Future Data Group Limited — Capital/Financing Update 2017

Sep 4, 2017

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, 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 announcement.

FUTURE DATA GROUP LIMITED

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 8229)

CHANGE IN USE OF PROCEEDS

Reference is made to the prospectus dated 29 June 2016 (the “ Prospectus ”) issued by Future Data Group Limited (the “ Company ”, together with its subsidiaries, the “ Group ”) in relation to the placing (the “ Placing ”) and listing of the shares of the Company on the Growth Enterprise Market (“ GEM ”) of The Stock Exchange of Hong Kong Limited. The board (the “ Board ”) of directors (the “ Directors ”) would like to announce that the Company has decided to change the allocation of the use of proceeds from the Placing in the manner set out in this announcement. Unless otherwise defined, capitalized terms used in this announcement shall have the same meanings as those defined in the Prospectus.

USE OF PROCEEDS

The actual net proceeds from the Placing, after deducting the underwriting commission and other expenses in connection with the Placing, amounted to approximately HK$33.3 million (the “ IPO Proceeds ”). It was disclosed in the paragraph headed “Reasons for the Placing and the Use of Proceeds” under the section headed “Business Objectives and Future Plans” in the Prospectus that the Company intended to use the net proceeds from the Placing for the following purposes:

• (i) approximately 46.3% of the total estimated net proceeds will be used to settle approximately half of the down payment to acquire an office building in Seoul as our new headquarter to accommodate the further increase in number of salespersons and engineers, and reserve part of the office area (approximately 100m[2] ) as storage to replace the leased branch office in Geumcheon-gu, Seoul;

• (ii) approximately 38.8% of the total estimated net proceeds will be used to set up additional service points in the cities of Busan, Jeonju and Gangneung in Korea, for costs comprising initial rental deposit, renovation, furniture and fixture costs, and cost for additional testing and maintenance equipment;

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• (iii) approximately 7.8% of the total estimated net proceeds will be used as the initial set up cost for our office in Hong Kong; and

• (iv) approximately 7.1% of the total estimated net proceeds will be used as general working capital.

CHANGES IN USE OF PROCEEDS

The Board has resolved to change the proposed use of the IPO Proceeds for reasons set out in the paragraph below headed “Reasons for the Change in Use of Proceeds” of this announcement. Breakdown of the original allocation of the IPO proceeds, breakdown of the IPO Proceeds utilized and unutilized up to the date of this announcement, and the revised allocation of the IPO Proceeds are summarized as follows:

		Utilised	Unutilised
		amount up to	amount as at
	Original	the date of this	the date of this	Revised
	allocation	announcement	announcement	allocation
	(HK$ million)	(HK$ million)	(HK$ million)	(HK$ million)
	approximately	approximately	approximately	approximately
Acquiring office building in Seoul as the Company’s
headquarter	15.4	-	15.4	-
Setting up new service points in the cities of Busan,
Jeonju and Gangneung in Korea	12.9	-	12.9	12.9
Setting up office in Hong Kong	2.6	0.8	1.8	1.8
General working capital	2.4	0.9	1.5	1.5
Development of big data platform and cybersecurity
software application capabilities
- Acquiring a big data platform intellectual property
for cybersecurity	-	-	-	5.0
- Acquiring a cybersecurity software application	-	-	-	7.0
- Recruiting a team of security experts in Hong Kong	-	-	-	3.4
Total	33.3	1.7	31.6	31.6

REASONS FOR THE CHANGE IN USE OF PROCEEDS

Original Use of the IPO Proceeds

The Company originally planned to utilize approximately HK$15.4 million of the IPO Proceeds for the acquisition of an office building in Seoul as its new headquarters. It was originally envisaged that such new headquarters will be used to accommodate the further increase in number of salespersons, engineers, and part of the office area (approximately 100m[2] ) will be reserved as storage to replace the

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leased branch office in Geumcheon-gu, Seoul. However, since the second half of 2016, the rent and the rent price index in the office building rental market in Seoul showed a continuous downtrend. As shown in the Korea Real Estate Market Report Vol. 5 issued by the Real Estate Research Institute of Korea Appraisal Board in January 2017, the rent in Seoul has been on a downtrend overall in 2016 and the rent price index in the end of 2016 fell by 0.2% compared to the same period in the previous year. According to the “2017 Asia Pacific Real Estate Market Outlook – Korea” published by the CBRE, Inc. in January 2017 (the “ CBRE Report ”), the steady increase in new office supply in Seoul has also driven a rise in the vacancy rate in the Seoul office market. As a result, the office rental market continues to be a tenant-driven market, with many landlords providing aggressive incentives to attract and retain tenants. According to the CBRE Report, such tenant-driven market is likely to persist into 2017 and the rent in the office building rental market is expected to be on a continuous downtrend in 2018 and 2019.

Additionally, given the risks associated with the political turmoil of the presidential scandal in Korea started in late 2016 which could have an adverse impact on the local economy, the Group believes that the business environment in South Korea will remain tough in the near future.

In view of the above recent changes, the Board considers that the need for the Group to acquire an office building in Seoul as its new headquarters is not in the best interest of shareholders for the time being. Hence, the Board is of the view that the Group should apply the IPO Proceeds to generate capabilities to win new businesses that would result in additional profit margins inside Korea, as well as a potential profit center outside Korea. In this way, the Group can achieve long-term development of the Group’s business, and lower the business risks associated with a single country operation.

Revised Use of the IPO Proceeds

The Group has been providing cybersecurity equipment as part of its system integration and maintenance services in Korea. In particular, the Group customises security features on the integrated systems to protect its customers’ critical assets and data against security risks as described in the paragraph headed “Overview” under the section headed “Business” in the Prospectus. While our Korea’s subsidiary focuses on the cybersecurity equipment as part of its system integration and maintenance services, the Board is of the view that the extension of cybersecurity capabilities will generate more profits for the Group in the long run. For instance, the Group can earn more margin by delivering cybersecurity services such as penetration testing, security information and event management services on the system integration and maintenance services we provide in Korea.

The Board is of the view that the extension of cybersecurity capabilities will not only generate additional profit margin to our existing business in Korea, it also serves as a catalyst for a potential profit center outside Korea. According to the “IDC Market Analysis Perspective: Asia/Pacific Security Services 2016 Update” issued by International Data Corporation in April 2017, the security services market in the Asia/Pacific region (excluding Japan) reached US$4.23 billion (HK$33.0 billion) in 2016 and will grow at a compounded annual growth rate of 20.5% between 2016 - 2020. Hence, the Board considers that by incorporating the cybersecurity capabilities in its system integration and maintenance services, the Group can develop its long-term financial growth. In order

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to do that, the Company intends to incorporate the cybersecurity capabilities through the acquisition of a big data platform for cybersecurity, the cybersecurity software application and the recruitment of a team of cybersecurity experts in Hong Kong.

Acquisition of Big Data Platform and Cybersecurity Software Application

As part of the Group’s cybersecurity capabilities, the Company intends to allocate approximately HK$5.0 million of the unutilised IPO Proceeds for the acquisition of the big data platform for cybersecurity and approximately HK$7.0 million of the unutilised IPO Proceeds for the acquisition of cybersecurity software application. Such big data platform for cybersecurity and cybersecurity software application will be integrated to form part of the security operations center (SoC) that provides security information and event management (SIEM) services, as well as recommended actions that customers may take against cyber threats. Particularly, the SoC would collect massive amount of machine data, perform analytics, model and monitor cybersecurity threats, respond to incidents by correlation with network of surveillance cameras, audit and review data on how it is used, by whom and when. The Board is of the view that such extension of cybersecurity capabilities can ultimately deliver a suite of cybersecurity monitoring and prediction services which is a key business differentiator from other market players and the Company is positive that it would enable the Company to improve its profit margins going forward.

Recruitment of Cybersecurity Team

To execute the cybersecurity capabilities described above, the Company intends to allocate approximately HK$3.4 million of the unutilised IPO Proceeds for the recruitment of team of cybersecurity experts and intends to hire 5 and 13 cybersecurity experts in 2017 and 2018 respectively. The Company has already identified a team of a well-trained and highly certified penetration testing experts, and security experts, whom shall be responsible for the provision of intelligence-lead cyberattack (iCAST) simulation testing services. Such penetration testing is performed against the resilience of the system by simulating real-life cyber-attacks from adversaries. The Board considers that such services would not only contribute higher profit margins to the Group’s cybersecurity business in relation to its system integration services, but also enable the Group to engage in higher margin projects which help, fix, repair and improve the resilience of customer’s system based on the report and recommendation after penetration testing.

Our management resources and expertise in developing cybersecurity capabilities

As for our management resources and expertise in developing cybersecurity capabilities, Mr. Lee Seung Han, our chief executive officer and our executive Director, shall be responsible for the overall development of the cybersecurity capabilities in Korea; while Mr. Ho Kam Shing, Peter (“ Mr. Ho ”), whom has resigned as an independent non-executive Director and taken on a managerial role as the strategic adviser to the Board and head of business operations in Hong Kong and overseas in June 2017, will lead the development of the cybersecurity capabilities outside Korea. Mr. Ho has rich experience in the cybersecurity area, dated back when he joined DMX Technologies (Hong Kong) Limited (formerly known as Skynet Consultants Company Limited), a company principally engaged

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in the business of re-selling computer anti-virus software and network integration business, as a director from March 2000 to April 2002 and acted as a director of Utimaco Safeware Asia Limited (now known as Sophos Hong Kong Company Limited), a company principally engaged in the data security business, from December 1999 to May 2009.

To support the development of the Company’s cybersecurity capabilities as described above, our Group has hired a business development director, who is responsible for identifying new business opportunities for the Group. Before joining the Group, our business development director has led the North Asia’s business development activities at Splunk, Inc., a US incorporated company, whose business includes a big data platform that supports, amongst others, network and data center security services.

Given the qualifications and experience of the management team as particularised above, the Directors consider that the Group possesses the relevant expertise in managing the further development of its cybersecurity capabilities.

CONCLUSION

As disclosed in the annual report of the Company for the year ended 31 December 2016 and the firstquarterly report of the Company for the three months ended 31 March 2017, the ongoing political instability took its toll on the economy in Korea for much of 2016. Given the risks associated with the political turmoil surrounding the presidential scandal in Korea and escalation of north-south conflict, the Group strives to explore potential opportunities to develop its core businesses in and outside Korea, in order to strengthen its revenue base and maximise both the return to the shareholders and the value of the Group. Hence, the Board considers that it is beneficial to the Group to capture such opportunity to further develop its cybersecurity capabilities in Hong Kong.

In view of the aforesaid economic outlook in Korea and the overall business development of the Group, the Board considers that the reallocation of part of the unutilised IPO Proceeds to the purposes as described above would allow the Company to deploy its financial resources more effectively. Furthermore, the Directors believe that the reallocation of IPO Proceeds will promote and strengthen the development of the Group’s principal business as stated in the Prospectus, and also better meet the development trend of the market and strengthen the Group’s image as an integrated player in the industry.

The Directors (including independent non-executive Directors) consider that the reallocation of IPO Proceeds as described above is in the best interest of the Company and its shareholders as a whole.

By Order of the Board Future Data Group Limited Suh Seung Hyun Chairman

Hong Kong, 4 September 2017

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As at the date of this announcement, the executive Directors are Mr. Suh Seung Hyun, Mr. Phung Nhuong Giang, Mr. Lee Seung Han and Mr. Ryoo Seong Ryul; and the independent non-executive Directors are Mr. Wong Sik Kei, Mr. Sum Chun Ho and Mr. Yung Kai Tai.

This announcement, for which the directors of the Company collectively and individually accept full responsibility, includes particulars given in compliance with the Rules Governing the Listing of Securities on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited for the purpose of giving information with regard to the Company. The directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this announcement is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this announcement misleading.

This announcement will remain on the “Latest Company Announcements” page of the GEM website at www.hkgem.com for at least 7 days from the date of its publication and on the website of the Company at www.futuredatagroup.com.

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