HKBN Ltd. - M&A Activity 2018 | FinancialReports.eu

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in HKBN Ltd., you should at once hand this circular with the enclosed form of proxy to the purchaser or transferee or to the bank or stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or the transferee.

This circular appears for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for any securities of HKBN Ltd.

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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HKBN Ltd. 香港寬頻有限公司

(Incorporated in the Cayman Islands with limited liability) Stock Code: 1310

VERY SUBSTANTIAL ACQUISITION IN RELATION TO THE PROPOSED TRANSACTION IN RELATION TO THE ENTIRE ISSUED SHARE CAPITAL IN WTT HOLDING CORP. INVOLVING

(1) THE ISSUE OF CONSIDERATION SHARES AND VENDOR LOAN NOTES UNDER SPECIFIC MANDATE AND

(2) PROPOSED APPOINTMENT OF DIRECTORS AND NOTICE OF EXTRAORDINARY GENERAL MEETING

Financial Adviser to the Company

A letter from the Board is set out on pages 6 to 32 of this circular.

A notice convening an extraordinary general meeting of the Company to be held at 10:00 a.m., on Friday, 16 November 2018 at WOW Land, 16th Floor, Trans Asia Centre, 18 Kin Hong Street, Kwai Chung, New Territories, Hong Kong is set out on pages EGM-1 to EGM-3 in this circular.

Whether or not you are able to attend the extraordinary general meeting, you are requested to complete and return the accompanying form of proxy in accordance with the instructions printed thereon to the office of the Company’s Hong Kong branch share registrar, Tricor Investor Services Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for holding the extraordinary general 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, should you so wish.

References to dates and time in this circular are to Hong Kong dates and time.

26 October 2018

CONTENTS

			Page
DEFINITIONS . . .	.	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			6
APPENDIX I	–	FINANCIAL INFORMATION OF THE GROUP. . . . . .	I-1
APPENDIX IIA	–	ACCOUNTANTS’ REPORT OF WTT HK. . . . . . . . . . .	IIA-1
APPENDIX IIB	–	ACCOUNTANTS’ REPORT OF WTT HOLDING . . . .	IIB-1
APPENDIX III	–	MANAGEMENT DISCUSSION AND ANALYSIS
		ON WTT GROUP . . . . . . . . . . . . . . . . . . . . . . . . . . . .	III-1
APPENDIX IV	–	UNAUDITED PRO FORMA FINANCIAL
		INFORMATION OF THE ENLARGED GROUP. . . .	IV-1
APPENDIX V	–	GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . .	V-1
APPENDIX VI	–	PARTICULARS OF THE PROPOSED DIRECTORS . .	VI-1
NOTICE OF EGM		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	EGM-1

– i –

DEFINITIONS

In this circular, unless the context otherwise requires, the following expressions have the following meanings:

“Articles of Association”
the articles of association of the Company
“Board” the board of Directors
“Committed Shareholders”

CPPIB and GIC

“Committed Shares”
the Shares held by the Committed Shareholders as at the date of the EGM
“Company”
HKBN Ltd., an exempted company incorporated in the Cayman Islands with limited liability, the Shares of which are listed on the Stock Exchange (stock code: 1310)
“Competition Ordinance”
the Competition Ordinance (Chapter 619 of the Laws of Hong Kong)
“Completion”
completion of the Proposed Transaction in accordance with the Merger Agreement
“Completion Date”

the date of completion of the Proposed Transaction stipulated under the Merger Agreement, being the tenth (10th) business days after the date on which the last of the conditions precedent under the Merger Agreement capable of being satisfied is satisfied or waived (as applicable), or such other date as may be agreed between MLCL, TPG Wireman and Twin Holding in writing

“Consideration”
HK$5,489,756,860, being the fixed aggregate consideration without adjustment to be paid by the Company to TPG Wireman and Twin Holding for the Proposed Transaction, which will be settled by the allotment and issuance of the Consideration Shares and the Vendor Loan Notes
“Consideration Shares”
new Shares to be allotted and issued by the Company to settle part of the Consideration, comprising (i) 152,966,345 Shares to TPG Wireman, and (ii) 152,966,345 Shares to Twin Holding

– 1 –

DEFINITIONS

“Conversion Shares”

the Share(s) to be allotted and issued by the Company upon conversion of the Vendor Loan Notes

“Convertible Vendor Loan the instrument constituting the HK$1,940,937,656 zero Instrument” coupon subordinated unsecured perpetual convertible loan of the Company
“CPPIB”
Canada Pension Plan Investment Board, a shareholder of the Company holding 182,405,000 Shares as at the Latest Practicable Date
“Director(s)” director(s) of the Company
“Enlarged Group” the Group as enlarged by the Proposed Transaction upon Completion
“Extraordinary General Meeting” an extraordinary general meeting of the Company to be or “EGM” held at 10:00 a.m., on Friday, 16 November 2018 at WOW Land, 16th Floor, Trans Asia Centre, 18 Kin Hong Street, Kwai Chung, New Territories, Hong Kong convened by the notice of extraordinary general meeting set out on pages EGM-1 to EGM-3 of this circular (or any adjournment thereof)
“GIC”
GIC Private Limited, a shareholder of the Company holding 87,284,797 Shares as at the Latest Practicable Date
“Group” the Company and its subsidiaries
“HK$” or “HKD” Hong Kong dollars, the lawful currency of Hong Kong
“Hong Kong” the Hong Kong Special Administrative Region of the PRC
“ICT services” information and communication technology services
“IDD” international direct dialling
“IP-TV” internet protocol television

– 2 –

DEFINITIONS

“Irrevocable Undertakings”
the irrevocable undertakings given by each of the Committed Shareholders, each dated 7 August 2018 in respect of the Committed Shares in favour of the Company as mentioned in the section headed “Letter from the Board – Irrevocable Undertakings” in this circular
“Last Trading Day”
7 August 2018, being the last trading day of the Shares immediately prior to the date of signing of the Merger Agreement
“Latest Practicable Date”
23 October 2018, being the latest practicable date prior to printing of this circular for ascertaining certain information contained in this circular
“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange
“Long Stop Date”
6 February 2019 or such later date as the parties to the Merger Agreement may agree in writing
“Mbps”
megabit(s) per second
“Merger Agreement”
the sale and purchase agreement dated 7 August 2018 and entered into among the Company, MLCL, TPG Wireman and Twin Holding in respect of the Proposed Transaction
“MetroNet”
a private Ethernet wide area network supported by a layer 2 network that enables clients to have full control of the network IP configuration and routing
“MLCL”
Metropolitan Light Company Limited, an exempted company incorporated in the Cayman Island with limited liability and a wholly-owned subsidiary of the Company
“OFCA”
Office of the Communications Authority of the Government of Hong Kong
“PRC”
the People’s Republic of China, which for the purpose of this circular, excludes Hong Kong, the Macau Special Administrative Region of the PRC and Taiwan

– 3 –

DEFINITIONS

“Proposed Transaction” the proposed sale of the entire issued share capital of WTT Holding from TPG Wireman and Twin Holding to MLCL pursuant to the Merger Agreement
“Share(s)” ordinary share(s) of HK$0.0001 each in the issued share capital of the Company
“Shareholder(s)” holder(s) of the Share(s)
“Specific Mandate” the specific mandate to be granted by the Shareholders at the EGM to allot and issue the Consideration Shares, the Vendor Loan Notes and the Conversion Shares upon the exercise of the conversion rights attaching to the Vendor Loan Notes
“Stock Exchange” The Stock Exchange of Hong Kong Limited
“Takeovers Code” the Code on Takeovers and Mergers
“TPG Wireman” TPG Wireman, LP, a limited partnership with registered office at Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands
“Twin Holding” Twin Holding Ltd, an exempted company incorporated with limited liability under the laws of the Cayman Islands
“US$” or “USD” United States dollars, the lawful currency of the United States of America
“Vendor Loan Notes”
the vendor loan notes to be issued by the Company to settle part of the Consideration, and convertible into the Conversion Shares pursuant to the terms and conditions set out in the Convertible Vendor Loan Instrument and the Merger Agreement, comprising (i) the Vendor Loan Notes with a principal amount of HK$970,468,828 to be issued to TPG Wireman, and (ii) the Vendor Loan Notes with a principal amount of HK$970,468,828 to be issued to Twin Holding
“VoIP”

voice-over-internet-protocol

– 4 –

DEFINITIONS

“VWAP”
in respect of a Share on any trading day, the order book volume-weighted average price of a Share published by or derived from Bloomberg (or any successor service) page HK Equity VAP or such other source as shall be determined to be appropriate by an independent investment bank on such trading day, provided that on any such trading day where such price is not available or cannot otherwise be determined as provided above, the VWAP of a Share in respect of such trading day shall be the VWAP, determined as provided above, on the immediately preceding trading day on which the same can be so determined
“WTT Group” WTT Holding and its subsidiaries
“WTT Holding”
WTT Holding Corp., a company incorporated in the Cayman Island with limited liability
“WTT HK”
WTT HK Limited, a company incorporated in Hong Kong with limited liability, and a wholly-owned subsidiary of WTT Holding as at the Latest Practicable Date
“WTT Investment”
WTT Investment Ltd, a company incorporated in the Cayman Island with limited liability, and a wholly-owned subsidiary of WTT Holding as at the Latest Practicable Date
“WTT Senior Notes”
the 5.50% US$ denominated senior notes due 2022 with a principal amount of US$670,000,000 issued by WTT Investment on 14 November 2017
“%” per cent

For the purpose of this circular, unless otherwise indicated, the exchange rate at US$1.00 = HK$7.8091 has been used, where applicable, for the purpose of illustration only and does not constitute a representation that any amount has been, could have been or may be exchanged at such rate.

– 5 –

LETTER FROM THE BOARD

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HKBN Ltd. 香港寬頻有限公司

(Incorporated in the Cayman Islands with limited liability) Stock Code: 1310

Board of Directors:

Chairman and Independent Non-executive Director Mr. Bradley Jay HORWITZ

Executive Directors Mr. William Chu Kwong YEUNG Mr. Ni Quiaque LAI

Non-executive Director

Ms. Deborah Keiko ORIDA

Independent Non-executive Directors Mr. Stanley CHOW

Registered Office:

P.O. Box 309 Ugland House Grand Cayman KY1-1104 Cayman Islands

Principal Place of Business in Hong Kong:

12th Floor, Trans Asia Centre 18 Kin Hong Street, Kwai Chung New Territories Hong Kong

Mr. Quinn Yee Kwan LAW, SBS, JP

26 October 2018

To the Shareholders

Dear Sir or Madam,

VERY SUBSTANTIAL ACQUISITION IN RELATION TO THE PROPOSED TRANSACTION IN RELATION TO THE ENTIRE ISSUED SHARE CAPITAL IN WTT HOLDING CORP. INVOLVING

(1) THE ISSUE OF CONSIDERATION SHARES AND VENDOR LOAN NOTES UNDER SPECIFIC MANDATE AND

(2) PROPOSED APPOINTMENT OF DIRECTORS AND

NOTICE OF EXTRAORDINARY GENERAL MEETING

1. INTRODUCTION

Reference was made to the Company’s announcement dated 7 August 2018, in which the Board announced that on 7 August 2018 (after trading hours), the Company, its direct wholly-owned subsidiary MLCL, TPG Wireman and Twin Holding entered into the Merger

– 6 –

LETTER FROM THE BOARD

Agreement, pursuant to which, among other things, MLCL has conditionally agreed to purchase, and TPG Wireman and Twin Holding have conditionally agreed to sell, the entire issued share capital in WTT Holding for the Consideration. The Consideration will be settled by the allotment and issuance of the Consideration Shares and the issuance of Vendor Loan Notes to TPG Wireman and Twin Holding, both of which will be allotted and issued pursuant to the Specific Mandate to be granted by the Shareholders at the EGM.

The EGM will be held on Friday, 16 November 2018 and the following ordinary resolutions will be proposed at the meeting:

(1) the approval of the Merger Agreement;
(2) the approval of the grant of the Specific Mandate for the Board to issue the Consideration Shares, the Vendor Loan Notes and the Conversion Shares upon the exercise of the conversion rights attaching to the Vendor Loan Notes;
(3) the appointment of Mr. Zubin Irani as a non-executive Director; and
(4) the appointment of Mr. Teck Chien Kong as a non-executive Director.

The purpose of this circular is to incorporate the notice of the EGM, and to provide you with details regarding the resolutions mentioned above.

2. THE PROPOSED TRANSACTION

(1) The Merger Agreement

The principal terms of the Merger Agreement are set out below:

Date: 7 August 2018

Parties:

(1) TPG Wireman and Twin Holding;
(2) MLCL; and
(3) the Company

– 7 –

LETTER FROM THE BOARD

To the best knowledge, information and belief of the Directors, having made all reasonable enquiries, save for (i) the immaterial aggregate attributable indirect passive interest of CPPIB (which is also a shareholder in the Company) in TPG Wireman and Twin Holding, and (ii) the immaterial aggregate attributable indirect passive interest of GIC (which is also a shareholder in the Company) in TPG Wireman, TPG Wireman and Twin Holding are third parties independent of the Company and its connected persons.

Shares to be acquired:

As at the Latest Practicable Date, WTT Holding is jointly owned by TPG Wireman and Twin Holding, with each party holding 50% of the share capital of WTT Holding.

Pursuant to the Merger Agreement, MLCL will acquire the entire issued share capital in WTT Holding from TPG Wireman and Twin Holding on Completion. Upon Completion, WTT Holding and all of its subsidiaries will become wholly-owned indirect subsidiaries of the Company, and the financial information of WTT Group will be consolidated into the accounts of the Enlarged Group.

Consideration

The Consideration will be satisfied at Completion, of which (i) HK$3,548,819,204 will be satisfied by allotment and issuance of the Consideration Shares; and (ii) HK$1,940,937,656 will be satisfied by issuance of the Vendor Loan Notes in the following manner:

(a) HK$1,774,409,602 by the allotment and issuance of 152,966,345 Consideration Shares by the Company to TPG Wireman at an issue price of HK$11.60 per Consideration Share, representing approximately 11.66% of the total issued share capital of the Company as at the Completion Date and approximately 10.34% of the total issued share capital of the Company as at the Completion Date on a fully diluted basis;
(b) HK$1,774,409,602 by the allotment and issuance of 152,966,345 Consideration Shares by the Company to Twin Holding at an issue price of HK$11.60 per Consideration Share, representing approximately 11.66% of the total issued share capital of the Company as at the Completion Date and approximately 10.34% of the total issued share capital of the Company as at the Completion Date on a fully diluted basis;
(c) the issuance of non-voting, nil-coupon Vendor Loan Notes with a principal amount of HK$970,468,828 to TPG Wireman, convertible into approximately 83,661,106 Shares (assuming full conversion of the Vendor Loan Notes at the conversion price of HK$11.60 per Share) at the option of TPG Wireman on and subject to the terms and conditions set out in the Convertible Vendor Loan Instrument; and

– 8 –

LETTER FROM THE BOARD

(d) the issuance of non-voting, nil-coupon Vendor Loan Notes with a principal amount of HK$970,468,828 to Twin Holding, convertible into approximately 83,661,106 Shares (assuming full conversion of the Vendor Loan Notes at the conversion price of HK$11.60 per Share) at the option of Twin Holding on and subject to the terms and conditions set out in the Convertible Vendor Loan Instrument.

As part of the Proposed Transaction, the Group will assume the existing indebtedness of WTT Group in the amount of US$670 million (equivalent to approximately HK$5,232 million), being the outstanding amount of the WTT Senior Notes, excluding the cash and cash equivalents of WTT Group as at 30 June 2018 in the amount of approximately HK$260 million. This results in an overall enterprise value of WTT Group of approximately HK$10,462,159,860.

Each of TPG Wireman and Twin Holding has agreed that it will not withdraw any amount of cash and cash equivalents from WTT Group prior to Completion, and any increase in the cash and cash equivalents of WTT Group from 7 August 2018 to the Completion Date shall be retained for the benefit of the Enlarged Group.

For further details of the Consideration Shares and the Vendor Loan Notes, please refer to the sections headed “Consideration Shares” and “Terms of the Vendor Loan Notes” in this letter below.

Basis of the Consideration

The Consideration was determined after arm’s length-negotiations among TPG Wireman, Twin Holding and the Company (on behalf of MLCL) taking into account, among other things, (i) the trading multiples of comparable companies of similar business in the open market; (ii) the multiples implied by comparable transactions in similar industries and with similar business nature; (iii) relative earnings contribution of the Company and WTT Group; (iv) the Company’s historical share price performance; and (v) the business development opportunities and prospects of WTT Group as set out in the section headed “Reasons for and Benefits of the Proposed Transaction” below.

The trading companies considered comparable to WTT Group include (1) telecom companies listed on the Stock Exchange with operations in Hong Kong and engagement in fixed-line business, which include HKT Trust and HKT Ltd (“ HKT ”), SmarTone Telecommunications Holdings Limited (“ SmarTone ”) and the Company and (2) fixedline service providers with operations in Asia which include NetLink NBN Trust (“ NetLink ”) listed on the Singapore Stock Exchange and TIME dotCom Bhd. (“ TIME dotcom ”) listed on the Kuala Lumpur Stock Exchange. For these comparable companies, their last-twelve-months (“ LTM ”) EV/EBITDA reflecting adjustments for customer acquisition costs and spectrum license liabilities ranged from 5.4 times to 15.5 times, with mean average of 11.6 times and median of 13.4 times as of the Last Trading Day.

– 9 –

LETTER FROM THE BOARD

The Board is of the view that (a) the implied firm value to LTM as of February 2018 EBITDA multiple for the Company at the reference price is 13.2 times which is comparable to 12.7 times LTM as of June 2018 EBITDA multiple for WTT Group as implied by the Consideration, (b) the implied LTM EV/EBITDA for WTT Group is generally in line with the implied LTM EV/EBITDA for the comparable companies, and reflects the nature of acquisition of a controlling stake and the growth prospects of WTT Group, and (c) EV/EBITDA is the standard and common multiple commonly used to assess the value of telecom businesses given capital intensiveness and stability of cash flow. In light of the above, the Directors consider that the Consideration is fair and reasonable as compared to the comparable companies.

Reference was also made to implied LTM EV/EBITDA of precedent transactions in Hong Kong telecom, including the acquisition of WTT (formerly known as “Wharf T&T”) by TPG Wireman and Twin Holding which implied estimated LTM EV/EBITDA of 11.4 times and the acquisition of Hutchison Global Communications Investment Holding Limited by Asia Cube Global Communications Limited which implied estimated LTM EV/EBITDA of 11.5 times.

The Board is of the view that the implied LTM EV/EBITDA for the Company and WTT are not materially different from the implied LTM EV/EBITDA from the precedent transactions. In light of the above, the Directors consider that the Consideration is fair and reasonable as compared to the precedent comparable transactions.

Revenue of the Group for the six months ended 28 February 2018 and the six months ended 28 February 2017 amounted to HK$1,868 million and HK$1,535 million, respectively. Revenue of the Group for the year ended 31 August 2017 amounted to HK$3,232 million. Revenue of the Group for the last twelve months ended 28 February 2018 amounted to HK$3,566 million. Revenue of WTT Holding for the six months ended 30 June 2018 and the six months ended 30 June 2017 amounted to HK$1,049 million and HK$1,049 million, respectively. Revenue of WTT Holding for the year ended 31 December 2017 amounted to HK$2,102 million. Revenue of WTT Holding for the last twelve months ended 30 June 2018 amounted to HK$2,103 million.

EBITDA of the Group for the six months ended 28 February 2018 and the six months ended 28 February 2017 amounted to HK$594 million and HK$481 million, respectively. EBITDA of the Group for the year ended 31 August 2017 amounted to HK$1,041 million. EBTIDA of the Group for the last twelve months ended 28 February 2018 amounted to HK$1,154 million. Adjusted EBITDA of WTT Holding for the six months ended 30 June 2018 and the six months ended 30 June 2017 amounted to HK$412 million and HK$433 million, respectively. Adjusted EBITDA of WTT Holding for the year ended 31 December 2017 amounted to HK$835 million. Adjusted EBITDA of WTT Holding for the last twelve months ended 30 June 2018 amounted to HK$814 million.

– 10 –

LETTER FROM THE BOARD

WTT Holding’s contribution to the pro forma combined revenue and EBITDA of the enlarged Group for the last twelve months (ended 28 February 2018 for the Group and ended 30 June 2018 for WTT Holding) would be 37.1% and 41.4%, respectively, as compared to a 32.0% implied aggregate ownership of TPG Wireman and Twin Holding immediately after the allotment and issue of the Consideration Shares and full conversion of the Vendor Loan Notes.

As for the Company’s historical share performance, set out below is a chart showing the daily closing price of the Company as quoted on the Stock Exchange during the 6-month period prior to the Last Trading Day.

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

Closing price (HKS)
19 April 2018: 7 August 2018:
Announcement of 2018 Announcement of the
Interim Results Transaction
Issue price of HK$11.60
7-Feb-2018 7-Mar-2018 7-Apr-2018 7-May-2018 7-Jun-2018 7-Jul-2018 7-Aug-2018
Source: Bloomberg Date
----- End of picture text -----

During the six-month period prior to the Last Trading Day, the closing price of the Company increased from HK$9.18 per Share on 7 February 2018 to HK$12.26 per Share on 7 August 2018, representing an increase of approximately 34%. The lowest share price was HK$8.79 per Share on 27 February 2018, and the highest share price was HK$12.90 per Share on 23 July 2018, with an average of approximately HK$10.58 per Share. During the six-month period prior to the Last Trading Day, the closing prices of the Share were above the issue price of the Consideration Shares at HK$11.60 per Share for 24 trading days and were below or equal to it for 97 trading days.

Based on the Company’s historical share price performance, the Board notes that the issue price of the Consideration Shares at HK$11.60 per share is at the high end of the range historically.

– 11 –

LETTER FROM THE BOARD

For the business development opportunities and prospects of WTT Group, detailed factors are set out in the section headed “Reasons for and Benefits of the Proposed Transaction”.

Having considered the aforesaid factors, the Directors consider that the Consideration is fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Consideration Shares

As at the Latest Practicable Date, the Company has an authorised share capital of HK$380,000 divided to 3,800,000,000 of par value HK$0.0001 each, and has 1,005,666,666 Shares in issue. The Company will allot and issue 152,966,345 Consideration Shares to each of TPG Wireman and Twin Holding, each representing (i) approximately 15.21% of the issued share capital of the Company as at the Latest Practicable Date; and (ii) approximately 11.66% of the issued share capital of the Company immediately after Completion and (iii) approximately 10.34% of the total issued share capital of the Company as at the Completion Date on a fully diluted basis.

The Consideration Shares have a nominal value of approximately HK$15,297. The Consideration Shares will be allotted and issued at the issue price of HK$11.60 per Consideration Share, which represents a discount of 1.53% to the 60 day VWAP of the Shares of HK$11.78 per Share. It also represents:

(a) a discount of approximately 5.38% to the closing price of HK$12.26 per Share as quoted on the Stock Exchange on the Last Trading Day;
(b) a discount of approximately 5.92% to the average closing prices of HK$12.33 per Share as quoted on the Stock Exchange for the last 10 consecutive trading days up to and including the Last Trading Day; and
(c) a discount of approximately 3.33% to the average closing prices of HK$12.00 per Share as quoted on the Stock Exchange for the last 30 consecutive trading days up to and including the Last Trading Day.

The issue price was arrived at after arm’s length negotiations among TPG Wireman, Twin Holding and the Company (on behalf of MLCL) with reference to the market performance of the Shares. The Directors consider that the issue price of the Consideration Shares is fair and reasonable and is in the interests of the Company and the Shareholders as a whole.

– 12 –

LETTER FROM THE BOARD

The Consideration Shares will be allotted and issued pursuant to the Specific Mandate, and will rank pari passu with, and carry the same rights in all respect as, the Shares in issue on the date of such allotment and issue, including the rights to all dividends, distributions and other payments made or to be made for which the record date falls or after the date of such allotment and issue.

Application will be made by the Company to the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the Consideration Shares.

Vendor Loan Notes

Non-voting, nil-coupon Vendor Loan Notes with a principal amount of HK$970,468,828 will be issued to each of Twin Holding and TPG Wireman as part of the Consideration. For further details of the terms of the Vendor Loan Notes, please refer to the section headed “Terms of the Vendor Loan Notes” in this letter below. Each of TPG Wireman and Twin Holding have undertaken to use best endeavours to convert the Vendor Loan Notes as soon as practicable after Completion, save where such conversion would trigger a mandatory general offer under the Takeovers Code.

Conditions

Completion is conditional upon, and subject to the fulfilment or waiver (where applicable) of, the following conditions precedent:

(a) the Stock Exchange having granted the listing of, and permission to deal in the Consideration Shares and the Conversion Shares and such approval not having been withdrawn or revoked;
(b) the passing of the necessary ordinary resolution(s) by the Shareholders at the EGM to be convened and held to approve the Merger Agreement and the transactions contemplated thereunder (including but not limited to the allotment and issuance of the Consideration Shares and the Conversion Shares);
(c) MLCL, TPG Wireman and Twin Holding being satisfied that the Completion would not have the effect or be likely to have the effect of substantially lessening competition in Hong Kong or would otherwise be compatible with section 3 of schedule 7 of the Competition Ordinance;
(d) each of the fundamental warranties (which includes TPG Wireman’s and Twin Holding’s title to the shares of WTT Holding) provided by TPG Wireman and Twin Holding being true and accurate immediately prior to Completion; and

– 13 –

LETTER FROM THE BOARD

(e) MLCL, the Company, TPG Wireman and Twin Holding being satisfied that the Completion would not result in an obligation on either of TPG Wireman or Twin Holding and/or any person acting, or being deemed to be acting, in concert (as such term defined in the Takeovers Code) with either or both of them, to make a mandatory general offer for the Shares pursuant to Rule 26 of the Takeovers Code.

In determining whether condition (c) is satisfied, the parties will take into consideration whether written acknowledgment is received from the OFCA or any other authority with jurisdiction to apply the provisions of the Competition Ordinance that the Proposed Transaction (if completed) will not have the effect or will be unlikely to have the effect of substantially lessening competition in Hong Kong or will otherwise be compliant with schedule 7 of the Competition Ordinance. If this condition is only capable of being satisfied subject to compliance with conditions or obligations imposed on the enlarged Group, the Company shall accept such conditions and obligations to the extent such conditions and obligations are not deemed to be unreasonable by the Company, TPG Wireman and Twin Holding. The Company shall have primary responsibility for satisfying condition (c), with TPG Wireman and Twin Holding cooperating with the Company by providing upon request such assistance as is required. As at the Latest Practicable Date, none of the conditions precedent had been fulfilled or waived by the Company, and the Company continues to work towards satisfaction of condition (c).

If any of the above conditions precedent is not fulfilled or waived (where applicable) by 12:00 noon on the Long Stop Date, the Merger Agreement will automatically terminate, unless the parties to the Merger Agreement agree by written agreement to extend the Long Stop Date. Upon termination, parties will have no further rights or obligations under the Merger Agreement, other than certain accrued rights and obligations at that time including the break fee as further detailed in the section headed “Break Fee” in this letter below.

Nomination Right

From Completion, for so long as each of TPG Wireman and Twin Holding continues to hold not less than 10% of the Shares:

(a) each of TPG Wireman and Twin Holding shall be entitled to nominate one person to the Board;
(b) in the case of TPG Wireman, it shall be entitled to nominate one person to the Company’s audit committee as a committee member;
(c) in the case of TPG Wireman, it shall be entitled to nominate one person to the Company’s remuneration committee as a committee member; and

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LETTER FROM THE BOARD

(d) in the case of Twin Holding, it shall be entitled to nominate one person to the Company’s nomination committee as a committee member.

In keeping with a commitment to fair and equal rights of all Shareholders, the Board has considered nominations from TPG Wireman and Twin Holding for so long as each continues to hold not less than 10% of the Shares.

The power of a Shareholder to nominate Director(s) is provided in the Articles of Association. Pursuant to Article 12.3 of the Articles of Association, an extraordinary general meeting of the Company shall be convened on the written requisition of shareholders representing no less than 10% of the total voting rights of the Company. As such, each of TPG Wireman and Twin Holding will be entitled under the Articles of Association put forward a proposal to appoint Director(s) for consideration at a general meeting of the Company for so long as its shareholdings in the Company represents 10% or more of the total voting rights of the Company.

Break Fee

If Completion does not take place as a result of a failure to pass the necessary ordinary resolution(s) by the Shareholders at the EGM as described in the section headed “Conditions” in this letter above, the Company has agreed to pay TPG Wireman and Twin Holding a fixed amount of HK$350,000,000 as compensation for costs incurred as part of the aborted transaction.

The break fee arrangement (including the amount of the break fee) was determined after arm’s length negotiations among TPG Wireman, Twin Holding and the Company (on behalf of MLCL) taking into account, among other things, (i) the potential damage to WTT Group should the Proposed Transaction fail to proceed due to the relevant resolutions in the EGM not being passed by the Shareholders; (ii) the provision of a break fee arrangement is supported by precedents involving acquirors listed on the Stock Exchange; (iii) the amount of break fee, being approximately 3% of the overall enterprise value of WTT Group, is within the range of break fees offered in such precedents; and (iv) the provision of break fee being a pre-requisite for TPG Wireman and Twin Holding to enter into the Merger Agreement, with the Company being of the view that the Proposed Transaction would be beneficial to the Company and the Shareholders as a whole due to the reasons stated in the section headed “Reasons for and Benefits of the Proposed Transaction” in this letter below.

Having considered the aforesaid factors, the Directors consider that the break fee is fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Waiver of Dividend

TPG Wireman and Twin Holding irrevocably waive any entitlement to receive any dividend for the year ending 31 August 2018 from the Company to which they may otherwise be entitled by reason of their holding of the Consideration Shares and/or the Conversion Shares.

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LETTER FROM THE BOARD

Completion

Completion will take place on the date falling ten (10) business days after the date on which the last of the conditions precedent under the Merger Agreement capable of being satisfied is satisfied or waived (as applicable), or such other date as may be agreed between MLCL, TPG Wireman and Twin Holding in writing.

Lock-up Period

During the period of 18 months immediately following the Completion Date (the “ Lock-up Period ”), TPG Wireman and Twin Holding shall be subject to the following transfer restrictions on the Consideration Shares, the Vendor Loan Notes and/or the Conversion Shares:

(a) during the first 12 months of the Lock-Up Period, each of TPG Wireman and Twin Holding shall not transfer any of the Consideration Shares, the Vendor Loan Notes and/or the Conversion Shares, without the prior written consent of the Company, to any third person; and
(b) during the last 6 months of the Lock-Up Period, each of TPG Wireman and Twin Holding shall not transfer an aggregate number of Consideration Shares, Vendor Loan Notes and/or Conversion Shares of more than 50% of the aggregate number of the Consideration Shares and the Conversion Shares (as if the Vendor Loan Notes had been converted in full at the relevant time) it received at Completion, without the prior written consent of Company.

Following the end of the Lock-up Period, each of TPG Wireman and Twin Holding will be free to transfer any of the Consideration Shares, Vendor Loan Notes and Conversion Shares to any party other than restricted transferees as agreed among TPG Wireman, Twin Holding and the Company from time to time. Any transfer of the Vendor Loan Notes shall be conditional on the Vendor Loan Notes being converted in full into Shares by the relevant transferee on closing of the relevant transfer.

During the Lock-up Period, other than the Conversion Shares, each of TPG Wireman and Twin Holding will not and will procure that any persons acting in concert with it will not acquire, or indirectly through any affiliates controlled by such party or any party acting in accordance with its direction acquire, any legal or beneficial title in, or economic right or interest under, any Shares.

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LETTER FROM THE BOARD

(2) Terms of the Vendor Loan Notes

Pursuant to the Merger Agreement, the Company shall issue the Vendor Loan Notes to TPG Wireman and Twin Holding at Completion pursuant to the terms and conditions of the Convertible Vendor Loan Instrument. The material terms of the Vendor Loan Notes are summarized as follows:

Principal amount

: HK$1,940,937,656

Maturity date

Interest rate/Coupon Status and Rights

: N/A (perpetual Vendor Loan Notes) : Zero interest or coupon rate.
: The Vendor Loan Notes are non-voting notes which rank behind and subordinated to all other present and future unsecured and unsubordinated obligations of the Company, and upon conversion, the Conversion Shares will rank pari passu with, and carry the same rights in all respects, as the Shares in issue on the date of such allotment and issue.

The holders of the Vendor Loan Notes shall enjoy the right to receive an amount equal to any dividends (whether in cash or scrip) made by the Company, on an as-converted basis.

In the event of the liquidation of the Company, payments will therefore be made to all secured and unsecured creditors in advance of any payment to the holders of the Vendor Loan Notes or ordinary Shareholders, with any remaining proceeds being shared between the holders of the Vendor Loan Notes and the ordinary shareholders on a pro rata, as converted basis.

Conversion price
: The initial conversion price is HK$11.60 per Conversion Share, subject to limited adjustments in the event of stock splits or consolidation of the Company’s share capital.

The initial conversion price represents a discount of 1.53% to the 60 day VWAP of the Shares of HK$11.78 per Share. It also represents:

(a) a discount of approximately 5.38% to the closing price of HK$12.26 per Share as quoted on the Stock Exchange on the Last Trading Day;

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LETTER FROM THE BOARD

(b) a discount of approximately 5.92% to the average closing prices of HK$12.33 per Share as quoted on the Stock Exchange for the last 10 consecutive trading days up to and including the Last Trading Day; and
(c) a discount of approximately 3.33% to the average closing prices of HK$12.00 per Share as quoted on the Stock Exchange for the last 30 consecutive trading days up to and including the Last Trading Day.

The conversion price was arrived at after arm’s length negotiations among TPG Wireman, Twin Holding, MLCL and the Company with reference to the market performance of the Shares and the issue price of the Consideration Shares. The Directors consider that the conversion price is fair and reasonable and is in the interests of the Company and the Shareholders as a whole.

The Conversion Shares will be allotted and issued pursuant to the Specific Mandate.

Conversion period
Redemption
Conversion rights
Conversion Shares
: At any time after the date of issue of the Vendor Loan Notes, provided that the Vendor Loan Notes may not be converted in circumstances where conversion of such would trigger a mandatory general offer by the holders of the Vendor Loan Notes and/or persons acting in concert with them (as such term is defined in the Takeovers Code).
: Each interest in the Vendor Loan Notes is a perpetual interest in respect of which there is no fixed redemption date subject to limited exceptions, including the right of the holders of the Vendor Loan Notes to redeem upon the occurrence of an event of default by the Company.
: At the discretion of the holders of the Vendor Loan Notes, provided that the Vendor Loan Notes may not be converted in circumstances where conversion of such would trigger a mandatory general offer by the holders of the Vendor Loan Notes and/or persons acting in concert with them (as such term is defined in the Takeovers Code).
: Assuming full conversion of the Vendor Loan Notes at the conversion price of HK$11.60 per Share, the Vendor Loan Notes will be convertible into approximately 167,322,212 Shares, representing approximately 12.76% of the projected total issued share capital of the Company immediately following Completion and approximately 11.31% of the total issued share capital of the Company as at the Completion Date on a fully diluted basis.

The Conversion Shares have a nominal value of approximately HK$16,732.

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LETTER FROM THE BOARD

Application will be made by the Company to the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the Conversion Shares. It is expected that the Vendor Loan Notes will be accounted as equity by the Company.

(3) Irrevocable Undertakings

On 7 August 2018, the Company received the Irrevocable Undertakings from the Committed Shareholders, pursuant to which each of the Committed Shareholders has undertaken to, among other things, vote or procure votes to approve (i) the Proposed Transaction; and (ii) the Specific Mandate for the allotment and issuance of the Consideration Shares, the Vendor Loan Notes and the Conversion Shares upon the exercise of the conversion rights attaching to the Vendor Loan Notes at the EGM.

(4) Shareholding Structure of WTT Group Before and After Completion

The following diagram sets out the shareholding structure of WTT Group immediately prior to the Completion:

==> picture [426 x 300] intentionally omitted <==

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

Twin Holding TPG Wireman
50% 50%
WTT Holding
100%
WTT Investment
100%
WTT Development Ltd
100%
WTT Cayman Corp
100%
WTT HK
Other subsidiaries
----- End of picture text -----

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LETTER FROM THE BOARD

The following diagram sets out the shareholding structure of WTT Group immediately after the Completion:

==> picture [185 x 283] intentionally omitted <==

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

MLCL
100%
WTT Holding
100%
WTT Investment
100%
WTT Development Ltd
100%
WTT Cayman Corp
100%
WTT HK
Other subsidiaries
----- End of picture text -----

(5) Information of WTT Group

WTT Holding is a company incorporated in the Cayman Islands with limited liability. It is an investment holding company which is principally engaged in the provision of telecommunication services to business communications market primarily in Hong Kong through its wholly-owned subsidiary in Hong Kong, namely WTT HK. WTT HK is an enterprise-focused fixed telecommunication services operator with significant fixed line infrastructure in Hong Kong, and over 20 years’ track record of serving local and international businesses.

Since its inception in 1995, WTT Group has invested more than HK$7 billion (approximately US$894 million) in its network to create Hong Kong’s leading fiber-optic end-to-end network. Over the last few years, WTT Group has invested heavily in its self-built fiber network in order to build sufficient capacity for delivering various types of telecommunication services to its customers. The network encompasses a wide range of network technologies to ensure compatibility with customers’ technologies and equipment. Upon completion of its “+EN” network expansion project in 2014, WTT Group had more than doubled its building coverage and upgraded its network to a major extent. With the completion of a substantive network upgrade and expansion, WTT Group operates one of the most extensive fiber-optic networks in Hong Kong covering more than 5,400 commercial buildings as at June 2018, effectively covering a substantial majority of the enterprise market in Hong

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LETTER FROM THE BOARD

Kong. WTT Group also provides end-to-end, tailor-made complex ICT solutions with differentiated value-added services via its in-house ICT service engines. WTT Group also operate, via a licensed PRC partner, a resilient internet protocol virtual private network in the PRC. The extensive international coverage of WTT Group is achieved via a combination of focused investments in the PRC and global partnerships.

There are four business segments of WTT Group, namely:

(a) Data, which includes (i) local data, (ii) business broadband and (iii) international data services;
(b) Voice, which includes (i) time-division multiplexing legacy voice services, (ii) internet protocol voice services and (iii) interconnect and other services;
(c) IDD, which includes (i) retail IDD, (ii) wholesale IDD and (iii) global conferencing; and
(d) Information technology, which includes (i) system integration services, (ii) data center services, (iii) professional services and (iv) cloud services to multinational enterprises and telecommunication service providers.

Financial information of WTT Group

Results: finance costs related to the borrowings by WTT Cayman Corp and WTT Investment. The line items impacted were: other operating expenses, finance costs, profit/loss before taxation, income tax and profit/loss for the year/period

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LETTER FROM THE BOARD

Assets and liabilities: purchase accounting of the acquisition of WTT HK and consolidation of the borrowings by WTT Cayman Corp and WTT Investment. The line items impacted were: goodwill, intangible assets, cash and cash equivalents, other payables and accrued charges, bank loans (current portion and long-term portion), deferred tax liabilities, senior notes, share capital, share premium, reserves, amounts due from/to group companies (for WTT HK only) and loan from a former fellow subsidiary (for WTT HK only)
Cash flow: cash generated from/used in investing and financing activities related to the acquisition of WTT HK and the borrowings by WTT Cayman Corp and WTT Investment. The line items impacted were related to investing activities: payments for the purchase of a subsidiary (net of cash required), acquisition-related costs paid, advance(s) to an intermediate/immediate holding company (for WTT HK only), and all line items related to financing activities

Set out below is the selected financial information of the business of WTT Group which represents the consolidated financial statements of WTT Holding and WTT HK for each of the years ended 31 December 2015, 2016 and 2017, and for the six months ended 30 June 2017 and 2018, as extracted/derived from the Accountants’ Report of WTT Group included as Appendices IIA and IIB to this circular:

Results

Revenue Adjusted EBITDA (unaudited)(1) Loss before taxation Loss for the year/period	WTT Holding For the year ended 31 December For the six months ended 30 June 2015 2016 2017 2017 2018 (in HK$ million) – 296 2,102 1,049 1,049 – 19 835 433 412 – 104 263 15 20 – 114 314 44 47	WTT Holding For the year ended 31 December For the six months ended 30 June 2015 2016 2017 2017 2018 (in HK$ million) – 296 2,102 1,049 1,049 – 19 835 433 412 – 104 263 15 20 – 114 314 44 47
		412
		20
		47

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LETTER FROM THE BOARD

Revenue Adjusted EBITDA (unaudited)(1) Profit before taxation Profit for the year/period	WTT HK For the year ended 31 December For the six months ended 30 June 2015 2016 2017 2017 2018 (in HK$ million) 1,989 2,033 2,102 1,049 1,049 772 830 837 434 412 330 401 414 234 212 300 335 341 194 174	WTT HK For the year ended 31 December For the six months ended 30 June 2015 2016 2017 2017 2018 (in HK$ million) 1,989 2,033 2,102 1,049 1,049 772 830 837 434 412 330 401 414 234 212 300 335 341 194 174
		412
		212
		174

Note:

Adjusted EBITDA represents profit before taxation, plus finance costs, depreciation, amortization, one-off government rent, specific provisions related to disputes from a customer and certain one-off rebranding costs.

Assets and Liabilities

Total assets Total liabilities Net assets Total assets Total liabilities Net assets	31 Dec 2015 – – – 31 Dec 2015 2,698 1,740 958	WTT Holding 31 Dec 2016 31 Dec 2017 (in HK$ million) 10,651 10,485 6,229 6,376 4,423 4,109 WTT HK 31 Dec 2016 31 Dec 2017 (in HK$ million) 2,675 3,109 639 729 2,036 2,380	30 Jun 2018 10,455
			6,362
			4,094
			30 Jun 2018 3,396 810 2,586

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LETTER FROM THE BOARD

(6) Information About the Parties

The Company and MLCL

The Company and its subsidiaries are principally engaged in the provision of fibre high-speed broadband service (symmetrical 100 Mbps and above) in Hong Kong, offering a diversified portfolio of premier telecom services to both residential and enterprise markets, including broadband and Wi-Fi access, communication, entertainment and Cloud solutions. MLCL is a limited liability company incorporated under the laws of the Cayman Islands and a wholly-owned subsidiary of the Company.

TPG Wireman

TPG Wireman is a limited partnership registered under the laws of the Cayman Islands, and is an affiliate of TPG. TPG is a global alternative asset firm founded in 1992 with approximately US$94.8 billion of assets under management and offices in Austin, Beijing, Boston, Dallas, Fort Worth, Hong Kong, Houston, London, Luxembourg, Melbourne, Moscow, Mumbai, New York, San Francisco, Seoul, and Singapore. TPG’s investment platforms are across a wide range of asset classes, including private equity, growth venture, real estate, credit, public equity and infrastructure.

Twin Holding

Twin Holding is an exempted company with limited liability incorporated under the laws of the Cayman Islands and is principally engaged in investment holding. Twin Holding is beneficially owned by MBK Partners Fund III, L.P., which is an affiliate of MBK Partners. Founded in 2005, MBK Partners is one of the largest private equity funds in Asia with capital under management of over US$15 billion. MBK Partners focuses on North Asia and has developed expertise in various industries, including consumer and retail, telecommunications and media, financial services, healthcare, logistics and industrials. MBK Partners has completed transactions of over US$21 billion in aggregate value over the past twelve years.

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LETTER FROM THE BOARD

(7) Reasons for and Benefits of the Proposed Transaction

The Proposed Transaction will potentially allow the Group to more than double its scale in the enterprise solutions (“ ES ”) market, expand its network coverage and customer base, and result in synergies from expected efficiencies from the combined company and from cross-selling to the combined customer base that will make the combined business a more efficient and effective competitor in Hong Kong to the benefit of Hong Kong consumers. Specifically, the Directors and management of the Company expect to realize the following key benefits through the Proposed Transaction:

Value creation: attractive synergy opportunities

When combined, it is believed that WTT Group network’s larger scale (from both revenue and coverage perspectives) and customer base profile will offer synergies from an integrated operations basis as the Company integrates its existing ES business with WTT Group’s platform and fully utilize the fibre coverage owned by WTT Group. Similarly, the integrated businesses will allow WTT Group to tap on the Group’s expertise in network and technology rollout, marketing, product development, human capital building and unique service offerings. The combined businesses will have extensive network coverage, significant scale efficiencies and diverse and complementary service offerings, allowing the Group to increase its service effectiveness, reduce industry wastage, and pass efficiency enhancements to customers.

The Directors and management of the Company expect to realize synergies in the following specific areas:

savings in network cost due to the combined scale and thus enhanced bargaining power with regard to dealing with suppliers;
savings in general and administrative expenses including office rental expense with optimising and relocation of the offices of WTT Group to lower cost areas;
savings in IP transit and IDD cost from scaled benefits from pooled procurement and optimizing to lowest rates;
general improved cost efficiency due to enhanced scale and improved quality of services to offer more cost competitive and higher value proposition products to customers;
revenue synergy from cross-selling of telecom products and mobile services offered by the Group and WTT Group to the combined customer base;

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LETTER FROM THE BOARD

revenue synergy from upselling more fixed enterprise products by having an enhanced scale, improved building coverage, better network diversity, and enlarged product portfolio; and
as and when approved by the Shareholders after Completion, the Group intends to extend its Co-Ownership incentives to the qualifying Talents in WTT Group so as to encourage skin-in-game for achieving group objectives.

It is expected that there will be post-acquisition synergy representing approximately 7% to 10% of the combined business’ cash operating expenses on an annualized basis.

The capital expenditures of WTT HK for the years ended 31 December 2015, 2016 and 2017 were HK$273 million, HK$311 million and HK$294 million, respectively, and that of WTT Holding for the six months ended 30 June 2017 and 2018 were HK$150 million and HK$157 million, respectively. It is also expected that as a result of consolidating the Group’s capital expenditure and utilizing the fibre coverage owned by WTT Group, the Proposed Transaction will result in meaningful capital expenditure savings for the combined company of approximately HK$60 million on an annualized basis.

Such synergies are expected to be reflected in full from the third year following Completion.

Network: Acquire immediate access to significant network and building access footprint

WTT Group has an extensive, self-built and end-to-end network covering more than 5,400 commercial buildings. This is more than double the Group’s existing network coverage of approximately 2,400 commercial buildings as at February 2018. In 2010, WTT Group launched the “+EN” project, an approximately HK$1 billion investment in a territory-wide network infrastructure expansion with fibre directly built into the offices for Hong Kong business customers, which has been substantially completed in 2014. WTT Group has spent a total capital expenditure of approximately HK$2 billion cumulatively over the last five years from 2013 to 2017. In doubling the Group’s commercial buildings coverage, the Proposed Transaction is likely to increase the Group’s reach in the ES market significantly and provide additional route diversity for overlapping coverage buildings and network. After the Proposed Transaction, the Group will be able to operate a more comprehensive platform capable of supporting larger enterprise requirements and provide foundations for upcoming ICT services. The Proposed Transaction will also provide the Group a foundation in international data services by utilizing WTT Group’s regional and international network coverage.

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LETTER FROM THE BOARD

Customer base: Expansion into large enterprise customer base

The Group’s existing enterprise customer base of 56,000 are primarily small medium enterprises. As of 31 December 2017, WTT Group has more than 56,000 enterprise customers of which many are carriers and large corporates, across a wide array of industries. WTT Group serves all financial institutions listed on the Hang Seng Index, most of the global top 100 financial institutions (as ranked by Forbes) with offices in Hong Kong, major global investment banks, approximately 90% of licensed banks incorporated in Hong Kong, and most HKSAR government departments. As such, the Proposed Transaction represents a unique and attractive opportunity for the Group to expand its customer base into large enterprises and carriers and diversify its customer base across a wider portfolio of clients and industries. The Proposed Transaction will also allow the Group to build upon WTT Group’s customer relationships and track record with large enterprises to further develop the broader enterprise telecommunications sector in Hong Kong.

Services: Significant enhancement in service capabilities and diversification of business portfolio

WTT Group derives substantially all of its revenues from commercial customers, a portion of which are large enterprises and carriers on the back of ICT service capabilities that cater to the sophisticated and evolving demands of large enterprises and carriers. Such capabilities include network solutions, cloud, system integration and data centers which are highly complementary to the Group’s currently SME-focused ES business. Likewise, the Group expects to extend its ES mobile service offerings and increase wallet share of WTT Group’s existing customer base. By offering a comprehensive “one-stop” solution for enterprise customers, the Group will be well-positioned to capture opportunities in the fast-growing cloud, 5G and system integration businesses. As a result, with greater presence and capabilities in the ES market, the combination will allow the Group to compete more effectively with incumbent players of the broader enterprise telecommunications sector in Hong Kong.

In view of the above, the Directors are of the view that the Proposed Transaction will create significant value for the Group and, hence, the terms and conditions of the Merger Agreement and the transactions contemplated thereunder (including the Proposed Transaction) are fair and reasonable and in the interests of the Group and the Shareholders as a whole.

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LETTER FROM THE BOARD

(8) Effect on Shareholding Structure of the Company

The shareholding structure of the Company (i) as at the Latest Practicable Date; (ii) immediately after the allotment and issue of the Consideration Shares; and (iii) immediately after the allotment and issue of the Consideration Shares and the Conversion Shares upon full conversion of the Vendor Loan Notes at the conversion price of HK$11.60 per Conversion Share are set out below:

Shareholders CPPIB GIC(1) The Capital Group Companies, Inc.(2) Matthews International Capital Management, LLC(3) Mr. Bradley Jay HORWITZ Mr. William Chu Kwong YEUNG Mr. Ni Quiaque LAI Sub-total TPG Wireman Twin Holding Other Public Shareholders Total	As at the Latest Practicable Date Shares Approx. % 182,405,000 18.14% 87,284,797 8.68% 100,952,500 10.04% 70,914,908 7.05% 250,000 0.02% 26,989,149 2.68% 32,930,001 3.27% 501,726,355 49.89% – – – – 503,940,311 50.11% 1,005,666,666 100.00%	Immediately after the allotment and issue of the Consideration Shares Shares Approx. % 182,405,000 13.91% 87,284,797 6.65% 100,952,500 7.70% 70,914,908 5.41% 250,000 0.02% 26,989,149 2.06% 32,930,001 2.51% 501,726,355 38.25% 152,966,345 11.66% 152,966,345 11.66% 503,940,311 38.42% 1,311,599,356 100.00%	Immediately after the allotment and issue of the Consideration Shares and full conversion of the Vendor Loan Notes Shares Approx. % 182,405,000 12.33% 87,284,797 5.90% 100,952,500 6.83% 70,914,908 4.80% 250,000 0.02% 26,989,149 1.82% 32,930,001 2.23% 501,726,355 33.93% 236,627,451 16.00% 236,627,451 16.00% 503,940,311 34.07% 1,478,921,568 100.00%	Immediately after the allotment and issue of the Consideration Shares and full conversion of the Vendor Loan Notes Shares Approx. % 182,405,000 12.33% 87,284,797 5.90% 100,952,500 6.83% 70,914,908 4.80% 250,000 0.02% 26,989,149 1.82% 32,930,001 2.23% 501,726,355 33.93% 236,627,451 16.00% 236,627,451 16.00% 503,940,311 34.07% 1,478,921,568 100.00%
				33.93%
				16.00% 16.00% 34.07%
				100.00%

Notes:

87,284,797 Shares are held by GIC in the capacity of investment manager.
The Capital Group Companies, Inc. through its subsidiaries, namely Capital International, Inc., Capital International Limited, Capital International Sarl, and Capital Research and Management Company held 3,297,500 Shares, 814,000 Shares, 4,043,500 Shares and 92,797,500 Shares in the Company, respectively, and is accordingly deemed to be interested in the respective Shares held by the aforesaid companies.

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LETTER FROM THE BOARD

70,914,908 ordinary shares are held by Matthews International Capital Management, LLC in the capacity of investment manager.
Certain percentage figures included in this table are subject to rounding adjustment. Accordingly, figures shown as total may not be an arithmetic aggregation of the figures preceding them.

The Completion of the Proposed Transaction and the issuance of the Consideration Shares, the Vendor Loan Notes and the Conversion Shares will not result in the change of control of the Company.

(9) Financial Effects of the Proposed Transaction

Earnings

As set out in the Accountant’s Report on WTT HK and WTT Holding included as Appendices IIA and IIB to this circular, (i) the revenue and loss for the year of WTT Holding were approximately HK$2,102 million and HK$314 million for the year ended 31 December 2017, respectively; and (ii)the revenue and profit for the year of WTT HK were approximately HK$2,102 million and HK$341 million for the year ended 31 December 2017, respectively. The attention of the Shareholders is drawn to the unaudited pro forma financial information of the Enlarged Group set out in Appendix IV to this circular.

Assets and Liabilities

As extracted/derived from the interim report of the Company for the period ended 28 February 2018, the unaudited consolidated total assets and total liabilities of the Group were approximately HK$6,447 million and HK$5,298 million, respectively; and the unaudited consolidated net assets as at 28 February 2018 were approximately HK$1,149 million. As set out in Appendix IV to this circular, the unaudited pro forma total assets and total liabilities of the Enlarged Group would increase to approximately HK$18,229 million and HK$11,798 million, respectively; and the unaudited pro forma net asset value of the Enlarged Group would increase to approximately HK$6,431 million, assuming Completion had taken place on 28 February 2018.

(10) Listing Rules Implication

As one of the applicable percentage ratios (as defined under Chapter 14 of the Listing Rules) in respect of the Proposed Transaction exceeds 100%, the Proposed Transaction constitutes a very substantial acquisition of the Company under Chapter 14 of the Listing Rules and is therefore subject to the reporting, announcement and shareholders’ approval requirements.

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(11) Fund Raising on Issue of Equity Securities by the Company in the Last 12 Months

The Company did not carry out any fund raising activities during the 12 months immediately preceding the Latest Practicable Date.

3. APPOINTMENT OF NON-EXECUTIVE DIRECTORS

In exercising the nomination right contemplated under the Merger Agreement, (a) TPG Wireman has nominated Mr. Zubin Irani as (i) a non-executive Director; (ii) a member of the audit committee of the Company; and (iii) a member of the remuneration committee of the Company; and (b) Twin Holding has nominated Mr. Teck Chien Kong as (i) a non-executive Director; and (ii) a member of the nomination committee of the Company.

An ordinary resolution will be proposed at the EGM for the Shareholders to consider and, if deemed appropriate, approve the appointment of each of Mr. Zubin Irani and Mr. Teck Chien Kong as a non-executive Director, which if approved will be conditional upon the Merger Agreement and the transactions contemplated thereunder being approved by the Shareholders at the EGM and Completion having taken place. Subject to the Shareholders’ approval at the EGM and the Completion, the Board has decided to accept the proposals by each of TPG Wireman and Twin Holding in relation to the memberships of Mr. Zubin Irani and Mr. Teck Chien Kong in the relevant Board committees pursuant to the Articles of Association and the terms of reference of the relevant Board committees.

For the biographical details of Mr. Zubin Irani and Mr. Teck Chien Kong, please refer to Appendix VI to this circular.

4. RECOMMENDATION

Taking into consideration the reasons set out in the paragraph headed “Reasons for and the benefits of the Proposed Transaction” above, the Directors consider that the terms of the Merger Agreement are fair and reasonable and on normal commercial terms and are in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend the Shareholders to vote in favour of the ordinary resolutions as set out in the notice of the EGM to approve the Merger Agreement and the transactions contemplated thereunder, and to grant the Specific Mandate for the Board to issue the Consideration Shares, the Vendor Loan Notes and the Conversion Shares upon the exercise of the conversion rights attaching to the Vendor Loan Notes.

Having considered the biography and background of each of Mr. Zubin Irani and Mr. Teck Chien Kong and assessed their suitability as directors of a listed company in accordance with the requirements under the Listing Rules, the Board, the remuneration committee and the nomination committee of the Company are of the view that each of Mr. Zubin Irani and Mr. Teck Chien Kong is an appropriate candidate to act as a non-executive Director, given that their extensive investment experience in the telecom and media industry would provide valuable insights on the strategic planning and investment decisions of the Group. Accordingly, the

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Directors recommend the Shareholders to vote in favour of the ordinary resolutions as set out in the notice of the EGM to approve the appointments of Mr. Zubin Irani and Mr. Teck Chien Kong as non-executive Directors.

It is the Board’s hope that the above explanations could provide you with a better understanding of the proposed resolutions. The Company, as always, would see Shareholders’ value as its top priority. The support and understanding of the Shareholders is extremely important for the Company to be able to continuously deliver performance for the Shareholders and the Company looks forward to your voting in favour at the EGM.

The Directors confirm that, to the best of their knowledge, information and belief after having made all reasonable enquiries, no Shareholder has a material interest in any of the transactions to be considered and approved at the EGM. As such, no Shareholder is required to abstain from voting for any of the resolutions to approve, at the EGM.

To the best knowledge, information and belief of the Company having made all reasonable enquiries, no Director has a material interest in the Merger Agreement and the transactions contemplated thereunder. As such, no Director is required to abstain from voting on the relevant board resolution to approve the Merger Agreement and the transactions contemplated thereunder.

5. THE EGM

The Company will convene the EGM at 10:00 a.m., on Friday, 16 November 2018 at WOW Land, 16th Floor, Trans Asia Centre, 18 Kin Hong Street, Kwai Chung, New Territories, Hong Kong for the Shareholders to consider and approve, among other things, (i) the Merger Agreement and the transactions contemplated thereunder; (ii) the Specific Mandate for the allotment and issue of the Consideration Shares and the Conversion Shares; (iii) the appointment of Mr. Zubin Irani as a non-executive Director; and (iv) the appointment of Mr. Teck Chien Kong as a non-executive Director.

The notice of the EGM is set out on pages EGM-1 and EGM-3 of this circular. The voting on resolution(s) to be proposed at the EGM will be conducted by way of poll in accordance with Rule 13.39(4) of the Listing Rules.

The Company will publish an announcement on the results of the EGM with respect to whether or not the proposed resolution(s) have been passed by the Shareholders.

A form of proxy for use by the Shareholders at the EGM is enclosed with this circular. Whether or not you are able to attend the EGM in person, you are requested to complete the form of proxy in accordance with the instructions printed thereon and return the same to the Company’s Hong Kong share registrar, Tricor Investor Services Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong as soon as practicable and in any event no later than 48 hours before the time appointed for the holding of the EGM or any adjournment

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LETTER FROM THE BOARD

thereof. However, completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjournment thereof should you so wish and in such event the relevant form of proxy shall be deemed to be revoked.

6. CO-OWNERSHIP PLAN III

Reference is made to the announcement dated 2 November 2017 and the circular dated 16 November 2017 issued by the Company in relation to the Co-Ownership Plan III of the Company, which is a restricted share unit scheme adopted by the Company for its Talents. The Proposed Transaction will, if it proceeds to Completion, constitute a M&A Event (as defined in the aforesaid circular) under the Co-Ownership Plan III. As the basis for awarding the award shares of the Company under the Co-Ownership Plan III was determined by reference to aspirational performance targets of the Group prior to the undertaking of the Proposed Transaction, and in view that no grant of restricted share unit has been made under the plan since its adoption, the Board considered it appropriate to suspend the operation of the Co-Ownership Plan III until the finalisation of the Proposed Transaction. Subject to the Proposed Transaction proceeding to Completion, the Board may consider exercising its power and discretion under the plan to terminate the Co-Ownership Plan III and, at an appropriate time in the future, proposing a revised incentive plan that has performance targets determined by reference to, among others, the Group on an enlarged basis after Completion of the Proposed Transaction to substitute the Co-Ownership Plan III.

7. GENERAL

Shareholders should note that Completion is subject to a number of conditions including approval of the Shareholders at the EGM. Accordingly, there is no assurance that the Proposed Transaction will be completed in the event that any of the conditions to the Completion is not fulfilled. Shareholders and potential investors should, accordingly, exercise caution when dealing in the shares or other securities (if any) of the Company.

8. ADDITIONAL INFORMATION

Your attention is also drawn to the additional information set out in the appendices to this circular.

Yours faithfully, For and on behalf of HKBN Ltd. Bradley Jay HORWITZ Chairman

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

FINANCIAL SUMMARY OF THE GROUP

The audited consolidated financial statements of the Group for each of the three years ended 31 August 2015, 2016, and 2017 are respectively disclosed in pages 89 to 159 of the annual report of the Company for the year ended 31 August 2015, pages 108 to 182 of the annual report of the Company for the year ended 31 August 2016 and pages 105 to 183 of the annual report of the Company for the year ended 31 August 2017. The unaudited consolidated financial statements of the Group for the six months ended 28 February 2018 is disclosed in pages 28 to 47 of the interim report of the Company for the six months ended 28 February 2018.

All of the annual reports and interim report of the Company have been published on the website of the Company (www.hkbnltd.net) and the website of the Stock Exchange (www.hkexnews.hk), the quick links of which are set out below:

Annual report of the Company for the year ended 31 August 2015 http://www.hkexnews.hk/listedco/listconews/SEHK/2015/1113/LTN20151113204.pdf
Annual report of the Company for the year ended 31 August 2016 http://www.hkexnews.hk/listedco/listconews/SEHK/2016/1122/LTN20161122159.pdf
Annual report of the Company for the year ended 31 August 2017 http://www.hkexnews.hk/listedco/listconews/SEHK/2017/1115/LTN20171115223.pdf
Interim report of the Company for the six months ended 28 February 2018 http://www.hkexnews.hk/listedco/listconews/SEHK/2018/0508/LTN20180508233.pdf

INDEBTEDNESS

As at the close of business on 31 August 2018, being the most recent practicable date for the purpose of this indebtedness statement, the Enlarged Group had outstanding bank borrowings carried at amortised cost of approximately HK$3,872 million. The outstanding bank borrowings are unsecured and cross-guaranteed by the Company, HKBNGL, MLCL and Hong Kong Broadband Network Limited.

As at close of business on 31 August 2018, WTT Group had senior notes with a principal amount of US$670 million (equivalent to HK$5,232 million). The senior notes were issued by WTT Investment on 14 November 2017 and are due in 2022.

As at the close of business on 31 August 2018, the Enlarged Group had contingent liabilities of approximately HK$7 million in respect of bank guarantees provided to suppliers and utility vendors in lieu of payment of utility deposits.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Save as disclosed above and apart from intra-group liabilities and normal trade payables, the Enlarged Group did not have, as at 31 August 2018, any mortgages, charges, debentures, debt securities issued and outstanding, and authorised or otherwise created but unissued, outstanding borrowings or indebtedness in the nature of borrowings including term loans, bank overdrafts, liabilities under acceptances, acceptance credits, hire purchase and finance lease commitments or other similar indebtedness, or any guarantees or other material contingent liabilities.

FINANCIAL AND TRADING PROSPECT OF THE ENLARGED GROUP

Upon Completion, WTT Holding and its subsidiaries will become direct wholly-owned subsidiaries of MLCL. The Proposed Transaction represents an opportunity for the Group to double its scale in the enterprise market, expand customer base and network coverage, and create synergies from significant efficiencies of the combined scale.

WTT Group is an enterprise-focused fixed telecommunication services operator with significant fixed line infrastructure in Hong Kong, and over 20 years’ track record of serving local and international businesses. WTT Group’s operation is complementary to both the Group’s enterprise business and its residential business. The combination will result in a business with more than HK$5 billion in total revenue and more than HK$3 billion in enterprise revenue based on the audited accounts of the Group for the year ended 31 August 2017 and the Accountant’s Report on WTT Holding included as Appendix IIB to this circular for the year ended 31 December 2017, respectively. The Company’s enterprise customer base of 56,000 as of 28 February 2018 are primarily small medium businesses while WTT Holding has approximately 56,000 enterprise customers as of 31 December 2017, of which many are large corporates, across a wide array of industries as well as carriers. As such, the Proposed Transaction represents a unique and attractive opportunity for the Group to expand its customer base into large enterprises and carriers and diversify its customer base across a wider portfolio of clients and industries. WTT Group also has an extensive, self-built and end-to-end network covering more than 5,400 commercial buildings. This is more than double the Group’s existing network coverage of approximately 2,400 commercial buildings as at February 2018. This will also significantly increase the breadth and depth of HKBN’s reach as well as provide additional route diversity for overlapping coverage buildings.

It is expected that there will be post-acquisition synergy representing approximately 7% to 10% of the combined business’ cash operating expenses on an annualized basis. It is also expected that as a result of consolidating the Group’s capital expenditure and utilizing the fibre coverage owned by WTT Group, the Proposed Transaction will result in meaningful capital expenditure savings for the combined company of approximately HK$60 million on an annualized basis.

Such synergies are expected to be reflected in full from the third year following Completion.

– I-2 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

WORKING CAPITAL

Taking into account the financial resources available to the Enlarged Group, including the internally generated funds and the available committed borrowing facilities, the Directors are of the opinion that in the absence of unforeseeable circumstances, the Enlarged Group has sufficient working capital available for its requirements, that is for at least the next 12 months from the date of this circular.

MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Group since 31 August 2017 (being the date to which the latest published audited consolidated financial statements of the Group were made up).

MATERIAL ACQUISITIONS

On 17 August 2018, HKBN Group Limited, a wholly-owned subsidiary of the Company, entered into a memorandum of understanding with Hong Kong Television Network Limited with respect to the proposed acquisition of the entire issued shares of Cosmo True Limited (宇正有限公司) (the “ CTL Acquisition ”) at the consideration of HK$328,281,166, which shall be settled in the following manner:

(a) 10% of the consideration to be paid by HKBN Group Limited to Hong Kong Television Network Limited on the date of the signing of the memorandum of understanding as a deposit;
(b) 10% of the consideration to be paid by HKBN Group Limited to Hong Kong Television Network Limited on the date of the signing of the formal sale and purchase agreement concerning the CTL Acquisition as a further deposit; and
(c) 80% of the consideration to be paid by HKBN Group Limited to Hong Kong Television Network Limited at completion of the CTL Acquisition.

Cosmo True Limited is a company incorporated in the British Virgin Islands with limited liability and is principally engaged in the holding and leasing of certain real properties in Hong Kong. For further details of the CTL Acquisition, please refer to the announcement of the Company dated 17 August 2018.

Save as disclosed above and the Proposed Transaction, the Group has not entered into any material acquisitions after 31 August 2017, being the date to which the latest published audited consolidated financial statements of the Group were made up, and the aggregate remuneration payable to and benefits in kind receivable by the Directors have not been varied as a consequence of the CTL Acquisition and the Proposed Transaction.

– I-3 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

Set out below is a discussion and analysis of the Group’s results of operation for each of the three years ended 31 August 2015, 2016 and 2017, and the six months ended 28 February 2018. The information set out below is principally extracted from the annual reports of the Company for the three years ended 31 March 2015, 2016 and 2017 and the 2018 interim report of the Company, respectively, in order to provide further information relating to the financial condition and results of operations of the Group during the periods stated.

FOR THE SIX MONTHS ENDED 28 FEBRUARY 2018

Business Review

The Group is principally engaged in the provision of residential fibre broadband services and residential broadband internet services in Hong Kong. The Group’s revenue was primarily derived from its residential and enterprise businesses.

Residential business of the Group mainly consists of fixed telecommunications network services, including high-speed broadband internet access services of symmetric 100 Mbps to 1,000 Mbps, VoIP services and other telecommunications services, including IP-TV services, to residential customers.

Enterprise business of the Group mainly consists of broadband, VoIP, MetroNet private network services and other telecommunications network services to enterprise customers.

The Group also sells certain products related to its residential business and provide IDD services.

During the six months ended 28 February 2018, the Group continued to execute on its J-curve growth and deliver a solid set of operational and financial results. This was driven by the successful execution of the quad-play price strategy that delivered comprehensive, integrated and high value-for-money services to our customers, which rewarded the Group with higher average revenue per user (“ ARPU ”) at a low monthly churn rate in return. Moreover, the enterprise business continued to prosper after the integration with New World Telecom last year. As a result, the revenue, EBITDA and Adjusted Free Cash Flow of the Group increased year-on-year by 22%, 23% and 24%, respectively, to HK$1,868 million, HK$594 million and HK$237 million, respectively.

– I-4 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Financial Review

Revenue

Revenue of the Group for the six months ended 28 February 2018 amounted to HK$1,868 million, representing an increase of approximately 22% from HK$1,535 million for the six months ended 28 February 2017. The reason for such increase will be further described in the paragraph headed “Segment Information” below.

Profit/(Loss) for the period

For the six months ended 28 February 2018, the Group recorded a profit for the period of HK$241 million, representing an increase of approximately 424% from HK$46 million for the six months ended 28 February 2017. Such increase was mainly attributable to the overall increase in the revenue generated in each business segment of the Group for the six months ended 28 February 2018.

Segment Information

Residential business

For the six months ended 28 February 2018, the Group recorded revenue from its residential business amounted to HK$1,101 million, representing an increase of approximately 17% from HK$941 million for the six months ended 28 February 2017. Such increase was mainly attributable to the successful execution of a revenue market focus strategy that leveraged on the Group’s quad-play service offerings to increase ARPU while improving customer stickiness at the same time. Historical full base residential ARPU has increased by 4% year-on-year, from HK$166 to HK$173, while the Group’s monthly churn rate remained low.

Through working closely with the Group’s over-the-top (“ OTT ”) partner, the number of set-top boxes ordered by residential broadband customers has increased by 16% year-on-year to 730,000 as at 28 February 2018, this represents more than half of the Group’s residential broadband customers who have ordered at least one OTT set-top box to fulfil their entertainment needs. This revolutionary entertainment experience provided to customers would not be possible without the collaboration of the Group’s trusted OTT partner, which leverages our quality network transmission as well as hi-speed and stable network service.

The launch of mobile services through partnering with two major mobile network operators (“ MVNO partners ”) in September 2016 has proven to be a crucial element of the Group’s quad-play price strategy, as well as one of the key drivers for residential revenue growth in the six months ended 28 February 2018. Together with the strong support from the Group’s MVNO partners, the progressive marketing campaigns of the Group managed to capture a wider audience at a phenomenal pace. Number of activated subscribers increased to 222,000 as at 28 February 2018.

– I-5 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Enterprise business

For the six months ended 28 February 2018, the Group recorded revenue from its enterprise business amounted to HK$679 million, representing an increase of approximately 19% from HK$569 million for the six months ended 28 February 2017. Such increase was mainly attributable by achieving net additions of 5,000 year-on-year for a total of 56,000 enterprise customers while the Group’s enterprise ARPU improved by 4% year-on-year, from HK$1,467 to HK$1,526. The fully integrated business increased both the Group’s presence and capabilities in the enterprise market, which has enabled the Group to provide a broader range of products and services at competitive value to different customer segments. This has driven the continuous expansion in customer base as well as securing new projects of larger contract sums with some of the more renowned enterprises in the market.

Products business

For the six months ended 28 February 2018, the Group recorded revenue from its products business amounted to HK$87 million, representing an increase of approximately 263% from HK$24 million for the six months ended 28 February 2017, which was mainly due to the increase in sale of smartphone products that complements the Group’s mobile business.

Liquidity and Capital Resources

As at 28 February 2018, the Group had total cash and cash equivalents of HK$358 million (31 August 2017: HK$385 million) and gross debt of HK$3,900 million (31 August 2017: HK$3,900 million), which led to a net debt position of HK$3,542 million (31 August 2017: HK$3,515 million).

Cash and cash equivalents consisted of cash at bank and in hand. There was no pledged bank deposit as at 28 February 2018. As at 28 February 2018, the Group had an undrawn revolving credit facility of HK$200 million (31 August 2017: HK$200 million).

Under the liquidity and capital resources condition as at 28 February 2018, the Group can fund its capital expenditures and working capital requirements for the period with internal resources and the available banking facilities.

Gearing Ratio

The Group’s gearing ratio, which was expressed as a ratio of the gross debt over total equity, was 3.4x as at 28 February 2018 (31 August 2017: 3.5x).

Financing Activities

The Group did not arrange any borrowings or financing activities for the six months ended 28 February 2018.

– I-6 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Capital Structure

As at 28 February 2018, the share capital of the Company comprises 1,005,666,666 ordinary shares (28 February 2017: 1,005,666,666), and the net assets of the Group amounted to HK$1,149 million (31 August 2017: HK$1,129 million), comprising (i) non-current assets of HK$5,584 million (31 August 2017: HK$5,708 million); (ii) current asset of HK$862 million (31 August 2017: 878 million); (iii) current liabilities of HK$688 million (31 August 2017: HK$762 million); and (iv) non-current liabilities of HK$4,610 million (31 August 2017: HK$4,694 million).

Charge on Assets

As at 28 February 2018 and 31 August 2017, no assets of the Group were pledged to secure its loans and banking facilities.

Foreign Exchange Exposure

All of the Group’s monetary assets and liabilities are primarily denominated in either HKD or USD. Given the exchange rate of the HKD to the USD has remained close to the current pegged rate of HKD7.80 = USD1.00 since 1983, management does not expect significant foreign exchange gains or losses between the two currencies. As such, the Group did not have significant risks in exposure to fluctuations in exchange rates for the six months ended 28 February 2018.

The Group is also exposed to a certain amount of foreign exchange risk based on fluctuations between the HKD and the Renminbi arising from its operations. In order to limit this foreign currency risk exposure, the Group ensures that the net exposure is kept to an acceptable level of buying or selling foreign currencies at spot rates where necessary to address short-term imbalances.

Hedging

The Group’s policy is to partially hedge the interest rate risk arising from the variable interest rates of the debt instruments and facilities by entering into interest-rate swaps. The Chief Executive Officer and Chief Operating Officer of the Group are primarily responsible for overseeing the hedging activities. Under their guidance, the Group’s finance team is responsible for planning, executing and monitoring the hedging activities. The Group would not enter into hedging arrangements for speculative purposes.

In connection with the bank loan, the Group entered into an interest-rate swap arrangement in the principal amount of HK$2,635 million with an international financial institution for a term of 3.5 years from 23 February 2015 to 23 August 2018. Benefiting from the hedging arrangement, the Group fixed the HIBOR interest rate exposure at 1.453% per annum.

– I-7 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Group also entered into an interest rate swap arrangement in the principal amount of HK$2,635 million with an international financial institution for a term of 1.8 years from 31 August 2018 to 29 May 2020. Benefiting from the hedging arrangement, the Group fixed the HIBOR interest rate exposure at 2.26% per annum.

Material Acquisitions, Disposals, Significant Investments and Future Plans of Material Investment

The Group had no other material acquisitions, disposals, significant investments and future plans of material investment during the six months ended 28 February 2018.

Contingent Liabilities

As at 28 February 2018, the Group had total contingent liabilities of HK$4 million (31 August 2017: HK$4 million) in respect of bank guarantees provided to suppliers and utility vendors in lieu of payment of utility deposits.

Employees and Remuneration Policy

As at 28 February 2018, the Group had 2,917 permanent full-time employees (31 August 2017: 2,888 employees). The Group provides remuneration package consisting of basic salary, bonus and other benefits. Bonus payments are discretionary and dependent on both the Group’s and individual performances. The Group also provides comprehensive medical insurance coverage, competitive retirement benefits schemes, and employee training programs.

Co-Ownership Plan II

To attract, retain and motivate skilled and experienced employees, the Company adopted a Co-Ownership Plan II (the “ Co-Ownership Plan II ”) on 21 February 2015. Co-Ownership is a powerful expression of the commitment and belief the Group’s employees have in the Group. Unlike the more traditional approach of giving stock options to a very limited group of senior executives, the Company’s Co-Ownership is open to all supervisors and above level employees, spanning the Group’s operations across Hong Kong and Guangzhou. On their own volition, they invested their personal savings in the amount of between two to twelve months of salary to acquire the Company’s shares at full market price. The shares are then matched with free shares at a certain ratio vested over three years.

Co-Ownership Plan III

To provide additional means for the Company to incentivise its employees and to recognise the continual support of the relevant employees to the Group and their effort in promoting the Group’s long-term growth and development, the Company adopted a CoOwnership Plan III (the “ Co-Ownership Plan III ”) on 15 December 2017. For details of the Co-Ownership Plan III, please refer to the Company’s announcement dated 2 November 2017, the circular dated 16 November 2017 and the announcement dated 7 August 2018.

– I-8 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

FOR THE YEAR ENDED 31 AUGUST 2017

Business Review

During the year ended 31 August 2017, the Group continued to deliver a solid set of operational and financial results, which was brought about by the completed integration of the acquisition of the New World Telecom business, the enrichment of our product portfolio from OTT partners and the newly launched mobile services. Since the Group has pivoted its residential focus from subscriber growth to revenue market focus, the Group has achieved financial J-curve inflection point in the second half of 2017 as evidenced by 16% half-on-half EBITDA growth to HK$560 million (first half of 2017: HK$481 million). As a result, the Group’s revenue, EBITDA and Adjusted Free Cash Flow increased year-on-year by 8%, 3% and 12% to HK$3,232 million, HK$1,041 million and HK$453 million, respectively.

Financial Review

Revenue

Revenue of the Group for the year ended 31 August 2017 amounted to HK$3,232 million, representing an increase of approximately 16% from HK$2,784 million for the year ended 31 August 2016. Such increase is mainly attributable to the increase of revenue from the Group’s enterprise business from HK$811 million for the year ended 31 August 2016 to HK$1,208 million for the year ended 31 August 2017, which will be further described in the paragraph headed “Segment Information” below.

Profit/(Loss) for the year

For the year ended 31 August 2017, the Group recorded a profit for the year of HK$171 million, representing a decrease of approximately 30% from HK$245 million for the year ended 31 August 2016. Such decrease was mainly attributable to the impact of one-off write-off of unamortised finance costs of HK$73 million related to refinancing.

Segment Information

Residential business

For the year ended 31 August 2017, the Group recorded revenue from its residential business amounted to HK$1,958 million, representing an increase of approximately 8% from HK$1,815 million for the year ended 31 August 2016. Such increase was mainly attributable to the customer base expansion from 2016 and the increase in the Group’s acquisition and renewal contract ARPU since 1 September 2016. At the beginning of 2017, the Group has pivoted its residential focus from subscriber growth to revenue market focus. The Group’s acquisition and renewal contract ARPU of HK$194/month in the month of August 2017 is well above the historical full base residential ARPU at HK$168/month for the year ended 31 August 2017. This provided a strong foundation that the Group is on track to its “Harvest and Invest”

– I-9 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

roadmap. Based on the available OFCA statistics, the Group’s market share by broadband subscriptions essentially flat at 37.1% as at 31 July 2017 (31 August 2016: 37.2%) which is in line with the Group’s focus on revenue growth over subscriber growth.

Through working closely with its OTT partners, more than half of the Group’s residential broadband customers have ordered at least one OTT set-top box to fulfil their entertainment needs. Ever since launching its OTT entertainment offerings in October 2015, the Group has achieved a total of 800,000 set-top boxes ordered by residential broadband customers as at 31 August 2017.

The launch of mobile services through partnering with two MVNO partners constituted a new and important source of residential revenue for the Group. With progressive marketing campaigns and strong support from its MVNO partners, the Group achieved a solid customer base with 147,000 activated subscriptions out of over 218,000 registered mobile subscriptions within 12 months which is well over its original target of 200,000 registered mobile subscriptions. As at August 2017, 47% of the Group’s residential mobile subscriptions subscribed to the Group’s broadband services.

Enterprise business

For the year ended 31 August 2017, the Group recorded revenue from its enterprise business amounted to HK$1,208 million, representing an increase of approximately 49% from HK$811 million for the year ended 31 August 2016. Such increase was mainly attributable to the full 12-month operational results following the Group’s acquisition of New World Telecom business, which has increased both the Group’s presence and capabilities in the enterprise market, and further enable the Group to provide a broader range of products and services at competitive value to different customer segments. During the year of 2017, the Group achieved net additions of 4,000 for a total of 54,000 enterprise customers while the Group’s enterprise ARPU increased to HK$1,463/month (2016: HK$1,234/month). Based on the available OFCA statistics, the Group’s market share by broadband subscriptions increased to 18.8% as at 31 July 2017 (31 August 2016: 17.8%).

Products business

For the year ended 31 August 2017, the Group recorded revenue from its products business amounted to HK$66 million, representing a decrease of approximately 58% from HK$158 million for the year ended 31 August 2016, which was mainly due to a decline in LeEco packages bundled during the year of 2017.

Liquidity and Capital Resources

As at 31 August 2017, the Group had total cash and cash equivalents of HK$385 million (31 August 2016: HK$355 million) and gross debt of HK$3,900 million (31 August 2016: HK$3,800 million), which led to a net debt position of HK$3,515 million (31 August 2016: 3,445 million).

– I-10 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Cash and cash equivalents consisted of cash at bank and in hand. There was no pledged bank deposit as at 31 August 2017 and 31 August 2016. As at 31 August 2017, the Group had an undrawn revolving credit facility of HK$200 million (31 August 2016: HK$200 million).

Under the liquidity and capital resources condition as at 31 August 2017, the Group can fund its capital expenditures and working capital requirements for the year with internal resources and the available banking facilities.

Gearing Ratio

The Group’s gearing ratio, which was expressed as a ratio of the gross debt over total equity, was 3.5x as at 31 August 2017 (31 August 2016: 2.8x).

Financing Activities

On 28 November 2016, the Group drew down a five-year bank loan of HK$3,900 million bearing interest rate at HIBOR plus margin, to finance the repayment of the remaining bank loan in full, to extend the debt maturity by 1.8 years to November 2021. Since the bank loan is repayable in full upon final maturity on November 2021, the Group can either refinance or renew it on maturity or earlier through sources that it deems appropriate at that time. This has provided the Group with flexibility to plan for various sources of financing arrangements to support the expansion of the Group’s business.

Save as disclosed, the Group did not arrange any borrowings or financing activities for the year ended 31 August 2017.

Capital Structure

As at 31 August 2017, the share capital of the Company comprises 1,005,666,666 ordinary shares (28 February 2017: 1,005,666,666), and the net assets of the Group amounted to HK$1,129 million (31 August 2016: HK$1,363 million), comprising (i) non-current assets of HK$5,708 million (31 August 2016: HK$5,779 million); (ii) current asset of HK$878 million (31 August 2016: 826 million); (iii) current liabilities of HK$762 million (31 August 2016: HK$826 million); and (iv) non-current liabilities of HK$4,694 million (31 August 2016: HK$4,416 million).

Charge on Assets

As at 31 August 2017 and 31 August 2016, no assets of the Group were pledged to secure its loans and banking facilities.

– I-11 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Foreign Exchange Exposure

Hedging

The Group’s policy is to partially hedge the interest rate risk arising from the variable interest rates of the debt instruments and facilities by entering into interest-rate swaps. The Group’s finance team is responsible for planning, executing and monitoring the hedging activities. The Group would not enter into hedging arrangements for speculative purposes.

Subsequent to completion of the refinancing transaction, the Group entered into an interest-rate swap arrangement in the principal amount of HK$2,635 million with an international financial institution for a term of 1.8 years from 31 August 2018 to 29 May 2020. Benefiting from the hedging arrangement, the Group fixed the HIBOR interest rate exposure at 2.26% per annum.

Material Acquisitions, Disposals, Significant Investments and Future Plans of Material Investment

The Group had no other material acquisitions, disposals, significant investments and future plans of material investment during the year ended 31 August 2017.

Contingent Liabilities

As at 31 August 2017, the Group had total contingent liabilities of HK$4 million (31 August 2016: HK$4 million) in respect of bank guarantees provided to suppliers and utility vendors in lieu of payment of utility deposits.

– I-12 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Employees and Remuneration Policy

As at 31 August 2017, the Group had 2,888 permanent full-time employees (31 August 2016: 3,024 employees). The Group provides remuneration package consisting of basic salary, bonus and other benefits. Bonus payments are discretionary and dependent on both the Group’s and individual performances. The Group also provides comprehensive medical insurance coverage, competitive retirement benefits schemes, and employee training programs.

To attract, retain and motivate skilled and experienced employees, the Company adopted certain co-ownership plans. For further details of the co-ownership plans, please refer to the paragraph headed “for the six months ended 28 February 2018 – Employees and Remuneration Policy” in this appendix above.

FOR THE YEAR ENDED 31 AUGUST 2016

Business Review

During the year ended 31 August 2016, the Group continued to deliver a solid set of operational and financial results, which was underpinned by the Group’s partnerships with OTT content providers and doubling of scale in the enterprise market after the acquisition of New World Telecom. As a result, the Group’s revenue, EBITDA and Adjusted Free Cash Flow increased year-on-year by 19%, 3% and 4% to HK$2,784 million, HK$1,006 million and HK$406 million, respectively.

Financial Review

Revenue

Revenue of the Group for the year ended 31 August 2016 amounted to HK$2,784 million, representing an increase of approximately 19% from HK$2,341 million for the year ended 31 August 2015. Such increase is mainly attributable to the increase of revenue from the Group’s enterprise business from HK$476 million for the year ended 31 August 2015 to HK$811 million for the year ended 31 August 2016, which will be further described in the paragraph headed “Segment Information” below.

Profit/(Loss) for the year

For the year ended 31 August 2016, the Group recorded a profit for the year of HK$245 million, representing an increase of approximately 136% from HK$104 million for the year ended 31 August 2015. Such increase was mainly attributable to the overall increase in the revenue generated in each business segment of the Group for the year ended 31 August 2016.

– I-13 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Segment Information

Residential business

For the year ended 31 August 2016, the Group recorded revenue from its residential business amounted to HK$1,815 million, representing an increase of approximately 3% from HK$1,757 million for the year ended 31 August 2015. Such increase was mainly attributable to the accelerated gains in residential broadband subscriptions by working closely with two major OTT partners, TVB and LeEco, to launch the Group’s best value content-bundled service in the market. As growth in market share was the Group’s key strategic focus for the year, it traded off 5% decline in residential APRU to HK$173/month to achieve accelerated 103,000 net additions (2015: 62,000 net additions) for a total of 857,000 residential broadband subscriptions. The market share of the Group by broadband subscriptions increased to 40.1% as at 31 August 2016, up from 36.6% as at 31 August 2015.

Enterprise business

For the year ended 31 August 2016, the Group recorded revenue from its enterprise business amounted to HK$811 million, representing an increase of approximately 70% from HK$476 million for the year ended 31 August 2015. Such increase was mainly attributable to the 5 months of consolidation on the New World Telecom acquisition. Excluding the contribution from the New World Telecom acquisition, the Group’s enterprise revenue grew by 20% year-on-year to HK$570 million, resulted from its continued focus on the small and medium-sized enterprise (SME) segment. Strengthening the Group’s presence in the enterprise market, the New World Telecom acquisition has provided a broad range of complementary services to the existing business. During the year ended 31 August 2016, the Group achieved net additions of 11,000 to 50,000 enterprise customers while increasing the Group’s enterprise ARPU by 22% at HK$1,234, as a result of integrating with the New World Telecom acquisition businesses. The Group’s market share by broadband subscriptions increased to 17.8% as at 31 August 2016, up from 14.3% as at 31 August 2015.

Products business

For the year ended 31 August 2016, the Group recorded revenue from its products business amounted to HK$158 million, representing an increase of approximately 45% from HK$109 million for the year ended 31 August 2015, which was mainly due to promotional offers that bundled LeEco with the Group’s residential broadband services.

Liquidity and Capital Resources

As at 31 August 2016, the Group had total cash and cash equivalents of HK$355 million (31 August 2015: HK$329 million) and gross debt (principal amount of outstanding borrowing) of HK$3,800 million (31 August 2015: HK$3,100 million), which led to a net debt position of HK$3,445 million (31 August 2015: HK$2,771 million).

– I-14 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Cash and cash equivalents consisted of cash at bank and in hand. There was no pledged bank deposit as at 31 August 2016 and 31 August 2015. As at 31 August 2016, the Group had an undrawn revolving credit facility of HK$200 million (31 August 2015: HK$200 million).

Under the liquidity and capital resources condition as at 31 August 2016, the Group can fund its capital expenditures and working capital requirements for the year with internal resources and the available banking facilities.

Gearing Ratio

The Group’s gearing ratio, which was expressed as a ratio of the gross debt over total equity, was 2.8x as at 31 August 2016 (31 August 2015: 2.0x).

Financing Activities

In March 2016, the Group has entered into a five-year bullet term loan of $700 million underwritten by JPMorgan Chase Bank, N.A., Hong Kong Branch to finance the New World Telecom acquisition which resulted in the increase of the Group’s gearing ratio and net debt to EBITDA ratios. With the inception of the new bank loan, the Group’s weighted average debt maturity was slightly extended to 3.6 years as at 31 August 2016.

Save as disclosed, the Group did not arrange any borrowings or financing activities for the year ended 31 August 2016.

Capital Structure

As at 31 August 2016, the share capital of the Company comprises 1,005,666,666 ordinary shares (28 February 2016: 1,005,666,666), and the net assets of the Group amounted to HK$1,363 million (31 August 2015: HK$1,514 million), comprising (i) non-current assets of HK$5,779 million (31 August 2015: HK$4,924 million); (ii) current asset of HK$826 million (31 August 2015: 627 million); (iii) current liabilities of HK$826 million (31 August 2015: HK$489 million); and (iv) non-current liabilities of HK$4,416 million (31 August 2015: HK3,548 million).

Charge on Assets

As at 31 August 2016 and 31 August 2015, no assets of the Group were pledged to secure its loans and banking facilities.

– I-15 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Foreign Exchange Exposure

Hedging

The Group’s policy is to partially hedge the interest rate risk arising from the variable interest rates of the debt instruments and facilities by entering into interest-rate swaps. The Chief Executive Officer and Chief Talent & Financial Officer of the Group are primarily responsible for overseeing the hedging activities. Under their guidance, the Group’s finance team is responsible for planning, executing and monitoring the hedging activities. The Group would not enter into hedging arrangements for speculative purposes.

In connection with the existing bank loan, the Group entered into an interest-rate swap arrangement in the principal amount of HK$2,635 million with an international financial institution for a term of 3.5 years commencing from 23 February 2015. Benefiting from the hedging arrangement, the Group fixed the HIBOR interest rate exposure at 1.453% per annum.

Material Acquisitions, Disposals, Significant Investments and Future Plans of Material Investment

On 18 February 2016, HKBN Group Limited (“ HKBNGL ”) as purchaser and the Company as guarantor of HKBNGL entered into a share purchase agreement with New World Telephone Holdings Limited (“ NWTHL ”) as seller and New World Development Company Limited as guarantor of NWTHL, to acquire the telecommunications and online marketing solutions business owned by NWTHL through the acquisition of the entire issued share capital of Concord Ideas Ltd. and Simple Click Investments Limited (the “ Target Companies ”) for a cash consideration calculated on a cash-free, debt-free basis, of HK$650 million.

In addition, on 31 March 2016, HKBNGL and NWTHL also entered into a rebate agreement whereby HKBNGL will provide cash rebates for services provided by the Group, the Target Companies and their subsidiaries to New World Development Company Limited (a company whose shares are listed on the Stock Exchange (stock code: 17)) and Chow Tai Fook Enterprises Limited, in each case together with their respective subsidiaries and related parties (within the meaning of Hong Kong Financial Reporting Standard 24 Related Party Disclosures) based on 50% of settled invoices up to HK$50 million in aggregate.

– I-16 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The New World Telecom acquisition was completed on 31 March 2016. After the acquisition, each of Concord Ideas Ltd. and Simple Click Investments Limited became an indirect wholly-owned subsidiary of the Company. Details of the acquisition are disclosed in the circular of the Company dated 1 March 2016 and the announcement of the Company dated 18 February 2016.

On 6 July 2016, HKBNGL as seller and Dynamic Team Holdings Limited as purchaser entered into a sale and purchase agreement to sell 51% of the issued share capital of Simple Click Investments Limited for a total consideration of HK$8 million (the “ Disposal ”). The Disposal was completed on 6 July 2016. After the Disposal, Simple Click Investments Limited became a 49%-owned associate of the Company. Details of the Disposal are disclosed in the announcements of the Company dated 6 and 15 July 2016.

Save as disclosed, the Group had no other material acquisitions, disposals, significant investments and future plans of material investment during the year ended 31 August 2016.

Contingent Liabilities

As at 31 August 2016, the Group had total contingent liabilities of HK$4 million (31 August 2015: HK$4 million) in respect of bank guarantees provided to suppliers and utility vendors in lieu of payment of utility deposits.

Employees and Remuneration Policy

As at 31 August 2016, the Group had 3,024 permanent full-time employees (31 August 2015: 2,430 employees). The Group provides remuneration package consisting of basic salary, bonus and other benefits. Bonus payments are discretionary and dependent on both the Group’s and individual performances. The Group also provides comprehensive medical insurance coverage, competitive retirement benefits schemes, and employee training programs.

FOR THE YEAR ENDED 31 AUGUST 2015

Business Review

During the year ended 31 August 2015, the Group delivered a solid set of operational and financial results. The Group’s market share by broadband subscriptions increased further in both residential and enterprise businesses. Revenue, EBITDA and Adjusted Free Cash Flow increased year-on-year by 10%, 16% and 26% to HK$2,341 million, HK$979 million and HK$392 million, respectively.

– I-17 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Financial Review

Revenue

Revenue of the Group for the year ended 31 August 2015 amounted to HK$2,341 million, representing an increase of approximately 10% from HK$2,132 million for the year ended 31 August 2014. Such increase is mainly attributable to strong growth in broadband subscriptions and gains in market share for both residential and enterprise businesses.

Profit/(Loss) for the year

For the year ended 31 August 2015, the Group recorded a profit for the year of HK$104 million, representing an increase of approximately 93% from HK$54 million for the year ended 31 August 2014. Such increase was mainly attributable to the overall increase in the revenue generated in each business segment of the Group for the year ended 31 August 2015.

Segment Information

Residential business

For the year ended 31 August 2015, the Group recorded revenue from its residential business amounted to HK$1,757 million, representing an increase of approximately 8% from HK$1,630 million for the year ended 31 August 2014. Such increase was mainly attributable to the Group being able to continuously gain market share within the residential broadband market mainly by converting its competitors’ legacy copper-based customers to its fibre-based services. During the year ended 31 August 2015, the Group achieved 62,000 net additions to 754,000 residential broadband subscriptions together with a 5% year-on-year increase in residential ARPU to HK$183. The Group’s market share by broadband subscriptions increased to 36.6% as at 31 August 2015, up from 34.2% as at 31 August 2014.

Enterprise business

For the year ended 31 August 2015, the Group recorded revenue from its enterprise business amounted to HK$476 million, representing an increase of approximately 13% from HK$423 million for the year ended 31 August 2014. Such increase was mainly attributable to the fact that the Group’s enterprise business continued to build on positive momentum with its focus in the small and medium-sized enterprise (SME) segment and developing a comprehensive set of service offerings to serve these customers. During the year ended 31 August 2015, the Group achieved 7,000 net additions to 39,000 enterprise customers which more than offset a 2% year-on-year decrease in enterprise ARPU to HK$1,010 as a result of the Group’s focus on small enterprise accounts. The Group’s market share by broadband subscriptions increased to 14.3% as at 31 August 2015, up from 12.0% as at 31 August 2014.

– I-18 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Products business

For the year ended 31 August 2015, the Group recorded revenue from its products business amounted to HK$109 million, representing an increase of approximately 40% from HK$78 million for the year ended 31 August 2014, representing approximately 5% of the total revenue of the Group for the year ended 31 August 2015.

Liquidity and Capital Resources

As at 31 August 2015, the Group had total cash and cash equivalents of HK$329 million (31 August 2014: HK$436 million) and gross debt (principal amount of outstanding borrowing) of HK$3,100 million (31 August 2014: HK$3,041 million), which led to a net debt position of HK$2,771 million (31 August 2014: HK$2,605 million).

Cash and cash equivalents consisted of cash at bank and in hand. There was no pledged bank deposit as at 31 August 2015 and 31 August 2014. As at 31 August 2015, the Group had an undrawn revolving credit facility of HK$200 million (31 August 2014: HK$100 million).

Under the liquidity and capital resources condition as at 31 August 2015, the Group can fund its capital expenditures and working capital requirements for the year with internal resources and the available banking facilities.

Gearing Ratio

The Group’s gearing ratio, which was expressed as a ratio of the gross debt over total equity, was 2.0x as at 31 August 2015 (31 August 2014: 1.9x).

Financing Activities

On 19 January 2015, the Group drew down a five-year bank loan of HK$3,100 million denominated in Hong Kong Dollars bearing interest rate at HIBOR plus 2.06% per annum, in order to finance the redemption of the remaining 5.25% senior notes in full. Since the bank loan is repayable in full upon final maturity in January 2020, the Group can either refinance or renew it on maturity or earlier through sources that it deems appropriate at that time. This provides the Group with flexibility to plan for various sources of financing arrangement to support the expansion of its business.

Save as disclosed, the Group did not arrange any borrowings or financing activities for the year ended 31 August 2015.

– I-19 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Capital Structure

As at 31 August 2015, the share capital of the Company comprises 1,005,666,666 ordinary shares (12 March 2015, being the listing date of the Company: 1,005,666,666), and the net assets of the Group amounted to HK$1,514 million (31 August 2014: HK$1,643 million), comprising (i) non-current assets of HK$4,924 million (31 August 2014: HK$5,001 million); (ii) current asset of HK$627 million (31 August 2014: 718 million); (iii) current liabilities of HK$489 million (31 August 2014: HK$552 million); and (iv) non-current liabilities of HK$3,548 million (31 August 2014: HK3,524 million).

Charge on Assets

As at 31 August 2015 and 31 August 2014, no assets of the Group were pledged to secure its loans and banking facilities.

Foreign Exchange Exposure

Hedging

The Group’s policy is to hedge the interest rate risk arising from the variable interest rates of the debt instruments and facilities by entering into interest-rate swaps. The Chief Executive Officer and Chief Financial Officer of the Group are primarily responsible for overseeing the hedging activities. Under their guidance, the Group’s finance team is responsible for planning, executing and monitoring the hedging activities. The Group would not enter into hedging arrangements for speculative purposes.

In connection with the existing bank loan, the Group entered into an interest-rate swap arrangement in the principal amount of $2,635 million with an international financial institution for a term of 3.5 years commencing from 23 February 2015. Benefiting from the hedging arrangement, the Group fixed the HIBOR interest rate exposure at 1.453% per annum.

– I-20 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Material Acquisitions, Disposals, Significant Investments and Future Plans of Material Investment

The Group had no other material acquisitions, disposals, significant investments and future plans of material investment during the year ended 31 August 2015.

Contingent Liabilities

As at 31 August 2015, the Group had total contingent liabilities of HK$4 million (31 August 2014: HK$5 million) in respect of bank guarantees provided to suppliers and utility vendors in lieu of payment of utility deposits.

Employees and Remuneration Policy

As at 31 August 2015, the Group had 2,430 permanent full-time employees (31 August 2014: 2,596 employees). The Group provides remuneration package consisting of basic salary, bonus and other benefits. Bonus payments are discretionary and dependent on both the Group’s and individual performances. The Group also provides comprehensive medical insurance coverage, competitive retirement benefits schemes, and employee training programs.

– I-21 –

ACCOUNTANTS’ REPORT OF WTT HK

APPENDIX IIA

The following is the text of a report set out on pages IIA-1 to IIA-58, received from the Company’s reporting accountants, KPMG, Certified Public Accountants, Hong Kong, for the purpose of incorporation in this circular.

ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF WTT HK LIMITED AND ITS SUBSIDIARIES TO THE DIRECTORS OF HKBN LTD.

Introduction

We report on the historical financial information of WTT HK Limited (the “Target Operating Company”) and its subsidiaries (together, the “Target Operating Group”) set out on pages IIA-4 to IIA-58, which comprises the consolidated statements of financial position of the Target Operating Group as at 31 December 2015, 2016 and 2017 and 30 June 2018 and the consolidated income statements, the consolidated statements of comprehensive income, the consolidated statements of changes in equity and the consolidated cash flow statements, for each of the years ended 31 December 2015, 2016 and 2017 and the six months ended 30 June 2018 (the “Relevant Periods”), and a summary of significant accounting policies and other explanatory information (together, the “Historical Financial Information”). The Historical Financial Information set out on pages IIA-4 to IIA-58 forms an integral part of this report, which has been prepared for inclusion in the circular of HKBN Ltd. (the “Company”) dated 26 October 2018 (the “Circular”) in connection with the proposed acquisition of the entire issued share capital of WTT Holding Corp., which is the ultimate controlling party of the Target Operating Group as at the date of Circular.

Directors’ responsibility for Historical Financial Information

The directors of the Company are responsible for the preparation of Historical Financial Information that gives a true and fair view in accordance with the basis of preparation and presentation set out in Note 1 to the Historical Financial Information, and for such internal control as the directors of the Company determine is necessary to enable the preparation of the Historical Financial Information that is free from material misstatement, whether due to fraud or error.

Reporting accountants’ responsibility

Our responsibility is to express an opinion on the Historical Financial Information and to report our opinion to you. We conducted our work in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 200 “Accountants’ Reports on Historical Financial Information in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”). This standard requires that we comply with ethical standards and plan and perform our work to obtain reasonable assurance about whether the Historical Financial Information is free from material misstatement.

– IIA-1 –

ACCOUNTANTS’ REPORT OF WTT HK

APPENDIX IIA

Our work involved performing procedures to obtain evidence about the amounts and disclosures in the Historical Financial Information. The procedures selected depend on the reporting accountants’ judgement, including the assessment of risks of material misstatement of the Historical Financial Information, whether due to fraud or error. In making those risk assessments, the reporting accountants consider internal control relevant to the entity’s preparation of Historical Financial Information that give a true and fair view in accordance with the basis of preparation and presentation set out in Note 1 to the Historical Financial Information in order to design procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Our work also included evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the Historical Financial Information.

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

Opinion

In our opinion, the Historical Financial Information gives, for the purpose of the accountants’ report, a true and fair view of the Target Operating Group’s consolidated financial position as at 31 December 2015, 2016 and 2017 and 30 June 2018 and of the Target Operating Group’s consolidated financial performance and cash flows for the Relevant Periods in accordance with the basis of preparation and presentation set out in Note 1 to the Historical Financial Information.

Review of stub period corresponding financial information

We have reviewed the stub period corresponding financial information of the Target Operating Group which comprises the consolidated income statement, consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated cash flow statement for the six months ended 30 June 2017 and other explanatory information (the “Stub Period Corresponding Financial Information”). The directors of the Company are responsible for the preparation and presentation of the Stub Period Corresponding Financial Information in accordance with the basis of preparation and presentation set out in Note 1 to the Historical Financial Information. Our responsibility is to express a conclusion on the Stub Period Corresponding Financial Information based on our review. We conducted our review in accordance with Hong Kong Standard on Review Engagements 2410 “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” issued by the HKICPA. A review consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the Stub Period Corresponding Financial Information, for the purpose of the accountants’ report, is not prepared, in all material respects, in accordance with the basis of preparation and presentation set out in Note 1 to the Historical Financial Information.

– IIA-2 –

ACCOUNTANTS’ REPORT OF WTT HK

APPENDIX IIA

Report on matters under the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited

Adjustments

In preparing the Historical Financial Information, no adjustments to the Underlying Financial Statements as defined on page IIA-4 have been made.

KPMG

Certified Public Accountants 8th Floor, Prince’s Building 10 Chater Road Central, Hong Kong 26 October 2018

– IIA-3 –

ACCOUNTANTS’ REPORT OF WTT HK

APPENDIX IIA

HISTORICAL FINANCIAL INFORMATION OF THE TARGET OPERATING GROUP

Set out below is the Historical Financial Information which forms an integral part of this accountants’ report.

The consolidated financial statements of the Target Operating Group for the Relevant Periods, on which the Historical Financial Information is based, were audited by KPMG in accordance with Hong Kong Standards on Auditing issued by the HKICPA (“Underlying Financial Statements”).

Consolidated income statements

(Expressed in Hong Kong Dollars)

Note Revenue 2 Other net income/(loss) 3(a) Network costs and costs of sales Other operating expenses Finance costs 3(b) Profit before taxation 3 Income tax 4 Profit for the year/period	Year ended 31 December 2015 2016 2017 $’000 $’000 $’000 1,989,275 2,032,681 2,101,762 69 (1,122) (304) (564,878) (545,390) (576,709) (1,063,937) (1,062,677) (1,110,650) (30,846) (23,032) – 329,683 400,460 414,099 (29,940) (65,857) (73,458) 299,743 334,603 340,641	Six months ended 30 June 2017 2018 $’000 $’000 (unaudited) 1,048,466 1,049,313 (132) 677 (269,916) (285,395) (544,015) (552,742) – – 234,403 211,853 (40,800) (38,221) 193,603 173,632

Note: The Target Operating Group has initially applied HKFRS 9 and HKFRS 15 at 1 January 2018. The historical financial information for the years ended 31 December 2015, 2016 and 2017 has not been adjusted retrospectively to reflect the impact of adopting HKFRS 9 and HKFRS 15. See note 1(c).

The accompanying notes form part of the Historical Financial Information.

– IIA-4 –

ACCOUNTANTS’ REPORT OF WTT HK

APPENDIX IIA

Consolidated statements of comprehensive income

(Expressed in Hong Kong Dollars)

Note Profit for the year/period Other comprehensive income for the year/period Item that may be reclassified subsequently to profit or loss: Exchange differences on translation of the financial statements of overseas subsidiaries, with $nil tax effect Total comprehensive income for the year/period	Year ended 31 December 2015 2016 2017 $’000 $’000 $’000 299,743 334,603 340,641 (763) (140) 46 298,980 334,463 340,687	Six months ended 30 June 2017 2018 $’000 $’000 (unaudited) 193,603 173,632 14 53 193,617 173,685	Six months ended 30 June 2017 2018 $’000 $’000 (unaudited) 193,603 173,632 14 53 193,617 173,685
			173,685

The accompanying notes form part of the Historical Financial Information.

– IIA-5 –

ACCOUNTANTS’ REPORT OF WTT HK

APPENDIX IIA

Consolidated statements of financial position

(Expressed in Hong Kong Dollars)

Note Non-current assets Property, plant and equipment 7 Intangible assets 8 Other non-current assets 11 Current assets Inventories 10 Trade receivables 13 Other receivables, deposits and prepayments 13 Contract assets 12 Amount due from the former immediate holding company 14 Amount due from the immediate holding company 14 Amount due from an intermediate holding company 14 Amounts due from former fellow subsidiaries 14 Cash and cash equivalents 15 Current liabilities Trade payables 16 Other payables and accrued charges 16 Deferred service revenue – current portion Contract liabilities – current portion 12 Amounts due to former fellow subsidiaries 14 Amount due to a former intermediate holding company 14 Tax payable 18(a) Net current (liabilities)/assets Total assets less current liabilities Non-current liabilities Loan from a former fellow subsidiary 17 Deferred service revenue – long-term portion Contract liabilities – long-term portion 12 Deferred tax liabilities 18(b) NET ASSETS CAPITAL AND RESERVES Share capital 20(c) Reserves TOTAL EQUITY	At 31 December 2015 2016 2017 $’000 $’000 $’000 2,298,945 2,102,343 2,027,142 4,769 39,815 31,087 4,053 9,914 3,934 2,307,767 2,152,072 2,062,163 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 19,886 11,388 9,551 276,677 268,080 297,780 67,909 88,056 100,579 – – – 573 – – – 34,423 – – – 402,076 11,980 – – 13,316 120,812 237,277 390,341 522,759 1,047,263 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 81,621 39,548 50,067 289,191 330,717 333,226 113,609 97,209 101,356 – – – 507 – – 111,366 – – 55 1,788 11,448 596,349 469,262 496,097 - - - - - - - - - - - - - - - - - - - - - - - - - - - - (206,008) 53,497 551,166 - - - - - - - - - - - - - - - - - - - - - - - - - - - - 2,101,759 2,205,569 2,613,329 - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1,057,455 – – 54,208 75,328 99,515 – – – 32,190 94,165 133,654 1,143,853 169,493 233,169 - - - - - - - - - - - - - - - - - - - - - - - - - - - - 957,906 2,036,076 2,380,160 740,000 1,748,683 1,752,080 217,906 287,393 628,080 957,906 2,036,076 2,380,160	At 30 June 2018 $’000 2,009,337 8,354 2,866
		2,020,557 - - - - - - - - - - 7,496 302,210 143,198 40,317 – – 624,967 – 257,398
		1,375,586 - - - - - - - - - - 72,190 321,858 – 143,442 – – 54,079
		591,569 - - - - - - - - -
		784,017 - - - - - - - - -
		2,804,574 - - - - - - - - -
		– – 92,655 125,614
		218,269 - - - - - - - - -
		2,586,305

		1,752,080 834,225
		2,586,305

The accompanying notes form part of the Historical Financial Information.

– IIA-6 –

ACCOUNTANTS’ REPORT OF WTT HK

APPENDIX IIA

Consolidated statements of changes in equity

(Expressed in Hong Kong Dollars)

Note Balance at 1 January 2015 Changes in equity for the year ended 31 December 2015: Profit for the year Other comprehensive income for the year Total comprehensive income for the year Dividend approved and paid in respect of the previous year 20(b)(ii) Balance at 31 December 2015 and 1 January 2016 Changes in equity for the year ended 31 December 2016: Profit for the year Other comprehensive income for the year Total comprehensive income for the year Dividend approved and paid in respect of the previous year 20(b)(ii) Issue of shares 20(c) Balance at 31 December 2016 and 1 January 2017 Changes in equity for the year ended 31 December 2017 Profit for the year Other comprehensive income for the year Total comprehensive income for the year Issue of shares 20(c)	Share capital $’000 740,000 - - - - - - - - - – – – - - - - - - - - - – - - - - - - - - - 740,000 - - - - - - - - - – – – - - - - - - - - - – - - - - - - - - - 1,008,683 - - - - - - - - - 1,748,683 - - - - - - - - - – – – - - - - - - - - - 3,397 - - - - - - - - -	Exchange reserve $’000 110 - - - - - - - - - – (763) (763) - - - - - - - - - – - - - - - - - - (653) - - - - - - - - - – (140) (140) - - - - - - - - - – - - - - - - - - - – - - - - - - - - (793) - - - - - - - - - – 46 46 - - - - - - - - - – - - - - - - - -	Retained profits $’000 179,009 - - - - - - - - - 299,743 – 299,743 - - - - - - - - - (260,193) - - - - - - - - 218,559 - - - - - - - - - 334,603 – 334,603 - - - - - - - - - (264,976) - - - - - - - - - – - - - - - - - - 288,186 - - - - - - - - - 340,641 – 340,641 - - - - - - - - - – - - - - - - - -	Total $’000 919,119 - - - - - - - - - 299,743 (763) 298,980 - - - - - - - - - (260,193) - - - - - - - - 957,906 - - - - - - - - - 334,603 (140) 334,463 - - - - - - - - - (264,976) - - - - - - - - - 1,008,683 - - - - - - - - 2,036,076 - - - - - - - - - 340,641 46 340,687 - - - - - - - - - 3,397 - - - - - - - -

– IIA-7 –

APPENDIX IIA

ACCOUNTANTS’ REPORT OF WTT HK

Note Balance at 31 December 2017 Impact on initial application of HKFRS 15 1(c) Adjusted balance at 1 January 2018 Changes in equity for the six months ended 30 June 2018: Profit for the period Other comprehensive income for the period Total comprehensive income for the period Balance at 30 June 2018 (unaudited) Balance at 1 January 2017 Changes in equity for the six months ended 30 June 2017 Profit for the period Other comprehensive income for the period Total comprehensive income for the period Issue of shares 20(c) Balance at 30 June 2017	Share capital $’000 1,752,080 – 1,752,080 - - - - - - - - - – – – - - - - - - - - - 1,752,080 1,748,683 - - - - - - - - - – – – - - - - - - - - - 3,397 - - - - - - - - - 1,752,080	Exchange reserve $’000 (747) – (747) - - - - - - - - - – 53 53 - - - - - - - - (694) (793) - - - - - - - - - – 14 14 - - - - - - - - - – - - - - - - - - (779)	Retained profits $’000 628,827 32,460 661,287 - - - - - - - - - 173,632 – 173,632 - - - - - - - - 834,919 288,186 - - - - - - - - - 193,603 – 193,603 - - - - - - - - - – - - - - - - - - 481,789	Total $’000 2,380,160 32,460
				2,412,620 - - - - - - - - - 173,632 53
				173,685 - - - - - - - -
				2,586,305

				2,036,076 - - - - - - - - - 193,603 14
				193,617 - - - - - - - - - 3,397 - - - - - - - -
				2,233,090

The accompanying notes form part of the Historical Financial Information.

– IIA-8 –

ACCOUNTANTS’ REPORT OF WTT HK

APPENDIX IIA

Consolidated cash flow statements

(Expressed in Hong Kong Dollars)

Note Cash generated from operations 15(b) Tax paid: – Hong Kong Tax paid – Tax paid outside Hong Kong Net cash generated from operating activities Investing activities Advances to an intermediate holding company Advance to immediate holding company Interest income Payment for the purchase of a subsidiary, net of cash acquired 8 Payment for purchase of property, plant and equipment Proceeds from sales of property, plant and equipment Net cash used in investing activities Financing activities Interest paid Drawdown of loan from a former fellow subsidiary Repayment of loan from a former fellow subsidiary Dividends paid to equity shareholders Net cash used in financing activities	Year ended 31 December 2015 2016 2017 $’000 $’000 $’000 754,423 847,677 792,211 – (55) (23,793) (491) (137) (498) 753,932 847,485 767,920 - - - - - - - - - - - - - - - - - - - - - - - - - - - – – (364,256) – (34,423) – – – 118 – (42,830) – (273,268) (310,918) (294,044) 144 258 6,727 (273,124) (387,913) (651,455) - - - - - - - - - - - - - - - - - - - - - - - - - - - (30,846) (23,032) – – 35,000 – (190,665) (99,068) – (260,193) (264,976) – (481,704) (352,076) – - - - - - - - - - - - - - - - - - - - - - - - - - - -	Six months ended 30 June 2017 2018 $’000 $’000 (unaudited) 399,928 402,854 (16) (2,512) (442) (1,141) 399,470 399,201 - - - - - - - - - - - - - - - - - - (327,502) (222,891) – – 19 920 – – (149,990) (157,111) 27 2 (477,446) (379,080) - - - - - - - - - - - - - - - - - - – – – – – – – – – – - - - - - - - - - - - - - - - - - -

– IIA-9 –

ACCOUNTANTS’ REPORT OF WTT HK

APPENDIX IIA

Note Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year/period 15(a) Cash and cash equivalents at the end of the year/period 15(a)	Year ended 31 December 2015 2016 2017 $’000 $’000 $’000 (896) 107,496 116,465 14,212 13,316 120,812 13,316 120,812 237,277	Six months ended 30 June 2017 2018 $’000 $’000 (unaudited) (77,976) 20,121 120,812 237,277 42,836 257,398	Six months ended 30 June 2017 2018 $’000 $’000 (unaudited) (77,976) 20,121 120,812 237,277 42,836 257,398
			257,398

Material non-cash transaction:

(i) During the year ended 31 December 2016, the Target Operating Company issued 1,008,683,000 shares to its former immediate holding company at $1 each, which was settled by having waived the loan of $893 million and current account of $116 million due to the former immediate holding company.
(ii) During the year ended 31 December 2017, amount due from the immediate holding company of $3,397,000 was capitalised as share capital.
(iii) During the year ended 31 December 2017, amount due from immediate holding company amounted to $37,820,000 was settled through the amount due from an intermediate holding company.
Note: The Target Operating Group has initially applied HKFRS 9 and HKFRS 15 at 1 January 2018. The historical financial information for the years ended 31 December 2015, 2016 and 2017 has not been adjusted retrospectively to reflect the impact of adopting HKFRS 9 and HKFRS 15. See note 1(c).

The accompanying notes form part of the Historical Financial Information.

– IIA-10 –

ACCOUNTANTS’ REPORT OF WTT HK

APPENDIX IIA

NOTES TO THE HISTORICAL FINANCIAL INFORMATION

1 BASIS OF PREPARATION AND PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of preparation and presentation of Historical Financial Information

WTT HK Limited (formerly known as Wharf T&T Limited) (the “Target Operating Company”) is a private limited company incorporated in Hong Kong. The address of the registered office and the principal place of business is 9/F, KITEC, 1 Trademart Drive, Kowloon Bay, Hong Kong.

The Historical Financial Information that is included in the accountants’ report does not constitute the Target Operating Company’s statutory annual consolidated financial statements for the years 31 December 2015, 2016 and 2017. Further information relating to these statutory financial statements disclosed in accordance with section 436 of the Hong Kong Companies Ordinance (Cap. 622) are as follows:

The Target Operating Company has delivered the financial statements for the years ended 31 December 2015, 2016 and 2017 to the Registrar of Companies as required by section 662(3) of, and Part 3 of Schedule 6 to, the Companies Ordinance.

The Target Operating Company’s auditors have reported on those financial statements. The auditors’ reports were unqualified; did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying its reports; and did not contain a statement under section 406(2), 407(2) or (3) of the Companies Ordinance.

The principal activity of the Target Operating Company is investment holding and provision of telecommunication services. The Target Operating Company and its subsidiaries (collectively referred to as the “Target Operating Group”) are engaged in provision of telecommunication services. The Historical Financial Information is presented in Hong Kong dollars, which is also the functional currency of the Target Operating Company.

The Historical Financial Information set out in this report has been prepared in accordance with all applicable Hong Kong Financial Reporting Standards (“HKFRSs”), which collective term includes all application individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards and related interpretations, promulgated by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”). Further details of the significant accounting policies adopted are set out as follows.

The HKICPA has issued a number of new and revised HKFRSs. For the purpose of preparing this Historical Financial Information, the Target Operating Group has adopted all applicable new and revised HKFRSs for the Relevant Periods except for any new standards or interpretation that are not yet effective for the accounting period beginning 1 January 2018. The revised and new accounting standards and interpretation issued but not yet effective for the accounting period beginning 1 January 2018 are set out in Note 28.

The Historical Financial Information also complies with the applicable disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”).

The accounting policies set out below have been applied consistently to all periods presented in the Historical Financial Information, except for HKFRS 9, Financial Instruments , and HKFRS 15, Revenue from Contracts with Customers , which have been initially applied on 1 January 2018. Details of the changes in accounting policies are discussed in note 1(c)(i) for HKFRS 9 and note 1(c)(ii) for HKFRS 15.

The Stub Period Corresponding Financial Information has been prepared in accordance with the same basis of preparation and presentation adopted in respect of the Historical Financial Information.

(b) Basis of measurement and use of estimate and judgements

The measurement basis used in the preparation of the Historical Financial Information is historical cost basis.

– IIA-11 –

ACCOUNTANTS’ REPORT OF WTT HK

APPENDIX IIA

The preparation of Historical Financial Information in conformity with HKFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

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

Judgements made by management in the application of HKFRSs that have significant effect on the Historical Financial Information and major sources of estimation uncertainty are discussed in note 27.

(c) Changes in accounting policies

The HKICPA has issued a number of new HKFRSs and amendments to HKFRSs that are first effective for the accounting period beginning 1 January 2018. Of these, the following developments are relevant to the Target Operating Group’s Historical Financial Information:

(i) HKFRS 9, Financial instruments
(ii) HKFRS 15, Revenue from contracts with customers
(iii) HK(IFRIC) 22, Foreign currency transactions and advance consideration

The Target Operating Group has not applied any new standard or interpretation that is not yet effective for the Relevant Periods.

The Target Operating Group has been impacted by HKFRS 9 in relation to classification of financial assets and measurement of credit losses, and impacted by HKFRS 15 in relation to timing of revenue recognition, capitalisation of contract costs and presentation of contract assets and contract liabilities.

(i) HKFRS 9, Financial instruments

HKFRS 9 replaces HKAS 39, Financial instruments: recognition and measurement . It sets out the requirements for recognising and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items.

The Target Operating Group has applied HKFRS 9 retrospectively to items that existed at 1 January 2018 in accordance with the transition requirements. The Target Operating Group has concluded that the initial adoption of HKFRS 9 has no impact on the opening balance of equity.

The details of the nature and effect of the changes to previous accounting policies and the transition approach are set out below:

a. Classification of financial assets and financial liabilities

HKFRS 9 categories financial assets into three principal classification categories: measured at amortised cost, at fair value through other comprehensive income (“FVOCI”) and at fair value through profit or loss (“FVPL”). These supersede HKAS 39’s categories of held-to-maturity investments, loans and receivables, available-for-sale financial assets and financial assets measured at FVPL. The classification of financial assets under HKFRS 9 is based on the business model under which the financial asset is managed and its contractual cash flow characteristics. Under HKFRS 9, derivatives embedded in contracts where the host is a financial asset in the scope of the standard are not separated from the host. Instead, the hybrid instrument as a whole is assessed for classification.

For an explanation of how the Target Operating Group classifies and measures financial assets and recognised related gains and losses under HKFRS 9, see respective accounting policy notes in notes 1(h)(i), (k) and (m).

– IIA-12 –

ACCOUNTANTS’ REPORT OF WTT HK

APPENDIX IIA

The measurement categories for all financial liabilities remain the same. The carrying amounts for all financial liabilities at 1 January 2018 have not been impacted by the initial application of HKFRS 9.

The Target Operating Group did not designate or de-designate any financial asset or financial liability at FVPL at 1 January 2018.

b. Credit losses

HKFRS 9 replaces the “incurred loss” model in HKAS 39 with the “expected credit loss” (“ECL”) model. The ECL model requires an ongoing measurement of credit risk associated with a financial asset and therefore recognises ECLs earlier than under the “incurred loss” accounting model in HKAS 39.

The Target Operating Group applies the new ECL model to the following items:

financial assets measured at amortised cost (including cash and cash equivalents and trade and other receivables); and
contract assets as defined in HKFRS 15 (see note 1(j)).

For further details on the Target Operating Group’s accounting policy for accounting for credit losses, see note 1(h)(i). The adoption of HKFRS 9 did not lead to restatement of retained profits.

(ii) HKFRS 15, Revenue from contracts with customers

HKFRS 15 establishes a comprehensive framework for recognising revenue and some costs from contracts with customers. HKFRS 15 replaces HKAS 18, Revenue , which covered revenue arising from sale of goods and rendering of services, and HKAS 11, Construction contracts , which specified the accounting for construction contracts.

The Target Operating Group has elected to use the cumulative effect transition method and has recognised the cumulative effect of initial application as an adjustment to the opening balance of equity at 1 January 2018. Therefore, the historical financial information for the years ended 31 December 2015, 2016 and 2017 has not been restated and continues to be reported under HKASs 11 and 18. As allowed by HKFRS 15, the Target Operating Group has applied the new requirements only to contracts that were not completed before 1 January 2018.

The following table gives a summary of the opening balance adjustments recognised for each line item in the consolidated statement of financial position that has been impacted by HKFRS 15:

		Impact on
	At	initial	At
	31 December	application of	1 January
	2017	HKFRS 15	2018
	$’000	$’000	$’000
Trade receivables	297,780	(26,361)	271,419
Other receivables, deposits and
prepayments	100,579	32,460	133,039
Contract assets	–	39,638	39,638
Total current assets	1,047,263	45,737	1,093,000
Deferred service revenue – current portion	(101,356)	101,356	–
Contract liabilities – current portion	–	(114,633)	(114,633)
Total current liabilities	(496,097)	(13,277)	(509,374)
Total assets less current liabilities	2,613,329	32,460	2,645,789
Deferred service revenue – long-term
portion	(99,515)	99,515	–
Contract liabilities – long-term portion	–	(99,515)	(99,515)
Net assets	2,380,160	32,460	2,412,620
Reserves	628,080	32,460	660,540
Total equity	2,380,160	32,460	2,412,620

– IIA-13 –

ACCOUNTANTS’ REPORT OF WTT HK

APPENDIX IIA

The following table summarises the impact of transition to HKFRS 15 on retained profits at 1 January 2018:

Retained profits Capitalisation of sales commissions Net increase in retained profits at 1 January 2018	$’000 32,460
	32,460

Further details of the nature and effect of the changes on previous accounting policies are set out below:

a. Timing of revenue recognition

Previously, revenue arising from provision of services was recognised over time, whereas revenue from sale of goods was generally recognised at a point in time when the risks and rewards of ownership of the goods had passed to the customers.

Under HKFRS 15, revenue is recognised when the customer obtains control of the promised good or service in the contract. This may be at a single point in time or over time. HKFRS 15 identifies the following three situations in which control of the promised good or service is regarded as being transferred over time:

A. When the customer simultaneously receives and consumes the benefits provided by the entity’s performance, as the entity performs;
B. When the entity’s performance creates or enhances an asset (for example work in progress) that the customer controls as the asset is created or enhanced;
C. When the entity’s performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date.

If the contract terms and the entity’s activities do not fall into any of these 3 situations, then under HKFRS 15 the entity recognises revenue for the sale of that good or service at a single point in time, being when control has passed. Transfer of risks and rewards of ownership is only one of the indicators that is considered in determining when the transfer of control occurs.

The adoption of HKFRS 15 does not have a significant impact on when the Target Operating Group recognises revenue (see note 1(p)).

b. Sales commissions payable related to sales contracts

The Target Operating Group previously recognised sales commissions payable related to sales contracts as other operating expenses when they were incurred. Under HKFRS 15, the Target Operating Group is required to capitalise these sales commissions as costs of obtaining contracts when they are incremental and are expected to be recovered, unless the expected amortisation period is one year or less from the date of initial recognition of the asset, in which case the sales commissions can be expensed when incurred. Capitalised commissions are charged to profit or loss when the revenue from the related sale is recognised and are included as other operating expenses at that time.

As a result of this change in accounting policy, the Target Operating Group has capitalised sales commissions payable related to sales contracts amounting to $32,460,000 and increased retained profits by $32,460,000 at 1 January 2018.

– IIA-14 –

ACCOUNTANTS’ REPORT OF WTT HK

APPENDIX IIA

c. Presentation of contract assets and liabilities

Under HKFRS 15, a receivable is recognised only if the Target Operating Group has an unconditional right to consideration. If the Target Operating Group recognises the related revenue (see note 1(p)) before being unconditionally entitled to the consideration for the promised goods and services in the contract, then the entitlement to consideration is classified as a contract asset. Similarly, a contract liability, rather than a payable, is recognised when a customer pays consideration, or is contractually required to pay consideration and the amount is already due, before the Target Operating Group recognises the related revenue. For a single contract with the customer, either a net contract asset or a net contract liability is presented. For multiple contracts, contract assets and contract liabilities of unrelated contracts are not presented on a net basis (see note 1(j)).

Previously, netted contract balances relating to contracts in progress were presented in the consolidated statements of financial position under trade receivables or trade payables respectively until the products were delivered to the customer and the revenue was recognised for the reasons explained in paragraph a above.

To reflect these changes in presentation, the Target Operating Group has made the following adjustments at 1 January 2018, as a result of the adoption of HKFRS 15:

(i) Amount of $26,231,000 which was previously included in trade receivables is now included under contract assets.
(ii) Amounts of $13,277,000 which were previously included in trade receivables and trade payables, all of which were previously netted off, are now included under contract assets and contract liabilities respectively.
(iii) Amount of $200,871,000 which was previously included in deferred service revenue is now included under contract liabilities.
d. Disclosure of the estimated impact on the amounts reported in respect of the six months ended 30 June 2018 as a result of the adoption of HKFRS 15 on 1 January 2018

The following tables summarise the estimated impact of adoption of HKFRS 15 on the Target Operating Group’s consolidated financial statements for the six months ended 30 June 2018, by comparing the amounts reported under HKFRS 15 in these consolidated financial statements with estimates of the hypothetical amounts that would have been recognised under HKAS 18 and HKAS 11 if those superseded standards had continued to apply to 2018 instead of HKFRS 15. These tables show only those line items impacted by the adoption of HKFRS 15:

			Difference:
	Amounts		Estimated
	reported in	Hypothetical	impact of
	accordance	amounts under	adoption of
	with	HKASs 18	HKFRS 15
	HKFRS 15	and 11	on 2018
	(A)	(B)	(A)-(B)
	$’000	$’000	$’000
Line items in the consolidated
income statement and
consolidated statement of
comprehensive income for six
months ended 30 June 2018
impacted by the adoption of
HKFRS 15:
Other operating expenses	(552,742)	(552,528)	(214)
Profit before taxation	211,853	212,067	(214)
Profit for the period	173,632	173,846	(214)
Total comprehensive income	173,685	173,899	(214)

– IIA-15 –

ACCOUNTANTS’ REPORT OF WTT HK

APPENDIX IIA

			Difference:
	Amounts		Estimated
	reported in	Hypothetical	impact of
	accordance	amounts under	adoption of
	with	HKASs 18	HKFRS 15
	HKFRS 15	and 11	on 2018
	(A)	(B)	(A)-(B)
	$’000	$’000	$’000
Line items in the consolidated
statement of financial position
at 30 June 2018 impacted by
the adoption of HKFRS 15:
Contract assets	40,317	–	40,317
Trade receivables	302,210	305,995	(3,785)
Other receivables, deposits and
prepayments	143,198	110,952	32,246
Total current assets	1,375,586	1,306,808	68,778
Trade payables	(72,190)	(73,896)	1,706
Deferred service revenue –
current portion	–	(105,204)	105,204
Contract liabilities –
current portion	(143,442)	–	(143,442)
Total current liabilities	(591,569)	(555,037)	(36,532)
Total assets less current
liabilities	2,804,574	2,772,328	32,246
Deferred service revenue –
long-term portion	–	(92,655)	92,655
Contract liabilities –
long-term portion	(92,655)	–	(92,655)
Net assets	2,586,305	2,554,059	32,246
Reserves	834,225	801,979	32,246
Total equity	2,586,305	2,554,059	32,246
Line items in the reconciliation
of profit before taxation to
cash generated from
operations for six months
ended 30 June 2018 (note
15(b)) impacted by the
adoption of HKFRS 15:
Profit before taxation	211,853	212,067	(214)
Increase in trade receivables	(30,791)	(8,215)	(22,576)
Increase in other receivables,
deposits and prepayments	(10,159)	(10,373)	214
Increase in contract assets	(679)	–	(679)
Decrease in trade payables	22,123	23,829	(1,706)
Increase in contract liabilities	21,949	–	21,949
Decrease in deferred service
revenue	–	(3,012)	3,012

The significant differences arise as a result of the changes in accounting described above.

– IIA-16 –

ACCOUNTANTS’ REPORT OF WTT HK

APPENDIX IIA

(iii) HK(IFRIC) 22, Foreign currency transactions and advance consideration

This interpretation provides guidance on determining “the date of the transaction” for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income (or part of it) arising from a transaction in which an entity receives or pays advance consideration in a foreign currency.

The Interpretation clarifies that “the date of the transaction” is the date on initial recognition of the non-monetary asset or liability arising from the payment or receipt of advance consideration. If there are multiple payments or receipts in advance of recognising the related item, the date of the transaction for each payment or receipt should be determined in this way. The adoption of HK(IFRIC) 22 does not have any material impact on the financial position and the financial result of the Target Operating Group.

(d) Property, plant and equipment

Other property, plant and equipment are stated at cost less accumulated depreciation and impairment losses (see note 1(h)).

Depreciation is calculated to write off the cost of items of property, plant and equipment, less their estimated residual value, if any, using the straight line method over their estimated useful lives as follows:

–	Cable	5 – 25 years
–	Telecommunications, computer and office equipment	5 – 25 years
–	Leasehold improvements	Over the remaining terms of the leases
–	Motor vehicles	5 years
–	Leasehold land and buildings	Shorter of the unexpired term of leases
		or 40 years

Where parts of an item of property, plant and equipment have different useful lives, the cost of the item is allocated on a reasonable basis between the parts and each part is depreciated separately. Both the useful life of an asset and its residual value, if any, are reviewed annually.

Gains or losses arising from the retirement or disposal of an item of property, plant and equipment are determined as the difference between the net disposal proceeds and the carrying amount of the item and are recognised in profit or loss on the date of retirement or disposal.

(e) Intangible assets

Intangible assets that are acquired by the Target Operating Group are stated at cost less accumulated amortisation (where the estimated useful life is finite) and impairment losses (see note 1(h)).

Amortisation of intangible assets with finite useful lives is charged to profit or loss on a straight-line basis over the assets’ estimated useful lives. The following intangible assets with finite useful lives are amortised from the date they are available for use and their estimated useful lives are as follows:

Customer relationships 2.5 – 5 years

Both the period and method of amortisation are reviewed annually.

(f) Leased assets

An arrangement, comprising a transaction or a series of transactions, is or contains a lease if the Target Operating Group determines that the arrangement conveys a right to use a specific asset or assets for an agreed period of time in return for a payment or a series of payments. Such a determination is made based on an evaluation of the substance of the arrangement and is regardless of whether the arrangement takes the legal form of a lease.

(i) Classification of assets leased to the Target Operating Group

Assets that are held by the Target Operating Group under leases which transfer to the Target Operating Group substantially all the risks and rewards of ownership are classified as being held under finance leases. Leases which do not transfer substantially all the risks and rewards of ownership to the Target Operating Group are classified as operating leases.

– IIA-17 –

ACCOUNTANTS’ REPORT OF WTT HK

APPENDIX IIA

(ii) Operating lease charges

Where the Target Operating Group has the use of assets held under operating leases, payments made under the leases are charged to profit or loss in equal instalments over the accounting periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the leased asset. Lease incentives received are recognised in profit or loss as an integral part of the aggregate net lease payments made. Contingent rentals are charged to profit or loss in the accounting period in which they are incurred.

(g) Subsidiaries

Subsidiaries are entities controlled by the Target Operating Group. The Target Operating Group controls an entity when it is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. When assessing whether the Target Operating Group has power, only substantive rights (held by the Target Operating Group and other parties) are considered.

An investment in a subsidiary is consolidated into the Historical Financial Information from the date that control commences until the date that control ceases. Intra-group balances, transactions and cash flows and any unrealised profits arising from intra-group transactions are eliminated in full in preparing the Historical Financial Information. Unrealised losses resulting from intra-group transactions are eliminated in the same way as unrealised gains but only to the extent that there is no evidence of impairment.

In the Target Operating Group’s statements of financial position, investments in subsidiaries are stated at cost less impairment losses (see note 1(h)).

(h) Credit losses and impairment of assets

(i) Credit losses from financial instruments and contract assets

(A) Policy applicable from 1 January 2018

The Target Operating Group recognises a loss allowance for expected credit losses (“ECLs”) on the following items:

financial assets measured at amortised cost (including cash and cash equivalents, trade and other receivables and loans to associates); and
contract assets as defined in HKFRS 15 (see note 1(j)).

Financial assets measured at fair value are not subject to the ECL assessment.

Measurement of ECLs

ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all expected cash shortfalls (i.e. the difference between the cash flows due to the Target Operating Group in accordance with the contract and the cash flows that the Target Operating Group expects to receive).

The expected cash shortfalls are discounted using the following discount rates where the effect of discounting is material:

fixed-rate financial assets, trade receivables, other receivables, deposits and prepayments and contract assets: effective interest rate determined at initial recognition or an approximation thereof;
variable-rate financial assets: current effective interest rate;

The maximum period considered when estimating ECLs is the maximum contractual period over which the Target Operating Group is exposed to credit risk.

In measuring ECLs, the Target Operating Group takes into account reasonable and supportable information that is available without undue cost or effort. This includes information about past events, current conditions and forecasts of future economic conditions.

– IIA-18 –

ACCOUNTANTS’ REPORT OF WTT HK

APPENDIX IIA

ECLs are measured on either of the following bases:

12-month ECLs: these are losses that are expected to result from possible default events within the 12 months after the reporting date; and
lifetime ECLs: these are losses that are expected to result from all possible default events over the expected lives of the items to which the ECL model applies.

Loss allowances for trade receivables, other receivables, deposits and prepayments and contract assets are always measured at an amount equal to lifetime ECLs. ECLs on these financial assets are estimated using a provision matrix based on the Target Operating Group’s historical credit loss experience, adjusted for factors that are specific to the debtors and an assessment of both the current and forecast general economic conditions at the reporting date.

For all other financial instruments, the Target Operating Group recognises a loss allowance equal to 12-month ECLs unless there has been a significant increase in credit risk of the financial instrument since initial recognition, in which case the loss allowance is measured at an amount equal to lifetime ECLs.

Significant increases in credit risk

In assessing whether the credit risk of a financial instrument has increased significantly since initial recognition, the Target Operating Group compares the risk of default occurring on the financial instrument assessed at the reporting date with that assessed at the date of initial recognition. In making this reassessment, the Target Operating Group considers that a default event occurs when (i) the borrower is unlikely to pay its credit obligations to the Target Operating Group in full, without recourse by the Target Operating Group to actions such as realising security (if any is held); or (ii) the financial asset is 3 months past due. The Target Operating Group considers both quantitative and qualitative information that is reasonable and supportable, including historical experience and forward-looking information that is available without undue cost or effort.

In particular, the following information is taken into account when assessing whether credit risk has increased significantly since initial recognition:

failure to make payments of principal or interest on their contractually due dates;
an actual or expected significant deterioration in a financial instrument’s external or internal credit rating (if available);
an actual or expected significant deterioration in the operating results of the debtor; and
existing or forecast changes in the technological, market, economic or legal environment that have a significant adverse effect on the debtor’s ability to meet its obligation to the Target Operating Group.

Depending on the nature of the financial instruments, the assessment of a significant increase in credit risk is performed on either an individual basis or a collective basis. When the assessment is performed on a collective basis, the financial instruments are grouped based on shared credit risk characteristics, such as past due status and credit risk ratings.

ECLs are remeasured at each reporting date to reflect changes in the financial instrument’s credit risk since initial recognition. Any change in the ECL amount is recognised as an impairment gain or loss in profit or loss. The Target Operating Group recognises an impairment gain or loss for all financial instruments with a corresponding adjustment to their carrying amount through a loss allowance account, except for investments in debt securities that are measured at FVOCI (recycling), for which the loss allowance is recognised in other comprehensive income and accumulated in the fair value reserve (recycling).

– IIA-19 –

ACCOUNTANTS’ REPORT OF WTT HK

APPENDIX IIA

Basis of calculation of interest income

Interest income recognised in accordance with note 1(p)(iv) is calculated based on the gross carrying amount of the financial asset unless the financial asset is credit-impaired, in which case interest income is calculated based on the amortised cost (i.e. the gross carrying amount less loss allowance) of the financial asset.

At each reporting date, the Target Operating Group assesses whether a financial asset is credit-impaired. A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.

Evidence that a financial asset is credit-impaired includes the following observable events:

significant financial difficulties of the debtor;
a breach of contract, such as a default or delinquency in interest or principal payments;
it becoming probable that the borrower will enter into bankruptcy or other financial reorganisation;
significant changes in the technological, market, economic or legal environment that have an adverse effect on the debtor; or
the disappearance of an active market for a security because of financial difficulties of the issuer.

Write-off policy

The gross carrying amount of a financial asset or contract asset is written off (either partially or in full) to the extent that there is no realistic prospect of recovery. This is generally the case when the Target Operating Group determines that the debtor does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to the write-off.

Subsequent recoveries of an asset that was previously written off are recognised as a reversal of impairment in profit or loss in the period in which the recovery occurs.

(B) Policy applicable prior to 1 January 2018

Prior to 1 January 2018, an “incurred loss” model was used to measure impairment losses on financial assets not classified as at FVPL (e.g. trade receivables, other receivables, deposits and prepayments).

Under the “incurred loss” model, impairment losses for bad and doubtful debts are recognised when there is objective evidence of impairment and are measured as the difference between the carrying amount of the financial asset and the estimated future cash flows, discounted at the asset’s original effective interest rate where the effect of discounting is material. Objective evidence of impairment includes observable data that comes to the attention of the Target Operating Group about events that have an impact on the asset’s estimated future cash flows such as significant financial difficulty of the debtor.

Impairment losses for trade receivables included within trade and other receivables whose recovery is considered doubtful but not remote are recorded using an allowance account. When the Target Operating Group is satisfied that recovery is remote, the amount considered irrecoverable is written off against trade receivables directly and any amounts held in the allowance account relating to that debt are reversed. Subsequent recoveries of amounts previously charged to the allowance account are reversed against the allowance account. Other changes in the allowance account and subsequent recoveries of amounts previously written off directly are recognised in profit or loss.

– IIA-20 –

ACCOUNTANTS’ REPORT OF WTT HK

APPENDIX IIA

(ii) Impairment of other non-current assets

Internal and external sources of information are reviewed at the end of each reporting period to identify indications that the following assets may be impaired or an impairment loss previously recognised no longer exists or may have decreased:

property, plant and equipment;
intangible assets;
investments in subsidiaries.

If any such indication exists, the asset’s recoverable amount is estimated. In addition, for goodwill, intangible assets that are not yet available for use and intangible assets that have indefinite useful lives, the recoverable amount is estimated annually whether or not there is any indication of impairment.

Calculation of recoverable amount

The recoverable amount of an asset is the greater of its fair value less costs of disposal and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of time value of money and the risks specific to the asset. Where an asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that generates cash inflows independently (i.e. a cash-generating unit).

– Recognition of impairment losses

An impairment loss is recognised in profit or loss if the carrying amount of an asset, or the cash-generating unit to which it belongs, exceeds its recoverable amount. Impairment losses recognised in respect of cash-generating units are allocated to reduce the carrying amount of the assets in the unit (or group of units) on a pro rata basis, except that the carrying value of an asset will not be reduced below its individual fair value less costs of disposal, or value in use, if determinable.

Reversals of impairment losses

An impairment loss is reversed if there has been a favourable change in the estimates used to determine the recoverable amount.

A reversal of an impairment loss is limited to the asset’s carrying amount that would have been determined had no impairment loss been recognised in prior years. Reversals of impairment losses are credited to profit or loss in the year in which the reversals are recognised.

(i) Inventories

Inventories, representing telephone equipment, are carried at the lower of cost and net realisable value.

Cost is calculated using the first in, first out cost formula and comprises all costs of purchase and other costs incurred in bringing the inventories to their present location and condition.

Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

When inventories are sold, the carrying amount of those inventories is recognised as an expense in the period in which the related revenue is recognised. The amount of any write-down of inventories to net realisable value and all losses of inventories are recognised as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories is recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs.

– IIA-21 –

ACCOUNTANTS’ REPORT OF WTT HK

APPENDIX IIA

(j) Contract assets and contract liabilities

A contract asset is recognised when the Target Operating Group recognises revenue (see note 1(p)) before being unconditionally entitled to the consideration under the payment terms set out in the contract. Contract assets are assessed for expected credit losses in accordance with the policy set out in note 1(c)(i) and are reclassified to receivables when the right to the consideration has become unconditional (see note 1(k)).

A contract liability is recognised when the customer pays consideration before the Target Operating Group recognises the related revenue (see note 1(p)). A contract liability would also be recognised if the Target Operating Group has an unconditional right to receive consideration before the Target Operating Group recognises the related revenue. In such cases, a corresponding receivable would also be recognised (see note 1(k)).

For a single contract with the customer, either a net contract asset or a net contract liability is presented. For multiple contracts, contract assets and contract liabilities of unrelated contracts are not presented on a net basis.

When the contract includes a significant financing component, the contract balance includes interest accrued under the effective interest method (see note 1(p)).

(k) Trade and other receivables and other contract costs

(i) Trade and other receivables

Trade and other receivables are initially recognised at fair value and thereafter stated at amortised cost using the effective interest method, less allowance for credit losses, except where the receivables are interest-free loans made to related parties without any fixed repayment terms or the effect of discounting would be immaterial. In such cases, the receivables are stated at cost less allowance for credit losses. If revenue has been recognised before the Target Operating Group has an unconditional right to receive consideration, the amount is present as a contract asset (see note 1(j)).

Receivables are stated at amortised cost using the effective interest method less allowance for credit losses (see note 1(h)(i)).

(ii) Other contract costs

Other contract costs are either the incremental costs of obtaining a contract with a customer or the costs to fulfil a contract with a customer which are not capitalised as inventory (see note 1(i)), property, plant and equipment (see note 1(d)) or intangible assets (see note 1(e)).

Incremental costs of obtaining a contract are those costs that the Target Operating Group incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained e.g. an incremental sales commission. Incremental costs of obtaining a contract are capitalised when incurred if the costs relate to revenue which will be recognised in a future reporting period and the costs are expected to be recovered. Other costs of obtaining a contract are expensed when incurred.

Costs to fulfil a contract are capitalised if the costs relate directly to an existing contract or to a specifically identifiable anticipated contract; generate or enhance resources that will be used to provide goods or services in the future; and are expected to be recovered. Costs that relate directly to an existing contract or to a specifically identifiable anticipated contract may include direct labour, direct materials, allocations of costs, costs that are explicitly chargeable to the customer and other costs that are incurred only because the Target Operating Group entered into the contract (for example, payments to sub-contractors). Other costs of fulfilling a contract, which are not capitalised as inventory, property, plant and equipment or intangible assets, are expensed as incurred.

Capitalised contract costs are stated at cost less accumulated amortisation and impairment losses. Impairment losses are recognised to the extent that the carrying amount of the contract cost asset exceeds the net of (i) remaining amount of consideration that the Target Operating Group expects to receive in exchange for the goods or services to which the asset relates, less (ii) any costs that relate directly to providing those goods or services that have not yet been recognised as expenses.

Amortisation of capitalised contract costs is charged to profit or loss when the revenue to which the asset relates is recognised. The accounting policy for revenue recognition is set out in note 1(p).

– IIA-22 –

ACCOUNTANTS’ REPORT OF WTT HK

APPENDIX IIA

(l) Trade and other payables

Trade and other payables are initially recognised at fair value and subsequently stated at amortised cost unless the effect of discounting would be immaterial, in which case they are stated at cost.

(m) Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks and other financial institutions, and short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, having been within three months of maturity at acquisition. Cash and cash equivalents are assessed for expected credit losses in accordance with the policy set out in note 1(h)(i).

(n) Income tax

Income tax for the year comprises current tax and movements in deferred tax assets and liabilities. Current tax and movements in deferred tax assets and liabilities are recognised in profit or loss except to the extent that they relate to items recognised in other comprehensive income or directly in equity, in which case the relevant amounts of tax are recognised in other comprehensive income or directly in equity, respectively.

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

Deferred tax assets and liabilities arise from deductible and taxable temporary differences respectively, being the differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases. Deferred tax assets also arise from unused tax losses and unused tax credits.

Apart from certain limited exceptions, all deferred tax liabilities, and all deferred tax assets to the extent that it is probable that future taxable profits will be available against which the asset can be utilised, are recognised. Future taxable profits that may support the recognition of deferred tax assets arising from deductible temporary differences include those that will arise from the reversal of existing taxable temporary differences, provided those differences relate to the same taxation authority and the same taxable entity, and are expected to reverse either in the same period as the expected reversal of the deductible temporary difference or in periods into which a tax loss arising from the deferred tax asset can be carried back or forward. The same criteria are adopted when determining whether existing taxable temporary differences support the recognition of deferred tax assets arising from unused tax losses and credits, that is, those differences are taken into account if they relate to the same taxation authority and the same taxable entity, and are expected to reverse in a period, or periods, in which the tax loss or credit can be utilised.

The carrying amount of a deferred tax asset is reviewed at the end of each reporting period and is reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow the related tax benefit to be utilised. Any such reduction is reversed to the extent that it becomes probable that sufficient taxable profits will be available.

Current tax balances and deferred tax balances, and movements therein, are presented separately from each other and are not offset.

(o) Provisions and contingent liabilities

Provisions are recognised for liabilities of uncertain timing or amount when the Target Operating Group or the Target Operating Company has a legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Where the time value of money is material, provisions are stated at the present value of the expenditure expected to settle the obligation.

Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.

– IIA-23 –

ACCOUNTANTS’ REPORT OF WTT HK

APPENDIX IIA

(p) Revenue and other income

Revenue is measured at the fair value of the consideration received or receivable. Provided it is probable that the economic benefits will flow to the Target Operating Group and the revenue and costs, if applicable, can be measured reliably, revenue is recognised in profit or loss as follows:

(i) Revenue for the provision of international telecommunications and fixed telecommunications network service

Revenue is recognised when an arrangement exists, service is rendered, the fee is fixed or determinable, and collectability is probable. Tariff-free period granted to subscribers of fixed telecommunications network services are recognised in profit or loss rateably over the term of the service subscription agreement. Amount received in advance for the provision of fixed telecommunications network services is deferred and included under deferred services income and subsequently recognised as revenue on a straight-line basis over the related service period.

(ii) Sale of goods

(A) Policy applicable from 1 January 2018

Revenue is recognised when control over a product or service is transferred to the customer, or the lessee has the right to use the asset, at the amount of promised consideration to which the Target Operating Group is expected to be entitled, excluding those amounts collected on behalf of third parties. Revenue excludes value added tax or other sales taxes and is after deduction of any trade discounts.

(B) Policy applicable prior to 1 January 2018

Revenue is recognised when goods are delivered at the customers’ premises which is taken to be the point in time when the customer has accepted the goods and the related risks and rewards of ownership. Revenue excludes value added tax or other sales taxes and is after deduction of any trade discounts.

(iii) Rental income from operating leases

Rental income receivable under operating leases is recognised in profit or loss in equal instalments over the periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the use of the leased asset. Lease incentives granted are recognised in profit or loss as an integral part of the aggregate net lease payments receivable.

(iv) Interest income

Interest income is recognised as it accrues using the effective interest method. For financial assets measured at amortised cost or FVOCI (recycling) that are not credit-impaired, the effective interest rate is applied to the gross carrying amount of the asset. For credit-impaired financial assets, the effective interest rate is applied to the amortised cost (i.e. gross carrying amount net of loss allowance) of the asset (see note 1(h)(i)).

(q) Translation of foreign currencies

Foreign currency transactions during the year are translated at the foreign exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at the foreign exchange rates ruling at the end of the reporting period. Exchange gains and losses are recognised in profit or loss.

Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the foreign exchange rates ruling at the transaction dates. The transaction date is the date on which the Target Operating Group initially recognise such non-monetary assets and liability. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated using the foreign exchange rates ruling at the dates the fair value was measured.

– IIA-24 –

ACCOUNTANTS’ REPORT OF WTT HK

APPENDIX IIA

The results of foreign operations are translated into Hong Kong dollars at the exchange rates approximating the foreign exchange rates ruling at the dates of the transactions. Statements of financial position items, including goodwill arising on consolidation of foreign operations acquired on or after 1 January 2005, are translated into Hong Kong dollars at the closing foreign exchange rates at the end of the reporting period. The resulting exchange differences are recognised in other comprehensive income and accumulated separately in equity in the exchange reserve. Goodwill arising on consolidation of a foreign operation acquired before 1 January 2005 is translated at the foreign exchange rate that applied at the date of acquisition of the foreign operation.

(r) Employee benefits

(i) Short term employee benefits

Salaries, annual bonuses, paid annual leave, contributions to defined contribution retirement plans and the cost of non-monetary benefits are accrued in the year in which the associated services are rendered by employees. Where payment or settlement is deferred and the effect would be material, these amounts are stated at their present values.

(ii) Retirement benefit costs

The Target Operating Group contributes to defined contribution retirement schemes which are available to certain employees. Contributions to the schemes by the Target Operating Group are calculated as a percentage of employees’ basic salaries and charged to profit or loss. The Target Operating Group’s contributions are reduced by contributions forfeited by those employees who leave the scheme prior to vesting fully in the contributions.

The assets of the scheme are held in an independently administered fund that is separated from the Target Operating Group’s assets.

(iii) Equity-settled share-based payments

Equity-settled share-based payments granted by a parent to employees and other providing similar services are measured at the fair value of the equity instruments at the grant date.

The fair value of the equity-settled share-based payments determined at the grant date without taking into consideration all non-market vesting conditions is expensed on a straight-line basis over the vesting period, based on the Target Operating Group’s estimate of equity instruments that will eventually vest, with a corresponding increase in equity as a contribution from the parent (capital reserve). At the end of each reporting period, the Target Operating Group revises its estimate of the number of equity instruments expected to vest based on assessment of all relevant non-market vesting conditions.

The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the capital reserve.

(s) Borrowing costs

Borrowing costs that are directly attributable to the acquisition, construction or production of an asset which necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of that asset. Other borrowing costs are expensed in the period in which they are incurred.

The capitalisation of borrowing costs as part of the cost of a qualifying asset commences when expenditure for the asset is being incurred, borrowing costs are being incurred and activities that are necessary to prepare the asset for its intended use or sale are in progress. Capitalisation of borrowing costs is suspended or ceased when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are interrupted or complete.

(t) Related parties

(a) A person, or a close member of that person’s family, is related to the Target Operating Group if that person:
(i) has control or joint control over the Target Operating Group;
(ii) has significant influence over the Target Operating Group; or
(iii) is a member of the key management personnel of the Target Operating Group or the Target Operating Group’s parent.

– IIA-25 –

ACCOUNTANTS’ REPORT OF WTT HK

APPENDIX IIA

(b) An entity is related to the Target Operating Group if any of the following conditions applies:
(i) The entity and the Target Operating Group are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others).
(ii) One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member).
(iii) Both entities are joint ventures of the same third party.
(iv) One entity is a joint venture of a third entity and the other entity is an associate of the third entity.
(v) The entity is a post-employment benefit plan for the benefit of employees of either the Target Operating Group or an entity related to the Target Operating Group.
(vi) The entity is controlled or jointly controlled by a person identified in (a).
(vii) A person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).
(viii) The entity, or any member of a group of which it is a part, provides key management personnel services to the Target Operating Group or to the Target Operating Group’s parent.

Close members of the family of a person are those family members who may be expected to influence, or be influenced by, that person in their dealings with the entity.

(u) Offsetting of financial assets and financial liabilities

Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statements of financial position where there is a legally enforceable right to set off the recognised amount and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.

(v) Segment reporting

Operating segments, and the amounts of each segment item reported in the Historical Financial Information, are identified from the financial information provided regularly to the Target Operating Group’s most senior executive management for the purposes of allocating resources to, and assessing the performance of, the Target Operating Group’s various lines of business and geographical locations.

Individually material operating segments are not aggregated for financial reporting purposes unless the segments have similar economic characteristics and are similar in respect of the nature of products and services, the nature of production processes, the type or class of customers, the methods used to distribute the products or provide the services, and the nature of the regulatory environment. Operating segments which are not individually material may be aggregated if they share a majority of these criteria.

The Target Operating Group’s management assesses the performance and allocates the resources of the Target Operating Group as a whole, as all of the Target Operating Group’s activities are considered to be primarily the operation of fixed telecommunications network services. Therefore, management considers there is only one operating segment under the requirements of HKFRS 8, Operating Segments . In this regard, no segment information is presented.

No geographic information is shown as the revenue and profit from operations of the Target Operating Group are primarily derived from its activities in Hong Kong.

– IIA-26 –

ACCOUNTANTS’ REPORT OF WTT HK

APPENDIX IIA

2 REVENUE

The principal activity of the Target Operating Group is the provision of fixed line telecommunication services and international telecommunications services to residential and enterprise customers in Hong Kong and product sale.

Revenue from telecommunications services is stated net of discounts and rebates and comprises amounts derived from international and local telecommunications services, including line rentals, call charges and services fees.

The amount of each significant category of revenue recognised is as follows:

Enterprise revenue Residential revenue Product revenue	Year ended 31 December 2015 2016 2017 $’000 $’000 $’000 1,850,881 1,920,192 1,989,083 40,035 33,973 24,845 98,359 78,516 87,834 1,989,275 2,032,681 2,101,762	Six months ended 30 June 2017 2018 $’000 $’000 (unaudited) 997,227 992,381 13,252 10,307 37,987 46,625 1,048,466 1,049,313	Six months ended 30 June 2017 2018 $’000 $’000 (unaudited) 997,227 992,381 13,252 10,307 37,987 46,625 1,048,466 1,049,313
			1,049,313

The Target Operating Group’s customer base is diversified and no individual customer with whom transactions have exceed 10% of the Target Operating Group’s revenue.

3 PROFIT BEFORE TAXATION

Profit before taxation is arrived after charging/(crediting):

(a) Other net (income)/loss

Interest income Net foreign exchange (gain)/loss	Year ended 31 December 2015 2016 2017 $’000 $’000 $’000 – – (118) (69) 1,122 422 (69) 1,122 304	Six months ended 30 June 2017 2018 $’000 $’000 (unaudited) (19) (920) 151 243 132 (677)	Six months ended 30 June 2017 2018 $’000 $’000 (unaudited) (19) (920) 151 243 132 (677)
			(677)

(b) Finance costs

	Year ended 31 December	Year ended 31 December		Six months ended 30 June	Six months ended 30 June	Six months ended 30 June
	2015	2016	2017		2017	2018
	$’000	$’000	$’000		$’000	$’000
				(unaudited)
Interest on borrowing from
a former fellow
subsidiary (note 17)	30,846	23,032	–		–	–

– IIA-27 –

ACCOUNTANTS’ REPORT OF WTT HK

APPENDIX IIA

(c) Staff costs (including directors’ emoluments)

Salaries, wages and other benefits Contributions to defined contribution retirement plan Less: Staff costs capitalised as property, plant and equipment	Year ended 31 December 2015 2016 2017 $’000 $’000 $’000 479,847 481,315 502,993 19,495 19,438 20,529 499,342 500,753 523,522 (37,594) (36,592) (36,775) 461,748 464,161 486,747	Six months ended 30 June 2017 2018 $’000 $’000 (unaudited) 251,053 253,173 10,398 10,197 261,451 263,370 (18,233) (18,209) 243,218 245,161	Six months ended 30 June 2017 2018 $’000 $’000 (unaudited) 251,053 253,173 10,398 10,197 261,451 263,370 (18,233) (18,209) 243,218 245,161
			263,370 (18,209)
			245,161

(d) Other items

	Year	ended 31 December		Six months ended	30 June
	2015	2016	2017	2017	2018
	$’000	$’000	$’000	$’000	$’000
				(unaudited)
Auditor’s remuneration:
– Audit services	1,801	1,686	2,129	1,023	1,180
Depreciation (note 7)	409,742	398,828	372,521	191,193	175,953
Amortisation of intangible
assets (note 8)	1,589	7,784	8,728	4,364	22,733
Office rental expenses	59,504	64,620	75,349	36,004	40,594
Loss/(gain) on disposals of
property, plant and
equipment	1,387	294	(6,690)	33	18
(Reversal)/recognition of
impairment losses/credit
losses of trade and other
receivables (note 21(a))	(8,891)	8,343	35,156	4,402	4,323
Write down of inventories	3,728	2,528	1,414	2,264	2,100

– IIA-28 –

ACCOUNTANTS’ REPORT OF WTT HK

APPENDIX IIA

4 INCOME TAX IN THE CONSOLIDATED INCOME STATEMENTS

(a) Taxation in the consolidated income statements represents:

Current tax – Hong Kong Profits Tax: Provision for the year/period Over-provision in respect of prior year Current tax – Overseas: Provision for the year/period Over-provision in respect of prior years Deferred tax: Origination and reversal of temporary differences	Year ended 31 December 2015 2016 2017 $’000 $’000 $’000 55 1,235 32,660 (2) – – 53 1,235 32,660 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 707 763 1,361 – (73) (52) 707 690 1,309 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 29,180 63,932 39,489 - - - - - - - - - - - - - - - - - - - - - - - - - - - - 29,940 65,857 73,458	Six months ended 30 June 2017 2018 $’000 $’000 (unaudited) 22,174 45,127 – – 22,174 45,127 - - - - - - - - - - - - - - - - - - - - 77 1,271 (51) (137) 26 1,134 - - - - - - - - - - - - - - - - - - - - 18,600 (8,040) - - - - - - - - - - - - - - - - - - 40,800 38,221

The provision for Hong Kong Profits Tax is calculated at 16.5% of the estimated assessable profits for the years ended 31 December 2015, 2016 and 2017 and six months ended 30 June 2017 (unaudited) and 2018. Taxation for overseas subsidiaries is charged at the appropriate current rates of taxation ruling in the relevant countries.

(b) Reconciliation between tax expense charged to profit or loss and accounting profit at applicable tax rates:

Profit before taxation Notional tax on profit before taxation, calculated at the rates applicable to profits in the tax jurisdictions concerned Tax effect of non-deductible expenses Tax effect on non-taxable income Tax effect of temporary differences not recognised Tax effect of unused tax losses not recognised Tax effect of unused tax losses not recognised in prior year utilised during the year/period Over-provision in respect of prior years Others	Year ended 31 December 2015 2016 2017 $’000 $’000 $’000 329,683 400,460 414,099 54,398 66,076 68,326 1,534 1,635 4,179 (502) – (1,124) 825 4,708 307 18 58 2,450 (28,295) (8,903) (2,320) (2) (73) (52) 1,964 2,356 1,692 29,940 65,857 73,458	Six months ended 30 June 2017 2018 $’000 $’000 (unaudited) 234,403 211,853 38,676 34,956 2,279 2,191 (446) (771) – 1,222 1,032 887 (1,110) (781) (51) (165) 420 682 40,800 38,221

– IIA-29 –

ACCOUNTANTS’ REPORT OF WTT HK

APPENDIX IIA

5 DIRECTORS’ EMOLUMENTS

Directors’ emoluments disclosed pursuant to section 383(1) of the Hong Kong Companies Ordinance and Part 2 of the Companies (Disclosure of Information about Benefits of Directors) Regulation are as follows:

For the year ended 31 December 2015

Executive directors MA Wai Shin, Vincent HUI Chung Ying, Kevin TSUI Yiu Cheung, Paul NG Tin Hoi, Stephen	Directors’ fees Salaries, allowances and benefits in kind $’000 $’000 – 3,233 30 – 30 – 30 – 90 3,233	Discretionary bonuses $’000 2,215 – – – 2,215	Retirement scheme contributions $’000 252 – – – 252	Sub- Total $’000 5,700 30 30 30 5,790	Share- based payments $’000 – – – – –	Total $’000 5,700 30 30 30
						5,790

For the year ended 31 December 2016

Executive directors MA Wai Shin, Vincent (resigned on 9 November 2016) HUI Chung Ying, Kevin (resigned on 9 November 2016) TSUI Yiu Cheung, Paul (resigned on 9 November 2016) NG Tin Hoi, Stephen (resigned on 9 November 2016) KONG Teck Chien (appointed on 9 November 2016) LAU Wai Kei Ricky (appointed on 9 November 2016) KAGASA Kenichiro (appointed on 9 November 2016) MOHEBBI Afshin (appointed on 9 November 2016) LIU Feng, Tony (appointed on 9 November 2016) (alternate to MOHEBBI Afshin) WANG Qixian (appointed on 9 November 2016) (alternate to KAGASA Kenichiro)	Directors’ fees Salaries, allowances and benefits in kind $’000 $’000 – 2,226 26 – 26 – 26 – – – – – – – – – – – – – 78 2,226	Discretionary bonuses $’000 2,210 – – – – – – – – – 2,210	Retirement scheme contributions $’000 220 – – – – – – – – – 220	Sub- Total $’000 4,656 26 26 26 – – – – – – 4,734	Share- based payments $’000 – – – – – – – – – – –	Total $’000 4,656 26 26 26 – – – – – –
						4,734

– IIA-30 –

ACCOUNTANTS’ REPORT OF WTT HK

APPENDIX IIA

For the year ended 31 December 2017

Executive directors KONG Teck Chien LAU Wai Kei Ricky KAGASA Kenichiro MOHEBBI Afshin LIU Feng, Tony (alternate to MOHEBBI Afshin) WANG Qixian (alternate to KAGASA Kenichiro)	Directors’ fees Salaries, allowances and benefits in kind $’000 $’000 – – – – – – – – – – – – – –	Discretionary bonuses $’000 – – – – – – –	Retirement scheme contributions $’000 – – – – – – –	Sub- Total $’000 – – – – – – –	Share- based payments $’000 – – – – – – –	Total $’000 – – – – – –
						–

For the six months ended 30 June 2017 (unaudited)

Executive directors KONG Teck Chien LAU Wai Kei Ricky KAGASA Kenichiro MOHEBBI Afshin LIU Feng, Tony (alternate to MOHEBBI Afshin) WANG Qixian (alternate to KAGASA Kenichiro)	Directors’ fees Salaries, allowances and benefits in kind $’000 $’000 – – – – – – – – – – – – – –	Discretionary bonuses $’000 – – – – – – –	Retirement scheme contributions $’000 – – – – – – –	Sub- Total $’000 – – – – – – –	Share- based payments $’000 – – – – – – –	Total $’000 – – – – – –
						–

– IIA-31 –

ACCOUNTANTS’ REPORT OF WTT HK

APPENDIX IIA

For the six months ended 30 June 2018

Executive directors KONG Teck Chien LAU Wai Kei Ricky KAGASA Kenichiro MOHEBBI Afshin LIU Feng, Tony (alternate to MOHEBBI Afshin) WANG Qixian (resigned on 22 January 2018) (alternate to KAGASA Kenichiro) ZHAO Yu Qian, Rachel (appointed on 22 January 2018) (alternate to KAGASA Kenichiro)	Directors’ fees Salaries, allowances and benefits in kind $’000 $’000 – – – – – – – – – – – – – – – –	Discretionary bonuses $’000 – – – – – – – –	Retirement scheme contributions $’000 – – – – – – – –	Sub- Total $’000 – – – – – – – –	Share- based payments $’000 – – – – – – – –	Total $’000 – – – – – – –
						–

Note: Share-based payments represent the estimated value of share options granted to the directors under the ultimate controlling party’s share option scheme. The value of these share options is measured according to the Target Operating Group’s accounting policies for share-based payment transactions as set out in note 1(r)(iii) and, in accordance with that policy, includes adjustments to reverse amounts accrued in previous years where grants of equity instruments are forfeited prior to vesting.

The details of these benefits in kind, including the principal terms and number of options granted, are disclosed under the paragraph “Share option scheme” in the note 19.

– IIA-32 –

ACCOUNTANTS’ REPORT OF WTT HK

APPENDIX IIA

6 INDIVIDUALS WITH HIGHEST EMOLUMENTS

Of the five individuals with the highest emoluments, 1, 1, 0, 0 (unaudited), 0 of which for the years ended 31 December 2015, 2016 and 2017 and the six months ended 30 June 2017 and 2018, respectively, are directors whose emoluments are disclosed in note 5. The aggregate of the emoluments in respect of the other 4, 4, 5, 5 (unaudited) and 5 for the years ended 31 December 2015, 2016 and 2017 and the six months ended 30 June 2017 and 2018, respectively, individuals are as follows:

Salaries and other emoluments Discretionary bonuses Retirement scheme contributions	Year ended 31 December 2015 2016 2017 $’000 $’000 $’000 6,336 6,443 10,462 3,475 5,301 6,210 562 570 932 10,373 12,314 17,604	Six months ended 30 June 2017 2018 $’000 $’000 (unaudited) 5,223 5,404 3,105 4,250 457 490 8,785 10,144	Six months ended 30 June 2017 2018 $’000 $’000 (unaudited) 5,223 5,404 3,105 4,250 457 490 8,785 10,144
			10,144

The emoluments of the 4, 4, 5, 5 (unaudited) and 5 for the years ended 31 December 2015, 2016 and 2017 and the six months ended 30 June 2017 and 2018, respectively, individuals with the highest emoluments are within the following bands:

$1,000,001 – $1,500,000 $1,500,001 – $2,000,000 $2,000,001 – $2,500,000 $2,500,001 – $3,000,000 $3,000,001 – $3,500,000 $3,500,001 – $4,000,000 $5,500,001 – $6,000,000	Number of individuals Year ended 31 December Six months ended 30 June 2015 2016 2017 2017 2018 (unaudited) – – – 2 – – – – 2 4 2 – – – – 1 2 2 1 – 1 1 2 – 1 – 1 – – – – – 1 – – 4 4 5 5 5	Number of individuals Year ended 31 December Six months ended 30 June 2015 2016 2017 2017 2018 (unaudited) – – – 2 – – – – 2 4 2 – – – – 1 2 2 1 – 1 1 2 – 1 – 1 – – – – – 1 – – 4 4 5 5 5
		5

– IIA-33 –

ACCOUNTANTS’ REPORT OF WTT HK

APPENDIX IIA

7 PROPERTY, PLANT AND EQUIPMENT

Cost: At 1 January 2015 Exchange adjustments Additions Disposals At 31 December 2015 At 1 January 2016 Exchange adjustments Additions Disposals Reclassification Disposal of subsidiaries At 31 December 2016 Cost: At 1 January 2017 Exchange adjustments Additions Disposals At 31 December 2017 At 1 January 2018 Exchange adjustments Additions Disposals Transfer to inventories At 30 June 2018 Accumulated depreciation and impairment loss: At 1 January 2015 Exchange adjustments Charge for the year Written back on disposals At 31 December 2015 At 1 January 2016 Exchange adjustments Charge for the year Written back on disposals Reclassification Disposal of subsidiaries At 31 December 2016	Cable Leasehold land and buildings $’000 $’000 41,084 126,277 – – – – – – 41,084 126,277 - - - - - - - - - - - - - - 41,084 126,277 – – – – – – – – – (111,372) 41,084 14,905 - - - - - - - - - - - - - - 41,084 14,905 – – – 7,850 – – 41,084 22,755 - - - - - - - - - - - - - - 41,084 22,755 – – – – – – – – 41,084 22,755 - - - - - - - - - - - - - - 33,273 5,973 – – 2,167 3,171 – – 35,440 9,144 - - - - - - - - - - - - - - 35,440 9,144 – – 2,167 2,705 – – – – – (9,353) 37,607 2,496 - - - - - - - - - - - - - -	Leasehold improvements Tele- communications, computer and office equipment $’000 $’000 612,756 7,164,575 (481) (113) 1,511 272,579 (12,451) (38,390) 601,335 7,398,651 - - - - - - - - - - - - - - - - - - - - - - - 601,335 7,398,651 (791) (602) 1,654 302,940 (3,993) (11,523) 617 (617) – – 598,822 7,688,849 - - - - - - - - - - - - - - - - - - - - - - - 598,822 7,688,849 704 636 1,621 290,101 – (13,137) 601,147 7,966,449 - - - - - - - - - - - - - - - - - - - - - - - 601,147 7,966,449 474 523 715 157,464 – (4,607) – (702) 602,336 8,119,127 - - - - - - - - - - - - - - - - - - - - - - - 541,744 4,927,886 (439) (119) 13,828 390,414 (12,235) (37,075) 542,898 5,281,106 - - - - - - - - - - - - - - - - - - - - - - 542,898 5,281,106 (672) (461) 13,824 379,937 (3,987) (10,977) 617 (617) – – 552,680 5,648,988 - - - - - - - - - - - - - - - - - - - - - -	Motor Vehicles $’000 3,277 – – – 3,277 - - - - - - - 3,277 – 463 – – – 3,740 - - - - - - - 3,740 – 452 (216) 3,976 - - - - - - - 3,976 – – (288) – 3,688 - - - - - - - 2,929 – 162 – 3,091 - - - - - - - 3,091 – 195 – – – 3,286 - - - - - - -	Total $’000 7,947,969 (594) 274,090 (50,841) 8,170,624 - - - - - - - 8,170,624 (1,393) 305,057 (15,516) – (111,372) 8,347,400 - - - - - - - 8,347,400 1,340 300,024 (13,353) 8,635,411 - - - - - - - 8,635,411 997 158,179 (4,895) (702) 8,788,990 - - - - - - - 5,511,805 (558) 409,742 (49,310) 5,871,679 - - - - - - - 5,871,679 (1,133) 398,828 (14,964) – (9,353) 6,245,057 - - - - - - -

– IIA-34 –

ACCOUNTANTS’ REPORT OF WTT HK

APPENDIX IIA

Accumulated depreciation and impairment loss: At 1 January 2017 Exchange adjustments Impairment loss recognised in profit or loss Charge for the year Written back on disposals At 31 December 2017 At 1 January 2018 Exchange adjustments Impairment loss recognised in profit or loss Charge for the period Written back on disposals Transfer to inventories At 30 June 2018 Net book value: At 31 December 2015 At 31 December 2016 At 31 December 2017 At 30 June 2018	Cable $’000 37,607 – – 428 – 38,035 - - - - - - - 38,035 – – 214 – – 38,249 - - - - - - - 5,644 3,477 3,049 2,835	Leasehold land and buildings $’000 2,496 – – 568 – 3,064 - - - - - - - 3,064 – – 286 – – 3,350 - - - - - - - 117,133 12,409 19,691 19,405	Leasehold improvements Tele- communications, computer and office equipment $’000 $’000 552,680 5,648,988 635 529 – 2,843 12,577 358,775 – (13,100) 565,892 5,998,035 - - - - - - - - - - - - - - - - - - - - - - 565,892 5,998,035 428 442 – 138 5,930 169,430 – (4,587) – (702) 572,250 6,162,756 - - - - - - - - - - - - - - - - - - - - - - 58,437 2,117,545 46,142 2,039,861 35,255 1,968,414 30,086 1,956,371	Motor Vehicles $’000 3,286 – – 173 (216) 3,243 - - - - - - - 3,243 – – 93 (288) – 3,048 - - - - - - - 186 454 733 640	Total $’000 6,245,057 1,164 2,843 372,521 (13,316)
					6,608,269 - - - - - - -
					6,608,269 870 138 175,953 (4,875) (702)
					6,779,653 - - - - - - -
					2,298,945

					2,102,343

					2,027,142

					2,009,337

(a) Impairment loss of property, plant and equipment

During the year ended 31 December 2017 and six months ended 30 June 2018, the Target Operating Group assessed the recoverable amount of the Group’s telecommunication, computer and office equipment and as a result, an impairment loss of $2,843,000 and $138,000 were recognised to write down the carrying amount of certain telecommunication, computer and office equipment to their recoverable amount. The estimates of recoverable amount were based on their value, determined by reference to anticipated future use.

(b) The analysis of net book value of leasehold land and buildings of the Target Operating Group is as follows:

In Hong Kong – short-term leases – medium-term leases – long-term leases	At 31 December 2015 2016 $’000 $’000 – – 115,320 10,646 1,813 1,763 117,133 12,409	2017 $’000 – 17,979 1,712 19,691	At 30 June 2018 $’000 – 17,721 1,684
			19,405

– IIA-35 –

ACCOUNTANTS’ REPORT OF WTT HK

APPENDIX IIA

8 INTANGIBLE ASSETS

Cost: At 1 January 2015, 31 December 2015 and 1 January 2016 Additions At 31 December 2016, 1 January 2017, 31 December 2017, 1 January 2018 and 30 June 2018 Accumulated amortisation: At 1 January 2015 Charge for the year At 31 December 2015 At 1 January 2016 Charge for the year At 31 December 2016 At 1 January 2017 Charge for the year At 31 December 2017 At 1 January 2018 Charge for the period At 30 June 2018 Net book value: At 31 December 2015 At 31 December 2016 At 31 December 2017 At 30 June 2018	Customer relationships $’000 7,947 42,830
	50,777 - - - - - - - - - - - - - - 1,589 1,589
	3,178 - - - - - - - - - - - - - -
	3,178 7,784
	10,962 - - - - - - - - - - - - - -
	10,962 8,728
	19,690 - - - - - - - - - - - - - -
	19,690 22,733
	42,423 - - - - - - - - - - - - - -
	4,769

	39,815

	31,087

	8,354

The intangible assets were recognised upon the Target Operating Group’s acquisitions of controlling interest in One.Tel Limited, Onetel.Net Limited, Sky Leader Limited, Wise Millennium Assets Limited and PIHK Network Limited (“PIHK”).

Both the period and method of amortisation of intangible assets are reviewed regularly. During the six months ended 30 June 2018, the directors are of the opinion that the useful lives of certain intangible assets, in particular the customer relationships, should be reduced to reflect the future economic benefits arising from those intangible assets to the Target Operating Group, resulting in an increase of $18,369,000 amortisation for the six months ended 30 June 2018.

– IIA-36 –

ACCOUNTANTS’ REPORT OF WTT HK

APPENDIX IIA

9 INVESTMENTS IN SUBSIDIARIES

The following list contains only the particulars of subsidiaries which principally affected the results, assets or liabilities of the Target Operating Group.

		Percentage of equity	Percentage of equity	Percentage of equity
		attributable to the		Target				Name of
	Place and	Operating Company At				Issued and	statutory auditor
	date of	At 31	December	30 June		paid up
Name	incorporation	2015	2016 2017	2018	Principal activity	capital	2015	2016	2017
COL Limited	Hong Kong;	100%	100% 100%	100%	Provision of data	$20,000,000	(b)	(b)	(c)
	8 February				processing/data
	1972				centres
Dynamic Future	Hong Kong;	100%	100% 100%	100%	Property holding	$1	(b)	(b)	(c)
Investments Limited	19 May
	2010
EC Telecom Limited	Hong Kong;	100%	100% 100%	100%	Tele-communications	$2	(b)	(b)	(c)
	17 January
	2013
PIHK Network Limited	Hong Kong;	NIL	100% 100%	100%	Tele-communications	$42,829,601	(b)	(b)	(c)
	31 August
	2015
Mirapoint Asia Limited*	Hong Kong;	100%	100% 100%	100%	Distribution of	$1	(b)	(b)	(c)
	4 December				email and related
	2007				product
WTT eBusiness Limited	Hong Kong;	100%	100% 100%	100%	eBusiness	$1	(b)	(b)	(c)
(formerly known as	19 January
Wharf T&T eBusiness	2007
Limited)
WTT Outsourcing Services	Hong Kong;	100%	100% 100%	100%	Provision of	$1	(b)	(b)	(c)
Limited (formerly known	11 May				outsourcing services
as Wharf T&T	2007
Outsourcing Services
Limited)
廣州倉訊電子技術服務有限公司*	The PRC; 1 March	100%	100% 100%	100%	Telecommunications	$1,000,000	(d)	(d)	(d)
	2003
玖新(廣州)電子技術服務有限公司*	The PRC; 25 March	100%	100% 100%	100%	Telecommunications	$1,300,000	(d)	(d)	(d)
	2002
廣州通達迅流程信息處理服務有限公司*	The PRC; 5 November	100%	100% 100%	100%	Provision of outsourcing services	$1,240,000	(d)	(d)	(d)
	2007
江門通達迅流程信息處理服務有限公司*	The PRC; 27 December	100%	100% 100%	100%	Provision of outsourcing services	$1,000,000	(d)	(d)	(d)
	2007
One.Tel Limited	Hong Kong;	100%	100% 100%	100%	Telecommunications	$10,000	(b)	(b)	(c)
	9 January
	1998
Sky Leader Limited	Hong Kong;	100%	100% 100%	100%	Telecommunications	$2	(b)	(b)	(c)
	28 September
	2001
倉科高新技術(上海)有限公司*	The PRC; 29 March	100%	100% 100%	100%	Provision of data processing/data	US$700,000	(e)	(e)	(a)
	2004				centres

Subsidiaries held indirectly
(a) The statutory auditor of this entity for the year ended 31 December 2017 was 上海順正會計師事務所.
(b) The statutory auditor of these entities for the years ended 31 December 2015 and 2016 was KPMG.

– IIA-37 –

ACCOUNTANTS’ REPORT OF WTT HK

APPENDIX IIA

(c) The statutory auditor of these entities for the year ended 31 December 2017 was Deloitte Touche Tohmatsu.
(d) The statutory auditor of these entities for the years ended 31 December 2015, 2016 and 2017 was 廣州正德會計師事務所有限公司.
(e) The statutory auditor of this entity for the years ended 31 December 2015 and 2016 was 上海浪騰會計師事務所.

10 INVENTORIES

Inventories in the consolidated statements of financial position comprise spare parts and equipment. The amount of inventories recognised as expense and included in profit or loss represents carrying amount of inventories sold.

11 OTHER NON-CURRENT ASSETS

Other non-current assets mainly comprise prepayments and deposits for purchase of property, plant and equipment. The amounts are neither past due nor impaired.

12 CONTRACT ASSETS AND CONTRACT LIABILITIES

(a) Contract assets

		31 December	1 January	30 June
	Note	2017 (i)	2018 (i)	2018
		$’000	$’000	$’000
Contract assets
Arising from contracts with conditional
payment terms	(ii)	–	39,638	40,317

Notes:

(i) The Target Operating Group has initially applied HKFRS 9 and HKFRS 15 using the cumulative effect method and adjusted the opening balances as at 1 January 2018.
(ii) Upon the adoption of HKFRS 15, amounts previously included as trade receivables (note 13) were reclassified to contract assets (see note 1(c)(ii)).

All contract assets are expected to be recovered within one year.

(b) Contract liabilities

Note Contract liabilities Arising from contracts with conditional settlement terms (ii) Deferred service revenue (iii)	31 December 2017 (i) $’000 – – –	1 January 2018 (i) $’000 13,277 200,871 214,148	30 June 2018 $’000 38,238 197,859
			236,097

Notes:

(i) The Target Operating Group has initially applied HKFRS 15 using the cumulative effect method and adjusted the opening balance at 1 January 2018.
(ii) Upon the adoption of HKFRS 15, amounts previously included as trade payables (note 16) were reclassified to contract liabilities (see note 1(c)(ii)).
(iii) Upon the adoption of HKFRS 15, these amounts were reclassified from deferred service revenue to contract liabilities (see note 1(c)(ii)).

– IIA-38 –

ACCOUNTANTS’ REPORT OF WTT HK

APPENDIX IIA

Movements in contract liabilities

Balance at 1 January Increase in contract liabilities as a result of contracts with conditional settlement terms Decrease in contract liabilities as a result of deferred service revenue Balance at 30 June	2018 $’000 214,148 24,961 (3,012)
	236,097

The amount of deferred service revenue expected to be recognised as income after more than one year is $92,655,000 (2017: $99,515,000, which were included as deferred service revenue – non-current portion).

13 TRADE RECEIVABLES, OTHER RECEIVABLES, DEPOSITS AND PREPAYMENTS

Note Trade receivables (i) Less: allowance for doubtful debts 21(a) Other receivables, deposits and prepayments 13(b)	At 31 December 2015 2016 $’000 $’000 324,080 316,105 (47,403) (48,025) 276,677 268,080 67,909 88,056 344,586 356,136	2017 $’000 376,522 (78,742) 297,780 100,579 398,359	At 30 June 2018 $’000 381,510 (79,300)
			302,210 143,198
			445,408

As at 31 December 2015, 2016 and 2017 and 30 June 2018, the Target Operating Group’s other receivables, deposits and prepayments include, $12,445,000, $25,430,000 and $18,252,000 and $18,631,000 respectively, which are expected to be recovered after more than one year. All of the remaining other receivables, deposits and prepayments are expected to be recovered or recognised as expense within one year.

Note:

(i) Upon adoption of HKFRS 15, certain amounts of trade receivables, for which the Target Operating Group’s entitlement was conditional, were reclassified to contract assets and disclosed in note 12.

(a) Ageing analysis

As at the end of the reporting period, the aging analysis of trade receivables, based on the invoice date and net of allowance for doubtful debts, is as follows:

Within 30 days 31 to 60 days 61 to 120 days Over 120 days	At 31 December 2015 2016 $’000 $’000 147,613 165,703 63,579 65,553 28,366 29,647 37,119 7,177 276,677 268,080	2017 $’000 141,764 73,086 35,874 47,056 297,780	At 30 June 2018 $’000 153,423 68,838 32,772 47,177
			302,210

– IIA-39 –

ACCOUNTANTS’ REPORT OF WTT HK

APPENDIX IIA

(b) Contract costs included in other receivables, deposits and prepayments

Contract costs capitalised as at 30 June 2018 relate to the incremental sales commissions paid to employees whose selling activities resulted in customers entering into contracts with the Target Operating Group. Contract costs are recognised as part of other operating expenses in the consolidated income statements in the period in which revenue from the services provided is recognised. The amount of previously capitalised costs recognised in profit or loss during the six months ended 30 June 2018 was $15,891,000. There was no impairment in relation to the opening balance of capitalised costs or the costs capitalised during the six months ended 30 June 2018.

In the years ended 31 December 2015, 2016 and 2017, such sales commissions were recognised as other operating expenses when incurred and therefore an opening balance adjustment was made on 1 January 2018 in this regard (see note 1(c)(ii)).

The Target Operating Group applies the practical expedient in paragraph 94 of HKFRS 15 and recognises the incremental costs of obtaining contracts relating to the services as an expense when incurred if the amortisation period of the assets that the Target Operating Group otherwise would have recognised is within the same reporting period as the date of entering into the contract.

The amount of capitalised contract costs that is expected to be recovered after more than one year is $10,044,000.

14 AMOUNTS DUE FROM/(TO) GROUP COMPANIES

Amounts due from/(to) group companies are unsecured, non-interest bearing, have no fixed terms of repayment and repayable on demand.

15 CASH AND CASH EQUIVALENTS

(a) Cash and cash equivalents comprise :

Cash at bank and on hand Short term deposits	At 31 December 2015 2016 $’000 $’000 13,316 120,812 – – 13,316 120,812	2017 $’000 55,877 181,400 237,277	At 30 June 2018 $’000 57,398 200,000
			257,398

– IIA-40 –

ACCOUNTANTS’ REPORT OF WTT HK

APPENDIX IIA

(b) Reconciliation of profit before taxation to cash generated from operations:

Note Operating activities Profit before taxation Adjustments for: Depreciation 3(d) Amortisation 3(d) Interest income 3(a) Impairment loss on property, plant and equipment 7 Interest on borrowing from a former fellow subsidiary 3(b) Loss/(gain) on disposals of property, plant and equipment, net 3(d) Foreign exchange (gain)/loss, net Changes in working capital: (Increase)/decrease in inventories (Increase)/decrease in trade receivables Decrease/(increase) in other receivables, deposits and prepayments Increase in contract assets Decrease in amounts due from former fellow subsidiaries (Increase)/decrease in net amount due from the former immediate holding company (Decrease)/increase in trade payables (Decrease)/increase in other payables and accrued charges Increase in contract liabilities Decrease in amounts due to former fellow subsidiaries Increase in amount due to a former intermediate holding company (Decrease)/increase in deferred service revenue Cash generated from operations	Year ended 31 December 2015 2016 2017 $’000 $’000 $’000 329,683 400,460 414,099 409,742 398,828 372,521 1,589 7,784 8,728 – – (118) – – 2,843 30,846 23,032 – 1,387 294 (6,690) (725) 120 (148) (4,323) 8,498 1,837 (26,615) (20,402) (29,700) 11,748 (20,147) (12,523) – – – 10,461 11,980 – (30) 573 – (4,175) (13,074) 10,519 (6,591) 49,526 2,509 – – – (1,040) (507) – 3,675 3,992 – (1,209) (3,280) 28,334 754,423 847,677 792,211	Six months ended 30 June 2017 2018 $’000 $’000 (unaudited) 234,403 211,853 191,193 175,953 4,364 22,733 (19) (920) 33 138 – – 33 18 (151) (51) 3,639 2,055 17,889 (30,791) (36,948) (10,159) – (679) – – – – 17 22,123 (28,692) (11,368) – 21,949 – – – – 14,167 – 399,928 402,854

– IIA-41 –

ACCOUNTANTS’ REPORT OF WTT HK

APPENDIX IIA

16 TRADE PAYABLES, OTHER PAYABLES AND ACCRUED CHARGES

Trade payables Other payables and accrued charges	At 31 December 2015 2016 $’000 $’000 81,621 39,548 289,191 330,717 370,812 370,265	2017 $’000 50,067 333,226 383,293	At 30 June 2018 $’000 72,190 321,858
			394,048

All of the trade and other payables are expected to be settled within one year.

As of the end of the reporting period, the aging analysis of trade payables, based on the invoice date, is as follow:

Within 30 days 31 to 60 days 61 to 90 days Over 90 days	At 31 December 2015 2016 $’000 $’000 25,518 23,220 12,655 12,624 6,373 1,945 37,075 1,759 81,621 39,548	2017 $’000 32,176 6,913 1,789 9,189 50,067	At 30 June 2018 $’000 38,602 7,107 4,366 22,115
			72,190

17 LOAN FROM A FORMER FELLOW SUBSIDIARY

The loan from a fellow subsidiary as at 31 December 2015 was unsecured and repayable more than 2 years but less than 5 years. The loan was a five year revolving loan bearing interest at 2% over 3-months HIBOR for the first $1,000,000,000 and 3% over 3-months HIBOR for the amount over $1,000,000,000. Interest expense paid/payable to a fellow subsidiary amounted to $30,846,000 and $23,032,000 for the years ended 31 December 2015 and 2016, respectively.

18 TAXATION IN THE CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(a) Taxation in the consolidated statements of financial position represents:

Provision for Hong Kong Profits Tax for the year/period Balance of Profits Tax provision relating to prior years Provisional Profits Tax paid Provision for tax outside Hong Kong Tax payable	At 31 December 2015 2016 $’000 $’000 55 1,235 – – – – 55 1,235 – 553 - - - - - - - - - - - - - - - - - - - - - - 55 1,788	2017 $’000 32,660 413 (22,971) 10,102 1,346 - - - - - - - - - - - 11,448	At 30 June 2018 $’000 45,127 8,962 (1,372)
			52,717 1,362 - - - - - - - - - - -
			54,079

– IIA-42 –

ACCOUNTANTS’ REPORT OF WTT HK

APPENDIX IIA

(b) Deferred tax assets and liabilities recognised:

The components of deferred tax (assets)/liabilities recognised in the consolidated statements of financial position and the movements during the periods are as follows:

Deferred tax arising from: At 1 January 2015 (Credited)/charged to profit or loss At 31 December 2015 and 1 January 2016 Disposal of subsidiary (Credited)/charged to profit or loss At 31 December 2016 and 1 January 2017 (Credited)/charged to profit or loss At 31 December 2017 and 1 January 2018 Credited to profit or loss At 30 June 2018	Depreciation allowance in excess of the related depreciation $’000 174,179 (12,808) 161,371 (1,957) (8,291) 151,123 (4,760) 146,363 (7,918) 138,445	General provisions $’000 (9,758) 2,446 (7,312) – (403) (7,715) (4,994) (12,709) (122) (12,831)	Tax losses $’000 (161,411) 39,542 (121,869) – 72,626 (49,243) 49,243 – – –	Total $’000 3,010 29,180 32,190 (1,957) 63,932 94,165 39,489 133,654 (8,040) 125,614

(c) Deferred tax assets not recognised:

In accordance with the accounting policy set out in note 1(n), the Target Operating Group has not recognised deferred tax assets in respect of cumulative tax losses of $71,604,000, $17,996,000, $18,786,000 and $19,428,000 and general provision of $17,912,000, $18,155,000, $20,016,000 and $27,422,000 as at 31 December 2015, 31 December 2016, 31 December 2017 and 30 June 2018 respectively as it is not probable that future profits against which the losses can be utilised will be available in the relevant tax jurisdiction and entity. The tax losses do not expire under current tax legislation.

19 EQUITY-SETTLED SHARE-BASED TRANSACTIONS

WTT Holding Corp. (formerly known as Green Energy Holding Cayman Corp.) (“WTT Holding”), the ultimate controlling party of the Target Operating Group, has conditionally implemented an Employee Stock Option Plan (the “Plan”) on 20 January 2017 to provide incentive to the key employees, directors, service providers and consultants of WTT Holding and its subsidiaries (collectively referred as to the “Participants”) to encourage them to continue in the employment of WTT Holding or its subsidiaries and to improve the growth, profitability and financial success of WTT Holding and its subsidiaries.

The total number of shares of WTT Holding in respect of which options granted under the Plan is not permitted to exceed 5,000 shares. The options granted under the Plan are subject to a vesting scale in tranches of one-fifth of the shares on the first, second, third, fourth and fifth anniversary dates of the grant, respectively and will vest if i) the Participants has continued employment or other service relationship with WTT Holding or any of its subsidiaries through the applicable vesting dates; ii) there is no breach of covenant or non-performance of, or any default or event of default under any credit facility; and iii) the targeted Earnings Before Interest, Taxes, Depreciation and Amortisation of the Target Operating Group (“EBITDA”) specified for each year is achieved.

– IIA-43 –

ACCOUNTANTS’ REPORT OF WTT HK

APPENDIX IIA

On 27 January 2017, total number of 3,120 options were granted to key employees of the Target Operating Group with an exercise price of $45,463.60. During the year ended 31 December 2017, no options have been vested or exercised and 300 options were lapsed following the resignation of a key employee.

The fair value of the options measured at the date of grant on 27 January 2017 is $11,547 per option, which is calculated based on the weighted average fair value of options for each tranche of options to be vested in 1 years, 2 years, 3 years, 4 years and 5 years from the grant date on 27 January 2017 are $2,304, $2,304, $2,307, $2,312 and $2,320 per option, respectively.

The following inputs were used to share options granted on 27 January 2017, using the Binomial model:

Exercise price	$45,463.60
Expected volatility	28.17%
Dividend yield	0.00%
Risk-free interest rate	1.87%
Option life	10 years

The expected volatility was determined by using the average of the historical volatility of daily return of comparable listed companies as at the valuation date. The expected life used in the model had been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations.

The variables and assumptions used in estimating the fair value of the share options were based on the best estimate of the directors of WTT Holding. Change in subjective input assumptions can materially affect the fair value.

The Binominal model has been used to estimate the fair value of the options. The variables and assumptions used in estimating the fair value of the share options are based on the directors’ best estimate. Change in subjective input assumptions can materially affected the fair value.

In the opinion of the directors of WTT Holding, it is highly likely that the targeted EBITDA for the year ended 31 December 2017 and year ending 31 December 2018 could not be achieved, no share-based payment expenses are recognised in respect of the share options granted during the year ended 31 December 2017 and six months ended 30 June 2018.

At each reporting date, the Target Operating Group would review its estimates of the number of options 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 capital reserve.

– IIA-44 –

ACCOUNTANTS’ REPORT OF WTT HK

APPENDIX IIA

20 CAPITAL, RESERVES AND DIVIDENDS

(a) Movements in components of equity

The reconciliation between the opening and closing balances of each component of the Target Operating Group’s consolidated equity is set out in the consolidated statements of changes in equity. Details of the changes in the Target Operating Company’s individual components of equity between the beginning and the end of the year/period are set out below:

The Target Operating Company

Note Balance at 1 January 2015 Changes in equity for year ended 31 December 2015: Profit and total comprehensive income for the year Dividend approved and paid in respect of the previous year 20(b)(ii) Balance at 31 December 2015 and 1 January 2016 Changes in equity for the year ended 31 December 2016: Issue of shares 20(c) Profit and total comprehensive income for the year Dividend approved and paid in respect of the previous year 20(b)(ii) Balance at 31 December 2016 and 1 January 2017 Changes in equity for the year ended 31 December 2017: Issue of shares 20(c) Profit and total comprehensive income for the year Balance at 31 December 2017 and 1 January 2018 Impact on initial application of HKFRS 15 Adjusted balance at 1 January 2018 Change in equity for the six months ended 30 June 2018: Profit and total comprehensive income for the period Balance at 30 June 2018	Share capital $’000 740,000 - - - - - - - - - - - – – 740,000 - - - - - - - - - - - 1,008,683 – – 1,748,683 - - - - - - - - - - - 3,397 – 1,752,080 - - - - - - - - - - - – 1,752,080 - - - - - - - - - - - – 1,752,080	Retained profits $’000 431,550 - - - - - - - - - - - 305,671 (260,193) 477,028 - - - - - - - - - - - – 261,188 (264,976) 473,240 - - - - - - - - - - - – 332,704 805,944 - - - - - - - - - - - 32,460 838,404 - - - - - - - - - - - 220,263 1,058,667	Total $’000 1,171,550 - - - - - - - - - - - 305,671 (260,193) 1,217,028 - - - - - - - - - - - 1,008,683 261,188 (264,976) 2,221,923 - - - - - - - - - - - 3,397 332,704 2,558,024 - - - - - - - - - - - 32,460 2,590,484 - - - - - - - - - - - 220,263 2,810,747

– IIA-45 –

ACCOUNTANTS’ REPORT OF WTT HK

APPENDIX IIA

(b) Dividend

(i) Dividends payable to equity shareholders of the Target Operating Company attributable to:

				Six months ended	Six months ended
	Year ended 31 December			30 June
	2015	2016	2017	2017	2018
	$’000	$’000	$’000	$’000	$’000
				(unaudited)
Dividend proposed after
the end of the reporting
period (2015: 36 cents
per ordinary share)	264,976	–	–	–	–

The dividend proposed after the end of the reporting period has not been recognised as a liability at the end of the reporting period.

(ii) Dividends payable to equity shareholders of the Target Operating Company attributable to the previous financial year, approved and paid during the years/periods:

				Six months ended	Six months ended
	Year	ended 31 December		30 June
	2015	2016	2017	2017	2018
	$’000	$’000	$’000	$’000	$’000
				(unaudited)
vidend in respect of the
previous financial year,
approved and paid
during the year/period,
(2016: 36 cents per
ordinary share; 2015: 35
cents per ordinary share)	260,193	264,976	–	–	–

Dividend in respect of the

(c) Share capital

Note Ordinary shares, issued and fully paid: At 1 January 2015, 31 December 2015 and 1 January 2016 Shares issued during the year (i) At 31 December 2016 and 1 January 2017 Shares issued during the year (ii) At 31 December 2017, 1 January 2018 and 30 June 2018	No. of shares ’000 740,000 1,008,683
	1,748,683 3,397
	1,752,080

Notes:

(i) During the year ended 31 December 2016, the Target Operating Company issued 1,008,683,000 shares to its former immediate holding company at $1 each, which was settled by having waived the loan of $893 million and current account of $116 million due to the former immediate holding company.
(ii) During the year ended 31 December 2017, the Target Operating Company issued 3,397,000 shares to its immediate holding company at $1 each which was settled by current account of $3,397,000 due from the immediate holding company.

– IIA-46 –

ACCOUNTANTS’ REPORT OF WTT HK

APPENDIX IIA

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Target Operating Company. All ordinary shares rank equally with regard to the Target Operating Company’s residual assets.

(d) Nature and purpose of reserves

Exchange reserve

The exchange reserve comprises all foreign exchange differences arising from the translation of the Historical Financial Information of foreign operations. The reserve is dealt with in accordance with the accounting policies set out in note 1(q).

(e) Capital management

The Target Operating Group’s primary objectives when managing capital are to safeguard the Target Operating Group’s ability to continue as a going concern. As the Target Operating Group is a wholly owned subsidiary of WTT Holding, the Target Operating Group’s sources of additional capital and policies for distribution of excess capital may also be affected by WTT Holding’s capital management objectives.

As at 30 June 2018, the Target Operating Group defines “capital” as including all components of equity. Trading balances that arise as a result of trading transactions with group companies are not regarded by the Target Operating Group as capital.

There has been no change in the Target Operating Group’s capital management practices as compared to prior year and the Target Operating Group is not subject to any externally imposed capital requirements.

21 FINANCIAL RISK MANAGEMENT AND FAIR VALUES OF FINANCIAL INSTRUMENTS

Exposure to credit, liquidity, interest rate and currency risks arises in the normal course of the Target Operating Group’s business. The Target Operating Group’s exposure to these risks and the financial risk management policies and practices used by the Target Operating Group to manage these risks are described below.

(a) Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the Target Operating Group. The Target Operating Group’s credit risk is primarily attributable to trade and other receivables, balances with group companies and contract assets. The Target Operating Group’s exposure to credit risk arising from cash and cash equivalents are limited because the counterparties are banks and financial institutions for which the Target Operating Group considers to have low credit risk.

The Target Operating Group does not provide any other guarantees which would expose the Target Operating Group to credit risk.

Trade and other receivables and contract assets

The Target Operating Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. Concentrations of credit risk with respect to trade receivables are limited due to the Target Operating Group’s customer base being large and unrelated.

In respect of trade and other receivables, individual credit evaluations are performed on all customers requiring credit over a certain amount. These evaluations focus on the customer’s past history of making payments when due and current ability to pay. These receivables are due within 30 days from the date of billing. In general, subscribers with receivables that are more than 3 months past due are requested to settle all outstanding balances before any further credit is granted. Normally, the Target Operating Group does not obtain collateral from customers.

The Target Operating Group measures loss allowances for trade receivables and contract assets at an amount equal to lifetime ECLs, which is calculated using a provision matrix. The Target Operating Group’s historical credit loss experience indicates significantly different loss patterns for different customer segments, the loss allowance based on past due status is not further distinguished between the Target Operating Group’s different customer bases.

– IIA-47 –

ACCOUNTANTS’ REPORT OF WTT HK

APPENDIX IIA

The following table provides information about the Target Operating Group’s exposure to credit risk and ECLs for trade receivables and contract assets as at 30 June 2018:

Expected loss rate % Current (not past due) 0.5% 1 – 30 days past due 2.0% 31 – 90 days past due 2.6% More than 90 days past due 48.5%	Gross carrying amount $’000 154,165 71,614 39,246 156,802 421,827	Loss allowance $’000 (742) (1,428) (1,027) (76,103)
		(79,300)

Expected loss rates are based on actual loss experience over the past 3 years. These rates are adjusted to reflect differences between economic conditions during the period over which the historic data has been collected, current conditions and the Target Operating Group’s view of economic conditions over the expected lives of the receivables.

Historical financial information for the years ended 31 December 2015, 2016 and 2017 reported under HKAS 39

Prior to 1 January 2018, an impairment loss was recognised only when there was objective evidence of impairment (see note 1(h)(i) – policy applicable prior to 1 January 2018). The ageing analysis of trade receivables that are neither individually nor collectively considered to be impaired are as follows:

Neither past due nor impaired Less than 30 days past due 31 to 60 days past due Over 60 days past due	2015 $’000 202,781 - - - - - - - - - - - - 32,556 19,564 21,776 73,896 - - - - - - - - - - - - 276,677	At 31 December 2016 $’000 228,783 - - - - - - - - - - - - 30,690 6,787 1,820 39,297 - - - - - - - - - - - - 268,080	2017 $’000 208,999 - - - - - - - - - - - - 39,795 21,228 27,758
			88,781 - - - - - - - - - - - -
			297,780

Trade receivables that were neither past due nor impaired relate to a wide range of customers for whom there was no recent history of default.

Trade receivables that were past due but not impaired relate to a number of independent customers that have a good track record with the Target Operating Group. Based on past experience, management believes that no impairment allowance is necessary in respect of these balances as there has not been a significant change in credit quality and the balances are still considered fully recoverable. The Target Operating Group does not hold any collateral over these balances.

– IIA-48 –

ACCOUNTANTS’ REPORT OF WTT HK

APPENDIX IIA

The movement in the loss allowance account in respect of trade and other receivables and contract assets during the year is as follows:

At the beginning of the year/period Disposal of subsidiaries (Reversal)/recognition of impairment loss/credit losses of trade and other receivables (note 3(d)) Uncollectible amounts written off At the end of the year/period	At 31 December 2015 2016 $’000 $’000 62,790 47,403 – (66) (8,891) 8,343 (6,496) (7,655) 47,403 48,025	2017 $’000 48,025 – 35,156 (4,439) 78,742	At 30 June 2018 $’000 78,742 – 4,323 (3,765)
			79,300

As at 31 December 2015, 2016 and 2017 and 30 June 2018, the trade receivables of $47,403,000, $48,025,000, $78,742,000 and $79,300,000 were individually determined to be impaired, respectively. The individually impaired receivables related to customers’ breaching of relevant agreements and management assessed that none of these receivables is expected to be recovered. Consequently, specific allowances for doubtful debts were recognised.

(b) Liquidity risk

The Target Operating Group’s policy is to regularly monitor its current and expected liquidity requirements to ensure that it maintains sufficient reserves of cash and adequate funding from its holding companies to meet its liquidity requirements in the short and longer term.

The following table shows the remaining contractual maturities at the end of the reporting period of the Target Operating Group’s financial liabilities, which are based on contractual undiscounted cash flows (including interest payments computed using contractual rates or, if floating, based on rates current at the end of the reporting period) and the earliest date the Target Operating Group can be required to pay:

At 31 December 2015

Trade payables Other payables and accrued charges Amounts due to former fellow subsidiaries Amount due to a former intermediate holding company Loan from a former fellow subsidiary	Contractual undiscounted cash outflow Within 1 year or on demand More than 1 year but less than 2 years More than 2 years but less than 5 years Total $’000 $’000 $’000 $’000 81,621 – – 81,621 289,191 – – 289,191 507 – – 507 111,366 – – 111,366 25,309 25,309 1,080,553 1,131,171 507,994 25,309 1,080,553 1,613,856	Carrying amount $’000 81,621 289,191 507 111,366 1,057,455
		1,540,140

– IIA-49 –

ACCOUNTANTS’ REPORT OF WTT HK

APPENDIX IIA

At 31 December 2016

Trade payables Other payables and accrued charges At 31 December 2017 Trade payables Other payables and accrued charges At 30 June 2018 Trade payables Contract liabilities arising from contract with conditional settlement terms Other payables and accrued charges	Contractual undiscounted cash outflow Within 1 year or on demand More than 1 year but less than 2 years More than 2 years but less than 5 years Total $’000 $’000 $’000 $’000 39,548 – – 39,548 330,717 – – 330,717 370,265 – – 370,265 Contractual undiscounted cash outflow Within 1 year or on demand More than 1 year but less than 2 years More than 2 years but less than 5 years Total $’000 $’000 $’000 $’000 50,067 – – 50,067 333,226 – – 333,226 383,293 – – 383,293 Contractual undiscounted cash outflow Within 1 year or on demand More than 1 year but less than 2 years More than 2 years but less than 5 years Total $’000 $’000 $’000 $’000 72,190 – – 72,190 38,238 – – 38,238 321,858 – – 321,858 432,286 – – 432,286	Carrying amount $’000 39,548 330,717
		370,265

		Carrying amount $’000 50,067 333,226
		383,293

		Carrying amount $’000 72,190 38,238 321,858
		432,286

– IIA-50 –

ACCOUNTANTS’ REPORT OF WTT HK

APPENDIX IIA

(c) Interest rate risk

The Target Operating Group’s interest rate risk arises primarily from loan from a former fellow subsidiary. Financial instruments with variable interest rates expose the Target Operating Group to cash flow interest rate risk. The interest rate and terms of repayment of interest-bearing borrowing of the Target Operating Group are disclosed in note 17 to the Historical Financial Information.

Sensitivity analysis

At 31 December 2015, it is estimated that a general increase/decrease of 50 basis points in interest rates, with all other variables held constant, would have decreased/increased the Target Operating Group’s profit after tax and retained profits by approximately $4,415,000. Other components of consolidated equity would not be affected by the changes in interest rates.

The sensitivity analysis above indicates the instantaneous change in the Target Operating Group’s profit after tax and retained profits that would arise assuming that the change in interest rates had occurred at the end of the reporting period and had been applied to re-measure those financial instruments held by the Target Operating Group which expose the Target Operating Group to fair value interest rate risk at the end of the reporting period. In respect of the exposure to cash flow interest rate risk arising from floating rate non-derivative instruments held by the Target Operating Group at the end of the reporting period, the impact on the Target Operating Group’s profit after tax and retained profits is estimated as an annualised impact on interest expenses of such a change in interest rate.

(d) Currency risk

All the Target Operating Group’s monetary assets and liabilities are primarily denominated in either Hong Kong dollars (“HKD”) or United States dollars (“USD”). As HKD is pegged to USD, management considers the risk of movements in exchange rates between HKD and USD to be insignificant.

(e) Fair value measurement

All financial instruments are carried at amounts not materially different from their fair values as at 30 June 2018, 31 December 2017, 31 December 2016 and 31 December 2015.

(f) Offsetting financial assets and financial liabilities

The Target Operating Group enters into netting arrangements with its customers/suppliers. The outstanding transactions with these counterparties are settled on a net basis and result in offsetting the assets and liabilities in the consolidated statements of financial position.

			At 30 June 2018
			Gross amounts of
			recognised financial	Net amounts of
			(assets)/liabilities	financial assets/
			offset in the	(liabilities) presented
		Gross amounts of	consolidated	in the consolidated
		recognised financial	statement of	statement of
		assets/(liabilities)	financial position	financial position
		$’000	$’000	$’000
Trade	receivables	323,002	(20,792)	302,210
Trade	payables	(92,982)	20,792	(72,190)

– IIA-51 –

ACCOUNTANTS’ REPORT OF WTT HK

APPENDIX IIA

At 31 December 2017

			At 31 December 2017
			Gross amounts of
			recognised financial	Net amounts of
			(assets)/liabilities	financial assets/
			offset in the	(liabilities) presented
		Gross amounts of	consolidated	in the consolidated
		recognised financial	statement of	statement of
		assets/(liabilities)	financial position	financial position
		$’000	$’000	$’000
Trade	receivables	338,469	(40,689)	297,780
Trade	payables	(90,756)	40,689	(50,067)
			At 31 December 2016
			Gross amounts of
			recognised financial	Net amounts of
			(assets)/liabilities	financial assets/
			offset in the	(liabilities) presented
		Gross amounts of	consolidated	in the consolidated
		recognised financial	statement of	statement of
		assets/(liabilities)	financial position	financial position
		$’000	$’000	$’000
Trade	receivables	297,079	(28,999)	268,080
Trade	payables	(68,547)	28,999	(39,548)
			At 31 December 2015
			Gross amounts of
			recognised financial	Net amounts of
			assets/(liabilities)	financial assets/
			offset in the	(liabilities) presented
		Gross amounts of	consolidated	in the consolidated
		recognised financial	statement of	statement of
		assets/(liabilities)	financial position	financial position
		$’000	$’000	$’000
Trade	receivables	276,677	–	276,677
Trade	payables	(81,621)	–	(81,621)

22 COMMITMENTS
(a) Capital commitments outstanding not provided for in the Historical Financial Information were as follows:

Contracted for Authorised but not contracted for	At 31 December 2015 2016 $’000 $’000 119,369 112,649 50,055 – 169,424 112,649	2017 $’000 106,853 – 106,853	At 30 June 2018 $’000 153,859 –
			153,859

– IIA-52 –

ACCOUNTANTS’ REPORT OF WTT HK

APPENDIX IIA

(b) Operating lease commitments

(i) The Target Group’s total future minimum lease payments under non-cancellable operating leases are receivable as follows:

*Leases in respect of* *telecommunications* *facilities and computer* *equipment which are* *receivable:* Within 1 year After 1 year but within 5 years After 5 years	At 31 December 2015 2016 $’000 $’000 129,677 327,664 204,988 211,328 33,283 34,312 367,948 573,304	2017 $’000 335,331 216,273 35,115 586,719	At 30 June 2018 $’000 339,306 218,837 35,531
			593,674

(ii) The Target Group’s total future minimum lease payments under non-cancellable operating leases are payable as follows:

*Leases in respect of land and* *building which are* *payable:* Within 1 year After 1 year but within 5 years *Leases in respect of* *telecommunications* *facilities and computer* *equipment which are* *payable:* Within 1 year After 1 year but within 5 years After 5 years	At 31 December 2015 2016 $’000 $’000 23,888 28,439 47,578 40,718 71,466 69,157 At 31 December 2015 2016 $’000 $’000 35,746 30,936 36,530 37,729 11,018 – 83,294 68,665	2017 $’000 32,915 35,847 68,762 2017 $’000 47,700 88,652 20,666 157,018	At 30 June 2018 $’000 36,318 26,681
			62,999

			At 30 June 2018 $’000 49,824 67,638 16,074
			133,536

The Target Operating Group is the lessee in respect of a number of properties and telecommunications network facilities under operating leases. The leases typically run for an initial period of two to three years, with an option to renew the lease when all terms are renegotiated. Lease payments are usually increased annually to reflect market rentals. None of the leases includes contingent rentals.

– IIA-53 –

ACCOUNTANTS’ REPORT OF WTT HK

APPENDIX IIA

23 MATERIAL RELATED PARTY TRANSACTIONS

In addition to the transactions and balances disclosed elsewhere in the Historical Financial Information, the Target Operating Group entered into the following material related party transactions:

				Six months ended	Six months ended
	Year ended 31 December			30 June
	2015	2016	2017	2017	2018
	$’000	$’000	$’000	$’000	$’000
				(unaudited)
Management service and agency
fees payable to:
– a former intermediate holding
company	5,239	5,305	–	–	–
– former fellow subsidiaries	5,168	12,063	–	–	–
Rentals for office premises and
data centres payable to:
– a former intermediate holding
company	5,014	7,803	–	–	–
– former fellow subsidiaries	21,160	24,156	–	–	–
Capital expenditures payable to:
– former fellow subsidiaries	7,661	5,969	–	–	–
Management service and agency
fees receivable from:
– a former intermediate holding
company	4,104	3,420	–	–	–
– former fellow subsidiaries	9,995	8,707	–	–	–
Telecommunications services
income receivable from:
– a former intermediate holding
company	2,700	3,080	–	–	–
– former fellow subsidiaries	45,294	34,434	–	–	–

The remuneration for key management personnel consists the Target Operating Group’s directors is disclosed in note 5.

24. HISTORICAL FINANCIAL INFORMATION PRIOR TO THE ADOPTION OF HKFRS 9 AND HKFRS 15

The Target Operating Group has initially applied HKFRS 15 and HKFRS 9 at 1 January 2018. The historical financial information for the years ended 31 December 2015, 2016 and 2017 is not restated. Further details of the changes in accounting policies are disclosed in note 1(c).

25 IMMEDIATE AND ULTIMATE CONTROLLING PARTY

At 30 June 2018, the directors of the Target Operating Group consider the immediate parent and ultimate controlling party of the Target Operating Group to be WTT Cayman Corp. and WTT Holding, respectively, both of which are incorporated in the Cayman Islands. Neither of these companies produces Historical Financial Information available for public use.

– IIA-54 –

ACCOUNTANTS’ REPORT OF WTT HK

APPENDIX IIA

26 COMPANY-LEVEL STATEMENTS OF FINANCIAL POSITION

Note Non-current assets Property, plant and equipment Investments in subsidiaries 9 Deposits Current assets Inventories Trade receivables Other receivables, deposits and prepayments Contract assets Amount due from the former immediate holding company Amount due from the immediate holding company Amount due from an intermediate holding company Amounts due from former fellow subsidiaries Amounts due from subsidiaries Cash and cash equivalents Current liabilities Trade payables Other payables and accrued charges Deferred service revenue – current portion Contract liabilities – current portion Amount due to a former intermediate holding company Amounts due to subsidiaries Tax payable Net current assets Total assets less current liabilities Non-current liabilities Loan from a former fellow subsidiary Deferred service revenue – long-term portion Contract liabilities – long-term portion Deferred tax liabilities NET ASSETS CAPITAL AND RESERVES 20(a) Share capital 20(c) Retained profits TOTAL EQUITY	At 31 December 2015 2016 2017 $’000 $’000 $’000 2,059,768 2,002,960 1,948,441 177,200 217,027 224,877 4,053 9,914 3,934 2,241,021 2,229,901 2,177,252 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 2,845 1,891 1,132 259,598 253,208 284,749 55,889 71,170 82,594 – – – 573 – – – 34,423 – – – 402,076 11,980 – – 364,361 168,485 117,429 2,397 103,236 227,023 697,643 632,413 1,115,003 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 79,732 38,325 48,869 244,422 290,462 282,956 113,609 97,209 101,356 – – – 111,366 – – 32,224 44,907 59,714 – – 8,167 581,353 470,903 501,062 - - - - - - - - - - - - - - - - - - - - - - - - - - - - 116,290 161,510 613,941 - - - - - - - - - - - - - - - - - - - - - - - - - - - - 2,357,311 2,391,411 2,791,193 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1,057,455 – – 54,208 75,328 99,515 – – – 28,620 94,160 133,654 1,140,283 169,488 233,169 - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1,217,028 2,221,923 2,558,024 740,000 1,748,683 1,752,080 477,028 473,240 805,944 1,217,028 2,221,923 2,558,024	At 30 June 2018 $’000 1,943,232 189,163 2,866
		2,135,261 - - - - - - - - - - 646 296,324 127,713 40,317 – – 624,967 – 159,928 249,184
		1,499,079 - - - - - - - - - - 70,167 277,496 – 143,442 – 60,925 53,294
		605,324 - - - - - - - - -
		893,755 - - - - - - - - -
		3,029,016 - - - - - - - - - - – – 92,655 125,614
		218,269 - - - - - - - - -
		2,810,747

		1,752,080 1,058,667
		2,810,747

– IIA-55 –

ACCOUNTANTS’ REPORT OF WTT HK

APPENDIX IIA

27 ACCOUNTING JUDGEMENT AND ESTIMATES

Sources of estimation uncertainty

Note 21 contains information about the assumptions and their risk factors relating to financial instruments. Other key sources of estimation uncertainty are as follows:

(a) Credit losses and impairment loss for doubtful debts

The Target Operating Group maintains loss allowance account based upon evaluation of the recoverability of the trade and other receivables which takes into account the historical write-off experience and recovery rates. If the financial condition of the customers were to deteriorate, additional impairment may be required.

(b) Depreciation

Depreciation is calculated to write off the cost of items of property, plant and equipment, less their estimated residual value, if any, using the straight-line method over their estimated useful lives. The Target Operating Group reviews the estimated useful lives of the assets annually in order to determine the amount of depreciation expense to be recorded during any reporting period. The useful lives are based on the Target Operating Group’s historical experience with similar assets and taking into account anticipated technological changes. The depreciation expense for future periods is adjusted if there are significant changes from previous estimates.

(c) Useful lives of property, plant and equipment and intangible assets

The Target Operating Group has significant property, plant and equipment and intangible assets. The Target Operating Group is required to estimate the useful lives of property, plant and equipment and intangible assets in order to ascertain the amount of depreciation and amortisation charges for each reporting period.

The useful lives are estimated at the time of purchase of these assets after considering future technology changes, business developments and the Target Operating Group’s strategies. The Target Operating Group performs annual reviews to assess the appropriateness of the estimated useful lives. Such review takes into account any unexpected adverse changes in circumstances or events, including declines in projected operating results, negative industry or economic trends and rapid advancement in technology. The Target Operating Group extends or shortens the useful lives and/or makes impairment provisions according to the results of the review.

(d) Income tax

Determining income tax provisions involves judgement on the future tax treatment of certain transactions and interpretation of tax rules. The Target Operating Group carefully evaluates tax implications of transactions and tax provisions are set up accordingly. The tax treatment of such transactions is reconsidered periodically to take into account all changes in tax legislation and practices.

– IIA-56 –

ACCOUNTANTS’ REPORT OF WTT HK

APPENDIX IIA

28 POSSIBLE IMPACT OF AMENDMENTS, NEW STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE FOR THE ACCOUNTING PERIOD BEGINNING 1 JANUARY 2018

Up to the date of issue of the Historical Financial Information, the HKICPA has issued a few interpretations, amendments and new standards which are not yet effective for the accounting period beginning 1 January 2018 and which have not been adopted in the Historical Financial Information. These include the following which may be relevant to the Target Operating Group.

	Effective for
	accounting
	periods beginning
	on or after
HKFRS 16, Leases	1 January 2019
Amendments to HKFRS 9, Prepayment features with negative compensation	1 January 2019
HK(IFRIC) Interpretation 23, Uncertainty over income tax treatment	1 January 2019
Amendments to HKAS 28, Long-term interest in associates and joint ventures	1 January 2019
Amendments to HKFRS 10 and HKAS 28, Sale or contribution of assets between an	Note 1
investor and its associate or joint venture
Annual Improvements to HKFRSs 2015 – 2017 Cycle	1 January 2019
HKFRS 17, Insurance contracts	1 January 2021

Note 1: The effective date will be determined by HKICPA at a future date.

The Target Operating Group is in the process of making an assessment of what the impact of these amendments and new standards is expected to be in the period of initial application. So far the Target Operating Group has identified some aspects of the new standards which may have a significant impact on the Historical Financial Information. Further details of the expected impacts are discussed below. While the assessment has been substantially complete for HKFRS 16, the actual impact upon the initial adoption of this standard may differ as the assessment completed to date is based on the information currently available to the Target Operating Group.

HKFRS 16, Leases

As disclosed in note 1(f), currently the Target Operating Group classifies leases into finance leases and operating leases and accounts for the lease arrangements differently, depending on the classification of the lease. The Target Operating Group enters into some leases as the lessor and others as the lessee.

HKFRS 16 is not expected to impact significantly on the way that lessors account for their rights and obligations under a lease. However, once HKFRS 16 is adopted, lessees will no longer distinguish between finance leases and operating leases. Instead, subject to practical expedients, lessees will account for all leases in a similar way to current finance lease accounting, i.e. at the commencement date of the lease the lessee will recognise and measure a lease liability at the present value of the minimum future lease payments and will recognise a corresponding “right-of-use” asset. After initial recognition of this asset and liability, the lessee will recognise interest expense accrued on the outstanding balance of the lease liability, and the depreciation of the right-of-use asset, instead of the current policy of recognising rental expenses incurred under operating leases on a systematic basis over the lease term. As a practical expedient, the lessee can elect not to apply this accounting model to short-term leases (i.e. where the lease term is 12 months or less) and to leases of low-value assets, in which case the rental expenses would continue to be recognised on a systematic basis over the lease term.

– IIA-57 –

ACCOUNTANTS’ REPORT OF WTT HK

APPENDIX IIA

HKFRS 16 will primarily affect the Target Operating Group’s accounting as a lessee of leases for properties, plant and equipment which are currently classified as operating leases. The application of the new accounting model may lead to an increase in both assets and liabilities and to impact on the timing of the expense recognition in the consolidated income statements over the period of the lease. As disclosed in note 22(b)(ii), at 30 June 2018 the Target Operating Group’s future minimum lease payments under non-cancellable operating leases amount to $196,535,000, the majority of which is payable either between 1 and 5 years after the reporting date or in more than 5 years. The Target Operating Group will need to perform a more detailed analysis to determine the amounts of new assets and liabilities arising from operating lease commitments on adoption of HKFRS 16, after taking into account the applicability of the practical expedient and adjusting for any leases entered into or terminated between now and the adoption of HKFRS 16 and the effects of discounting.

29 EVENTS AFTER THE REPORTING PERIOD

No significant events have occurred after the reporting period which would have a material impact on the Target Operating Group.

SUBSEQUENT HISTORICAL FINANCIAL INFORMATION

No audited Historical Financial Information have been prepared by the Target Operating Company and its subsidiaries in respect of any period subsequent to 30 June 2018.

– IIA-58 –

ACCOUNTANTS’ REPORT OF WTT HOLDING

APPENDIX IIB

The following is the text of a report set out on pages IIB-1 to IIB-58, received from the Company’s reporting accountants, KPMG, Certified Public Accountants, Hong Kong, for the purpose of incorporation in this circular.

ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF WTT HOLDING CORP. AND ITS SUBSIDIARIES TO THE DIRECTORS OF HKBN LTD.

Introduction

We report on the historical financial information of WTT Holding Corp. (the “Target Company”) and its subsidiaries (together, the “Target Group”) set out on pages IIB-4 to IIB-58, which comprises the consolidated statements of financial position of the Target Group as at 31 December 2015, 2016 and 2017 and 30 June 2018 and the consolidated income statements, the consolidated statements of comprehensive income, the consolidated statements of changes in equity and the consolidated cash flow statements, for each of the years ended 31 December 2015, 2016 and 2017 and the six months ended 30 June 2018 (the “Relevant Periods”), and a summary of significant accounting policies and other explanatory information (together, the “Historical Financial Information”). The Historical Financial Information set out on pages IIB-4 to IIB-58 forms an integral part of this report, which has been prepared for inclusion in the circular of HKBN Ltd. (the “Company”) dated 26 October 2018 (the “Circular”) in connection with the proposed acquisition of the entire issued share capital of the Target Company.

Directors’ responsibility for Historical Financial Information

Reporting accountants’ responsibility

– IIB-1 –

ACCOUNTANTS’ REPORT OF WTT HOLDING

APPENDIX IIB

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

Opinion

In our opinion, the Historical Financial Information gives, for the purpose of the accountants’ report, a true and fair view of the Target Group’s consolidated financial position as at 31 December 2015, 2016 and 2017 and 30 June 2018 and of the Target Group’s consolidated financial performance and cash flows for the Relevant Periods in accordance with the basis of preparation and presentation set out in Note 1 to the Historical Financial Information.

Review of stub period corresponding financial information

We have reviewed the stub period corresponding financial information of the Target Group which comprises the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated cash flow statement for the six months ended 30 June 2017 and other explanatory information (the “Stub Period Corresponding Financial Information”). The directors of the Company are responsible for the preparation and presentation of the Stub Period Corresponding Financial Information in accordance with the basis of preparation and presentation set out in Note 1 to the Historical Financial Information. Our responsibility is to express a conclusion on the Stub Period Corresponding Financial Information based on our review. We conducted our review in accordance with Hong Kong Standard on Review Engagements 2410 “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” issued by the HKICPA. A review consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes

– IIB-2 –

ACCOUNTANTS’ REPORT OF WTT HOLDING

APPENDIX IIB

us to believe that the Stub Period Corresponding Financial Information, for the purpose of the accountants’ report, is not prepared, in all material respects, in accordance with the basis of preparation and presentation set out in Note 1 to the Historical Financial Information.

Report on matters under the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited

Adjustments

In preparing the Historical Financial Information, no adjustments to the Underlying Financial Statements as defined on page IIB-4 have been made.

KPMG

Certified Public Accountants 8th Floor, Prince’s Building 10 Chater Road Central, Hong Kong 26 October 2018

– IIB-3 –

ACCOUNTANTS’ REPORT OF WTT HOLDING

APPENDIX IIB

HISTORICAL FINANCIAL INFORMATION OF THE TARGET GROUP

Set out below is the Historical Financial Information which forms an integral part of this accountants’ report.

The consolidated financial statements of the Target Group for the Relevant Periods, on which the Historical Financial Information is based, were audited by KPMG in accordance with Hong Kong Standards on Auditing issued by the HKICPA (“Underlying Financial Statements”).

Consolidated income statements

(Expressed in Hong Kong Dollars)

Note Revenue 2 Other net income/(loss) 3(a) Network costs and costs of sales Other operating expenses Finance costs 3(b) Loss before taxation 3 Income tax 4 Loss for the year/period	Year ended 31 December 2015 2016 2017 $’000 $’000 $’000 – 296,254 2,101,762 – (1,120) (301) – (81,783) (576,709) – (271,359) (1,250,125) – (45,690) (537,638) – (103,698) (263,011) – (10,728) (50,913) – (114,426) (313,924)	Six months ended 30 June 2017 2018 $’000 $’000 (unaudited) 1,048,466 1,049,313 (130) 680 (269,916) (285,395) (613,209) (631,052) (180,008) (153,824) (14,797) (20,278) (29,528) (26,949) (44,325) (47,227)

Note: The Target Group has initially applied HKFRS 9 and HKFRS 15 at 1 January 2018. The historical financial information for the years ended 31 December 2015, 2016 and 2017 has not been adjusted retrospectively to reflect the impact of adopting HKFRS 9 and HKFRS 15. See note 1(c).

The accompanying notes form part of the Historical Financial Information.

– IIB-4 –

ACCOUNTANTS’ REPORT OF WTT HOLDING

APPENDIX IIB

Consolidated statements of comprehensive income

(Expressed in Hong Kong Dollars)

Note Loss for the year/period Other comprehensive income for the year/period Item that may be reclassified subsequently to profit or loss: Exchange differences on translation of the financial statements of overseas subsidiaries, with $nil tax effect Total comprehensive income for the year/period	Year ended 31 December 2015 2016 2017 $’000 $’000 $’000 – (114,426) (313,924) – (15) 46 – (114,441) (313,878)	Six months ended 30 June 2017 2018 $’000 $’000 (unaudited) (44,325) (47,227) 14 52 (44,311) (47,175)

The accompanying notes form part of the Historical Financial Information.

– IIB-5 –

ACCOUNTANTS’ REPORT OF WTT HOLDING

APPENDIX IIB

Consolidated statements of financial position

(Expressed in Hong Kong Dollars)

Note Non-current assets Goodwill 7 Intangible assets 8 Property, plant and equipment 10 Other non-current assets 12 Current assets Inventories 13 Trade receivables 15 Contract assets 14 Other receivables, deposits and prepayments 15 Cash and cash equivalents 16 Current liabilities Trade payables 17 Other payables and accrued charges 17 Deferred service revenue – current portion Contract liabilities – current portion 14 Tax payable 18(a) Bank loans – current portion 19 Net current (liabilities)/assets Total assets less current liabilities Non-current liabilities Deferred service revenue – long-term portion Contract liabilities – long-term portion 14 Deferred tax liabilities 18(b) Senior notes 20 Bank loans – long-term portion 19 NET ASSETS CAPITAL AND RESERVES Share capital 22(b) Share premium Reserves TOTAL EQUITY	At 31 December 2015 2016 2017 $’000 $’000 $’000 – 3,591,422 3,591,422 – 4,345,197 4,199,835 – 2,102,343 2,027,142 – 9,914 3,934 – 10,048,876 9,822,333 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - – 11,388 9,551 – 268,080 297,780 – – – – 88,107 100,579 – 234,722 254,571 – 602,297 662,481 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - – 39,548 50,067 – 442,745 457,062 – 97,209 101,356 – – – – 1,788 11,448 – 95,209 – – 676,499 619,933 - - - - - - - - - - - - - - - - - - - - - - - - - - - - – (74,202) 42,548 - - - - - - - - - - - - - - - - - - - - - - - - - - - - – 9,974,674 9,864,881 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - – 75,328 99,515 – – – – 498,863 515,807 – – 5,140,933 – 4,977,979 – – 5,552,170 5,756,255 - - - - - - - - - - - - - - - - - - - - - - - - - - - - – 4,422,504 4,108,626 – – 8 – 4,536,945 4,536,937 – (114,441) (428,319) – 4,422,504 4,108,626	At 30 June 2018 $’000 3,591,422 4,098,872 2,009,337 2,866 9,702,497 - - - - - - - - - - 7,496 302,210 40,317 143,205 259,688 752,916 - - - - - - - - - - 72,190 354,299 – 143,442 54,079 – 624,010 - - - - - - - - - 128,906 - - - - - - - - - 9,831,403 - - - - - - - - - - – 92,655 496,495 5,148,342 – 5,737,492 - - - - - - - - - 4,093,911 8 4,536,937 (443,034) 4,093,911

The accompanying notes form part of the Historical Financial Information.

– IIB-6 –

ACCOUNTANTS’ REPORT OF WTT HOLDING

APPENDIX IIB

Consolidated statements of changes in equity

(Expressed in Hong Kong Dollars)

Note Balance at 1 January 2015, 31 December 2015 and 1 January 2016 Changes in equity for the year ended 31 December 2016: Loss for the year Other comprehensive income for the year Total comprehensive income for the year Issue of shares 22(b) Balance at 31 December 2016 and 1 January 2017 Changes in equity for the year ended 31 December 2017 Loss for the year Other comprehensive income for the year Total comprehensive income for the year Issue of shares 22(b) Balance at 31 December 2017 Impact on initial application of HKFRS 15 1(c)	Share capital $’000 – - - - - - - - - – – – - - - - - - - - – - - - - - - - - – - - - - - - - - – – – - - - - - - - - 8 - - - - - - - - 8 –	Share premium $’000 – - - - - - - - - – – – - - - - - - - - 4,536,945 - - - - - - - - 4,536,945 - - - - - - - - – – – - - - - - - - - (8) - - - - - - - - 4,536,937 –	Exchange Reserve Accumulated losses $’000 $’000 – – - - - - - - - - - - - - - - - - - - – (114,426) (15) – (15) (114,426) - - - - - - - - - - - - - - - - - - – – - - - - - - - - - - - - - - - - - (15) (114,426) - - - - - - - - - - - - - - - - - - – (313,924) 46 – 46 (313,924) - - - - - - - - - - - - - - - - - - – – - - - - - - - - - - - - - - - - - 31 (428,350) – 32,460	Total $’000 – - - - - - - - - (114,426) (15) (114,441) - - - - - - - - 4,536,945 - - - - - - - - 4,422,504 - - - - - - - - (313,924) 46 (313,878) - - - - - - - - – - - - - - - - - 4,108,626 32,460

– IIB-7 –

ACCOUNTANTS’ REPORT OF WTT HOLDING

APPENDIX IIB

Note Adjusted balance at 1 January 2018 Changes in equity for the six months ended 30 June 2018: Loss for the period Other comprehensive income for the period Total comprehensive income for the period Balance at 30 June 2018 (unaudited) Balance at 1 January 2017 Changes in equity for the six months ended 30 June 2017 Loss for the period Other comprehensive income for the period Total comprehensive income for the period Issue of shares 22(b) Balance at 30 June 2017	Share capital $’000 8 - - - - - - - - – – – - - - - - - - - 8 – - - - - - - - - – – – - - - - - - - - 8 - - - - - - - - 8	Share premium $’000 4,536,937 - - - - - - - - – – – - - - - - - - - 4,536,937 4,536,945 - - - - - - - - – – – - - - - - - - - (8) - - - - - - - - 4,536,937	Exchange Reserve $’000 31 - - - - - - - - – 52 52 - - - - - - - - 83 (15) - - - - - - - - – 14 14 - - - - - - - - – - - - - - - - - (1)	Accumulated losses $’000 (395,890) - - - - - - - - - - (47,227) – (47,227) - - - - - - - - - (443,117) (114,426) - - - - - - - - - - (44,325) – (44,325) - - - - - - - - - - – - - - - - - - - - (158,751)	Total $’000 4,141,086 - - - - - - - - (47,227) 52 (47,175) - - - - - - - - 4,093,911 4,422,504 - - - - - - - - (44,325) 14 (44,311) - - - - - - - - – - - - - - - - - 4,378,193

The accompanying notes form part of the Historical Financial Information.

– IIB-8 –

ACCOUNTANTS’ REPORT OF WTT HOLDING

APPENDIX IIB

Consolidated cash flow statements

(Expressed in Hong Kong Dollars)

Note Cash generated from operations 16(b) Tax paid: – Hong Kong Tax paid – Tax paid outside Hong Kong Net cash generated from operating activities Investing activities Interest received Payment for the purchase of a subsidiary, net of cash acquired 23 Acquisition-related costs paid Payment for purchase of property, plant and equipment Proceeds from sales of property, plant and equipment Net cash used in investing activities	Year ended 31 December 2015 2016 2017 $’000 $’000 $’000 – 109,633 792,859 – – (23,793) – – (498) – 109,633 768,568 - - - - - - - - - - - - - - - - - - - - - - - - - - - – 2 118 – (9,409,328) – – (17,509) (81,319) – (46,665) (294,044) – – 6,727 – (9,473,500) (368,518) - - - - - - - - - - - - - - - - - - - - - - - - - - -	Six months ended 30 June 2017 2018 $’000 $’000 (unaudited) 402,518 402,770 (16) (2,512) (442) (1,141) 402,060 399,117 - - - - - - - - - - - - - - - - - - 19 923 – – (81,319) – (149,990) (157,111) 27 2 (231,263) (156,186) - - - - - - - - - - - - - - - - - -

– IIB-9 –

ACCOUNTANTS’ REPORT OF WTT HOLDING

APPENDIX IIB

Note Financing activities Senior notes interest paid 16(c) Proceeds from issue of shares Proceeds from bank loans Repayment of bank loans 16(c) Proceeds from issue of senior notes 16(c) Payment of transaction cost on issuance of senior notes 16(c) Payment of loan upfront fee 16(c) Interest-rate swap interest paid 16(c) Bank loan interest paid 16(c) Other finance costs paid 16(c) Net cash generated from/(used in) financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the year/period 16(a) Cash and cash equivalents at the end of the year/period 16(a)	Year ended 31 December 2015 2016 2017 $’000 $’000 $’000 – – – – 4,536,945 – – 5,260,000 – – – (5,260,000) – – 5,232,091 – – (6,089) – (178,741) (14,436) – – (29,635) – (19,615) (287,131) – – (15,001) – 9,598,589 (380,201) - - - - - - - - - - - - - - - - - - - - - - - - - - - – 234,722 19,849 – – 234,722 – 234,722 254,571	Six months ended 30 June 2017 2018 $’000 $’000 (unaudited) – (144,636) – – – – (220,000) – – – – (86,369) (14,436) – (11,126) – (97,031) – (2,611) (6,809) (345,204) (237,814) - - - - - - - - - - - - - - - - - - (174,407) 5,117 234,722 254,571 60,315 259,688

The accompanying notes form part of the Historical Financial Information.

– IIB-10 –

ACCOUNTANTS’ REPORT OF WTT HOLDING

APPENDIX IIB

NOTES TO THE HISTORICAL FINANCIAL INFORMATION

1 BASIS OF PREPARATION AND PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of preparation and presentation of Historical Financial Information

WTT Holding Corp. (formerly known as Green Energy Holding Cayman Corp.) (the “Target Company”) is a limited company incorporated in Cayman Islands on 16 December 2014. The address of the registered office is PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands and the principal place of business is 9/F, KITEC, 1 Trademart Drive, Kowloon Bay, Hong Kong.

The Target Company is inactive before its acquisition of the entire equity interests in WTT HK Limited (formerly known as Wharf T&T Limited) on 9 November 2016. The principal activity of the Target Company is investment holding. The Target Company and its subsidiaries (collectively referred to as the “Target Group”) are engaged in provision of telecommunication services.

The Historical Financial Information is presented in Hong Kong dollars, which is also the functional currency of the Target Company.

The Historical Financial Information set out in this report has been prepared in accordance with all applicable Hong Kong Financial Reporting Standards (“HKFRSs”), which collective term includes all application individual Hong Kong Financial Reporting Standards. Hong Kong Accounting Standards and related interpretations, promulgated by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”). Further details of the significant account policies adopted are set out as follows.

The HKICPA has issued a number of new and revised HKFRSs. For the purpose of preparing this Historical Financial Information, the Target Group has adopted all applicable new and revised HKFRSs for the Relevant Periods except for any new standards or interpretation that are not yet effective for the accounting period beginning 1 January 2018. The revised and new accounting standards and interpretation issued but not yet effective for the accounting period beginning 1 January 2018 are set out in Note 29.

The Stub Period Corresponding Financial Information has been prepared in accordance with the same basis of preparation and presentation adopted in respect of the Historical Financial Information.

(b) Basis of measurement and use of estimate and judgement

The measurement basis used in the preparation of the Historical Financial Information is historical cost basis except that the interest-rate swap is stated at its fair value as explained in the accounting policies set out in note 1(i).

Judgements made by management in the application of HKFRSs that have significant effect on the Historical Financial Information and major sources of estimation uncertainty are discussed in note 28.

– IIB-11 –

ACCOUNTANTS’ REPORT OF WTT HOLDING

APPENDIX IIB

(c) Changes in accounting policies

The HKICPA has issued a number of new HKFRSs and amendments to HKFRSs that are first effective for the accounting period beginning 1 January 2018. Of these, the following developments are relevant to the Target Group’s consolidated Historical Financial Information:

(i) HKFRS 9, Financial instruments
(ii) HKFRS 15, Revenue from contracts with customers
(iii) HK(IFRIC) 22, Foreign currency transactions and advance consideration

The Target Group has not applied any new standard or interpretation that is not yet effective for the Relevant Periods.

The Target Group has been impacted by HKFRS 9 in relation to classification of financial assets and measurement of credit losses, and impacted by HKFRS 15 in relation to timing of revenue recognition, capitalisation of contract costs and presentation of contract assets and contract liabilities.

(i) HKFRS 9, Financial instruments

The Target Group has applied HKFRS 9 retrospectively to items that existed at 1 January 2018 in accordance with the transition requirements. The Target Group has concluded that the initial adoption of HKFRS 9 has no impact on the opening balance of equity.

The details of the nature and effect of the changes to previous accounting policies and the transition approach are set out below:

a. Classification of financial assets and financial liabilities

For an explanation of how the Target Group classifies and measures financial assets and recognised related gains and losses under HKFRS 9, see respective accounting policy notes in notes 1(j)(i), (m) and (o).

The Target Group did not designate or de-designate any financial asset or financial liability at FVPL at 1 January 2018.

– IIB-12 –

ACCOUNTANTS’ REPORT OF WTT HOLDING

APPENDIX IIB

b. Credit losses

The Target Group applies the new ECL model to the following items:

financial assets measured at amortised cost (including cash and cash equivalents and trade and other receivables); and
contract assets as defined in HKFRS 15 (see note 1(l)).

For further details on the Target Group’s accounting policy for accounting for credit losses, see note 1(j)(i). The adoption of HKFRS 9 did not lead to restatement of accumulated losses.

(ii) HKFRS 15, Revenue from contracts with customers

The Target Group has elected to use the cumulative effect transition method and has recognised the cumulative effect of initial application as an adjustment to the opening balance of equity at 1 January 2018. Therefore, the historical financial information for the years ended 31 December 2015, 2016 and 2017 has not been restated and continues to be reported under HKASs 11 and 18. As allowed by HKFRS 15, the Target Group has applied the new requirements only to contracts that were not completed before 1 January 2018.

The following table gives a summary of the opening balance adjustments recognised for each line item in the consolidated statement of financial position that has been impacted by HKFRS 15:

		Impact on
	At	initial	At
	31 December	application of	1 January
	2017	HKFRS 15	2018
	$’000	$’000	$’000
Trade receivables	297,780	(26,361)	271,419
Other receivables, deposits and
prepayments	100,579	32,460	133,039
Contract assets	–	39,638	39,638
Total current assets	662,481	45,737	708,218
Deferred service revenue – current portion	(101,356)	101,356	–
Contract liabilities – current portion	–	(114,633)	(114,633)
Total current liabilities	(619,933)	(13,277)	(633,210)
Total assets less current liabilities	9,864,881	32,460	9,897,341
Deferred service revenue – long-term
portion	(99,515)	99,515	–
Contract liabilities – long-term portion	–	(99,515)	(99,515)
Net assets	4,108,626	32,460	4,141,086
Reserves	(428,319)	32,460	(395,859)
Total equity	4,108,626	32,460	4,141,086

– IIB-13 –

ACCOUNTANTS’ REPORT OF WTT HOLDING

APPENDIX IIB

The following table summarises the impact of transition to HKFRS 15 on accumulated losses at 1 January 2018:

Accumulated losses Capitalisation of sales commissions Net increase in accumulated losses at 1 January 2018	$’000 32,460
	32,460

Further details of the nature and effect of the changes on previous accounting policies are set out below:

a. Timing of revenue recognition

A. When the customer simultaneously receives and consumes the benefits provided by the entity’s performance, as the entity performs;
B. When the entity’s performance creates or enhances an asset (for example work in progress) that the customer controls as the asset is created or enhanced;
C. When the entity’s performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date.

The adoption of HKFRS 15 does not have a significant impact on when the Target Group recognises revenue (see note 1(r)).

b. Sales commissions payable related to sales contracts

The Target Group previously recognised sales commissions payable related to sales contracts as other operating expenses when they were incurred. Under HKFRS 15, the Target Group is required to capitalise these sales commissions as costs of obtaining contracts when they are incremental and are expected to be recovered, unless the expected amortisation period is one year or less from the date of initial recognition of the asset, in which case the sales commissions can be expensed when incurred. Capitalised commissions are charged to profit or loss when the revenue from the related sale is recognised and are included as other operating expenses at that time.

As a result of this change in accounting policy, the Target Group has capitalised sales commissions payable related to sales contracts amounting to $32,460,000 and increased accumulated losses by $32,460,000 at 1 January 2018.

c. Presentation of contract assets and liabilities

Under HKFRS 15, a receivable is recognised only if the Target Group has an unconditional right to consideration. If the Target Group recognises the related revenue (see note 1(r)) before being unconditionally entitled to the consideration for the promised goods and services in the contract, then

– IIB-14 –

ACCOUNTANTS’ REPORT OF WTT HOLDING

APPENDIX IIB

the entitlement to consideration is classified as a contract asset. Similarly, a contract liability, rather than a payable, is recognised when a customer pays consideration, or is contractually required to pay consideration and the amount is already due, before the Target Group recognises the related revenue. For a single contract with the customer, either a net contract asset or a net contract liability is presented. For multiple contracts, contract assets and contract liabilities of unrelated contracts are not presented on a net basis (see note 1(l)).

Previously, netted contract balances relating to contracts in progress were presented in the consolidated statement of financial position under trade receivables or trade payables respectively until the products were delivered to the customer and the revenue was recognised for the reasons explained in paragraph a above.

To reflect these changes in presentation, the Target Group has made the following adjustments at 1 January 2018, as a result of the adoption of HKFRS 15:

(i) Amount of $26,231,000 which was previously included in trade receivables is now included under contract assets.
(ii) Amounts of $13,277,000 which were previously included in trade receivables and trade payables, all of which were previously netted off, are now included under contract assets and contract liabilities respectively.
(iii) Amount of $200,871,000 which was previously included in deferred service revenue is now included under contract liabilities.
d. Disclosure of the estimated impact on the amounts reported in respect of the six months ended 30 June 2018 as a result of the adoption of HKFRS 15 on 1 January 2018

The following tables summarise the estimated impact of adoption of HKFRS 15 on the Target Group’s consolidated financial statements for the six months ended 30 June 2018, by comparing the amounts reported under HKFRS 15 in these consolidated financial statements with estimates of the hypothetical amounts that would have been recognised under HKAS 18 and HKAS 11 if those superseded standards had continued to apply to 2018 instead of HKFRS 15. These tables show only those line items impacted by the adoption of HKFRS 15:

			Difference:
	Amounts		Estimated
	reported in	Hypothetical	impact of
	accordance	amounts under	adoption of
	with	HKASs 18	HKFRS 15
	HKFRS 15	and 11	on 2018
	(A)	(B)	(A)-(B)
	$’000	$’000	$’000
Line items in the consolidated
income statement and
consolidated statement of
comprehensive income for
six months ended 30 June
2018 impacted by the
adoption of HKFRS 15:
Other operating expenses	(631,052)	(630,838)	(214)
Loss before taxation	(20,278)	(20,064)	(214)
Loss for the period	(47,227)	(47,013)	(214)
Total comprehensive income
for the period	(47,175)	(46,961)	(214)

– IIB-15 –

ACCOUNTANTS’ REPORT OF WTT HOLDING

APPENDIX IIB

			Difference:
	Amounts		Estimated
	reported in	Hypothetical	impact of
	accordance	amounts under	adoption of
	with	HKASs 18	HKFRS 15
	HKFRS 15	and 11	on 2018
	(A)	(B)	(A)-(B)
	$’000	$’000	$’000
Line items in the consolidated
statement of financial position
at 30 June 2018 impacted by
the adoption of HKFRS 15:
Contract assets	40,317	–	40,317
Trade receivables	302,210	305,995	(3,785)
Other receivables, deposits and
prepayments	143,205	110,959	32,246
Total current assets	752,916	684,138	68,778
Trade payables	(72,190)	(73,896)	1,706
Deferred service revenue –
current portion	–	(105,204)	105,204
Contract liabilities –
current portion	(143,442)	–	(143,442)
Total current liabilities	(624,010)	(587,478)	(36,532)
Total assets less current
liabilities	9,831,403	9,799,157	32,246
Deferred service revenue –
long-term portion	–	(92,655)	92,655
Contract liabilities – long-term
portion	(92,655)	–	(92,655)
Net assets	4,093,911	4,061,665	32,246
Reserves	(443,034)	(475,280)	32,246
Total equity	4,093,911	4,061,665	32,246
Line items in the reconciliation
of loss before taxation to
cash generated from
operations for six months
ended 30 June 2018 (note
16(b)) impacted by the
adoption of HKFRS 15:
Loss before taxation	(20,278)	(20,064)	(214)
Increase in trade receivables	(30,791)	(8,215)	(22,576)
Increase in other receivables,
deposits and prepayments	(10,166)	(10,380)	214
Increase in contract assets	(679)	–	(679)
Increase in trade payables	22,123	23,829	(1,706)
Increase in contract liabilities	21,949	–	21,949
Decrease in deferred service
revenue	–	(3,012)	3,012

The significant differences arise as a result of the changes in accounting described above.

– IIB-16 –

ACCOUNTANTS’ REPORT OF WTT HOLDING

APPENDIX IIB

(iii) HK(IFRIC) 22, Foreign currency transactions and advance consideration

(d) Business combination and goodwill

The Target Group applies the acquisition method to account for business combination. The consideration transferred for the acquisition of subsidiaries is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Target Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Target Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest’s proportionate share of the recognised amounts of acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred.

Any contingent consideration to be transferred by the Target Group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with HKAS 39 either in profit or loss or as a change to other comprehensive income. Contingent consideration that is classified as equity is not remeasured, and its subsequent settlement is accounted for within equity.

Goodwill represents the excess of

(i) the aggregate of the fair value of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of the Target Group’s previously held equity interest in the acquiree; over
(ii) the net fair value of the acquiree’s identifiable assets and liabilities measured as at the acquisition date.

When (ii) is greater than (i), then this excess is recognised immediately in profit or loss as a gain on a bargain purchase.

Goodwill is stated at cost less accumulated impairment losses. Goodwill arising on a business combination is allocated to each cash-generating unit, or groups of cash generating units, that is expected to benefit from the synergies of the combination and is tested annually for impairment (see note 1(j)).

On disposal of a cash generating unit during the year, any attributable amount of purchased goodwill is included in the calculation of the profit or loss on disposal.

(e) Property, plant and equipment

Other property, plant and equipment are stated at cost less accumulated depreciation and impairment losses (see note 1(j)).

5 – 25 years
Cable
5 – 25 years
Telecommunications, computer and office equipment 5 – 25 years
– Leasehold improvements Over the remaining terms of the leases – Motor vehicles 5 years – Leasehold land and buildings Shorter of the unexpired term of leases or 40 years

– IIB-17 –

ACCOUNTANTS’ REPORT OF WTT HOLDING

APPENDIX IIB

(f) Intangible assets

Intangible assets that are acquired by the Target Group are stated at cost less accumulated amortisation (where the estimated useful life is finite) and impairment losses (see note 1(j)). Alternatively, intangible assets acquired in a business combination with indefinite useful lives are carried at cost less any subsequent accumulated impairment losses (see note 1(j)).

–	Customer relationships	2.5 – 20 years
–	Brand, trademark and backlog	4 – 20 years

Both the period and method of amortisation are reviewed annually.

(g) Leased assets

An arrangement, comprising a transaction or a series of transactions, is or contains a lease if the Target Group determines that the arrangement conveys a right to use a specific asset or assets for an agreed period of time in return for a payment or a series of payments. Such a determination is made based on an evaluation of the substance of the arrangement and is regardless of whether the arrangement takes the legal form of a lease.

(i) Classification of assets leased to the Target Group

Assets that are held by the Target Group under leases which transfer to the Target Group substantially all the risks and rewards of ownership are classified as being held under finance leases. Leases which do not transfer substantially all the risks and rewards of ownership to the Target Group are classified as operating leases.

(ii) Operating lease charges

Where the Target Group has the use of assets held under operating leases, payments made under the leases are charged to profit or loss in equal instalments over the accounting periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the leased asset. Lease incentives received are recognised in profit or loss as an integral part of the aggregate net lease payments made. Contingent rentals are charged to profit or loss in the accounting period in which they are incurred.

(h) Subsidiaries

Subsidiaries are entities controlled by the Target Group. The Target Group controls an entity when it is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. When assessing whether the Target Group has power, only substantive rights (held by the Target Group and other parties) are considered.

– IIB-18 –

ACCOUNTANTS’ REPORT OF WTT HOLDING

APPENDIX IIB

Unrealised losses resulting from intra-group transactions are eliminated in the same way as unrealised gains but only to the extent that there is no evidence of impairment.

In the Target Company’s statements of financial position, investments in subsidiaries are stated at cost less impairment losses (see note 1(j)).

(i) Derivative financial instruments

Derivative financial instruments are recognised initially at fair value. At the end of each reporting period the fair value is remeasured. The gain or loss on remeasurement to fair value is recognised immediately in profit or loss.

(j) Credit losses and impairment of assets

(i) Credit losses from financial instruments and contract assets

(A) Policy applicable from 1 January 2018

The Target Group recognises a loss allowance for expected credit losses (“ECLs”) on the following items:

financial assets measured at amortised cost (including cash and cash equivalents, trade and other receivables and loans to associates); and
contract assets as defined in HKFRS 15 (see note 1(l)).

Financial assets measured at fair value are not subject to the ECL assessment.

Measurement of ECLs

ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all expected cash shortfalls (i.e. the difference between the cash flows due to the Target Group in accordance with the contract and the cash flows that the Target Group expects to receive).

The expected cash shortfalls are discounted using the following discount rates where the effect of discounting is material:

fixed-rate financial assets, trade receivables, other receivables, deposits and prepayments and contract assets: effective interest rate determined at initial recognition or an approximation thereof;
variable-rate financial assets: current effective interest rate;

The maximum period considered when estimating ECLs is the maximum contractual period over which the Target Group is exposed to credit risk.

In measuring ECLs, the Target Group takes into account reasonable and supportable information that is available without undue cost or effort. This includes information about past events, current conditions and forecasts of future economic conditions.

ECLs are measured on either of the following bases:

12-month ECLs: these are losses that are expected to result from possible default events within the 12 months after the reporting date; and
lifetime ECLs: these are losses that are expected to result from all possible default events over the expected lives of the items to which the ECL model applies.

– IIB-19 –

ACCOUNTANTS’ REPORT OF WTT HOLDING

APPENDIX IIB

Loss allowances for trade receivables, other receivables, deposits and prepayments and contract assets are always measured at an amount equal to lifetime ECLs. ECLs on these financial assets are estimated using a provision matrix based on the Target Group’s historical credit loss experience, adjusted for factors that are specific to the debtors and an assessment of both the current and forecast general economic conditions at the reporting date.

For all other financial instruments, the Target Group recognises a loss allowance equal to 12-month ECLs unless there has been a significant increase in credit risk of the financial instrument since initial recognition, in which case the loss allowance is measured at an amount equal to lifetime ECLs.

Significant increases in credit risk

In assessing whether the credit risk of a financial instrument has increased significantly since initial recognition, the Target Group compares the risk of default occurring on the financial instrument assessed at the reporting date with that assessed at the date of initial recognition. In making this reassessment, the Target Group considers that a default event occurs when (i) the borrower is unlikely to pay its credit obligations to the Target Group in full, without recourse by the Target Group to actions such as realising security (if any is held); or (ii) the financial asset is 3 months past due. The Target Group considers both quantitative and qualitative information that is reasonable and supportable, including historical experience and forward-looking information that is available without undue cost or effort.

In particular, the following information is taken into account when assessing whether credit risk has increased significantly since initial recognition:

failure to make payments of principal or interest on their contractually due dates;
an actual or expected significant deterioration in a financial instrument’s external or internal credit rating (if available);
an actual or expected significant deterioration in the operating results of the debtor; and
existing or forecast changes in the technological, market, economic or legal environment that have a significant adverse effect on the debtor’s ability to meet its obligation to the Target Group.

ECLs are remeasured at each reporting date to reflect changes in the financial instrument’s credit risk since initial recognition. Any change in the ECL amount is recognised as an impairment gain or loss in profit or loss. The Target Group recognises an impairment gain or loss for all financial instruments with a corresponding adjustment to their carrying amount through a loss allowance account, except for investments in debt securities that are measured at FVOCI (recycling), for which the loss allowance is recognised in other comprehensive income and accumulated in the fair value reserve (recycling).

Basis of calculation of interest income

Interest income recognised in accordance with note 1(r)(iv) is calculated based on the gross carrying amount of the financial asset unless the financial asset is credit-impaired, in which case interest income is calculated based on the amortised cost (i.e. the gross carrying amount less loss allowance) of the financial asset.

At each reporting date, the Target Group assesses whether a financial asset is credit-impaired. A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.

– IIB-20 –

ACCOUNTANTS’ REPORT OF WTT HOLDING

APPENDIX IIB

Evidence that a financial asset is credit-impaired includes the following observable events:

significant financial difficulties of the debtor;
a breach of contract, such as a default or delinquency in interest or principal payments;
it becoming probable that the borrower will enter into bankruptcy or other financial reorganisation;
significant changes in the technological, market, economic or legal environment that have an adverse effect on the debtor; or
the disappearance of an active market for a security because of financial difficulties of the issuer.

Write-off policy

The gross carrying amount of a financial asset or contract asset is written off (either partially or in full) to the extent that there is no realistic prospect of recovery. This is generally the case when the Target Group determines that the debtor does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to the write-off.

Subsequent recoveries of an asset that was previously written off are recognised as a reversal of impairment in profit or loss in the period in which the recovery occurs.

(B) Policy applicable prior to 1 January 2018

Under the “incurred loss” model, impairment losses for bad and doubtful debts are recognised when there is objective evidence of impairment and are measured as the difference between the carrying amount of the financial asset and the estimated future cash flows, discounted at the asset’s original effective interest rate where the effect of discounting is material. Objective evidence of impairment includes observable data that comes to the attention of the Target Group about events that have an impact on the asset’s estimated future cash flows such as significant financial difficulty of the debtor.

Impairment losses for trade receivables included within trade and other receivables whose recovery is considered doubtful but not remote are recorded using an allowance account. When the Target Group is satisfied that recovery is remote, the amount considered irrecoverable is written off against trade receivables directly and any amounts held in the allowance account relating to that debt are reversed. Subsequent recoveries of amounts previously charged to the allowance account are reversed against the allowance account. Other changes in the allowance account and subsequent recoveries of amounts previously written off directly are recognised in profit or loss.

(ii) Impairment of other non-current assets

property, plant and equipment;
intangible assets;
investments in subsidiaries.

– IIB-21 –

ACCOUNTANTS’ REPORT OF WTT HOLDING

APPENDIX IIB

Calculation of recoverable amount

Recognition of impairment losses

Reversals of impairment losses

An impairment loss is reversed if there has been a favourable change in the estimates used to determine the recoverable amount.

(k) Inventories

Inventories, representing telephone equipment, are carried at the lower of cost and net realisable value.

Cost is calculated using the first in, first out cost formula and comprises all costs of purchase and other costs incurred in bringing the inventories to their present location and condition.

Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

(l) Contract assets and contract liabilities

A contract asset is recognised when the Target Group recognises revenue (see note 1(r)) before being unconditionally entitled to the consideration under the payment terms set out in the contract. Contract assets are assessed for expected credit losses in accordance with the policy set out in note 1(c)(i) and are reclassified to receivables when the right to the consideration has become unconditional (see note 1(m)).

A contract liability is recognised when the customer pays consideration before the Target Group recognises the related revenue (see note 1(r)). A contract liability would also be recognised if the Target Group has an unconditional right to receive consideration before the Target Group recognises the related revenue. In such cases, a corresponding receivable would also be recognised (see note 1(m)).

– IIB-22 –

ACCOUNTANTS’ REPORT OF WTT HOLDING

APPENDIX IIB

When the contract includes a significant financing component, the contract balance includes interest accrued under the effective interest method (see note 1(r)).

(m) Trade and other receivables and other contract costs

(i) Trade and other receivables

Trade and other receivables are initially recognised at fair value and thereafter stated at amortised cost using the effective interest method, less allowance for credit losses, except where the receivables are interest-free loans made to related parties without any fixed repayment terms or the effect of discounting would be immaterial. In such cases, the receivables are stated at cost less allowance for credit losses. If revenue has been recognised before the Target Group has an unconditional right to receive consideration, the amount is present as a contract asset (see note 1(l)).

Receivables are stated at amortised cost using the effective interest method less allowance for credit losses (see note 1(j)(i)).

(ii) Other contract costs

Other contract costs are either the incremental costs of obtaining a contract with a customer or the costs to fulfil a contract with a customer which are not capitalised as inventory (see note 1(k)), property, plant and equipment (see note 1(e)) or intangible assets (see note 1(f)).

Incremental costs of obtaining a contract are those costs that the Target Group incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained e.g. an incremental sales commission. Incremental costs of obtaining a contract are capitalised when incurred if the costs relate to revenue which will be recognised in a future reporting period and the costs are expected to be recovered. Other costs of obtaining a contract are expensed when incurred.

Costs to fulfil a contract are capitalised if the costs relate directly to an existing contract or to a specifically identifiable anticipated contract; generate or enhance resources that will be used to provide goods or services in the future; and are expected to be recovered. Costs that relate directly to an existing contract or to a specifically identifiable anticipated contract may include direct labour, direct materials, allocations of costs, costs that are explicitly chargeable to the customer and other costs that are incurred only because the Target Group entered into the contract (for example, payments to sub-contractors). Other costs of fulfilling a contract, which are not capitalised as inventory, property, plant and equipment or intangible assets, are expensed as incurred.

Capitalised contract costs are stated at cost less accumulated amortisation and impairment losses. Impairment losses are recognised to the extent that the carrying amount of the contract cost asset exceeds the net of (i) remaining amount of consideration that the Target Group expects to receive in exchange for the goods or services to which the asset relates, less (ii) any costs that relate directly to providing those goods or services that have not yet been recognised as expenses.

(n) Trade and other payables

Trade and other payables are initially recognised at fair value and subsequently stated at amortised cost unless the effect of discounting would be immaterial, in which case they are stated at cost.

(o) Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks and other financial institutions, and short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, having been within three months of maturity at acquisition. Cash and cash equivalents are assessed for expected credit losses (“ECL”) in accordance with the policy set out in note 1(j)(i).

– IIB-23 –

ACCOUNTANTS’ REPORT OF WTT HOLDING

APPENDIX IIB

(p) Income tax

The limited exceptions to recognition of deferred tax assets and liabilities are those temporary differences arising from goodwill not deductible for tax purposes, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit (provided they are not part of a business combination), and temporary differences relating to investments in subsidiaries to the extent that, in the case of taxable differences, the Target Group controls the timing of the reversal and it is probable that the differences will not reverse in the foreseeable future, or in the case of deductible differences, unless it is probable that they will reverse in the future.

Current tax balances and deferred tax balances, and movements therein, are presented separately from each other and are not offset.

(q) Provisions and contingent liabilities

Provisions are recognised for liabilities of uncertain timing or amount when the Target Group or the Target Company has a legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Where the time value of money is material, provisions are stated at the present value of the expenditure expected to settle the obligation.

– IIB-24 –

ACCOUNTANTS’ REPORT OF WTT HOLDING

APPENDIX IIB

(r) Revenue and other income

Revenue is measured at the fair value of the consideration received or receivable. Provided it is probable that the economic benefits will flow to the Target Group and the revenue and costs, if applicable, can be measured reliably, revenue is recognised in profit or loss as follows:

(i) Revenue for the provision of international telecommunications and fixed telecommunications network service

(ii) Sale of goods

(A) Policy applicable from 1 January 2018

Revenue is recognised when control over a product or service is transferred to the customer, or the lessee has the right to use the asset, at the amount of promised consideration to which the Target Group is expected to be entitled, excluding those amounts collected on behalf of third parties. Revenue excludes value added tax or other sales taxes and is after deduction of any trade discounts.

(B) Policy applicable prior to 1 January 2018

(iii) Rental income from operating leases

(iv) Interest income

(s) Translation of foreign currencies

Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the foreign exchange rates ruling at the transaction dates. The transaction date is the date on which the Target Group initially recognise such non-monetary assets and liability. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated using the foreign exchange rates ruling at the dates the fair value was measured.

– IIB-25 –

ACCOUNTANTS’ REPORT OF WTT HOLDING

APPENDIX IIB

Kong dollars at the closing foreign exchange rates at the end of the reporting period. The resulting exchange differences are recognised in other comprehensive income and accumulated separately in equity in the exchange reserve. Goodwill arising on consolidation of a foreign operation acquired before 1 January 2005 is translated at the foreign exchange rate that applied at the date of acquisition of the foreign operation.

(t) Employee benefits

(i) Short term employee benefits

(ii) Retirement benefit costs

The Target Group contributes to defined contribution retirement schemes which are available to certain employees. Contributions to the schemes by the Target Group are calculated as a percentage of employees’ basic salaries and charged to profit or loss. The Target Group’s contributions are reduced by contributions forfeited by those employees who leave the scheme prior to vesting fully in the contributions.

The assets of the scheme are held in an independently administered fund that is separated from the Target Group’s assets.

(iii) Equity-settled share-based payments

Equity-settled share-based payments granted by a parent to employees and other providing similar services are measured at the fair value of the equity instruments at the grant date.

The fair value of the equity-settled share-based payments determined at the grant date without taking into consideration all non-market vesting conditions is expensed on a straight-line basis over the vesting period, based on the Target Group’s estimate of equity instruments that will eventually vest, with a corresponding increase in equity as a contribution from the parent (capital reserve). At the end of each reporting period, the Target Group revises its estimate of the number of equity instruments expected to vest based on assessment of all relevant non-market vesting conditions.

(u) Borrowing costs

(v) Related parties

(a) A person, or a close member of that person’s family, is related to the Target Group if that person:
(i) has control or joint control over the Target Group;
(ii) has significant influence over the Target Group; or
(iii) is a member of the key management personnel of the Target Group or the Target Group’s parent.

– IIB-26 –

ACCOUNTANTS’ REPORT OF WTT HOLDING

APPENDIX IIB

(b) An entity is related to the Target Group if any of the following conditions applies:
(i) The entity and the Target Group are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others).
(ii) One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member).
(iii) Both entities are joint ventures of the same third party.
(iv) One entity is a joint venture of a third entity and the other entity is an associate of the third entity.
(v) The entity is a post-employment benefit plan for the benefit of employees of either the Target Group or an entity related to the Target Group.
(vi) The entity is controlled or jointly controlled by a person identified in (a).
(vii) A person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).
(viii) The entity, or any member of a group of which it is a part, provides key management personnel services to the Target Group or to the Target Group’s parent.

Close members of the family of a person are those family members who may be expected to influence, or be influenced by, that person in their dealings with the entity.

(w) Offsetting of financial assets and financial liabilities

(x) Segment reporting

Operating segments, and the amounts of each segment item reported in the Historical Financial Information, are identified from the financial information provided regularly to the Target Group’s most senior executive management for the purposes of allocating resources to, and assessing the performance of, the Target Group’s various lines of business and geographical locations.

The Target Group’s management assesses the performance and allocates the resources of the Target Group as a whole, as all of the Target Group’s activities are considered to be primarily the operation of fixed telecommunications network services. Therefore, management considers there is only one operating segment under the requirements of HKFRS 8, Operating Segments . In this regard, no segment information is presented.

No geographic information is shown as the revenue and profit from operations of the Target Group are primarily derived from its activities in Hong Kong.

2 REVENUE

The principal activity of the Target Group is the provision of fixed line telecommunication services and international telecommunications services to residential and enterprise customers in Hong Kong and product sale.

– IIB-27 –

ACCOUNTANTS’ REPORT OF WTT HOLDING

APPENDIX IIB

The amount of each significant category of revenue recognised is as follows:

Enterprise revenue Residential revenue Product revenue	Year ended 31 December 2015 2016 2017 $’000 $’000 $’000 – 279,920 1,989,083 – 4,933 24,845 – 11,401 87,834 – 296,254 2,101,762	Six months ended 30 June 2017 2018 $’000 $’000 (unaudited) 997,227 992,381 13,252 10,307 37,987 46,625 1,048,466 1,049,313	Six months ended 30 June 2017 2018 $’000 $’000 (unaudited) 997,227 992,381 13,252 10,307 37,987 46,625 1,048,466 1,049,313
			1,049,313

The Target Group’s customer base is diversified and no individual customer with whom transactions have exceed 10% of the Target Group’s revenue.

3 LOSS BEFORE TAXATION

Loss before taxation is arrived after charging/(crediting):

(a) Other net (income)/loss

Interest income Net foreign exchange loss	Year ended 31 December 2015 2016 2017 $’000 $’000 $’000 – (2) (118) – 1,122 419 – 1,120 301	Six months ended 30 June 2017 2018 $’000 $’000 (unaudited) (19) (923) 149 243 130 (680)	Six months ended 30 June 2017 2018 $’000 $’000 (unaudited) (19) (923) 149 243 130 (680)
			(680)

(b) Finance costs

Interest on bank loans Bank loans upfront fee amortisation Interest on interest-rate swap, net Interest on senior notes Fair value loss on interest- rate swap Other finance costs	Year ended 31 December 2015 2016 2017 $’000 $’000 $’000 – 39,325 267,422 – 6,365 186,812 – – 29,635 – – 33,291 – – – – – 20,478 – 45,690 537,638	Six months ended 30 June 2017 2018 $’000 $’000 (unaudited) 125,687 – 23,053 – 10,001 – – 151,675 17,820 – 3,447 2,149 180,008 153,824	Six months ended 30 June 2017 2018 $’000 $’000 (unaudited) 125,687 – 23,053 – 10,001 – – 151,675 17,820 – 3,447 2,149 180,008 153,824
			153,824

– IIB-28 –

ACCOUNTANTS’ REPORT OF WTT HOLDING

APPENDIX IIB

(c) Staff costs (including directors’ emoluments)

Salaries, wages and other benefits Contributions to defined contribution retirement plan Less: Staff costs capitalised as property, plant and equipment (d) Other items	Year ended 31 December 2015 2016 2017 $’000 $’000 $’000 – 68,548 502,993 – 2,835 20,529 – 71,383 523,522 – (5,199) (36,775) – 66,184 486,747	Six months ended 30 June 2017 2018 $’000 $’000 (unaudited) 251,053 253,173 10,398 10,197 261,451 263,370 (18,233) (18,209) 243,218 245,161	Six months ended 30 June 2017 2018 $’000 $’000 (unaudited) 251,053 253,173 10,398 10,197 261,451 263,370 (18,233) (18,209) 243,218 245,161
			263,370 (18,209)
			245,161

	Year ended 31 December	Year ended 31 December		Six months ended 30 June	Six months ended 30 June
	2015	2016	2017	2017	2018
	$’000	$’000	$’000	$’000	$’000
				(unaudited)
Auditor’s remuneration:
– Audit services	–	241	2,129	1,023	1,180
Depreciation (note 10)	–	55,396	372,521	191,193	175,953
Amortisation of intangible
assets (note 8)	–	21,103	145,362	72,681	100,963
Office rental expenses	–	9,127	75,349	36,004	40,594
Loss/(gain) on disposals of
property, plant and
equipment	–	3	(6,690)	33	18
Recognition of impairment
losses of trade and other
receivables (note 24(a))	–	1,171	35,156	4,402	4,323
Write down of inventories	–	310	1,414	2,264	2,100

– IIB-29 –

ACCOUNTANTS’ REPORT OF WTT HOLDING

APPENDIX IIB

4 INCOME TAX IN THE CONSOLIDATED INCOME STATEMENTS

(a) Current taxation in the consolidated income statements represents:

Current tax – Hong Kong Profits Tax: Provision for the year/period Current tax – Overseas: Provision for the year/period Over-provision in respect of prior years Deferred tax: Origination and reversal of temporary differences	Year ended 31 December 2015 2016 2017 $’000 $’000 $’000 – 603 32,660 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - – 178 1,361 – – (52) – 178 1,309 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - – 9,947 16,944 - - - - - - - - - - - - - - - - - - - - - - - - - - - - – 10,728 50,913	Six months ended 30 June 2017 2018 $’000 $’000 (unaudited) 22,174 45,127 - - - - - - - - - - - - - - - - - - - - 77 1,271 (51) (137) 26 1,134 - - - - - - - - - - - - - - - - - - - - 7,328 (19,312) - - - - - - - - - - - - - - - - - - 29,528 26,949

(b) Reconciliation between tax expense charged to profit or loss and accounting loss at applicable tax rates:

Loss before taxation Notional tax on loss before taxation, calculated at the rates applicable to profits in the tax jurisdictions concerned Tax effect of non- deductible expenses Tax effect on non-taxable income Tax effect of temporary differences not recognised Tax effect of unused tax losses not recognised	Year ended 31 December 2015 2016 2017 $’000 $’000 $’000 – (103,698) (263,011) – (17,110) (43,397) – 29,302 93,121 – – (1,124) – 4,708 307 – 58 2,450	Six months ended 30 June 2017 2018 $’000 $’000 (unaudited) (14,797) (20,278) (2,442) (3,346) 32,008 30,158 (446) (771) – 1,222 1,032 887

– IIB-30 –

ACCOUNTANTS’ REPORT OF WTT HOLDING

APPENDIX IIB

Tax effect of unused tax losses not recognised in prior year utilised during the year/period Over-provision in respect of prior years Others	Year ended 31 December 2015 2016 2017 $’000 $’000 $’000 – (8,903) (2,320) – – (52) – 2,673 1,928 – 10,728 50,913	Six months ended 30 June 2017 2018 $’000 $’000 (unaudited) (1,110) (781) (51) (165) 537 (255) 29,528 26,949	Six months ended 30 June 2017 2018 $’000 $’000 (unaudited) (1,110) (781) (51) (165) 537 (255) 29,528 26,949
			26,949

5 DIRECTORS’ EMOLUMENTS

For the year ended 31 December 2015

Directors’ fees Salaries, allowances and benefits in kind $’000 $’000 Executive directors KAGASA Kenichiro – – – – For the year ended 31 December 2016 Executive directors KAGASA Kenichiro – – LAU Wai Kei Ricky (appointed on 4 October 2016 and resigned on 15 December 2016) – – MOHEBBI Afshin (appointed on 15 December 2016) – – – –	Discretionary bonuses $’000 – – – – – –	Retirement scheme contributions $’000 – – – – – –	Sub-Total $’000 – – – – – –	Share- based payments (note) $’000 – – – – – –	Total $’000 –
					–

					– – –
					–

– IIB-31 –

ACCOUNTANTS’ REPORT OF WTT HOLDING

APPENDIX IIB

For the year ended 31 December 2017

Executive directors KAGASA Kenichiro MOHEBBI Afshin	Directors’ fees $’000 – – –	Salaries, allowances and benefits in kind $’000 – – –	Discretionary bonuses $’000 – – –	Retirement scheme contributions $’000 – – –	Sub-Total $’000 – – –	Share- based payments (note) $’000 – – –	Total $’000 – –
							–

For the six months ended 30 June 2017 (unaudited)

Executive directors KAGASA Kenichiro MOHEBBI Afshin	– – –	– – –	– – –	– – –	– – –	– – –	– –
							–

For the six months ended 30 June 2018

Executive directors KAGASA Kenichiro MOHEBBI Afshin	Directors’ fees $’000 – – –	Salaries, allowances and benefits in kind $’000 – – –	Discretionary bonuses $’000 – – –	Retirement scheme contributions $’000 – – –	Sub-Total $’000 – – –	Share- based payments (note) $’000 – – –	Total $’000 – –
							–

Note: Share-based payments represent the estimated value of share options granted to the directors under the Target Company’s share option scheme. The value of these share options is measured according to the Target Group’s accounting policies for share-based payment transactions as set out in note 1(t)(iii) and, in accordance with that policy, includes adjustments to reverse amounts accrued in previous years where grants of equity instruments are forfeited prior to vesting.

The details of these benefits in kind, including the principal terms and number of options granted, are disclosed under the paragraph “Equity-settled share-based transactions” in note 21.

– IIB-32 –

ACCOUNTANTS’ REPORT OF WTT HOLDING

APPENDIX IIB

6 INDIVIDUALS WITH HIGHEST EMOLUMENTS

Of the five individuals with the highest emoluments, none of them are directors. The aggregate of the emoluments in respect of the five individuals with the highest emoluments for the years ended 31 December 2015, 2016 and 2017 and the six months ended 30 June 2017 and 2018, respectively, are as follows:

Salaries and other emoluments Discretionary bonuses Retirement scheme contributions	Year ended 31 December 2015 2016 2017 $’000 $’000 $’000 – 1,309 10,462 – 1,220 6,210 – 120 932 – 2,649 17,604	Six months ended 30 June 2017 2018 $’000 $’000 (unaudited) 5,223 5,404 3,105 4,250 457 490 8,785 10,144	Six months ended 30 June 2017 2018 $’000 $’000 (unaudited) 5,223 5,404 3,105 4,250 457 490 8,785 10,144
			10,144

The emoluments of the five individuals with the highest emoluments for the years ended 31 December 2015, 2016 and 2017 and the six months ended 30 June 2017 and 2018, respectively, are within the following bands:

$Nil – $1,000,000 $1,000,001 – $1,500,000 $1,500,001 – $2,000,000 $2,500,001 – $3,000,000 $3,000,001 – $3,500,000 $5,500,001 – $6,000,000	Number of individuals Year ended 31 December Six months ended 30 June 2015 2016 2017 2017 2018 (unaudited) 5 5 – – – – – – 2 – – – – 2 4 – – 2 1 – – – 2 – 1 – – 1 – – 5 5 5 5 5	Number of individuals Year ended 31 December Six months ended 30 June 2015 2016 2017 2017 2018 (unaudited) 5 5 – – – – – – 2 – – – – 2 4 – – 2 1 – – – 2 – 1 – – 1 – – 5 5 5 5 5
		5

7 GOODWILL

Cost: At 1 January 2015, 31 December 2015 and 1 January 2016 Acquisition of subsidiaries (note 23) At 31 December 2016, 1 January 2017, 31 December 2017, 1 January 2018 and 30 June 2018 Accumulated impairment losses: At 1 January 2015, 31 December 2015, 1 January 2016, 31 December 2016, 1 January 2017, 31 December 2017, 1 January 2018 and 30 June 2018 Carrying amount value: At 31 December 2015 At 31 December 2016, 31 December 2017 and 30 June 2018	$’000 – 3,591,422
	3,591,422 - - - - - - - - - - - - - - – - - - - - - - - - - - - - -
	–

	3,591,422

– IIB-33 –

ACCOUNTANTS’ REPORT OF WTT HOLDING

APPENDIX IIB

8 INTANGIBLE ASSETS

Cost: At 1 January 2015, 31 December 2015 and 1 January 2016 Acquired through acquisition of subsidiaries (note 23) At 31 December 2016, 1 January 2017, 31 December 2017, 1 January 2018 and 30 June 2018 Accumulated amortisation: At 1 January 2015, 31 December 2015 and 1 January 2016 Charge for the year At 31 December 2016 At 1 January 2017 Charge for the year At 31 December 2017 At 1 January 2018 Charge for the period At 30 June 2018 Net book value: At 31 December 2015 At 31 December 2016 At 31 December 2017 At 30 June 2018	Customer relationship $’000 – 2,448,602 2,448,602 - - - - - - - - - - - - – 18,742 18,742 - - - - - - - - - - - - 18,742 129,104 147,846 - - - - - - - - - - - - 147,846 89,446 237,292 - - - - - - - - - - - - – 2,429,860 2,300,756 2,211,310	Brand, trademark and backlog $’000 – 1,917,698 1,917,698 - - - - - - - - - - - - – 2,361 2,361 - - - - - - - - - - - - 2,361 16,258 18,619 - - - - - - - - - - - - 18,619 11,517 30,136 - - - - - - - - - - - - – 1,915,337 1,899,079 1,887,562	Total $’000 – 4,366,300
			4,366,300 - - - - - - - - - - - - – 21,103
			21,103 - - - - - - - - - - - -
			21,103 145,362
			166,465 - - - - - - - - - - - -
			166,465 100,963
			267,428 - - - - - - - - - - - -
			–

			4,345,197

			4,199,835

			4,098,872

The above intangible assets other than brand and trademark with an aggregate net book value have finite useful lives. Such intangible assets are amortised on a straight-line basis over the following periods:

Customer relationship
Brand, trademark and backlog
2.5 – 20 years
4 – 20 years

– IIB-34 –

ACCOUNTANTS’ REPORT OF WTT HOLDING

APPENDIX IIB

The brand and trademark has a legal life of 1 year but is renewable every year at minimal cost. The directors of the Target Company are of the opinion that the Target Group would renew the brand and trademark continuously and has the ability to do so. Various studies including product life cycle studies, market, competitive and environmental trends, and brand extension opportunities have been performed by the management, which supports that certain brand and trademark has no foreseeable limit to the period over which certain trademarked products are expected to generate net cash flows for the Target Group.

As a result, certain brands and trademarks are considered by the management having an indefinite useful life because they are expected to contribute to net cash inflows indefinitely and will not be amortised until its useful life is determined to be finite. Instead it will be tested for impairment annually and whenever there is an indication that it may be impaired. Particulars of the impairment testing are disclosed in Note 9.

Certain customer relationships were recognised upon acquisitions of controlling interests in One.Tel Limited, Onetel.Net Limited, Sky Leader Limited, Wise Millennium Assets Limited and PIHK Network Limited by the Target Company’s subsidiaries in previous years.

Both the period and method of amortisation of intangible assets are reviewed regularly. During the six months ended 30 June 2018, the directors are of the opinion that the useful lives of certain intangible assets, in particular the customer relationships, should be reduced to reflect the future economic benefits arising from those intangible assets to the Target Group, resulting in an increase of $28,282,000 amortisation for the six months ended 30 June 2018.

9 IMPAIRMENT TEST FOR CASH-GENERATING UNIT CONTAINING GOODWILL AND INTANGIBLE ASSETS

		December		At 30 June
	2015	2016	2017	2018
	$’000	$’000	$’000	$’000
Goodwill	–	3,591,422	3,591,422	3,591,422

All of the goodwill and intangible assets (note 8) are allocated to the Target Group’s single cash-generating unit (“CGU”) (i.e. Fixed telecommunications network services business) for annual impairment assessment purpose.

The recoverable amount of the CGU is determined based on value-in-use calculations. These calculations use cash flow projections based on financial budgets approved by management covering a five-year period. Cash flows beyond the five-year period are extrapolated using an estimated weighted average growth rate of 3% at 31 December 2016, 31 December 2017 and 30 June 2018, which is based on the forecasts included in industry reports. The growth rates used do not exceed the long-term average growth rates for the business in which the CGU operates. The cash flows are discounted using a discount rate of 10.69% at 31 December 2016, 10.5% at 31 December 2017 and 10.56% at 30 June 2018. The estimation is based on the unit’s past performance and management’s expectations for the market development. Management believes that any reasonably possible change in any of these assumptions would not cause the aggregate carrying amount of this CGU to exceed the aggregate recoverable amount of this CGU.

– IIB-35 –

ACCOUNTANTS’ REPORT OF WTT HOLDING

APPENDIX IIB

10 PROPERTY, PLANT AND EQUIPMENT

Cost: At 1 January, 2015, 31 December 2015 and 1 January 2016 Acquired through acquisition of subsidiaries (note 23) Additions Disposals Exchange adjustments At 31 December 2016 At 1 January 2017 Exchange adjustments Additions Disposals At 31 December 2017 At 1 January 2018 Exchange adjustments Additions Disposals Transfer to inventories At 30 June 2018 Accumulated depreciation and impairment loss: At 1 January 2015, 31 December 2015 and 1 January 2016 Exchange adjustments Charge for the year Written back on disposals At 31 December 2016	Cable $’000 – - - - - - - 3,748 – – – 3,748 - - - - - - 3,748 – – – 3,748 - - - - - - 3,748 – – – – 3,748 - - - - - - – - - - - - - – 271 – 271 - - - - - -	Leasehold land and buildings $’000 – - - - - - - - - 12,462 – – – 12,462 - - - - - - - - 12,462 – 7,850 – 20,312 - - - - - - - - 20,312 – – – – 20,312 - - - - - - - - – - - - - - - - - – 53 – 53 - - - - - - - -	Leasehold improvements Tele- communication, computer and office equipment $’000 $’000 – – - - - - - - - - - - - - - - - - - - - - - - 47,904 2,046,548 138 46,527 – (2,938) (300) (299) 47,742 2,089,838 - - - - - - - - - - - - - - - - - - - - - - 47,742 2,089,838 704 636 1,621 290,101 – (13,137) 50,067 2,367,438 - - - - - - - - - - - - - - - - - - - - - - 50,067 2,367,438 474 523 715 157,464 – (4,607) – (702) 51,256 2,520,116 - - - - - - - - - - - - - - - - - - - - - - – – - - - - - - - - - - - - - - - - - - - - - - (260) (264) 1,860 53,176 – (2,935) 1,600 49,977 - - - - - - - - - - - - - - - - - - - - - -	Motor vehicles $’000 – - - - - - - - 490 – – – 490 - - - - - - - 490 – 452 (209) 733 - - - - - - - 733 – – – – 733 - - - - - - - – - - - - - - - – 36 – 36 - - - - - - -	Total $’000 – - - - - - - - 2,111,152 46,665 (2,938) (599) 2,154,280 - - - - - - - 2,154,280 1,340 300,024 (13,346) 2,442,298 - - - - - - - 2,442,298 997 158,179 (4,607) (702) 2,596,165 - - - - - - - – - - - - - - - (524) 55,396 (2,935) 51,937 - - - - - - -

– IIB-36 –

ACCOUNTANTS’ REPORT OF WTT HOLDING

APPENDIX IIB

Accumulated depreciation and impairment loss: At 1 January 2017 Exchange adjustments Impairment loss recognised in profit or loss Charge for the year Written back on disposals At 31 December 2017 At 1 January 2018 Exchange adjustments Impairment loss recognised in profit or loss Charge for the period Written back on disposals Transfer to inventories At 30 June 2018 Net book value: At 31 December 2015 At 31 December 2016 At 31 December 2017 At 30 June 2018	Cable $’000 271 – – 428 – 699 - - - - - - 699 – – 214 – – 913 - - - - - - – 3,477 3,049 2,835	Leasehold land and buildings $’000 53 – – 568 – 621 - - - - - - - - 621 – – 286 – – 907 - - - - - - - - – 12,409 19,691 19,405	Leasehold improvements Tele- communication, computer and office equipment $’000 $’000 1,600 49,977 635 529 – 2,843 12,577 358,775 – (13,100) 14,812 399,024 - - - - - - - - - - - - - - - - - - - - - - 14,812 399,024 428 442 – 138 5,930 169,430 – (4,587) – (702) 21,170 563,745 - - - - - - - - - - - - - - - - - - - - - - – – 46,142 2,039,861 35,255 1,968,414 30,086 1,956,371	Motor vehicles $’000 36 – – 173 (209) – - - - - - - - – – – 93 – – 93 - - - - - - - – 454 733 640	Total $’000 51,937 1,164 2,843 372,521 (13,309)
					415,156 - - - - - - -
					415,156 870 138 175,953 (4,587) (702)
					586,828 - - - - - - -
					–

					2,102,343

					2,027,142

					2,009,337

(a) Impairment loss of property, plant and equipment

During the year ended 31 December 2017 and six months ended 30 June 2018, the Target Group assessed the recoverable amount of the Target Group’s telecommunication, computer and office equipment and as a result, an impairment loss of $2,843,000 and $138,000 were recognised to write down the carrying amount of certain telecommunication, computer and office equipment to their recoverable amount. The estimates of recoverable amount were based on their value, determined by reference to anticipated future use.

(b) The analysis of net book value of leasehold land and buildings of the Target Group is as follows:

In Hong Kong – short-term leases – medium-term leases – long-term leases	At 31 December 2015 2016 $’000 $’000 – – – 10,646 – 1,763 – 12,409	2017 $’000 – 17,979 1,712 19,691	At 30 June 2018 $’000 – 17,721 1,684
			19,405

– IIB-37 –

ACCOUNTANTS’ REPORT OF WTT HOLDING

APPENDIX IIB

11 INVESTMENTS IN SUBSIDIARIES

The following list contains only the particulars of subsidiaries which principally affected the results, assets or liabilities of the Target Group.

		Percentage of equity	Percentage of equity	Percentage of equity	Percentage of equity
		attributable		to the	Target				Name of
	Place and		Company		At		Issued and	statutory auditor
	date of	At 31	December		30 June		paid up
Name	incorporation	2015	2016	2017	2018	Principal activity	capital	2015	2016	2017
WTT HK Limited	Hong Kong;	NIL	100%	100%	100%	Tele-communications	$1,752,079,583	N/A	(b)	(c)
(formerly known as	24 November
Wharf T&T Limited)	1992
COL Limited	Hong Kong;	NIL	100%	100%	100%	Provision of data	$20,000,000	N/A	(b)	(c)
	8 February					processing/data
	1972					centres
Dynamic Future	Hong Kong;	NIL	100%	100%	100%	Property holding	$1	N/A	(b)	(c)
Investments Limited	19 May 2010
EC Telecom Limited	Hong Kong;	NIL	100%	100%	100%	Tele-communications	$2	N/A	(b)	(c)
	17 January
	2003
PIHK Network Limited	Hong Kong;	NIL	100%	100%	100%	Tele-communications	$42,829,601	N/A	(b)	(c)
	31 August
	2015
Mirapoint Asia Limited*	Hong Kong;	NIL	100%	100%	100%	Distribution of email	$1	N/A	(b)	(c)
	4 December					and related product
	2007
WTT eBusiness Limited	Hong Kong;	NIL	100%	100%	100%	eBusiness	$1	N/A	(b)	(c)
(formerly known as	19 January
Wharf T&T eBusiness	2007
Limited)
WTT Outsourcing Services	Hong Kong;	NIL	100%	100%	100%	Provision of	$1	N/A	(b)	(c)
Limited (formerly known	11 May 2007					outsourcing services
as Wharf T&T
Outsourcing Services
Limited)
廣州倉訊電子技術服務有限公司*	The PRC; 1 March	NIL	100%	100%	100%	Telecommunications	$1,000,000	N/A	(d)	(d)
	2003
玖新(廣州)電子技術服務有限公司*	The PRC; 25 March	NIL	100%	100%	100%	Telecommunications	$1,300,000	N/A	(d)	(d)
	2002
廣州通達迅流程信息處理服務有限公司*	The PRC; 5 November	NIL	100%	100%	100%	Provision of outsourcing services	$1,240,000	N/A	(d)	(d)
	2007
江門通達迅流程信息處理服務有限公司*	The PRC; 27 December	NIL	100%	100%	100%	Provision of outsourcing services	$1,000,000	N/A	(d)	(d)
	2007
One.Tel Limited	Hong Kong;	NIL	100%	100%	100%	Telecommunications	$10,000	N/A	(b)	(c)
	9 January
	1998
Sky Leader Limited	Hong Kong;	NIL	100%	100%	100%	Telecommunications	$2	N/A	(b)	(c)
	28 September
	2001
倉科高新技術(上海)有限公司*	The PRC; 29 March	NIL	100%	100%	100%	Provision of data processing/data	US$700,000	N/A	(e)	(a)
	2004					centres

Subsidiaries held indirectly
(a) The statutory auditor of this entity for the year ended 31 December 2017 was 上海順正會計師事務所.
(b) The statutory auditor of these entities for the year ended 31 December 2016 was KPMG.

– IIB-38 –

ACCOUNTANTS’ REPORT OF WTT HOLDING

APPENDIX IIB

(c) The statutory auditor of these entities for the year ended 31 December 2017 was Deloitte Touche Tohmatsu.
(d) The statutory auditor of these entities for the years ended 31 December 2016 and 2017 was 廣州正德會計師事務所有限公司.
(e) The statutory auditor of this entity for the year ended 31 December 2016 was 上海浪騰會計師事務所.

12 OTHER NON-CURRENT ASSETS

Other non-current assets mainly comprise prepayments and deposits for purchase of property, plant and equipment. The amounts are neither past due nor impaired.

13 INVENTORIES

14 CONTRACT ASSETS AND CONTRACT LIABILITIES

(a) Contract assets

		31 December	1 January	30 June
	Note	2017 (i)	2018 (i)	2018
		$’000	$’000	$’000
Contract assets
Arising from contracts with conditional
payment terms	(ii)	–	39,638	40,317

Notes:

(i) The Target Group has initially applied HKFRS 9 and HKFRS 15 using the cumulative effect method and adjusted the opening balances as at 1 January 2018.
(ii) Upon the adoption of HKFRS 15, amounts previously included as trade receivables (note 15) were reclassified to contract assets (see note 1(c)(ii)).

All contract assets are expected to be recovered within one year.

(b) Contract liabilities

Note Contract liabilities Arising from contracts with conditional settlement terms (ii) Deferred service revenue (iii)	31 December 2017 (i) $’000 – – –	1 January 2018 (i) $’000 13,277 200,871 214,148	30 June 2018 $’000 38,238 197,859
			236,097

Notes:

(i) The Target Group has initially applied HKFRS 15 using the cumulative effect method and adjusted the opening balance at 1 January 2018.
(ii) Upon the adoption of HKFRS 15, amounts previously included as trade payables (note 17) were reclassified to contract liabilities (see note 1(c)(ii)).
(iii) Upon the adoption of HKFRS 15, these amounts were reclassified from deferred service revenue to contract liabilities (see note 1(c)(ii)).

– IIB-39 –

ACCOUNTANTS’ REPORT OF WTT HOLDING

APPENDIX IIB

Movements in contract liabilities

Balance at 1 January Increase in contract liabilities as a result of contracts with conditional settlement terms Decrease in contract liabilities as a result of deferred service revenue Balance at 30 June	2018 $’000 214,148 24,961 (3,012)
	236,097

15 TRADE RECEIVABLES, OTHER RECEIVABLES, DEPOSITS AND PREPAYMENTS

Note Trade receivables (i) Less: allowance for doubtful debts 24(a) Other receivables, deposits and prepayments 15(b)	At 31 December 2015 2016 $’000 $’000 – 316,105 – (48,025) – 268,080 – 88,107 – 356,187	2017 $’000 376,522 (78,742) 297,780 100,579 398,359	At 30 June 2018 $’000 381,510 (79,300)
			302,210 143,205
			445,415

As at 31 December 2015, 2016 and 2017 and 30 June 2018, the Target Group’s other receivables, deposits and prepayments include, $Nil, $25,430,000 and $18,252,000 and $18,631,000 respectively, which are expected to be recovered after more than one year. All of the remaining other receivables, deposits and prepayments are expected to be recovered or recognised as expense within one year.

Note:

(i) Upon adoption of HKFRS 15, certain amounts of trade receivables, for which the Target Group’s entitlement was conditional, were reclassified to contract assets and disclosed in note 14.

(a) Ageing analysis

As at the end of the reporting period, the aging analysis of trade receivables, based on the invoice date and net of allowance for doubtful debts, is as follows:

Within 30 days 31 to 60 days 61 to 120 days Over 120 days	At 31 December 2015 2016 $’000 $’000 – 165,703 – 65,553 – 29,647 – 7,177 – 268,080	2017 $’000 141,764 73,086 35,874 47,056 297,780	At 30 June 2018 $’000 153,423 68,838 32,772 47,177
			302,210

– IIB-40 –

ACCOUNTANTS’ REPORT OF WTT HOLDING

APPENDIX IIB

(b) Contract costs included in other receivables, deposits and prepayments

Contract costs capitalised as at 30 June 2018 relate to the incremental sales commissions paid to employees whose selling activities resulted in customers entering into contracts with the Target Group. Contract costs are recognised as part of other operating expenses in the consolidated income statements in the period in which revenue from the services provided is recognised. The amount of previously capitalised costs recognised in profit or loss during the six months ended 30 June 2018 was $15,891,000. There was no impairment in relation to the opening balance of capitalised costs or the costs capitalised during the six months ended 30 June 2018.

The Target Group applies the practical expedient in paragraph 94 of HKFRS 15 and recognises the incremental costs of obtaining contracts relating to the services as an expense when incurred if the amortisation period of the assets that the Target Group otherwise would have recognised is within the same reporting period as the date of entering into the contract.

The amount of capitalised contract costs that is expected to be recovered after more than one year is $10,044,000.

16 CASH AND CASH EQUIVALENTS

(a) Cash and cash equivalents comprise:

Cash at bank and on hand Short term deposits	At 31 December 2015 2016 $’000 $’000 – 234,722 – – – 234,722	2017 $’000 73,171 181,400 254,571	At 30 June 2018 $’000 59,688 200,000
			259,688

(b) Reconciliation of loss before taxation to cash generated from operations:

					Six months ended	Six months ended
		Year	ended 31 December		30 June
	Note	2015	2016	2017	2017	2018
		$’000	$’000	$’000	$’000	$’000
					(unaudited)
Operating activities
Loss before taxation		–	(103,698)	(263,011)	(14,797)	(20,278)
Adjustments for:
Depreciation	3(d)	–	55,396	372,521	191,193	175,953
Amortisation	3(d)	–	21,103	145,362	72,681	100,963
Interest income	3(a)	–	(2)	(118)	(19)	(923)
Impairment loss on
property, plant and
equipment	10	–	–	2,843	33	138
Interest expenses	3(b)	–	45,690	537,638	162,188	153,824
Fair value loss on
interest-rate swap	3(b)	–	–	–	17,820	–
Loss/(gain) on disposals
of property, plant and
equipment, net	3(d)	–	3	(6,690)	33	18
Foreign exchange
loss/(gain), net		–	60	(148)	(153)	(52)

– IIB-41 –

ACCOUNTANTS’ REPORT OF WTT HOLDING

APPENDIX IIB

Note Changes in working capital: (Increase)/decrease in inventories (Increase)/decrease in trade receivables Increase in other receivables, deposits and prepayments Increase in contract assets Increase in trade payables Increase/(decrease) in other payables and accrued charges Increase in contract liabilities Increase in deferred service revenue Cash generated from operations	Year ended 31 December 2015 2016 2017 $’000 $’000 $’000 – (1,453) 1,837 – (37,716) (29,700) – – (12,472) – – – – 8,871 10,519 – 82,677 5,944 – – – – 38,702 28,334 – 109,633 792,859	Six months ended 30 June 2017 2018 $’000 $’000 (unaudited) 3,639 2,055 17,889 (30,791) (36,920) (10,166) – (679) 17 22,123 (45,023) (11,364) – 21,949 33,937 – 402,518 402,770
		402,518

(c) Reconciliation of liabilities arising from financing activities

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

At 1 January 2017 Changes from financing cash flows: Proceeds from issue of senior notes Repayment of bank loans Interest paid Other finance costs paid Loan upfront fee paid Transaction costs on issuance of senior notes paid Total changes from financing cash flows Other changes Interest expenses Other finance costs Transaction costs on issuance of senior notes Amortisation of upfront fee Total other changes At 31 December 2017	Bank loans $’000 5,073,188 – (5,260,000) – – – – (5,260,000) - - - - - - - - - - – – – 186,812 186,812 - - - - - - - - - - –	Senior notes $’000 – 5,232,091 – – – – (6,089) 5,226,002 - - - - - - - - - - 1,494 – (86,563) – (85,069) - - - - - - - - - 5,140,933	Interest- rate swap $’000 – – – (29,635) – – – (29,635) - - - - - - - - - - 29,635 – – – 29,635 - - - - - - - - - –	Interest payables $’000 34,145 – – (287,131) (15,001) (14,436) – (316,568) - - - - - - - - - - 299,219 20,478 86,563 – 406,260 - - - - - - - - - 123,837	Total $’000 5,107,333 5,232,091 (5,260,000) (316,766) (15,001) (14,436) (6,089) (380,201) - - - - - - - - - - 330,348 20,478 – 186,812 537,638 - - - - - - - - - 5,264,770

– IIB-42 –

APPENDIX IIB

ACCOUNTANTS’ REPORT OF WTT HOLDING

At 1 January 2018 Changes from financing cash flows: Interest paid Other finance costs paid Transaction costs on issuance of senior notes paid Total changes from financing cash flows Other changes Interest expenses At 30 June 2018	Bank loans $’000 – – – – – - - - - - - - - - - – - - - - - - - - - - –	Senior notes $’000 5,140,933 – – – – - - - - - - - - - - 7,409 - - - - - - - - - 5,148,342	Interest- rate swap $’000 – – – – – - - - - - - - - - - – - - - - - - - - - –	Interest payables $’000 123,837 (144,636) (6,809) (86,369) (237,814) - - - - - - - - - - 146,415 - - - - - - - - - 32,438	Total $’000 5,264,770 (144,636) (6,809) (86,369)
					(237,814) - - - - - - - - - - 153,824 - - - - - - - - -
					5,180,780

17 TRADE PAYABLES, OTHER PAYABLES AND ACCRUED CHARGES

Trade payables Other payables and accrued charges	At 31 December 2015 2016 $’000 $’000 – 39,548 – 442,745 – 482,293	2017 $’000 50,067 457,062 507,129	At 30 June 2018 $’000 72,190 354,299
			426,489

All of the trade and other payables are expected to be settled within one year.

Included in other payables and accrued charges are interest payables of $34,145,000, $123,837,000 and $32,438,000 as at 31 December 2016 and 2017 and 30 June 2018, respectively.

As of the end of the reporting period, the aging analysis of trade payables, based on the invoice date, is as follow:

Within 30 days 31 to 60 days 61 to 90 days Over 90 days	At 31 December 2015 2016 $’000 $’000 – 23,220 – 12,624 – 1,945 – 1,759 – 39,548	2017 $’000 32,176 6,913 1,789 9,189 50,067	At 30 June 2018 $’000 38,602 7,107 4,366 22,115
			72,190

– IIB-43 –

ACCOUNTANTS’ REPORT OF WTT HOLDING

APPENDIX IIB

18 TAXATION IN THE CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(a) Taxation in the consolidated statements of financial position represents:

Provision for Hong Kong Profits Tax for the year/period Balance of Profits Tax provision relating to prior years Acquisition of subsidiary (note 23) Provisional Profits Tax paid Provision for tax outside Hong Kong Acquisition of subsidiary (note 23) Tax payable	At 31 December 2015 2016 $’000 $’000 – 603 – – – 632 – – – 1,235 – 178 – 375 - - - - - - - - - - - - - - - - - - - - - - – 1,788	2017 $’000 32,660 413 – (22,971) 10,102 1,346 – - - - - - - - - - - - 11,448	At 30 June 2018 $’000 45,127 8,962 – (1,372) 52,717 1,362 – - - - - - - - - - - - 54,079

(b) Deferred tax assets and liabilities recognised:

The components of deferred tax (assets)/liabilities recognised in the consolidated statements of financial position and the movements during the periods are as follows:

Deferred tax arising from: At 1 January 2015, 31 December 2015 and 1 January 2016 Acquisition of subsidiaries (note 23) (Credited)/charged to profit or loss At 31 December 2016 and 1 January 2017 (Credited)/charged to profit or loss At 31 December 2017 and 1 January 2018 Credited to profit or loss At 30 June 2018	Depreciation allowance in excess of the related depreciation $’000 – 152,327 (1,204) 151,123 (4,760) 146,363 (7,918) 138,445	General provisions $’000 – (7,657) (58) (7,715) (4,994) (12,709) (122) (12,831)	Tax losses $’000 – (63,726) 14,483 (49,243) 49,243 – – –	Intangible assets arisen on acquisition $’000 – 407,972 (3,274) 404,698 (22,545) 382,153 (11,272) 370,881	Total $’000 – 488,916 9,947 498,863 16,944 515,807 (19,312) 496,495

– IIB-44 –

ACCOUNTANTS’ REPORT OF WTT HOLDING

APPENDIX IIB

(c) Deferred tax assets not recognised:

In accordance with the accounting policy set out in note 1(p), the Target Group has not recognised deferred tax assets in respect of cumulative tax losses of $nil, $17,996,000, $18,786,000 and $19,428,000 and general provision of $nil, $18,155,000, $20,016,000 and $27,422,000 as at 31 December 2015, 31 December 2016, 31 December 2017 and 30 June 2018 respectively as it is not probable that future profits against which the losses can be utilised will be available in the relevant tax jurisdiction and entity. The tax losses do not expire under current tax legislation.

19 BANK LOANS

At the end of each reporting periods, bank loans were repayable as follows:

Within 1 year or on demand After 1 year but within 2 years After 2 years but within 5 years After 5 years	At 31 December 2015 2016 $’000 $’000 – 95,209 – 139,648 – 4,025,811 – 812,520 – 5,073,188	2017 $’000 – – – – –	At 30 June 2018 $’000 – – – –
			–

At 31 December 2016, all bank loans were secured.

At 31 December 2016, certain cash at banks of the Target Group with aggregate amount of $15,386,000 and equity interests in certain Target Company’s subsidiaries were pledged to various banks to secure the bank loans granted to the Target Group.

The bank loans are guaranteed, jointly and severally, by certain Target Company’s subsidiaries.

At 31 December 2016, banking facilities granted to the Target Group amounted to $5,665,000,000 and the facilities were utilised to the extent of $5,260,000,000.

The banking facilities are subject to the fulfilment of covenants relating to certain of the Target Group’s statements of financial position and financial performance ratios, as are commonly found in lending arrangement with financial institutions. If the Target Group were to breach the covenants or in any case of an event of default, the drawn down facilities would become payable on demand. The Target Group regularly monitors its compliance with these covenants. Further details of the Target Group’s management of liquidity risk are set out in note 24(b). At 31 December 2016, the Target Group was in compliance with the relevant requirements.

On 2 November 2016, the Target Group has drawn bank loans with principal amount of $4,446,000,000 (“floating-rate loan”) and at 4 November 2016, the Target Group has drawn another bank loans with principal amount of $814,000,000 (“fixed-rate loan”). The floating rate loan is interest-bearing at Hong Kong Interbank Offered Rate plus a margin of 3.25% per annum. The fixed rate loan is interest-bearing at fixed rate of 11% per annum.

The effective interest rate for floating-rate loan and fixed-rate loan for the year ended 31 December 2016 was 4% and 11%, respectively.

The floating-rate loan was repayable semi-annually commencing from 4 May 2017 followed by a final payment of $3,356,730,000 on 3 November 2021 and the fixed-rate loan was repayable in full upon maturity on 2 May 2022. Both floating-rate loan and fixed-rate loan were fully repaid during the year ended 31 December 2017 and replaced with a new revolving credit facilities of $390,000,000. At 31 December 2017 and 30 June 2018, no bank loans had been drawn down under the new facilities.

– IIB-45 –

ACCOUNTANTS’ REPORT OF WTT HOLDING

APPENDIX IIB

20 SENIOR NOTES

On 21 November 2017, the Target Group issued senior notes (the “Notes”) with a nominal value of US$670,000,000 (equivalent to $5,232,091,000) that will mature on 21 November 2022. The notes were denominated and settled in the United States Dollar (“USD”), and bore coupon at 5.5% per annum payable semi-annually on 21 May and 21 November in each year commencing on 21 May 2018. The notes are guaranteed, jointly and severally, by certain Target Company’s subsidiaries.

The Notes were recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, the Notes were stated at amortised cost with any difference between the amount initially recognized and redemption value being recognised in profit or loss over the period of the Notes, together with any interest and fees payable, using the effective interest method.

The effective interest rate for the Notes for the year ended 31 December 2017 and six months ended 30 June 2018 is 5.9% and 5.9% per annum respectively.

21 EQUITY-SETTLED SHARE-BASED TRANSACTIONS

The Target Company implemented an Employee Stock Option Plan (the “Plan”) on 20 January 2017 to provide incentive to the key employees, directors, service providers and consultants of the Target Group (collectively referred as to the “Participants”) to encourage them to continue in the employment of the Target Group and to improve the growth, profitability and financial success of the Target Group.

The total number of shares of the Target Company in respect of which options granted under the Plan is not permitted to exceed 5,000 shares. The options granted under the Plan are subject to a vesting scale in tranches of one-fifth of the shares on the first, second, third, fourth and fifth anniversary dates of the grant, respectively and will vest if (i) the Participants has continued employment or other service relationship with the Target Group through the applicable vesting dates; (ii) there is no breach of covenant or non-performance of, or any default or event of default under any credit facility; and (iii) the targeted Earnings Before Interest, Taxes, Depreciation and Amortisation of the Target Group (“EBITDA”) specified for each year is achieved.

On 27 January 2017, total number of 3,120 options were granted to key employees of the Target Group with an exercise price of $45,463.60. During the year ended 31 December 2017, no options have been vested or exercised and 300 options were lapsed following the resignation of a key employee.

The following inputs were used to share options granted on 27 January 2017, using the Binomial model:

Exercise price	$45,463.60
Expected volatility	28.17%
Dividend yield	0.00%
Risk-free interest rate	1.87%
Option life	10 years

The variables and assumptions used in estimating the fair value of the share options were based on the best estimate of the directors of the Target Company. Change in subjective input assumptions can materially affect the fair value.

– IIB-46 –

ACCOUNTANTS’ REPORT OF WTT HOLDING

APPENDIX IIB

In the opinion of the directors of the Target Company, it is highly likely that the targeted EBITDA for the year ended 31 December 2017 and year ending 31 December 2018 could not be achieved, no share-based payment expenses are recognised in respect of the share options granted during the year ended 31 December 2017 and six months ended 30 June 2018.

At each reporting date, the Target Group would review its estimates of the number of options 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 capital reserve.

22 CAPITAL, RESERVES AND DIVIDENDS

(a) Movements in components of equity

The reconciliation between the opening and closing balances of each component of the Target Group’s consolidated equity is set out in the consolidated statements of changes in equity. Details of the changes in the Target Company’s individual components of equity between the beginning and the end of the year/period are set out below:

The Target Company

Note Balance at 1 January 2015, 31 December 2015 and 1 January 2016 Changes in equity for the year ended 31 December 2016: Loss and total comprehensive income for the year Issue of shares 22(b) Balance at 31 December 2016 and 1 January 2017 Changes in equity for the year ended 31 December 2017 Loss and total comprehensive income for the year Issue of shares 22(b) Balance at 31 December 2017 and 1 January 2018 Change in equity for the period ended 30 June 2018 Loss and total comprehensive income for the period Balance at 30 June 2018	Share capital $’000 – – – – – 8 8 – 8	Share premium Accumulated losses $’000 $’000 – – – (90,806) 4,536,945 – 4,536,945 (90,806) – (660) (8) – 4,536,937 (91,466) – (13) 4,536,937 (91,479)	Total $’000 – (90,806) 4,536,945 4,446,139 (660) – 4,445,479 (13) 4,445,466

– IIB-47 –

ACCOUNTANTS’ REPORT OF WTT HOLDING

APPENDIX IIB

(b) Share capital

Authorised: At 1 January 2015, 31 December 2015, 1 January 2016 and 31 December 2016 Sub-division of the shares (note ii) At 31 December 2017, 1 January 2018 and 30 June 2018 Ordinary shares, issued and fully paid: At 1 January 2015, 31 December 2015 and 1 January 2016 Shares issued during the year (note i) At 31 December 2016 and 1 January 2017 Sub-division of the shares (note ii) Shares issued during the year (note iii) At 31 December 2017, 1 January 2018 and 30 June 2018	No. of shares 50,000 4,950,000 5,000,000 1 5 6 594 99,400 100,000	$’000 389 –
		389

		– –
		– – 8
		8

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Target Company. All ordinary shares rank equally with regard to the Target Company’s residual assets.

Notes:

(i) During the year ended 31 December 2016, 5 ordinary shares with a par value of US$1 each have been issued. Out of the 5 ordinary shares issued, 4 ordinary shares have been issued at share premium of $4,536,945,000.
(ii) During the year ended 31 December 2017, each of the authorised shares and issued ordinary shares with a par value of US$1 each have been sub-divided into 100 shares with a par value of US$0.01 each.
(iii) During the year ended 31 December 2017, 99,400 ordinary shares with a par value of US$0.01 each have been issued out of the share premium of the Target Company.

(c) Nature and purpose of reserves

(i) Share premium

The application of the share premium account is governed by Section 34(2) of the Companies Law (2013 Revision) of the Cayman Islands. Under the Companies Law of the Cayman Islands, the funds in the share premium account of the Target Company are distributable to shareholders of the Target Company provided that immediately following the date on which the dividend is proposed to be distributed, the Target Company will be in a position to pay off its debts as they fall due in the ordinary course of the business.

(ii) Exchange reserve

The exchange reserve comprises all foreign exchange differences arising from the translation of the Historical financial Information of foreign operations. The reserve is dealt with in accordance with the accounting policies set out in note 1(s).

– IIB-48 –

ACCOUNTANTS’ REPORT OF WTT HOLDING

APPENDIX IIB

23 BUSINESS COMBINATION

On 9 November 2016, the Target Group acquired 100% of the issued share capital of WTT HK Limited (formerly known as Wharf T&T Limited) at a consideration of $9,500,000,000 (the “Acquisition”).

The Acquisition had the following effect on the Target Group’s assets and liabilities on 9 November 2016, the completion date of the Acquisition:

Property, plant and equipment (note 10)
Intangible assets (note 8)
Inventories
Trade receivables and other receivables
Cash and cash equivalents
Trade and other payables
Deferred tax liabilities (note 18(b))
Fair value of net assets acquired
Goodwill (note 7)
Total cash consideration
Cash consideration paid
Cash and cash equivalents acquired
Net cash outflow in respect of the Acquisition
during the year ended 31 December 2016

$’000
2,111,152
4,366,300
9,935
328,385
90,672
(508,950)
(488,916)
5,908,578
3,591,422
9,500,000
9,500,000
(90,672)
9,409,328

24 FINANCIAL RISK MANAGEMENT AND FAIR VALUES OF FINANCIAL INSTRUMENTS

Exposure to credit, liquidity, interest rate and currency risks arises in the normal course of the Target Group’s business. The Target Group’s exposure to these risks and the financial risk management policies and practices used by the Target Group to manage these risks are described below.

(a) Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the Target Group. The Target Group’s credit risk is primarily attributable to trade and other receivables and contract assets. The Target Group’s exposure to credit risk arising from cash and cash equivalents are limited because the counterparties are banks and financial institutions for which the Target Group considers to have low credit risk.

The Target Group does not provide any other guarantees which would expose the Target Group to credit risk.

Trade and other receivables and contract assets

The Target Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. Concentrations of credit risk with respect to trade receivables are limited due to the Target Group’s customer base being large and unrelated.

– IIB-49 –

ACCOUNTANTS’ REPORT OF WTT HOLDING

APPENDIX IIB

The Target Group measures loss allowances for trade receivables and contract assets at an amount equal to lifetime ECLs, which is calculated using a provision matrix. The Target Group’s historical credit loss experience indicates significantly different loss patterns for different customer segments, the loss allowance based on past due status is not further distinguished between the Target Group’s different customer bases.

The following table provides information about the Target Group’s exposure to credit risk and ECLs for trade receivables and contract assets as at 30 June 2018:

Expected loss rate % Current (not past due) 0.5% 1 – 30 days past due 2.0% 31 – 90 days past due 2.6% More than 90 days past due 48.5%	Gross carrying amount $’000 154,165 71,614 39,246 156,802 421,827	Loss allowance $’000 (742) (1,428) (1,027) (76,103)
		(79,300)

Expected loss rates are based on actual loss experience over the past 3 years. These rates are adjusted to reflect differences between economic conditions during the period over which the historic data has been collected, current conditions and the Target Group’s view of economic conditions over the expected lives of the receivables.

Historical financial information for the years ended 31 December 2015, 2016 and 2017 reported under HKAS 39

Prior to 1 January 2018, an impairment loss was recognised only when there was objective evidence of impairment (see note 1(j)(i) – policy applicable prior to 1 January 2018). The ageing analysis of trade receivables that are neither individually nor collectively considered to be impaired are as follows:

Neither past due nor impaired Less than 30 days past due 31 to 60 days past due Over 60 days past due	2015 $’000 – - - - - - - - - - - - - – – – – - - - - - - - - - - - - –	At 31 December 2016 $’000 228,783 - - - - - - - - - - - - 30,690 6,787 1,820 39,297 - - - - - - - - - - - - 268,080	2017 $’000 208,999 - - - - - - - - - - - - 39,795 21,228 27,758
			88,781 - - - - - - - - - - - -
			297,780

Trade receivables that were neither past due nor impaired relate to a wide range of customers for whom there was no recent history of default.

Trade receivables that were past due but not impaired relate to a number of independent customers that have a good track record with the Target Group. Based on past experience, management believes that no impairment allowance is necessary in respect of these balances as there has not been a significant change in credit quality and the balances are still considered fully recoverable. The Target Group does not hold any collateral over these balances.

– IIB-50 –

ACCOUNTANTS’ REPORT OF WTT HOLDING

APPENDIX IIB

The movement in the loss allowance account in respect of trade and other receivables and contract assets during the year is as follows:

At the beginning of the year/period Acquisition of subsidiaries Recognition of impairment loss (note 3(d)) Uncollectible amounts written off At the end of the year/period	At 31 December 2015 2016 $’000 $’000 – – – 48,328 – 1,171 – (1,474) – 48,025	2017 $’000 48,025 – 35,156 (4,439) 78,742	At 30 June 2018 $’000 78,742 – 4,323 (3,765)
			79,300

As at 31 December 2015, 2016 and 2017 and 30 June 2018, the trade receivables of $nil, $48,025,000, $78,742,000 and $79,300,000 were individually determined to be impaired, respectively. The individually impaired receivables related to customers’ breaching of relevant agreements and management assessed that none of these receivables is expected to be recovered. Consequently, specific allowances for doubtful debts were recognised.

(b) Liquidity risk

The Target Group’s policy is to regularly monitor its current and expected liquidity requirements to ensure that it maintains sufficient reserves of cash and adequate funding from its holding companies to meet its liquidity requirements in the short and longer term.

The following table shows the remaining contractual maturities at the end of the reporting period of the Target Group’s financial liabilities, which are based on contractual undiscounted cash flows (including interest payments computed using contractual rates or, if floating, based on rates current at the end of the reporting period) and the earliest date the Target Group can be required to pay:

At 31 December 2016

Trade payables Other payables and accrued charges Bank loans	Contractual undiscounted Within 1 year or on demand More than 1 year but less than 2 years More than 2 years but less than 5 years $’000 $’000 $’000 39,548 – – 442,745 – – 415,201 440,379 4,840,286 897,494 440,379 4,840,286	cash outflow More than 5 years $’000 – – 844,664 844,664	Total $’000 39,548 442,745 6,540,530 7,022,823	Carrying amount $’000 39,548 442,745 5,073,188
				5,555,481

– IIB-51 –

ACCOUNTANTS’ REPORT OF WTT HOLDING

APPENDIX IIB

At 31 December 2017

Trade payables Other payables and accrued charges Senior notes At 30 June 2018	Within 1 year or on demand $’000 50,067 457,062 287,765 794,894	Contractual undiscounted More than 1 year but less than 2 years More than 2 years but less than 5 years $’000 $’000 – – – – 287,765 6,063,589 287,765 6,063,589	cash outflow More than 5 years $’000 – – – –	Total $’000 50,067 457,062 6,639,119 7,146,248	Carrying amount $’000 50,067 457,062 5,140,933
					5,648,062

Trade payables Contract liabilities arising from contract with conditional settlement terms Other payables and accrued charges Senior notes	Contractual undiscounted Within 1 year or on demand More than 1 year but less than 2 years More than 2 years but less than 5 years $’000 $’000 $’000 72,190 – – 38,238 – – 354,299 – – 287,765 287,765 5,920,225 752,492 287,765 5,920,225	cash outflow More than 5 years $’000 – – – – –	Total $’000 72,190 38,238 354,299 6,495,755 6,960,482	Carrying amount $’000 72,190 38,238 354,299 5,148,342
				5,613,069

(c) Interest rate risk

The Target Group’s interest rate risk arises primarily from loan from banks. Financial instruments with variable interest rates expose the Target Group to cash flow interest rate risk. The information of the Target Group’s interest-bearing financial instruments are disclosed in notes 19 and 20. The interest rate and terms of repayment of interest-bearing borrowing of the Target Group are disclosed in note 19 to the Historical Financial Information.

Sensitivity analysis

At 31 December 2016, it is estimated that a general increase/decrease of 50 basis points in interest rates, with all other variables held constant, would have increased/decreased the Target Group’s loss before tax and accumulated losses by approximately $22,230,000. Other components of consolidated equity would not be affected by the changes in interest rates.

The sensitivity analysis above indicates the instantaneous change in the Target Group’s loss after tax and accumulated losses that would arise assuming that the change in interest rates had occurred at the end of the reporting period and had been applied to re-measure those financial instruments held by the Target Group which expose the Target Group to fair value interest rate risk at the end of the reporting period. In respect of the exposure to cash flow interest rate risk arising from floating rate non-derivative instruments held by the Target Group at the end of the reporting period, the impact on the Target Group’s loss after tax and accumulated losses is estimated as an annualised impact on interest expenses of such a change in interest rate.

– IIB-52 –

ACCOUNTANTS’ REPORT OF WTT HOLDING

APPENDIX IIB

(d) Currency risk

All the Target Group’s monetary assets and liabilities are primarily denominated in either Hong Kong dollars (“HKD”) or United States dollars (“USD”). As HKD is pegged to USD, management considers the risk of movements in exchange rates between HKD and USD to be insignificant.

(e) Fair value measurement

All financial instruments are carried at amounts not materially different from their fair values as at 30 June 2018, 31 December 2017, 31 December 2016 and 31 December 2015.

(f) Offsetting financial assets and financial liabilities

The Target Group enters into netting arrangements with its customers/suppliers. The outstanding transactions with these counterparties are settled on a net basis and result in offsetting the assets and liabilities in the consolidated statements of financial position.

			At	30 June 2018
			Gross amounts		Net amounts
				of recognised	of financial
				financial	assets/(liabilities)
			(liabilities)/assets		presented
				offset in the	in the
		Gross amounts		consolidated	consolidated
		of recognised		statement	statement
		financial		of financial	of financial
		assets/(liabilities)		position	position
		$’000		$’000	$’000
Trade	receivables	323,002		(20,792)	302,210
Trade	payables	(92,982)		20,792	(72,190)
			At 31 December 2017
			Gross amounts
				of recognised	Net amounts
				financial	of financial
			(liabilities)/assets		assets/(liabilities)
				offset in the	presented
		Gross amounts of		consolidated	in the
		recognised		statement	consolidated
		financial		of financial	statement of
		assets/(liabilities)		position	financial position
		$’000		$’000	$’000
Trade	receivables	338,469		(40,689)	297,780
Trade	payables	(90,756)		40,689	(50,067)
			At 31 December 2016
			Gross amounts
				of recognised	Net amounts
				financial	of financial
			(liabilities)/assets		assets/(liabilities)
				offset in the	presented
		Gross amounts of		consolidated	in the
		recognised		statement	consolidated
		financial		of financial	statement of
		assets/(liabilities)		position	financial position
		$’000		$’000	$’000
Trade	receivables	297,079		(28,999)	268,080
Trade	payables	(68,547)		28,999	(39,548)

– IIB-53 –

ACCOUNTANTS’ REPORT OF WTT HOLDING

APPENDIX IIB

25 COMMITMENT

(a) Capital commitments outstanding not provided for in the Historical Financial Information were as follows:

							At
			At	31	December		30 June
		2015			2016	2017	2018
		$’000			$’000	$’000	$’000
Contracted	for	–			112,649	106,853	153,859

(b) Operating lease commitments

(i) The Target Group’s total future minimum lease payments under non-cancellable operating leases are receivable as follows:

*Leases in respect of* *telecommunications* *facilities and computer* *equipment which are* *receivable:* Within 1 year After 1 year but within 5 years After 5 years	At 31 December 2015 2016 $’000 $’000 – 327,664 – 211,328 – 34,312 – 573,304	2017 $’000 335,331 216,273 35,115 586,719	At 30 June 2018 $’000 339,306 218,837 35,531
			593,674

(ii) The Target Group’s total future minimum lease payments under non-cancellable operating leases are payable as follows:

*Leases in respect of land* *and building which are* *payable:* Within 1 year After 1 year but within 5 years	At 31 December 2015 2016 $’000 $’000 – 28,439 – 40,718 – 69,157	2017 $’000 32,915 35,847 68,762	At 30 June 2018 $’000 36,318 26,681
			62,999

– IIB-54 –

ACCOUNTANTS’ REPORT OF WTT HOLDING

APPENDIX IIB

*Leases in respect of* *telecommunications* *facilities and computer* *equipment which are* *payable:* Within 1 year After 1 year but within 5 years After 5 years	At 31 December 2015 2016 $’000 $’000 – 30,936 – 37,729 – – – 68,665	2017 $’000 47,700 88,652 20,666 157,018	At 30 June 2018 $’000 49,824 67,638 16,074
			133,536

The Target Group is the lessee in respect of a number of properties and telecommunications network facilities under operating leases. The leases typically run for an initial period of two to three years, with an option to renew the lease when all terms are renegotiated. Lease payments are usually increased annually to reflect market rentals. None of the leases includes contingent rentals.

26 HISTORICAL FINANCIAL INFORMATION PRIOR TO THE ADOPTION OF HKFRS 9 AND HKFRS 15

The Target Group has initially applied HKFRS 15 and HKFRS 9 at 1 January 2018. The historical financial information for the years ended 31 December 2015, 2016 and 2017 is not restated. Further details of the changes in accounting policies are disclosed in note 1(c).

27 COMPANY-LEVEL STATEMENTS OF FINANCIAL POSITION

Note Non-current assets Investments in subsidiaries 11 Current assets Other receivables, deposits and prepayments Amounts due from a subsidiary Cash and cash equivalents Current liabilities Other payables and accrued charges Net current assets NET ASSETS	At 31 December 2015 2016 $’000 $’000 – 4,396,126 – 4,396,126 - - - - - - - - - - - - - - - - - - - - – 12 – 47,482 – 98,233 – 145,727 - - - - - - - - - - - - - - - - - - - – 95,714 – 95,714 - - - - - - - - - - - - - - - - - - - – 50,013 - - - - - - - - - - - - - - - - - - - – 4,446,139	2017 $’000 4,396,126 4,396,126 - - - - - - - - - - – 47,482 1,871 49,353 - - - - - - - - - – – - - - - - - - - - 49,353 - - - - - - - - - 4,445,479	At 30 June 2018 $’000 4,396,126
			4,396,126 - - - - - - - - - - 6 47,482 1,852
			49,340 - - - - - - - - -
			–
			– - - - - - - - - -
			49,340 - - - - - - - - -
			4,445,466

– IIB-55 –

ACCOUNTANTS’ REPORT OF WTT HOLDING

APPENDIX IIB

Note CAPITAL AND RESERVES 22(a) Share capital 22(b) Share premium Accumulated losses TOTAL EQUITY	At 31 December 2015 2016 $’000 $’000 – – – 4,536,945 – (90,806) – 4,446,139	2017 $’000 8 4,536,937 (91,466) 4,445,479	At 30 June 2018 $’000 8 4,536,937 (91,479) 4,445,466

28 ACCOUNTING JUDGEMENT AND ESTIMATES

Sources of estimation uncertainty

Note 24 contains information about the assumptions and their risk factors relating to financial instruments. Other key sources of estimation uncertainty are as follows:

(a) Credit losses and impairment loss for doubtful debts

The Target Group maintains loss allowance account based upon evaluation of the recoverability of the trade and other receivables which takes into account the historical write-off experience and recovery rates. If the financial condition of the customers were to deteriorate, additional impairment may be required.

(b) Depreciation

Depreciation is calculated to write off the cost of items of property, plant and equipment, less their estimated residual value, if any, using the straight-line method over their estimated useful lives. The Target Group reviews the estimated useful lives of the assets annually in order to determine the amount of depreciation expense to be recorded during any reporting period. The useful lives are based on the Target Group’s historical experience with similar assets and taking into account anticipated technological changes. The depreciation expense for future periods is adjusted if there are significant changes from previous estimates.

(c) Useful lives of property, plant and equipment and intangible assets

The Target Group has significant property, plant and equipment and intangible assets. The Target Group is required to estimate the useful lives of property, plant and equipment and intangible assets in order to ascertain the amount of depreciation and amortisation charges for each reporting period.

The useful lives are estimated at the time of purchase of these assets after considering future technology changes, business developments and the Target Group’s strategies. The Target Group performs annual reviews to assess the appropriateness of the estimated useful lives. Such review takes into account any unexpected adverse changes in circumstances or events, including declines in projected operating results, negative industry or economic trends and rapid advancement in technology. The Target Group extends or shortens the useful lives and/or makes impairment provisions according to the results of the review.

(d) Fair value of assets acquired and liabilities assumed upon acquisition

In connection with acquisition of subsidiaries, the assets acquired and liabilities assumed were adjusted to their estimated fair values on the date of acquisition. The determination of the values of assets acquired and liabilities assumed involves management’s judgements and assumptions. The values of assets acquired and liabilities assumed were based on valuation report from independent professional qualified valuer. Such valuations were based on certain assumptions, which were subject to uncertainty and might materially differ from the actual results. Any change in such judgements and assumptions would affect the fair value of assets acquired and liabilities assumed.

– IIB-56 –

ACCOUNTANTS’ REPORT OF WTT HOLDING

APPENDIX IIB

(e) Income tax

Determining income tax provisions involves judgement on the future tax treatment of certain transactions and interpretation of tax rules. The Target Group carefully evaluates tax implications of transactions and tax provisions are set up accordingly. The tax treatment of such transactions is reconsidered periodically to take into account all changes in tax legislation and practices.

29 POSSIBLE IMPACT OF AMENDMENTS, NEW STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE FOR THE ACCOUNTING PERIOD BEGINNING 1 JANUARY 2018

	Effective for
	accounting
	periods beginning
	on or after
HKFRS 16, Leases	1 January 2019
Amendments to HKFRS 9, Prepayment features with negative compensation	1 January 2019
HK(IFRIC) Interpretation 23, Uncertainty over income tax treatment	1 January 2019
Amendments to HKAS 28, Long-term interest in associates and joint ventures	1 January 2019
Amendments to HKFRS 10 and HKAS 28, Sale or contribution of assets between an	Note 1
investor and its associate or joint venture
Annual Improvements to HKFRSs 2015 – 2017 Cycle	1 January 2019
HKFRS 17, Insurance contracts	1 January 2021

Note 1: The effective date will be determined by HKICPA at a future date.

The Target Group is in the process of making an assessment of what the impact of these amendments and new standards is expected to be in the period of initial application. So far the Target Group has identified some aspects of the new standards which may have a significant impact on the Historical Financial Information. Further details of the expected impacts are discussed below. While the assessment has been substantially complete for HKFRS 16, the actual impact upon the initial adoption of this standard may differ as the assessment completed to date is based on the information currently available to the Target Group.

HKFRS 16, Leases

As disclosed in note 1(g), currently the Target Group classifies leases into finance leases and operating leases and accounts for the lease arrangements differently, depending on the classification of the lease. The Target Group enters into some leases as the lessor and others as the lessee.

– IIB-57 –

ACCOUNTANTS’ REPORT OF WTT HOLDING

APPENDIX IIB

HKFRS 16 will primarily affect the Target Group’s accounting as a lessee of leases for properties, plant and equipment which are currently classified as operating leases. The application of the new accounting model may lead to an increase in both assets and liabilities and to impact on the timing of the expense recognition in the consolidated income statements over the period of the lease. As disclosed in note 25(b)(ii), at 30 June 2018 the Target Group’s future minimum lease payments under non-cancellable operating leases amount to $196,535,000, the majority of which is payable either between 1 and 5 years after the reporting date or in more than 5 years. The Target Group will need to perform a more detailed analysis to determine the amounts of new assets and liabilities arising from operating lease commitments on adoption of HKFRS 16, after taking into account the applicability of the practical expedient and adjusting for any leases entered into or terminated between now and the adoption of HKFRS 16 and the effects of discounting.

30 EVENTS AFTER THE REPORTING PERIOD

No significant events have occurred after the reporting period which would have a material impact on the Target Group.

SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the Target Company and its subsidiaries in respect of any period subsequent to 30 June 2018.

– IIB-58 –

MANAGEMENT DISCUSSION AND ANALYSIS ON WTT GROUP

APPENDIX III

WTT Holding was formed in 16 December 2014 and used as the acquisition vehicle owned by TPG Wireman and Twin Holding to acquire the issued share capital of WTT HK on 9 November 2016. As a result thereof, WTT Holding had no operating activities during the year ended 31 December 2015 and its consolidated financial statements for the year ended 31 December 2016 only included partial year consolidated results of operations of WTT HK since 9 November 2016, and are not directly comparable to the full year results of WTT Holding for the year ended 31 December 2017. For investors’ information, the following discussion presents the consolidated financial statements of WTT HK for each of the years ended 31 December 2015, 2016, and 2017 instead of those of WTT Holding, to allow for a meaningful presentation and comparison of WTT Group’s operating activities during these periods. These consolidated financial statements, together with those of WTT Holding for the six months ended 30 June 2017 and 2018 should be read in conjunction with the consolidated financial statements of WTT HK and WTT Holding and the related notes included in Appendix IIA and IIB. Certain discussions on financial position and commitments were based on the consolidated financial statements of WTT Holding for the year ended 31 December 2017. WTT HK is WTT Holding’s indirectly wholly owned subsidiary, and WTT HK and its subsidiaries comprise WTT Holding’s operating subsidiaries. WTT Holding’s revenue, network costs and costs of sales, staff costs, other operating expenses and depreciation and amortization were primarily attributable to the consolidated results of operations of WTT HK. WTT Holding’s financial statements and those of WTT HK differ due to the borrowings by WTT Cayman Corp and WTT Investment, direct and indirect parents of WTT HK, the finance cost related thereto and amortization of intangible assets, as a result of the acquisition of WTT HK. These borrowings, finance costs and amortization of intangible assets were not reflected in WTT HK’s financial statements and as a result thereof, WTT Holding’s financial statements and those of WTT HK differ primarily with respect to:

Results: finance costs related to the borrowings by WTT Cayman Corp and WTT Investment. The line items impacted were: other operating expenses, finance costs, profit/loss before taxation, income tax and profit/loss for the year/period
Assets and liabilities: purchase accounting of the acquisition of WTT HK and consolidation of the borrowings by WTT Cayman Corp and WTT Investment. The line items impacted were: goodwill, intangible assets, cash and cash equivalents, other payables and accrued charges, bank loans (current portion and long-term portion), deferred tax liabilities, senior notes, share capital, share premium, reserves, amounts due from/to group companies (for WTT HK only) and loan from a former fellow subsidiary (for WTT HK only)
Cash flow: cash generated from/used in investing and financing activities related to the acquisition of WTT HK and the borrowings by WTT Cayman Corp and WTT Investment. The line items impacted were related to investing activities: payments for the purchase of a subsidiary (net of cash required), acquisition-related costs paid, advance(s) to an intermediate/immediate holding company (for WTT HK only), and all line items related to financing activities

– III-1 –

MANAGEMENT DISCUSSION AND ANALYSIS ON WTT GROUP

APPENDIX III

MANAGEMENT DISCUSSION AND ANALYSIS ON WTT GROUP

BUSINESS REVIEW AND FINANCIAL PERFORMANCE

		WTT HK		WTT Holding	WTT Holding
	For the year ended			For the six	months
		31 December		ended 30	June
	2015	2016	2017	2017		2018
		(in HK$ millions)
Revenue	1,989.3	2,032.7	2,101.8	1,048.5	1,049.3
Enterprise	1,850.9	1,920.2	1,989.1	997.2		992.4
Residential	40.0	34.0	24.9	13.3		10.3
Product	98.4	78.5	87.8	38.0		46.6
Network costs and costs of sales	(564.9)	(545.4)	(576.7)	(269.9)	(285.4)
Other operating expenses	(1,064.0)	(1,062.7)	(1,110.7)	(613.3)	(631.1)
Staff Costs	(461.7)	(464.2)	(486.7)	(243.2)	(245.2)
Depreciation and amortization	(411.3)	(406.6)	(381.2)	(263.9)	(276.9)
Other expenses	(191.0)	(191.9)	(242.8)	(106.2)	(109.0)
Other net income (loss)	0.1	(1.1)	(0.3)	(0.1)		0.7
Finance costs	(30.8)	(23.0)	–	(180.0)	(153.8)
Profit/(loss) before taxation	329.7	400.5	414.1	(14.8)		(20.3)
Income tax	(30.0)	(65.9)	(73.5)	(29.5)		(26.9)
Profit/(loss) for the year/period	299.7	334.6	340.6	(44.3)		(47.2)
Adjusted EBITDA Reconciliation
Profit/(loss) before taxation	329.7	400.5	414.1	(14.8)		(20.3)
Adjustments for:
Finance costs	30.8	23.0	–	180.0		153.8
Depreciation and amortization	411.3	406.6	381.2	263.9		276.9
One-off government rent	–	–	9.2	–		–
Specific provisions related to
disputes from a customer	–	–	24.9	–		–
Rebranding costs	–	–	8.0	4.0		1.6
Adjusted EBITDA	771.8	830.1	837.4	433.1		412.0

Enterprise revenue consists primarily of revenues derived from local data, business broadband, TDM legacy and IP voice, retail IDD for enterprise customers, wholesale IDD, global conferencing, engineering services, data center services, professional services and cloud services.

Residential revenue consists primarily of retail IDD for residential customers.

Product revenue comprises primarily of hardware sales.

– III-2 –

MANAGEMENT DISCUSSION AND ANALYSIS ON WTT GROUP

APPENDIX III

Comparison of WTT Holding’s operations for the six months ended 30 June 2018 and the six months ended 30 June 2017

Revenue

WTT Holding’s revenue increased by 0.1% to HK$1,049.3 million in the six months ended 30 June 2018 from HK$1,048.5 million in the six months ended 30 June 2017. WTT Holding’s revenue attributable to each of its business segments are set forth below:

Enterprise. Revenue from the enterprise segment decreased by 0.5% to HK$992.4 million in the six months ended 30 June 2018 from HK$997.2 million in the six months ended 30 June 2017.

WTT Holding continued to achieve higher revenues from the local data and business broadband services. The market conditions for local data and business broadband services have been stable during this period.

WTT Holding earned higher revenues from IP voice services, which offer a replacement option for customers who require more functionality in their voice services than those provided by TDM legacy voice lines. WTT Holding also earned higher revenues from cloud services due to overall increased market demand.

WTT Holding earned lower revenues from TDM legacy voice services and IDD, which had declined in line with the overall industry, due to competition from IP voice and mobile voice services.

The higher revenues from local data, business broadband, IP voice, and cloud services were more than offset by lower revenues from TDM legacy voice services and IDD, which altogether resulted in a slight decline of overall enterprise revenue.

Residential. Revenue from the residential segment decreased by 22.6% to HK$10.3 million in the six months ended 30 June 2018 from HK$13.3 million in the six months ended 30 June 2017. The decrease was primarily attributable to fewer usage in residential retail IDD.
Product. Revenue from the product segment increased by 22.6% to HK$46.6 million in the six months ended 30 June 2018 from HK$38.0 million in the six months ended 30 June 2017. The increase was primarily due to larger size of hardware orders placed by a number of customers.

– III-3 –

MANAGEMENT DISCUSSION AND ANALYSIS ON WTT GROUP

APPENDIX III

Network costs and costs of sales

WTT Holding’s network costs and costs of sales increased by 5.7% to HK$285.4 million in the six months ended 30 June 2018 from HK$269.9 million in the six months ended 30 June 2017. The increase was primarily due to an increase in government rates charged on our local fixed line telecommunication network and incremental network costs for the operation of our business.

Staff costs

WTT Holding’s staff costs increased by 0.8% to HK$245.2 million in the six months ended 30 June 2018 from HK$243.2 million in the six months ended 30 June 2017. The increase was primarily due to an increase in our sales force to cope with the growth in demand.

Other expenses

WTT Holding’s other expenses increased by 2.7% to HK$109.0 million in the six months ended 30 June 2018 from HK$106.2 million in the six months ended 30 June 2017.

Depreciation and amortization

WTT Holding’s depreciation and amortization increased by 4.9% to HK$276.9 million in the six months ended 30 June 2018 from HK$263.9 million in the six months ended 30 June 2017. The increase was primarily due to the addition of property, plant and equipment in order to cater for sales demand.

Other net income (loss)

WTT Holding’s other net income increased to HK$0.7 million in the six months ended 30 June 2018 from its other net loss of HK$0.1 million in the six months ended 30 June 2017.

Finance costs

WTT Holding’s finance costs decreased by 14.5% to HK$153.8 million in the six months ended 30 June 2018 from HK$180.0 million in the six months ended 30 June 2017. The decrease was primarily due to lower borrowing cost of senior notes issued in November 2017 comparing to the bank loans.

Income tax

WTT Holding’s income tax decreased by 8.7% to HK$26.9 million in the six months ended 30 June 2018 from HK$29.5 million in the six months ended 30 June 2017. The decrease was primarily due to lower taxation profit generated.

– III-4 –

MANAGEMENT DISCUSSION AND ANALYSIS ON WTT GROUP

APPENDIX III

Profit/(loss) for the period

For the foregoing reasons, WTT Holding’s loss for the period increased by 6.5% to HK$47.2 million in the six months ended 30 June 2018 from HK$44.3 million in the six months ended 30 June 2017.

Comparison of WTT HK’s operations for the year ended 31 December 2017 and the year ended 31 December 2016

Revenue

WTT HK’s revenue increased by 3.4% to HK$2,101.8 million in 2017 from HK$2,032.7 million in 2016. WTT HK’s revenue attributable to each of its business segments are set forth below:

Enterprise. Revenue from the enterprise segment increased by 3.6% to HK$1,989.1 million in 2017 from HK$1,920.2 million in 2016. The increase was primarily due to increased revenues from local data and business broadband services, as WTT HK successfully executed its strategy to upsell and cross-sell to existing customers, and to leverage its significantly expanded network infrastructure after the completion of “+EN” project. The market conditions for local data and business broadband services were stable.

The increase in revenue was also attributed to higher revenue from IP voice services, which offers a replacement option for customers who require more functionality in their voice services than those provided by TDM legacy voice lines, as well as increased revenue from cloud services due to increased market demand.

The increase in revenue was partially offset by lower revenues from TDM legacy voice services and IDD, which have declined in line with the overall industry, due to competition from IP voice and mobile voice services.

– III-5 –

MANAGEMENT DISCUSSION AND ANALYSIS ON WTT GROUP

APPENDIX III

Residential. Revenue from the residential segment decreased by 26.8% to HK$24.9 million in 2017 from HK$34.0 million in 2016. The decrease was primarily attributable to fewer usage in residential retail IDD.
Product. Revenue from the product segment increased by 11.8% to HK$87.8 million in 2017 from HK$78.5 million in 2016. The increase was primarily due to more hardware orders placed by customers.

Network costs and costs of sales

WTT HK’s network costs and costs of sales increased by 5.7% to HK$576.7 million in 2017 from HK$545.4 million in 2016. The increase was primarily due to an increase in government rates charged on local fixed line telecommunication network and incremental network costs for the operation of the business.

Staff costs

WTT HK’s staff costs increased by 4.9% to HK$486.7 million in 2017 from HK$464.2 million in 2016. The increase was primarily due to an increase in sales force to cope with the growth in demand.

Other expenses

WTT HK’s other expenses increased by 26.4% to HK$242.8 million in 2017 from HK$191.9 million in 2016. The increase was primarily due to the one-off rebranding campaign following the acquisition by TPG Wireman and Twin Holding in November 2016, increased office rental expense, one-off government rent expenses of HK$9.2 million paid to the Hong Kong Government, and specific provision of HK$24.9 million represents provision made in relation to disputes with a customer that has been acquired by one of our competitors. WTT Group incurred one-off rebranding costs of HK$8.0 million in 2017 relating to the change in WTT Group’s business name to “WTT HK” following the acquisition.

Depreciation and amortization

WTT HK’s depreciation and amortization decreased by 6.2% to HK$381.2 million in 2017 from HK$406.6 million in 2016. The decrease was primarily due to end of asset lives of certain property, plant and equipment.

Other net income (loss)

WTT HK’s other net loss decreased to HK$0.3 million in 2017 from HK$1.1 million in 2016.

– III-6 –

MANAGEMENT DISCUSSION AND ANALYSIS ON WTT GROUP

APPENDIX III

Finance costs

WTT HK’s finance costs decreased to nil in 2017 from HK$23.0 million in 2016. The decrease was primarily due to a decrease in interest paid on intercompany loans, as WTT HK’s ex-shareholder capitalized the loan in 2016 in connection with the acquisition by TPG Wireman and Twin Holding.

Income tax

WTT HK’s income tax increased by 11.5% to HK$73.5 million in 2017 from HK$65.9 million in 2016. The increase was primarily because WTT HK’s accrued tax losses had been used up by mid-2017.

Profit/(loss) for the year

For the foregoing reasons, WTT HK’s profit for the year increased by 1.8% to HK$340.6 million in 2017 from HK$334.6 million in 2016.

Comparison of WTT HK’s operations for the year ended 31 December 2016 and the year ended 31 December 2015

– III-7 –

MANAGEMENT DISCUSSION AND ANALYSIS ON WTT GROUP

APPENDIX III

Revenue

WTT HK’s revenue increased by 2.2% to HK$2,032.7 million in 2016 from HK$1,989.3 million in 2015. WTT HK’s revenue attributable to each of its business segments are set forth below:

Enterprise. Revenue from the enterprise segment increased by 3.7% to HK$1,920.2 million in 2016 from HK$1,850.9 million in 2015. The increase was primarily due to increased revenue from local data and business broadband services, as WTT HK successfully executed its strategy to upsell and cross-sell to existing customers, and to leverage its significantly expanded network infrastructure after the completion of “+EN” project. The market conditions for local data and business broadband services have remained stable. The acquisition of PIHK in early 2016 further increased WTT HK’s revenue from broadband services.

The increase was also attributed to increase in revenue from IP voice services, which offer a replacement option for customers who require more functionality in their voice services than those provided by legacy voice lines, as well as increased revenues from cloud and data center services, in line with the growth in market demand.

Residential. Revenue from the residential segment decreased by 15.0% to HK$34.0 million in 2016 from HK$40.0 million in 2015. The decrease was primarily attributable to lower usage in residential retail IDD.
Product. Revenue from the product segment decreased by 20.2% to HK$78.5 million in 2016 from HK$98.4 million in 2015. The decrease was primarily due to fewer hardware orders placed by customers.

Network costs and costs of sales

WTT HK’s network costs and costs of sales decreased by 3.4% to HK$545.4 million in 2016 from HK$564.9 million in 2015. The decrease was primarily due to lower cost of sales for wholesale IDD, in line with the decrease in wholesale IDD revenue.

– III-8 –

MANAGEMENT DISCUSSION AND ANALYSIS ON WTT GROUP

APPENDIX III

Staff costs

WTT HK’s staff costs increased by 0.5% to HK$464.2 million in 2016 from HK$461.7 million in 2015.

Other expenses

WTT HK’s other expenses increased by 0.5% to HK$191.9 million in 2016 from HK$191.0 million in 2015. The increase was primarily due to an increase in premises cost.

Depreciation and amortization

WTT HK’s depreciation and amortization decreased by 1.1% to HK$406.6 million in 2016 from HK$411.3 million in 2015. The decrease was primarily due to end of asset lives of certain property, plant and equipment, and was partially offset by intangible assets acquired in connection with its acquisition of PIHK in early 2016.

Other net income (loss)

WTT HK’s other net loss increased to HK$1.1 million in 2016 from its other net income of HK$0.1 million in 2015.

Finance costs

WTT HK’s finance costs decreased by 25.3% to HK$23.0 million in 2016 from HK$30.8 million in 2015. The decrease was primarily due to a decrease in interest paid on intercompany loans, as WTT HK’s ex-shareholder capitalized the loan in 2016 in connection with the acquisition by TPG Wireman and Twin Holding.

Income tax

WTT HK’s income tax increased by 120.0% to HK$65.9 million in 2016 from HK$30.0 million in 2015. The increase was primarily due to provision of deferred tax on taxable temporary difference.

Profit/(loss) for the year

For the foregoing reasons, WTT HK’s profit for the year increased by 11.6% to HK$334.6 million in 2016 from HK$299.7 million in 2015.

– III-9 –

MANAGEMENT DISCUSSION AND ANALYSIS ON WTT GROUP

APPENDIX III

FINANCIAL RESOURCES AND LIQUIDITY

Due to the cash generative nature of its business, stable working capital needs and relatively low capital expenditure levels, WTT Group’s sources of funds have been from cash generated from operations. WTT Group may use funding from future fundraising transactions, credit facilities and cash flow from operations for the provision of working capital, customer acquisition costs and capital expenditure.

Taking into account the internally generated funds of and the banking facilities available to WTT Group, WTT Group has sufficient capital to meet its working capital requirements and to finance foreseeable capital expenditure.

The table below sets forth WTT Group’s selected cash flow data for the years/periods indicated:

Cash Flow

		WTT HK		WTT Holding	WTT Holding
	For the year ended			For the six	months
		31 December		ended 30	June
	2015	2016	2017	2017		2018
		_(in HK$ _	millions)
Net cash generated from
operating activities	753.9	847.5	767.9	402.1		399.1
Net cash used in investing
activities	(273.1)	(387.9)	(651.5)	(231.3)	(156.2)
Net cash used in financing
activities	(481.7)	(352.1)	–	(345.2)	(237.8)

Capital Expenditure

WTT Group’s capital expenditure represents additions to property, plant and equipment, and primarily consists of “made-to-order” revenue-driven capital expenditure, and maintenance, upgrade and limited expansion of its network infrastructure.

– III-10 –

MANAGEMENT DISCUSSION AND ANALYSIS ON WTT GROUP

APPENDIX III

The table below sets forth WTT Group’s capital expenditure as at the dates indicated:

					WTT Holding
			WTT HK		For the six months
		For the year ended 31 December			ended 30 June
		2015	2016	2017	2017	2018
			(in HK$ millions)
Capital	expenditure	273.3	310.9	294.0	150.0	157.1

Working Capital

The table below sets forth WTT Group’s net current assets or liabilities as at the dates indicated:

Current assets Inventories Trade and other receivables Amounts due from group companies Contract assets Cash and cash equivalents Total current assets Current liabilities Trade and other payables Deferred service revenue – current portion Amounts due to group companies Contract liabilities – current portion Tax payable Total current liabilities Net current (liabilities)/assets	WTT HK WTT Holding As at 31 December As at 31 December As at 30 June 2015 2016 2017 2018 (in HK$ millions) 19.9 11.4 9.6 7.5 344.5 356.2 398.3 445.4 12.6 34.4 – – – – – 40.3 13.3 120.8 254.6 259.7 390.3 522.8 662.5 752.9 370.7 370.3 507.1 426.5 113.6 97.2 101.4 – 111.9 – – – – – – 143.4 0.1 1.8 11.4 54.1 596.3 469.3 619.9 624.0 (206.0) 53.5 42.6 128.9	WTT HK WTT Holding As at 31 December As at 31 December As at 30 June 2015 2016 2017 2018 (in HK$ millions) 19.9 11.4 9.6 7.5 344.5 356.2 398.3 445.4 12.6 34.4 – – – – – 40.3 13.3 120.8 254.6 259.7 390.3 522.8 662.5 752.9 370.7 370.3 507.1 426.5 113.6 97.2 101.4 – 111.9 – – – – – – 143.4 0.1 1.8 11.4 54.1 596.3 469.3 619.9 624.0 (206.0) 53.5 42.6 128.9
		752.9

		426.5 – – 143.4 54.1
		624.0
		128.9

– III-11 –

MANAGEMENT DISCUSSION AND ANALYSIS ON WTT GROUP

APPENDIX III

As at 31 December 2015 and 2016, WTT HK had net current liabilities of HK$206.0 million and net current assets of HK$53.5 million, respectively. As at 31 December 2017 and 30 June 2018, WTT Holding had net current assets of HK$42.6 million and HK$128.9 million, respectively.

CAPITAL STRUCTURE

As at 30 June 2018, WTT Group had total debt of approximately HK$5,148.3 million (principal of HK$5,232.1 million, or US$670 million) and total cash and cash equivalents of approximately HK$259.7 million. Total shareholders’ equity was approximately HK$4,093.9 million.

Indebtedness

WTT HK did not have external indebtedness as at 31 December 2015 and 2016. WTT Holding’s indebtedness as at 31 December 2017 and 30 June 2018 consists of the US$ denominated senior notes due 2022 with principal amount of US$670 million issued on 14 November 2017.

The table sets forth external borrowings, cash balances, and shareholders’ equity for the periods indicated:

	WTT HK		WTT	Holding
			As at 31	As	at 30
	As at 31 December		December		June
	2015	2016	2017		2018
		_(in HK$ _	millions)
Senior Notes	–	–	5,140.9	5,148.3
Cash and Cash Equivalents	13.3	120.8	254.6		259.7
Shareholders’ Equity	957.9	2,036.1	4,108.6	4,093.9

The increase in shareholder’s equity in WTT HK from 31 December 2015 to 31 December 2016 was primarily due to the capitalization of a HK$1,009 million intercompany loan by WTT HK’s ex-shareholder in connection with the acquisition by TPG Wireman and Twin Holding on 9 November 2016.

Gearing

The gearing ratio is calculated as net debt divided by total equity. Net debt is calculated as total debt less cash and cash equivalents. Total equity is the combined capital and reserves as shown in the consolidated statements of financial position. As at 31 December 2017 and 30 June 2018, WTT Holding had gearing ratio of 118.9% and 119.4%. As WTT HK did not have debt as at 31 December 2015 and 2016, the gearing ratio for these periods is therefore not meaningful.

– III-12 –

MANAGEMENT DISCUSSION AND ANALYSIS ON WTT GROUP

APPENDIX III

PLEDGE OF ASSETS

As at 31 December 2015, 2016, 2017 and 30 June 2018, WTT Group did not have any pledged assets, other than security over shares in, and assets of, certain members of WTT Group in respect of a revolving credit facility of up to HK$390 million (which was undrawn as at 30 June 2018).

CONTINGENT LIABILITIES

As at 31 December 2015, 2016, 2017 and 30 June 2018, WTT Group did not have any material contingent liabilities.

MATERIAL ACQUISITIONS, DISPOSALS, SIGNIFICANT INVESTMENTS AND FUTURE PLANS OF MATERIAL INVESTMENT

WTT Group had no material acquisitions, disposals, significant investments and future plans of material investment during the year ended 31 December 2015.

On 18 February 2016, WTT Group acquired PIHK Network Limited (“PIHK”) from Telstra Corporation to further expand its business and enhance its IT services segment. PIHK is a local enterprise-focused, non-network infrastructure-based business internet service provider servicing enterprises in Hong Kong, offering a range of ICT solutions, business broadband, local wide area network connections, global IP VPN networking, data center, web hosting, email and messaging services.

On 9 November 2016, WTT Holding acquired 100% of the issued share capital of WTT HK at a consideration of HK$9,500 million.

Save as disclosed, WTT group had no other material acquisitions, disposals, significant investments and future plans of material investment during the year ended 31 December 2016.

WTT Group had no material acquisitions, disposals, significant investments and future plans of material investment during the year ended 31 December 2017 and the six months ended 30 June 2018.

– III-13 –

MANAGEMENT DISCUSSION AND ANALYSIS ON WTT GROUP

APPENDIX III

COMMITMENTS

Capital commitments

The table below sets forth WTT Group’s capital commitments outstanding which were used for the acquisition of property, plant and equipment as at the dates indicated:

Contracted for Authorized but not contracted for Total	WTT As at 2015 119.4 50.1 169.5	HK WTT Holding 31 December As at 31 December As at 30 June 2016 2017 2018 (in HK$ millions) 112.6 106.9 153.9 – – – 112.6 106.9 153.9	HK WTT Holding 31 December As at 31 December As at 30 June 2016 2017 2018 (in HK$ millions) 112.6 106.9 153.9 – – – 112.6 106.9 153.9
			153.9

Operating leases

WTT Group is a lessee in respect of a number of properties and telecommunication network facilities under operating leases. The leases for its data centers typically run for an initial period of three years, with an option to renew the lease for another three years. The table below sets forth WTT Group’s total future minimum lease payments payable under noncancellable operating leases:

Within one year After one year but within five years After five years Total	WTT As at 2015 59.6 84.2 11.0 154.8	HK WTT Holding 31 December As at 31 December As at 30 June 2016 2017 2018 (in HK$ millions) 59.4 80.6 86.1 78.4 124.5 94.3 – 20.7 16.1 137.8 225.8 196.5	HK WTT Holding 31 December As at 31 December As at 30 June 2016 2017 2018 (in HK$ millions) 59.4 80.6 86.1 78.4 124.5 94.3 – 20.7 16.1 137.8 225.8 196.5
			196.5

– III-14 –

MANAGEMENT DISCUSSION AND ANALYSIS ON WTT GROUP

APPENDIX III

DIVIDENDS

WTT HK paid dividends to former shareholders of HK$260.2 million and HK$265.0 million in the years ended 31 December 2015 and 2016. WTT HK did not pay dividends in 2017 and WTT Holding did not pay dividends in 2017 and for the 6 months ending 30 June 2018.

FOREIGN EXCHANGE RISK

As at 31 December 2015, 2016, and 2017 and 30 June 2018, WTT Group’s monetary assets and liabilities were primarily denominated in either Hong Kong dollars (“HKD”) or United States dollars (“USD”). As HKD is pegged to USD, management considers the risk of movements in exchange rates between HKD and USD to be insignificant.

EMPLOYEES AND REMUNERATION POLICY

As at 31 December 2015, 2016, and 2017 and 30 June 2018, WTT Group had 1,520, 1,587, 1,615, and 1,512 permanent full-time employees, respectively. WTT Group has adopted several policies to provide incentives to its employees and to enhance their productivity. Remuneration packages consist of both salaries and bonuses, which are both adjusted based on performance. WTT Group conducts periodic performance reviews for all employees. Regular trainings are provided to sales staff and management team.

PROSPECTS AND OUTLOOK

Save for combining and integrating WTT Group with the Company’s existing telecommunications business following Completion, there are currently no significant future plans for material investments or capital assets of WTT Group.

– III-15 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

The information set out in this Appendix does not form part of the Accountants’ Reports on the Target Group and Target Operating Group from KPMG, the Company’s reporting accountants, as set out in “Appendix IIA – Accountants’ Report on WTT HK” and “Appendix IIB – Accountants’ Report on WTT Holding”, respectively and is included herein for information only. The unaudited pro forma financial information should be read in conjunction with the Accountants’ Reports set out in “Appendix IIA-Accountants’ Report on WTT HK” and “Appendix IIB – Accountants’ Report on WTT Holding”.

A. PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The following is the illustrative and unaudited pro forma financial information of the Enlarged Group in connection with the Acquisition by the Group. Details of the Acquisition are set out in the section headed “LETTER OF THE BOARD” contained in this Circular. The unaudited pro forma financial information presented below is prepared to illustrate (i) the consolidated statement of financial position of the Enlarged Group as at 28 February 2018 as if the Acquisition has been completed on 28 February 2018; and (ii) the consolidated income statement and the consolidated cash flow statement of the Enlarged Group for the year ended 31 August 2017 as if the Acquisition had been completed on 1 September 2016.

The unaudited pro forma financial information of the Enlarged Group has been prepared in accordance with Paragraph 4.29 of the Listing Rules and has been prepared by the Directors of the Company for the purpose of illustrating the effect of the Acquisition pursuant to the terms of the Share Purchase Agreement. The unaudited pro forma financial information was prepared based on a number of assumptions, estimates and uncertainties. Because of its hypothetical nature, the unaudited pro forma financial information may not give a true picture of the financial position or results of the Enlarged Group had the Acquisition been completed as of the specified dates or any future date.

The unaudited pro forma consolidated statement of financial position as of 28 February 2018 is prepared based on (i) the consolidated statement of financial position of the Group as of 28 February 2018 extracted from the interim report of the Company for the six months ended 28 February 2018 and (ii) the consolidated statement of financial position of the Target Group as of 30 June 2018 extracted from the Accountants’ Report on the Target Group set out in Appendix IIB to this Circular, after making pro forma adjustments to the Acquisition, as if the Acquisition had completed on 28 February 2018.

The unaudited pro forma consolidated income statement and the unaudited pro forma consolidated cash flow statement of the Enlarged Group for the year ended 31 August 2017 are prepared based on (i) the consolidated income statement and consolidated cash flow statement of the Group for the year ended 31 August 2017 extracted from the annual report of the Company for the year ended 31 August 2017 and (ii) the consolidated income statement and the consolidated cash flow statement of the Target Group for the year ended 31 December 2017 extracted from the Accountants’ Report on the Target Group set out in Appendix IIB to this Circular, after making pro forma adjustments to the Acquisition, as if the Acquisition had completed on 1 September 2016.

The unaudited pro forma financial information should be read in conjunction with the historical financial information of the Group set out in the annual report of the Company for the year ended 31 August 2017, the interim report of the Company for the six months ended 28 February 2018 and other financial information contained in this Circular.

– IV-1 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

B. UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Assets Non-current assets Goodwill Intangible assets Property, plant and equipment Interest in joint ventures Other non-current assets Current assets Inventories Trade receivables Other receivables, deposits and prepayments Amount due from a joint venture Contract assets Cash and cash equivalents Total assets Liabilities Current liabilities Trade payables Other payables and accrued charges – current portion Deposits received Deferred services revenue – current portion Obligations under granting of rights – current portion Amounts due to joint ventures Contract liabilities – current portion Contingent consideration – current portion Tax payable	Consolidated statement of financial position of the Group as at 28 February 2018 HK$’000 1,771,969 1,522,603 2,256,400 8,554 24,558 5,584,084 20,676 231,235 243,889 8,123 – 358,499 862,422 6,446,506 100,642 322,968 60,059 90,761 9,024 10,000 – 19,707 74,580 687,741	Consolidated statement of financial position of the Target Group as at 30 June 2018 HK$’000 3,591,422 4,098,872 2,009,337 – 2,866 9,702,497 7,496 302,210 143,205 – 40,317 259,688 752,916 10,455,413 72,190 354,299 – – – – 143,442 – 54,079 624,010	Pro forma adjustments Note 1 Note 2 Note 3 HK$’000 HK$’000 HK$’000 – 1,395,846 – – – – – – – – – – – – – – 1,395,846 – – – – 3,785 – – (32,246) – – – – – (40,317) – – – – – (68,778) – – (68,778) 1,395,846 – 1,706 – – – – 174,921 – – – 105,204 – – – – – – – – (143,442) – – – – – – – – (36,532) – 174,921	Unaudited pro forma consolidated statement of financial position of the Enlarged Group HK$’000 6,759,237 5,621,475 4,265,737 8,554 27,424
				16,682,427 28,172 537,230 354,848 8,123 – 618,187
				1,546,560
				18,228,987

				174,538 852,188 60,059 195,965 9,024 10,000 – 19,707 128,659
				1,450,140

– IV-2 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

Non-current liabilities Other payables and accrued expenses – long-term portion Contract liabilities – long term portion Deferred services revenue – long-term portion Obligations under granting of rights – long-term portion Deferred tax liabilities Contingent consideration – long-term portion Provision for reinstatement costs Senior notes Bank loan Total liabilities Net assets/(deficit) Capital and Reserves Share Capital Reserves Total Equity	Consolidated statement of financial position of the Group as at 28 February 2018 HK$’000 232,570 – 80,319 29,329 398,552 2,701 18,958 – 3,847,592 4,610,021 5,297,762 1,148,744 101 1,148,643 1,148,744	Consolidated statement of financial position of the Target Group as at 30 June 2018 HK$’000 – 92,655 – – 496,495 – – 5,148,342 – 5,737,492 6,361,502 4,093,911 8 4,093,903 4,093,911	Pro forma adjustments Note 1 Note 2 Note 3 HK$’000 HK$’000 HK$’000 – – – (92,655) – – 92,655 – – – – – – – – – – – – – – – – – – – – – – – (36,532) – 174,921 (32,246) 1,395,846 (174,921) – 23 – (32,246) 1,395,823 (174,921) (32,246) 1,395,846 (174,921)	Unaudited pro forma consolidated statement of financial position of the Enlarged Group HK$’000 232,570 – 172,974 29,329 895,047 2,701 18,958 5,148,342 3,847,592
				10,347,513
				11,797,653
				6,431,334

				132 6,431,202
				6,431,334

– IV-3 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

C. UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT

Revenue Other net income/(loss) Network costs and costs of sales Other operating expenses Finance costs Share of profits of associates Share of losses of joint ventures Profit/(loss) before taxation Income tax Profit/(loss) for the year attributable to equity shareholders of the Company	Consolidated income statement of the Group for the year ended 31 August 2017 HK$’000 3,232,310 10,644 (710,257) (2,067,301) (210,740) 3,418 (920) 257,154 (86,044) 171,110	Consolidated income statement of the Target Group for the year ended 31 December 2017 HK$’000 2,101,762 (301) (576,709) (1,250,125) (537,638) – – (263,011) (50,913) (313,924)	Pro forma adjustments Note 3 HK$’000 – – – (174,921) – – – (174,921) – (174,921)	Unaudited pro forma consolidated income statement of the Enlarged Group HK$’000 5,334,072 10,343 (1,286,966) (3,492,347) (748,378) 3,418 (920)
				(180,778) (136,957)
				(317,735)

– IV-4 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

D. UNAUDITED PRO FORMA CONSOLIDATED CASH FLOW STATEMENT

Operating activities Profit/(loss) before taxation Adjustments for: Amortisation of intangible assets Depreciation Amortisation of obligations under granting of rights Interest income Finance costs Impairment loss on property, plant and equipment Loss/(gain) on disposal of property, plant and equipment, net Loss on disposal of interest in associate Change in fair value of contingent consideration Foreign exchange loss/(gain) Share of losses of joint ventures Share of profit of associates Equity-settled share-based payment expenses Changes in working capital: Decrease in other non-current assets Decrease in inventories Increase in trade receivables Decrease/(increase) in other receivables, deposits and prepayments Increase in amount due from a joint venture Decrease in amount due to an associate (Decrease)/increase in trade payables (Decrease)/increase in other payables and accrued charges Increase in deposits received Increase in deferred services revenue Cash generated from operations Tax paid: – Hong Kong Profits Tax paid – Tax paid outside Hong Kong Net cash generated from operating activities	Consolidated cash flow statement of the Group for the year ended 31 August 2017 HK$’000 257,154 157,802 420,206 (9,024) (276) 210,740 – 25,922 111 1,435 1,113 920 (3,418) 14,056 1,010 38,717 (57,103) 5,239 (8,483) (1,085) (9,892) (92,572) 2,767 68,106 1,023,445 - - - - - - - - - - - - - (118,307) (4,298) 900,840 - - - - - - - - - - - - -	Consolidated cash flow statement of the Target Group for the year ended 31 December 2017 HK$’000 (263,011) 145,362 372,521 – (118) 537,638 2,843 (6,690) – – (148) – – – – 1,837 (29,700) (12,472) – – 10,519 5,944 – 28,334 792,859 - - - - - - - - - - - - - (23,793) (498) 768,568 - - - - - - - - - - - - -	Pro forma adjustments Note 3 HK$’000 (174,921) – – – – – – – – – – – – – – – – – – – – 174,921 – – – - - - - - - - - - - – – – - - - - - - - - - -	Unaudited pro forma consolidated cash flow statement of the Enlarged Group HK$’000 (180,778) 303,164 792,727 (9,024) (394) 748,378 2,843 19,232 111 1,435 965 920 (3,418) 14,056 1,010 40,554 (86,803) (7,233) (8,483) (1,085) 627 88,293 2,767 96,440
				1,816,304 - - - - - - - - - - - - -
				(142,100) (4,796)
				1,669,408 - - - - - - - - - - - - -

– IV-5 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

Investing activities Payment for purchase of property, plant and equipment Proceeds from sales of property, plant and equipment Acquisition-related costs paid Payment for contingent consideration Net cash inflow in respect of disposal of interest in associates Interest received Net cash used in investing activities Financing activities Proceeds from bank loans, net of transaction costs Repayment of bank loans Proceeds from issue of senior notes Payment of transaction cost on issuance of senior notes Payment of loan upfront fee Decrease in amount due to an associate Interest paid on interest-rate swap Interest paid on bank loans Other finance costs paid Dividend paid Net cash used in financing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year Effect of foreign exchange rate changes Cash and cash equivalents at the end of the year	Consolidated cash flow statement of the Group for the year ended 31 August 2017 HK$’000 (403,702) 48,466 – (17,053) 10,780 276 (361,233) - - - - - - - - - - - - - 3,820,690 (3,800,000) – – – (1,080) (18,664) (89,460) – (422,380) (510,894) - - - - - - - - - - - - - 28,713 354,955 1,384 385,052	Consolidated cash flow statement of the Target Group for the year ended 31 December 2017 HK$’000 (294,044) 6,727 (81,319) – – 118 (368,518) - - - - - - - - - - - - - – (5,260,000) 5,232,091 (6,089) (14,436) – (29,635) (287,131) (15,001) – (380,201) - - - - - - - - - - - - - 19,849 234,722 – 254,571	Pro forma adjustments Note 3 HK$’000 – – – – – – – - - - - - - - - - - – – – – – – – – – – – - - - - - - - - - - – – – –	Unaudited pro forma consolidated cash flow statement of the Enlarged Group HK$’000 (697,746) 55,193 (81,319) (17,053) 10,780 394
				(729,751) - - - - - - - - - - - - -
				3,820,690 (9,060,000) 5,232,091 (6,089) (14,436) (1,080) (48,299) (376,591) (15,001) (422,380)
				(891,095) - - - - - - - - - - - - -
				48,562 589,677 1,384
				639,623

– IV-6 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

E. NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED INFORMATION OF THE ENLARGED GROUP

(1) The adjustment represents the alignment of accounting standards adopted by the Group and the Target Group. In preparing the consolidated statement of financial position of the Target Group as at 30 June 2018, all the new accounting standards, in particular Hong Kong Financial Reporting Standards (“HKFRS”) 15, Revenue from Contracts with Customers , that are first effective for the accounting period beginning on 1 January 2018 were adopted, while the Group did not early adopt any of those new accounting standards in preparing the consolidated statement of financial position of the Group as at 28 February 2018. For the purpose of the unaudited pro forma financial information, the consolidated statement of financial position of the Target Group as at 30 June 2018 that adopted HKFRS 15 were adjusted by applying the same accounting standards adopted by the Group.

The following table summaries the estimated differences in applying HKFRS 15 and the Group’s accounting policies on the Target Group’s consolidated statement of financial position as at 30 June 2018.

		Hypothetical
	Amounts	amounts under
	reported in	the Group’s
	accordance with	accounting	Estimated
	HKFRS 15	policies	differences
	(A)	(B)	(A)-(B)
	$’000	$’000	$’000
Line items in the consolidated statement of
financial position at 30 June 2018:
Contract assets	40,317	–	40,317
Trade receivables	302,210	305,995	(3,785)
Other receivables, deposits and prepayments	143,205	110,959	32,246
Total current assets	752,916	684,138	68,778
Trade payables	(72,190)	(73,896)	1,706
Deferred service revenue – current portion	–	(105,204)	105,204
Contract liabilities – current portion	(143,442)	–	(143,442)
Total current liabilities	(624,010)	(587,478)	(36,532)
Total assets less current liabilities	9,831,403	9,799,157	32,246
Deferred service revenue – long-term portion	–	(92,655)	92,655
Contract liabilities – long-term portion	(92,655)	–	(92,655)
Net assets	4,093,911	4,061,665	32,246
Reserves	(443,034)	(475,280)	32,246
Total equity	4,093,911	4,061,665	32,246

For details of the differences, please refer to Note 1 to the Appendix IIB, Accountants’ Report of WTT Holding.

– IV-7 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

(2) Upon the completion of the Acquisition, the identifiable assets and liabilities of the Target Group will be accounted for in the consolidated financial statements of the Enlarged Group at their fair values as required by the acquisition method in accordance with HKFRS 3 (Revised) “Business Combination”.

Pro forma adjustment made represents:

Note Consideration – Shares i Consideration – Convertible Shares i Total consideration Less net assets acquired: Goodwill ii Intangibles assets ii Property, plants and equipment ii Other assets Senior notes Other liabilities Identified assets acquired and liabilities assumed Goodwill arising on Acquisition	HK$’000 3,548,819 1,940,938 5,489,757 3,591,422 4,098,872 2,009,337 755,782 (5,148,342) (1,213,160) 4,093,911 1,395,846

(i) The total consideration will be satisfied by issuing 305,932,690 new shares of the Company (“Consideration Shares”) and Convertible Vendor Loan, at principal amount of HK$1,904,938,000, which could be converted into 167,322,212 new shares of the Company (“Convertible Shares”). For the purpose of this unaudited pro forma financial information, the fair value of each Consideration Share and the Convertible Shares is deemed to be HK$11.60 per share, being the issue price per Consideration Share and initial price of Convertible Shares, as determined by and agreed to among the parties to the Merger Agreement, and which is different from the closing price of the Shares on 28 February 2018 which is HK$8.95. Following the issuance of Consideration Shares and Convertible Shares, the share capital and reserves of the Company will be increased by HK$31,000 and HK$5,489,726,000 respectively. Upon consolidation, share capital and pre-acquisition reserves of the Target Group of HK$8,000 and HK$4,093,903,000 were eliminated.

Since the actual closing market price of the Company’s share on the date of completion of the Acquisition may be substantially different from the amounts used in the preparation of this unaudited pro forma financial information, the actual effects on the share capital and reserves of the Target Group could be different.

(ii) For the purpose of this unaudited pro forma financial information and for illustrative purpose only, the allocation of the purchase price is determined based on the carrying amounts of the Target Group’s identifiable assets and liabilities as at 30 June 2018. The directors of the Group are of the opinion that the fair values of the identifiable assets and liabilities of the Target group are approximate to their carrying amounts on the basis that the Target Group had performed a comprehensive review of purchase price allocation on 9 November 2016 upon the completion of acquisition of WTT HK Limited.

Since the fair values of the identifiable assets and liabilities of the Target Group on the date of completion of the Acquisition may be substantially different from the amounts used in the preparation of this unaudited pro forma financial information, the actual amounts of assets and liabilities of the Target Group could be different. Accordingly it could be different from the estimated amounts stated herein and could have different depreciation or amortisation for subsequent periods.

– IV-8 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

(iii) For the purpose of the unaudited pro forma financial information, the Directors have assessed whether there is any impairment in respect of the goodwill expected to arise from the Acquisition with reference to the principles set out in Hong Kong Accounting Standard 36, “Impairment of Assets”. Based on the Directors’ assessment, the Directors consider that there is no impairment indicator on the goodwill with assumed value set out above.
(3) This adjustment includes the estimated transaction cost of approximately HK$174,921,000 payable by the Enlarged Group in connection with the Acquisition. The estimated transaction costs are recognised in the consolidated income statement and consolidated cash flow statement of the Enlarged Group. This adjustment is not expected to have continuing effect on the Enlarged Group’s consolidated income statement and consolidated cash flow statement.
(4) Apart from the above, no other adjustments have been made to reflect any trading results or other transactions of the Group and the Target Group entered into subsequent to 28 February 2018 and 30 June 2018 respectively for the unaudited pro forma consolidated statement of financial position and 31 August 2017 and 31 December 2017 respectively for the unaudited pro forma consolidated income statement and unaudited pro forma consolidated cash flow statement.

– IV-9 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

The following is the text of a report received from the reporting accountants, KPMG, Certified Public Accountants, Hong Kong, in respect of the Group’s pro forma financial information for the purpose in this circular.

8th Floor Prince’s Building 10 Chater Road Central Hong Kong

26 October 2018

INDEPENDENT REPORTING ACCOUNTANTS’ ASSURANCE REPORT ON THE COMPILATION OF PRO FORMA FINANCIAL INFORMATION

To the Directors of HKBN Ltd.

We have completed our assurance engagement to report on the compilation of pro forma financial information of HKBN Ltd. (the “Company”) and its subsidiaries (collectively the “Group”) by the directors of the Company (the “Directors”) for illustrative purposes only. The unaudited pro forma financial information consists of the unaudited pro forma consolidated statement of financial position as at 28 February 2018 and the unaudited pro forma consolidated income statement and unaudited pro forma consolidated cash flow statement for the year ended 31 August 2017 and related notes as set out in Part A to E of Appendix IV to the circular dated 26 October 2018 (the “Circular”) issued by the Company. The applicable criteria on the basis of which the Directors have compiled the pro forma financial information are described in Part A to E of Appendix IV to the Circular.

The pro forma financial information has been compiled by the Directors to illustrate the impact of the proposed acquisition of the entire issued share capital of the Target Group (the “Acquisition”) on the Group’s financial position as at 28 February 2018 and the Group’s financial performance and cash flows for the year ended 31 August 2017 as if the Acquisition had taken place as at 28 February 2018 and 1 September 2016, respectively. As part of this process, information about the Group’s financial position as at 28 February 2018 has been extracted by the Directors from the interim financial report of the Group for the six months ended 28 February 2018, on which a review report has been published. Information about the Group’s financial performance and cash flows for the year ended 31 August 2017 has been extracted by the Directors from the consolidated financial statements of the Group for the year ended 31 August 2017, on which an audit report has been published.

– IV-10 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

Directors’ Responsibilities for the Pro Forma Financial Information

The Directors are responsible for compiling the pro forma financial information in accordance with Paragraph 4.29 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and with reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” (“AG 7”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”).

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 behaviour.

The 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, as required by Paragraph 4.29(7) of the Listing Rules, on the pro forma financial information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the pro forma financial information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

We conducted our engagement in accordance with Hong Kong Standard on Assurance Engagements (“HKSAE”) 3420 “Assurance Engagements to Report on the Compilation of Pro Forma Financial Information Included in a Prospectus” issued by the HKICPA. This standard requires that the reporting accountants plan and perform procedures to obtain reasonable assurance about whether the Directors have compiled the pro forma financial information in accordance with Paragraph 4.29 of the Listing Rules, and with reference to AG 7 issued by the HKICPA.

For purpose of this engagement, we are not responsible for updating or reissuing any reports or opinions on any historical financial information used in compiling the pro forma financial information, nor have we, in the course of this engagement, performed an audit or review of the financial information used in compiling the pro forma financial information.

– IV-11 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

The purpose of pro forma financial information included in an investment circular is solely to illustrate the impact of a significant event or transaction on unadjusted financial information of the Group as if the event had occurred or the transaction had been undertaken at an earlier date selected for purposes of the illustration. Accordingly, we do not provide any assurance that the actual outcome of events or transactions as at 28 February 2018 would have been as presented.

A reasonable assurance engagement to report on whether the pro forma financial information has been properly compiled on the basis of the applicable criteria involves performing procedures to assess whether the applicable criteria used by the Directors in the compilation of the pro forma financial information provide a reasonable basis for presenting the significant effects directly attributable to the event or transaction, and to obtain sufficient appropriate evidence about whether:

the related pro forma adjustments give appropriate effect to those criteria; and
the pro forma financial information reflects the proper application of those adjustments to the unadjusted financial information.

The procedures selected depend on the reporting accountants’ judgement, having regard to the reporting accountants’ understanding of the nature of the Group, the event or transaction in respect of which the pro forma financial information has been compiled, and other relevant engagement circumstances.

The engagement also involves evaluating the overall presentation of the pro forma financial information.

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

Opinion

In our opinion:

(a) the pro forma financial information has been properly compiled on the basis stated;
(b) such basis is consistent with the accounting policies of the Group; and
(c) the adjustments are appropriate for the purposes of the pro forma financial information as disclosed pursuant to Paragraph 4.29(1) of the Listing Rules.

KPMG

Certified Public Accountants Hong Kong

26 October 2018

– IV-12 –

GENERAL INFORMATION

APPENDIX V

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 Company. 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 are no other matters the omission of which would make any statement herein or this circular misleading.

2. DISCLOSURE OF INTERESTS

(a) Directors and Chief Executive

As at the Latest Practicable Date, the interests and short positions, if any, of each Director and chief executive of the Company in the shares, underlying shares or debentures of the Company and any of its associated corporations (within the meaning of the SFO) which were required, pursuant to section 352 of the SFO, to be entered into the register referred to therein, or 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 interest and short position which he was taken or deemed to have under such provisions of the SFO) or the Model Code for Securities Transactions by Directors of Listed Issuers set out in the Listing Rules were as follows:

Long Position

Ordinary shares of HK$0.0001 each in the Company

		Number of
		underlying
		Shares held	Total	Approximately
	Number of	under equity	number of	percentage of
Name of Director	Shares held	derivatives	Shares held(1)	shareholding(2)
Mr. Bradley Jay HORWITZ(3)	250,000	–	250,000	0.02%
Mr. William Chu Kwong
YEUNG(4)	26,989,149	97,278	27,086,427	2.69%
Mr. Ni Quiaque LAI(5)	32,930,001	67,121	32,997,122	3.28%

Notes:

These represent the number of restricted share units (“ RSU ”) which will be vested in such Directors under the Co-Ownership Plan II adopted by the Company on 21 February 2015.
As at the Latest Practicable Date, the Company had 1,005,666,666 Shares.
Mr. Bradley Jay HORWITZ is personally interested in 250,000 ordinary Shares.

– V-1 –

GENERAL INFORMATION

APPENDIX V

Among 27,086,427 ordinary shares which Mr. William Chu Kwong YEUNG are personally interested in, 97,278 RSUs that were granted to him pursuant to the Co-Ownership Plan II adopted by the Company on 21 February 2015, which were subject to certain vesting conditions, remained unvested.
Among 32,997,122 ordinary shares which Mr. Ni Quiaque LAI are personally interested in, 67,121 RSUs that were granted to him pursuant to the Co-Ownership Plan II adopted by the Company on 21 February 2015, which were subject to certain vesting conditions, remained unvested.

(b) Substantial Shareholders

So far as is known to any Director or the chief executive of the Company, as at the Latest Practicable Date, Shareholders who had interests or short positions in the Shares and underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or which were recorded in the register required to be kept by the Company pursuant to Section 336 of the SFO were as follows:

Long Position

Ordinary shares of HK$0.0001 each in the Company

	Number of	Approximately
	Shares	percentage of
Name of Shareholder	beneficially held	shareholding(1)
CPPIB(2)	182,405,000	18.14%
GIC(3)	87,284,797	8.68%
The Capital Group Companies, Inc.(4)	100,952,500	10.04%
Matthews International Capital Management, LLC(5)	70,914,908	7.05%
Bonderman David(6)	236,627,451	23.53%
Coulter James George(6)	236,627,451	23.53%
Kim Michael ByungJu(7)	236,627,451	23.53%
Kong Teck Chien(7)	236,627,451	23.53%
MBK GP III, Inc.(7)	236,627,451	23.53%
MBK Partners Fund III, L.P.(7)	236,627,451	23.53%
MBK Partners GP III, L.P.(7)	236,627,451	23.53%
MBK Partners JC GP, Inc.(7)	236,627,451	23.53%
MBK Partners JC GP, L.P.(7)	236,627,451	23.53%
MBK Partners JC, L.P.(7)	236,627,451	23.53%
TPG Asia Advisors VI, Inc.(6)	236,627,451	23.53%
TPG Wireman(6)	236,627,451	23.53%
Twin Holding(7)	236,627,451	23.53%

Notes:

As at the Latest Practicable Date, the Company had 1,005,666,666 Shares.
CPPIB is the beneficial owner of 182,405,000 Shares.
87,284,797 Shares are held by GIC in the capacity of investment manager.

– V-2 –

GENERAL INFORMATION

APPENDIX V

The Capital Group Companies, Inc. through its subsidiaries, namely Capital International, Inc., Capital International Limited, Capital International Sarl, and Capital Research and Management Company held 3,297,500 Shares, 814,000 Shares, 4,043,500 Shares and 92,797,500 Shares in the Company, respectively, and is accordingly deemed to be interested in the respective Shares held by the aforesaid companies.
70,914,908 Shares are held by Matthews International Capital Management, LLC in the capacity of investment manager.
These 236,627,451 Shares represent (i) the 152,966,345 Consideration Shares to be allotted and issued by the Company to TPG Wireman upon Completion; and (ii) the 83,661,106 Shares to be allotted and issued by the Company to TPG Wireman upon conversion of the Vendor Loan Notes issued to TPG Wireman at the conversion price of HK$11.60 per Share. Bonderman David and Coulter James George are deemed to be interested in the respective Shares held by TPG Wireman through a number of intermediate entities they are interested in.
These 236,627,451 Shares represent (i) the 152,966,345 Consideration Shares to be allotted and issued by the Company to Twin Holding upon Completion; and (ii) the 83,661,106 Shares to be allotted and issued by the Company to Twin Holding upon conversion of the Vendor Loan Notes issued to Twin Holding at the conversion price of HK$11.60 per Share. Kim Michael ByungJu and Kong Teck Chien are deemed to be interested in the respective Shares held by Twin Holding through a number of intermediate entities they are interested in.

Save as disclosed above, so far as is known to the Directors and the chief executive of the Company, as at the Latest Practicable Date, no other person (other than a Director or chief executive of the Company) had, or was deemed or taken to have, an interest or short position in the Shares or underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who was, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group or held any option in respect of such capital.

As at the Latest Practicable Date, none of the Directors is a director or employee of a company which has an interest or short position in the Shares or underlying Shares which should fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO.

3. DIRECTORS’ INTERESTS IN COMPETING BUSINESS

As at the Latest Practicable Date, none of the Directors or, so far as is known to them, any of their respective close associates (as defined in the Listing Rules), was considered to have interests in any business (apart from the Group’s business) which competes or is likely to compete, either directly or indirectly, with the Group’s business.

– V-3 –

GENERAL INFORMATION

APPENDIX V

4. DIRECTORS’ AND EXPERTS’ INTERESTS IN THE GROUP’S ASSETS OR CONTRACT OR ARRANGEMENTS SIGNIFICANT TO THE ENLARGED GROUP

None of the Directors nor the experts (as named in the circular) had any interest, directly or indirectly, in any assets which have been, since 31 August 2017 (being the date to which the latest published audited consolidated financial statements of the Group were made up), up to the Latest Practicable Date, been acquired or disposed of by, or leased to, any member of the Group, or are proposed to be acquired or disposed of by or leased to any member of the Group.

As at the Latest Practicable Date, none of the Directors was materially interested, directly or indirectly, in any contract or arrangement subsisting as at the Latest Practicable Date which is significant in relation to the business of the Enlarged Group.

5. DIRECTORS’ INTERESTS IN SERVICE CONTRACTS

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

6. LITIGATION

As at the Latest Practicable Date, no member of the Enlarged Group was engaged in any litigation or arbitration proceedings of material importance and no litigation or claim of material importance was known to the Directors to be pending or threatened by or against any member of the Enlarged Group.

7. MATERIAL CONTRACTS

The following contracts have been entered into by the Enlarged Group (not being contracts entered into in the ordinary course of business) within the two years immediately preceding the date of this circular and is or may be material:

(a) the sale and purchase agreement entered into on 31 May 2017 between HKBN Group Limited, Main Victory Ventures Limited and Champion Epoch Ventures Limited in relation to the disposal of the remaining 49% of the entire issued share capital of Simple Click Investments Limited to Main Victory Ventures Limited and Champion Epoch Ventures Limited at the consideration of HK$10,780,000;
(b) the sale and purchase agreement entered into on 21 June 2017 between HKBN Enterprise Solutions Limited and Loyal Act Limited in relation to the disposal of Unit 1 on Second Floor, Cornell Centre, Chai Wan, Hong Kong at the consideration of HK$12,000,000;

– V-4 –

GENERAL INFORMATION

APPENDIX V

(c) the sale and purchase agreement entered into on 21 June 2017 between HKBN Enterprise Solutions Limited and Unique Sky Limited in relation to the disposal of Unit 2 on Second Floor, Cornell Centre, Chai Wan, Hong Kong at the consideration of HK$10,500,000;
(d) the sale and purchase agreement entered into on 21 June 2017 between HKBN Enterprise Solutions Limited and Merit Gear Limited in relation to the disposal of Unit 3 on Second Floor, Cornell Centre, Chai Wan, Hong Kong at the consideration of HK$16,500,000;
(e) the sale and purchase agreement entered into on 21 June 2017 between HKBN Enterprise Solutions Limited and On Step Creation Limited in relation to the disposal of Unit 3 on Third Floor and Flat Roof, Cornell Centre, Chai Wan, Hong Kong at the consideration of HK$6,000,000;
(f) the sale and purchase agreement entered into on 8 May 2018 between HKBN Group Limited, Lau Wing Keung, Andy and Leung Ya Kan, Eric in relation to the purchase of the shares in I Consulting Group Limited at the consideration not more than HK$200,000,000;
(g) the sale and purchase agreement entered into on 16 July 2018 between Crown Master Enterprise Limited and EMWELL Limited in relation to the purchase of the Workshops 1-4, 5&6 (each with flat roof) and 7-23 on the Fourth Floor of Block B, Shatin Industrial Centre, Nos. 5-7 Yuen Shun Circuit, Shatin, New Territories, Hong Kong at the consideration of HK$209,840,000;
(h) the Merger Agreement;
(i) the Convertible Vendor Loan Instrument;
(j) the memorandum of understanding with respect to the proposed acquisition of the entire issued shares of Cosmo True Limited at the consideration of HK$328,281,166 dated 17 August 2018 entered into between HKBN Group Limited and Hong Kong Television Network Limited; and
(k) the sale and purchase agreement with respect to the proposed acquisition of the entire issued shares of Cosmo True Limited at the consideration of HK$329,218,608.55 dated 26 September 2018 entered into between HKBN Group Limited and Hong Kong Television Network Limited.

– V-5 –

GENERAL INFORMATION

APPENDIX V

8. EXPERTS AND CONSENTS

The following are the qualifications of the experts who have been named in this circular or have given opinion or letter contained in this circular:

Name	Qualifications
KPMG	Certified Public Accountants

As at the Latest Practicable Date, KPMG has given and has not withdrawn its written consent to the issue of this circular with the inclusion therein of its letters and references to its names, in the form and context in which it is included.

As at the Latest Practicable date, KPMG did not have any shareholding in any member of the Enlarged Group and did not have the right to subscribe for or to nominate persons to subscribe for shares in any members of the Enlarged Group.

As at the Latest Practicable Date, KPMG did not have any interest, direct or indirect, in any assets which have been acquired or disposed of by or leased to any member of the Enlarged Group, or which are proposed to be acquired or disposed of by or leased to any member of the Enlarged Group since 31 August 2017, being the date to which the latest published audited consolidated financial statements of the Company were made up.

9. GENERAL

(a) The registered office of the Company is situated at P.O. Box 309, Ugland House, Grand Cayman KY1-1104, Cayman Islands.
(b) The head office and principal place of business of the Company in Hong Kong is at 12th Floor, Trans Asia Centre, 18 Kin Hong Street, Kwai Chung, New Territories, Hong Kong.
(c) The Company’s branch share registrar and transfer office in Hong Kong is Tricor Investor Services Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong.
(d) The company secretary of the Company is Mr. Wong Yue Kit Andrew. Mr. Wong is the chief financial officer of the Group. He joined the Group in 2006. Mr. Wong has extensive experience in the external auditing, accounting and finance, internal control and compliance. He holds a Bachelor’s Degree in Accounting and Law from the University of Manchester, U.K. and an Executive Master of Business Administration Degree from the Chinese University of Hong Kong. He is also a member of the Hong Kong Institute of Certified Public Accountants.

– V-6 –

GENERAL INFORMATION

APPENDIX V

(e) This circular is prepared in both English and Chinese. In the event of any inconsistency, the English text prevails.

10. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours at the principal place of business of the Company in Hong Kong at 12th Floor, Trans Asia Centre, 18 Kin Hong Street, Kwai Chung, New Territories, Hong Kong, on any business days from the date of this circular up to and including the date of the EGM:

(a) the memorandum and articles of association of the Company;
(b) the annual reports of the Company for the years ended 31 August 2015, 2016 and 2017;
(c) the interim report of the Company for the six months ended 28 February 2018;
(d) the accountants’ report on WTT HK, the text of which is set out in Appendix IIA to this circular;
(e) the accountants’ report on WTT Holding, the text of which is set out in Appendix IIB to this circular;
(f) the report on the unaudited pro forma financial information of the Enlarged Group upon Completion, the text of which is set out in Appendix IV to this circular;
(g) the material contracts as referred to in the section headed “Material Contracts” of this appendix;
(h) the written consents of the experts as referred to in the section headed “Experts and Consents” of this appendix;
(i) the Merger Agreement;
(j) this circular; and
(k) the circular dated 16 November 2017 in relation to, among others, the proposed adoption of the Co-ownership plan III of the Company.

– V-7 –

PARTICULARS OF THE PROPOSED DIRECTORS

APPENDIX VI

Proposed Non-executive Director – Mr. Zubin Irani

Further to the nomination right as disclosed above, Mr. Zubin Irani (“ Mr. Irani ”) has been proposed by TPG Wireman as a (i) non-executive Director; (ii) member of the audit committee of the Company; and (iii) member of the remuneration committee of the Company. Biographical details of Mr. Irani are set out as follows:

Mr. Irani, aged 46, is currently a partner and managing director with TPG Capital since 2015 and leads the Asia Operations Team based out of the Singapore office. He brings over 20 years’ experience in building strong teams, driving performance and managing change within global businesses. Over the last 3 years at TPG Capital, Mr. Irani has been extensively involved in TPG Capital’s investments in Vishal Mega Mart Pvt Ltd (India), Myanmar Distillery Company, Property Guru Pte (SE Asia), WTT Group (Hong Kong), United Family Healthcare (China), Vietnam Australia International School, Dodla Dairy Ltd (India), Novotech (Australia) Pty Limited and Nox Corporation (Korea). In particular, Mr. Irani has been involved with WTT since the inception of TPG’s investment, actively participating in all the executive committee meetings. In his current role at TPG, Mr. Irani is responsible for the operating performance of TPG Capital’s portfolio in the Asia Pacific region which comprises of over 40 companies and assets under management exceeding US$5 billion.

From 1998 to 2005, Mr. Irani worked at McKinsey & Company where he spent six years in the Cleveland, Detroit and Mumbai offices, serving several multi-national clients in the automotive and industrial sectors. During these years, Mr. Irani worked on several merger integration initiatives. In 2005, Mr. Irani joined United Technologies Corporation (“ UTC ”) as the Director for Strategy and Marketing at Carrier Asia Pacific, where he worked on growth strategies across various markets in Asia. Between 2006 and 2015, Mr. Irani spent his time in India running several businesses for UTC. Immediately before Mr. Irani joined TPG Capital from UTC in 2015, he was the India Region President all UTC’s commercial businesses in the region, responsible for developing and executing strategies which resulted in an accelerated growth in the region.

In 1996, Mr. Irani graduated from Indian Institute of Technology Kanpur in India, where he obtained a bachelor degree of technology in materials and metallurgical engineering. In 1999, he further obtained a master degree in materials science and engineering from the Massachusetts Institute of Technology, completing his thesis in the field of “3D Printing Technologies”.

As at the Latest Practicable Date, Mr. Irani serves on the executive committees or boards of Property Guru Pte, WTT Group, Apollo Towers Holdings Ltd., Fourth Partner Energy Pvt. Ltd. and NOX Corporation. He is a member of the Young Presidents’ Organization (YPO) Delhi and Singapore Chapters.

As at the Latest Practicable Date, save as disclosed above, Mr. Irani (i) does not have any relationship with any directors, senior management or substantial or controlling shareholders (as defined in the Listing Rules) of the Company; (ii) does not have, and is not deemed to have,

– VI-1 –

PARTICULARS OF THE PROPOSED DIRECTORS

APPENDIX VI

any interest in the securities of the Company within the meaning of Part XV of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong); and (iii) does not hold any position in the Company or any subsidiary of the Company, nor any directorship in other listed public companies in the last three years preceding the Latest Practicable Date.

The Company will enter into a service agreement with Mr. Irani effective on the Completion Date, provided that the relevant ordinary resolution regarding the appointment of Mr. Irani as a non-executive Director is approved by the Shareholders at the EGM. If the appointment of Mr. Irani as a non-executive Director is approved by the Shareholders at the EGM, Mr. Irani will agree to waive the payment of director’s fee from the Company in his capacity as a non-executive Director.

Except as disclosed above, Mr. Irani confirms there is no information that is required to be disclosed under Rule 13.51(2)(h) to (v) of the Listing Rules and there are no other matters that need to be brought to the attention of the shareholders of the Company.

Proposed Non-executive Director – Mr. Teck Chien Kong

Further to the nomination right as disclosed above, Mr. Teck Chien Kong (“ Mr. Kong ”) has been proposed by Twin Holding as a (i) non-executive Director; and (ii) member of the nomination committee of the Company. Biographical details of Mr. Kong are set out as follows:

Mr. Kong, aged 43, is currently a partner at MBK Partners based in Hong Kong. He has extensive investment experiences in the telecom and media industry, leading MBK Partners’ investment in WTT Hong Kong Limited, China Network Systems Co., Ltd. and Gala TV Corp. Prior to joining MBK Partners in 2005, Mr. Kong served as the Vice President and co-head of the Singapore office of Carlyle Asia Partners from 2000 to 2005. From 1997 to 2000, Mr. Kong worked at the investment banking division at Salomon Smith Barney in its New York and Hong Kong offices.

Mr. Kong has been serving on the boards of directors of WTT HK, Apex International Corporation and China Network Systems Co., Ltd. since 2016, 2016 and 2007, respectively. In addition, he served on the board of directors of (i) Beijing Bowei Airport Support Limited from 2005 to 2016; (ii) Gala TV Corp. from 2008 to 2011; (iii) GSE Investment Corporation from 2009 to 2014; and (iv) Luye Pharma Group Ltd. from 2008 to 2012.

Mr. Kong graduated from the University of Michigan Business School in 1997, where he obtained a bachelor degree in business administration. In 2016, he further completed an advanced management program from Harvard Business School.

– VI-2 –

PARTICULARS OF THE PROPOSED DIRECTORS

APPENDIX VI

As at the Latest Practicable Date, save as disclosed above, Mr. Kong (i) does not have any relationship with any directors, senior management or substantial or controlling shareholders (as defined in the Listing Rules) of the Company; (ii) does not have, and is not deemed to have, any interest in the securities of the Company within the meaning of Part XV of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong); and (iii) does not hold any position in the Company or any subsidiary of the Company, nor any directorship in other listed public companies in the last three years preceding the Latest Practicable Date.

The Company will enter into a service agreement with Mr. Kong effective on the Completion Date, provided that the relevant ordinary resolution regarding the appointment of Mr. Kong as a non-executive Director is approved by the Shareholders at the EGM. If the appointment of Mr. Kong as a non-executive Director is approved by the Shareholders at the EGM, Mr. Kong will agree to waive the payment of director’s fee from the Company in his capacity as a non-executive Director.

Except as disclosed above, Mr. Kong confirms there is no information that is required to be disclosed under Rule 13.51(2)(h) to (v) of the Listing Rules and there are no other matters that need to be brought to the attention of the shareholders of the Company.

– VI-3 –

NOTICE OF EGM

==> picture [81 x 61] intentionally omitted <==

HKBN Ltd. 香港寬頻有限公司 (Incorporated in the Cayman Islands with limited liability) Stock Code: 1310

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that the extraordinary general meeting (the “Meeting”) of HKBN Ltd. (the “Company”) will be held at 10:00 a.m., on Friday, 16 November 2018 at WOW Land, 16th Floor, Trans Asia Centre, 18 Kin Hong Street, Kwai Chung, New Territories, Hong Kong for the purpose of considering and, if thought fit, passing, with or without amendments, the following resolutions as ordinary resolutions of the Company.

ORDINARY RESOLUTIONS

“ THAT
(a) the purchase of the entire issued share capital in WTT Holding Corp. by Metropolitan Light Company Limited (“MLCL”), a wholly-owned subsidiary of the Company (the “Proposed Transaction”), pursuant to the terms and conditions of the sale and purchase agreement dated 7 August 2018 between the Company, MLCL, TPG Wireman, LP (“TPG Wireman”) and Twin Holding Ltd (“Twin Holding”) (the “Merger Agreement”) be and is hereby approved;
(b) the entry into of the agreements and documents in relation to the Proposed Transaction, including but not limited to the Merger Agreement and the convertible vendor loan instrument (the “Convertible Vendor Loan Instrument”) by the Company and MLCL and the performance of their respective obligations under such documents be and are hereby approved, ratified and confirmed; and
(c) the board of directors of the Company (the “Board”) or any committee established by the board be and is hereby authorised to arrange for the execution of such documents and the taking of such actions by the Company or any of its subsidiaries as the board or such committee may consider necessary or desirable to be entered into or taken in connection with the Proposed Transaction.”

– EGM-1 –

NOTICE OF EGM

“ THAT conditional upon the passing of resolution 1, the grant of the Specific Mandate (as defined below) for the Board to issue the Consideration Shares (as defined under the Merger Agreement), the Vendor Loan Notes (as defined under the Convertible Vendor Loan Instrument) and the Conversion Shares (as defined under the Convertible Vendor Loan Instrument) upon the exercise of the conversion rights attaching to the Vendor Loan Notes be and are hereby approved:
(a) pursuant to the Merger Agreement, a total of 152,966,345 Consideration Shares and the Vendor Loan Notes in the principal amount of up to HK970,468,828 to TPG Wireman; and
(b) pursuant to the Merger Agreement, a total of 152,966,345 Consideration Shares and the Vendor Loan Notes in the principal amount of up to HK$970,468,828 to Twin Holding.”

“Specific Mandate” means the specific mandate to be granted by the shareholders at the Meeting to allot and issue the Consideration Shares, the Vendor Loan Notes and the Conversion Shares upon the exercise of the conversion rights attaching to the Vendor Loan Notes.

“ THAT Mr. Zubin Irani be appointed as a non-executive director of the Company, effective upon the completion of the Proposed Transaction in accordance with the Merger Agreement (the “Completion”).”
“ THAT Mr. Teck Chien Kong be appointed as a non-executive director of the Company, effective upon the Completion.”

By Order of the Board HKBN Ltd. Bradley Jay HORWITZ Chairman

Hong Kong, 26 October 2018

Principal Place of Business in Hong Kong: 12th Floor, Trans Asia Centre 18 Kin Hong Street, Kwai Chung New Territories Hong Kong

– EGM-2 –

NOTICE OF EGM

Notes:

(1) A form of proxy for use at the Meeting is enclosed with the Company’s shareholders’ circular dated 26 October 2018, of which the notice of the Meeting set out above is part.
(2) Any member of the Company entitled to attend and vote at the Meeting may appoint another person as his/her/its proxy to attend and vote instead of him/her/it. A member may appoint more than one proxy to attend on the same occasion. A proxy need not be a member of the Company.
(3) Where there are joint registered holders of any share, any one of such persons may vote at the Meeting, either personally or by proxy, in respect of such share of the Company as if he/she/it were solely entitled thereto; but if more than one of such joint holders be present at the Meeting personally or by proxy, that one of the said persons so present whose name stands first in the register of members of the Company in respect of such share shall alone be entitled to vote in respect thereof to the exclusion of the votes of the other joint holders.
(4) In order to be valid, the form of proxy duly completed and signed in accordance with the instructions printed thereon together with the power of attorney or other authority, if any, under which it is signed or a notarially certified copy thereof or, in the case of a member which is a corporation, under its seal or the hand of an officer or attorney duly authorised, must be delivered to the Company’s Hong Kong branch share registrar, Tricor Investor Services 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.
(5) Whether or not you propose to attend the Meeting in person, you are strongly 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 the Meeting and voting in person 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.

– EGM-3 –

AI assistant

HKBN Ltd. — M&A Activity 2018

49841_rns_2018-10-25_e46e47e4-4ded-496a-b135-6dee66786d86.pdf

HKBN Ltd. 香港寬頻有限公司

(2) PROPOSED APPOINTMENT OF DIRECTORS AND NOTICE OF EXTRAORDINARY GENERAL MEETING

Financial Adviser to the Company

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

HKBN Ltd. 香港寬頻有限公司

Board of Directors:

Registered Office:

Principal Place of Business in Hong Kong:

(1) THE ISSUE OF CONSIDERATION SHARES AND VENDOR LOAN NOTES UNDER SPECIFIC MANDATE AND

NOTICE OF EXTRAORDINARY GENERAL MEETING

1. INTRODUCTION

LETTER FROM THE BOARD

2. THE PROPOSED TRANSACTION

(1) The Merger Agreement

Parties:

LETTER FROM THE BOARD

Shares to be acquired:

Consideration

Basis of the Consideration

Consideration Shares

Vendor Loan Notes

Conditions

Nomination Right

Break Fee

Waiver of Dividend

Completion

Lock-up Period

(2) Terms of the Vendor Loan Notes

LETTER FROM THE BOARD

(3) Irrevocable Undertakings

(4) Shareholding Structure of WTT Group Before and After Completion

LETTER FROM THE BOARD

(5) Information of WTT Group

LETTER FROM THE BOARD

Financial information of WTT Group

Results

Assets and Liabilities

(6) Information About the Parties

The Company and MLCL

TPG Wireman

Twin Holding

(7) Reasons for and Benefits of the Proposed Transaction

Value creation: attractive synergy opportunities

Network: Acquire immediate access to significant network and building access footprint

Customer base: Expansion into large enterprise customer base

Services: Significant enhancement in service capabilities and diversification of business portfolio

(8) Effect on Shareholding Structure of the Company

(9) Financial Effects of the Proposed Transaction

Earnings

Assets and Liabilities

(10) Listing Rules Implication

(11) Fund Raising on Issue of Equity Securities by the Company in the Last 12 Months

3. APPOINTMENT OF NON-EXECUTIVE DIRECTORS

4. RECOMMENDATION

5. THE EGM

6. CO-OWNERSHIP PLAN III

7. GENERAL

8. ADDITIONAL INFORMATION

FINANCIAL SUMMARY OF THE GROUP

INDEBTEDNESS

FINANCIAL AND TRADING PROSPECT OF THE ENLARGED GROUP

WORKING CAPITAL

MATERIAL ADVERSE CHANGE

MATERIAL ACQUISITIONS

MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

FOR THE SIX MONTHS ENDED 28 FEBRUARY 2018

Business Review

Financial Review

Revenue

Profit/(Loss) for the period

Segment Information

Residential business

Enterprise business

Products business

HKBN Ltd. M&A Activity 2018