First Pacific Company Limited - Proxy Solicitation & Information Statement 2018

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in doubt as to any aspect of this circular or as to the action to be taken, you should consult your licensed securities dealer or registered institution in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in Sun Hung Kai & Co. Limited, you should at once hand this circular and the accompanying form of proxy to the purchaser or to the transferee or to the banker, licensed securities dealer or registered institution in securities or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

The Securities and Futures Commission of Hong Kong, Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

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(Incorporated in Hong Kong with limited liability) (Stock Code: 86)

POSSIBLE OFF-MARKET SHARE BUY-BACK CONSTITUTING A DISCLOSEABLE AND CONNECTED TRANSACTION AND NOTICE OF AN EXTRAORDINARY GENERAL MEETING

Independent Financial Adviser to the Listing Rules IBC, the Takeovers Code IBC and the Independent Shareholders

Capitalised terms used on this cover shall have the same meanings as those defined in this circular, unless the context requires otherwise.

A letter from the Board is set out on pages 4 to 14 of this circular. A letter from the Listing Rules IBC is set out on page 15 of this circular. A letter from the Takeovers Code IBC is set out on page 16 of this circular. A letter from the Independent Financial Adviser, containing its advice to the Listing Rules IBC, the Takeovers Code IBC and the Independent Shareholders, is set out on pages 17 to 46 of this circular.

A notice convening the EGM to be held at Plaza 4, Lower Lobby, Novotel Century Hong Kong, 238 Jaffe Road, Wanchai, Hong Kong on Tuesday, 17 July 2018 at 10:00 a.m. is set out on pages VI-1 to VI-2 of this circular. Whether or not you are able to attend the meeting, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return it to the Company’s share registrar, Tricor Secretaries Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for the holding of the meeting or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the meeting or any adjournment thereof if you so wish.

Hong Kong, 25 June 2018

CONTENTS

	Pages
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
Letter from the Listing Rules IBC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
Letter from the Takeovers Code IBC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
Letter from the Independent Financial Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
Appendix I – Financial Information of the Group . . . . . . . . . . . . . . . . . . .	I-1
Appendix II – Report from Deloitte on the Profit Forecast Statement . . . . .	II-1
Appendix III – Report from Centurion on the Profit Forecast Statement . . .	III-1
Appendix IV – General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	IV-1
Appendix V – Form of Buy-back Contract . . . . . . . . . . . . . . . . . . . . . . . . .	V-1
Appendix VI – Notice of the EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	VI-1

– i –

DEFINITIONS

In this circular (other than in the notice of EGM), unless the context otherwise requires, the following expressions shall have the following meanings:

“acting in concert” has the meaning ascribed to it under the Takeovers Code
“Announcement”
the announcement of the Company dated 4 May 2018 in relation to the Share Buy-back
“Asia Financial Services” Asia Financial Services Company Limited
“Auditor” or “Deloitte” Deloitte Touche Tohmatsu, certified public accountants
“Board” the board of Directors
“business day(s)”
a day (excluding Saturdays, Sundays and public holidays and a day on which typhoon signal no.8 or a black rainstorm warning is hoisted at any time in Hong Kong) on which banks are generally open for business in Hong Kong
“Buy-back Contract” the share buy-back contract, in the agreed form, set out in Appendix V to this circular
“Buy-back Shares” 145,000,000 Shares, representing approximately 6.73% of the total number of issued Shares of the Company, legally and beneficially owned by Asia Financial Services and to be transferred to the Company for cancellation pursuant to the terms and conditions of the Buy-back Contract
“Buy-backs Code” the Hong Kong Code on Share Buy-backs
“Companies Ordinance”
Companies Ordinance (Chapter 622 of the Laws of Hong Kong), as amended, supplemented or otherwise modified from time to time
“Company”
Sun Hung Kai & Co. Limited 新鴻基有限公司, a company incorporated under the laws of Hong Kong with limited liability and whose securities are listed on the Stock Exchange
“connected person”

has the meaning ascribed to it under the Listing Rules

“Deed of Undertaking”
a deed of undertaking executed by Asia Financial Services in favour of the Company undertaking, subject to satisfaction of certain conditions, to enter into the Buy-back Contract

– 1 –

DEFINITIONS

“Directors”

the directors of the Company

“EGM”
the extraordinary general meeting of the Company to be convened to consider and approve, amongst other things, the Buy-back Contract and the transactions contemplated thereunder
“Executive”
the Executive Director of the Corporate Finance Division of the Securities and Futures Commission or any of its delegates
“Group” the Company and its subsidiaries
“HK$”
Hong Kong dollars, the lawful currency of Hong Kong
“Independent Financial Adviser” or “Centurion”
Centurion Corporate Finance Limited, a corporation licensed under the SFO to engage in type 1 (dealing in securities), type 4 (advising on securities), type 6 (advising on corporate finance) and type 9 (asset management) regulated activities, the independent financial adviser appointed by the Company to advise the Listing Rules IBC, the Takeovers Code IBC and the Independent Shareholders in respect of the Buy-back Contract and the Share Buy-Back
“Independent Shareholder(s)”
Shareholder(s) of the Company other than (i) Asia Financial Services; (ii) parties acting in concert with Asia Financial Services; and (iii) any other Shareholder(s) who has a material interest in the Buy-back Contract and/or the Share Buy-back which is different from the interests of all other Shareholders
“Last Trading Day”
4 May 2018, being the last trading day on which the Shares were traded on the Stock Exchange prior to the issue and publication of the Announcement
“Latest Practicable Date”
22 June 2018, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained herein
“Listing Rules”
the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited

– 2 –

DEFINITIONS

“Listing Rules IBC”
the independent committee of the Board comprising all the independent non-executive Directors, namely Evan Au Yang Chi Chun, David Craig Bartlett, Alan Stephen Jones, Jacqueline Alee Leung and Peter Wong Man Kong, who are not involved in the Share Buy-back for the purpose of advising and giving recommendation to the Independent Shareholders in respect of the Share Buy-back and the Buy-back Contract
“Registrar” Tricor Secretaries Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong
“Relevant Period”
the period commencing 6 months preceding the date of the Announcement and up to and including the Latest Practicable Date
“SFO” the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong), as amended, supplemented or otherwise modified from time to time
“Share(s)” share(s) in the share capital of the Company
“Share Buy-back”
the possible purchase of the Buy-back Shares by the Company for the cancellation pursuant to the terms and conditions of the Buy-back Contract, which constitutes an off-market share buy-back by the Company pursuant to the Buy-backs Code
“Shareholder(s)” shareholders of the Company
“Stock Exchange”
The Stock Exchange of Hong Kong Limited
“substantial shareholder”
has the meaning ascribed to it under the Listing Rules
“Takeovers Code”
the Hong Kong Code on Takeovers and Mergers
“Takeovers Code IBC”

the independent committee of the Board comprising all the non-executive Directors, namely Jonathan Andrew Cimino, Evan Au Yang Chi Chun, David Craig Bartlett, Alan Stephen Jones, Jacqueline Alee Leung and Peter Wong Man Kong, who are not involved in the Share Buy-back for the purpose of advising and giving recommendation to the Independent Shareholders in respect of the Share Buy-back and the Buy-back Contract

“%”

per cent

– 3 –

LETTER FROM THE BOARD

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(Incorporated in Hong Kong with limited liability)

(Stock Code: 86)

Executive Directors:

Lee Seng Huang (Group Executive Chairman) Simon Chow Wing Charn Peter Anthony Curry

Registered Office: 42/F, Lee Garden One 33 Hysan Avenue Causeway Bay Hong Kong

Non-Executive Director:

Jonathan Andrew Cimino

Independent Non-Executive Directors:

Evan Au Yang Chi Chun David Craig Bartlett Alan Stephen Jones Jacqueline Alee Leung Peter Wong Man Kong

Hong Kong, 25 June 2018

To the Shareholders

Dear Sir/Madam,

(1) POSSIBLE OFF-MARKET SHARE BUY-BACK CONSTITUTING A DISCLOSEABLE AND CONNECTED TRANSACTION AND (2) NOTICE OF EXTRAORDINARY GENERAL MEETING

1. INTRODUCTION

Reference is made to the Announcement in relation to the Share Buy-back and Buy-back Contract.

On 4 May 2018, Asia Financial Services executed the Deed of Undertaking in favour of the Company conditionally undertaking to execute the Buy-back Contract if so required by the Company. For further details of the Deed of Undertaking, please refer to the section headed “DEED OF UNDERTAKING” below.

The Company is a company incorporated in Hong Kong. Under Section 240 of the Companies Ordinance, a listed company may not enter into a contingent purchase contract relating to its shares prior to obtaining the required special resolution of its shareholders. Although the form of the draft Buy-back Contract has been negotiated and finalised between the Company and Asia Financial Services, the Company will not execute the Buy-back Contract unless and until it has obtained approval by at least three-fourths of the votes cast on a poll by the Independent Shareholders present in person or by proxies at the EGM. It is the Company’s intention to enter into the Buy-back Contract with Asia Financial Services if and when such resolution is passed.

– 4 –

LETTER FROM THE BOARD

The purpose of this circular is to provide the Shareholders with further information in respect of resolutions regarding the terms of the Buy-back Contract and details of the Share Buy-back to be proposed at the EGM to enable the Shareholders to make their informed decisions as to how to vote at the EGM.

2. DEED OF UNDERTAKING

Date 4 May 2018 Parties (a) Asia Financial Services (b) the Company

The Deed of Undertaking shall take effect commencing on 4 May 2018 and shall terminate upon the earlier of: (i) 31 August 2018; and (ii) by agreement of the parties.

Asia Financial Services irrevocably undertakes to the Company that, if so required by the Company, they shall execute the Buy-back Contract within three business days after the satisfaction of the following condition:

(i) the passing of the requisite resolution by at least three-fourths of the votes cast on a poll by the Independent Shareholders present in person or by proxy at a general meeting of the Company approving the Buy-back Contract.

3. THE BUY-BACK CONTRACT

Parties (a) Purchaser: the Company

(b) Vendor: Asia Financial Services

Number of Buy-back Shares

The number of Buy-back Shares is 145,000,000, representing approximately 6.73% of the total number of issued Shares of the Company, and representing approximately 42.45% of the Shares currently held by Asia Financial Services in the Company.

The Buy-back Shares shall be bought back by the Company free from any encumbrance.

Consideration

The buy-back price for each Buy-back Share is HK$4.75, representing:

(i) a premium of approximately 2.4% to the closing price of HK$4.50 per Share as quoted on the Stock Exchange on the Latest Practicable Date, after adjusting the HK$4.75 to HK$4.61 for the HK14 cents second interim dividend as the Shares have been trading ex-dividend since 19 June 2018;

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LETTER FROM THE BOARD

(ii) a discount of approximately 1.7% under the average closing price of HK$4.83 per Share based on the daily closing prices of the Shares as quoted on the Stock Exchange for the five (5) consecutive trading days immediately prior to and including the Last Trading Day;
(iii) a discount of approximately 1.7% under the average closing price of HK$4.83 per Share based on the daily closing prices of the Shares as quoted on the Stock Exchange for the ten (10) consecutive trading days immediately prior to and including the Last Trading Day;
(iv) a discount of approximately 2.9% under the average closing price of HK$4.89 per Share based on the daily closing prices of the Shares as quoted on the Stock Exchange for the 20 consecutive trading days immediately prior to and including the Last Trading Day;
(v) a discount of approximately 3.4% under the average closing price of HK$4.92 per Share based on the daily closing prices of the Shares as quoted on the Stock Exchange for the 30 consecutive trading days immediately prior to and including the Last Trading Day; and
(vi) a discount of approximately 47% to the audited net asset value per Share attributable to Shareholders as at 31 December 2017 of approximately HK$9.02 per Share.

The total consideration for the Share Buy-back shall not exceed HK$688,750,000, as may be reduced in accordance with the paragraph headed “Completion and set off” below. The consideration for the Share Buy-back was determined following commercial and arms’ length negotiations between the parties taking into account the movements in the price of the Shares over a period of time and prevailing market conditions. The consideration will be settled in cash by the Company out of its available distributable profits.

The original purchase cost of the Buy-back Shares to Asia Financial Services was HK$5.00 per Share.

Conditions

The Company will enter into the Buy-back Contract only if it is approved by at least three-fourths of the votes cast on a poll by the Independent Shareholders in attendance in person or by proxy at a general meeting of the Company duly convened and held to consider the Buy-back Contract and the Share Buy-back thereunder in accordance with the Buy-backs Code and the Companies Ordinance.

The completion of the Share Buy-back is conditional upon the following condition:

(i) the Executive approving the purchase of the Buy-back Shares by the Company contemplated under the Buy-back Contract pursuant to the Buy-backs Code (and such approval not having been withdrawn) and the condition(s) of such approval, if any, having been satisfied.

– 6 –

LETTER FROM THE BOARD

In the event that the above condition shall not have been fulfilled by 31 August 2018 (or such other date as may be agreed by the parties), any party may terminate the Buy-back Contract by serving a written notice on the other parties, whereupon the parties shall not be bound to proceed with the proposed Share Buy-back and the Buy-back Contract shall cease to be of any effect (save for certain specific clauses).

Completion and set off

The completion of the Share Buy-back shall take place on the fifth business day following the day on which all the conditions to the Share Buy-back are satisfied or such other day as the Purchaser and Vendor may agree.

As at the Latest Practicable Date, Asia Financial Services holds 341,600,000 Shares in issue, representing approximately 15.87% of the total number of issued Shares of the Company. Upon completion of the Share Buy-back, the Buy-back Shares will be transferred to the Company and cancelled. The percentage interest of all other Shareholders in the issued Shares of the Company will be proportionally increased following the cancellation of the Buy-back Shares and the resulting reduction in the number of issued Shares.

Asia Financial Services undertakes to the Company not to offer, sell, contract to sell, grant any option to purchase or otherwise dispose of, directly or indirectly, any Shares during the period from the date of the Buy-back Contract until the date falling three (3) months after the completion of the Share Buy-back.

If the Company declares, pays, or makes a dividend or distribution before Completion and Asia Financial Services is entitled to receive such dividend or distribution, an amount corresponding to such dividend or distribution shall be deducted from the total consideration for the Buy-back Shares payable by the Company to Asia Financial Services. As the Directors declared a second interim dividend of HK14 cents per Share for the year ended 31 December 2017 to the Shareholders whose names appear on the register of members of the Company on 22 June 2018, Asia Financial Services is entitled to receive such second interim dividend of HK14 cents per Buy-back Share. Accordingly, the buy-back price per Buy-back Share of HK$4.75 shall be reduced by HK14 cents to HK$4.61 and an aggregate amount of HK$20,300,000 shall be deducted from the total consideration for the Buy-back Shares payable by the Company to Asia Financial Services.

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LETTER FROM THE BOARD

4. EFFECTS ON THE SHAREHOLDING STRUCTURE OF THE COMPANY

The following table illustrates the shareholding structures of the Company (i) as at the Latest Practicable Date; and (ii) immediately after the completion of the Share Buy-back (assuming that there is no change in the number of issued Shares of the Company since the Latest Practicable Date and up to the date of completion of the Share Buy-back):

AP Emerald Limited (Note 1) Asia Financial Services (Note 2) Simon Chow Wing Charn (Note 3) Peter Anthony Curry (Note 4) Public Total	As at the Latest Practicable Date Number of Shares % 1,233,578,575 57.29 341,600,000 15.87 533,000 0.02 1,241,141 0.06 576,106,777 26.76 2,153,059,493 100	Immediately after completion of the Share Buy-back Number of Shares % 1,233,578,575 61.43 196,600,000 9.79 533,000 0.03 1,241,141 0.06 576,106,777 28.69 2,008,059,493 100	Immediately after completion of the Share Buy-back Number of Shares % 1,233,578,575 61.43 196,600,000 9.79 533,000 0.03 1,241,141 0.06 576,106,777 28.69 2,008,059,493 100
			100

The percentage figures above have been rounded off to the nearest second decimal place.

Note 1: Mr. Lee Seng Huang, an executive Director is deemed to be interested in the 1,233,578,575 Shares held by AP Emerald Limited as he is one of the trustees of Lee and Lee Trust, being a discretionary trust which indirectly controls Allied Group Limited which in turn is the ultimate holding company of AP Emerald Limited.
Note 2: Following the completion of the Share Buy-back, the 196,600,000 Shares then held by Asia Financial Services, representing approximately 9.79% of the issued Shares of the Company, will form part of the public float of the Company.
Note 3: Mr. Simon Chow Wing Charn is an executive Director. Note 4: Mr. Peter Anthony Curry is an executive Director.

Save as disclosed above, no other Directors and any persons acting in concert with them are interested in, or have borrowed or lent, any Shares.

Public Float

The Company intends to maintain its listing on the Stock Exchange and to continue to meet the public float requirements under Rule 8.08 of the Listing Rules. It is expected that the Company will meet the said public float requirement after the completion of the Share Buy-back.

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LETTER FROM THE BOARD

5. REASONS FOR AND BENEFITS OF THE SHARE BUY-BACK

To proceed with the Share Buy-back, the Company has taken into consideration that:

(i) the Share Buy-back is a good opportunity for the Company to enhance the earnings per Share and the rate of return on capital;
(ii) the Share Buy-back will result in an approximately 3.4% enhancement in the net asset value per Share attributable to Shareholders based on the audited balance sheet of the Group as at 31 December 2017, creating greater shareholder value, which is in the interests of all Shareholders;
(iii) the Share Buy-back will result in an increase in the public float of the Company from 26.76% to 38.48% of the issued Shares of the Company;
(iv) the buy-back price for each Buy-back Share represents a discount of approximately 5.5% under the average closing price of HK$5.03 per Share based on the daily closing prices of the Shares as quoted on the Stock Exchange for the 60 consecutive trading days immediately prior to and including the Last Trading Day; and
(v) the average daily trading volume of the Shares for the 12 months up to and including the Last Trading Day was approximately 970,000 Shares per day, representing only approximately 0.05% of the issued Shares as at the Latest Practicable Date. Given the thin trading volume in the Shares and the large volume of the Buy-back Shares, it is a good opportunity for the Company to buy-back a significant block of Shares without affecting the normal trading of the Shares in terms of price and volume.

In light of the foregoing, the Directors (other than members of the Listing Rules IBC and the Takeovers Code IBC) believe that the terms and conditions of the Buy-back Contract are fair and reasonable, and in the interests of the Company and the Shareholders as a whole.

Having taken into account the principal factors and reasons set out above and in the section headed “PRINCIPAL FACTORS AND REASONS CONSIDERED” of the letter from Centurion, the Listing Rules IBC, the Takeovers Code IBC and Centurion are of the view that the terms of the Buy-back Contract and the Share Buy-back are fair and reasonable so far as the Independent Shareholders are concerned and the Buy-back Contract and the Share Buy-back are in the interests of the Company and the Shareholders as a whole.

6. FINANCIAL EFFECTS OF THE PROPOSED SHARE BUY-BACK

Net assets per Share attributable to the Shareholders

Assuming that the Share Buy-back had taken place on 31 December 2017, the Group’s net assets per Share attributable to the Shareholders as at that date would have increased by approximately 3.4% from approximately HK$9.02 per Share to approximately HK$9.33 per Share.

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LETTER FROM THE BOARD

Basic earnings per Share

Assuming that the Share Buy-back had taken place on 1 January 2017 and the Buy-back Shares have been bought back in full and cancelled, the Group’s basic earnings per Share for the year ended 31 December 2017 would have increased by approximately 7.1% from approximately HK84.0 cents per Share to approximately HK90.0 cents per Share.

Total liabilities

The consideration of the Share Buy-back will be settled in cash and the Share Buy-back is not expected to affect or have any material adverse impact on the liabilities of the Group.

Working capital

The working capital (expressed as net current assets) as at 31 December 2017 would decrease by approximately 4.5% from approximately HK$15,326,400,000 to approximately HK$14,633,450,000 (assuming approximately HK$688,750,000 cash used for settlement of the Share Buy-back and the estimated expenses of approximately HK$4,200,000 directly attributable to the Share Buy-back).

Based on the above, the Company considers that the Share Buy-back will have no material adverse effect on the Group’s net assets per Share, basic earnings per Share, total liabilities or working capital.

7. LISTING RULES AND BUY-BACKS CODE IMPLICATIONS

Listing Rules implications

As at the Latest Practicable Date, Asia Financial Services holds 341,600,000 Shares, representing approximately 15.87% of the total number of issued Shares of the Company, and is a substantial shareholder of the Company. As a substantial shareholder of the Company, Asia Financial Services is a connected person of the Company pursuant to the Listing Rules. Accordingly, the Share Buy-back constitutes a connected transaction of the Company and will be subject to reporting and announcement requirements and independent shareholders’ approval requirement under Chapter 14A of the Listing Rules. Having further considered the relevant size test results, the Share Buy-back also constitutes a discloseable transaction of the Company under Chapter 14 of the Listing Rules.

By reason of the Listing Rules and the Buy-backs Code, Asia Financial Services and its concert parties will abstain from voting at the EGM.

None of the Directors has a material interest in the Share Buy-back and hence no Director has abstained from voting on such Board resolutions.

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LETTER FROM THE BOARD

Buy-backs Code implications

The Share Buy-back constitutes an off-market share buy-back by the Company under the Buy-backs Code. The Company has made an application to the Executive for approval of the Share Buy-back pursuant to Rule 2 of the Buy-backs Code. The Executive’s approval, if granted, will normally be conditional upon, amongst other things, approval of the Share Buy-back by at least three-fourths of the votes cast on a poll by the Independent Shareholders present in person or by proxy at a general meeting of the Company.

Completion of the Share Buy-back is subject to the condition that the Share Buy-back has been approved by the Executive. Therefore, the Company will not proceed with the Share Buy-back unless the Executive approves the Share Buy-back pursuant to Rule 2 of the Buy-backs Code. However, there is no assurance that such approval will be granted or that all other conditions precedent to the Share Buy-back will be fulfilled.

As required by the Buy-backs Code, as at the Latest Practicable Date, Asia Financial Services (which beneficially holds 341,600,000 Shares, representing approximately 15.87% of the total number of issued Shares of the Company) and the parties acting in concert with it will abstain from voting on the resolutions to be proposed at the EGM for approving the Buy-back Contract and the Share Buy-back.

As at the Latest Practicable Date, other than the 15.87% interest in the total number of issued Shares of the Company owned by Asia Financial Services and the parties acting in concert with it and the Share Buy-back contemplated under the Buy-back Contract as disclosed in this circular, neither Asia Financial Services nor any party acting in concert with it:

(i) holds, owns, controls or directs any Shares, convertible securities, warrants, options or derivatives in respect of the Shares;
(ii) has secured an irrevocable commitment to vote in favour of or against the Buy-back Contract and/or the Share Buy-back;
(iii) holds outstanding warrants, options or securities convertible into Shares or derivatives in respect of the Shares;
(iv) has any arrangement (whether by way of option, indemnity or otherwise) or contracts in relation to the Shares or shares of Asia Financial Services which might be material to the Buy-back Contract and/or the Share Buy-back;
(v) has any agreement or arrangement to which Asia Financial Services and parties acting in concert with it is a party which relates to the circumstances in which it may or may not invoke or seek to invoke a pre-condition or a condition to the Buy-back Contract and/or the Share Buy-back; or
(vi) has borrowed or lent any relevant securities (as defined in Note 4 to Rule 22 of the Takeovers Code) in the Company.

Neither Asia Financial Services nor any party acting in concert with it has acquired or disposed of any voting rights of the Company or has dealt for value in any Shares, convertible securities, warrants, options or derivatives in respect of the securities in the Company in the six-month period prior to and including 4 May 2018, being the date of the Announcement and ending with the Latest Practicable Date.

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LETTER FROM THE BOARD

8. GENERAL

The principal business activity of the Company is investment holding. The principal business activities of its major subsidiaries are consumer finance, principal investments, mortgage loans and financial services.

For the two years ended 31 December 2016 and 2017, the audited net profits of the Group before taxation and non-controlling interests were approximately HK$1,501,600,000 and HK$2,608,500,000 respectively and the audited net profits of the Group after taxation and non-controlling interests were approximately HK$1,109,600,000 and HK$1,824,300,000 respectively.

Asia Financial Services is an investment holding company which currently holds 341,600,000 Shares, representing approximately 15.87% of the existing total number of issued Shares of the Company as at the Latest Practicable Date and is principally engaged in investment holding. Asia Financial Services is ultimately beneficially owned by funds which are advised by CVC Capital Partners.

The Listing Rules IBC (comprising all the independent non-executive Directors who have no direct or indirect interest in the Share Buy-back, namely, Evan Au Yang Chi Chun, David Craig Bartlett, Alan Stephen Jones, Jacqueline Alee Leung and Peter Wong Man Kong) has been formed in accordance with the Listing Rules to advise the Independent Shareholders on the Share Buy-back and the Buy-back Contract. In this connection, Centurion has been appointed to advise the Listing Rules IBC and the Independent Shareholders as to whether the Buy-back Contract is fair and reasonable and make recommendation on voting. Such appointment has been approved by the Listing Rules IBC formed to advise the Independent Shareholders on such matter.

The Takeovers Code IBC (comprising all the non-executive Directors who have no direct or indirect interest in the Share Buy-back, namely, Jonathan Andrew Cimino, Evan Au Yang Chi Chun, David Craig Bartlett, Alan Stephen Jones, Jacqueline Alee Leung and Peter Wong Man Kong) has been formed in accordance with the Buy-backs Code to advise the Independent Shareholders on the Share Buy-back and the Buy-back Contract. In this connection, Centurion has been appointed to advise the Takeovers Code IBC and the Independent Shareholders as to whether the Buy-back Contract is fair and reasonable and make recommendation on voting. Such appointment has been approved by the Takeovers Code IBC formed to advise the Independent Shareholders on such matter in accordance with Rule 2 of the Takeovers Code.

9. CLOSURE OF REGISTER OF MEMBERS

The register of members of the Company will be closed from Thursday, 12 July 2018 to Tuesday, 17 July 2018, both days inclusive, on which no transfer of Shares will be registered. Shareholders are reminded that, in order to qualify for attendance of the EGM, they must lodge completed transfer forms together with the certificates for the relevant Shares with the Registrar not later than 4:30 p.m. on Wednesday, 11 July 2018.

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LETTER FROM THE BOARD

10. EGM

The notice of the EGM of the Company is set out on pages VI-1 to VI-2 of this circular. Asia Financial Services (which beneficially holds 341,600,000 Shares representing approximately 15.87% of the existing total number of issued Shares of the Company) and its concert parties will abstain from voting on the resolution to be proposed at the EGM for approving the Buy-back Contract and the Share Buy-back.

11. VOTING BY WAY OF POLL

All votes at the EGM will be taken by poll pursuant to Rule 2 of the Buy-backs Code.

12. RECOMMENDATIONS

The Directors are of the opinion that the terms of the Buy-back Contract and the Share Buy-back are fair and reasonable and in the interests of the Company and the Shareholders as a whole. The Directors recommend the Shareholders to vote in favour of the relevant resolution to be proposed at the EGM.

Having taken into account the advice of the Independent Financial Adviser, the Listing Rules IBC recommends the Independent Shareholders to vote in favour of the relevant resolution to be proposed at the EGM to approve the Buy-back Contract and the Share Buy-back contemplated thereunder. Your attention is drawn to the letter from the Listing Rules IBC as set out on page 15 of this circular and the letter from Centurion as set out on pages 17 to 46 of this circular which contain their recommendations to the Independent Shareholders regarding the Buy-back Contract and the Share Buy-back. The Independent Shareholders are advised to read the aforesaid letters before deciding as to how to vote on the relevant resolution to be proposed at the EGM.

Having taken into account the advice of the Independent Financial Adviser, the Takeovers Code IBC recommends the Independent Shareholders to vote in favour of the relevant resolution to be proposed at the EGM to approve the Buy-back Contract and the Share Buy-back contemplated thereunder. Your attention is drawn to the letter from the Takeovers Code IBC as set out on page 16 of this circular and the letter from Centurion as set out on pages 17 to 46 of this circular which contain their recommendations to the Independent Shareholders regarding the Buy-back Contract and the Share Buy-back. The Independent Shareholders are advised to read the aforesaid letters before deciding as to how to vote on the relevant resolution to be proposed at the EGM.

– 13 –

LETTER FROM THE BOARD

13. FURTHER INFORMATION

Your attention is also drawn to the financial information of the Group as set out in Appendix I to this circular, the report from Deloitte on the profit forecast statement as set out in Appendix II to this circular, the report from Centurion on the profit forecast statement as set out in Appendix III to this circular, the other general information as set out in Appendix IV to this circular, the form of Buy-back Contract as set out in Appendix V to this circular and the notice of the EGM as set out in Appendix VI to this circular.

Yours faithfully Sun Hung Kai & Co. Limited Peter Anthony Curry Executive Director

– 14 –

LETTER FROM THE LISTING RULES IBC

==> picture [295 x 43] intentionally omitted <==

(Incorporated in Hong Kong with limited liability)

(Stock Code: 86)

25 June 2018

To the Independent Shareholders

Dear Sir or Madam,

POSSIBLE OFF-MARKET SHARE BUY-BACK CONSTITUTING A DISCLOSEABLE AND CONNECTED TRANSACTION

We have been appointed to form the Listing Rules IBC to consider and advise the Independent Shareholders as to our opinion on the terms of the Buy-back Contract and the Share Buy-back in accordance with the Listing Rules, the details of which are set out in the circular issued by the Company to the Shareholders dated 25 June 2018 (the “Circular”), of which this letter forms part. Terms used herein shall have the same meanings as defined in the Circular unless the context otherwise requires.

We wish to draw the attention of the Independent Shareholders to the letter from the Board and the letter of advice from Centurion, the Independent Financial Adviser.

Having taken into account the principal factors and reasons considered by Centurion, its conclusion and advice, we concur with the view of Centurion and consider that whilst the Share Buyback is not in the ordinary and usual course of business of the Group, the terms and conditions of the Buy-back Contract are fair and reasonable and the Proposed Share Buy-back is on normal commercial terms and, as far as the Independent Shareholders are concerned, the Share Buyback is in the interests of the Company and the Independent Shareholders as a whole.

Accordingly, we recommend the Independent Shareholders to vote in favour of the resolution to be proposed at the EGM to approve the Buy-back Contract and the Share Buy-back.

Yours faithfully, Listing Rules IBC

Sun Hung Kai & Co. Limited

Evan Au Yang Chi Chun David Craig Bartlett Alan Stephen Jones Jacqueline Alee Leung Peter Wong Man Kong

Independent non-executive Directors

– 15 –

LETTER FROM THE TAKEOVERS CODE IBC

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(Incorporated in Hong Kong with limited liability) (Stock Code: 86)

25 June 2018

To the Independent Shareholders

Dear Sir or Madam,

POSSIBLE OFF-MARKET SHARE BUY-BACK CONSTITUTING A DISCLOSEABLE AND CONNECTED TRANSACTION

We have been appointed to form the Takeovers Code IBC to consider and advise the Independent Shareholders as to our opinion on the terms of the Buy-back Contract and the Share Buy-back in accordance with Rule 2 of the Buy-backs Code, the details of which are set out in the circular issued by the Company to the Shareholders dated 25 June 2018 (the “Circular”), of which this letter forms part. Terms used herein shall have the same meanings as defined in the Circular unless the context otherwise requires.

We wish to draw the attention of the Independent Shareholders to the letter from the Board and the letter of advice from Centurion, the Independent Financial Adviser.

Accordingly, we recommend the Independent Shareholders to vote in favour of the resolution to be proposed at the EGM to approve the Buy-back Contract and the Share Buy-back.

Yours faithfully, Takeovers Code IBC

Sun Hung Kai & Co. Limited

Jonathan Andrew Cimino Evan Au Yang Chi Chun David Craig Bartlett Alan Stephen Jones Jacqueline Alee Leung Peter Wong Man Kong Non-executive Directors

– 16 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the text of the letter of advice to each of the two Independent Board Committees from Centurion Corporate Finance Limited dated 25 June 2018 for incorporation in the Circular:

==> picture [202 x 55] intentionally omitted <==

25 June 2018

To the Independent Board Committees of

Sun Hung Kai & Co. Limited and the Independent Shareholders

Dear Sirs,

POSSIBLE OFF-MARKET SHARE BUY-BACK CONSTITUTING A DISCLOSEABLE AND CONNECTED TRANSACTION

INTRODUCTION

We refer to our appointment as the Independent Financial Adviser to advise the Takeovers Code IBC and the Listing Rules IBC (collectively the “ Independent Board Committees ”) and the Independent Shareholders in relation to the Buy-back Contract and the Share Buy-back contemplated thereunder, details of which are set out in the “Letter from the Board” (the “ Letter from the Board ”) contained in the Circular of the Company dated 25 June 2018 issued to the Shareholders (the “ Circular ”), of which this letter forms part. Terms used in this letter shall have the same meanings as those defined in the Circular, unless otherwise specified.

On 4 May 2018, Asia Financial Services executed the Deed of Undertaking in favour of the Company conditionally undertaking to execute the Buy-back Contract (the terms of which have been agreed and are set out in the section headed “Deed of Undertaking and the Buy-back Contract” below) relating to an off-market share buy-back by the Company of 145,000,000 Shares, representing approximately 6.73% of the total number of issued Shares of the Company held by Asia Financial Services, if so required by the Company.

– 17 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

If a Shareholder’s proportionate interest in the voting rights of the Company increases as a result of the Share Buy-back, such increase will be treated as an acquisition of voting rights under Rule 32 of the Takeovers Code.

As at the Latest Practicable Date, Asia Financial Services holds 341,600,000 Shares, representing approximately 15.87% of the existing total number of issued Shares of the Company, and is a substantial shareholder of the Company. As a substantial shareholder of the Company, Asia Financial Services is a connected person of the Company pursuant to the Listing Rules. Accordingly, the Share Buy-back also constitutes a connected transaction of the Company and will be subject to the reporting and announcement requirements and independent shareholders’ approval requirement under Chapter 14A of the Listing Rules. Having further considered the relevant size test results, the Share Buy-back also constitutes a discloseable transaction of the Company under Chapter 14 of the Listing Rules.

Asia Financial Services has a material interest in the Share Buy-back and will be required to abstain from voting on the relevant resolution approving the Buy-back Contract and the Share buy-back contemplated thereunder at the EGM. None of the Independent Shareholders has any material interest in the Share Buy-back and hence none is required to abstain from voting on such resolution at the EGM.

The Listing Rules IBC and the Takeovers Code IBC comprises all the independent non-executive Directors and the non-executive Directors respectively who have no direct or indirect interest in the Share Buy-back and have been formed in accordance with the Listing Rules and Buy-backs Code respectively to advise the Independent Shareholders on the Buy-back Contract and the Share Buy-back contemplated thereunder.

We have been appointed as the Independent Financial Adviser to advise the Independent Board Committees and the Independent Shareholders as to whether the terms of the Share Buy-back and Buy-back Contract are fair and reasonable, the Buy-back Contract is on normal commercial terms and in the ordinary and usual course of business of the Group and the Share Buy-back, as far as the Independent Shareholders are concerned, is in the interests of the Company and the Shareholders as a whole; and to give this letter of independent advice to the Independent Board Committees and the Independent Shareholders as to whether the Independent Shareholders should vote in favour of the Share Buy-back.

We are not associated with either the Company or Asia Financial Services, or any of their respective associates, connected persons, parties acting, or presumed to be, acting in concert with any of them. Therefore, we are considered suitable to give our letter of independent advice on the terms and condition of the Buy-back Contract. Apart from normal professional fees payable to us in connection with this appointment, no arrangement exists whereby we will receive any fees or benefits from the Company or Asia Financial Services, or any of their associates, connected persons, parties acting, or presumed to be acting, in concert with any of them.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

BASIS OF OUR OPINION

In formulating our opinion and recommendation, we have relied on the accuracy of the information, report, opinions and representations contained in the Circular, the Company’s annual and interim reports and other publicly available documents of the Group, which have been provided to us by the Directors and management of the Company and for which they take full responsibility, insofar as documents of the Group are concerned. We have assumed that all statements, information, opinions and representations made or referred to in the Circular were true at the time they were made and continued to be true as at the Latest Practicable Date. If there is any material change of such information, Shareholders will be notified accordingly pursuant to Rule 9.1 of the Takeovers Code. We have also assumed that all statements of belief, opinions and intentions made by the Directors in the Circular are reasonably made after due and careful enquiry.

We have also sought and obtained confirmation from the Company that no material facts have been omitted from the information provided and/or referred to in the Circular.

We have no reason to doubt the truth, accuracy and completeness of the information and representations provided to us by the Directors. We consider that we have reviewed sufficient financial information to enable us to reach an informed view and to justify reliance on the accuracy of the information as contained in the Circular to provide a reasonable basis for our opinion and recommendation. We have not, however, conducted any form of independent or in-depth investigation into the businesses, financial positions, or prospects of the Group, Asia Financial Services, or any of their respective subsidiaries or associates, nor have we independently verified any of the information supplied to us.

Our opinion and recommendation as set out herein are for the sole purpose of the Share Buy-back only and shall not be used for any other purposes.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In formulating our recommendation, we have taken into consideration the following principal factors and reasons:

1. Background to and reasons for entering into of the Buy-back Contract

1.1 Information on the Group

As stated in the “Letter from the Board”, the principal business activity of the Company is investment holding. The principal business activities of its major subsidiaries are Consumer Finance, Principal Investments, Mortgage Loans and Financial Services.

The following table summarises the segment assets and profit contribution of the Group as at/for the year ended 31 December 2017 as set out in the 2017 Annual Report of the Company (“ 2017 Annual Report ”).

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Table A: Segment assets and profit contribution of the Group as at/for the year ended 31 December 2017

Principal	Brief description of such principal			Pre-tax
businesses	businesses	Assets	%	Profit	%
		(HK$’ million)		(HK$’ million)
Consumer	Undertaken by United Asia Finance	16,032.2	43%	1,444.7	55%
Finance	Limited (“UA Finance”), a 58%-owned
	subsidiary of the Company engaged in
	unsecured lending in Hong Kong and
	mainland China to individual consumers
	and small businesses.
	(Based on the total segment assets of this
	business of HK$16,479.9 million as at 31
	December 2016, the “average” segment
	assets of this business amounted to
	HK$16,256.1 million and its pre-tax profit
	as set out in the last column represents an
	approximately 8.89% return to such
	average assets.)
Principal	Investments using leverage on the Group’s	15,936.8	43%	1,082.3	42%
Investments	know-how and network into equity, debt,
	real estate portfolio and to engage in
	strategic liquidity management portfolio.
	(Based on the total segment assets of this
	business of HK$10,845.1 million as at 31
	December 2016, the “average” segment
	assets of this business amounted to
	HK$13,391.0 million and its pre-tax profit
	as set out in the last column represents an
	approximately 8.10% return to such
	average assets.)
Financial	Undertaken by Sun Hung Kai Financial	2,482.7	6%	118.6	5%
Services	Group Limited, a 30%-owned associate of
	the Company engaged in wealth
	management and securities brokerage
	services under the rebranded: “Everbright
	Sun Hung Kai” in December 2017.
	A car finance leasing joint venture under
	“LSS Leasing” brand and is based in
	Shanghai.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Principal	Brief description of such principal			Pre-tax
businesses	businesses	Assets	%	Profit	%
		(HK$’ million)		(HK$’ million)
Mortgage Loans	Mortgage and home equity loans in Hong	2,185.4	6%	35.0	1%
	Kong under Sun Hung Kai Credit.
Group	Cost of funding charged to investments and	785.1	2%	(72.1)	(3%)
Management	other unallocated assets and expenses.
and Support
		37,422.2	100%	2,608.5	100%

On 2 February 2015, the Company announced the disposal of a 70% equity interest in Sun Hung Kai Financial Group Limited to Everbright Securities Financial Holdings Limited and completion of such disposal took place on 2 June 2015. Following such disposal, Sun Hung Kai Financial Group Limited, a brokerage and wealth management concern, has become a 30%-owned associate of the Group and the Group has since been gradually building up its Principal Investments business in order to better reposition the earnings drivers of the Group, with a view to achieve a steady growth in profit as well as long term value accretion for Shareholders. As set out in the chairman’s letter in the 2017 Annual Report, early results of this repositioning of the Group’s earnings drivers were said to be very encouraging, with profit attributable to the Shareholders increased by 64% from HK$1,109.6 million to HK$1,824.3 million and return on Shareholders’ equity of the Group increased from 6.1% to 9.7% for the year ended 31 December 2017.

– 21 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The tables below are the financial highlights of the Group for the two years ended/as at 31 December 2017 as extracted from the 2017 Annual Report:

Table B: Financial highlights of the Group for the two years ended/as at 31 December 2017 as extracted from the 2017 Annual Report

Consolidated Statement of Profit and Loss

For the year ended 31 December

	2017	2016
	(HK$ million)	(HK$ million)
	(Audited)	(Audited)
Revenue	3,795.6	3,511.3
Total income	4,045.7	3,690.2
Profit before taxation	2,608.5	1,501.6
Profit attributable to Shareholders	1,824.3	1,109.6
Consolidated Statement of Financial Position
As at 31 December
	2017	2016
	(HK$ million)	(HK$ million)
	(Audited)	(Audited)
Bank deposits, cash and cash equivalents	2,911.4	6,452.2
Total assets	37,422.2	32,560.9
Total liabilities	14,023.7	10,905.1
Equity attributable to Shareholders	19,426.7	18,077.0

As set out in the 2017 Annual Report, the Group’s revenue was HK$3,795.6 million for the year ended 31 December 2017, an increase of approximately 8.1% year-on-year, with revenue mainly consisted of interest income. Operating costs increased approximately 7% to HK$1,461.9 million, less than the corresponding increase in turnover for the year ended 31 December 2017.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Consumer Finance of the Group under UA Finance contributed revenue of approximately HK$3,122.2 million, an increase of 3.2% on a year-on-year basis. However, its contribution to pre-tax profit of the Group grew by 98.8% from HK$726.6 million to HK$1,444.7 million for the year ended 31 December 2017. This was due to a significant turnaround in the mainland China business and a record profit from Hong Kong. UA Finance’s profit after tax attributable to its shareholders reached a historical high of HK$1,162.6 million (2016: HK$623.8 million), generating a 14.5% return on its average shareholders’ funds of HK$8 billion during 2017, compared to 8.4% last year.

The Group’s Principal Investments division leverages the Company’s operating expertise, network, and balance sheet to seek out and invest in attractive risk-adjusted investment opportunities. This division takes a relationship-driven approach to identify return opportunities and deploy capital across multiple asset classes, namely in public/private equities; public/private credit and real estate. As at 31 December 2017, total investment assets of this segment increased 48.5% to HK$15,936.8 million. The investment gain was HK$1,591.4 million, with satisfactory performance across all such asset classes.

During 2017, the Group’s net gearing has increased with the growth in the asset base, but the interest cover has improved. Total borrowings of the Group as at 31 December 2017 amounted to HK$11,928.1 million, an 18% increase year-on-year. This was mainly due to increase in corporate bonds issued by the Group. Such strategic use of leverage has increased the efficiency of the balance sheet as well as the increased profit, the return on equity increased from 6.1% to 9.7% for the year ended 31 December 2017.

To illustrate an example of such strategic use of leverage, Note 38 to the audited consolidated financial statements of the Company as set out in its 2017 Annual Report disclosed all the corporate bonds issued by the Group (which accounted for 68% of the Group’s borrowings) and their bond yields (i.e. interest rates) were: (i) 4.75% and 4.65% for US$ denominated notes maturing in 2021 and 2022 respectively; (ii) 2.8% for HK$ denominated bonds; and (iii) 6.9% for RMB denominated bonds. When viewed against these borrowing costs, the pre-tax returns on segment assets (on an average basis) for Consumer Finance and Principal Investments businesses as set out in Table A above were 8.89% and 8.10% respectively.

As set out in the 2017 Annual Report, management is cautiously optimistic about 2018 and the Company is pleased with the Group’s strategic positioning and current asset allocation. It is also worth noting that for the Group’s Principal Investments business, while the Company is pleased with its long-term prospects, its market portion is exposed to mark-to-market volatility. The Group is expected to maintain a balanced approach to asset allocation for risk/reward and to maintain strict oversight of costs.

In so far as the Group’s unaudited consolidated profit attributable to the Shareholders for the four months ended 30 April 2018 is concerned, we draw your attention to Appendix I to the Circular in the section headed “Material Change” and also to Appendices II and III in respect of a report letter from each of Deloitte and from us respectively on such four-month profit as set out in the paragraph below.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Based on the unaudited consolidated management accounts of the Group prepared in accordance with Hong Kong Financial Reporting Standards (“ HKFRS ”) issued by the Hong Kong Institute of Certified Public Accountants applicable for the Group’s annual periods beginning on or after 1 January 2018, the Group’s unaudited consolidated profit attributable to owners of the Company for the four months ended 30 April 2018 was estimated to be approximately HK$793.1 million.

As set out in Appendix I to the Circular in the section headed “Material Change”, according to transitional arrangement under HKFRS 9, upon initial application of HKFRS 9, the Group is not required to restate the comparative figures of prior periods’ financial statements. Hence, any comparison of the Group’s financial statements prepared after the adoption of the HKFRS 9 on 1 January 2018 to those financial statements prepared prior to such adoption should take note of the resulting effects from such changes in accounting standards.

The Group’s unaudited consolidated profit attributable to owners of the Company for the four months ended 30 April 2017, which was prepared in accordance with the then HKFRS applicable for the Group’s financial year ended 31 December 2017, was approximately HK$572.4 million. Given the Group’s unaudited consolidated profit attributable to the owners of the Company for the four months ended 30 April 2018 was estimated to be approximately HK$793.1 million, such profit represents an increase of approximately 38.6%, when viewed against the profit attributable to owners of the Company for the four months ended 30 April 2017. In addition to the effects arising from the changes in accounting standards under HKFRS 9 effective on 1 January 2018 as mentioned above, the Directors considered that such increase in profit for the four months ended 30 April 2018 was mainly attributable to the fair value changes of the financial instruments from the Principal Investments Segment.

In light of the above, given the performance of the Group’s Principal Investments is subject to mark-to-market price volatility of public equities/credit instruments and volatility arising from valuation of private equities, which are all driven by market conditions, Independent Shareholders should be mindful of the volatility of these market conditions, when interpreting the aforesaid material change in the unaudited profit of the Group for the four months ended 30 April 2018. For further details about the Principal Investments Segment, please refer to Table A above.

1.2 Information on Asia Financial Services

Asia Financial Services is an investment holding company which held 341,600,000 Shares as at the Latest Practicable Date, representing approximately 15.87% of the existing total number of issued Shares of the Company and is principally engaged in investment holding. Asia Financial Services is ultimately beneficially owned by funds which are advised by CVC Capital Partners. CVC Capital Partners, according to publicly available information on its website (www.cvc.com), is one of the leading private equity firms in the world and has business footprints across Europe, Asia and the U.S..

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

1.3 Reasons for and benefits of the Share Buy-back

As set out in the “Letter From The Board”, the Company has taken into consideration that:

(i) the Share Buy-back is a good opportunity for the Company to enhance the earnings per Share and the rate of return on capital;
(ii) the Share Buy-back will result in an approximately 3.4% enhancement in the net asset value per Share attributable to Shareholders based on the audited balance sheet of the Group as at 31 December 2017, creating greater shareholder value, which is in the interests of all Shareholders;
(iii) the Share Buy-back will result in an increase in the public float of the Company from 26.76% to 38.48% of the issued Shares;
(iv) the buy-back price for each Buy-back Share represents a discount of approximately 5.5% under the average closing price of HK$5.03 per Share based on the daily closing prices of the Shares as quoted on the Stock Exchange for the 60 consecutive trading days immediately prior to and including the Last Trading Day; and
(v) the average daily trading volume of the Shares for the 12 months up to and including the Last Trading Day was approximately 970,000 Shares per day, representing only approximately 0.05% of the issued Shares as at the Latest Practicable Date. Given the thin trading volume in the Shares and the large volume of the Buy-back Shares, it is a good opportunity for the Company to buy-back a significant block of Shares without affecting the normal trading of the Shares in terms of price and volume.

In light of the foregoing, the Directors (other than members of the Independent Board Committees) believe that the terms and conditions of the Buy-back Contract are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

On the bases and analyses as set out below, we concur with the above reasons for and benefits of the Share Buy-back. We would like to also point out that under (iii) above, whilst it is correct that the public float of the Shares will be increased from 26.76% to 38.48%, having included the reduced 9.79% equity interest held by Asia Financial Services as part of the public float as set out in Table G below, such increase in our view, has no direct impact on increasing the liquidity of the Shares. This is based on the assumption that the remaining 9.79% holding in the Shares will not be sold partially or “en block” on the Stock Exchange following completion of the Share Buy-back. For the purpose of our liquidity analysis set out in section 5 below, we assume these remaining Shares are to be disposed of and will form part of the enlarged liquidity of the Shares.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

In so far as discount of the buy-back price per Buy-back Share and the liquidity of the Shares under (iv) and (v) are concerned, your attention is drawn to Table E, Chart I and Table F below, which show the effects of the buy-back price to Share market prices and past trading volume, when viewed against the past performance and liquidity of the Shares. Table F shows the liquidity of the Shares when viewed against the total number of Share that constituted the traded liquidity portion of the public float as defined under the Listing Rules. Based on these analyses, we concur with these reasons as cited by the Board.

2. Deed of Undertaking and the Buy-back Contract

Pursuant to the Deed of Undertaking, Asia Financial Services irrevocably undertakes to the Company that, if so required by the Company, it shall execute the Buy-back Contract within three business days after the satisfaction of the following condition:

the passing of the requisite resolution by at least three-fourths of the votes cast on a poll by the Independent Shareholders present in person or by proxy at the EGM approving the Buy-back Contract.

The above condition is a regulatory requirement under the Buy-back Code and is therefore, fair and reasonable and in the interests of the Independent Shareholders.

The number of Buy-back Shares to be bought back is 145,000,000, representing approximately 6.73% of the total number of issued Shares of the Company, and representing approximately 42.45% of the Shares currently held by Asia Financial Services in the Company. The buy-back price for each Buy-back Share is HK$4.75.

If the Company declares, pays, or makes a dividend or distribution before completion of the Buy-back Contract and Asia Financial Services is entitled to receive such dividend or distribution, an amount corresponding to such dividend or distribution shall be deducted from the total consideration for the Buy-back Shares payable by the Company to Asia Financial Services. This arrangement is in the interests of the Company and the Independent Shareholders as a whole as there is no un-intended or indirect upward price adjustment to the agreed buy-back price per Buy-back Share via the receipt of such dividend or distribution.

The Company announced a second interim dividend of HK$0.14 per Share on 21 March 2018, with ex-dividend and record dates being 19 and 22 June 2018 respectively. Asia Financial Services is entitled to receive such dividend per Buy-back Share. Accordingly, an amount equal to HK$0.14 per Buy-back Share, the aggregate of which is HK$20,300,000, shall be deducted from the total consideration for the Buy-back Shares payable to Asia Financial Services.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

3. Analyses of the buy-back price

3.1 Shares repurchased by the Company on the Stock Exchange

The following table is extracted from the 2017 Annual Report and summarises the Shares repurchased by the Company on the Stock Exchange during 2017. All such repurchased Shares were subsequently cancelled.

Table C: Shares repurchased by the Company on the Stock Exchange during 2017

Month January February March April May June July August September October November December	Number of Shares repurchased Purchase price Aggregate consideration (before expenses) Highest (HK$) Lowest (HK$) (HK$) 2,666,000 5.04 4.78 13,034,470 76,000 5.05 5.00 381,460 694,000 5.04 4.99 3,477,950 15,189,000 5.04 4.88 74,781,410 − − − − 1,450,000 5.05 5.00 7,302,520 − − − − 449,000 5.18 5.14 2,320,940 3,825,000 5.09 4.99 19,255,490 3,549,000 5.05 5.01 17,875,620 7,112,000 5.03 4.90 35,474,070 4,408,000 5.00 4.88 21,744,300 39,418,000 195,648,230	Number of Shares repurchased Purchase price Aggregate consideration (before expenses) Highest (HK$) Lowest (HK$) (HK$) 2,666,000 5.04 4.78 13,034,470 76,000 5.05 5.00 381,460 694,000 5.04 4.99 3,477,950 15,189,000 5.04 4.88 74,781,410 − − − − 1,450,000 5.05 5.00 7,302,520 − − − − 449,000 5.18 5.14 2,320,940 3,825,000 5.09 4.99 19,255,490 3,549,000 5.05 5.01 17,875,620 7,112,000 5.03 4.90 35,474,070 4,408,000 5.00 4.88 21,744,300 39,418,000 195,648,230
		195,648,230

The Company did not repurchase any Shares subsequent to its year ended 31 December 2017. Based on the above aggregate consideration (before expenses and brokerage) and the total number of Shares repurchased, the average price paid for such repurchased Shares was HK$4.96. Hence, the HK$4.75 buy-back price for each Buy-back Share represents a discount of approximately 4.2% to the average price paid for such repurchased Shares.

Listed issuers usually repurchase their listed securities on the basis that they believe the prevailing market prices for such securities to be repurchased are over-sold and under value to the extent that it is worthwhile to use their own cash resources to repurchase and cancel such securities, so that there would be less securities outstanding which would then result in increasing return to shareholders and shareholder value, in the form of enhanced earnings per share, dividends per share and net asset value per share. Therefore, such on-market repurchases are usually undertaken judiciously.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

3.2 Comparison of the buy-back price to market price per Share

On the basis of the buy-back price of HK$4.75 per Buy-back Share and there are a total of 145,000,000 Buy-back Shares, the total consideration for the Share Buy-back is HK$688,750,000 (or HK$668,450,000, after adjusting for the second interim dividend of HK$0.14).

The following table summarises recent events since January 2015, some of which may have affected market price of the Shares or were price-sensitive information announced under Part XIVA of the SFO. We believe the January 2015 date is an important “milestone”, given the disposal of the 70% interest in Sun Hung Kai Financial Group Limited and the subsequent Share price rally and movements as set out in the charts below. This list is exhaustive from January 2015 for all Part XIVA of the SFO announcements which were also identified as “Inside Information” under the Headline Categories pursuant to Appendix 24 of the Listing Rules and as a backdrop to illustrate all the “Positive Profit Alert/Profit Warning” and the disposal of 70% interest in Sun Hung Kai Financial Group Limited announcements issued by the Company that may have affected its recent Share price performance and rally as set out in the charts below.

Table D: Events which may have affected the Share price in recent years

	Events announced or	Events announced or	Closing	No. of
Trading Date	important milestones		Share price	Shares traded
	1.	Announcement of the
		Share Buy-back:
Monday,		1st day of trading of	HK$4.83	381,000
7 May 2018		the Shares following
		the Announcement
Friday,		Full trading day of	HK$4.80	420,122
4 May 2018		the Shares before
		the Announcement
		was released after
		the market closed
	2.	Positive Profit Alert
		announcement:
Monday,		1st day of trading of	HK$5.16	5,596,635
29 January 2018		the Shares following
		the announcement on
		the profit alert for
		the year ended 31
		December 2017
Friday,		Full trading day of	HK$5.03	1,332,500
26 January 2018		the Shares before
		the announcement
		was released after
		the market closed

– 28 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

	Events announced or	Events announced or	Closing	No. of
Trading Date	important milestones		Share price	Shares traded
	3.	Positive Profit Alert
		announcement:
Monday,		1st day of trading of	HK$5.28	4,287,000
24 July 2017		the Shares following
		the announcement on
		the profit alert for
		the six months ended
		30 June 2017
Friday,		Full trading day of	HK$5.04	411,761
21 July 2017		the Shares before
		the announcement
		was released after
		the market closed
	4.	Positive Profit Alert
		announcement:
Tuesday,		1st day of trading of	HK$4.92	858,000
24 January 2017		the Shares following
		the announcement on
		the profit alert for
		the year ended 31
		December 2016
Friday,		Full trading day of	HK$4.90	279,000
23 January 2017		the Shares before
		the announcement
		was released after
		the market closed
	5.	Profit Warning
		announcement:
Monday,		1st day of trading of	HK$4.55	1,302,000
25 July 2016		the Shares following
		the announcement on
		the profit warning for
		the six months ended
		30 June 2016
Friday,		Full trading day of	HK$4.71	217,389
22 July 2016		the Shares before
		the announcement
		was released after
		the market closed

– 29 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

	Events announced or	Events announced or	Closing	No. of
Trading Date	important milestones		Share price	Shares traded
	6.	Announcement for the
		disposal of 70% interest in
		Sun Hung Kai Financial
		Group Limited
Tuesday,		The full trading day	HK$6.57	13,340,000
3 February 2015		following the release
		of the aforesaid
		announcement for the
		disposal and
		suspension of trading
Friday,		The last trading date	HK$7.00	7,256,253
30 January 2015		prior to suspension of
		trading in the Shares
		pending the release of
		the aforesaid
		announcements

Source : website of the Stock Exchange – www.hkex.com.hk

Based on the above table, after the Share Buy-back was disseminated to the market by the Announcement, the closing price per Share was up slightly from HK$4.80 to HK$4.83, an indication that this Share Buy-back is also positively viewed by the Shareholders and the investing public.

As set out in the section headed “Consideration” in the “Letter From The Board”, the buy-back price for each Buy-back Share is HK$4.75, representing:

(i) a premium of approximately 2.4% to the closing price of HK$4.50 per Share as quoted on the Stock Exchange on the Latest Practicable Date, after adjusting the HK$4.75 to HK$4.61 for the HK$0.14 second interim dividend as the Shares have been trading ex-dividend since 19 June 2018;
(ii) a discount of approximately 1.7% under the average closing price of HK$4.83 per Share based on the daily closing prices of the Shares as quoted on the Stock Exchange for the 5 consecutive trading days immediately prior to and including the Last Trading Day;
(iii) a discount of approximately 1.7% under the average closing price of HK$4.83 per Share based on the daily closing prices of the Shares as quoted on the Stock Exchange for the 10 consecutive trading days immediately prior to and including the Last Trading Day;

– 30 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(iv) a discount of approximately 2.9% under the average closing price of HK$4.89 per Share based on the daily closing prices of the Shares as quoted on the Stock Exchange for the 20 consecutive trading days immediately prior to and including the Last Trading Day;
(v) a discount of approximately 3.4% under the average closing price of HK$4.92 per Share based on the daily closing prices of the Shares as quoted on the Stock Exchange for the 30 consecutive trading days immediately prior to and including the Last Trading Day; and
(vi) a discount of approximately 47% to the audited net asset value per Share attributable to Shareholders as at 31 December 2017 of approximately HK$9.02 per Share.

The total consideration for the Share Buy-back shall not exceed HK$688,750,000 (or HK$668,450,000, after adjusting for the second interim dividend of HK$0.14). The consideration for the Share Buy-back was determined following commercial and arms’ length negotiations between the parties taking into account the movements in the price of the Shares over a period of time and prevailing market conditions. The consideration will be settled in cash by the Company.

The original purchase cost of the Buy-back Shares to Asia Financial Services was HK$5.00 per Share.

Highest and lowest closing prices of the Shares

For the purpose of this letter of independent advice, we have chosen the period from 2 May 2017 (being the first trading day of the 12 calendar months prior to the Announcement) to the Latest Practicable Date as the review period (“ Review Period ”), which was chosen on the basis that such time frame should be adequate to cover most of the recent events (some are set out in Table D above) reasonably expected to affect the price and trading volume formation of the Shares. During the Review Period, the highest closing price of the Shares was HK$5.68 per Share as quoted on the Stock Exchange on 4 May 2017 and the lowest closing prices of the Shares prior to and after the Announcement were respectively, HK$4.80 per Share and HK$4.50 per Share as quoted on the Stock Exchange on 25 April and on 4 May 2018 and on the Latest Practicable Date (being also the record date for the HK$0.14 second interim dividend, as the closing prices of the Shares have been quoted on an ex-dividend basis since 19 June 2018) respectively.

– 31 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Independent Shareholders should note the following table summarises the highest and the lowest closing prices of the Shares during the Review Period:

Table E: Highest and lowest closing Share prices comparison during the Review Period

	Highest	Lowest	Average daily
Month/Period	closing price	closing price	closing price
	(HK$)	(HK$)	(HK$)
2017
May	5.68	5.08	5.35
June	5.09	5.02	5.06
July	5.28	5.02	5.10
August	5.24	5.13	5.20
September	5.13	4.99	5.06
October	5.12	5.01	5.06
November	5.03	4.91	4.99
December	5.00	4.89	4.94
2018
January	5.16	4.99	5.04
February	5.27	4.87	5.12
March	5.20	4.89	5.07
April	5.00	4.80	4.90
May	4.98	4.80	4.89
June (up to the Latest
Practicable Date)	4.96	4.50	4.82

– 32 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following chart illustrates the buy-back price per Buy-back Share as compared to the daily closing price of the Shares as quoted on the Stock Exchange since 2 January 2013, including the Review Period. We have chosen the first trading day in January 2013 as the starting point for the following chart (and for Charts III and VI below) as to better present the performance of the Shares over a period longer than the Review Period given, in our view, the material price sensitive nature on the disposal of the Group’s 70% interest in Sun Hung Kai Financial Group Limited in early 2015, which should be viewed against as a backdrop for our analyses below.

Chart I: Closing Share prices (and trading volume) chart of the Shares

==> picture [341 x 231] intentionally omitted <==

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

9.00 200,000,000
Announced the completion of the disposal of
8.50 Announced the disposal of 70% 70% interest in Sun Hung Kai Financial
8.00 interest in Sun Hung Kai Financial Group Limited on 2 June 2015 180,000,000
Group Limited on 2 February 2015
7.50 Positive Profit Alert
announcement dated 23 160,000,000
7.00 January 2017 for 2016 results
Positive Profit Alert
6.506.00 Profit Warning announcement dated 22 July 2016 announcement dated 21 July 2017 for the first half of 2017 140,000,000
5.50 120,000,000
5.00
4.50 Buy-back price for each Buy-back 100,000,000
4.00 Share is HK$4.75 Positive Profit Alert
3.50 announcement dated 26 January 2018 for 2017 80,000,000
3.00 results
60,000,000
2.50
2.00
40,000,000
1.50
1.00 20,000,000
0.50
0.00 -
Trading Volume Closing Share price
Closing Share price (HK$)
Trading Volume ( in number of Shares)
02-Jan-13 02-Mar-13 02-May-13 02-Jul-13 02-Sep-13 02-Nov-13 02-Jan-14 02-Mar-14 02-May-14 02-Jul-14 02-Sep-14 02-Nov-14 02-Jan-15 02-Mar-15 02-May-15 02-Jul-15 02-Sep-15 02-Nov-15 02-Jan-16 02-Mar-16 02-May-16 02-Jul-16 02-Sep-16 02-Nov-16 02-Jan-17 02-Mar-17 02-May-17 02-Jul-17 02-Sep-17 02-Nov-17 02-Jan-18 02-Mar-18 02-May-18
----- End of picture text -----

Source: data extracted from InvestGo of Infocast Ltd.

During the Review Period, the closing price of the Shares on the Stock Exchange ranged between HK$4.80 (before the Announcement) or HK$4.50 (after the Announcement) to HK$5.68 per Share. If the period under review begins on 2 January 2013, the closing price of the Shares on the Stock Exchange ranged between HK$4.15 to HK$8.42 per Share. The closing price per Share on the Latest Practicable Date was HK$4.50.

– 33 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The daily closing price of the Shares during the Review Period, having reached the highest closing price of HK$5.68 at the beginning of the Review Period on 4 May 2017, has shown a modest downward decline in market price with the lowest closing price of HK$4.80 on 25 April and 4 May 2018, just days prior to and on the date of the Announcement respectively. After the Announcement, the daily closing price of the Shares during the Review Period has since reached the lowest closing price of HK$4.50 on the Latest Practicable Date (note: the closing prices of the Shares have been quoted on an ex-dividend basis since 19 June 2018). As set out in Chart I above, the Share price rallied slightly upward after the Profit Alert announcement for the first half of 2017 was released on 21 July 2017. Such rally began to level off and only began after the Profit Alert announcement for 2017 results was released on 26 January 2018. The actual release of the results announcements for the two years ended 31 December 2016 and 2017 on 23 March 2017 and 21 March 2018 respectively did not appear to be price sensitive, presumably such information had been priced-in after the release of the relevant Profit Alert announcements.

As set out in Chart I above, the Share price rallied in the months of February – April 2015 after the announcement of the disposal of the Company’s 70% equity interest in Sun Hung Kai Financial Group Limited. Such rally began to peak out and began a declining downward trend in or about May and June 2015.

The Company announced its final results for the year ended 31 December 2017 on 21 March 2018 after trading hours, which showed diluted earnings per Share of HK$0.839, an increase of approximately 67% year-on-year. Based on the closing price per Share of HK$5.01 on 22 March 2018, such price commanded a historical price-earnings multiples of approximately 6 times.

The Company has some institutional investors as Shareholders who historically, hold large blocks of the Shares. Some of these institutional Shareholders are identified in the Company’s annual reports and interim reports over the years. The large block of the Shares held by Asia Financial Services and the fact that after the Share Buy-back, Asia Financial Services will continue to hold 9.79% of the then total issued Shares mean the parties involved would try to avoid selling the large block of Buy-back Shares in the open market, which would likely result in exerting considerable downward pressure on the Share prices, given the liquidity of the Shares as discussed in section 4 below.

– 34 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

3.3 Comparison of the buy-back price to the net asset value of the Group

The buy-back price of HK$4.75 represents a discount of approximately 47% to the audited consolidated net asset value of the Group attributable to the Shareholders of approximately HK$9.02 per Share as at 31 December 2017 as shown in the 2017 Annual Report. We do not consider such discount relevant based on the following:

(i) We take the view that comparison of the buy-back price against the net asset value of the Group should be used as a reference only as such buy-back price, as set out in the “Letter From The Board”, was determined following commercial and arm’s length negotiations between the parties taking into account the movements in the price of the Shares over a period of time and prevailing market conditions. It is therefore more relevant to view the buy-back price against the price performance of the Shares; and
(ii) Historically, the Shares has consistently traded at a discount to the net asset value of the Group and the following chart summarises such discounts beginning from March 2013.
Chart II: Price-to-book ratio (Closing price per Share to reported net asset value of the Group)

==> picture [367 x 239] intentionally omitted <==

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

1.40
1.30
Suspension of
1.20 Share trading on
12 September 2014
1.10
1.00
0.90
0.80 Suspension of
Share trading on
2 February 2015
0.70
0.60 P/B = 0.53 (HK$4.75/Latest NAV of HK$9.02)
0.50
0.40
0.30
0.20
0.10
0.00
Times
22-Mar-13 22-May-13 22-Jul-13 22-Sep-13 22-Nov-13 22-Jan-14 22-Mar-14 22-May-14 22-Jul-14 22-Sep-14 22-Nov-14 22-Jan-15 22-Mar-15 22-May-15 22-Jul-15 22-Sep-15 22-Nov-15 22-Jan-16 22-Mar-16 22-May-16 22-Jul-16 22-Sep-16 22-Nov-16 22-Jan-17 22-Mar-17 22-May-17 22-Jul-17 22-Sep-17 22-Nov-17 22-Jan-18 22-Mar-18 22-May-18
----- End of picture text -----

Source: data extracted from the Company’s published reports, circulars and InvestGo of Infocast Ltd.

– 35 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

3.4 Share price performance against Hang Seng Index

The following chart, using a percentage change approach (and by procuring Hang Seng Index to begin with the same nil percentage change at the beginning), compares the closing price per Share performance, when viewed against the performance of the Hang Seng Index from January 2013 to the Latest Practicable Date.

Chart III: Share price performance vs. Hang Seng Index since January 2013

==> picture [368 x 259] intentionally omitted <==

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

180.0%
160.0%
140.0%
120.0%
100.0%
80.0%
60.0%
40.0%
20.0%
0.0%
Hang Seng Index the Company
02-Jan-13 02-Mar-13 02-May-13 02-Jul-13 02-Sep-13 02-Nov-13 02-Jan-14 02-Mar-14 02-May-14 02-Jul-14 02-Sep-14 02-Nov-14 02-Jan-15 02-Mar-15 02-May-15 02-Jul-15 02-Sep-15 02-Nov-15 02-Jan-16 02-Mar-16 02-May-16 02-Jul-16 02-Sep-16 02-Nov-16 02-Jan-17 02-Mar-17 02-May-17 02-Jul-17 02-Sep-17 02-Nov-17 02-Jan-18 02-Mar-18 02-May-18
----- End of picture text -----

Source: data extracted from InvestorCo of Infocast Ltd.

– 36 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following chart, using the same approach and parameters as set out in Chart III above, compares the closing price per Share performance, when viewed against the performance of the Hang Seng Index during the Review Period only.

Chart IV: Share price performance vs. Hang Seng Index during the Review Period

==> picture [368 x 259] intentionally omitted <==

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

160.0%
140.0%
120.0%
100.0%
80.0%
60.0%
40.0%
20.0%
0.0%
Hang Seng Index the Company
02-May-17 16-May-17 30-May-17 13-Jun-17 27-Jun-17 11-Jul-17 25-Jul-17 08-Aug-17 22-Aug-17 05-Sep-17 19-Sep-17 03-Oct-17 17-Oct-17 31-Oct-17 14-Nov-17 28-Nov-17 12-Dec-17 26-Dec-17 09-Jan-18 23-Jan-18 06-Feb-18 20-Feb-18 06-Mar-18 20-Mar-18 03-Apr-18 17-Apr-18 01-May-18 15-May-18 29-May-18 12-Jun-18
----- End of picture text -----

Source: data extracted from InvestorGo of Infocast Ltd.

Chart III shows that the closing price per Share has consistently tracked the Hang Seng Index as set out therein until mid-2017, when Hang Seng Index continued its upward trend due to global equity market conditions while at the same time, the Share price performance appeared to level off.

Chart IV, which covers the Review Period and with the reference base period starting at nil changes on 2 May 2017, shows the closing price per Share has the same levelling off trend, when viewed against Hang Seng Index’s rising trend. It is important to note that during the Review Period, there were two “Positive Profit Alert Announcements” and profit attributable to Shareholders for the year ended 31 December 2017 rose by approximately 64%, details of which are set out in Tables B and D above. We are therefore of the view that the non-performance of the Share market price during the Review Period in the chart above was neither driven by good profit results nor by the robust equity market condition as reflected by the Hang Seng Index. Against this backdrop, we take the view that any additional excessive liquidity of the Shares arising from a sizable “en block” disposal of the Shares into the retail marketplace (e.g. the Buy-back Shares) would not be helpful to enhance Share price performance going forward.

– 37 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The chart below shows the closing prices of the Shares and its resulting average daily closing price of HK$5.05 per Share during the Review Period. These performances are then viewed against Hang Seng Index and the buy-back price of HK$4.75 per Buy-back Share.

Chart V: Closing prices and average daily closing price of the Shares viewed against the buy-back price during the Review Period

==> picture [369 x 276] intentionally omitted <==

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

6.00 35000
Average Share price of HK$5.05 during the Review Period
5.50
30000
5.00
4.50 Positive Profit Alert announcement
dated 26 January 2018 for 2017 results 25000
Buy-back price for each Buy-back Share is HK$4.75
4.00
3.50 20000
3.00
2.50 15000
2.00
10000
1.50
1.00
5000
0.50
0.00 0
Closing Share price Hang Seng Index
Source: data extracted from InvestorGo of Infocast Ltd.
Hang Seng Index
Closing Share price (HK$)
02-May-17 16-May-17 30-May-17 13-Jun-17 27-Jun-17 11-Jul-17 25-Jul-17 08-Aug-17 22-Aug-17 05-Sep-17 19-Sep-17 03-Oct-17 17-Oct-17 31-Oct-17 14-Nov-17 28-Nov-17 12-Dec-17 26-Dec-17 09-Jan-18 23-Jan-18 06-Feb-18 20-Feb-18 06-Mar-18 20-Mar-18 03-Apr-18 17-Apr-18 01-May-18 15-May-18 29-May-18 12-Jun-18
----- End of picture text -----

The charts above consistently show a reasonable price gap between HK$4.75 per Buy-back Share, when viewed against market price per Share. We therefore concur with the statement made by the Board that the HK$4.75 per Buy-back Shares was indeed, determined following commercial and arms’ length negotiations between the parties taking into account the movements in the price of the Shares over a period of time and prevailing market conditions.

– 38 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

4. Trading volume of the Shares

The chart below illustrates the average daily trading volume of the Shares each month on the Stock Exchange from January 2013 to the Latest Practicable Date:

Chart VI: Average daily trading volume of the Shares each month

==> picture [395 x 257] intentionally omitted <==

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

16,000,000
14,000,000
Placement of Shares
at HK$6.30 per Share
12,000,000
10,000,000
8,000,000
6,000,000
4,000,000
2,000,000
-
Trading Volume (in number of Shares)
Jan-13 Feb-13 Mar-13 Apr-13May-13Jun-13 Jul-13 Aug-13Sep-13Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14May-14Jun-14 Jul-14 Aug-14Sep-14Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15May-15Jun-15 Jul-15 Aug-15Sep-15Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16May-16Jun-16 Jul-16 Aug-16Sep-16Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17May-17Jun-17 Jul-17 Aug-17Sep-17Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18May-18Jun-18
----- End of picture text -----

Source: data extracted from InvestorGo of Infocast Ltd.

– 39 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As set out in the above chart, sudden increases in average daily trading volume are noted in the month of September 2014 due to a placing of 160 million Shares (at HK$6.30 per placing Share) which were not sustainable and indeed, daily trading volume of the Shares on the Stock Exchange has since become more thinly traded. The following table highlights the number of Shares traded on the Stock Exchange in each calendar month during the Review Period:

Table F: Monthly adjusted trading volume of the Shares during the Review Period

					Percentage of
					total monthly
					trading
			Percentage of		volume to
			total monthly		the traded
	Total			trading	liquidity of
	monthly	Average daily	volume to		the public
	trading	trading	total issued		float of the
Month/Period	volume	volume	share capital		Shares held
	(Shares)	(Shares)	(Note 1)		(Note 2)
				(%)	(%)
2017
May	16,380,329	819,016		0.75	3.79
June	21,772,633	989,665		1.00	5.05
July	13,071,247	622,440		0.60	3.04
August	18,024,435	819,293		0.83	4.19
September	22,020,638	1,048,602		1.01	5.14
October	15,424,205	771,210		0.71	3.63
November	16,416,376	746,199		0.76	3.92
December	12,923,974	680,209		0.60	3.13
2018
January	47,865,302	2,175,696		2.22	11.66
February	29,911,053	1,661,725		1.39	7.29
March	14,947,862	711,803		0.69	3.64
April	10,842,107	570,637		0.50	2.64
May	13,485,021	642,144		0.63	3.29
June (up to the Latest
Practicable Date)	7,000,476	466,698		0.33	1.71

Note 1: Based on the total number of the Shares in issue from time to time

Note 2: Based on the total number of the Shares held by Shareholders counted as traded liquidity (i.e. excluding holdings of (i) those controlling and substantial Shareholders and Directors set out in Table G below; and (ii) those Shares owned by the Dubai Ventures L.L.C investment group set out in the 2017 Annual Report) which was (and will continue to be) part of the public float but was not traded during the Review Period

– 40 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The above table shows that the number of Shares traded on the Stock Exchange per month during the Review Period as compared to the number of total issued Shares held in public hands which were also part of the traded (or intended to be traded) liquidity of the Shares (i.e. excluding those shareholdings held by (i) the controlling Shareholder, Asia Financial Services and the Directors set out in Note 2 to Table F above; and (ii) the Dubai Ventures L.L.C group as set out in the 2017 Annual Report on the basis that such shareholding, or a portion thereof, was not traded during the Review Period) ranges from 2.64% (in April 2018) to 11.66% (in January 2018). The sudden surge in the trading volume of the Shares in the three trading days on 29, 30 and 31 January 2018 coincided with the Profit Alert announcement on the Group’s results for the year ended 31 December 2017 released on 26 January 2018, the last trading date preceding such surge in the trading volume of the Shares. Of all the 136,033,837 Shares traded in May to December 2017, 20,793,000 (or approximately 15%) were Shares repurchased by the Company.

Based on the above table, the average daily trading volume of the Shares on the Stock Exchange during the Review Period was approximately 919,031 Shares, representing approximately 0.04% and 0.16% of the Company’s total existing issued share capital and public float respectively as set out in Table G below. Such average daily trading volume of the Shares also represents approximately 0.23% of the total liquidity of the Shares as set out in Note 4 to Table G below. If the 145,000,000 Buy-back Shares were to be disposed in the open market, using the average daily trading volume as a yardstick, it would theoretically require a period of approximately 150 trading days.

In light of the aforesaid, we are of the view that in the absence of the proposed Share Buy-back, it would be difficult to dispose of the 145,000,000 Buy-back Shares in the open market, without causing a considerable downward pressure and distortion effect on respectively, the market price and volume formation of the Shares. Hence the entering into of the Buy-back Contract by the parties which in our view, represents an orderly exit arrangement for Asia Financial Services as the vendor of the Buy-back Shares and an opportunity for the Company to scale back its Share repurchase activities on the Stock Exchange, in lieu of the Share Buy-back.

In the absence of the Share Buy-back, the only exit available to Asia Financial Services would be to sell the Buy-back Shares in the open market on the Stock Exchange, presumably at or close to the prevailing market price per Share, to the extent such market price is at a premium to the buy-back price of HK$4.75 per Share. Given the Share price performance and liquidity analyses as set out above, we expect the prevailing market price would then promptly retreat under such sustained selling pressure to the buy-back price of HK$4.75 per Share. Assuming the disposal of the Buy-back Shares would then continue in the open market at or close to the buy-back price of HK$4.75 per Share in a prolonged manner, until all the Buy-back Shares are disposed of, this would likely create an “over-hang” effect on the Share price performance and upward rally of the Share market price. An “over-hang” effect will result in an impediment for the Share price to rise above HK$4.75 while the on-market Share disposal were to continue. Given the low liquidity of the Shares, such “over-hang” period may last for a considerable length of time. Such distortion on price and volume formation of the Shares would not be in the interests of the Company and its Shareholders as a whole.

– 41 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

It is also important to note that the Share Buy-back is a targeted buy-back on an off-market basis, based on the expectation of one Shareholder only. If the Company were to consider other forms of on-market Share buy-back from other Independent Shareholders who are in the public float, it would likely have to propose a higher buy-back price per Share, given a discount to market Share price would not have been attractive to those Independent Shareholders whose holdings of the Share are relatively small and could easily sell on the Stock Exchange under prevailing market conditions. A higher buy-back price per Share of course, would not be in the interests of the Company and the Shareholders as a whole.

5. Effects on the shareholding structure of the Company

As set out in the “Letter From The Board”, the following table illustrates the shareholding structure of the Company (i) as at the date of the Latest Practicable Date; and (ii) immediately after the completion of the Share Buy-back:

Table G: Effects on the shareholding structure of the Company

AP Emerald Limited_(Note 1) Asia Financial Services Simon Chow Wing Charn(Note 2) Peter Anthony Curry(Note 3) Public – existing public float(Note 4) Public – new public float from Asia Financial Services(Note 5)_ Total	As at the Latest Practicable Date Number of Shares % 1,233,578,575 57.29 341,600,000 15.87 533,000 0.02 1,241,141 0.06 576,106,777 26.76 – 0.00 2,153,059,493 100.00	Immediately after completion of the Share Buy-back Number of Shares % 1,233,578,575 61.43 – 0.00 533,000 0.03 1,241,141 0.06 576,106,777 28.69 196,600,000 9.79 2,008,059,493 100.00	Immediately after completion of the Share Buy-back Number of Shares % 1,233,578,575 61.43 – 0.00 533,000 0.03 1,241,141 0.06 576,106,777 28.69 196,600,000 9.79 2,008,059,493 100.00
			28.69 9.79
			100.00

The percentage figures above have been rounded up to the nearest second decimal place.

Note 1: Mr. Lee Seng Huang, an executive Director is deemed to be interested in the 1,233,578,575 Shares held by AP Emerald Limited as he is one of the trustees of Lee and Lee Trust, being a discretionary trust which indirectly controls Allied Group Limited which in turn is the ultimate holding company of AP Emerald Limited.
Note 2: Mr. Simon Chow Wing Charn is an executive Director.
Note 3: Mr. Peter Anthony Curry is an executive Director.
Note 4: The liquidity of the Shares is assumed to be the same as the existing public float of 576,106,777 Shares, arrived at after including the 166,000,000 Shares held by Dubai Ventures L.L.C. After completion of the Share Buy-back, we assume the liquidity of the Shares to also include these shares held by Dubai Ventures L.L.C as it has not ruled in or ruled out any trading possibility in respect of these Shares.
Note 5: Following the completion of the Share Buy-back, the 196,600,000 Shares then held by Asia Financial Services, representing approximately 9.79% of the issued Shares of the Company (i) will form part of the public float of the Company; and (ii) is assumed by us to also form part of the liquidity of the Shares as Asia Financial Services has not ruled in or ruled out any trading possibility in respect of these Shares.

– 42 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

On the basis that there is no change to the aggregate shareholding of the Independent Shareholders and the total number of issued Shares of the Company from the Latest Practicable Date to the date of completion of the Buy-back Contract, following such completion, the resulting cancellation of the Buy-back Shares and the corresponding reduction in the number of Shares issued and outstanding, the aggregate shareholdings of the Independent Shareholders and the liquidity of the Shares are as follows:

(i) Independent Shareholders who are not part of the existing public float, namely the shareholdings of AP Emerald Limited, Messrs. Peter Anthony Curry and Simon Chow Wing Charn respectively as set out in Table G above, will increase from approximately 57.37% to approximately 61.52%;
(ii) Independent Shareholders who are part of the existing public float will increase from 26.76% to 28.69%; and as the remaining 196,600,000 Shares held by Asia Financial Services which will represent 9.79% of the issued Shares and hence, such Shares will also become part of the public float following completion of the Share Buy-back, total public float of the Share will therefore increase to 38.48%;
(iii) In so far as liquidity analysis of the public float is concerned and for illustration purpose, we take the view that both the remaining 196,600,000 Shares held by Asia Financial Services and the 166,000,000 Shares held by Dubai Ventures L.L.C can be considered as part of the traded liquidity of the Shares as they have not ruled in or ruled out any trading possibility in respect of their respective holdings of the Shares, notwithstanding such Shares were not traded during the Review Period. Therefore, after including the aforesaid shareholdings, the liquidity of the Shares as at the Latest Practicable Date and immediately after completion of the Share Buy-back, was 26.76% and will be 38.48% respectively of the total number of Shares i.e. same as the public float. The increase in liquidity of the Shares as mentioned above is premised on our assumptions that the shareholding of Dubai Ventures L.L.C and the reduced shareholding of Asia Financial Services are part of the liquidity of the Shares. If such assumptions are subsequently proven to be incorrect, there will still be a 1.37% increase in overall liquidity of the Shares, due to the cancellation of the Buy-back Shares, which will result in the reduction of the total number of issued Shares.

If the Independent Shareholders approve the Share Buy-back, they will benefit from the increase in their proportionate shareholding in the Company by approximately 6.08% (4.14% attributable to non-public float, namely the shareholdings of AP Emerald Limited, Messrs. Peter Anthony Curry and Simon Chow Wing Charn respectively as set out in Table G above and 1.94% attributable to public float, but excluding Asia Financial Services’ shareholding) after completion of the Buy-back Contract.

– 43 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

AP Emerald Limited, the controlling Shareholder as set out in the table above, will see its proportionate interest in the voting rights of the Company increases from approximately 57.29% to approximately 61.43% as a result of the Share Buy-back. Such increase will be treated as an acquisition of voting rights under the Takeovers Code, but given the 57.29% equity interest controlled by AP Emerald Limited is regarded as an “absolute” equity control stake, and the fact there will be no change in controlling Shareholder, management or board control arising from the Share Buy-back, the buy-back price per Buy-back Share rightly does not, nor was it expected to, include any form of “control premium” (usually in the form of a price spread above the prevailing market price per Share). On the contrary, the size of the Buy-back Shares means, if they were to be sold in the market, it would generally be regarded a “block trade” in the securities industry and often, such trade would require a discount to market share price.

6. Financial effects of the proposed Share Buy-back

Net assets per Share attributable to the Shareholders

Basic earnings per Share

Total liabilities

The consideration of the Share Buy-back will be settled in cash and the Share Buy-back is not expected to affect or have any material adverse impact on the liabilities of the Group.

– 44 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Working capital

In view of the above financial effects, we concur with the Board’s view on the benefits of the Share Buy-back as set out in the “Letter From The Board” that the Share Buy-back:

(i) is a good opportunity for the Company to enhance the earnings per Share and the rate of return on capital; and
(ii) will result in enhancement in the net asset value per Share attributable to Shareholders, creating greater shareholder value, which is in the interests of all Shareholders.

SUMMARY

Having considered the abovementioned principal factors and reasons, we are of the opinion that the terms and condition of the Buy-back Contract and the Share Buy-back contemplated thereunder, are fair and reasonable and in the interests of the Company and the Independent Shareholders as a whole. Our bases to arrive at this opinion are summarised below:

The buy-back price of HK$4.75 is below all the purchase prices paid for the Shares repurchased by the Company on the Stock Exchange during 2017 and based on the HK$4.96 average price paid for such repurchased Shares, the HK$4.75 buy-back price represents a discount of approximately 4.2% to the average price paid for such repurchased Shares.
The buy-back price of HK$4.75 shall be adjusted by deducting the HK$0.14 second interim dividend, given the ex-dividend date was 19 June 2018.
The buy-back price of HK$4.75 also represents a discount to (i) the closing prices per Share traded on recent trading days preceding the Announcement; and (ii) the average closing price per Share during the Review Period.
Based on the average daily trading volume of the Shares on the Stock Exchange during the Review Period, it would be difficult to dispose of the 145,000,000 Buy-back Shares in the open market, without causing a considerable downward pressure and adverse distortion effect on respectively, the price and trading volume formation of the Shares. We take the view that the entering into of the Buy-back Contract by the parties represents an opportunity for the Company to scale back its Share repurchase needs on the Stock Exchange.

– 45 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Share Buy-back is a good opportunity for the Company to enhance the earnings per Share, the rate of return on capital and the net asset value per Share attributable to Shareholders, creating greater shareholder value.
Independent Shareholders’ equity interests in the Company will creep up, as a result of the cancellation of the Buy-back Shares.
Based on our analyses as set out above, we concur with the Board that the consideration for the Share Buy-back was indeed determined following commercial and arms’ length negotiations between the parties taking into account the movements in the price of the Shares over a period of time and prevailing market conditions.

RECOMMENDATION

Based on the above, we are of the opinion that whilst the Share Buy-back is not in the ordinary and usual course of business of the Group, the terms and condition of the Buy-back Contract are fair and reasonable and the Share Buy-back is on normal commercial terms and, as far as the Independent Shareholders are concerned, is in the interests of the Company and the Independent Shareholders as a whole. Accordingly, we advise the Independent Board Committees to recommend the Independent Shareholders to vote in favour of the resolution to be proposed at the EGM to approve the Buy-back Contract and the Share Buy-back contemplated thereunder.

Yours faithfully, For and on behalf of Centurion Corporate Finance Limited Baldwin Lee Managing Director

(Note: Mr. Baldwin Lee, the author of this letter of independent advice, has over 29 years of experience in investment banking and corporate finance. He has been the managing director of our firm since 1994. Prior to his present posting, he was a director at Sun Hung Kai International Limited, the investment banking arm of Sun Hung Kai & Co. Limited. Prior to his return to Hong Kong in early 1991 from Canada, he was a corporate finance professional at the Toronto’s head office of Walwyn Stodgell Cochran Murray Limited, an investment banking firm in Canada. He holds an M.B.A. degree and a B. Comm. Degree from Canadian universities and he is also a Fellow member of the Institute of Canadian Bankers and a Senior Fellow member of the Hong Kong Securities and Investment Institute.)

– 46 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. FINANCIAL SUMMARY

The following is a summary of the audited consolidated results and assets and liabilities of the Group for the three years ended 31 December 2015, 2016 and 2017 respectively, as extracted from pages 4, 63, 65 and 66 of the annual report of the Company for the year ended 31 December 2015, a copy of which is available at http://www.shkco.com/html/shareholders_reports.php?year=2015, pages 4, 74, 76 and 77 of the annual report of the Company for the year ended 31 December 2016, a copy of which is available at http://www.shkco.com/html/shareholders_reports.php?year=2016 and pages 5, 60 and 61 of the annual report of the Company for the year ended 31 December 2017, a copy of which is available at http://www.shkco.com/html/shareholders_reports.php?year=2017, respectively.

These audited consolidated results and assets and liabilities of the Group for the three years ended 31 December 2015, 2016 and 2017 are prepared in accordance with Hong Kong Financial Reporting Standards applicable to the relevant years and may not be comparable to the profit estimate statement included in the section headed “MATERIAL CHANGE”.

Consolidated Results

Continuing operations Revenue Other gains Total income Brokerage and commission expenses Advertising and promotion expenses Direct cost and operating expenses Administrative expenses Net gain on financial assets and liabilities Net exchange (loss) gain Bad and doubtful debts Finance costs Other losses Share of results of associates Share of results of joint ventures Profit before taxation Taxation Profit for the year from continuing operations Discontinued operations Profit for the year from discontinued operations	2017 HK$ Million 3,795.6 250.1 4,045.7 (46.7) (145.6) (61.5) (1,208.1) 1,229.4 (126.9) (386.7) (544.3) (177.7) 2,577.6 59.6 (28.7) 2,608.5 (294.6) 2,313.9 – 2,313.9	2016 HK$ Million 3,511.3 178.9 3,690.2 (51.0) (120.3) (37.0) (1,158.3) 749.9 9.7 (895.7) (488.3) (142.8) 1,556.4 0.5 (55.3) 1,501.6 (131.9) 1,369.7 – 1,369.7	2015 HK$ Million 4,174.1 71.6 4,245.7 (55.9) (106.2) (58.1) (1,354.0) 1,005.6 7.5 (1,570.9) (478.8) (702.5) 932.4 2.4 38.4 973.2 (83.7) 889.5 3,228.8 4,118.3

– I-1 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Profit attributable to: −Owners of the Company −Non-controlling interests Earnings per share From continuing and discontinued operations −Basic (HK cents) −Diluted (HK cents) From continuing operations −Basic (HK cents) −Diluted (HK cents) Dividend per share (HK cents) Consolidated Assets and Liabilities Total assets Total liabilities Equity attributable to owners of the Company Non-controlling interests	2017 HK$ Million 1,824.3 489.6 2,313.9 84.0 83.9 84.0 83.9 26.0 31/12/2017 HK$ Million 37,422.2 (14,023.7) 23,398.5 19,426.7 3,971.8 23,398.5	2016 HK$ Million 1,109.6 260.1 1,369.7 50.3 50.2 50.3 50.2 26.0 31/12/2016 HK$ Million 32,560.9 (10,905.1) 21,655.8 18,077.0 3,578.8 21,655.8	2015 HK$ Million 3,896.5 221.8 4,118.3 173.8 173.8 29.8 29.8 26.0 31/12/2015 HK$ Million 32,369.1 (10,778.3) 21,590.8 18,007.6 3,583.2 21,590.8

There were no exceptional items or extraordinary items because of size, nature or incidence during each of the three years ended 31 December 2017.

– I-2 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2. AUDITED FINANCIAL STATEMENTS

Set out below is the audited consolidated income statement, consolidated balance sheet, consolidated statement of comprehensive income, consolidated statement of changes in equity, consolidated cash flows statement and notes to the financial statements of the Group as extracted from pages 60 to 115 of the annual report of the Company for the year ended 31 December 2017. References to page number in this section are to the page numbers of such annual report of the Company.

Consolidated Statement of Profit or Loss

For the year ended 31 December 2017

(HK$ Million) Notes Revenue 5 Other gains 7 Total income Brokerage and commission expenses Advertising and promotion expenses Direct cost and operating expenses Administrative expenses 11 Net gain on financial assets and liabilities 12 Net exchange (loss) gain Bad and doubtful debts 13 Finance costs 14 Other losses 11 Share of results of associates Share of results of joint ventures Profit before taxation 11 Taxation 15 Profit for the year Profit attributable to: – Owners of the Company – Non-controlling interests 23 Earnings per share 17 – Basic (HK cents) – Diluted (HK cents)	2017 3,795.6 250.1 4,045.7 (46.7) (145.6) (61.5) (1,208.1) 1,229.4 (126.9) (386.7) (544.3) (177.7) 2,577.6 59.6 (28.7) 2,608.5 (294.6) 2,313.9 1,824.3 489.6 2,313.9 84.0 83.9	2016 3,511.3 178.9 3,690.2 (51.0) (120.3) (37.0) (1,158.3) 749.9 9.7 (895.7) (488.3) (142.8) 1,556.4 0.5 (55.3) 1,501.6 (131.9) 1,369.7 1,109.6 260.1 1,369.7 50.3 50.2

– I-3 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Statement of Profit or Loss and Other	Comprehensive Income	Comprehensive Income
For the year ended 31 December 2017
(HK$ Million)	2017	2016
Profit for the year	2,313.9	1,369.7
Other comprehensive income (expenses) that
may be reclassified subsequently to profit or loss
Available-for-sale investments
– Net fair value changes during the year	(175.5)	(0.7)
– Reclassification adjustment to profit or loss
on impairment	176.2	–
	0.7	(0.7)
Exchange differences arising on translating
foreign operations	466.2	(490.9)
Reclassification adjustment to profit or loss
on disposal/liquidation of subsidiaries	–	(0.1)
Share of other comprehensive income (expenses)
of associates	3.5	(4.9)
Share of other comprehensive income (expenses)
of joint ventures	2.2	(1.5)
	472.6	(498.1)
Other comprehensive income (expenses)
for the year	472.6	(498.1)
Total comprehensive income for the year	2,786.5	871.6

Total comprehensive income attributable to:
– Owners of the Company	2,112.7	811.1
– Non-controlling interests	673.8	60.5
	2,786.5	871.6

– I-4 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Statement of Financial Position

At 31 December 2017

(HK$ Million) Notes Non-current Assets Investment properties 18 Leasehold interests in land Property and equipment 19 Intangible assets 20 Goodwill 21 Interests in associates 24 Interests in joint ventures 25 Available-for-sale investments 26 Financial assets at fair value through profit or loss 26 Deferred tax assets 27 Amounts due from associates and joint ventures 28 Loans and advances to consumer finance customers 29 Mortgage loans 30 Trade and other receivables 31 Deposits for acquisition of property and equipment Current Assets Financial assets at fair value through profit or loss 26 Taxation recoverable Amounts due from associates and joint ventures 28 Loans and advances to consumer finance customers 29 Mortgage loans 30 Trade and other receivables 31 Amounts due from brokers Bank deposits 32 Cash and cash equivalents 32	31/12/2017 1,178.6 4.4 456.2 882.6 2,384.0 1,365.8 280.2 324.0 5,033.7 649.6 275.2 2,322.8 1,243.1 505.8 – 16,906.0 6,188.4 5.4 143.6 6,840.8 877.3 2,823.5 725.8 787.7 2,123.7 20,516.2	31/12/2016 1,054.5 4.2 421.9 883.4 2,384.0 1,086.5 227.1 109.5 3,632.9 652.5 248.8 2,190.8 330.4 359.9 44.8
		13,631.2
		2,979.1 1.9 64.5 5,469.5 282.7 2,620.3 1,059.5 1,257.7 5,194.5
		18,929.7

– I-5 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(HK$ Million) Notes Current Liabilities Financial liabilities at fair value through profit or loss 26 Bank and other borrowings 33 Trade and other payables 34 Financial liabilities for repurchase agreements 35 Amounts due to fellow subsidiaries and a holding company 36 Amounts due to associates 36 Provisions 37 Taxation payable Notes issued 38 Net Current Assets Total Assets less Current Liabilities Capital and Reserves Share capital 39 Reserves Equity attributable to owners of the Company Non-controlling interests 23 Total Equity Non-current Liabilities Deferred tax liabilities 27 Bank and other borrowings 33 Provisions 37 Notes issued 38	31/12/2017 161.1 2,196.8 329.1 1,071.0 135.3 1.9 69.5 146.0 1,079.1 5,189.8 15,326.4 32,232.4 8,752.3 10,674.4 19,426.7 3,971.8 23,398.5 181.5 1,600.4 0.2 7,051.8 8,833.9 32,232.4	31/12/2016 115.3 2,092.6 239.1 – 41.0 1.9 54.7 135.3 2,264.5
		4,944.4
		13,985.3
		27,616.5

		8,752.3 9,324.7
		18,077.0 3,578.8
		21,655.8
		195.4 2,717.7 0.2 3,047.4
		5,960.7

		27,616.5

The consolidated financial statements were approved and authorised for issue by the Board of Directors on 21 March 2018 and are signed on its behalf by:

Lee Seng Huang Director

Peter Anthony Curry

Director

– I-6 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Statement of Changes in Equity

For the year ended 31 December 2017

	Attributable to own	Attributable to own	ers of the Company	ers of the Company		Total equity 21,655.8
Share capital 8,752.3 – – – – – – – – – – – – 8,752.3	Shares held for Employee Ownership Scheme Employee share-based compensation reserve (9.1) 4.8 – – – – – – – 6.4 (4.8) – 6.3 (6.3) – – – – – – – – – – – – (7.6) 4.9	Exchange reserve (373.2) – 283.4 283.4 – – – – – – – – – (89.8)	Revaluation reserve 541.1 – 5.0 5.0 – – – – – – – – – 546.1	Capital reserves 63.9 – – – – – – – – – – – 11.2 75.1	Retained earnings 9,097.2 1,824.3 – 1,824.3 – – – (567.3) – – (1.1) (196.2) (11.2) 10,145.7
						2,313.9 472.6
						2,786.5
						6.4 (4.8) – (567.3) (73.5) (208.4) – (196.2) –
						23,398.5

– I-7 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

	Attributable to own	Attributable to own	ers of the Company	ers of the Company		Total equity 21,590.8
Share capital 8,752.3 – – – – – – – – – – – – 8,752.3	Shares held for Employee Ownership Scheme Employee share-based compensation reserve (12.6) 6.1 – – – – – – – – – – – 3.6 (1.4) – 4.9 (4.9) – – – – – – – – (9.1) 4.8	Exchange reserve (80.3) – (292.9) (292.9) – – – – – – – – – (373.2)	Revaluation reserve 556.8 – (15.7) (15.7) – – – – – – – – – 541.1	Capital reserves 61.3 – – – – – – – – – – – 2.6 63.9	Retained earnings 8,724.0 1,109.6 10.1 1,119.7 – – – – – (575.4) – (168.5) (2.6) 9,097.2
						1,369.7 (498.1)
						871.6
						2.9 (1.2) 3.6 (1.4) – (575.4) (66.6) (168.5) –
						21,655.8

– I-8 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Statement of Cash Flows

For the year ended 31 December 2017

(HK$ Million) Operating activities Profit for the year Adjustments for: – Share of results of associates – Share of results of joint ventures – Taxation – Dividend income – Interest income – Profit on disposal of subsidiaries – Profit on disposal of an associate – Increase in fair value of investment properties – Expenses recognised for the SHK Employee Ownership Scheme – Amortisation of leasehold interests in land – Amortisation of intangible assets – Depreciation of property and equipment – Net loss on disposal/write-off of equipment – Impairment loss on an associate – Impairment loss on available-for-sale investments – Reversal of impairment in an associate – Loss on redemption of notes issued – Bad and doubtful debts – Interest expenses – Net fair value gain on financial assets and liabilities – Exchange differences Operating cash flows before movements in working capital Change in financial assets at fair value through profit or loss Change in amounts due from associates Change in loans and advances to consumer finance customers and mortgage loans Change in trade and other receivables Change in amounts due from brokers Change in financial liabilities at fair value through profit or loss Change in trade and other payables Change in financial liabilities for repurchase agreements Change in amounts due to a holding company Change in provisions Cash used in operations Dividends received from held for trading investments Interest received Interest paid Taxation paid Net cash (used in) from operating activities	2017 2,313.9 (59.6) 28.7 294.6 (10.8) (3,641.1) – – (120.4) 6.4 0.1 1.8 55.2 1.5 – 176.2 (107.6) 0.8 386.7 530.8 (1,093.6) 56.4 (1,180.0) (3,003.8) (79.2) (3,071.2) (470.0) 333.7 45.0 89.1 1,071.0 7.8 11.5 (6,246.1) 9.4 3,604.3 (470.7) (266.7) (3,369.8)	2016 1,369.7 (0.5) 55.3 131.9 (17.3) (3,372.5) (18.9) (3.9) (135.5) 2.8 0.2 5.6 55.8 1.1 141.5 – – – 895.7 481.0 (825.6) (52.6)
		(1,286.2) 168.5 56.3 (460.1) 495.1 (913.0) (62.6) (36.3) – 1.7 21.1
		(2,015.5) 11.1 3,344.4 (433.2) (322.8)
		584.0

– I-9 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(HK$ Million) Investing activities Purchase of property and equipment Proceeds on disposal of equipment Purchase of intangible assets Proceeds on disposal of subsidiaries Proceeds on disposal of associates Acquisition of a subsidiary Capital injection to associates Capital injection to a joint venture Dividends received from associates Dividends received from joint ventures Advance to associates Dividends received from available-for-sale investments Purchase of available-for-sale investments Purchase of long-term financial assets designated as at fair value through profit or loss Proceeds on disposal of long-term financial assets designated as at fair value through profit or loss Payment of deposits for acquisition of property and equipment Net fixed deposits with banks withdrawal Net cash used in investing activities Financing activities Short-term loans due to fellow subsidiaries raised Net short-term bank and other borrowings repaid New long-term bank and other borrowings raised Repayment of long-term bank loans Proceeds from issue of notes Redemption of notes Repurchase of notes issued Repayment of notes Disposal of notes held by subsidiaries of the Company Purchase of shares for the SHK Employee Ownership Scheme Shares repurchased and cancelled Dividends paid Dividends to non-controlling interests Repayment of capital contributions by non-controlling interest Net cash from (used in) financing activities Net change in cash and cash equivalents Cash and cash equivalents at 1 January Effect of foreign exchange rate changes Cash and cash equivalents at the end of the year(Note 32)	2017 (20.8) – – – – – (128.0) (69.7) 20.7 – – – (390.0) (603.4) 90.2 – 541.0 (560.0) 86.5 (2,169.6) 1,150.0 – 4,729.0 (60.5) – (2,300.8) 334.9 (4.8) (196.2) (567.3) (208.4) (66.9) 725.9 (3,203.9) 5,194.5 133.1 2,123.7	2016 (28.8) 0.2 (5.5) 104.1 57.9 (39.4) (180.8) (23.4) 28.4 11.8 (199.8) 3.6 (5.4) (253.3) 90.2 (44.8) 154.2
		(330.8)
		39.3 (2,486.0) 953.4 (14.0) 1,854.8 – (121.1) – 18.5 (1.4) (168.5) (575.4) (66.6) –
		(567.0)
		(313.8) 5,647.6 (139.3)
		5,194.5

– I-10 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Consolidated Financial Statements

For the year ended 31 December 2017

1. GENERAL

The Company is a public limited company incorporated in Hong Kong and its shares are listed on The Stock Exchange of Hong Kong Limited. Its parent is AP Emerald Limited. Its ultimate holding company is Allied Group Limited, a public limited company which is listed and incorporated in Hong Kong. The ultimate controlling party of the Company is the trustees of Lee and Lee Trust. The address of the principal place of business of the trustees of Lee and Lee Trust is 24/F, Allied Kajima Building, 138 Gloucester Road, Wanchai, Hong Kong. The address of the registered office of the Company is disclosed in the Corporate Information section of the Annual Report. The principal place of business of the Company is in Hong Kong.

The consolidated financial statements are presented in Hong Kong dollars (“HK$”), which is the same as the functional currency of the Company.

The principal activity of the Company is to act as an investment holding company and the principal activities of its major subsidiaries are disclosed in Note 23.

2. APPLICATION OF NEW AND AMENDMENTS TO HONG KONG FINANCIAL REPORTING STANDARDS (“HKFRSs”)

Amendments to HKFRSs that are mandatorily effective for the current year

The Group has applied the following amendments to HKFRSs issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”) for the first time in the current year:

Amendments to HKAS 7 Disclosure Initiative Amendments to HKAS 12 Recognition of Deferred Tax Assets for Unrealised Losses Amendments to HKFRS 12 As part of the Annual Improvements to HKFRSs 2014-2016 Cycle

Except as described below, the application of the amendments to HKFRSs in the current year has 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 HKAS 7 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 45. 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 45, the application of these amendments has had no impact on the Group’s consolidated financial statements.

– I-11 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

New and revised HKFRSs in issue but not yet effective

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

HKFRS 9 Financial Instruments[1] HKFRS 15 Revenue from Contracts with Customers and the related amendments[1] HKFRS 16 Leases[2] HKFRS 17 Insurance Contracts[4] HK(IFRIC)-Int 22 Foreign Currency Transactions and Advance Considerations[1] HK(IFRIC)-Int 23 Uncertainty over Income Tax Treatments[2] Amendments to HKFRS 2 Classification and measurement of Share-based Payment Transactions[1] Amendments to HKFRS 4 Applying HKFRS 9 Financial Instruments with HKFRS 4 Insurance Contracts[1] Amendments to HKFRS 9 Prepayment Features with Negative Compensation[2] Amendments to HKFRS 10 Sale or Contribution of Assets between an Investor and its and HKAS 28 Associate or Joint Venture[3] Amendments to HKAS 28 Long-term Interests in Associates and Joint Ventures[2] Amendments to HKAS 40 Transfers of Investment Property[1] Amendments to HKAS 28 As part of the Annual Improvements to HKFRSs 2014-2016 Cycle[1] Amendments to HKFRSs Annual Improvements to HKFRSs 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 do not anticipate that the application of the new and revised HKFRSs will have material impact on the consolidated financial statements.

HKFRS 9 “Financial Instruments”

HKFRS 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 HKFRS 9 which are relevant to the Group are:

all recognised financial assets that are within the scope of HKFRS 9 are required to be subsequently measured at amortised cost or fair value. Specifically, debt instruments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortised cost at the end of subsequent accounting periods. Debt instruments that are held within a business model whose objective is achieved both by collecting contractual cash flows and selling financial assets, and that have contractual terms 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 (“FVTOCI”). All other debt instruments and equity investments are measured at their fair value at the end of subsequent accounting periods. In addition, under HKFRS 9, entities may make an irrevocable election to present subsequent changes in the fair value of an equity investment (that is not held for trading) in other comprehensive income, with only dividend income generally recognised in profit or loss.

– I-12 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

with regard to the measurement of financial liabilities designated as at fair value through profit or loss, HKFRS 9 requires that the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability is presented in other comprehensive income, unless the recognition of the effects of changes in the liability’s credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. Changes in fair value attributable to a financial liability’s credit risk are not subsequently reclassified to profit or loss. Under HKAS 39 Financial Instruments: Recognition and Measurement, the entire amount of the change in the fair value of the financial liability designated as fair value through profit or loss is presented in profit or loss.
for non-substantial modifications of financial liabilities that do not result in derecognition, the carrying amount of the relevant financial liabilities will be calculated at the present value of the modified contractual cash flows and discounted at the financial liabilities’ original effective interest rate. Transaction costs or fees incurred are adjusted to the carrying amount of the modified financial liabilities and are amortised over the remaining term. Any adjustment to the carrying amount of the financial liability is recognised in profit or loss at the date of modification. Currently, the Group revises the effective interest rates for non-substantial modification of financial liabilities with no gain/loss being recognised in profit or loss.
in relation to the impairment of financial assets, HKFRS 9 requires an expected credit loss model, as opposed to an incurred credit loss model under HKAS 39. The expected credit loss model requires an entity to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition. In other words, it is no longer necessary for a credit event to have occurred before credit losses are recognised.

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

(a) Classification and measurement

Based on assessment of the Group, the financial assets currently measured at amortised cost and fair value through profit or loss (“FVTPL”) will continue with their respective classification and measurements upon the adoption of HKFRS 9. With respect to the Group’s financial assets currently classified as “available-for-sale investments”, the Group will designate an amount of HK$282.6 million as FVTOCI. The classification and measurement requirements for financial liabilities under HKFRS 9 are largely unchanged from HKAS 39, except that HKFRS 9 requires the fair value change of a financial liability designated at FVTPL that is attributable to changes of that financial liability’s credit risk to be recognised in other comprehensive income (without reclassification to profit or loss). The Group currently has an insignificant amount of financial liabilities designated at FVTPL and therefore this new requirement may not have material impact on the Group’s consolidated financial statements upon the application of HKFRS 9.

(b) Impairment

Based on the assessment by the directors of the Company, if the expected credit loss model were to be applied by the Group, it will result in an increase in the amount of impairment and earlier recognition of credit losses. Such further impairment recognised under expected credit loss model, mainly attributable to provision on loans and advances to consumer finance customers, mortgage loans and term loans, would reduce the opening retained earnings attributable to owners of the Company and non-controlling interests and increase the deferred tax assets at 1 January 2018.

– I-13 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

HKFRS 15 “Revenue from Contracts with Customers”

HKFRS 15 was issued which establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. HKFRS 15 will supersede the current revenue recognition guidance including HKAS 18 “Revenue”, HKAS 11 “Construction contracts” and the related interpretations when it becomes effective. The core principle of HKFRS 15 is that an entity should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Specifically, the Standard introduces a 5-step approach to revenue recognition:

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

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

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

The directors of the Company do not expect that the application of HKFRS 15 will have a significant impact, when applied, on the Group’s consolidated financial statements.

HKFRS 16 “Leases”

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

HKFRS 16 distinguishes lease and service contracts on the basis of whether an identified asset is controlled by a customer. Distinctions of operating leases and finance leases are removed for lessee accounting, and is replaced by a model where a right-of-use asset and a corresponding liability have to be recognised for all leases by lessees, 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. Under the HKFRS 16, lease payments in relation to lease liability will be allocated into a principal and an interest portion which will be presented as financing and operating cash flows respectively by the Group.

In contrast to lessee accounting, HKFRS 16 substantially carries forward the lessor accounting requirements in HKAS 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 HKFRS 16.

– I-14 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

As at 31 December 2017, the Group has non-cancellable operating lease commitments of HK$240.5 million as disclosed in note 41(a). A preliminary assessment indicates that these arrangements will meet the definition of a lease under HKFRS 16, and hence the Group will recognise 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 upon the application of HKFRS 16.

In addition, the application of new requirements may result in changes in measurement, presentation and disclosure as indicated above. However, it is not practicable to provide a reasonable estimate of the financial effect until the directors complete a detailed review.

3. SIGNIFICANT ACCOUNTING POLICIES

(a) Statement of compliance

The consolidated financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants. In addition, the consolidated financial statements include the applicable disclosures required by the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and the Hong Kong Companies Ordinance (Cap. 622).

(b) Basis of preparation and consolidation

The consolidated financial statements have been prepared on the historical cost basis except for certain properties and financial instruments, which are measured at fair value, as explained in the accounting policies set out 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.

The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries and the Group’s interest in associates and joint ventures. The income and expenses of subsidiaries acquired or disposed of during the year are included in profit or loss and other comprehensive income from the effective date of acquisition and up to the effective date of disposal, as appropriate.

Profit or loss and each component 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 debit balance.

All intra-group transactions, balances, income and expenses within the Group are eliminated on consolidation.

(c) 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. Acquisition-related costs are generally recognised in profit or loss as incurred.

At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised 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 recognised and measured in accordance with HKAS 12 “Income Taxes” and HKAS 19 “Employee Benefits” respectively;
liabilities or equity instruments related to share-based payment transactions of the acquiree or the replacement of an acquiree’s share-based payment transactions with share-based payment transactions of the Group are measured in accordance with HKFRS 2 “Share-based Payment” at the acquisition date; and

– I-15 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

assets (or disposal groups) that are classified as held for sale in accordance with HKFRS 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 non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after 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 recognised immediately in profit or loss as a bargain purchase gain.

Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation are initially measured at the non-controlling interests’ proportionate share of the recognised amounts of the acquiree’s identifiable net assets.

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 (i.e. the date when the Group obtains control), and the resulting gain or loss, if any, is recognised in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to profit or loss where such treatment would be appropriate if those interests were disposed of.

(d) Goodwill

Goodwill arising on acquisition is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses.

Goodwill is tested for impairment annually, and whenever there is an indication that the cash-generating unit to which the goodwill relates may be impaired. Goodwill is allocated to cash-generating units for the purpose of impairment testing.

On disposal of a subsidiary, the attributable amount of goodwill capitalised is included in the determination of the profit or loss on disposal.

(e) Interest in subsidiaries

Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group has power over an entity, is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect these returns through its power over the entity.

Control is generally accompanied by a shareholding of more than one half of the voting rights. When the Group has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally.

Changes in the Group’s ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the Company.

When the Group loses control of a subsidiary, the profit or loss on disposal is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. Where certain assets of the subsidiary are measured at revalued amounts or fair values and the related cumulative gain or loss has been recognised in other comprehensive income and accumulated in equity, the accumulated amounts in equity are accounted for as if the Group had directly disposed of the related assets.

– I-16 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(f) Interests in associates and joint ventures

An associate is an investment that is not a subsidiary or a joint venture, in which the Group has significant influence but not control, generally accompanying a shareholding between 20% and 50% of the voting rights.

A joint venture is a contractual arrangement whereby the Group and other parties undertake an economic activity which is subject to joint control and over which none of the participating parties has unilateral control.

The results and assets and liabilities of associates or joint ventures are incorporated in these consolidated financial statements using the equity method. Under the equity method, an investment in an associate or a joint venture is initially recognised at cost and adjusted thereafter to recognise the Group’s share of the profit or loss and other comprehensive income of the associate or joint venture. When the Group’s share of losses of an associate or a joint venture exceeds the Group’s interest in that associate or joint venture (which includes any long-term interests that, in substance, form part of the Group’s net investment in the associate or joint venture), the Group discontinues recognising its share of further losses. Additional losses are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate or joint venture.

An investment in an associate or a joint venture is accounted for using the equity method from the date in which the investee becomes an associate or a joint venture. On acquisition of the investment in an associate or a joint venture, any excess of the cost of the investment over the Group’s share of the net fair value of the identifiable assets and liabilities of the investee is recognised as goodwill, which is included within the carrying amount of the investment. Any excess of the Group’s share of the net fair value of the identifiable assets and liabilities over the cost of the investment, after reassessment, is recognised immediately in profit or loss in the period in which the investment is acquired.

The requirements of HKAS 39 are applied to determine whether it is necessary to recognise any impairment loss with respect to the Group’s investment in an associate or a joint venture. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with HKAS 36 “Impairment of Assets” as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount. Any impairment loss recognised forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognised in accordance with HKAS 36 to the extent that the recoverable amount of the investment subsequently increases.

When the Group ceases to have significant influence over an associate or joint control over a joint venture, it is accounted for as a disposal of the entire interest in the investee with a resulting gain or loss being recognised in profit or loss. The Group discontinues the use of the equity method from the date when the investment ceases to be an associate or a joint venture, or when the investment is classified as held for sale. The difference between the carrying amount of the associate or joint venture at the date the equity method was discontinued, and the fair value of any retained interest and any proceeds from disposing is included in the determination of the gain or loss on disposal of the associate or joint venture. In addition, the Group accounts for all amounts previously recognised in other comprehensive income in relation to that associate or joint venture on the same basis as would be required if that associate or joint venture had directly disposed of the related assets or liabilities.

When the Group transacts with an associate or a joint venture of the Group, unrealised gains and losses are eliminated to the extent of the Group’s interest in the relevant associate or joint venture.

(g) Investment properties

The Group’s investment properties are properties which are held for long-term rental yields or for capital appreciation or both. Investment properties are initially measured at cost including all transaction costs. Subsequent to initial recognition they are stated at fair value based on an independent professional valuation at the end of each reporting period. Any revaluation increase or decrease arising from the revaluation of investment properties is recognised in profit or loss in the year in which it arises.

– I-17 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

An investment property is derecognised upon disposal or when the investment property is permanently withdrawn from use or no future economic benefits are expected from its disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the year in which the item is derecognised.

(h) Leasehold interests in land

Leasehold interests in land are classified as operating leases and presented as “leasehold interests in land” in the consolidated statement of financial position when all the risks and rewards incidental to ownership are not substantially transferred to the Group. Leasehold interests in land are amortised in profit or loss on a straight-line basis over the period of the lease or when there is impairment, the impairment is expensed in profit or loss.

(i) Property and equipment

Property and equipment include buildings and leasehold land (classified as finance lease) held by the Group for its own use. All property and equipment are stated at cost, less subsequent depreciation and impairment. Cost includes expenditure that is directly attributable to the acquisition of the items.

Depreciation is calculated using the straight-line method to write off the cost of each asset to its residual value over its estimated useful life as follows:

Property – shorter of the estimated useful life and the remaining lease term of land Furniture and equipment – 10% to 33% per annum

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.

If an item of property included in “property and equipment” becomes an investment property because its use has changed as evidenced by end of owner-occupation, any difference between the carrying amount and the fair value of that item at the date of transfer is recognised in other comprehensive income and accumulated in the revaluation reserve. On the subsequent sale or retirement of the asset, the relevant revaluation reserve will be transferred directly to retained earnings.

For a transfer from an investment property carried at fair value to owner-occupied property, the property’s deemed cost for subsequent accounting is its fair value at the date of change in use.

An item of property and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Gains and losses on disposals are determined by comparing the disposal proceeds with the carrying amount and are included in profit or loss.

(j) Intangible assets
(i) Club membership

It represents the right to use the facilities of various clubs, with the management considering that the club membership does not have a finite useful life.

(ii) Computer software

Acquired computer software licenses are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised using the straight-line method.

(iii) Intangible assets acquired in a business combination

Intangible assets acquired in a business combination are identified and recognised separately from goodwill where they satisfy the definition of an intangible asset and their fair value can be measured reliably. Such intangible assets are measured at their fair value at the acquisition date.

– I-18 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Subsequent to initial recognition, intangible assets with finite useful lives are carried at cost less accumulated amortisation and any accumulated impairment losses. Amortisation for intangible assets with finite useful lives is provided on a straight-line basis over their estimated useful lives. Useful lives are also examined on an annual basis and adjustments where applicable are made on a prospective basis. Intangible assets with indefinite lives are carried at cost less any impairment losses and are tested for impairment annually by comparing their recoverable amount with their carrying amount.

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 recognised in profit or loss when the asset is derecognised.

(k) Investments/financial assets

(i) Classification

Financial assets of the Group are classified under the following categories:

“Financial assets at fair value through profit or loss”

This category has two sub-categories: financial assets held for trading, and those designated at fair value through profit or loss (“FVTPL”) at inception. A financial asset is classified in the held for trading category if acquired principally for the purpose of selling in the short-term, or on initial recognition it is a part of a portfolio of identified financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking. All derivative financial assets are also categorised as held for trading unless they are designated as effective hedging instruments. Financial assets other than financial assets held for trading may be designated as FVTPL if the assets are managed and their performance is evaluated on a fair value basis, in accordance with the Group’s investment strategy, and information about the grouping is provided internally on that basis, or such designation eliminates or significantly reduces a measurement or recognition inconsistently that would otherwise arise or it forms part of a contract containing one or more embedded derivatives and HKAS 39 permits the entire combined contract to be designated as at financial assets at FVTPL.

“Available-for-sale investments”

This category comprises financial assets, which are non-derivatives that are either designated as available-for-sale or not classified as financial assets at FVTPL, loans and receivables or held-tomaturity investments. They include both listed and unlisted investments.

“Loans and receivables”

This category includes trade and other receivables, bank deposits, cash and cash equivalents, loans and advances to consumer finance customers, mortgage loans, amounts due from brokers and amounts due from related parties. They arise when the Group provides money, goods or services directly to clients or brokers with no intention of trading the receivables.

(ii) Recognition and initial measurement

Purchases and sales of investments are recognised on trade date, which is the date that the Group enters into a contract to purchase or sell the asset. Financial assets at FVTPL are initially recognised at fair value with transaction costs recognised as expenses in profit or loss. Financial assets which are not financial assets at FVTPL are initially recognised at fair value plus transaction costs.

– I-19 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(iii) Subsequent measurement

“Financial assets at fair value through profit or loss”

Financial assets at FVTPL are stated at fair value, with any gains or loss arising on remeasurement recognised directly in profit or loss. The net gain or loss excludes any dividend or interest earned on the financial assets and is included in the “Revenue” line item in the consolidated statement of profit or loss. Fair value is determined in the manner described in section (vi).

“Available-for-sale investments”

Available-for-sale investments are carried at fair value. Dividends on available-for-sale equity instruments are recognised in profit or loss when the Group’s right to receive the dividends is established. The changes in the carrying amount of investments classified as available-for-sale are recognised in other comprehensive income and accumulated under the revaluation reserve.

For available-for-sale equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured, they are measured at cost less any identified impairment losses at the end of each reporting period subsequent to initial recognition.

When the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously accumulated in the revaluation reserve is reclassified to profit or loss.

“Loans and receivables”

Loans and receivables are carried at amortised cost using the effective interest method, less impairment losses, if any.

(iv) Effective interest method

The effective interest method is a method of calculating the amortised cost of a debt instrument 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 and 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 debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

Interest income is recognised on an effective interest basis for debt instruments.

(v) Derecognition

The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.

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

– I-20 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(vi) Fair value measurement principles

Fair values of quoted investments are based on quoted prices. For unlisted securities or financial assets without an active market, the Group establishes the fair value by using appropriate valuation techniques including the use of recent arm’s length transactions, reference to other investments that are substantially the same, discounted cash flow analysis and option pricing models.

(vii) Impairment

The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets other than those at FVTPL, is impaired. In the case of equity securities classified as available-for-sale, a significant or prolonged decline in the fair value of the securities below their cost is considered in determining whether the securities are impaired. If any such evidence exists for available-for-sale investments, the cumulative loss (measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss) is removed from equity and recognised in profit or loss. Impairment losses recognised in profit or loss on equity investments are not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss is recognised in other comprehensive income and accumulated under the heading of revaluation reserve.

For all other financial assets, objective evidence of impairment could include:

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

For financial assets carried at amortised cost, the amount of the impairment loss recognised is the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the financial asset’s original effective interest rate. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

For financial assets carried at cost, the amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss will not be reversed in subsequent periods.

Each receivable that is individually significant is reviewed for indication of impairment at the end of each reporting period. Loans and receivables that are individually not significant and are assessed not to be impaired individually are reviewed at the end of each reporting period on a collective portfolio basis.

– I-21 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Individual impairment allowance applies to term loans which are individually significant or have objective evidence of impairment. In assessing the individual impairment, management estimates the present value of future cash flows which are expected to be received, taking into account the borrower’s financial situation and the net realisable value of the underlying collateral or guarantees in favour of the Group. Each impaired asset is assessed on its merits and the impairment allowance is measured as the difference between the loan’s carrying amount and the present value of the estimated future cash flows discounted at the loan’s original effective interest rate.

Collective impairment allowances cover credit losses inherent in portfolios of loans receivable and other accounts with similar economic and credit risk characteristics where objective evidence for individual impaired items cannot be identified. In assessing the collective impairment, management makes assumptions both to define the way the Group assesses inherent losses and to determine the required input parameters, based on historical loss experience and current economic conditions. Changes in the carrying amount of the allowance account are recognised in profit or loss.

(l) Cash and cash equivalents

Cash and cash equivalents comprise cash on hand, bank balances and short-term time deposits. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the consolidated statement of cash flows.

(m) Financial liabilities

“Effective interest method”

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees and points 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 liability, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

Interest expense is recognised on an effective interest basis.

“Financial liabilities at fair value through profit or loss”

Financial liabilities for trading purposes are generally classified as “financial liabilities at FVTPL” which are recognised initially at fair value. A financial liability is classified as held for trading if it has been acquired principally for the purpose of repurchasing it in the near term, or on initial recognition it is a part of a portfolio of identified financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or it is a derivative that is not designated and effective as a hedging instrument. A financial liability other than held for trading purpose may be designated as at fair value through profit or loss 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 HKAS 39 permits the entire contract to be designated as at fair value through profit or loss. At the end of each reporting period, subsequent to initial recognition, financial liabilities at fair value through profit or loss are measured at fair value, with changes in fair value recognised directly in profit or loss in the period in which they arise. The net gain or loss recognised in profit or loss excludes any interest paid on the financial liabilities and is included in the “Finance costs” line item in the consolidated financial statement of profit or loss.

“Financial guarantee issued”

A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument.

– I-22 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

A financial guarantee issued for rendering financial guarantee service is initially measured at fair value as represented by the consideration received from the specified customers and the consideration received is recognised as revenue on straight-line basis over the guarantee period. Subsequent to initial recognition, the Group measures the financial guarantee at the higher of: (i) the amount of obligation under the contract, as determined in accordance with HKAS 37 “Provisions, Contingent Liabilities and Contingent Assets”; and (ii) the amount initially recognised less cumulative amortisation recognised in accordance with the Group’s revenue recognition policy.

“Financial liabilities for repurchase agreements”

Financial liabilities for repurchase agreements continue to be recognised, which do not result in derecognition of the financial assets, and are recorded as “financial assets at FVTPL”. Financial assets sold subject to agreements with a commitment to repurchase at a specific future date are not derecognised in the consolidated statement of financial position. The proceeds from selling such assets are presented as “financial liabilities for repurchase agreements” in the consolidated statement of financial position. Financial liabilities for repurchase agreements are initially measured at fair value and are subsequently measured at amortised cost using the effective interest method.

“Other financial liabilities”

Other financial liabilities including bank and other borrowings, notes issued, trade and other payables and amounts due to related parties, which are recognised initially at fair value, are subsequently measured at amortised cost, using the effective interest method.

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

(n) Equity instruments

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

“Share capital”

Ordinary shares of the Company are classified as equity.

When share capital recognised as equity is repurchased, the amount of the consideration paid, including directly attributable costs, is recognised in equity. Repurchased shares that are not subsequently cancelled are classified as treasury shares and presented as a deduction from total equity.

Dividend distribution to the Company’s owners is recognised as a liability in the period in which the dividends are approved by the Directors or shareholders as appropriate.

Where the shares of the Company (“Awarded Shares”) are purchased under the SHK Employee Ownership Scheme, the consideration paid, including any directly attributable incremental costs, is presented as “Shares held for Employee Ownership Scheme” and deducted from equity. When the Awarded Shares are transferred to the awardees upon vesting, the related costs of the Awarded Shares are eliminated against the employee share-based compensation reserve and the remaining balances will be transferred to retained earnings.

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

– I-23 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(o) Derivative financial instruments

Derivatives are initially recognised at fair value at the date when derivative contracts are entered into and are subsequently remeasured to their fair value at the end of the reporting period. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship.

Embedded derivatives

Derivatives embedded in non-derivative host contracts are treated as separate derivatives when they meet the definition of a derivative, their risks and characteristics are not closely related to those of the host contracts and the host contracts are not measured at FVTPL. Generally, multiple embedded derivatives in a single instrument are treated as a single compound embedded derivative unless those derivatives relate to different risk exposures and are readily separable and independent of each other.

(p) Provisions and contingent liabilities

Provisions are recognised when the Group has a present legal or constructive obligation as a result of a past event, if it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision to be reimbursed, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in profit or loss net of any reimbursement.

A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. It can also be a present obligation arising from past events that is not recognised because it is not probable that an outflow of economic resources will be required or the amount of obligation cannot be measured reliably.

A contingent liability is not recognised but is disclosed in the notes to the consolidated financial statements. When a change in the probability of an outflow occurs so that the outflow is probable, it will then be recognised as a provision.

(q) Impairment of non-financial assets

Goodwill and intangible assets that have indefinite useful lives are not subject to amortisation, and are tested at least annually for impairment and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Assets that are subject to depreciation and amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest level for which there are separately identifiable cash flows (cash-generating units) if an impairment test cannot be performed for an individual asset. An impairment loss is recognised immediately as an expense.

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

– I-24 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(r) Taxation

Taxation comprises current and deferred tax.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the end of the reporting period, and any adjustment to tax payable in respect of previous years.

Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit.

Deferred tax is provided in full on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary difference can be utilised. Such deferred tax assets and liabilities are not recognised if the temporary difference arises 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 recognised if the temporary difference arises from the initial recognition of goodwill.

Deferred tax liabilities are recognised for taxable temporary differences arising on interests in subsidiaries, associates and joint ventures, 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.

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

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the assets realised. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Current and deferred tax is recognised in profit or loss, except when it relates to items recognised in equity, in which case the current and deferred tax is also dealt with in equity.

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 liabilities or deferred tax assets for investment properties that are measured using the fair value model, the carrying amounts of such properties are presumed to be recovered entirely through sale.

Current and deferred tax are recognised in profit or loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised 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.

(s) Foreign currencies

Transactions in currencies other than the functional currency of the respective group entities (foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transactions.

At the end of each reporting period, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing at the end of the reporting period.

– I-25 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are recognised in profit or loss in the period in which they arise. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Foreign exchange gains and losses arising on the settlement of monetary items, and on the retranslation of monetary items, are included in net profit or loss for the period, except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in equity, in which cases, the exchange differences are also recognised directly in equity.

On consolidation, the assets and liabilities of the Group’s foreign operations are translated to Hong Kong dollars at exchange rates prevailing at the end of the reporting period. Income and expense items are translated at the average exchange rates for the year. Exchange differences arising, if any, are classified as equity and transferred to the Group’s exchange reserve. Such translation differences are reclassified to profit or loss in the period in which the operation is disposed of.

(t) Borrowing costs

Interest expenses directly attributable to the acquisition, construction or production of an asset which necessarily takes a substantial period of time to prepare for its intended use or sale are capitalised as part of the cost of the asset.

All other borrowing costs are recognised on a time apportionment basis, taking into account the principal and the effective interest rates. They are charged to profit or loss in the year in which they are incurred.

(u) 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 on a straight-line basis over the term of the relevant lease.

“The Group as lessee”

Rentals payable under operating leases are charged to profit or loss on a straight-line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are also recognised as a reduction of rental expenses on a straight-line basis over the lease term.

(v) Employee benefits

The Group operates defined contribution retirement schemes, the assets of which are held in independently administrated funds. The Group’s contributions to the defined contribution retirement schemes are expensed as the employees have rendered their services entitling them to the contributions and are reduced by contributions forfeited, if applicable, by those employees who leave the schemes prior to vesting fully in the contributions.

Employee entitlements to annual leave are recognised when they accrue to employees. A provision is made for the estimated liability for annual leave as a result of services rendered by employees up to the end of the reporting period.

The Group recognises a liability and an expense for bonuses and profit-sharing, where appropriate, based on approved formulas that take into consideration the profit attributable to the Group after certain adjustments. The Group recognises a provision where contractually obliged or where there is a past practice that has created a constructive obligation.

– I-26 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

For the Awarded Shares granted under the SHK Employee Ownership Scheme, the fair value of the employee services received is determined by reference to the fair value of Awarded Shares granted at the grant date and is expensed on a straight-line basis over the vesting period, with a corresponding increase in equity (employee share-based compensation reserve). At the end of each reporting period, the Group revises its estimates of the number of Awarded Shares that are expected to ultimately vest. The impact of the revision of the estimates, if any, is recognised in profit or loss, with a corresponding adjustment to the employee share-based compensation reserve.

(w) Revenue recognition

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

Revenue is recognised 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.

(i) Interest income from financial assets is recognised on a time apportionment basis, taking into account the principal amounts outstanding and the effective interest applicable, which is the rate that discounts the estimated future cash flows through the expected life of the financial asset to that asset’s net carrying amount on initial recognition.
(ii) Dividend income from investments is recognised when the owners’ right to receive payment has been established.
(iii) Rental income arising on investment properties is accounted for on a straight-line basis over the lease term regardless of when the cash rental payment is received.
(iv) Income from rendering financial guarantee services is recognised over the contractual period on a straight-line basis.

4. KEY SOURCES OF ESTIMATION UNCERTAINTY

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

(a) Impairment allowances on term loans

In determining individual impairment allowances, the Group periodically reviews its term loans to assess whether objective evidence of impairment exists. In determining whether impairment allowances should be recorded in profit or loss, the management estimates the present value of future cash flows which are expected to be received, taking into account the borrower’s financial situation and the net realisable value of the underlying collaterals or guarantees in favour of the Group.

(b) Impairment allowances on loans and advances to consumer finance customers and mortgage loans

The policy for collective impairment allowances for loans and advances to consumer finance customers and mortgage loans of the Group is based on the evaluation of collectability and ageing analysis of accounts and on management’s judgement. A considerable amount of judgement is required in assessing the ultimate realisation of these loans and advances, including the current creditworthiness, and the past collection history.

(c) Estimated impairment of goodwill and intangible assets with indefinite useful lives

The Group conducts tests for impairment of goodwill and intangible assets with indefinite useful lives annually in accordance with the relevant accounting standards. Determining whether the goodwill and the intangible assets are impaired requires an estimation of the fair value less cost to sell or value in use on the basis of data available to the Group. Where future cash flows are less than expected, an impairment loss may arise.

– I-27 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(d) Deferred tax

Estimating the amount for recognition of deferred tax assets arising from tax losses and other deductible temporary differences requires a process that involves forecasting future years’ taxable income and assessing the Group’s ability to utilise tax benefits through future earnings. Where the actual future profits generated are more or less than expected, a recognition or reversal of the deferred tax assets may arise, which would be recognised in profit or loss for the period in which such a recognition or reversal takes place. While the current financial models indicate that the recognised tax losses and deductible temporary differences can be utilised in the future, any changes in assumptions, estimates and tax regulations can affect the recoverability of this deferred tax asset.

(e) Fair value of derivative and financial instruments

The Group selects appropriate valuation techniques for financial instruments not quoted in an active market. Note 26 provides detailed information about the key assumptions used in the determination of the fair value of material financial instruments.

(f) Estimated impairment of interest in an associate

The Group disposed of 70% interest in a wholly-owned subsidiary Sun Hung Kai Financial Group Limited in June 2015 and classified the remaining 30% equity interest as an associate. The Group’s interest in Sun Hung Kai Financial Group Limited is tested for impairment whenever there is an impairment indicator. Determining whether the interest in the associate is impaired requires an estimation of the fair value less cost to sell or value in use on the basis of data available to the Group. Where recoverable amount is less than expected, an impairment loss may arise.

5. REVENUE

(HK$ Million) Service and commission income Dividends from listed investments Dividends from unlisted investments Gross rental income from investment properties Interest income	2017 120.9 10.8 – 22.8 3,641.1 3,795.6	2016 99.2 13.7 3.6 22.3 3,372.5
		3,511.3

During the year, the interest income that was derived from financial assets not at fair value through profit or loss amounted to HK$3,641.1 million (2016: HK$3,372.5 million).

6. SEGMENT INFORMATION

The operating businesses are organised and managed separately according to the nature of the products and services provided, with each segment representing a strategic business unit that offers different products and serves different markets. Inter-segment sales are charged at prevailing market rates.

The main reportable and operating segments presented in these consolidated financial statements are as follows:

(a) Financial Services: provision of financial services.
(b) Consumer Finance: provision of consumer financing.
(c) Mortgage Loans: provision of mortgage loans financing.
(d) Principal Investments: portfolio investments.

– I-28 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(e) Group Management and Support: provision of supervisory and administrative functions to all business segments.

Segment assets and liabilities are not presented as they are not regularly reviewed by the chief operating decision maker.

		2017
Financial Services 4.0 – 4.0 109.0 38.3 (28.7) 118.6 – 107.6 (1.2) – – – – – – – –	Consumer Finance 3,122.2 – 3,122.2 1,444.7 – – 1,444.7 3,074.8 16.9 – (40.5) (297.3) (43.3) – (202.1) 0.8 (201.3) –	Mortgage Loans Principal Investments Group Management and Support 124.4 527.7 224.4 – – (207.1) 124.4 527.7 17.3 35.0 1,061.0 (72.1) – 21.3 – – – – 35.0 1,082.3 (72.1) 124.0 424.6 17.7 – 119.8 5.8 – 1,231.8 (1.2) – (62.8) (23.6) (3.2) (86.2) – (1.3) – (12.5) – (176.2) – (42.3) (157.6) (343.0) 42.3 157.6 – – – (343.0) – (289.5) 289.5	Total 4,002.7 (207.1)
			3,795.6

			2,577.6 59.6 (28.7)
			2,608.5

			3,641.1 250.1 1,229.4 (126.9) (386.7) (57.1) (176.2)

			(745.0) 200.7
			(544.3)

			–

– I-29 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

		2016
Financial Services 3.6 – 3.6 209.9 27.7 (55.3) 182.3 – 4.0 345.0 – – – (141.5) – – – – –	Consumer Finance 3,024.2 – 3,024.2 726.6 – – 726.6 2,961.0 5.9 – 38.9 (928.5) (49.5) – (1.1) (243.7) 2.1 (241.6) –	Mortgage Loans Principal Investments Group Management and Support 55.7 405.9 215.3 – – (193.4) 55.7 405.9 21.9 1.8 499.8 118.3 – (27.2) – – – – 1.8 472.6 118.3 55.7 336.2 19.6 – 150.3 18.7 – 400.3 4.6 – (33.1) 3.9 (3.0) 35.8 – (0.4) – (11.7) – – – – – – (12.3) (174.5) (246.7) 12.3 174.5 – – – (246.7) – (260.6) 260.6	Total 3,704.7 (193.4)
			3,511.3

			1,556.4 0.5 (55.3)
			1,501.6

			3,372.5 178.9 749.9 9.7 (895.7) (61.6) (141.5) (1.1)

			(677.2) 188.9
			(488.3)

			–

Cost of capital income (charges) are intersegment transactions charged by Group Management and Support segment to other segments. The charges are determined by the internal capital consumed by the segments.

The geographical information of revenue and non-current assets are disclosed as follows:

(HK$ Million) Revenue from external customers by location of operations – Hong Kong – Mainland China – Others	2017 2,792.8 999.2 3.6 3,795.6	2016 2,541.6 958.4 11.3
		3,511.3

– I-30 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(HK$ Million) Non-current assets other than interests in associates and joint ventures, financial assets and deferred tax assets by location of assets – Hong Kong – Mainland China 7. OTHER GAINS (HK$ Million) Net realised gain on disposal of investments – Disposal of subsidiaries – Disposal of an associate Increase in fair value of investment properties Miscellaneous income Reversal of impairment in an associate*	31/12/2017 4,483.1 422.7 4,905.8 2017 – – 120.4 22.1 107.6 250.1	31/12/2016 4,372.4 420.4
		4,792.8

		2016 18.9 3.9 135.5 20.6 –
		178.9

The Group disposed of 70% interest in a wholly-owned subsidiary Sun Hung Kai Financial Group Limited (“SHKFGL”) in June 2015 and classified the remaining 30% equity interest as an associate. Affected by the slow recovery of Hong Kong and China stock markets in 2016 after the stock market correction in the second half of 2015, the carrying amount of the 30% equity interest in SHKFGL exceeded the recoverable amount at the reporting date that led to a further impairment loss for the year ended 31 December 2016. The impairment loss was included in Financial Services segment. The recoverable amount was measured at fair value less cost of disposal of SHKFGL. There was an improvement of the stock market in 2017 and resulted in a partial reversal of impairment loss for the year ended 31 December 2017. The fair value was measured by discounted cash flow approach at the reporting date using a discount rate of 16.6% (2016: 19.7%). As part of the disposal in 2015, the Group was awarded a put right on the 30% equity interest of SHKFGL. This put right recorded a valuation gain during the period of HK$1.0 million (2016: HK$345.0 million gain) classified under net gain on financial assets and liabilities.

– I-31 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

8. EMOLUMENTS OF DIRECTORS AND SENIOR EMPLOYEES

(a) Directors

(HK$ Million) Executive Directors Lee Seng Huang (Group Executive Chairman) Simon Chow Wing Charn1 Peter Anthony Curry2 Non-Executive Directors Jonathan Andrew Cimino Independent Non-Executive Directors David Craig Bartlett Alan Stephen Jones Jacqueline Alee Leung Peter Wong Man Kong			2017	2017
	Director’s fees 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.16	Consultancy fees – – – – 0.22 0.28 0.22 0.22 0.94	Salaries, housing and other allowances and benefits in kind 8.73 2.74 2.82 – – – – – 14.29	Discretionary bonuses Contributions to retirement benefit scheme 48.504 0.36 3.753 0.13 3.755 0.10 – – – – – – – – – – 56.00 0.59	Total 57.61 6.64 6.69 0.02 0.24 0.30 0.24 0.24
					71.98

1 In March 2018, Awarded Shares with fair value at grant date of HK$2.5 million under the SHK Employee Ownership Scheme is approved to be granted to the director in relation to his performance in 2017. In addition, 184,000 shares were vested during 2017.
2 557,000 shares under the SHK Employee Ownership Scheme were vested during 2017. 3 The amount represents an actual cash bonus of HK$3.75 million for the year 2017 (2016: HK$2.5 million).
4 The amount represents an actual cash bonus of HK$48.50 million for the year 2017 (2016: HK$30.5 million).
5 The amount represents an actual cash bonus of HK$3.75 million for the year 2017 (2016: HK$1.65 million).

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

The non-executive director’s emoluments shown above were for his services as a director of the Company.

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

Bonuses, which are recommended by the remuneration committee and subsequently approved by the Board of Directors, are discretionary and are determined by reference to the Group’s and the individuals’ performance.

– I-32 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2016

(HK$ Million) Executive Directors Lee Seng Huang (Group Executive Chairman) Simon Chow Wing Charn1 Peter Anthony Curry2 Joseph Tong Tang3 Non-Executive Directors Ahmed Mohammed Aqil Qassim Alqassim Jonathan Andrew Cimino Joseph Kamal Iskander Independent Non-Executive Directors David Craig Bartlett Alan Stephen Jones Jacqueline Alee Leung Peter Wong Man Kong	Director’s fees 0.01 0.01 0.01 – – 0.01 – 0.01 0.01 0.01 0.01 0.08	Consultancy fees – – – – – – – 0.20 0.26 0.20 0.20 0.86	Salaries, housing and other allowances and benefits in kind 8.08 2.66 2.77 0.25 – – – – – – – 13.76	Discretionary bonuses Contributions to retirement benefit scheme 30.50 0.35 2.50 0.13 1.65 0.20 – 0.01 – – – – – – – – – – – – – – 34.65 0.69	Total 38.94 5.30 4.63 0.26 – 0.01 – 0.21 0.27 0.21 0.21
					50.04

1 In March 2017, Awarded Shares with fair value at grant date of HK$2.5 million under the SHK Employee Ownership Scheme is approved to be granted to the director in relation to his performance in 2016.
2 In March 2017, Awarded Shares with fair value at grant date of HK$1.1 million under the SHK Employee Ownership Scheme is approved to be granted to the director in relation to his performance in 2016. In addition, 109,000 shares were vested during 2016.
3 80,000 shares under the SHK Employee Ownership Scheme were vested in 2016. He resigned as the director of the Company on 25 January 2016.

(b) Highest paid individuals

The five highest paid individuals of the Group include three Directors (2016: three Directors) of the Company. The emoluments of the remaining two (2016: two) highest paid individuals are analysed below:

(HK$ Million) Salaries, housing and other allowances, and benefits in kind Bonuses Contributions to retirement benefit scheme	2017 11.1 20.2 1.1 32.4	2016 10.3 17.7 1.0
		29.0

– I-33 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The above emoluments of the highest paid individual were within the following bands:

Emoluments band (HK$)	Number of employees
	2017	2016
$5,000,001 – $5,500,000	–	1
$5,500,001 – $6,000,000	1	–
$23,500,001 – $24,000,000	–	1
$26,500,001 – $27,000,000	1	–

(c) Senior Management

The emoluments of senior management (as described in Profiles of Directors and Senior Management section) were within the following bands:

Emoluments band (HK$)	Number of employees
	2017	2016
$1,000,001 – $1,500,000	1	1
$3,500,001 – $4,000,000	1	–
$23,500,001 – $24,000,000	–	1
$26,500,001 – $27,000,000	1	–

No shares was vested and granted for our senior management during year 2017. No dividend payments were paid to senior management during the year (2016: nil).

9. INFORMATION ABOUT MATERIAL INTERESTS OF DIRECTORS IN TRANSACTIONS, ARRANGEMENTS OR CONTRACTS

No transactions, arrangements or contracts of significance to which the Company or any of its subsidiaries was a party and in which the Directors or an entity connected with the Directors had a material interest, whether directly or indirectly, subsisted at the end of the year or at any time during the year.

10. EMPLOYEE BENEFITS

(a) Retirement Benefit Scheme

The principal retirement benefit schemes operated by the Group related to defined contribution schemes for the Hong Kong and overseas offices’ qualifying employees.

The employees of the Company’s subsidiaries established in People’s Republic of China (the “PRC”) are members of state-managed retirement benefit schemes operated by the PRC government. These subsidiaries are required to contribute certain percentage of payroll costs to the retirement benefit schemes to fund the benefits. The only obligation of the Group with respect to the retirement benefit schemes is to make the specified contributions.

Expenses recognised in profit or loss for the contributions to retirement benefit schemes for the current year amounted to HK$79.8 million (2016: HK$90.1 million). The amount of forfeited contributions utilised in the course of the year ended 31 December 2017 was HK$0.19 million (2016: HK$0.01 million).

(b) SHK Employee Ownership Scheme (“EOS”)

Under the EOS, which was formally adopted on 18 December 2007, selected employees or directors of the Group (the “Selected Grantees”) were awarded shares in the Company. Following management’s recommendation, shares were granted to the Selected Grantees subject to various terms including, amongst other things, the vesting scale whereby awarded shares will vest and become unrestricted in various vesting periods.

– I-34 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

During the year, 1.2 million shares (2016: 0.8 million shares) of the Company were awarded to Selected Grantees under the EOS. The fair value of the services rendered (by reference to the market value of awarded shares at grant dates) as consideration of the shares awarded during the year was HK$6.1 million (2016: HK$3.8 million) which will be amortised to profit or loss during the vesting period. The amount expensed during the year in respect of shares awarded under the EOS was HK$6.4 million (2016: HK$2.8 million).

11. PROFIT BEFORE TAXATION

(HK$ Million) Profit before taxation for the year has been arrived at after charging: Administrative expenses (Note a) Amortisation of leasehold interests in land Amortisation of intangible assets acquired in business combination included in direct cost and operating expenses Outgoings in respect of rental generating investment properties Outgoings in respect of non-rental generating investment properties Other losses (Note b) Share of taxation of associates and joint ventures included in share of results of associates and joint ventures (a) Analysis of administrative expenses: Staff costs (including Directors’ emoluments) Contributions to retirement benefit schemes Expenses recognised for the SHK Employee Ownership Scheme Total staff costs Auditors’ remuneration Depreciation of property and equipment Amortisation of intangible assets – computer software Operating lease rentals Other administrative expenses (b) Analysis of other losses: Net loss on disposal/write-off of equipment Impairment loss – Available-for-sale investment measured at fair value – Interest in an associate Loss on disposal of investments	2017 (1,208.1) (0.1) – (0.7) – (177.7) (6.3) (694.8) (79.8) (6.4) (781.0) (5.2) (55.2) (1.8) (160.6) (204.3) (1,208.1) (1.5) (176.2) – – (177.7)	2016 (1,158.3) (0.2) (4.1) (2.8) (0.6) (142.8) (6.3)

		(663.9) (90.1) (2.8)
		(756.8) (5.7) (55.8) (1.5) (153.8) (184.7)
		(1,158.3)
		(1.1) – (141.5) (0.2)
		(142.8)

– I-35 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

12. NET GAIN ON FINANCIAL ASSETS AND LIABILITIES

The following is an analysis of the net gain on financial assets and liabilities at fair value through profit or loss:

(HK$ Million) Net realised and unrealised gain/(loss) on financial assets and liabilities – Held for trading – Designated as at fair value through profit or loss 13. BAD AND DOUBTFUL DEBTS (HK$ Million) Loans and advances to consumer finance customers – Impairment loss, net of reversal Mortgage loans – Impairment loss, net of reversal Trade and other receivables – Impairment loss, net of reversal Bad and doubtful debts recognised in profit or loss	2017 297.4 932.0 1,229.4 2017 (277.3) (3.2) (106.2) (386.7)	2016 (142.5) 892.4
		749.9

		2016 (873.6)
		(3.0)
		(19.1)
		(895.7)

The following are the amounts written off in allowance of impairment against the receivables and recoveries credited to allowance of impairment during the year:

(HK$ Million)	2017	2016
Loans and advances to consumer finance customers
– Amounts written off in allowance of impairment	(700.8)	(1,053.0)
– Recoveries credited to allowance of impairment	162.8	160.2
Mortgage loans
– Amounts written off in allowance of impairment	(1.4)	(1.0)
Trade and other receivables
– Amounts written off in allowance of impairment	(71.5)	(72.4)

– I-36 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

14. FINANCE COSTS

(HK$ Million) Interest on the following liabilities – Bank loans and overdrafts – Notes issued Other borrowing costs	2017 (182.2) (348.6) (530.8) (13.5) (544.3)	2016 (207.9) (273.1)
		(481.0) (7.3)
		(488.3)

All finance costs were derived from financial liabilities not at fair value through profit or loss for both years.

15. TAXATION

(HK$ Million) Current tax – Hong Kong – PRC (Under) over provision in prior years Deferred tax	2017 (196.7) (52.6) (249.3) (19.0) (268.3) (26.3) (294.6)	2016 (186.0) (83.4)
		(269.4) 0.7
		(268.7) 136.8
		(131.9)

Hong Kong profits tax is calculated at the rate of 16.5% (2016: 16.5%) on the estimated assessable profits for the year. PRC subsidiaries are subject to PRC Enterprise Income Tax at 25% (2016: 25%). Taxation arising in other jurisdictions is calculated on the estimated assessable profits for the year at the rates of taxation prevailing in the countries in the relevant jurisdictions.

– I-37 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The taxation for the year can be reconciled to the profit before taxation from continuing operations per the consolidated statement of profit or loss as follows:

(HK$ Million) Profit before taxation Less: Share of results of associates Share of results of joint ventures Tax at the Hong Kong profits tax rate of 16.5% (2016: 16.5%) (Under) over provision in prior years Tax effect of non-taxable income Tax effect of non-deductible expenses Tax effect of unrecognised deductible temporary difference and tax losses Reversal of deferred tax on tax loss previously recognised Reversal of deferred tax on deductible temporary difference previously recognised Countries subject to different tax rates	2017 2,608.5 (59.6) 28.7 2,577.6 (425.3) (19.0) 234.3 (32.9) (26.9) 6.5 0.2 (31.5) (294.6)	2016 1,501.6 (0.5) 55.3
		1,556.4

		(256.8) 0.7 149.0 (37.5) (3.0) – – 15.7
		(131.9)

Deferred tax recognised in other comprehensive income during the year was immaterial (2016: immaterial).

16. DIVIDENDS (HK$ Million) The aggregate amount of dividends declared and proposed: – 2017 interim dividend paid of HK12 cents (2016: HK12 cents) per share – 2017 second interim dividend of HK14 cents per share declared after the reporting date (2016: 2016 second interim dividend of HK14 cents per share) Dividends recognised as distribution during the year: – 2016 second interim dividend paid of HK14 cents (2016: 2015 final dividend of HK14 cents) per share – 2017 interim dividend paid of HK12 cents (2016: HK12 cents) per share	2017 260.7 301.4 562.1 306.6 260.7 567.3	2016 264.4 306.6
		571.0

		311.0 264.4
		575.4

– I-38 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

17. EARNINGS PER SHARE

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

(HK$ Million) Earnings for the purposes of basic and diluted earnings per share Profit for the year from attributable to owners of the Company (Million) Number of shares Weighted average number of ordinary shares for the purpose of basic earnings per share Effect of dilutive potential ordinary shares: – Impact of contingently issuable shares under the SHK Employee Ownership Scheme Weighted average number of ordinary shares for the purpose of diluted earnings per share 18. INVESTMENT PROPERTIES (HK$ Million) Hong Kong At 1 January 2016 869.0 Exchange adjustments – Transfer from property and equipment – Disposal of subsidiaries – Change in fair value recognised in profit or loss 136.0 At 31 December 2016 1,005.0 Exchange adjustments – Change in fair value recognised in profit or loss 119.0 At 31 December 2017 1,124.0 Unrealised gains or losses for the year included in profit or loss – For 2017 119.0 – For 2016 136.0		2017 1,824.3 2017 2,172.5 1.0 2,173.5 PRC 158.3 (3.0) 3.7 (109.0) (0.5) 49.5 3.7 1.4 54.6 1.4 (0.5)		2016 1,109.6

				2016 2,207.8 0.8
				2,208.6

				Total 1,027.3 (3.0) 3.7 (109.0) 135.5
				1,054.5 3.7 120.4
				1,178.6

				120.4 135.5

In determining the fair value of the investment properties, the management of the Group has formed a valuation working group to determine the appropriate valuation techniques and inputs for fair value measurements with the assistance of an independent qualified professional valuer.

The valuation working group works closely with the independent qualified professional valuer to establish the appropriate valuation techniques and inputs to the valuation model, and analyses changes in fair value measurements from period to period.

– I-39 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The fair value of the Group’s investment properties at the reporting date have been arrived on the basis of a valuation carried out by Norton Appraisals Holdings Limited, an independent qualified professional valuer, not connected with the Group. The fair value was grouped under Level 3. The Group considers that the current use of the properties is to be the highest and best use. The following table provides further information regarding the valuation.

Valuation technique Unobservable inputs Hong Kong Investment method Term yield Reversionary yield Monthly market unit rent per gross floor area (sq. ft.) PRC Investment method Term yield Reversionary yield Monthly market unit rent per gross floor area (sq.m.)	Input values
	2017 2016 2% 2% 2.25% 2.25% HK$45 to HK$65 HK$41 to HK$65 4.25 to 6.00% 4.25 to 6.75% 4.25 to 6.75% 4.75 to 6.75% RMB27 to RMB108 RMB27 to RMB102

The increase in market unit rent would result in an increase in fair value of the investment properties. The Group believes that reasonably possible changes in the input values would not cause significant change in fair value of the investment properties. There was no change in the valuation technique during the year.

Particulars of the investment properties at 31 December 2017 were as follows:

Location	Classification	Term of lease
20-1, 20-2, 20-3, 20-4, 19-1, 19-2, 19-3 &19-4 in Block 2 of	Industrial	2061
No. 101 building, Cuibai Road, Chunhuilu Street, Dadukou
District, Chongqing, the PRC
Unit 401B, Block 6, Times Centre, No. 160 Zhengyang Road,	Commercial	2046
Chengyang District, Qingdao, the PRC
Units 1001-1010 in Block 2-2 of Phase II of Tianjin Tian An	Industrial	2060
Cyberpark, Zhangjiawo, Xiqing District, Tianjin, the PRC
2201, 2201A and 2202, 22/F, Tower I, Admiralty Centre,	Commercial	2053
18 Harcourt Road, Hong Kong
4/F, Tower II, Admiralty Centre, 18 Harcourt Road, Hong Kong	Commercial	2053
8/F, Tower II, Admiralty Centre, 18 Harcourt Road, Hong Kong	Commercial	2053
11/F, Tower II, Admiralty Centre, 18 Harcourt Road, Hong Kong	Commercial	2053

At the end of the reporting period, investment properties with a total carrying value of HK$974.0 million (31/12/2016: HK$873.0 million) were pledged as security for the Group’s banking facilities.

– I-40 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

19. PROPERTY AND EQUIPMENT

(HK$ Million) Cost At 1 January 2016 Exchange adjustments Additions Disposal of subsidiaries Transfer to investment properties Disposals/write-off At 31 December 2016 Exchange adjustments Additions Disposals/write-off At 31 December 2017 Accumulated depreciation and impairment At 1 January 2016 Exchange adjustments Depreciation provided for the year Disposal of subsidiaries Transfer to investment properties Eliminated on disposals/write-off At 31 December 2016 Exchange adjustments Depreciation provided for the year Eliminated on disposals/write-off At 31 December 2017 Carrying amount at 31 December 2017 Carrying amount at 31 December 2016	Property 337.5 (21.6) – – (3.9) – 312.0 23.5 – – 335.5 20.6 (1.8) 9.4 – (0.2) – 28.0 2.5 9.1 – 39.6 295.9 284.0	Furniture and equipment 351.5 (14.5) 29.1 (0.7) – (7.7) 357.7 16.0 65.6 (17.9) 421.4 189.7 (9.3) 46.4 (0.6) – (6.4) 219.8 11.6 46.1 (16.4) 261.1 160.3 137.9	Total 689.0 (36.1) 29.1 (0.7) (3.9) (7.7)
			669.7 39.5 65.6 (17.9)
			756.9
			210.3 (11.1) 55.8 (0.6) (0.2) (6.4)
			247.8 14.1 55.2 (16.4)
			300.7
			456.2

			421.9

The useful lives of the properties are same as the remaining term of the leases that are ranging from 26 to 35 years.

– I-41 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

20. INTANGIBLE ASSETS

(HK$ Million) Cost At 1 January 2016 Exchange adjustments Additions At 31 December 2016 Exchange adjustments At 31 December 2017 Accumulated amortisation and impairment At 1 January 2016 Amortisation charged for the year At 31 December 2016 Exchange adjustments Amortisation charged for the year At 31 December 2017 Carrying amount at 31 December 2017 Carrying amount at 31 December 2016	Club membership 2.2 – – 2.2 – 2.2 1.0 – 1.0 – – 1.0 1.2 1.2	Computer software 12.8 (1.0) 5.5 17.3 1.3 18.6 1.6 1.5 3.1 0.3 1.8 5.2 13.4 14.2	Trade mark 875.0 – – 875.0 – 875.0 7.0 – 7.0 – – 7.0 868.0 868.0	Customer relationship 1,154.0 – – 1,154.0 – 1,154.0 1,154.0 – 1,154.0 – – 1,154.0 – –	Web domain 78.0 – – 78.0 – 78.0 73.9 4.1 78.0 – – 78.0 – –	Total 2,122.0 (1.0) 5.5
						2,126.5 1.3
						2,127.8
						1,237.5 5.6
						1,243.1 0.3 1.8
						1,245.2
						882.6

						883.4

Other than the club membership and the trade mark, which have indefinite useful lives, the intangible assets are amortised on a straight-line basis over the following periods:

	Acquired computer software	3 – 5 years
	Internally developed computer software	5 – 10 years
	Customer relationship	5.4 years
	Web domain	10 years
21.	GOODWILL
	(HK$ Million)	2017	2016
	Cost
	At 1 January and 31 December	2,384.0	2,384.0

– I-42 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

22. IMPAIRMENT TESTING ON GOODWILL AND INTANGIBLE ASSETS WITH INDEFINITE USEFUL LIVES

For impairment testing, goodwill and intangible assets with indefinite useful lives at 31 December 2017 were allocated as follows:

	Goodwill	Goodwill	Trade	Mark
(HK$ Million)	31/12/2017	31/12/2016	31/12/2017	31/12/2016
United Asia Finance Limited (“UAF”)
in “Consumer Finance” segment	2,384.0	2,384.0	868.0	868.0

The recoverable amount of UAF, a cash-generating unit, represents the value in use at 31 December 2017 based on a business valuation report on the UAF group prepared by an independent qualified professional valuer, Norton Appraisals Limited. The valuation used the discounted cash flow approach and is based on a fiveyear performance projection and certain key assumptions (updated with latest market data) including an average growth rate of 12.8% on the profit after tax from 2018 to 2022 (2016: 15.0% from 2017 to 2021), a sustainable growth rate of 2.7% beyond 2022 (2016: 2.6% beyond 2021), and a discount rate of 15.6% (2016: 13.8%). The recoverable amount of UAF was determined to be in excess of its net carrying amount.

The management believes that possible changes in any of the above assumptions would not cause the carrying amount of UAF to exceed its recoverable amount.

23. INTERESTS IN SUBSIDIARIES

The consolidated profit or loss allocated to non-controlling interests during the year and the accumulated non-controlling interests in the consolidated statement of financial position as at 31 December 2017 are as follows.

(HK$ Million) United Asia Finance Limited and its subsidiaries 上海浦東新區亞聯財小額貸款有限公司北京亞聯財小額貸款有限公司 Other subsidiaries having non-controlling interests	Profit or loss allocated to non-controlling interests 2017 2016 488.7 261.6 1.0 (1.0) (1.4) (2.1) 1.3 1.6 489.6 260.1	Accumulated non-controlling interests	Accumulated non-controlling interests
	2017 488.7 1.0 (1.4) 1.3 489.6	31/12/2017 3,854.1 69.9 47.2 0.6 3,971.8	31/12/2016 3,399.4 64.1 112.3 3.0
			3,578.8

The following tables provide summarised financial information of subsidiaries that have non-controlling interests. The information is before inter-company eliminations.

(HK$ Million) Current assets Non-current assets Current liabilities Non-current liabilities	United Asia Finance Limited and its subsidiaries 31/12/2017 31/12/2016 9,456.3 9,907.3 3,443.2# 3,320.7# (2,648.2) (2,338.6) (1,585.6) (3,255.8)	上海浦東新區亞聯財小額貸款有限公司
		31/12/2017 31/12/2016 223.7 196.9 29.6 30.2 (20.3) (13.4) – –

– I-43 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(HK$ Million)	2017	2016	2017	2016
Dividend paid to
non-controlling interests	208.4	66.1	–	–
Revenue	3,096.2	3,004.5	37.4	43.1
Profit (loss) for the year	1,163.7	622.9	3.1	(3.2)
Total comprehensive income (expenses)
for the year	1,604.0	162.8	19.3	(18.0)
Net change in cash and cash equivalents
during the year	(1,527.8)	(386.7)	(24.1)	(1.0)

Including loans and advances to consumer finance customers of HK$6,840.8 million (31/12/2016: HK$5,470 million)

Including loans and advances to consumer finance customers of HK$2,322.8 million (31/12/2016: HK$2,191 million)

(HK$ Million) Current assets Non-current assets Current liabilities Non-current liabilities (HK$ Million) Dividend paid to non-controlling interests Revenue Profit (loss) for the year Total comprehensive income (expenses) for the year Net change in cash and cash equivalents during the year	北京亞聯財小額貸款有限公司	北京亞聯財小額貸款有限公司
	31/12/2017 210.0 31.5 (5.6) – 2017 – 51.5 (7.1) 42.0 (388.3)	31/12/2016 551.7 18.4 (8.7) –

		2016 – 45.1 (10.4) (49.3) 246.1

Particulars of the Company’s principal subsidiaries at 31 December 2017 were as follows:

Principal subsidiaries
Place of
incorporation
and operation
Issued and
paid up
share capital/
registered capital
Admiralty Eight Limited
Hong Kong
HK$1
Admiralty Eleven Limited
Hong Kong
HK$1
Boneast Assets Limited *
British Virgin Islands
US$1
Bronwood Holdings Limited
British Virgin Islands
US$1
SHK Bullion Company Limited
Hong Kong
HK$10,000
First Asian Holdings Limited
Hong Kong
HK$2
Itso Limited
Hong Kong
HK$2

Proportion of
ownership interest
Principal activities
2017
2016
100%
100%
Property investment
100%
100%
Property investment
100%
100%
Investment holding
100%
–
Investment holding
100%
100%
Investment holding
58%
58%
Investment holding
100%
100%
Investment holding,
financial services
and securities
trading

– I-44 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Principal subsidiaries
Place of
incorporation
and operation
Issued and
paid up
share capital/
registered capital
Sun Hung Kai Global Opportunities Fund
(formerly known as KIMA Pan Asia
Offshore Fund)
Cayman Islands
– Management shares
1,000 US$1 shares
– Participating shares
7,392.805
US$0.001 shares
– Class B6 participating shares
182,255.1444
(2016: 223,060.3644)
US$0.001 shares
– Class B3 participating shares
7,581.95
US$0.001 shares
Oakfame Investment Limited
Hong Kong
HK$2
Paignton Holdings Limited
British Virgin Islands
US$1
Plentiwind Limited
Hong Kong
HK$15,000,002
Rossworth Global Limited
British Virgin Islands
US$1
Rodril Investments Limited
Hong Kong
HK$1
Scienter Investments Limited
Hong Kong
HK$20
Shipshape Investments Limited
British Virgin Islands
US$1
SHK Asian Opportunities Holdings
Limited
Cayman Islands
US$10,000
SHK Asset Management Holding Limited
British Virgin Islands
US$3,400,001
SHK Commodities Limited
Hong Kong
HK$10,000
SHK Finance Limited
Hong Kong
HK$150,000,000
SHK Investment Services Limited
Hong Kong
HK$1,000,000
SHK Securities Limited
Hong Kong
HK$20
Sun Hung Kai (China) Investment
Management Company Limited
People’s Republic of
China
RMB50,000,000
Sun Hung Kai & Co. (CP) Limited
British Virgin Islands
US$1
Sun Hung Kai & Co. (BVI) Limited
British Virgin Islands
US$1
Sun Hung Kai Capital Limited
British Virgin Islands
US$1

Proportion of
ownership interest
Principal activities
2017
2016
Investment fund
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Investment holding
100%
–
Investment holding
100%
100%
Investment holding
100%
100%
Investment holding
100%
100%
Investment holding
100%
100%
Investment holding
and provision of
loan finance
100%
100%
Investment holding
95%
95%
Investment holding
100%
100%
Investment holding
100%
100%
Investment portfolio
58%
58%
Money lending
100%
100%
Asset holding
100%
100%
Asset holding
100%
100%
Corporate marketing
and investment
consultancy
100%
–
Investment holding
100%
100%
Financing
100%
100%
Investment holding

– I-45 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Principal subsidiaries
Place of
incorporation
and operation
Issued and
paid up
share capital/
registered capital
Sun Hung Kai Credit Limited
Hong Kong
HK$450,000,000
(2016:
HK$250,000,000)
Sun Hung Kai Fintech Capital Limited
(formerly known as SHK Insurance
Consultants Limited)
Hong Kong
HK$3,000,000
SHK International Limited
Hong Kong
HK$10,000
Razorway Limited
British Virgin Islands
US$1
Sun Hung Kai Securities (Overseas)
Limited
Hong Kong
HK$60,000
Sun Hung Kai Strategic Capital Limited
Hong Kong
HK$2
Sun Hung Kai Structured Finance Limited
Hong Kong
HK$137,500,000
Sun Hung Kai Venture Capital Limited
Hong Kong
HK$2
Champstar Investments Limited
British Virgin Islands
US$1
SHK Pearl River Delta Investment
Company Limited
Hong Kong
Issued share capital:
HK$100,000,000
Paid up share capital:
HK$75,000,000.5
Swan Islands Limited *
British Virgin Islands
US$503,000,001
Swanwick Global Limited
British Virgin Islands
US$1
SWAT Securitisation Fund ^
Luxembourg
RMB29,968,900
Texgulf Limited
Hong Kong
HK$20
Top Marker Limited +
British Virgin Islands
US$1
Treasure Rider Limited
Cayman Islands
US$19,800 (2016:
US$11,000)
Tung Wo Investment Company, Limited
Hong Kong
HK$10,000

Proportion of
ownership interest
Principal activities
2017
2016
92%
86%
Mortgage financing
100%
100%
Investment holding
100%
100%
Investment holding
100%
100%
Investment holding
100%
100%
Investment holding
100%
100%
Investment holding,
securities trading
and financial
services
100%
100%
Securities trading
and provision of
loan finance
100%
100%
Investment holding
100%
100%
Investment holding,
securities trading
and financial
services
100%
100%
Provision of loan
finance
100%
100%
Investment holding
100%
100%
Investment holding
100%
100%
Securitisation fund
100%
100%
Property investment
–
–
Investment holding
92%
86%
Investment holding
100%
100%
Investment holding

– I-46 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Principal subsidiaries
Place of
incorporation
and operation
Issued and
paid up
share capital/
registered capital
United Asia Finance Limited
Hong Kong
HK$1,502,218,417.8
UAF Holdings Limited
British Virgin Islands
US$1
Wah Cheong Development Company,
Limited *
Hong Kong
HK$25,100,000
Wineur Secretaries Limited
Hong Kong
HK$2
Yee Li Ko Investment Limited
Hong Kong
HK$58,330,000
Zeal Goal International Limited
British Virgin Islands
US$1
上海浦東新區亞聯財小額貸款
有限公司#(a)
People’s Republic
of China
RMB200,000,000
大連保稅區亞聯財小額貸款
有限公司(b)
People’s Republic
of China
US$50,000,000
(2016:US$60,000,000)
大連亞聯財信息諮詢有限公司(c)
People’s Republic
of China
RMB1,000,000
天津亞聯財小額貸款有限公司(b)
People’s Republic
of China
HK$130,000,000
(2016:HK$250,000,000)
北京亞聯財小額貸款有限公司#(a)
People’s Republic
of China
RMB200,000,000
(2016:RMB500,000,000)
成都亞聯財小額貸款有限公司(b)
People’s Republic
of China
HK$230,000,000
(2016:HK$350,000,000)
成都亞聯財經濟信息諮詢有限公司(c)
People’s Republic
of China
RMB1,000,000
亞洲第一信息諮詢（深圳）有限公司(b)
People’s Republic
of China
RMB50,000,000
亞聯財信息諮詢（上海）有限公司#(c)
People’s Republic
of China
RMB1,000,000
亞聯財信息諮詢（深圳）有限公司(b)
People’s Republic
of China
RMB25,000,000
武漢亞聯財小額貸款有限公司(b)
People’s Republic
of China
RMB300,000,000
武漢亞聯財信息諮詢有限公司(c)
People’s Republic
of China
RMB1,000,000
青島市城陽區亞聯財小額貸款
有限公司(b)
People’s Republic
of China
RMB300,000,000

Proportion of
ownership interest
Principal activities
2017
2016
58%
58%
Consumer financing
100%
100%
Investment holding
100%
100%
Investment holding
100%
100%
Secretarial services
100%
100%
Property investment
100%
100%
Investment holding
41%
41%
Money lending
58%
58%
Money lending
58%
58%
Financial
consultancy
58%
58%
Money lending
47%
47%
Money lending
58%
58%
Money lending
58%
58%
Financial
consultancy
58%
58%
Financial
consultancy
41%
41%
Financial
consultancy
58%
58%
Financial
consultancy
58%
58%
Money lending
58%
58%
Financial
consultancy
58%
58%
Money lending

– I-47 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Principal subsidiaries
Place of
incorporation
and operation
Issued and
paid up
share capital/
registered capital
青島亞聯財信息諮詢有限公司(c)
People’s Republic
of China
RMB1,000,000
南寧市亞聯財小額貸款有限公司(b)
People’s Republic
of China
RMB200,000,000
南寧市亞聯財投資管理有限公司(c)
People’s Republic
of China
RMB1,000,000
哈爾濱市亞聯財小額貸款有限公司(b)
People’s Republic
of China
RMB200,000,000
哈爾濱亞聯財信息諮詢有限公司(c)
People’s Republic
of China
RMB1,000,000
重慶亞聯財小額貸款有限公司(b)
People’s Republic
of China
US$20,000,000
(2016:
US$40,000,000)
重慶亞聯財信息諮詢有限公司(c)
People’s Republic
of China
RMB1,000,000
深圳亞聯財小額貸款有限公司(b)
People’s Republic
of China
RMB600,000,000
雲南省亞聯財小額貸款有限公司(b)
People’s Republic
of China
HK$350,000,000
雲南亞聯財經濟信息諮詢有限公司(c)
People’s Republic
of China
RMB1,000,000
新聯財信息諮詢（深圳）有限公司(c)
People’s Republic
of China
RMB5,000,000
新鴻基（天津）股權投資基金管理
有限公司(b)
People’s Republic
of China
RMB50,000,000
新鴻基融資擔保（瀋陽）有限公司(b)
People’s Republic
of China
RMB300,000,000
福州亞聯財信息諮詢有限公司(c)
People’s Republic
of China
RMB1,000,000
福州市晋安區亞聯財小額貸款
有限公司(b)
People’s Republic
of China
RMB200,000,000
濟南市歷下區亞聯財小額貸款
有限公司(b)
People’s Republic
of China
RMB300,000,000
濟南亞聯財信息諮詢有限公司(c)
People’s Republic
of China
RMB1,000,000

Proportion of
ownership interest
Principal activities
2017
2016
58%
58%
Financial
consultancy
58%
58%
Money lending
58%
58%
Financial
consultancy
58%
58%
Money lending
58%
58%
Financial
consultancy
58%
58%
Money lending
58%
58%
Financial
consultancy
58%
58%
Money lending
58%
58%
Money lending
58%
58%
Financial
consultancy
58%
58%
Financial
consultancy
100%
100%
Asset management
58%
58%
Loan guarantee
58%
58%
Financial
consultancy
58%
58%
Money lending
58%
58%
Money lending
58%
58%
Financial
consultancy

– I-48 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Principal subsidiaries
Place of
incorporation
and operation
Issued and
paid up
share capital/
registered capital
瀋陽亞聯財卓越信息諮詢有限公司(c)
People’s Republic
of China
RMB1,000,000
瀋陽金融商貿開發區亞聯財小額貸款
有限公司(b)
People’s Republic
of China
RMB320,000,000
壹融站信息技術（深圳）有限公司
(formerly known as深圳亞聯財
信息技術有限公司)(c)
People’s Republic
of China
RMB20,000,000

Proportion of
ownership interest
Principal activities
2017
2016
58%
58%
Financial
consultancy
58%
58%
Money lending
58%
58%
Financial
consultancy

These subsidiaries are directly held by the Company.
The companies are non-wholly owned subsidiaries of a non-wholly owned subsidiary.
^ The subsidiary is a fund established and created under Luxembourg laws. As the Group holds all the issued units of the fund, it is classified as a subsidiary.
- Although the Group has no equity interest in Top Marker Limited, it is classified as a subsidiary of the Group as the Group can control the composition of its board and is exposed to its variable returns. The Group’s investment in Top Marker Limited was HK$188.9 million at the reporting date.
(a) These companies are sino-foreign equity joint ventures.
(b) These companies are wholly-foreign owned enterprises.
(c) These companies are wholly-domestic owned enterprises.

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

Save as disclosed in note 38 to the consolidated financial statements, none of the other subsidiaries had issued any debt securities at the end of the year.

24. INTERESTS IN ASSOCIATES

(HK$ Million) Carrying amount of unlisted associates Less: impairment	31/12/2017 1,939.1 (573.3) 1,365.8	31/12/2016 1,767.4 (680.9
		1,086.5

Particulars of the Group’s material associate at 31 December 2017 were as follows:

Name Place of incorporation/ operation Sun Hung Kai Financial Group Limited (“SHKFGL”) British Virgin Islands/Hong Kong	Proportion of ownership interest Principal activities 2017 2016 30% 30% Wealth management and brokerage business

– I-49 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

All associates are accounted for using the equity method. The summarised consolidated financial information of the Group’s material associate, SHKFGL, is set out below. The summarised consolidated information of the financial performance for the year and financial position at the reporting date represents the amounts included in the consolidated financial statements of SHKFGL adjusted by fair value adjustments made at the time of reclassifying SHKFGL from a subsidiary to an associate.

(HK$ Million) Current assets Non-current assets Current liabilities Non-current liabilities (HK$ Million) Revenue Profit Other comprehensive income Total comprehensive income	31/12/2017 11,995.9 1,827.7 (5,805.9) (4,521.3) 2017 1,328.2 127.5 11.8 139.3	31/12/2016 7,192.1 1,534.2 (3,904.0) (1,400.6)

		2016 979.6 87.5 (16.3) 71.2

The reconciliation of the above summarised financial information to the carrying amount of the interest in SHKFGL is as follows:

(HK$ Million) Adjusted net assets of SHKFGL Group’s effective interest Group’s share of adjusted net assets Goodwill Impairment (Note 7 and 11) Carrying amount of the Group’s interest in SHKFGL	31/12/2017 3,496.4 30% 1,048.9 607.7 (572.6) 1,084.0	31/12/2016 3,421.7 30% 1,026.5 607.7 (680.2)
		954.0

The following table provides aggregate information for the share of the total comprehensive income and unrecognised share of losses of associates that are not individually material.

(HK$ Million) Share of profit or loss Share of other comprehensive income Share of total comprehensive income (expenses) Share of unrecognised losses for the year Share of cumulative losses 25. INTERESTS IN JOINT VENTURES (HK$ Million) Carrying amount of unlisted joint ventures Less: impairment	2017 21.3 – 21.3 (0.7) (26.0) 31/12/2017 280.2 – 280.2	2016 (25.7) –
		(25.7)

		(0.1) (25.3)

		31/12/2016 227.1 –
		227.1

– I-50 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

All joint ventures are accounted for using the equity method. No joint venture is individually material to the Group. The analyses of the Group’s share of the total comprehensive income are as follows.

(HK$ Million) Share of profit or loss Share of other comprehensive income (expenses) Share of total comprehensive income (expenses) Share of unrecognised losses for the year Share of cumulative losses	2017 (28.7) 2.2 (26.5) – –	2016 (55.3) (1.5)
		(56.8)

		– –

26. FINANCIAL ASSETS AND LIABILITIES

The following tables provide analyses of financial assets and liabilities of the Group that are measured at cost less impairment and at fair value subsequent to initial recognition.

	At 31 December 2017	At 31 December 2017	At 31 December 2017
	Fair value	Level 3 – – 41.4 41.4 – – – 0.7 – – 1,053.0 10.9 10.9 – – – – – 1,075.5	Cost less impairment – – 21.6 21.6 – – – – – – – – – – – – – – –	Total 47.2 213.8 63.0
Level 1 47.2 213.8 – 261.0 453.7 732.7 3.6 – – – – – – – – – – – 1,190.0	Level 2 – – – – – – – – 15.2 3.1 – – – 8.6 18.2 1,000.9 302.0 2,172.3 3,520.3
				324.0

				453.7 732.7 3.6 0.7 15.2 3.1 1,053.0 10.9 10.9 8.6 18.2 1,000.9 302.0 2,172.3
				5,785.8

– I-51 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

	At 31 December 2017	At 31 December 2017	At 31 December 2017
	Fair value			Total 117.3 17.1 21.0 811.5 4,469.4
Level 1 – – – – – – 1,190.0 2.5 – – – – – 2.5
				5,436.3
				11,222.1

				5,033.7 6,188.4
				11,222.1

				2.5 52.8 1.4 8.8 82.9 12.7
				161.1


	Fair value	Level 3 – 42.2 42.2	Cost less impairment – 21.6 21.6	Total 45.7 63.8
Level 1 45.7 – 45.7	Level 2 – – –
				109.5

– I-52 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

	At 31 December 2016	At 31 December 2016	At 31 December 2016
	Fair value	Level 3 – – – 0.4 0.1 – – 1,052.0 8.3 12.4 – – – 1,073.2 3.9 826.1 2,871.6 3,701.6 4,774.8 – – – 2.9 1.9 – – 4.8	Cost less impairment – – – – – – – – – – – – – – – – – – – – – – – – – – –	Total 269.1 299.0 139.3 0.4 0.1 50.6 1.4 1,052.0 8.3 12.4 22.3 386.9 668.6
Level 1 269.1 299.0 139.3 – – – – – – – – – – 707.4 – – – – 707.4 2.2 – – – – – – 2.2	Level 2 – – – – – 50.6 1.4 – – – 22.3 386.9 668.6 1,129.8 – – – – 1,129.8 – 4.8 0.3 – – 75.7 27.5 108.3
				2,910.4

				3.9 826.1 2,871.6
				3,701.6
				6,612.0

				3,632.9 2,979.1
				6,612.0

				2.2 4.8 0.3 2.9 1.9 75.7 27.5
				115.3

– I-53 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Available-for-sale investments are intended to be held for a continuing strategic or long-term purpose. Due to insufficient market information and a wide range of possible fair values as input to measure the fair value reliably, some of the unlisted equity investments are carried at cost less impairment.

On the basis of its analysis of the nature, characteristics and risks of the securities, the Group has determined that presenting them by nature and type of issuers is appropriate.

Fair values are grouped from Level 1 to 3 based on the degree to which the fair values are observable.

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

In estimating the fair value, the Group uses market-observable data to the extent it is available. Where Level 1 inputs are not available, the Group engages external valuers to perform the valuation for certain complex or material financial assets and liabilities. The valuation working group works closely with the external valuers to establish the appropriate valuation techniques and inputs to the valuation model for those complex or material financial assets and liabilities. For those less complex or not material financial assets and liabilities, the Group establishes appropriate valuation techniques internally to perform the valuation. The valuation working group also analyses changes in fair value measurements from period to period.

The fair values of bonds under Level 2 at the reporting date were derived from quoted prices from pricing services. The fair values of stock borrowings and forward currency contract under Level 2 at the reporting date were derived from observable market prices of the underlying financial assets or liabilities.

The fair values of Level 3 financial assets and liabilities are mainly derived from an unobservable range of data. In estimating the fair value of a financial asset or a financial liability under Level 3, the Group engages external valuers or establishes appropriate valuation techniques internally to perform the valuation which are reviewed by management.

– I-54 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The following tables provide further information regarding the valuation of material financial assets under

Level 3.

Held for trading investments
Unlisted put right for shares in an associate
Financial assets designated as at fair value
through profit or loss
Unlisted overseas equity securities with a put
right for shares
Unlisted overseas investment funds
Held for trading investments
Unlisted put right for shares in an associate
Financial assets designated as at fair value
through profit or loss
Unlisted overseas equity securities with a put
right for shares
Unlisted overseas investment funds

At 31 December 2017

Valuation
technique
Unobservable
inputs
Input values
Fair value
HK$ Million
Option model
Volatility
31.0%
1,053.0
Risk free rate
1.0%
Equity growth rate
0.5%
Estimated equity
value
HK$1,084.0
million
Market
comparable
approach and
option model
Price to book ratio
1.06x
811.5
Volatility
5.1%
Discount rate
2.1%
Equity growth rate
0.1%
Net asset value
n/a
n/a
4,302.2
At 31 December 2016*

Valuation
technique
Unobservable
inputs
Input values
Fair value
HK$ Million
Option model
Volatility
41.8%
1,052.0
Risk free rate
0.9%
Equity growth rate
1.1%
Estimated equity
value
HK$954.0 million
Market
comparable
approach and
option model
Price to book ratio
1.23x
826.1
Volatility
5.5%
Discount rate
1.9%
Equity growth rate
1.5%
Net asset value*
n/a
n/a
2,871.6

The Group has determined that the reported net asset values represent fair value of the unlisted overseas investment funds.

The management believes that possible changes in the input values would not cause significant change in fair value of the financial assets and liabilities under Level 3.

There has been no change in the valuation technique during the year.

– I-55 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The reconciliation of financial assets and liabilities under Level 3 fair value measurements is as follows:

(HK$ Million) Available-for-sale investments Unlisted overseas equity securities Held for trading investments Over the counter equity derivatives Over the counter currency derivatives Unlisted put right for shares in an associate Unlisted call option for club memberships Unlisted call option for shares listed outside Hong Kong Investments designated as at fair value Unlisted convertible preferred shares issued by an unlisted company Unlisted convertible bonds issued by unlisted companies Unlisted overseas equity securities with a put right for shares Unlisted overseas investment funds Financial liabilities held for trading Over the counter equity derivatives Over the counter currency derivatives		2017
	Balance at 1/1/2017 Transfer 42.2 – 0.4 – 0.1 – 1,052.0 – 8.3 – 12.4 – – – 3.9 – 826.1 – 2,871.6 – (2.9) – (1.9) –	Recognised gains or losses Profit or loss Other comprehensive income Purchase Disposal Balance at 31/12/2017 Unrealised gain or loss for the year – (0.8) – – 41.4 – 0.3 – – – 0.7 0.3 (0.1) – – – – (0.1) 1.0 – – – 1,053.0 1.0 2.6 – – – 10.9 2.6 (0.3) – – (1.2) 10.9 (0.3) 0.1 – 17.0 – 17.1 0.1 0.1 – 17.0 – 21.0 0.1 (14.6) – – – 811.5 (14.6) 922.7 – 666.5 (158.6) 4,302.2 900.5 (5.9) – – – (8.8) (5.9) 1.9 – – – – 1.9

– I-56 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(HK$ Million) Available-for-sale investments Unlisted overseas equity securities Held for trading investments Over the counter equity derivatives Over the counter currency derivatives Unlisted put right for shares in an associate Unlisted call option for club memberships Unlisted call option for shares listed outside Hong Kong Investments designated as at fair value Unlisted convertible preferred shares issued by an unlisted company Unlisted convertible bonds issued by unlisted companies Unlisted overseas equity securities with a put right for shares# Unlisted overseas investment funds Financial liabilities held for trading Over the counter equity derivatives Over the counter currency derivatives		2016
	Balance at 1/1/2016 Transfer 39.7 – 0.7 – 0.1 – 707.0 – 9.3 – 25.9 – 267.8 – 778.9 (775.0) – 775.0 2,286.8 – (22.5) – (0.9) –	Recognised gains or losses Profit or loss Other comprehensive income Purchase Disposal Balance at 31/12/2016 Unrealised gain or loss for the year – 2.5 – – 42.2 – (0.3) – – – 0.4 (0.3) – – – – 0.1 – 345.0 – – – 1,052.0 345.0 (1.0) – – – 8.3 (1.0) (13.5) – – – 12.4 (13.5) 0.1 – – (267.9) – – – – – – 3.9 – 51.1 – – – 826.1 51.1 435.2 – 384.8 (235.2) 2,871.6 426.2 19.6 – – – (2.9) 19.6 (1.0) – – – (1.9) (1.0)

On 10 December 2015, the Group entered into a convertible note agreement with an overseas unlisted company (“Issuer”) to subscribe a convertible note in an aggregate principal amount of US$100,000,000 issued by the Issuer, and entered into a subscription and shareholders’ agreement with the Issuer and its holding company, in respect of the exercise of the conversion right under the convertible note agreement to subscribe for the Issuer’s ordinary shares with a right to put back the ordinary shares to the Issuer. During the year ended 31 December 2016, the Group exercised the conversion right and the Issuer allotted and issued 100,000,000 shares at US$1 each, which represented approximately 4.55% of the enlarged issued and paid up share capital of the Issuer. The put right is considered as an embedded derivative. The Group designates the entire unlisted equity securities with the put right for shares as a financial asset at fair value through profit or loss.

– I-57 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The carrying amounts of the Group’s financial assets at the end of the reporting period were as follows:

(HK$ Million) Available-for-sale investments Financial assets at fair value through profit or loss – Held for trading investments – Investments designated as at fair value through profit or loss Loans and receivables – Amounts due from associates and joint ventures (Note 28) – Loans and advances to consumer finance customers (Note 29) – Mortgage loans (Note 30) – Trade and other receivables (Note 31) – Amounts due from brokers – Bank deposits (Note 32) – Cash and cash equivalents (Note 32)	31/12/2017 324.0 5,785.8 5,436.3 11,222.1 418.8 9,163.6 2,120.4 3,295.0 725.8 787.7 2,123.7 18,635.0 30,181.1	31/12/2016 109.5
		2,910.4 3,701.6
		6,612.0
		313.3 7,660.3 613.1 2,935.9 1,059.5 1,257.7 5,194.5
		19,034.3
		25,755.8

The carrying amounts of Group’s financial liabilities at the end of the reporting period were as follows:

(HK$ Million) Financial liabilities at fair value through profit or loss – Held for trading Financial liabilities measured at amortised cost – Bank and other borrowings (Note 33) – Trade and other payables (Note 34) – Financial liabilities for repurchase agreements (Note 35) – Amounts due to fellow subsidiaries and a holding company (Note 36) – Amounts due to associates (Note 36) – Notes issued (Note 38)	31/12/2017 161.1 3,797.2 150.1 1,071.0 135.3 1.9 8,130.9 13,286.4 13,447.5	31/12/2016 115.3
		4,810.3 73.4 – 41.0 1.9 5,311.9
		10,238.5
		10,353.8

– I-58 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Transferred financial assets

The Group enters into transactions in the normal course of business by which it transfers recognised financial assets to third parties. In some cases where these transfers may give rise to full derecognition of the financial assets concerned. In other cases where the Group has retained substantially all the risks and rewards of these assets, the Group continues to recognise the transferred assets.

The Group transfers financial assets that are not derecognised in their entirety primarily through the sale of debt securities with repurchase agreements.

Sales and repurchase agreements are transactions in which the Group sells a debt security and simultaneously agrees to repurchase it (or an asset that is substantially the same) at the agreed date and price. The repurchase prices are fixed and the Group is still exposed to substantially all the credit risks, market risks and rewards of those debt securities sold. These debt securities are not derecognised from the financial statements but regarded as “collateral” for the liabilities because the Group retains substantially all the risks and rewards of these debt securities. The proceeds received on the transfer are recognised as liabilities under “Financial liabilities for repurchase agreements”.

The following table sets out the carrying amounts of all financial assets transferred that are not derecognised in their entirety and associated liabilities.

As at 31 December 2017

	Carrying	Carrying
	amount of	amount of
	transferred	associated
Analysed by liabilities type	assets	liabilities	Net Position
	Financial
	assets at
	fair value
	through
(HK$ Million)	profit or loss
Financial liabilities for repurchase
agreements (Note 35)	1,280.2	1,071.0	209.2

Financial asset and financial liabilities offsetting

The disclosures set out in the tables below include financial assets and financial liabilities that are subject to an enforceable master netting arrangement or similar agreement that covers similar financial instruments, irrespective of whether they are offset in the Group’s consolidated statement of financial position.

The Group has entered certain derivative transactions that are covered by the International Swaps and Derivatives Association Master Agreements (“ISDA Agreements”) signed with various banks. These derivative instruments are not offset in the consolidated statement of financial position as the ISDA Agreements are in place with a right of set off only in the event of default, insolvency or bankruptcy so that the Group currently has no legally enforceable right to set off the recognised amounts.

– I-59 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Financial assets and liabilities subject to offsetting, enforceable master netting arrangements and similar agreements:

As at 31 December 2017

(HK$ Million) Type of financial assets Financial assets at fair value through profit or loss Debt securities pledged as collaterals for financial liabilities for repurchase agreements_(Note 35)_ Type of financial liabilities Financial liabilities at fair value through profit or loss Financial liabilities for repurchase agreements	Gross amounts of recognised financial assets and liabilities 2,538.9 1,280.2 161.1 1,071.0	Gross amounts set off in the consolidated statement of financial position – – – –	Net amounts presented in consolidated statement of financial position 2,538.9 1,280.2 161.1 1,071.0	Related amounts not set off in the consolidated statement of financial position Financial instruments Cash collateral received/pledged (161.1) – (1,071.0) – (161.1) – (1,071.0) –	Net amount 2,377.8 209.2
				Financial instruments (161.1) (1,071.0) (161.1) (1,071.0)

					– –

As at 31 December 2016

(HK$ Million) Type of financial assets Financial assets at fair value through profit or loss Amounts due from brokers Type of financial liabilities Financial liabilities at fair value through profit or loss	Gross amounts of recognised financial assets and liabilities 1,450.8 1,059.5 115.3	Gross amounts set off in the consolidated statement of financial position – – –	Net amounts presented in consolidated statement of financial position 1,450.8 1,059.5 115.3	Related amounts not set off in the consolidated statement of financial position Financial instruments Cash collateral received/pledged (3.8) – (111.5) – (115.3) –	Net amount 1,447.0 948.0
				Financial instruments (3.8) (111.5) (115.3)

					–

– I-60 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

27. DEFERRED TAXATION

The following are the major deferred tax assets and liabilities of the Group recognised and movements thereon during the current and prior years:

(HK$ Million) At 1 January 2016 Exchange adjustments Disposal of subsidiaries and joint venture Recognised in profit or loss At 31 December 2016 Exchange adjustments Recognised in profit or loss At 31 December 2017	Accelerated tax depreciation (10.7) – – 1.5 (9.2) – (3.5) (12.7)	Provisions and impairment 579.0 (37.6) – 130.4 671.8 42.0 (40.3) 673.5	Revaluation of assets (179.7) 0.6 3.0 (8.3) (184.4) (0.7) 2.1 (183.0)	Unrealised gain (68.7) 4.0 – 9.4 (55.3) (4.8) 4.0 (56.1)	Undistributed earnings and others (2.7) – – 2.7 – – 0.2 0.2	Tax losses 33.7 (0.6) – 1.1 34.2 0.8 11.2 46.2	Total 350.9 (33.6) 3.0 136.8
							457.1 37.3 (26.3)
							468.1

For reporting purposes, certain deferred tax assets and liabilities have been offset in the underlying subsidiaries. The following is the analysis of the deferred tax balances of the Group for financial reporting purposes:

(HK$ Million) Deferred tax assets Deferred tax liabilities	31/12/2017 649.6 (181.5) 468.1	31/12/2016 652.5 (195.4)
		457.1

At the end of the reporting period, the Group had unrecognised tax losses of HK$216.8 million (31/12/2016: HK$325.6 million) available to offset against future profits. The deductible temporary difference and tax losses have not been recognised as it is uncertain that there will be sufficient future taxable profits available for the utilisation of these temporary differences. The unrecognised tax losses included a sum of HK$11.2 million that will expire during 2019 to 2022 (31/12/2016: HK$1.5 million will expire during 2018 to 2021).

Under the Law of PRC on Enterprise Income Tax, withholding tax is imposed on dividends declared in respect of profits earned by the PRC subsidiaries from 1 January 2008 onwards. Deferred tax has not been provided for in the consolidated financial statements in respect of temporary differences attributable to accumulated profits of the PRC subsidiaries amounting to HK$1,026.5 million at the end of the reporting period (31/12/2016: HK$788.1 million). The taxable temporary differences have not been recognised as the Group is able to control the timing of the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future.

– I-61 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

28. AMOUNTS DUE FROM ASSOCIATES AND JOINT VENTURES

(HK$ Million) Amounts due from associates Less: impairment allowance Amounts due from joint ventures Less: impairment allowance Analysed for reporting purposed as: – Non-current assets – Current assets (HK$ Million) At 31 December 2017 Gross amount of impaired advances Individually assessed impairment allowances – Balance brought forward – Amounts written off – Amounts recognised in profit or loss – Balance carried forward Net carrying amount of impaired advances At 31 December 2016 Gross amount of impaired advances Individually assessed impairment allowances – Balance brought forward – Amounts written off – Amounts recognised in profit or loss – Balance carried forward Net carrying amount of impaired advances	31/12/2017 435.9 (17.1) 418.8 – – – 418.8 275.2 143.6 418.8	31/12/2016 328.2 (17.1)
		311.1
		2.2 –
		2.2
		313.3

		248.8 64.5
		313.3

		Advance to associates 17.3
		(17.1) – –
		(17.1)
		0.2

		17.3
		(17.1) – –
		(17.1)
		0.2

– I-62 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The impairment is recognised when there is objective evidence of impairment (such as unsustainable operating loss) after the Group’s evaluation of the collectibility of amounts due from associates and joint ventures.

Further details of amounts due from associates and joint ventures are disclosed in Note 36.

29. LOANS AND ADVANCES TO CONSUMER FINANCE CUSTOMERS

(HK$ Million) Loans and advances to consumer finance customers – Hong Kong – Mainland China Less: impairment allowance Analysed for reporting purposes as: – Non-current assets – Current assets	31/12/2017 6,544.2 3,282.7 (663.3) 9,163.6 2,322.8 6,840.8 9,163.6	31/12/2016 6,373.5 2,193.1 (906.3)
		7,660.3
		2,190.8 5,469.5
		7,660.3

Movements of impairment allowance during the year were as follows:

(HK$ Million) At 1 January Exchange adjustments Amounts written off Amounts recognised in profit or loss Amounts recovered At 31 December	2017 (906.3) (17.7) 700.8 (277.3) (162.8) (663.3)	2016 (949.0) 23.5 1,053.0 (873.6) (160.2)
		(906.3)

All the loans and advances bear interest at market interest rates.

The loans and advances to consumer finance customers have been reviewed by the Consumer Finance division to assess impairment allowances which are based on the evaluation of collectibility, ageing analysis of accounts and on management’s judgement, including the current creditworthiness and the past collection statistics of individually significant accounts or a portfolio of accounts on a collective basis.

The following is an ageing analysis for the loans and advances to consumer finance customers that were past due at the end of the reporting period but not impaired:

(HK$ Million) Less than 31 days past due 31 – 60 days 61 – 90 days 91 – 180 days Over 180 days	31/12/2017 538.7 100.2 52.9 117.5 31.4 840.7	31/12/2016 499.6 91.8 55.2 139.8 169.6
		956.0

– I-63 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The loans and advances to consumer finance customers categorised as unsecured and secured, are as follows:

At the reporting date, loans and advances to consumer finance customers consisted of HK$8,881.3 million unsecured (31/12/2016: HK$7,163.5 million) and HK$282.3 million secured (31/12/2016: HK$496.8 million). The table below summarises its credit quality (gross balances net of impairment allowances):

(HK$ Million) Credit quality Neither past due nor individually impaired Past due or individually impaired	31/12/2017 8,266.4 897.2 9,163.6	31/12/2016 6,686.6 973.7
		7,660.3

The amount and type of collateral required depend on an assessment of the credit risk of the customer or counterparty.

The main types of collateral and credit enhancement obtained are as follows:

for personal lending, charges over residential properties; and
for commercial lending, corporate guarantees, charges over real estate properties, pledge of shares or debentures over the borrower’s assets.

In general, the loans and advances which are granted on a secured basis, are made to the consumer finance customers with sufficient amount of collateral provided by them. Management requests additional collateral as appropriate in accordance with the underlying agreements, and monitors the market value of collateral during its review of the adequacy of the impairment allowance.

Estimate of fair value of collateral is based on the valuation techniques commonly used for the corresponding assets at the time of borrowing.

It is the Group’s policy to dispose of repossessed properties in an orderly fashion. The proceeds are used to reduce or repay the outstanding loan balances. In general, the Group does not retain repossessed properties for business purposes.

In respect of the secured loans and advances to customers with the carrying amount of HK$266.6 million (2016: HK$419.7 million), the fair values of the collaterals of such loans and advances can be objectively ascertained to cover the outstanding amount of the loan balances.

The carrying amounts of the loans and advances to consumer finance customers approximate their fair

values.

– I-64 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

30. MORTGAGE LOANS

(HK$ Million) Mortgage loans – Hong Kong Less: impairment allowance Analysed for reporting purposes as: – Non-current assets – Current assets	31/12/2017 2,125.4 (5.0) 2,120.4 1,243.1 877.3 2,120.4	31/12/2016 616.3 (3.2)
		613.1
		330.4 282.7
		613.1

Movements of impairment allowance during the year were as follows:

(HK$ Million) At 1 January Amounts written off Amounts recognised in profit or loss At 31 December	2017 (3.2) 1.4 (3.2) (5.0)	2016 (1.2) 1.0 (3.0)
		(3.2)

The mortgage loans bear interest at market interest rates.

The mortgage loans have been reviewed by the mortgage loans division to assess impairment allowances in two aspects which are based on the evaluation of collectibility, ageing analysis of accounts, and on management’s judgement, including the current creditworthiness and the past collection statistics of individually significant accounts or a portfolio of accounts on a collective basis.

The following is an ageing analysis for the Mortgage loans that were past due at the end of the reporting period but not impaired:

(HK$ Million) Less than 31 days past due 31 – 60 days 61 – 90 days 91 – 180 days Over 180 days	31/12/2017 218.0 6.5 4.1 – 8.8 237.4	31/12/2016 20.0 37.9 3.0 0.1 –
		61.0

– I-65 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The mortgage loans categorised as unsecured and secured, are as follows:

At the reporting date, mortgage loan consisted of HK$230.1 million unsecured (31/12/2016: HK$224.8 million) and HK$1,890.3 million secured (31/12/2016: HK$388.3 million). The table below summarises its credit quality (gross balances net of impairment allowances):

(HK$ Million) Credit quality Neither past due nor individually impaired Past due or individually impaired	31/12/2017 1,827.5 292.9 2,120.4	31/12/2016 552.1 61.0
		613.1

The amount and type of collateral required depend on an assessment of the credit risk of the customer.

The main types of collateral and credit enhancement obtained are as follows:

for personal lending, mortgages over residential properties; and
for commercial lending, charges over real estate properties.

In general, the mortgage loans which are granted on a secured basis with sufficient amount of collateral provided by them. Management requests additional collateral as appropriate in accordance with the underlying agreements, and monitors the market value of collateral during its review of the adequacy of the impairment allowance.

Estimate of fair value of collateral is based on the valuation techniques commonly used for the corresponding assets at the time of borrowing.

In respect of the secured mortgage loans to mortgage loans customers with the carrying amount of HK$1,890.3 million (2016: HK$388.3 million), the fair values of the collaterals of such mortgage loans can be objectively ascertained to cover the outstanding amount of the loan balances.

The unsecured mortgage loans include second mortgage loans in respect of which the Group are not entitled to the first charge of relevant mortgage properties. The management consider that the second mortgage loans are classified as unsecured loans due to the impediment in repossession of the mortgage properties and the practical difficulties to ascertain the residual collateral value after claim by first mortgagee.

The carrying amounts of the mortgage loan approximate their fair values.

The Group’s mortgage loans carried an average interest rate of 10.15% (2016: 12.03%).

– I-66 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

31. TRADE AND OTHER RECEIVABLES

(HK$ Million) Secured term loans Unsecured term loans Less: impairment allowance Guarantee and consultancy fee receivables Payments on behalf of customers* Less: impairment allowance Other receivables – Deposits – Others Trade and other receivables at amortised cost Prepayments Analysed for reporting purposes as: – Non-current assets – Current assets	31/12/2017 2,125.7 1,115.9 (86.6) 3,155.0 0.5 6.3 (6.6) 0.2 43.8 96.0 139.8 3,295.0 34.3 3,329.3 505.8 2,823.5 3,329.3	31/12/2016 2,618.0 230.3 (0.4)
		2,847.9
		1.5 59.4 (56.1)
		4.8
		40.1 43.1
		83.2
		2.935.9 44.3
		2,980.2

		359.9 2,620.3
		2.980.2

Payments on behalf of customers represented payments made by the Group to reimburse the beneficiaries of the guarantees (the “Holders”) for losses the Holders incurred because the customers failed to make payments when due in accordance with the term of the corresponding debt instruments.

The following is an ageing analysis of trade and other receivables based on date of invoice/contract note at the reporting date:

(HK$ Million) Less than 31 days Term loans and trade and other receivables without ageing* Less: impairment allowances Trade and other receivables at amortised cost	31/12/2017 1.7 1.7 3,386.5 (93.2) 3,295.0	31/12/2016 17.0
		17.0 2,975.4 (56.5)
		2,935.9

No ageing analysis is disclosed for term loans financing, as, in the opinion of the management, the ageing analysis does not give additional value in view of the nature of the term loans financing business.

– I-67 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The gross amount of impaired receivables at the reporting date and the movement of impairment allowances during the year were as follows:

(HK$ Million) At 31 December 2017 Gross amount of impaired receivables Individually assessed impairment allowances – Balance brought forward – Exchange adjustments – Amounts written off – Amounts recognised in profit or loss – Balance carried forward Net carrying amount of impaired receivables At 31 December 2016 Gross amount of impaired receivables Individually assessed impairment allowances – Balance brought forward – Exchange adjustments – Amounts written off – Amounts recognised in profit or loss – Balance carried forward Net carrying amount of impaired receivables	Term loans 124.4 (0.4) – – (86.2) (86.6) 37.8 2.0 (95.9) – 59.7 35.8 (0.4) 1.6	Other receivables 6.8 (56.1) (2.0) 71.5 (20.0) (6.6) 0.2 60.9 (17.0) 3.1 12.7 (54.9) (56.1) 4.8	Total 131.2
			(56.5) (2.0) 71.5 (106.2)
			(93.2)
			38.0

			62.9
			(112.9) 3.1 72.4 (19.1)
			(56.5)
			6.4

Impairment loss on trade receivables, term loans and other receivables is recognised in profit or loss after review by the management, based on the latest status of trade receivables, term loans and other receivables, and the latest announced or available information about the underlying collateral held.

The following is an ageing analysis of trade and other receivables that were past due at the end of the reporting period but not impaired:

(HK$ Million) Less than 31 days 31 – 60 days 61 – 90 days Over 91 days	31/12/2017 0.2 – – – 0.2	31/12/2016 0.2 1.0 1.1 1.8
		4.1

The carrying amounts of the trade and other receivables at amortised cost approximate their fair values.

Further details on financial risk management of trade and other receivables are disclosed in Note 44.

– I-68 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

32. BANK DEPOSITS, CASH AND CASH EQUIVALENTS

(HK$ Million) Bank balances and cash Fixed deposits with banks with a term within 3 months Cash and cash equivalents Fixed deposits with banks with a term between 4 to 12 months	31/12/2017 1,745.4 378.3 2,123.7 787.7 2,911.4	31/12/2016 2,251.1 2,943.4
		5,194.5 1,257.7
		6,452.2

The carrying amounts of bank deposits, cash and cash equivalents approximate their fair values. Further details on financial risk management of bank deposits, cash and cash equivalents are disclosed in Note 44.

33. BANK AND OTHER BORROWINGS

(HK$ Million) Bank loans – Unsecured term loans – Secured instalment loans Total bank borrowings Other borrowings Analysed for reporting purposes as: – Current liabilities – Non-current liabilities	31/12/2017 3,363.2 399.0 3,762.2 35.0 3,797.2 2,196.8 1,600.4 3,797.2	31/12/2016 4,712.5 38.8
		4,751.3 59.0
		4,810.3

		2,092.6 2,717.7
		4,810.3

At 31 December 2017, bank and other borrowings were repayable as fozllows:

(HK$ Million) Bank borrowings – Within one year – In the second year – In the third to fifth year Bank borrowings with a repayment on demand clause – Within one year – In the second year – In the third to fifth year Other borrowings – Within one year – Over five years	31/12/201 7 1,747.8 1,255.8 309.6 435.0 14.0 – 3,762.2 – 35.0 3,797.2	31/12/2016 1,999.8 1,748.5 934.2 54.8 4.8 9.2
		4,751.3 24.0 35.0
		4,810.3

– I-69 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The secured instalment bank loans are repayable by instalments up to August 2019. Interest is charged on the outstanding balances at market rates.

All the bank loans and other borrowings are in Hong Kong dollars except for equivalent amounts of HK$206.5 million which was denominated in US dollar (31/12/2016: HK$448.9 million in US and Australian dollar). Further details related to financial risk management of such balances are disclosed in Note 44.

The carrying amounts of the bank and other borrowings approximate their fair values.

34. TRADE AND OTHER PAYABLES

(HK$ Million) Other accounts payable Accrued staff costs and other accrued expenses	31/12/2017 150.1 179.0 329.1	31/12/2016 73.4 165.7
		239.1

The following is an ageing analysis of the trade and other payables based on the date of invoice/contract note at the reporting date:

(HK$ Million) Less than 31 days/repayable on demand 31 – 60 days 61 – 90 days 91 – 180 days Over 180 days Accrued staff costs, other accrued expenses and other payables without ageing	31/12/2017 46.7 8.1 9.2 – – 64.0 265.1 329.1	31/12/2016 40.0 8.4 8.3 1.7 0.5
		58.9 180.2
		239.1

The carrying amounts of the trade and other payables at amortised cost approximate their fair values.

35. FINANCIAL LIABILITIES FOR REPURCHASE AGREEMENTS

(HK$ Million)	2017	2016
Analysed by collateral type:
Debt instruments classified as:
Financial assets at fair value through profit or loss	1,071.0	–

As at 31 December 2017, debt instruments which are classified as financial assets at fair value through profit or loss with carrying amount of HK$1,280.2 million (2016: Nil) were sold under repurchase agreements with other financial institutions. All repurchase agreements are due within 12 months from the end of the reporting period. Details of the arrangement are set out in Note 26.

– I-70 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

36. RELATED PARTY TRANSACTIONS

During the year, the Group entered into the following material transactions with related parties:

(HK$ Million) Associates and joint ventures of a holding company Rental and building management fees to an associate of a holding company Rental and building management fees to a joint venture of a holding company Interest expense to an associate of a holding company Proceeds received on disposal of subsidiaries to an associate of a holding company Associates Loan to an associate Rental income from an associate Loan referral fee and participation fee received from associates and joint ventures Management and service fees received from associates and joint ventures Brokerage expenses to an associate Service fees expenses to an associate Consultancy fee received from associates Insurance premiums paid to an associate Holding company and its subsidiaries Short-term loan due to fellow subsidiaries Finance costs to fellow subsidiaries Service fee to a fellow subsidiaries Management fees paid/payable to a holding company*	2017 (3.9) (18.5) (8.3) – – – 36.7 5.0 (2.6) (5.0) 2.5 (2.8) (86.5) (22.8) (14.9) (15.6)	2016 (4.1) (17.9) (2.8) 100.7

		(201.6) 0.8 6.6 7.6 (0.8) (4.7) – (0.8)

		(39.3) (20.6) – (8.5)

The transactions also constituted connected transactions or continuing connected transactions. The details are disclosed under the Directors’ Report section.

Compensation of Key Management Personnel

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

(HK$ Million) Short-term benefits Post-employment benefits	201 7 102.5 1.7 104.2	2016 73.7 1.6
		75.3

During the year, 711,000 shares were granted under the SHK Employee Ownership Scheme (“EOS”) to key management personnel. In addition, 741,000 shares with a total amount of HK$3.75 million were vested for key management personnel during the year. The total dividend payments paid to the key management personnel during the year were HK$0.2 million (2016: HK$0.1 million). Further information of the EOS is disclosed in the “Management Discussion and Analysis” Section of this Annual Report.

– I-71 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

At the extraordinary general meeting of the Company held on 23 July 2012, it was resolved that a director’s service agreement entered between the Group and a director of a subsidiary for a term of ten years be approved. Subject to the terms and conditions of the agreement, the Group has granted the director of a subsidiary an option (“Option”) to subscribe for or purchase up to 20% of the issued capital of a new company (“Newco”) to be established to hold all equity interests in subsidiaries incorporated or to be incorporated in the PRC for money lending businesses in the PRC (“PRC Subsidiaries”) at an exercise price which is determined based on the aggregate carrying amount of shareholders equity and shareholders loans proportional to the shareholding to be taken up by the director of a subsidiary at the time of exercise of the Option. Prior to the period before the Option becomes vested, the director of a subsidiary is also entitled a bonus calculated based on the performance of the PRC Subsidiaries. The transaction constituted a very substantial disposal and a connected transaction and its details were disclosed in the Company’s circular dated 29 June 2012.

The fair value of the Option on grant date of 23 July 2012 was HK$255.1 million which was calculated using the Black-Scholes pricing model and carried out by Norton Appraisals Limited, a firm of independent and qualified professional valuers not connected with the Group. The inputs into the model include an underlying asset value of PRC Subsidiaries as at the grant date of HK$1,018.1 million, risk free rate of 2.74%, volatility of 39.25% and expected option life of 5 years. No share based payment expense is recognised in the consolidated financial statements for the year ended 31 December 2017 (2016:Nil) since one of the vesting conditions for the Option is the successful completion of the establishment of the Newco, the date of which, in the opinion of the management, could not yet be estimated with reasonable certainty.

At the end of the reporting period, the Group had the following material balances with related parties:

(HK$ Million) Associates of a holding company Notes issued held by an associate of a holding company Associates Amounts due from associates Amounts due to associates Joint ventures Amounts due from joint ventures Holding company and fellow subsidiaries Management fees paid/payable to a holding company Short-term loan due to fellow subsidiaries Notes issued held by fellow subsidiaries	31/12/2017 (116.5) (116.5) 418.8 (1.9) 416.9 – (9.5) (125.8) (378.5)	31/12/2016 (116.3)
		(116.3)

		311.1 (1.9)
		309.2

		2.2

		(1.7) (39.3) (303.6)

The amounts due from (to) associates are unsecured, non-interest bearing and repayable on

demand.

– I-72 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

37. PROVISIONS

(HK$ Million) Employee benefits At 1 January 2017 40.4 Exchange adjustments – Additional provisions for the year 54.7 Amount written back – Amount paid during the year (39.4) At 31 December 2017 55.7 (HK$ Million) Analysed for reporting purposes as: – Current liabilities – Non-current liabilities 38. NOTES ISSUED (HK$ Million) US dollar denominated notes (the “US$ Notes”) – 6.375% US dollar denominated notes maturing in September 2017 (the “6.375% Notes”) – 3% US dollar denominated notes maturing in December 2017 (the “3% Notes”) – 4.75% US dollar denominated notes maturing in May 2021 (“the “4.75% Notes”) – 4.65% US dollar denominated notes maturing in September 2022 (the “4.65% Notes”) HK dollar denominated notes – 2.8% HK dollar denominated notes maturing in November 2018 (the “2.8% Notes”) Renminbi denominated notes (the “RMB Notes”) – 6.9% Renminbi denominated notes maturing in May 2018 (the “6.9% Notes”) Analysed for reporting purposes as: – Current liabilities – Non-current liabilities	(HK$ Million) Employee benefits At 1 January 2017 40.4 Exchange adjustments – Additional provisions for the year 54.7 Amount written back – Amount paid during the year (39.4) At 31 December 2017 55.7 (HK$ Million) Analysed for reporting purposes as: – Current liabilities – Non-current liabilities 38. NOTES ISSUED (HK$ Million) US dollar denominated notes (the “US$ Notes”) – 6.375% US dollar denominated notes maturing in September 2017 (the “6.375% Notes”) – 3% US dollar denominated notes maturing in December 2017 (the “3% Notes”) – 4.75% US dollar denominated notes maturing in May 2021 (“the “4.75% Notes”) – 4.65% US dollar denominated notes maturing in September 2022 (the “4.65% Notes”) HK dollar denominated notes – 2.8% HK dollar denominated notes maturing in November 2018 (the “2.8% Notes”) Renminbi denominated notes (the “RMB Notes”) – 6.9% Renminbi denominated notes maturing in May 2018 (the “6.9% Notes”) Analysed for reporting purposes as: – Current liabilities – Non-current liabilities	Others 14.5 0.6 0.2 (1.3) – 14.0 31/12/2017 69.5 0.2 69.7 31/12/2017 – – 2,793.1 4,353.1 448.2 536.5 8,130.9 1,079.1 7,051.8 8,130.9		Total 54.9 0.6 54.9 (1.3) (39.4)
				69.7

				31/12/2016 54.7 0.2
				54.9

				31/12/2016 1,777.9 464.5 2,511.7 – – 557.8
				5,311.9

				2,264.5 3,047.4
				5,311.9

The US$ Notes were issued by a subsidiary, Sun Hung Kai & Co. (BVI) Limited, under a US$2 billion guaranteed medium term note programme. The US$ Notes are guaranteed by the Company.

– I-73 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

On 11 September 2017, under the guaranteed medium term note programme, Sun Hung Kai & Co. (BVI) Limited further issued US$550 million 4.65% Notes (US$400 million at par and US$150 million at premium) for a net consideration of HK$4,289.0 million. The notes are listed on The Stock Exchange of Hong Kong Limited. The 4.65% Notes will mature on 8 September 2022. The fair value of the 4.65% Notes based on the price quoted from pricing service at the reporting date was HK$4,364.1 million which was categorised as Level 2.

On 20 November 2017, under the guaranteed medium term note programme, Sun Hung Kai & Co. (BVI) Limited further issued HK$447.5 million 2.8% Notes at discount for a net consideration of HK$446.7 million. The 2.8% Notes will mature on 20 November 2018. The fair value of the 2.8% Notes based on the price quoted from pricing service at the reporting date was HK$449.0 million which was categorised as Level 2.

The 6.375% Notes and 3% Notes matured in September and December 2017 respectively and the outstanding balance was repaid.

The 4.75% Notes are listed on The Stock Exchange of Hong Kong Limited. The nominal value of the 4.75% Notes was US$361.6 million or equivalent to HK$2,827.3 million (31/12/2016: US$328.3 million or equivalent to HK$2,546.1 million) at the reporting date. The fair value of the 4.75% Notes based on the price quoted from pricing service at the reporting date was HK$2,937.0 million (31/12/2016: HK$2,572.1 million) which was categorised as Level 2.

During the period ended 31 December 2017, two subsidiaries of the Company disposed of the intragroup holdings of the 4.75% Notes and 6.375% Notes with nominal value of US$33.3 million or equivalent to HK$259.8 million and US$4.3 million or equivalent to HK$32.8 million respectively to third parties with a total consideration of US$38.6 million or equivalent to HK$300.4 million.

The RMB Notes were issued by a subsidiary, UA Finance (BVI) Limited, under a US$3 billion medium term note programme. The RMB Notes are unsecured and guaranteed by a non-wholly owned subsidiary.

The nominal value of the 6.9% Notes after eliminating the intra-group holdings was RMB442.0 million or equivalent to HK$530.8 million at the reporting date (31/12/2016: RMB495.0 million or equivalent to HK$552.7 million). The fair value of the 6.9% Notes based on the price quoted from pricing service at the reporting date was HK$558.3 million (31/12/2016: HK$578.6 million) which was categorised as Level 2.

During the year, the Group redeemed part of the 6.9% Notes with nominal value of RMB53.0 million or equivalent to HK$59.8 million from third parties with a total consideration of RMB53.6 million or HK$60.5 million.

39. SHARE CAPITAL

Issued and fully paid Balance brought forward Shares cancelled after repurchase Balance carried forward	Number of shares 2017 2016 Million Shares Million Shares 2,193.0 2,229.0 (40.0) (36.0) 2,153.0 2,193.0	Share capital 2017 2016 HK$ Million HK$ Million 8,752.3 8,752.3 – – 8,752.3 8,752.3	Share capital 2017 2016 HK$ Million HK$ Million 8,752.3 8,752.3 – – 8,752.3 8,752.3
			8,752.3

During the year, the trustee of the EOS acquired 0.9 million shares (2016: 0.3 million shares) of the Company through purchases on The Stock Exchange of Hong Kong Limited for the awarded shares of the EOS. The total amount paid to acquire the shares during the period was HK$4.8 million (2016: HK$1.4 million), which has been deducted from the owners’ equity. Further information is disclosed in the relevant section of “Management Discussion and Analysis” section of this Annual Report.

During the year, the Company repurchased its own shares through purchases on The Stock Exchange of Hong Kong Limited for HK$196.2 million (including expenses) (2016: HK$168.5 million). Further information is disclosed in the relevant section of the Directors’ Report.

– I-74 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

40. ANALYSIS OF OTHER COMPREHENSIVE INCOME (EXPENSES)

Attributable	to owners of the Company Revaluation reserve Retained earnings – – – – 2.8 – 2.2 – 5.0 – 0.7 – 0.1 – – – (10.1) 10.1 (4.9) – (1.5) – (15.7) 10.1	Total 0.7 466.2 3.5 2.2
Exchange reserve – 282.7 0.7 – 283.4 – (292.8) (0.1) – – – (292.9)	Revaluation reserve – – 2.8 2.2 5.0 0.7 0.1 – (10.1) (4.9) (1.5) (15.7)
		472.6

		(0.7) (490.9) (0.1) – (4.9) (1.5)
		(498.1)

41. COMMITMENTS

(a) Operating leases commitments

The Group as lessee

At the end of the reporting period, the Group had commitments for future aggregate minimum lease payments under non-cancellable operating leases which fall due as follows:

(HK$ Million) Within one year In the second to fifth year inclusive	31/12/2017 120.4 120.1 240.5	31/12/2016 123.5 75.2
		198.7

The lease payments represent rentals payable by the Group for its office premises and office equipment under operating lease arrangements. The lease terms and rentals of properties are fixed at one to five years. The lease commitments include rental payable to a joint venture of a holding company of HK$62.5 million (2016: HK$14.3 million) and an associate of a holding company of HK$1.6 million (2016: HK$5.0 million).

– I-75 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Group as lessor

At the end of the reporting period, the Group had contracted with tenants for the following future minimum lease payments:

(HK$ Million) Within one year In the second to fifth year inclusive	31/12/2017 14.9 3.5 18.4	31/12/2016 22.1 18.2
		40.3

The Group has properties leased to tenants for rental. The lease terms and rentals are fixed at three to five years.

(b) Loan commitments (HK$ Million) Within one year (c) Other commitments (HK$ Million) Capital commitments for funds Other capital commitments	31/12/2017 1,074.8 31/12/2017 332.9 0.8 333.7	31/12/2016 1,259.4

		31/12/2016 457.6 1.8
		459.4

42. CONTINGENT LIABILITIES

At the end of the reporting period, the Group had guarantees as follows:

(HK$ Million) Indemnities on banking facility made available to joint venture Financial guarantees under loan guarantee business*	31/12/2017 112.7 19.2 131.9	31/12/2016 104.7 81.9
		186.6

The Group has provided guarantees to lenders of its loan guarantee customers to guarantee the repayment of debts owed by the loan guarantee customers to their lenders. At 31 December 2017, the outstanding guarantee amount was HK$19.2 million (31/12/2016: HK$81.9 million).

43. CAPITAL MANAGEMENT

The primary objective of the Group’s capital management is to safeguard the Group’s ability to continue as a going concern and to maintain healthy capital ratios in order to support the Group’s growth and maximise shareholder value.

The Group manages its capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of its activities.

In order to maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. No changes were made in objectives, policies and processes during the years ended 31 December 2017 and 31 December 2016.

– I-76 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Group monitors capital using a gearing ratio, which is net debts divided by the equity. Net debts represent the total of bank and other borrowings and notes issued less bank deposits, cash and cash equivalents. The equity comprises all components of equity attributable to the owners of the Company. The gearing ratio at the reporting date was as follows:

(HK$ Million) Bank and other borrowings Notes issued Less: bank deposits, cash and cash equivalents Net debts Equity attributable to owners of the Company Gearing ratio	31/12/2017 3,797.2 8,130.9 11,928.1 (2,911.4) 9,016.7 19,426.7 46.4%	31/12/2016 4,810.3 5,311.9
		10,122.2 (6,452.2)
		3,670.0

		18,077.0

		20.3%

44. FINANCIAL RISK MANAGEMENT

Risk is inherent in the financial service business and sound risk management is a cornerstone of prudent and successful financial practice. That said, the Group acknowledges that a balance must be achieved between risks control and business growth. The principal financial risks inherent in the Group’s business are market risk (includes equity risk, interest rate risk and foreign exchange risk), credit risk and liquidity risk. The Group’s risk management objective is to enhance shareholders’ value while retaining exposure within acceptable thresholds.

The Group’s risk management governance structure is designed to cover all business activities and to ensure all relevant risk classes are properly managed and controlled. The Group has adopted a sound risk management and organisational structure equipped with comprehensive policies and procedures which are reviewed regularly and enhanced when necessary in response to changes in markets, the Group’s operating environment and business strategies. The Group’s independent control functions including Internal Audit, play an important role in the provision of assurance to the Board and senior management that a sound internal risk management mechanism is implemented, maintained and adhered to.

(a) Market Risk

(i) Equity Risk

There are many asset classes available for investment in the marketplace. One of the Group’s key business undertakings is investing in equity. Market risk arising from any equity investments is driven by the daily fluctuations in market prices or fair values. The ability to mitigate such risk depends on the availability of any hedging instruments and the diversification level of the investment portfolios undertaken by the Group. More importantly, the knowledge and experience of the trading staff managing the risk are also vital to ensure exposure is being properly hedged and rebalanced in the most timely manner. Proprietary trading across the Group is subject to limits approved by senior management. Valuation of these instruments is measured on a “mark-to-market” and “mark-to-fair-value” basis depending on whether they are listed or unlisted. Value at Risk (“VaR”) and stress tests are employed in the assessment of risk. Meanwhile other non-VaR limits such as “maximum loss” and “position” limits are also set out to restrict excessive risk undertakings. VaR and stress tests are approaches which are widely used in the financial industry as tools to quantify risk by combining the size of a position and the extent of a potential market movement into a potential financial impact.

The Group’s market-making and proprietary trading positions and their financial performance are reported daily to senior management for review. Internal Audit also performs regular checks to ensure there is adequate compliance in accordance with the established market risk limits and guidelines.

– I-77 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The table below summarises the overall financial impact on the Group arising from market movements in global equity indices. The analysis is based on the assumption that equity indices move ±20% with all other variables being held constant and all equity instruments undertaken by the Group moving simultaneously. Declines in the indices are expressed as negatives.

(HK$ Million) Local Index Overseas Index	At 31 December 2017 Potential impact on profit or loss for the year Potential impact on other components of equity 20% –20% 20% –20% 352.9 (306.5) 9.4 (9.4) 1,259.2 (1,246.4) 55.3 (55.3)	At 31 December 2016	At 31 December 2016
	Potential impact on profit or loss for the year 20% –20% 352.9 (306.5) 1,259.2 (1,246.4)	Potential impact on profit or loss for the year 20% –20% 285.0 (294.0) 806.6 (872.6)	Potential impact on other components of equity
			20% –20% 9.1 (9.1) 12.8 (12.8)

There is no material financial impact in the form of profit before tax for the year for the Group arising from market movements in the global equity indices. Futures, options and knock-out options are hedged by other derivatives in view of the volatile markets and wide trading ranges.

(ii) Interest Rate Risk

Interest rate risk is the risk of loss due to changes in interest rates. The Group’s interest rate risk exposure arises predominantly from term financing and loans and advances to consumer finance customers. Interest spreads are managed with the objective of maximising spreads to ensure consistency with liquidity and funding obligations.

At 31 December 2017, assuming that market interest rates moved by ±50 basis points (31/12/2016: ±50 basis points), the profit before tax for the year for the Group would have been HK$9.1 million lower or HK$9.4 million higher respectively (2016: HK$5.7 million lower or HK$6.6 million higher respectively). Assets and liabilities bearing interest below 50 basis points are excluded from 50 basis points downward movement.

The exposures of the Group’s financial assets (liabilities) bearing variable interest rate to cash flow interest rate risks and the earlier of their contractual repricing dates and contractual maturity dates are as follows:

(HK$ Million) At 31 December 2017 Loans and advances to consumer finance customers Mortgage loans Bank deposits, cash and cash equivalents Bank borrowings At 31 December 2016 Loans and advances to consumer finance customers Mortgage loans Bank deposits, cash and cash equivalents Bank borrowings	On demand or less than 3 months 277.7 362.5 1,396.7 (3,770.2) 464.2 220.3 1,696.5 (4,751.3)	3 months to 1 year – – – – – – – –	1 year to 5 years – – – – – – – –	Over 5 years – – – – – – – –	Total 277.7 362.5 1,396.7 (3,770.2)

					464.2 220.3 1,696.5 (4,751.3)

– I-78 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The exposures of the Group’s financial assets (liabilities) bearing fixed interest rate to fair value interest rate risks and the earlier of their contractual repricing dates and contractual maturity dates are as follows:

(HK$ Million) At 31 December 2017 Loans and advances to consumer finance customers Mortgage loans Bonds included in financial assets at fair value through profit or loss Term loans Bank deposits, cash and cash equivalents (Bank borrowing)/unamortised arrangement fee Notes issued Amounts due to fellow subsidiaries At 31 December 2016 Loans and advances to consumer finance customers Mortgage loans Bonds included in financial assets at fair value through profit or loss Term loans Bank deposits, cash and cash equivalents Notes issued Amount due to fellow subsidiaries	On demand or less than 3 months 2,591.3 311.6 2,193.3 490.1 843.9 (13.0) – (125.8) 2,070.4 43.2 386.9 343.6 3,690.0 (50.4) (38.3)	3 months to 1 year 4,135.4 512.8 – 2,459.4 487.5 – (1,079.2) – 3,226.5 207.8 211.8 2,160.6 711.5 (2,214.1) –	1 year to 5 years 2,076.4 932.1 18.2 205.5 – – (7,051.7) – 1,825.8 126.8 456.8 343.7 – (3,047.4) –	Over 5 years 82.8 1.4 1,302.9 – – – – – 73.4 15.0 – – – – –	Non-interest bearing – – – – – 21.0 – – – – – – – – –	Total 8,885.9 1,757.9 3,514.4 3,155.0 1,331.4 8.0 (8,130.9) (125.8)

						7,196.1 392.8 1,055.5 2,847.9 4,401.5 (5,311.9) (38.3)

(iii) Foreign Exchange Risk

Foreign exchange risk is the risk to earnings or capital arising from movements in foreign exchange rates.

The Group’s foreign exchange risk primarily arises from currency exposures originating from proprietary trading positions, and loans and advances denominated in foreign currencies, mainly in Australian dollars and Renminbi (“RMB”). Foreign exchange risk is managed and monitored by senior management. The risk arises from open currency positions are subject to management approved limits and are monitored and reported daily.

At 31 December 2017, assuming that the foreign exchange rates moved ±5% (31/12/2016: ±5%) with all other variables held constant, the profit before tax for the year for the Group would be HK$45.3 million lower/higher (2016: HK$2.7 million higher/lower).

(b) Credit Risk

Credit risk arises from the failure of a customer or counterparty to meet settlement obligations. As long as the Group lends, trades and deals with third parties, there will be credit risk exposure.

The Group’s credit procedures, governed by the Executive Committee, sets out the credit approval processes and monitoring procedures, which are established in accordance with sound business practices.

– I-79 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The table below shows the maximum exposure to and concentration of credit risk. The maximum exposure is shown in gross value before the effect of mitigation through the use of collateral agreements. The percentage figure next to the gross value reflects its concentration.

Maximum credit exposure Loans and advances to consumer finance customers Mortgage loans Bank deposits, cash and cash equivalents Trade and other receivables Amounts due from brokers Bonds included in financial assets at fair value through profit or loss Loan commitments Amounts due from associates and joint ventures Guarantees	31/12/2017 HK$ Million % 9,163.6 39% 2,120.4 9% 2,911.4 12% 3,295.0 14% 725.8 3% 3,493.4 15% 1,074.8 5% 418.8 2% 131.9 1% 23,335.1 100%	31/12/2016 HK$ Million % 7,660.3 35% 613.1 3% 6,452.2 30% 2,935.9 14% 1,059.5 5% 1,055.5 5% 1,259.4 6% 313.3 1% 186.6 1% 21,535.8 100%	31/12/2016 HK$ Million % 7,660.3 35% 613.1 3% 6,452.2 30% 2,935.9 14% 1,059.5 5% 1,055.5 5% 1,259.4 6% 313.3 1% 186.6 1% 21,535.8 100%
			100%

The maximum credit exposure at Group level is spread between “loans and advances to consumer finance customers”, “bonds included in financial assets at fair value through profit or loss” and “bank deposits, cash and cash equivalents”, which represents more than two thirds of the total exposure. The breakdown and ageing analysis of “loans and advances to consumer finance customers” and the breakdown of “bank deposits, cash and cash equivalents” are disclosed in Notes 29 and 32 to the consolidated financial statements respectively.

Loans with strategic clients are all properly authorised by the Executive Committee and with other controls in place to monitor their performance.

Concentration risk of loans and advances to consumer finance customers is managed by reference to individual customers.

The bonds included in financial asset at fair value through profit or loss is monitored by the management according to its geographic locations and industries.

The unsecured mortgage loans include second mortgage loans in respect of which the Group are not entitled to the first charge of relevant mortgage properties. The management considers that the second mortgage loans are classified as unsecured loans due to the impediment in repossession of the mortgage properties and the practical difficulties to ascertain the residual collateral value after claim by first mortgagee. The carrying amount and the loan commitments of the second mortgage loans are as follows:

(HK$ Million) Carrying amount Loan commitments	31/12/2017 302.8 23.0	31/12/2016 380.0

		15.5

Bank deposits, cash and cash equivalents is maintained in reputable banks with high credit rating, the credit risk is considered as remote.

– I-80 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(c) Liquidity Risk

The goal of liquidity management is to mitigate risk that a given security or asset cannot be traded quickly enough in the market to prevent a loss or make the required profit. Another goal is to enable the Group, even under adverse market conditions, to actively manage and match funds inflow against all maturing repayment obligations to achieve maximum harmony on cash flow management.

The Group manages its liquidity position to ensure a prudent and adequate liquidity ratio. This is achieved by a transparent and collective monitoring approach across the Group involving Executive Directors, the Director of Banking & Treasury and the Group CFO.

The exposure of the Group’s contractual undiscounted cash flow for financial liabilities and their contractual maturity dates are as follows:

(HK$ Million) At 31 December 2017 Bank and other borrowings+ Trade and other payables Financial liabilities for repurchase agreements Amounts due to fellow subsidiaries and a holding company Amounts due to associates Indemnities on banking facility made available to joint venture^ Notes issued Guarantees Financial liabilities at fair value through profit or loss At 31 December 2016 Bank and other borrowings+ Trade and other payables Amounts due to fellow subsidiaries and a holding company Amounts due to associates Notes issued Indemnities on banking facility made available to joint venture^ Guarantees Financial liabilities at fair value through profit or loss	On demand or less than 90 days 1,786.3 150.1 1,071.0 142.6 1.9 112.7 100.0 10.2 161.1 1,325.6 73.5 41.0 1.9 62.7 104.7 33.5 115.3	91 days to 1 year 512.3 – – – – – 1,243.1 8.6 – 878.0 – – – 2,379.3 – 40.0 –	1 year to 5 years 1,610.8 – – – – – 8,190.1 0.6 – 2,768.1 – – – 3,475.1 – 9.5 –	Over 5 years – – – – – – – – – – – – – – – – –	Total 3,909.4 150.1 1,071.0 142.6 1.9 112.7 9,533.2 19.4 161.1

					4,971.7 73.5 41.0 1.9 5,917.1 104.7 83.0 115.3

Bank and other borrowings with repayment on demand clause are classified as on demand in the above analysis although the demand clause has not been exercised.

^ The amount represents the maximum amount the Group could be required by the counterparty bank to indemnity for the loans drawn by a joint venture under a banking facility guaranteed by the Group. Based on the expectation at the end of the reporting period, the Group considers that it is remote for such contingent liabilities to be materialised.

The amounts included above for guarantees are the maximum amounts the Group could be required to settle under the arrangement for the full guaranteed amount if that amount is claimed by the counterparty to the guarantees.

– I-81 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

45. RECONCILIATION OF LIABILITIES ARISING FROM FINANCING ACTIVITIES

The table below details changes in the Group’s liabilities arising from financing activities, including both 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.

(HK$ Million) At 1 January 2017 Financing cash flows: – New short-term loans due to fellow subsidiaries raised – Net short-term bank and other borrowings repaid – New long-term bank and other borrowings raised – Proceeds from issue of notes – Redemption of notes – Repayment of notes – Disposal of notes held by subsidiaries of the Company Accrued interest Interest paid Loss on redemption of notes Effect on foreign exchange rate changes Others At 31 December 2017	Short-term loans due to fellow subsidiaries Note 36 39.3 86.5 – – – – – – – – – – – 125.8	Bank and other borrowings Note 33 4,810.3 – (2,169.6) 1,150.0 – – – – 181.9 (156.1) – 2.1 (21.4) 3,797.2	Notes issued Note 38 5,311.9 – – – 4,729.0 (60.5) (2,300.8) 334.9 348.9 (314.6) 0.8 81.3 – 8,130.9	Total 10,161.5 86.5 (2,169.6) 1,150.0 4,729.0 (60.5) (2,300.8) 334.9 530.8 (470.7) 0.8 83.4 (21.4)
				12,053.9

– I-82 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

46. STATEMENT OF FINANCIAL POSITION OF THE COMPANY

(HK$ Million) Non-current Assets Property and equipment Intangible assets Interest in subsidiaries Interest in associates Amounts due from subsidiaries Amounts due from associates Current Assets Amounts due from subsidiaries Other receivables Tax recoverable Cash and cash equivalents Current Liabilities Amounts due to subsidiaries Trade and other payables Provisions Taxation payable Net Current Assets Total Assets less Current Liabilities Capital and Reserves Share capital Reserves Equity attributable to owners of the Company Non-current Liabilities Provisions	31/12/2017 2.7 1.4 3,992.7 700.8 7,044.9 59.9 11,802.4 3,994.6 4.0 1.5 140.2 4,140.3 3,756.1 14.9 53.5 9.6 3,834.1 306.2 12,108.6 8,731.0 3,377.4 12,108.4 0.2 12,108.6	31/12/2016 4.3 1.5 4,094.1 700.8 7,922.1 59.8
		12,782.6
		263.9 3.4 0.8 1,935.3
		2,203.4
		2,117.8 13.5 40.3 –
		2,171.6
		31.8
		12,814.4

		8,731.0 4,083.2
		12,814.2
		0.2
		12,814.4

The Company’s statement of financial position was approved and authorised for issue by the Board of Directors on 21 March 2018 and are signed on its behalf by:

Lee Seng Huang

Director

Peter Anthony Curry Director

– I-83 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

47. RESERVES OF THE COMPANY

(HK$ Million) Retained earnings Balance at 1 January Profit and total comprehensive income for the year Dividends paid Shares repurchased Balance at 31 December	2017 4,083.2 57.7 (567.3) (196.2) 3,377.4	2016 4,791.1 36.0 (575.4) (168.5)
		4,083.2

The distributable reserves of the Company at 31 December 2017 amounted to HK$2,767.2 million (31/12/2016: HK$3,473.1 million), being its net realised profits calculated under Section 291 of the Hong Kong Companies Ordinance.

3. INDEBTEDNESS STATEMENT

At the close of business on 30 April 2018, being the latest practicable date for the purpose of this statement of indebtedness prior to the printing of this circular, the Group had outstanding borrowings of approximately HK$12,630,187,000, comprising of: (i) secured bank borrowings of approximately HK$317,800,000, (ii) unsecured bank and other borrowings of approximately HK$3,853,995,000 and (iii) unsecured and guaranteed notes of approximately HK$8,458,392,000. The Group’s secured borrowings were secured by investment properties held by the Group.

In addition, the Group had contingent liabilities in the sum of approximately HK$371,547,000, comprising of an indemnity on a banking guarantee and guarantees granted in relation to borrowings from a diversified portfolio of individual customers.

Foreign currency amounts have been translated into Hong Kong dollars at the rates of exchange prevailing at the close of business on 30 April 2018.

Save as aforesaid and apart from intra-group liabilities, the Group did not have any outstanding mortgages, charges, debentures, other loan capital, bank overdrafts, loans or other similar indebtedness, hire purchase commitments, liabilities under acceptances or acceptance credits or any guarantees or other material contingent liabilities as at the close of business on 30 April 2018.

4. MATERIAL CHANGE

The Directors confirm that save as disclosed below, there had been no material change in the financial or trading position or outlook of the Group since 31 December 2017, being the date to which the latest published audited consolidated financial statements of the Group were made up, up to and including the Latest Practicable Date.

Based on the unaudited consolidated management accounts of the Group prepared in accordance with Hong Kong Financial Reporting Standards (“ HKFRSs ”) issued by the Hong Kong Institute of Certified Public Accountants applicable for the Group’s annual periods beginning on or after 1 January 2018, the Group’s unaudited consolidated profit attributable to owners of the Company for the four months ended 30 April 2018 was estimated to be approximately HK$793.1 million.

– I-84 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The adoption of new accounting standards included HKFRS 9 “Financial Instruments”, which introduces, among other things, an expected credit loss impairment model. The impact of the initial application of the new accounting standards is disclosed in note 2 to the Group’s notes to audited consolidated financial statements for the year ended 31 December 2017 (and extracted and disclosed on pages I-11 to I-15 of this circular). According to transitional arrangement under HKFRS 9, upon initial application of HKFRS 9, the Group is not required to restate the comparative figures of prior periods. Hence, any comparison of the Group’s financial statements prepared after the adoption of HKFRS 9 on 1 January 2018 to those financial statements prepared prior to such adoption should take note of the resulting effects from such changes in accounting standards under HKFRS 9.

The Group’s unaudited consolidated profit attributable to owners of the Company for the four months ended 30 April 2017, which was prepared in accordance with the HKFRSs applicable for the Group’s financial year ended 31 December 2017 was approximately HK$572.4 million.

In addition to the effects arising from the changes in accounting standards under HKFRS 9, effective on 1 January 2018 as mentioned above, the Directors considered that the increase in the Group’s unaudited consolidated profit attributable to owners of the Company for the four months ended 30 April 2018 was mainly attributable to the fair value changes of the financial instruments from the Principal Investments Segment.

5. FINANCIAL AND TRADING PROSPECTS OF THE GROUP

The Group operates a diverse, yet complementary portfolio of businesses and investments across multiple asset classes with a focus on finance and investments. Its business segments comprise Consumer Finance, Mortgage Loans, Financial Services, and Principal Investments.

The Consumer Finance business is operated through majority-owned United Asia Finance Limited (“UAF”), a market leader in the sector in Hong Kong with a strong presence in Mainland China. In Hong Kong, UAF’s business is growing steadily with low delinquency as the economy and job market remains solid. Looking ahead, there are some factors that could weaken the domestic economy, including movements in global and local interest rates, the performance of the Chinese economy, or a reversal in property prices. Keeping these uncertainties in mind, UAF will endeavour to manage the risk adequately to optimise the return of the consumer finance business.

In Mainland China, the UAF business experienced a significant improvement since in its operations in 2017 after its business restructuring. The credit quality improved with a more diversified loan portfolio. Underperforming branches were closed and the Group increased its online reach to its customers. In May 2017, UAF China partnered with China UnionPay Merchant Services Co., Ltd (“China UnionPay”) to market loan products on its online platform, offering convenient and transparent small business loans to merchants of China UnionPay. The partnership has been very successful and contributed substantially to the growth in the loan book. The Group proposes to continue this partnership strategy through other similar alliances in parallel to developing its online-to-offline lending business in Mainland China. Although the Mainland China economy has improved, considerable challenges and uncertainties around the consumer finance sector remain and UAF will continue to adopt a prudent approach to balance credit risk and business growth.

– I-85 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Mortgage Loans business is operated under Sun Hung Kai Credit, providing mortgage services and funding solutions to homeowners and property investors in Hong Kong. The loan portfolio increased substantially in 2017 surpassing HK$2 billion since its launch at the end of 2015 benefiting from an alliance with real estate agents and property developers to provide financing to home buyers. The Group proposes to focus on this strategy. In addition, management also puts a high priority on efficiency gains to improve returns, while adopting a prudent strategy to credit quality.

The Financial Services segment consists of the Group’s strategic interests in financial services companies primarily including its 30% interest in the Everbright Sun Hung Kai business (“EBSHK”) as well as the 40% stake in LSS Financial Leasing (Shanghai) Limited. Both businesses have solid underlying performances with asset and customer growth. However, the main contributions to the profit of this segment is the accounting gain from the Group’s interest in EBSHK – the net of any impairment loss or reversal on associate, and the gain or loss recognized from the put option as the gain from financial assets. The Group’s fair value of the 30% interest in the EBSHK business is subject to independent value appraisal which takes into account the underlying performance of the business, and assumptions on its outlook and discount rates. The revaluation would result in impairment or a writeback. The Group’s put option over the 30% interest in EBSHK, classified as a financial asset at fair value through profit or loss, would see an increase in value in the case of impairment, and vice versa. The valuation of the option takes into account the valuation of the stake, as well as other assumptions in the option model such as volatility and the risk-free rate.

The Principal Investments business leverages the Group’s expertise and network and seeks attractive risk-adjusted investments that can bring about sustainable long term capital growth returns. The investment assets include: (i) public equity investment in global, medium and large capitalization companies with an emphasis on Greater China, Australia and North America regions; (ii) private equity investment in financial services, fintech and other high growth sectors such as healthcare, media and technology, mainly in Greater China and North America regions; (iii) public bonds, including corporate and sovereign bonds, consisting of issuers across property, financial, oil and gas, and metals and mining sectors; (iv) structured finance products which provide funding solutions to corporates, investment funds, and high net worth individuals; and (v) real estate. The segment achieved strong results in 2017 with satisfactory gains across all asset classes. Management is pleased with the long term strategic positioning of the portfolio. However, its public market portfolio is exposed to mark-to market volatilities in the capital markets and in particular, the impact of mark-to-market movement in the short term which determine short term performance.

On the whole, the Group will continue to maintain a balanced approach to asset allocation for risk/reward and maintain strict oversight of costs.

– I-86 –

REPORT FROM DELOITTE ON THE PROFIT FORECAST STATEMENT

APPENDIX II

Set out below is the text of the letter prepared for inclusion in this circular, received by the Board from the Auditor, in connection with the profit estimate of the Group for the four months ended 30 April 2018 set out in section 4 of Appendix I to this circular.

25 June 2018

The Directors Sun Hung Kai & Co. Limited 42/F, Lee Garden One 33 Hysan Avenue Causeway Bay Hong Kong

Dear Sirs,

Sun Hung Kai & Co. Limited (the “Company”) and its subsidiaries (collectively referred to as the “Group”)

Profit Estimate for the Four Months Ended 30 April 2018

We refer to the profit estimate statement made by the Company (the “Profit Estimate Statement”) which is set forth in the section headed “Material Change” in Appendix I to the circular relating to the possible off-market share buy-back issued by the Company dated 25 June 2018 (the “Circular”), which contains an estimate of the unaudited consolidated profit attributable to owners of the Company for the four months ended 30 April 2018 which has been prepared by the directors of the Company (the “Profit Estimate”) as extracted below:

“Based on the unaudited consolidated management accounts of the Group prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants applicable for the Group’s annual periods beginning on or after 1 January 2018, the Group’s unaudited consolidated profit attributable to owners of the Company for the four months ended 30 April 2018 was estimated to be approximately HK$793.1 million.”

The Profit Estimate is prepared by the directors of the Company and constitutes a profit forecast under Rule 10 of the Code on Takeovers and Mergers issued by The Securities and Futures Commission.

Directors’ Responsibilities

The Profit Estimate has been prepared by the directors of the Company based on the unaudited consolidated management accounts of the Group for the four months ended 30 April 2018.

The Company’s directors are solely responsible for the Profit Estimate.

– II-1 –

REPORT FROM DELOITTE ON THE PROFIT FORECAST STATEMENT

APPENDIX II

Our Independence and Quality Control

We have complied with the independence and other ethical requirements of the “Code of Ethics for Professional Accountants” issued by the HKICPA, which is founded on fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behavior.

Our firm applies Hong Kong Standard on Quality Control 1 “Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements” issued by the HKICPA and accordingly maintains a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements.

Reporting Accountants’ Responsibilities

Our responsibility is to express an opinion on the accounting policies and calculations of the Profit Estimate based on our procedures.

We conducted our engagement in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 500 “Reporting on Profit Forecasts, Statements of Sufficiency of Working Capital and Statements of Indebtedness” and with reference to Hong Kong Standard on Assurance Engagements 3000 (Revised) “Assurance Engagements Other Than Audits or Reviews of Historical Financial Information” issued by the HKICPA. Those standards require that we plan and perform our work to obtain reasonable assurance as to whether, so far as the accounting policies and calculations are concerned, the Company’s directors have properly compiled the Profit Estimate in accordance with the bases adopted by the directors of the Company and as to whether the Profit Estimate is presented on a basis consistent in all material respects with the accounting policies as set out in the Profit Estimate Statement. Our work is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing issued by the HKICPA. Accordingly, we do not express an audit opinion.

Opinion

In our opinion, so far as the accounting policies and calculations are concerned, the Profit Estimate has been properly compiled based on the unaudited consolidated management accounts of the Group for the four months ended 30 April 2018 and is presented on a basis consistent in all material respects with the accounting policies as set out in the Profit Estimate Statement.

Yours faithfully,

Deloitte Touche Tohmatsu

Certified Public Accountants Hong Kong

– II-2 –

REPORT FROM CENTURION ON THE PROFIT FORECAST STATEMENT

APPENDIX III

Set out below is the text of the letter prepared for inclusion in this circular, received by the Board from the Independent Financial Adviser, in connection with the profit estimate of the Group for the four months ended 30 April 2018 set out in section 4 of Appendix I to this circular.

==> picture [202 x 55] intentionally omitted <==

25 June 2018

The Board of Directors

Sun Hung Kai & Co. Limited

42/F, Lee Garden One 33 Hysan Avenue Causeway Bay Hong Kong

Dear Sirs,

Sun Hung Kai & Co. Limited and its subsidiaries (collectively the “Group”) Profit estimate of the Group for the four months ended 30 April 2018

We refer to the estimate of the unaudited consolidated profit attributable to the owners of the Company for the four months ended 30 April 2018 (“ Profit Estimate ”) which has been prepared to enable the Directors to make the Profit Estimate statement (as extracted below) as set out in the section headed “Material Changes” in Appendix I to this circular (“ Circular ”). The Profit Estimate is treated as a profit forecast under Rule 10 of the Takeovers Code.

“Based on the unaudited consolidated management accounts of the Group prepared in accordance with Hong Kong Financial Reporting Standards (“ HKFRSs ”) issued by the Hong Kong Institute of Certified Public Accountants applicable for the Group’s annual periods beginning on or after 1 January 2018, the Group’s unaudited consolidated profit attributable to owners of the Company for the four months ended 30 April 2018 was estimated to be approximately HK$793.1 million.”

We have reviewed the report letter from Deloitte dated 25 June 2018 to you, the text of which is set out in the section headed “Report from Deloitte on the Profit Forecast Statement” in Appendix II to the Circular, which stated that the Profit Estimate has been prepared by the Directors based on the unaudited consolidated results or the four months ended 30 April 2018, which is itself based on the consolidated management accounts of the Group for the four months ended 30 April 2018.

– III-1 –

REPORT FROM CENTURION ON THE PROFIT FORECAST STATEMENT

APPENDIX III

We also noted that in the opinion of Deloitte, so far as the accounting policies and calculations are concerned, the Profit Estimate (i) has been properly compiled based on the unaudited consolidated management accounts of the Group for the four months ended 30 April 2018; and (ii) is presented on a basis consistent in all material respects with the accounting policies as set out in the Profit Estimate statement.

We have discussed with you the Directors the bases and assumptions upon which the Profit Estimate was prepared. We have also considered the opinion set out in the aforesaid letter from Deloitte, the auditors of the Company.

In light of the above, we are of the opinion that the Profit Estimate, for which you as Directors are solely responsible, has been compiled by you with due care and consideration.

Yours faithfully,

For and on behalf of

CENTURION CORPORATE FINANCE LIMITED Baldwin Lee

Managing Director

– III-2 –

GENERAL INFORMATION

APPENDIX IV

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Group. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there is no omission of other matters which would make any statement herein or this circular misleading.

This circular includes particulars given in compliance with the Buy-backs Code for the purpose of giving information with regard to the Group. The Directors jointly and severally accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in this circular have been arrived at after due and careful consideration and there are no other facts not contained in this circular, the omission of which would make any statement in this circular misleading.

2. MARKET PRICE

The table below sets out the closing prices of the Shares on the Stock Exchange (i) at the end of each of the calendar months during the 6 months immediately preceding 4 May 2018, being the date of the Announcement; (ii) on 4 May 2018, being the last trading day immediately preceding the Announcement; and (iii) on the Latest Practicable Date.

	Closing price
Date	per Share
	HK$
30 November 2017	4.98
29 December 2017	4.99
31 January 2018	5.11
28 February 2018	5.22
29 March 2018	4.89
30 April 2018	4.86
4 May 2018	4.80
31 May 2018	4.87
Latest Practicable Date	4.50

The lowest and highest closing market prices of the Shares recorded on the Stock Exchange during the period commencing 6 months preceding 4 May 2018, being the date of the Announcement and ending on the Latest Practicable Date were HK$4.50 on 22 June 2018 and HK$5.27 on 26 February 2018, respectively.

– IV-1 –

GENERAL INFORMATION

APPENDIX IV

3. SHARE CAPITAL, SHARE OPTIONS AND CONVERTIBLE SECURITIES

The issued share capital of the Company as at the Latest Practicable Date is set out below:

Issued and fully paid or credited as fully paid:

2,153,059,493 Shares

The Shares in issue are ordinary shares in the share capital of the Company. All existing Shares rank pari passu in all respects with each other, including capital, dividends and voting rights. The Shares in issue are listed on the Stock Exchange.

During the financial year ended 31 December 2017, 1,170,000 Shares were awarded to selected employees or directors of the Group under the Company’s Employee Ownership Scheme (“EOS”), subject to various terms including, amongst other things, vesting scales whereby awarded Shares will vest and become unrestricted in various vesting periods. A total of 1,192,000 Shares were vested during the year ended 31 December 2017. As at 31 December 2017, the outstanding awarded Shares under the EOS (excluding Shares awarded, but subsequently forfeited) amount to 1,349,000 Shares. The fair value of the services rendered (by reference to the market value of awarded shares at grant dates) as consideration of the shares awarded during the year ended 31 December 2017 was HK$6.1 million.

From 1 January 2018 to the Latest Practicable Date, 3,189,000 Shares were awarded to selected employees or directors of the Group under the EOS, subject to various terms including, amongst other things, vesting scales whereby awarded Shares will vest and become unrestricted in various vesting periods. A total of 533,000 Shares were vested during the period. As at the Latest Practicable Date, the outstanding awarded Shares under the EOS (excluding Shares awarded, but subsequently forfeited) amount to 4,005,000 Shares.

As at the Latest Practicable Date, the Company had no outstanding options, warrants, derivatives or securities convertible into Shares.

Since 31 December 2017 (being the date to which the latest published audited consolidated financial statements of the Group were made up), the Company has not issued any Shares or agreed to issue any new Shares.

– IV-2 –

GENERAL INFORMATION

APPENDIX IV

Save for the Share Buy-back, during the 12 months immediately preceding the date of this circular, the Company has bought back a total of 20,793,000 Shares on market, details of which are set out as follows:

		Highest
Date on which		price
the buy-back	Number of	paid per
was conducted	Shares	Share/Price	Lowest
on the Stock	bought	paid per	price paid	Aggregate
Exchange	back	Share	per Share	price paid
		HK$	HK$	HK$
June 2018	Nil	N/A	N/A	N/A
(up to the Latest
Practicable
Date)
May 2018	Nil	N/A	N/A	N/A
April 2018	Nil	N/A	N/A	N/A
March 2018	Nil	N/A	N/A	N/A
February 2018	Nil	N/A	N/A	N/A
January 2018	Nil	N/A	N/A	N/A
December 2017	4,408,000	5.00	4.88	21,744,300
November 2017	7,112,000	5.03	4.90	35,474,070
October 2017	3,549,000	5.05	5.01	17,875,620
September 2017	3,825,000	5.09	4.99	19,255,490
August 2017	449,000	5.18	5.14	2,320,940
July 2017	Nil	N/A	N/A	N/A
June 2017	1,450,000	5.05	5.00	7,302,520
Total	20,793,000			103,972,940

Save as disclosed above, there was no reorganisation of capital during the two financial years immediately preceding 25 June 2018, being the date of this circular.

Save as disclosed above, there has been no issue of Shares of the class of the Buy-back Shares during the 2-year period immediately preceding 25 June 2018, being the date of this circular.

4. DIVIDENDS

The frequency and amount of dividends that have been proposed or paid out by the Company to the Shareholders, including Asia Financial Services, during the 2-year period immediately preceding 25 June 2018, being the date of this circular, are as follows:

	2017	2016
	HK cents	HK cents
First interim dividend of the financial year	12	12
Second interim dividend of the financial year	14	14
Total dividend for the financial year	26	26

– IV-3 –

GENERAL INFORMATION

APPENDIX IV

The Company’s ability to pay dividends to Shareholders depends on a number of factors including the financial position of the Group, investment opportunities available to the Group and the general market conditions. The Company will strike a balance between preserving cash for the Group for its operational and investment needs and distributing dividends to Shareholders. The Company has no plan or intention to alter its present dividend policy.

The Directors declared a second interim dividend of HK14 cents per share (in lieu of a final dividend) for the year ended 31 December 2017 to the shareholders whose names appear on the register of members of the Company on 22 June 2018, making a total dividend for the year 2017 of HK26 cents per Share. Dividend warrants of the second interim dividend are expected to be despatched on 28 June 2018.

5. DISCLOSURE OF INTERESTS

(A) Directors’ and chief executive’s interests and short positions in Shares, underlying Shares and debentures

As at the Latest Practicable Date, the interests and short positions of the Directors and the chief executive of the Company in the Shares, underlying Shares and debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO) which (a) were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and/or short positions which they had taken or deemed to have taken under such provisions of the SFO); or (b) were recorded in the register required to be kept under Section 352 of the SFO; or (c) were otherwise notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers as set out in the Listing Rules were as follows:

		Number of
		Shares,	Approximate %
		underlying	of the total
		Shares and unit	number of issued
Name of Directors	Capacity	of debentures	Shares
Lee Seng Huang	Interests of controlled	1,233,578,575	57.29%
	corporation (Note 1)	(Note 2)
Simon Chow Wing Charn	Beneficial owner	533,000	0.02%
		(Note 3(a))
	Beneficiary of trust	1,012,000	0.05%
		(Note 3(b))
	Beneficial owner	2	N/A
		(Note 3(c))
Peter Anthony Curry	Beneficial owner	1,241,141	0.06%
		(Note 4(a))
	Beneficial owner	1	N/A
		(Note 4(b))

– IV-4 –

GENERAL INFORMATION

APPENDIX IV

Notes:

Mr. Lee Seng Huang, a Director, together with Mr. Lee Seng Hui and Ms. Lee Su Hwei are the trustees of Lee and Lee Trust, being a discretionary trust. The Lee and Lee Trust controlled approximately 74.95% of the total number of shares of Allied Group Limited (inclusive of Mr. Lee Seng Hui’s personal interests) and was therefore deemed to have an interest in the Shares in which Allied Group Limited was interested.
This refers to the deemed interests in 1,233,578,575 Shares held by Allied Properties (H.K.) Limited.
(a) This represents the Shares granted to Mr. Simon Chow Wing Charn (“Mr. Chow”) under the EOS that were vested, became unrestricted and the title of which has been transferred to him.
(b) These include the deemed interests in:
- (i) 184,000 unvested Shares out of the total of 552,000 Shares granted to Mr. Chow on 15 April 2016 under the EOS and was subsequently accepted. Such awarded Shares are subject to a vesting scale in tranches whereby one-third thereof (i.e. 184,000 Shares) was vested and became unrestricted from 15 April 2017; another one-third thereof was vested and become unrestricted from 15 April 2018; and the remaining one third thereof shall be vested and become unrestricted from 15 April 2019.
- (ii) 330,000 unvested Shares granted to Mr. Chow on 13 April 2017 under the EOS and was subsequently accepted. Such awarded Shares are subject to a vesting scale in tranches whereby one-third thereof (i.e. 165,000 Shares) was vested and become unrestricted from 13 April 2018; another one-third thereof shall be vested and become unrestricted from 13 April 2019; and the remaining one-third thereof shall be vested and become unrestricted from 13 April 2020.
- (iii) 498,000 unvested Shares granted to Mr. Chow on 20 April 2018 under the EOS and was subsequently accepted. Such awarded Shares are subject to a vesting scale in tranches whereby one-third thereof (i.e. 166,000 Shares) shall be vested and become unrestricted from 20 April 2019; another one-third thereof shall be vested and become unrestricted from 20 April 2020; and the remaining one-third thereof shall be vested and become unrestricted from 20 April 2021.
(c) This represents the interests held by Mr. Chow in the 4.65% Guaranteed Notes due September 2022 issued by Sun Hung Kai & Co. (BVI) Limited (“SHK BVI”, a wholly-owned subsidiary of the Company) in the amount of US$400,000.
(a) This includes 1,239,000 Shares granted to Mr. Peter Anthony Curry (“Mr. Curry”) under the EOS that were vested, became unrestricted and the title of which was transferred to him. The balance represents the Shares received by Mr. Curry by the allotment of scrip shares pursuant to the previous scrip dividend scheme of the Company.
(b) This represents the interests held by Mr. Curry in the 4.75% Guaranteed Notes due May 2021 issued by SHK BVI in the amount of US$200,000.

– IV-5 –

GENERAL INFORMATION

APPENDIX IV

(B) Interests in the shares and underlying shares of associated corporations

			Number of
			shares,	Approximate %
			underlying	of the total
	Associated		shares and unit	number of
Name of Directors	corporations	Capacity	of debentures	issued shares
Lee Seng Huang_(Note 1)_	Allied Group Limited	Trustee_(Note 2)_	131,706,380	74.93%
	(“AGL”)
	Allied Properties	Interests of controlled	5,278,911,521	77.49%
	(H.K.) Limited	corporation_(Note 3)_	(Note 4)
	(“APL”)
	SHK Hong Kong	Interests of controlled	3,082,889,606	74.97%
	Industries Limited	corporation_(Note 5)_	(Note 6)
	(“SHK HK Ind”)

Mr. Lee Seng Huang, by virtue of his interests in AGL and APL, was deemed to be interested in the shares of the subsidiaries of AGL (including SHK HK Ind, a listed subsidiary of AGL) and APL, which are associated corporations of the Company as defined under the SFO.

A waiver application was submitted to the Stock Exchange for exemption from disclosure of Mr. Lee’s deemed interests in the shares of such associated corporations of the Company in this circular, and the waiver was granted by the Stock Exchange on 21 May 2018.

Mr. Lee Seng Huang is one of the trustees of Lee and Lee Trust, being a discretionary trust which indirectly controlled 131,706,380 shares of AGL.
This refers to the same interests held directly or indirectly by AGL in APL.
This includes the interests in (i) 5,108,911,521 shares of APL which were held 968,354,880 directly and 4,140,556,641 indirectly by AGL and (ii) 170,000,000 shares of APL which were held indirectly by a wholly-owned subsidiary of the Company as holder of pledged shares.
This refers to the same interests held indirectly by AGL in SHK HK Ind.
This refers to the interests in 3,082,889,606 shares of SHK HK Ind.

All interests stated above represent long positions. As at the Latest Practicable Date, none of the Directors held any short positions in the shares, underlying shares or debentures of the Company or any of its associated corporations.

– IV-6 –

GENERAL INFORMATION

APPENDIX IV

(C) Other Director’s interests and short positions in Shares and underlying Shares

As at the Latest Practicable Date, so far as was known to any Director or chief executive of the Company, the following Directors are the directors or employees of a company which has an interest or short position in the Shares and underlying Shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO:

Name of Directors

Name of companies which had such discloseable interest or short position/Position held by the Directors in such companies

Jonathan Andrew Cimino

Dubai Group (L.L.C) (the holding company of Dubai Ventures L.L.C which is a substantial shareholder of the Company under the provisions of Part XV of the SFO)/Chief Executive Officer

David Craig Bartlett
AGL/Director

APL/Director

Alan Stephen Jones AGL/Director APL/Director

– IV-7 –

GENERAL INFORMATION

APPENDIX IV

6. SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, as far as the Directors are aware, the following persons had a long position or short position in the Shares, underlying Shares or debentures of the Company which would fall 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 by the Company under Section 336 of the SFO:

		Number of	Approximate %
		Shares and	of the
		underlying	total number of
Name of Shareholders	Capacity	Shares	issued Shares
APL	Interests of controlled	1,233,578,575	57.29%
	corporation (Note 1)	(Note 2)
AGL	Interests of controlled	1,233,578,575	57.29%
	corporation (Note 3)	(Note 4)
Lee and Lee Trust	Interests of controlled	1,233,578,575	57.29%
	corporation (Note 5)	(Note 4)
Dubai Ventures L.L.C	Beneficial owner	166,000,000	7.71%
(“Dubai Ventures”)		(Note 6)
Dubai Ventures Group	Interests of controlled	166,000,000	7.71%
(L.L.C) (“DVG”)	corporation (Note 7)	(Note 8)
Dubai Group (L.L.C)	Interests of controlled	166,000,000	7.71%
(“Dubai Group”)	corporation (Note 9)	(Note 8)
Dubai Holding	Interests of controlled	166,000,000	7.71%
Investments Group LLC	corporation	(Note 8)
(“DHIG”)	(Note 10)
Dubai Holding (L.L.C)	Interests of controlled	166,000,000	7.71%
(“Dubai Holding”)	corporation	(Note 8)
	(Note 11)
Dubai Group Limited	Interests of controlled	166,000,000	7.71%
(“DGL”)	corporation	(Note 8)
	(Note 12)
HSBC Trustee	Trustee (Note 13)	166,000,000	7.71%
(C.I.) Limited		(Note 8)
(“HSBC Trustee”)
HH Mohammed Bin	Interests of controlled	166,000,000	7.71%
Rashid Al Maktoum	corporation	(Note 8)
	(Note 14)
Asia Financial Services	Beneficial owner	341,600,000	15.87%
		(Note 15)
Asia Financial Services	Interests of controlled	341,600,000	15.87%
Holdings Limited	corporation	(Note 17)
(“AFSH”)	(Note 16)

– IV-8 –

GENERAL INFORMATION

APPENDIX IV

		Number of	Approximate %
		Shares and	of the
		underlying	total number of
Name of Shareholders	Capacity	Shares	issued Shares
Asia Financial Services	Interests of controlled	341,600,000	15.87%
Group Limited	corporation	(Note 17)
(“AFSG”)	(Note 18)
Asia Financial Services	Interests of controlled	341,600,000	15.87%
Group Holdings	corporation	(Note 17)
Limited (“AFSGH”)	(Note 19)
CVC Capital Partners Asia	Interests of controlled	341,600,000	15.87%
Pacific III L.P. (“CVC	corporation	(Note 17)
LP”)	(Note 20)
CVC Capital Partners Asia	Interests of controlled	341,600,000	15.87%
III Limited (“CVC	corporation	(Note 17)
Capital III”)	(Note 21)
CVC Capital Partners	Interests of controlled	341,600,000	15.87%
Advisory Company	corporation	(Note 17)
Limited (“CVC Capital	(Note 22)
Partners Advisory”)
CVC Capital Partners	Interests of controlled	341,600,000	15.87%
Finance Limited (“CVC	corporation	(Note 17)
Capital Partners	(Note 23)
Finance”)
CVC Group Holdings L.P.	Interests of controlled	341,600,000	15.87%
(“CVC Group	corporation	(Note 17)
Holdings”)	(Note 24)
CVC Portfolio Holdings	Interests of controlled	341,600,000	15.87%
Limited (“CVC	corporation	(Note 17)
Portfolio”)	(Note 25)
CVC Management	Interests of controlled	341,600,000	15.87%
Holdings Limited	corporation	(Note 17)
(“CVC Management”)	(Note 26)
CVC MMXII Limited	Interests of controlled	341,600,000	15.87%
(“CVC MMXII”)	corporation	(Note 17)
	(Note 27)
CVC Capital Partners	Interests of controlled	341,600,000	15.87%
2013 PCC (acting in	corporation	(Note 17)
respect of its protected	(Note 28)
cell, CVC Capital
Partners Cell G PC)
(“CVC Capital Partners
2013”)

– IV-9 –

GENERAL INFORMATION

APPENDIX IV

		Number of	Approximate %
		Shares and	of the
		underlying	total number of
Name of Shareholders	Capacity	Shares	issued Shares
CVC Capital Partners	Interests of controlled	341,600,000	15.87%
SICAV-FIS S.A. (“CVC	corporation	(Note 17)
Capital Partners SA”)	(Note 29)
Everbright Sun Hung Kai	Entity having a security	341,600,000	15.87%
Structured Solutions	interest in Shares	(Note 31)
Limited (“Everbright	(Note 30)
SHK”)
Sun Hung Kai Financial	Interests of controlled	341,600,000	15.87%
Group Limited (“SHK	corporation	(Note 33)
Financial Group”)	(Note 32)
Everbright Securities	Interests of controlled	341,600,000	15.87%
Financial Holdings	corporation	(Note 33)
Limited (“Everbright	(Note 34)
Securities Financial”)
Everbright Securities	Interests of controlled	341,600,000	15.87%
Company Limited	corporation	(Note 33)
	(Note 35)

Notes:

The interests were held by AP Emerald Limited (“AP Emerald”), a wholly-owned subsidiary of AP Jade Limited which in turn was a wholly-owned subsidiary of APL. APL was therefore deemed to have interests in the Shares in which AP Emerald was interested.
This represents an interest in 1,233,578,575 Shares held by APL through AP Emerald.
AGL owned approximately 74.99% of the total number of shares of APL and was therefore deemed to have an interest in the Shares in which APL was interested.
This refers to the same deemed interests in 1,233,578,575 Shares held by APL.
Mr. Lee Seng Hui, Ms. Lee Su Hwei and Mr. Lee Seng Huang (a Director) are the trustees of Lee and Lee Trust, being a discretionary trust. The Lee and Lee Trust controlled approximately 74.95% of the total number of shares of AGL (inclusive of Mr. Lee Seng Hui’s personal interests) and was therefore deemed to have an interest in the Shares in which AGL was interested.
This represents an interest in 166,000,000 Shares.
DVG owned 99% interest in Dubai Ventures and was therefore deemed to have an interest in the Shares which Dubai Ventures was interested.
This refers to the same interests in 166,000,000 Shares held by Dubai Ventures.
Dubai Group owned 99% interest in DVG and was therefore deemed to have an interest in the Shares in which DVG was interested.
DHIG owned 51% interest in Dubai Group and was therefore deemed to have an interest in the Shares in which Dubai Group was interested.
Dubai Holding owned 99.66% interest in DHIG and was therefore deemed to have an interest in the Shares in which DHIG was interested.

– IV-10 –

GENERAL INFORMATION

APPENDIX IV

DGL, through its wholly-owned subsidiary, owned 49% interest in Dubai Group and was therefore deemed to have an interest in the Shares in which Dubai Group was interested.
HSBC Trustee owned 100% interest in DGL and was therefore deemed to have an interest in the Shares in which DGL was interested.
HH Mohammed Bin Rashid Al Maktoum owned 97.40% interest in Dubai Holding and was therefore deemed to have an interest in the Shares in which Dubai Holding was interested.
This represents an interest in 341,600,000 Shares.
AFSH held 100% interest in Asia Financial Services and was therefore deemed to have an interest in the Shares in which Asia Financial Services was interested.
This refers to the same interests in 341,600,000 Shares held by Asia Financial Services.
AFSG owned 99.06% interest in AFSH and was therefore deemed to have an interest in the Shares in which AFSH was interested.
AFSGH held 100% interest in AFSG and was therefore deemed to have an interest in the Shares in which AFSG was interested.
CVC LP owned 88% interest in AFSGH and was therefore deemed to have an interest in the Shares in which AFSGH was interested.
CVC Capital III, as the general partner of CVC LP, exclusively managed and controlled CVC LP and was therefore deemed to have an interest in the Shares in which CVC LP was interested.
CVC Capital Partners Advisory held 100% interest in CVC Capital III and was therefore deemed to have an interest in the Shares in which CVC Capital III was interested.
CVC Capital Partners Finance held 100% interest in CVC Capital Partners Advisory and was therefore deemed to have an interest in the Shares in which CVC Capital Partners Advisory was interested.
CVC Group Holdings held 100% interest in CVC Capital Partners Finance and was therefore deemed to have an interest in the Shares in which CVC Capital Partners Finance was interested.
CVC Portfolio (i) held 81.8% interest in CVC Management (which was the sole limited partner of CVC Group Holdings) and was therefore deemed to have an interest in the Shares in which CVC Group Holdings was interested, and (ii) as the general partner of CVC Group Holdings, exclusively managed and controlled CVC Group Holdings, and was therefore deemed to have an interest in the Shares in which CVC Group Holdings was interested.
CVC Management, as the limited partner of CVC Group Holdings, was therefore deemed to have an interest in the Shares in which CVC Group Holdings was interested.
CVC MMXII held 100% interest in CVC Portfolio and was therefore deemed to have an interest in the Shares in which CVC Portfolio was interested.
CVC Capital Partners 2013 held 100% interest in CVC MMXII and was therefore deemed to have an interest in the Shares in which CVC MMXII was interested.
CVC Capital Partners SA held 100% interest in CVC Capital Partners 2013 and was therefore deemed to have an interest in the Shares in which CVC Capital Partners 2013 was interested.
This represents 341,600,000 Shares held by Asia Financial Services which were pledged in favour of Everbright SHK on 15 November 2017 for a term loan facility in an amount of HK$800,000,000.
This represents an interest in 341,600,000 Shares.

– IV-11 –

GENERAL INFORMATION

APPENDIX IV

SHK Financial Group, through its wholly-owned subsidiary, owned 100% interest in Everbright SHK and was therefore deemed to have an interest in the Shares in which Everbright SHK was interested.
This refers to the same interest in 341,600,000 Shares in which Everbright SHK was interested.
Everbright Securities Financial owned 70% interest in SHK Financial Group and was therefore deemed to have an interest in the Shares in which SHK Financial Group was interested.
Everbright Securities Company Limited owned 100% interest in Everbright Securities Financial and was therefore deemed to have an interest in the Shares in which Everbright Securities Financial was interested.

Save as disclosed above, none of the Directors is aware of any person who, as at the Latest Practicable Date, had a long or short position in the Shares, underlying Shares or debentures of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO.

As at the Latest Practicable Date, the Company has not received any irrevocable commitments for voting in respect of the approval of the Share Buy-back at the EGM.

7. ADDITIONAL DISCLOSURE OF INTERESTS AND DEALINGS

(i) None of the holders of 10% or more of the voting rights of the Company had dealt for value in any Shares, convertible securities, warrants, options or derivatives of the Company during the Relevant Period.
(ii) None of the Directors or any persons acting in concert with them had dealt for value in any Shares, convertible securities, warrants, options or derivatives of the Company during the Relevant Period.
(iii) Mr. Lee Seng Huang, an executive Director, is deemed to be interested in the 1,233,578,575 Shares held by AP Emerald Limited. It is the intention of AP Emerald Limited to vote in favour of the resolution approving the Share Buy-back at the EGM in respect of the 1,233,578,575 Shares held by it.
(iv) It is the intention of Mr. Simon Chow Wing Charn, an executive Director, to vote in favour of the resolution approving the Share Buy-back at the EGM in respect of the 533,000 Shares held by him.
(v) It is the intention of Mr. Peter Anthony Curry, an executive Director, to vote in favour of the resolution approving the Share Buy-back at the EGM in respect of the 1,241,141 Shares held by him.

8. INTERESTS IN THE GROUP’S ASSETS/CONTRACTS AND OTHER INTERESTS

As at the Latest Practicable Date, none of the Directors had any direct or indirect interest in any assets which have been acquired by or disposed of or leased to any member of the Group or are proposed to be acquired by or disposed of or leased to any member of the Group since 31 December 2017, being the date to which the latest published audited consolidated financial statements of the Group were made up.

As at the Latest Practicable Date, none of the Directors were materially interested, directly or indirectly, in any contract or arrangement entered into by any member of the Group which was subsisting as at the Latest Practicable Date and which was significant in relation to the business of the Group.

– IV-12 –

GENERAL INFORMATION

APPENDIX IV

9. DIRECTORS’ INTERESTS IN COMPETING BUSINESSES

As at the Latest Practicable Date, so far as the Directors were aware, the following Director (not being independent non-executive Directors) was considered to have interests in businesses apart from the Group’s businesses which compete, or are likely to compete, either directly or indirectly, with the businesses of the Group pursuant to Rule 8.10 of the Listing Rules as set out below:

(i) Mr. Lee Seng Huang is one of the trustees of Lee and Lee Trust which is a deemed substantial shareholder of each of AGL, APL, SHK HK Ind, APAC Resources Limited (“APAC”), Tian An China Investments Company Limited (“TACI”) and Asiasec Properties Limited (“Asiasec”) which, through their subsidiaries, are partly engaged in the businesses as follows:
AGL, through certain of its subsidiaries, is partly engaged in the businesses of money lending, trading and investment in securities and financial instruments;
APL, through certain of its subsidiaries, is partly engaged in the businesses of money lending, property investment, trading and investment in securities in the resources and related industries and financial instruments;
SHK HK Ind, through certain of its subsidiaries, is partly engaged in the businesses of trading in securities and investment in financial instruments;
APAC, through certain of its subsidiaries, is partly engaged in the business of money lending, investment and/or trading in listed securities in the resources and related industries;
TACI, through certain of its subsidiaries, is partly engaged in the businesses of money lending and property investment; and
Asiasec, through certain of its subsidiaries, is partly engaged in the business of property investment.

Although the abovementioned Director is considered to have competing interests in other companies by virtue of his shareholding, he will fulfil his fiduciary duties in order to ensure that he will act in the best interests of the shareholders and the Company as a whole at all times. Hence the Group is capable of carrying on its businesses independently of, and at arm’s length from, the businesses of such companies.

10. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contract with any member of the Group which does not expire or is not terminable by such member of the Group within one (1) year without payment of compensation (other than statutory compensation).

As at the Latest Practicable Date, there were no service contracts with the Group or associated companies of the Company in force for Directors (i) which (including both continuous and fixed term contracts) have been entered into or amended within 6 months before the date of the Announcement; (ii) which are continuous contracts with a notice period of 12 months or more; or (iii) which are fixed term contracts with more than 12 months to run irrespective of the notice period.

– IV-13 –

GENERAL INFORMATION

APPENDIX IV

11. MATERIAL CONTRACTS

Save for and except for the transactions disclosed below, there were no material contracts (not being contracts entered into in the ordinary course of business carried on by the Group) being entered into by any member of the Group within the two (2) years immediately preceding the Latest Practicable Date:

(i) the Deed of Undertaking, the terms of which are set out in this circular;
(ii) a pricing supplement dated 1 February 2018 entered into between the Company and SHK BVI, a wholly-owned subsidiary of the Company (the “Issuer”) in respect of the issue of HK$245,500,000 3.10% guaranteed notes due February 2019 under the US$2,000,000,000 Guaranteed Medium Term Note Programme established on 13 June 2012 (the “MTN Programme”);
(iii) a pricing supplement dated 16 November 2017 entered into between the Company and the Issuer in respect of the issue of HK$447,500,000 2.8% guaranteed notes due November 2018 under the MTN Programme;
(iv) an offering circular dated 29 August 2017 made by the Company and the Issuer and a pricing supplement dated 31 August 2017 entered into between the Company and the Issuer in respect of the issue of US$400,000,000 4.65% guaranteed notes due September 2022 under the MTN Programme (the “US$400,000,000 Notes”); and
(v) a pricing supplement dated 11 September 2017 entered into between the Company and the Issuer in respect of the issue of US$150,000,000 4.65% guaranteed notes due September 2022 (the “US$150,000,000 Notes”) under the MTN Programme (the US$400,000,000 Notes and US$150,000,000 Notes were consolidated to form a single series and were listed on 11 September 2017 and 19 September 2017 respectively on the Stock Exchange (Stock Code: 5267).

12. LITIGATION

The Directors confirm that, as far as they are aware as at the Latest Practicable Date, the Group was not engaged in any litigation or arbitration of material importance and no litigation or claim of material importance was known to the Directors to be pending or threatened against the Group immediately preceding the Latest Practicable Date.

13. NO MATERIAL ADVERSE CHANGE

The Directors confirm that, as far as they are aware as at the Latest Practicable Date, there was no material adverse change in the financial or trading position of the Group since 31 December 2017 (being the date to which the latest published audited accounts of the Company have been made up.)

– IV-14 –

GENERAL INFORMATION

APPENDIX IV

14. CONSENT AND QUALIFICATION OF EXPERT

Centurion has given and has not withdrawn its written consent to the issue of this circular with its letter of advice included in the form and context in which it appears.

The following sets out the qualifications of the Independent Financial Adviser:

Name Qualifications Centurion a corporation licensed under the SFO to engage in type 1 (dealing in securities), type 4 (advising on securities), type 6 (advising on corporate finance) and type 9 (asset management) regulated activities Deloitte certified public accountants

As at the Latest Practicable Date, neither Centurion nor Deloitte had any shareholding in any member of the Group or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

As at the Latest Practicable Date, Centurion did not have any direct or indirect interest in any assets which had been, since 31 December 2017, being the date to which the latest published audited accounts of the Company were made up, acquired or disposed of by or leased to, or were proposed to be acquired or disposed of by or leased to, any member of the Group.

15. GENERAL

(i) The registered office of the Company is located at 42/F, Lee Garden One, 33 Hysan Avenue, Causeway Bay, Hong Kong.
(ii) The secretary of the Company is Ms. Hester Wong Lam Chun. She is a fellow member of The Institute of Chartered Secretaries and Administrators and The Hong Kong Institute of Chartered Secretaries.
(iii) The business office of the Independent Financial Adviser, i.e. Centurion, is situated at 7th Floor, Duke Wellington House, 14-24 Wellington Street, Central, Hong Kong.
(iv) The share registrar of the Company is Tricor Secretaries Limited of Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong.
(v) The English text of this circular shall prevail over the Chinese translation in the event of inconsistency.

– IV-15 –

GENERAL INFORMATION

APPENDIX IV

16. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection (i) during normal business hours at the registered office of the Company at 42/F, Lee Garden One, 33 Hysan Avenue, Causeway Bay, Hong Kong; (ii) on the website of the SFC (www.sfc.hk); and (iii) the website of the Company at www.shkco.com/html/index.php from the date of this circular up to and including the date of the EGM:

(i) the articles of association of the Company;
(ii) the annual reports of the Company for the two (2) financial years ended 31 December 2016 and 2017;
(iiii) the Deed of Undertaking together with the form of Buy-back Contract;
(iv) the letter from the Board, the text of which are set out on pages 4 to 14 of this circular;
(v) the letter of recommendation from the Listing Rules IBC, the text of which are set out on page 15 of this circular;
(vi) the letter of recommendation from the Takeovers Code IBC, the text of which are set out on page 16 of this circular;
(vii) the letter of advice issued by Centurion to the Listing Rules IBC, the Takeovers Code IBC and the Independent Shareholders dated 25 June 2018, the text of which are set out on pages 17 to 46 of this circular;
(viii) the report from Deloitte as required under Rule 10 of the Takeovers Code, the text of which is set out in Appendix II to this circular;
(ix) the report from Centurion as required under Rule 10 of the Takeovers Code, the text of which is set out in Appendix III to this circular;
(x) the written consent given by Deloitte as referred to in the paragraph headed “Consent and qualification of expert”;
(xi) the written consent given by Centurion as referred to in the paragraph headed “Consent and qualification of expert” in this appendix; and
(xii) the material contracts as referred to in the paragraph headed “Material Contracts” in this appendix.

– IV-16 –

FORM OF BUY-BACK CONTRACT

APPENDIX V

THIS SHARE PURCHASE AGREEMENT , dated as of [date], is entered into by and BETWEEN :

(1) SUN HUNG KAI & CO. LIMITED 新鴻基有限公司, a company incorporated in Hong Kong with limited liability whose registered address is 42/F, Lee Garden One, 33 Hysan Avenue, Causeway Bay, Hong Kong (the “Company”); and
(2) ASIA FINANCIAL SERVICES COMPANY LIMITED, a company incorporated in the Cayman Islands whose registered address is PO Box 309 Ugland House Grand Cayman KY1-1104 Cayman Islands (the “Seller”).

WHEREAS:

(A) The Seller is the beneficial owner of 341,600,000 ordinary shares of the Company which are listed on the Main Board of The Stock Exchange of Hong Kong Limited (the “Hong Kong Stock Exchange”) and the Seller now desires to sell, and the Company desires to buy back from the Seller 145,000,000 ordinary shares of the Company (the “Sale Shares”).
(B) The Share Buyback (defined below) is a connected party transaction and an off-market purchase by the Company of its own shares and therefore requires the Company’s members’ approval pursuant to the Listing Rules, the Companies Ordinance and the Hong Kong Code on Share Buy-backs (“Share Buy-backs Code”).

NOW, THEREFORE , the parties agree as follows:

1. INTERPRETATION

1.1 Definitions

Unless the terms or context of this Agreement otherwise provide, the following terms shall have the meanings set out below:

“Agreement” means this share purchase agreement (as may be amended or varied from time to time).

“Business Day” means a day (excluding Saturdays, Sundays and public holidays and a day on which typhoon signal no. 8 or a black rainstorm warning is hoisted at any time in Hong Kong) on which banks are generally open for business in Hong Kong.

“CCASS” means the Central Clearing and Settlement System established and operated by HKSCC.

“Companies Ordinance” means the Companies Ordinance (Cap 622 of the Laws of Hong Kong).

“Completion” means completion of the transfer of the Sale Shares in accordance with this Agreement.

– V-1 –

FORM OF BUY-BACK CONTRACT

APPENDIX V

“Completion Date” means the date of Completion as stated in Clause 4.1.

“Condition” has the meaning given to it in Clause 3.1.

“Distribution” means any dividend, other distribution or return of capital.

“Encumbrance” means a mortgage, pledge, lien, option, restriction, right of pre-emption, third party right or interest, other encumbrance or security interest of any kind, or another type of preferential arrangement (including, without limitation, a title transfer or retention arrangement) having similar effect.

“Executive” means the Executive Director of the Corporate Finance Division of the Securities and Futures Commission or any of his delegates.

“General Rules” means the General Rules of CCASS from time to time in force.

“HKSCC” means the Hong Kong Securities Clearing Company Limited.

“Hong Kong” means Hong Kong Special Administrative Region of the People’s Republic of China.

“HK$” means Hong Kong dollars, the lawful currency of Hong Kong.

“Hong Kong Stock Exchange” has the meaning given to it in recital (A).

“Listing Rules” means the Rules Governing the Listing of Securities on the Hong Kong Stock Exchange.

“Operational Procedures” means the Operational Procedures of HKSCC in relation to CCASS from time to time in force.

“Person” means any natural or legal person, including without limitation any individual, limited liability company, corporation, partnership, association, joint-stock company, trust, unincorporated organization, governmental entity or other entity of a similar nature.

“Purchase Price” has the meaning given in Clause 2.2.

“Sale Shares” has the meaning given to it in recital (A).

“Share Buy-backs Code” has the meaning given to it in recital (B).

“Share Buyback” means the proposed share buyback by the Company of the Sale Shares from the Seller pursuant to the terms of this Agreement.

“Seller’s Bank Account” means the Seller’s bank account with [bank] , in the name of [account name] , with account number [number] .

– V-2 –

FORM OF BUY-BACK CONTRACT

APPENDIX V

“Seller’s CCASS Participant” means Sun Hung Kai Investment Services Limited, with CCASS Number B01086.

“SFC” means the Hong Kong Securities and Futures Commission.

“Tax” means any form of taxation, levy, duty, charge, contribution, or withholding of whatever nature (including any related fine, penalty, surcharge or interest) imposed, collected or assessed by, or payable to, any national, provincial, municipal or local government or other authority, body or official anywhere in the world exercising a fiscal, revenue, customs or excise function.

2. SALE AND PURCHASE OF SALE SHARES

2.1 Upon the terms and subject to the conditions of this Agreement, the Seller as the beneficial owner of the Sale Shares agrees to sell, and the Company agrees to buy, the Sale Shares and each right attaching to the Sale Shares, free of any Encumbrance.
2.2 The Seller shall sell and the Company shall buy the Sale Shares, subject to the adjustment, if any, pursuant to Clause 7.4, at a price of HK$4.75 per Sale Share, representing a total consideration for the Sale Shares of HK$688,750,000, which shall be paid to the Seller on the Completion Date in accordance with the provisions of Schedule 1 (the “Purchase Price”).

3. CONDITION

3.1 Completion shall be conditional upon the Executive approving the Share Buyback pursuant to the Share Buy-backs Code (and such approval not having been withdrawn) and the condition(s) of such approval, if any, having been satisfied (the “Condition”):
3.2 The Company shall inform the Seller as soon as practicable following satisfaction of the Condition and the parties shall keep each other fully informed of all matters and developments regarding the progress of, and which are material to, the satisfaction of the Condition. If, at any time, either party becomes aware of a fact or circumstance that might prevent the Condition from being satisfied, it shall inform the other party of the matter.
3.3 The Company warrants that the shareholders’ approval required under the Listing Rules, the Companies Ordinance and Share Buy-backs Code in connection with the transaction under this Agreement has been given.

4. COMPLETION

4.1 Completion shall take within 5 Business Days following satisfaction of the Condition set out in Clause 3.1 or such other date as the parties may agree in writing (the “Completion Date”).

– V-3 –

FORM OF BUY-BACK CONTRACT

APPENDIX V

4.2 At Completion, the parties shall deliver and/or perform (or procure the delivery and/or performance) of all those documents, items and actions respectively listed in relation to that party in Schedule 1.
4.3 Completion shall only occur if all documents, items and actions listed in Schedule 1 have been delivered or performed as required by Schedule 1 by each party.
4.4 If Completion does not take place on the Completion Date because a party fails to comply with any of its obligations under this Clause 4 and Schedule 1 (whether such failure amounts to a repudiatory breach of not), the non-defaulting party may by notice to the defaulting party:
4.4.1 proceed to Completion to the extent reasonably practicable;
4.4.2 postpone Completion to a date not more than 5 Business Days after the original Completion Date (provided that such date is no later than the Longstop Date); or

4.4.3 terminate this Agreement.

4.5 If Completion is postponed to another date in accordance with Clause 4.4.2, the provisions of this Agreement apply as if that other date is the Completion Date.

5. TERMINATION

5.1 If the Condition has not been satisfied by 5.00 p.m. (Hong Kong time) on 31 August 2018 or such other date as the parties may agree in writing, this Agreement shall automatically terminate with immediate effect.
5.2 If a party commits any material breach of this Agreement, this Agreement may be terminated by the other party by giving written notice to the first-mentioned party.
5.3 Each party’s rights and obligations shall cease immediately on termination, but termination does not affect a party’s accrued rights and obligations at the date of termination or any liability arising before or in relation to such termination. Notwithstanding the foregoing, the provisions of Clauses 12 through 14 of this Agreement shall survive termination of this Agreement for any reason.

6. STAMP DUTY, TAXES AND FEES

6.1 Except as set out in Clause 6.2, each party shall be responsible for its own Tax liabilities arising from the transfer of the Sale Shares under this Agreement.

– V-4 –

FORM OF BUY-BACK CONTRACT

APPENDIX V

6.2 Each of the Seller and the Company shall bear its own:
6.2.1 Hong Kong stamp duty (including ad valorem stamp duty) and fixed duty on instruments (if applicable); and
6.2.2 Hong Kong Stock Exchange trading fees and SFC transaction levy (if applicable),

which are payable in relation to the sale and purchase of the Sale Shares.

6.3 For the avoidance of doubt, the Company shall be responsible for all costs associated with (i) the preparation of the announcement and shareholder circular (including printers costs and postage costs); (ii) any fees payable to the SFC or the Hong Kong Stock Exchange; (iii) fees of any financial adviser or independent financial adviser engaged by the Company; and (iv) any fees or costs of the Company’s registrar.

7. WARRANTIES AND UNDERTAKINGS

7.1 Each party warrants to the other party that (in the case of the Company, subject to satisfaction of the Condition):
7.1.1 it is duly organised and has the right, power and authority, and has taken all action necessary, to execute, deliver and exercise its rights, and perform its obligations, under this Agreement and each document to be executed by the parties at or before Completion;
7.1.2 its obligations under this Agreement and each document to be executed by the parties at or before Completion are, or when the relevant document is executed will be, enforceable in accordance with their respective terms; and
7.1.3 it is not in receivership or liquidation and it has not taken steps to enter into liquidation; no petition has been presented for its winding up and there are no grounds on which a petition or application could be based for the appointment of a receiver for its or its winding up of.
7.2 The Seller hereby warrants to the Company that:
7.2.1 save as disclosed by the Seller to the Company, the Seller is the beneficial owner of the Sale Shares and has all rights, title and interest therein, which Sale Shares shall be sold to the Company with all rights attached thereto, and free and clear of all Encumbrances;
7.2.2 the Sale Shares are fully paid and there is no outstanding call on any of the Sale Shares; and

– V-5 –

FORM OF BUY-BACK CONTRACT

APPENDIX V

7.2.3 the Sale Shares are deposited in CCASS and, at Completion, can be validly transferred to the Company in accordance with the provisions of Schedule 1.
7.3 The Company hereby warrants to the Seller that (subject to satisfaction of the Condition) the Company can validly pay the Purchase Price in accordance with the provisions of Schedule 1.
7.4 If the Company declares, pays, or makes a Distribution before Completion and the Seller is entitled to receive such Distribution, the Purchase Price shall be adjusted accordingly by deducting from the Purchase Price an amount corresponding to the Distribution paid, payable, declared or made in respect of the Sale Shares (the “Distribution Amount”). If for any reason the Seller, who is entitled to receive but does not receive the Distribution Amount within one month following the Completion Date, the Company shall immediately pay to the Seller an amount equal to the Distribution Amount in accordance with the procedure set out in paragraph 1 of Schedule 1 and, if the Seller subsequently receives some or all of the Distribution Amount, it shall pay to the Company an amount equal to such portion of the Distribution Amount as is actually received promptly following receipt.
7.5 Other than for the purpose of the Share Buyback, the Seller shall not sell, transfer, charge, encumber, create or grant any option or lien over or otherwise dispose of or deal in or create any Encumbrance (other than to release any pledge arising under the Seller’s custodian arrangements existing as at the date of this Agreement in respect of the Sale Shares) over any interest in the Sale Shares.
7.6 During the period from the date of this Agreement until the date falling three (3) months after the Completion Date, the Seller shall not and shall procure any person controlled by it or acting on its behalf not to offer, sell, contract to sell, grant any option to purchase or otherwise dispose of, directly or indirectly, any shares or any other securities of the Company which are substantially similar to shares or any securities convertible into, exchangeable for or representing the right to receive any of the foregoing securities or enter into any options or derivatives, cash settled or otherwise.
7.7 Each party acknowledges that the other party is or may be a person connected with the Company and may possess non-public information relating to the Company and its group.

8. FURTHER ASSURANCE

Each party shall, from Completion, co-operate with the other and execute and deliver to the other such other instruments and documents and take such other actions as may reasonably be requested from time to time in order to carry out, evidence and confirm their rights and the intended purpose of this Agreement.

– V-6 –

FORM OF BUY-BACK CONTRACT

APPENDIX V

9. AMENDMENT AND WAIVER

9.1 An amendment of this Agreement is valid only if it is in writing and signed by or on behalf of each party.
9.2 The failure to exercise or delay in exercising a right or remedy provided by this Agreement or by law does not impair or constitute a waiver of the right or remedy or an impairment of or a waiver of other rights or remedies. No single or partial exercise of a right or remedy provided by this Agreement or by law prevents further exercise of the right or remedy or the exercise of another right or remedy.

10. ASSIGNMENT

Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by either of the parties hereto without the prior written consent of the other party.

11. ENTIRE AGREEMENT

This Agreement constitutes the entire agreement, and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof.

12. NOTICES

Notice, claim or demand in connection with this Agreement shall be in writing in English and shall be sufficiently given or served if delivered or sent:

12.1 in the case of the Seller to: Address: 94 Solaris Avenue, Camana Bay P.O. Box 1348, Grand Cayman KY 1-1108, Cayman Islands Facsimile: +1-345-949-4647

Email address: [email protected]

Attention: The Directors of Asia Financial Services Company Limited/ Ed Fletcher

– V-7 –

FORM OF BUY-BACK CONTRACT

APPENDIX V

12.2 in the case of the Company to:

Address: 42/F, Lee Garden One, 33 Hysan Avenue, Causeway Bay, Hong Kong

Facsimile: +852-3748 2877

Email address: [email protected]

Attention: The Directors of Sun Hung Kai & Co. Limited/ Mr. Peter Curry

or in any case to such other address or fax number as a party may have notified the other party in accordance with this Clause 12. Any notice may be delivered by hand or sent by fax with confirmation receipt or by electronic mail (“E-mail”) with delivery receipt followed by registered mail posted within twenty-four (24) hours, or by overnight courier. Without prejudice to the foregoing, any notice shall be deemed to have been received (a) on the next Business Day in the place to which it is sent, if sent by fax or Email, or (b) two (2) Business Days from the time of posting, if sent by overnight courier, or (c) at the time of delivery, if delivered by hand.

13. COUNTERPARTS

This Agreement may be entered into in any number of counterparts, all of which taken together shall constitute one and the same instrument. Either party may enter into this Agreement by executing any such counterpart.

14. GOVERNING LAW AND DISPUTE RESOLUTION

14.1 This Agreement and any dispute arising out of, relating to or in connection with this Agreement shall be governed by and construed in accordance with the laws of Hong Kong.
14.2 Each of the parties hereto submits to the exclusive jurisdiction of the courts of Hong Kong in any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of, or in connection with, this Agreement or the transactions contemplated hereby. Each party hereto waives, to the fullest extent permitted by law, any objection that it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.

– V-8 –

FORM OF BUY-BACK CONTRACT

APPENDIX V

15. CONFIDENTIALITY

Without the prior written consent of the other party, the Seller and the Company shall not, and shall cause their respective Representatives not to, disclose this Agreement and its terms to any Person, other than to its Representatives who are actively and directly participating in its evaluation of the transaction contemplated hereby and are bound by obligations of confidentiality. Notwithstanding the foregoing, any party shall be permitted to furnish copies of this Agreement and to discuss the subject matter of this Agreement to or with any governmental entity as such party may deem appropriate, and to make such disclosures as such party determines in good faith are required under applicable law or regulation or rules of a relevant stock exchange. For purposes of the foregoing, “Representatives” means, as to any Person, its affiliates (which, in relation to the Seller, includes CVC Asia Pacific Limited and its affiliates) and its and its affiliates’ directors, officers, employees, agents and advisors (including without limitation, financial advisors, attorneys, accountants and their respective Representatives).

16. SEVERABILITY

In the event that any of the provisions of this Agreement shall be held to be invalid, void or unenforceable, the remaining portions hereof shall remain in full force and effect and such provision shall be enforced to the maximum extent possible as so to effect the intent of the parties, and shall in no way be affected, impaired or invalidated.

17. THIRD PARTY RIGHTS

A Person who is not a party to this Agreement has no right under the Contracts (Rights of Third Parties) Ordinance (Cap 623 of the Laws of Hong Kong) to enforce any term of this Agreement but this does not affect any right or remedy of a third party which exists or is available apart from that Ordinance.

– V-9 –

FORM OF BUY-BACK CONTRACT

APPENDIX V

SCHEDULE 1 COMPLETION PROCEDURE

On the Completion Date:

The Company shall pay, or procure the payment of, the Purchase Price by electronic transfer of immediately available funds in HK$ to the Seller’s Bank Account and/or such other bank account(s) as the Seller shall notify the Company in writing no less than two (2) Business Days prior to the Completion Date.
Subject to the payment of the Purchase Price referred to in paragraph 1 above, the Seller shall:
(a) procure the Seller’s CCASS Participant to give an irrevocable delivery instruction to effect a book-entry settlement of the Sale Shares on a free of payment (“FOP”) basis in accordance with the General Rules and the Operational Procedures to the credit of the stock account of Company’s CCASS participant, being Sun Hung Kai Investment Services Limited with CCASS Number B01086; and
(b) procure delivery of a certified true copy of the aforesaid irrevocable delivery instruction of the Sale Shares to the Company.

IN WITNESS HEREOF , the parties have duly executed this Agreement as of the date first written above.

SIGNED by ) for and on behalf of ) SUN HUNG KAI & CO. LIMITED ) 新鴻基有限公司 )

SIGNED by ) for and on behalf of ) ASIA FINANCIAL SERVICES ) COMPANY LIMITED )

– V-10 –

NOTICE OF THE EGM

APPENDIX VI

==> picture [295 x 43] intentionally omitted <==

(Incorporated in Hong Kong with limited liability) (Stock Code: 86)

NOTICE IS HEREBY GIVEN that an extraordinary general meeting (the “ Meeting ”) of Sun Hung Kai & Co. Limited (the “ Company ”) will be held at Plaza 4, Lower Lobby, Novotel Century Hong Kong, 238 Jaffe Road, Wanchai, Hong Kong on Tuesday, 17 July 2018 at 10:00 a.m. for the purpose of considering and, if thought fit, by way of poll, passing with or without amendments the following resolution as a special resolution. Unless otherwise indicated, capitalised terms used in this notice shall have the same meanings as those defined in the circular of the Company dated 25 June 2018.

SPECIAL RESOLUTION

“ THAT :

(a) the terms of the agreed form of the Buy-back Contract (a copy of which is tabled at the Meeting and marked “A” and initialled by the chairman of the Meeting for identification purpose) proposed to be entered into between the Company and Asia Financial Services Company Limited, pursuant to which Asia Financial Services Company Limited will transfer to the Company 145,000,000 Buy-back Shares on terms contained therein at a consideration of not more than HK$688,750,000, be and are hereby approved; and
(b) the Directors (or a duly authorised person hereof) be and are hereby authorised to take all such steps to implement and give effect to the Buy-back Contract and the transactions thereunder (including the execution of all documents or deeds as they may consider necessary or appropriate in relation thereto and the making of any changes, modifications, amendments, waivers, variations or extensions of such terms and conditions as they think fit).”

By Order of the Board Sun Hung Kai & Co. Limited Hester Wong Lam Chun Company Secretary

Hong Kong, 25 June 2018

– VI-1 –

NOTICE OF THE EGM

APPENDIX VI

Notes:

The resolution set out in this notice of the Meeting will be taken by poll pursuant to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (“ Listing Rules ”) and the results of the poll will be published on the websites of the Stock Exchange and the Company in accordance with the Listing Rules.
Any member of the Company entitled to attend and to speak and vote at the Meeting is entitled to appoint one or more proxies to attend and to speak and, on a poll, vote in his or her stead. A proxy need not be a member of the Company.
A form of proxy in respect of the Meeting is enclosed. Whether or not you intend to attend the Meeting in person, you are urged to complete and return the form of proxy in accordance with the instructions printed thereon. Completion and return of the form of proxy will not preclude you from attending and voting in person at the Meeting or any adjourned meeting thereof if you so wish. In the event that you attend the Meeting after having lodged the form of proxy, it will be deemed to have been revoked.
In order to be valid, the form of proxy and the power of attorney or other authority, if any, under which it is signed or a notarially certified copy of that power or authority, must be deposited at the Company’s share registrar, Tricor Secretaries Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong, not less than 48 hours before the time appointed for holding the Meeting or any adjournment thereof.
Where there are joint registered holders of any Shares, any one of such joint holders may vote at the Meeting, either personally or by proxy in respect of such Share as if he or she was solely entitled thereto, but if more than one of such joint registered holders be present at the Meeting personally or by proxy, that one of such joint holders so present whose name stands first on the register of members of the Company shall alone be entitled to vote in respect thereof.
For determining the entitlement to attend and vote at the Meeting, the register of members of the Company will be closed from Thursday, 12 July 2018 to Tuesday, 17 July 2018, both days inclusive, during which period no transfer of Shares will be registered. In order for a member to be eligible to attend and vote at the Meeting, all transfer forms accompanied by the relevant share certificates must be lodged with the Company’s share registrar, Tricor Secretaries Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong for registration not later than 4:30 p.m. on Wednesday, 11 July 2018.

– VI-2 –

AI assistant

First Pacific Company Limited — Proxy Solicitation & Information Statement 2018

48980_rns_2018-06-24_dabf0c7b-b29c-42f0-866f-48102ccaab3b.pdf

POSSIBLE OFF-MARKET SHARE BUY-BACK CONSTITUTING A DISCLOSEABLE AND CONNECTED TRANSACTION AND NOTICE OF AN EXTRAORDINARY GENERAL MEETING

DEFINITIONS

(Stock Code: 86)

Executive Directors:

Non-Executive Director:

Independent Non-Executive Directors:

To the Shareholders

(1) POSSIBLE OFF-MARKET SHARE BUY-BACK CONSTITUTING A DISCLOSEABLE AND CONNECTED TRANSACTION AND (2) NOTICE OF EXTRAORDINARY GENERAL MEETING

1. INTRODUCTION

2. DEED OF UNDERTAKING

3. THE BUY-BACK CONTRACT

Number of Buy-back Shares

Consideration

Conditions

Completion and set off

4. EFFECTS ON THE SHAREHOLDING STRUCTURE OF THE COMPANY

Public Float

5. REASONS FOR AND BENEFITS OF THE SHARE BUY-BACK

6. FINANCIAL EFFECTS OF THE PROPOSED SHARE BUY-BACK

Net assets per Share attributable to the Shareholders

Basic earnings per Share

Total liabilities

Working capital

7. LISTING RULES AND BUY-BACKS CODE IMPLICATIONS

Listing Rules implications

Buy-backs Code implications

8. GENERAL

9. CLOSURE OF REGISTER OF MEMBERS

10. EGM

11. VOTING BY WAY OF POLL

12. RECOMMENDATIONS

13. FURTHER INFORMATION

POSSIBLE OFF-MARKET SHARE BUY-BACK CONSTITUTING A DISCLOSEABLE AND CONNECTED TRANSACTION

POSSIBLE OFF-MARKET SHARE BUY-BACK CONSTITUTING A DISCLOSEABLE AND CONNECTED TRANSACTION

To the Independent Board Committees of

POSSIBLE OFF-MARKET SHARE BUY-BACK CONSTITUTING A DISCLOSEABLE AND CONNECTED TRANSACTION

INTRODUCTION

BASIS OF OUR OPINION

PRINCIPAL FACTORS AND REASONS CONSIDERED

1. Background to and reasons for entering into of the Buy-back Contract

Table B: Financial highlights of the Group for the two years ended/as at 31 December 2017 as extracted from the 2017 Annual Report

Consolidated Statement of Profit and Loss

1.2 Information on Asia Financial Services

1.3 Reasons for and benefits of the Share Buy-back

2. Deed of Undertaking and the Buy-back Contract

3. Analyses of the buy-back price

3.1 Shares repurchased by the Company on the Stock Exchange

Table C: Shares repurchased by the Company on the Stock Exchange during 2017

3.2 Comparison of the buy-back price to market price per Share

Table E: Highest and lowest closing Share prices comparison during the Review Period

Chart I: Closing Share prices (and trading volume) chart of the Shares

3.4 Share price performance against Hang Seng Index

Chart III: Share price performance vs. Hang Seng Index since January 2013

Chart IV: Share price performance vs. Hang Seng Index during the Review Period

Chart V: Closing prices and average daily closing price of the Shares viewed against the buy-back price during the Review Period

4. Trading volume of the Shares

Chart VI: Average daily trading volume of the Shares each month

Table F: Monthly adjusted trading volume of the Shares during the Review Period

5. Effects on the shareholding structure of the Company

Table G: Effects on the shareholding structure of the Company

6. Financial effects of the proposed Share Buy-back

Net assets per Share attributable to the Shareholders

Basic earnings per Share

Total liabilities

Working capital

SUMMARY

RECOMMENDATION

1. FINANCIAL SUMMARY

Consolidated Results

2. AUDITED FINANCIAL STATEMENTS

Consolidated Statement of Profit or Loss

Consolidated Statement of Financial Position

Consolidated Statement of Changes in Equity

Consolidated Statement of Cash Flows

Notes to the Consolidated Financial Statements

1. GENERAL

2. APPLICATION OF NEW AND AMENDMENTS TO HONG KONG FINANCIAL REPORTING STANDARDS (“HKFRSs”)

First Pacific Company Limited Proxy Solicitation & Information Statement 2018