HKBN Ltd. - Proxy Solicitation & Information Statement 2019

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 registered 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 and the relevant proxy forms and reply slips to the purchaser(s) or transferee(s) or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser(s) or transferee(s).

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.

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

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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

MAJOR TRANSACTION PROPOSED ACQUISITION OF THE IT SOLUTIONS BUSINESS FROM JTH (BVI) LIMITED THROUGH THE ACQUISITION OF THE ENTIRE ISSUED SHARE CAPITAL OF JARDINE ONESOLUTION HOLDINGS (C.I.) LIMITED, ADURA HONG KONG LIMITED AND ADURA CYBER SECURITY SERVICES PTE LTD

Financial advisor to the Company

Capitalised terms used on this cover page shall have the same meanings as those defined in the section headed “Definitions” in this circular.

A notice convening an EGM of the Company to be held on Thursday, 12 December 2019 at 10:30 a.m. 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-2 of this circular. Whether or not you are able to attend the EGM, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return the same to the Company’s Hong Kong branch share registrar, Computershare Hong Kong Investor Services Limited, at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for holding the EGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM, or any adjourned meeting, should you so wish.

A letter from the Board is set out on pages 5 to 23 of this circular.

21 November 2019

CONTENTS

		Page
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		1
LETTER FROM	THE BOARD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
APPENDIX I	FINANCIAL INFORMATION OF THE GROUP. . . . . . . .	I-1
APPENDIX IIA	ACCOUNTANTS’ REPORT OF JOS CI. . . . . . . . . . . . . . .	IIA-1
APPENDIX IIB	ACCOUNTANTS’ REPORT OF ADURA HONG KONG. .	IIB-1
APPENDIX IIC	ACCOUNTANTS’ REPORT OF ADURA CYBER
	SECURITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	IIC-1
APPENDIX IIIA	MANAGEMENT DISCUSSION AND
	ANALYSIS OF JOS CI . . . . . . . . . . . . . . . . . . . . . . . . . .	IIIA-1
APPENDIX IIIB	MANAGEMENT DISCUSSION AND
	ANALYSIS OF ADURA HONG KONG. . . . . . . . . . . . . .	IIIB-1
APPENDIX IIIC	MANAGEMENT DISCUSSION AND
	ANALYSIS OF ADURA CYBER SECURITY . . . . . . . . .	IIIC-1
APPENDIX IV	UNAUDITED PRO FORMA FINANCIAL
	INFORMATION OF THE ENLARGED GROUP . . . . . .	IV-1
APPENDIX V	GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . .	V-1
NOTICE OF EXTRAORDINARY GENERAL MEETING. . . . . . . . . . . . . . . . . . .		EGM-1

This circular is published in both English and Chinese. Where the English and the Chinese texts conflict, the English text prevails.

– i –

DEFINITIONS

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

“Adura Cyber Security” Adura Cyber Security Services Pte Ltd, a company incorporated in Singapore and a direct wholly-owned subsidiary of JTH
“Adura Hong Kong” Adura Hong Kong Limited, a company incorporated in Hong Kong and a direct wholly-owned subsidiary of JTH
“Aged Debt” the accounts receivable of the Target Group Companies which were recognized in the unaudited consolidated accounts of JOS CI and its subsidiaries as being more than 90 days overdue as at 30 June 2019 by reference to an agreed schedule
“Board” the board of Directors of the Company from time to time
“Closing” completion of the Proposed Acquisition in accordance with the provisions of the Share Purchase Agreement
“Committed Shareholders” Mr. Chu Kwong YEUNG and Mr. Ni Quiaque LAI
“Committed Shares” Shares held by the Committed Shareholders as at the date of the EGM
“Company” HKBN Ltd., a company incorporated in the Cayman Islands with limited liability, the Shares of which are listed on the Main Board of the Stock Exchange (stock code: 1310)
“Consideration” an amount in cash equal to the sum of US$50 million (representing approximately HK$392.2 million), subject to adjustments in accordance with the Share Purchase Agreement
“Co-Owners”
participants who are Talents of the Group and to whom Shares or contingent rights to receive Shares of the Company are granted pursuant to any of the CoOwnership Plans
“Co-Ownership Plan II” the share incentive scheme adopted by the Company on 21 February 2015
“Co-Ownership Plan III Plus” the share incentive scheme adopted by the Company on 4 September 2019

“Co-Ownership Plans” collectively, the Co-Ownership Plan II and CoOwnership Plan III Plus

– 1 –

DEFINITIONS

“Director(s)” the director(s) of the Company “EBITDA” earnings before interest, taxes, depreciation and amortisation
“Enlarged Group” the Group as enlarged by the Proposed Acquisition upon Closing
“EV” enterprise value “Extraordinary General Meeting” an extraordinary general meeting of the Company to be or “EGM” held on Thursday, 12 December 2019 at 10:30 a.m. at WOW Land, 16th Floor, Trans Asia Centre, 18 Kin Hong Street, Kwai Chung, New Territories, Hong Kong, notice of extraordinary general meeting is set out on pages EGM-1 to EGM-2 of this circular (or any adjournment thereof)
“Group” the Company and its subsidiaries as at the Latest Practicable Date
“HK$” Hong Kong dollars, the lawful currency of Hong Kong “HKBNGL” HKBN Group Limited, a company incorporated in the British Virgin Islands with limited liability and an indirect wholly-owned subsidiary of the Company
“HKFRS” Hong Kong Financial Reporting Standards
“Hong Kong” the Hong Kong Special Administrative Region of the PRC
“ICG” HKBN Enterprise Solutions Cloud Services Limited (formerly known as “I Consulting Group Limited”)
“ICT” information and communications technology
“Irrevocable Undertakings” the irrevocable undertakings given by each of the Committed Shareholders, each dated 23 August 2019, in favour of JTH to vote the Committed Shares in favour of the resolution(s) to approve the Proposed Acquisition at the EGM, further details of which are set out in the section headed “Letter from the Board – Irrevocable Undertakings” in this circular
“IT” information technology

– 2 –

DEFINITIONS

“Jardine Technology” Jardine Technology Holdings Limited, a company incorporated in Bermuda “JOS CI” Jardine OneSolution Holdings (C.I.) Limited, an exempted company incorporated in the Cayman Islands with limited liability and a direct wholly-owned subsidiary of JTH “JOS CI Group” JOS CI and its subsidiaries “JTH” JTH (BVI) Limited, a company incorporated in the British Virgin Islands and a direct wholly-owned subsidiary of Jardine Technology

“JTH Group” JTH and its subsidiaries (other than the Target Group Companies)
“Latest Practicable Date” 18 November 2019, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information referred to in this circular
“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange, as amended from time to time
“Management Incentive Agreements”
the management incentive agreements entered into on 23 and 24 September 2019 between HKBNGL and each of the Managers in relation to the Management Incentive Scheme, each a “Management Incentive Agreement”
“Management Incentive Scheme” the management incentive scheme, which will operate as a pain/GAIN scheme, to be put in place between HKBNGL and the Managers upon Closing pursuant to the Management Incentive Agreements
“Managers”
collectively, Mr. Mark LUNT, Mr. Stanley CHIU and Mr. Eric OR, the current managers of the Target Group Companies, each a “Manager”
“MLCL”
Metropolitan Light Company Limited, an exempted company incorporated in the Cayman Islands with limited liability and a direct wholly-owned subsidiary of the Company
“PRC” the People’s Republic of China

– 3 –

DEFINITIONS

“Proposed Acquisition” the proposed acquisition of the entire issued share capital in the Target Companies by HKBNGL from JTH pursuant to the Share Purchase Agreement
“RMB” Renminbi, the lawful currency of the PRC
“Sale Shares” all of the issued shares in the capital of the Target Companies
“SFO” the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) as amended from time to time
“Share(s)” fully paid ordinary share(s) with a nominal value of HK$0.0001 each in the share capital of the Company
“Share Purchase Agreement” the share purchase agreement entered into on 23 August 2019 among JTH, Jardine Technology, HKBNGL and MLCL in relation to the Proposed Acquisition
“Shareholder(s)” holder(s) of the Share(s)
“Singapore” the Republic of Singapore
“Stock Exchange” The Stock Exchange of Hong Kong Limited
“Target Companies” collectively, JOS CI, Adura Hong Kong and Adura Cyber Security, each a “Target Company”
“Target Group Companies” collectively, JOS CI and its subsidiaries, Adura Hong Kong and Adura Cyber Security, each a “Target Group Company”
“US$” United States dollars, the lawful currency of the United States of America
“WTT” collectively, WTT Holding Corp, a company incorporated in the Cayman Islands with limited liability, and its subsidiaries, which after the completion of purchase of the entire issued share capital by MLCL on 30 April 2019, have become indirect wholly-owned subsidiaries of the Company. WTT Holding Corp, has merged into MLCL in May 2019

“%” per cent

Note: Unless otherwise indicated, the figures in “US$” is converted into HK$ at the rate of US$1.00 : HK$7.8433 throughout this circular for indicative purposes only, and should not be construed as a representation that any amount has been, could have been or may be, exchanged at such or any other rates.

– 4 –

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. Chu Kwong YEUNG Mr. Ni Quiaque LAI

Non-executive Directors Ms. Deborah Keiko ORIDA Mr. Zubin Jamshed IRANI Mr. Teck Chien KONG

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

Independent non-executive Directors Mr. Stanley CHOW Mr. Yee Kwan Quinn LAW, SBS, JP

21 November 2019

To the Shareholders

Dear Sir or Madam,

MAJOR TRANSACTION PROPOSED ACQUISITION OF THE IT SOLUTIONS BUSINESS FROM JTH (BVI) LIMITED THROUGH THE ACQUISITION OF THE ENTIRE ISSUED SHARE CAPITAL OF JARDINE ONESOLUTION HOLDINGS (C.I.) LIMITED, ADURA HONG KONG LIMITED AND ADURA CYBER SECURITY SERVICES PTE LTD

1. INTRODUCTION

The Company refers to its announcement dated 23 August 2019 in relation to the Proposed Acquisition.

– 5 –

LETTER FROM THE BOARD

On 23 August 2019 (before trading hours), HKBNGL (as purchaser), MLCL (as purchaser’s guarantor), JTH (as seller) and Jardine Technology (as seller’s guarantor) entered into the Share Purchase Agreement, pursuant to which, among other things, HKBNGL has conditionally agreed to purchase, and JTH has conditionally agreed to sell, the Sale Shares for the Consideration, namely a total cash consideration of US$50 million (representing approximately HK$392.2 million) (subject to certain Closing and post-Closing adjustments as set out in the Share Purchase Agreement).

Furthermore, as a performance incentive for the Managers, HKBNGL executed with each of the Managers respectively on 23 and 24 September 2019 a Management Incentive Agreement in relation to the Management Incentive Scheme. For further details of the Management Incentive Agreements and the Management Incentive Scheme, please refer to section headed “Management Incentive Agreements” in this letter below.

The purpose of this circular is to provide the Shareholders with further information on the details of the Proposed Acquisition as required under the Listing Rules and to give Shareholders the notice of EGM at which the Shareholders’ approval in respect of the Proposed Acquisition will be sought.

2. PRINCIPAL TERMS OF THE SHARE PURCHASE AGREEMENT

Date

23 August 2019

Parties

(1) JTH, as seller
(2) Jardine Technology, as seller’s guarantor
(3) HKBNGL, as purchaser
(4) MLCL, as purchaser’s guarantor

To the best knowledge, information and belief of the Directors, having made all reasonable enquiries, JTH and Jardine Technology and their respective ultimate beneficial owners are third parties independent of the Company and are not its connected persons as defined under the Listing Rules.

– 6 –

LETTER FROM THE BOARD

Proposed Acquisition

Pursuant to the Share Purchase Agreement, JTH conditionally agreed to sell and HKBNGL conditionally agreed to purchase the Sale Shares, representing the entire issued share capital of the Target Companies, free from any encumbrance and together with all rights and advantages attaching to them as at Closing.

Upon Closing, the Target Companies will become direct wholly-owned subsidiaries of HKBNGL and indirect wholly-owned subsidiaries of the Company.

Consideration

The Consideration payable shall be US$50 million (representing approximately HK$392.2 million) in cash, subject to deductions in the amount of:

(a) non-permitted value leakage (if any) out of the Target Group Companies occurring between 31 December 2018 and Closing, which is notified by JTH to HKBNGL pursuant to the Share Purchase Agreement; and
(b) a payment made in respect of any claim for any breach of the Share Purchase Agreement pursuant to an indemnity, covenant or other obligation to pay thereunder.

For this purpose, “non-permitted value leakage” includes amounts paid or made or agreed to be paid or made by any Target Group Company to or for the benefit of JTH other than any “permitted leakage”. Permitted leakage under the Share Purchase Agreement includes but is not limited to: (i) settlement of outstanding intergroup indebtedness on or prior to Closing; (ii) any amounts incurred or paid or agreed to be paid or payable in the ordinary course of the Target Group Companies’ trading activities, on arm’s length terms and consistent with past practice in the 12-month period prior to the date of the Share Purchase Agreement by any Target Group Company to Jardine Technology or its subsidiaries; (iii) settlement of certain intergroup payables and receivables between JTH Group and the Target Group Companies and the subsequent dividend or distribution of the same amount by JOS CI on a cashless basis, which amounts to approximately HK$301,405,000; (iv) payments in respect of pension surplus by way of dividend declaration; and (v) any amounts or liability incurred or paid or agreed to be paid by or on behalf of any Target Group Company at the written request or with the written agreement of HKBNGL.

The Consideration was determined after arm’s length negotiations between HKBNGL and JTH having regard to, among other things, (i) HKBNGL’s view of the value of the assets, business and financial results of the Target Group Companies, in particular, the trading multiples of comparable companies of similar businesses as further described below; (ii) the permitted leakage items as described above; and (iii) the factors set out in the section headed “Letter from the Board – Reasons for and Benefits of the Proposed Acquisition” below.

– 7 –

LETTER FROM THE BOARD

The companies considered comparable to the Target Group Companies include other IT solutions and system integration businesses based in China and Hong Kong such as Chinasoft International Limited, Automated Systems Holdings Limited and ICO Group Limited, which shares are listed on the Main Board of the Stock Exchange. The EV/2018 EBITDA multiple of such comparable companies ranges from 5.7x to 13.2x as of the trading day immediately prior to the date of announcement of the Proposed Acquisition. As the EV/2018 EBITDA of JOS CI is within the range of the aforementioned comparable companies, HKBNGL is of the view that the implied EV/EBITDA multiple for the Target Group Companies: (i) is in line with the implied multiples for the comparable companies; (ii) reflects the nature of acquisition of a controlling stake and growth prospect of the Target Group Companies; and (iii) EV/EBITDA is the standard and common metric used to assess the value of a IT solutions business. In light of the above, HKBNGL considers that the Consideration is fair and reasonable compared with the comparable companies.

Condition precedent

Closing is conditional upon the passing of the necessary ordinary resolution by the Shareholders at the EGM to be convened and held to approve the Share Purchase Agreement and the transactions contemplated thereunder (including the Proposed Acquisition) in accordance with the applicable requirements under the Listing Rules. The Company expects that Closing will occur in the fourth quarter of 2019.

HKBNGL and JTH may terminate the Share Purchase Agreement if the ordinary resolution by the Shareholders approving the Share Purchase Agreement and the transactions contemplated thereunder (including the Proposed Acquisition) is not passed in accordance with the applicable requirements under the Listing Rules by 17 January 2020.

Guarantees

Jardine Technology has, in favour of HKBNGL, agreed to guarantee the proper and punctual performance by JTH of its obligations under the Share Purchase Agreement. MLCL has, in favour of JTH, agreed to guarantee the proper and punctual performance by HKBNGL of its obligations under the Share Purchase Agreement.

Closing

Closing shall take place at the office of Linklaters in Hong Kong on the tenth business day following the satisfaction of the condition precedent, or at such other location or date as may be agreed between JTH and HKBNGL.

Indemnities

JTH has agreed to indemnify HKBNGL with respect to a potential penalty for a historical regulatory compliance matter involving a Target Group Company.

– 8 –

LETTER FROM THE BOARD

JTH has agreed to indemnify HKBNGL for any Aged Debt which is not settled in cash within six months of Closing (subject to a total cap of US$10 million (representing approximately HK$78.4 million)), provided that HKBNGL shall have an obligation to procure that the relevant Target Group Companies follow a commercially reasonable protocol to recover the Aged Debt during that six-month period. HKBNGL shall also keep JTH updated as to the status of the Aged Debt on a monthly basis after Closing and for the duration of that six-month period.

Warranties and Limitations

JTH has agreed to provide a reasonably comprehensive set of warranties at signing of the Share Purchase Agreement which will be repeated at Closing.

The warranties are limited by reference to a relatively customary set of limitations, including: (i) a time limit of five years from Closing for tax claims and fundamental warranty claims; (ii) a time limit of 18 months from Closing for all other warranty claims; (iii) a de-minimis for all claims under the warranties given at signing of the Share Purchase Agreement of 0.5% of the Consideration; (iv) a de-minimis for all claims under the warranties given at Closing of 2% of the Consideration; (v) a basket for all aggregated claims under the warranties of 2% of the Consideration; (vi) a cap on liability for all non-fundamental warranty claims of 30% of the Consideration; and (vii) a cap on liability for all claims under the warranties and indemnities of 100% of the Consideration.

3. FINANCING

The Proposed Acquisition will be financed by an unsecured revolving facility of the Group extended by a licensed bank in Hong Kong.

4. INFORMATION ABOUT THE TARGET COMPANIES

JOS CI was incorporated in 1989 in the Cayman Islands with limited liability and is an investment holding company. JOS CI Group is principally engaged in: (i) installation and implementation of IT solutions and system integration; (ii) multi-vendor maintenance services for IT hardware; and (iii) IT infrastructure support services and IT consultancy services through nine offices across Hong Kong, Macau, Malaysia, the PRC and Singapore. JOS CI sources computer hardware, products, equipment and maintenance services from reputable IT suppliers across various countries and repackage and design tailored IT solutions for its customers, covering aspects such as network operation support, software licensing, general IT support, hosting and maintenance services. Adura Hong Kong and Adura Cyber Security were incorporated in 2017 in Hong Kong and Singapore respectively, which are principally engaged in the provision of cyber security consultancy services in Hong Kong and Singapore respectively. As at the date of this circular, each of the Target Companies is a wholly-owned subsidiary of JTH.

– 9 –

LETTER FROM THE BOARD

Corporate structure prior to Closing

The corporate structure, in simplified form, the Target Group Companies and their subsidiaries as at the date of this circular and prior to Closing is as follows:

==> picture [422 x 301] intentionally omitted <==

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

Adura Hong Kong
(Hong Kong)
JTH Adura Cyber Security
(BVI) (Singapore)
JOS CI
(Cayman Islands)
Jardine One Solution (HK) Limited Jardine One Solution China Co Ltd JOS Applications Holdings Limited
(Hong Kong) (PRC) BVI incorporated
JOS Synergy (HK) Limited
(Hong Kong) JOS Applications (HK) Limited
(Hong Kong)
IXIX Distribution Limited
(Hong Kong)
JOS Asia Limited
(Hong Kong)
JOSD Pte Ltd
(Singapore)
Jardine One Solution (2001) Pte Ltd
(Singapore)
JOS Applications (S) Pte Ltd (2)
75% (Singapore)
JOS Malaysia Sdn Bhd
(Malaysia)
Jardine One Solution (China) Limited Jardine OneSolution (Macau) Limited
(Hong Kong) (Macau)
----- End of picture text -----

Notes:

(1) Unless otherwise specified, the shareholding of one company over another company included in the above chart is 100%.
(2) JOS Applications (S) Pte Ltd is held as to 75% by Jardine OneSolution (2001) Pte Ltd and as to 25% by persons that are third parties independent of the Company.

– 10 –

LETTER FROM THE BOARD

Corporate structure upon Closing

The corporate structure, in simplified form, of the Group as enlarged by the Proposed Acquisition upon Closing is expected to be be as follows:

==> picture [422 x 301] intentionally omitted <==

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

Adura Hong Kong
(Hong Kong)
HKBNGL Adura Cyber Security
(BVI) (Singapore)
JOS CI
(Cayman Islands)
Jardine One Solution (HK) Limited Jardine One Solution China Co Ltd JOS Applications Holdings Limited
(Hong Kong) (PRC) BVI incorporated
JOS Synergy (HK) Limited
(Hong Kong) JOS Applications (HK) Limited
(Hong Kong)
IXIX Distribution Limited
(Hong Kong)
JOS Asia Limited
(Hong Kong)
JOSD Pte Ltd
(Singapore)
Jardine One Solution (2001) Pte Ltd
(Singapore)
JOS Applications (S) Pte Ltd(2)
75% (Singapore)
JOS Malaysia Sdn Bhd
(Malaysia)
Jardine One Solution (China) Limited Jardine OneSolution (Macau) Limited
(Hong Kong) (Macau)
----- End of picture text -----

Notes:

(1) Unless otherwise specified, the shareholding of one company over another company included in the above chart is 100%.
(2) JOS Applications (S) Pte Ltd is held as to 75% by Jardine OneSolution (2001) Pte Ltd and as to 25% by persons that are third parties independent of the Company.

– 11 –

LETTER FROM THE BOARD

Financial information of the Target Companies

Set out below is (i) the selected consolidated financial information of JOS CI for each of the financial years ended 31 December 2016, 2017 and 2018 and the six months ended 30 June 2019, (ii) the selected financial information of Adura Hong Kong for the period from 14 December 2017 (date of incorporation) to 31 December 2017, the financial year ended 31 December 2018 and the six months ended 30 June 2019, and (iii) the selected financial information of Adura Cyber Security for the period from 30 November 2017 (date of incorporation) to 31 December 2017, the financial year ended 31 December 2018 and the six months ended 30 June 2019, as extracted or derived from the Accountants’ Reports of JOS CI, Adura Hong Kong and Adura Cyber Security included as Appendices IIA, IIB and IIC respectively to this circular.

Results of operation

			JOS CI
	For the financial year		ended	For the	six months
		31 December		ended	30 June
	2016	2017	2018	2018	2019
				(unaudited)
			(in HK$’000)
Revenue	3,546,078	3,510,597	3,820,239	1,808,421	1,784,044
(Loss)/profit before
taxation	(38,572)	(5,367)	52,536	11,468	(981)
(Loss)/profit for the
year/period	(34,507)	(5,010)	45,508	9,673	(2,589)
(Loss)/profit attributable
to the owner	(35,006)	(5,441)	46,902	8,683	(1,763)

		Adura Hong Kong	Adura Hong Kong
	Period from
	14 December	For the
	2017 (date of	financial
	incorporation)	year ended	For	the six months ended
	to 31 December	31 December		30 June
	2017	2018		2018	2019
			(unaudited)
		(in HK$)
Revenue	–	561,201		–	1,125,953
(Loss) before taxation	–	(2,573,219)	(1,191,187)		(1,134,319)
(Loss) for the year/period	–	(2,585,594)	(1,195,078)		(1,132,009)

– 12 –

LETTER FROM THE BOARD

Adura Cyber Security

Adura Cyber Security	Adura Cyber Security
Period from 30 November 2017 (date of incorporation) to 31 December For the financial year ended 31 December For the six 30 2017 2018 2018 (unaudited) (in HK$) Revenue – 7,101,239 1,676,924 Profit/(loss) before taxation – 158,877 (1,172,691) Profit/(loss) for the year/period – 158,877 (1,172,691) *Assets and Liabilities* JOS CI As at 31 December 2016 31 December 2017 31 December 2018 (in HK$’000) Total assets 1,497,310 1,532,737 1,718,161 Total liabilities 1,016,079 1,093,003 1,263,909 Net assets 481,231 439,734 454,252 Adura Hong Kong As at 31 December 2017 31 December 2018 (in HK$) Total assets 300,751 482,345 Total liabilities 300,750 3,204,043 Net assets/(liabilities) 1 (2,721,698) Adura Cyber Security As at 31 December 2017 31 December 2018 (in HK$) Total assets 6 5,852,981 Total liabilities – 5,696,343 Net assets/(liabilities) 6 156,638		months ended June 2019 1,940,581 (2,079,052) (2,079,052) 30 June 2019 1,945,879 1,504,156 441,723 30 June 2019 1,706,177 5,542,349 (3,836,172) 30 June 2019 5,902,400 7,822,551 (1,920,511)

– 13 –

LETTER FROM THE BOARD

5. INFORMATION ABOUT THE PARTIES

The Group

Since the establishment of the Group’s predecessor in 1999, the Group has grown from a start-up to a leading ICT service provider in Hong Kong, offering both residential and enterprise telecommunication services. With extensive fibre-optic networks, the Group offers a comprehensive range of premier ICT services to both enterprise, residential and product markets, including broadband, data connectivity, managed Wi-Fi, mobile, voice communications, data centre facilities, business continuity services, system integration and various cloud solutions.

HKBNGL

HKBNGL is a company incorporated in the British Virgin Islands and an indirect wholly-owned subsidiary of the Company. HKBNGL is principally engaged in investment holding in Hong Kong.

Jardine Technology

Jardine Technology is a company incorporated in Bermuda and an indirect wholly-owned subsidiary of Jardine Matheson Holdings Ltd. Jardine Technology is principally engaged in investment holding. Jardine Matheson Holdings Limited is incorporated in Bermuda and has a standard listing on the London Stock Exchange, with secondary listings in Bermuda and Singapore.

JTH

JTH is a company incorporated in the British Virgin Islands and a direct wholly-owned subsidiary of Jardine Technology. JTH is principally engaged in investment holding.

6. REASONS FOR AND BENEFITS OF THE PROPOSED ACQUISITION

Background to and Rationale for the Proposed Acquisition

The Group’s strategy for long term value creation is to multiply organic growth with a sequence of roll-up mergers and acquisitions. Rapid organic growth of the Group, together with the acquisitions of Y5Zone Limited (“Y5Zone”) in 2013 for enhanced vertical service capability, Concord Ideas Ltd. and Simple Click Investments Limited (“NWT”) in 2016 for enhanced horizontal scale, and ICG in 2018 for further enhanced vertical service capability, as well as the transformational merger with WTT completed on 30 April 2019 for accelerated horizontal scale, have significantly transformed the Group from a mass residential-focused business at the time of the Company’s IPO in 2015 to a leading residential and enterprise communications service provider in the market. Today, the Group offers a full suite of services covering residential, enterprise, wholesale and mobile telecommunications services, network solutions, cloud services, data centres and business continuity services.

– 14 –

LETTER FROM THE BOARD

The horizontal acquisition of NWT and the transformation merger with WTT have allowed the Group to significantly increase scale in terms of network coverage, revenue size and customer types and numbers, while the vertical acquisitions of Y5Zone and ICG have propelled the Group to expand its service offerings to include WiFi and cloud service capabilities, as presented in the chart below.

Horizontal and vertical expansion via mergers and acquisition

==> picture [286 x 252] intentionally omitted <==

The inclusion of the Target Group Companies in the above diagram is for reference only and is subject to Shareholders’ approval of the Proposed Acquisition sought in this circular.

The Group is poised for acquisitions upside across its business lines

Post-merger with WTT, the Group’s management visited the top 100 customers of WTT and came back with one clear insight – there was very strong common desire for a single point of contact for all ICT needs rather having multiple vendors to composite the ICT services. As such, the Group went in search of a new acquisition target that can bring together all of the Group offerings and combine them into a “one-stop shop” integrated ICT offering.

– 15 –

LETTER FROM THE BOARD

The Target Group Companies, which are principally engaged in IT-related businesses including the provision of IT systems integration, IT solutions and IT consultancy services with a focus on the enterprise segment, would be highly complementary to the Group’s existing business. In particular, the Group and the Target Group Companies are often serving the same point of contact in their respective customers, typically the CIOs, and therefore combining their businesses will be a big step towards the “one-stop shop” objective. Post-closing of the Proposed Acquisition, the combined business of the Enlarged Group would deliver the critical scale and create an integrated system integrator and connectivity player of significant scale in Hong Kong.

==> picture [366 x 232] intentionally omitted <==

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

Full suite of Network System Mobile
Cloud Data Center
ICT and other Solutions Integration (MVNO)
services
Feasibility studies / Integration of systems Maintenance, managed
JOS system Project preparation services
integration services
offerings
----- End of picture text -----

Our “Best of Breed” Integration

Core to the Group’s integration of the acquisition targets is a “Best of Breed” approach, under which the Group retain and promote Talents based on mindset and capability rather than whether they are from the Group or acquired company. Today, the Group’s management team is the most diverse amongst its peers which makes them far more ready to take advantage of rapid industry changes. Furthermore, it is expected that the majority of the Group’s senior executives from newly acquired acquisition targets (including WTT) will join as Co-Owners of the Company as part of the upcoming Co-Ownership Plan III Plus, with such “skin-in-game”, there is inevitably strong alignment of interests between the Group and such senior executives.

– 16 –

LETTER FROM THE BOARD

Table: Profile of the Group’s top 64 executives (top 1.4% of the Group), i.e. Associate Directors and above, as at September 2019.

Company of Origin The Group More than 5 years with the Group 5 years or less with the Group WTT NWT Y5Zone ICG Total	Total 29 7 16 5 3 4 64	% of Team 45% 11% 25% 8% 5% 6%
		100%

Customers: leverage on existing and growing base and improve services offerings

Overall, the Proposed Acquisition with the Group is a combination for growth, therefore the focus is on incremental revenue generation via cross-selling of a complimentary suite of ICT services across each other’s customer base. Following the integration of WTT, the Group’s enterprise customer base has grown to over 100,000 in number, consisting of a mixture of large corporates and small and medium sized enterprises, while the Target Group Companies have around 10,000 enterprise customers across a broad base of industries. Around 3,000 of the 10,000 enterprise customers of the Target Group Companies are based in Hong Kong. The Target Group Companies’ key customers include Hongkong Land, New World Department Store China Limited, The Hongkong and Shanghai Banking Corporation Limited, Swire Pacific Limited, Hang Seng Bank, Hysan Development Company Limited, CLP Group, The Bank of East Asia, Limited, Sun Hung Kai Properties Limited and Mannings. As such, the Proposed Acquisition represents a unique opportunity for the Group to expand its enterprise customer base, diversify across a wider portfolio of customers and industries and increase its market share in Hong Kong.

Post the Proposed Acquisition, it is expected that the Group will be well on track to fulfil its aspiration to be the pre-eminent ICT solutions partner to its customers. A key part of being an ICT solutions partner to its customers is to be able to provide a “one-stop shop” which can fulfil all of its customers’ ICT solutions needs and help them realise all of their potential business opportunities in the most efficient and cost-effective manner possible. Another key part of being an ICT solutions partner is to proactively think as the customer so as to help them realise business opportunities through digital transformation, rather than simply reacting to problem solve an existing issue. The Company believes that the Group’s unique service capabilities and synergies across its business lines (further reinforced and expanded by the Proposed Acquisition), together with its co-ownership corporate culture, empowers and incentivises the Group’s talents to align their interests with the Group.

– 17 –

LETTER FROM THE BOARD

From Sales-to-customer to Partner-to-customer

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

�Offers a “one-stop shop” catering to all of the
customers’ ICT business needs and opportunities with
a single point of contact.
�Proactively thinks like a customer, to help them create
opportunities to transform their business for the better.
�Focus on creating value for the customer rather than
1. Integrated
merely saving costs e.g. improving the competitiveness
ICT partner
of their whole business rather than just improving
to customers
efficiency of their IT department.
� Reactively waits for the customer to share their
2. Solutions provider to customers
problem, then they propose a solution rather than being
proactive.
i
�Thinks like a salesperson, whatever inventory they
3. Commodity salesperson to customers have, they will sell it and if the specifications don’t fit
the customer, then change the customer.
----- End of picture text -----

Synergy opportunities

By integrating into the Group, the Target Group Companies will benefit from the Group’s scale and operating track record. The Proposed Acquisition will allow the Target Group Companies to leverage the Group’s existing enterprise customer base, talents and culture to improve overall profitability. Post-Closing of the Proposed Acquisition, the combined business of the Enlarged Group will have an enlarged customer base, significant scale efficiencies and complementary capabilities, enabling the Enlarged Group to enhance its service offering, reduce overlapping costs and deliver greater value to customers.

The Company expects to realize synergies in the following areas:

I. revenue synergy from cross-selling of Target Group Companies’ comprehensive range of system integration services (with the support of over 800 technical professionals of the Target Group Companies in the Hong Kong business) to the Group’s existing customer base. To put this into perspective, the Target Group Companies’ Hong Kong customer base of 3,000 compared to the Group’s existing 100,000 plus enterprise customers would present a very deep customer pool to tap into;
II. revenue synergy from cross-selling the Group’s telecommunication products and services to the Target Group Companies’ customer base;
III. savings in costs of goods sold due to larger order volumes from the combined scale and enhanced bargaining power with regards to dealing with suppliers; and
IV. savings in general and administrative costs through optimization of the combined workforce, whereby more than 2,000 employees from the Target Group Companies (with more than 1,000 employees in Hong Kong) will join the Group’s talents of over 4,000) especially in the support functions of finance, talent management, administration and IT.

– 18 –

LETTER FROM THE BOARD

Complimentary service offerings: deliver significant enhancement to service capabilities

The Target Group Companies’ capabilities in IT systems integration, provision of IT solutions and IT consultancy are highly complementary to the Group’s telecommunication services enterprise business. Leveraging these additional expertise and service capabilities of the Target Group Companies will allow the combined business of the Enlarged Group to become a fully integrated ICT solutions player of scale in Hong Kong offering a comprehensive “one-stop shop” for its customers with a full service suite of ICT solutions, and a single point of contact for each customer. The Company believes that this will create a unique moat and allow the Enlarged Group to compete more effectively, in a market with a growing demand for ICT solutions and an increasing trend for outsourcing to fulfil these needs, particularly amongst the small and medium sized enterprise customer base of the Group.

In achieving a “one-stop shop” model, the Enlarged Group will be able to build upon its existing customer relationship and track record to:

I. gain a greater wallet share of its existing customers’ ICT solutions spend (as well as the customers of the Target Group Companies) by removing the need for such customers to split their spend between different ICT solutions providers;
II. create value for its customers by being able to provide a fully integrated ICT solutions platform utilising the latest ICT technology onto which particularly the small and medium sized enterprise customers can outsource their entire ICT requirements; and
III. benefit from substantial and sustained customer loyalty over the long term,

particularly when the “one-stop shop” model is combined with the Group’s traditional commitment to exemplary customer service, provided by highly incentivised and motivated talents (see below).

7. TALENT DEVELOPMENT AND SOCIAL COMMITMENT OF THE ENLARGED GROUP AFTER THE PROPOSED ACQUISITION

The Group will continue to uphold its established cultivating and open culture to nurture talents within the Group, in order to support the continuous growth of the Enlarged Group after the Proposed Acquisition.

The Group has long embraced open communication and total engagement, where talents are well-informed of key strategies, and are empowered to take a leading role in growing the business of the Group. The success of the Group has been based on the solid foundation of transparency, mutual trust and respect within the Group, where talents are provided with ample opportunities to be proactive leaders and collaborate as a single united team within the Group.

– 19 –

LETTER FROM THE BOARD

The Group has always keenly promoted active learning and a challenge-embracing culture through engaging and empowering its talents to build on their strengths and realise their goals and full potential. For example, the Group supports talents to participate in different sports activities, such as the Hong Kong Marathon and Spartan Race, to encourage the talents to embrace new and difficult challenges. The Group also provides workshops, external courses, annual team building activities and seminars to allow the talents to learn proactively. One such example is the monthly management meetings where inspirational speakers are invited to share their experience on topics, such as entrepreneurship, business ethics and social responsibility, which serves as a source of inspiration and enlightenment to talents.

The most prominent example of empowerment of the Group’s talent is the adoption of the Co-Ownership Plans. The co-ownership culture is the Group’s “Legal Unfair Competitive Advantage” and a key differentiator which defines the Group’s unique strengths and culture. The Co-Ownership Plans provides a unique opportunity for the Group’s talents to buy-into the Company’s share equity and partake in profits-sharing as Co-Owners of the Group, which creates a strong alignment of interests between the Co-Owners and the Group. The co-ownership culture has been strengthened over the years with the Co-Ownership Plan II take-up rates among the executive-grade talents at 100%, the director-grade talents at 89%, and the manager-grade talents at 63%. As at the Latest Practicable Date, there are over 330 Co-Owners under Co-Ownership Plan II.

Leading by example, Mark Lunt – Group Managing Director, Eric Or – Managing Director for – Hong Kong and China and Stanley Chiu, Financial Controller (i.e. the Managers), have all confirmed via their signed Management Incentive Agreements, to invest more than 12 months of their annual salary upon Closing of the Proposed Transaction into a combination of the Company’s Co-Ownership Plan III Plus and pain/GAIN scheme. The Management Incentive Agreements set out the Managers’ participation in the pain/GAIN scheme, under which adjusted funds flow performance KPIs are set for the Target Group Companies for the period between Closing and 31 August 2021 which, if met, will result in a multiplier return (GAIN) and if not met, will result in their investment in the pain/GAIN scheme being given to a charity of their choice (pain).

In addition to the above, and consistent with the Group’s practice, approximately 25% of the Target Group Companies’ total talent base, according to their seniority, is expected to be invited to participate in the Co-Ownership Plan III Plus.

As has been the case in previous acquisitions and integrations where similar arrangements have been put in place, the Enlarged Group can adopt mutually beneficial arrangements under which the Managers can utilise the talent base of the Group to help the Target Group Companies achieve their adjusted funds flow performance KPIs, whilst the talent base of the Group will acquire additional skills and expertise as well as greater opportunities to leverage cross-selling opportunities from the rapid integration with the Target Group Companies. At Closing, the Company therefore looks forward to welcoming the Managers as Co-Owners and pain/GAIN participants of the Group.

– 20 –

LETTER FROM THE BOARD

The pain/GAIN with the Managers and the extension of the Group’s co-ownership culture to the Target Group Companies will strengthen the synergies from the integration of the Target Group Companies to the Group. The Group’s offerings to its talents of a meritocratic culture where talents are treated with respect, together with exceptional work flexibility, substantive employment benefits as well as the numerous opportunities for professional development, ensure that the talents are retained and incentivised to promote and drive the continued success of the Enlarged Group.

8. FINANCIAL EFFECTS OF THE PROPOSED ACQUISITION

Upon Closing, the Target Companies will become direct wholly-owned subsidiaries of HKBNGL and indirect wholly-owned subsidiaries of the Company. The financial results, assets and liabilities of the Target Group Companies will be consolidated with those of the Group.

Earnings

As set out in the Accountants’ Reports of JOS CI, Adura Hong Kong and Adura Cyber Security respectively included as Appendices IIA, IIB and IIC to this circular, (i) the consolidated revenue and profit for the year of JOS CI were approximately HK$3,820.2 million and HK$45.5 million for the financial year ended 31 December 2018, respectively; (ii) the revenue and loss for the year of Adura Hong Kong were HK$0.6 million and approximately HK$2.6 million for the financial year ended 31 December 2018, respectively; and (iii) the revenue and profit for the year of Adura Cyber Security were approximately HK$7.1 million and HK$0.2 million for the financial year ended 31 December 2018, 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 or derived from the annual report of the Company for the year ended 31 August 2019, the consolidated total assets and total liabilities of the Group as at 31 August 2019 were approximately HK$20,382.0 million and HK$12,925.5 million, respectively, and the consolidated net assets as at 31 August 2019 were approximately HK$7,456.6 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$21,629.0 million and HK$14,185.0 million, respectively; and the unaudited pro forma net asset value of the Enlarged Group would decrease to approximately HK$7,444.0 million, assuming Closing had taken place on 31 August 2019.

– 21 –

LETTER FROM THE BOARD

9. LISTING RULES IMPLICATIONS

As one of the applicable percentage ratios (as defined under Chapter 14 of the Listing Rules) in respect of the Proposed Acquisition exceeds 25% but is less than 100%, the Proposed Acquisition constituted a major transaction of the Company and is therefore subject to the reporting, announcement and shareholders’ approval requirements under Chapter 14 of the Listing Rules.

To the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, no Shareholder has any material interest in the Proposed Acquisition and therefore no Shareholder is required to abstain from voting on the ordinary resolution to be proposed at the EGM.

10. IRREVOCABLE UNDERTAKINGS

On 23 August 2019, each of Mr. Chu Kwong YEUNG and Mr. Ni Quiaque LAI, who, as at the date of this circular, hold 27,086,427 shares and 32,997,122 shares in the Company respectively, representing approximately 2.07% and 2.52% of the Company’s issued share capital respectively, provided a written irrevocable undertaking to JTH to vote all the Committed Shares held by each of them respectively in favour of the ordinary resolution of the Shareholders to be proposed to approve the Share Purchase Agreement and the transactions contemplated thereunder (including the Proposed Acquisition) at the EGM.

11. MANAGEMENT INCENTIVE AGREEMENTS

On 23 and 24 September 2019, HKBNGL and each of the Managers executed a Management Incentive Agreement in relation to the Management Incentive Scheme. Under the Management Incentive Scheme, each of the Managers will pay an amount to HKBNGL at Closing and based on the Target Group Companies’ performance during a specified two-year period, HKBNGL will either refund such payment with a bonus payment to the Manager or such Manager will not be entitled to any refund of such payment, subject to the terms and conditions agreed in each of the Management Incentive Agreements.

12. EGM

As no Shareholder has a material interest in the Share Purchase Agreement different from any other Shareholders, all Shareholders are entitled to vote on the ordinary resolution to approve the Share Purchase Agreement and the transactions contemplated thereunder (including the Proposed Acquisition) to be proposed at the EGM.

A notice convening the EGM to be held on Thursday, 12 December 2019 at 10:30 a.m. 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-2 of this circular. At the EGM, the Shareholders will be requested to consider and, if thought fit, pass the ordinary resolution to approve the transactions contemplated by the Share Purchase Agreement (including the Proposed Acquisition).

– 22 –

LETTER FROM THE BOARD

Pursuant to Rule 13.39(4) of the Listing Rules, any vote of Shareholders at a general meeting must be taken by poll. Therefore, the resolution put to the vote at the EGM will be taken by way of poll. After the conclusion of the EGM, the poll results will be published on the respective websites of the Stock Exchange and the Company.

A form of proxy for use by the Shareholders at the EGM is enclosed. Whether or not you are able to attend the EGM (or any adjourned meeting) in person, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return the same to the Company’s Hong Kong branch share registrar, Computershare Hong Kong Investor Services Limited, at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for holding the EGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM, or any adjourned meeting, should you so wish.

13. RECOMMENDATION

The Directors (including the independent non-executive Directors) are of the view that the terms of the Proposed Acquisition are fair and reasonable and are in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors (including the independent non-executive Directors) recommend the Shareholders to vote in favour of the ordinary resolution to be proposed in relation to the Proposed Acquisition at the EGM.

14. GENERAL

Shareholders should note that Closing of the Proposed Acquisition is subject to approval of the Shareholders at the EGM. Accordingly, there is no assurance that the Proposed Acquisition will be completed. Shareholders and potential investors should, accordingly, exercise caution when dealing in the Shares of the Company.

15. 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

– 23 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. FINANCIAL INFORMATION OF THE GROUP FOR EACH OF THE THREE YEARS ENDED 31 AUGUST 2017, 2018 AND 2019

Financial information of the Group for each of the three years ended 31 August 2017, 2018 and 2019, are respectively disclosed in pages 105 to 183 of the annual report of the Company for the year ended 31 August 2017, pages 109 to 184 of the annual report of the Company for the year ended 31 August 2018 and pages 117 to 233 of the annual report of the Company for the year ended 31 August 2019, all of which are available on the websites of the Stock Exchange (www.hkexnews.hk) and the Company (www.hkbn.net) and can be accessed at the website addresses below:

(i) annual report of the Company for the year ended 31 August 2017 (http://www1.hkexnews.hk/listedco/listconews/sehk/2017/1115/ltn20171115223.pdf)
(ii) annual report of the Company for the year ended 31 August 2018 (http://www1.hkexnews.hk/listedco/listconews/sehk/2018/1114/ltn20181114155.pdf)
(iii) annual report of the Company for the year ended 31 August 2019 (https://www1.hkexnews.hk/listedco/listconews/sehk/2019/1111/2019111100307.pdf)

2. INDEBTEDNESS

As at the close of business on 30 September 2019, being the most recent practicable date for the purpose of this indebtedness statement, the Enlarged Group had the following outstanding indebtedness:–

(a) Borrowings:

As at close of business on 30 September 2019, the Enlarged Group had total bank and other borrowings of HK$5,120 million, of which HK$315 million were unsecured and unguaranteed and HK$4,805 million was unsecured and cross-guaranteed by the Company and its subsidiaries.

As at close of business on 30 September 2019, the Enlarged Group had senior notes of HK$4,689 million with a principal amount of US$603 million (equivalent to HK$4,752 million). The senior notes were issued in 2017 and will mature on 21 November 2022.

(b) Lease Liabilities:

As at the close of business on 30 September 2019, the Enlarged Group had lease liabilities of approximately HK$641 million.

– I-1 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(c) Contingent liabilities:

As at the close of business on 30 September 2019, the Enlarged Group had contingent liabilities of approximately HK$112 million in respect of bank guarantees provided to customers, suppliers and utility vendors in lieu of payment of utility deposits.

Save as disclosed above and apart from intra-group liabilities and normal trade payables, the Enlarged Group did not have, as at 30 September 2019, 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.

3. 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.

4. FINANCIAL AND TRADING PROSPECTS

Upon Completion, the Target Companies will become direct wholly-owned subsidiaries of HKBNGL. The Company believes the Proposed Acquisition represents a unique opportunity for the Enlarged Group to (i) leverage on the synergy opportunities enjoyed due to the significant efficiencies of the combined scale, (ii) expand its service offerings and capabilities, and (iii) broaden its customer base especially in the enterprise business segment.

5. NO 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 or prospects of the Group since 31 August 2019 (being the date to which the latest audited consolidated financial statements of the Group were made up).

– I-2 –

ACCOUNTANTS’ REPORT OF JOS CI

APPENDIX IIA

The following is the text of a report set out on pages IIA-1 to IIA-70, 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 JARDINE ONESOLUTION HOLDINGS (C.I.) LIMITED AND ITS SUBSIDIARIES TO THE DIRECTORS OF HKBN LTD.

Introduction

We report on the historical financial information of Jardine OneSolution Holdings (C.I.) Limited (the “Target Company”) and its subsidiaries (together, the “Target Group”) set out on pages IIA-4 to IIA-70, which comprises the consolidated statements of financial position of the Target Group as at 31 December 2016, 2017 and 2018 and 30 June 2019 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 2016, 2017 and 2018 and the six months ended 30 June 2019 (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-70 forms an integral part of this report, which has been prepared for inclusion in the circular of HKBN Ltd. (the “Company”) dated 21 November 2019 (the “Circular”) in connection with the proposed acquisition of the IT solutions business from JTH (BVI) Limited through the acquisition of the entire issued share capital of Jardine OneSolution Holdings (C.I.) Limited, Adura Hong Kong Limited and Adura Cyber Security Services Pte Ltd.

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.

The Underlying Financial Statements of the Target Group as defined on page IIA-4, on which the Historical Financial Information is based, were prepared by the directors of the Target Company. The directors of the Target Company are responsible for the preparation of the Underlying Financial Statements that give a true and fair view in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”), and for such internal control as the directors of the Target Company determine is necessary to enable the preparation of the Underlying Financial Statements that is free from material misstatement, whether due to fraud or error.

– IIA-1 –

ACCOUNTANTS’ REPORT OF JOS CI

APPENDIX IIA

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.

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 Group’s consolidated financial position as at 31 December 2016, 2017 and 2018 and 30 June 2019 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, 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 2018 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

– IIA-2 –

ACCOUNTANTS’ REPORT OF JOS CI

APPENDIX IIA

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.

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 have been made.

KPMG

Certified Public Accountants

8th Floor, Prince’s Building 10 Chater Road Central, Hong Kong 21 November 2019

– IIA-3 –

ACCOUNTANTS’ REPORT OF JOS CI

APPENDIX IIA

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 under separate terms of engagement with the Target Company 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 4(a) Cost of goods sold and cost of services Other operating expenses Finance costs 4(b) (Loss)/profit before taxation 4 Income tax credit/(expense) 5(a) (Loss)/profit for the year/period (Loss)/profit attributable to Owner of the Target Company Non-controlling interests	Year ended 31 December 2016 2017 2018 $’000 $’000 $’000 3,546,078 3,510,597 3,820,239 33,157 18,103 71,417 (3,037,904) (2,989,965) (3,268,800) (577,073) (539,891) (562,230) (2,830) (4,211) (8,090) (38,572) (5,367) 52,536 4,065 357 (7,028) (34,507) (5,010) 45,508 (35,006) (5,441) 46,902 499 431 (1,394) (34,507) (5,010) 45,508	Six months ended 30 June 2018 2019 $’000 $’000 (unaudited) 1,808,421 1,784,044 18,178 11,416 (1,539,281) (1,525,561) (273,401) (262,003) (2,449) (8,877) 11,468 (981) (1,795) (1,608) 9,673 (2,589) 8,683 (1,763) 990 (826) 9,673 (2,589)

Note: The Target Group has initially applied HKFRS 16 at 1 January 2019. The historical financial information for the years ended 31 December 2016, 2017 and 2018 and for the six months ended 30 June 2018 has not been adjusted retrospectively to reflect the impact of adopting HKFRS 16. See note 1(c).

The accompanying notes form part of the Historical Financial Information.

– IIA-4 –

ACCOUNTANTS’ REPORT OF JOS CI

APPENDIX IIA

Consolidated statements of comprehensive income

(Expressed in Hong Kong Dollars)

Note (Loss)/profit 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 Item that will not be reclassified to profit or loss: Remeasurement of employee benefit plans Tax related to employee benefit plans Other comprehensive income for the year/period Total comprehensive income for the year/period Total comprehensive income attributable to: Owner of the Target Company Non-controlling interests	Year ended 31 December 2016 2017 2018 $’000 $’000 $’000 (34,507) (5,010) 45,508 - - - - - - - - - - - - - - - - - - - - - - - - - - - 1,243 (1,320) 557 14,368 32,784 (12,084) (2,371) (5,409) 1,994 13,240 26,055 (9,533) - - - - - - - - - - - - - - - - - - - - - - - - - - - (21,267) 21,045 35,975 (21,683) 20,294 37,433 416 751 (1,458) (21,267) 21,045 35,975	Six months ended 30 June 2018 2019 $’000 $’000 (unaudited) 9,673 (2,589) - - - - - - - - - - - - - - - - - - (723) (393) 358 12,003 (59) (1,980) (424) 9,630 - - - - - - - - - - - - - - - - - - 9,249 7,041 8,365 7,848 884 (807) 9,249 7,041

The accompanying notes form part of the Historical Financial Information.

– IIA-5 –

ACCOUNTANTS’ REPORT OF JOS CI

APPENDIX IIA

Consolidated statements of financial position

(Expressed in Hong Kong Dollars)

Note Non-current assets Property, plant and equipment 8 Right-of-use assets 8(a) Intangible assets 9 Goodwill 10 Deferred tax assets 19(a) Pension assets 20 Other receivables, deposits and prepayments 14 Current assets Inventories 12 Contract assets 13(a) Trade receivables 14 Other receivables, deposits and prepayments 14 Amount due from group companies 15 Loans receivable from a group company 18 Tax recoverable Cash and cash equivalents 16 Current liabilities Trade payables 17 Other payables and accrued charges 17 Contract liabilities 13(b) Loan payable to a group company 18 Provision for other liability and charges 22 Bank borrowings 21 Tax payable Lease liabilities – current portion 23	At 2016 $’000 68,645 – 53,912 69,123 31,099 31,472 9,922 264,173 - - - - - - - - - 90,899 11,954 681,377 81,716 271,446 32,711 515 62,519 1,233,137 - - - - - - - - - 447,063 191,924 236,561 – 100 115,593 270 – 991,511 - - - - - - - - -	31 December 2017 2018 $’000 $’000 60,351 60,159 – – 46,197 36,887 70,908 64,904 24,715 21,672 56,887 38,154 9,821 8,875 268,879 230,651 - - - - - - - - - - - - - - - - - - 95,179 92,743 32,690 29,756 671,610 868,796 156,215 137,845 216,870 258,234 32,711 32,711 233 848 58,350 66,577 1,263,858 1,487,510 - - - - - - - - - - - - - - - - - - 426,904 492,570 218,873 221,674 244,111 303,764 1,170 – 500 100 176,868 224,119 1,393 2,333 – – 1,069,819 1,244,560 - - - - - - - - - - - - - - - - - -	At 30 June 2019 $’000 52,715 232,405 32,014 64,886 18,879 46,954 9,313
			457,166 - - - - - - - - - 109,559 25,972 838,640 169,333 279,335 32,711 796 32,367
			1,488,713 - - - - - - - - - 457,749 183,671 322,420 – 100 254,811 1,160 100,294
			1,320,205 - - - - - - - - -

– IIA-6 –

ACCOUNTANTS’ REPORT OF JOS CI

APPENDIX IIA

Note Net current assets Total assets less current liabilities Non-current liabilities Other payables 17 Loan payable to a group company 18 Deferred tax liabilities 19(a) Provision for other liabilities and charges 22 Lease liabilities – non-current portion 23 NET ASSETS CAPITAL AND RESERVES Share capital 24(a) Reserves TOTAL EQUITY ATTRIBUTABLE TO OWNER OF THE TARGET COMPANY NON-CONTROLLING INTERESTS	At 2016 $’000 241,626 - - - - - - - - - 505,799 - - - - - - - - - – 7,095 4,354 13,119 – 24,568 - - - - - - - - - 481,231 11 477,787 477,798 3,433 481,231	31 December 2017 2018 $’000 $’000 194,039 242,950 - - - - - - - - - - - - - - - - - - 462,918 473,601 - - - - - - - - - - - - - - - - - - 2,339 4,443 5,925 – 394 299 14,526 14,607 – – 23,184 19,349 - - - - - - - - - - - - - - - - - - 439,734 454,252 11 11 435,539 451,515 435,550 451,526 4,184 2,726 439,734 454,252	At 30 June 2019 $’000 168,508 - - - - - - - - -
			625,674 - - - - - - - - - 4,473 – 400 14,884 164,194
			183,951 - - - - - - - - -
			441,723

			11 439,793
			439,804 1,919
			441,723

The accompanying notes form part of the Historical Financial Information.

– IIA-7 –

ACCOUNTANTS’ REPORT OF JOS CI

APPENDIX IIA

Consolidated statements of changes in equity

(Expressed in Hong Kong Dollars)

Attributable to shareholder of the Target Company

Note Balance at 1 January 2016 Changes in equity for the year ended 31 December 2016 (Loss)/profit for the year Other comprehensive income for the year Total comprehensive income for the year Dividend declared 24(b) Balance at 31 December 2016 and 1 January 2017 Changes in equity for the year ended 31 December 2017: (Loss)/profit for the year Other comprehensive income for the year Total comprehensive income for the year Dividend declared 24(b) Balance at 31 December 2017 and 1 January 2018	Share capital $’000 11 - - - - - - - – – – - - - - - - - – - - - - - - - 11 - - - - - - - – – – - - - - - - - – - - - - - - - 11	Exchange reserve $’000 749 - - - - - - - – 1,326 1,326 - - - - - - - – - - - - - - - 2,075 - - - - - - - – (1,640) (1,640) - - - - - - - – - - - - - - - 435	Merger reserve $’000 46,938 - - - - - - - – – – - - - - - - - – - - - - - - - 46,938 - - - - - - - – – – - - - - - - - – - - - - - - - 46,938	Retained profits $’000 508,425 - - - - - - - (35,006) 11,997 (23,009) - - - - - - - (56,642) - - - - - - - 428,774 - - - - - - - (5,441) 27,375 21,934 - - - - - - - (62,542) - - - - - - - 388,166	Total $’000 556,123 - - - - - - - (35,006) 13,323 (21,683) - - - - - - - (56,642) - - - - - - - 477,798 - - - - - - - (5,441) 25,735 20,294 - - - - - - - (62,542) - - - - - - - 435,550	Non- controlling interests $’000 3,017 - - - - - - - - 499 (83) 416 - - - - - - - - – - - - - - - - - 3,433 - - - - - - - - 431 320 751 - - - - - - - - – - - - - - - - - 4,184	Total equity $’000 559,140 - - - - - - - (34,507) 13,240
							(21,267) - - - - - - - (56,642) - - - - - - -
							481,231 - - - - - - - (5,010) 26,055
							21,045 - - - - - - - (62,542) - - - - - - -
							439,734

– IIA-8 –

ACCOUNTANTS’ REPORT OF JOS CI

APPENDIX IIA

Attributable to shareholder of the Target Company

Note Changes in equity for the year ended 31 December 2018 Profit/(loss) for the year Other comprehensive income for the year Total comprehensive income for the year Dividend declared 24(b) Balance at 31 December 2018 Impact on initial application of HKFRS 16 1(c)(i) Adjusted balance at 1 January 2019 Changes in equity for the six months ended 30 June 2019: Loss for the period Other comprehensive income for the period Total comprehensive income for the period Dividend declared 24(b) Balance at 30 June 2019	Share capital $’000 – – – - - - - - - - – - - - - - - - 11 – 11 - - - - - - - – – – - - - - - - - – - - - - - - - 11	Exchange reserve $’000 – 621 621 - - - - - - - – - - - - - - - 1,056 – 1,056 - - - - - - - – (412) (412) - - - - - - - – - - - - - - - 644	Merger reserve $’000 – – – - - - - - - - – - - - - - - - 46,938 – 46,938 - - - - - - - – – – - - - - - - - – - - - - - - - 46,938	Retained profits $’000 46,902 (10,090) 36,812 - - - - - - - (21,457) - - - - - - - 403,521 (19,570) 383,951 - - - - - - - (1,763) 10,023 8,260 - - - - - - - – - - - - - - - 392,211	Total $’000 46,902 (9,469) 37,433 - - - - - - - (21,457) - - - - - - - 451,526 (19,570) 431,956 - - - - - - - (1,763) 9,611 7,848 - - - - - - - – - - - - - - - 439,804	Non- controlling interests $’000 (1,394) (64) (1,458) - - - - - - - - – - - - - - - - - 2,726 – 2,726 - - - - - - - - (826) 19 (807) - - - - - - - - – - - - - - - - - 1,919	Total equity $’000 45,508 (9,533)
							35,975 - - - - - - - (21,457) - - - - - - -
							454,252 (19,570)
							434,682 - - - - - - - (2,589) 9,630
							7,041 - - - - - - - – - - - - - - -
							441,723

– IIA-9 –

ACCOUNTANTS’ REPORT OF JOS CI

APPENDIX IIA

Attributable to shareholder of the Target Company

Note Unaudited Balance at 31 December 2017 and 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 Dividend declared 24(b) Balance at 30 June 2018	Share capital $’000 11 – – – - - - - - - - – - - - - - - - 11	Exchange reserve $’000 435 – (617) (617) - - - - - - - – - - - - - - - (182)	Merger reserve $’000 46,938 – – – - - - - - - - – - - - - - - - 46,938	Retained profits $’000 388,166 8,683 299 8,982 - - - - - - - (21,457) - - - - - - - 375,691	Total $’000 435,550 8,683 (318) 8,365 - - - - - - - (21,457) - - - - - - - 422,458	Non- controlling interests $’000 4,184 990 (106) 884 - - - - - - - - – - - - - - - - - 5,068	Total equity $’000 439,734 9,673 (424)
							9,249 - - - - - - - (21,457) - - - - - - -
							427,526

The accompanying notes form part of the Historical Financial Information.

– IIA-10 –

ACCOUNTANTS’ REPORT OF JOS CI

APPENDIX IIA

Consolidated cash flow statements

(Expressed in Hong Kong Dollars)

Note Cash used in operations 16(b) Tax refund/(paid): – Hong Kong Tax refunded/(paid) – Tax (paid)/refunded outside Hong Kong Net cash used in operating activities Investing activities Interest income Payment for the purchase of property, plant and equipment Payment for the purchase of intangible assets Proceeds from disposal of intangible assets, property, plant and equipment Other investing activities Net cash used in investing activities Financing activities Capital element of lease rentals paid Interest element of lease rentals paid Interest paid Repayment of loan payables to group companies Decrease in loan receivables from group companies Net proceeds from banks Net cash generated from/(used in) financing activities	Year ended 31 December 2016 2017 2018 $’000 $’000 $’000 (23,154) (34,233) (6,535) 1,214 (451) (1,053) (140) 91 (911) (22,080) (34,593) (8,499) - - - - - - - - - - - - - - - - - - - - - - - - - - - 892 2,002 4,396 (59,939) (16,727) (25,211) (1,420) (2,481) (1,144) 544 192 619 (1,403) (2,266) (145) (61,326) (19,280) (21,485) - - - - - - - - - - - - - - - - - - - - - - - - - - - – – – – – – (2,830) (4,211) (8,090) (49,866) – (7,095) 17,173 – – 42,665 54,887 51,277 7,142 50,676 36,092 - - - - - - - - - - - - - - - - - - - - - - - - - - -	Six months ended 30 June 2018 2019 $’000 $’000 (unaudited) (105,154) (6,341) – – (913) (1,869) (106,067) (8,210) - - - - - - - - - - - - - - - - - - 898 1,958 (8,145) (4,129) (451) (180) 326 33 – – (7,372) (2,318) - - - - - - - - - - - - - - - - - - – (44,113) – (4,873) (2,449) (4,008) – – 1,170 – 90,012 29,362 88,733 (23,632) - - - - - - - - - - - - - - - - - -

– IIA-11 –

ACCOUNTANTS’ REPORT OF JOS CI

APPENDIX IIA

Note Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year/period 16(a) Effects of exchange rate changes Cash and cash equivalents at the end of the year/period 16(a)	Year ended 31 December 2016 2017 2018 $’000 $’000 $’000 (76,264) (3,197) 6,108 138,369 62,519 58,350 414 (972) 2,119 62,519 58,350 66,577	Six months ended 30 June 2018 2019 $’000 $’000 (unaudited) (24,706) (34,160) 58,350 66,577 346 (50) 33,990 32,367

The accompanying notes form part of the Historical Financial Information.

– IIA-12 –

ACCOUNTANTS’ REPORT OF JOS CI

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

Jardine OneSolution Holdings (C.I.) Limited (the “Target Company”) is a private limited company incorporated in Cayman Islands. The address of the registered office and the principal place of business is P.O. Box 309, Ugland House, George Town, Grand Cayman, Cayman Islands, British West Indies.

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 marketing and distribution of computer hardware and software, telecommunication products, office automation products and the provision of related services.

All companies comprising the Target Group have adopted 31 December as their financial year end date.

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.

Application of business combinations under common control

Pursuant to the sales and purchase agreements entered into between JTH (BVI) Limited, the immediate holding company, and the Target Company on 27 December 2017 and 4 June 2018, the entire issued share capital of JOS Malaysia Sdn Bnd, Jardine OneSolution (2001) Pte Ltd and Jardine OneSolution (China) Limited (collectively, the “Transferred Group”) were transferred to the Target Company with consideration of RMB4.50 (equivalent to HK$8), US$3,416,500 (equivalent to HK$26,648,700) and US$1 (equivalent to HK$8) respectively (“the Transfer”).

The Transfer was considered as a business combination under common control as the Target Company and the Transferred Group are both ultimately controlled by JTH (BVI) Limited. Under HKFRSs, the Transfer was accounted for as a business combination under common control. Accordingly, the Transferred Group was included in the consolidated financial statements from the beginning of the earliest period presented as if the Transferred Group had always been part of the Target Group and the consolidated financial statements of the Target Group for the years ended 31 December 2016, 2017 and 2018 and the six months ended 30 June 2019 were prepared using the same accounting policy.

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 on 1 January 2019. The revised and new accounting standards and interpretation issued but not yet effective for the accounting period beginning on 1 January 2019 are set out in note 33.

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”).

For the purpose of preparing the Historical Financial Information, the accounting policies set out below have been applied consistently throughout the Relevant Periods, except for HKFRS 16, Leases which has been initially applied on 1 January 2019. Details of the changes in accounting policies are discussed in note 1(c)(i) for HKFRS 16.

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.

– IIA-13 –

ACCOUNTANTS’ REPORT OF JOS CI

APPENDIX IIA

(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, except that derivative financial instruments are stated at fair value (see note 1(v)).

The Historical Financial Information is presented in Hong Kong dollars. The functional currency of the Target Company is United States dollars.

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 30.

(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 on 1 January 2019. Of these, the following developments are relevant to the Target Group’s Historical Financial Information:

(i) HKFRS 16, leases

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

HKFRS 16 replaces HKAS 17, Leases , and the related interpretations, HK(IFRIC) 4, Determining whether an arrangement contains a lease, HK(SIC) 15, Operating leases – incentives , and HK(SIC) 27, Evaluating the substance of transactions involving the legal form of a lease . It introduces a single accounting model for lessees, which requires a lessee to recognise a right-of-use asset and a lease liability for all leases, except for leases that have a lease term of 12 months or less (“short-term leases”) and leases of low-value assets. The lessor accounting requirements are brought forward from HKAS 17 substantially unchanged.

HKFRS 16 also introduces additional qualitative and quantitative disclosure requirements which aim to enable users of the financial statements to assess the effect that leases have on the financial position, financial performance and cash flows of an entity.

The Target Group has initially applied HKFRS 16 as from 1 January 2019. The Target Group has elected to use the modified retrospective approach and has therefore recognised the cumulative effect of initial application as an adjustment to the opening balance of equity at 1 January 2019. Comparative information has not been restated and continues to be reported under HKAS 17.

Further details of the nature and effect of the changes to previous accounting policies and the transition options applied are set out below:

a. New definition of a lease

The change in the definition of a lease mainly relates to the concept of control. HKFRS 16 defines a lease on the basis of whether a customer controls the use of an identified asset for a period of time, which may be determined by a defined amount of use. Control is conveyed where the customer has both the right to direct the use of the identified asset and to obtain substantially all of the economic benefits from that use.

– IIA-14 –

ACCOUNTANTS’ REPORT OF JOS CI

APPENDIX IIA

The Target Group applies the new definition of a lease in HKFRS 16 only to contracts that were entered into or changed on or after 1 January 2019. For contracts entered into before 1 January 2019, the Target Group has used the transitional practical expedient to grandfather the previous assessment of which existing arrangements are or contain leases. Accordingly, contracts that were previously assessed as leases under HKAS 17 continue to be accounted for as leases under HKFRS 16 and contracts previously assessed as non-lease service arrangements continue to be accounted for as executory contracts.

b. Lessee accounting and transitional impact

HKFRS 16 eliminates the requirement for a lessee to classify leases as either operating leases or finance leases, as was previously required by HKAS 17. Instead, the Target Group is required to capitalise all leases when it is the lessee, including leases previously classified as operating leases under HKAS 17, other than those short-term leases and leases of low-value assets which are exempt. As far as the Target Group is concerned, these newly capitalised leases are primarily in relation to property, plant and equipment as disclosed in note 26. For an explanation of how the Target Group applies lessee accounting, see note 1(f).

At the date of transition to HKFRS 16 (i.e. 1 January 2019), the Target Group determined the length of the remaining lease terms and measured the lease liabilities for the leases previously classified as operating leases at the present value of the remaining lease payments, discounted using the relevant incremental borrowing rates at 1 January 2019. The incremental borrowing rates used for determination of the present value of the remaining lease payments was 1.77% to 4.07%.

To ease the transition to HKFRS 16, the Target Group applied the following recognition exemption and practical expedients at the date of initial application of HKFRS 16:

(i) the Target Group elected not to apply the requirements of HKFRS 16 in respect of the recognition of lease liabilities and right-of-use assets to leases for which the remaining lease term ends within 12 months from the date of initial application of HKFRS 16, i.e. where the lease term ends on or before 31 December 2019;
(ii) when measuring the lease liabilities at the date of initial application of HKFRS 16, the Target Group applied a single discount rate to a portfolio of leases with reasonably similar characteristics (such as leases with a similar remaining lease term for a similar class of underlying asset in a similar economic environment); and
(iii) when measuring the right-of-use assets at the date of initial application of HKFRS 16, the Target Group relied on the previous assessment for onerous contract provisions as at 31 December 2018 as an alternative to performing an impairment review.

The following table reconciles the operating lease commitments as disclosed in note 26 as at 31 December 2018 to the opening balance for lease liabilities recognised as at 1 January 2019:

Operating lease commitments at 31 December 2018
Less: commitments relating to leases exempt from capitalisation:
– short-term leases and other leases with remaining lease term ending
on or before 31 December 2019
Add: lease payments for the additional periods where the Target Group
considers it reasonably certain that it will exercise the extension
options
Less: total future interest expenses
Present value of remaining lease payments, discounted using the
incremental borrowing rate at 1 January 2019

1 January
2019
$’000
223,713
(536)
77,713
300,890
(20,765)
280,125

– IIA-15 –

ACCOUNTANTS’ REPORT OF JOS CI

APPENDIX IIA

The right-of-use assets in relation to leases previously classified as operating leases have been recognised at an amount equal to the amount recognised for the remaining lease liabilities, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognised in the statement of financial position at 31 December 2018.

The following table summarises the impacts of the adoption of HKFRS 16 on the Target Group’s consolidated statement of financial position:

	Carrying		Carrying
	amount at	Capitalisation	amount at
	31 December	of operating	1 January
	2018	lease contracts	2019
	$’000	$’000	$’000
Line items in the consolidated
statement of financial position
impacted by the adoption of
HKFRS 16:
Other property, plant and equipment	60,159	260,555	320,714
Total non-current assets	230,651	260,555	491,206
Lease liabilities (current)	–	83,787	83,787
Current liabilities	1,244,560	83,787	1,328,347
Net current assets	242,950	(83,787)	159,163
Total assets less current liabilities	473,601	176,768	650,369
Lease liabilities (non-current)	–	196,338	196,338
Total non-current liabilities	19,349	196,338	215,687
Net assets	454,252	(19,570)	434,682

c. Impact on the financial result and cash flows of the Target Group

After the initial recognition of right-of-use assets and lease liabilities as at 1 January 2019, the Target Group as a lessee is required to recognise interest expense accrued on the outstanding balance of the lease liability, and the depreciation of the right-of-use asset, instead of the previous policy of recognising rental expenses incurred under operating leases on a straight-line basis over the lease term. This results in a negative impact on the reported profit from operations in the Target Group’s consolidated income statement, as compared to the results if HKAS 17 had been applied during the year.

In the cash flow statement, the Target Group as a lessee is required to split rentals paid under capitalised leases into their capital element and interest element (see note 16(c)). These elements are classified as financing cash outflows, similar to how leases previously classified as finance leases under HKAS 17 were treated, rather than as operating cash outflows, as was the case for operating leases under HKAS 17. Although total cash flows are unaffected, the adoption of HKFRS 16 therefore results in a significant change in presentation of cash flows within the cash flow statement (see note 16(e)).

– IIA-16 –

ACCOUNTANTS’ REPORT OF JOS CI

APPENDIX IIA

The following tables give an indication of the estimated impact of the adoption of HKFRS 16 on the Target Group’s financial result and cash flows for the period ended 30 June 2019, by adjusting the amounts reported under HKFRS 16 in these consolidated financial statements to compute estimates of the hypothetical amounts that would have been recognised under HKAS 17 if this superseded standard had continued to apply in 2019 instead of HKFRS 16, and by comparing these hypothetical amounts for 2019 with the actual 2018 corresponding amounts which were prepared under HKAS 17.

					Year ended
					31 December
		Six month ended 30 June 2019			2018
			Deduct:
			Estimated
			amounts
			related to
		Add back:	operating	Hypothetical	Compared to
	Amounts	HKFRS 16	leases as if	amounts	amounts
	reported	depreciation	under	for 2019 as	reported for
	under	and interest	HKAS 17	if under	2018 under
	HKFRS 16	expense	*(note 1)*	HKAS 17	HKAS 17
	(A)	(B)	(C)	(D=A+B+C)
	$’000	$’000	$’000	$’000	$’000
Financial result for
period ended
30 June 2019
impacted by the
adoption of
HKFRS 16:
Profit from
operations	7,896	56,560	(54,701)	9,755	13,917
Finance costs	(8,877)	4,873	–	(4,004)	(2,449)
(Loss)/profit before
taxation	(981)	61,433	(54,701)	5,751	11,468
(Loss)/profit for the
year	(2,589)	61,433	(54,701)	4,143	9,673

– IIA-17 –

ACCOUNTANTS’ REPORT OF JOS CI

APPENDIX IIA

				Year ended
				31 December
		Six month ended	30 June 2019	2018
		Estimated
		amounts
		related to
		operating	Hypothetical	Compared to
	Amounts	leases as if	amounts for	amounts
	reported	under	2019 as	reported for
	under	HKAS 17	if under	2018 under
	HKFRS 16	(notes 1 & 2)	HKAS 17	HKAS 17
	(A)	(B)	(C=A+B)
	$’000	$’000	$’000	$’000
Line items in the
consolidated cash
flow statement for
period ended 30
June 2019 impacted
by the adoption of
HKFRS 16:
Cash used in operations	(6,341)	(48,986)	(55,327)	(97,975)
Net cash used in
operating activities	(8,210)	(48,986)	(57,196)	(98,888)
Capital element of lease
rentals paid	(44,113)	44,113	–	–
Interest element of
lease rentals paid	(4,873)	4,873	–	–
Net cash (used
in)/generated from
financing activities	(23,632)	48,986	25,354	84,049

Note 1: The “estimated amounts related to operating leases” is an estimate of the amounts of the cash flows in 2019 that relate to leases which would have been classified as operating leases, if HKAS 17 had still applied in 2019. This estimate assumes that there were no differences between rentals and cash flows and that all of the new leases entered into in 2019 would have been classified as operating leases under HKAS 17, if HKAS 17 had still applied in 2019. Any potential net tax effect is ignored.
Note 2: In this impact table these cash outflows are reclassified from financing to operating in order to compute hypothetical amounts of net cash generated from operating activities and net cash used in financing activities as if HKAS 17 still applied.

d. Lessor accounting

The Target Group leases out equipment as the lessor of operating leases. The accounting policies applicable to the Target Group as a lessor remain substantially unchanged from those under HKAS 17.

Under HKFRS 16, when the Target Group acts as an intermediate lessor in a sublease arrangement, the Target Group is required to classify the sublease as a finance lease or an operating lease by reference to the right-of-use asset arising from the head lease, instead of by reference to the underlying asset. The adoption of HKFRS 16 does not have a significant impact on the Target Group’s financial statements in this regard.

– IIA-18 –

ACCOUNTANTS’ REPORT OF JOS CI

APPENDIX IIA

(d) Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses (see note 1(i)).

–	Leasehold improvements	Over the remaining
		terms of the leases
–	Furniture, fixture and fittings	5 years
–	Telecommunication, computer and office equipment	3 – 5 years
–	Motor vehicles	3 – 5 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 Group are stated at cost less accumulated amortisation (where the estimated useful life is finite) and impairment losses (see note 1(i)).

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:

– Computer software

3 – 10 years

Both the period and method of amortisation are reviewed annually.

(f) Leased assets

At inception of a contract, the Target Group assesses whether the contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Control is conveyed where the customer has both the right to direct the use of the identified asset and to obtain substantially all of the economic benefits from that use.

As a lessee

(A) Policy applicable from 1 January 2019

Where the contract contains lease component(s) and non-lease component(s), the Target Group has elected not to separate non-lease components and accounts for each lease component and any associated non-lease components as a single lease component for all leases.

At the lease commencement date, the Target Group recognises a right-of-use asset and a lease liability, except for short-term leases that have a lease term of 12 months or less and leases of low-value assets. When the Target Group enters into a lease in respect of a low-value asset, the Target Group decides whether to capitalise the lease on a lease-by-lease basis. The lease payments associated with those leases which are not capitalised are recognised as an expense on a systematic basis over the lease term.

– IIA-19 –

ACCOUNTANTS’ REPORT OF JOS CI

APPENDIX IIA

Where the lease is capitalised, the lease liability is initially recognised at the present value of the lease payments payable over the lease term, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, using a relevant incremental borrowing rate. After initial recognition, the lease liability is measured at amortised cost and interest expense is calculated using the effective interest method. Variable lease payments that do not depend on an index or rate are not included in the measurement of the lease liability and hence are charged to profit or loss in the accounting period in which they are incurred.

The right-of-use asset recognised when a lease is capitalised is initially measured at cost, which comprises the initial amount of the lease liability plus any lease payments made at or before the commencement date, and any initial direct costs incurred. Where applicable, the cost of the right-of-use assets also includes an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, discounted to their present value, less any lease incentives received. The right-of-use asset is subsequently stated at cost less accumulated depreciation and impairment losses (see notes 1(f) and 1(i)(ii)).

The lease liability is remeasured when there is a change in future lease payments arising from a change in an index or rate, or there is a change in the Target Group’s estimate of the amount expected to be payable under a residual value guarantee, or there is a change arising from the reassessment of whether the Target Group will be reasonably certain to exercise a purchase, extension or termination option. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.

The Target Group presents right-of-use assets that do not meet the definition of investment property in ‘other property, plant and equipment’ and presents lease liabilities separately in the statement of financial position.

(B) Policy applicable prior to 1 January 2019

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.

(g) 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.

– IIA-20 –

ACCOUNTANTS’ REPORT OF JOS CI

APPENDIX IIA

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

(h) Business combination and goodwill

The Target Group applies the acquisition method to account for business combination. The consideration transferred for the acquisition of a subsidiary 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(i)(ii)).

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.

(i) Credit losses and impairment of assets

(i) Credit losses from financial instruments and contract assets

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(k)).

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).

– IIA-21 –

ACCOUNTANTS’ REPORT OF JOS CI

APPENDIX IIA

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.

Loss allowances for trade receivables 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 90 days 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.

– IIA-22 –

ACCOUNTANTS’ REPORT OF JOS CI

APPENDIX IIA

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 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).

Basis of calculation of interest income

Interest income recognised in accordance with note 1(q)(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 creditimpaired. 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 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.

(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, including right-of-use assets;
intangible assets;
goodwill; and

– IIA-23 –

ACCOUNTANTS’ REPORT OF JOS CI

APPENDIX IIA

–

investments in subsidiaries in the Target Company’s statement of financial position.

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 the 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 first to reduce the carrying amount of any goodwill allocated to the cash-generating unit (or group of units) and then, to reduce the carrying amount of the other 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 (if measurable) or value in use (if determinable).

–

Reversals of impairment losses

In respect of assets other than goodwill, an impairment loss is reversed if there has been a favourable change in the estimates used to determine the recoverable amount. An impairment loss in respect of goodwill is not reversed.

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.

(j) Inventories

Inventories are carried at the lower of cost and net realisable value.

Cost is calculated using weighted average costing method 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 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.

(k) Contract assets and contract liabilities

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

– IIA-24 –

ACCOUNTANTS’ REPORT OF JOS CI

APPENDIX IIA

A contract liability is recognised when the customer pays consideration before the Target Group recognises the related revenue (see note 1(q)). 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(l)).

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(q)).

(l) 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(k)).

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

(m) 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.

(n) 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 ECLs in accordance with the policy set out in note 1(i)(i).

(o) 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.

– IIA-25 –

ACCOUNTANTS’ REPORT OF JOS CI

APPENDIX IIA

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.

(p) 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.

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.

(q) 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 from IT solution services

Revenue from the rendering of services is recognised when services are performed, provided that the amount can be measured reliably. Revenue from contracting work is recognised based on the stage of completion of the contracts, provided that the stage of contract completion and the gross billing value of contracting work can be measured reliably. The stage of completion of a contract is established by reference to the gross billing value of contracting work to date as compared to the total contract sum receivable under the contracts.

(ii) Sale of goods

Revenue is recognised when the customer takes possession of and accepts the goods. If the goods are a partial fulfilment of a contract covering other goods and/or services, then the amount of revenue recognised is an appropriate proportion of the total transaction price under the contract, allocated between all the goods and services promised under the contract on a relative stand-alone selling price basis.

(iii) Revenue from maintenance service

Revenue from maintenance service agreements is recognised pro-rata over the life of the agreement corresponding to notional delivery of the service.

(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(i)(i)).

– IIA-26 –

ACCOUNTANTS’ REPORT OF JOS CI

APPENDIX IIA

(r) 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 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.

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.

(s) Employee benefits

(i) Short term Employee benefits and contributions to defined contribution retirement plans

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) Defined benefit retirement plan obligations

The Target Group’s net obligation in respect of defined benefit retirement plans is calculated separately for each plan by estimating the amount of future benefit that Employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine the present value and the fair value of any plan assets is deducted. The calculation is performed by a qualified actuary using the projected unit credit method. When the calculation results in a benefit to the Target Group, the recognised asset is limited to the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan.

Service cost and net interest expense/(income) on the net defined benefit liability/(asset) are recognised in profit or loss and allocated by function as part of “cost of sales”, “distribution costs” or “administrative expenses”. Current service cost is measured as the increase in the present value of the defined benefit obligation resulting from Employee service in the current period. When the benefits of a plan are changed, or when a plan is curtailed, the portion of the changed benefit related to past service by Employees, or the gain or loss on curtailment, is recognised as an expense in profit or loss at the earlier of when the plan amendment or curtailment occurs and when related restructuring costs or termination benefits are recognised. Net interest expense (income) for the period is determined by applying the discount rate used to measure the defined benefit obligation at the beginning of the reporting period to the net defined benefit liability/(asset). The discount rate is the yield at the end of the reporting period on high quality corporate bonds that have maturity dates approximating the terms of the Target Group’s obligations.

Remeasurements arising from defined benefit retirement plans are recognised in other comprehensive income and reflected immediately in retained earnings. Remeasurements comprise actuarial gains and losses, the return on plan assets (excluding amounts included in net interest on the net defined benefit liability/(asset)) and any change in the effect of the asset ceiling (excluding amounts included in net interest on the net defined benefit liability/(asset)).

(t) Borrowings and borrowing costs

Borrowings are initially recognised at fair value, net of transaction costs incurred. In subsequent periods, borrowings are stated at amortised cost using the effective interest method.

Borrowings are classified as current liabilities unless the Target Group has an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting period.

All borrowing costs are recognised in the consolidated income statement in the period/year in which they are incurred.

– IIA-27 –

ACCOUNTANTS’ REPORT OF JOS CI

APPENDIX IIA

(u) 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.
(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.

(v) Derivative financial instruments

Derivative financial instruments are recognised 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, except where the derivatives qualify for cash flow hedge accounting or hedges of net investment in a foreign operation, in which case recognition of any resultant gain or loss depends on the nature of the item being hedged.

(w) 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.

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.

– IIA-28 –

ACCOUNTANTS’ REPORT OF JOS CI

APPENDIX IIA

2 REVENUE

The principal activities of the Target Group are marketing and distribution of computer hardware and software, telecommunication products, office automation products and the provision of related services.

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

Sale of goods Revenue from services Revenue from contracts with customers within the scope of HKFRS 15 Rental income from leasing business Total Revenue from contracts with customers Recognised at a point in time Recognised over time	Year ended 31 December 2016 2017 2018 $’000 $’000 $’000 2,466,178 2,412,429 2,696,251 889,897 915,904 1,025,292 3,356,075 3,328,333 3,721,543 190,003 182,264 98,696 3,546,078 3,510,597 3,820,239 2,466,178 2,412,429 2,696,251 889,897 915,904 1,025,292 3,356,075 3,328,333 3,721,543	Six months ended 30 June 2018 2019 $’000 $’000 (unaudited) 1,262,000 1,284,911 482,521 467,111 1,744,521 1,752,022 63,900 32,022 1,808,421 1,784,044 1,262,000 1,284,911 482,521 467,111 1,744,521 1,752,022	Six months ended 30 June 2018 2019 $’000 $’000 (unaudited) 1,262,000 1,284,911 482,521 467,111 1,744,521 1,752,022 63,900 32,022 1,808,421 1,784,044 1,262,000 1,284,911 482,521 467,111 1,744,521 1,752,022
			1,752,022 32,022
			1,784,044

			1,284,911 467,111
			1,752,022

3 SEGMENT REPORTING

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 IT-related business including the provision of IT solutions and IT consultancy 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.

The following table sets out information about the geographical location of (i) the Target Group’s revenue from external customers; and (ii) the Target Group’s property, plant and equipment, right-of-use assets, intangible assets, goodwill and other receivables, deposits and prepayments.

The geographical location of customers is based on the location at which the goods are delivered and services are provided. The geographical location of the specified non-current assets is based on the physical location of the asset, in the case of property, plant and equipment and right-of-use assets, the location of the operation to which they are allocated in the case of intangible assets, goodwill and other receivables, deposits and prepayments.

– IIA-29 –

ACCOUNTANTS’ REPORT OF JOS CI

APPENDIX IIA

Target Group’s revenue from external customers by geographical location:

Hong Kong China Singapore Other territories	Year ended 31 December 2016 2017 2018 $’000 $’000 $’000 1,960,548 1,828,035 2,022,150 601,535 611,216 619,465 695,079 688,197 688,722 288,916 383,149 489,902 3,546,078 3,510,597 3,820,239	Six months ended 30 June 2018 2019 $’000 $’000 (unaudited) 961,091 989,368 277,939 280,196 361,711 275,639 207,680 238,841 1,808,421 1,784,044	Six months ended 30 June 2018 2019 $’000 $’000 (unaudited) 961,091 989,368 277,939 280,196 361,711 275,639 207,680 238,841 1,808,421 1,784,044
			1,784,044

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

Target Group’s specified non-current assets by geographical location:

Hong Kong China Singapore Other territories	At 31 December 2016 2017 $’000 $’000 165,092 152,122 4,453 4,007 29,129 28,840 2,928 2,308 201,602 187,277	2018 $’000 142,081 4,081 22,109 2,554 170,825	At 30 June 2019 $’000 231,829 19,104 135,691 4,709
			391,333

4 (LOSS)/PROFIT BEFORE TAXATION

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

(a) Other net income

Discount on early settlement to suppliers Interest income – bank interest income – loan receivable from group companies – others Management fee income from group companies Forfeiture of customer deposit Sundry income	Year ended 31 December 2016 2017 2018 $’000 $’000 $’000 (3,477) (3,451) (3,334) (76) (345) (390) (772) (1,450) (2,242) (44) (207) (1,764) – – (46,851) (1,544) (145) (9,804) (27,244) (12,505) (7,032) (33,157) (18,103) (71,417)	Six months ended 30 June 2018 2019 $’000 $’000 (unaudited) (1,693) (1,498) (263) (202) (632) (1,314) (3) (442) (13,359) (5,250) (89) – (2,139) (2,710) (18,178) (11,416)	Six months ended 30 June 2018 2019 $’000 $’000 (unaudited) (1,693) (1,498) (263) (202) (632) (1,314) (3) (442) (13,359) (5,250) (89) – (2,139) (2,710) (18,178) (11,416)
			(11,416)

– IIA-30 –

ACCOUNTANTS’ REPORT OF JOS CI

APPENDIX IIA

(b) Finance costs

Interests expenses – bank loans and advances – loan payable to a group company – Interest on lease liabilities (note 16(c))	Year ended 31 December 2016 2017 2018 $’000 $’000 $’000 2,464 3,346 6,917 366 865 1,173 – – – 2,830 4,211 8,090	Six months ended 30 June 2018 2019 $’000 $’000 (unaudited) 2,289 3,418 160 586 – 4,873 2,449 8,877	Six months ended 30 June 2018 2019 $’000 $’000 (unaudited) 2,289 3,418 160 586 – 4,873 2,449 8,877
			8,877

(c) Staff costs (including directors’ emoluments)

Salaries, wages and other benefits Pension costs: – defined benefit pension plans – defined contribution pension plan	Year ended 31 December 2016 2017 2018 $’000 $’000 $’000 684,246 685,004 693,177 10,033 7,369 6,649 33,756 34,147 32,651 728,035 726,520 732,477	Six months ended 30 June 2018 2019 $’000 $’000 (unaudited) 347,299 351,692 3,324 3,203 17,209 17,529 367,832 372,424	Six months ended 30 June 2018 2019 $’000 $’000 (unaudited) 347,299 351,692 3,324 3,203 17,209 17,529 367,832 372,424
			372,424

(d) Other items

				Six months ended	Six months ended
	Year	ended 31 December		30 June
	2016	2017	2018	2018	2019
	$’000	$’000	$’000	$’000	$’000
				(unaudited)
Auditor’s remuneration:
– Audit services	5,197	5,724	4,497	3,032	2,822
– Tax services	37	31	39	20	20
Net exchange losses/(gain)	977	227	949	33	(370)
Depreciation (note 8)
– property, plant and equipment	25,007	26,365	23,087	11,673	11,630
– right-of-use assets*	–	–	–	–	56,560
Amortisation of intangible assets
(note 9)	9,306	10,214	10,307	5,234	5,058
Total minimum lease payments
for leases previously classified
as operating leases under
HKAS 17, in respect of:
– premises	38,782	36,413	39,779	19,500	–
– equipment	189,941	184,712	121,204	73,342	–
Lease expense relating to short-
term leases, in respect of:
– premises	–	–	–	–	867
– equipment	–	–	–	–	51

– IIA-31 –

ACCOUNTANTS’ REPORT OF JOS CI

APPENDIX IIA

				Six months ended	Six months ended
	Year ended 31 December			30 June
	2016	2017	2018	2018	2019
	$’000	$’000	$’000	$’000	$’000
				(unaudited)
(Gain)/loss on disposals of
property, plant and equipment	(461)	(132)	1,412	(247)	(26)
(Reversal)/recognition of loss
allowance of trade and other
receivables and contract assets
(note 25(a))	(3,569)	462	14,805	251	944
Write down of inventories	2,925	4,007	4,587	2,309	1,800
Impairment of goodwill	–	–	5,806	–	–

The Target Group has initially applied HKFRS 16 using the modified retrospective approach and adjusted the opening balances at 1 January 2019 to recognise right-of-use assets relating to leases which were previously classified as operating leases under HKAS 17. After initial recognition of right-of-use assets at 1 January 2019, the Target Group as a lessee is required to recognise the depreciation of right-of-use assets, instead of the previous policy of recognising rental expenses incurred under operating leases on a straight-line basis over the lease term. Under this approach, the comparative information as at the years ended 31 December 2016, 2017 and 2018 is not restated. See note 1(c).

5 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 years Current tax – Overseas: Provision for the year/period Over-provision in respect of prior years Deferred tax: Origination and reversal of temporary differences Tax (credit)/expense	Year ended 31 December 2016 2017 2018 $’000 $’000 $’000 489 796 7 (40) (40) (30) 449 756 (23) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 198 1,046 2,392 – (33) – 198 1,013 2,392 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (4,712) (2,126) 4,659 - - - - - - - - - - - - - - - - - - - - - - - - - - - - (4,065) (357) 7,028	Six months ended 30 June 2018 2019 $’000 $’000 (unaudited) 128 – – – 128 – - - - - - - - - - - - - - - - - - - - - 1,333 724 – – 1,333 724 - - - - - - - - - - - - - - - - - - - - 334 884 - - - - - - - - - - - - - - - - - - 1,795 1,608	Six months ended 30 June 2018 2019 $’000 $’000 (unaudited) 128 – – – 128 – - - - - - - - - - - - - - - - - - - - - 1,333 724 – – 1,333 724 - - - - - - - - - - - - - - - - - - - - 334 884 - - - - - - - - - - - - - - - - - - 1,795 1,608
			– - - - - - - - - - - 724 –
			724 - - - - - - - - - - 884 - - - - - - - - -
			1,608

– IIA-32 –

ACCOUNTANTS’ REPORT OF JOS CI

APPENDIX IIA

The provision for Hong Kong Profits Tax is calculated at 16.5% of the estimated assessable profits for the years ended 31 December 2016, 2017 and 2018 and six months ended 30 June 2018 (unaudited) and 2019. Taxation for overseas subsidiaries is charged at the appropriate current rates of taxation ruling in the relevant countries.

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

(Loss)/profit before taxation Notional tax on (loss)/profit before taxation, calculated at the rates applicable to profits in the tax jurisdictions concerned Tax effect of non-taxable income Tax effect of non-deductible expenses Tax effect of unused tax losses not recognised Tax effect of tax losses not recognised in prior year utilised during the year/period Recognition of previously unrecognised temporary difference Over-provision in respect of prior years Others Total income tax (credit)/charge	Year ended 31 December 2016 2017 2018 $’000 $’000 $’000 (38,572) (5,367) 52,536 (6,971) (566) 10,482 (802) (391) (703) 1,273 2,504 2,336 3,448 3,274 442 (735) (4,642) (1,090) – – (4,646) (40) (73) (30) (238) (463) 237 (4,065) (357) 7,028	Six months ended 30 June 2018 2019 $’000 $’000 (unaudited) 11,468 (981) 1,752 (131) (407) (96) 694 946 761 1,824 (731) – – – – – (274) (935) 1,795 1,608	Six months ended 30 June 2018 2019 $’000 $’000 (unaudited) 11,468 (981) 1,752 (131) (407) (96) 694 946 761 1,824 (731) – – – – – (274) (935) 1,795 1,608

			(131) (96) 946 1,824 – – – (935)
			1,608

6 DIRECTORS’ EMOLUMENTS

Directors’ emoluments during the Relevant Periods are as follows:

Directors’ fees Salaries allowances and benefits in kinds Discretionary bonuses Retirement scheme contributions	Year ended 31 December 2016 2017 2018 $’000 $’000 $’000 – – – 5,149 5,172 5,286 2,488 1,545 2,623 778 842 868 8,415 7,559 8,777	Six months ended 30 June 2018 2019 $’000 $’000 (unaudited) – – 2,840 2,782 2,623 1,794 431 444 5,894 5,020	Six months ended 30 June 2018 2019 $’000 $’000 (unaudited) – – 2,840 2,782 2,623 1,794 431 444 5,894 5,020
			5,020

– IIA-33 –

ACCOUNTANTS’ REPORT OF JOS CI

APPENDIX IIA

7 INDIVIDUALS WITH HIGHEST EMOLUMENTS

Of the five individuals with the highest emoluments, 1, 1, 1, 2 (unaudited), 2 of which for the years ended 31 December 2016, 2017 and 2018 and the six months ended 30 June 2018 and 2019, respectively, are directors whose emoluments are disclosed in note 6. The aggregate of the emoluments in respect of the other 4, 4, 4, 3 (unaudited) and 3 individuals for the years ended 31 December 2016, 2017 and 2018 and the six months ended 30 June 2018 and 2019, respectively, are as follows:

Salaries and other emoluments Discretionary bonuses Retirement scheme contributions	Year ended 31 December 2016 2017 2018 $’000 $’000 $’000 8,627 9,089 9,653 3,550 2,537 1,256 42 18 36 12,219 11,644 10,945	Six months ended 30 June 2018 2019 $’000 $’000 (unaudited) 3,894 3,995 235 176 18 18 4,147 4,189	Six months ended 30 June 2018 2019 $’000 $’000 (unaudited) 3,894 3,995 235 176 18 18 4,147 4,189
			4,189

The emoluments of the 4, 4, 4, 3 (unaudited) and 3 for the years ended 31 December 2016, 2017 and 2018 and the six months ended 30 June 2018 and 2019, 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	Number of individuals Year ended 31 December Six months ended 30 June 2016 2017 2018 2018 2019 (unaudited) – – – 3 2 – – – – 1 – 1 – – – 2 1 4 – – 1 2 – – – 1 – – – – 4 4 4 3 3	Number of individuals Year ended 31 December Six months ended 30 June 2016 2017 2018 2018 2019 (unaudited) – – – 3 2 – – – – 1 – 1 – – – 2 1 4 – – 1 2 – – – 1 – – – – 4 4 4 3 3
		3

– IIA-34 –

ACCOUNTANTS’ REPORT OF JOS CI

APPENDIX IIA

8 PROPERTY, PLANT AND EQUIPMENT

Cost: At 1 January 2016 Exchange adjustments Additions Disposals Others At 31 December 2016 At 1 January 2017 Exchange adjustments Additions Disposals At 31 December 2017 At 1 January 2018 Exchange adjustments Additions Disposals Others At 31 December 2018 At 1 January 2019 Exchange adjustments Additions Disposals At 30 June 2019 Accumulated depreciation and impairment loss: At 1 January 2016 Exchange adjustments Charge for the year Written back on disposals Others At 31 December 2016	Leasehold improvements $’000 99,858 (304) 30,282 (37,672) (1,602) 90,562 - - - - - - - - - - - 90,562 993 6,344 (7,476) 90,423 - - - - - - - - - - - 90,423 (388) 5,633 (34,844) 206 61,030 - - - - - - - - - - - 61,030 46 158 – 61,234 - - - - - - - - - - - 92,374 119 8,393 (37,672) (1,602) 61,612 - - - - - - - - - - -	Furniture, fixture and fittings $’000 17,288 (152) 6,818 (11,094) – 12,860 - - - - - - - - - - 12,860 300 935 (3,912) 10,183 - - - - - - - - - - 10,183 (163) 778 (1,149) – 9,649 - - - - - - - - - - 9,649 6 4 (8) 9,651 - - - - - - - - - - 16,220 (68) 1,304 (11,032) – 6,424 - - - - - - - - -	Telecommunication, computer and office equipment $’000 111,343 (601) 22,825 (12,934) 1,602 122,235 - - - - - - - - - - - - - - - - 122,235 1,576 8,136 (21,332) 110,615 - - - - - - - - - - - - - - - - 110,615 (565) 18,592 (17,768) (206) 110,668 - - - - - - - - - - - - - - - - 110,668 1,298 3,967 (1,307) 114,626 - - - - - - - - - - - - - - - - 85,825 (240) 14,909 (12,913) 1,602 89,183 - - - - - - - - - - - - - - -	Motor vehicles $’000 2,305 (26) 14 – – 2,293 - - - - - - - - - - 2,293 55 1,312 (1,436) 2,224 - - - - - - - - - - 2,224 (22) 208 (365) – 2,045 - - - - - - - - - - 2,045 2 – – 2,047 - - - - - - - - - - 1,711 (26) 401 – – 2,086 - - - - - - - - -	Total $’000 230,794 (1,083) 59,939 (61,700) – 227,950 - - - - - - - - - - 227,950 2,924 16,727 (34,156) 213,445 - - - - - - - - - - 213,445 (1,138) 25,211 (54,126) – 183,392 - - - - - - - - - - 183,392 1,352 4,129 (1,315) 187,558 - - - - - - - - - - 196,130 (215) 25,007 (61,617) – 159,305 - - - - - - - - -

– IIA-35 –

APPENDIX IIA

ACCOUNTANTS’ REPORT OF JOS CI

At 1 January 2017 Exchange adjustments Charge for the year Written back on disposals At 31 December 2017 At 1 January 2018 Exchange adjustments Charge for the year Written back on disposals At 31 December 2018 At 1 January 2019 Exchange adjustments Charge for the period Written back on disposals At 30 June 2019 Net book value: At 31 December 2016 At 31 December 2017 At 31 December 2018 At 30 June 2019	Leasehold improvements $’000 61,612 300 9,829 (7,476) 64,265 - - - - - - - - - - - 64,265 (217) 7,695 (33,982) 37,761 - - - - - - - - - - - 37,761 14 3,911 – 41,686 - - - - - - - - - - - 28,950 26,158 23,269 19,548	Furniture, fixture and fittings $’000 6,424 157 1,576 (3,897) 4,260 - - - - - - - - - 4,260 (121) 1,661 (583) 5,217 - - - - - - - - - 5,217 – 750 (8) 5,959 - - - - - - - - - 6,436 5,923 4,432 3,692	Telecommunication, computer and office equipment $’000 89,183 1,023 14,615 (21,298) 83,523 - - - - - - - - - - - - - - - 83,523 (404) 13,431 (17,261) 79,289 - - - - - - - - - - - - - - - 79,289 1,274 6,812 (1,300) 86,075 - - - - - - - - - - - - - - - 33,052 27,092 31,379 28,551	Motor vehicles $’000 2,086 40 345 (1,425) 1,046 - - - - - - - - - 1,046 (15) 300 (365) 966 - - - - - - - - - 966 – 157 – 1,123 - - - - - - - - - 207 1,178 1,079 924	Total $’000 159,305 1,520 26,365 (34,096) 153,094 - - - - - - - - - 153,094 (757) 23,087 (52,191) 123,233 - - - - - - - - - 123,233 1,288 11,630 (1,308) 134,843 - - - - - - - - - 68,645 60,351 60,159 52,715

(a) Right-of-use assets

Opening net book value at 1 January 2019 Recognition upon initial application of HKFRS 16 (Note 1(c)(i)) Exchange adjustments Additions Disposals and written-off Depreciation Closing net book value at 30 June 2019	At 30 June 2019 $’000 – 260,555 833 28,319 (742) (56,560) 232,405

– IIA-36 –

ACCOUNTANTS’ REPORT OF JOS CI

APPENDIX IIA

9 INTANGIBLE ASSETS

Cost: At the beginning of the year/period Exchange and other adjustments Additions Disposals At the end of the year/period Accumulated amortisation: At the beginning of the year/period Exchange and other adjustments Charge for the year/period Written back on disposal At the end of the year/period Carrying amount: At the end of the year/period GOODWILL Cost: At the beginning of the year/period Exchange and other adjustments Additional acquisition At the end of the year/period Accumulated impairment: At the beginning of the year/period Exchange adjustments Impairment At the end of the year/period Carrying amount: At the end of the year/period	Computer At 31 December 2016 2017 $’000 $’000 88,719 90,072 (47) 90 1,420 2,481 (20) (665) 90,072 91,978 - - - - - - - - - - - - - - - - - - - - - - 26,912 36,160 (38) 72 9,306 10,214 (20) (665) 36,160 45,781 - - - - - - - - - - - - - - - - - - - - - - 53,912 46,197 At 31 December 2016 2017 $’000 $’000 78,098 83,268 (197) 1,785 5,367 – 83,268 85,053 - - - - - - - - - - - - - - - - - - - - - - 14,145 14,145 – – – – 14,145 14,145 - - - - - - - - - - - - - - - - - - - - - - 69,123 70,908	software 2018 $’000 91,978 (60) 1,144 (3,771) 89,291 - - - - - - - - - - - 45,781 (9) 10,307 (3,675) 52,404 - - - - - - - - - - - 36,887 2018 $’000 85,053 (271) – 84,782 - - - - - - - - - - - 14,145 (73) 5,806 19,878 - - - - - - - - - - - 64,904	At 30 June 2019 $’000 89,291 5 180 (2) 89,474 - - - - - - - - - - - 52,404 – 5,058 (2) 57,460 - - - - - - - - - - - 32,014 At 30 June 2019 $’000 84,782 21 – 84,803 - - - - - - - - - - - 19,878 39 – 19,917 - - - - - - - - - - - 64,886

10 GOODWILL

For the purpose of impairment testing, goodwill acquired has been allocated to individual cash-generating units identified by business segment or geographical location which are reviewed for impairment based on forecast operating performance and cash flow.

– IIA-37 –

ACCOUNTANTS’ REPORT OF JOS CI

APPENDIX IIA

The Target Group’s goodwill by cash-generating units is as follows. The balance arose from the acquired business in Hong Kong and Singapore respectively in connection with the sales of IT products and consulting related services.

Hong Kong business Singapore business At the end of the year/period	At 31 December 2016 2017 $’000 $’000 53,437 53,437 15,686 17,471 69,123 70,908	2018 $’000 53,437 11,467 64,904	At 30 June 2019 $’000 53,437 11,449
			64,886

Annual assessment of any impairment of goodwill is based on the recoverable amount of the business units derived from cash flow projections based on approved management budget over a five-year period. Cash flow projections for impairment reviews are based on budgets prepared on the basis of assumptions reflective of the prevailing market conditions, and are discounted appropriately. Key assumptions used for value in use calculations include budgeted gross margin and average revenue growth rates to extrapolate cash flow which vary across the Target Group’s business segment and geographical location, and are based on management expectations for the market development. The key assumptions adopted are the revenue growth rates, terminal growth rates and discount rates, which were determined based on past performance and management’s expectations for the market development.

The directors have performed an impairment review of the carrying amount of goodwill at the end of each reporting period. During the year ended 31 December 2018, impairment loss of HK$5,806,000 was recognised against the goodwill arising from the acquired business in Singapore. The carrying amount of the cash-generating unit to which the goodwill was allocated was written down to its recoverable amount of HK$21,379,000. Any adverse change in the assumptions used in the calculation of the recoverable amount would result in further impairment losses.

Key assumptions adopted in the cash flow projections for impairment reviews are as follows:

Hong Kong

		At 31 December		At 30 June
	2016	2017	2018	2019
	$’000	$’000	$’000	$’000
Revenue growth rate	5.8%	6.5%	4.5%	4.4%
Terminal growth rate	1.0%	1.0%	2.0%	2.0%
Pre-tax discount rates	12.3%	12.5%	12.7%	12.1%

Singapore

		At 31 December		At 30 June
	2016	2017	2018	2019
	$’000	$’000	$’000	$’000
Revenue growth rate	7.0%	7.0%	7.8%	7.8%
Terminal growth rate	2.0%	2.0%	2.0%	2.0%
Pre-tax discount rates	12.0%	12.0%	12.0%	12.0%

– IIA-38 –

ACCOUNTANTS’ REPORT OF JOS CI

APPENDIX IIA

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	attributable to	attributable to
			the Target Company
	Place and					At		Issued and
Name	date of	At	31 December			30 June		paid up	Name of statutory	auditor
	incorporation	2016	2017		2018	2019	Principal activity	capital	2016 2017	2018
Jardine One Solution (HK)	Hong Kong	100%	100%	100%		100%	Enterprise systems	HK$33,000,000	PricewaterhouseCoopers
Limited							technical services
							and distribution &
							logistics
JOS Applications Holdings	BVI	100%	100%	100%		100%	Investment holding	US$10,000	Not Applicable
Limited
IXIX Distribution Limited	Hong Kong	100%	100%	100%		100%	Inactive	HK$1	PricewaterhouseCoopers
JOS Synergy (HK) Limited	Hong Kong	100%	100%	100%		100%	Consulting and	HK$4	PricewaterhouseCoopers
							outsourcing
JOS Asia Limited	Hong Kong	100%	100%	100%		100%	Business referrals and	HK$1	PricewaterhouseCoopers
							consultancy services
Jardine OneSolution (2001)	Singapore	100%	100%	100%		100%	Enterprise systems	S$10,450,000	PricewaterhouseCoopers
Pte Ltd							technical services		LLP
JOS Malaysia Sdn Bhd	Malaysia	100%	100%	100%		100%	Enterprise systems	RM7,500,000	PricewaterhouseCoopers
							technical services		PLT
Jardine One Solution (China)	Hong Kong	100%	100%	100%		100%	Investment holding	HK$100,000	PricewaterhouseCoopers
Limited
Jardine One Solution China	PRC	100%	100%	100%		100%	Technical Services &	HK$30,000,000	PricewaterhouseCoopers
Company Limited*							Product Sales		Zhong Tian LLP
JOSD Pte Ltd*	Singapore	100%	100%	100%		100%	Inactive	S$500,000	PricewaterhouseCoopers
									LLP
JOS Applications (HK)	Hong Kong	100%	100%	100%		100%	Enterprise systems	HK$2	PricewaterhouseCoopers
Limited*							Development of
							other ordinary
							shares
JOS Applications (s)	Singapore	75%	75%		75%	75%	Software and	Ordinary	PricewaterhouseCoopers
Pte Ltd*							programing	shares S$200	LLP
							activities preference	Preference
							shares	shares
								S$750,000
Jardine One Solution	Macau	100%	100%	100%		100%	Enterprise systems	MOP25,000	PricewaterhouseCoopers
(Macau) Limited*

Subsidiaries held indirectly

– IIA-39 –

ACCOUNTANTS’ REPORT OF JOS CI

APPENDIX IIA

12 INVENTORIES

Inventories in the consolidated statements of financial position comprise finished goods, work in progress and spare parts.

Goods for resale Spare parts for services Work in progress	At 31 December 2016 2017 $’000 $’000 82,125 82,710 7,521 6,903 1,253 5,566 90,899 95,179	2018 $’000 84,497 6,421 1,825 92,743	At 30 June 2019 $’000 105,785 2,673 1,101
			109,559

The analysis of the amount of inventories recognised as an expense and included in profit or loss is as follows:

Carrying amount of inventories sold Write down of inventories	Year ended 31 December 2016 2017 2018 $’000 $’000 $’000 1,997,288 1,919,912 2,321,197 2,925 4,007 4,587 2,000,213 1,923,919 2,325,784	Six months ended 30 June 2018 2019 $’000 $’000 (unaudited) 1,071,704 1,074,015 2,309 1,800 1,074,013 1,075,815	Six months ended 30 June 2018 2019 $’000 $’000 (unaudited) 1,071,704 1,074,015 2,309 1,800 1,074,013 1,075,815
			1,075,815

The write-down of inventories made due to the decrease in net realisable value of goods for resale.

13 CONTRACT ASSETS AND CONTRACT LIABILITIES

(a) Contract assets

		31 December		At 30 June
	2016	2017	2018	2019
	$’000	$’000	$’000	$’000
Contract assets
Arising from contracts with
conditional payment terms	11,954	32,690	29,756	25,972

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

– IIA-40 –

ACCOUNTANTS’ REPORT OF JOS CI

APPENDIX IIA

(b) Contract liabilities

Contract liabilities Arising from contracts with conditional settlement terms Deferred service revenue *Movements in contract liabilities* At the beginning of the year/period Exchange difference Increase in contract liabilities as a result of contracts with conditional settlement terms Decrease in contract liabilities as a result of deferred service revenue At the end of the year/period	At 31 December 2016 2017 $’000 $’000 79,021 78,904 157,540 165,207 236,561 244,111 At 31 December 2016 2017 $’000 $’000 234,762 236,561 (2,071) 4,426 431,642 494,299 (427,772) (491,175) 236,561 244,111	2018 $’000 115,716 188,048 303,764 2018 $’000 244,111 (11,062) 653,262 (582,547) 303,764	At 30 June 2019 $’000 141,075 181,345 322,420 At 30 June 2019 $’000 303,764 (1,062) 354,069 (334,351) 322,420

The contract liabilities are expected to be recognised as revenue within one year.

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APPENDIX IIA

14 TRADE RECEIVABLES, OTHER RECEIVABLES, DEPOSITS AND PREPAYMENTS

Note Trade receivables Less: allowance for doubtful debts 25(a) Trade receivables from group companies Other receivables, deposits and prepayments Represented by: – Current portion – Non-current portion	At 31 December 2016 2017 2018 $’000 $’000 $’000 606,924 611,503 830,304 (7,650) (5,749) (12,001) 82,103 65,856 50,493 681,377 671,610 868,796 91,638 166,036 146,720 773,015 837,646 1,015,516 763,093 827,825 1,006,641 9,922 9,821 8,875 773,015 837,646 1,015,516	At 30 June 2019 $’000 778,321 (5,343) 65,662
		838,640 178,646
		1,017,286

		1,007,973 9,313
		1,017,286

As at 31 December 2016, 2017 and 2018 and 30 June 2019, the Target Group’s other receivables, deposits and prepayments include, $9,922,000, $9,821,000 and $8,875,000 and $9,313,000 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.

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 2016 2017 $’000 $’000 450,632 447,242 106,576 115,440 77,340 76,978 46,829 31,950 681,377 671,610	2018 $’000 499,404 147,003 118,408 103,981 868,796	At 30 June 2019 $’000 422,635 165,608 132,368 118,029
			838,640

15 AMOUNTS DUE FROM GROUP COMPANIES

Amounts due from group companies are unsecured, interest free and recoverable on demand.

16 CASH AND CASH EQUIVALENTS

(a) Cash and cash equivalents comprise:

Cash in transit and on hand Cash at bank	At 31 December 2016 2017 $’000 $’000 539 135 61,980 58,215 62,519 58,350	2018 $’000 112 66,465 66,577	At 30 June 2019 $’000 399 31,968
			32,367

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APPENDIX IIA

(b) Reconciliation of (loss)/profit before taxation to cash used in operations:

Note Operating activities (Loss)/profit before taxation Adjustments for: Depreciation 4(d) Amortisation 4(d) Interest income 4(a) (Reversal)/recognition of loss allowance of trade and other receivables and contract assets 4(d) Interest expense 4(b) (Gain)/loss on disposals of property, plant and equipment, net 4(d) Foreign exchange (gain)/loss, net Impairment of goodwill 4(d) Pension expense Write down of inventories 4(d) Changes in working capital: Increase in inventories (Increase)/decrease in contract assets (Increase)/decrease in trade receivables Decrease/(increase) in other receivables, deposits and prepayments Decrease in amounts due from group companies Increase/(decrease) in trade payables (Decrease)/increase in other payables and accrued charges Increase/(decrease) in contract liabilities Increase in defined benefit assets (Decrease)/increase in provision for other liabilities and charges Cash used in operations	Year ended 31 December 2016 2017 2018 $’000 $’000 $’000 (38,572) (5,367) 52,536 25,007 26,365 23,087 9,306 10,214 10,307 (892) (2,002) (4,396) (3,569) 462 14,805 2,830 4,211 8,090 (461) (132) 1,412 1,527 (2,459) (3,751) – – 5,806 10,033 7,369 6,649 2,925 4,007 4,587 (14,002) (7,801) (2,905) (7,003) (20,736) 2,934 (10,735) 21,900 (208,778) 7,421 (73,771) 16,533 (868) (7,911) (58,776) 6,972 (25,568) 56,665 (13,384) 29,068 6,919 2,280 6,111 61,971 (143) – – (1,826) 1,807 (230) (23,154) (34,233) (6,535)	Six months ended 30 June 2018 2019 $’000 $’000 (unaudited) 11,468 (981) 11,673 68,190 5,234 5,058 (898) (1,958) 251 944 2,449 8,877 (247) (26) (1,478) (26) – – 3,324 3,203 2,309 1,800 (28,075) (18,588) (20,039) 3,784 (22,837) 31,159 (1,201) (31,528) (36,598) (20,745) 5,730 (35,968) (34,992) (38,216) (937) 18,411 – – (290) 269 (105,154) (6,341)

Note: The Target Group has initially applied HKFRS 16 using the modified retrospective approach and adjusted the opening balances at 1 January 2019 to recognise right-of-use assets and lease liabilities relating to leases which were previously classified as operating leases under HKAS 17. Previously, cash payments under operating leases made by the Target Group as a lessee of $160,983,000 were classified as operating activities in the consolidated cash flow statement. Under HKFRS 16, except for short-term lease payments, payments for leases of low value assets and variable lease payments not included in the measurement of lease liabilities, all other rentals paid on leases are now split into capital element and interest element (see note 16(e)) and classified as financing cash outflows. Under the modified retrospective approach, the comparative information is not restated. Further details on the impact of the transition to HKFRS 16 are set out in note 1(c).

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ACCOUNTANTS’ REPORT OF JOS CI

APPENDIX IIA

(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 2016 Changes from financing cash flows: Net proceeds from banks Repayment of loan payables to group companies Exchange adjustments Other changes: Interest expenses At 31 December 2016 and 1 January 2017 At 31 December 2016 and 1 January 2017 Changes from financing cash flows: Net proceeds from banks Exchange adjustments Other changes: Interest expenses At 31 December 2017 and 1 January 2018	Bank borrowings $’000 (Note 21) 74,503 - - - - - - - - - - - 42,665 – 42,665 - - - - - - - - - - - (4,039) - - - - - - - - - - - 2,464 - - - - - - - - - - - 115,593 Bank borrowings $’000 (Note 21) 115,593 54,887 3,042 3,346 176,868	Loan payables to a group company $’000 (Note 18) 56,961 - - - - - - - - - - - – (49,866) (49,866) - - - - - - - - - - - – - - - - - - - - - - - – - - - - - - - - - - - 7,095 Loan payables to a group company $’000 (Note 18) 7,095 – – – 7,095	Lease liabilities $’000 (Note 23) – - - - - - - - - - - - – – – - - - - - - - - - - - – - - - - - - - - - - - – - - - - - - - - - - - – Lease liabilities $’000 (Note 23) – – – – –	Total $’000 131,464 - - - - - - - - - - - 42,665 (49,866) (7,201) - - - - - - - - - - - (4,039) - - - - - - - - - - - 2,464 - - - - - - - - - - - 122,688 Total $’000 122,688 54,887 3,042 3,346 183,963

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ACCOUNTANTS’ REPORT OF JOS CI

APPENDIX IIA

At 31 December 2017 and 1 January 2018 Changes from financing cash flows: Net proceeds from banks Repayment of loan payables to group companies Exchange adjustments Other changes: Interest expenses At 31 December 2018 At 31 December 2018 Impact on initial application of HKFRS 16 (Note) At 1 January 2019 Changes from financing cash flows: Net proceeds from banks Capital element of finance lease rentals paid Interest element of finance lease rentals paid Total changes from financing cash flows Exchange adjustments Other changes: Increase in lease liability from entering into new lease during the period Interest expenses Total other changes At 30 June 2019	Bank borrowings $’000 (Note 21) 176,868 - - - - - - - - - - - 51,277 – 51,277 - - - - - - - - - - - (10,943) - - - - - - - - - - - 6,917 - - - - - - - - - - - 224,119 Bank borrowings $’000 (Note 21) 224,119 – 224,119 - - - - - - - - - - - 29,362 – – 29,362 - - - - - - - - - - - (2,088) - - - - - - - - - - - – 3,418 3,418 - - - - - - - - - - - 254,811	Loan payables to a group company $’000 (Note 18) 7,095 - - - - - - - - - - - – (7,095) (7,095) - - - - - - - - - - - – - - - - - - - - - - - – - - - - - - - - - - - – Loan payables to a group company $’000 (Note 18) – – – - - - - - - - - - - - – – – – - - - - - - - - - - - – - - - - - - - - - - - – – – - - - - - - - - - - - –	Lease liabilities $’000 (Note 23) – - - - - - - - - - - - – – – - - - - - - - - - - - – - - - - - - - - - - - – - - - - - - - - - - - – Lease liabilities $’000 (Note 23) – 280,125 280,125 - - - - - - - - - - - – (44,113) (4,873) (48,986) - - - - - - - - - - - 913 - - - - - - - - - - - 27,563 4,873 32,436 - - - - - - - - - - - 264,488	Total $’000 183,963 - - - - - - - - - - - 51,277 (7,095) 44,182 - - - - - - - - - - - (10,943) - - - - - - - - - - - 6,917 - - - - - - - - - - - 224,119 Total $’000 224,119 280,125 504,244 - - - - - - - - - - - 29,362 (44,113) (4,873) (19,624) - - - - - - - - - - - (1,175) - - - - - - - - - - - 27,563 8,291 35,854 - - - - - - - - - - - 519,299

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ACCOUNTANTS’ REPORT OF JOS CI

APPENDIX IIA

At 31 December 2017 and 1 January 2018 Changes from financing cash flows: Net proceeds from new bank loans Exchange adjustments Other changes: Interest expenses At 30 June 2018	Bank borrowings $’000 176,868 86,012 (1,803) 2,289 263,366	Loan payables to a group company $’000 7,095 – – – 7,095	Lease liabilities $’000 – – – – –	Total $’000 183,963 86,012 (1,803) 2,289 270,461

Note: The Target Group has initially applied HKFRS 16 using the modified retrospective method and adjusted the opening balance at 1 January 2019 to recognise lease liabilities relating to leases which were previously classified as operating leases under HKAS 17. See notes 1(c) and 16(b).

(d) Material non-cash transactions:

(i) In 2016, the first interim dividend of US$3.742 million (approximately HK$28.029 million) and second interim dividend of US$3.820 million (approximately HK$28.613 million) were declared to JTH (BVI) Limited and included in amount due from group companies.
(ii) In 2017, the first interim dividend of US$3.223 million (approximately HK$25.093 million), the second interim dividend of US$2.794 million (approximately HK$21.753 million) and the third interim dividend of US$2.016 million (approximately HK$15.696 million) were declared to JTH (BVI) Limited and included in amount due from group companies.
(iii) In 2018, the interim dividend of US$2.736 million (approximately HK$21.457 million) were declared to JTH (BVI) Limited and included in amount due from group companies.
(iv) In 2018, the management fee income of HK$46,851,000 were included in amount due from group companies.
(v) In 2019, the management fee income of HK$5,250,000 were included in amount due from group companies.

(e) Total cash outflow for leases

Amounts included in the cash flow statement for leases comprise the following:

Within operating cash flows Within financing cash flows	For the year ended 31 December 2016 $’000 (228,723) – (228,723)	For the year ended 31 December 2017 $’000 (221,125) – (221,125)	For the year ended 31 December 2018 $’000 (160,983) – (160,983)	For the six months ended 30 June 2018 $’000 (92,842) – (92,842)	For the six months ended 30 June 2019 $’000 (918) (48,986) (49,904)

Note: As explained in note 16(b), the adoption of HKFRS 16 introduces a change in classification of cash flows of certain rentals paid on leases. The comparative amounts for the years ended 31 December 2016, 2017 and 2018 and the six months ended 30 June 2018 have not been restated.

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APPENDIX IIA

These amounts relate to the following:

						For the	For the
			For the	For the	For the	six months	six months
			year ended	year ended	year ended	ended	ended
			31 December	31 December	31 December	30 June	30 June
			2016	2017	2018	2019	2019
			$’000	$’000	$’000	$’000	$’000
Lease	rentals	paid	(228,723)	(221,125)	(160,983)	(92,842)	(49,904)

17 TRADE PAYABLES, OTHER PAYABLES AND ACCRUED CHARGES

Note Trade payables – third parties – group companies Other payables and accrued charges Represented by: – Current portion – Non-current portion	At 31 December 2016 2017 $’000 $’000 412,630 389,467 34,433 37,437 447,063 426,904 191,924 221,212 638,987 648,116 638,987 645,777 – 2,339 638,987 648,116	2018 $’000 424,160 68,410 492,570 226,117 718,687 714,244 4,443 718,687	At 30 June 2019 $’000 418,468 39,281
			457,749 188,144
			645,893

			641,420 4,473
			645,893

All trade payables, other payables and accrued charges are expected to be settled within one year, except other payables and accrued charges of $4,473,000 (2018: $4,443,000; 2017: $2,339,000) are expected to be settled after more than one year and are classified as non-current liabilities. Non-current liabilities represent deferred consideration of business combination.

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 2016 2017 $’000 $’000 291,908 252,146 84,457 85,170 45,614 49,956 25,084 39,632 447,063 426,904	2018 $’000 311,668 89,498 43,303 48,101 492,570	At 30 June 2019 $’000 278,477 106,411 42,500 30,361
			457,749

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ACCOUNTANTS’ REPORT OF JOS CI

APPENDIX IIA

18 LOAN RECEIVABLE/(PAYABLE) TO A GROUP COMPANY

Loan receivable/(payable) to group companies are unsecured, interest bearing at London Interbank Offered Rate (“LIBOR”) plus 1% per annum and recoverable/(repayable) on demand.

19 TAXATION IN THE CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(a) Deferred tax assets and liabilities recognised:

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

Deferred tax arising from: At 1 January 2016 Exchange difference Credited to profit or loss Charged to other comprehensive income At 31 December 2016 and 1 January 2017 Exchange difference Credited/(charged) to profit or loss Charged to other comprehensive income At 31 December 2017 and 1 January 2018 Exchange difference Credited/(charged) to profit or loss Credited to other comprehensive income At 31 December 2018 and 1 January 2019 Exchange difference (Charged)/credited to profit or loss Charged to other comprehensive income At 30 June 2019	Depreciation allowance in excess of the related depreciation $’000 (10,816) (45) 1,196 – (9,665) 30 584 – (9,051) – 126 – (8,925) – (100) – (9,025)	Defined benefit plan $’000 (1,888) (46) 682 (2,371) (3,623) 98 4,198 (5,409) (4,736) (183) 5,641 1,994 2,716 (25) 514 (1,980) 1,225	Tax losses $’000 37,522 (323) 2,834 – 40,033 731 (2,656) – 38,108 (100) (10,426) – 27,582 (5) (1,298) – 26,279	Total $’000 24,818 (414) 4,712 (2,371) 26,745 859 2,126 (5,409) 24,321 (283) (4,659) 1,994 21,373 (30) (884) (1,980) 18,479

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APPENDIX IIA

Reconciliation to the consolidated statements of financial position

Deferred tax assets recognised in the consolidated statements of financial position Deferred tax liabilities recognised in the consolidated statements of financial position	At 31 December 2016 2017 $’000 $’000 31,099 24,715 (4,354) (394) 26,745 24,321	2018 $’000 21,672 (299) 21,373	At 30 June 2019 $’000 18,879 (400) 18,479

(b) Deferred tax assets not recognised:

In accordance with the accounting policy set out in note 1(o), the Target Group has not recognised deferred tax assets in respect of cumulative tax losses of $150,521,000, $145,385,000, $140,581,000 and $151,412,000 and other temporary differences of $23,516,000, $22,678,000, $6,432,000 and $6,431,000 as at 31 December 2016, 31 December 2017, 31 December 2018 and 30 June 2019 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.

20 PENSION ASSETS

The Target Group operates a number of defined benefits pension plans which are all funded. The pension plans are final salary defined benefits, calculated based on a member’s length of service and their salaries in the final years leading up to retirement. The assets of the plans are held independently of the Target Group’s assets, in separate trustee-administered funds. Responsibility for the governance of the plans, including investment decisions and contribution schedules, lies jointly within the Target Group and the board of trustees. The Target Group’s major plans are valued by an independent qualified actuary, Willis Tower Watson, Fellow of the Society of Actuaries, Chartered Financial Analyst and Chartered Enterprise Risk Analyst, annually using the projected unit credit method. The latest actuarial valuations were carried out as at 30 June 2019.

(a) The amounts recognised in the consolidated statement of financial position are as follows:

Fair value of plan assets Present value of funded obligations	At 31 December 2016 2017 $’000 $’000 202,815 201,268 (171,343) (144,381) 31,472 56,887	2018 $’000 184,782 (146,628) 38,154	At 30 June 2019 $’000 192,261 (145,307) 46,954

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ACCOUNTANTS’ REPORT OF JOS CI

APPENDIX IIA

(b) The movements in the net pension assets are as follows:

At 1 January 2016 Current service cost Interest income/(expense) Administration expenses Remeasurements Return on plan assets greater than discount rate Gain from change in demographic assumptions Gain from change in financial assumptions Experience gains Contribution from employer Contributions from plan participants Benefit payments Transfer from/(to) other plans At 31 December 2016 At 1 January 2017 Current service cost Interest income/(expense) Administration expenses Remeasurements Return on plan assets greater than discount rate Gain from change in demographic assumptions Loss from change in financial assumptions Experience gains Contributions from plan participants Benefit payments Transfer from/(to) other plans At 31 December 2017	Fair value of plan assets $’000 213,393 – 6,277 (1,186) 218,484 - - - - - - - - - - - - 2,029 – – – 2,029 - - - - - - - - - - - - 143 1,375 (19,428) 212 - - - - - - - - - - - - 202,815 Fair value of plan assets $’000 202,815 – 6,570 (495) 208,890 - - - - - - - - - - - - 32,067 – – – 32,067 - - - - - - - - - - - - 1,264 (41,059) 106 - - - - - - - - - - - - 201,268	Present value of obligation $’000 (186,399) (9,613) (5,511) – (201,523) - - - - - - - - - - - - – 269 6,434 5,636 12,339 - - - - - - - - - - - - – (1,375) 19,428 (212) - - - - - - - - - - - - (171,343) Present value of obligation $’000 (171,343) (7,977) (5,467) – (184,787) - - - - - - - - - - - - – 93 (3,512) 4,136 717 - - - - - - - - - - - - (1,264) 41,059 (106) - - - - - - - - - - - - (144,381)	Total $’000 26,994 (9,613) 766 (1,186) 16,961 - - - - - - - - - - - - 2,029 269 6,434 5,636 14,368 - - - - - - - - - - - - 143 – – – - - - - - - - - - - - - 31,472 Total $’000 31,472 (7,977) 1,103 (495) 24,103 - - - - - - - - - - - - 32,067 93 (3,512) 4,136 32,784 - - - - - - - - - - - - – – – - - - - - - - - - - - - 56,887

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APPENDIX IIA

ACCOUNTANTS’ REPORT OF JOS CI

At 1 January 2018 Current service cost Interest income/(expense) Administration expenses Remeasurements Return on plan assets less than discount rate Gain from change in demographic assumptions Gain from change in financial assumptions Experience gains Contributions from plan participants Benefit payments At 31 December 2018 At 1 January 2019 Current service cost Interest income/(expense) Administration expenses Remeasurements Return on plan assets greater than discount rate Loss from change in financial assumptions Experience gains Contributions from plan participants Benefit payments Transfer from/(to) other plans At 30 June 2019	Fair value of plan assets $’000 201,268 – 5,739 (1,086) 205,921 - - - - - - - - - - - - (16,973) – – – (16,973) - - - - - - - - - - - - 1,279 (5,445) - - - - - - - - - - - - 184,782 Fair value of plan assets $’000 184,782 – 2,955 (607) 187,130 - - - - - - - - - - - - 12,244 – – 12,244 - - - - - - - - - - - - 612 (8,124) 399 - - - - - - - - - - - - 192,261	Present value of obligation $’000 (144,381) (7,262) (4,040) – (155,683) - - - - - - - - - - - - – 37 3,635 1,217 4,889 - - - - - - - - - - - - (1,279) 5,445 - - - - - - - - - - - - (146,628) Present value of obligation $’000 (146,628) (3,287) (2,264) – (152,179) - - - - - - - - - - - - – (4,209) 3,968 (241) - - - - - - - - - - - - (612) 8,124 (399) - - - - - - - - - - - - (145,307)	Total $’000 56,887 (7,262) 1,699 (1,086) 50,238 - - - - - - - - - - - - (16,973) 37 3,635 1,217 (12,084) - - - - - - - - - - - - – – - - - - - - - - - - - - 38,154 Total $’000 38,154 (3,287) 691 (607) 34,951 - - - - - - - - - - - - 12,244 (4,209) 3,968 12,003 - - - - - - - - - - - - – – – - - - - - - - - - - - - 46,954

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APPENDIX IIA

(c) The weighted average duration of the defined benefit obligation as at 31 December 2016, 31 December 2017, 31 December 2018 and 30 June 2019 is 6.9 years, 6.3 years, 6.3 years and 6.0 years respectively.

Expected maturity analysis of undiscounted pension benefit obligation at the end of each reporting periods is as follows:

Less than a year Between one and two years Between two and five years Beyond five years	At 31 December 2016 2017 $’000 $’000 9,237 9,497 9,965 27,362 66,393 46,466 227,065 210,852 312,660 294,177	2018 $’000 11,647 16,612 48,379 175,516 252,154	At 30 June 2019 $’000 6,752 20,473 59,693 160,235
			247,153

(d) The principal actuarial assumptions used for accounting purposes at the end of each reporting period are as follows:

		At 31 December		At 30 June
	2016	2017	2018	2019
Discount rate	3.3%	2.9%	3.3%	2.8%
Salary growth rate	4.8%	4.8%	4.8%	4.8%

(e) The sensitivity of defined benefit obligation to changes in the weighted principal assumptions is:

31 December 2016 Discount rate Salary growth rate 31 December 2017 Discount rate Salary growth rate 31 December 2018 Discount rate Salary growth rate 30 June 2019 Discount rate Salary growth rate	Impact on Change in assumption 1% 1% 1% 1% 1% 1% 1% 1%	defined benefit obligation Increase in assumption Decrease in assumption $’000 $’000 (11,089) 12,094 11,685 (10,941) (8,564) 9,324 8,954 (8,404) (8,580) 9,323 8,978 (8,441) (8,219) 9,061 8,469 (7,852)	defined benefit obligation Increase in assumption Decrease in assumption $’000 $’000 (11,089) 12,094 11,685 (10,941) (8,564) 9,324 8,954 (8,404) (8,580) 9,323 8,978 (8,441) (8,219) 9,061 8,469 (7,852)

			9,324 (8,404)

			9,323 (8,441)

			9,061 (7,852)

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APPENDIX IIA

The above sensitivity analyses are based on a change in an assumption which holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefits obligation to significant actuarial assumptions the same method (present value of the defined benefits obligation calculated with the projected unit credit method at the end of the reporting period) has been applied when calculating the pension liability recognised within the consolidated statement of financial position.

(f) The analysis of the fair value of plan assets at the end of each reporting period is as follows:

31 December 2016 Quoted Investments Equity instruments Investment funds Unquoted investments Investment funds Total investments Cash and cash equivalents Total 31 December 2017 Quoted Investments Equity instruments Investment funds Unquoted investments Investment funds Total investments Cash and cash equivalents Total	Asia Pacific $’000 25,880 26,515 52,395 - - - - - - - - - - 3,670 56,065 - - - - - - - - - - Asia Pacific $’000 21,836 37,347 59,183 - - - - - - - - - - 3,377 62,560 - - - - - - - - - -	Europe $’000 – 18,400 18,400 - - - - - - - - - - 1,873 20,273 - - - - - - - - - Europe $’000 – 17,481 17,481 - - - - - - - - - - 2,470 19,951 - - - - - - - - -	North America $’000 – 43,876 43,876 - - - - - - - - - - 1,174 45,050 - - - - - - - - - North America $’000 – 44,891 44,891 - - - - - - - - - - 2,502 47,393 - - - - - - - - -	Global $’000 – 18,279 18,279 - - - - - - - - - - 57,808 76,087 - - - - - - - - - Global $’000 – 20,765 20,765 - - - - - - - - - - 50,324 71,089 - - - - - - - - -	Total $’000 25,880 107,070
					132,950 - - - - - - - - - - 64,525
					197,475 - - - - - - - - - 5,340 - - - - - - - - - -
					202,815

					Total $’000 21,836 120,484
					142,320 - - - - - - - - - - 58,673
					200,993 - - - - - - - - - 275 - - - - - - - - - -
					201,268

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APPENDIX IIA

ACCOUNTANTS’ REPORT OF JOS CI

31 December 2018 Quoted Investments Equity instruments Investment funds Unquoted investments Investment funds Total investments Cash and cash equivalents Total 30 June 2019 Quoted Investments Equity instruments Investment funds Unquoted investments Investment funds Total investments Cash and cash equivalents Total	Asia Pacific $’000 7,247 34,741 41,988 - - - - - - - - - - 4,033 46,021 - - - - - - - - - - Asia Pacific $’000 2,860 41,270 44,130 - - - - - - - - - - 4,445 48,575 - - - - - - - - - -	Europe $’000 50 18,730 18,780 - - - - - - - - - - 7,841 26,621 - - - - - - - - - Europe $’000 – 30,664 30,664 - - - - - - - - - - 7,672 38,336 - - - - - - - - -	North America $’000 – 40,673 40,673 - - - - - - - - - - 17,569 58,242 - - - - - - - - - North America $’000 – 60,257 60,257 - - - - - - - - - - 19,448 79,705 - - - - - - - - -	Global $’000 – 17,625 17,625 - - - - - - - - - - 19,565 37,190 - - - - - - - - - Global $’000 – 13,844 13,844 - - - - - - - - - - 1,371 15,215 - - - - - - - - -	Total $’000 7,297 111,769
					119,066 - - - - - - - - - - 49,008
					168,074 - - - - - - - - - 16,708 - - - - - - - - - -
					184,782

					Total $’000 2,860 146,035
					148,895 - - - - - - - - - - 32,936
					181,831 - - - - - - - - - 10,430 - - - - - - - - - -
					192,261

– IIA-54 –

ACCOUNTANTS’ REPORT OF JOS CI

APPENDIX IIA

21 BANK BORROWINGS

At the end of each reporting period, the bank loans and overdrafts were repayable as follows:

							December		30 June
						2016	2017	2018	2019
						$’000	$’000	$’000	$’000
Within	1	year	or	on	demand	115,593	176,868	224,119	254,811

The bank borrowings as at 31 December 2016, 2017, 2018 and 30 June 2019 are unsecured, interest bearing at 1.52% to 4.42%, wholly repayable within one year or on demand. The bank borrowings are made under revolving facility and there are no loan covenants associated.

22 PROVISIONS FOR OTHER LIABILITIES AND CHARGES

At the beginning of the year/period Exchange differences Additional provision Utilisation Reversal of unused provision At the end of the year/period Non-current Current	At 31 December 2016 2017 $’000 $’000 15,045 13,219 (30) 146 2,003 2,160 (3,272) (326) (527) (173) 13,219 15,026 13,119 14,526 100 500 13,219 15,026	2018 $’000 15,026 (37) 4,365 (357) (4,290) 14,707 14,607 100 14,707	At 30 June 2019 $’000 14,707 4 273 – –
			14,984

			14,884 100
			14,984

23 LEASE LIABILITIES

The following table shows the remaining contractual maturities of the Target Group’s lease liabilities at the end of the current and previous reporting periods and at the date of transition to HKFRS 16:

Within 1 year After 1 year but within 2 years After 2 years but within 5 years Less: total future interest expenses Present value of lease liabilities	30 June 2019 Present value of the minimum lease payments Total minimum lease payments $’000 $’000 100,294 108,341 - - - - - - - - - - - - - - - - - - - - - - 89,990 94,735 74,204 78,573 164,194 173,308 - - - - - - - - - - - - - - - - - - - - - - 264,488 281,649 (17,161) 264,488	1 January 2019 (Note) Present value of the minimum lease payments Total minimum lease payments $’000 $’000 83,787 92,654 - - - - - - - - - - - - - - - - - - - - - - 98,528 104,456 97,810 103,780 196,338 208,236 - - - - - - - - - - - - - - - - - - - - - - 280,125 300,890 (20,765) 280,125	1 January 2019 (Note) Present value of the minimum lease payments Total minimum lease payments $’000 $’000 83,787 92,654 - - - - - - - - - - - - - - - - - - - - - - 98,528 104,456 97,810 103,780 196,338 208,236 - - - - - - - - - - - - - - - - - - - - - - 280,125 300,890 (20,765) 280,125
			208,236 - - - - - - - - - - -
			300,890 (20,765)
			280,125

– IIA-55 –

ACCOUNTANTS’ REPORT OF JOS CI

APPENDIX IIA

Note: The Target Group has initially applied HKFRS 16 using the modified retrospective approach and adjusted the opening balances at 1 January 2019 to recognise lease liabilities relating to leases which were previously classified as operating leases under HKAS 17. These liabilities have been aggregated with the brought forward balances relating to leases previously classified as finance leases. Comparative information as at 31 December 2016, 2017 and 2018 has not been restated and relates solely to leases previously classified as finance leases. Further details on the impact of the transition to HKFRS 16 are set out in note 1(c).

24 CAPITAL, RESERVES AND DIVIDENDS

(a) Share capital

Ordinary shares Authorised: At 1 January 2016, 31 December 2016 and 31 December 2017, 31 December 2018 and 30 June 2019 Issued and fully paid: At 1 January 2016, 31 December 2016 and 31 December 2017, 31 December 2018 and 30 June 2019	No. of shares ’000 9,000 14	HK$ ’000 7,020

		11

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.

(b) Dividend

Dividends payable to equity shareholders of the Target Company attributable to:

			Year	31 December		Six months ended 30 June	Six months ended 30 June
			2016	2017	2018	2018	2019
			$’000	$’000	$’000	$’000	$’000
						(unaudited)
Interim	dividend	declared	56,642	62,542	21,457	21,457	–

(i) The first interim dividend of US$3.742 million (approximately HK$28.029 million) for 2016 was approved in 2016. The second interim dividend of US$3.820 million (approximately HK$28.613 million) for 2016 was approved in 2016.
(ii) The first interim dividend of US$3.223 million (approximately HK$25.093 million) for 2017 was approved in 2017. The second interim dividend of US$2.794 million (approximately HK$21.753 million) for 2017 was approved in 2017. The third interim dividend of US$2.016 million (approximately HK$15.696 million) for 2017 was approved in 2017.
(iii) The interim dividend of US$2.736 million (approximately HK$21.457 million) for 2018 was approved in 2018.

– IIA-56 –

ACCOUNTANTS’ REPORT OF JOS CI

APPENDIX IIA

(c) 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(r).

Merger reserve

The merger reserve represents the differences between the amount of consideration paid to JTH (BVI) Limited, an immediate holding company of the Target Company, and the share capital of the subsidiaries acquired.

(d) Capital management

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

The Target 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 Group as capital.

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

(e) 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 2016 Changes in equity for year ended 31 December 2016: Profit and total comprehensive income for the year Dividend declared 24(b) Balance at 31 December 2016 and 1 January 2017 Changes in equity for the year ended 31 December 2017: Profit and total comprehensive income for the year Dividend declared 24(b)	Share capital $’000 11 - - - - - - - - - - - – – – - - - - - - - - - - - 11 - - - - - - - - - - - – – – - - - - - - - - - - -	Retained profits $’000 532,513 - - - - - - - - - - - 56,576 (56,642) (66) - - - - - - - - - - - 532,447 - - - - - - - - - - - 77,495 (62,542) 14,953 - - - - - - - - - - -	Total $’000 532,524 - - - - - - - - - - - 56,576 (56,642) (66) - - - - - - - - - - - 532,458 - - - - - - - - - - - 77,495 (62,542) 14,953 - - - - - - - - - - -

– IIA-57 –

ACCOUNTANTS’ REPORT OF JOS CI

APPENDIX IIA

Note Balance at 31 December 2017 and 1 January 2018 Changes in equity for the year ended 31 December 2018: Profit and total comprehensive income for the year Dividend declared 24(b) Balance at 31 December 2018 and 1 January 2019 Change in equity for the six months ended 30 June 2019: Profit and total comprehensive income for the period Balance at 30 June 2019 Balance at 31 December 2017 and 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 11 - - - - - - - - - - - – – – - - - - - - - - - - - 11 – 11 11 – 11	Retained profits $’000 547,400 - - - - - - - - - - - 17,807 (21,457) (3,650) - - - - - - - - - - - 543,750 3,556 547,306 547,400 24,075 571,475	Total $’000 547,411 - - - - - - - - - - - 17,807 (21,457) (3,650) - - - - - - - - - - - 543,761 3,556 547,317 547,411 24,075 571,486

25 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, balances with group companies 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.

Balances due from group companies

No ECL allowance is provided for the amount due from group companies as management assessed that the Target Group does not have significant exposure to credit risk based on loss experience over the past years with the consideration of current and future economic conditions at the reporting date.

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.

– IIA-58 –

ACCOUNTANTS’ REPORT OF JOS CI

APPENDIX IIA

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 Group does not obtain collateral from customers.

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 31 December 2016, 31 December 2017, 31 December 2018 and 30 June 2019:

31 December 2016 Expected loss rate Gross carrying amount % $’000 Current (not past due) 0.2% 441,176 1 – 30 days past due 0.3% 117,977 31 – 90 days past due 0.3% 86,020 More than 90 days past due 10.7% 55,808 700,981	Loss allowance $’000 (1,067) (301) (285) (5,997) (7,650)

31 December 2017
Expected
loss rate
Gross carrying
amount
%
$’000
Current (not past due)
0.2%
480,013
1 – 30 days past due
0.2%
110,849
31 – 90 days past due
0.3%
80,987
More than 90 days past due
11.8%
38,200
710,049
31 December 2018
Expected
loss rate
Gross carrying
amount
%
$’000
Current (not past due)
0.2%
551,893
1 – 30 days past due
0.2%
120,935
31 – 90 days past due
0.2%
115,655
More than 90 days past due
8.3%
122,070
910,553

Loss allowance
$’000
(752)
(250)
(239)
(4,508)
(5,749)
Loss allowance
$’000
(1,282)
(260)
(284)
(10,175)
(12,001)

– IIA-59 –

ACCOUNTANTS’ REPORT OF JOS CI

APPENDIX IIA

Expected loss rate % Current (not past due) 0.3% 1 – 30 days past due 0.2% 31 – 90 days past due 0.3% More than 90 days past due 2.7%	30 June 2019 Gross carrying amount $’000 415,728 183,479 142,514 128,234 869,955	Loss allowance $’000 (1,073) (439) (390) (3,441) (5,343)

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.

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 Foreign exchange difference Reversal/(recognition) of loss allowance of trade and other receivables (note 4(d)) Uncollectible amounts written off At the end of the year/period	At 31 December 2016 2017 $’000 $’000 (21,375) (7,650) 281 (186) 3,569 (462) 9,875 2,549 (7,650) (5,749)	2018 $’000 (5,749) 170 (14,805) 8,383 (12,001)	At 30 June 2019 $’000 (12,001) 55 (944) 7,547 (5,343)

As at 31 December 2016, 2017 and 2018 and 30 June 2019, the trade receivables of $6,892,000, $604,000, $268,000 and $7,169,000 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.

– IIA-60 –

ACCOUNTANTS’ REPORT OF JOS CI

APPENDIX IIA

(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 Loan payable to a group company Bank borrowings	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 $’000 447,063 – – 447,063 191,924 – – 191,924 – 7,095 – 7,095 115,593 – – 115,593 754,580 7,095 – 761,675	Carrying amount $’000 447,063 191,924 7,095 115,593
		761,675

At 31 December 2017

Trade payables Other payables and accrued charges Loan payable to a group company Bank borrowings	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 $’000 426,904 – – 426,904 218,873 2,339 – 221,212 1,170 5,925 – 7,095 176,868 – – 176,868 823,815 8,264 – 832,079	Carrying amount $’000 426,904 221,212 7,095 176,868
		832,079

– IIA-61 –

ACCOUNTANTS’ REPORT OF JOS CI

APPENDIX IIA

At 31 December 2018

Trade payables Other payables and accrued charges Bank borrowings *At 30 June 2019*	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 $’000 492,570 – – 492,570 221,674 4,443 – 226,117 224,119 – – 224,119 938,363 4,443 – 942,806	Carrying amount $’000 492,570 226,117 224,119
		942,806

Trade payables Other payables and accrued charges Bank borrowings Lease liabilities	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 $’000 457,749 – – 457,749 183,671 4,473 – 188,144 254,811 – – 254,811 108,341 94,735 78,573 281,649 1,004,572 99,208 78,573 1,182,353	Carrying amount $’000 457,749 188,144 254,811 264,488
		1,165,192

(c) Interest rate risk

The Target Group’s interest rate risk arises primarily from loan payable to a group company and bank borrowings. Financial instruments with variable interest rates expose the Target Group to cash flow interest rate risk. The interest rate and terms of repayment of interest-bearing borrowing of the Target Group are disclosed in notes 18 and 21 to the Historical Financial Information.

Sensitivity analysis

At 31 December 2016, 31 December 2017 and 30 June 2019, 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 after tax and have decreased/increased retained profits as at 31 December 2016, 31 December 2017 and 30 June 2019 by $375,000, $631,000 and $927,000 respectively.

At 31 December 2018, 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 Group’s profit after tax and retained profits as at 31 December 2018 by $798,000.

The sensitivity analysis above indicates the instantaneous change in the Target Group’s (loss)/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 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)/profit after tax and retained profits is estimated as an annualised impact on interest expenses of such a change in interest rate. The analysis is performed on the same basis throughout the Relevant Periods.

– IIA-62 –

ACCOUNTANTS’ REPORT OF JOS CI

APPENDIX IIA

(d) Currency risk

The following table details the Target Company’s exposure at the end of each of the reporting period to currency risk arising from recognised assets or liabilities denominated in a currency other than the Target Company’s functional currency of United States Dollars. For presentation purposes, the amounts of the exposure are expressed in Hong Kong Dollars.

Trade and other receivables Cash and cash equivalents Trade and other payables Trade and other receivables Cash and cash equivalents Trade and other payables Net exposure to currency risk Trade and other receivables Cash and cash equivalents Trade and other payables Net exposure to currency risk Trade and other receivables Cash and cash equivalents Trade and other payables	31 December 2016 Hong Kong Dollar United States Dollar $’000 $’000 – 19,672 – 1,788 (31) (32,115) (31) (10,655) 31 December 2017 Hong Kong Dollar United States Dollar $’000 $’000 – 28,452 1 1,537 (997) (29,853) (996) 136 31 December 2018 Hong Kong Dollar United States Dollar $’000 $’000 – 31,511 – 2,010 (137) (45,885) (137) (12,364) 31 December 2019 Hong Kong Dollar United States Dollar $’000 $’000 – 34,180 – 2,047 (210) (35,019) (210) 1,208	Singapore Dollars $’000 – – – – Singapore Dollars $’000 – – – – Singapore Dollars $’000 – – (204) (204) Singapore Dollars $’000 – – (1,353) (1,353)

– IIA-63 –

ACCOUNTANTS’ REPORT OF JOS CI

APPENDIX IIA

The following table indicates the positive/(negative) effect on (loss)/profit after taxation and retained profits assuming a general increase of 10% in the foreign exchange rates to which the Group has significant exposure at the end of the reporting period:

31 December 2016
Increase/
(decrease) in
foreign
exchange rates
(Increase)/
decrease in
loss after tax
$’000
Hong Kong Dollars
10%
(3)
(10)%
3
United State Dollars
10%
(1,066)
(10)%
1,066
Singapore Dollars
10%
–
(10)%
–
31 December 2017
Increase/
(decrease) in
foreign
exchange rates
(Increase)/
decrease in
loss after tax
$’000
Hong Kong Dollars
10%
(100)
(10)%
100
United State Dollars
10%
14
(10)%
(14)
Singapore Dollars
10%
–
(10)%
–
31 December 2018
Increase/
(decrease) in
foreign
exchange rates
Decrease/
(increase) in
profit after tax
$’000
$’000
Hong Kong Dollars
10%
11
(10)%
(11)
United State Dollars
10%
1,032
(10)%
(1,032)
Singapore Dollars
10%
17
(10)%
(17)

Decrease/
(increase) in
retained
profits
$’000
3
(3)
1,066
(1,066)
–
–
Decrease/
(increase) in
retained
profits
$’000
100
(100)
(14)
14
–
–
Decrease/
(increase) in
retained
profits
11
(11)
1,032
(1,032)
17
(17)

– IIA-64 –

ACCOUNTANTS’ REPORT OF JOS CI

APPENDIX IIA

		30 June 2019
	Increase/		Decrease/
	(decrease) in	(Increase)/	(increase) in
	foreign	decrease in	retained
	exchange rates	loss after tax	profits
		$’000	$’000
Hong Kong Dollars	10%	(21)	21
	(10)%	21	(21)
United State Dollars	10%	121	(121)
	(10)%	(121)	121
Singapore Dollars	10%	(135)	135
	(10)%	135	(135)

The Target Group uses forward exchange contracts to manage its currency risk of foreign currency receivables or payables. The Target Group measured those forward exchange contracts at fair value through profit or loss.

The following table details the forward exchange contracts that are measured at fair value through profit or loss at the end of the each of reporting period:

			At 31 December	At 31 December			At 30	June
	2016		2017		2018		2019
	Positive	Negative	Positive	Negative	Positive	Negative	Positive	Negative
	FV	FV	FV	FV	FV	FV	FV	FV
	’000	$’000	’000	$’000	’000	$’000	’000	$’000
Not qualified as hedges
forward foreign exchange
contracts	896	(11)	29	(2,449)	677	(37)	671	(343)

The fair value of derivative instruments are included in trade and other receivables or trade and other payables.

The outstanding forward foreign exchange contracts as at 31 December 2016, 2017, 2018 and 30 June 2019 which mature within one year are as follows:

		At 31 December		At 30 June
	2016	2017	2018	2019
	$’000	$’000	$’000	$’000
The contract amounts of the
outstanding forward foreign
exchange contracts	115,205	52,201	59,101	114,850

(e) Fair value measurement

All financial instruments are carried at amounts not materially different from their fair values as at 31 December 2016, 31 December 2017, 31 December 2018 and 30 June 2019.

– IIA-65 –

ACCOUNTANTS’ REPORT OF JOS CI

APPENDIX IIA

26 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 equipment* *which are receivable:* Within 1 year After 1 year but within 5 years	At 31 December 2016 2017 $’000 $’000 42,848 72,595 62,376 68,986 105,224 141,581	2018 $’000 67,776 54,946 122,722	At 30 June 2019 $’000 59,856 44,411
			104,267

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

Within 1 year After 1 year but within 5 years	2016 $’000 96,859 82,744 179,603	At 31 December 2017 $’000 94,214 78,404 172,618	2018 $’000 97,589 126,124
			223,713

The Target Group is the lessee in respect of a number of properties and equipment 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.

27 MATERIAL RELATED PARTY TRANSACTIONS

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

	Year	ended 31 December	ended 31 December	Six months ended	30 June
	2016	2017	2018	2018	2019
	$’000	$’000	$’000	$’000	$’000
				(unaudited)
Interest expense (note a)	366	865	1,173	160	586
Interest income (note a)	(772)	(1,450)	(2,242)	(632)	(1,314)
Sales of products and provision
of services (note b)	(278,363)	(247,685)	(293,554)	(115,184)	(126,746)
Purchase of products and
services (note b)	236,611	115,433	303,290	44,342	128,639
Central service costs (note c)	2,963	3,151	2,836	1,244	1,855
Insurance related services costs
(note d)	447	452	448	224	224
Rental expenses (note e)	366	352	32	–	–
Management fee expenses	3,403	1,282	–	68	401
Management fee income (note f)	–	–	(46,851)	(13,359)	(5,250)

– IIA-66 –

ACCOUNTANTS’ REPORT OF JOS CI

APPENDIX IIA

(a) Interest expense was charged at LIBOR plus 1% per annum on the loan payable to a group company. Interest income was charged at LIBOR plus 1% per annum on the loan receivable from a group company.
(b) Sales of products and provision of services and purchase of products and services to/from group companies were carried out on commercial terms and conditions.
(c) Central service costs are paid to Jardine Matheson Limited, a group company, for certain central support services pursuant to related agreements.
(d) Insurance related services costs were paid to Jardine Lloyd Thompson Limited, a related company, in respect of the premium for participating in self-insurance schemes.
(e) Rental expenses were charged by Jardine Matheson & Co. Limited, a group company in accordance with the terms of the lease agreements.
(f) Management fee income was received from group companies for certain central support services provided.

The remuneration for key management personnel consists the Target Group’s directors is disclosed in note 6.

28 HISTORICAL FINANCIAL INFORMATION PRIOR TO THE ADOPTION OF HKFRS 16

The Target Group has initially applied HKFRS 16 at 1 January 2018. The historical financial information for the years ended 31 December 2016, 2017 and 2018 is not restated. Further details of the changes in accounting policies are disclosed in note 1(c).

29 IMMEDIATE AND ULTIMATE CONTROLLING PARTY

At 30 June 2019, the directors of the Target Group consider the immediate parent and ultimate controlling party of the Target Group to be JTH (BVI) Limited and Jardine Matheson Holdings Limited, respectively, both of which are incorporated in the Cayman Islands. Neither of these companies produces Historical Financial Information available for public use.

30 ACCOUNTING JUDGEMENT AND ESTIMATES

Sources of estimation uncertainty

Note 25 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.

– IIA-67 –

ACCOUNTANTS’ REPORT OF JOS CI

APPENDIX IIA

(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) 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.

(e) Determining the lease term

As explained in policy note 1(f), the lease liability is initially recognised at the present value of the lease payments payable over the lease term. In determining the lease term at the commencement date for leases that include renewal options exercisable by the Target Group, the Target Group evaluates the likelihood of exercising the renewal options taking into account all relevant facts and circumstances that create an economic incentive for the Target Group to exercise the option, including favourable terms, leasehold improvements undertaken and the importance of that underlying asset to the Target Group’s operation. The lease term is reassessed when there is a significant event or significant change in circumstance that is within the Target Group’s control. Any increase or decrease in the lease term would affect the amount of lease liabilities and right-of-use assets recognised in future years.

(f) Impairment of goodwill

The Target Group tests annually whether goodwill has suffered any impairment in accordance with the accounting policy set out in note 1(i)(ii).

The recoverable amount of an asset or a cash-generating unit has been determined based on its value-in-use. These calculations require the use of estimates. There are a number of assumptions and estimates involved for the preparation of cash flow projections for the period covered by the approved budget and the estimated terminal value. Key assumptions include the budgeted gross margin, growth rates and selection of discount rates, to reflect the risks-involved and the earnings multiple that can be realised for the estimated terminal value.

31 BUSINESS COMBINATIONS

Project MAPLE II-SharePoint and Workflow Business Acquisition

On 29 December 2016, a separate sales and purchase agreement, in addition to the sales and purchase agreement entered previously on 31 July 2015, was entered into between JOS Applications (S) Pte Ltd (“JAS”), a subsidiary of the Target Company, and MUU Consulting Pte Ltd (“MUU”) to acquire the Workflow business practice from MUU, in which the principal activity is that of consultation, development of software, and programming activities.

The transaction was completed on 31 December 2017 when all the conditions precedent to Completion were fulfilled. The entire purchase consideration of this transaction was equivalent to SG$1,000,000 (HK$5,367,000) of contingent consideration which will be paid to the seller of the workflow business practice based on an earn-out scheme and paid over three tranches in 2017, 2018 and 2019.

– IIA-68 –

ACCOUNTANTS’ REPORT OF JOS CI

APPENDIX IIA

There were no tangible assets being transferred into JAS nor any liabilities assumed from MUU that can be separately identified with any material value, as such the total purchase consideration was allocated entirely to goodwill amounting to SG$1,000,000 (HK$5,367,000). The goodwill arose from the synergy created between JAS existing network and the expertise of MUU in IT consulting, SharePoint and Workflow businesses, which, would help accelerate the pace of JAS in establishing a foothold in the consulting business.

The fair value of the contingent consideration as at the acquisition date is a Level 3 fair value measurement. The fair value as at acquisition date was estimated based on cash flow projections used in financial budgets approved by management covering a five-year period and Cash flow projection beyond the five-year period were extrapolated using terminal growth rates averaging 2% a year and discounted using a weighted average cost of capital rate of 12%.

On 3 December 2018, a supplemental agreement to the original business and purchase agreement was signed between JAS and MUU which extended the end of the Earn-out Period to 31 December 2020 (final payment to be made on 2021) with a revised cumulative net profit target while keeping the total maximum contingent consideration.

32 COMPANY-LEVEL STATEMENTS OF FINANCIAL POSITION

Note Non-current assets Investments in subsidiaries 11 Current assets Other receivables, deposits and prepayments Amount due from group companies Current liabilities Other payables and accrued charges Net current assets NET ASSETS CAPITAL AND RESERVES Share capital 24(a) Retained profits TOTAL EQUITY	At 31 December 2016 2017 $’000 $’000 58,040 58,040 58,040 58,040 - - - - - - - - - - - - - - - - - - - - 22 22 478,000 492,945 478,022 492,967 - - - - - - - - - - - - - - - - - - - - 3,604 3,596 - - - - - - - - - - - - - - - - - - - 474,418 489,371 - - - - - - - - - - - - - - - - - - - 532,458 547,411 11 11 532,447 547,400 532,458 547,411	2018 $’000 84,750 84,750 - - - - - - - - - - 22 462,585 462,607 - - - - - - - - - - 3,596 - - - - - - - - - 459,011 - - - - - - - - - 543,761 11 543,750 543,761	At 30 June 2019 $’000 84,750
			84,750 - - - - - - - - - - 20 466,482
			466,502 - - - - - - - - - - 3,935 - - - - - - - - -
			462,567 - - - - - - - - -
			547,317

			11 547,306
			547,317

– IIA-69 –

ACCOUNTANTS’ REPORT OF JOS CI

APPENDIX IIA

33 POSSIBLE IMPACT OF AMENDMENTS, NEW STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE FOR THE ACCOUNTING PERIOD BEGINNING ON 1 JANUARY 2019

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 2019 and which have not been adopted in the Historical Financial Information. These include the following which may be relevant to the Target Group.

	Effective for
	accounting
	periods beginning
	on or after
Amendments to HKFRS 3, Defilations of a business	1 January 2020
Amendments to HKAS 1 and HKAS 8, Defilations material	1 January 2020
HKFRS 17, Insurance contracts	1 January 2021
Amendments to HKFRS 10 and HKAS 28, Sale or contribution of assets between an	To be determined
investor and its associate or joint venture

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 it has concluded that the adoption of them are unlikely to have a significant impact on the Historical Financial Information.

34 EVENTS AFTER THE REPORTING PERIOD

No significant events have occurred after 30 June 2019 which would have a material impact on the Target Group.

SUBSEQUENT HISTORICAL FINANCIAL INFORMATION

No audited Historical Financial Information have been prepared by the Target Company and its subsidiaries in respect of any period subsequent to 30 June 2019.

– IIA-70 –

ACCOUNTANTS’ REPORT OF ADURA HONG KONG

APPENDIX IIB

The following is the text of a report set out on pages IIB-1 to IIB-40, 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 ADURA HONG KONG LIMITED TO THE DIRECTORS OF HKBN LTD.

Introduction

We report on the historical financial information of Adura Hong Kong Limited (the “Target Company”) set out on pages IIB-4 to IIB-40, which comprises the statements of financial position of the Target Company as at 31 December 2017 and 2018 and 30 June 2019 and the income statements, the statements of comprehensive income, the statements of changes in equity and the cash flow statements, for the period from 14 December 2017(date of incorporation) to 31 December 2017, the year ended 31 December 2018 and the six months ended 30 June 2019 (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-40 forms an integral part of this report, which has been prepared for inclusion in the circular of HKBN Ltd. (the “Company”) dated 21 November 2019 (the “Circular”) in connection with the proposed acquisition of the IT solutions business from JTH (BVI) Limited through the acquisition of the entire issued share capital of Jardine OneSolution Holdings (C.I.) Limited, Adura Hong Kong Limited and Adura Cyber Security Services Pte Ltd.

Directors’ responsibility for Historical Financial Information

The Underlying Financial Statements of the Target Company as defined on page IIB-4, on which the Historical Financial Information is based, were prepared by the directors of the Target Company. The directors of the Target Company are responsible for the preparation of the Underlying Financial Statements that give a true and fair view in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”), and for such internal control as the directors of the Target Company determine is necessary to enable the preparation of the Underlying Financial Statements that is free from material misstatement, whether due to fraud or error.

– IIB-1 –

ACCOUNTANTS’ REPORT OF ADURA HONG KONG

APPENDIX IIB

Reporting accountants’ responsibility

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 Company’s financial position as at 31 December 2017 and 2018 and 30 June 2019 and of the Target Company’s 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 Company which comprises the income statement, statement of comprehensive income, the statement of changes in equity and the cash flow statement for the six months ended 30 June 2018 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

– IIB-2 –

ACCOUNTANTS’ REPORT OF ADURA HONG KONG

APPENDIX IIB

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.

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 have been made.

KPMG

Certified Public Accountants

8th Floor, Prince’s Building 10 Chater Road Central, Hong Kong 21 November 2019

– IIB-3 –

ACCOUNTANTS’ REPORT OF ADURA HONG KONG

APPENDIX IIB

HISTORICAL FINANCIAL INFORMATION OF THE TARGET COMPANY

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

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

Income statements

(Expressed in Hong Kong Dollars)

Note Revenue 2 Cost of services Other operating expenses Loss before taxation 3 Income tax (expense)/credit 4 Loss for the year/period	Period from 14 December 2017 (date of incorporation) to 31 December 2017 $ – – – – – –	Year ended 31 December 2018 $ 561,201 (363,137) (2,771,283) (2,573,219) (12,375) (2,585,594)	Six months ended 30 June 2018 2019 $ $ (unaudited) – 1,125,953 – (506,367) (1,191,187) (1,753,905) (1,191,187) (1,134,319) (3,891) 2,310 (1,195,078) (1,132,009)

The accompanying notes form part of the Historical Financial Information.

– IIB-4 –

ACCOUNTANTS’ REPORT OF ADURA HONG KONG

APPENDIX IIB

Statements of comprehensive income

(Expressed in Hong Kong Dollars)

Note Loss for the year/period Item that will not be reclassified to profit or loss: Remeasurement of employee benefit plans Tax related to employee benefit plans Other comprehensive income for the year/period Total comprehensive income for the year/period	Period from 14 December 2017 (date of incorporation) to 31 December 2017 $ – - - - - - - - - - - - - - – – – - - - - - - - - - - - - - –	Year ended 31 December 2018 $ (2,585,594) - - - - - - - - - - - - - (163,000) 26,895 (136,105) - - - - - - - - - - - - - (2,721,699)	Six months ended 30 June 2018 2019 $ $ (unaudited) (1,195,078) (1,132,009) - - - - - - - - - - - - - - - - - - - - - - - - - - (106,000) 21,000 17,490 (3,465) (88,510) 17,535 - - - - - - - - - - - - - - - - - - - - - - - - - - (1,283,588) (1,114,474)

The accompanying notes form part of the Historical Financial Information.

– IIB-5 –

ACCOUNTANTS’ REPORT OF ADURA HONG KONG

APPENDIX IIB

Statements of financial position

(Expressed in Hong Kong Dollars)

Note Non-current assets Property, plant and equipment 7 Deferred tax assets 12 Current assets Contract assets 8(a) Trade receivables 9 Other receivables, deposits and prepayments 9 Amount due from the immediate holding company 14 Cash and cash equivalents 10 Current liabilities Contract liabilities 8(b) Other payables and accrued charges 11 Amounts due to fellow subsidiaries 14 Net current assets/(liabilities) Total assets less current liabilities Non-current liabilities Pension liabilities 13 NET ASSETS/(LIABILITIES) CAPITAL AND RESERVE Share capital 15(b) Accumulated losses TOTAL EQUITY/(DEFICIT)	At 31 December 2017 2018 $ $ – 45,930 – 14,520 – 60,450 ----------- ----------- – 187,585 – 81,953 300,750 69,816 1 1 – 82,540 300,751 421,895 ----------- ----------- – – – 325,966 300,750 2,790,077 300,750 3,116,043 ----------- ----------- 1 (2,694,148) ----------- ----------- 1 (2,633,698) ----------- ----------- – 88,000 – 88,000 ----------- ----------- 1 (2,721,698) 1 1 – (2,721,699) 1 (2,721,698)	At 30 June 2019 $ 44,927 13,365 58,292 ----------- 623,475 33,002 76,899 1 914,508 1,647,885 ----------- 625,225 539,482 4,296,642 5,461,349 ----------- (3,813,464) ----------- (3,755,172) ----------- 81,000 81,000 ----------- (3,836,172) 1 (3,836,173) (3,836,172)

The accompanying notes form part of the Historical Financial Information.

– IIB-6 –

ACCOUNTANTS’ REPORT OF ADURA HONG KONG

APPENDIX IIB

Statements of changes in equity

(Expressed in Hong Kong Dollars)

Balance at 14 December 2017 (date of incorporation) Changes in equity for the period from the date of incorporation to 31 December 2017 Issue of shares upon incorporation Balance at 31 December 2017 and 1 January 2018 Changes in equity for the year ended 31 December 2018: Loss for the year Other comprehensive income for the year Total comprehensive income for the year Balance at 31 December 2018 and 1 January 2019 Changes in equity for the six months ended 30 June 2019: Loss for the period Other comprehensive income for the period Total comprehensive income for the period Balance at 30 June 2019 Unaudited Balance at 31 December 2017 and 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	Share capital $ – - - - - - - - - - - - - 1 - - - - - - - - - - - - 1 - - - - - - - - - - - - – – – - - - - - - - - - - - - 1 – – – - - - - - - - - - - - - 1 1 – – – - - - - - - - - - - - - 1	Accumulated losses $ – - - - - - - - - - - - - – - - - - - - - - - - - - – - - - - - - - - - - - - (2,585,594) (136,105) (2,721,699) - - - - - - - - - - - - (2,721,699) (1,132,009) 17,535 (1,114,474) - - - - - - - - - - - - (3,836,173) – (1,195,078) (88,510) (1,283,588) - - - - - - - - - - - - (1,283,588)	Total $ – - - - - - - - - - - - - 1 - - - - - - - - - - - - 1 - - - - - - - - - - - - (2,585,594) (136,105) (2,721,699) - - - - - - - - - - - - (2,721,698) (1,132,009) 17,535 (1,114,474) - - - - - - - - - - - - (3,836,172) 1 (1,195,078) (88,510) (1,283,588) - - - - - - - - - - - - (1,283,587)

The accompanying notes form part of the Historical Financial Information.

– IIB-7 –

ACCOUNTANTS’ REPORT OF ADURA HONG KONG

APPENDIX IIB

Cash flow statements

(Expressed in Hong Kong Dollars)

Note Cash generated from operations 10(b) Investing activities Payment for the purchase of property, plant and equipment Net cash used in investing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year/period 10(a) Cash and cash equivalents at the end of the year/period 10(a)	Period from 14 December 2017 (date of incorporation) to 31 December 2017 $ – - - - - - - - - - - - - - – – - - - - - - - - - - - - - – – –	Year ended 31 December 2018 $ 138,212 - - - - - - - - - - - - - (55,672) (55,672) - - - - - - - - - - - - - 82,540 – 82,540	Six months ended 30 June 2018 2019 $ $ (unaudited) 36,414 841,578 - - - - - - - - - - - - - - - - - - - - - - - - - - (28,592) (9,610) (28,592) (9,610) - - - - - - - - - - - - - - - - - - - - - - - - - - 7,822 831,968 – 82,540 7,822 914,508

The accompanying notes form part of the Historical Financial Information.

– IIB-8 –

ACCOUNTANTS’ REPORT OF ADURA HONG KONG

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

Adura Hong Kong Limited (the “Target Company”) is a private limited company incorporated on 14 December 2017 in Hong Kong. The address of the registered office is 25th Floor, Devon House, Taikoo Place, 979 King’s Road, Quarry Bay, Hong Kong.

The Historical Financial Information that is included in the accountants’ report does not constitute the Target Company’s statutory annual financial statements for the period from 14 December 2017(date of incorporation) to 31 December 2017 and the year ended 31 December 2018. 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 Company has delivered the financial statements for the period from 14 December 2017(date of incorporation) to 31 December 2018 to the Registrar of Companies as required by section 662(3) of, and Part 3 of Schedule 6 to, the Companies Ordinance.

The Target 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 Company is engaged in the provision of consultancy services in relation to cybersecurity through the network solution center.

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

The HKICPA has issued a number of new and revised HKFRSs. For the purpose of preparing this Historical Financial Information, the Target Company 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 2019. The revised and new accounting standards and interpretation issued but not yet effective for the accounting period beginning on 1 January 2019 are set out in Note 21.

For the purpose of preparing the Historical Financial Information, the accounting policies set out below have been applied consistently throughout the Relevant Periods, except for HKFRS 16 Leases which has been initially applied on 1 January 2019. Details of the changes in accounting policies are discussed in note 1(c).

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.

– IIB-9 –

ACCOUNTANTS’ REPORT OF ADURA HONG KONG

APPENDIX IIB

(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.

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 20.

As at 31 December 2018 and 30 June 2019, the Target Company had net current liabilities amounted to HK$2,694,148 and HK$3,813,464, respectively, and had shareholder’s deficit of HK$2,721,698 and HK$3,836,172, respectively. Jardine OneSolution Holdings (C.I.) Limited, a group company has confirmed its intention to provide continuing financial support to the Target Company so as to enable the Target Company to meet its liabilities as and when they fall due and to enable the Target Company to continue its business for the foreseeable future. Consequently, the directors have prepared the financial statements on a going concern basis.

(c) Changes in accounting policies

(i) HKFRS 16, Leases

The Target Company has initially applied HKFRS 16 as at 1 January 2019. The Target Company has elected to use the modified retrospective approach and has not applied the requirement of HKFRS 16 in respect of the recognition of lease liabilities and right-of-use asset with remaining lease terms ending within 12 months from the date of initial application at 1 January 2019. Comparative information has not been restated and continues to be reported under HKAS 17.

– IIB-10 –

ACCOUNTANTS’ REPORT OF ADURA HONG KONG

APPENDIX IIB

Further details of the nature and effect of the changes to previous accounting policies and the transition options applied are set out below:

a. New definition of a lease

The Target Company applies the new definition of a lease in HKFRS 16 only to contracts that were entered into or changed on or after 1 January 2019. For contracts entered into before 1 January 2019, the Target Company has used the transitional practical expedient to grandfather the previous assessment of which existing arrangements are or contain leases. Accordingly, contracts that were previously assessed as leases under HKAS 17 continue to be accounted for as leases under HKFRS 16 and contracts previously assessed as non-lease service arrangements continue to be accounted for as executory contracts.

b. Lessee accounting and transitional impact

HKFRS 16 eliminates the requirement for a lessee to classify leases as either operating leases or finance leases, as was previously required by HKAS 17. Instead, the Target Company is required to capitalise all leases when it is the lessee, including leases previously classified as operating leases under HKAS 17, other than those short-term leases and leases of low-value assets which are exempt. As far as the Target Company is concerned, these newly capitalised leases are primarily in relation to property, plant and equipment as disclosed in note 17. For an explanation of how the Target Company applies lessee accounting, see note 1(e).

At the date of transition to HKFRS 16 (i.e. 1 January 2019), the Target Company determined the length of the remaining lease terms and measured the lease liabilities for the leases previously classified as operating leases at the present value of the remaining lease payments, discounted using the relevant incremental borrowing rates at 1 January 2019.

To ease the transition to HKFRS 16, the Target Company applied the following recognition exemption and practical expedients at the date of initial application of HKFRS 16:

(i) the Target Company elected not to apply the requirements of HKFRS 16 in respect of the recognition of lease liabilities and right-of-use assets to leases for which the remaining lease term ends within 12 months from the date of initial application of HKFRS 16, i.e. where the lease term ends on or before 31 December 2019;
(ii) when measuring the lease liabilities at the date of initial application of HKFRS 16, the Target Company applied a single discount rate to a portfolio of leases with reasonably similar characteristics (such as leases with a similar remaining lease term for a similar class of underlying asset in a similar economic environment); and
(iii) when measuring the right-of-use assets at the date of initial application of HKFRS 16, the Target Company relied on the previous assessment for onerous contract provisions as at 31 December 2018 as an alternative to performing an impairment review.

– IIB-11 –

ACCOUNTANTS’ REPORT OF ADURA HONG KONG

APPENDIX IIB

The following table reconciles the operating lease commitments as disclosed in note 17 as at 31 December 2018 to the opening balance for lease liabilities recognised as at 1 January 2019:

Operating lease commitments at 31 December 2018
Less: commitments relating to leases exempt from capitalisation:
– short-term leases with original lease terms shorter than
12 months and other leases with remaining lease term ending
on or before 31 December 2019
Present value of remaining lease payments, discounted using the
incremental borrowing rate and total lease liabilities recognised
as at 1 January 2019

1 January
2019
$
259,920
(259,920)
–

The Target Company elected not to apply the requirements of HKFRS 16 in respect of the recognition of lease liabilities and right-of-use assets to leases for which the remaining term ended within 12 months from the date of initial application of HKFRS 16.

c. Impact on the financial result and cash flows of the Target Company

After the initial recognition of right-of-use assets and lease liabilities as at 1 January 2019, the Target Company as a lessee is required to recognise interest expense accrued on the outstanding balance of the lease liability, and the depreciation of the right-of-use asset, instead of the previous policy of recognising rental expenses incurred under operating leases on a straight-line basis over the lease term.

In the cash flow statement, the Target Company as a lessee is required to split rentals paid under capitalised leases into their capital element and interest element. These elements are classified as financing cash outflows, similar to how leases previously classified as finance leases under HKAS 17 were treated, rather than as operating cash outflows, as was the case for operating leases under HKAS 17. Although total cash flows are unaffected, the adoption of HKFRS 16 therefore results in a significant change in presentation of cash flows within the cash flow statement.

(d) Property, plant and equipment

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

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:

– Telecommunication, computer and office equipment 3 years

– IIB-12 –

ACCOUNTANTS’ REPORT OF ADURA HONG KONG

APPENDIX IIB

(e) Leased assets

At inception of a contract, the Target Company assesses whether the contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Control is conveyed where the customer has both the right to direct the use of the identified asset and to obtain substantially all of the economic benefits from that use.

As a lessee

(A) Policy applicable from 1 January 2019

Where the contract contains lease component(s) and non-lease component(s), the Target Company has elected not to separate non-lease components and accounts for each lease component and any associated non-lease components as a single lease component for all leases.

At the lease commencement date, the Target Company recognises a right-of-use asset and a lease liability, except for short-term leases that have a lease term of 12 months or less and leases of low-value assets which, for the Target Company are primarily laptops and office furniture. When the Target Company enters into a lease in respect of a low-value asset, the Target Company decides whether to capitalise the lease on a lease-by-lease basis. The lease payments associated with those leases which are not capitalised are recognised as an expense on a systematic basis over the lease term.

The lease liability is remeasured when there is a change in future lease payments arising from a change in an index or rate, or there is a change in the Target Company’s estimate of the amount expected to be payable under a residual value guarantee, or there is a change arising from the reassessment of whether the Target Company will be reasonably certain to exercise a purchase, extension or termination option. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.

The Target Company presents right-of-use assets that do not meet the definition of investment property in ‘other property, plant and equipment’ and presents lease liabilities separately in the statement of financial position.

– IIB-13 –

ACCOUNTANTS’ REPORT OF ADURA HONG KONG

APPENDIX IIB

(B) Policy applicable prior to 1 January 2019

An arrangement, comprising a transaction or a series of transactions, is or contains a lease if the Target Company 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 Company

Assets that are held by the Target Company under leases which transfer to the Target Company 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 Company are classified as operating leases.

(ii) Operating lease charges

Where the Target Company 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.

(f) Credit losses and impairment of assets

(i) Credit losses from financial instruments and contract assets

The Target Company 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(g)).

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 Company in accordance with the contract and the cash flows that the Target Company 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 Company is exposed to credit risk.

In measuring ECLs, the Target Company 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.

– IIB-14 –

ACCOUNTANTS’ REPORT OF ADURA HONG KONG

APPENDIX IIB

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 Company’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 Company 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 Company 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 Company considers that a default event occurs when (i) the borrower is unlikely to pay its credit obligations to the Target Company in full, without recourse by the Target Company to actions such as realising security (if any is held); or (ii) the financial asset is 3 months past due. The Target Company 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 Company.

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 Company 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).

– IIB-15 –

ACCOUNTANTS’ REPORT OF ADURA HONG KONG

APPENDIX IIB

Basis of calculation of interest income

Interest income recognised in accordance with note 1(m)(iii) 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 Company 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 Company 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.

(ii) Impairment of other non-current assets

property, plant and equipment, including right-of-use assets

If any such indication exists, the asset’s recoverable amount is estimated.

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).

– IIB-16 –

ACCOUNTANTS’ REPORT OF ADURA HONG KONG

APPENDIX IIB

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.

(g) Contract assets and contract liabilities

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

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

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

(h) 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 Company has an unconditional right to receive consideration, the amount is present as a contract asset (see note 1(g)).

Receivables are stated at amortised cost using the effective interest method less allowance for ECLs (see note 1(f)).

(i) Other payables

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.

(j) Cash and cash equivalents

– IIB-17 –

ACCOUNTANTS’ REPORT OF ADURA HONG KONG

APPENDIX IIB

(k) Income tax

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

(l) Provisions and contingent liabilities

Provisions are recognised for liabilities of uncertain timing or amount when 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.

(m) 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 Company 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 consultancy services in relation to cybersecurity through the network solution center

Revenue from the rendering of services, consultancy, and outsourcing projects are recognised when services are performed, provided that the amount can be measured reliably.

– IIB-18 –

ACCOUNTANTS’ REPORT OF ADURA HONG KONG

APPENDIX IIB

(ii) Sale of goods

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 Company 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.

(iii) Interest income

(n) 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 Company 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.

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, are translated into Hong Kong dollars at the closing foreign exchange rates at the end of the reporting period.

(o) Employee benefits

(i) Short term employee benefits and contributions to defined contribution retirement plans

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) Defined benefit retirement plan obligations

The Target Company’s net obligation in respect of defined benefit retirement plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine the present value and the fair value of any plan assets is deducted. The calculation is performed by a qualified actuary using the projected unit credit method. When the calculation results in a benefit to the Target Company, the recognised asset is limited to the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan.

Service cost and net interest expense/(income) on the net defined benefit liability/(asset) are recognised in profit or loss and allocated by function as part of “cost of sales”, “distribution costs” or “administrative expenses”. Current service cost is measured as the increase in the present value of the defined benefit obligation resulting from employee service in the current period. When the benefits of a plan are changed, or when a plan is curtailed, the portion of the changed benefit related to past service by employees, or the gain or loss on curtailment, is recognised as an expense in profit or loss at the earlier of when the plan amendment or curtailment occurs and when related restructuring costs or termination benefits are recognised. Net interest expense/(income) for the period is determined by applying the discount rate used to measure the defined benefit obligation at the beginning of the reporting period to the net defined benefit liability/(asset). The discount rate is the yield at the end of the reporting period on high quality corporate bonds that have maturity dates approximating the terms of the Target Company’s obligations.

– IIB-19 –

ACCOUNTANTS’ REPORT OF ADURA HONG KONG

APPENDIX IIB

(p) Related parties

(a) A person, or a close member of that person’s family, is related to the Target Company if that person:
(i) has control or joint control over the Target Company;
(ii) has significant influence over the Target Company; or
(iii) is a member of the key management personnel of the Target Company or the Target Company’s parent.
(b) An entity is related to the Target Company if any of the following conditions applies:
(i) The entity and the Target Company 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 Company or an entity related to the Target Company.
(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 Company or to the Target Company’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.

(q) 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 Company’s most senior executive management for the purposes of allocating resources to, and assessing the performance of, the Target Company’s various lines of business and geographical locations.

– IIB-20 –

ACCOUNTANTS’ REPORT OF ADURA HONG KONG

APPENDIX IIB

2 REVENUE

The principal activity of the Target Company is engaged in the provision of consultancy services in relation to cybersecurity through the network solution center.

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

Revenue from services Sales of goods Revenue from contracts with customers Recognised over time Recognised at a point in time	Period from 14 December 2017 (date of incorporation) to 31 December 2017 $ – – – – – –	Year ended 31 December 2018 $ 561,201 – 561,201 561,201 – 561,201	Six months ended 30 June 2018 2019 $ $ (unaudited) – 843,530 – 282,423 – 1,125,953 – 843,530 – 282,423 – 1,125,953	Six months ended 30 June 2018 2019 $ $ (unaudited) – 843,530 – 282,423 – 1,125,953 – 843,530 – 282,423 – 1,125,953
				1,125,953

				843,530 282,423
				1,125,953

The Target Company’s management assesses the performance and allocates the resources of the Target Company as a whole, as all of the Target Company’s activities are considered to be primarily the provision of cyber security consultancy service in Hong Kong. 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 loss from operations of the Target Company are primarily derived from its activities in Hong Kong.

– IIB-21 –

ACCOUNTANTS’ REPORT OF ADURA HONG KONG

APPENDIX IIB

Information about major customers

There are two customers for the year ended 31 December 2018 and one customer for the six months ended 30 June 2019 with whom the transactions have contributed 10% or more to the Target Company’s total revenue. The total revenue arising from these customers amounted to HK$479,907 for the year ended 31 December 2018 and HK$431,746 for the six months ended 30 June 2019.

Revenue from major customers of the Target Company’s total revenue, are set out below:

				Period from
				14 December
				2017 (date of
				incorporation) to	Year ended
				31 December	31 December	Six months ended 30 June
				2017	2018	2018	2019
				$	$	$	$
						(unaudited)
Customer	A			–	339,117	–	431,746
Customer	B	_(note _	1)	–	140,790	–	7,410

Note:

The corresponding revenues from Customer B did not contribute over 10% of the total revenue of the Target Company during the six months ended 30 June 2019.

3 LOSS BEFORE TAXATION

Loss before taxation is arrived after charging:

(a) Staff costs (including directors’ emoluments)

Salaries, wages and other benefits Pension costs: – defined benefit pension plans – defined contribution pension plan	Period from 14 December 2017 (date of incorporation) to 31 December 2017 $ – – – –	Year ended 31 December 2018 $ 1,718,548 7,000 16,500 1,742,048	Six months ended 30 June 2018 2019 $ $ (unaudited) 580,339 1,446,859 7,000 60,000 – 25,500 587,339 1,532,359	Six months ended 30 June 2018 2019 $ $ (unaudited) 580,339 1,446,859 7,000 60,000 – 25,500 587,339 1,532,359
				1,532,359

– IIB-22 –

ACCOUNTANTS’ REPORT OF ADURA HONG KONG

APPENDIX IIB

(b) Other items

	Period from
	14 December
	2017 (date of
	incorporation) to	Year ended
	31 December	31 December	Six months ended 30 June
	2017	2018	2018	2019
	$	$	$	$
			(unaudited)
Auditor’s remuneration:
– Audit services	–	84,000	42,000	42,000
Depreciation (note 7)
– property, plant and equipment	–	9,742	2,626	10,613
Total minimum lease payments for
leases previously classified as
operating leases under HKAS 17
in respect of office premises	–	198,000	90,000	–
Expenses relating to
short-term leases	–	–	–	119,800
Recognition of loss allowances of
trade receivables and
contract assets	–	486	–	70,200

4 INCOME TAX IN THE INCOME STATEMENTS

(a) Taxation in the income statements represents:

	Period from
	14 December
	2017 (date of
	incorporation) to	Year ended
	31 December	31 December	Six months ended 30 June
	2017	2018	2018	2019
	$	$	$	$
			(unaudited)
Deferred tax:
Origination and reversal of
temporary differences	–	12,375	3,891	(2,310)

No provision for Hong Kong Profits Tax has been made in the financial statements as the Target Company did not earn any assessable income for the period from 14 December 2017(date of incorporation) to 31 December 2017, the year ended 31 December 2018, and the six months ended 30 June 2018 and 2019.

– IIB-23 –

ACCOUNTANTS’ REPORT OF ADURA HONG KONG

APPENDIX IIB

(b) Reconciliation between tax expense/(credit) charged/(credited) to profit or loss and accounting loss at applicable tax rate:

Loss before taxation Notional tax on loss before taxation, calculated at 16.5% Tax effect of unused tax losses not recognised Others Tax expense/(credit)	Period from 14 December 2017 (date of incorporation) to 31 December 2017 $ – – – – –	Year ended 31 December 2018 $ (2,573,219) (424,581) 444,454 (7,498) 12,375	Six months ended 30 June 2018 2019 $ $ (unaudited) (1,191,187) (1,134,319) (196,546) (187,163) 204,790 173,104 (4,353) 11,749 3,891 (2,310)	Six months ended 30 June 2018 2019 $ $ (unaudited) (1,191,187) (1,134,319) (196,546) (187,163) 204,790 173,104 (4,353) 11,749 3,891 (2,310)

				(187,163) 173,104 11,749
				(2,310)

5 DIRECTORS’ EMOLUMENTS

Directors’ emoluments during the relevant period are as follows:

Directors’ fees Salaries, allowances and benefits in kind Discretionary bonuses Retirement scheme contributions	Period from 14 December 2017 (date of incorporation) to 31 December 2017 $ – – – – –	Year ended 31 December 2018 $ – – – – –	Six months ended 30 June 2018 2019 $ $ (unaudited) – – – – – – – – – –	Six months ended 30 June 2018 2019 $ $ (unaudited) – – – – – – – – – –
				–

– IIB-24 –

ACCOUNTANTS’ REPORT OF ADURA HONG KONG

APPENDIX IIB

6 INDIVIDUALS WITH HIGHEST EMOLUMENTS

None of the individuals with the highest emoluments, for the period from 14 December 2017 (date of incorporation) to 31 December 2017, the year ended 31 December 2018 and the six months ended 30 June 2018 and 2019, respectively, are directors whose emoluments are disclosed in note 5. The aggregate of the emoluments in respect of individuals other than directors are nil, 3, 2 (unaudited) and 4 for the period from 14 December 2017 (date of incorporation) to 31 December 2017, the year ended 31 December 2018 and the six months ended 30 June 2018 and 2019, respectively, are as follows:

Salaries and other emoluments Discretionary bonuses Retirement scheme contributions	Period from 14 December 2017 (date of incorporation) to 31 December 2017 $ – – – –	Year ended 31 December 2018 $ 1,493,548 225,000 23,500 1,742,048	Six months ended 30 June 2018 2019 $ $ (unaudited) 484,774 1,332,671 95,565 114,188 7,000 85,500 587,339 1,532,359	Six months ended 30 June 2018 2019 $ $ (unaudited) 484,774 1,332,671 95,565 114,188 7,000 85,500 587,339 1,532,359
				1,532,359

The emoluments of nil, 3, 2 (unaudited) and 4 individuals with the highest emoluments for the period from 14 December 2017 (date of incorporation) to 31 December 2017, the year ended 31 December 2018 and the six months ended 30 June 2018 and 2019, respectively, are within the following bands:

Below $1,000,001 $1,000,001 - $1,500,000	Period from 14 December 2017 (date of incorporation) to 31 December 2017 $ – – –	Number of individuals Year ended 31 December Six months ended 30 June 2018 2018 2019 $ $ $ (unaudited) 2 2 4 1 – – 3 2 4	Number of individuals Year ended 31 December Six months ended 30 June 2018 2018 2019 $ $ $ (unaudited) 2 2 4 1 – – 3 2 4
			4

– IIB-25 –

ACCOUNTANTS’ REPORT OF ADURA HONG KONG

APPENDIX IIB

7 PROPERTY, PLANT AND EQUIPMENT

Cost: At 14 December 2017 (date of incorporation), 31 December 2017 and 1 January 2018 Additions At 31 December 2018 At 1 January 2019 Additions At 30 June 2019 Accumulated depreciation: At 14 December 2017 (date of incorporation), 31 December 2017 and 1 January 2018 Charge for the year At 31 December 2018 At 1 January 2019 Charge for the period At 30 June 2019 Net book value: At 31 December 2017 At 31 December 2018 At 30 June 2019	Telecommunication, computer and office equipment $ – 55,672
	55,672 - - - - - - - - - - - - - - - 55,672 9,610
	65,282 - - - - - - - - - - - - - - - – 9,742
	9,742 - - - - - - - - - - - - - - -
	9,742 10,613
	20,355 - - - - - - - - - - - - - - -
	–

	45,930

	44,927

– IIB-26 –

ACCOUNTANTS’ REPORT OF ADURA HONG KONG

APPENDIX IIB

8 CONTRACT ASSETS AND CONTRACT LIABILITIES

(a) Contract assets

Note Arising from contracts with conditional payment terms Less: loss allowance for contract assets 16(a) All contract assets are expected to be recovered within o Contract liabilities Contract liabilities Arising from contracts with conditional settlement terms *Movements in contract liabilities* At the beginning of the period/year Increase in contract liabilities as a result of contracts with conditional settlement terms At the end of the year/period	Note Arising from contracts with conditional payment terms Less: loss allowance for contract assets 16(a) All contract assets are expected to be recovered within o Contract liabilities Contract liabilities Arising from contracts with conditional settlement terms *Movements in contract liabilities* At the beginning of the period/year Increase in contract liabilities as a result of contracts with conditional settlement terms At the end of the year/period	At 31 December 2017 2018 $ $ – 187,923 – (338) – 187,585 ne year. At 31 December 2017 2018 $’000 $’000 – – – – At 31 December 2017 2018 $’000 $’000 – – – – – –		At 30 June 2019 $ 623,813 (338) 623,475 At 30 June 2019 $’000 625,225 625,225 At 30 June 2019 $’000 – 625,225 625,225

(b) Contract liabilities

All deferred service revenue are expected to be recognised as income within one year.

– IIB-27 –

ACCOUNTANTS’ REPORT OF ADURA HONG KONG

APPENDIX IIB

9 TRADE RECEIVABLES, OTHER RECEIVABLES, DEPOSITS AND PREPAYMENTS

Note Trade receivables from third parties Trade receivables from fellow subsidiaries Less: allowance for doubtful debts 16(a) Other receivables, deposits and prepayments	At 31 December 2017 2018 $ $ – – – 82,101 – (148) – 81,953 300,750 69,816 300,750 151,769	At 30 June 2019 $ 70,200 33,150 (70,348)
		33,002
		76,899
		109,901

As at 31 December 2017, 31 December 2018 and 30 June 2019, all of the other receivables, deposits and prepayments are expected to be recovered or recognised as expense within one year.

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 Within 31 - 60 days	At 31 December 2017 2018 $ $ – 81,953 – – – 81,953	At 30 June 2019 $ – 33,002
		33,002

10 CASH AND CASH EQUIVALENTS

(a) Cash and cash equivalents comprise:

						At 31 December		At 30 June
						2017	2018	2019
						$	$	$
Cash	at	bank	and	on	hand	–	82,540	914,508

– IIB-28 –

ACCOUNTANTS’ REPORT OF ADURA HONG KONG

APPENDIX IIB

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

Note Operating activities Loss before taxation Adjustments for: Depreciation 3(b) Foreign exchange loss, net Pension expense Changes in working capital: (Increase)/decrease in trade receivables (Increase)/decrease in other receivables, deposits and prepayments Increase in contract assets Increase in amounts due to fellow subsidiaries Increase in other payables and accrued charges Increase in contract liabilities Cash generated from operations 11 OTHER PAYABLES AND ACCRUED Other payables and accrued charges	Period from 14 December 2017 (date of incorporation) to 31 December 2017 $ – – – – – (300,750) – 300,750 – – – CHARGES	Year ended 31 December Six months ended 30 June 2018 2018 2019 $ $ $ (unaudited) (2,573,219) (1,191,187) (1,134,319) 9,742 2,626 10,613 – – 157 7,000 7,000 60,000 (81,953) – 48,951 230,934 (68,000) (7,083) (187,585) – (435,890) 2,407,327 1,144,410 1,460,408 325,966 141,565 213,516 – – 625,225 138,212 36,414 841,578 At 31 December At 30 June 2017 2018 2019 $ $ $ – 325,966 539,482

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

– IIB-29 –

ACCOUNTANTS’ REPORT OF ADURA HONG KONG

APPENDIX IIB

12 TAXATION IN THE STATEMENTS OF FINANCIAL POSITION

(a) Deferred tax assets recognised:

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

Deferred tax arising from: At 14 December 2017 (Date of incorporation) and 31 December 2017 Charged to profit or loss Credited to other comprehensive income At 31 December 2018 and 1 January 2019 Credited to profit or loss Charged to other comprehensive income At 30 June 2019	Defined benefit plan $ – (12,375) 26,895 14,520 2,310 (3,465) 13,365

(b) Deferred tax assets not recognised:

In accordance with the accounting policy set out in note 1(k), the Target Company has not recognised deferred tax assets in respect of cumulative tax losses and others of $2,694,119 and $3,812,979 as at 31 December 2018 and 30 June 2019 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.

13 PENSION LIABILITIES

The Target Company operates a number of defined benefit pension plans which are all funded. The pension plans are final salary defined benefits, calculated based on a member’s length of service and their salaries in the final years leading up to retirement. The assets of the plans are held independently of the Target Company’s assets, in separate trustee-administered funds. Responsibility for governance of the plans, including investment decisions and contribution schedules, lies jointly with the Target Company and the boards of trustees. The Target Company’s major plans are valued by an independent qualified actuary, Willis Tower Watson, Fellow of the Society of Actuaries, Chartered Financial Analyst and Chartered Enterprise Risk Analyst, annually using the projected unit credit method. The latest actuarial valuations were carried out as at 30 June 2019.

(a) The amounts recognised in the balance sheet are as follows:

Fair value of plan assets Present value of funded obligations	At 31 December 2017 2018 $ $ – 63,000 – (151,000) – (88,000)	At 30 June 2019 $ 115,000 (196,000) (81,000)

– IIB-30 –

ACCOUNTANTS’ REPORT OF ADURA HONG KONG

APPENDIX IIB

(b) The movements in the net pension assets are as follows:

At 14 December 2017(Date of incorporation), 31 December 2017 and 1 January 2018 Current service cost Remeasurements Return on plan assets less than discount rate Gain from change in demographic assumptions Gain from change in financial assumptions Experience loss Contribution from employer At 31 December 2018 At 1 January 2019 Current service cost Interest income/(expense) Administration expenses Remeasurements Return on plan assets greater than discount rate Loss from change in financial assumptions Experience gains Contribution from employer At 30 June 2019	Fair value of plan assets $ – – – - - - - - - - - - - - - (19,000) – – – (19,000) - - - - - - - - - - - - 82,000 - - - - - - - - - - - - 63,000 63,000 – 2,000 (17,000) 48,000 - - - - - - - - - - - - 21,000 – – 21,000 - - - - - - - - - - - - 46,000 - - - - - - - - - - - - 115,000	Present value of obligation $ – (7,000) (7,000) - - - - - - - - - - - - – 3,000 3,000 (150,000) (144,000) - - - - - - - - - - - - – - - - - - - - - - - - - (151,000) (151,000) (42,000) (3,000) – (196,000) - - - - - - - - - - - - – (6,000) 6,000 – - - - - - - - - - - - - – - - - - - - - - - - - - (196,000)	Total $ – (7,000) (7,000) - - - - - - - - - - - - (19,000) 3,000 3,000 (150,000) (163,000) - - - - - - - - - - - - 82,000 - - - - - - - - - - - - (88,000) (88,000) (42,000) (1,000) (17,000) (148,000) - - - - - - - - - - - - 21,000 (6,000) 6,000 21,000 - - - - - - - - - - - - 46,000 - - - - - - - - - - - - (81,000)

– IIB-31 –

ACCOUNTANTS’ REPORT OF ADURA HONG KONG

APPENDIX IIB

(c) The weighted average duration of the defined benefit obligation at 30 June 2019 is 6.5 years (31 December 2018: 6.4 years).

Expected maturity analysis of undiscounted pension benefit obligation at the end of each reporting period is as follows:

Less than a year Between one and two years Between two and five years Beyond five years	At 31 December 2017 2018 $ $ – 9,000 – 12,000 – 60,000 – 950,000 – 1,031,000	At 30 June 2019 $ 10,000 13,000 64,000 984,000
		1,071,000

(d) The principal actuarial assumptions used for accounting purpose at the end of each reporting period are as follows:

	At 31 December		At 30 June
	2017	2018	2019
Discount rate	–	3.30%	2.80%
Salary growth rate	–	4.75%	4.75%

(e) The sensitivity of defined benefit obligation to changes in the weighted principal assumptions is:

31 December 2017 Discount rate Salary growth rate 31 December 2018 Discount rate Salary growth rate 30 June 2019 Discount rate Salary growth rate	Impact on Change in assumption $ 1% 1% 1% 1% 1% 1%	defined benefit obligation Increase in assumption Decrease in assumption $ $ – – – – (9,000) 9,000 9,000 (9,000) (12,000) 12,000 13,000 (11,000)	defined benefit obligation Increase in assumption Decrease in assumption $ $ – – – – (9,000) 9,000 9,000 (9,000) (12,000) 12,000 13,000 (11,000)

			9,000 (9,000)

			12,000 (11,000)

– IIB-32 –

ACCOUNTANTS’ REPORT OF ADURA HONG KONG

APPENDIX IIB

(f) The analysis of the fair value of plan assets at the end of each reporting period is as follows:

31 December 2018 Quoted Investments Equity instruments Investment funds Unquoted investments Investment funds Total investments Cash and cash equivalents Total 30 June 2019 Quoted Investments Equity instruments Investment funds Unquoted investments Investment funds Total investments Cash and cash equivalents Total	Asia Pacific $ 1,000 11,000 12,000 - - - - - - - - - - 1,000 13,000 - - - - - - - - - - Asia Pacific $ 1,000 24,000 25,000 - - - - - - - - - - 3,000 28,000 - - - - - - - - - -	Europe $ – 7,000 7,000 - - - - - - - - - - 2,000 9,000 - - - - - - - - - Europe $ – 18,000 18,000 - - - - - - - - - - 5,000 23,000 - - - - - - - - -	North America $ – 14,000 14,000 - - - - - - - - - - 7,000 21,000 - - - - - - - - - North America $ – 36,000 36,000 - - - - - - - - - - 11,000 47,000 - - - - - - - - -	Global $ – 6,000 6,000 - - - - - - - - - - 7,000 13,000 - - - - - - - - - Global $ – 8,000 8,000 - - - - - - - - - - 1,000 9,000 - - - - - - - - -	Total $ 1,000 38,000
					39,000 - - - - - - - - - - 17,000
					56,000 - - - - - - - - -
					7,000
					63,000

					Total $ 1,000 86,000
					87,000 - - - - - - - - - - 20,000
					107,000 - - - - - - - - -
					8,000
					115,000

14 AMOUNTS DUE FROM/(TO) IMMEDIATE HOLDING COMPANY AND FELLOW SUBSIDIARIES

Amounts due from/(to) immediate holding company and fellow subsidiaries are unsecured, interest free and recoverable/(repayable) on demand.

– IIB-33 –

ACCOUNTANTS’ REPORT OF ADURA HONG KONG

APPENDIX IIB

15 CAPITAL, RESERVES AND DIVIDENDS

(a) Movements in components of equity

The reconciliation between the opening and closing balances of each component of the Target Company’s equity is set out in the statements of changes in equity.

(b) Share capital

Ordinary shares, issued and fully paid: At 14 December 2017 (Date of incorporation) Shares issued during the period Note At 31 December 2017 and 1 January 2018, 31 December 2018 and 30 June 2019	No. of shares – 1 1	Amount – $1
		$1

Note:

On 14 December 2017, 1 ordinary share was issued for a total consideration of HK$1 to JTH (BVI) Limited and settled through intercompany balance.

(c) Capital management

The Target Company’s primary objectives when managing capital are to safeguard the Target Company’s ability to continue as a going concern. As the Target Company is a wholly owned subsidiary of JTH (BVI) Limited, the Target Company’s sources of additional capital and policies for distribution of excess capital may also be affected by Jardine OneSolution (HK) Limited’s capital management objectives.

The Target Company 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 Company as capital.

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

16 FINANCIAL RISK MANAGEMENT AND FAIR VALUES OF FINANCIAL INSTRUMENTS

Exposure to credit, liquidity and currency risks arises in the normal course of the Target Company’s business. The Target Company’s exposure to these risks and the financial risk management policies and practices used by the Target Company 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 Company. The Target Company’s credit risk is primarily attributable to trade and other receivables, balances with fellow subsidiaries and contract assets. The Target Company’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 Company considers to have low credit risk.

The Target Company does not provide any other guarantees which would expose the Target Company to credit

risk.

– IIB-34 –

ACCOUNTANTS’ REPORT OF ADURA HONG KONG

APPENDIX IIB

Trade and other receivables and contract assets

The Target Company’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 Company’s customer base being large and unrelated.

The Target Company 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 Company’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 Company’s different customer bases.

The following table provides information about the Target Company’s exposure to credit risk and ECLs for trade receivables and contract assets as at 31 December 2018 and 30 June 2019.

31 December 2018 Expected loss rate Gross carrying amount % $ Current (not past due) 0.18% 270,024 1 - 30 days past due – – 31 - 90 days past due – – More than 90 days past due – – 270,024 30 June 2019 Expected loss rate Gross carrying amount % $ Current (not past due) 0.05% 623,813 1 - 30 days past due 0.45% 33,150 31 - 90 days past due – – More than 90 days past due 100% 70,200 727,163	Loss allowance $ 486 – – –
	486

	Loss allowance $ 338 148 – 70,200
	70,686

Expected loss rates are based on actual loss experience over the past 1 year. 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 Company’s view of economic conditions over the expected lives of the receivables.

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 Company. 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 Company does not hold any collateral over these balances.

– IIB-35 –

ACCOUNTANTS’ REPORT OF ADURA HONG KONG

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 Recognition of impairment loss/credit losses of trade and other receivables and contract assets (note 3(b)) At the end of the year/period	At 31 December 2017 2018 $ $ – – – 486 – 486	At 30 June 2019 $ 486 70,200
		70,686

As at 31 December 2017, 2018 and 30 June 2019, the trade receivables of $nil, $nil and $70,200 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 Company’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 Company’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 Company can be required to pay:

At 31 December 2017

Amounts due to fellow subsidiaries	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 $ $ $ $ 300,750 – – 300,750 300,750 – – 300,750	Carrying amount $ 300,750
		300,750

– IIB-36 –

ACCOUNTANTS’ REPORT OF ADURA HONG KONG

APPENDIX IIB

At 31 December 2018

Other payables and accrued charges Amounts due to fellow subsidiaries *At 30 June 2019*	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 $ $ $ $ 325,966 – – 325,966 2,790,077 – – 2,790,077 3,116,043 – – 3,116,043	Carrying amount $ 325,966 2,790,077
		3,116,043

Other payables and accrued charges Amounts due to fellow subsidiaries	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 $ $ $ $ 539,482 – – 539,482 4,296,642 – – 4,296,642 4,836,124 – – 4,836,124	Carrying amount $ 539,482 4,296,642
		4,836,124

(c) Currency risk

The Target Company is exposed to currency risk primarily through trade receivables and contract assets that are denominated in a currency other than the functional currency of the operations to which they relate. The currencies giving rise to this risk are primarily United States dollar. As Hong Kong dollar is pegged to United States dollar, the Target Company does not expect any significant movements in the United States dollar/Hong Kong dollar exchange rate.

(d) Fair value measurement

All financial instruments are carried at amounts not materially different from their fair values as at 31 December 2017, 31 December 2018 and 30 June 2019.

– IIB-37 –

ACCOUNTANTS’ REPORT OF ADURA HONG KONG

APPENDIX IIB

17 COMMITMENTS

The Target Company’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 2017 2018 $ $ 198,000 239,760 18,000 20,160 216,000 259,920	At 30 June 2019 $ 141,120 –
		141,120

The Target Company is the lessee in respect of an office premise under operating leases. The leases typically run for an initial period of one year. Lease payments are usually increased annually to reflect market rentals. None of the leases includes contingent rentals.

18 MATERIAL RELATED PARTY TRANSACTIONS

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

	Period from
	14 December
	2017 (date of
	incorporation) to	Year ended
	31 December	31 December	Six months ended 30 June
	2017	2018	2018	2019
	$	$	$	$
			(unaudited)
Sales of products and provision
of services (note a)	–	(373,278)	–	(720,871)
Central service costs (note b)	–	62,300	62,300	26,750
Insurance related services costs
(note c)	–	307	62	88,442

(a) Provision of services and purchase of products and services to/from fellow subsidiaries were carried out on commercial terms and conditions.
(b) Central service costs are paid to Jardine OneSolution (HK) Limited, a fellow subsidiary, for certain central support services pursuant to related agreements.
(c) Insurance related services costs were paid to Jardine Lloyd Thompson Limited, a related company, in respect of the premium for participating in self-insurance schemes.

The remuneration for key management personnel consists the Target Company’s directors is disclosed in

note 5.

– IIB-38 –

ACCOUNTANTS’ REPORT OF ADURA HONG KONG

APPENDIX IIB

19 IMMEDIATE AND ULTIMATE CONTROLLING PARTY

At 31 December 2017, 31 December 2018 and 30 June 2019, the directors of the Target Company consider the immediate parent and ultimate controlling party of the Target Company to be JTH BVI Limited incorporated in British Virgin Islands and Jardine Matheson Holdings Limited, a company incorporated in Bermuda respectively.

20 ACCOUNTING JUDGEMENT AND ESTIMATES

Sources of estimation uncertainty

Note 16 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 Company 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 Company 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 Company’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) Income tax

Determining income tax provisions involves judgement on the future tax treatment of certain transactions and interpretation of tax rules. The Target Company 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.

(d) Pension obligations

The present value of the pension obligations depends on a number of factors that are determined on an actuarial basis using a number of assumptions. The assumptions used in determining the net cost or income for pensions include the expected long-term rate of return on the relevant plan assets and the discount rate. Any change in these assumptions will impact the carrying amount of pension obligations.

The Target Company determines the appropriate discount rate at the end of each year. This is the interest rate that should be used to determine the present value of estimated future cash outflows expected to be required to settle the pension obligations. In determining the appropriate discount rate, the Target Company considers the interest rate of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating the terms of the related pension liability.

Other key assumptions for pension obligations are based in part on current market conditions.

– IIB-39 –

ACCOUNTANTS’ REPORT OF ADURA HONG KONG

APPENDIX IIB

21 POSSIBLE IMPACT OF AMENDMENTS, NEW STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE FOR THE ACCOUNTING PERIOD BEGINNING 1 JANUARY 2019

	Effective
	for accounting
	periods beginning
	on or after
Amendments to HKFRS 3, Defilations of a business	1 January 2020
Amendments to HKAS 1 and HKAS 8, Defilations material	1 January 2020
HKFRS 17, Insurance contracts	1 January 2021
Amendments to HKFRS 10 and HKAS 28, Sale or contribution of	To be determined
assets between an investor and its associate or joint venture

The Target Company 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 it has concluded that the adoption of them are unlikely to have a significant impact on the Historical Financial Information.

22 EVENTS AFTER THE REPORTING PERIOD

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

SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the Target Company in respect of any period subsequent to 30 June 2019.

– IIB-40 –

ACCOUNTANTS’ REPORT OF ADURA CYBER SECURITY

APPENDIX IIC

The following is the text of a report set out on pages IIC-1 to IIC-35, 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 ADURA CYBER SECURITY SERVICES PTE LTD TO THE DIRECTORS OF HKBN LTD.

Introduction

We report on the historical financial information of Adura Cyber Security Services Pte Limited (the “Target Company”) set out on pages IIC-4 to IIC-35, which comprises the statements of financial position of the Target Company as at 31 December 2017 and 2018 and 30 June 2019 and the income statements, the statements of comprehensive income, the statements of changes in equity and the cash flow statements, for the period from 30 November 2017 (date of incorporation) to 31 December 2017, the year ended 31 December 2018 and the six months ended 30 June 2019 (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 IIC-4 to IIC-35 forms an integral part of this report, which has been prepared for inclusion in the circular of HKBN Ltd. (the “Company”) dated 21 November 2019 (the “Circular”) in connection with the proposed acquisition of the IT solutions business from JTH (BVI) Limited through the acquisition of the entire issued share capital of Jardine OneSolution Holdings (C.I.) Limited, Adura Hong Kong Limited and Adura Cyber Security Services Pte Ltd.

Directors’ responsibility for Historical Financial Information

The Underlying Financial Statements of the Target Company as defined on page IIC-4, on which the Historical Financial Information is based, were prepared by the directors of the Target Company. The directors of the Target Company are responsible for the preparation of the Underlying Financial Statements that give a true and fair view in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”), and for such internal control as the directors of the Target Company determine is necessary to enable the preparation of the Underlying Financial Statements that is free from material misstatement, whether due to fraud or error.

– IIC-1 –

ACCOUNTANTS’ REPORT OF ADURA CYBER SECURITY

APPENDIX IIC

Reporting accountants’ responsibility

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

Opinion

Review of stub period corresponding financial information

– IIC-2 –

ACCOUNTANTS’ REPORT OF ADURA CYBER SECURITY

APPENDIX IIC

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 have been made.

KPMG

Certified Public Accountants

8th Floor, Prince’s Building 10 Chater Road Central, Hong Kong 21 November 2019

– IIC-3 –

ACCOUNTANTS’ REPORT OF ADURA CYBER SECURITY

APPENDIX IIC

HISTORICAL FINANCIAL INFORMATION OF THE TARGET COMPANY

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

Income statements

(Expressed in Hong Kong Dollars)

Note Revenue 2 Cost of good sold and cost of services Other operating expenses Profit/(loss) before taxation 3 Income tax 4 Profit/(loss) for the year/period	Period from 30 November 2017 (date of incorporation) to 31 December 2017 $ – – – – – –	Year ended 31 December 2018 $ 7,101,239 (2,332,607) (4,609,755) 158,877 – 158,877	Six months ended 30 June 2018 2019 $ $ (unaudited) 1,676,924 1,940,581 (399,581) (1,853,175) (2,450,034) (2,166,458) (1,172,691) (2,079,052) – – (1,172,691) (2,079,052)

The accompanying notes form part of the Historical Financial Information.

– IIC-4 –

ACCOUNTANTS’ REPORT OF ADURA CYBER SECURITY

APPENDIX IIC

Statements of comprehensive income

(Expressed in Hong Kong Dollars)

Profit/(loss) for the year/period Other comprehensive income for the year/period Items that may be reclassified subsequently to profit or loss: Exchange difference on translation of financial statements in foreign currency Total comprehensive income for the year/period	Period from 30 November 2017 (date of incorporation) to 31 December 2017 $ – – –	Year ended 31 December 2018 $ 158,877 (2,245) 156,632	Six months ended 30 June 2018 2019 $ $ (unaudited) (1,172,691) (2,079,052) 31,424 1,903 (1,141,267) (2,077,149)

The accompanying notes form part of the Historical Financial Information.

– IIC-5 –

ACCOUNTANTS’ REPORT OF ADURA CYBER SECURITY

APPENDIX IIC

Statements of financial position

(Expressed in Hong Kong Dollars)

Note Non-current assets Property, plant and equipment 7 Other non-current assets Current assets Contact assets 8 Trade receivables 10 Other receivables, deposits and prepayments 10 Cash and cash equivalents 11 Current liabilities Trade payables 12 Other payables and accrued charges 12 Contract liabilities 9 Amounts due to fellow subsidiaries 14 Net current assets/(liabilities) Total assets less current liabilities NET ASSETS/(LIABILITIES) CAPITAL AND RESERVES Share capital 15 Exchange reserves Retained profits/(accumulated losses) TOTAL EQUITY/(DEFICIT)	At 31 December 2017 2018 $ $ – 38,168 – 61,919 – 100,087 – 1,999,297 – 2,850,670 6 179,022 – 723,905 6 5,752,894 – 331,451 – 1,306,426 – 511,080 – 3,547,386 – 5,696,343 6 56,551 6 156,638 - - - - - - - - - - - - - - - - - - - - - - 6 156,638 6 6 – (2,245) – 158,877 6 156,638	At 30 June 2019 $ 28,496 62,339 90,835 801,200 461,512 244,090 4,304,403 5,811,205 472,081 757,811 192,670 6,399,989 7,822,551 (2,011,346) (1,920,511) - - - - - - - - - - - (1,920,511) 6 (342) (1,920,175) (1,920,511)

– IIC-6 –

ACCOUNTANTS’ REPORT OF ADURA CYBER SECURITY

APPENDIX IIC

Statements of changes in equity

(Expressed in Hong Kong Dollars)

Balance at 30 November 2017 (date of incorporation) Change in equity for the period from 30 November 2017 (date of incorporation) to 31 December 2017 Issue of shares upon incorporation Balance at 31 December 2017 and 1 January 2018 Changes in equity for the year ended 31 December 2018 Profit for the year Other comprehensive income for the year Total comprehensive income for the year Balance at 31 December 2018 and 1 January 2019 Changes in equity for the six months ended 30 June 2019: Loss for the period Other comprehensive income for the period Total comprehensive income for the period Balance at 30 June 2019	Share capital $ – - - - - - - - - - - - - 6 - - - - - - - - - - - - 6 - - - - - - - - - - - - – – – - - - - - - - - - - - - 6 - - - - - - - - - - - - – – – - - - - - - - - - - - - 6 - - - - - - - - - - - -	Exchange reserve $ – - - - - - - - - - - - - – - - - - - - - - - - - - – - - - - - - - - - - - - – (2,245) (2,245) - - - - - - - - - - - - (2,245) - - - - - - - - - - - - – 1,903 1,903 - - - - - - - - - - - - (342) - - - - - - - - - - - -	Retained profits/ (Accumulated losses) $ – - - - - - - - - - - - - – - - - - - - - - - - - - – - - - - - - - - - - - - 158,877 – 158,877 - - - - - - - - - - - - 158,877 - - - - - - - - - - - - (2,079,052) – (2,079,052) - - - - - - - - - - - - (1,920,175) - - - - - - - - - - - -	Total equity $ – - - - - - - - - - - - - 6 - - - - - - - - - - - - 6 - - - - - - - - - - - - 158,877 (2,245) 156,632 - - - - - - - - - - - - 156,638 - - - - - - - - - - - - (2,079,052) 1,903 (2,077,149) - - - - - - - - - - - - (1,920,511) - - - - - - - - - - - -

– IIC-7 –

ACCOUNTANTS’ REPORT OF ADURA CYBER SECURITY

APPENDIX IIC

Statements of changes in equity

(Expressed in Hong Kong Dollars)

Unaudited 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	Share capital $ 6 - - - - - - - - - - - - – – – - - - - - - - - - - - - 6 - - - - - - - - - - - -	Exchange reserve $ – - - - - - - - - - - - - – 31,424 31,424 - - - - - - - - - - - - 31,424 - - - - - - - - - - - -	Accumulated losses $ – - - - - - - - - - - - - (1,172,691) – (1,172,691) - - - - - - - - - - - - (1,172,691) - - - - - - - - - - - -	Total equity $ 6 - - - - - - - - - - - - (1,172,691) 31,424 (1,141,267) - - - - - - - - - - - - (1,141,261) - - - - - - - - - - - -

– IIC-8 –

ACCOUNTANTS’ REPORT OF ADURA CYBER SECURITY

APPENDIX IIC

Cash flow statements

(Expressed in Hong Kong Dollars)

Note Cash (used in)/generated from operations 11(b) Investing activities Payment for the purchase of property, plant and equipment Placement of security deposit Net cash used in investing activities Financing activities Issuance of shares Net cash generated from financing activities Net increase in cash and cash equivalents Effect of exchange rate changes Cash and cash equivalents at the beginning of the year/period 11(a) Cash and cash equivalents at the end of the year/period 11(a)	Period from 30 November 2017 (date of incorporation) to 31 December 2017 $ (6) – – – - - - - - - - - - - - - - 6 - - - - - - - - - - - - - 6 - - - - - - - - - - - - - – – – –	Year ended 31 December 2018 $ 845,682 (57,619) (61,919) (119,538) - - - - - - - - - - - - - – - - - - - - - - - - - - - – - - - - - - - - - - - - - 726,144 (2,239) – 723,905	Six months ended 30 June 2018 2019 $ $ (unaudited) 1,080,312 3,579,015 (57,619) – (61,956) – (119,575) – - - - - - - - - - - - - - - - - - - - - - - - - - - – – - - - - - - - - - - - - - - - - - - - - - - - - - - – – - - - - - - - - - - - - - - - - - - - - - - - - - - 960,737 3,579,015 31,131 1,483 – 723,905 991,868 4,304,403	Six months ended 30 June 2018 2019 $ $ (unaudited) 1,080,312 3,579,015 (57,619) – (61,956) – (119,575) – - - - - - - - - - - - - - - - - - - - - - - - - - - – – - - - - - - - - - - - - - - - - - - - - - - - - - - – – - - - - - - - - - - - - - - - - - - - - - - - - - - 960,737 3,579,015 31,131 1,483 – 723,905 991,868 4,304,403
				– - - - - - - - - - - - - - – - - - - - - - - - - - - - – - - - - - - - - - - - - -
				3,579,015 1,483 723,905
				4,304,403

– IIC-9 –

ACCOUNTANTS’ REPORT OF ADURA CYBER SECURITY

APPENDIX IIC

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

Adura Cyber Security Services Pte Ltd (the “Target Company”) is a private limited company incorporated on 30 November 2017 in Singapore. The address of its registered office is 239 Alexandra Road, Singapore 159930, and its principal place of business is 67 Ubi Avenue 1, #02-01 Starhub Green North Wing, Singapore 408942.

The principal activity of the Target Company is engaged in the provision of consultancy services in relation to cybersecurity through the network solution center.

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

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 applicable 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 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.

For the purpose of preparing the Historical Financial Information, the accounting policies set out below have been applied consistently throughout the Relevant Periods, except for HKFRS 16 Leases which has been initially applied on 1 January 2019. Details of the changes in accounting policies are discussed in note 1(c).

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.

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 20.

– IIC-10 –

ACCOUNTANTS’ REPORT OF ADURA CYBER SECURITY

APPENDIX IIC

As at 30 June 2019, the Target Company had net current liabilities amounted to HK$2,011,346, respectively, and had shareholder’s deficit of HK$1,920,511. Jardine OneSolution Holdings (C.I.) Limited, a group company has confirmed its intention to provide continuing financial support to the Target Company so as to enable the Target Company to meet its liabilities as and when they fall due and to enable the Target Company to continue its business for the foreseeable future. Consequently, the directors have prepared the financial statements on a going concern basis.

(c) Changes in accounting policies

(i) HKFRS 16, Leases

Further details of the nature and effect of the changes to previous accounting policies and the transition options applied are set out below:

a. New definition of a lease

b. Lessee accounting and transitional impact

– IIC-11 –

ACCOUNTANTS’ REPORT OF ADURA CYBER SECURITY

APPENDIX IIC

To ease the transition to HKFRS 16, the Target Company applied the following recognition exemption and practical expedients at the date of initial application of HKFRS 16:

(i) the Target Company elected not to apply the requirements of HKFRS 16 in respect of the recognition of lease liabilities and right-of-use assets to leases for which the remaining lease term ends within 12 months from the date of initial application of HKFRS 16, i.e. where the lease term ends on or before 31 December 2019;
(ii) when measuring the lease liabilities at the date of initial application of HKFRS 16, the Target Company applied a single discount rate to a portfolio of leases with reasonably similar characteristics (such as leases with a similar remaining lease term for a similar class of underlying asset in a similar economic environment); and
(iii) when measuring the right-of-use assets at the date of initial application of HKFRS 16, the Target Company relied on the previous assessment for onerous contract provisions as at 31 December 2018 as an alternative to performing an impairment review.

The following table reconciles the operating lease commitments as disclosed in note 17 as at 31 December 2018 to the opening balance for lease liabilities recognised as at 1 January 2019:

1 January 2019 $ Operating lease commitments at 31 December 2018 348,435 Less: commitments relating to leases exempt from capitalisation: – short-term leases and other leases with remaining lease term ending on or before 31 December 2019 (348,435)

Present value of remaining lease payments, discounted using the incremental borrowing rate and total lease liabilities recognised as at 1 January 2019 –

c. Impact on the financial result and cash flows of the Target Company

– IIC-12 –

ACCOUNTANTS’ REPORT OF ADURA CYBER SECURITY

APPENDIX IIC

(d) Property, plant and equipment

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

– Telecommunication, computer and office equipment

3 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. Useful life of an asset and its residual value, if any, are reviewed annually.

(e) Leased assets

As a lessee

(A) Policy applicable from 1 January 2019

– IIC-13 –

ACCOUNTANTS’ REPORT OF ADURA CYBER SECURITY

APPENDIX IIC

(B) Policy applicable prior to 1 January 2019

(i) Classification of assets leased to the Target Company

(ii) Operating lease charges

(f) Credit losses and impairment of assets

(i) Credit losses from financial instruments and contract assets

The Target Company 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(g)).

Financial assets measured at fair value are not subject to the ECLs 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 Company in accordance with the contract and the cash flows that the Target Company expects to receive).

– IIC-14 –

ACCOUNTANTS’ REPORT OF ADURA CYBER SECURITY

APPENDIX IIC

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 Company is exposed to credit risk.

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.

Significant increases in credit risk

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 Company.

– IIC-15 –

ACCOUNTANTS’ REPORT OF ADURA CYBER SECURITY

APPENDIX IIC

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 Company 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(n) 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.

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 Company 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.

(ii) Impairment of other non-current assets

property, plant and equipment, including right-of-use assets;

If any such indication exists, the asset’s recoverable amount is estimated.

– IIC-16 –

ACCOUNTANTS’ REPORT OF ADURA CYBER SECURITY

APPENDIX IIC

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.

(g) Contract assets and contract liabilities

A contract asset is recognised when the Target Company recognises revenue (see note 1(n)) 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(f)(i) and are reclassified to receivables when the right to the consideration has become unconditional (see note 1(h)).

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

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

(h) 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 Company has an unconditional right to receive consideration, the amount is present as a contract asset (see note 1(g)).

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

– IIC-17 –

ACCOUNTANTS’ REPORT OF ADURA CYBER SECURITY

APPENDIX IIC

(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)) and property, plant and equipment (see note 1(d)).

Incremental costs of obtaining a contract are those costs that the Target Company 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 Company 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 Company 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(n).

(i) 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.

(j) Cash and cash equivalents

(k) Inventories

Inventories are carried at the lower of cost and net realisable value.

Cost is calculated using weighted average costing method 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.

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.

– IIC-18 –

ACCOUNTANTS’ REPORT OF ADURA CYBER SECURITY

APPENDIX IIC

(l) Income tax

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

(m) Provisions and contingent liabilities

– IIC-19 –

ACCOUNTANTS’ REPORT OF ADURA CYBER SECURITY

APPENDIX IIC

(n) Revenue and other income

(i) Revenue for the provision of consultancy services in relation to cybersecurity through the network solution center

Revenue from the rendering of services, consultancy, and outsourcing projects are recognised when services are performed, provided that the amount can be measured reliably.

(ii) Sale of goods

Policy applicable from 1 January 2018

(iii) Interest income

(o) 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 Company 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.

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, are translated into Hong Kong dollars at the closing foreign exchange rates at the end of the reporting period.

(p) Employee benefits

Short term employee benefits and contributions to defined contribution retirement plans.

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.

(q) Related parties

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

– IIC-20 –

ACCOUNTANTS’ REPORT OF ADURA CYBER SECURITY

APPENDIX IIC

(b) An entity is related to the Target Company if any of the following conditions applies:
(i) The entity and the Target Company 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 Company or an entity related to the Target Company.
(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 Company or to the Target Company’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.

(r) 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 Company’s most senior executive management for the purposes of allocating resources to, and assessing the performance of, the Target Company’s various lines of business and geographical locations.

2 REVENUE

The principal activity of the Target Company is engaged in the provision of consultancy services in relation to cybersecurity through the network solution center.

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

Revenue from services Sale of goods	Period from 30 November 2017 (date of incorporation) to 31 December 2017 $ – – –	Year ended 31 December 2018 $ 7,085,289 15,950 7,101,239	Six months ended 30 June 2018 2019 $ $ (unaudited) 1,676,924 1,940,581 – – 1,676,924 1,940,581	Six months ended 30 June 2018 2019 $ $ (unaudited) 1,676,924 1,940,581 – – 1,676,924 1,940,581
				1,940,581

– IIC-21 –

ACCOUNTANTS’ REPORT OF ADURA CYBER SECURITY

APPENDIX IIC

Revenue from contracts with customers Recognised over time Recognised at a point in time	Period from 30 November 2017 (date of incorporation) to 31 December 2017 $ – – –	Year ended 31 December 2018 $ 7,085,289 15,950 7,101,239	Six months ended 30 June 2018 2019 $ $ (unaudited) 1,676,924 1,940,581 – – 1,676,924 1,940,581	Six months ended 30 June 2018 2019 $ $ (unaudited) 1,676,924 1,940,581 – – 1,676,924 1,940,581
				1,940,581

The Target Company’s management assesses the performance and allocates the resources of the Target Company as a whole, as all of the Target Company’s activities are considered to be primarily the provision of cyber security consultancy services in Singapore. 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 loss from operations of the Target Company are primarily derived from its activities in Singapore.

Information about major customers

There are three customers for the year ended 31 December 2018, one customer and two customers respectively for the six months ended 30 June 2018 and 30 June 2019 with whom the transactions have contributed 10% or more to the Target Company’s total revenue. The total revenue arising from these customers are HK$6,202,503 for the year ended 31 December 2018, HK$1,173,999 and HK$1,370,928 for the six months ended 30 June 2018 and 30 June 2019 respectively.

Revenue from major customers of the Target Company’s total revenue, are set out below:

				Period from
				30 November
				2017 (date of
				incorporation) to	Year ended
				31 December	31 December	Six months ended 30 June
				2017	2018	2018	2019
				$	$	$	$
						(unaudited)
Customer	A			–	4,064,639	1,173,999	954,948
Customer	B	_(note _	1)	–	1,277,394	92,592	–
Customer	C	_(note _	1)	–	860,470	88,242	415,980

Note 1: The corresponding revenues from Customer B and C did not contribute over 10% of the total revenue of the Target Company during the six months ended 30 June 2018.

– IIC-22 –

ACCOUNTANTS’ REPORT OF ADURA CYBER SECURITY

APPENDIX IIC

3 PROFIT/(LOSS) BEFORE TAXATION

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

(a) Staff costs (including directors’ emoluments)

Salaries, wages and other benefits Discretionary bonus Retirement scheme contributions	Period from 30 November 2017 (date of incorporation) to 31 December 2017 $ – – – –	Year ended 31 December 2018 $ 3,810,016 425,599 399,585 4,635,200	Six months ended 30 June 2018 2019 $ $ (unaudited) 1,787,534 2,014,027 228,916 241,905 171,055 250,871 2,187,505 2,506,803	Six months ended 30 June 2018 2019 $ $ (unaudited) 1,787,534 2,014,027 228,916 241,905 171,055 250,871 2,187,505 2,506,803
				2,506,803

(b) Other items

	Period from
	30 November
	2017 (date of
	incorporation) to	Year ended
	31 December	31 December	Six months ended 30 June
	2017	2018	2018	2019
	$	$	$	$
			(unaudited)
Auditor’s remuneration:
– Audit services	–	177,093	26,526	47,645
Depreciation (note 7)
– Property, plant and equipment	–	19,451	9,873	9,672

4 INCOME TAX IN THE INCOME STATEMENTS

(a) Taxation in the income statements represents:

No provision for Singapore Corporate Tax has been made in the financial statements as the Target Company did not earn any assessable income for the period from 30 November 2017(date of incorporation) to 31 December 2017 and the six months ended 30 June 2018 and 2019.

No provision for Singapore Corporate Tax has been made in the financial statements for the year ended 31 December 2018 as the Target Company is qualified to enjoy the Taxation Exemption Scheme for New Start Up Companies introduced by Singapore in 2018. The first SGD100,000 of its normal chargeable income will be fully exempted.

– IIC-23 –

ACCOUNTANTS’ REPORT OF ADURA CYBER SECURITY

APPENDIX IIC

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

Profit/(loss) before taxation Notional tax on profit/(loss) before taxation, calculated at 17% Tax effect of tax incentive Tax effect of non-deductible expenses Tax effect of unused tax losses not recognised	Period from 30 November 2017 (date of incorporation) to 31 December 2017 $ – – – – – –	Year ended 31 December 2018 $ 158,877 27,009 (30,316) 3,307 – –	Six months ended 30 June 2018 2019 $ $ (unaudited) (1,172,691) (2,079,052) (199,357) (353,438) – – 1,678 1,644 197,679 351,794 – –	Six months ended 30 June 2018 2019 $ $ (unaudited) (1,172,691) (2,079,052) (199,357) (353,438) – – 1,678 1,644 197,679 351,794 – –

				(353,438) – 1,644 351,794
				–

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:

Directors’ fees Salaries, allowances and benefits in kinds Discretionary bonuses Retirement scheme contributions	Period from 30 November 2017 (date of incorporation) to 31 December 2017 $ – – – – –	Year ended 31 December 2018 $ – 1,686,867 376,471 118,626 2,181,964	Six months ended 30 June 2018 2019 $ $ (unaudited) – – 864,903 686,668 203,979 213,318 66,137 64,797 1,135,019 964,783	Six months ended 30 June 2018 2019 $ $ (unaudited) – – 864,903 686,668 203,979 213,318 66,137 64,797 1,135,019 964,783
				964,783

– IIC-24 –

ACCOUNTANTS’ REPORT OF ADURA CYBER SECURITY

APPENDIX IIC

6 INDIVIDUALS WITH HIGHEST EMOLUMENTS

One of the individuals with the highest emoluments, for the period from 30 November 2017(date of incorporation) to 31 December 2017, the year ended 31 December 2018 and the six months ended 30 June 2018 and 2019, respectively, is a director whose emoluments are disclosed in note 5. The aggregate of the emoluments in respect of individuals other than directors are nil, 4, 3(unaudited) and 4 for the period from 30 November 2017(date of incorporation) to 31 December 2017, the year ended 31 December 2018 and the six months ended 30 June 2018 and 2019, respectively, are as follows:

Salaries and other emoluments Discretionary bonuses Retirement scheme contributions	For period from 30 November 2017 (date of incorporation) to 31 December 2017 $ – – – –	Year ended 31 December 2018 $ 2,123,151 49,127 280,958 2,453,236	Six months ended 30 June 2018 2019 $ $ (unaudited) 922,631 1,327,360 24,937 28,587 104,918 186,073 1,052,486 1,542,020	Six months ended 30 June 2018 2019 $ $ (unaudited) 922,631 1,327,360 24,937 28,587 104,918 186,073 1,052,486 1,542,020
				1,542,020

The emoluments of nil, 4, 3 (unaudited) and 4 individuals with the highest emoluments for the period from 30 November 2017 (date of incorporation) to 31 December 2017, the year ended 31 December 2018 and the six months ended 30 June 2018 and 2019, respectively, are within the following bands:

Below $1,000,000	For the period from 30 November 2017 (date of incorporation) to 31 December 2017 – –	Number of individuals Year ended 31 December Six months ended 30 June 2018 2018 2019 (unaudited) 4 3 4 4 3 4	Number of individuals Year ended 31 December Six months ended 30 June 2018 2018 2019 (unaudited) 4 3 4 4 3 4
			4

– IIC-25 –

ACCOUNTANTS’ REPORT OF ADURA CYBER SECURITY

APPENDIX IIC

7 PROPERTY, PLANT AND EQUIPMENT

Cost: At 30 November 2017 (date of incorporation), 31 December 2017 and 1 January 2018 Additions At 31 December 2018 At 1 January 2019 At 30 June 2019 Accumulated depreciation: At 30 November 2017 (date of incorporation), 31 December 2017 and 1 January 2018 Charge for the year At 31 December 2018 At 1 January 2019 Charge for the period At 30 June 2019 Net book value: At 31 December 2017 At 31 December 2018 At 30 June 2019	Telecommunication, computer and office equipment $ – 57,619
	57,619 - - - - - - - - - - - - - - - 57,619
	57,619 - - - - - - - - - - - - - - - – 19,451
	19,451 - - - - - - - - - - - - - - -
	19,451 9,672
	29,123 - - - - - - - - - - - - - - -
	–

	38,168

	28,496

8 CONTRACT ASSETS

Arising from contract with conditional payment terms	At 31 December 2017 2018 $ $ – 1,999,297 – 1,999,297	At 30 June 2019 $ 801,200
		801,200

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

– IIC-26 –

ACCOUNTANTS’ REPORT OF ADURA CYBER SECURITY

APPENDIX IIC

9 CONTRACT LIABILITIES

Arising from contracts with conditional settlement terms Deferred service revenue ments in contract liabilities At the beginning of the period/year Increase/(decrease) in contract liabilities as a result of contracts with conditional settlement terms At the end of the year/period	At 31 December 2017 2018 $ $ – 511,080 – 511,080 At 31 December 2017 2018 $’000 $’000 – – – 511,080 – 511,080	At 30 June 2019 $ 192,670
		192,670

		At 30 June 2019 $’000 511,080 (318,410)
		192,670

Movements in contract liabilities

All deferred service revenue are expected to be recognised as income within one year.

10 TRADE RECEIVABLES, OTHER RECEIVABLES, DEPOSITS AND PREPAYMENTS

Note Trade receivables from third parties Trade receivables from related parties Other receivables, deposits and prepayments	At 31 December 2017 2018 $ $ – 1,979,565 – 871,105 – 2,850,670 6 179,022 6 3,029,692	At 30 June 2019 $ 403,551 57,961
		461,512 244,090
		705,602

As at 31 December 2017 and 2018 and 30 June 2019, the Target Company’s other receivables, deposits and prepayments include, $6, $179,022 and $244,090 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.

– IIC-27 –

ACCOUNTANTS’ REPORT OF ADURA CYBER SECURITY

APPENDIX IIC

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 2017 2018 $ $ – 153,657 – 1,347,414 – – – 1,349,599 – 2,850,670	At 30 June 2019 $ – – 358,538 102,974
		461,512

11 CASH AND CASH EQUIVALENTS

(a) Cash and cash equivalents comprise:

						December	At 30 June
					2017	2018	2019
					$	$	$
Cash	at	bank	on	hand	–	723,905	4,304,403

(b) Reconciliation of profit/(loss) before taxation to cash (used in)/generated from operations:

Note Operating activities Profit/(loss) before taxation Adjustments for Depreciation 3(b) Changes in working capital: (Increase)/decrease in contract assets (Increase)/decrease in trade receivables Increase in other receivables, deposits and prepayments Increase in trade payables Increase/(decrease) in other payables and accrued charges Increase/(decrease) in contract liabilities Increase in amounts due to fellow subsidiaries Cash (used in)/ generated from operations	Period from 30 November 2017 (date of incorporation) to 31 December 2017 $ – – – – (6) – – – – (6)	Year ended 31 December 2018 $ 158,877 19,451 (1,999,297) (2,850,670) (179,022) 331,451 1,306,426 511,080 3,547,386 845,682	Six months ended 30 June 2018 2019 $ $ (unaudited) (1,172,691) (2,079,052) 9,873 9,672 – 1,198,097 (1,599,880) 2,389,158 (558,154) (65,068) 173,805 140,630 593,978 (548,615) – (318,410) 3,633,381 2,852,603 1,080,312 3,579,015	Six months ended 30 June 2018 2019 $ $ (unaudited) (1,172,691) (2,079,052) 9,873 9,672 – 1,198,097 (1,599,880) 2,389,158 (558,154) (65,068) 173,805 140,630 593,978 (548,615) – (318,410) 3,633,381 2,852,603 1,080,312 3,579,015
				3,579,015

– IIC-28 –

ACCOUNTANTS’ REPORT OF ADURA CYBER SECURITY

APPENDIX IIC

12 TRADE PAYABLES, OTHER PAYABLES AND ACCRUED CHARGES

Trade payables Other payables and accrued charges	At 31 December 2017 2018 $ $ – 331,451 – 1,306,426 – 1,637,877	At 30 June 2019 $ 472,081 757,811
		1,229,892

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 60 to 90 Days Over 90 Days	At 31 December 2017 2018 $ $ – 257,306 – 29,010 – – – 45,135 – 331,451	At 30 June 2019 $ 472,081 – – –
		472,081

13 TAXATION IN THE STATEMENTS OF FINANCIAL POSITION

In accordance with the accounting policy set out in note 1(l), the Target Company has not recognised deferred tax assets in respect of cumulative tax losses of $2,069,377 at 30 June 2019 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.

14 AMOUNTS DUE TO FELLOW SUBSIDIARIES

Amounts due to fellow subsidiaries are unsecured, interest free and repayable on demand.

15 CAPITAL, RESERVES AND DIVIDENDS

(a) Movements in components of equity

The reconciliation between the opening and closing balances of each component of the Target Company’s equity is set out in the statements of changes in equity.

(b) Share capital

Ordinary shares, issued and fully paid: At 30 November 2017 (Date of incorporation) Shares issued upon incorporation At 31 December 2017 and 1 January 2018, 31 December 2018 and 30 June 2019	No. of Shares – 1 1	$ – 6
		6

– IIC-29 –

ACCOUNTANTS’ REPORT OF ADURA CYBER SECURITY

APPENDIX IIC

The shareholders 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.

(c) Capital management

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

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

16 FINANCIAL RISK MANAGEMENT AND FAIR VALUES OF FINANCIAL INSTRUMENTS

Exposure to credit and liquidity risks arises in the normal course of the Target Company’s business. The Target Company’s exposure to these risks and the financial risk management policies and practices used by the Target Company 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 Company. The Target Company’s credit risk is primarily attributable to trade and other receivables, balances with related companies and contract assets. The Target Company’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 Company considers to have low credit risk.

The Target Company does not provide any other guarantees which would expose the Target Company to credit

risk.

Trade and other receivables and contract assets

– IIC-30 –

ACCOUNTANTS’ REPORT OF ADURA CYBER SECURITY

APPENDIX IIC

The following table provides information about the Target Company’s exposure to credit risk and ECLs for trade receivables and contract assets as at 31 December 2018 and 30 June 2019:

31 December 2018 Expected loss rate Gross carrying amount % $ Current (not past due) 0% 2,152,954 1 – 30 days past due 0% 1,347,414 31 – 90 days past due 0% – More than 90 days past due 0% 1,349,599 4,849,967	Loss allowance $ – – – –
	–

Expected loss rate % Current (not past due) 0% 1 – 30 days past due 0% 31 – 90 days past due 0% More than 90 days past due 0%	30 June 2019 Gross carrying amount $ 801,200 – – 461,512 1,262,712	Loss allowance $ – – – –
		–

Expected loss rates are based on actual loss experience over the past is nil. 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 Company’s view of economic conditions over the expected lives of the receivables.

(b) Liquidity risk

At 31 December 2017

Trade payables Other payables and accrued charges	Contractual undiscounted cash outflow Within 1 year or on demand 1 year but less than 2 years More than 2 years but less than 5 years Total $ $ $ $ – – – – – – – – – – – –	Carrying amount $ – –
		–

– IIC-31 –

ACCOUNTANTS’ REPORT OF ADURA CYBER SECURITY

APPENDIX IIC

At 31 December 2018

Trade payables Other payables and accrued charges Amounts due to fellow subsidiaries	Contractual undiscounted cash outflow Within 1 year or on demand 1 year but less than 2 years More than 2 years but less than 5 years Total $ $ $ $ 331,451 – – 331,451 1,306,426 – – 1,306,426 3,547,386 – – 3,547,386 5,185,263 – – 5,185,263	Carrying amount $ 331,451 1,306,426 3,547,386
		5,185,263

At 30 June 2019

Trade payables Other payables and accrued charges Amounts due to fellow subsidiaries	Contractual undiscounted cash outflow Within 1 year or on demand 1 year but less than 2 years More than 2 years but less than 5 years Total $ $ $ $ 472,081 – – 472,081 757,811 – – 757,811 6,399,989 – – 6,399,989 7,629,881 – – 7,629,881	Carrying amount $ 472,081 757,811 6,399,989
		7,629,881

(c) Fair value measurement

All financial instruments are carried at amounts not materially different from their fair values as at 31 December 2017, 31 December 2018, and 30 June 2019.

– IIC-32 –

ACCOUNTANTS’ REPORT OF ADURA CYBER SECURITY

APPENDIX IIC

17 COMMITMENTS

Operating lease commitments

The Target Company’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 2017 2018 $ $ 321,632 321,632 26,803 26,803 348,435 348,435	At 30 June 2019 $ 187,618 –
		187,618

18 MATERIAL RELATED PARTY TRANSACTIONS

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

	Period from
	30 November
	2017 (date of
	incorporation) to	Year ended
	31 December	31 December	Six months ended	30 June
	2017	2018	2018	2019
	$	$	$	$
			(unaudited)
Sales of products and provision
of services	–	(4,623,743)	(29,473)	(954,948)
Purchase of products and
services	–	548,432	–	269,914
Expenses	–	–	–	7,156

(a) Provision of services and purchase of products and services to/from fellow subsidiaries were carried out on commercial terms and conditions.

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

19 IMMEDIATE AND ULTIMATE CONTROLLING PARTY

– IIC-33 –

ACCOUNTANTS’ REPORT OF ADURA CYBER SECURITY

APPENDIX IIC

20 ACCOUNTING JUDGEMENT AND ESTIMATES

Sources of estimation uncertainty

Note 16 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

(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 Company 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 Company’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 Company has significant property, plant and equipment and intangible assets. The Target Company 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 Company’s strategies. The Target Company 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 Company extends or shortens the useful lives and/or makes impairment provisions according to the results of the review.

(d) Income tax

(e) Determining the lease term

As explained in policy note 1(c), the lease liability is initially recognised at the present value of the lease payments payable over the lease term. In determining the lease term at the commencement date for leases that include renewal options exercisable by the Company, the Company evaluates the likelihood of exercising the renewal options taking into account all relevant facts and circumstances that create an economic incentive for the Company to exercise the option, including favourable terms, leasehold improvements undertaken and the importance of that underlying asset to the Company’s operation. The lease term is reassessed when there is a significant event or significant change in circumstance that is within the Company’s control. Any increase or decrease in the lease term would affect the amount of lease liabilities and right-of-use assets recognised in future years.

– IIC-34 –

ACCOUNTANTS’ REPORT OF ADURA CYBER SECURITY

APPENDIX IIC

21 POSSIBLE IMPACT OF AMENDMENTS, NEW STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE FOR THE ACCOUNTING PERIOD BEGINNING 1 JANUARY 2019

	Effective for
	accounting
	periods beginning
	on or after
Amendments to HKFRS 3, Defilations of a business	1 January 2020
Amendments to HKAS 1 and HKAS 8, Defilations material	1 January 2020
HKFRS 17, Insurance contracts	1 January 2021
Amendments to HKFRS 10 and HKAS 28, Sale or contribution of	To be determined
assets between an investor and its associate or joint venture

The Target Company 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 it has concluded that the adoption of them is unlikely to have a significant impact on the Historical Financial Information.

22 EVENTS AFTER THE REPORTING PERIOD

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

SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the Target Company in respect of any period subsequent to 30 June 2019.

– IIC-35 –

MANAGEMENT DISCUSSION AND ANALYSIS OF JOS CI

APPENDIX IIIA

The following management discussion and analysis is based on the consolidated financial information included in the accountants’ report on historical financial information of JOS CI as set out in Appendix IIA to this circular for the three years ended 31 December 2016, 2017 and 2018 and for the six months ended 30 June 2018 and 2019.

1. REVIEW OF FINANCIAL RESULTS OF JOS CI

Revenue

JOS CI recorded revenue of HK$3,546.1 million, HK$3,510.6 million, HK$3,820.2 million, HK$1,808.4 million and HK$1,784.0 million for each of the years ended 31 December 2016, 2017 and 2018 and for the six months ended 30 June 2018 and 2019, respectively. The revenue decreased marginally by 1.0% for the year ended 31 December 2017 as compared to the year ended 31 December 2016 and increased by 8.8% for the year ended 31 December 2018 as compared to the year ended 31 December 2017. The increase in revenue for the year ended 31 December 2018 as compared to that for the year ended 31 December 2017 was primarily driven by the increase in sale of IT solutions and system integration, which was primarily due to increase in the sales of such product by JOS CI Group in Hong Kong and other territories (namely, Macau and Malaysia). The revenue decreased marginally in the six months ended 30 June 2019 by 1.3% as compared to the same period in the previous year.

Cost of goods sold and cost of services

JOS CI incurred costs of goods sold and cost of services of HK$3,037.9 million, HK$2,990.0 million, HK$3,268.8 million, HK$1,539.3 million and HK$1,525.6 million for the years ended 31 December 2016, 2017 and 2018 and for the six months ended 30 June 2018 and 2019, respectively. The cost of goods sold and cost of services mainly comprised of trading of goods, labour cost, sub-contractor fees and lease payments.

The changes in cost of goods sold and cost of services of JOS CI in the period under review are generally in line with the changes in revenue over the same period.

Gross Profit

JOS CI’s gross profit represents revenue minus cost of goods sold and cost of services. JOS CI’s gross profit for the years ended 31 December 2016, 2017 and 2018 and for the six months ended 30 June 2018 and 2019 were HK$508.2 million, HK$520.6 million, HK$551.4 million, HK$269.1 million and HK$258.4 million, respectively. Gross profit (and also gross profit margin) remained relatively steady from 2016 to the first half of 2019 because revenue and cost of goods sold and cost of services increased or decreased (as the case may be) at generally the same rate and sales mix remained relatively stable.

– IIIA-1 –

MANAGEMENT DISCUSSION AND ANALYSIS OF JOS CI

APPENDIX IIIA

Other net income

The other net income of JOS CI primarily includes management fee income from fellow subsidiaries, discount on early settlement to suppliers, forfeiture of customer deposit and sundry income. The other net income of JOS CI were HK$33.2 million, HK$18.1 million, HK$71.4 million, HK$18.2 million and HK$11.4 million for the years ended 31 December 2016, 2017 and 2018 and for the six months ended 30 June 2018 and 2019, respectively. The decrease in the other net income for the year ended 31 December 2017 as compared to that for the year ended 31 December 2016 was primarily due to the decrease in sundry income as JOS CI Group did not have any release of redundancy provision or insurance compensation on bad debt in 2017 (which it had in 2016) and it wrote back a small amount of over-provided accruals and payables in 2017 as compared to the amount written back in 2016. The substantial increase in the other net income for the year ended 31 December 2018 was due to the recognition of management fee income from a fellow subsidiary, representing the fees for certain support services (such as human resources, finance and CEO head office) provided by JOS CI Group to such fellow subsidiary over the years of 2016, 2017 and 2018 (with the corresponding management fees all accounted for in 2018 after the formal agreement was entered into providing for the terms of services), and the gain from the forfeiture of customer deposit as a result of services rendered in China by JOS CI Group whilst the customer paid the deposit offshore in Hong Kong. The other net income for the six months ended 30 June 2019 decreased by approximately 37.2% as a smaller amount of management fee income from fellow subsidiaries was recognised which corresponded to the services provided in the first half of 2019.

Other operating expenses

The other operating expenses of JOS CI mainly comprise staff cost, rental expenses, warehouse and storage expenses, utilities and other similar expenses, depreciation and amortisation expenses, transport and delivery charges, legal and professional service fees, travelling expenses and advertising and promotion expenses. The other operating expenses were HK$577.1 million, HK$539.9 million, HK$562.2 million, HK$273.4 million and HK$262.0 million for the years ended 31 December 2016, 2017 and 2018 and for the six months ended 30 June 2018 and 2019, respectively. The other operating expenses decreased by 6.4% for the year ended 31 December 2017 as compared to that for the year ended 31 December 2016 and increased slightly by 4.1% for the year ended 31 December 2018 as compared to that for the year ended 31 December 2017. The other operating expenses decreased in the six months ended 30 June 2019 by 4.2% as compared to that for the same period in the previous year. The trend in the changes in the other operating expenses largely followed the trend in the changes in revenue over the period under review.

– IIIA-2 –

MANAGEMENT DISCUSSION AND ANALYSIS OF JOS CI

APPENDIX IIIA

Finance costs

The finance costs of JOS CI mainly comprise interests incurred in relation to bank loans and advances, which were HK$2.8 million, HK$4.2 million, HK$8.1 million, HK$2.4 million and HK$8.9 million for each of the years ended 31 December 2016, 2017 and 2018 and for the six months ended 30 June 2018 and 2019, respectively. The finance costs increased by 48.8% for the year ended 31 December 2017 as compared to that for the year ended 31 December 2016 and by 92.1% for the year ended 31 December 2018 as compared to that for the year ended 31 December 2017. The finance costs increased in the six months ended 30 June 2019 by more than 2.6 times as compared to the same period in the previous year. The substantial increase in the finance costs over the relevant period was largely attributable to increases in short term bank loans and overdrafts which were due within one year, increases in borrowings/advances from a fellow subsidiaries as well as the increase in interest on lease liabilities resulting from the adoption of HKFRS 16 since 1 January 2019. JOS CI increased short term borrowings substantially over the relevant period mainly for the purchase of property, plant and equipment.

EBITDA

JOS CI’s EBITDA were HK$(1.4) million, HK$35.4 million, HK$94.0 million, HK$30.8 million and HK$81.1 million for each of the years ended 31 December 2016, 2017 and 2018 and for the six months ended 30 June 2018 and 2019, respectively. JOS CI’s EBITDA in 2017 was a positive earnings as compared to a negative earnings in 2016, which was primarily resulted from lower operating expenses in 2017 as compared to that in 2016. JOS CI’s EBITDA in 2018 increased by 1.7 times as compared with that in 2017, which was primarily resulted from HK$46.9 million additional other income in the nature of management fee from a fellow subsidiary in 2018 by reason of support services provided by JOS CI Group to such fellow subsidiary over the years of 2016, 2017 and 2018. JOS CI’s EBITDA increased by 1.6 times for the six months ended 30 June 2019 as compared to that for the six months ended 30 June 2018, which was primarily because of the adding back of the depreciation on right of use assets resulted from the adoption of HKFRS 16, since 1 January 2019, which was not present for the six months ended 30 June 2018.

Income tax credit/(expense)

JOS CI and its subsidiaries are subject to income taxes in several jurisdictions. The income tax credit/(expense) of JOS CI were HK$4.1 million, HK$0.4 million, HK$(7.0) million, HK$(1.8) million and HK$(1.6) million for each of the years ended 31 December 2016, 2017 and 2018 and for the six months ended 30 June 2018 and 2019, respectively. There were income tax credits for the years ended 31 December 2016 and 2017 mainly due to net loss position recognised in 2016 and 2017. There were income tax expenses in 2018 mainly due to the net profit derived in 2018. The provision for Hong Kong profits tax is calculated at 16.5% of the estimated assessable profit for the year. Taxation on overseas profits is charged at the appropriate current rates of taxation ruling in the relevant countries in which JOS CI’s subsidiaries operate.

– IIIA-3 –

MANAGEMENT DISCUSSION AND ANALYSIS OF JOS CI

APPENDIX IIIA

(Loss)/profit for the year/period

The (loss)/profit for the year/period of JOS CI were HK$(34.5) million, HK$(5.0) million, HK$45.5 million, HK$9.7 million and HK$(2.6) million for each of the years ended 31 December 2016, 2017 and 2018 and for the six months ended 30 June 2018 and 2019, respectively. There has been a continuous improvement in net profit over the period from 2016 to 2018 and in particular the turnaround from a net loss position to a net profit position in 2018. This was primarily due to improvement in gross profit and the generation of approximately HK$46.9 million additional other income in the nature of management fee from a fellow subsidiary in 2018 by reason of support services provided by JOS CI Group to such fellow subsidiary over the years of 2016, 2017 and 2018. Conversely, the resulting net loss position for the six months ended 30 June 2019 as compared to net profit position for the six months ended 30 June 2018 was primarily due to a smaller other income in the nature of management fee from the fellow subsidiary was recognised as the fee only corresponded to the services provided in the first half of 2019 and increase in finance costs because more bank loans were obtained to fund business operations, for the six months ended 30 June 2019 as compared to those for the six months ended 30 June 2018.

Financial position

The total assets of JOS CI were HK$1,497.3 million, HK$1,532.7 million, HK$1,718.2 million and HK$1,945.9 million as at 31 December 2016, 2017 and 2018 and 30 June 2019, respectively.

Non-current assets

The non-current assets of JOS CI were HK$264.2 million, HK$268.9 million, HK$230.7 million and HK$457.2 million as at 31 December 2016, 2017 and 2018 and 30 June 2019, respectively. It mainly comprised property, plant and equipment, right-of-use assets and goodwill.

The non-current assets of JOS CI increased marginally by 1.8% as at 31 December 2017 as compared to 31 December 2016, decreased by 14.2% as at 31 December 2018 and then increased by 98.2% as at 30 June 2019. The decrease in non-current assets as at 31 December 2018 as compared to that as at 31 December 2017 was primarily resulted from the increase in impairment for intangible assets as the business performance of an acquired subsidiary was more modest than previously anticipated. The substantial increase in non-current asset as at 30 June 2019 was due to the recognition of a substantial amount of right-of-use asset with a net book value of approximately HK$260.6 million resulting from the adoption of HKFRS 16 since 1 January 2019 which requires JOS CI to recognise right-of-use assets (and lease liabilities) for all leases that it has interest in as a lessee.

– IIIA-4 –

MANAGEMENT DISCUSSION AND ANALYSIS OF JOS CI

APPENDIX IIIA

Current assets

The current assets of JOS CI were HK$1,233.1 million, HK$1,263.9 million, HK$1,487.5 million and HK$1,488.7 million as at 31 December 2016, 2017 and 2018 and 30 June 2019, respectively. They comprised mainly of inventories, trade receivables, amount due from group companies, other receivables, deposits and prepayments, loan receivables and cash and cash equivalents.

The current assets of JOS CI increased slightly by 2.5% as at 31 December 2017 as compared to 31 December 2016, increased by 17.7% as at 31 December 2018 and then increased marginally by 0.1% as at 30 June 2019. The increase in current assets as at 31 December 2018 as compared to that as at 31 December 2017 was primarily due to the increase in trade receivables resulting from the increase in revenue and the increase in aging days for trade receivables which was in turn due to customers generally taking longer time to settle trade receivables and the increase in sales of services that have longer credit period, and the increase in amount due from a fellow subsidiary in the nature of management fee payable by such fellow subsidiary.

Liabilities

The total liabilities of JOS CI were HK$1,016.1 million, HK$1,093.0 million, HK$1,263.9 million and HK$1,504.2 million as at 31 December 2016, 2017 and 2018 and 30 June 2019, respectively. They comprised mainly of trade payables, other payables and accrued charges, contract liabilities, bank borrowings and lease liabilities.

The total liabilities of JOS CI increased by 7.6% as at 31 December 2017 as compared to 31 December 2016, increased by 15.6% as at 31 December 2018 and increased by 19.0% as at 30 June 2019. The increase in total liabilities over the relevant period was primarily due to the increases in trade payables resulting from the increases in business, increases in bank loans and overdrafts obtained to fund the purchase of a subsidiary, the purchase of property, plant and equipment and the payment of dividends to equity shareholders, and the recognition of lease liabilities resulting from the adoption of HKFRS 16 since 1 January 2019 as described above.

– IIIA-5 –

MANAGEMENT DISCUSSION AND ANALYSIS OF JOS CI

APPENDIX IIIA

2. CAPITAL STRUCTURE, LIQUIDITY AND FINANCIAL RESOURCES

Capital structure

As at 30 June 2019, JOS CI had total debts (namely, bank borrowings) of HK$254.8 million and total cash and cash equivalents of HK$32.4 million.

Cash resources

JOS CI financed working capital and capital expenditures principally through the utilisation of short term bank loans and overdrafts.

JOS CI had net cash used in operating activities in the amount of HK$23.2 million, HK$34.2 million, HK$6.5 million and HK$6.3 million, respectively for the years 31 December 2016, 2017 and 2018, and for the six months ended 30 June 2019. The changes in the net cash used in operating activities over the period under review were primarily due to changes in inventories, contract assets, trade receivables, other receivables, deposits and payments, amounts due from group companies outside JOS CI Group, trade payable and other payable and accrued charges. The cash used in operation activities during the six months ended 30 June 2019 was also affected by the application of HKFRS 16 at 1 January 2019 and as a result, with certain exceptions, rentals paid on leases have since then been classified as financing cash outflows.

JOS CI had net cash used in investing activities in the amount of HK$61.3 million, HK$19.3 million, HK$21.5 million and HK$2.3 million, respectively for the years 31 December 2016, 2017 and 2018, and for the six months ended 30 June 2019, which mainly comprised the payment for purchase of property, plant and equipment.

JOS CI had net cash generated from/(used in) financing activities in the amount of HK$7.1 million, HK$50.7 million, HK$36.1 million and HK$(23.6) million, respectively for the years 31 December 2016, 2017 and 2018, and for the six months ended 30 June 2019, which were mainly resulted from the inflow in the form of net proceeds from bank borrowings which were used to fund purchases of property, plant and equipment and interest payment and outflow in the form of repayment of loan payable to group companies outside JOS CI Group.

JOS CI’s cash and cash equivalents (including cash at bank) were HK$62.5 million, HK$58.4 million, HK$66.6 million and HK$32.4 million as at 31 December 2016, 2017 and 2018 and 30 June 2019, respectively, the majority of which are denominated in Hong Kong dollars which some are denominated in Singapore dollars.

The capital expenditures of JOS CI for the years 31 December 2016, 2017 and 2018, and for the six months ended 30 June 2019 were HK$61.3 million, HK$19.3 million, HK$21.5 million and HK$2.3 million, respectively. Higher capital expenditures were incurred in 2016 and 2017 due to the undertaking of leasehold improvement work in those years.

– IIIA-6 –

MANAGEMENT DISCUSSION AND ANALYSIS OF JOS CI

APPENDIX IIIA

Bank borrowings and facilities

As at 30 June 2019, the bank borrowings of JOS CI was approximately HK$254.8 million and they are unsecured. There was no charge on JOS CI’s assets as at 30 June 2019.

3. RATIOS

The gearing ratio of JOS CI 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 share capital and reserves and equity attributable to the owner of JOS CI and non-controlling interests as shown in the consolidated statements of financial position. JOS CI’s gearing ratio was 0.5 as at 30 June 2019.

4. EMPLOYEE AND REMUNERATION POLICIES

JOS CI employed a total of 1,918, 1,860, 2,019 and 2,019 full-time employees as at 31 December 2016, 2017 and 2018 and 30 June 2019, respectively. Staff costs for the years ended 31 December 2016, 2017 and 2018 and for the six months ended 30 June 2018 and 2019 were HK$728.0 million, HK$726.5 million, HK$732.5 million, HK$367.8 million and HK$372.4 million respectively. JOS CI provides its employees with competitive remuneration and contributes to a number of defined benefit and defined contribution pension plans. JOS CI also provides training programs for its employees.

5. FOREIGN EXCHANGE EXPOSURE

JOS CI has transaction currency exposures. Such exposures primarily arise from transactions for receipts and payments for purchases and sales in currencies other than the JOS CI’s functional currency of US dollars.

JOS CI manages this risk by having contracts denominated in Hong Kong and US dollars where it is possible and economically favourable, and will continue to monitor such exposures and market conditions. Given the exchange rate of the HK$ to the US$ has remained close to the current pegged rate of HK$7.80 = US$1.00 since 1983, JOS CI does not expect significant foreign exchange gains or losses between the two currencies.

JOS CI did not engage in any hedging activities designed or intended to manage such exchange risk during the years ended 31 December 2016, 2017 and 2018 and for the six months ended 30 June 2019, respectively.

– IIIA-7 –

MANAGEMENT DISCUSSION AND ANALYSIS OF JOS CI

APPENDIX IIIA

6. CONTINGENT LIABILITIES

JOS CI did not have any contingent liabilities as at 30 June 2019.

7. ACQUISITION AND DISPOSAL AND SIGNIFICANT INVESTMENTS

On 29 December 2016, a separate sale and purchase agreement, in addition to the sale and purchase agreement entered on 31 July 2015, was entered into between JOS Applications (S) Pte Ltd (“ JAS ”), a subsidiary of JOS CI and one of the Target Group Companies, and MUU Consulting Pte Ltd (“ MUU ”) to acquire the workflow business practice from MUU, in which the principal activity is IT consulting, development of software and programming activities. The transaction under the said 29 December 2016 sale and purchase agreement was completed on 31 December 2017. The entire purchase consideration of the transaction was equivalent to SG$1,000,000 (HK$5,367,000) of contingent consideration that will be paid to the seller of the workflow business practice based on an earn-out scheme and paid over three tranches in 2017, 2018 and 2019.

There were no tangible assets being transferred into JAS nor any liabilities assumed from MUU that can be separately identified with any material value, as such the total purchase consideration was allocated entirely to goodwill amounting to SG$1,000,000 (HK$5,367,000). The goodwill arose from the synergy created between JAS existing network and the expertise of MUU in IT consulting, SharePoint and Workflow businesses, which would help accelerate the pace of JAS in establishing a foothold in the consulting business.

On 3 December 2018, a supplemental agreement to the original business and purchase agreement was signed between JAS and MUU which extended the end of the Earn-out Period to 31 December 2020 (final payment to be made in 2021) which a revised cumulative net profit target while keeping the total maximum contingent consideration.

Save as disclosed above, JOS CI did not have any significant investment, material acquisition or disposal during each of the years ended 31 December 2016, 2017 and 2018, and for the six months ended 30 June 2019.

8. PROSPECTS AND OUTLOOK

Following Closing, the business of JOS CI will be combined and integrated with the Group’s existing ICT solutions business. JOS CI will streamline its operation process and focus the development of the business in Hong Kong and leverage the Group’s existing sales channels, customer reach and business portfolio to further increase its market share and strengthen its leading position in the ICT solutions industry. For further discussions, please refer to “Letter from the Board – 6. Reasons for and Benefits of the Proposed Acquisition”.

– IIIA-8 –

MANAGEMENT DISCUSSION AND ANALYSIS OF ADURA HONG KONG

APPENDIX IIIB

The following management discussion and analysis is based on the financial information included in the accountants’ report of Adura Hong Kong as set out in Appendix IIB to this circular for the period from 14 December 2017 (the date of incorporation of Adura Hong Kong) to 31 December 2017, for the year ended 31 December 2018 and for the six months ended 30 June 2019.

1. REVIEW OF FINANCIAL RESULTS OF ADURA HONG KONG

Revenue

The revenue of Adura Hong Kong for the year ended 31 December 2018 and for the six months ended 30 June 2018 and 2019 was approximately HK$0.56 million, nil and HK$1.1 million respectively. The revenue is derived from the provision of consultancy services in relation to cyber security through the network solution center.

Cost of services

Adura Hong Kong incurred cost of services of HK$0.36 million, nil and HK$0.51 million for the year ended 31 December 2018 and for the six months ended 30 June 2018 and 2019, respectively. The cost of services comprised mainly of labour cost.

Gross profit

Adura Hong Kong recorded gross profit of HK$0.20 million, nil and HK$0.62 million for the year ended 31 December 2018 and for the six months ended 30 June 2018 and 2019, respectively. The gross profit margin was 35.3%, 0% and 55.0% for the year ended 31 December 2018 and for the six months ended 30 June 2018 and 2019, respectively. The increase in gross profit margin was mainly because, in view that Adura Hong Kong only has a very limited number of customers, gross profit margin is highly sensitive to the changes in the mix of products sold to these customers.

Other operating expenses

The other operating expenses of Adura Hong Kong mainly comprise salaries, advertising expenses and rental expenses, which were HK$2.8 million, HK$1.2 million and HK$1.8 million for the year ended 31 December 2018 and for the six months ended 30 June 2018 and 2019, respectively. The other operating expenses increased in the six months ended 30 June 2019 by 47.2% as compared to the same period in the previous year, which was primarily due to more salary expenses being incurred because there were more employees in the first half of 2019 as compared with the same period in 2018.

– IIIB-1 –

MANAGEMENT DISCUSSION AND ANALYSIS OF ADURA HONG KONG

APPENDIX IIIB

Income tax expense/(credit)

The income tax expense/(credit) of Adura Hong Kong were HK$12,375, HK$3,891 and HK$(2,310) for the year ended 31 December 2018 and for the six months ended 30 June 2018 and 2019, respectively. The effective profits tax rate in Hong Kong is 16.5% on the estimated assessable profit for the year.

Loss for the year/period

Adura Hong Kong recorded a loss of HK$2.6 million, HK$1.2 million and HK$1.1 million for the year ended 31 December 2018 and for the six months ended 30 June 2018 and 2019, respectively as its business was only in its infancy stage.

Financial position

The total assets of Adura Hong Kong were HK$0.30 million HK$0.48 million and HK$1.7 million as at 31 December 2017, 31 December 2018 and 30 June 2019, respectively.

Non-current assets

The non-current assets of Adura Hong Kong were nil, HK$0.06 million and HK$0.06 million as at 31 December 2017, 31 December 2018 and 30 June 2019, respectively. They comprised mainly of property, plant and equipment and deferred tax assets.

Current assets

The current assets of Adura Hong Kong were HK$0.30 million, HK$0.42 million and HK$1.6 million as at 31 December 2017, 31 December 2018 and 30 June 2019, respectively. They comprised mainly of contract assets, trade receivables and other receivables, deposits and prepayments, and cash and cash equivalents.

The current assets of Adura Hong Kong increased by 40.3% as at 31 December 2018 as compared to 31 December 2017 and increased significantly by 2.9 times as at 30 June 2019. The significant increase in current assets as at 30 June 2019 as compared to that as at 31 December 2018 was primarily due to the increase in contract assets (resulting from increase in revenue for services rendered) and cash and cash equivalents as its business started to develop.

Liabilities

The total liabilities of Adura Hong Kong were HK$0.30 million, HK$3.2 million and HK$5.5 million as at 31 December 2017, 31 December 2018 and 30 June 2019, respectively. They comprised mainly of contract liabilities, other payables and accrued charges, amounts due to fellow subsidiaries and pension liabilities.

– IIIB-2 –

MANAGEMENT DISCUSSION AND ANALYSIS OF ADURA HONG KONG

APPENDIX IIIB

The total liabilities of Adura Hong Kong increased by 9.7 times as at 31 December 2018 as compared to 31 December 2017 and increased by 73.0% as at 30 June 2019. The increase in total liabilities over the various periods was primarily due to the increase in amounts due to Adura Hong Kong’s fellow subsidiaries, contract liabilities and other payables and accrued charges. Contract liabilities increased as the business of Adura Hong Kong started to develop with customers paying deposits before services are rendered by Adura Hong Kong. Amounts due to Adura Hong Kong’s fellow subsidiaries increased due to more funding was obtained from such fellow subsidiaries to support the business development of Adura Hong Kong.

2. CAPITAL STRUCTURE, LIQUIDITY AND FINANCIAL RESOURCES

Capital structure

As at 30 June 2019, Adura Hong Kong did not have any bank borrowing and had total cash and cash equivalents of HK$0.91 million. Total shareholder’s deficit was approximately HK$3.8 million.

Cash resources

Adura Hong Kong’s cash and cash equivalents (including cash at bank) were HK$0.08 million and HK$0.91 million as at 31 December 2018 and 30 June 2019, respectively, the majority of which are denominated in Hong Kong dollars and United States dollars.

Adura Hong Kong had cash generated from operating activities in the amount of HK$0.14 million and HK$0.84 million, for the year ended 31 December 2018 and for the six months ended 30 June 2019, respectively.

The capital expenditures of Adura Hong Kong for the year ended 31 December 2018 and for the six months ended 30 June 2019, respectively were HK$0.06 million and HK$0.01 million, respectively.

Funding support

During the relevant periods, other than normal trade payables and other payables, Adura Hong Kong had no bank borrowings, mortgages, charges on assets, debentures, debt securities issued and outstanding, and authorised or otherwise created but unissued. Adura Hong Kong mainly relied on funding from related companies to support its business and operations as its business is in its infancy.

– IIIB-3 –

MANAGEMENT DISCUSSION AND ANALYSIS OF ADURA HONG KONG

APPENDIX IIIB

3. RATIOS

The gearing ratio of Adura Hong Kong 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 capital and reserves as shown in the statements of financial position. Adura Hong Kong has historically been funded through short-term borrowings from related companies. The equity of Adura Hong Kong is in a net deficit position due to accumulated losses. Presentation of the gearing ratio of Adura Hong Kong is therefore not meaningful.

4. EMPLOYEE AND REMUNERATION POLICIES

Adura Hong Kong employed a total of 3 and 4 full-time employees as at 31 December 2018 and 30 June 2019, respectively. Staff costs for the years ended 31 December 2018 and for the six months ended 30 June 2018 and 2019 were HK$1.7 million, HK$0.6 million and HK$1.5 million respectively.

5. FOREIGN EXCHANGE EXPOSURE

Adura Hong Kong’s income and monetary assets and liabilities are denominated in Hong Kong dollars. The directors of Adura Hong Kong considered that the foreign exchange exposure of Adura Hong Kong is minimal.

Adura Hong Kong did not engage in any hedging activities designed or intended to manage such exchange risk for the year ended 31 December 2018 and for the six months ended 30 June 2019, respectively.

6. CONTINGENT LIABILITIES

Adura Hong Kong did not have any contingent liabilities as at 30 June 2019.

7. ACQUISITION AND DISPOSAL AND SIGNIFICANT INVESTMENTS

Adura Hong Kong did not have any significant investment, material acquisition or disposal for the year ended 31 December 2018 and for the six months ended 30 June 2019.

8. PROSPECTS AND OUTLOOK

Following Closing, the business of Adura Hong Kong will be combined and integrated with the Group’s existing ICT solutions business. Adura Hong Kong will streamline its operation process and leverage the Group’s existing sales channels, customer reach and business portfolio to further increase its market share and develop its cyber security consultancy business.

– IIIB-4 –

MANAGEMENT DISCUSSION AND ANALYSIS OF ADURA CYBER SECURITY

APPENDIX IIIC

The following management discussion and analysis is based on the financial information included in the accountants’ report of Adura Cyber Security as set out in Appendix IIC to this circular for the period from 30 November 2017 (the date of incorporation of Adura Cyber Security) to 31 December 2017, for the year ended 31 December 2018 and for the six months ended 30 June 2019.

1. REVIEW OF FINANCIAL RESULTS OF ADURA CYBER SECURITY

Revenue

Adura Cyber Security recorded revenue of HK$7.1 million, HK$1.7 million and HK$1.9 million for the year ended 31 December 2018 and for the six months ended 30 June 2018 and 2019, respectively. The revenue increased in the six months ended 30 June 2019 by 15.7% as compared to the same period in the previous year as its business started to develop.

Cost of sale

Adura Cyber Security incurred costs of sales of HK$2.3 million, HK$0.4 million and HK$1.9 million for the year ended 31 December 2018 and for the six months ended 30 June 2018 and 2019, respectively. The cost of sales mainly comprised of labour cost. The costs of sales increased by 3.75 times for the six months ended 30 June 2019 as compared with that for the same period in the previous year as there was a larger number of employees in the first half of 2019 as compared to that in the first half of 2018.

Gross profit

Adura Cyber Security recorded gross profit of HK$4.8 million, HK$1.3 million and HK$0.1 million for the year ended 31 December 2018 and for the six months ended 30 June 2018 and 2019, respectively. The gross profit margin was 67.2%, 76.2% and 4.5% for the year ended 31 December 2018 and for the six months ended 30 June 2018 and 2019, respectively. The significant decrease in gross profit margin for the six months ended 30 June 2019 as compared with that for the same period in the previous year was mainly because, in view that Adura Cyber Security only has a limited number of customers, gross profit margin is highly sensitive to the mix of services sold to these customers and negotiation of terms with these customers.

Profit/(loss) for the period

Adura Cyber Security recorded a profit of HK$0.2 million, a loss of HK$(1.2) million and a loss of HK$(2.1) million for the year ended 31 December 2018 and for the six months ended 30 June 2018 and 2019, respectively as its business was only in its infancy.

– IIIC-1 –

MANAGEMENT DISCUSSION AND ANALYSIS OF ADURA CYBER SECURITY

APPENDIX IIIC

Other operating expenses

The other operating expenses of Adura Cyber Security mainly comprise staff cost and premises expenses, which were HK$4.6 million, HK$2.5 million and HK$2.2 million for the year ended 31 December 2018 and for the six months ended 30 June 2018 and 2019, respectively. The other operating expenses decreased in the six months ended 30 June 2019 by 11.6% as compared to the same period in the previous year. Such decrease in the other operating expenses was mainly attributable to the reduction in the other items in the other operating expenses which was offset by the increase in premises expenses.

Financial position

The total assets of Adura Cyber Security were HK$5.9 million and HK$5.9 million as at 31 December 2018 and 30 June 2019, respectively. The vast majority of the total assets comprised current assets.

Current assets

The current assets of Adura Cyber Security were HK$5.8 million and HK$5.8 million as at 31 December 2018 and 30 June 2019, respectively. They comprised mainly of contract assets, trade receivables and other receivables, deposits and prepayments, and cash and cash equivalents. Current assets remained steady during this period as the reduction in contact assets was offset by the increase in cash and cash equivalents of a similar amount as payments are received from customers.

Liabilities

The total liabilities of Adura Cyber Security (which are all current) were HK$5.7 million and HK$7.8 million as at 31 December 2018 and 30 June 2019, respectively. They comprised mainly of trade payables, other payables and accrued charges and contract liabilities. Current liabilities as at 30 June 2019 increased by 37.3%, which was primarily due to a substantial increase of other payable amount due to fellow subsidiaries and accrued charges.

2. CAPITAL STRUCTURE, LIQUIDITY AND FINANCIAL RESOURCES

Cash resources

Adura Cyber Security’s cash and cash equivalents (including short-term bank deposits) were HK$0.7 million and HK$4.3 million as at 31 December 2018 and 30 June 2019, respectively, the majority of which are denominated in Singapore dollars.

Adura Cyber Security had net cash generated from operating activities in the amount of HK$0.85 million and HK$3.6 million, for the year ended 31 December 2018 and for the six months ended 30 June 2019, respectively.

– IIIC-2 –

MANAGEMENT DISCUSSION AND ANALYSIS OF ADURA CYBER SECURITY

APPENDIX IIIC

Adura Cyber Security had net cash used in investing activities in the amount of HK$0.1 million and nil for the year ended 31 December 2018 and the six months ended 30 June 2019, respectively, as investments in property, plant and equipment were made in 2018 in connection with the set up of business of Adura Cyber Security.

Funding support

During the relevant periods, other than normal trade payables and other payables, Adura Cyber Security had no bank borrowings, mortgages, charges on assets, debentures, debt securities issued and outstanding, and authorised or otherwise created but unissued. Adura Cyber Security mainly relied on funding from related companies to support its business and operations as its business is in its infancy.

3. RATIOS

The gearing ratio of Adura Cyber Security 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 capital and reserves as shown in the statements of financial position. Adura Cyber Security has historically been funded through short-term borrowings from related companies. The equity of Adura Cyber Security is in a net deficit position due to accumulated losses. Presentation of the gearing ratio of Adura Cyber Security is therefore not meaningful.

4. EMPLOYEE AND REMUNERATION POLICIES

Adura Cyber Security employed a total of 5 and 5 full-time employees as at 31 December 2018 and 30 June 2019, respectively. Staff costs for the year ended 31 December 2018 and for the six months ended 30 June 2018 and 2019 were HK$4.6 million, HK$2.2 million and HK$2.5 million respectively.

5. FOREIGN EXCHANGE EXPOSURE

Adura Cyber Security’s income and monetary assets and liabilities are denominated in Singapore dollars. The directors of Cyber Security considered that the foreign exchange exposure of Adura Cyber Security is minimal.

Adura Cyber Security did not engage in any hedging activities designed or intended to manage such exchange risk for the year ended 31 December 2018 and for the six months ended 30 June 2019, respectively.

6. CONTINGENT LIABILITIES

Adura Cyber Security did not have any contingent liabilities as at 30 June 2019.

– IIIC-3 –

MANAGEMENT DISCUSSION AND ANALYSIS OF ADURA CYBER SECURITY

APPENDIX IIIC

7. ACQUISITION AND DISPOSAL AND SIGNIFICANT INVESTMENTS

Adura Cyber Security did not have any significant investment, material acquisition or disposal for the period from 30 November 2017 to 31 December 2018 and for the six months ended 30 June 2019.

8. PROSPECTS AND OUTLOOK

Following Closing, the business of Adura Cyber Security will be combined and integrated with the Group’s existing ICT solutions business. Adura Cyber Security will streamline its operation process and leverage the Group’s existing sales channels, customer reach and business portfolio to further increase its market share and develop its cyber security consultancy business.

– IIIC-4 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

The following is the text of a report from the Company’s reporting accountants, KPMG, Certified Public Accountants, Hong Kong, for the purpose of incorporation in this circular.

The information set out in this Appendix does not form part of the Accountants’ Reports on the Target Companies from KPMG, the Company’s reporting accountants, as set out in Appendix IIA-Accountants’ report on JOS C.I., Appendix IIB-Accountants’ report on Adura Hong Kong and Appendix IIC-Accountants’ report on Adura Cyber Security, respectively and is included herein for information only.

(A) UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

(1) Introduction

The following unaudited pro forma statement of assets and liabilities of the Enlarged Group (the “Unaudited Pro Forma Financial Information”) has been prepared by the Directors in accordance with Paragraph 4.29 of the Listing Rules for the purpose of illustrating the effect on the financial position of the Group as at 31 August 2019 as if the acquisition of the entire issued share capital of Jardine OneSolution Holdings (C.I.) Limited and its subsidiaries, Adura Hong Kong Limited and Adura Cyber Security Services Pte Limited, (collectively “Target Companies”) by the Company (the “Proposed Acquisition”) had been completed on 31 August 2019.

The Unaudited Pro Forma Financial Information has been prepared based on the consolidated statement of financial position of the Group as at 31 August 2019 extracted from the annual report of the Company for the year ended 31 August 2019 dated 24 October 2019 (“Annual Report”), after making certain pro forma adjustments to the Proposed Acquisition that are (i) directly attributable to the Proposed Acquisition and not relating to other future events or decisions and (ii) factually supportable, as further described in the accompanying notes.

The Unaudited Pro Forma Financial Information was prepared based on a number of assumptions, estimates and uncertainties. Because of its hypothetical nature, it may not give a true picture of the financial position of the Enlarged Group had the Proposed Acquisition been completed as of the specified dates or any other dates.

The Unaudited Pro Forma Financial Information should be read in conjunction with the historical financial information of the Group as set out in the Annual Report for the year ended 31 August 2019, the accountants’ reports on the financial information of the Target Companies as set out in Appendix IIA, Appendix IIB and Appendix IIC to this circular and other financial information included elsewhere in this circular.

– IV-1 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

Pro forma adjustment	Jardine	OneSolution Adura	Holdings (C.I.) Hong Kong Adura Cyber	The Group Limited and Limited Security	The as at its subsidiaries as at Services Pte	Enlarged 31 August as at 30 June 30 June Limited as at	Group 2019 2019 2019 30 June 2019	HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000	Note 1 Note 2 Note 3 Note 4 Note 5 Note 6 Note 7 Note 8 Note 9 Note 10		8,788,319 64,886 – – – – – – 81,942 – 8,935,147	4,638,643 32,014 – – – – – – 200,928 – 4,871,585	4,341,590 52,715 45 29 – – – – – – 4,394,379	– 232,405 – – – (232,405) – – – – –	222,041 – – – – – – – – – 222,041		598,030 – – – – – – – – – 598,030	4,740 – – – – – – – – – 4,740	9,429 – – – – – – – – – 9,429	32,105 9,313 – 62 – – – – – – 41,480	– 46,954 – – – – – (46,954) – – –	– 18,879 13 – – – – – – – 18,892	18,634,897 457,166 58 91 – (232,405) – (46,954) 282,870 – 19,095,723	- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
										Non-current assets	Goodwill	Intangible assets	Property, plant and equipment	Right-of-use assets	Investment properties	Customer acquisition and	retention costs	Contract assets	Interest in joint ventures	Other non-current assets	Pension assets	Deferred tax assets

– IV-2 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

Jardine	OneSolution Adura	Holdings (C.I.) Hong Kong Adura Cyber	The Group Limited and Limited Security	The as at its subsidiaries as at Services Pte	Enlarged 31 August as at 30 June 30 June Limited as at	Group 2019 2019 2019 30 June 2019	HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000	Note 1 Note 2 Note 3 Note 4 Note 5 Note 6 Note 7 Note 8 Note 9 Note 10		29,168 109,559 – – – – – – – – 138,727	557,439 838,640 33 462 (33) – – – – – 1,396,541		240,894 169,333 77 244 – (5,715) – – – – 404,833	241,717 25,972 623 801 – – – – – – 269,113	15,093 – – – – – – – – – 15,093		– 279,335 – – (10,641) – (268,694) – – – –		– 32,711 – – – – (32,711) – – – –	662,816 32,367 915 4,304 – – – – (392,200) – 308,202	– 796 – – – – – – – – 796	1,747,127 1,488,713 1,648 5,811 (10,674) (5,715) (301,405) – (392,200) – 2,533,305	- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -	20,382,024 1,945,879 1,706 5,902 (10,674) (238,120) (301,405) (46,954) (109,330) – 21,629,028
									Current assets	Inventories	Trade receivables	Other receivables, deposits and	prepayments	Contract assets	Amounts due from joint ventures	Amounts due from group	companies	Loans receivable from a	group company	Cash and cash equivalents	Tax recoverable			Total assets

– IV-3 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

Jardine	OneSolution Adura	Holdings (C.I.) Hong Kong Adura Cyber	The Group Limited and Limited Security	The as at its subsidiaries as at Services Pte	Enlarged 31 August as at 30 June 30 June Limited as at	Group 2019 2019 2019 30 June 2019	HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000	Note 1 Note 2 Note 3 Note 4 Note 5 Note 6 Note 7 Note 8 Note 9 Note 10		365,976 457,749 – 472 – – – – – – 824,197		907,317 183,671 539 758 – – – – – 6,823 1,099,108		219,763 322,420 625 193 – – – – – – 543,001		– 100 – – – – – – – – 100	– 254,811 – – – – – – – – 254,811	72,443 – – – – – – – – – 72,443		9,024 – – – – – – – – – 9,024		– – 4,297 6,400 (10,674) – – – – – 23	10,750 – – – – – – – – – 10,750		1,371 – – – – – – – – – 1,371	158,480 1,160 – – – – – – – – 159,640	– 100,294 – – – (100,294) – – – – –	1,745,124 1,320,205 5,461 7,823 (10,674) (100,294) – – – 6,823 2,974,468	- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -	2,003 168,508 (3,813) (2,012) – 94,579 (301,405) – (392,200) (6,823) (441,163)	- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
									Current liabilities	Trade payables	Other payables and accrued	charges – current portion	Contract liabilities – current	portion	Provision for other liability and	charges	Bank loans	Deposits received	Obligations under granting of	rights – current portion	Amounts due to the fellow	subsidiaries	Amounts due to joint ventures	Contingent consideration – current	portion	Tax payable	Lease liabilities – current portion			Net current assets/(liabilities)

– IV-4 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

Jardine	OneSolution Adura	Holdings (C.I.) Hong Kong Adura Cyber	The Group Limited and Limited Security	The as at its subsidiaries as at Services Pte	Enlarged 31 August as at 30 June 30 June Limited as at	Group 2019 2019 2019 30 June 2019	HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000	Note 1 Note 2 Note 3 Note 4 Note 5 Note 6 Note 7 Note 8 Note 9 Note 10			143,600 4,473 – – – – – – – – 148,073		187,690 – – – – – – – – – 187,690		15,795 – – – – – – – – – 15,795	1,131,440 400 – – – – – – 10,360 – 1,142,200		28,278 – – – – – – – – – 28,278		– 14,884 – – – – – – – – 14,884		– 164,194 – – – (164,194) – – – – –	– – 81 – – – – – – – 81	50,146 – – – – – – – – – 50,146	4,454,253 – – – – – – – – – 4,454,253	5,169,137 – – – – – – – – – 5,169,137	11,180,339 183,951 81 – – (164,194) – – 10,360 – 11,210,537	- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -	12,925,463 1,504,156 5,542 7,823 (10,674) (264,488) – – 10,360 6,823 14,185,005	7,456,561 441,723 (3,836) (1,921) – 26,368 (301,405) (46,954) (119,690) (6,823) 7,444,023
									Non-current liabilities	Other payables and accrued	charges – long-term portion	Contract liabilities – long term	portion	Obligations under granting of	rights – long-term portion	Deferred tax liabilities	Contingent consideration –	long-term portion	Provision for other liability and	charges	Lease liabilities – non-current	portion	Pension liabilities	Provision for reinstatement costs	Bank loans	Senior notes			Total liabilities	Net assets/(liabilities)

– IV-5 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

Notes to the Unaudited Pro Forma Financial Information of the Enlarged Group

The amounts are extracted from the consolidated statement of financial position of the Group as at 31 August 2019 as set out in the Annual Report of the Company for the year ended 31 August 2019.
The amounts are extracted from the consolidated statement of financial position of the Jardine OneSolution Holdings (C.I.) Limited and its subsidiaries as at 30 June 2019 as set out in the Appendix IIA to this Circular.
The amounts are extracted from the statement of financial position of the Adura Hong Kong Limited as at 30 June 2019 as set out in the Appendix IIB to this Circular.
The amounts are extracted from the statement of financial position of the Adura Cyber Security Services Pte Limited as at 30 June 2019 as set out in the Appendix IIC to this Circular.
This adjustment represents the elimination of inter group balance among Jardine OneSolution Holdings (C.I.) Limited and its subsidiaries, Adura Hong Kong Limited, and Adura Cyber Security Services Pte Limited,.
The adjustment represents the alignment of accounting standards adopted by the Group and the Target Companies. The unaudited pro forma financial information has been prepared using accounting policies materially consistent with that of the Group. In preparing the consolidated statement of financial position of Jardine OneSolution Holdings (C.I.) Limited and its subsidiaries, the statements of financial position of the Adura Hong Kong Limited and Adura Cyber Security Services Pte Limited as at 30 June 2019, all the new accounting standards, in particular Hong Kong Financial Reporting Standards (“HKFRS”) 16, Leases , that are first effective for the accounting period beginning on 1 January 2019 were adopted, while the Group did not early adopt any of those new accounting standards not yet effective for the accounting period beginning on 1 September 2018, in preparing the consolidated statement of financial position of the Group as at 31 August 2019.

For the purpose of the Unaudited Pro Forma Financial Information, the consolidated statement of financial position of Jardine OneSolution Holdings (C.I.) Limited and its subsidiaries as at 30 June 2019 that adopted HKFRS 16 was adjusted by applying the same accounting standards adopted by the Group while the statements of financial position of the Adura Hong Kong Limited and Adura Cyber Security Services Pte Limited were not impacted by the adoption of HKFRS 16 as a result of the transitional practical expedient adopted.

The following table summarises the estimated differences in applying HKFRS 16 and the Group’s accounting policies on the consolidated statement of financial position of Jardine OneSolution Holdings (C.I.) Limited and its subsidiaries as at 30 June 2019.

		Hypothetical
	Amounts	amounts under
	reported in	the Group’s
	accordance with	accounting	Estimated
	HKFRS 16	policies	differences
	(A)	(B)	(A)-(B)
	HK$’000	HK$’000	HK$’000
Line items in the consolidated statement of
assets and liabilities:
Right-of-use assets	232,405	–	(232,405)
Total non-current assets	457,166	224,761	(232,405)
Other receivables, deposits and prepayments	169,333	163,618	(5,715)
Total current assets	1,488,713	1,482,998	(5,715)
Lease liabilities – current portion	(100,294)	–	100,294
Total current liabilities	(1,320,205)	(1,219,911)	100,294
Net current assets	168,508	263,087	94,579
Lease liabilities – non-current portion	(164,194)	–	164,194
Total non-current liabilities	(183,951)	(19,757)	164,194
Net assets	441,723	468,091	26,368

– IV-6 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

This adjustment represents the planned declaration of the dividend of Jardine OneSolution Holdings (C.I.) Limited of approximately HK$301,405,000 to its shareholder, JTH (BVI) Limited to set off against through the amounts due from group companies and loans receivables from a group company in the statement of financial position before the date of the completion of the Proposed Acquisition. The amounts due from group companies and the loans receivables from a group company represented the amount recoverable from certain related companies of Jardine OneSolution Holdings (C.I.) Limited before the date of the completion of the Proposed Acquisition. The declaration and subsequent settlement of dividend was agreed in the share purchase agreement dated 23 August 2019 in relation to the Proposed Acquisition.
This adjustment represents the payment of the pension surplus of Jardines Group Retirement Plan of approximately HK$46,954,000 to JTH (BVI) Limited, the shareholder of Jardine OneSolution Holdings (C.I.) Limited by planned dividend declaration. The declaration of the dividend was agreed in the share purchase agreement dated 23 August 2019 in relation to the Proposed Acquisition.
Upon the completion of the Proposed Acquisition, the identifiable assets and liabilities of the Target Companies will be accounted for in the Unaudited Pro Forma Financial Information at their fair values under the acquisition method in accordance with Hong Kong Financial Reporting Standard 3 (Revised) “Business Combination” (“HKFRS 3 (Revised)”).

Pro forma adjustment made represents:

Consideration transferred – Cash consideration Less: net assets acquired Goodwill Intangible assets Property, plant and equipment Other assets Other liabilities Other intangible assets acquired (note) Deferred tax liabilities arising from the recognition of identified material intangible assets Identified assets acquired and liabilities assumed Goodwill arising on Proposed Acquisition	HK$’000 392,200 - - - - - - - - - - - - - - 64,886 32,014 52,789 1,212,360 (1,242,359) 200,928 (10,360) 310,258 - - - - - - - - - - - - - - 81,942

(i) 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 amount of the Target Companies’ identifiable assets and liabilities as at 30 June 2019. The fair values of the Target Companies’ identifiable assets and liabilities approximate to their respective carrying amounts as at 30 June 2019.
Since the fair values of the identifiable assets and liabilities of the Target Companies on the date of completion of the Proposed 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 Companies could be different. Accordingly it could be different from the estimated amounts stated herein and could have different deprecation or amortization for subsequent periods.

The intangible assets acquired mainly represent the trademark and the customer relationship which will be acquired in the Proposed Acquisition.

(ii) 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 Proposed 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 in the pro forma consolidated statement of assets and liabilities of the Enlarged Group as at 31 August 2019. The Company will adopt consistent accounting policies and valuation method (as used in the Unaudited Pro Forma Financial Information and which are consistent with relevant Hong Kong Accounting Standard) to assess the impairment of the Enlarged Group’s goodwill in the future. The reporting accountants, which is also the auditor of the Company, will audit the annual consolidated financial statements (including the goodwill impairment assessment) in accordance with the Hong Kong Standards of Auditing issued by the Hong Kong Institute of Certified Public Accountants.
The adjustment represents the estimated professional fees and other expenses of approximately HK$6,823,000 payable by the Group in connection with the Proposed Acquisition.
Apart from the above, no other adjustments have been made to reflect any trading results or other transactions of the Group and the Target Companies entered into subsequent to 31 August 2019 and 30 June 2019 respectively for the Unaudited Pro Forma Financial Information.

– IV-7 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

(B) INDEPENDENT REPORTING ACCOUNTANTS’ ASSURANCE REPORT ON THE COMPILATION OF UNAUDITED PRO FORMA FINANCIAL INFORMATION

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.

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 pro forma financial information consists of the unaudited pro forma consolidated statement of assets and liabilities as at 31 August 2019 and related notes as set out in Part A of Appendix IV to the circular dated 21 November 2019 (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 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 Jardine OneSolution Holdings (C.I.) Limited and its subsidiaries, Adura Hong Kong Limited and Adura Cyber Security Services Pte Limited, (collectively “Target Companies”) (the “Proposed Acquisition”) on the Group’s financial position as at 31 August 2019 as if the Proposed Acquisition had taken place at 31 August 2019. As part of this process, information about the Group’s financial position as at 31 August 2019 has been extracted by the Directors from the published annual report of the Group for the year ended 31 August 2019.

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”).

– IV-8 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

Our Independence and Quality Control

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

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.

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 the 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 the events or transactions at 31 August 2019 would have been as presented.

– IV-9 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

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 21 November 2019

– IV-10 –

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 and debentures of the Company and any of its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which the Directors and chief executive were deemed or taken to have under provisions of the SFO), or which were required to be and are recorded in the register required to be kept by the Company pursuant to Section 352 of the SFO, or as otherwise required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies adopted by the Company were as follows:

Long Position

		Percentage of the
	Number of	issued share capital
Name of Director	Shares held	of the Company
Mr. Bradley Jay HORWITZ	450,000	0.03%
Mr. Chu Kwong YEUNG	27,086,427	2.07%
Mr. Ni Quiaque LAI	32,997,122	2.52%
Mr. Teck Chien KONG_(1)_	236,627,451	18.04%
Mr. Stanley CHOW_(2)_	110,000	0.01%

Note:

Mr. Teck Chien KONG, through corporations directly and indirectly controlled by him, namely MBK Partners JC GP, Inc., MBK Partners JC GP, L.P., MBK Partners JC, L.P. and Twin Holding Ltd held 236,627,451 ordinary shares in the Company, in which 83,661,106 ordinary shares are under convertible instruments, and is accordingly deemed to be interested in the shares held by the aforesaid companies.
Mr. Stanley CHOW held 110,000 ordinary shares in the Company jointly with his spouse, Ms. Frances WOO.

– V-1 –

GENERAL INFORMATION

APPENDIX V

Save as disclosed above, none of the Directors and the chief executive of the Company had or was deemed or taken to have, an interest or short position in the Shares or underlying Shares and debentures of the Company and any of its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which the Directors and chief executive were deemed or taken to have under provisions of the SFO), or which were required to be and are recorded in the register required to be kept by the Company pursuant to Section 352 of the SFO, or as otherwise required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies.

(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

			Percentage of the
		Number of Shares	issued voting shares
Name of Shareholder	Notes	beneficially held	of the Company
David BONDERMAN	(1)	236,627,451	18.04%
James George COULTER	(2)	236,627,451	18.04%
Michael ByungJu KIM	(3)	236,627,451	18.04%
Teck Chien KONG	(4)	236,627,451	18.04%
Canada Pension Plan Investment
Board	(5)	182,405,000	13.91%
GIC Private Limited	(6)	87,284,797	6.65%
The Capital Group Companies,
Inc.	(7)	118,153,500	9.01%
Matthews International Capital
Management, LLC	(8)	71,121,908	5.42%

Notes:

Mr. David BONDERMAN, through corporations directly and indirectly controlled by him, namely TPG Asia Advisors VI, Inc. and TPG Wireman, L.P., held 236,627,451 ordinary shares in the Company, in which 83,661,106 ordinary shares are under convertible instruments, and is accordingly deemed to be interested in the shares held by the aforesaid companies.

– V-2 –

GENERAL INFORMATION

APPENDIX V

Mr. James George COULTER, through corporations directly and indirectly controlled by him, namely TPG Asia Advisors VI, Inc. and TPG Wireman, L.P., held 236,627,451 ordinary shares in the Company, in which 83,661,106 ordinary shares are under convertible instruments, and is accordingly deemed to be interested in the shares held by the aforesaid companies.
Mr. Michael ByungJu KIM, through corporations directly and indirectly controlled by him, namely MBK GP III, Inc., MBK Partners GP III, L.P., MBK Partners Fund III, L.P., MBK Partners JC, L.P. and Twin Holding Ltd held 236,627,451 ordinary shares in the Company, in which 83,661,106 ordinary shares are under convertible instruments, and is accordingly deemed to be interested in the shares held by the aforesaid companies.
Mr. Teck Chien KONG, through corporations directly and indirectly controlled by him, namely MBK Partners JC GP, Inc., MBK Partners JC GP, L.P., MBK Partners JC, L.P. and Twin Holding Ltd held 236,627,451 ordinary shares in the Company, in which 83,661,106 ordinary shares are under convertible instruments, and is accordingly deemed to be interested in the shares held by the aforesaid companies.
Canada Pension Plan Investment Board is the beneficial owner of 182,405,000 ordinary shares of the Company.
87,284,797 ordinary shares are held by GIC Private Limited in the capacity of investment manager.
The Capital Group Companies, Inc. through its subsidiaries, namely Capital Bank and Trust Company, Capital International, Inc., Capital International Limited, Capital International Sarl, and Capital Research and Management Company held 967,500 ordinary shares, 4,285,000 ordinary shares, 494,500 ordinary shares, 6,781,500 ordinary shares and 105,625,000 ordinary shares in the Company respectively, and is accordingly deemed to be interested in the respective shares held by the aforesaid companies.
71,121,908 ordinary shares are controlled by Matthews International Capital Management, LLC in the capacity of investment manager.

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, Ms. Deborah Keiko ORIDA is the Senior Managing Director & Global Head of Active Equities at Canada Pension Plan Investment Board, a substantial shareholder (as defined in Part XV of the SFO) of the Company.

3. MATERIAL ADVERSE CHANGES

The Directors confirm that, 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 the date to which the latest published audited accounts for the year ended 31 August 2019 of the Group were made up.

– V-3 –

GENERAL INFORMATION

APPENDIX V

4. DIRECTORS’ SERVICE CONTRACTS

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

5. DIRECTORS’ INTEREST IN THE GROUP’S ASSETS

As at the Latest Practicable Date, none of the Directors had any interest in any assets which have been, since 31 August 2019 (being the date to which the latest published audited accounts of the Company were made up), acquired or disposed of by or leased to any member of the Enlarged Group, or are proposed to be acquired or disposed of by or leased to any member of the Enlarged Group.

As at the Latest Practicable Date, none of the Directors had any material interest in any contract or arrangement which was subsisting and significant in relation to the business of the Enlarged Group.

6. COMPETING INTERESTS

As at the Latest Practicable Date, the Directors were not aware that any of them had interests in any business which competes or was likely to compete, either directly or indirectly, with the business of the Group which would fall to be discloseable under the Listing Rules.

7. LITIGATION

As at the Latest Practicable Date, no member of the Enlarged Group was engaged in any litigation, arbitration or claim of material importance and, so far as the Directors are aware, no litigation, arbitration or claim of material importance was pending or threatened against any member of the Enlarged Group.

8. EXPERT AND CONSENT

The following is the qualification of the expert who has given opinion or advice, which is contained or referred to in this circular:

Name Qualification KPMG Certified Public Accountants, Hong Kong

KPMG has given and has not withdrawn its written consent to the issue of this circular with the inclusions of its letter dated 21 November 2019 and references to its name, in the form and context in which it appears.

– V-4 –

GENERAL INFORMATION

APPENDIX V

As at the Latest Practicable Date, KPMG did not have (i) any shareholding in any member of the Enlarged Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Enlarged Group; and (ii) any direct or indirect interest in any assets which have, since 31 August 2019 (being the date to which the latest published audited consolidated financial statements of the Company were made up), been acquired or disposed of by, or leased to any member of the Enlarged Group, or are proposed to be acquired or disposed of by, or leased to any member of the Enlarged Group.

9. MATERIAL CONTRACTS

In the two years immediately preceding the date of this circular and up to the Latest Practicable Date, the following contracts, not being contracts entered into in the ordinary course of business, were entered into by any member of the Enlarged Group which are or may be material:

(a) the sale and purchase agreement entered into on 8 May 2018 between HKBNGL, Lau Wing Keung, Andy and Leung Ya Kan, Eric in relation to the purchase of the shares in ICG at the consideration not more than HK$200,000,000;
(b) the sale and purchase agreement entered into on 16 July 2018 between Crown Master Enterprises 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;
(c) the sale and purchase agreement dated 7 August 2018 and entered into among the Company, MLCL, TPG Wireman, L.P. and Twin Holding Ltd in respect of the proposed sale of the entire issued share capital of WTT Holding Corp at the consideration of HK$5,489,756,860;
(d) the instrument constituting the HK$1,940,937,656 zero coupon subordinated unsecured perpetual convertible loan of the Company to satisfy part of the consideration of the merger with WTT;
(e) 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 HKBNGL and Hong Kong Television Network Limited;
(f) 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 HKBNGL and Hong Kong Television Network Limited;

– V-5 –

GENERAL INFORMATION

APPENDIX V

(g) the Share Purchase Agreement; and
(h) the Management Incentive Agreements.

10. MISCELLANEOUS

(a) The registered office of the Company is situated at P.O. Box 309, Ugland House, Grand Cayman KY1-1104, Cayman Islands and the principal place of business in Hong Kong at 12th Floor, Trans Asia Centre, 18 Kin Hong Street, Kwai Chung, New Territories, Hong Kong.
(b) The Company’s Hong Kong branch share registrar and transfer office is Computershare Hong Kong Investor Services Limited at Rooms 1712-1716, 17/F, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.
(c) The company secretary of the Company is Mr. Yue Kit Andrew WONG, the Chief Financial Officer of the Group.
(d) This circular is prepared in both English and Chinese. In the event of inconsistency, the English text prevails.

11. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection by Shareholders 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 for a period of 14 days from the date of this circular:

(a) the memorandum and articles of association of the Company;
(b) the annual reports of the Company for each of the financial years ended 31 August 2017, 2018 and 2019;
(c) the accountants’ report of JOS CI, the text of which is set out in Appendix IIA to this circular;
(d) the accountants’ report of Adura Hong Kong, the text of which is set out in Appendix IIB to this circular;
(e) the accountants’ report of Adura Cyber Security, the text of which is set out in Appendix IIC to this circular;
(f) the report of unaudited pro forma financial information of the Enlarged Group upon Closing, the text of which is set out in Appendix IV to this circular;

– V-6 –

GENERAL INFORMATION

APPENDIX V

(g) the written consent of the expert as referred to in the section headed “EXPERT and CONSENT” in this appendix;
(h) the material contracts referred to in the section headed “MATERIAL CONTRACTS” in this appendix; and
(i) this circular.

– V-7 –

NOTICE OF EXTRAORDINARY GENERAL MEETING

==> picture [108 x 81] intentionally omitted <==

HKBN LTD. 香港寬頻有限公司

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

NOTICE IS HEREBY GIVEN that the Extraordinary General Meeting of the Company will be held on Thursday, 12 December 2019 at 10:30 a.m. 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 ordinary resolution of the Company:

ORDINARY RESOLUTION

“ THAT:
(a) the purchase of the entire issued share capital in Target Companies by HKBNGL, a subsidiary of the Company, pursuant to the terms and conditions of the share purchase agreement dated 23 August 2019 by and among HKBNGL, MLCL, JTH and Jardine Technology be and is hereby approved;
(b) the entering into of the Share Purchase Agreement by HKBNGL and MLCL and the performance of their respective obligations under the Share Purchase Agreement be and are hereby approved, ratified and confirmed; and
(c) the Board of the Company (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 Acquisition.”

By order of the board of HKBN Ltd. Bradley Jay HORWITZ Chairman

Hong Kong, 21 November 2019

– EGM-1 –

NOTICE OF EXTRAORDINARY GENERAL MEETING

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

Notes:

A form of proxy for use at the EGM (or any adjournment thereof) is enclosed with the Company’s shareholders’ circular dated 21 November 2019, of which the notice of the EGM set out above is part.
Any shareholder of the Company entitled to attend and vote at the EGM may appoint another person as his/her/its proxy to attend and vote instead of him/her/it. A shareholder may appoint more than one proxy to attend on the same occasion. A proxy need not be a shareholder of the Company.
Where there are joint registered holders of any share, any one of such persons may vote at the EGM, either personally or by proxy, in respect of such share of the Company as if he/she/it was solely entitled thereto; but if more than one of such joint holders be present at the EGM 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 holder(s).
The register of members of the Company will be closed from Monday, 9 December 2019 to Thursday, 12 December 2019, both days inclusive, during which period no transfer of shares will be registered. In order to qualify for attending and voting at the EGM, all transfers accompanied by the relevant share certificates must be lodged with the Company’s branch share registrar, Computershare Hong Kong Investor Services Limited at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, not later than 4:30 p.m. on Friday, 6 December 2019. The record date for the Entitlement to EGM will be on Thursday, 12 December 2019.
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 shareholder 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, Computershare Hong Kong Investor Services Limited, at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, as soon as possible and in any event not less than 48 hours before the time appointed for holding the EGM or any adjournment thereof.

– EGM-2 –

AI assistant

HKBN Ltd. — Proxy Solicitation & Information Statement 2019

49841_rns_2019-11-20_b61bbef6-bd72-4e30-8701-5270981d9ef8.pdf

HKBN LTD. 香港寬頻有限公司

MAJOR TRANSACTION PROPOSED ACQUISITION OF THE IT SOLUTIONS BUSINESS FROM JTH (BVI) LIMITED THROUGH THE ACQUISITION OF THE ENTIRE ISSUED SHARE CAPITAL OF JARDINE ONESOLUTION HOLDINGS (C.I.) LIMITED, ADURA HONG KONG LIMITED AND ADURA CYBER SECURITY SERVICES PTE LTD

Financial advisor to the Company

DEFINITIONS

DEFINITIONS

HKBN LTD. 香港寬頻有限公司

Stock Code: 1310

Board of Directors:

Registered Office:

Principal Place of Business in Hong Kong:

1. INTRODUCTION

LETTER FROM THE BOARD

2. PRINCIPAL TERMS OF THE SHARE PURCHASE AGREEMENT

Date

Parties

Proposed Acquisition

Consideration

LETTER FROM THE BOARD

Condition precedent

Guarantees

Closing

Indemnities

LETTER FROM THE BOARD

Warranties and Limitations

3. FINANCING

4. INFORMATION ABOUT THE TARGET COMPANIES

Corporate structure prior to Closing

Corporate structure upon Closing

Financial information of the Target Companies

Results of operation

LETTER FROM THE BOARD

Adura Cyber Security

5. INFORMATION ABOUT THE PARTIES

The Group

HKBNGL

Jardine Technology

JTH

6. REASONS FOR AND BENEFITS OF THE PROPOSED ACQUISITION

Background to and Rationale for the Proposed Acquisition

Horizontal and vertical expansion via mergers and acquisition

The Group is poised for acquisitions upside across its business lines

LETTER FROM THE BOARD

Our “Best of Breed” Integration

Customers: leverage on existing and growing base and improve services offerings

From Sales-to-customer to Partner-to-customer

Synergy opportunities

Complimentary service offerings: deliver significant enhancement to service capabilities

7. TALENT DEVELOPMENT AND SOCIAL COMMITMENT OF THE ENLARGED GROUP AFTER THE PROPOSED ACQUISITION

LETTER FROM THE BOARD

8. FINANCIAL EFFECTS OF THE PROPOSED ACQUISITION

Earnings

Assets and liabilities

9. LISTING RULES IMPLICATIONS

10. IRREVOCABLE UNDERTAKINGS

11. MANAGEMENT INCENTIVE AGREEMENTS

12. EGM

13. RECOMMENDATION

14. GENERAL

15. ADDITIONAL INFORMATION

1. FINANCIAL INFORMATION OF THE GROUP FOR EACH OF THE THREE YEARS ENDED 31 AUGUST 2017, 2018 AND 2019

2. INDEBTEDNESS

(a) Borrowings:

(b) Lease Liabilities:

(c) Contingent liabilities:

3. WORKING CAPITAL

4. FINANCIAL AND TRADING PROSPECTS

5. NO MATERIAL ADVERSE CHANGE

Introduction

Directors’ responsibility for Historical Financial Information

Reporting accountants’ responsibility

Opinion

Review of stub period corresponding financial information

APPENDIX IIA

REPORT ON MATTERS UNDER THE RULES GOVERNING THE LISTING OF SECURITIES ON THE STOCK EXCHANGE OF HONG KONG LIMITED

Adjustments

KPMG

Certified Public Accountants

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