

LEGAL ADVISERS AS TO

HONG KONG LAW

Luk & Partners In Association with Morgan, Lewis & Bockius

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 2017 03

Chairman’s Statement

Dear Shareholders,

On behalf of Comtec Solar Systems Group Limited (the “Company”, together with its subsidiaries, the “Group”), I am pleased to present the audited annual results of the Group for the year ended 31 December 2017. Here are some financial and business highlights for the year:

Revenue for the year was approximately RMB489.2 million, representing a year-on-year decrease of 39.6% from approximately RMB810.0 million for the year ended 31 December 2016;
Gross profit for the year was approximately RMB8.0 million, representing a turnaround from gross loss of approximately RMB152.6 million for the year ended 31 December 2016;
Gross profit margin for the year was approximately 1.6%, representing a turnaround from gross loss margin of approximately 18.8% for the year ended 31 December 2016;
Net loss for the year was approximately RMB145.4 million, decreased from the net loss of RMB1,007.1 million for the year ended 31 December 2016;
Net loss margin for the year was approximately 29.7%, comparing to 124.3% for the year ended 31 December 2016; and
Our loss per share for the year was RMB8.15 cents, comparing to the loss per share of RMB69.48 cents for the year ended 31 December 2016.

During the year ended 31 December 2017, the Group achieved remarkable progress in downsizing traditional solar wafer manufacturing businesses and expanding to the more profitable downstream solar business which specifically focuses on rooftop distributed generation projects on commercial and industrial buildings.

04 Comtec Solar Systems Group Limited

Chairman’s Statement

DISPOSAL OF ASSETS IN MALAYSIA

On 30 December 2016, the Company, Comtec Solar International (M) Sdn. Bhd. (“Comtec Malaysia”) and Longi (Kuching) Sdn. Bhd (“Longi”) entered into an asset transfer agreement, pursuant to which Comtec Malaysia agreed to sell and Longi agreed to purchase the assets of Comtec Malaysia at a total consideration of RMB200.0 million.

Comtec Malaysia was established in 2013 by the Company to expand the Group’s production capacity in its solargrade monocrystalline silicon business. Due to the unfavorable global macro-economic environment, the relatively small scale of operations, the lower production efficiency at the early stage of its operations and that it took time to train the local production team, Comtec Malaysia had been loss making and had recorded cumulative operating loss of approximately RMB178.5 million since 2013. Although the Group had been striving to improve its operating efficiency and reduce its production cost per unit, Comtec Malaysia was not able to generate operating profit in 2016. At the same time, the industry landscape for the monocrystalline silicon business deteriorated in the second half of 2016, with certain major players who use monocrystalline silicon wafers, such as those produced by Comtec Malaysia, scaling back or even shutting down their production. In such circumstances, the board (the “Board”) of directors (the “Directors”) of the Company considered that it would be in the interest of the Company to exit its investment in the production facilities in Malaysia so that the Group could provide more resources on expanding its downstream distributed solar system business, as it was expected that the business prospects of the downstream distributed solar system business would be better than that of the upstream ingot and wafer manufacturing business. Also, given the unfavorable market conditions, the Board believes there is a risk that the prices of the assets of Comtec Malaysia may fall even lower later. Such disposal was completed in June 2017. For further details, please refer to the announcements of the Company dated 3 January 2017, 21 March 2017 and 20 April 2017 and the circular of the Company dated 31 March 2017.

END OF LONG-TERM PURCHASE AGREEMENTS

During the year, we were also free from the contractual obligations in relation to the long term purchase agreements for polysilicons which led to our substantial amount of losses in last few years. It allowed the Group to be more flexible in managing its supply chain to adapt to the market situations. And we intend to improve our flexibilities and cost competitiveness on solar wafer manufacturing business by outsourcing certain production procedures to external processing agents. The Group would mainly focus on the production procedures which are important to the long-term competitiveness of our monocrystalline wafer business.

On the other hand, we have made good progress on the new businesses initiatives.

Annual Report 2017 05

Chairman’s Statement

STRATEGIC COOPERATION WITH MACQUARIE CAPITAL

On 18 September 2017, Comtec Renewable Energy Group Limited (“Comtec Renewable Energy”), a wholly-owned subsidiary of the Company, and Macquarie Corporate Holding Pty Limited (“Macquarie Capital”) entered into a shareholders’ agreement, pursuant to which Comtec Renewable Energy and Macquarie Capital agreed to form a co-investment vehicle (the “Co-Investment Vehicle”) for the purpose of developing and expanding the downstream solar business. The Co-Investment Vehicle will be owned as to 50% by Comtec Renewable Energy and 50% by Macquarie Capital, respectively, and the total subscription amount to be paid by each party for the transaction will be up to a maximum of US$5 million.

The Co-Investment Vehicle will focus on the development, project management and construction of distributed solar generated power projects in the PRC with an aggregate capacity of 30–40 Megawatts. The cooperation with Macquarie Capital will broaden the Group’s strategic cooperation with international financial institutions, which strengthens and improves the financial resources of the Group.

COOPERATION WITH ADMINISTRATIVE COMMITTEE OF WUxI HUISHAN ECONOMIC DEVELOPMENT ZONE

In addition to the incorporation of the remarkable Co-Investment Vehicle with Macquarie Capital, we also made continuous progress on our new business initiatives. On 12 January 2017, the Group entered into a strategic framework cooperation agreement with the Administrative Committee of Wuxi Huishan Economic Development Zone in relation to the proposed cooperation in the distributed solar power generation projects and the intelligent energy charging facilities projects. Pursuant to the agreement, both parties agreed to cooperate exclusively with each other in connection with solar projects in Huishan Economic Development Zone.

ACQUISITION OF FORUM (ASIA) LIMITED

In March 2017, the Group has completed the acquisition of Forum (Asia) Limited to further expand the business of rooftop solar projects.

COOPERATION WITH FUZHOU SWIRE COCA COLA

On 8 May 2017, the Company successfully completed the construction of a solar power rooftop distributed generation station in Fuzhou (the “Solar Power Generation Station”). Pursuant to an electricity supply agreement (the “Electricity Supply Agreement”) entered into by, amongst others, Fuzhou Comtec Solar Electricity Co., Ltd. (福州卡姆丹克太陽能電力有限責任公司) (“Fuzhou Comtec”), a wholly-owned subsidiary of the Company, and Fuzhou Swire Coca Cola Beverage Co., Ltd. (福州太古可口可樂飲料有限公司) (“Fuzhou Swire Coca Cola”), the Solar Power Generation Station was constructed by Fuzhou Comtec to supply Fuzhou Swire Coca Cola with solar power electricity for a term of 25 years. The Solar Power Generation Station was constructed on a rooftop covering an area of approximately 30,000 square meters and its scale is approximately 2 Megawatts.

06 Comtec Solar Systems Group Limited

Chairman’s Statement

COOPERATION WITH ISDN HOLDINGS

On 25 May 2017, the Company entered into a strategic cooperation framework agreement (the “Framework Agreement”) with ISDN Holdings Limited (“ISDN Holdings”), a company listed on the Main Board of The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) (stock code: 1656) and the Stock Exchange of Singapore (stock code: I07.SI), in relation to the proposed strategic cooperation in the energy industry. After arm’s length negotiation, the parties incorporated an investment holding company in the British Virgin Islands (the “JV Holdco”) in August 2017. The JV Holdco is named C&I Renewable Limited and owned as to 70% by our Company and 30% by ISDN Holdings. The board of directors of the JV Holdco comprises three members, namely Mr. Zhang Zhen and Mr. Chau Kwok Keung, each being an executive Director of our Company, and Mr. Teo Cher Koon, being the managing director and president of ISDN Holdings. After incorporation of the JV Holdco, it will further establish subsidiaries in Hong Kong and the PRC. It is expected that the PRC subsidiary will set up and operate a distributed generation solar power station with an estimated scale of approximately 1 Megawatt on the roof of a property owned by ISDN Holdings located in Suzhou, the PRC. It is also expected that, upon commencement of operation of the distributed generation solar power station, ISDN Holdings and/or its subsidiary(ies) will purchase generated power from such power station at the relevant fair market price for a term of 20 years. The total investment amount to the JV Holdco and its subsidiaries would be no more than RMB8 million. Upon the incorporation, each of the JV Holdco and its subsidiaries will be accounted as a subsidiary of the Group and their financials will be consolidated to those of the Group accordingly.

ACQUISITION OF KExIN

On 25 May 2017, Comtec Renewable Energy (Jiangsu) Limited (卡姆丹克清潔能源(江蘇)有限公司) (“Comtec Renewable (Jiangsu)”), Zhenjiang Kexin Power System Design and Research Company Limited (鎮江科信動力系統設計研究有限公司) (“Kexin”) and the vendors of Kexin entered into an equity transfer agreement, pursuant to which Comtec Renewable (Jiangsu) agreed to acquire 70% equity interest of Kexin from the vendors at a cash consideration of RMB14 million. Kexin is principally engaged in the research and development, design, integration and sales of lithium battery management systems and lithium battery systems for electric vehicles (including electric cars, electric motors and electric bicycles) to electric vehicle manufacturers and for power storage systems to lithium battery manufacturers and to power storage companies. The acquisition represented an attractive opportunity for the Group to expand into the business of the research and development, design, integration and sales of lithium battery management systems and lithium battery systems for electric vehicles (including electric cars, electric motors and electric bicycles) to electric vehicle manufacturers and for power storage systems to lithium battery manufacturers and to power storage companies, which marked the Group’s continuous efforts in diversifying its business.

Annual Report 2017 07

Chairman’s Statement

The consideration payable by Comtec Renewable (Jiangsu) for the acquisition was RMB14 million, which was determined after arm’s length negotiation between the parties by reference to, among others, (i) the potential prospects of Kexin and its expected synergy with the Company, and (ii) the valuation of Kexin as at 12 May 2017. The acquisition was completed in October 2017. Please refer to the announcements of the Company dated 25 May 2017 and 16 October 2017 for further details.

The above progresses marked the Group’s continuous efforts to develop and expand its new business initiatives. It would also enhance our profit amounts and profitabilities.

SHARE PLACING

On 13 July 2017, the Company entered into a subscription agreement with Rich Reach Holdings Limited (富達控股有限公司), an independent third party, pursuant to which the Company has conditionally agreed to allot and issue 118,389,897 subscription shares at a subscription price of HK$0.2534 per share. The subscription has been completed on 20 July 2017 with the 118,389,897 subscriptions shares allotted and issued to Rich Reach Holdings Limited (富達控股有限公司), generating the net proceeds of approximately HK$29.2 million, representing a net subscription price of HK$0.247 per subscription share. The net proceed was expected to be used as general working capital of the Group. As at the date of this report, the net proceed has been used up. Please refer to the announcements of the Company dated 13 July 2017 and 20 July 2017 for further details.

On 21 July 2017, the Company entered into another subscription agreement with Advanced Gain Limited, an independent third party, pursuant to which the Company has conditionally agreed to allot and issue 190,912,714 subscription shares at a subscription price of HK$0.25 per share. The subscription has been completed on 18 October 2017 with the 190,912,714 subscriptions shares allotted and issued to Advanced Gain Limited, generating the net proceeds of approximately HK$46.93 million, representing a net subscription price of HK$0.2458 per subscription share. The net proceed was expected to be used as general working capital of the Group. As at the date of this report, the net proceed has been used up. Please refer to the announcements of the Company dated 21 July 2017 and 18 October 2017 for further details.

The Group intends to explore further opportunities and make further expansion into downstream solar business. We believe this strategy would fuel the growth of the Group. 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 Yi Zhang

Chairman

Shanghai, 29 March 2018

08 Comtec Solar Systems Group Limited

Management Discussion and Analysis

BUSINESS REVIEW

During the year ended 31 December 2017, the Group achieved remarkable progress in downsizing the traditional solar wafer manufacturing businesses and expanding to the more profitable downstream solar business which specifically focuses on rooftop distributed generation projects on commercial and industrial buildings.

Disposal of assets in Malaysia

On 30 December 2016, the Company, Comtec Malaysia and Longi entered into an asset transfer agreement, pursuant to which Comtec Malaysia agreed to sell and Longi agreed to purchase the assets of Comtec Malaysia at a total consideration of RMB200.0 million.

Comtec Malaysia was established in 2013 by the Company to expand the Group’s production capacity in its solargrade monocrystalline silicon business. Due to the unfavorable global macro-economic environment, the relatively small scale of operations, the lower production efficiency at the early stage of its operations and that it took time to train the local production team, Comtec Malaysia had been loss making and had recorded cumulative operating loss of approximately RMB178.5 million since 2013. Although the Group had been striving to improve its operating efficiency and reduce its production cost per unit, Comtec Malaysia was not able to generate operating profit in 2016. At the same time, the industry landscape for the monocrystalline silicon business deteriorated in the second half of 2016, with certain major players who use monocrystalline silicon wafers, such as those produced by Comtec Malaysia, scaling back or even shutting down their production. In such circumstances, the Board considered that it would be in the interest of the Company to exit its investment in the production facilities in Malaysia so that the Group could provide more resources on expanding its downstream distributed solar system business, as it is expected that the business prospects of the downstream distributed solar system business would be better than that of the upstream ingot and wafer manufacturing business. Also, given the unfavorable market conditions, the Board believes there is a risk that the prices of the assets of Comtec Malaysia may fall even lower later. Such disposal was completed in June 2017.

End of long-term purchase agreements

Annual Report 2017 09

Management Discussion and Analysis

Strategic Cooperation with Macquarie Capital

On 18 September 2017, Comtec Renewable Energy, a wholly-owned subsidiary of the Company, and Macquarie Capital entered into a shareholders’ agreement, pursuant to which Comtec Renewable Energy and Macquarie Capital agreed to form the Co-Investment Vehicle for the purpose of developing and expanding the downstream solar business. The Co-Investment Vehicle will be owned as to 50% by Comtec Renewable Energy and 50% by Macquarie Capital, respectively, and the total subscription amount to be paid by each party for the transaction will be up to a maximum of US$5 million.

Cooperation with Administrative Committee of Wuxi Huishan Economic Development Zone

In addition to the incorporation of the remarkable Co-Investment Vehicle with Macquarie Capital, we also made continuous progress on our new business initiatives. On 12 January, 2017, the Group entered into a strategic framework cooperation agreement with the Administrative Committee of Wuxi Huishan Economic Development Zone in relation to the proposed cooperation in the distributed solar power generation projects and the intelligent energy charging facilities projects. Pursuant to the agreement, both parties agreed to cooperate exclusively with each other in connection with solar projects in Huishan Economic Development Zone.

Acquisition of Forum (Asia) Limited

In March 2017, the Group has completed the acquisition of Forum (Asia) Limited to further expand the business of rooftop solar projects.

Cooperation with Fuzhou Swire Coca Cola

On 8 May 2017, the Company successfully completed the construction of the Solar Power Generation Station in Fuzhou. Pursuant to the Electricity Supply Agreement entered into by, amongst others, Fuzhou Comtec, a whollyowned subsidiary of the Company, and Fuzhou Swire Coca Cola, the Solar Power Generation Station was constructed by Fuzhou Comtec to supply Fuzhou Swire Coca Cola with solar power electricity for a term of 25 years. The Solar Power Generation Station was constructed on a rooftop covering an area of approximately 30,000 square meters and its scale is approximately 2 Megawatts.

10 Comtec Solar Systems Group Limited

Management Discussion and Analysis

Cooperation with ISDN Holdings

On 25 May 2017, the Company entered into the Framework Agreement with ISDN Holdings, in relation to the proposed strategic cooperation in the energy industry. After arm’s length negotiation, the parties incorporated the JV Holdco in August 2017. The JV Holdco is named C&I Renewable Limited and owned as to 70% by our Company and 30% by ISDN Holdings. The board of directors of the JV Holdco comprises three members, namely Mr. Zhang Zhen and Mr. Chau Kwok Keung, each being an executive Director of our Company, and Mr. Teo Cher Koon, being the managing director and president of ISDN Holdings. After incorporation of the JV Holdco, it will further establish subsidiaries in Hong Kong and the PRC. It is expected that the PRC subsidiary will set up and operate a distributed generation solar power station with an estimated scale of approximately 1 Megawatt on the roof of a property owned by ISDN Holdings located in Suzhou, the PRC. It is also expected that, upon commencement of operation of the distributed generation solar power station, ISDN Holdings and/or its subsidiary(ies) will purchase generated power from such power station at the relevant fair market price for a term of 20 years. The total investment amount to the JV Holdco and its subsidiaries would be no more than RMB8 million. Upon the incorporation, each of the JV Holdco and its subsidiaries will be accounted as a subsidiary of the Group and their financials will be consolidated to those of the Group accordingly.

Acquisition of Kexin

On 25 May 2017, Comtec Renewable (Jiangsu), Kexin and the vendors of Kexin entered into an equity transfer agreement, pursuant to which Comtec Renewable (Jiangsu) agreed to acquire 70% equity interest of Kexin from the vendors at a cash consideration of RMB14 million. Kexin is principally engaged in the research and development, design, integration and sales of lithium battery management systems and lithium battery systems for electric vehicles (including electric cars, electric motors and electric bicycles) to electric vehicle manufacturers and for power storage systems to lithium battery manufacturers and to power storage companies. The acquisition represented an attractive opportunity for the Group to expand into the business of the research and development, design, integration and sales of lithium battery management systems and lithium battery systems for electric vehicles (including electric cars, electric motors and electric bicycles) to electric vehicle manufacturers and for power storage systems to lithium battery manufacturers and to power storage companies, which marked the Group’s continuous efforts in diversifying its business.

The consideration payable by Comtec Renewable (Jiangsu) for the Proposed Acquisition was RMB14 million, which was determined after arm’s length negotiation between the parties by reference to, among others, (i) the potential prospects of Kexin and its expected synergy with the Company, and (ii) the valuation of Kexin as at 12 May 2017. The acquisition was completed in October 2017. Please refer to the announcements of the Company dated 25 May 2017 and 16 October 2017 for further details.

The above progresses marked the Group’s continuous efforts to develop and expand its new business initiatives. It would also enhance our profit amounts and profitabilities.

Annual Report 2017 11

Management Discussion and Analysis

Share Placing

Revenues from our top five customers in 2017 represented approximately 46.2% of our total revenues, compared to approximately 44.5% in the last year. The sales to our largest customer accounted for approximately 17.3% of our total revenues in 2017 as compared to approximately 25.9% in 2016. The remaining of our sales in 2017 was mainly shipped to Philippines, Japan and Korea. We continued to diversity and expand our customer basis.

The Group intends to explore opportunities in new business initiatives and expand further into downstream solar business. We believe this strategy would fuel the growth of the Group and would try to create synergy through integration of the downstream solar business with the Group’s existing upstream solar business. The acquisition of Joy Boy Limited, Forum (Asia) Limited and Kexin represent attractive opportunities for the Group to expand into the new business initiatives of renewable energy. To leverage on our advanced technological capabilities, high quality product offerings, the strategic alliance with reputable strategic partners and the completed acquisitions to fill us with the required talents and resources to drive the new business developments, we are confident to capture enormous opportunities and drive continuous growth for the Group in the future.

12 Comtec Solar Systems Group Limited

Management Discussion and Analysis

FINANCIAL REVIEW

Revenue

Revenue decreased by RMB320.8 million, or 39.6%, from RMB810.0 million for the year ended 31 December 2016 to RMB489.2 million for the year ended 31 December 2017, primarily as a result of the decrease in sales of polysilicon due to the expiry of the long term purchase agreements and decrease in sales of the excess inventories of polysilicon arising from such contractual obligation which materially reduced during the year. In addition, the average selling prices of wafers decreased during the year. But it was partially mitigated by the increase in the sale volume of wafers and ingots as well as revenue contributions from downstream businesses.

Sales of 156 mm by 156 mm monocrystalline wafers

Revenue from sales of 156 mm by 156 mm monocrystalline solar wafers increased by RMB115.0 million, or 125.5%, from RMB91.6 million for the year ended 31 December 2016 to RMB206.6 million for the year ended 31 December 2017, primarily as a result of the increase in sales volume while it was partially offset by the decrease in average selling price. The sales volume increased by 131.2MW, or 164.4% from 79.8MW for the year ended 31 December 2016 to 211.0MW for the year ended 31 December 2017, which was mainly due to the major market demand and focus on larger-size monocrystalline silicon wafers. But it was partially offset by the decrease in average selling price of RMB0.17 or 14.8%, from RMB1.15 per watt for the year ended 31 December 2016 to RMB0.98 per watt for the year ended 31 December 2017 due to the competitive market environment.

Sales of 125 mm by 125 mm monocrystalline solar wafers

Revenue from sales of 125 mm by 125 mm monocrystalline solar wafers decreased by RMB172.1 million, or 80.0%, from RMB215.0 million for the year ended 31 December 2016 to RMB42.9 million for the year ended 31 December 2017, primarily due to the decrease in both of sales volume and average selling price. The sales volume of 125 mm by 125 mm monocrystalline wafers decreased by approximately 106.6MW, or 62.2%, from 171.3MW for the year ended 31 December 2016 to 64.7MW for the year ended 31 December 2017, which was primarily due to the major market demand and focus on larger-size monocrystalline silicon wafers instead of smaller ones. The average selling price also decreased by RMB0.59, or 47.2%, from RMB1.25 per watt for the year ended 31 December 2016 to RMB0.66 per watt for the year ended 31 December 2017 due to the change of market landscape and our clearance of the inventory of 125 mm by 125 mm monocrystalline solar wafers.

Others

The other revenues, mainly composed of revenues from the sales of excess inventory of polysilicon, downstream project development services income, sales of ingots and trading revenue from sales of solar cells and modules. Other revenues decreased by RMB263.7 million, or 52.4% from RMB503.4 million for the year ended 31 December 2016 to RMB239.7 million for the year ended 31 December 2017. It was mainly due to the substantial decrease in sales of excess inventory of polysilicon while it was partially mitigated by the increase in sales of ingot, new sources of revenue from downstream project development services income and trading revenue from sales of solar cells and modules and the increase in sales of ingots.

Annual Report 2017 13

Management Discussion and Analysis

The revenue from the sales of excess inventory of polysilicon during the year was approximately RMB65.3 million, representing a decrease of approximately RMB390.8 million or 85.7% from RMB456.1 million for the year ended 31 December 2016. The excess inventories were purchased under the long-term agreements with our major polysilicon suppliers and the amount of such excess inventory dropped materially during the year due to the expiry of such agreements. The sales volume of excess inventory of polysilicon was approximately 544.9 tons during the year, representing a decrease of 3,835.5 tons or 87.6% from 4,380.4 tons in 2016.

For the year ended 31 December 2017, the revenues from downstream project development services income was approximately RMB47.2 million and the trading revenue from sales of solar cells and modules was approximately RMB72.3 million. They were new sources of revenues generated during the year. In addition, the revenue from sales of ingots for the year ended 31 December 2017 was approximately RMB45.5 million, representing an increase of approximately RMB15.9 millions or 53.7% from RMB29.6 million for the year ended 31 December 2016. It represented approximately 9.3% of our total revenue for the year ended 31 December 2017, representing an increase from 3.7% for the year ended 31 December 2016. The increase in these revenues mitigated the drop of revenue from sales of excess inventory of polysilicon.

In relation to the analysis of our revenue by geographical market, approximately 87.2% of total revenue for the year ended 31 December 2017 was generated from our PRC customers (2016: 66.3%). Remaining portion was mainly generated from our Philippines customer which represented approximately 7.5% of total revenue (2016: 25.9%).

Cost of sales

Cost of sales for the year ended 31 December 2017 was approximately RMB481.2 million, representing a decrease of RMB481.4 million or 50.0% from RMB962.6 million for the year ended 31 December 2016. The decrease was mainly due to the substantial decrease in shipment volume of excess inventory of polysilicon and decrease in writedown of inventory during the year ended 31 December 2017.

The shipment volumes of the excess inventory of polysilicon was approximately 544.9 tons during the year, representing a decrease of 3,835.5 tons or 87.6% from 4,380.4 tons in 2016. The excess inventories were purchased under the long-term agreements with our major polysilicon suppliers and the amount of such excess inventory dropped materially during the year due to the expiry of such agreements.

The write-down of inventory was approximately RMB17.4 million for the year ended 31 December 2017 as compared to RMB94.5 million for the year ended 31 December 2016. 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 such inventories in that year. During the year ended 31 December 2017, the average selling price of the 125 mm by 125 mm monocrystalline solar wafers and the 156 mm by 156 mm monocrystalline solar wafers decreased by approximately 47.2% and 14.8% respectively. Thus, there were inventories with net realizable values that are lower than their carrying amounts, resulting in the write-down of inventory for the year ended 31 December 2017. But such writedown dropped a lot comparing to that for the year ended 31 December 2016 after the disposal of assets and properties of factory in Malaysia.

14 Comtec Solar Systems Group Limited

Management Discussion and Analysis

Gross profit/(loss)

The Company recorded gross profit of approximately RMB8.0 million for the year ended 31 December 2017, representing a turnaround from the gross loss of RMB152.6 million for the year ended 31 December 2016.

The turnaround to gross profit in 2017 was mainly attributable to the profitable downstream project development businesses which commenced during the year. Also, the write-down of inventory for the year ended 31 December 2017 also decreased after disposal of assets and properties of factory in Malaysia. In addition, the cost of sales for the year ended 31 December 2017 decreased by approximately 50.0% from the year ended 31 December 2016, which outpaced the drop of revenue by approximately 39.6% during the year.

As a result of the foregoing, the Company recorded gross profit of RMB8.0 million for the year ended 31 December 2017, comparing to gross loss of approximately RMB152.6 million for the year ended 31 December 2016.

Other income

Other income for the year ended 31 December 2017 was approximately RMB29.0 million, representing an increase of approximately RMB24.9 million, or 607.3%, from RMB4.1 million for the year ended 31 December 2016, mainly due to the government subsidies of approximately RMB27.1 million granted to our downstream business in 2017.

Other gains and losses, expenses and provision

Other losses decreased by RMB710.3 million, or 93.0%, from RMB763.8 million for the year ended 31 December 2016 to RMB53.5 million for the year ended 31 December 2017. For the year ended 31 December 2017, the amount of other losses mainly included (i) losses on disposal of fixed assets of approximately RMB14.8 million and (ii) the impairment losses recognized in respect of property, plant and equipment of approximately RMB36.9 million. The amount of other losses for the year ended 31 December 2016 mainly included (i) the losses from disposal of assets and properties of our Comtec Malaysia of approximately RMB339.3 million, (ii) the impairment losses recognized in respect of property, plant and equipment of approximately RMB276.5 million and (iii) the accrued expenses for termination of our Malaysia plant under construction as a result of the disposal of major assets and properties of Comtec Malaysia and downsize of manufacturing business of approximately RMB149.0 million. Substantial amount of other losses related to disposal of assets and properties of our Comtec Malaysia was incurred and recognised for the year ended 31 December 2016. Thus the amount of other losses dropped substantially during the year.

Annual Report 2017 15

Management Discussion and Analysis

Impairment losses recognized in respect 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 cashgenerating units or the underlying assets and a suitable discount rate in order to calculate the present value. 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 and impairment losses would arose.

The competitive landscape for the traditional monocrystalline silicon wafer industry further deteriorated in the second half of 2017. The selling price of monocrystalline silicon wafers dropped continuously during 2017. The Group thus conducted a review of the Group’s property, plant and equipment which has made reference to the Group’s annual shipment volume would be less than 500MW in future, the Group’s product mix would mainly focus on 156mm x 156mm “Super Mono” wafers, recent market demand for the Group’s products, the forecasted selling prices of our products and of polysilicons would continue to decrease etc and determined that a number of those assets were impaired, due to the adverse changes in the future economic conditions of the traditional solar wafer manufacturing business in which the Group is engaging. Accordingly, impairment losses of RMB36.9 million have been recognized in respect of plant and machinery, which are used in the Group’s manufacturing and sales of solar wafers and related processing services.

Distribution and selling expenses

The distribution and selling expenses accounted for approximately 2.3% of the revenue for the year ended 31 December 2017 which had no material difference from the percentage recorded for the year ended 31 December 2016. The distribution and selling expenses decreased by approximately RMB4.2 million, or 27.5%, from RMB15.3 million for the year ended 31 December 2016 to RMB11.1 million for the year ended 31 December 2017. The decrease was in line with the decrease in shipment volume during 2017.

Administrative and general expenses

Administrative and general expenses increased by RMB17.6 million, or 27.4%, from RMB64.2 million for the year ended 31 December 2016 to RMB81.8 million for the year ended 31 December 2017. It was mainly due to the additional amount of amortization expense of RMB21.3 million in relation to intangible assets.

Research and development expenses

Research and development expenses decreased by RMB1.0 million, or 14.5%, from RMB6.9 million for the year ended 31 December 2016 to RMB5.9 million for the year ended 31 December 2017.

16 Comtec Solar Systems Group Limited

Management Discussion and Analysis

Interest expenses

Interest expenses were approximately RMB15.9 million for the year ended 31 December 2017, representing an increase of RMB6.8 million from RMB9.1 million for the year ended 31 December 2016, which was mainly due to increase of financing costs during the year ended 31 December 2017. The effective interest rate upon the bank loan balances as at 31 December 2017 was approximately 7.5%.

Loss before taxation

Loss before taxation of RMB131.2 million for the year ended 31 December 2017, representing a decrease from the loss before taxation of RMB1,007.8 million for the year ended 31 December 2016, as a result of the foregoing.

Taxation

The Group recorded taxation expenses of approximately RMB14.2 million for the year ended 31 December 2017 which was mainly due to the taxable profits recorded by certain subsidiaries in China under the corporate income tax rate of 25%. However, the Group did not incur significant tax expenses for the year 31 December 2016 since no assessable profits were derived or tax losses were incurred from the Group entities during that year.

Loss for the year

The Group recorded a loss of RMB145.4 million during 2017, representing a decrease from the loss of RMB1,007.1 million for the year ended 31 December 2016, as a result of the foregoing. Net loss margin for the year ended 31 December 2017 was 29.7%, comparing to the net loss margin of 124.3% for the year ended 31 December 2016.

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 77.4% from RMB191.1 million for the year ended 31 December 2016 to RMB43.2 million for the year ended 31 December 2017. The decrease was mainly due to the efforts to downsize the scale of traditional manufacturing wafer business and to reduce inventory level. The inventory turnover days as at 31 December 2017 were 33 days in total (2016: 72 days).

Trade receivable turnover days

The trade receivable turnover days as at 31 December 2017 totaled 42 days (2016: 41 days). For the year ended 31 December 2017, the Group has closely supervised the repayment status of debtor balances. The credit period granted to customers is approximately 7 to 180 days on case-by-case basis. The average receivable turnover days were approximately 42 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 2017 totaled 64 days (2016: 97 days). The Group has obtained continuous supports from long term and strategic suppliers during the challenging industry environments.

Annual Report 2017 17

Management Discussion and Analysis

Liquidity and financial resources

The Group’s principal sources of working capital included bank borrowings and the proceeds from the share placements. As at 31 December 2017, the Group’s current ratio (current assets divided by current liabilities) was 0.7 (31 December 2016: 1.0) and it was in a net debt position of approximately RMB157.6 million (2016: approximately RMB168.8 million). The Group had a working capital deficit (total consolidated current liabilities exceeded total consolidated current assets) of RMB101.0 million as of 31 December 2017 (2016: RMB28.8 million). However, the Group still maintained net assets of approximately RMB242.1 million as of 31 December 2017. In additions, although there are no assurance that the Group will be able to refinance its short-term bank loans when they become due, historically, the Group has rolled over or obtained replacement borrowings from existing credit for most of its shortterm 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. Also, we had downstream projects with book value of approximately RMB38.0 million in our book as at 31 December 2017. We would consider to dispose the projects when we receive offers with reasonable profits or require additional funding. There was an amount of RMB9.9 million of contingent consideration payable in the current liabilities which expected to be settled by issue of share and would not involve any cash out flow. The Group has also adopted strict control of operating and investing activities. And we would consider to raise funding from placement of new shares when required.

On 13 July 2017, the Company entered into a subscription agreement with Rich Reach Holdings Limited (富達控股有限公司), an independent third party, pursuant to which the Company has conditionally agreed to allot and issue 118,389,897 subscription shares at a subscription price of HK$0.2534 per share. The subscription has been completed on 20 July 2017 with the 118,389,897 subscriptions shares allotted and issued to Rich Reach Holdings Limited (富達控股有限公司) , generating the net proceeds of approximately HK$29.2 million, representing a net subscription price of HK$0.247 per subscription share. The net proceed was expected to be used as general working capital of the Group. As at the date of this report, the net proceed has been used up. Please refer to the announcements of the Company dated 13 July 2017 and 20 July 2017 for further details.

On 21 July 2017, the Company entered into another subscription agreement with Advanced Gain Limited, an independent third party, pursuant to which the Company has conditionally agreed to allot and issue 190,912,714 subscription shares at a subscription price of HK$0.25 per share. The subscription has been completed on 18 October 2017 with the 190,912,714 subscriptions shares allotted and issued to Advanced Gain Limited, generating the net proceeds of approximately HK$46.93 million, representing a net subscription price of HK$0.2458 per subscription share. The net proceed was expected to be used up. As at the date of this report, the net proceed has been used as working capital of the Group. Please refer to the announcements of the Company dated 21 July 2017 and 18 October 2017 for further details.

Although there are no assurance that the Group will be able to raise capital when we require additional funding, historically, the Group has been able to raise capital in each of last few years when required. The Group has assumed it will continue to be able to do so for the foreseeable future.

18 Comtec Solar Systems Group Limited

Management Discussion and Analysis

Save as disclosed herein, the Company has not conducted any equity fund raising activities in the past twelve months preceding the date of this report. The Group would implement a balanced financing plan to support the operation of our business.

Capital Commitments

As at 31 December 2017, the capital commitments were approximately RMB41.9 million (2016: nil) which were mainly related to the construction in process downstream projects. Such amounts are expected to be billed and booked as payables upon completion of such projects. The Group currently has no plan to further expand its production capacity of traditional manufacturing business. In addition, the Group would carefully plan for the expansion of its downstream solar business which would depend on and subject to the market conditions and opportunities.

Contingent liabilities

As at 31 December 2017, other than the balance of contingent consideration payables of approximately RMB52.0 million (2016: RMB 93.8 million), the Group had no other contingent liabilities.

Related Party Transactions

On 25 May 2017, Comtec Renewable (Jiangsu), Kexin and the vendors of Kexin entered into an equity transfer agreement, pursuant to which Comtec Renewable (Jiangsu) of Kexin agreed to acquire 70% equity interest of Kexin from the vendors at a cash consideration of RMB14 million.

The consideration payable by Comtec Renewable (Jiangsu) for the Proposed Acquisition was RMB14 million, which was determined after arm’s length negotiation between the parties by reference to, among others, (i) the potential prospects of Kexin and its expected synergy with the Company, and (ii) the valuation of Kexin as at 12 May 2017. Such acquisition was completed in October 2017. Please refer to the announcements of the Company dated 25 May 2017 and 16 October 2017 for further details.

Save from the above and other than the remuneration the Group paid to the Directors and key management, the Group did not have any related party transactions for the year ended 31 December 2017.

Charges on Group Assets

As at 31 December 2017, other than the short term bank deposits of approximately RMB20.9 million (31 December 2016: RMB126.6 million), the Group also pledged its buildings, investment property, prepaid lease payments and the power station of two downstream projects having net book values of approximately RMB98.5 million (31 December 2016: RMB137.8 million), RMB86.0 million (31 December 2016: Nil), RMB13.8 million (31 December 2016: RMB23.1 million) and RMB16.9 million (31 December 2016: Nil) respectively to secure banking facilities granted to the Group.

Save as disclosed above, as at 31 December 2017, no Group asset was under charge to any financial institution.

Annual Report 2017 19

Management Discussion and Analysis

Acquisition of subsidiary

On 14 November 2016, the Company, Forum (Asia) Limited, and its original shareholders entered into a sale and purchase agreement, pursuant to which the Company agreed to acquire 51% of the entire issued share capital of Forum (Asia) at a total maximum consideration of RMB52.02 million from its original shareholders. The consideration is to be satisfied by the Company by allotting and issuing new shares to the original shareholders of Forum (Asia) under the specific mandate sought from the shareholders of the Company (unless the Company opted to pay in cash with the consent of its original shareholders). In March 2017, the Group has completed the acquisition of Forum (Asia) Limited. This acquisition represented an attractive opportunity for the Group to expand into the business of rooftop solar project.

Disposal of assets of a subsidiary

Human resources

As at 31 December 2017, the Group had 342 (2016: 805) employees. The decrease was mainly due to the downsizing of our manufacturing business. 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.

20 Comtec Solar Systems Group Limited

Management Discussion and Analysis

Details of the future investment plans for material investment

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. The Group has yet to make any capital commitments for its downstream solar business, other than the projects under construction, which would depend on and subject to the market conditions and opportunities. 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 recognized net exchange losses of approximately RMB3.9 million (2016: approximately RMB10.1 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 2017 21

Biographical Details of Directors and Senior Management

ExECUTIVE DIRECTORS

Mr. John Yi Zhang, aged 55, is as an executive Director and the chairman of the Board of the Company, responsible for the overall strategy and operation of our Group. Mr. Zhang is also a director of certain subsidiaries of the Group. 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. Zhang Zhen, aged 49, is an executive Director, the chief executive officer. He was also the president of the Company from 3 October 2016 to 19 April 2017. He is also currently a director of certain of the subsidiaries of the Group, including Comtec Renewable Energy Group Limited (formally known as Joy Boy HK Limited). Mr. Zhang is primarily responsible for overseeing the Group’s downstream solar power business. Mr. Zhang has extensive experience in the downstream solar business and served as the president and co-founder of Enfinity HK Development Ltd. for its operation of downstream solar business in the PRC since 2008. Mr. Zhang graduated from Beihang University with a bachelor’s degree in electronic engineering in July 1993 and then obtained a master’ degree in business administration from the University of Illinois in May 1999.

Mr. Chau Kwok Keung, aged 41, 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 certain 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; and (iii) an independent nonexecutive director and the chairman of the audit committee of China Xinhua Education Group Limited, a listed company on the Stock Exchange (Stock Code: 2779) in October 2017. 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 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.

22 Comtec Solar Systems Group Limited

Biographical Details of Directors and Senior Management

NON-ExECUTIVE DIRECTOR

Mr. Wang Yixin, aged 46, is a non-executive Director. Mr. Wang acted as the director of the port affairs bureau and the director assistant and the deputy director of the management committee of Wuxi Jiangyin Lingang Economic Development Zone (無錫江陰臨港經濟開發區) from February 2006 to September 2015. He is currently the general manager of Shanghai Xizheng Investment Management Co., Ltd. (上海熙正投資管理有限公司) since September 2015 and the general manager of Guangdong West Environmental Protection Investment Fund Management Co., Ltd.* (廣東西部環保投資基金管理有限公司) since April 2016. Mr. Wang graduated from Xi’an Jiaotong University with a bachelor’s degree in industrial electric automation in July 1994, and obtained a master’s degree in business administration from Nanjing University in June 2001. Mr. Wang is now pursuing a doctor’s degree in global finance business administration in Shanghai Advanced Institute of Finance of Shanghai Jiaotong University. Mr. Wang also passed the professionals qualification test of the securities industry organised by the Securities Association of China in June 2015.

INDEPENDENT NON-ExECUTIVE DIRECTORS

Mr. Leung Ming Shu, aged 42, 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), and Sun King Power Electronics Group Limited, a listed company on the Stock Exchange (code: 580). He acted as an independent non-executive 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.

Annual Report 2017 23

Biographical Details of Directors and Senior Management

Mr. Kang Sun, aged 63, 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.

Mr. Xu Erming, aged 69, is an independent non-executive Director. Mr. Xu is currently a professor and the dean of Shantou University (汕頭大學) Business School and vice chairman of the Chinese Enterprise Management Research Association. He is entitled to the State Council’s special government allowances. Mr. Xu was once the dean of the Business School and the assistant dean of the Graduate School of Renmin University of China (中國人民大學). He was also an independent supervisor of Harbin Electric Company Limited (a company listed on the Stock Exchange with stock code of 1133). Over the years, Professor Xu has conducted research in areas related to strategic management, organisational theories, international management and education management, and has been responsible for research on many subjects put forward by the National Natural Science Foundation, the National Social Science Foundation, and other authorities at provincial and ministry level. He has received many awards such as the Ministry of Education’s Class One Excellent Higher Education Textbook Award, the State-Level Class Two Teaching Award and the National Excellent Course Award. Mr. Xu has been a visiting professor at over 10 domestic universities and has been awarded the Fulbright Scholar of U.S.A. twice. Professor Xu was previously a lecturer at the New York State University at Buffalo, U.S.A., the University of Scranton, U.S.A., the University of Technology, Sydney, the Kyushu University, Japan, Panyapiwat Institute of Management, Thailand and the Hong Kong Polytechnic University. Mr. Xu is also currently the independent non-executive director of China Telecom Corporation Limited (a company listed on the Stock Exchange and the New York Stock Exchange with stock codes of “728” and “CHA”, respectively). Mr. Xu graduated from Renming University of China with a bachelor’s degree in industrial economic management in December 1982 and also obtained a master’s degree and doctorate degree in economy from Renming University of China in October 1989 and January 1998, respectively.

24 Comtec Solar Systems Group Limited

Biographical Details of Directors and Senior Management

SENIOR MANAGEMENT

Mr. Tang Huantong, aged 37, is the chief operation officer of the Company. Mr. Tang has extensive experience in the downstream solar business. Mr. Tang Huantong served as the executive vice-president of Jetion Solar (China) Co., Ltd.* (中建材浚鑫科技股份有限公司), a company principally engaged in providing customers with sustainable solutions involving solar cells, solar modules and solar power plants, and was responsible for the solar module business and downstream solar business for the period commencing from 2009 to 2015. Mr. Tang graduated from Xi’an Polytechnic University with a bachelor’s degree in administrative business management in July 2001 and further obtained a master’s degree in administrative business management for senior management from Nanjing University in March 2013.

Mr. Wu Cheng Xian, aged 70, 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.

COMPANY SECRETARY

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

Annual Report 2017 25

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 2017.

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, and the investment, development, construction and operation of solar photovoltaic power stations. The Company and its subsidiaries are also engaged in the research and development, design, integration and sales of lithium battery management systems and lithium battery systems.

SUBSIDIARIES

Details of the principal subsidiaries of the Group as at 31 December 2017 are set out in note 40 to the consolidated financial statements.

FINANCIAL STATEMENTS

The summary of the results, assets and liabilities of the Group for the year ended 31 December 2017 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 78 to 175 of this annual report.

RESULTS AND DIVIDENDS

The results of the Group for the year ended 31 December 2017 are set out in the audited consolidated statement of profit or loss and other 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 2017.

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 2017 are set out in the consolidated statement of changes in equity and note 32 to the financial statement, respectively.

DISTRIBUTABLE RESERVES

As at 31 December 2017, 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 RMB194,402,000. The amount of approximately RMB194,402,000 represents the Company’s share premium account of approximately RMB1,504,483,000 which is offset by accumulated losses of approximately RMB1,310,081,000 in aggregate as at 31 December 2017, 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.

26 Comtec Solar Systems Group Limited

Report of the Directors

CHARITABLE DONATIONS

The Company made charitable and other donations of RMB100,000 during the year under review.

PROPERTY, PLANT AND EQUIPMENT

Movements in property, plant and equipment of the Group for the year ended 31 December 2017 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 29 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 Yi Zhang (Chairman) Mr. Zhang Zhen Mr. Chau Kwok Keung

Non-Executive Directors

Mr. Wang Yixin

Mr. Donald Huang (resigned on 19 April 2017)

Independent Non-Executive Directors

Mr. Kang Sun Mr. Leung Ming Shu

Mr. Xu Erming (appointed on 19 April 2017)

Mr. Daniel DeWitt Martin (resigned on 19 April 2017)

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. Zhang Zhen, Mr. Kang Sun and Mr. Xu Erming will retire from the Board by rotation at the forthcoming annual general meeting. Each of Mr. Zhang Zhen, Mr. Kang Sun and Mr. Xu Erming, being eligible, offers 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 2017 27

Report of the Directors

DIRECTORS’ AND SENIOR MANAGEMENT’S BIOGRAPHIES

Biographical details of the Directors and senior management are set out on pages 22 to 25 of this annual report.

DIRECTORS’ MATERIAL INTERESTS IN TRANSACTIONS, ARRANGEMENTS OR CONTRACTS

Save as disclosed in this report, 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 2017 or at any time during the year ended 31 December 2017.

DIRECTORS’ SERVICE CONTRACTS

Please refer to the paragraph headed “Appointments, Re-election and Removal of Directors” under the section headed “Corporate Governance Report” for details of the service contracts of the Directors.

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.

28 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 2017, 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
		Number of	the issued
		shares	share capital
Name of Director	Nature of interest	interested	of the Company
Mr. John Yi Zhang1	Beneficiary of a trust, interest in a	629,283,550	30.00%
	controlled corporation, interest of
	spouse and interest of children under 18
Mr. Zhang Zhen2	Interest in a controlled corporation/	141,402,615	6.74%
	Beneficial owner
Mr. Chau Kwok Keung3	Beneficial owner	14,728,000	0.70%
Mr. Wang Yixin4	Beneficial owner	200,000	0.01%
Mr. Kang Sun5	Beneficial owner	749,574	0.04%
Mr. Leung Ming Shu6	Beneficial owner	562,787	0.03%
Mr. Xu Erming7	Beneficial owner	200,000	0.01%
Mr. Daniel DeWitt Martin8	Beneficial owner	499,659	0.02%

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.

Annual Report 2017 29

Report of the Directors

(2) The 141,402,615 Shares in which Mr. Zhang Zhen is deemed to be interested represent (1) 96,627,076 Shares held by True Joy Renewable Limited, a company which is wholly-owned by Mr. Zhang Zhen; (2) the 1,500,000 Shares which may be issued to him upon the exercise of the Share Options (as defined below) granted to him on 2 May 2017 under the Share Option Scheme (as defined below); and (3) a remaining maximum of 43,275,539 consideration Shares which may be issued to him or a company designated by him, pursuant to a sale and purchase agreement entered into by, amongst others, the Company and Mr. Zhang Zhen, dated 7 July 2016. Please refer to the announcements of the Company dated 7 July 2016 and 29 August 2017 for further details.
(3) The 14,728,000 Shares in which Mr. Chau Kwok Keung is deemed to be interested represent 14,728,000 Shares which may be issued to him upon the exercise of the Share Options (as defined below) granted to him on 28 June 2012, 31 March 2014 and 2 May 2017 under the Share Option Scheme (as defined below).
(4) The 200,000 Shares in which Mr. Wang Yixin is deemed to be interested represent 200,000 Shares which may be issued to him upon the exercise of the Share Options (as defined below) granted to him on 2 May 2017 under the Share Option Scheme (as defined below).
(5) The 749,574 Shares in which Mr. Kang Sun is deemed to be interested represent 749,574 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 and 2 May 2017 under the Share Option Scheme.
(6) The 562,787 Shares in which Mr. Leung Ming Shu is deemed to be interested represent 562,787 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 and 2 May 2017 under the Share Option Scheme.
(7) The 200,000 Shares in which Mr. Xu Erming is deemed to be interested represent 200,000 Shares which may be issued to him upon the exercise of the Share Options (as defined below) granted to him on 2 May 2017 under the Share Option Scheme (as defined below).
(8) 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 (as defined below) and the Share Options (as defined below) granted to him on 27 December 2012 under the Share Option Scheme (as defined below). Mr. Daniel DeWitt Martin resigned as an independent non-executive Director of the Company on 19 April 2017.

Save as disclosed above, as at 31 December 2017, 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.

Save as disclosed in this report, at no time during the year ended 31 December 2017 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).

30 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 2017, 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
		Number of	the issued
		shares	share capital
Name of Director	Nature of interest	interested	of the Company
Fonty Holdings Limited	Beneficial owner	576,453,844	27.48%
Ms. Carrie Wang1	Interest of spouse	629,283,550	30.00%
Harmony Gold Ventures Corp2	Beneficial owner	154,651,306	7.37%
Shanghai Hengqu Internet	Interest in a controlled corporation	154,651,306	7.37%
Technology Co., Ltd.*2
Jiangyin Jinqu Capital	Interest in a controlled corporation	154,651,306	7.37%
Management Co., Ltd.*2
Mr. Wang Yixin (王藝新)2	Interest in a controlled corporation	154,651,306	7.37%
Advanced Gain Limited3	Beneficial owner	190,912,714	9.10%
Mr. Wu Zheqiang3	Interest in a controlled corporation	190,912,714	9.10%
Ms. Zhang Xiaoqin4	Beneficial owner/Interest in a	114,367,897	5.45%
	controlled corporation

Notes:

(1) Ms. Carrie Wang is the spouse of Mr. John Yi Zhang, therefore, pursuant to the SFO, she is deemed to be interested in all the Shares in which Mr. John Yi Zhang is interested.
(2) Harmony Gold Ventures Corp is a wholly-owned subsidiary of Shanghai Hengqu Internet Technology Co., Ltd. (上海恒渠互聯網科技有限公司), which is wholly-owned by Jiangyin Jinqu Capital Management Co., Ltd. (江陰市金渠資本管理有限公司), which is in turn owned as to 99% by Mr. Wang Yixin (王藝新). Therefore, each of Shanghai Hengqu Internet Technology Co., Ltd. (上海恒渠互聯網科技有限公司), by Jiangyin Jinqu Capital Management Co., Ltd. (江陰市金渠資本管理有限公司) and Mr. Wang Yixin (王藝新) is deemed to be interested in the 154,651,306 Shares held by Harmony Gold Ventures Corp.
(3) Advanced Gain Limited is wholly owned by Mr. Wu Zheqiang. Therefore Mr. Wu Zheqiang is deemed to be interested in the 190,912,714 Shares held by Advanced Gain Limited.
(4) The 114,367,897 Shares in which Ms. Zhang Xiaoqin is deemed to be interested represent (i) 98,443,897 Shares held by Rich Reach Holdings Limited, which is wholly owned by Ms. Zhang Xiaoqin; and (ii) 15,924,000 Shares held by herself.

Save as disclosed above, as at 31 December 2017, 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 2017 31

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 2017 are as follows:

Grantee Date of Grant Exercise price per Share Director Kang Sun 3 August 2009 HK$2.51 Daniel DeWitt Martin(1) 3 August 2009 HK$2.51 Leung Ming Shu 3 August 2009 HK$2.51 Total	Balance as at 1 January 2017 Exercised during 2017 Lapsed during 2017 Cancelled during 2017 Balance as at 31 December 2017 249,574 – – – 249,574 199,659 – – – 199,659 62,787 – – – 62,787
	512,020 – – – 512,020

Note:

(1) Mr. Daniel DeWitt Martin resigned as a Director on 19 April 2017.

Save as disclosed above, no Pre-IPO Share Options was granted, lapsed or cancelled for the year ended 31 December 2017.

32 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. Eligible person refer to (a) an executive; (b) a director or proposed director (including an independent nonexecutive director) of any member of our Group; (c) a direct or indirect shareholder of any member of our Group; (d) a supplier of goods or services to any member of our Group; (e) a customer, consultant, business or joint venture partner, franchisee, contractor, agent or representative of any member of our Group; (f) a person or entity that provides design, research, development or other support or any advisory, consultancy, professional or other services to any member of our Group; and (g) an associate of any of the foregoing person.

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.

On 24 December 2015, the scheme mandate limit under the Share Option Scheme was refreshed with a maximum number of 139,186,175 Shares, being 10% of the Shares in issue as at 24 December 2015. As at the date of this 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 representing 9% of the issued share capital of the Company as at the date of this report.

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 2017 33

Report of the Directors

Details of the share options granted, exercised and lapsed under the Share Option Scheme as at 31 December 2017 are as follows:

Grantee Date of Grant Exercise price per Share Director Mr. Zhang Zhen 2 May 2017 HK$0.335 Mr. Chau Kwok Keung 2 May 2017 HK$0.335 Mr. Wang Yixin 2 May 2017 HK$0.335 Mr. Leung Ming Shu 2 May 2017 HK$0.335 Mr. Kang Sun 2 May 2017 HK$0.335 Mr. Xu Erming 2 May 2017 HK$0.335 Other participants in aggregate 2 May 2017 HK$0.335 Other participants in aggregate 9 September 2016 HK$0.56 Other participants in aggregate 25 November 2015 HK$0.736 Other participants in aggregate 26 June 2015 HK$1.500 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(12) 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 Yi 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 Other participants in aggregate 24 May 2010 HK$1.490	Balance as at 1 January 2017 Granted during 2017 Exercised during 2017 Lapsed during 2017 Cancelled during 2017 Balance as at 31 December 2017 – 1,500,000 – – – 1,500,000 – 1,500,000 – – – 1,500,000 – 200,000 – – – 200,000 – 200,000 – – – 200,000 – 200,000 – – – 200,000 – 200,000 – – – 200,000 – 24,400,000(11) – – – 24,400,000 89,000,000 – – – – 89,000,000 59,000,000 – – – – 59,000,000 20,000,000 – – – – 20,000,000 59,800,000 – – – – 59,800,000 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 3,556,000 – – – – 3,556,000 2,240,000 – – – – 2,240,000
	286,032,000 28,200,000 – – – 314,232,000

Grantee
Date of Grant
Exercise
price per
Share
Director
Mr. Zhang Zhen
2 May 2017
HK$0.335
Mr. Chau Kwok Keung
2 May 2017
HK$0.335
Mr. Wang Yixin
2 May 2017
HK$0.335
Mr. Leung Ming Shu
2 May 2017
HK$0.335
Mr. Kang Sun
2 May 2017
HK$0.335
Mr. Xu Erming
2 May 2017
HK$0.335
Other participants in aggregate
2 May 2017
HK$0.335
Other participants in aggregate
9 September 2016
HK$0.56
Other participants in aggregate
25 November 2015
HK$0.736
Other participants in aggregate
26 June 2015
HK$1.500
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(12)
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 Yi 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
Other participants in aggregate
24 May 2010
HK$1.490

Balance as at
1 January
2017
Granted
during 2017
Exercised
during 2017
Lapsed
during 2017
Cancelled
during 2017
Balance as at
31 December
2017
–
1,500,000
–
–
–
1,500,000
–
1,500,000
–
–
–
1,500,000
–
200,000
–
–
–
200,000
–
200,000
–
–
–
200,000
–
200,000
–
–
–
200,000
–
200,000
–
–
–
200,000
–
24,400,000(11)
–
–
–
24,400,000
89,000,000
–
–
–
–
89,000,000
59,000,000
–
–
–
–
59,000,000
20,000,000
–
–
–
–
20,000,000
59,800,000
–
–
–
–
59,800,000
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
3,556,000
–
–
–
–
3,556,000
2,240,000
–
–
–
–
2,240,000

286,032,000
28,200,000
–
–
–
314,232,000

34 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 2017 35

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

36 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 2016 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

(9) Share options granted under the Share Option Scheme on 9 September 2016 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 9 September 2016 50% of the total number of Share Options granted 9 December 2016 12.5% of the total number of Share Options granted 9 March 2017 12.5% of the total number of Share Options granted 9 June 2017 12.5% of the total number of Share Options granted 9 September 2017 12.5% of the total number of Share Options granted

Annual Report 2017 37

Report of the Directors

(10) Share options granted under the Share Option Scheme on 2 May 2017 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”):

The 17,800,000 Share Options (including the Share Options granted to the Directors) shall be subject to a vesting period as followings:

Vesting Date	Percentage of Share Options to vest
2 August 2017	12.5% of the total number of Share Options granted
2 November 2017	12.5% of the total number of Share Options granted
2 February 2018	12.5% of the total number of Share Options granted
2 May 2018	12.5% of the total number of Share Options granted
2 August 2018	12.5% of the total number of Share Options granted
2 November 2018	12.5% of the total number of Share Options granted
2 February 2019	12.5% of the total number of Share Options granted
2 May 2019	12.5% of the total number of Share Options granted

The remaining 10,400,000 Share Options shall be subject to a vesting period as followings:

Vesting Date	Percentage of Share Options to vest
2 May 2017	50% of the total number of Share Options granted
2 August 2017	12.5% of the total number of Share Options granted
2 November 2017	12.5% of the total number of Share Options granted
2 February 2018	12.5% of the total number of Share Options granted
2 May 2018	12.5% of the total number of Share Options granted

(11) The Company granted a total of 32,400,000 Share Options on 2 May 2017, among which 4,200,000 were not accepted by the relevant grantees.

(12) Mr. Daniel DeWitt Martin resigned as a Director on 19 April 2017.

During the year ended 31 December 2017 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 30 to the financial statements.

ARRANGEMENT FOR DIRECTORS TO PURCHASE SHARES OR DEBENTURES

Save as disclosed in “Share Option Schemes” above and the issue of consideration Shares to Mr. Zhang Zhen for the acquisition of Joy Boy HK Limited (currently know as Comtec Renewable Energy Group Limited) pursuant to a sales and purchase agreement entered into by, among others, the Company and Mr. Zhang Zhen dated 7 July 2016, at no time during the year ended 31 December 2017, 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.

38 Comtec Solar Systems Group Limited

Report of the Directors

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

Save for the placing of new Shares as disclosed in the section headed “Chairman’s Statement” in this report, during the year ended 31 December 2017, neither the Company nor any of its subsidiaries has purchased, sold or redeemed any of the Company’s listed securities.

FUND RAISING AND USE OF PROCEEDS

On 13 July 2017, the Company entered a subscription agreement with Rich Reach Holdings Limited (the “Rich Reach”), pursuant to which the Company has conditionally agreed to allot and issue 118,389,897 subscription shares at a subscription price of HK$0.2534 per Share to Rich Reach. The subscription has been completed on 20 July 2017 with the 118,389,897 subscriptions shares allotted and issued to Rich Reach, generating the net proceeds of approximately HK$29.2 million, representing a net subscription price of HK$0.247 per subscription share, which was expected to be used as general working capital of the Group. As at the date of this annual report, the net proceeds have been used up. Please refer to the announcements of the Company dated 13 July 2017 and 20 July 2017 for further details.

On 21 July 2017, the Company entered a subscription agreement with Advanced Gain Limited (the “Advanced Gain”), pursuant to which the Company has conditionally agreed to allot and issue 190,912,714 subscription shares at a subscription price of HK$0.25 per Share to Advanced Gain. The subscription has been completed on 18 October 2017 with the 190,912,714 subscriptions shares allotted and issued to Advanced Gain, generating the net proceeds of approximately HK$46.93 million, representing a net subscription price of HK$0.2458 per subscription share, which was expected to be used as general working capital of the Group. As at the date of this annual report, the net proceeds have been used up. Please refer to the announcements of the Company dated 21 July 2017 and 18 October 2017 for further details.

Save as disclosed above, the Company has not conducted any other equity fund raising activities during the year ended 31 December 2017 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 2017 and up to and including the date of this annual report.

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 ended 31 December 2017.

Annual Report 2017 39

Report of the Directors

CONNECTED TRANSACTION

Save for the acquisition of Kexin as disclosed in the section headed “Chairman’s Statement” in this report, the Company has not entered into any other connected transactions during the year ended 31 December 2017.

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 the Corporate Governance Code, during the year 31 December 2017, the Company has complied with the Corporate Governance Code. On 19 April 2017, Mr. John Yi Zhang resigned and Mr. Zhang Zhen was appointed as the chief executive officer of the Company, following which the Company is able to comply with code provision A.2.1 of the Corporate Governance Code. The Group’s principal corporate governance practices are set out on pages 46 to 58 of the annual report.

EQUITY-LINKED AGREEMENTS

Save as disclosed in this annual report, as at the end of and during the year ended 31 December 2017, 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.

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.

40 Comtec Solar Systems Group Limited

Report of the Directors

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 and power storage industry, downturn pressure on the government subsidies to the relevant industry and selling price of solar and power storage 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, production facilities utilization in its ingot and wafer manufacturing, downstream projects and power storage business.

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.

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.

Annual Report 2017 41

Report of the Directors

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 30 to the consolidated financial statements.

None of the directors waived any emoluments during the year ended 31 December 2017.

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.

MAJOR CUSTOMERS AND SUPPLIERS

Aggregate sales attributable to the Group’s largest and five largest customers during the year of 2017 were 17.3% and 46.2% of the Group’s total sales, respectively.

Aggregate purchases attributable to the Group’s largest and five largest suppliers during the year of 2017 were 21.8% and 56.0% of the Group’s total purchases, respectively.

42 Comtec Solar Systems Group Limited

Report of the Directors

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 and power storage 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 2017.

COMPLIANCE WITH LAWS AND REGULATIONS

During the year ended 31 December 2017 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.

Annual Report 2017 43

Report of the Directors

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 2017.

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 2017.

BANK LOANS AND OTHER BORROWINGS

Particulars of bank loans of the Group as at 31 December 2017 are set out in note 26 to the consolidated financial statements.

BUSINESS REVIEW

The business review of the Group for the year ended 31 December 2017 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

C&I Renewable Limited, a 70% owned subsidiary, has established a wholly-owned subsidiary in Singapore, namely, C&I Singapore Renewable and Innovative Tech Pte. Ltd. (“C&I Singapore”), which will be primarily engaged in the research and development of blockchain technology and the related infrastructure in relation to, and the application of such technology and infrastructure to distribution of solar generated energy.

On 1 February 2018, C&I Singapore entered into a strategic cooperation agreement (the “Strategic Cooperation Agreement”) with The9 Singapore Pte. Ltd. (“The9 Singapore”), a wholly-owned subsidiary of The9 Limited, a company listed on the National Association of Securities Dealers Automated Quotation (ticker symbol: NCTY) in relation to the proposed cooperation in relation to blockchain technology. Pursuant to the Strategic Cooperation Agreement, The9 Singapore will provide C&I Singapore (including its relevant subsidiaries) with services, solutions and operational advice in relation to blockchain technology and the application of such technology to the distribution of solar generated energy. The parties also contemplate to explore further cooperation opportunities together with a view to creating an efficient and decentralised platform for the trading and distribution of solar generated energy.

44 Comtec Solar Systems Group Limited

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 2017 is set out on page 176 of this annual report.

On behalf of the Board

John Yi Zhang Chairman

Annual Report 2017 45

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 2017.

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. Before 19 April 2017, Mr. John Yi Zhang was 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 considered that vesting the roles of chairman and chief executive officer in the same individual was beneficial to the business prospects and management of the Group. With effect from 19 April 2017, in order to promote the good corporate governance of the Group to differentiate the roles between the chief executive officer and the chairman of the Board under the Listing Rule, Mr. John Yi Zhang resigned and Mr. Zhang Zhen was appointed as the chief executive officer of the Company. Following the resignation of Mr. John Yi Zhang and the appointment of Mr. Zhang Zhen as the chief executive officer of the Company, the Company is able to comply with paragraph A.2.1 of the Corporate Governance Code, which requires that the roles of chairman and the chief executive should be separate and not be performed by the same individual. The balance of power and authorities is also 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.

46 Comtec Solar Systems Group Limited

Corporate Governance Report

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.

As at the date of this annual report, the Board comprises seven Directors, consisting of three executive Directors, Mr. John Yi Zhang (the chairman of the Board), Mr. Zhang Zhen and Mr. Chau Kwok Keung, one non-executive Director, Mr. Wang Yixin, and three independent non-executive Directors, Mr. Kang Sun, Mr. Leung Ming Shu and Mr. Xu Erming. 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 “Biographic Details of 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 2017.

Annual Report 2017 47

Corporate Governance Report

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.

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.

48 Comtec Solar Systems Group Limited

Corporate Governance Report

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 2017:

	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 Yi Zhang	3	3	3	3
Mr. Chau Kwok Keung	3	3	3	3
Mr. Zhang Zhen	3	3	3	3
Non-executive Directors
Mr. Wang Yixin	3	3	3	3
Mr. Donald Huang_(resigned on 19 April 2017)_	3	3	3	3
Independent non-executive Directors
Mr. Kang Sun	3	3	3	3
Mr. Leung Ming Shu	3	3	3	3
Mr. Xu Erming_(appointed on 19 April 2017)_	3	3	3	3
Mr. Daniel DeWitt Martin
(resigned on 19 April 2017)	3	3	3	3

Annual Report 2017 49

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 2017 is set out below:

	Attendance/	Attendance/
	Number of	Number of
	Board	General
Name of Director	Meeting(s)	Meeting(s)
Executive Directors
Mr. John Yi Zhang_(Chairman)_	16/16	3/3
Mr. Zhang Zhen	16/16	3/3
Mr. Chau Kwok Keung	16/16	3/3
Non-executive Directors
Mr. Wang Yixin	16/16	3/3
Mr. Donald Huang_(resigned on 19 April 2017)_	5/16	1/3
Independent non-executive Directors
Mr. Kang Sun	16/16	3/3
Mr. Leung Ming Shu	16/16	3/3
Mr. Xu Erming_(appointed on 19 April 2017)_	11/16	2/3
Mr. Daniel DeWitt Martin_(resigned on 19 April 2017)_	5/16	1/3

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.

50 Comtec Solar Systems Group Limited

Corporate Governance Report

Appointments, Re-election and removal of Directors

Mr. Donald Huang and Mr. Daniel Dewitt Martin resigned as a non-executive Director and an independent nonexecutive Director, respectively, on 19 April 2017. On the same date, Mr. Xu Erming was appointed as an independent non-executive Director.

Each of Mr. John Yi Zhang, Mr. Zhang Zhen and Mr. Chau Kwok Keung, being an 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, 3 October 2016 and the Listing Date, respectively, 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.

Mr. Wang Yixin, being the non-executive Director of the Company, has entered into a service contract with the Company for a specific term of two years commencing from 3 October 2016 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 Mr. Kang Sun, Mr. Leung Ming Shu and Mr. Xu Erming, being an 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, the Listing Date and 19 April 2017, respectively, 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 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 2017 51

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. During the year ended 31 December 2017, the audit committee comprised of three members, namely, three independent non-executive Directors, Mr. Leung Ming Shu, Mr. Kang Sun and Mr. Xu Erming. Mr. Leung Ming Shu is the chairman of the audit committee.

The Group’s unaudited interim results for the six months ended 30 June 2017, and the audited annual results for the year ended 31 December 2017 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 and oversaw the risk management and internal control systems of the Group during the year of 2017.

During the year ended 31 December 2017, 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. Leung Ming Shu	4/4
Mr. Kang Sun	4/4
Mr. Xu Erming_(appointed on 19 April 2017)_	3/4
Mr. Donald Huang_(resigned on 19 April 2017)_	1/4
Mr. Daniel DeWitt Martin_(resigned on 19 April 2017)_	1/4

52 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. During the year ended 31 December 2017, the remuneration committee comprised of four members, namely, Mr. John Yi Zhang, an executive Director and three independent nonexecutive Directors, Mr. Kang Sun, Mr. Leung Ming Shu and Mr. Xu Erming. Mr. Leung Ming Shu is the chairman of the remuneration committee.

During the year ended 31 December 2017, the remuneration Committee reviewed the remuneration packages of the Directors and the senior management.

During the year ended 31 December 2017, two 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 Yi Zhang	2/2
Mr. Leung Ming Shu	2/2
Mr. Kang Sun	2/2
Mr. Xu Erming_(appointed on 19 April 2017)_	1/2
Mr. Donald Huang_(resigned on 19 April 2017)_	1/2
Mr. Daniel DeWitt Martin_(resigned on 19 April 2017)_	1/2

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. During the year ended 31 December 2017, the nomination committee comprised of four members, namely, Mr. John Yi Zhang, an executive Director and the chairman of the Board and three independent non-executive Directors, Mr. Kang Sun, Mr. Leung Ming Shu and Mr. Xu Erming. Mr. John Yi Zhang is the chairman of the nomination committee.

Annual Report 2017 53

Corporate Governance Report

The nomination committee reviewed the structure, size and composition of the Board, during the year of 2017.

During the year ended 31 December 2017, 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 Yi Zhang	1/1
Mr. Kang Sun	1/1
Mr. Leung Ming Shu	1/1
Mr. Xu Erming_(appointed on 19 April 2017)_	–
Mr. Donald Huang_(resigned on 19 April 2017)_	1/1
Mr. Daniel DeWitt Martin_(resigned on 19 April 2017)_	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. During the year ended 31 December 2017, the corporate governance committee of the Board comprised three Directors, namely Mr. John Yi Zhang, an executive Director, Mr. Chau Kwok Keung, an executive Director, and Mr. Leung Ming Shu, an independent non-executive Director. Mr. John Yi Zhang is the Chairman of the corporate governance committee.

During the year of 2017, 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.

54 Comtec Solar Systems Group Limited

Corporate Governance Report

During the year ended 31 December 2017, 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 Yi Zhang	2/2
Mr. Chau Kwok Keung	2/2
Mr. Leung Ming Shu	2/2
Mr. Donald Huang_(resigned on 19 April 2017)_	1/2

Company Secretary

The secretary of the Company is Mr. Chau Kwok Keung, whose biography details are set out in the section headed “Biographical Details of 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 2017 55

Corporate Governance Report

Auditor’s Remuneration

The audit committee of the Board (the “Audit Committee”) is responsible for making recommendation to the Board on the appointment, re-appointment 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 2017 are as follows.

	RMB’000
Audit services	2,100

RISK MANAGEMENT AND INTERNAL CONTROLS

The Group’s risk management and internal control systems are featured with a defined management structure with limits of authority and well-rounded policies and procedures, and are designed to facilitate effective and efficient operations, to ensure reliability of financial reporting and compliance with applicable laws and regulations, to identify and manage potential risks, and to safeguard assets of the Group. Such systems are designed to manage rather than eliminate the risk of failure to achieve business objectives, and can only provide reasonable and not absolute assurance against material misstatement or loss. The Board also recognises its overall responsibility for the Group’s risk management and internal control systems and reviewing their effectiveness on an ongoing basis. In addition, the Audit Committee also has the responsibility for reviewing and assessing the Group’s risk management and internal control systems. During the year of 2017, the Company has adopted the following policies and procedures and taken the following measures to improve the risk management and internal control systems of the Group.

In order to ensure the effectiveness of our risk management and internal control system, the Company has established various management and control procedures and adopted a Compliance Manual (“Risk Management and Internal Control Procedures”) for identifying, evaluating, and managing the significant risks associated with the achievement of its operational objectives. The Company has completed the Risk Management and Internal Control Procedure with scientific analysis and assessment, to recognize potential risk points. By virtue of the Risk Management and Internal Control Procedure, the senior management of the Group reviews and evaluates the internal control process, monitors any risk factors on a regular basis, and reports to the Board on any findings and measures taken to address such variances and identified risks. The Board, with the assistance of the senior management of the Company, also conducts regular management meetings and on-site inspections to check and monitor the potential risks associated with the business operation and financial management of the Group.

56 Comtec Solar Systems Group Limited

Corporate Governance Report

With the integration of the real situation of the Company and various applicable laws and regulations, the management of the Company can act in concert with such to develop solutions towards the risks, to organize the business operation systematically, and to monitor and mitigate possible risks. The Company also formulated and distributed a Compliance Manual and Internal Audit Charter, etc. internally to require all staff of the Group to comply with these internal risk management and internal control standards, and together build a regulatory environment of risk control and standardized operation. In addition, the Company has also established policies and procedures with clear segregation of duties applicable to certain operating units to ensure the effectiveness of risk management and internal controls. The day-to-day operation is also entrusted to the individual department, which is accountable for its own conduct and performance, and is required to strictly adhere to the policies set by the Board or the Audit Committee. This process was in place throughout 2017 and is subject to continuous improvement.

Meanwhile, the Company has updated the terms of reference and procedures of the Audit Committee accordingly in November 2015 to conform the new “Corporate Governance Code” requirements. Meanwhile, with the assistance of the professional auditor, the Audit Committee supervised the Company’s revenue and expenditure for the financial and economic activities, to further strengthen the functions of risk management, to ensure the effective implementation of risk management and internal control system and the Company’s standardized operation and healthy development. In order to comply with the relevant requirements under the Corporate Governance Code in relation to the corporate risk management and internal controls, the Company has established an internal audit department for the purposes of simultaneous updates between the corporate governance and the Code on Corporate Governance and continuously improving the effectiveness of the Company’s risk management and internal controls.

During the year of 2017, the Company provided inside information training courses to the Directors and senior management of the Company to ensure that all relevant facts and circumstances that may have material effect on the share price of the Company is assessed in a timely manner and that any material information which comes to the knowledge of any one or more officers of the Group be promptly identified, assessed and, if appropriate, escalated for the attention of the Board to determine whether a disclosure is required.

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 2017, the Board, with the assistance of the Audit Committee, has conducted reviews of the risk management and internal control systems of the Company twice and considered the risk management and internal control systems of the Company are adequate and being implemented effectively. Such review covered all material controls, financial, compliance and operational controls as well as risk management mechanisms.

The Board, with the assistance of the Audit Committee, has also reviewed and was satisfied with the adequacy of the Company’s resources, the staff’s qualifications and experience, the training courses and the related budgets in accounting, internal review and financial reporting functions.

Annual Report 2017 57

Corporate Governance Report

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 33, 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.

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 33, 35/F, Central Plaza, 18 Harbour Road, Wanchai, Hong Kong or by email at [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 2017.

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.

58 Comtec Solar Systems Group Limited

Environmental, Social and Governance Report

This environmental, social and governance (“ESG”) report (the “ESG Report”) was prepared to present the Group’s performance of corporate social responsibility and environmental protection for the year ended 31 December 2017. This ESG Report takes the Company as the main body and covers all the subsidiaries of the Company.

The Board has overall responsibility for the Company’s ESG strategy and reporting. In line with the Corporate Governance Code, the Board is responsible for evaluating and determining the Company’s ESG-related risks, and ensuring that appropriate and effective ESG risk management and internal control systems are in place. The management of the Company confirm to the Board that these systems are in place and effective.

The Company has established internal control policies and systems to ensure compliances with the relevant rules and regulations of the jurisdiction where it operates. The management of the Company keeps regular communication and supervision to ensure the appropriate operation of the Group. Risk and defects identified will be discussed and reported to board if any.

Please see section “Risk management and internal control” for more details.

PART I ENVIRONMENTAL

Emissions

The Group carries out strict policies and procedures to monitor and treat the emissions of the four categories of pollutants specified by the state (waste water, waste gases, solid wastes and noise) and is committed to developing and introducing new technologies, and higher efficiency of pollutant treatment.

The principal manufacturing facilities of the Group are based in the PRC. The Group strictly complies with the rules and regulations of the PRC in regards with emission. The Company does not generate any Greenhouse gas or hazardous waste during manufacturing process.

Annual Report 2017 59

Environmental, Social and Governance Report

The main non-hazardous waste generated during the production is dust and sludge, most of which is processed by appropriate means. Sludge was sent to brickyard and then rebuilt to brick. Dust was sprayed by water and handled by waste water treatment process. In 2017, the Group reduced the generation of the non-hazardous waste mainly by improving diamond saw skills and subcontracting the slicing process. In 2017, the Group processed 219.4 tonnes of sludge, representing a decrease of 87.6% from 1,769.9 tonnes of sludge processed in 2016. In 2017, the Group processed 0.583 tonne of dust, representing a decrease of 87.5% from 4.7 tonnes processed in 2016. In 2017, the Group was not subject to any penalties or fines as a result of non-compliance with environment laws and regulations.

Non-hazardous waste sludge processed in 2016	Unit: tonne
Shanghai plant	540
Haian plant	776.6
Malaysia plant	453.3
Non-hazardous waste sludge processed in 2017	Unit: tonne
Shanghai plant	53.6
Haian plant	56.6
Malaysia plant	109.2
Non-hazardous waste dust processed in 2016	Unit: tonne
Shanghai plant	1.13
Haian plant	1.85
Malaysia plant	1.72
Non-hazardous waste dust processed in 2017	Unit: tonne
Shanghai plant	0.175
Haian plant	0.058
Malaysia plant	0.35

60 Comtec Solar Systems Group Limited

Environmental, Social and Governance Report

The below diagram sets out the general waste water treatment process of the Group:

General Waste Water Treatment Process

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

Silicon/Rinse waste water
Chemical Treatment (PAC)/
Holder Tank/Buffer (Equalizer) Clarifier Pond
Caustic Soda/Polymer
Filter Press Sludge Storage Pond
Sludge Cake
----- End of picture text -----

Ever since the commencement of the production of the Group, the Group has been focusing on environment protection and strictly following the below relevant applicable environment regulations and standards:

Type Standard/Regulations Air Integrated emission standard of air pollutants GB16297-1996 Environmental Quality (Clean Air) Regulations 1978 (Incorporated latest amendments — P.U. (A) 309/2000) Water Integrated wastewater discharge standard GB8978-1996 Noise Level Emission standard for industrial enterprises noise at boundary GB12348-2008

During the year of 2017, the Group was in compliance with the relevant laws and regulations that have a significant impact of the Company relating to air and greenhouse gas emissions, discharges into water and land, and generation of hazardous and non-hazardous waste.

The Group will endeavour to further reduce waste emission in the future and actively address environmental issues in a responsible manner by continuing to refine the manufacture process and upgrade existing wasting process unit, establishing a waste monitoring system, modifying pollution treatment facilities and establishing a corporate culture that values environmental protection.

Annual Report 2017 61

Environmental, Social and Governance Report

Uses of Resources

The Group has minimised energy consumption in production and operation and strived for clean production by continuously promoting effective energy-saving technologies and improving production skills, so as to achieve sustainable development. The Group mainly consumes electricity, water and packaging materials (including paper boxes, form material and sponges) during its production, storage, packaging and transportation process.

In 2017, the PRC subsidiaries of the Group achieved a substantial increase in production efficiency by hot zone design, improvement of production skills and utilisation of facilities and new materials, resulting in a reduction of electricity consumption per unit of monocrystalline silicon by 16% for the year ended 31 December 2017 as compared with that for the year ended 31 December 2016. Meanwhile, the Group also cultivates employees’ awareness on environmental protection and advocates green office work through employee training and education to minimise environmental impact in the course of management and daily operation of the Group. In 2017, the Group’s plants consumed 114,927,117 kWh of electricity, representing a decrease of 18.8% from 141,469,366 kWh consumed in 2016.

Electricity consumption in 2016	Unit: kWh
Shanghai plant	9,977,896
Haian plant	42,676,470
Malaysia plant	88,815,000
Electricity consumption in 2017	Unit: kWh
Shanghai plant	2,143,541
Haian plant	61,643,653
Malaysia plant	51,139,923

The Group also has policies and internal procedures to minimise usage of water under control of a log book, to set a specific temperature to allow the usage of air conditioners and to make sure cars shall be used effectively. In addition, the Group reduces consumption of resources by subcontracting certain production process and deepens innovation in management and recycling of packaging materials by reducing inventory backlog, avoiding claim of excessive materials and strengthening recovery management, to effectively reduce the use of packaging materials and avoid waste. In 2017, the Group’s plants consumed 651,675 tonnes of water resources, representing a decrease of 64.5% from 1,835,188 tonnes consumed in 2016. In 2017, the Group’s plants consumed 11.85 tonnes of packaging materials (paper boxes), representing a decrease of 59.1% from 28.94 tonnes consumed in 2016. The Group do not have any issue to secure required water resources for our production and operation.

Water resources consumption in 2016	Unit: tonne
Shanghai plant	436,499
Haian plant	341,417
Malaysia plant	1,057,272

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Environmental, Social and Governance Report

Water resources consumption in 2017	Unit: tonne
Shanghai plant	240,495
Haian plant	213,772
Malaysia plant	197,408
Packaging materials (paper boxes) consumption in 2016	Unit: tonne
Shanghai plant	11.33
Haian plant	8.18
Malaysia plant	9.43
Packaging materials (paper boxes) consumption in 2017	Unit: tonne
Shanghai plant	5.72
Haian plant	3.46
Malaysia plant	2.67

The Environment and Natural Resources

With response to the government’s call on environment protection and energy saving, the Group continues to implement green office practices, cultivate employees’ environment protection awareness and promote energy saving. The measures taken by the Group include the use of energy-saving lightings and recycled paper, the minimisation of use of paper, the reduction of energy consumption by switching off idle lightings, computers and electrical appliances, the use of teleconferencing as an alternative to travel, the monthly monitor of electricity consumption in production and operation, the maintenance of records and statistics, the formulation of maintenance plans of major electrical appliances, the prevention of increase in electricity consumption due to equipment aging

Environmental protection and sustainable development

The Group is dedicated to advancing the penetration of green energy and mitigating the harm caused by global climate change as a result of greenhouse effect. The Group has achieved carbon neutral status through our photovoltaic power station business.

Annual Report 2017 63

Environmental, Social and Governance Report

PART II SOCIAL

Employment and Labour Practices

Employment

Understanding that staff is one of our most valuable assets, we have established comprehensive staff policies and welfare guidelines to attract and retain talent. We strive to ensure a safe and healthy workplace, which also serves as a platform for staff to excel in career and personal growth.

As of 31 December 2017, the total staff headcount, composition, and turnover rate of the Group are illustrated as follows:

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Gender
Female
76
266
Male
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Age
50 & Above
41–50 29
48
155
21–30
110
31–40
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Geography
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----- Start of picture text -----

Geography Type
Taiwan 1 3 Malaysia
Senior Management
Canada 1
63
US 4
Management
HK 3
16
263
Staff
330
China
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64 Comtec Solar Systems Group Limited

Environmental, Social and Governance Report

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

Staff by Gender Staff by Age
50 & Above 20 & Below
Female 0%
41–50 9%
22%
14%
45%
21–30
32%
78%
31–40
Male
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We have internal policies to request all local operation to comply with the relevant rules and regulations relating to labor use and labor management. Management of the Company regularly communicates with each of the local operation teams to ensure such compliance and would strictly review the remedial measures to rectify any noncompliance notice or charges from the government authorities or complaints from our staffs.

The Group has established and perfected a welfare system suitable for enterprise development and employees’ growth, built a remuneration management system and continuously perfected the remuneration scheme. Further, in accordance with national regulations, it pays social insurance and provident fund for employees and employer liability insurance for employees, provides various benefits such as subsidies on holidays and festivals, home leaves, meal allowance, and subsidies for mobile phone bill for employees, truly enabling employees to feel happy at work and in turn work hard due to the happy working environment.

During the year of 2017, the Group was in compliance with the relevant laws and regulations that have a significant impact on the Group relating to compensation and dismissal, recruitment and promotion, working hours, rest periods, equal opportunity, diversity, anti-discrimination, and other benefits and welfare.

Health and Safety

The Group is committed to guarding its staff’s health and safety. Various guidelines on work safety and emergency response, regarding daily operations, have been in place for staff to ensure their compliance. Notices are also posted in work places to constantly remind staff of wearing applicable personal safety equipment, and maintain an accident-free working environment together. The Group organizes various training modules on occupational health and safety to raise safety awareness amongst staff. Working environment is reviewed and evaluated on a regular basis, and improvement from time to time.

Health and Safety performance	Performance
Number of work-related fatalities	1
Lost days due to work injury	50
Number of accident	3

During the year of 2017, the Group was in compliance with the relevant laws and regulations that have a significant impact on the Group relating to providing a safe working environment and protecting employees from occupational hazards.

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Environmental, Social and Governance Report

Development and Training

The Group emphasizes staff development, and allocates annual training budgets as necessary to support employees’ all-round training program. Staff is encouraged to participate in internal and external training opportunities per their duties. These training courses and seminars cover a wide range of topics, such as management skills, communication skills, and specific technical skills, which help strengthen their professional knowledge. The Group also encourages staff’s self-learning to support employees’ personal development.

Total Training hours by employee category	Hours
Top Management Level	20
Senior Management Level	72
General Staff	336

Labour Standards

The Group advocates a merit-based principle based on staff competency, to assemble a highly-efficient team. The Group offers a fair workplace by establishing clear staff policies and management controls, which respects equal opportunities, eliminates sexual harassment, provides grievance mechanisms, promotes anti-corruption, and ensures personal data confidentiality.

The company has implemented internal policies to require all HR departments in different locations to comply with national and local labour laws, including these related to child ad forced labour, and the management of the Company also makes regular communications with the head of the HR departments in different locations to ensure the compliance of the labor laws. In 2017, there were no instances of discrimination, child labor, forced labor or violations of employees’ interests.

During the year of 2017, the Group followed the relevant laws and regulations that have a significant impact on the Group relating to preventing child and forced labour.

Operating Practices

Supply Chain Management

The Group adheres to open, fair and transparent criteria in selecting suppliers and service providers, and has established a supplier qualification system in terms of price, quality, cost, delivery and after-sales service. The Group will carry out long-term quality monitoring and conduct regular reviews on all suppliers as well as casual examinations on different suppliers to ensure sustainable quality material supplies and services.

Geographical region	Number of suppliers
China	160
Malaysia	20
Korea	1
Germany	1
Philippines	1
Hong Kong	1

66 Comtec Solar Systems Group Limited

Environmental, Social and Governance Report

Product Responsibility

The Group has policies to request all departments including sales and production to ensure all business and operation be complied with rules and regulations. Management communicate with staffs and department head and customers regularly and would review if any complaints, charges or lawsuits in these areas.

The Group has developed its brands and technologies for its products and therefore the protection of the Group’s intellectual property rights is of critical importance. It is the Group’s policy to register trademarks and invention patents in most of the major countries where such trademarks or patents are used or will be used soon. The Group will take appropriate steps to police infringements of its intellectual property rights and take necessary proceedings to protect its intellectual property rights. The Group also have Q&A and Complaint processes and to make sure after sale service qualities.

To regulate production and management, improve product quality and reduce production of unqualified products and waste of resources, the Group has established and strictly enforced a quality management system that covers the product life cycle ranging from procurement of raw materials to production process control to process supervision and inspection of finished products. Meanwhile, the Group has also strengthened quality inspection in its subsidiaries, branches and consortiums, monitored process quality control indices and thus uncovering and resolving product quality problems on a timely basis.

In order to provide consumers with genuine high-quality products, the Group has developed “a system” to strengthen rights protection against competing products suspected of infringing the patent of the Group. In the meantime, the Group has also developed “International Patent Application Process”, gradually extended protection of intellectual property rights to overseas markets and strengthened protection of patents abroad.

Here is flowchart of the Company’s QA and after sale services.

Quality Assurance Flow Chart — Productivity Review

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

Dept. Production
Sales QA Manufacturing Customer
STEP Control
Receipt of Customer
Requirement & Spec.
Requirement
Productivity
Review
Productivity Review
Receipt
Request
If necessary
Spec. Review Review
Sample Delivery Review
Forecast
Production Cost Review
If necessary
Forward Productivity Review Discussion
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Annual Report 2017 67

Environmental, Social and Governance Report

Quality Assurance Flow Chart — Sample Preparation

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

Dept. Production
Sales QA Manufacturing Customer
STEP Control
Sample Order
Sample
Preparation Issue Sample
Manufacturing Receipt
Request
Manufacturing Spec.
Issue
Route Input
Shipping Notice to Related Production Production
Arrangement Team Planning
Sample Product Sample Quality Finish Production
Scheduling Evaluation
Visit and/or Discussion
Ship ping
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Quality Assurance Flow Chart — Spec. Issue

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

Dept. Production
Sales QA Manufacturing Customer
STEP Control
Qual. Approval
Manufacturing
Spec. Issue
Request of
Manufacturing P.O Issue
Spec. Issue
Route Input
Notice to Production
Shipping Control Related Team Scheduling Production
Quality Evaluation Finish Production
Shipping
Sales
Purchasing
----- End of picture text -----

68 Comtec Solar Systems Group Limited

Environmental, Social and Governance Report

Quality Assurance Flow Chart — Complaint Processing

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

Dept. Production
Sales QA Manufacturing Customer
STEP Control
Complaints/Claim
Complaint
Processing Receipt Receipt
Return Material Investigation of Cause
Authorization Issue of Nonconformities
If Dissatisfied
Issue the Corrective
Cause Analysis
Action Request
Check the
Implementation
Implementation
Corrective Action
Forward Review the CAR
Report
Submit the CAR
If Satisfied
Complaint Closed
----- End of picture text -----

Number or percentage

Total products sold or shipped subject to recalls for safety and health reasons 0 Products and service related complaints received and how they are dealt with 0

During the year of 2017, the Group was in compliance with the relevant laws and regulations that have a significant impact on the Group relating to health and safety, advertising, labelling and privacy matters relating to products and services provided and methods of redress.

Anti-corruption

The Group values credibility and integrity and follows the principle of fairness in its daily operations. At the same time, the Group has clarified its determined stance on fighting against corruption and deception to all employees, suppliers and business partners. Appropriate binding terms have been introduced accordingly to respective contracts to ensure the relevant parties acted under the Group’s requirement. The Company has distributed an internal staff compliance handbook which implicitly forbids any corruption and also designated a personnel to be the contact person for the staff if any such case is noted.

All staffs are expected to observe ethical, personal and professional conduct. In additional to the Staff Code of Conduct on anti-bribery and anti-corruption, the Group has established whistle-blowing system and procedures, whistle-blowers of verified cases will be rewarded accordingly.

Annual Report 2017 69

Environmental, Social and Governance Report

During the year of 2017, the Group did not identify any corruption or bribe-taking case and in compliance with the relevant laws and regulations that have a significant impact on the Group relating to health and safety, advertising, labelling and privacy matters relating to bribery, extortion, fraud and money laundering.

Community

Public welfare

On 6 May 2017, more than 2,200 runners signed up for the 6th Changan Street Huishan New City “Life Park” Cup Charity Walking Marathon (第六屆長安街道惠山新城「生命園」杯公益徒步馬拉松) and set off after the starting horn from the East Square of Wuxi (Huishan) Life Science Technology Park (無錫(惠山)生命科技產業園東廣場). The theme of this charity walking marathon was to celebrate the 70th World Red Cross Day (8 May) by combining charity program with national fitness, demonstrating care to the society with the power of sports. On the day of the event, the Group made a charitable donation of RMB100,000 to the Red Cross.

Community Investment

Over the years, the Group has been dedicating itself to serving the society with care, passion, integrity, and respect, which also constitutes an important part of the Group’s mission. To fulfil its corporate responsibility, the Group encourages staff to be a volunteer and supports various community social events. These community events will help to build the team collaboration workstyle and contribute to the sustainable development of local society.

Here are some activities during the year of 2017:

Activities for the alleviation of the poverty

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70 Comtec Solar Systems Group Limited

Independent Auditor’s Report

TO THE MEMBERS OF COMTEC SOLAR SYSTEMS GROUP LIMITED

(Incorporated in the Cayman Islands with limited liability)

OPINION

We have audited the consolidated financial statements of Comtec Solar Systems Group Limited (the “Company”) and its subsidiaries (collectively referred to as the “Group”) set out on pages 78 to 175, which comprise the consolidated statement of financial position as at 31 December 2017, 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 notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at 31 December 2017, and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (“IFRSs”) issued by the International Accounting Standards Board (the “IASB”) and have been properly prepared in compliance with the disclosure requirements of the Hong Kong Companies Ordinance.

BASIS FOR OPINION

We conducted our audit in accordance with Hong Kong Standards on Auditing (“HKSAs”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the HKICPA’s Code of Ethics for Professional Accountants (“the Code”), and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

UNCERTAINTY RELATED TO GOING CONCERN

We draw attention to note 2 to the consolidated financial statements, which indicates that the Group experienced a net loss of RMB145 million in the year ended 31 December 2017 and had a working capital deficit (total consolidated current liabilities exceeded total consolidated current assets) of RMB101 million although a net assets of RMB242 million are maintained as of that date. These factors initially raised doubt as to the Group’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.

KEY AUDIT MATTERS

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Annual Report 2017 71

Independent Auditor’s Report

KEY AUDIT MATTERS (continued)

Key audit matter How our audit addressed the key audit matter

Impairment assessment of property, plant and equipment

We have identified the impairment assessment of property, plant and equipment as a key audit matter due to the inherent subjectivity within the estimation of the present value of the future cash flows, a key component of determining the asset’s recoverable amount.

As disclosed in Note 15 to the consolidated financial statements, the industry landscape for the traditional monocrystalline silicon business has been deteriorated continuously, the Group has considered the deterioration of the future economic conditions of the solar wafer manufacturing business in this year, as part of the impairment assessment and the resulting evaluation of the recoverable amount of the property, plant and equipment. During the year ended 31 December 2017, impairment provision on property, plant and equipment amounted to RMB37 million has been provided. As at 31 December 2017, the carrying amount of and the impairment provision on property, plant and equipment amounted to approximately RMB142 million and RMB214 million, respectively.

Our procedures in relation to the impairment assessment of property, plant and equipment included:

Obtaining an understanding of the process and testing the internal controls over the impairment assessment including the Group’s assessment of indicators of impairment, preparation of the cash flow forecast, setting of reasonable and supportable assumptions and inputs to the models used to estimate the recoverable amount;
Testing the reasonableness of the inputs and assumptions used to determine the cash flow forecast against historical performance, economic and industry indicators, publically available information and the Group’s strategic plans; and
Re-performing the underlying calculation used in the Group’s assessment.

The recoverable amount of the property, plant and equipment has been determined based on value in use calculation. This calculation requires the use of estimates of future cash flows based on projected income and expenses of the business and working capital needs.

The management is also required to choose suitable discount rate in order to calculate the present value of such cash flows. The discount rate in measuring the value in use was 11%.

Changes in the key assumptions on which the recoverable amount of the assets are based could significantly affect the Group’s assessment resulting in an impairment loss being recognized.

72 Comtec Solar Systems Group Limited

Independent Auditor’s Report

KEY AUDIT MATTERS (continued)

Key audit matter

How our audit addressed the key audit matter

Impairment assessment of goodwill arising from acquisition

We identified the impairment assessment of goodwill arising from acquisition as a key audit matter due to significance of the Group’s goodwill in the context of the Group’s consolidated financial statements, combined with the judgments involved in the management’s impairment assessment of goodwill.

As disclosed in Note 18 to the consolidated financial statements, as at 31 December 2017 the carrying amount of goodwill amounted to approximately RMB106 million. As set out in Note 5(b) to the consolidated financial statements, the impairment assessment of goodwill is dependent on certain significant inputs and estimations that involve the management’s judgments. Details of such judgements are disclosed in Note 18.

Our procedures in relation to the impairment assessment of goodwill arising from acquisitions included:

Obtaining an understanding of the process and testing the internal controls over the impairment assessment of goodwill;
Examining the determination of recoverable amount which is the value in use of cashgenerating unit to which goodwill has been allocated and obtaining an understanding of financial position and future prospect of the cashgenerating unit;
Evaluating the reasonableness of key inputs and assumptions used by the management in estimations of value in use, including projections of cash flows, growth rate and weighted average return on assets;
Comparing cash flow projection to supporting evidence, such as approved budget, and evaluating the reasonableness of such budget with reference to contracts concluded or under negotiation and future prospect of the cashgenerating unit as well as our knowledge of the business; and
Re-performing the underlying calculation used in the Group’s assessment.

Annual Report 2017 73

Independent Auditor’s Report

KEY AUDIT MATTERS (continued)

Key audit matter

How our audit addressed the key audit matter

Impairment assessment of inventories

We identified the impairment assessment of inventories as a key audit matter due to significance of the Group’s inventories in the context of the Group’s consolidated financial statements, combined with the management judgments involved.

The industry landscape for the traditional monocrystalline silicon business has been deteriorated continuously, with certain major players who use monocrystalline silicon wafers, such as those produced by the Group, scaling back or even shutting down their production. Given the deterioration of the future economic conditions of the solar wafer manufacturing business, the Group’s inventories are exposed to the risk of being carried in excess of net realizable value. As disclosed in Note 20 to the consolidated financial statements, as at 31 December 2017, the carrying amount of inventories amounted to approximately RMB43 million (net of inventory provision of RMB17 million. As disclosed in Note 5(c) to the consolidated financial statements, in assessing the net realizable value and making appropriate allowances to inventories, the management shall identify, using their judgement, inventories that are slow-moving or obsolete, and consider the inventories’ physical conditions, age, market conditions and market prices for similar items.

Our procedures in relation to the impairment assessment of inventories included:

Obtaining an understanding of the process and testing the internal controls over the impairment assessment of inventories;
Attending inventory counts performed by the management to evaluate whether obsolete inventories are properly identified with which the impairment assessment is based;
Examining the inventories aging report produced by the Group’s financial system with reference to the procurement and/or production records;
Evaluating the reasonableness of the impairment provision on inventories with reference to the aging report and subsequent movement of the inventories;
Comparing the carrying amount of inventories at the balance sheet date, on a sample basis, to the subsequent selling price and/or publically available information relating to the future selling price trend of the inventories; and
Evaluating the adequacy of impairment provision on inventories with reference to the information obtained above.

74 Comtec Solar Systems Group Limited

Independent Auditor’s Report

OTHER INFORMATION

The directors of the Company are responsible for the other information. The other information comprises the information included in the annual report, but does not include the consolidated financial statements and our auditor’s report thereon.

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

RESPONSIBILITIES OF DIRECTORS AND THOSE CHARGED WITH GOVERNANCE FOR THE CONSOLIDATED FINANCIAL STATEMENTS

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

In preparing the consolidated financial statements, the directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Group’s financial reporting process.

AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes 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. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with HKSAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

Annual Report 2017 75

Independent Auditor’s Report

AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE CONSOLIDATED FINANCIAL

STATEMENTS (continued)

As part of an audit in accordance with HKSAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit 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 Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.
Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

76 Comtec Solar Systems Group Limited

Independent Auditor’s Report

AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE CONSOLIDATED FINANCIAL

STATEMENTS (continued)

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partner on the audit resulting in the independent auditor’s report is Joseph Wing Ming Chan.

Deloitte Touche Tohmatsu Certified Public Accountants

Hong Kong 29 March 2018

Annual Report 2017 77

Consolidated Statement of Profit or Loss and Other Comprehensive Income

for the year ended 31 December 2017

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2017 2016
NOTES RMB’000 RMB’000
Revenue 6 489,208 810,045
Cost of sales (481,230) (962,626)
Gross profit (loss) 7,978 (152,581)
Other income 7 29,029 4,120
Other gains and losses, expenses and provision 8 (53,522) (763,846)
Distribution and selling expenses (11,049) (15,276)
Administrative expenses (81,846) (64,184)
Research and development expenses (5,865) (6,910)
Finance costs 9 (15,925) (9,112)
Loss before taxation 10 (131,200) (1,007,789)
Income tax (expense) credit 12 (14,247) 719
Loss and total comprehensive loss for the year (145,447) (1,007,070)
Loss and total comprehensive loss for the year, attributable to
Owners of the Company (140,296) (1,007,070)
–
Non-controlling interests (5,151)
(145,447) (1,007,070)
RMB cents RMB cents
Loss per share 14
— Basic (8.15) (69.48)
— Diluted (8.15) (69.48)
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78 Comtec Solar Systems Group Limited

Consolidated Statement of Profit or Loss and Other Comprehensive Income

for the year ended 31 December 2017

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2017 2016
NOTES RMB’000 RMB’000
Loss for the year (145,447) (1,007,070)
Other comprehensive income (expense)
Items that will not be reclassified to profit or loss:
Gain on revaluation of investment properties transferred from
property, plant and equipment and prepaid lease payment 17 41,387 –
Deferred tax arising from gain on revaluation of
investment properties transferred from property,
plant and equipment and prepaid lease payments 31 (10,347) –
–
Other comprehensive income for the year 31,040
Total comprehensive expense for the year (114,407) (1,007,070)
Total comprehensive expense for the year attributable to:
Owners of the Company (109,256) (1,007,070)
–
Non-controlling interests (5,151)
(114,407) (1,007,070)
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Annual Report 2017 79

Consolidated Statement of Financial Position

at 31 December 2017

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2017 2016
NOTES RMB’000 RMB’000
Non-current assets
Property, plant and equipment 15 142,129 208,314
Prepaid lease payments-non-current 16 13,484 22,510
Investment properties 17 86,027 –
Goodwill 18 105,917 60,256
Intangible assets 19 67,757 63,050
Deposits paid for acquisition of property, plant and equipment 22,354 1,106
437,668 355,236
Current assets
Inventories 20 43,209 191,082
Trade and other receivables 21 131,346 151,585
Bills receivable 21 1,684 10,826
Advance to suppliers 64,509 117,131
Prepaid lease payments-current 16 335 551
Prepaid assignment fee 41 – 166,190
Short-term bank deposits 22(A) 20,874 126,637
Bank balances and cash 22(B) 32,107 82,130
294,064 846,132
Assets classified as held for sale 23 – 160,638
294,064 1,006,770
Current liabilities
Trade and other payables 24 131,057 408,892
Customers’ deposits received 25 43,203 237,668
Short-term bank loans 26 200,339 388,364
Tax liabilities 10,333 309
Deferred revenue-current 27 287 287
Contingent consideration payables-current 28 9,884 –
395,103 1,035,520
Net current liabilities (101,039) (28,750)
Total assets less current liabilities 336,629 326,486
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80 Comtec Solar Systems Group Limited

Consolidated Statement of Financial Position

at 31 December 2017

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2017 2016
NOTES RMB’000 RMB’000
Capital and reserves
Share capital 29 1,807 1,333
Reserves 231,337 208,738
Equity attribute to owners of the Company 233,144 210,071
–
Non-controlling interests 8,961
Total equity 242,105 210,071
Non-current liabilities
Long-term bank loans 26 11,950 –
Deferred tax liabilities 31 31,958 18,283
–
Long-term payable 4,500
Deferred revenue-non-current 27 4,011 4,297
Contingent consideration payables 28 42,105 93,835
94,524 116,415
336,629 326,486
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The consolidated financial statements on pages 78 to 175 were approved and authorised for issue by the board of directors on 29 March 2018 and are signed on its behalf by:

DIRECTOR

Annual Report 2017 81

Consolidated Statement of Changes in Equity

for the year ended 31 December 2017

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Share Statutory Property Non-
Share Share Options Special Surplus Revaluation Accumulated Sub- Controlling
Capital Premium Reserve Reserve Reserve Reserve Losses Total Interests Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
– –
At 1 January 2016 1,205 1,317,003 86,217 11,012 84,583 (363,108) 1,136,912 1,136,912
Loss and total comprehensive
– – – – – – –
expense for the year (1,007,070) (1,007,070) (1,007,070)
Issue of ordinary shares 128 57,732 – – – – – 57,860 – 57,860
Recognition of equity-settled
– – – – – – –
share-based payments 22,369 22,369 22,369
At 31 December 2016 1,333 1,374,735 108,586 11,012 84,583 – (1,370,178) 210,071 – 210,071
– –
At 1 January 2017 1,333 1,374,735 108,586 11,012 84,583 (1,370,178) 210,071 210,071
Loss and total comprehensive
– – – – – –
expense for the year (140,296) (140,296) (5,151) (145,447)
Issue of ordinary shares 474 129,749 – – – – – 130,223 – 130,223
Recognition of equity-settled
– – – – – – –
share-based payments 2,106 2,106 2,106
Gain on revaluation of investment
properties transferred from
property, plant and equipment
– – – – – – –
and prepaid lease payments 41,387 41,387 41,387
Deferred tax arising from gain on
revaluation of investment
properties transferred from
property, plant and equipment
– – – – – – –
and prepaid lease payments (10,347) (10,347) (10,347)
– – – – – – – –
Acquisition of subsidiaries 14,092 14,092
Capital contribution from
non-controlling interests – – – – – – – – 20 20
At 31 December 2017 1,807 1,504,484 110,692 11,012 84,583 31,040 (1,510,474) 233,144 8,961 242,105
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Notes:

a. Special reserve

This reserve arises on a group reorganization 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 reorganization 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 statutory 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.

82 Comtec Solar Systems Group Limited

Consolidated Statement of Cash Flows

for the year ended 31 December 2017

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2017 2016
RMB’000 RMB’000
Operating activities
Loss before taxation (131,200) (1,007,789)
Adjustments for:
Interest income (296) (2,612)
Interest expenses 15,925 9,112
Depreciation of property, plant and equipment 18,086 59,847
–
Amortization of intangible assets 21,288
Share-based payment expenses 2,106 22,369
Allowance for trade and other receivables 7,690 5,151
Allowance for inventories 17,381 94,537
–
Impairment losses recognized in respect of advance to suppliers 1,369
–
Impairment losses recognized in respect of assets held for sale 339,317
Impairment losses recognized in respect of property, plant and equipment 36,872 276,470
–
Write off deposit paid for acquisition of property, plant and equipment 25,775
Losses recognized in respect of provision for termination of
Malaysian plant under construction 6,200 88,269
Losses recognized in respect of provision for compensation to a supplier 6,119 34,975
Loss on disposal of property, plant and equipment 14,796 1,548
–
Gain on disposal of assets held for sale (81)
Gain on fair value change of contingent consideration payables (22,016) (19,068)
Utilization of allowance for advance to suppliers (1,369) (95,690)
Release of prepaid lease payments 551 761
Release of deferred revenue (287) (287)
Operating cash flows before movements in working capital (8,154) (166,027)
Decrease (increase) in inventories 135,974 (21,974)
Decrease in trade and other receivables 43,746 95,097
Decrease (increase) in bills receivable 9,142 (3,855)
Decrease in advance to suppliers 55,646 88,366
Decrease in prepaid assignment fee 166,190 9,356
(Decrease) increase in trade and other payables (292,015) 20,393
(Decrease) increase in customers’ deposits received (194,883) 58,992
Cash (used in) generated from operations (84,354) 80,348
Tax paid (4,880) (112)
Net cash (used in) from operating activities (89,234) 80,236
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Annual Report 2017 83

for the year ended 31 December 2017

Consolidated Statement of Cash Flows

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2017 2016
RMB’000 RMB’000
Investing activities
Interest received 296 2,612
Proceeds from disposal of assets held for sale 138,395 19,210
–
Proceeds from disposals of property, plant and equipment 10,402
Placement of short-term bank deposits (20,874) (126,637)
Withdrawal of short-term bank deposits 126,637 171,084
–
Deposits paid for purchasing of property, plant and equipment (21,248)
Purchase of property, plant and equipment (59,650) (36,182)
–
Acquisition of a subsidiary (6,176)
–
Additions of prepaid lease payments (5,227)
Net cash from investing activities 167,782 24,860
Financing activities
Proceeds from issue of new shares 66,479 58,797
Expenses on issue of shares (1,336) (937)
Bank loans raised 261,992 269,048
Interest paid (16,659) (9,112)
Repayment of bank loans (439,067) (390,477)
Capital contribution from non-controlling interests 20 –
Net cash used in financing activities (128,571) (72,681)
(Decrease) increase in cash and cash equivalents (50,023) 32,415
Cash and cash equivalents at beginning of the year 82,130 49,715
Cash and cash equivalents at end of the year,
represented by bank balances and cash 32,107 82,130
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84 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2017

1. GENERAL

Comtec Solar Systems Group Limited (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 Yi Zhang (“Mr. Zhang”) who is the chairman 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 Company and its subsidiaries are principally engaged in research, production and sales of efficient mono-crystalline products and power storage products and the provision of consulting services for investment, development, construction and operation of solar photovoltaic power stations. The details of the Company’s subsidiaries are set out in Note 40.

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

2. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS

The Group experienced a net loss of RMB145,447,000 in the year ended 31 December 2017 and had a working capital deficit (total consolidated current liabilities exceeded total consolidated current assets) of RMB101,039,000 although a net assets of RMB242,105,000 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.
The Group is adopting strict control of operating and investing activities.
The Group plans to secure additional capital by way of issuing new shares to new investors.

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

Annual Report 2017 85

Notes to the Consolidated Financial Statements

for the year ended 31 December 2017

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

Amendments to IFRSs that are mandatorily effective for the current year

The Group has applied the following amendments to IFRSs issued by the International Accounting Standards Board (“IASB”) for the first time in the current year.

Amendments to IAS 7 Disclosure Initiative Amendments to IAS 12 Recognition of Deferred Tax Assets for Unrealized Losses Amendments to IFRS 12 As part of the Annual Improvements to IFRSs 2014–2016 Cycle

Except as described below, the application of the amendments to IFRSs in the current year has had no material impact on the Group’s financial performance and positions for the current and prior years and/or on the disclosures set out in these consolidated financial statements.

Amendments to IAS7 Disclosure Initiative

The Group has applied these amendments for the first time in the current year. The amendments require an entity to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both cash and non-cash changes. In addition, the amendments also require disclosures on changes in financial assets if cash flows from those financial assets were, or future cash flows will be, included in cash flows from financing activities.

Specifically, the amendments require the following to be disclosed: (i) changes from financing cash flows; (ii) changes arising from obtaining or losing control of subsidiaries or other businesses; (iii) the effect of changes in foreign exchange rates; (iv) changes in fair values; and (v) other changes.

A reconciliation between the opening and closing balances of these items is provided in Note 36. Consistent with the transition provisions of the amendments, the Group has not disclosed comparative information for the prior year. Apart from the additional disclosure in Note 36, the application of these amendments has had no impact on the Group’s consolidated financial statements.

86 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2017

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

New and revised IFRSs in issue but not yet effective

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 15	Revenue from Contracts with Customers and the related
	_Amendments_1
IFRS 16	_Leases_2
IFRS 17	_Insurance Contracts_4
IFRIC 22	_Foreign Currency Transactions and Advance Consideration_1
IFRIC 23	_Uncertainty over Income Tax Treatments_2
Amendments to IFRS 2	Classification and Measurement of Share-based Payment
	_Transactions_1
Amendments to IFRS 4	Applying IFRS 9 Financial Instruments with IFRS 4 Insurance
	_Contracts_1
Amendments to IFRS 9	_Prepayment Features with Negative Compensation_2
Amendments to IAS 19	_Plan Amendment, Curtailment or Settlement_2
Amendments to IFRS 10 and IAS 28	Sale or Contribution of Assets between an Investor and its
	_Associate or Joint Venture_3
Amendments to IAS 28	_Long-term Interests in Associates and Joint Ventures_2
Amendments to IAS 40	_Transfers of Investment Property_1
Amendments to IAS 28	As part of the Annual Improvements to IFRS
	_Standards 2014–2016 Cycle_1
Amendments to IFRSs	_Annual Improvements to IFRS Standards 2015–2017 Cycle_2

1 Effective for annual periods beginning on or after 1 January 2018

2 Effective for annual periods beginning on or after 1 January 2019

3 Effective for annual periods beginning on or after a date to be determined

4 Effective for annual periods beginning on or after 1 January 2021

Except as described below, the directors of the Company anticipate that the application of the other new and amendments to IFRSs and Interpretations will have no material impact to the Group’s consolidated financial statements in the foreseeable future.

Annual Report 2017 87

Notes to the Consolidated Financial Statements

for the year ended 31 December 2017

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

IFRS 9 Financial Instruments

IFRS 9 introduces new requirements for the classification and measurement of financial assets, financial liabilities, general hedge accounting and impairment requirements for financial assets.

Key requirements of IFRS 9 which are relevant to the Group are described as follows:

All recognized financial assets that are within the scope of IFRS 9 are required to be subsequently measured at amortized 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 amortized 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 that give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding, are generally measured at fair value through other comprehensive income. All other financial assets 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 recognized in profit or loss.
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 recognized.

Based on the Group’s financial instruments and risk management policies as at 31 December 2017, the directors of the Company anticipated the following potential impact on initial application of IFRS 9:

Classification and measurement

The classification and measurement of the financial assets and financial liabilities would continue to be measured on the same bases as are currently under IAS 39.

Impairment

In general, the directors of the Company anticipated that the application of the expected credit loss model of IFRS 9 would result in earlier provision of credit losses which are not yet incurred in relation to the Group’s financial assets measured at amortized costs and other items that subject to the impairment provision upon application of IFRS 9 by the Group.

Based on the assessment of the directors of the Company, if the expected credit loss model would be applied by the Group, the accumulated amount of impairment loss to be recognized by Group as at 1 January 2018 would be slightly increased as compared to the accumulated amount recognized under IAS 39 mainly attributable to expected credit loss provision on trade and other receivables, bill receivable, short-term bank deposits and bank balances and cash.

88 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2017

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

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 recognize 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: Recognize revenue when (or as) the entity satisfies a performance obligation

Under IFRS 15, an entity recognizes 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.

In 2016, the IASB issued Clarifications to IFRS 15 in relation to the identification of performance obligations, principal versus agent considerations, as well as licensing application guidance.

The directors of the Company has assessed the impact on application of IFRS 15 and among which considered whether the Group’s sales contracts that offer different payment schemes to customers contain significant financing component so that the transaction price and the amount of revenue recognized would be adjusted. Based on such assessment, the directors of the Company concluded that the Group’s sales contracts did not contain significant financing component and did not anticipate the application of IFRS 15 would result any material impact on the timing and amounts of revenue recognition in the respective report periods. However, the directors of the Company anticipated that the application of IFRS 15 in the future may result in more disclosure in the consolidated financial statements.

Annual Report 2017 89

Notes to the Consolidated Financial Statements

for the year ended 31 December 2017

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

IFRS 16 Leases

IFRS 16 introduces a comprehensive model for the identification of lease arrangements and accounting treatments for both lessors and lessees. IFRS 16 will supersede the current lease guidance including IAS 17 Leases and the related interpretations when it becomes effective.

IFRS 16 distinguishes leases and service contracts on the basis of whether an identified asset is controlled by a customer. Distinctions of operating leases (off balance sheet) and finance leases (on balance sheet) are removed for lessee accounting, and is replaced by a model where a right-of-use asset and a corresponding liability have to be recognized for all leases by lessees (i.e. all on balance sheet) except for short-term leases and leases of low value assets.

The right-of-use asset is initially measured at cost and subsequently measured at cost (subject to certain exceptions) less accumulated depreciation and impairment losses, adjusted for any remeasurement of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at that date. Subsequently, the lease liability is adjusted for interest and lease payments, as well as the impact of lease modifications, amongst others. For the classification of cash flows, the Group currently presents upfront prepaid lease payments as investing cash flows in relation to leasehold lands for owned use and those classified as investment properties while other operating lease payments are presented as operating cash flows. Upon application of IFRS 16, lease payments in relation to lease liability will be allocated into a principal and an interest portion which will be presented as financing cash flows by the Group.

Under IAS 17, the Group has already recognized an asset for prepaid lease payments for leasehold lands where the Group is a lessee. The application of IFRS 16 may result in potential changes in classification of these assets depending on whether the Group presents right-of-use assets separately or within the same line item at which the corresponding underlying assets would be presented if they were owned.

In contrast to lessee accounting, IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17, and continues to require a lessor to classify a lease either as an operating lease or a finance lease.

Furthermore, extensive disclosures are required by IFRS 16.

As at 31 December 2017, the Group had non-cancellable operating lease commitments of RMB1,898,000 as disclosed in Note 33. A preliminary assessment indicated that these arrangements would meet the definition of a lease. Upon application of under IFRS 16, the Group would recognize a right-of-use asset and a corresponding liability in respect of all these leases unless they qualify for low value or short-term leases.

In addition, the Group currently considered refundable rental deposits paid of RMB662,000 and refundable rental deposits received of RMB410,000 as rights and obligations under leases to which IAS 17 applies. Based on the definition of lease payments under IFRS 16, such deposits were not payments relating to the right to use the underlying assets, accordingly, the carrying amounts of such deposits might be adjusted to amortized cost and such adjustments are considered as additional lease payments. Adjustments to refundable rental deposits paid would be included in the carrying amount of right-of-use assets. Adjustments to refundable rental deposits received would be considered as advance lease payments.

Furthermore, the application of new requirements may result in changes in measurements, presentation and disclosure as indicated above.

90 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2017

4. SIGNIFICANT ACCOUNTING POLICIES

Statement of Compliance

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

The consolidated financial statements have been prepared on the historical cost basis except for investment property and certain financial instruments which are measured at fair values at the end of the 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 the consolidated financial statements is determined on such a basis, except for share-based payment transactions that are within the scope of IFRS 2 Share-based Payment, leasing transactions that are within the scope of IAS 17 Leases, and measurements that have some similarities to fair value but are not fair value, such as net realizable value in IAS 2 Inventories or value in use in IAS 36 Impairment of Assets.

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

For financial instruments and investment properties which are transferred at fair value and a valuation technique that unobservable inputs is to be used to measure fair value in subsequent periods, the valuation technique is calibrated so that the results of the valuation technique equals the transaction price.

Annual Report 2017 91

for the year ended 31 December 2017

Notes to the Consolidated Financial Statements

4. SIGNIFICANT ACCOUNTING POLICIES (continued)

Statement of Compliance (continued)

In addition, for financial reporting purposes, fair value measurements are categorized 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 principal accounting policies are set out below.

Basis of consolidation

The consolidated financial statements incorporate the consolidated financial statements of the Company and entities controlled by the Company (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 Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.

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.

92 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2017

4. SIGNIFICANT ACCOUNTING POLICIES (continued)

Basis of consolidation (continued)

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.

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.

Business combinations

Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. Acquisitionrelated costs are generally recognized in profit or loss as incurred.

At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognized at their fair value at the acquisition date, except that:

deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognized and measured in accordance with IAS 12 Income Taxes and IAS 19 Employee Benefits respectively;
liabilities or equity instruments related to share-based payment arrangements of the acquiree or sharebased payment arrangements of the Group entered into to replace share-based payment arrangements of the acquiree are measured in accordance with IFRS 2 Share-based Payment at the acquisition date (see the accounting policy below); and
assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations are measured in accordance with that Standard.

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any noncontrolling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net amount of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed as at acquisition date. If, after re-assessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held interest in the acquiree (if any), the excess is recognized immediately in profit or loss as a bargain purchase gain.

Annual Report 2017 93

Notes to the Consolidated Financial Statements

for the year ended 31 December 2017

4. SIGNIFICANT ACCOUNTING POLICIES (continued)

Business combinations (continued)

Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the relevant subsidiary’s net assets in the event of liquidation are initially measured either at fair value or at the non-controlling interests’ proportionate share of the recognized amounts of the acquiree’s identifiable net assets or at fair value. The choice of measurement basis is made on a transaction-by-transaction basis.

When the consideration transferred by the Group in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a business combination. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with the corresponding adjustments made against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the “measurement period” (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date.

The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or a liability is remeasured to fair value at subsequent reporting dates, with the corresponding gain or loss being recognized in profit or loss.

When a business combination is achieved in stages, the Group’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition-date fair value and the resulting gain or loss, if any, is recognized in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognized in other comprehensive income are reclassified to profit or loss where such treatment would be appropriate if that interest were disposed of.

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports amounts for the items for which the accounting is incomplete. Those amounts are adjusted during the measurement period (see above), and additional assets or liabilities are recognized, to reflect new information obtained about facts and circumstances that existed at the acquisition date that, if known, would have affected the amounts recognized at that date.

94 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2017

4. SIGNIFICANT ACCOUNTING POLICIES (continued)

Goodwill

Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of the business (see the accounting policy above) less accumulated impairment losses, if any.

For the purposes of impairment testing, goodwill is allocated to groups of cash-generating units that are expected to benefit from the synergies of the combination, which represent the lowest level at which the goodwill is monitored for internal management purposes and not larger than an operating segment.

A cash-generating unit (or group of cash-generating units) to which goodwill has been allocated is tested for impairment annually, or more frequently when there is indication that the unit may be impaired. For goodwill arising on an acquisition in a reporting period, the cash-generating unit (or group of cash-generating units) to which goodwill has been allocated is tested for impairment before the end of that reporting period. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit on a pro rata basis based on the carrying amount of each asset in the unit (or group of cashgenerating units).

On disposal of the relevant cash-generating unit, the attributable amount of goodwill is included in the determination of the amount of profit or loss on disposal (or any of the cash-generating unit within group of cash-generating unit in which the Group monitors goodwill).

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 asset (or disposal group) is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such asset (or disposal group) and its sale is highly probable. 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 carrying amount and fair value less costs to sell.

Annual Report 2017 95

for the year ended 31 December 2017

Notes to the Consolidated Financial Statements

4. SIGNIFICANT ACCOUNTING POLICIES (continued)

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 is recognized when the amount of revenue can be reliably measured; when it is probable that future economic benefits will flow to the Group and when specific criteria have been met for each of the Group’s activities, as described below.

Revenue from the sale of goods is recognized 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 recognized 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 recognized 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 apportionment 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.

Leasing

Leases are classified as finance leases whenever 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 lessor

Rental income from operating leases is recognised in profit or loss on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset.

96 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2017

4. SIGNIFICANT ACCOUNTING POLICIES (continued)

Leasing (continued)

The Group as lessee

Operating lease payments are recognized 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.

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.

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 capitalization.

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

Government grants

Government grants are not recognized 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 recognized in profit or loss on a systematic basis over the periods in which the Group recognizes 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 recognized 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 recognized in profit or loss in the period in which they become receivable.

Annual Report 2017 97

Notes to the Consolidated Financial Statements

for the year ended 31 December 2017

4. SIGNIFICANT ACCOUNTING POLICIES (continued)

Retirement benefit costs

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

Short-term employee benefits

Short-term employee benefits are recognized at the undiscounted amount of the benefits expected to be paid as and when employees rendered the services. All short-term employee benefits are recognized as an expense unless another IFRS requires or permits the inclusion of the benefit in the cost of an asset.

A liability is recognized for benefits accruing to employees (such as wages and salaries, annual leave and sick leave) after deducting any amount already paid.

Share-based payment transactions

Equity-settled share-based payment transactions

Share options granted to the directors and employees of the Company

Equity-settled share-based payment to directors and employees and other providing similar services are measured at fair value of the services received, unless that fair value cannot be estimated reliably. If the fair value of the services received cannot be reliably estimated, their value are measured by reference to the fair value of the equity instruments granted. Details regarding the determination of the fair value of equity-settled share-based transactions are set out in Note 30.

The fair values of the equity-settled share-based payments determined at the grant-date without taking into consideration all non-market vesting conditions is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of equity instruments that will eventually vest, with a corresponding increase in equity (share options reserve). At the end of the reporting period, the Group revises its estimate of the number of equity instruments expected to vest based on assessment of all relevant non-market vesting conditions. The impact of the revision of the original estimates, if any, is recognized in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to share options reserve.

When the share options are exercised, the amount previously recognized 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 recognized in share options reserve will be transferred to accumulated losses.

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 recognized as expenses, with a corresponding increase in equity (share options reserve), when the counterparties render services.

98 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2017

4. SIGNIFICANT ACCOUNTING POLICIES (continued)

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 recognized 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 recognized for all taxable temporary differences. Deferred tax assets are generally recognized 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 recognized 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. In addition, deferred tax liabilities are not recognized if the temporary difference arise from the initial recognition of goodwill.

Deferred tax liabilities are recognized 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 recognized 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.

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 realized, 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.

For the purposes of measuring deferred tax for investment properties that are measured using the fair value model, the carrying amounts of such properties are presumed to be recovered entirely through sales, unless the presumption is rebutted. The presumption is rebutted when the investment property is depreciable and is held within a business model whose objective is to consume substantially all of the economic benefits embodied in the investment property over time, rather than through sales.

Annual Report 2017 99

Notes to the Consolidated Financial Statements

for the year ended 31 December 2017

4. SIGNIFICANT ACCOUNTING POLICIES (continued)

Taxation (continued)

Current and deferred tax is recognized in to profit or loss, except when it relates to items that are recognized in other comprehensive income or directly in equity, in which case the current and deferred tax is also recognized in other comprehensive income or directly in equity respectively. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination.

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.

Properties in the course of construction for production, supply or administrative purposes are carried at cost, less any recognized impairment loss. Costs include professional fees and, for qualifying assets, borrowing costs capitalized 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.

Depreciation is recognized 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.

An item of property, plant and equipment is derecognized 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 recognized in profit or loss.

Investment properties

Investment properties are properties held to earn rental or for capital appreciation.

Investment properties are measured initially at cost, including any directly attributable expenditure. Subsequent to initial recognition, investment properties are measured at their fair values. All of the Group’s property interest held under operating leases to earn rentals or for capital appreciation purposes are classified and accounted for as investment properties and are measured using the fair value model. Gains or losses arising from changes in the fair value of investment properties are included in profit or loss for the period in which they arise.

100 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2017

4. SIGNIFICANT ACCOUNTING POLICIES (continued)

Investment properties (continued)

Owner-occupied properties are transferred to investment properties when and only when there is a change in use evidenced by end of owner occupation. At the date of transfer, the properties are measured at their fair value, with any gain being recognised in other comprehensive income and accumulated in “property revaluation reserve”, which will not be reclassified to profit or loss at the time of disposal (it will instead be transferred to accumulated losses at the time of disposal), while with any loss being recognised in profit or loss.

An investment property is derecognized upon disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from its disposals. Any gain or loss arising on derecognition of the asset is included in the profit or loss in the period in which the property is derecognized.

Prepaid lease payments

Upfront prepayments made for the land use rights and leasehold land are initially recognized 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.

Intangible assets

Intangible assets acquired in a business combination are recognized separately from goodwill and are initially recognized at their fair value at the acquisition date (which is regarded as their cost).

Subsequent to initial recognition, intangible assets with finite useful lives are carried at costs less accumulated amortization and any accumulated impairment losses. Amortization for intangible assets with finite useful lives is recognized on a straight-line basis over their estimated useful lives. Alternatively, intangible assets with indefinite useful lives are carried at cost less any subsequent accumulated impairment losses (see the accounting policy on impairment of tangible and intangible assets below).

An intangible asset is derecognized on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of an intangible asset are measured at the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in profit or loss in the period when the asset is derecognized.

Impairment of tangible and intangible assets other than goodwill (see the accounting policy in respect of goodwill above)

At the end of the reporting period, the Group reviews the carrying amounts of its tangible and intangible 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.

Annual Report 2017 101

for the year ended 31 December 2017

Notes to the Consolidated Financial Statements

4. SIGNIFICANT ACCOUNTING POLICIES (continued)

Impairment of tangible and intangible assets other than goodwill (see the accounting policy in respect of goodwill above) (continued)

Recoverable amount is the higher of fair value less costs of disposal 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 (or a cashgenerating unit) 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. In allocating the impairment loss, the impairment loss is allocated first to reduce the carrying amount of any goodwill (if applicable) and then to the other assets on a pro-rata basis based on the carrying amount of each asset in the unit. The carrying amount of an asset is not reduced below the highest of its fair value less costs of disposal (if measurable), its value in use (if determinable) and zero. The amount of the impairment loss that would otherwise have been allocated to the asset is allocated pro rata to the other assets of the unit. An impairment loss is recognized immediately in profit or loss.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or a cash-generating unit) 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 recognized for the asset (or a cash-generating unit) in prior years. A reversal of an impairment loss is recognized as income immediately.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost of inventories are determined on a weighted average method. Net realisable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale.

Provision

Provisions are recognized 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. When 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).

102 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2017

4. SIGNIFICANT ACCOUNTING POLICIES (continued)

Research and development expenditure

Expenditure on research activities is recognized 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 recognized 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 recognized 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 recognized, 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 amortization and accumulated impairment losses (if any), on the same basis as intangible assets acquired separately.

Financial instruments

Financial assets and financial liabilities are recognized 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 (“FVTPL”)) 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 FVTPL are recognized immediately in profit or loss.

Annual Report 2017 103

for the year ended 31 December 2017

Notes to the Consolidated Financial Statements

4. SIGNIFICANT ACCOUNTING POLICIES (continued)

Financial instruments (continued)

Financial assets

The Group’s financial assets are classified into loans and receivables. 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 recognized and derecognized 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 amortized 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 recognized on an effective interest basis for debt instruments.

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, short-term bank deposits and bank balances and cash) are carried at amortized cost using the effective interest method, less any identified impairment losses (see accounting policy on impairment loss on financial assets below).

Interest income is recognized by applying the effective interest rate, except for short-term receivables where the recognition of interest would be immaterial.

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.

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 reorganization;

104 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2017

4. SIGNIFICANT ACCOUNTING POLICIES (continued)

Financial instruments (continued)

Financial assets (continued)

Impairment of financial assets (continued)

Objective evidence of impairment for a portfolio of receivables could include the Group’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period, observable changes in national or local economic conditions that correlate with default on receivables.

For financial assets carried at amortized cost, the amount of impairment loss recognized 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 recognized 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 amortized 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 recognized, the previously recognized 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 amortized cost would have been had the impairment not been recognized.

Financial liabilities

Debt 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.

Effective interest method

The effective interest method is a method of calculating the amortized 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 recognized on an effective interest basis.

Annual Report 2017 105

for the year ended 31 December 2017

Notes to the Consolidated Financial Statements

4. SIGNIFICANT ACCOUNTING POLICIES (continued)

Financial instruments (continued)

Financial liabilities (continued)

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 recognized 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 amortized cost

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

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments issued by the Company are recorded as the proceeds received, net of direct issue costs.

Derecognition

The Group derecognizes 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 recognize the asset to the extent of its continuing involvement and recognizes an associated liability. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognize the financial asset and also recognizes a collateralised borrowing for the proceeds received.

106 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2017

4. SIGNIFICANT ACCOUNTING POLICIES (continued)

Financial instruments (continued)

Derecognition (continued)

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 recognized in other comprehensive income and accumulated in equity is recognized in profit or loss.

The group derecognises financial liabilities when, and only when, the Group’s are discharged, cancelled or have expired. The difference between the carrying amount of the financial liability derecognized and the consideration paid or payable is recognized in profit or loss.

5. KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Group’s accounting policies, which are described in Note 4, the directors of the Company 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 recognized 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 is required 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.

During the year ended 31 December 2017, the provision of impairment on property, plant and equipment amounted to RMB36,872,000 (31 December 2016: RMB276,470,000).

Annual Report 2017 107

for the year ended 31 December 2017

Notes to the Consolidated Financial Statements

5. KEY SOURCES OF ESTIMATION UNCERTAINTY (continued)

(b) Impairment of goodwill

Determining whether goodwill is impaired requires an estimation of the value in use of the cashgenerating units to which goodwill has been allocated. The value in use calculation requires the Group to estimate the future cash flows expected to arise from the cash-generating units 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. As at 31 December 2017, the carrying amount of goodwill was approximately RMB105,917,000 (2016: RMB60,256,000). Details of recoverable amount calculation are disclosed in Note 18.

(c) Write-down of inventories

Inventories are valued at the lower of cost and net realizable 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. As at 31 December 2017, the carrying amount of inventories amounted to approximately RMB43,209,000 (31 December 2016: RMB191,082,000), net of inventory provision of approximately RMB17,452,000 (31 December 2016: RMB96,599,000).

(d) Impairment of intangible assets

The Group’s management determines the estimated amortization method in determining the related amortization charges for its intangible assets. This estimate is based on the estimated period of economic benefit to be derived from the intangible asset. In addition, management assesses impairment whenever events or changes in circumstances indicate that the carrying amount of an item of intangible assets may not be recoverable. Management will increase amortization charge where useful lives are expected to be shorter than expected, or will write off or write down obsolete assets that have been abandoned or impaired. When the actual useful lives or recoverable amounts of intangible assets differ from the original estimates, adjustment will be made and recognized in the period in which such event takes place.

As at 31 December 2017, the carrying amount of intangible assets was approximately RMB67,757,000 (2016: RMB63,050,000). No impairment has recorded for the intangible assets during the year ended 31 December 2016. Details of movements in intangible assets are disclosed in Note 19.

(e) Fair value of contingent consideration payables

In 2016, the Group acquired a business which will be satisfied by issuing ordinary shares of the Company on earn-out basis. Such contingent consideration payables is classified as a financial instrument (financial liability at FVTPL). As at 31 December 2017, the fair value of the contingent consideration payables was estimated to be approximately RMB51,989,000 resulting a fair value gain of approximately RMB22,016,000 being recognized in the profit or loss for that year. Details of the methodology and assumptions adopted are disclosed in Note 28 to the consolidated financial statements. Changes in the key assumptions on which the fair value is based could significantly affect the Group’s assessment resulting in material fair value gain or loss being recognized in profit or loss on a prospective basis in the year when change occur.

108 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2017

6. REVENUE AND SEGMENT INFORMATION

The Group is principally engaged in research, production and sales of efficient mono-crystalline products, and from the beginning of 2017, the Group started new business in the provision of consulting services for investment, development, construction and operation of solar photovoltaic power stations. The Group has two operating and reportable segments for financial reportable purpose in 2017. The Group’s segment (loss) profit is the (loss) profit before taxation of the Group.

The Group’s reportable and operating segments are as follows:

i. Upstream — Production and sales of efficient mono-crystalline products, trading of solar products and provision of processing services for solar products.
ii. Downstream — Provision of consulting services for investment, development, construction and operation of solar photovoltaic power stations

	Upstream	Downstream	Total
	RMB’000	RMB’000	RMB’000
For the year ended December 31, 2017: Revenue Cost of sales and services Segment (loss) profit Other income Other gains and losses, expenses and provision Distribution and selling expenses Administrative expenses Research and development expenses Finance costs Loss before taxation

	442,034	47,174	489,208
	(473,380)	(7,850)	(481,230)

	(31,346)	39,324	7,978

			29,029
			(53,522)
			(11,049)
			(81,846)
			(5,865)
			(15,925)

			(131,200)

	Upstream	Downstream	Total
	RMB’000	RMB’000	RMB’000
For the year ended December 31, 2016: Revenue Cost of sales and services Segment profit Other income Other gains and losses, expenses and provision Distribution and selling expenses Administrative expenses Research and development expenses Finance costs Loss before taxation	810,045 (962,626)	– –	810,045 (962,626)
	(152,581)	–	(152,581)
			4,120 (763,846) (15,276) (64,184) (6,910) (9,112)
			(1,007,789)

Annual Report 2017 109

Notes to the Consolidated Financial Statements

for the year ended 31 December 2017

6. REVENUE AND 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:

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2017 2016
RMB’000 RMB’000
Manufacturing and sales of solar products:
Monocrystalline solar wafers 249,510 306,567
Monocrystalline solar ingots 45,465 29,648
294,975 336,215
Trading of solar and power storage products:
Monocrystalline silicon 65,295 456,099
–
Monocrystalline silicon solar cells 34,787
–
Crystalline silicon solar modules 37,467
–
Power storage products 5,187
Others 4,323 15,942
147,059 472,041
Provision of processing services and consulting service:
–
Processing service for solar products 1,789
Consulting services for investment, development, construction and
–
operation of solar photovoltaic power stations 47,174
Total revenue 489,208 810,045
----- End of picture text -----

Revenue reported above represents revenue generated from external customers.

110 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2017

6. REVENUE AND SEGMENT INFORMATION (continued)

Revenue analysed by the locations of external customers

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2017 2016
RMB’000 RMB’000
PRC including Hong Kong Special Administrative Region (“SAR”) 426,515 536,671
Philippines and Malaysia 39,794 213,871
Japan 16,907 2,968
Korea 5,992 13,971
–
United States of America (“USA”) 39,590
Other countries – 2,974
Total revenue 489,208 810,045
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Information about major customers

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

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

2017 2016
RMB’000 RMB’000
Customer A 84,610 N/A
Customer B 57,496 N/A
Customer C N/A 209,672
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Note: N/A — the Company sale to that customer was less than 10% of the total revenue in the relevant year.

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

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2017 2016
RMB’000 RMB’000
PRC including Hongkong SAR 437,279 347,117
Malaysia 389 8,119
437,668 355,236
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Annual Report 2017 111

for the year ended 31 December 2017

Notes to the Consolidated Financial Statements

7. OTHER INCOME

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

2017 2016
RMB’000 RMB’000
Government grant (note) 26,764 1,165
Deferred revenue amortization 287 287
Rental related income 1,606 –
Interest income 296 2,612
Others 76 56
29,029 4,120
----- End of picture text -----

Note: 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 clean energy industry and high-technology advancement. No specific conditions were attached to the grant.

8. OTHER GAINS AND LOSSES, ExPENSES AND PROVISION

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2017 2016
RMB’000 RMB’000
Net foreign exchange losses (3,861) (10,121)
Gain on fair value change of contingent consideration payables (Note 28) 22,016 19,068
Gain on disposal of assets held for sale – 81
Loss on disposal of property, plant and equipment (14,796) (1,548)
Allowance for trade and other receivables (Note 21) (7,690) (5,151)
Impairment losses recognized in respect of property, plant and
equipment (Note 15) (36,872) (276,470)
–
Impairment losses recognized in respect of advance to suppliers (1,369)
–
Impairment losses recognized in respect of assets held for sale (Note 23) (339,317)
–
Write off deposit paid for acquisition of property, plant and equipment (25,775)
Losses recognized in respect of provision for termination of
Malaysian plant under construction (Note 23) (6,200) (88,269)
Losses recognized in respect of provision for compensation to
a supplier (note) (6,119) (34,975)
(53,522) (763,846)
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Note: In prior years, the Group entered into certain long term consumable purchase agreements with an independent supplier. In 2016, an agreement was reached into between the independent supplier and the Group to reduce the consumable purchase period from 11 years to 21 months from March 2016. Due to the downside of the Group’s manufacturing business, however, the directors of the Company expect that the Group would not be able to fulfill the agreed purchase amount and would incur penalties of approximately RMB34,975,000. In 2017, the independent supplier and the Group agreed to terminate the related affairs and the Group recognized another RMB6,119,000 loss.

112 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2017

9. FINANCE COSTS

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2017 2016
RMB’000 RMB’000
Borrowing costs 16,659 19,784
Less: amounts capitalized in the cost of qualifying assets (734) (10,672)
15,925 9,112
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The capitalized borrowing costs were calculated by applying the borrowing rate of 4.8% (2016: 4.8%) per annum to expenditure on qualifying assets.

10. LOSS BEFORE TAxATION

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2017 2016
RMB’000 RMB’000
Loss before taxation has been arrived at after charging:
Staff costs, including Director’s Remuneration
Salaries, wages, bonus and other benefits 43,344 61,713
Retirement benefits schemes contributions 5,188 9,656
Share based payments expenses 2,106 22,369
Total staff costs 50,638 93,738
Capitalized in inventories (19,829) (46,830)
30,809 46,908
Depreciation of property, plant and equipment 18,086 59,847
Capitalized in inventories (16,930) (56,020)
1,156 3,827
Auditor’s remuneration 2,100 2,000
Cost of inventories recognized as expense (note (i)) 473,380 962,626
Release of prepaid lease payments 551 761
–
Amortization of intangible assets 21,288
Research and development expenses 5,865 6,910
Operating lease rentals in respect of rented premises 3,803 3,154
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Note:

(i) Included in cost of inventories recognized as expense represented provision of inventories of approximately RMB17,381,000 (2016: RMB94,537,000) to their net realisable values.

Annual Report 2017 113

for the year ended 31 December 2017

Notes to the Consolidated Financial Statements

11. DIRECTORS’ AND CHIEF ExECUTIVE’S EMOLUMENTS EMOLUMENTS AND FIVE HIGHEST PAID EMPLOYEES

		2017	2016
		RMB’000	RMB’000
Independent non-executive directors — fees 786 868 Non-executive directors — fees 207 50 Executive directors — Basic salaries and allowance 3,327 2,799 — Share-based payments expense 106 62 — Retirement benefits schemes contributions 44 15 4,470 3,794 Directors’ and chief executive’s remuneration for the year, disclosed pursuant to the applicable Listing Rules and Hong Kong Companies Ordinance, are as follows:			868 50 2,799 62 15

		786

		207

		3,327
		106
		44
			3,794
		4,470
	Mr. John Yi Zhang (“Mr. Zhang”) Mr. Chau Kwok Keung (“Mr. Chau”) Mr. Zhang Zhen (“Mr. Zhang Zhen”) Total 2017
	RMB’000 RMB’000 RMB’000 RMB’000
A) EXECUTIVE DIRECTORS: Other emoluments: Basic salaries and allowance Share-based payments expense Retirement benefits schemes contributions Sub-total	600 1,920 807 3,327 – 53 53 106 12 16 16 44
	612 1,989 876 3,477

114 Comtec Solar Systems Group Limited

for the year ended 31 December 2017

Notes to the Consolidated Financial Statements

11. DIRECTORS’ AND CHIEF ExECUTIVE’S EMOLUMENTS EMOLUMENTS AND FIVE HIGHEST PAID EMPLOYEES (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. Wang Yi Xin (“Mr. Wang”) RMB’000

B) NON-EXECUTIVE DIRECTORS:

Fees Share-based payments expense Sub-total		200 7
		207

	Mr. Leung Ming Shu (“Mr. Leung”) Mr. Daniel DeWitt Martin (“Mr. DeWitt”) Mr. Kang Sun (“Mr. Kang”) Mr. Xu Erming (“Mr. Xu”) Total 2017
	RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
	200 86 337 142 765 7 – 7 7 21

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

Total

4,470

Annual Report 2017 115

for the year ended 31 December 2017

Notes to the Consolidated Financial Statements

11. DIRECTORS’ AND CHIEF ExECUTIVE’S EMOLUMENTS EMOLUMENTS AND FIVE HIGHEST PAID EMPLOYEES (continued)

	Mr. John Yi Zhang (“Mr. Zhang”) Mr. Chau Kwok Keung (“Mr. Chau”) Mr. Shi Cheng Qi (“Mr. Shi”) Mr. Zhang Zhen (“Mr. Zhang Zhen”) Total 2016
	RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
A) EXECUTIVE DIRECTORS: Other emoluments: Basic salaries and allowance Share-based payments expense Retirement benefits schemes contributions Sub-total	600 1,920 61 218 2,799 – – 62 – 62 – 15 – – 15
	600 1,935 123 218 2,876

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. Wang Yi Xin (“Mr. Wang”) RMB’000

B) NON-EXECUTIVE DIRECTORS:

Fees Sub-total	50
	50

116 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2017

11. DIRECTORS’ AND CHIEF ExECUTIVE’S EMOLUMENTS EMOLUMENTS AND FIVE HIGHEST PAID EMPLOYEES (continued)

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Mr. Leung Mr. Daniel
Ming Shu DeWitt Martin Mr. Kang Sun Total
(“Mr. Leung”) (“Mr. DeWitt”) (“Mr. Kang”) 2016
RMB’000 RMB’000 RMB’000 RMB’000
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C) INDEPENDENT NON-EXECUTIVE

DIRECTORS:

Fees Sub-total	200 334 334 868
	200 334 334 868

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

Total 3,794

The five highest paid individuals included three (2016: two) directors of the Company for the year ended 31 December 2017. Details of whose emoluments are set out above. The emoluments of the remaining two (2016: three) individuals during the years are as follows:

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2017 2016
RMB’000 RMB’000
Employees
— basic salaries and allowance 1,304 1,147
— share-based payments expense 88 176
— Retirement benefits schemes contribution 88 –
1,480 1,323
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Annual Report 2017 117

for the year ended 31 December 2017

Notes to the Consolidated Financial Statements

11. DIRECTORS’ AND CHIEF ExECUTIVE’S EMOLUMENTS EMOLUMENTS AND FIVE HIGHEST PAID EMPLOYEES (continued)

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

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2017 2016
NO. of NO. of
employees employees
Nil to HK$1,000,000 3 4
HK$1,000,001 to HK$1,500,000 1 –
HK$2,000,001 to HK$2,500,000 1 1
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During the year ended 31 December 2017 and 31 December 2016, no discretionary bonus was paid or payable to the directors, the chief executive nor the five highest paid individuals.

During the year ended 31 December 2017 and 31 December 2016, 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 2017 and 31 December 2016.

12. INCOME TAx ExPENSE (CREDIT)

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2017 2016
RMB’000 RMB’000
Current tax:
PRC Enterprise Income Tax 15,208 21
Deferred tax (Note 31) (961) (740)
14,247 (719)
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No Hong Kong Profits Tax was provided for the year ended 31 December 2017 and 31 December 2016 as the group entities either had no relevant assessable profits or incurred tax losses in Hong Kong.

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 PRC on Enterprise Income Tax (the “EIT Law”) and Implementation Regulation of the EIT Law, the tax rate of the PRC subsidiaries is 25%.

118 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2017

12. INCOME TAx ExPENSE (CREDIT) (continued)

During the year ended 31 December 2017 and 31 December 2016, 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 operation 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 realized or the liability is settled.

The income tax expenses for the year can be reconciled to the loss before taxation as follows:

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2017 2016
RMB’000 RMB’000
Loss before taxation (131,200) (1,007,789)
Tax at domestic income tax rate (25%) (2016: 25%) (32,800) (251,947)
Tax effect of expenses not deductible for tax purpose 14,492 5,692
Tax effect of temporary difference not recognized 33,516 246,387
–
Utilization of temporary difference previously not recognized (111)
Overprovision on withholding tax on undistributed dividends (961) (740)
Income tax expense (credit) for the year 14,247 (719)
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Annual Report 2017 119

for the year ended 31 December 2017

Notes to the Consolidated Financial Statements

13. DIVIDENDS

No dividends was paid, declared or proposed during the year ended 31 December 2017 and 31 December 2016.

The directors of the Company 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:

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2017 2016
RMB’000 RMB’000
Loss
Loss for the year attributable to owners of the Company
for the purposes of basic and diluted loss per share (140,296) (1,007,070)
Number of shares
Weighted average number of ordinary shares
for the purpose of basic and diluted loss per share 1,720,898,993 1,449,485,250
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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 2017 and 31 December 2016.

120 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2017

15. PROPERTY, PLANT AND EQUIPMENT

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Furniture,
Plant and fixtures and Motor Construction
Buildings machinery equipment vehicles in progress Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
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COST At 1 January 2016 Additions Reclassifications Classified as assets held for sale_(Note 23) Disposals At 31 December 2016 Additions Reclassifications Transfer to investment properties(Note 17) Disposals At 31 December 2017 DEPRECIATION AND IMPAIRMENT At 1 January 2016 Provided for the year Classified as assets held for sale(Note 23) Eliminated on disposals Impairment At 31 December 2016 Provided for the year Transfer to investment properties(Note 17)_ Eliminated on disposals Impairment At 31 December 2017 CARRYING VALUES At 31 December 2017 At 31 December 2016	255,718 748,807 2,016 3,622 467,895 1,478,058 – 132 135 250 19,361 19,878 588 (1,351) 7 756 – – – (69,034) (343) (1,224) (421,932) (492,533) – (1,005) (74) (309) (687) (2,075)
	256,306 677,549 1,741 3,095 64,637 1,003,328 – 35,169 2,187 964 11,600 49,920 – 1,383 – 413 (1,796) – (57,505) – – – – (57,505) (529) (243,446) (587) (346) – (244,908)
	198,272 470,655 3,341 4,126 74,441 750,835
	95,745 360,790 1,206 2,245 – 459,986 12,966 46,317 87 477 – 59,847 – (188) (93) (481) – (762) – (251) (24) (252) – (527) 5,530 216,224 495 908 53,313 276,470
	114,241 622,892 1,671 2,897 53,313 795,014 12,512 5,162 240 172 – 18,086 (21,556) – – – – (21,556) (190) (218,622) (552) (346) – (219,710) – 26,067 – – 10,805 36,872
	105,007 435,499 1,359 2,723 64,118 608,706
	93,265 35,156 1,982 1,403 10,323 142,129
	142,065 54,657 70 198 11,324 208,314

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	3–20 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.

Annual Report 2017 121

for the year ended 31 December 2017

Notes to the Consolidated Financial Statements

15. PROPERTY, PLANT AND EQUIPMENT (continued)

The industry landscape for the traditional monocrystalline silicon business has been deteriorated continuously, with certain major players who use monocrystalline silicon wafers, such as those produced by the Group, scaling back or even shutting down their production. The Group thus conducted a review of the Group’s property, plant and equipment and determined that a number of those assets were impaired, due to the adverse changes in the future economic conditions of the solar wafer manufacturing business in which the Group is engaging. Accordingly, impairment losses of RMB36,872,000 (2016: RMB276,470,000) have been recognized in respect of plant and machinery and construction in process, which are used in the Group’s manufacturing and sales of solar wafers and related processing services. The recoverable amounts of the relevant assets have been determined on the basis of their value in use.

As at 31 December 2017, the Group pledged its buildings having net book values of approximately RMB98,486,000 (2016: RMB137,817,000) to banks to secure banking facilities granted to the Group.

16. PREPAID LEASE PAYMENTS

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2017 2016
RMB’000 RMB’000
Carrying values
At 1 January 23,061 26,779
Additions – 5,227
Released to profit or loss (551) (761)
Classified as assets held for sale – (8,184)
–
Transfer to Investment properties (Note 17) (8,691)
At 31 December 13,819 23,061
Current portion 335 551
Non-current portion 13,484 22,510
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The lease payments represent the land use rights situated in the PRC which are under medium-term leases.

As at 31 December 2017, prepaid lease payments with carrying amount of approximately RMB13,819,000 (2016: RMB23,061,000) was pledged to banks to secure banking facilities granted to the Group.

122 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2017

17. INVESTMENT PROPERTIES

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Investment
properties
RMB’000
FAIR VALUE
–
At 1 January 2017
Transferred from property, plant and equipment 35,949
Transferred from prepaid lease payments 8,691
Gain on revaluation of properties recognized in property revaluation reserve (note) 41,387
At 31 December 2017 86,027
----- End of picture text -----

Note: During the year ended 31 December 2017, certain self-used properties and related prepaid lease payments with carrying amount of RMB35,949,000 and RMB8,691,000 respectively were transferred to investment properties upon the change in use of the properties evidenced by commencement of leasing agreement for the properties to generate rental income. At the date of transfer, the gain on revaluation from property, plant and equipment and prepaid lease payments to investment properties amounting to RMB41,387,000 was recognised in property revaluation reserve.

The fair value of the Group’s investment properties at 31 December 2017 has been arrived at on the basis of a valuation carried out on the respective dates by an independent qualified professional valuer not connected to the Group.

As at 31 December 2017, the Group pledged its investment properties having carrying value of approximately RMB86,027,000 to banks to secure banking facilities granted to the Group.

The following table gives information about how the fair value of these investment properties as at 31 December 2017 are determined (in particular, the valuation approaches and inputs used), as well as the fair value hierarchy into which the fair value measurements are categorised based on the degree to which the inputs to the fair value measurements is observable.

Investment property held by the Group in the consolidated statement of financial position	Fair value hierarchy	Valuation technique and key input(s)
Industry property located in Shanghai RMB86,027,000	Level 3	Cost approach and income approach with weight coefficient.
		Taking into account the time, location and
		individual factors, such as frontage and the
		size, between the comparable and the property.

Any significant isolated increases (decreases) in these inputs would result in a significantly higher (lower) fair value measurement.

Annual Report 2017 123

for the year ended 31 December 2017

Notes to the Consolidated Financial Statements

18. GOODWILL

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2017 2016
RMB’000 RMB’000
–
At 1 January 60,256
Acquired during the year 45,661 60,256
At 31 December 105,917 60,256
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The carrying amounts of goodwill as at December 31, 2017 and 2016 are as follows:

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2017 2016
RMB’000 RMB’000
Comtec Renewable Energy Group Limited 60,256 60,256
–
Comtec (Asia) Limited 39,025
–
Zhenjiang Kexin Power System Design and Research Company Limited 6,636
At 31 December 105,917 60,256
----- End of picture text -----

For the purposes of impairment testing, goodwill have been allocated to each of the individual cash-generating units, comprising 3 subsidiaries (2016: 1) in the downstream solar business segment. During the year ended 31 December 2017 and 2016, the management of the Group determines that there are no impairments of any of its cash-generating units containing goodwill.

The recoverable amounts of the above cash-generating units are determined from value in use calculations. The key assumptions for the value in use calculations are those regarding the discount rates, growth rates and expected changes to selling prices and direct costs during the period. The management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the cash-generating units. The growth rates are by reference to industry growth forecasts. Changes in selling prices and direct costs are based on past practices and expectations of future changes in the market. The major underlying assumptions are summarized below:

124 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2017

18. GOODWILL (continued)

Comtec Renewable Energy Group Limited

These calculations use cash flow projections based on financial budgets approved by the management covering a five-year period and a discount rate of 22.3%. Cash flow beyond that five-year period has been extrapolated using a 0.2% descent rate. This descent rate does not exceed the long-term average growth rate for the market in which the Group operates.

Comtec (Asia) Limited

These calculations use cash flow projections based on financial budgets approved by the management covering a five-year period and a discount rate of 24.5%. Cash flow beyond that five-year period has been extrapolated using a steady 3% growth rate. This growth rate does not exceed the long-term average growth rate for the market in which the Group operates.

Zhenjiang Kexin Power System Design and Research Company Limited

These calculations use cash flow projections based on financial budgets approved by the management covering a five-year period and a discount rate of 18.2%. Cash flow beyond that five-year period has been extrapolated using a steady 3% growth rate. This growth rate does not exceed the long-term average growth rate for the market in which the Group operates.

19. INTANGIBLE ASSETS

The balance of intangible assets is analysed as follows:

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Non-
Cooperative compete Franchise
agreement agreement relationship Backlog Technology Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
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At 1 January 2016 Additions At 31 December 2016 Additions Amortization At 31 December 2017	– – – – – – 51,500 11,550 – – – 63,050
	51,500 11,550 – – – 63,050 – 13,026 5,899 970 6,100 25,995 12,875 4,407 2,731 970 305 21,288
	38,625 20,169 3,168 – 5,795 67,757

Annual Report 2017 125

for the year ended 31 December 2017

Notes to the Consolidated Financial Statements

19. INTANGIBLE ASSETS (continued)

The intangible assets are amortized on a straight-line basis over their estimated useful lives as follows:

Cooperative agreement	4 years
Non-compete agreement	2–5 years
Franchise relationship	1.8 years
Backlog	0.8 years
Technology	5 years

20. INVENTORIES

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2017 2016
RMB’000 RMB’000
Raw materials 13,727 99,084
Work-in-progress 17,430 58,277
Finished goods 12,052 33,721
43,209 191,082
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As at 31 December 2017, the carrying amount of the inventories disclosed above included inventory provision of RMB17,452,000 (2016: RMB96,599,000) and the movements of which are as follows:

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2017 2016
RMB’000 RMB’000
At 1 January 96,599 114,729
Written off (96,528) (112,667)
Provision 17,381 94,537
At 31 December 17,452 96,599
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126 Comtec Solar Systems Group Limited

for the year ended 31 December 2017

Notes to the Consolidated Financial Statements

21. TRADE AND OTHER RECEIVABLES AND BILLS RECEIVABLE

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2017 2016
RMB’000 RMB’000
Trade receivables 69,269 100,679
Written off (5,151) (4,260)
Less: allowance for doubtful debts (7,690) (5,151)
56,428 91,268
Utility deposits 3,147 3,798
Value-added-tax recoverable 43,729 43,242
Other receivables and prepayments 28,042 13,277
131,346 151,585
Bills receivable 1,684 10,826
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The Group requested prepayment from customers before delivery of goods and allows a credit period of 7 to 180 days for the remaining balance on case-by-case basis. The following is an aged analysis of trade receivables net off allowance for doubtful debts presented based on the invoice dates at the end of the reporting period, which approximated the respective revenue recognition dates:

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2017 2016
RMB’000 RMB’000
Age
0 to 30 days 18,368 21,872
31 to 60 days 6,167 3,189
61 to 90 days 353 810
91 to 180 days 6,438 2,556
Over 180 days 25,102 62,841
56,428 91,268
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Included in the trade receivables are debtors with an aggregate carrying amount of RMB16,448,000 (2016: RMB62,841,000) which are past due at the end of the reporting period but not considered impaired. The Group does not hold any collateral over these balances. The directors of the Company, 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.

Annual Report 2017 127

for the year ended 31 December 2017

Notes to the Consolidated Financial Statements

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

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

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2017 2016
RMB’000 RMB’000
Overdue by:
61 to 90 days 353 –
–
91 to 180 days 6,120
Over 180 days 9,975 62,841
16,448 62,841
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The following is an age analysis of bills receivable presented based on the invoice date at the end of the reporting period:

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2017 2016
RMB’000 RMB’000
Age
0 to 30 days 1,134 2,126
31 to 60 days 550 4,250
–
61 to 90 days 3,450
–
91 to 180 days 1,000
1,684 10,826
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No interest is charged on the trade receivables and bills receivable. Trade receivables are considered to be impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the trade receivables, the estimated future cash flows of the trade receivables have been affected.

128 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2017

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

Movements in the allowance for doubtful debts:

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RMB’000
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Balance at 1 January 2016 Impairment losses recognized in profit or loss Written off Balance at 31 December 2016 Impairment losses recognized in profit or loss Written off At 31 December	4,260 5,151 (4,260)
	5,151 7,690 (5,151)
	7,690

The Group’s trade and other receivables and bills receivable that were denominated in United States dollars (“USD”), foreign currency of the relevant group entities, were re-translated in RMB and stated for financial reporting purposes as:

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2017 2016
RMB’000 RMB’000
Trade and other receivables denominated in USD 6,996 73,593
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Annual Report 2017 129

Notes to the Consolidated Financial Statements

for the year ended 31 December 2017

22. SHORT-TERM BANK DEPOSITS/BANK BALANCES AND CASH

(A) Short-term bank deposits

As at 31 December 2017, the Group pledged its short-term bank deposits of approximately RMB20,874,000 (2016: RMB126,637,000) as security for short-term bank loans. The pledged bank deposits carry variable interests at rates ranging from 1.35% to 2.75 % per annum (2016: 2.35% to 2.75%).

(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 0.01% to 0.30% per annum and 0.10% to 0.50% per annum at 31 December 2017 and 31 December 2016, respectively.

The Group’s bank balances and cash that were denominated in Hong Kong dollars (“HK$”), United States dollars (“USD”), Japanese yen (“JPY”), Malaysian Ringgit (“MYR”) and European dollars (“Euro”), foreign currencies of the relevant group entities, were re-translated in RMB and stated for reporting purposes as:

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2017 2016
RMB’000 RMB’000
Bank balances and cash denominated in:
Euro 75 104
HK$ 2,615 443
USD 6,298 40,815
JPY 11 62
MYR 351 1,625
Other currencies 13 11
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Certain bank balances and cash of approximately RMB22,744,000 and RMB39,070,000 at 31 December 2017 and 31 December 2016, 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.

130 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2017

23. ASSETS CLASSIFIED AS HELD FOR SALE

On 30 December 2016, the Group entered into an agreement (the “Asset Transfer Agreement”) with an independent third party, pursuant to which certain assets of the Group maintained in Malaysia comprising property, plant and equipment and prepaid lease payments with a total net book value of approximately RMB499,955,000 will be disposed of for a cash consideration of approximately RMB200,000,000. The directors of the Company estimate the cost of disposal of such assets is approximately RMB39,362,000 and therefore the Group provides a total impairment of RMB339,317,000 against the assets classified as held for sales as at 31 December 2016. Therefore, such assets to be disposed are classified as assets held for sale as of 31 December 2016. Details of this assets disposal are disclosed in a circular of the Company dated 31 March 2017.

As the Group terminated its Malaysian plant under construction, a provision of approximately RMB88,269,000 in respect of retrenchment expenses to lay off Malaysian staff and compensations to two utility suppliers were made in relation to the termination of the Malaysian plant under construction. In addition, the Group has written off a non-refundable deposit paid in prior years in connection with the acquisition of equipment to be installed to the Malaysian plant under construction amount to approximately RMB25,775,000 as the directors of the Company are of a review that this deposit is no longer recoverable given the adverse changes and market sentiment in the relevant industry.

In 2017, there was an another RMB6,200,000 loss for additional stamp duty and other tax charged from the government.

The disposal was duly completed on 8 June 2017. The Group received most of the proceeds which are in accordance with the disposal agreement:

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

Property, plant Prepaid lease
and equipment payments Total
RMB’000 RMB’000 RMB’000
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At 1 January 2016 Disposal Reclassified from property, plant and equipment (Note 15) Reclassified from prepaid lease payments_(Note 16)_ Impairment At 31 December 2016 Disposal At 31 December 2017	– 19,129 19,129 – (19,129) (19,129) 491,771 – 491,771 – 8,184 8,184 (337,833) (1,484) (339,317)
	153,938 6,700 160,638 (153,938) (6,700) (160,638)
	– – –

Details of this assets disposal are disclosed in a circular of the Company dated 31 March 2017.

Annual Report 2017 131

for the year ended 31 December 2017

Notes to the Consolidated Financial Statements

24. TRADE AND OTHER PAYABLES

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2017 2016
RMB’000 RMB’000
Trade payables 83,947 255,509
Payables for acquisition of property, plant and equipment 17,106 31,927
Provision for termination costs for termination of
Malaysian plant under construction 1,267 88,269
Other payables and accrued charges 28,737 33,187
131,057 408,892
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The following is an age analysis of trade payables presented based on the invoice date at the end of each reporting period:

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2017 2016
RMB’000 RMB’000
Age
0 to 30 days 45,815 63,548
31 to 60 days 11,544 28,767
61 to 90 days 5,604 14,752
91 to 180 days 4,570 16,910
Over 180 days 16,414 131,532
83,947 255,509
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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.

132 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2017

24. TRADE AND OTHER PAYABLES (continued)

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

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2017 2016
RMB’000 RMB’000
Trade and other payables denominated in:
MYR 1,372 597
USD 31,174 176,585
JPY – 2,618
Euro – 2,883
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25. CUSTOMERS’ DEPOSITS RECEIVED

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

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2017 2016
RMB’000 RMB’000
Mission (Note 41) – 166,190
Other customers 43,203 71,478
43,203 237,668
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Customers’ deposits received are unsecured, interest-free and will be settled by the delivery of the Group’s products.

Annual Report 2017 133

for the year ended 31 December 2017

Notes to the Consolidated Financial Statements

26. BANK LOANS

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2017 2016
RMB’000 RMB’000
Bank loans
— Secured 212,289 335,976
— Unsecured – 52,388
212,289 388,364
The carrying amounts of the above borrowings are repayable
Within one year 200,339 388,364
–
Within a period of more than one year but not exceeding two years 1,500
–
Within a period of more than two years but not exceeding five years 6,050
–
Within a period of more than five years 4,400
212,289 388,364
Analysed as:
Current 200,339 388,364
Non-current 11,950 –
212,289 388,364
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Bank loans of RMB199,739,000 (2016: RMB119,317,000) as at 31 December 2017 carried interest at variable market rates benchmark to the interest rates of the People’s Bank of China or London Interbank Offer Rate.

The exposure of the Group’s borrowings are as follows:

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2017 2016
RMB’000 RMB’000
Fixed-rate borrowings 12,550 269,047
Variable-rate borrowings 199,739 119,317
212,289 388,364
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134 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2017

26. BANK LOANS (continued)

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

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

2017 2016
RMB’000 RMB’000
Effective interest rate:
Fixed-rate 6.5% 2.13%
Variable-rate 1.75% to 4.35% 1.75% to 4.79%
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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:

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2017 2016
RMB’000 RMB’000
Denominated in USD 20,909 149,146
Denominated in Euro – 52,388
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27. DEFERRED REVENUE

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2017 2016
RMB’000 RMB’000
Government grants 4,298 4,584
Analysed for reporting purpose as:
Current liabilities 287 287
Non-current liabilities 4,011 4,297
4,298 4,584
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In the prior years, the Group received certain government subsidies which were related to compensation of acquisition of plant and equipment in the PRC. The amounts were treated as deferred revenue and amortized 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 2017, deferred revenue of RMB286,500 (2016: RMB286,500) was recognized as profit or loss.

Annual Report 2017 135

for the year ended 31 December 2017

Notes to the Consolidated Financial Statements

28. CONTINGENT CONSIDERATION PAYABLES

The balances of the contingent consideration payables are analysed as:

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2017 2016
RMB’000 RMB’000
–
At 1 January 93,835
Initial recognition (Note 39) 45,250 112,903
Fair value change through profit or loss (Note 8) (22,016) (19,068)
–
Transferred to equity (65,080)
At 31 December 51,989 93,835
Analysed as:
–
Current portion 9,884
Non-current portion 42,105 93,835
51,989 93,835
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The contingent consideration arose from the issue of ordinary shares of the Company on earn-out basis in relation to business acquisitions as detailed in Note 39. The contingent consideration is classified as a financial instrument (financial liability at FVTPL) and recognized in the consolidated statement of financial position at fair value. The fair value of the contingent consideration at the date of initial recognition and as at 31 December 2017 are based on the calculation on the business performance of the acquired companies and the change of stock price and exchange rate. Details of the valuation technique and key inputs adopted are disclosed in Note 35.

136 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2017

29. SHARE CAPITAL

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

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Number of
Authorised: shares Amount
HK$’000
Ordinary shares
Ordinary shares of HK$0.001 each at 1 January 2016,
31 December 2016 and 31 December 2017 7,600,000,000 7,600
Number of
Issued and fully paid: shares Amount
HK$’000
Ordinary shares
Ordinary shares of HK$0.001 each:
At 1 January 2016 1,391,861,750 1,393
Issue of shares (note 1) 154,651,306 154
At 31 December 2016 1,546,513,056 1,547
Issue of shares (note 2) 551,190,524 551
At 31 December 2017 2,097,703,580 2,098
2017 2016
RMB’000 RMB’000
Presented as RMB:
Ordinary shares 1,807 1,333
Notes:
----- End of picture text -----

(1) On 8 August 2016, the Company allotted 154,651,306 ordinary shares of HK$0.001 each for a cash consideration of HK$0.45 per share to independent third parties not related to the Group.

(2) On 18 July 2017 and 19 October 2017, the Company issued 118,389,897 and 190,912,714 ordinary shares of HK$0.001 each for a cash consideration of HK$0.2534 and HK$0.25 per share to independent third parties not related to the Group. On 31 August 2017, the Company issued 241,567,690 and 320,223 ordinary shares of HK$0.001 each as the consideration to the vendors of acquisition of Joy Boy HK Limited and Forum (Asia) Limited for a cash consideration of HK$0.46 and HK$0.355.

All the shares issued by the Company ranked pari passu in all respects.

Annual Report 2017 137

for the year ended 31 December 2017

Notes to the Consolidated Financial Statements

30. 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 of the Company 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.

138 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2017

30. 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 2017 and 31 December 2016:

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Number of options
Outstanding
as at
1 January 2016, Outstanding
31 December as at
2016 and Issue during Exercised Forfeited 31 December
1 January 2017 the year during the year in the year 2017
Directors:
– – –
Mr. Leung 62,787 62,787
Mr. DeWitt (note) 199,659 – – – 199,659
– – –
Mr. Kang 249,574 249,574
– – –
512,020 512,020
Exercisable at the end of
the year 512,020 512,020
Weighted average exercise
price (HK$) 2.510 2.510
----- End of picture text -----

Note: Mr. Dewitt resigned as a director of the Company during the current reporting period.

Annual Report 2017 139

for the year ended 31 December 2017

Notes to the Consolidated Financial Statements

30. SHARE-BASED COMPENSATION (continued)

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

At 31 December 2017, the number of shares in respect of which options under the Pre-IPO Share Option Scheme remained outstanding was 512,020 (2016: 512,020), representing 0.02% (2016: 0.03%) of the shares of the Company in issue at that date.

(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 2017 and 31 December 2016:

Granted on 24 May 2010

For the year ended 31 December 2017 and 31 December 2016:

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

Number of options
Outstanding
as at
1 January 2016, Outstanding
31 December as at
2016 and Exercised Forfeited Lapsed 31 December
1 January 2017 during the year during the year in the year 2017
– – –
Employees and others 2,240,000 2,240,000
Exercisable at the end
of the year 2,240,000 2,240,000
Weighted average exercise
price (HK$) 1.490 1.490
----- End of picture text -----

At 31 December 2017, 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 2016: 2,240,000), representing 0.11% (31 December 2016: 0.14%) of the shares of the Company in issue at that date.

140 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2017

30. SHARE-BASED COMPENSATION (continued)

(b) Share Option Scheme (continued)

Granted on 28 June 2012

For the year ended 31 December 2017 and 31 December 2016:

==> picture [424 x 335] intentionally omitted <==

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

Number of options
Outstanding
as at
1 January 2016, Outstanding
31 December as at
2016 and Exercised Forfeited Lapsed 31 December
1 January 2017 during the year during the year in the year 2017
Director:
– – –
Mr. Zhang 5,000,000 5,000,000
Mr. Chau 228,000 – – – 228,000
– – –
Employees 3,506,000 3,506,000
Consultants 50,000 – – – 50,000
– – –
8,784,000 8,784,000
Exercisable at the end
of the year 8,784,000 8,784,000
Weighted average exercise
price (HK$) 0.980 0.980
----- End of picture text -----

At 31 December 2017, 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 2016: 8,784,000), representing 0.42% (31 December 2016: 0.57%) of the shares of the Company in issue at that date.

Annual Report 2017 141

Notes to the Consolidated Financial Statements

for the year ended 31 December 2017

30. SHARE-BASED COMPENSATION (continued)

(b) Share Option Scheme (continued)

Granted on 27 December 2012

For the year ended 31 December 2017 and 31 December 2016:

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

Number of options
Outstanding
as at
1 January 2016 Outstanding
31 December Exercised Forfeited as at
2016 and Issue during during during 31 December
1 January 2017 the year the year the year 2017
Director:
– – –
Mr. Leung 300,000 300,000
Mr. DeWitt 300,000 – – – 300,000
– – –
Mr. Kang 300,000 300,000
– – –
Employees 600,000 600,000
Consultants 6,038,000 – – – 6,038,000
– – –
7,538,000 7,538,000
Exercisable at the end
of the year 7,538,000 7,538,000
Weighted average
exercise price (HK$) 1.262 1,262
----- End of picture text -----

At 31 December 2017, 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 2016: 7,538,000), representing 0.36% (31 December 2016: 0.49%) of the shares of the Company in issue at that date.

142 Comtec Solar Systems Group Limited

for the year ended 31 December 2017

Notes to the Consolidated Financial Statements

30. SHARE-BASED COMPENSATION (continued)

(b) Share Option Scheme (continued) Granted on 30 September 2013

For the year ended 31 December 2017 and 31 December 2016:

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

Number of options
Outstanding
as at
1 January 2016, Outstanding
31 December Forfeited as at
2016 and Issue during Exercised during 31 December
1 January 2017 the year during the year in the year 2017
Consultants 4,020,000 – – – 4,020,000
Exercisable at the end
of the year 4,020,000 4,020,000
Weighted average
exercise price (HK$) 1.870 1.870
----- End of picture text -----

At 31 December 2017, 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 , (2016: 4,020,000), representing 0.19% (2016:0.26%) of the shares of the Company in issue at that date.

Granted on 31 March 2014

For the year ended 31 December 2017 and 31 December 2016:

	Number of options
	Outstanding as at 1 January 2016 Issue during the year Exercised during the year Forfeited during the year	Outstanding as at 31 December 2016, 1 January 2017 and 31 December 2017
Director: Mr. Chau Employees Consultants Exercisable at the end of the year Weighted average exercise price (HK$)	13,000,000 – – – 4,850,000 – – – 17,800,000 – – –	13,000,000 4,850,000 17,800,000
	35,650,000 – – –	35,650,000
	34,787,500 1.386	35,650,000
		1.386

At 31 December 2017, 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 , (2016: 35,650,000), representing 1.7% (2016: 2.31%) of the shares of the Company in issue at that date.

Annual Report 2017 143

for the year ended 31 December 2017

Notes to the Consolidated Financial Statements

30. SHARE-BASED COMPENSATION (continued)

(b) Share Option Scheme (continued)

Granted on 11 May 2015

For the year ended 31 December 2017 and 31 December 2016:

	Number of options
	Outstanding as at 1 January 2016 Issue during the year Exercised during the year Forfeited during the year	Outstanding as at 31 December 2016, 1 January 2017 and 31 December 2017
Director: Mr. Shi_(note)_ Employees Consultants Exercisable at the end of the year Weighted average exercise price (HK$)	600,000 – – – 10,200,000 – – – 49,000,000 – – –	600,000 10,200,000 49,000,000
	59,800,000 – – –	59,800,000
	47,341,666 1.390	59,800,000
		1.390

Note: Mr. Shi retired as a director of the Company on 23 May 2016.

At 31 December 2017, the number of shares in respect of which options granted on 11 May 2015 under the Share Option Scheme remained outstanding was 59,800,000 (2016: 59,800,000), representing 2.85% (2015: 3.87%) of the shares of the Company in issue at that date.

144 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2017

30. SHARE-BASED COMPENSATION (continued)

(b) Share Option Scheme (continued) Granted on 26 June 2015

For the year ended 31 December 2017 and 31 December 2016:

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

Number of options
Outstanding
as at
31 December
2016, 1 January
Outstanding Exercised 2017 and
as at Issue during during Forfeited during 31 December
1 January 2016 the year the year the year 2017
Consultants 20,000,000 – – – 20,000,000
Exercisable at the end
of the year 15,000,000 20,000,000
Weighted average
exercise price (HK$) 1.500 1.500
----- End of picture text -----

At 31 December 2017, the number of shares in respect of which options granted on 26 June 2015 under the Share Option Scheme remained outstanding was 20,000,000, (2016: 20,000,000), representing 0.95% (2016: 1.29%) of the shares of the Company in issue at that date.

Granted on 25 November 2015

For the year ended 31 December 2017 and 31 December 2016:

	Number of options
	Outstanding as at 1 January 2016 Issue during the year Exercised during the year Forfeited during the year	Outstanding as at 31 December 2016, 1 January 2017 and 31 December 2017
Consultants Exercisable at the end of the year Weighted average exercise price (HK$)	59,000,000 – – –	59,000,000
	31,958,333 0.736	59,000,000
		0.736

At 31 December 2017, the number of shares in respect of which options granted on 25 November 2015 under the Share Option Scheme remained outstanding was 59,000,000 (2016: 59,000,000), representing 2.81% (2016: 3.82%) of the shares of the Company in issue at that date.

Annual Report 2017 145

for the year ended 31 December 2017

Notes to the Consolidated Financial Statements

30. SHARE-BASED COMPENSATION (continued)

(b) Share Option Scheme (continued)

Granted on 9 September 2016

For the year ended 31 December 2017:

	Number of options
	Outstanding as at 1 January 2017 Issue during the year Exercised during the year Forfeited during the year	Outstanding as at 31 December 2017
Consultants 89,000,000 – – – Exercisable at the end of the year 55,625,000 Weighted average exercise price (HK$) 0.560 For the year ended 31 December 2016:
	89,000,000 – – –	89,000,000

	55,625,000	89,000,000

	0.560	0.560

	Number of options
	Outstanding as at 1 January 2016 Issue during the year Exercised during the year Forfeited during the year	Outstanding as at 31 December 2016
Consultants Exercisable at the end of the year Weighted average exercise price (HK$)	– 89,000,000 – –	89,000,000
	– –	55,625,000
		0.560

At 31 December 2017, the number of shares in respect of which options granted on 9 September 2016 under the Share Option Scheme remained outstanding were 89,000,000 (2016: 89,000,000), representing 4.24% (2016: 5.75%), of the shares of the Company in issue at that date.

146 Comtec Solar Systems Group Limited

for the year ended 31 December 2017

Notes to the Consolidated Financial Statements

30. SHARE-BASED COMPENSATION (continued)

(b) Share Option Scheme (continued)

Granted on 2 May 2017

Pursuant to a board resolution passed on 2 May 2017, the Company granted 28,200,000 share options of the Company, which respectively represent 1.82% of the shares of the Company in issue at the grant date, to directors, employees and consultants of the Company under the Share Option Scheme. Set out below are details of the outstanding options granted under the Share Option Scheme on 2 May 2017:

The options granted are at an exercise price of HK$0.335 per share and might only be exercised in the following manner:

(i) Half of the share options for consultants vested and exercisable on date of grant and
(ii) The remaining share options for consultants and options for employees and directors will have oneeighth to be vested every three months since the date of grant.

Set out below are details of movements of the outstanding options granted under the Share Option Scheme on 2 May 2017 during the year ended 31 December 2017:

For the year ended 31 December 2017:

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

Number of options
Outstanding
Outstanding as at
as at 1 January Issue during Exercised Forfeited during 31 December
2017 the year during the year the period 2017
Director:
– – –
Mr. Zhang Zhen 1,500,000 1,500,000
– – –
Chau Kwok Keung 1,500,000 1,500,000
– – –
Leung Ming Shu 200,000 200,000
– – –
Kang Sun 200,000 200,000
– – –
Xu Er Ming 200,000 200,000
– – –
Wang Yi Xing 200,000 200,000
– – –
Employees 14,000,000 14,000,000
Consultants – 10,400,000 – – 10,400,000
– – –
28,200,000 28,200,000
–
Exercisable at the end of the period 12,250,000
Weighted average exercise price (HK$) – 0.335 0.335
----- End of picture text -----

Annual Report 2017 147

for the year ended 31 December 2017

Notes to the Consolidated Financial Statements

30. SHARE-BASED COMPENSATION (continued)

(b) Share Option Scheme (continued)

Granted on 2 May 2017 (continued)

At 31 December 2017, the number of shares in respect of which options granted on 2 May 2017 under the Share Option Scheme remained outstanding were 28,200,000 at that date. As of the grant date, the fair value of the share options granted on 2 May 2017 was HKD3,497,000 (HKD0.16 per share) and HKD1,703,000 (HKD0.16 per share) for employees/directors and consultants respectively.

==> picture [423 x 36] intentionally omitted <==

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

Employees/
Directors Consultants
----- End of picture text -----

Share price	HK$0.335	HK$0.335
Exercise price	HK$0.335	HK$0.335
Expected volatility	60.00%	60.00%
Expected life	2.0	1.0
Risk-free interest rate	1.45%	1.45%
Turnover Rate	5%	0%

The risk-free interest rate was based on the interpolated market yield of Hong Kong government bonds as of the option grant 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 behavioural considerations. Changes in variables and assumptions may result in changes in the fair values of the share options.

The Group recognized an expense of approximately RMB2,106,000 (2016: RMB22,369,000) for the period ended 31 December 2017 in relation to the share options granted by the Company under the Share Option Scheme.

148 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2017

31. DEFERRED TAx LIABILITIES

The following is the deferred tax liabilities recognized by the Group and movements thereon during the year.

	Withholding tax on undistributed dividends Fair value adjustment Total
	RMB’000 RMB’000 RMB’000
At 1 January 2016 Credit to profit or loss Acquisitions of a subsidiary_(note) At 31 December 2016 Credit to profit or loss Charge to property revaluation reserve Acquisitions of subsidiaries(note)_ At 31 December 2017	(8,620) – (8,620) 740 – 740 – (10,403) (10,403)
	(7,880) (10,403) (18,283) 961 – 961 – (10,347) (10,347) – (4,289) (4,289)
	(6,919) (25,039) (31,958)

Note: Fair value adjustment mainly refers to the recognition of intangible assets upon the business combination arose from acquisition of a subsidiary disclosed in note 39.

At 31 December 2017 and 31 December 2016, deferred tax liabilities were provided for the undistributed profits of certain PRC operating subsidiaries of approximately RMB69,000,000 and RMB79,000,000, respectively, the Group has determined that the remaining portion of the profits derived from those PRC operating subsidiaries will be retained by those subsidiaries and not distributed in the foreseeable future, since the Group is in a position to control the timing of the reversal of the temporary differences, 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 unrecognized deductible temporary differences of approximately RMB1,119,612,000 (2016: RMB985,548,000), representing provision of inventories, allowance of doubtful debts and accumulated losses expired within 5 years since the loss occurred.

Annual Report 2017 149

Notes to the Consolidated Financial Statements

for the year ended 31 December 2017

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

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

2017 2016
RMB’000 RMB’000
Non-current assets
Investments in subsidiaries and amounts due from subsidiaries,
net of impairment loss 240,954 243,970
Current assets
Other receivables 65,080 –
Advance to suppliers – 200
Amounts due from subsidiaries 4,931 7,813
Bank balances and cash 1,924 105,032
71,935 113,045
Current liabilities
Other payables 5,988 4,337
Short-term bank loans – 97,118
5,988 101,455
Net current assets 65,947 11,590
Total assets less current liabilities 306,901 255,560
Capital and reserves
Share capital 1,807 1,333
Reserves (note) 305,094 254,227
Total equity 306,901 255,560
----- End of picture text -----

150 Comtec Solar Systems Group Limited

for the year ended 31 December 2017

Notes to the Consolidated Financial Statements

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

(continued)

Note: Reserves

==> picture [446 x 54] intentionally omitted <==

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

The Company
Share Share options Accumulated
premium reserve losses Total
RMB’000 RMB’000 RMB’000 RMB’000
----- End of picture text -----

At 1 January 2016 Loss and total comprehensive expense for the year Issue of ordinary shares Recognition of equity-settled share-based payments At 31 December 2016 Loss and total comprehensive expense for the year Issue of ordinary shares Recognition of equity-settled share-based payments At 31 December 2017	1,317,003 86,217 (106,332) 1,296,888 – – (1,122,762) (1,122,762) 57,732 – – 57,732 – 22,369 – 22,369
	1,374,735 108,586 (1,229,094) 254,227 – – (80,987) (80,987) 129,748 – – 129,748 – 2,106 – 2,106
	1,504,483 110,692 (1,310,081) 305,094

33. 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:

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

2017 2016
RMB’000 RMB’000
Within one year 964 575
In the second to fifth year inclusive 302 414
Over five years 632 –
1,898 989
----- End of picture text -----

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.

Annual Report 2017 151

Notes to the Consolidated Financial Statements

for the year ended 31 December 2017

34. CAPITAL COMMITMENTS

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

2017 2016
RMB’000 RMB’000
Capital expenditure in the consolidated financial statements in
respect of the acquisition of property, plant and equipment
— Contracted for but not provided 41,889 –
----- End of picture text -----

35. FINANCIAL INSTRUMENTS

The Group’s major financial instruments include trade and other receivables, bills receivable, short-term bank deposits, bank balances and cash, trade and other payables, short-term bank loans, long-term bank loans, long-term payables and contingent consideration payables. 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.

Categories of financial instruments

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

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

2017 2016
RMB’000 RMB’000
Financial assets
Trade and other receivables 76,428 91,268
Bills receivable 1,684 10,826
Short-term bank deposits 20,874 126,637
Bank balances and cash 32,107 82,130
Total loans and receivables 131,093 310,861
Financial liabilities
Trade and other payables 101,053 317,182
–
Long-term payable 4,500
Bank loans 212,289 388,364
Total liabilities measured at amortized costs 317,842 705,546
FVTPL — Contingent consideration payables 51,989 93,835
----- End of picture text -----

152 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2017

35. FINANCIAL INSTRUMENTS (continued)

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, short-term bank deposits, bank balances and cash, trade and other receivables, trade and other payables and short-term bank loans that are denominated in foreign currencies, mainly in HK$, USD, JPY, MYR and Euro as at 31 December 2017 and 31 December 2016 are set out in respective notes.

The Group had foreign currency denominated monetary assets and monetary liabilities amounting to approximately RMB39,427,000 and RMB78,220,000 respectively (31 December 2016: RMB246,098,000 and RMB606,055,000) as at 31 December 2017.

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.

Annual Report 2017 153

Notes to the Consolidated Financial Statements

for the year ended 31 December 2017

35. FINANCIAL INSTRUMENTS (continued)

Currency risk (continued)

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

2017 2016
RMB’000 RMB’000
Euro impact
— Euro strengthens against RMB 3 2,069
— Euro weakens against RMB (3) (2,069)
HK$ impact
— HK$ strengthens against RMB 104 19
— HK$ weakens against RMB (104) (19)
USD impact
— USD strengthens against RMB (1,686) (10,272)
— USD weakens against RMB 1,686 10,272
MYR impact
— MYR strengthens against RMB 125 1,082
— MYR weakens against RMB (125) (1,082)
JPY impact
— JPY strengthens against RMB 1 96
— JPY weakens against RMB (1) (96)
----- End of picture text -----

Interest rate risk

The Group is exposed to cash flow interest rate risk in relation to variable-rate bank balances, deposits and loans (see Notes 22 and 26 for details of these bank balances, deposits and loans). The management monitors interest rate exposures and will consider hedging significant interest rate risk should the need arise.

Sensitivity analysis

The sensitivity analysis below has been determined based on the exposure to interest rates for interest-bearing bank balances, deposits and 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, deposits and loans.

A 10 basis points increase or decrease on variable-rate bank balances and deposits 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.

154 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2017

35. FINANCIAL INSTRUMENTS (continued)

Sensitivity analysis (continued)

If interest rates on bank balances and deposits 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.

==> picture [447 x 68] intentionally omitted <==

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

2017 2016
RMB’000 RMB’000
Decrease in post-tax loss for the year 40 157
----- End of picture text -----

The post-tax loss for the year would be increased by an equal and opposite amount if interest rate on bank balances and deposits 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 positive number below indicates an increase in post-tax loss for the year.

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

2017 2016
RMB’000 RMB’000
Increase in post-tax loss for the year 1,592 895
----- End of picture text -----

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.

Credit risk

The Group’s principal financial assets are trade and other receivables, bills receivable, short-term 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 recognized financial assets as stated in the Group’s consolidated statement 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 of the Company consider that the Group’s credit risk is significantly reduced.

Annual Report 2017 155

for the year ended 31 December 2017

Notes to the Consolidated Financial Statements

35. FINANCIAL INSTRUMENTS (continued)

Credit risk (continued)

There is concentration of credit risk on bank balances and short-term bank deposits for the Group as at 31 December 2017 and 31 December 2016. As at 31 December 2017 and 2016, balances with the largest bank accounted for 40% (2016: 50%) of aggregate balance of bank balances, short-term 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.

As at 31 December 2017, 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 providing consultation on downstream solar business and the sales and manufacturing of solar cells and modules, amounted to approximately RMB10,984,000 (2016: RMB62,646,000). 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 of the Company 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.

Liquidity risk management

The directors of the Company 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 of the Company maintain the sufficiency of cashflows with availability of unutilized banking facilities, internally generated funds and funds arose from financing activities, if necessary. The directors of the Company 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.

156 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2017

35. FINANCIAL INSTRUMENTS (continued)

Liquidity risk management (continued)

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 Less than 6 months	Weighted average effective interest rate Less than 6 months	6 months to 1 year	1 year to 2 years	More than 2 years	Total undiscounted cash flows	Carrying amounts
%	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
At 31 December 2017 Financial liabilities Non-interest bearing instruments – Fixed interest bearing instruments 6.50 Variable interest bearing instruments 4.08 At 31 December 2016 Financial liabilities Non-interest bearing instruments – Fixed interest bearing instruments 4.06 Variable interest bearing instruments 2.13



	83,947	17,106	–	6,200	107,253	105,553
	704	701	2,265	12,379	16,049	12,550
	94,754	109,376	–	–	204,130	199,739

	179,405	127,183	2,265	18,579	327,432	317,842
	153,721 161,976 119,570	163,460 111,830 –	– – –	– – –	317,181 273,806 119,570	317,181 269,047 119,317
	435,267	275,290	–	–	710,557	705,545

Note: At 31 December 2017 and 31 December 2016, 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.

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.

Annual Report 2017 157

Notes to the Consolidated Financial Statements

for the year ended 31 December 2017

35. FINANCIAL INSTRUMENTS (continued)

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).

==> picture [446 x 187] intentionally omitted <==

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

Significant Relationship of
Fair value unobservable unobservable inputs
Financial assets/financial liabilities Fair value as at hierarchy Valuation technique(s) and key input(s) input(s) to fair value
31/12/2017 31/12/2016
Contingent consideration payables classified Liabilities – Liabilities – Level 3 Income approach based on the scenario Expected probabilities on The higher the expected
as financial instruments in the consolidated RMB RMB analysis with parameters including each of the expected probability, the higher
statement of financial position 51,989,000 93,835,000 probabilities assessment to the operating results the fair value.
operating results estimated by the
management under each scenario. The higher the expected
operating profit, the
higher the fair value.
----- End of picture text -----

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

158 Comtec Solar Systems Group Limited

for the year ended 31 December 2017

Notes to the Consolidated Financial Statements

35. FINANCIAL INSTRUMENTS (continued)

Fair value measurements (continued)

Fair value measurements and valuation processes

The board of directors of the Company 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 directors 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 accumulated losses, 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.

Annual Report 2017 159

for the year ended 31 December 2017

Notes to the Consolidated Financial Statements

36. RECONCILIATION OF LIABILITIES ARISING FROM FINANCING ACTIVITIES

The table below details changes in the Group’s liabilities arising from financing activities, including both the cash and non-cash changes. Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be classified in the Group’s consolidated statement of cash flows as cash flows from financing activities.

==> picture [446 x 51] intentionally omitted <==

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

Borrowings
(Note 26)
RMB’000
----- End of picture text -----

At 1 January Interest expense Capitalized in the cost of qualifying assets Financing cash flows Liabilities arising from acquisition At 31 December	388,364 15,925 734 (193,734) 1,000
	212,289

37. 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.

160 Comtec Solar Systems Group Limited

for the year ended 31 December 2017

Notes to the Consolidated Financial Statements

38. RELATED PARTY TRANSACTIONS

The Group did not have any outstanding balances with related parties at 31 December 2017 and 31 December 2016.

Compensation of key management personnel

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

==> picture [447 x 131] intentionally omitted <==

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

2017 2016
RMB’000 RMB’000
Basic salaries and allowances 6,018 5,277
Retirement benefits scheme contributions 208 120
Share-based payments expense 257 526
6,483 5,923
----- End of picture text -----

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

Annual Report 2017 161

for the year ended 31 December 2017

Notes to the Consolidated Financial Statements

39. BUSINESS COMBINATIONS

a. Business combination of Joy Boy HK Limited in 2016

On 7 July 2016, the Group entered into a sale and purchase agreement with independent third parties not related to the Group, pursuant to which the Group agreed to acquire 100% of the entire issued share capital of Joy Boy HK Limited (subsequently renamed as Comtec Renewable Energy Group Limited) and its subsidiaries (collectively referred to “Joy Boy Group”) at a total maximum consideration of RMB130,000,000 (“Maximum Consideration”). Joy Boy Group is principally engaged in the provision of project development services and the development of downstream solar power projects. The Group intends to expand into downstream solar business through Joy Boy Group.

The maximum consideration payable by the Group shall be calculated by reference to the targeted consolidated profit before taxation of Joy Boy Group (“Profit Before Tax”). The consideration is to be satisfied by the Company by allotting and issuing new shares to the vendors as follows:

First Instalment Maximum Consideration × (Profit Before Tax for the twelve-month period ending 30 June 2017) ÷ RMB80,000,000 Second Instalment Maximum Consideration × (Profit Before Tax for the twenty-four month period ending 30 June 2018) ÷ RMB80,000,000 — the First Instalment Third Instalment Maximum Consideration × (Profit Before Tax for the thirty six-month period ending 30 June 2019) ÷ RMB80,000,000 — the First Instalment — the Second Instalment

The total numbers of the Company’s shares to be issued to satisfy the Maximum Consideration is 328,118,768, which is determined HK$0.46 per share at pre-determined exchange rate of RMB0.8613= HK$1.0.

The acquisition was completed on 15 September 2016. Full details of this acquisition is disclosed in a circular of the Company dated 9 August 2016.

The fair values of the identifiable assets and liabilities of Joy Boy Group as at the date of acquisition were as follows:

==> picture [424 x 18] intentionally omitted <==

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

RMB’000
----- End of picture text -----

Bank balance and cash Goodwill Intangible Assets — Cooperative agreement Intangible Assets — Non-compete agreement Deferred tax liability Total identifiable assets and liabilities Satisfied by: Contingent consideration payables, represents issue of ordinary shares of the Company on earn-out basis Cash	1,000 60,256 51,500 11,550 (10,403)
	113,903
	112,903 1,000
	113,903

162 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2017

39. BUSINESS COMBINATIONS (continued)

a. Business combination of Joy Boy HK Limited in 2016 (continued)

Goodwill arose in the acquisition of Joy Boy Group because the consideration for the combination effectively included amounts in relation to the future business growth of Joy Boy Group. These benefits are not recognized separately from goodwill because they do not meet the recognition criteria for identifiable intangible assets. None of the goodwill arising on the above acquisition is expected to be deductible for the tax purposes.

Included in the profit for the year is a profit of approximately RMB39,664,000 which is attributable to Joy Boy Group.

b. Business combination of Forum (Asia) limited in 2017

On 14 November 2016, the Company entered into a sale and purchase agreement with independent third parties not related to the Group, pursuant to which the Company agreed to acquire 51% of the issued share capital of Forum (Asia) Limited (subsequently renamed as Comtec (Asia) Limited) at a total maximum consideration of RMB52,020,000. The maximum consideration payable by the Company shall be calculated by reference to the targeted consolidated profit before taxation of Forum (Asia) Limited and its subsidiaries. The consideration is to be satisfied by the Company by allotting and issuing new shares to the vendors as follows:

First Instalment
Maximum Consideration × (Profit Before Tax for the six-month period ending 30 June 2017) ÷ RMB58,000,000

Second Instalment

Maximum Consideration × (Profit Before Tax for the twelve-month period ending 31 December 2017) ÷ RMB58,000,000 — the First Instalment

Third Instalment
Maximum Consideration × (Profit Before Tax for the eighteen-month period ending 30 June 2018) ÷ RMB58,000,000 — the First Instalment — the Second Instalment
Fourth Instalment Maximum Consideration × (Profit Before Tax for the twenty-four month period ending 31 December 2018) ÷ RMB58,000,000 — the First Instalment — the Second Instalment — the Third Instalment
Fifth Instalment
Maximum Consideration × (Profit Before Tax for the thirty-month period ending 30 June 2019) ÷ RMB58,000,000 — the First Instalment — the Second Instalment — the Third Instalment — the Fourth Instalment
Sixth Instalment
Maximum Consideration × (Profit Before Tax for the thirty-six month period ending 31 December 2019) ÷ RMB58,000,000 — the First Instalment — the Second Instalment — the Third Instalment — the Fourth Instalment — the Fifth Instalment

The total numbers of the Company’s shares to be issued to satisfy the maximum consideration is 166,479,449, which is determined HK$0.355 per share. The acquisition was completed on 1 March 2017. Full details of this acquisition is disclosed in a circular of the Company dated 1 March 2017.

Annual Report 2017 163

for the year ended 31 December 2017

Notes to the Consolidated Financial Statements

39. BUSINESS COMBINATIONS (continued)

b. Business combination of Forum (Asia) limited in 2017 (continued)

The fair values of the identifiable assets and liabilities of Forum (Asia) Limited as at the date of acquisition were as follows:

==> picture [424 x 20] intentionally omitted <==

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

RMB’000
----- End of picture text -----

Intangible Assets — Franchise relationship Intangible Assets — Backlog Intangible Assets — Non-compete agreement Deferred tax liability Total identifiable assets and liabilities Less: non-controlling interests Goodwill Satisfied by: Contingent consideration payables, represents issue of ordinary shares of the Company on earn-out basis Cash paid	5,899 971 11,150 (2,974)
	15,046 (8,821) 39,025
	45,250
	45,250 1,000
	46,250

The non-controlling interests (48.95%) in Forum (Asia) Limited at the acquisition date was measured at the non-controlling interests’ proportionate share of the acquiree’s identifiable net assets and amount to RMB8,821,000.

Goodwill arose in the acquisition of Forum (Asia) Limited because the consideration for the combination effectively included amounts in relation to the future business growth of Forum (Asia) Limited. These benefits are not recognized separately from goodwill because they do not meet the recognition criteria for identifiable intangible assets. None of the goodwill arising on the above acquisition is expected to be deductible for the tax purposes.

Included in the loss for the year is a loss of approximately RMB2,648,000 which is attributable to Forum (Asia) Limited and its subsidiaries.

164 Comtec Solar Systems Group Limited

for the year ended 31 December 2017

Notes to the Consolidated Financial Statements

39. BUSINESS COMBINATIONS (continued)

c. Business combination of Zhenjiang Kexin Power System Design and Research Company Limited in 2017

On 25 May 2017, the Company entered into a sale and purchase agreement with third parties, pursuant to which the Company agreed to acquire 70% of the issued share capital of Zhenjiang Kexin Power System Design and Research Company Limited at a total consideration of RMB14,000,000. The acquisition was completed on 16 October 2017. Full details of this acquisition is disclosed in a circular of the Company dated 16 October 2017. As at 31 December 2017, the Company has paid RMB7,800,000 to the vendors and the remaining consideration of RMB6,200,000 will be paid three years later.

The fair values of the identifiable assets and liabilities of Zhenjiang Kexin Power System Design and Research Company Limited as at the date of acquisition were as follows:

==> picture [424 x 19] intentionally omitted <==

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

RMB’000
----- End of picture text -----

Inventories Trade and other receivables Advance to suppliers Bank balance and cash Property, plant and equipment Intangible Assets — Technology Intangible Assets — Non-compete Agreement — Vendor Intangible Assets — Non-compete Agreement — Key Employees Short-term bank loans Customers’ deposits received Trade and other payables Deferred tax liability Goodwill arising on acquisition Consideration Plus: non-controlling interests Less: net assets acquired Goodwill arising on acquisition Satisfied by: Cash Long-term payable Unacknowledged financial charges Total consideration	5,481 9,257 1,655 1,624 4,358 6,100 116 1,760 (1,000) (418) (16,683) (1,315)
	10,935
	12,300 5,271 (10,935)
	6,636
	7,800 6,200 (1,700)
	12,300

Annual Report 2017 165

for the year ended 31 December 2017

Notes to the Consolidated Financial Statements

39. BUSINESS COMBINATIONS (continued)

c. Business combination of Zhenjiang Kexin Power System Design and Research Company Limited in 2017 (continued)

The non-controlling interests 30% in Zhenjiang Kexin Power System Design and Research Company Limited at the acquisition date was measured at fair value of the non-controlling interest and amount to RMB5,721,000. This fair value was estimated by applying an income approach. The following were the key model inputs used in determine the fair value:

Assumed discount rate of 18%;
Assumed long-term sustainable growth rate of 3.0%; and
Assumed adjustments because of the lack of control or lack of marketability that market participants would consider when the fair value of the non-controlling interests in Zhenjiang Kexin Power System Design and Research Company Limited.

Goodwill arose in the acquisition of Zhenjiang Kexin Power System Design and Research Company Limited because the consideration for the combination effectively included amounts in relation to the future business growth of Zhenjiang Kexin Power System Design and Research Company Limited. These benefits are not recognized separately from goodwill because they do not meet the recognition criteria for identifiable intangible assets. None of the goodwill arising on the above acquisition is expected to be deductible for the tax purposes.

Included in the loss for the year is a loss of approximately RMB3,154,000 which is attributable to Zhenjiang Kexin Power System Design and Research Company Limited.

Had the acquisition been completed on 1 January 2017, total company revenue for the year would have been RMB35,489,000, and loss for the year would have been RMB953,000.

166 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2017

40. SUBSIDIARIES

Details of the Company’s subsidiaries, at 31 December 2017 and 31 December 2016 are as follows:

==> picture [446 x 51] intentionally omitted <==

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

Place and date of Issued and fully paid share
incorporation/ capital/registered capital
Name of company establishment/operations at the date of this report Principal activities
----- End of picture text -----

Comtec Semiconductor (Cayman) Limited*	Cayman Islands	US$2_(note 1)_	Investment holding
	23 April 2007
Comtec Semiconductor (Hong Kong) Limited	Hong Kong	HK$31,512,001_(note 1)_	Investment holding
	12 October 2007
Comtec Solar (Cayman) Limited*	Cayman Islands	US$2_(note 1)_	Investment holding
	23 April 2007
Comtec Solar (Hong Kong) Limited	Hong Kong	HK$144,300,000_(note 1)_	Investment holding, provision of sourcing,
	12 October 2007		invoicing and support services for group
			companies
Comtec Solar International Limited	BVI	US$50,000_(note 1)_	Investment holding
	2 January 2013
Comtec Solar International (M) Sdn Bhd	Malaysia	MYR266,600,002_(note 1)_	Trading of solar related parts, equipments
	7 February 2013		and products
Comtec Solar Trading Limited	Hong Kong	HK$2_(note 1)_	Provision of sourcing, invoicing and support
	4 December 2013		services for group companies
Comtec Solar (China) Investment	Hong Kong	HK$2_(note 1)_	Investment holding
Holdings Limited	4 December 2013
Comtec New Energy China Holdings Limited	Hong Kong	RMB46,972,960_(note 1)_	Investment holding
	25 November 2013
Comtec Solar Systems Limited	BVI	US$50,000_(note 1)_	Investment holding
	18 March 2014

Annual Report 2017 167

Notes to the Consolidated Financial Statements

for the year ended 31 December 2017

40. SUBSIDIARIES (continued)

==> picture [446 x 51] intentionally omitted <==

Comtec Solar Systems China Limited	BVI	US$50,000_(note 1)_	Investment holding
	20 March 2014
Comtec Solar Systems International Limited	BVI	US$50,000_(note 1)_	Investment holding
	20 March 2014
Comtec Solar Systems HK Limited	Hong Kong	HK$1_(note 1)_	Investment holding
	2 May 2014
Jiangxi Comtec Solar Technology Co Limited#	PRC	US$6,064,000_(note 1)_	Inactive
	22 March 2006
Shanghai Comtec Semiconductor Co Limited#	PRC	US$4,040,000_(note 1)_	Trading of solar related parts, equipment
	21 December 1999		and Products
Shanghai Comtec Solar Technology Co Limited#	PRC	US$18,500,000_(note 1)_	Manufacturing and sales of solar wafers and
	5 July 2005		related products
Comtec New Energy (Shanghai) Limited#	PRC	US$16,000,000_(note 1)_	Inactive
	7 January 2012
Comtec Solar (Jiangsu) Co., Limited#	PRC	US$66,500,020_(note 1)_	Manufacturing and sales of solar wafers and
	11 February 2012		related products
Comtec Renewable Energy Group Limited	Hong Kong	HK$1,158,502	Investment holding
(Formerly known as Joy Boy HK Limited)	27 May 2016
Sunny Mega Limited+	BVI	US $1	Investment holding
	18 August 2016
Comtec Ba Min Electricity (China) Limited+	Hong Kong	HK$1	Investment holding
	15 September 2016

168 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2017

40. SUBSIDIARIES (continued)

==> picture [446 x 51] intentionally omitted <==

FuZhou Comtec Solar Electricity Limited# +	PRC	RMB10,000,000	Investment, development, construction, operation
	25 October 2016		and consulting service of the solar photovoltaic
			power stations in downstream solar business
Comtec Clean Energy Group Limited (Formerly	PRC	US$150,000,000	Investment holding and trading solar related
known as Comtec Renewable Energy (Jiangsu)	17 October 2016		parts, equipment and products
Limited)# +
Comtec Energy Technology (Beijing) Limited# +	PRC	RMB10,000,000	Investment, development, construction, operation
	31 October 2016		and consulting service of the solar photovoltaic
			power stations in downstream solar business
Wuxi Comtec New Materials Limited# +	PRC	RMB20,000,000	Trading of solar related parts equipment
	24 October 2016		and products
Comtec Solar Development (Wuxi) Limited# +	PRC	RMB10,000,000	Investment, development, construction, operation
	28 October 2016		and consulting service of the solar photovoltaic
			power stations in downstream solar business
Comtec Solar Smart Energy (Wuxi) Limited# +	PRC	RMB20,000,000	Investment, development, construction, operation
	7 November 2016		and consulting service of the solar photovoltaic
			power stations in downstream solar business
Comtec (Asia) Limited % (51%)	Hong Kong	HK$1,001	Investment holding
	7 September 2016
Sunexpress Union Limited	BVI	US$1	Investment holding
	11 August 2016
Comtec Enfinity ESS Solution Limited	Hong Kong	HK$100	Investment holding
	25 October 2016

Annual Report 2017 169

Notes to the Consolidated Financial Statements

for the year ended 31 December 2017

40. SUBSIDIARIES (continued)

==> picture [446 x 51] intentionally omitted <==

Comtec Ling Nan Electricity (China) Limited	Hong Kong	HK$1	Investment holding
	15 September 2016
Comtec Power Group Limited	Hong Kong	HK$1,000	Investment holding
	15 December 2016
C&I Renewable Limited%(70%)	BVI	US$10,000	Investment holding
	11 August 2017
C&I Renewable HK Limited	Hong Kong	HK$1	Investment holding
	1 September 2017
Guangdong Comtec Solar Electric Power Co, Ltd	PRC	RMB10,000,000	Investment, development, construction, operation
	3 November 2016		and consulting service of the solar photovoltaic
			power stations in downstream solar business
Zhenjiang Kexin Power System Design and	PRC	RMB50,000,000	Research and development, integration and
Research Company Limited%(70%)	1 August 2016		sales of lithium battery management and
			battery systems
Wuxi Comtec Jianyuan Solar Co., Ltd.	PRC	RMB10,000,000	Investment, development, construction, operation
	8 December 2016		and consulting service of the solar photovoltaic
			power stations in downstream solar business
Comtec Energy Storage Technology	PRC	US$36,000,000	Investment, development, construction, operation
Jiangyang Co., Ltd	8 December 2016		and consulting service of the solar photovoltaic
			power stations in downstream solar business
Wuxi Comtec Solar Engineering Co., Ltd	PRC	RMB10,000,000	Investment, development, construction, operation
	24 October 2016		and consulting service of the solar photovoltaic
			power stations in downstream solar business

170 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2017

40. SUBSIDIARIES (continued)

==> picture [446 x 51] intentionally omitted <==

Wuxi Comtec Yuanshuo Solar Co., Ltd.	PRC	RMB10,000,000	Investment, development, construction, operation
	8 December 2016		and consulting service of the solar photovoltaic
			power stations in downstream solar business
Suqian City Fushun Solar Power Co., Ltd.	PRC	RMB1,000,000	Investment, development, construction, operation
	19 April 2016		and consulting service of the solar photovoltaic
			power stations in downstream solar business
Jiangyang Comtec Yuanshuo Solar Co., Ltd.	PRC	RMB10,000,000	Investment, development, construction, operation
	3 May 2017		and consulting service of the solar photovoltaic
			power stations in downstream solar business
Haian Jianyuan Solar Technology Co., Ltd.	PRC	RMB10,000,000	Investment, development, construction, operation
	8 April 2017		and consulting service of the solar photovoltaic
			power stations in downstream solar business
Haian Jianxin Energy Storage System Co., Ltd.	PRC	RMB10,000,000	Investment, development, construction,
	19 April 2017		operation and consulting service of the solar
			photovoltaic power stations in downstream
			solar business
Kunming Comtec New Energy Co., Ltd.	PRC	RMB10,000,000	Investment, development,construction, operation
	15 November 2016		and consulting service of the solar photovoltaic
			power stations in downstream solar business
Wuxi Xifeng Solar Co., Ltd.	PRC	RMB10,000,000	Investment, development, construction, operation
	22 December 2016		and consulting service of the solar photovoltaic
			power stations in downstream solar business
Comtec Power Technology (Tianjin) Co. Ltd	PRC	US$10,000,000	Investment, development, construction, operation
	13 July 2017		and consulting service of the solar photovoltaic
			power stations in downstream solar business

Annual Report 2017 171

Notes to the Consolidated Financial Statements

for the year ended 31 December 2017

40. SUBSIDIARIES (continued)

==> picture [446 x 50] intentionally omitted <==

Comtec Power Engineering (Tianjin) Co., Ltd.	PRC	RMB10,000,000	Investment, development, construction, operation
	4 August 2017		and consulting service of the solar photovoltaic
			power stations in downstream solar business
Comtec Intelligent Power Technology	PRC	RMB10,000,000	Investment, development, construction, operation
(Shanghai) Co., Ltd.	13 October 2017		and consulting service of the solar photovoltaic
			power stations in downstream solar business
Comtec (Beijing) Renewable Energy	PRC	RMB10,000,000	Investment, development, construction, operation
Technology Co., Ltd.	26 October 2017		and consulting service of the solar photovoltaic
			power stations in downstream solar business
Wuxi Comtec Shiyuan Solar Co., Ltd.	PRC	RMB9,800,000	Investment, development, construction, operation
	20 June 2017		and consulting service of the solar photovoltaic
			power stations in downstream solar business
Wuxi Comtec Solar Energy Co., Ltd.	PRC	RMB10,000,000	Investment, development, construction, operation
	24 October 2016		and consulting service of the solar photovoltaic
			power stations in downstream solar business
Wuxi Comtec Solar Power Co., Ltd.	PRC	RMB10,000,000	Investment, development, construction, operation
	24 October 2016		and consulting service of the solar photovoltaic
			power stations in downstream solar business
Wuxi Comtec Solar Technology Co., Ltd.	PRC	RMB10,000,000	Investment, development, construction, operation
	24 October 2016		and consulting service of the solar photovoltaic
			power stations in downstream solar business
Wuxi Comtec Energy Engineering Co., Ltd.	PRC	RMB10,000,000	Investment, development, construction, operation
	8 December 2016		and consulting service of the solar photovoltaic
			power stations in downstream solar business
Xihua China Energy Construction	PRC	RMB500,000	Investment, development, construction, operation
Solar Power Co., Ltd.	13 October 2017		and consulting service of the solar photovoltaic
			power stations in downstream solar business

172 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2017

40. SUBSIDIARIES (continued)

==> picture [446 x 51] intentionally omitted <==

Wuxi Shanzhi Solar Co., Ltd.	PRC	RMB10,000,000	Investment, development, construction, operation
	22 December 2016		and consulting service of the solar photovoltaic
			power stations in downstream solar business
Jingjiang Jingtai Solar Power Co., Ltd.	PRC	RMB10,000,000	Investment, development, construction, operation
	18 November 2016		and consulting service of the solar photovoltaic
			power stations in downstream solar business
Comtec Power (Foshan) Co., Ltd.	PRC	US$50,000,000	Investment, development, construction, operation
	29 December 2016		and consulting service of the solar photovoltaic
			power stations in downstream solar business
Suzhou Comtec Tianyi Solar Technology Co., Ltd.	PRC	RMB10,000,000	Investment, development, construction, operation
	28 September 2017		and consulting service of the solar photovoltaic
			power stations in downstream solar business
Comtec Energy Management (Tianjin) Co., Ltd.	PRC	RMB10,000,000	Investment, development, construction, operation
	7 August 2017		and consulting service of the solar photovoltaic
			power stations in downstream solar business
Comtec Tianyi Solar Technology (Tianjin) Co., Ltd.	PRC	RMB10,000,000	Investment, development, construction, operation
	15 August 2017		and consulting service of the solar photovoltaic
			power stations in downstream solar business
Comtec Future Energy Technology Development	PRC	RMB10,000,000	Investment, development, construction, operation
(Tianjin) Co., Ltd.	8 August 2017		and consulting service of the solar photovoltaic
			power stations in downstream solar business
Comtec Tianxiang Solar Technology	PRC	RMB10,000,000	Investment, development, construction, operation
(Tianjin) Co., Ltd.	15 August 2017		and consulting service of the solar photovoltaic
			power stations in downstream solar business
Comtec Tianyuan Solar Technology	PRC	RMB10,000,000	Investment, development, construction, operation
(Tianjin) Co., Ltd.	31 August 2017		and consulting service of the solar photovoltaic
			power stations in downstream solar business

Annual Report 2017 173

for the year ended 31 December 2017

Notes to the Consolidated Financial Statements

40. SUBSIDIARIES (continued)

==> picture [446 x 51] intentionally omitted <==

Comtec Tianzhi Solar Technology	PRC	RMB10,000,000	Investment, development, construction, operation
(Tianjin) Co., Ltd.	31 August 2017		and consulting service of the solar photovoltaic
			power stations in downstream solar business
Comtec Tiancheng Solar Technology	PRC	RMB10,000,000	Investment, development, construction, operation
(Tianjin) Co., Ltd.	31 August 2017		and consulting service of the solar photovoltaic
			power stations in downstream solar business
Changzhou Comtec Dili Solar Technology	PRC	RMB10,000,000	Investment, development, construction, operation
Co., Ltd.	15 September 2017		and consulting service of the solar photovoltaic
			power stations in downstream solar business
Suzhou Comtec Dichuang Solar Technology	PRC	RMB5,000,000	Investment, development, construction, operation
Co., Ltd.	6 December 2017		and consulting service of the solar photovoltaic
			power stations in downstream solar business
Yueyang Comtec Diye Solar Technology	PRC	RMB10,000,000	Investment, development, construction, operation
Co., Ltd.	31 October 2017		and consulting service of the solar photovoltaic
			power stations in downstream solar business

Directly held by the Company
Wholly foreign-owned enterprise
- Acquired through the acquisition of Joy Boy HK Limited
% Partially-owned subsidiaries

Notes:

The issued and fully paid share capital of the entity remained unchanged as at 31 December 2017 and 31 December 2016.
None of the subsidiaries has issued any debt securities at the end of the reporting period.

174 Comtec Solar Systems Group Limited

Notes to the Consolidated Financial Statements

for the year ended 31 December 2017

41. MAJOR CONTRACTS

In prior years, 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 USD35,000,000 (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 recognized such deposits as customers’ deposits received in the consolidated statement of financial position. At each reporting date, the directors of the Company 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.

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 USD35,000,000 (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 recognized such prepaid assignment fee in the consolidated statement of financial position.

On 1 December 2017, Comtec Solar HK entered into an agreement with Mission under which, Mission unconditionally waived the right of the unutilized advance payment to the Group and the Group also released Mission from the relevant duties and obligations. Therefore, the balance of prepaid assignment fee is offset with the customers’ deposits from Mission from that date.

Annual Report 2017 175

Five Years Summary

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Year ended 31 December
2013 2014 2015 2016 2017
Results RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Turnover 937,479 906,620 1,091,200 810,045 489,208
Loss before interest expenses
and taxation (113,755) (78,411) (420,333) (998,677) (115,275)
Interest expense (18,585) (11,910) (14,762) (9,112) (15,925)
Loss before taxation (132,340) (90,321) (435,095) (1,007,789) (131,200)
Taxation (737) (170) 381 719 (14,247)
Loss and total comprehensive expense
for the year (133,077) (90,491) (434,714) (1,007,070) (145,447)
Loss and total comprehensive
expense for the year attributable to
Owners of the Company (133,077) (90,491) (434,714) (1,007,070) (140,296)
– – – –
Non-controlling interests (5,151)
(133,077) (90,491) (434,714) (1,007,070) (145,447)
2013 2014 2015 2016 2017
Assets and liabilities RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Total assets 2,608,545 2,484,678 2,125,319 1,362,006 731,732
Total liabilities (1,083,732) (970,163) (988,407) (1,151,935) (489,627)
Shareholders’ funds 1,524,813 1,514,515 1,136,912 210,071 242,105
Attributable to
Owners of the Company 1,524,813 1,514,515 1,136,912 210,071 233,144
– – – –
Non-controlling interests 8,961
1,524,813 1,514,515 1,136,912 210,071 242,105
----- End of picture text -----

176 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 Yi 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”	18 April 2018, being the latest practicable date prior to the printing of this
	annual report for ascertaining certain information in this annual report
“Listing Date”	30 October 2009, the date on which dealings in the Shares first
	commenced on the Stock Exchange
“Listing Rules”	the Rules Governing the Listing of Securities on the Stock Exchange
“Model Code”	model code for securities transactions by directors of listed issuers
	contained in Appendix 10 to the Listing Rules

Annual Report 2017 177

Definitions

“Mr. Zhang” or “Mr. John Yi Zhang”	Mr. John Yi Zhang, an executive Director, the chairman of the Board and
	the controlling shareholder of the Company
“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.

178 Comtec Solar Systems Group Limited

AI assistant

Comtec Solar Systems Group Limited — Annual Report 2017

49415_rns_2018-04-27_7ba783d9-7b20-4d2b-b0fd-849c50bd16bf.pdf

Contents

Corporate Information

DIRECTORS

Executive Directors

CORPORATE GOVERNANCE COMMITTEE

SIGNIFICANT PAYMENTS COMMITTEE

Non-executive Director

Independent non-executive Directors

COMPANY SECRETARY

REGISTERED OFFICE

HEADQUARTERS

AUTHORISED REPRESENTATIVES

AUDIT COMMITTEE

NOMINATION COMMITTEE

PRINCIPAL PLACE OF BUSINESS IN HONG KONG

COMPANY’S WEBSITE

REMUNERATION COMMITTEE

AUDITOR

Corporate Information

LEGAL ADVISERS AS TO

HONG KONG LAW

PRINCIPAL BANKS

CAYMAN ISLANDS PRINCIPAL SHARE

REGISTRAR AND TRANSFER OFFICE

HONG KONG SHARE REGISTRAR

Chairman’s Statement

DISPOSAL OF ASSETS IN MALAYSIA

END OF LONG-TERM PURCHASE AGREEMENTS

STRATEGIC COOPERATION WITH MACQUARIE CAPITAL

COOPERATION WITH ADMINISTRATIVE COMMITTEE OF WUxI HUISHAN ECONOMIC DEVELOPMENT ZONE

ACQUISITION OF FORUM (ASIA) LIMITED

COOPERATION WITH FUZHOU SWIRE COCA COLA

COOPERATION WITH ISDN HOLDINGS

ACQUISITION OF KExIN

SHARE PLACING

John Yi Zhang

BUSINESS REVIEW

Disposal of assets in Malaysia

End of long-term purchase agreements

Strategic Cooperation with Macquarie Capital

Cooperation with Administrative Committee of Wuxi Huishan Economic Development Zone

Acquisition of Forum (Asia) Limited

Cooperation with Fuzhou Swire Coca Cola

Cooperation with ISDN Holdings

Acquisition of Kexin

Share Placing

FINANCIAL REVIEW

Revenue

Sales of 156 mm by 156 mm monocrystalline wafers

Sales of 125 mm by 125 mm monocrystalline solar wafers

Others

Management Discussion and Analysis

Cost of sales

Gross profit/(loss)

Other income

Other gains and losses, expenses and provision

Impairment losses recognized in respect of property, plant and equipment

Distribution and selling expenses

Administrative and general expenses

Research and development expenses

Interest expenses

Loss before taxation

Taxation

Loss for the year

Inventory turnover days

Trade receivable turnover days

Trade payable turnover days

Liquidity and financial resources

Capital Commitments

Contingent liabilities

Related Party Transactions

Charges on Group Assets

Acquisition of subsidiary

Disposal of assets of a subsidiary

Human resources

Details of the future investment plans for material investment

Exposure to fluctuations in exchange rates and any related hedges

Comtec Solar Systems Group Limited Annual Report 2017