Kingwell Group Limited - Annual Report 2016

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(Incorporated in the Cayman Islands with limited liability) Stock Code: 1195

2016 ANNUAL REPORT

Contents
Corporate Information	02
Financial Results	03
Chairman’s Statement	04
Management Discussion and Analysis	05
Biographical Information of Directors and Senior Management	10
Corporate Governance Report	12
Report of the Directors	24
Independent Auditors’ Report	39
Consolidated Statement of Profit or Loss and Other Comprehensive Income	41
Consolidated Statement of Financial Position	43
Consolidated Statement of Changes in Equity	45
Consolidated Statement of Cash Flows	47
Notes to Financial Statements	49
Five Year Financial Summary	131

Kingwell Group Limited ANNUAL REPORT 2016 01

Corporate Information

DIRECTORS

Mu Dongsheng (Chairman) Yang Xue Jun (Chief Executive Officer) Sze Ming Yee Cheung Chuen Ling Aiwen Han Hongwei*

Independent Non-executive Director

COMPANY SECRETARY

Poon Yan Wai

AUDITORS

Ernst & Young

REGISTERED OFFICE

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

HEAD OFFICE AND PRINCIPAL PLACE OF BUSINESS

AUTHORISED REPRESENTATIVES

Yang Xue Jun Poon Yan Wai

AUDIT COMMITTEE

Ling Aiwen (Chairman) Cheung Chuen Han Hongwei

REMUNERATION COMMITTEE

Ling Aiwen (Chairman) Yang Xue Jun Cheung Chuen

NOMINATION COMMITTEE

Mu Dongsheng (Chairman) Ling Aiwen Han Hongwei

CORPORATE GOVERNANCE COMMITTEE

Han Hongwei (Chairman) Ling Aiwen Cheung Chuen

Units 314-315 Wing On Plaza 62 Mody Road Tsim Sha Tsui East Kowloon, Hong Kong

PRINCIPAL SHARE REGISTRAR AND TRANSFER OFFICE

Royal Bank of Canada Trust Company (Cayman) Limited 4th Floor, Royal Bank House 24 Shedden Road George Town Grand Cayman KY1-1110 Cayman Islands

HONG KONG BRANCH REGISTRAR AND TRANSFER OFFICE

Hong Kong Registrars Limited 17M Floor Hopewell Centre 183 Queen’s Road East Wanchai, Hong Kong

TRADING CODE ON THE STOCK EXCHANGE OF HONG KONG LIMITED

1195

LEGAL ADVISOR FOR CAYMAN ISLANDS LAW

Conyers Dill & Pearman

WEBSITE

http://kingwell.todayir.com

02 Kingwell Group Limited ANNUAL REPORT 2016

Financial Results

Revenue from continuing operations for the Year decreased to approximately RMB8.7 million.
Gross profit from continuing operations for the Year was approximately RMB1.6 million.
Loss before tax from continuing operations for the Year decreased to approximately RMB49.0 million.
Loss for the Year attributable to owners of the Company was approximately RMB44.4 million.
Total comprehensive loss for the Year attributable to owners of the Company was approximately RMB44.4 million.
Basic loss per share attributable to ordinary equity holders of the Company was RMB1.8 cents.
Total equity of the Group increased to RMB303.3 million.

Kingwell Group Limited ANNUAL REPORT 2016

Chairman’s Statement

Dear Shareholders,

On behalf of the board of directors (the “Board”) of Kingwell Group Limited (“Kingwell” or the “Company”), I am presenting the financial report of the Company and its subsidiaries (collectively referred to as the “Group”) for the year ended 30 June 2016 (the “Year”).

In order to sustain the continuous growth of the Group and meet the coming challenges, the Group had successfully developed its property development and property leasing business in Anlu city, Hubei province in the People’s Republic of China (the “PRC”). The real estate project, comprising various types of properties including villas, apartments and commercial buildings, had made positive contribution to the Group during the Year.

In January 2015, the Company acquired a 35% equity interest of Port First Limited (the “Port First”). Major assets of Port First are its 70% equity interest in each of Longkou Jinxin Gold Co., Ltd. (“Jinxin Company”) and Longkou Jinhui Gold Co., Ltd. (“Jinhui Company”). Jinxin Company (i) holds the mine exploitation license and mine exploration license of the Shanchakou Mine; (ii) holds the mine exploitation license of Jinjiling Area; and (iii) owns a gold processing plant and a gold refinery plant. Jinhui Company holds the mine exploitation license and mine exploration license of the Yaojia Mine. Considering China’s strong demand and sustainable growth in the gold market, we expect the future business and prospect of the Port First and its subsidiaries will contribute to generate profit stream to the Group. We consider that the acquisition represents an opportunity for the Group to further develop its current gold mining business and increase the Group’s gold resources.

Looking ahead, the Group will continue to implement its diversified development strategy and proactively search for potential investment opportunities.

Finally, I would like to express my greatest gratitude to the Board, management and staff of the Group for their strenuous contribution in the past year. Furthermore, I would also like to take this opportunity to sincerely thank our customers, suppliers, business partners and shareholders for their continuous support and trust. I believe all members of the Group will dedicate their best effort to drive business growth and to deliver enhanced returns to shareholders.

Mu Dongsheng

Chairman

Hong Kong, 28 September 2016

04 Kingwell Group Limited ANNUAL REPORT 2016

Management Discussion and Analysis

RESULTS

For the Year, revenue of the Group from continuing operations amounted to approximately RMB8,670,000 (2015: RMB9,412,000), representing a decrease of approximately 7.9% as compared with last year. The decrease in revenue was mainly due to the decrease in sales in property development and property leasing business.

During the Year, the Group recorded a gross profit from continuing operations of approximately RMB1,559,000 (2015: gross profit of RMB2,546,000) and loss before tax from continuing operations of approximately RMB49,020,000 (2015: loss before tax of RMB55,173,000) respectively. The decrease in gross profit was mainly due to the smaller revenue contribution from the property development and property leasing business. The decrease in loss before tax was mainly due to the decrease in administrative expenses and finance costs during the Year.

The loss attributable to owners of the Company for the Year was approximately RMB44,401,000 (2015: profit of approximately RMB20,922,000). Last year, the profit attributable to owners of the Company was contributed from the disposal of a discontinued operation. Basic loss per share during the Year was RMB1.8 cents (2015: basic earnings per share was RMB0.90 cent (restated)).

BUSINESS REVIEW

Gold Mining Business

The Company acquired 51% equity interest in a gold mining company in Russian Federation and completed the acquisition on 15 August 2012. The gold mining company is a company established under the laws of Russian Federation with limited liability and currently operates and owns the legal and beneficial interest in a mining project related to the mine. With an aggregate mining area of about 309.3 square kilometres, the mine is operated by the gold mining company and located in Molchan river, Zeyskiy region, Amur area, the Russian Federation. The gold mining company is still in process of devising its production and exploitation plan.

On 30 January 2015, the Company acquired a 35% equity interest of Port First. Major assets of Port First are its 70% equity interest in each of Jinxin Company and Jinhui Company. Jinxin Company (i) holds the mine exploitation license and mine exploration license of the Shanchakou Mine; (ii) holds the mine exploitation license of Jinjiling Area; and (iii) owns a gold processing plant and a gold refinery plant. Jinhui Company holds the mine exploitation license and mine exploration license of the Yaojia Mine. During the Year, the average selling price of gold was under great downward pressure which undermined the profitability of the gold mining business.

The gold mining business has valid licenses, environmental protection policies and permits for conducting its business operations and has complied with relevant local requirements and applicable laws and regulations for its business operations.

The principal risk and uncertainties of the gold mining business are (i) fluctuation of gold prices, which will directly affect the sale performance; and (ii) social and environmental issues, complaints or protests by the local community, and change of the environmental regulation or requirement will directly affect the efficiency and the cost of the operation.

Kingwell Group Limited ANNUAL REPORT 2016

Management Discussion and Analysis (Continued)

During the Year, the gold mining segment recorded a loss of approximately RMB8,445,000 as compared to a loss of approximately RMB9,567,000 in the same period in 2015. As at 30 June 2016, the gold mining business had segment assets of approximately RMB219,776,000 (2015: RMB231,145,000) and segment liabilities of approximately RMB88,000 (2015: RMB101,000).

Property Development and Property Leasing Business

The property development project ‘‘Anlu Taihe Paradise’’ at Liang Ji Bei Road, Anlu Economic Development District in Anlu city, Hubei province in the PRC, postal code 432600 is wholly owned by the Group and is having positive contribution to the Group. The project comprises three phases, with a total gross floor area of approximately 272,568 square meters and are approved for residential and commercial composite uses. The land use rights of the properties have been granted for a term expiring on 22 August 2065. Some of the properties are held by the Group as investment purposes (such as shops and kindergarten) to generate rental income, and some of the properties are held for sale. The properties held for sale comprise various types of properties including villas, apartments, shops and a hotel. During the Year, the PRC property market condition had made challenges to the property development and property leasing business. The property sales situations and average selling prices were still under great pressure and undermined the profitability of the property development and property leasing business.

The property development and property leasing business has valid licenses and permits for conducting its business operation, and has complied with relevant local requirements and applicable laws and regulations for its business.

The principal risk and uncertainties of the property development and property leasing business are (i) economic conditions, both domestic and global issues will directly affect the sale performance; and (ii) government policy change, any change of the PRC government policies over the property industry in China will directly affect the sale performance and the cost of operation.

During the Year, the property development and property leasing segment recorded a profit of approximately RMB873,000 as compared to a profit of approximately RMB14,933,000 in the same period in 2015. As at 30 June 2016, the property development and property leasing business had segment assets of approximately RMB146,703,000 (2015: RMB158,861,000) and segment liabilities of approximately RMB46,133,000 (2015: RMB49,717,000).

On 26 September 2016, the property development and property leasing segment entered into a sale and purchase agreement with an independent third party to dispose of certain properties for a consideration of RMB39,394,000. Details of the transaction are set out in the announcement of the Company dated 26 September 2016.

Geographic Information

Revenue from continuing operations of RMB8,670,000 (2015: RMB9,412,000) was derived from sales to external customers located in Mainland China.

06 Kingwell Group Limited ANNUAL REPORT 2016

Management Discussion and Analysis (Continued)

BUSINESS PROSPECTS

In order to sustain the continuous growth of the Group and meet the coming challenges, the Group successfully developed its property development and property leasing business in Anlu City, Hubei province in the PRC. The real estate project, comprising various types of properties including villas, apartments and commercial buildings, had made positive contribution to the Group in the past. Although the property market is still under great pressure, we expect that the property development and property leasing business will continue to provide positive contribution in the future.

In August 2012, the Group acquired a gold mining business in Russian Federation. On 30 January 2015, the Company acquired a 35% equity interest of Port First. Major assets of Port First are its 70% equity interest in each of Jinxin Company and Jinhui Company. Jinxin Company (i) holds the mine exploitation license and mine exploration license of the Shanchakou Mine; (ii) holds the mine exploitation license of Jinjiling Area; and (iii) owns a gold processing plant and a gold refinery plant. Jinhui Company holds the mine exploitation license and mine exploration license of the Yaojia Mine. Considering China’s strong demand and sustainable growth in the gold market, the Directors expect the future business and prospect of Port First and its subsidiaries will contribute to generate profit stream of the Group. The Directors consider that the acquisition represents an opportunity for the Group to further develop its current gold mining business and increase the Group’s gold resources.

Looking ahead, the Group will continue to implement its diversified development strategy and proactively search for potential investment opportunities.

LIQUIDITY, FINANCIAL RESOURCES AND CAPITAL STRUCTURE

For the year ended 30 June 2016, the Group’s working capital requirement was principally financed by its internal resources and the issue of new ordinary shares.

On 5 November 2015, 288,409,173 offer shares were issued at the subscription price of HK$0.16 per offer share on the basis of one offer share for every nine existing ordinary shares of the Company held under the open offer (the “Open Offer”), resulting in an increase of share capital and share premium of HK$28,841,000 (equivalent to RMB23,571,000) and HK$17,305,000 (equivalent to RMB14,144,000), respectively. All the consideration for the Open Offer was received in cash.

As at 30 June 2016, the Group had cash and cash equivalents, net current assets and total assets less current liabilities of approximately RMB38,779,000 (2015: RMB37,063,000), RMB104,429,000 (2015: RMB73,876,000) and RMB315,961,000 (2015: RMB337,109,000), respectively.

As at 30 June 2016, the Group had no other interest-bearing borrowings (2015: RMB17,600,000, which were unsecured).

Kingwell Group Limited ANNUAL REPORT 2016

Management Discussion and Analysis (Continued)

The total borrowings in 2015 of the Group were mainly for business expansion, capital expenditure and working capital purposes and were mainly denominated in Renminbi.

Total equity attributable to owners of the Company as at 30 June 2016 increased by approximately RMB5,413,000 to approximately RMB260,401,000 (2015: RMB254,988,000). The gearing ratio (calculated as the ratio of net debt: capital and net debt) of the Group as at 30 June 2016 was approximately 5% (2015: 14%).

SIGNIFICANT INVESTMENTS

The Group held no significant investment during the Year.

ACQUISITION AND DISPOSAL OF SUBSIDIARIES AND ASSOCIATED COMPANIES

During the Year, the Group had no acquisitions and disposals of subsidiaries and associated companies.

EMPLOYEES‘ INFORMATION

As at 30 June 2016, the Group employed a total of 36 (2015: 36) employees. It is a policy of the Group to review its employees’ pay levels and performance bonus system regularly to ensure that the remuneration policy is competitive within the relevant industry. During the Year, the employment cost (including Directors’ emoluments) amounted to approximately RMB20,316,000 (2015: RMB32,533,000). In order to align the interests of staff, Directors and consultants with the Group, share options may be granted to staff, Directors and consultants under the Company’s 2010 share option scheme (the “2010 Scheme”). There were 245,179,840 share options outstanding under the 2010 Scheme as at 30 June 2016.

CHARGES ON GROUP ASSETS

As at 30 June 2016, no Group’s assets were pledged to secure general banking facilities to the Group (2015: Nil).

FUTURE PLANS FOR MATERIAL INVESTMENTS AND EXPECTED SOURCES OF FUNDING

In the future, the Group will continue to implement its diversified development strategy and proactively search for potential investment opportunities.

Save as disclosed in the section “Capital Commitments”, the Group had no future plans for material investments and expected sources of funding as at 30 June 2016.

08 Kingwell Group Limited ANNUAL REPORT 2016

Management Discussion and Analysis (Continued)

EXPOSURE TO FLUCTUATIONS IN EXCHANGE RATES

The Group has foreign currency risk as certain assets and liabilities are denominated in foreign currencies, principally in Hong Kong dollars and Russian ruble. The Group does not expect any appreciation or depreciation of the Renminbi against foreign currency which might materially affect the Group’s result of operations. The Group did not employ any financial instruments for hedging purposes.

CAPITAL COMMITMENTS

As at 30 June 2016, the Group had capital commitments for the amount of RMB176,000,000 (2015: Nil).

On 29 June 2016, the Company and Quick Nimble Group Limited (“Quick Nimble”), a company incorporated in the British Virgin Islands, entered into the sale and purchase agreement, pursuant to which the Company conditionally agreed to purchase the entire issued share capital of Quick Nimble at the consideration of RMB176,000,000. The consideration will be fully satisfied by the allotment and issue of not more than 692,182,017 shares at the initial issue price of HK$0.301 per share. Upon completion of the reorganisation of Shenzhen Zhongke Blue Sky Investment Limited (“Zhongke”), a company established in the PRC, Quick Nimble will hold a 51% equity interest in Zhongke. Zhongke and its subsidiaries are principally engaged in investment, development, construction and operation of renewable energy power plants in the PRC. Details of the transaction are set in the announcement of the Company dated 29 June 2016.

CONTINGENT LIABILITIES

As at 30 June 2016, the banking facilities of RMB735,000 were granted to buyers of certain properties developed by the Group (2015: RMB1,262,000).

Kingwell Group Limited ANNUAL REPORT 2016

Biographical Information of Directors and Senior Management

DIRECTORS

Executive Directors

Mr. Mu Dongsheng（穆東升）, aged 46, is an Executive Director and Chairman of the Company. He has 19 years of working experience in management in both government and private sector in the PRC and abroad. He holds a Master’s Degree in Laws from the Beijing Foreign Affairs College. Mr. Mu was appointed as an Executive Director on 15 January 2016 and was a consultant of the Company prior to joining the Company.

Mr. Sze Ming Yee（施明義）, aged 51, is an Executive Director of the Company. He has more than 21 years’ experience in property development and investment and is currently engaged in property development primarily in the PRC and primarily in Wenzhou. He also invests in securities in the PRC. He is a postgraduate student of Zhejiang University. Mr. Sze joined the Group on 15 January 2010 and is a director of Union Day Group Limited, the substantial shareholder of the Company.

Mr. Yang Xue Jun（楊學軍）, aged 52, is an Executive Director and Chief Executive Officer of the Company. He holds a bachelor’s degree in Marine Meteorology from the Ocean University of China and is a postgraduate student of Financial Management of the La Trobe University of Australia. Mr. Yang, with over 26 years’ experience in marketing and promotion and strategic planning, had held various senior executive positions with firms in the PRC. Mr. Yang was appointed as an Executive Director on 2 July 2010 and was a consultant of the Company prior to joining the Company.

Independent Non-executive Directors

Mr. Cheung Chuen（張全）, aged 42, is an Independent Non-executive Director of the Company. He is a certified public accountant practicing in the United States of America and Hong Kong. Mr. Cheung graduated from Hong Kong Shue Yan University in 1999 with majoring in accounting and obtained a master degree in professional accounting from the Hong Kong Polytechnic University in 2004. He is a member of the American Institute of Certified Public Accountants and an associate member of the Hong Kong Institute of Certified Public Accountants. Mr. Cheung has over the years gained extensive experience in accounting and auditing. He has been appointed as an Independent Non-executive Director of the Company since 30 September 2004. Mr. Cheung was an independent non-executive director of Anxin-China Holdings Limited (formerly known as Board Intelligence International Pharmaceutical Holdings Limited), a company listed in Hong Kong, from 14 September 2004 to 24 September 2015. Mr. Cheung currently is an executive director of China High Precision Automation Group Limited, a listed company in Hong Kong.

Mr. Ling Aiwen（凌愛文）, aged 37, is an Independent Non-executive Director of the Company. He is the executive general manager and A-share sponsor representative of the Jiuzhou Securities Company since March 2015. He was the executive director of the Goldman Sachs (Asia) & Goldman Sachs Gaohua Securities Company from 2011 to 2014. Mr. Ling has working experience in various securities firms in PRC, and has over 14 years of experience in the investment banking field. Mr. Ling graduated from the University of Science and Technology of China with Dual Bachelors’ Degree in Management Science & Engineering, and in Computer Science. Mr. Ling also holds a Master’s degree in Management Science from the Peking University. He has been appointed as an Independent Non-executive Director of the Company on 31 July 2015.

10 Kingwell Group Limited ANNUAL REPORT 2016

Biographical Information of Directors and Senior Management (Continued)

Mr. Han Hongwei（韓紅偉）, aged 46, is an Independent Non-executive Director of the Company. He is the chairman of the Bei Jing Yin He Xing Ye Asset Management Limited since 2009. He was the chairman of Kai Feng Yin He Dong Jing Zhi Ye Limited from 2011 to 2014. He was the chairman of Kai Feng Yin He Ri Hua Limited from 2010 to 2014. He was the chairman of He Nan Mao Dun Ri Hua Limited from 2005 to 2012. Mr. Han has working experience in various private sector in PRC, and has over 20 years of experience in the investment and management field. He has been appointed as an Independent Non-executive Director of the Company on 31 July 2015.

SENIOR MANAGEMENT

Mr. Poon Yan Wai（潘仁偉）, aged 46, is the Financial Controller, Company Secretary and Authorised Representative of the Company. Mr. Poon joined the Company in March 2011 and has over 20 years of experience in the auditing and accounting field. Mr. Poon is a Fellow Member of the Hong Kong Institute of Certified Public Accountants. He also holds a Bachelor’s degree in Accountancy and Master’s degree in Corporate Finance from the Hong Kong Polytechnic University.

Kingwell Group Limited ANNUAL REPORT 2016

Corporate Governance Report

The Group is committed to statutory and regulatory corporate governance standards and adherence to the principles of corporate governance emphasising accountability, transparency, independence, fairness and responsibility.

The Group has complied with the code provisions in the Corporate Governance Code (the “CG Code”) as set out in Appendix 14 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) throughout the Year, except the following deviations:

CODE PROVISION A.2.1

According to the code provision A.2.1 of the CG Code, the roles of the chairman and the chief executive should be separate and should not be performed by the same individual. The division of responsibilities between the chairman and chief executive should be clearly established and set out in writing.

During the Year, Mr. Yang Xue Jun acted as the chief executive officer of the Company and Mr. Hui Lung Hing was the chairman of the Board until his retirement in the annual general meeting of the Company held on 18 December 2015. The Board had reviewed the structure of the Board from time to time and suitable candidate with relevant knowledge, skill and experience was identified to fill the post as appropriate. Mr. Mu Dongsheng was appointed to be the new chairman of the Board with effect from 15 January 2016.

CODE PROVISION E.1.2

Under the code provision E.1.2 in respect of the communication with shareholders of the Company as absence of the chairman of the Board at the Company annual general meeting (the “AGM”) on 18 December 2015 because the respective chairman had commitments on other business occasions on the same day. An executive director had chaired the AGM and answered questions from the shareholders.

A. SECURITIES TRANSACTIONS BY DIRECTORS

The Company has adopted the Model Code of Securities Transaction by Directors of Listed Issuers (the “Model Code”) set out in Appendix 10 of the Listing Rules as its own code of conduct regarding securities transactions by the Directors.

Having made specific enquiries of all Directors, the Company confirmed that all Directors have complied with the required standard set out in the Model Code throughout the Year.

12 Kingwell Group Limited ANNUAL REPORT 2016

Corporate Governance Report (Continued)

B. BOARD OF DIRECTORS

1. Composition of the Board of Directors

As at 30 June 2016, the Board consisted of three Executive Directors and three Independent Non-executive Directors. Each of Directors’ respective biographical details are set out in the section headed “Biographical Information of Directors and Senior Management” of this annual report.

The composition of the Board is well balanced with each Director having sound knowledge, experience and/or expertise relevant to the business of the Group. To the best knowledge of the Company, save as disclosed in the section headed “Biographical Information of Directors and Senior Management” of this annual report, there is no financial, business, family or other material/relevant relationship among members of the Board (including the Chairman and the Chief Executive Officer).

Role and Functions of the Board of Directors

The Board is accountable to the shareholders for managing the Company in a responsible and effective manner. Also, the Board decides on overall strategies and monitors the Group’s performance.

The Board is responsible for the oversight of the Company’s business and affairs with the objective of enhancing shareholder value. The Board also makes decisions on matters such as approving the annual results and interim results, notifiable and connected transactions, appointment and re-appointment of Directors, declaring dividends and adopting accounting policies, etc. Details of the experience and qualifications of Directors are set out in the section headed “Biographical Information of Directors and Senior Management” of this annual report.

The Board delegates the authority and responsibility for implementing day-to-day operations, business strategies and management of the Group’s businesses to the Executive Directors and the management. When the Board delegates aspects of its management and administration functions to the management, it has given clear directions as to the powers of the management, in particular, with respect to the circumstances where the management shall report back and obtain prior approval from the Board before making decisions or entering into any commitments on behalf of the Company.

Kingwell Group Limited ANNUAL REPORT 2016

Corporate Governance Report (Continued)

3. Board Meetings and Board Practices

During the Year, the Board conducted thirteen meetings and the Board will meet on other occasions when a board level decision on a particular matter is required. The attendance records of those meetings held are set out below:

Directors’ Attendance at Board Meetings


Directors’ Attendance at Board Meetings	No. of attendance
Executive Directors
Mr. Mu Dongsheng (note 1)	2/2
Mr. Hui Lung Hing (note 2)	7/9
Mr. Yang Xue Jun	13/13
Mr. Sze Ming Yee	12/13
Independent Non-executive Directors
Mr. Cheung Chuen	13/13
Mr. Ling Aiwen (note 3)	12/12
Mr. Han Hongwei (note 4)	11/12
Mr. Huang Jian Zi (note 5)	1/1
Ms. Wong Lai Wing (note 6)	1/1

Notes:

Mr. Mu Dongsheng was appointed as an Executive Director on 15 January 2016.
Mr. Hui Lung Hing retired as an Executive Director on 18 December 2015.
Mr. Ling Aiwen was appointed as an Independent Non-executive Director on 31 July 2015.
Mr. Han Hongwei was appointed as an Independent Non-executive Director on 31 July 2015.
Mr. Huang Jian Zi resigned as an Independent Non-executive Director on 31 July 2015.
Ms. Wong Lai Wing resigned as an Independent Non-executive Director on 31 July 2015.

The Directors will receive details of agenda items for decision and detail documents in advance of each Board meeting. The Company Secretary is responsible for distributing detailed documents to Directors prior to the Board meetings to ensure that the Directors are able to make informed decisions regarding the matters discussed in the meetings. The Company Secretary is also responsible for ensuring the procedures of the Board meetings are observed and providing to the Board opinions on matters in relation to the compliance with the procedures of the Board meetings.

14 Kingwell Group Limited ANNUAL REPORT 2016

Corporate Governance Report (Continued)

4. General Meetings

During the Year, the Company convened one general meeting on 18 December 2015 which was the annual general meeting of the Company.

Directors’ Attendance at General Meetings	No. of attendance
Executive Directors
Mr. Mu Dongsheng (appointed on 15 January 2016)	N/A
Mr. Hui Lung Hing (retired on 18 December 2015)	N/A
Mr. Yang Xue Jun	1/1
Mr. Sze Ming Yee	0/1
Independent Non-executive Directors
Mr. Cheung Chuen	1/1
Mr. Ling Aiwen (appointed on 31 July 2015)	1/1
Mr. Han Hongwei (appointed on 31 July 2015)	0/1
Mr. Huang Jian Zi (resigned on 31 July 2015)	N/A
Ms. Wong Lai Wing (resigned on 31 July 2015)	N/A

5. Directors’ Training

According to the code provision A.6.5 of the CG Code, all Directors should participate in a programme of continuous professional development to develop and refresh their knowledge and skills to ensure that their contribution to the board remains informed and relevant. The Company should be responsible for arranging and funding training, placing an appropriate emphasis on the roles, functions and duties of the Directors of the Company. The Company continuously updates the Directors on the latest development regarding the Listing Rules and other applicable regulatory requirements, to ensure compliance and enhance their awareness of good corporate governance practices.

During the Year, the Company had arranged and provided the in-house trainings for Directors with the training materials and updates of the Listing Rules summarised by the Company Secretary of the Company. The Company had received the confirmations from all Directors for the requirement of the continuous professional training.

Kingwell Group Limited ANNUAL REPORT 2016

Corporate Governance Report (Continued)

6. Independent Non-executive Directors

In compliance with Rule 3.10(1) of the Listing Rules, there are three Independent Non-executive Directors representing half of the Board. Among the three Independent Non-executive Directors, one of them has appropriate professional qualifications in accounting or relevant financial management expertise as required by Rule 3.10(2) of the Listing Rules.

The Independent Non-executive Directors bring independent judgment on issues of strategy, performance and risk. The Company has received from each of the Independent Non-executive Directors written confirmations of their independence pursuant to Rule 3.13 of the Listing Rules. Based upon the said confirmations, the Board considers that all the Independent Non-executive Directors are independent.

7. Chairman and Chief Executive Officer

The role of the Chairman is performed by Mr. Mu Dongsheng. The role of the Chief Executive Officer is performed by Mr. Yang Xue Jun during the Year. This segregation ensures a clear distinction between the Chairman’s and the Chief Executive Officer’s responsibilities which allows a balance of power between the Board and the management of the Group, and ensures their independence and accountability.

8. Appointment, Re-election and Removal of Directors

According to the articles of association of the Company, one-third of the Directors are required to retire from office at each annual general meeting, provided that every Director shall be subject to retirement by rotation at least once in every three years.

According to the code provision A.4.1 of the CG Code, Non-executive Directors should be appointed for a specific term of service. Mr. Cheung Chuen, Mr. Ling Aiwen and Mr. Han Hongwei were appointed as Independent Nonexecutive Directors on 30 September 2004, 31 July 2015 and 31 July 2015, their appointment letters have been signed with the Company for a term of one year commencing from 1 January 2016, 31 July 2016 and 31 July 2016, respectively. According to their terms of service, Mr. Cheung Chuen, Mr. Ling Aiwen and Mr. Han Hongwei are subject to retirement by rotation and offer themselves for re-election in accordance with the articles of association of the Company.

16 Kingwell Group Limited ANNUAL REPORT 2016

Corporate Governance Report (Continued)

9. Remuneration of Directors and Senior Management

The emoluments of the members of the senior management by band for the year ended 30 June 2016 are set out below:

	Number of members	Number of members
	2016		2015
Emolument bands Nil to HK$1,000,000 HK$1,000,001 to HK$1,500,000 HK$1,500,001 to HK$2,000,000	1 – –		– – 1

Further particulars regarding Directors’ emoluments and the five highest paid individuals as required to be disclosed pursuant to Appendix 16 to the Listing Rules are set out in notes 8 and 9 to the financial statements.

C. BOARD COMMITTEES

1. Remuneration Committee

The Company established a remuneration committee (the “Remuneration Committee”) in November 2005 with written terms of reference no less exacting terms than the CG Code. The Remuneration Committee is responsible for advising the Board on the remuneration policy and framework of the Directors and senior management, as well as reviewing and having delegated responsibility to determine the remuneration packages of individual executive directors and senior management, including benefits in kinds, pension rights and compensation payments, with reference to the Company’s objectives from time to time.

As at 30 June 2016, the Remuneration Committee consisted of three members, comprising one Executive Director, Mr. Yang Xue Jun, and two Independent Non-executive Directors, Mr. Ling Aiwen and Mr. Cheung Chuen. Mr. Ling Aiwen is the chairman of the Remuneration Committee. During the Year, two meetings were held to review the remuneration packages of the Board and the senior management. The attendance records of the Remuneration Committee meetings held are set out below:

Directors’ Attendance at Remuneration Committee Meetings	No. of attendance
Mr. Ling Aiwen (Chairman of the Remuneration Committee) (appointed on 31 July 2015)	2/2
Mr. Cheung Chuen	2/2
Mr. Yang Xue Jun	2/2
Mr. Huang Jian Zi (resigned on 31 July 2015)	N/A

Kingwell Group Limited ANNUAL REPORT 2016

Corporate Governance Report (Continued)

2. Audit Committee

The Company established an audit committee (the “Audit Committee”) in May 2001 with written terms of reference revised to be substantially the same as the provisions as set out in the CG Code. The Audit Committee acts as an important link between the Board and the Company’s auditors in matters within the scope of the Group’s audit. The duties of the Audit Committee are to review and discuss on the effectiveness of the external audit and risk evaluation of the Company, as well as the Company’s annual report and accounts, interim reports and to provide advice and comments to the Board. The Audit Committee is also responsible for reviewing and supervising the Group’s financial reporting, risk management and internal control system. The Audit Committee has reviewed the annual results of the Group for the Year.

As at 30 June 2016, the Audit Committee consisted of three members and they are all the Independent Non-executive Directors, namely Mr. Cheung Chuen, Mr. Ling Aiwen and Mr. Han Hongwei. Mr. Ling Aiwen is the chairman of the Audit Committee. During the Year, two meetings were held to review the consolidated financial statements for the Year and the unaudited condensed consolidated interim financial statements for the six months ended 31 December 2015 with the recommendations to the Board for approval; and to review the accounting principals and policies adopted by the Group and its system of risk management and internal control. The attendance records of the Audit Committee meetings held are set out below:

Directors’ Attendance at Audit Committee Meetings	No. of attendance
Mr. Ling Aiwen (Chairman of the Audit Committee) (appointed on 31 July 2015)	2/2
Mr. Cheung Chuen	2/2
Mr. Han Hongwei (appointed on 31 July 2015)	2/2
Mr. Huang Jian Zi (resigned on 31 July 2015)	N/A
Ms. Wong Lai Wing (resigned on 31 July 2015)	N/A

18 Kingwell Group Limited ANNUAL REPORT 2016

Corporate Governance Report (Continued)

3. Nomination Committee

The Company established a nomination committee (the “Nomination Committee”) on 26 March 2012 with written terms of reference no less exacting terms than CG Code. The Nomination Committee is responsible for electing and recommending candidates for directorship, based on assessment of their professional qualifications and experience and is also responsible for assessing the independence of each Independent Non-executive Director.

As at 30 June 2016, the Nomination Committee consisted of three members, comprising one Executive Director, Mr. Mu Dongsheng, and two Independent Non-executive Directors, Mr. Ling Aiwen and Mr. Han Hongwei. Mr. Mu Dongsheng is the chairman of the Nomination Committee. During the Year, the Nomination Committee conducted two meetings to assess the Independence of the Independent Non-executive Director. The attendance records of the Nomination Committee meetings held are set out below:

Directors’ Attendance at Nomination Committee Meetings	No. of attendance
Mr. Mu Dongsheng (Chairman of the Nomination Committee)
(appointed on 15 January 2016)	1/1
Mr. Ling Aiwen (appointed on 31 July 2015)	2/2
Mr. Han Hongwei (appointed on 31 July 2015)	2/2
Mr. Yang Xue Jun (appointed on 18 December 2015 and resigned on 15 January 2016)	N/A
Mr. Hui Lung Hing (retired on 18 December 2015)	1/1
Mr. Huang Jian Zi (resigned on 31 July 2015)	N/A
Ms. Wong Lai Wing (resigned on 31 July 2015)	N/A

4. Corporate Governance Committee

The Company established a corporate governance committee (the “Corporate Governance Committee”) on 26 March 2012 with written terms of reference no less exacting terms than the CG Code. The Corporate Governance Committee is responsible for developing and reviewing the Company’s policies and practices on corporate governance.

As at 30 June 2016, the Corporate Governance Committee consisted of three members and they are all the Independent Non-executive Directors, namely Mr. Cheung Chuen, Mr. Ling Aiwen and Mr. Han Hongwei. Mr. Han Hongwei is the chairman of the Corporate Governance Committee. During the Year, two meetings were held by the Corporate Governance Committee to review the corporate matters of the Company that the Company had complied with the principles and applicable code provision of the CG Code and was not aware of any non-compliance to relevant legal and regulatory requirements. The attendance records of the Corporate Governance Committee meetings held are set out below:

Directors’ Attendance at Corporate Governance Committee Meetings	No. of attendance
Mr. Han Hongwei (Chairman of the Corporate Governance Committee)
(appointed on 31 July 2015)	2/2
Mr. Cheung Chuen	2/2
Mr. Ling Aiwen (appointed on 31 July 2015)	2/2
Mr. Huang Jian Zi (resigned on 31 July 2015)	N/A
Ms. Wong Lai Wing (resigned on 31 July 2015)	N/A

Kingwell Group Limited ANNUAL REPORT 2016

Corporate Governance Report (Continued)

D. ACCOUNTABILITY AND AUDIT

1. Directors’ and Auditors’ Responsibility for the Consolidated Financial Statements

The Directors are responsible for the preparation of the consolidated financial statements. The Group’s consolidated financial statements are prepared in accordance with all relevant statutory requirements and applicable accounting standards. The Directors are responsible for ensuring that appropriate accounting policies have been adopted and applied consistently, and that judgments and estimates made are prudent and reasonable.

The Directors acknowledge their responsibility for preparing the consolidated financial statements of the Group. Having made appropriate enquiries, the Board is not aware of any material uncertainties relating to events or conditions which may cast significant doubt over the Group’s ability to continue as a going concern. Accordingly, the Board has continued to adopt the going concern basis in preparing the consolidated financial statements.

The reporting responsibilities of external auditors of the Company are disclosed in “Independent Auditors’ Report”.

2. Auditors’ Remuneration

During the Year, the remuneration paid/payable to the Company’s auditors, Ernst & Young, is set out as follows:

Nature of Services	Fee paid/payable
	RMB’000
Audit services	1,828
Non-audit services	–
Total:	1,828

E. COMPANY SECRETARY

Mr. Poon Yan Wai was appointed as the Financial Controller, Company Secretary and Authorised Representative of the Company. The biographical information of Mr. Poon is set out on page 11 under the section headed “Biographical Information of Directors and Senior Management”. According to Rule 3.29 of the Listing Rules, Mr. Poon took no less than 15 hours of relevant professional training.

20 Kingwell Group Limited ANNUAL REPORT 2016

Corporate Governance Report (Continued)

F. SHAREHOLDERS’ RIGHTS

Convening an extraordinary general meeting

Pursuant to article 58 of the articles of association of the Company, any one or more members of the Company holding at the date of deposit of the requisition not less than one-tenth of the paid up capital of the Company carrying the right of voting at general meetings of the Company shall at all times have the right, by written requisition to the Board or the secretary of the Company, to require an extraordinary general meeting to be called by the Board for the transaction of any business specified in such requisition; and such meeting shall be held within two months after the deposit of such requisition. If within twenty-one days of such deposit the Board fails to proceed to convene such meeting the requisitionist(s) himself (themselves) may do so in the same manner, and all reasonable expenses incurred by the requisitionist(s) as a result of the failure of the Board shall be reimbursed to the requisitionist(s) by the Company.

Putting enquiries to the Board

To ensure effective communication between the Board and the Shareholders, the Company has adopted a shareholders’ communication policy (the “Policy”) on 26 March 2012. Under the Policy, the Company’s information shall be communicated to the Shareholders mainly through general meetings, including annual general meetings, the Company’s financial reports (interim reports and annual reports), and its corporate communications and other corporate publications on the Company’s website and the Stock Exchange’s website.

Shareholders may at any time make a request for the Company’s information to the extent such information is publicly available. Any such questions shall be first directed to the Company Secretary at the Company’s head office and principal place of business in Hong Kong or the Company’s Hong Kong branch registrar and transfer office, Hong Kong Registrars Limited, at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.

Putting forward proposals at shareholders’ meeting

The number of shareholders necessary for a requisition for putting forward a proposal at a shareholders’ meeting shall be any number of shareholders representing not less than one-tenth of the paid up capital of the Company carrying the right of voting at general meetings at the date of the requisition.

A copy or copies of requisition signed by all requisitionists shall be deposited, with a sum reasonably sufficient to meet the Company’s expenses in giving notice of the proposed resolution or circulating any necessary statement, at the Company’s head office and principal place of business in Hong Kong in the case of:

(i) a requisition requiring notice of a resolution, not less than six weeks before the meeting; and
(ii) any other requisition, not less than one week before the meeting.

The Company will verify the requisition and upon confirming that the requisition is proper and in order, the Board will proceed with necessary procedures.

Kingwell Group Limited ANNUAL REPORT 2016

Corporate Governance Report (Continued)

G. INVESTORS AND SHAREHOLDERS RELATIONS

The Company continues to pursue a proactive policy in promoting investor relations and communications with the shareholders of the Company. The Board also recognised that effective communication with investors is the key to establish investor confidence and to attract new investors.

The Company communicates with its shareholders and investors through the publication of annual and interim reports, press announcements and releases, also the Company’s website at http://kingwell.todayir.com.

The annual general meeting of the Company also provides an important opportunity for constructive communication between the Board and the shareholders of the Company. The Chairman as well as the chairman of the audit and remuneration committees, or in their absence, members of the relevant committees are available to answer any questions raised by the shareholders.

The Group regularly releases corporate information, such as awards received, and the latest news of the Group’s developments on the Company’s website. The public are welcome to give their comments and make their enquiries through the Company’s website, the management will give their prompt response thereto.

H. RISK MANAGEMENT AND INTERNAL CONTROL

Maintaining a sound risk management and internal control system is vital to the fulfillment of the Group’s business objectives as well as its long-term sustainable growth. The Board acknowledges its overall responsibility in evaluating and determining the nature and extent of the risks it is willing to take in achieving the Group’s strategic objectives, and ensures that the Group had established and maintained an appropriate and effective risk management and internal control system. The Audit Committee will review and control significant risks.

The Company’s management encourages increasing the awareness on risk and control throughout the Group, and set up the objectives, performance targets and policies for managing the key risks, including strategic planning, business operations, legal and regulatory compliance, expenditure control, environment, health and safety. The Group has a wellestablished organizational structure with defined levels of responsibility and authority and reporting procedures. The Group adopts a control and risk self-assessment methodology and continuously assesses and manages its risk profile on a regular basis. The Group identifies, assesses and ranks the risks according to their likelihood, financial consequence and reputational impact on the Group, so as to ascertain relevant risks that need priority control. Staff accountable for risks are required to submit risk alerts with risk mitigation plan promptly and regular risk reports are presented to the management, the Board and the Audit Committee for on-going review and monitoring.

The Executive Directors review operational and financial reports and key operating statistics and hold regular meetings with division managers to review the implementation of the Group’s risk management and internal control.

Budgets are prepared annually by the management and are subject to review and approval firstly by Chief Executive Officer and then by the Board. Amendments to the operating results budget of each year are prepared on a quarterly basis, and submit for Executive Directors’ approval after comparing with its original budgets.

22 Kingwell Group Limited ANNUAL REPORT 2016

Corporate Governance Report (Continued)

The Group has established guidelines and procedures for expenditure approval and control. Operating expenditure is subject to overall budget control, with the approval levels being set by reference to the level of authority of each executive and officer. Capital expenditure is also subject to overall control within the approved budget of individual projects with more specific control and approval being required for overspending, non-budgeted expenditure and significant expenditure within the approved budget. Monthly reports of actual versus budgeted and approved expenditure are also reviewed by the management.

It is the responsibility of all Directors and employees who have access to and in control of the Group’s information to provide adequate safeguard to prevent any abuse or misuse of those information. The Group strictly prohibits the use of insider information to secure personal advantage.

The Board keeps on monitoring the Group’s risk management and internal control system and through the Audit Committee, it has conducted annual review of the effectiveness of the Group’s risk management and internal control system for the Year.

There are inherent limitations in any internal control system and accordingly the Group’s internal control system is established to provide reasonable (but not absolute) assurance against any material misstatement or losses.

I. ENQUIRIES TO THE BOARD

Shareholders may send their enquiries requiring the Board’s attention to the Company Secretary at the Company’s principal office address at Units 314-315, Wing On Plaza, 62 Mody Road, Tsim Sha Tsui East, Kowloon, Hong Kong.

J. CONSTITUTIONAL DOCUMENTS

During the Year, there is no change in the Company’s constitutional documents.

Kingwell Group Limited ANNUAL REPORT 2016

Report of the Directors

The Directors submit herewith their annual report together with the audited consolidated financial statements for the Year.

PRINCIPAL ACTIVITIES

The principal activity of the Company is investment holding. The principal activities and other particulars of the subsidiaries are set out in note 1 to the financial statements.

The analysis of the principal activities and geographical locations of the operations of the Group during the Year are set out in note 4 to the financial statements.

BUSINESS REVIEW

A fair review of the Group’s business and its outlook are set out in the sections of Chairman’s Statement and Management Discussion & Analysis. Certain financial key performance indicators are provided in the section of Five-Year Financial Summary. No important event affecting the Group has occurred since the end of the financial year under review.

The Group complies with the requirements under the Companies Ordinance, the Listing Rules and the Securities and Futures Ordinance (the “SFO”) for the disclosure of information and corporate governance. The Group also complies with the requirements of Employment Ordinance and ordinances relating to occupational safety for the interest of employees of the Group.

The Group respects the environment and is committed to minimize its carbon footprints as a socially responsible enterprise in Hong Kong. Carbon footprint is defined as the total amount of direct and indirect emissions of Green House Gases (GHGs) expressed in terms of the equivalent amount of Carbon Dioxide (CO2) emission. Non-hazardous wastes produced from the Group mainly consist of used paper such as office papers and marketing materials. To minimize the impact of carbon footprints on the environment, the Group implements the following practices to use paper efficiently:

Duplex printing is set as the default mode for most network printers;
Employees are reminded to practice photocopying wisely;
Employees are encouraged to use both sides of paper;
Waste paper is recycled instead of being directly disposed of in landfills;
Paper is separated from other waste for easier recycling; and
Boxes and trays are placed beside photocopiers as containers to collect single-sided paper for reuse purpose.

Electricity consumption is identified as having an adverse impact on the environment and natural resources. A typical commercial building uses more energy for lighting than for other electric equipment. The Group is determined to reduce energy consumption and implement conservation practices to reduce the effect of carbon footprint. Air conditioning and light zone arrangements reduce unnecessary electricity usage; employees enforce good practices in maintenance of lighting and electric equipment to ensure they are kept in good and proper condition to maximize efficiency.

24 Kingwell Group Limited ANNUAL REPORT 2016

Report of the Directors (Continued)

Key Risk Factors

The following lists out the key risks and uncertainties facing the Group.

Impact of Local and International Regulations

The business operation of the Group is also subject to government policy, relevant regulations and guidelines established by the regulatory authorities. Failure to comply with the rules and requirements may lead to penalties, amendments or suspension of the business operation by the authorities. The Group closely monitors changes in government policies, regulations and markets as well as conducting studies to assess the impact of such changes.

Third-Party Risks

The Group has been relying on third-party service providers in parts of business to improve performance and efficiency of the Group. While gaining the benefits from external service providers, the management realizes that such operational dependency may pose a threat of vulnerability to unexpected poor or lapses in service including reputation damage, business disruption and monetary losses. To address such uncertainties, the Group engages only reputed third-party providers and closely monitors their performance.

Key Relationships with Employees, Customers and Suppliers

The Group recognizes the accomplishment of the employees by providing comprehensive benefit package, career development opportunities and internal training appropriate to individual needs. The Group provides a healthy and safe workplace for all employees. No strikes and cases of fatality due to workplace accidents are found in the year under review.

The Group encompasses working relationships with suppliers to meet our customers’ needs in an effective and efficient manner. The departments work closely to make sure the tendering and procurement process is conducted in an open, fair and just manner. The Group’s requirements and standards are also well-communicated to suppliers before the commencement of a project.

The Group values the views and opinions of all customers through various means and channels, including usage of business intelligence to understand customer trends and needs and regular analyze on customer feedback. The Group also conducts comprehensive tests and checks to ensure that only quality products and services are offered to the customers.

Kingwell Group Limited ANNUAL REPORT 2016

Report of the Directors (Continued)

MAJOR CUSTOMERS AND SUPPLIERS

The information in respect of the Group’s sales and purchases attributable to the major customers and suppliers respectively during the financial year is as follows:

	Percentage of the Group’s total	Percentage of the Group’s total
	Sales	Purchases
The largest customer	9.9％
Five largest customers in aggregate	38.5％
The largest supplier		N/A
Five largest suppliers in aggregate		N/A

During the Year, the continuing operations of the Group have no purchases for cost of sales. It is because the property development project of the Group was completed in previous years.

At no time during the Year have the Directors, their close associates or any shareholders of the Company (which to the knowledge of the Directors owns more than 5% of the Company’s share capital) had any interest in these major customers and suppliers.

FINANCIAL STATEMENTS

The loss of the Group for the Year and the financial position of the Group as at 30 June 2016 are set out in the financial statements on pages 41 to 130.

DIVIDENDS

The Board does not recommend the payment of a final dividend for the Year (2015: Nil).

CLOSURE OF REGISTER OF MEMBERS

The register of members will be closed from 12 December 2016 to 16 December 2016, both days inclusive, during which period no transfer of shares will be effected. In order to qualify for attending the forthcoming annual general meeting, all transfers accompanied by the relevant share certificates and transfer forms must be lodged with the Company’s Hong Kong branch share registrar, Hong Kong Registrars Limited of 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong for registration not later than 4:30 p.m. on 9 December 2016.

26 Kingwell Group Limited ANNUAL REPORT 2016

Report of the Directors (Continued)

SHARE CAPITAL

Details of movements in share capital of the Company during the Year are set out in note 28 to the financial statements. Shares were issued during the Year due to the Open Offer.

RESERVES

Details of movements in the reserves of the Group during the Year are set out in the consolidated statement of changes in equity and in note 30 to the financial statements.

DISTRIBUTABLE RESERVES

Details of the movements in reserves of the Company during the Year are set out in note 41 to the financial statements.

As at 30 June 2016, the Company had no reserves available for cash distribution. In accordance with the Companies Law (Revised) of the Cayman Islands and the Company’s articles of association, the contributed surplus of the Company is available for distribution or payment of dividends to shareholders provided that the Company is able to pay off its debts as and when they fall due. The Company’s share premium account, with a balance of RMB676,605,000 as at 30 June 2016, may be distributed in the form of fully paid bonus shares.

SUBSIDIARIES

Particulars of the Company’s subsidiaries as at 30 June 2016 are set out in note 1 to the financial statements.

PROPERTY, PLANT AND EQUIPMENT

Details of movements in property, plant and equipment of the Group during the Year are set out in note 13 to the financial statements.

BORROWING FACILITIES

Particulars of the borrowing facilities of the Group as at 30 June 2016 are set out in note 24 to the financial statements.

Kingwell Group Limited ANNUAL REPORT 2016

Report of the Directors (Continued)

CHARITABLE DONATIONS

No charitable donation was made by the Group during the Year (2015: Nil).

COMMITMENTS

Particulars of the commitments of the Group as at 30 June 2016 are set out in note 35 to the financial statements.

EQUITY-LINKED AGREEMENT

Details of the equity-linked agreement entered into during the Year or subsisting at the end of the Year are set out below:

Other than the share option schemes as disclosed below, as at 30 June 2016, 3,000,000 non-redeemable convertible preferred shares of the Company with aggregate principal amount of HK$3,000,000 may be issued 10,000,000 ordinary shares under the acquisition agreement dated 26 April 2011. The non-redeemable convertible preferred shares can be converted into ordinary shares of the Company at a conversion price of HK$0.30 per share. Details of the convertible preferred shares of the Company are set out in the note 25 to the financial statements.

SHARE OPTION SCHEME (2003)

At the extraordinary general meeting of the Company held on 9 January 2003, an ordinary resolution was passed to adopt a share option scheme (the “2003 Scheme”).

Summary of the 2003 Scheme

(A) Purpose of the 2003 Scheme

The purpose of the 2003 Scheme is to provide incentives and rewards to eligible participants (as defined hereinafter) who contribute to the success of the Group.

(B) Participants of the 2003 Scheme

Pursuant to the 2003 Scheme, the Board may offer eligible participants (being employees (whether full time or part time) or executives or officers of the Company or any of its subsidiaries (including executive and non-executive Directors of the Company or any of its subsidiaries) and business consultants, agents, legal or financial advisers who the Board considers, in its sole discretion, will contribute or have contributed to the Company or any of its subsidiaries) (“Eligible Participants”) options to subscribe for such number of shares in the Company.

28 Kingwell Group Limited ANNUAL REPORT 2016

Report of the Directors (Continued)

(C) Total number of shares available for issue under the 2003 Scheme
The total number of shares which may be issued upon exercise of all options to be granted under the 2003 Scheme will be 40,262,500 shares, representing 10% of the shares in issue as at the adoption date on 9 January 2003. On 23 December 2005 and 22 December 2006, an ordinary resolution was passed at each of that annual general meeting to refresh the number of shares available for issue up to 10% of the shares in issue as at the resolution date, representing 46,762,500 and 55,316,900 shares respectively. The maximum number of shares to be issued upon the exercise of all outstanding options granted and yet to be exercised under the 2003 Scheme must not in aggregate exceed 30% of the relevant shares of the Company in issue from time to time.
(D) Maximum entitlement of each participant

The maximum number of shares in respect of which options may be granted to any individual in any 12-month period is not permitted to exceed 1% of the shares of the Company in issue at any point of time. Any further grant of options in excess of this 1% limit shall be subject to the issue of a circular by the Company and the approval of the shareholders in general meeting.

(E) Option period

Option may be exercised after it has vested at any time during the year to be notified by the Board at the time of the grant of the option but shall be in any event not later than 10 years from the offer date, subject to the provisions for early termination of the 2003 Scheme.

(F) Payment on acceptance of option

Options granted must be taken up within 21 days from the offer date, upon payment of HK$1.00 per grant.

(G) Basis of determining the subscription price

The subscription price per share under the 2003 Scheme is determined by the Board, save that such price must not be less than the highest of (a) the closing price of the shares as stated in the Stock Exchange’s daily quotation sheet on the date of offer to grant option, which must be a business day; (b) the average of the closing prices of the shares as stated in the Stock Exchange’s daily quotation sheet for the five business days immediately preceding the date of offer to grant option; and (c) the nominal value of the share of the Company.

(H) Remaining life of the 2003 Scheme

The 2003 Scheme was terminated following the adoption of a new share option scheme on 11 February 2010.

Kingwell Group Limited ANNUAL REPORT 2016

Report of the Directors (Continued)

SHARE OPTION SCHEME (2010)

At the extraordinary general meeting of the Company held on 11 February 2010, an ordinary resolution was passed to adopt a share option scheme (the “2010 Scheme”).

Summary of the 2010 Scheme

(A) Purpose of the 2010 Scheme

The purpose of the 2010 Scheme is to provide incentives and rewards to Eligible Participants (as defined hereinafter) who contribute to the success of the Group.

(B) Participants of the 2010 Scheme

Pursuant to the 2010 Scheme, the Board may offer eligible participants (being employees (whether full time or part time) or executives or officers of the Company or any of its subsidiaries (including executive and non-executive Directors of the Company or any of its subsidiaries) and business consultants, agents, legal or financial advisers who the Board considers, in its sole discretion, will contribute or have contributed to the Company or any of its subsidiaries) (“Eligible Participants”) options to subscribe for such number of shares in the Company.

The initial total number of shares which may be issued upon exercise of all options to be granted under the 2010 Scheme will be 95,024,050 shares, representing 10% of the shares in issue as at the date of the 2010 extraordinary general meeting. On 24 May 2010, 7 December 2010, 20 December 2013, 12 December 2014, and 18 December 2015 an ordinary resolution was passed at each of the extraordinary general meeting or annual general meeting to refresh the number of shares available for issue up to 10% of the shares in issue as at the resolution date, representing 106,203,250, 151,234,450, 218,844,789, 239,868,256 and 288,409,173 shares respectively. The maximum number of shares to be issued upon the exercise of all outstanding options granted and yet to be exercised under the 2010 Scheme must not in aggregate exceed 30% of the relevant shares of the Company in issue from time to time.

As at 30 June 2016, a total of 192,904,000 options have been exercised under the 2010 Scheme. There is 245,179,840 options remained outstanding, representing approximately 8.5% of the total issued number of shares of the Company as at 30 June 2016.

(D) Maximum entitlement of each participant

(E) Option period

An option may be exercised after it has vested at any time during the year to be notified by the Board at the time of the grant of the option but shall be in any event not later than 10 years from the offer date, subject to the provisions for early termination of the 2010 Scheme.

30 Kingwell Group Limited ANNUAL REPORT 2016

Report of the Directors (Continued)

(F) Payment on acceptance of option

Options granted must be taken up within 7 days or such other period as the Board may decide from the offer date, upon payment of HK$1.00 per grant.

(G) Basis of determining the subscription price

The subscription price per share under the 2010 Scheme is determined by the Board, save that such price must not be less than the highest of (a) the closing price of the shares as stated in the Stock Exchange’s daily quotation sheet on the date of offer to grant option, which must be a business day; (b) the average of the closing prices of the shares as stated in the Stock Exchange’s daily quotation sheet for the five business days immediately preceding the date of offer to grant option; and (c) the nominal value of the share of the Company.

(H) Remaining life of the 2010 Scheme

The 2010 Scheme will remain valid until 10 February 2020.

SHARE OPTIONS

The following table discloses movements in the Company’s share options of the 2010 Scheme during the Year:

							Cancelled/	Outstanding			Market value
			Outstanding	Granted	Exercised	Adjustment	Lapsed	as at			per share at
	Name or category		as at	during the	during the	by open offer	during the	30 June	Exercisable	Exercise	date of grant
	of participant	Date of grant	1 July 2015	Year	Year	(Note 1)	Year	2016	period	price	of options
										HK$	HK$
(a)	Directors
	Mr. Hui Lung Hing	8 January 2014	8,000,000	–	–	320,000	–	8,320,000	8 January 2014 to	0.587	0.600
								(Note 1)	7 January 2019	(Note 1)
	Mr. Mu Dongsheng	14 October 2015	–	13,000,000	–	–	–	13,000,000	14 October 2015 to	0.300	0.300
	(Note 3)			(Note 2)					13 October 2019
(b)	Eligible employees	8 January 2014	12,396,000	–	–	495,840	–	12,891,840	8 January 2014 to	0.587	0.600
								(Note 1)	7 January 2019	(Note 1)
		9 January 2015	16,900,000	–	–	676,000	–	17,576,000	9 January 2015 to	0.560	0.550
								(Note 1)	8 January 2020	(Note 1)
		14 October 2015	–	61,000,000	–	–	–	61,000,000	14 October 2015 to	0.300	0.300
				(Note 2)					13 October 2019
(c)	Eligible consultants	8 January 2014	29,400,000	–	–	1,176,000	–	30,576,000	8 January 2014 to	0.587	0.600
								(Note 1)	7 January 2019	(Note 1)
		9 January 2015	85,400,000	–	–	3,416,000	–	88,816,000	9 January 2015 to	0.560	0.550
								(Note 1)	8 January 2020	(Note 1)
		14 October 2015	–	13,000,000	–	–	–	13,000,000	14 October 2015 to	0.300	0.300
				(Note 2)					13 October 2019
			152,096,000	87,000,000	–	6,083,840	–	245,179,840

Note 1: Upon completion of the open offer, the exercise prices and the numbers of outstanding share options have been adjusted to HK$0.587 and 51,787,840 for share options granted on 8 January 2014 and HK$0.560 and 106,392,000 for share options granted on 9 January 2015 in accordance with the terms of the share option scheme and the requirements of the Listing Rules with effect from 9 November 2015.

Note 2: Closing price of the shares on the last trading day prior to the date of grant was HK$0.345.

Note 3: Prior to the appointment as an Executive Director on 15 January 2016, Mr. Mu Dongsheng was granted 13,000,000 share options as a consultant on 14 October 2015.

Kingwell Group Limited ANNUAL REPORT 2016

Report of the Directors (Continued)

As at the date of this report, the total number of shares, available for issue under the 2010 Scheme was 533,589,013, representing approximately 18.50% of the issued share capital of the Company.

Information on the accounting policy for share options granted and the weighted average value per option is provided in notes 2.4 and 29 to the financial statements.

Apart from the foregoing, at no time during the Year was the Company, any of its subsidiaries or fellow subsidiaries a party to any arrangement to enable the Directors to acquire benefits by means of the acquisition of shares in or debentures of the Company or any other body corporate.

CONNECTED TRANSACTION

On 1 June 2013, the Company renewed the lease agreement with Truroll Investment Limited, of which Mr. Hui Lung Hing, a substantial shareholder and a former Executive Director of the Company, was the chairman of Truroll Investment Limited until 3 March 2015. Pursuant to the agreement, the Company agreed to pay a monthly rental of HK$50,000 in respect of the Company’s occupation of Units 314-315, Wing On Plaza, 62 Mody Road, Tsimshatsui East, Kowloon, Hong Kong. During the year ended 30 June 2015, the Company paid a total rental of HK$600,000 (equivalent to RMB475,000) to Truroll Investment Limited. Upon Mr. Hui Lung Hing’s retirement from Truroll Investment Limited, this transaction no longer constituted a connected transaction during the Year.

In the opinion of the Independent Non-executive Directors of the Company, the rentals as referred to in the above lease agreements are based on normal commercial terms and has been conducted in the ordinary and usual course of business of the Group. This transaction constituted de minimus on-going connected transaction in accordance with Rule 14A.31 of the Listing Rules.

During the Year and up to the date of this report, the Company did not have any connected transactions which were subject to the reporting requirements under Chapter 14A of the Listing Rules.

DIRECTORS

The Directors during the Year and up to the date of this annual report are:

Executive Directors

Mr. Mu Dongsheng (Chairman) (appointed on 15 January 2016) Mr. Yang Xue Jun (Chief Executive Officer) Mr. Sze Ming Yee Mr. Hui Lung Hing (retired on 18 December 2015)*

Independent Non-executive Directors

Mr. Cheung Chuen Mr. Ling Aiwen (appointed on 31 July 2015) Mr. Han Hongwei (appointed on 31 July 2015)

Mr. Huang Jian Zi (resigned on 31 July 2015) Ms. Wong Lai Wing (resigned on 31 July 2015)

Mr. Hui Lung Hing retired as Executive Director due to his retirement, and Mr. Huang Jian Zi and Ms. Wong Lai Wing resigned as Independent Non-executive Directors in order to spend more time pursuing to his career development and her retirement respectively.

32 Kingwell Group Limited ANNUAL REPORT 2016

Report of the Directors (Continued)

In accordance with articles 87(1) of the Company’s articles of association, Mr. Sze Ming Yee and Mr. Cheung Chuen shall retire by rotations and, being eligible, offer themselves for re-election at the forthcoming annual general meeting.

In accordance with articles 86(3) of the Company’s articles of association, Mr. Mu Dongsheng shall retire and, being eligible, offers himself for re-election at the forthcoming annual general meeting.

DIRECTORS’ SERVICE AGREEMENTS

Each of the Executive Directors appointed after 1 July 2009 listed below has entered into a service contract with the Company for a term of one year from the date of their appointments and their appointments will continue thereafter until terminated by six months’ notice in writing served by either party on the other. The commencement dates of the renewal contracts at the same terms as per above of the Executive Directors are as follows:

Mr. Mu Dongsheng	15 January 2016
Mr. Sze Ming Yee	1 January 2013
Mr. Yang Xue Jun	1 January 2013

Mr. Cheung Chuen, Mr. Ling Aiwen and Mr. Han Hongwei were appointed as Independent Non-executive Directors on 30 September 2004, 31 July 2015 and 31 July 2015, respectively, each of their appointment letters has been renewed with the Company for a term of one year commencing from 1 January 2016, 31 July 2016 and 31 July 2016 respectively.

Mr. Cheung Chuen, Mr. Ling Aiwen and Mr. Han Hongwei are subject to retirement by rotation and offer themselves for reelection in accordance with the articles of association of the Company.

Save as disclosed above, none of the Directors has a service agreement with the Company or any of its subsidiaries, which is not determinable by the Group within one year without payment of compensation other than statutory compensation.

Kingwell Group Limited ANNUAL REPORT 2016

Report of the Directors (Continued)

DIRECTORS’ AND CHIEF EXECUTIVES’ INTERESTS AND SHORT POSITIONS IN SHARES, UNDERLYING SHARES AND DEBENTURES

As at 30 June 2016, the interests and short positions of the Directors and chief executives of the Company in the shares, underlying shares and debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO which were 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 the chief executives of the Company were deemed or taken to have under such provisions of the SFO), or which were recorded in the register required to be kept pursuant to Section 352 of the SFO or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code were as follows:

Long positions in the shares of the Company

				Number of	Total
				underlying	approximate
			Number of	shares held	% of the
		Number of	issued ordinary	pursuant to	issued share
Name	Capacity	shares	shares held	share options	capital
Mr. Sze Ming Yee	Interest held as beneficial	384,198,376	384,198,376	–	13.32%
	owner and through		(Note 1)
	controlled corporation
Mr. Mu Dongsheng	Beneficial owner	13,000,000	–	13,000,000	0.45%
				(Note 2)

Note 1: 384,198,376 Shares are held by Union Day Group Limited (a company incorporated in the British Virgin Islands with limited liability) which is 72% beneficially owned by Mr. Sze Ming Yee.

Note 2: 13,000,000 share options are held by Mr. Mu Dongsheng.

Save as disclosed above, as at 30 June 2016, none of the Directors nor the chief executives of the Company had any interests or short positions in the shares, underlying shares and debentures of the Company which had 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 he/she was taken or deemed to have under such provisions of the SFO) or which were required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein or which were required, pursuant to the Model Code, to be notified to the Company and the Stock Exchange.

34 Kingwell Group Limited ANNUAL REPORT 2016

Report of the Directors (Continued)

SHAREHOLDERS’ INTERESTS AND SHORT POSITIONS IN THE SHARES AND UNDERLYING SHARES OF THE COMPANY

As at 30 June 2016, according to the register of members kept by the Company pursuant to Section 336 of the SFO and so far as is known to, or can be ascertained after reasonable enquiry by the Directors, the following person/entity (other than the Directors or chief executives of the Company) had an interest or short position in the shares, underlying shares and debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO) which would fall to be disclosed to the Company and the Stock Exchange pursuant to Divisions 2 and 3 of Part XV of the SFO, or be directly and indirectly interested in 5% or more of the nominal value of any class of share capital carrying rights to vote on all circumstances at general meetings of the Company:

Long positions in the shares of the Company

					Total
			Number of	Number of	Approximate %
		Number of	issued ordinary	underlying	of the issued
Name	Capacity	shares	shares held	shares held	share capital
Union Day	Beneficial Owner	384,198,376	384,198,376	–	13.32
Group Limited			(Note 1)
Mr. Hui Lung Hing	Beneficial Owner	286,097,777	277,777,777	8,320,000	9.92
				(Note 2)
Mr. Yin Jia Tang	Beneficial Owner	166,162,963	160,962,963	5,200,000	5.76
				(Note 3)

Note 1: 384,198,376 shares are held by Union Day Group Limited (a company incorporated in the British Virgin Islands with limited liability) which is 72% beneficially owned by Mr. Sze Ming Yee.

Note 2: 8,320,000 share options are held by Mr. Hui Lung Hing.

Note 3: 5,200,000 share options are held by Mr. Yin Jia Tang.

Save as disclosed above, the Company has not been notified of any other interests or short positions representing 5% or more of the issued share capital of the Company and recorded in the register maintained under Section 336 of the SFO as at 30 June 2016.

Kingwell Group Limited ANNUAL REPORT 2016

Report of the Directors (Continued)

DIRECTORS’ RIGHTS TO ACQUIRE SHARES OR DEBT SECURITIES

Other than the share option schemes as disclosed above and save as disclosed in the paragraph under “PURCHASE, SALE OR REDEMPTION OF LISTED SECURITIES” in this report, at no time during the Year was the Company, its holding company or any of its subsidiaries, or any of its fellow subsidiaries, a party to any arrangement to enable the Directors or chief executives of the Company or their respective close associates (as defined in the Listing Rules) to have any right to subscribe for securities of the Company or any of its associated corporations as defined in the SFO or to acquire benefits by means of acquisition of shares in, or debentures of, the Company or any other body corporate.

DISCLOSURE OF CHANGE IN INFORMATION ON DIRECTOR

Pursuant to Rule 13.51B(1) of the Listing Rules, the change of information on Director is as follows:

Mr. Cheung Chuen, Mr. Ling Aiwen and Mr. Han Hongwei are Independent Non-executive Directors, have re-entered into appointment letters with the Company for a term of one year commencing from 1 January 2016, 31 July 2016 and 31 July 2016.

INDEMNITY OF DIRECTORS

The Company has maintained appropriate directors and officers liability insurance and such permitted indemnity provision for the benefit of the Directors is currently in force and was in force throughout the Year.

DIRECTORS OF SUBSIDIARIES

The names of directors who have served on the Board of Directors of the subsidiaries of the Company during the Year and up to the date of this report are as follows:

Mr. Hui Lung Hing Mr. Yin Jia Tang Mr. Kam Kit

DIRECTORS’ INTERESTS IN TRANSACTIONS, ARRANGEMENTS OR CONTRACTS

Save as disclosed in note 36 to the financial statements, no transaction, arrangement or contract of significance to which the company, or any of its holding company, subsidiaries or fellow subsidiaries was a party, and in which a director of the company had a material interest, subsisted at the end of the year or at any time during the Year.

DIRECTORS’ INTERESTS IN COMPETING BUSINESS

None of the Directors or the management shareholders or the substantial shareholders of the Company, or any of their respective close associates (as defined in the Listing Rules) had any material interest in a business that competes or may compete with the business of the Group.

36 Kingwell Group Limited ANNUAL REPORT 2016

Report of the Directors (Continued)

MANAGEMENT CONTRACT

Save as disclosed herein, no contracts concerning the management and administration of the whole or any substantial part of the business of the Company or its subsidiaries were entered into or existed during the Year.

FINANCIAL SUMMARY

A summary of the results and of the assets and liabilities of the Group for the last five financial years is set out on pages 131 to 132 of the annual report.

PURCHASE, SALE OR REDEMPTION OF LISTED SECURITIES

On 8 September 2015, the Company proposed to raise approximately HK$46.1 million, before expenses, by issuing 288,409,173 offer shares at the subscription price of HK$0.16 per offer share on the basis of one (1) offer share for every nine (9) shares held on 9 October 2015 (the “Open Offer”).

The Directors considered that the Open Offer would (i) allow the Group to strengthen its financial position without having to incur interest expenses as compared to debt financing; (ii) provide financial flexibility necessary for the Group’s development; and (iii) provide additional funding to capture suitable investment opportunities as and when they arises. In addition, the Open Offer would also provide an opportunity to all qualifying Shareholders to participate in the future development of the Company in proportion to their shareholdings. Therefore, the Directors considered that the Open Offer was in the interests of the Company and the Shareholders as a whole.

All of the conditions set out in the underwriting agreement had been fulfilled and the underwriting agreement had not been terminated by the underwriter. Accordingly, the Open Offer became unconditional on 30 October 2015. 288,409,173 ordinary shares were issued and allotted on 5 November 2015.

The net proceeds from the Open Offer after deducting estimated expenses are estimated to be approximately HK$43.4 million and the Company had used such net proceeds as to (i) approximately HK$20.0 million for settlement of outstanding debts and related interests; (ii) approximately HK$13.0 million reserved as bank deposit for possible acquisitions/investments as and when such opportunities arise; and (iii) approximately HK$10.4 million for general working capital to strengthen the Company’s financial position.

Save as disclosed above, neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the Company’s listed securities during the Year.

PRE-EMPTIVE RIGHTS

There is no provision for pre-emptive rights under the Company’s articles of association, or the laws of the Cayman Islands, which would oblige the Company to offer new shares on a pro-rata basis to existing shareholders.

Kingwell Group Limited ANNUAL REPORT 2016

Report of the Directors (Continued)

AUDIT COMMITTEE

The Company established the Audit Committee since 8 May 2001 with written terms of reference and the duties of the Audit Committee include reviewing the Company’s annual reports and interim reports and providing advice and comments to the Directors. The Audit Committee is also responsible for reviewing and supervising the financial reporting, risk management and internal control systems of the Group.

As at the date of this annual report, the Audit Committee comprises three Independent Non-executive Directors, namely Mr. Cheung Chuen, Mr. Ling Aiwen and Mr. Han Hongwei. During the Year, the Audit Committee met twice to review the interim and annual results of the Group.

CORPORATE GOVERNANCE

A report on the principle corporate governance practices adopted by the Company is set out on pages 12 to 23.

SUFFICIENCY OF PUBLIC FLOAT

Based on the information that is publicly available to the Company and within the knowledge of the Directors as at the date of this annual report, the Company has maintained the prescribed public float under the Listing Rules.

AUDITORS

Ernst & Young retire and, being eligible, offer themselves for re-appointment. A resolution for the re-appointment of Ernst & Young as auditors of the Company is to be proposed at the forthcoming annual general meeting.

By Order of the Board

Mu Dongsheng Chairman

Hong Kong, 28 September 2016

38 Kingwell Group Limited ANNUAL REPORT 2016

Independent Auditors’ Report

==> picture [82 x 67] intentionally omitted <==

To the shareholders of Kingwell Group Limited

(Incorporated in the Cayman Islands with limited liability)

We have audited the consolidated financial statements of Kingwell Group Limited (the “Company”) and its subsidiaries set out on pages 41 to 130, which comprise the consolidated statement of financial position as at 30 June 2016, and the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.

DIRECTORS’ RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL STATEMENTS

The directors of the Company are responsible for the preparation of consolidated 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 and the disclosure requirements of the Hong Kong Companies Ordinance, and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

AUDITORS’ RESPONSIBILITY

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. Our report is made solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgement, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation of consolidated financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes 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 consolidated financial statements.

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

Kingwell Group Limited ANNUAL REPORT 2016

Independent Auditors’ Report (Continued)

OPINION

In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Company and its subsidiaries as at 30 June 2016, and of their financial performance and cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards and have been properly prepared in compliance with the disclosure requirements of the Hong Kong Companies Ordinance.

Ernst & Young Certified Public Accountants

22/F, CITIC Tower 1 Tim Mei Avenue Central, Hong Kong

28 September 2016

Kingwell Group Limited ANNUAL REPORT 2016

Consolidated Statement of Profit or Loss and Other Comprehensive Income

Year ended 30 June 2016

		2016	2015
	Notes	RMB’000	RMB’000
CONTINUING OPERATIONS
REVENUE Cost of sales	5	8,670 (7,111)	9,412 (6,866)
Gross profit		1,559	2,546
Other income and gains Selling and distribution expenses	5	1,752 (278)	14,134 (220)
Administrative expenses		(28,512)	(53,900)
Other expenses		(13,261)	(6,891)
Finance costs Share of loss of an associate	7 16	(4,617) (5,663)	(8,451) (2,391)
LOSS BEFORE TAX FROM CONTINUING OPERATIONS Income tax credit/(expense)	6 10	(49,020) 2,380	(55,173) (2,906)
LOSS FOR THE YEAR FROM CONTINUING OPERATIONS		(46,640)	(58,079)
DISCONTINUED OPERATION
Profit for the year from a discontinued operation	11	–	73,842
(LOSS)/PROFIT FOR THE YEAR		(46,640)	15,763

Kingwell Group Limited ANNUAL REPORT 2016

Consolidated Statement of Profit or Loss and Other Comprehensive Income (Continued)

Year ended 30 June 2016

OTHER COMPREHENSIVE LOSS Other comprehensive loss to be reclassified to profit or loss in subsequent periods: Exchange differences on translation of foreign operations (541) Reclassification of exchange fluctuation reserve to profit or loss upon disposal of subsidiaries 32 – 2016 Notes RMB’000	(43,370) (20,487) 2015 RMB’000
OTHER COMPREHENSIVE LOSS FOR THE YEAR (541)	(63,857)
TOTAL COMPREHENSIVE LOSS FOR THE YEAR (47,181)	(48,094)
(Loss)/profit attributable to: Owners of the Company (44,401) Non-controlling interests (2,239)	20,922 (5,159)
(46,640)	15,763
Total comprehensive loss attributable to: Owners of the Company (44,431) Non-controlling interests (2,750)	(21,805) (26,289)
(47,181)	(48,094)
(LOSS)/EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE COMPANY 12 RMB cents Basic – For (loss)/profit for the year (1.80)	RMB cents (Restated) 0.90
– For loss from continuing operations (1.80)	(2.28)
Diluted – For (loss)/profit for the year (1.80)	0.86
– For loss from continuing operations (1.80)	(2.28)

Kingwell Group Limited ANNUAL REPORT 2016

Consolidated Statement of Financial Position

30 June 2016

		2016	2015
	Notes	RMB’000	RMB’000
NON-CURRENT ASSETS
Property, plant and equipment	13	1,778	2,384
Investment properties	14	3,950	45,817
Intangible assets	15	69,478	75,052
Investment in an associate	16	132,139	137,789
Deferred tax assets	26	4,187	2,191
Total non-current assets		211,532	263,233
CURRENT ASSETS
Inventories	17	79,650	95,643
Trade receivables	18	234	–
Prepayments, deposits and other receivables	19	4,006	2,968
Pledged deposits	20	735	1,262
Cash and cash equivalents	20	38,779	37,063
		123,404	136,936
Non-current assets classified as held for sale	21	39,270	–
Total current assets		162,674	136,936
CURRENT LIABILITIES
Trade payables	22	2,599	6,404
Other payables and accruals	23	48,740	32,147
Interest-bearing other borrowings	24	–	17,600
Tax payable		6,906	6,909
Total current liabilities		58,245	63,060
NET CURRENT ASSETS		104,429	73,876
TOTAL ASSETS LESS CURRENT LIABILITIES		315,961	337,109

Kingwell Group Limited ANNUAL REPORT 2016 43

Consolidated Statement of Financial Position (Continued)

30 June 2016

2016 Notes RMB’000 TOTAL ASSETS LESS CURRENT LIABILITIES 315,961	2015 RMB’000 337,109
NON-CURRENT LIABILITIES Non-redeemable convertible preferred shares 25 499 Deferred tax liabilities 26 12,161 Promissory note 27 –	408 13,442 22,621
Total non-current liabilities 12,660	36,471
Net assets 303,301	300,638
EQUITY Equity attributable to owners of the Company Issued capital 28 252,856 Non-redeemable convertible preferred shares 25 2,252 Other reserves 30 5,293	229,285 2,252 23,451
260,401 Non-controlling interests 42,900	254,988 45,650
Total equity 303,301	300,638

Mu Dongsheng Director

Yang Xue Jun Director

Kingwell Group Limited ANNUAL REPORT 2016

Consolidated Statement of Changes in Equity

Year ended 30 June 2016

Attributable to owners of the Company

					Non-
					redeemable
			Share	Share	convertible				Capital	Exchange			Non-
		Issued	premium	option	preferred	Statutory	Warrants	Capital	contribution	fluctuation	Accumulated		controlling	Total
		capital	account	reserve	shares	reserve	reserve	reserve	reserve	reserve	losses	Total	interests	equity
	Notes	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
At 1 July 2014		204,451	559,559	31,185	6,004	18,872	3,049	6,929	48,448	34,059	(765,698)	146,858	71,939	218,797
Profit/(loss) for the year		–	–	–	–	–	–	–	–	–	20,922	20,922	(5,159)	15,763
Other comprehensive loss for the year
Exchange differences on translation
of foreign operations		–	–	–	–	–	–	–	–	(22,240)	–	(22,240)	(21,130)	(43,370)
Reclassification of exchange fluctuation
reserve to profit or loss upon disposal
of subsidiaries	32	–	–	–	–	–	–	–	–	(20,487)	–	(20,487)	–	(20,487)
Total comprehensive (loss)/income
for the year		–	–	–	–	–	–	–	–	(42,727)	20,922	(21,805)	(26,289)	(48,094)
Placing of shares	28(b)	14,600	54,019	–	–	–	–	–	–	–	–	68,619	–	68,619
Exercise of share options	28(c)	7,415	25,385	–	–	–	–	–	–	–	–	32,800	–	32,800
Transfer from share option reserve	28(c)	–	16,564	(16,564)	–	–	–	–	–	–	–	–	–	–
Equity-settled share option arrangements	29(e)	–	–	22,659	–	–	–	–	–	–	–	22,659	–	22,659
Exercise of warrants	28(e)	1,424	3,941	–	–	–	(144)	–	–	–	–	5,221	–	5,221
Transfer of warrants reverse upon
expiry of the warrants	30(iv)	–	–	–	–	–	(2,905)	–	–	–	2,905	–	–	–
Conversion of non-redeemable
convertible preferred shares	28(d)	1,395	2,993	–	(3,752)	–	–	–	–	–	–	636	–	636
Transfer from accumulated losses	30(iii)	–	–	–	–	82	–	–	–	–	(82)	–	–	–
Disposal of subsidiaries		–	–	–	–	(14,274)	–	(6,910)	–	–	21,184	–	–	–
At 30 June 2015		229,285	662,461*	37,280*	2,252	4,680*	–	19*	48,448*	(8,668)*	(720,769)*	254,988	45,650	300,638

Kingwell Group Limited ANNUAL REPORT 2016

Consolidated Statement of Changes in Equity (Continued)

Year ended 30 June 2016

At 1 July 2015 Loss for the year Other comprehensive loss for the year Exchange differences on translation of foreign operations	Notes				Attributable to ow	Attributable to ow	ners of the Company	ners of the Company	Exchange Non- fluctuation Accumulated controlling Total reserve losses Total interests equity RMB’000 RMB’000 RMB’000 RMB’000 RMB’000	Exchange Non- fluctuation Accumulated controlling Total reserve losses Total interests equity RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
		Issued capital RMB’000	Share premium account RMB’000	Share option reserve RMB’000	Non- redeemable convertible preferred shares RMB’000	Statutory reserve RMB’000	Capital reserve RMB’000	Capital contribution reserve RMB’000
		229,285	662,461	37,280	2,252	4,680	19	48,448	(8,668) (720,769) 254,988 45,650 300,638

		–	–	–	–	–	–	–	– (44,401) (44,401) (2,239) (46,640)

		–	–	–	–	–	–	–	(30) –	(30) (511) (541)

Total comprehensive loss for the year Issue of shares Equity-settled share option arrangements	28(a) 29(f)
		–	–	–	–	–	–	–	(30) (44,401) (44,431) (2,750) (47,181)
		23,571	14,144	–	–	–	–	–	– – 37,715 – 37,715
		–	–	12,129	–	–	–	–	– – 12,129 – 12,129

At 30 June 2016
		252,856	676,605 49,409 2,252			4,680 19 48,448 (8,698) (765,170)* 260,401 42,900 303,301

These reserve accounts comprise the consolidated other reserves of RMB5,293,000 (2015: RMB23,451,000) in the consolidated statement of financial position.

Kingwell Group Limited ANNUAL REPORT 2016

Consolidated Statement of Cash Flows

Year ended 30 June 2016

2016 Notes RMB’000 CASH FLOWS FROM OPERATING ACTIVITIES (Loss)/profit before tax: From continuing operations (49,020) From a discontinued operation – Adjustments for: Finance costs 7, 11 4,617 Interest income (12) Loss on disposal of items of property, plant and equipment – Fair value gain on equity investments at fair value through profit or loss – Depreciation 13 375 Amortisation of prepaid land lease payments – Amortisation of intangible assets 15 – Changes in fair value of investment properties 6 2,305 Write-down/(write-back) of inventories to net realisable value 9,235 Provision for impairment of trade and other receivables – Equity-settled share option expense 6 12,129 Gain on disposal of subsidiaries 32 – Share of loss of an associate 5,663	2015 RMB’000 (55,173) 73,842 11,772 (792) 149 (10) 1,602 12 46 (7,141) (492) 33 22,659 (93,792) 2,391
(14,708) Decrease in inventories 6,758 (Increase)/decrease in trade receivables (234) (Increase)/decrease in prepayments, deposits and other receivables (1,038) Decrease in pledged deposits 527 (Decrease)/increase in trade payables (3,805) Increase in other payables and accruals 18,729	(44,894) 7,024 3,399 2,342 796 633 13,743
Cash from/(used in) operations 6,229 Taxes paid (900)	(16,957) (1,514)
Net cash flows from/(used in) operating activities 5,329	(18,471)

Kingwell Group Limited ANNUAL REPORT 2016 47

Consolidated Statement of Cash Flows (Continued)

Year ended 30 June 2016

2016 Notes RMB’000 Net cash flows from/(used in) operating activities 5,329	2015 RMB’000 (18,471)
CASH FLOWS FROM INVESTING ACTIVITIES Interest received 12 Purchases of items of property, plant and equipment – Proceeds from disposal of items of property, plant and equipment 230 Proceeds from disposal of investment properties 14 314 Additions to intangible assets 15 – Proceeds from disposal of intangible assets 15 982 Acquisition of an associate 16 – Disposal of subsidiaries 32 –	792 (2,017) 251 – (1,905) – (79,191) (104,022)
Net cash flows from/(used in) investing activities 1,538	(186,092)
CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of shares 28 37,715 Repayment of other borrowings (17,600) Decrease in an amount due to a former director – Interest paid (3,527) Redemption of the promissory note 27 (27,011)	106,640 (4,500) (1,441) (5,113) (43,528)
Net cash flows (used in)/from financing activities (10,423)	52,058
NET DECREASE IN CASH AND CASH EQUIVALENTS (3,556) Cash and cash equivalents at beginning of year 37,063 Effect of foreign exchange rate changes, net 5,272	(152,505) 184,579 4,989
CASH AND CASH EQUIVALENTS AT END OF YEAR 38,779	37,063
ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances 20 38,779	37,063

48 Kingwell Group Limited ANNUAL REPORT 2016

Notes to Financial Statements

30 June 2016

1. CORPORATE AND GROUP INFORMATION

Kingwell Group Limited is a limited liability company incorporated in the Cayman Islands. The registered office address of the Company is Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111, the Cayman Islands.

During the year, the Group was involved in the following principal activities:

property development and property leasing
gold mine exploration

Information about subsidiaries

Particulars of the Company’s subsidiaries are as follows:

		Issued ordinary/	Percentage of	Percentage of
	Place of incorporation/	registered share	equity attributable
Company	registration and business	capital	to the Company		Principal activities
			Direct	Indirect
Stephigh Group Limited	British Virgin Islands (“BVI”)/	US$50,000	100%	–	Investment holding
	Hong Kong
Well Gold Group Limited	Hong Kong	HK$1	100%	–	Investment holding
Commerce Prosper Limited	BVI/Hong Kong	US$67,115	51%	–	Investment holding
Rise Win Group Limited	BVI/Hong Kong	US$50,000	–	100%	Investment holding
Rising Ray China Group Limited	Hong Kong	HK$10,000	–	100%	Investment holding
Anlu Taihe Real Estate	PRC/Mainland China	RMB30,000,000	–	100%	Development and
Development Company*					sale of real estate
Zolotoy Standart Limited	Russia	RUB10,000	–	100%	Gold mining

Registered as a wholly-foreign-owned enterprise under the PRC law.

Kingwell Group Limited ANNUAL REPORT 2016

Notes to Financial Statements (Continued)

30 June 2016

2.1 BASIS OF PREPARATION

These financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) (which include all Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (“HKASs”) and Interpretations) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”), accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. They have been prepared under the historical cost convention, except for investment properties which have been measured at fair value. These financial statements are presented in Renminbi (“RMB”) and all values are rounded to the nearest thousand except when otherwise indicated.

Basis of consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiaries (collectively referred to as the “Group”) for the year ended 30 June 2016. A subsidiary is an entity (including a structured entity), directly or indirectly, controlled by the Company. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee (i.e., existing rights that give the Group the current ability to direct the relevant activities of the investee).

When the Company has, directly or indirectly, less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

(a) the contractual arrangement with the other vote holders of the investee;
(b) rights arising from other contractual arrangements; and
(c) the Group’s voting rights and potential voting rights.

The financial statements of the subsidiaries are prepared for the same reporting period as the Company, using consistent accounting policies. The results of subsidiaries are consolidated from the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases.

Profit or loss and each component of other comprehensive income are attributed to the owners of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control described in the accounting policy for subsidiaries above. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.

50 Kingwell Group Limited ANNUAL REPORT 2016

30 June 2016

Notes to Financial Statements (Continued)

2.1 BASIS OF PREPARATION (Continued)

Basis of consolidation (Continued)

If the Group loses control over a subsidiary, it derecognises (i) the assets (including goodwill) and liabilities of the subsidiary, (ii) the carrying amount of any non-controlling interest and (iii) the cumulative translation differences recorded in equity; and recognises (i) the fair value of the consideration received, (ii) the fair value of any investment retained and (iii) any resulting surplus or deficit in profit or loss. The Group’s share of components previously recognised in other comprehensive income is reclassified to profit or loss or retained profits, as appropriate, on the same basis as would be required if the Group had directly disposed of the related assets or liabilities.

2.2 CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES

The Group has adopted the amendments to the Rules Governing the Listing of Securities on the Stock Exchange (the “Listing Rules”) issued by the Hong Kong Stock Exchange relating to the disclosure of financial information with reference to the Hong Kong Companies Ordinance (Cap. 622) during the current financial year. The main impact to the financial statements is on the presentation and disclosure of certain information in the financial statements.

2.3 ISSUED BUT NOT YET EFFECTIVE HONG KONG FINANCIAL REPORTING STANDARDS

The Group has not applied the following new and revised HKFRSs, that have been issued but are not yet effective, in these financial statements.

Amendments to HKFRS 2 Classification and Measurement of Share-based Payment Transactions[3] HKFRS 9 Financial Instruments[3] Amendments to HKFRS 10 Sale or Contribution of Assets between an Investor and its Associate and HKAS 28 (2011) or Joint Venture[6] Amendments to HKFRS 10, Investment Entities: Applying the Consolidation Exception[1] HKFRS 12 and HKAS 28 (2011) Amendments to HKFRS 11 Accounting for Acquisitions of interests in Joint Operations[1] HKFRS 14 Regulatory Deferral Accounts[5] HKFRS 15 Revenue from Contracts with Customers[3] Amendments to HKFRS 15 Revenue from Contracts with Customers (Clarifications to HKFRS 15)[3] HKFRS 16 Leases[4] Amendments to HKAS 1 Disclosure Initiative[1] Amendments to HKAS 7 Disclosure Initiative[2]

Kingwell Group Limited ANNUAL REPORT 2016

Notes to Financial Statements (Continued)

30 June 2016

2.3 ISSUED BUT NOT YET EFFECTIVE HONG KONG FINANCIAL REPORTING STANDARDS (Continued)

Amendments to HKAS 12 Recognition of Deferred Tax Assets for Unrealised Losses[2] Amendments to HKAS 16 and HKAS 38 Clarification of Acceptable Methods of Depreciation and Amortisation[1] Amendments to HKAS 16 and HKAS 41 Agriculture: Bearer Plants[1] Amendments to HKAS 27 (2011) Equity Method in Separate Financial Statements[1] Annual Improvements 2012-2014 Cycle Amendments to a number of HKFRSs[1]

1 Effective for annual periods beginning on or after 1 January 2016
2 Effective for annual periods beginning on or after 1 January 2017

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

4 Effective for annual periods beginning on or after 1 January 2019
5 Effective for an entity that first adopts HKFRSs for its annual financial statements beginning on or after 1 January 2016 and therefore is not applicable to the Group
6 Mandatory effective date not yet determined but is available for early adoption

Further information about those HKFRSs that are expected to be applicable to the Group is as follows:

Amendments to HKFRS 2 Share-based Payment in relation to the classification and measurement of share-based payment transactions are intended to eliminate diversity in practice in three main areas:

(i) The effects of vesting conditions on the measurement of a cash-settled share based payment transaction
(ii) The classification of a share-based payment transaction with net settlement features for withholding tax obligations
(iii) The accounting where a modification to the terms and conditions of a share-based payment transaction changes its classification from cash-settled to equity-settled.

The Group expects to adopt the amendments on 1 July 2018 and is currently assessing the impact upon adoption.

In September 2014, the HKICPA issued the final version of HKFRS 9, bringing together all phases of the financial instruments project to replace HKAS 39 and all previous versions of HKFRS 9. The standard introduces new requirements for classification and measurement, impairment and hedge accounting. The Group expects to adopt HKFRS 9 from 1 July 2018. The Group is currently assessing the impact of the standard upon adoption and expects that the adoption of HKFRS 9 will have an impact on the classification and measurement of the Group’s financial assets.

The amendments to HKFRS 10 and HKAS 28 (2011) address an inconsistency between the requirements in HKFRS 10 and in HKAS 28 (2011) in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The amendments require a full recognition of a gain or loss when the sale or contribution of assets between an investor and its associate or joint venture constitutes a business. For a transaction involving assets that do not constitute a business, a gain or loss resulting from the transaction is recognised in the investor’s profit or loss only to the extent of the unrelated investor’s interest in that associate or joint venture. The amendments are to be applied prospectively.

52 Kingwell Group Limited ANNUAL REPORT 2016

30 June 2016

Notes to Financial Statements (Continued)

2.3 ISSUED BUT NOT YET EFFECTIVE HONG KONG FINANCIAL REPORTING STANDARDS (Continued)

The amendments to HKFRS 11 require that an acquirer of an interest in a joint operation in which the activity of the joint operation constitutes a business must apply the relevant principles for business combinations in HKFRS 3. The amendments also clarify that a previously held interest in a joint operation is not remeasured on the acquisition of an additional interest in the same joint operation while joint control is retained. In addition, a scope exclusion has been added to HKFRS 11 to specify that the amendments do not apply when the parties sharing joint control, including the reporting entity, are under common control of the same ultimate controlling party. The amendments apply to both the acquisition of the initial interest in a joint operation and the acquisition of any additional interests in the same joint operation. The amendments are not expected to have any impact on the financial position or performance of the Group upon adoption on 1 July 2016.

HKFRS 15 establishes a new five-step model to account for revenue arising from contracts with customers. Under HKFRS 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The principles in HKFRS 15 provide a more structured approach for measuring and recognising revenue. The standard also introduces extensive qualitative and quantitative disclosure requirements, including disaggregation of total revenue, information about performance obligations, changes in contract asset and liability account balances between periods and key judgements and estimates. The standard will supersede all current revenue recognition requirements under HKFRSs. In September 2015, the HKICPA issued an amendment to HKFRS 15 regarding a one-year deferral of the mandatory effective date of HKFRS 15 to 1 January 2018. The Group expects to adopt HKFRS 15 on 1 July 2018 and is currently assessing the impact of HKFRS 15 upon adoption.

In June 2016, the HKICPA issued amendments to HKFRS 15 Revenue from Contracts with Customers. The amendments address implementation questions that were discussed by the Joint Transition Resource Group for Revenue Recognition on: identifying performance obligations; application guidance on principal versus agent and licences of intellectual property; and transition. The amendments are also intended to help ensure a more consistent application when entities adopt HKFRS 15 and decrease the cost and complexity of applying it.

In May 2016, the HKICPA issued HKFRS 16 Leases, which requires lessees to recognise assets and liabilities for most leases. For lessors, there is little change to the existing accounting in HKAS 17 Leases. The Group expects to adopt HKFRS 16 on 1 July 2019 and is currently assessing the impact of HKFRS 16 upon adoption. The amendments are not expected to have any significant impact on the Group’s financial statements.

Kingwell Group Limited ANNUAL REPORT 2016

Notes to Financial Statements (Continued)

30 June 2016

2.3 ISSUED BUT NOT YET EFFECTIVE HONG KONG FINANCIAL REPORTING STANDARDS (Continued)

Amendments to HKAS 1 include narrow-focus improvements in respect of the presentation and disclosure in financial statements. The amendments clarify:

(i) the materiality requirements in HKAS 1;
(ii) that specific line items in the statement of profit or loss and the statement of financial position may be disaggregated;
(iii) that entities have flexibility as to the order in which they present the notes to financial statements; and
(iv) that the share of other comprehensive income of associates and joint ventures accounted for using the equity method must be presented in aggregate as a single line item, and classified between those items that will or will not be subsequently reclassified to profit or loss.

Furthermore, the amendments clarify the requirements that apply when additional subtotals are presented in the statement of financial position and the statement of profit or loss. The Group expects to adopt the amendments from 1 July 2016. The amendments are not expected to have any significant impact on the Group’s financial statements.

Amendments to HKAS 7 require entities to provide information about changes in their financing liabilities, including changes from cash flows and non-cash changes such as foreign exchange gains or losses. To the extent necessary to satisfy the requirement, an entity shall disclose the following changes in liabilities arising from financing activities: a) changes from financing cash flows; b) changes arising from obtaining or losing control of subsidiaries or other businesses; c) the effect of changes in foreign exchange rates; d) changes in fair values; and e) other changes. The Group expects to adopt the amendments on 1 July 2017 and is currently assessing the impact of amendments to HKAS 7 upon adoption.

Amendments to HKAS 16 and HKAS 38 clarity the principle in HKAS 16 and HKAS 38 that revenue reflects a pattern of economic benefits that are generated from operating business (of which the asset is part) rather than the economic benefits that are consumed through the use of the asset. As a result, a revenue-based method cannot be used to depreciate property, plant and equipment and may only be used in very limited circumstances to amortise intangible assets. The amendments are to be applied prospectively. The amendments are not expected to have any impact on the financial position or performance of the Group upon adoption on 1 July 2016 as the Group has not used a revenue-based method for the calculation of depreciation of its non-current assets.

54 Kingwell Group Limited ANNUAL REPORT 2016

30 June 2016

Notes to Financial Statements (Continued)

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Investment in an associate

An associate is an entity in which the Group has a long term interest of generally not less than 20% of the equity voting rights and over which it is in a position to exercise significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over these policies.

The Group’s investment in an associate is stated in the consolidated statement of financial position at the Group’s share of net assets under the equity method of accounting, less any impairment losses.

The Group’s share of the post-acquisition results and other comprehensive income of an associate is included in the consolidated statement of profit or loss and other comprehensive income. In addition, when there has been a change recognised directly in the equity of the associate, the Group recognises its share of any changes, when applicable, in the consolidated statement of changes in equity. Unrealised gains and losses resulting from transactions between the Group and its associate are eliminated to the extent of the Group’s investment in the associate, except where unrealised losses provide evidence of an impairment of the assets transferred. Goodwill arising from the acquisition of the associate is included as part of the Group’s investment in an associate.

If an investment in associate becomes an investment in a joint venture or vice versa, the retained interest is not remeasured. Instead, the investment continues to be accounted for under the equity method, in all other cases, upon loss of significant influence over the associate, the Group measures and recognises any retained investment at its fair value. Any difference between the carrying amount of the associate upon loss of significant influence or joint control and the fair value of the retained investment and proceeds from disposal is recognised in profit or loss.

Business combinations and goodwill

Business combinations are accounted for using the acquisition method. The consideration transferred is measured at the acquisition date fair value which is the sum of the acquisition date fair values of assets transferred by the Group, liabilities assumed by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. For each business combination, the Group elects whether to measure the non-controlling interests in the acquiree that are present ownership interests and entitle their holders to a proportionate share of net assets in the event of liquidation at fair value or at the proportionate share of the acquiree’s identifiable net assets. All other components of non-controlling interests are measured at fair value. Acquisition-related costs are expensed as incurred.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts of the acquiree.

If the business combination is achieved in stages, the previously held equity interest is remeasured at its acquisition date fair value and any resulting gain or loss is recognised in profit or loss.

Kingwell Group Limited ANNUAL REPORT 2016

Notes to Financial Statements (Continued)

30 June 2016

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Business combinations and goodwill (Continued)

Any contingent consideration to be transferred by the acquirer is recognised at fair value at the acquisition date. Contingent consideration classified as an asset or liability is measured at fair value with changes in fair value recognised in profit or loss. Contingent consideration that is classified as equity is not remeasured and subsequent settlement is accounted for within equity.

Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred, the amount recognised for non-controlling interests and any fair value of the Group’s previously held equity interests in the acquiree over the identifiable net assets acquired and liabilities assumed. If the sum of this consideration and other items is lower than the fair value of the net assets acquired, the difference is, after reassessment, recognised in profit or loss as a gain on bargain purchase.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. The Group performs its annual impairment test of goodwill as at 30 June. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units.

Impairment is determined by assessing the recoverable amount of the cash-generating unit (group of cash-generating units) to which the goodwill relates. Where the recoverable amount of the cash-generating unit (group of cash-generating units) is less than the carrying amount, an impairment loss is recognised. An impairment loss recognised for goodwill is not reversed in a subsequent period.

Where goodwill has been allocated to a cash-generating unit (or group of cash-generating units) and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on the disposal. Goodwill disposed of in these circumstances is measured based on the relative value of the operation disposed of and the portion of the cash-generating unit retained.

Fair value measurement

The Group measures its investment properties and equity investments at fair value at the end of each reporting period. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either in the principal market for the asset or liability, or in the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible by the Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

56 Kingwell Group Limited ANNUAL REPORT 2016

30 June 2016

Notes to Financial Statements (Continued)

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Fair value measurement (Continued)

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

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

Level 1 – based on quoted prices (unadjusted) in active markets for identical assets or liabilities

Level 2 – based on valuation techniques for which the lowest level input that is significant to the fair value measurement is observable, either directly or indirectly
Level 3 – based on valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable

For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by reassessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

Impairment of non-financial assets

Where an indication of impairment exists, or when annual impairment testing for an asset is required (other than inventories, financial assets and investment properties), the asset’s recoverable amount is estimated. An asset’s recoverable amount is the higher of the asset’s or cash-generating unit’s value in use and its fair value less costs of disposal, and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case the recoverable amount is determined for the cash-generating unit to which the asset belongs.

An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. 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. An impairment loss is charged to profit or loss in the period in which it arises in those expense categories consistent with the function of the impaired asset.

Kingwell Group Limited ANNUAL REPORT 2016 57

Notes to Financial Statements (Continued)

30 June 2016

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Impairment of non-financial assets (Continued)

An assessment is made at the end of each reporting period as to whether there is an indication that previously recognised impairment losses may no longer exist or may have decreased. If such an indication exists, the recoverable amount is estimated. A previously recognised impairment loss of an asset other than goodwill is reversed only if there has been a change in the estimates used to determine the recoverable amount of that asset, but not to an amount higher than the carrying amount that would have been determined (net of any depreciation/amortisation) had no impairment loss been recognised for the asset in prior years. A reversal of such an impairment loss is credited to profit or loss in the period in which it arises, unless the asset is carried at a revalued amount, in which case the reversal of the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

Related parties

A party is considered to be related to the Group if:

(a) the party is a person or a close member of that person’s family and that person
(i) has control or joint control over the Group;
(ii) has significant influence over the Group; or
(iii) is a member of the key management personnel of the Group or of a parent of the Group;

(b) the party is an entity where any of the following conditions applies:
(i) the entity and the Group are members of the same group;
(ii) one entity is an associate or joint venture of the other entity (or of a parent, subsidiary or fellow subsidiary of the other entity);
(iii) the entity and the Group 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 Group or an entity related to the Group;

58 Kingwell Group Limited ANNUAL REPORT 2016

30 June 2016

Notes to Financial Statements (Continued)

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Related parties (Continued)

(b) (Continued)
(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);and
(viii) the entity, or any member of a group of which it is a part, provides key management personnel services to the Group or to the parent of the Group.

Property, plant and equipment and depreciation

Property, plant and equipment, other than construction in progress, are stated at cost less accumulated depreciation and any impairment losses. The cost of an item of property, plant and equipment comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use.

Expenditure incurred after items of property, plant and equipment have been put into operation, such as repairs and maintenance, is normally charged to profit or loss in the period in which it is incurred. In situations where the recognition criteria are satisfied, the expenditure for a major inspection is capitalised in the carrying amount of the asset as a replacement. Where significant parts of property, plant and equipment are required to be replaced at intervals, the Group recognises such parts as individual assets with specific useful lives and depreciates them accordingly.

Depreciation is calculated on the straight-line basis to write off the cost of each item of property, plant and equipment to its residual value over its estimated useful life. The principal annual rates used for this purpose are as follows:

Buildings	3.6%
Leasehold improvements	33.3%
Plant and machinery	9%
Furniture and fixtures	18%
Motor vehicles	28%

Where parts of an item of property, plant and equipment have different useful lives, the cost of that item is allocated on a reasonable basis among the parts and each part is depreciated separately. Residual values, useful lives and the depreciation method are reviewed, and adjusted if appropriate, at least at each financial year end.

An item of property, plant and equipment including any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss on disposal or retirement recognised in profit or loss in the year the asset is derecognised is the difference between the net sales proceeds and the carrying amount of the relevant asset.

Kingwell Group Limited ANNUAL REPORT 2016 59

Notes to Financial Statements (Continued)

30 June 2016

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Property, plant and equipment and depreciation (Continued)

Construction in progress represents a building under construction, which is stated at cost less any impairment losses, and is not depreciated. Cost comprises the direct costs of construction and capitalised borrowing costs on related borrowed funds during the period of construction. Construction in progress is reclassified to the appropriate category of property, plant and equipment when completed and ready for use.

Investment properties

Investment properties are interests in land and buildings (including the leasehold interest under an operating lease for a property which would otherwise meet the definition of an investment property) held to earn rental income and/or for capital appreciation, rather than for use in the production or supply of goods or services or for administrative purposes; or for sale in the ordinary course of business. Such properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are stated at fair value, which reflects market conditions at the end of the reporting period.

Gains or losses arising from changes in the fair values of investment properties are included in profit or loss in the year in which they arise.

Any gains or losses on the retirement or disposal of an investment property are recognised in profit or loss in the year of the retirement or disposal.

Non-current assets held for sale

Non-current assets are classified as held for sale if their carrying amounts will be recovered principally through a sales transaction rather than through continuing use. For this to be the case, the asset must be available for immediate sale in its present condition subject only to terms that are usual and customary for the sale of such assets and its sale must be highly probable.

Non-current assets (other than investment properties and financial assets) classified as held for sale are measured at the lower of their carrying amounts and fair values less costs to sell. Property, plant and equipment classified as held for sale are not depreciated or amortised.

Intangible assets (other than goodwill)

Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is the fair value at the date of acquisition. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are subsequently amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each financial year end.

60 Kingwell Group Limited ANNUAL REPORT 2016

30 June 2016

Notes to Financial Statements (Continued)

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Intangible assets (other than goodwill) (Continued)

Exploration and evaluation assets

Exploration and evaluation assets are stated at cost less impairment losses. Exploration and evaluation assets include topographical and geological surveys, exploratory drilling, sampling and trenching and activities in relation to commercial and technical feasibility studies, and expenditure incurred to secure further mineralisation in existing ore bodies and to expand the capacity of a mine. Expenditure incurred prior to acquiring legal rights to explore an area is written off as incurred. When it can be reasonably ascertained that a mining property is capable of commercial production, exploration and evaluation costs are transferred to mining rights and are amortised based on the accounting policy as stated in “Mining and exploration rights” below. If any project is abandoned during the evaluation stage, the total expenditure thereon will be written off.

Mining and exploration rights

Mining and exploration rights, including transferred exploration and evaluation assets, are stated at cost less accumulated amortisation and any impairment losses. The mining and exploration rights are amortised over the estimated useful lives of the mines in accordance with the production plan of the entities concerned and the proven and probable reserves of the mines using the unit-of-production method. Mining and exploration rights are written off to profit or loss if the mining property is abandoned.

Computer software

Software is stated at cost less impairment losses and is amortised on the straight-line basis over its estimated useful life of five years.

Leases

Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Where the Group is the lessor, assets leased by the Group under operating leases are included in noncurrent assets, and rentals receivable under the operating leases are credited to profit or loss on the straight-line basis over the lease terms. Where the Group is the lessee, rentals payable under operating leases net of any incentives received from the lessor are charged to profit or loss on the straight-line basis over the lease terms.

Prepaid land lease payments under operating leases are initially stated at cost and subsequently recognised on the straight-line basis over the lease terms.

Investments and other financial assets

Initial recognition and measurement

Financial assets are classified, at initial recognition, as financial assets at fair value through profit or loss, loans and receivables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. When financial assets are recognised initially, they are measured at fair value plus transaction costs that are attributable to the acquisition of the financial assets, except in the case of financial assets recorded at fair value through profit or loss.

Kingwell Group Limited ANNUAL REPORT 2016

Notes to Financial Statements (Continued)

30 June 2016

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Investments and other financial assets (Continued)

Initial recognition and measurement (Continued)

All regular way purchases and sales of financial assets are recognised on the trade date, that is, the date that the Group commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace.

Subsequent measurement

The subsequent measurement of financial assets depends on their classification as follows:

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designated upon initial recognition as at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of sale in the near term. Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments as defined by HKAS 39.

Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with positive net changes in fair value presented as other income and gains and negative net changes in fair value presented as other expenses in profit or loss. These net fair value changes do not include any dividends or interest earned on these financial assets, which are recognised in accordance with the policies set out for “Revenue recognition” below.

Financial assets designated upon initial recognition as at fair value through profit or loss are designated at the date of initial recognition and only if the criteria in HKAS 39 are satisfied.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such assets are subsequently measured at amortised cost using the effective interest rate method less any allowance for impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and includes fees or costs that are an integral part of the effective interest rate. The effective interest rate amortisation is included in other income and gains in profit or loss. The loss arising from impairment is recognised in profit or loss in other expenses for receivables.

62 Kingwell Group Limited ANNUAL REPORT 2016

30 June 2016

Notes to Financial Statements (Continued)

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Derecognition of financial assets

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognised (i.e., removed from the Group’s consolidated statement of financial position) when:

the rights to receive cash flows from the asset have expired; or
the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a “pass-through” arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risk and rewards of ownership of the asset. When it has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the Group continues to recognise to the transferred asset to the extent of the Group’s continuing involvement. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to reply.

Impairment of financial assets

The Group assesses at the end of each reporting period whether there is any objective evidence that a financial asset or a group of financial assets is impaired. An impairment exists if one or more events that occurred after the initial recognition of the asset have an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that a debtor or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and observable data indicating that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

Financial assets carried at amortised cost

For financial assets carried at amortised cost, the Group first assesses whether impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment.

Kingwell Group Limited ANNUAL REPORT 2016

Notes to Financial Statements (Continued)

30 June 2016

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Impairment of financial assets (Continued)

Financial assets carried at amortised cost (Continued)

The amount of any impairment loss identified is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate (i.e., the effective interest rate computed at initial recognition).

The carrying amount of the asset is reduced through the use of an allowance account and the loss is recognised in profit or loss. Interest income continues to be accrued on the reduced carrying amount using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. Loans and receivables together with any associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to the Group.

If, in a subsequent period, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a write-off is later recovered, the recovery is credited to other expenses in profit or loss.

Financial liabilities

Initial recognition and measurement

Financial liabilities are classified, at initial recognition, as loans and borrowings, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.

All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings, net of directly attributable transaction costs.

Subsequent measurement

The subsequent measurement of financial liabilities depends on their classification as follows:

Loans and borrowings

After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost, using the effective interest rate method unless the effect of discounting would be immaterial, in which case they are stated at cost. Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the effective interest rate amortisation process.

Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest rate amortisation is included in finance costs in profit or loss.

64 Kingwell Group Limited ANNUAL REPORT 2016

30 June 2016

Notes to Financial Statements (Continued)

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Financial liabilities (Continued)

Non-redeemable convertible preferred shares

Non-redeemable convertible preferred shares issued by the Group that contain both the liability and conversion option components are classified separately into respective items on initial recognition. Conversion option that will be settled by the exchange of a fixed amount of cash or another financial asset for a fixed number of the Company’s own equity instruments is classified as an equity instrument.

Non-redeemable convertible preferred shares are classified as a liability if interest payments are not discretionary. On initial recognition, the fair value of the liability component is determined using the prevailing market interest of similar nonconvertible debts. The difference between the gross proceeds of the issue of the preferred shares and the fair value assigned to the liability component, representing the conversion option for the holder to convert the preferred shares into equity, is included in equity.

In subsequent periods, the liability component of non-redeemable convertible preferred shares is carried at amortised cost using the effective interest method. The equity component will remain in equity until the conversion options are exercised and will be transferred to share capital and share premium of the Company.

Derecognition of financial liabilities

A financial liability is derecognised when the obligation under the liability is discharged or cancelled, or expires.

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and a recognition of a new liability, and the difference between the respective carrying amounts is recognised in profit or loss.

Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount is reported in the statement of financial position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined on the first-in, first-out basis and, in the case of work in progress and finished goods, comprises direct materials, direct labour and an appropriate proportion of overheads. Net realisable value is based on estimated selling prices less any estimated costs to be incurred to completion and disposal.

Kingwell Group Limited ANNUAL REPORT 2016

Notes to Financial Statements (Continued)

30 June 2016

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Completed properties held for sale

Completed properties held for sale are stated at the lower of cost and net realisable value. Cost includes all development expenditure, applicable borrowing costs and other direct costs attributable to such properties. Cost is determined by an apportionment of the total costs of land and buildings attributable to unsold properties. Net realisable value is determined by the directors based on the prevailing market prices on an individual property basis less costs to be incurred in selling the property.

Cash and cash equivalents

For the purpose of the consolidated statement of cash flows, cash and cash equivalents comprise cash on hand and demand deposits, and short term highly liquid investments that are readily convertible into known amounts of cash, are subject to an insignificant risk of changes in value, and have a short maturity of generally within three months when acquired, less bank overdrafts which are repayable on demand and form an integral part of the Group’s cash management.

For the purpose of the consolidated statement of financial position, cash and cash equivalents comprise cash on hand and at banks, including term deposits, and assets similar in nature to cash, which are not restricted as to use.

Income tax

Income tax comprises current and deferred tax. Income tax relating to items recognised outside profit or loss is recognised outside profit or loss, either in other comprehensive income or directly in equity.

Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period, taking into consideration interpretations and practices prevailing in the countries in which the Group operates.

Deferred tax is provided, using the liability method, on all temporary differences at the end of the reporting period between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

66 Kingwell Group Limited ANNUAL REPORT 2016

30 June 2016

Notes to Financial Statements (Continued)

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Income tax (Continued)

Deferred tax liabilities are recognised for all taxable temporary differences, except:

when the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
in respect of taxable temporary differences associated with investments in subsidiaries, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, the carry-forward of unused tax credits and any unused tax losses. Deferred tax assets are recognised, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, the carry-forward of unused tax credits and unused tax losses can be utilised, except:

when the deferred tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
in respect of deductible temporary differences associated with investments in subsidiaries, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

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

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

Kingwell Group Limited ANNUAL REPORT 2016 67

Notes to Financial Statements (Continued)

30 June 2016

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Revenue recognition

Revenue is recognised when it is probable that the economic benefits will flow to the Group and when the revenue can be measured reliably, on the following bases:

(a) from the sale of goods, when the significant risks and rewards of ownership have been transferred to the buyer, provided that the Group maintains neither managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold;
(b) rental income, on a time proportion basis over the lease terms;
(c) interest income, on an accrual basis using the effective interest method by applying the rate that exactly discounts the estimated future cash receipts over the expected life of the financial instrument to the net carrying amount of the financial asset; and
(d) dividend income, when the shareholders’ right to receive payment has been established.

Share-based payments

The Company operates a share option scheme for the purpose of providing incentives and rewards to eligible participants who contribute to the success of the Group’s operations. Employees (including directors) of the Group receive remuneration in the form of share-based payments, whereby employees render services as consideration for equity instruments (“equity-settled transactions”).

The cost of equity-settled transactions with employees for grants after 7 November 2002 is measured by reference to the fair value at the date at which they are granted. The fair value is determined by an external valuer using the Binomial Option Pricing model or Black-Scholes model, further details of which are given in note 29 to the financial statements.

The cost of equity-settled transactions is recognised in employee benefit expense, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled. The cumulative expense recognised for equity-settled transactions at the end of each reporting period until the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. The charge or credit to profit or loss for a period represents the movement in the cumulative expense recognised as at the beginning and end of that period.

Service and non-market performance conditions are not taken into account when determining the grant date fair value of awards, but the likelihood of the conditions being met is assessed as part of the Group’s best estimate of the number of equity instruments that will ultimately vest. Market performance conditions are reflected within the grant date fair value. Any other conditions attached to an award, but without an associated service requirement, are considered to be non-vesting conditions. Non-vesting conditions are reflected in the fair value of an award and lead to an immediate expensing of an award unless there are also service and/or performance conditions.

68 Kingwell Group Limited ANNUAL REPORT 2016

30 June 2016

Notes to Financial Statements (Continued)

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Share-based payments (Continued)

For awards that do not ultimately vest because non-market performance and/or service conditions have not been met, no expense is recognised. Where awards include a market or non-vesting condition, the transactions are treated as vesting irrespective of whether the market or non-vesting condition is satisfied, provided that all other performance and/or service conditions are satisfied.

Where the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified, if the original terms of the award are met. In addition, an expense is recognised for any modification that increases the total fair value of the share-based payments, or is otherwise beneficial to the employee as measured at the date of modification.

Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. This includes any award where non-vesting conditions within the control of either the Group or the employee are not met. However, if a new award is substituted for the cancelled award, and is designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph.

The dilutive effect of outstanding options is reflected as additional share dilution in the computation of earnings per share.

Other employee benefits

Pension schemes

The Group operates a defined contribution Mandatory Provident Fund retirement benefit scheme (the “MPF Scheme”) under the Mandatory Provident Fund Schemes Ordinance for all of its employees. Contributions are made based on a percentage of the employees’ basic salaries and are charged to profit or loss as they become payable in accordance with the rules of the MPF Scheme. The assets of the MPF Scheme are held separately from those of the Group in an independently administered fund. The Group’s employer contributions vest fully with the employees when contributed into the MPF Scheme.

The employees of the Group’s subsidiaries which operate in Mainland China are required to participate in a central pension scheme operated by the local municipal government. These subsidiaries are required to contribute a certain percentage of their payroll costs to the central pension scheme. The contributions are charged to profit or loss as they become payable in accordance with the rules of the central pension scheme.

Kingwell Group Limited ANNUAL REPORT 2016

Notes to Financial Statements (Continued)

30 June 2016

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, i.e., assets that necessarily take a substantial period of time to get ready for their intended use or sale, are capitalised as part of the cost of those assets. The capitalisation of such borrowing costs ceases when the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs capitalised. All other borrowing costs are expensed in the period in which they are incurred. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.

Dividends

Final dividends are recognised as a liability when they are approved by the shareholders in a general meeting. In prior years, final dividends proposed by the directors were classified as a separate allocation of retained profits within the equity section of the statement of financial position, until they have been approved by the shareholders in a general meeting. Following the implementation of the Hong Kong Companies Ordinance (Cap. 622), proposed final dividends are disclosed in the notes to the financial statements.

Interim dividends are simultaneously proposed and declared, because the Company’s memorandum and articles of association grant the directors the authority to declare interim dividends. Consequently, interim dividends are recognised immediately as a liability when they are proposed and declared.

Foreign currencies

These financial statements are presented in RMB. The functional currencies of the Company and its subsidiaries in Mainland China and Russia are the Hong Kong dollar, RMB and Ruble (“RUB”), respectively. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Foreign currency transactions recorded by the entities in the Group are initially recorded using their respective functional currency rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency rates of exchange ruling at the end of the reporting period. Differences arising on settlement or translation of monetary items are recognised in profit or loss.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was measured. The gain or loss arising on retranslation of a nonmonetary item measured at fair value is treated in line with the recognition of the gain or loss on change in fair value of the item (i.e., translation difference on the item whose fair value gain or loss is recognised in other comprehensive income or profit or loss is also recognised in other comprehensive income or profit or loss, respectively).

70 Kingwell Group Limited ANNUAL REPORT 2016

30 June 2016

Notes to Financial Statements (Continued)

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Foreign currencies (Continued)

The functional currencies of subsidiaries outside Mainland China are the Hong Kong dollar and RUB. As at the end of the reporting period, the assets and liabilities of these entities are translated into RMB at exchange rates prevailing at the end of the reporting period and their profit or loss is translated into RMB at the weighted average exchange rate for the year. The resulting exchange differences are recognised in other comprehensive income and accumulated in the exchange fluctuation reserve. On disposal of a foreign operation, the component of other comprehensive income relating to that particular foreign operation is recognised in profit or loss.

Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on acquisition are treated as assets and liabilities of the foreign operation and translated at the closing rate.

For the purpose of the consolidated statement of cash flows, the cash flows of subsidiaries outside Mainland China are translated into RMB at the exchange rates ruling at the dates of the cash flows. Frequently recurring cash flows of subsidiaries outside Mainland China which arise throughout the year are translated into RMB at the weighted average exchange rates for the year.

3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES

The preparation of the Group’s financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and their accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amounts of the assets or liabilities affected in the future.

Judgements

In the process of applying the Group’s accounting policies, management has made the following judgements, apart from those involving estimations, which have the most significant effect on the amounts recognised in the financial statements:

Operating lease commitments – Group as lessor

The Group has entered into commercial property leases on its investment property portfolio. The Group has determined, based on an evaluation of the terms and conditions of the arrangements, that it retains all the significant risks and rewards of ownership of these properties which are leased out on operating leases.

Kingwell Group Limited ANNUAL REPORT 2016

Notes to Financial Statements (Continued)

30 June 2016

3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES (Continued)

Judgements (Continued)

Classification between investment properties and owner-occupied properties

The Group determines whether a property qualifies as an investment property, and has developed criteria in making that judgement. Investment property is a property held to earn rentals or for capital appreciation or both. Therefore, the Group considers whether a property generates cash flows largely independently of the other assets held by the Group. Some properties comprise a portion that is held to earn rentals or for capital appreciation and another portion that is held for use in the production or supply of goods or services or for administrative purposes. If these portions could be sold separately or leased out separately under a finance lease, the Group accounts for the portions separately. If the portions could not be sold separately, the property is an investment property only if an insignificant portion is held for use in the production or supply of goods or services or for administrative purposes. Judgement is made on an individual property basis to determine whether ancillary services are so significant that a property does not qualify as an investment property.

Recognition of a deferred tax liability for withholding taxes

Deferred income tax liability has been established for withholding tax that would be payable on certain profit of the subsidiary in Mainland China to be repatriated and distributed by way of dividends.

Estimation uncertainty

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

Provision for impairment of trade and other receivables

Provision for impairment of trade and other receivables is made based on the assessment of the recoverability of trade receivables and other receivables. The identification of impairment of trade and other receivables requires management’s judgement and estimates. Where the actual outcome or expectation in future is different from the original estimate, such differences will have an impact on the carrying amounts of the receivables and impairment of trade and other receivables in the year in which such estimate has been changed.

Estimation of fair value of investment properties

In the absence of current prices in an active market for similar properties, the Group considers information from a variety of sources, including:

(a) current prices in an active market for properties of a different nature, condition or location, adjusted to reflect those differences;
(b) recent prices of similar properties on less active markets, with adjustments to reflect any changes in economic conditions since the date of the transactions that occurred at those prices; and

72 Kingwell Group Limited ANNUAL REPORT 2016

30 June 2016

Notes to Financial Statements (Continued)

3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES (Continued)

Estimation uncertainty (Continued)

Estimation of fair value of investment properties (Continued)

(c) discounted cash flow projections based on reliable estimates of future cash flows, supported by the terms of any existing lease and other contracts and (when possible) by external evidence such as current market rents for similar properties in the same location and condition, and using discount rates that reflect current market assessments of the uncertainty in the amount and timing of the cash flows.

The principal assumptions for the Group’s estimation of the fair value include those related to recent market selling prices for similar properties in the same location and condition, appropriate discount rates, and expected future maintenance costs. The carrying amount of investment properties at 30 June 2016 was RMB3,950,000 (2015: RMB45,817,000).

Mineral reserves

Engineering estimates of the Group’s mineral resources are inherently imprecise and represent only approximate amounts because of the assumptions involved in developing such information.

There are authoritative guidelines regarding the engineering criteria that have to be met before estimated mineral reserves can be designated as “proven” and “probable”. Proven and probable mineral reserve estimates are updated on a regular basis and have taken into account recent production and technical information about each mine. In addition, as prices and cost level change from year to year, the estimate of proven and probable mineral reserves also changes. This change is considered a change in estimate for accounting purposes and is reflected on a prospective basis in related depreciation/ amortisation rates.

Despite the inherent imprecision in these engineering estimates, these estimates are used in determining depreciation/ amortisation expenses and impairment losses. Depreciation/amortisation rates of the mining structures and mining and exploration rights are determined based on the proven and probable mineral reserve quantity (the denominator) and capitalised costs of the mining structures or mining and exploration rights (the numerator).

Impairment of non-financial assets

The Group assesses whether there are any indicators of impairment for all non-financial assets at the end of each reporting period. Other non-financial assets are tested for impairment when there are indicators that the carrying amounts may not be recoverable. An impairment exists when the carrying value of an asset or a cash-generating unit exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. The calculation of the fair value less costs of disposal is based on available data from binding sales transactions in an arm’s length transaction of similar assets or observable market prices less incremental costs for disposing of the asset. When value in use calculations are undertaken, management must estimate the expected future cash flows from the asset or cash-generating unit and choose a suitable discount rate in order to calculate the present value of those cash flows.

Kingwell Group Limited ANNUAL REPORT 2016

Notes to Financial Statements (Continued)

30 June 2016

3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES (Continued)

Estimation uncertainty (Continued)

Net realisable value of completed properties held for sale

The Group writes down completed properties held for sale to net realisable value based on assessment of the realisability of completed properties held for sale which takes into net sales value based on prevailing market conditions. If there is a decrease in net sales value, the net realisable value will decrease which may result in writing down completed properties held for sale to net realisable value. Write-downs are recorded where events or changes in circumstances indicate that the balances may not be realised. The identification of write-downs requires the use of judgement and estimates. Where the expectation is different from the original estimate, the carrying value of completed properties held for sale is adjusted in the period in which such estimate is changed. As at 30 June 2016, an impairment loss of RMB9,235,000 (2015: Nil) has been recognised to write down the carrying amount of completed properties held for sale to the estimated net realisable value.

Deferred tax assets

Deferred tax assets are recognised for unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits together with future tax planning strategies. No deferred tax assets related to tax losses are recognised in respect to these losses as they have arisen in subsidiaries that have been loss-making for some time and it is not considered probable that taxable profits will be available against which the tax losses can be utilised.

People’s Republic of China (“PRC”) land appreciation taxes (“LAT”)

The Group is subject to land appreciation taxes in Mainland China. The provision for land appreciation taxes is based on management’s best estimates according to its understanding of the requirements set forth in the relevant PRC tax laws and regulations. The actual land appreciation tax liabilities are subject to the determination by the tax authorities upon completion of the property development projects. The Group has finalised its land appreciation tax calculations and payments with the tax authorities for certain property development projects. The final outcome could be different from the amounts that were initially recorded, and any differences will impact the land appreciation tax expenses and the related provision in the period in which the differences realise.

74 Kingwell Group Limited ANNUAL REPORT 2016

30 June 2016

Notes to Financial Statements (Continued)

4. OPERATING SEGMENT INFORMATION

For management purposes, the Group is organised into business units based on their products and has two reportable operating segments as follows:

(a) the gold mining segment engages in the production and sale of gold; and
(b) the property development and property leasing segment engages in the development of villas, apartments and commercial buildings and property leasing of self-owned properties.

Management monitors the results of the Group’s operating segments separately for the purpose of making decisions about resources allocation and performance assessment. Segment performance is evaluated based on reportable segment profit/(loss), which is a measure of adjusted profit/(loss) before tax from continuing operations. The adjusted profit/(loss) before tax is measured consistently with the Group’s loss before tax from continuing operations except that interest income, finance costs as well as head office and corporate expenses are excluded from such measurement.

Segment assets exclude deferred tax assets and other unallocated head office and corporate assets, as these assets are managed on a group basis.

Segment liabilities exclude tax payable, non-redeemable convertible preferred shares, deferred tax liabilities, a promissory note and other unallocated head office and corporate liabilities, as these liabilities are managed on a group basis.

Kingwell Group Limited ANNUAL REPORT 2016

Notes to Financial Statements (Continued)

30 June 2016

4. OPERATING SEGMENT INFORMATION (Continued)

		Property
		development and
Year ended 30 June 2016	Gold mining	property leasing	Total
	RMB’000	RMB’000	RMB’000
Segment revenue:
Sales to external customers Other revenue	– –	8,670 1,740	8,670 1,740
Revenue from continuing operations	–	10,410	10,410
Segment results	(8,445)	873	(7,572)
Reconciliation:
Interest income			12
Corporate and other unallocated expenses			(27,608)
Finance costs Write-down of inventories to net realisable value			(4,617) (9,235)*
Loss before tax from continuing operations			(49,020)
Segment assets	219,776	146,703	366,479
Reconciliation:
Corporate and other unallocated assets			7,727
			374,206
Segment liabilities	88	46,133	46,221
Reconciliation:
Corporate and other unallocated liabilities			24,684
			70,905
Other segment information:
Share of loss of an associate Depreciation	(5,663) –	– 375	(5,663) 375
Investment in an associate	132,139	–	132,139

Related to the property development and property leasing segment

76 Kingwell Group Limited ANNUAL REPORT 2016

Notes to Financial Statements (Continued)

30 June 2016

4. OPERATING SEGMENT INFORMATION (Continued)

		Property
		development and
Year ended 30 June 2015	Gold mining	property leasing	Total
	RMB’000	RMB’000	RMB’000
Segment revenue:
Sales to external customers	–	9,412	9,412
Other revenue	–	13,437	13,437
Revenue from continuing operations	–	22,849	22,849
Segment results	(9,567)	14,933	5,366
Reconciliation:
Interest income			697
Corporate and other unallocated expenses			(52,785)
Finance costs			(8,451)
Loss before tax from continuing operations			(55,173)
Segment assets	231,145	158,861	390,006
Reconciliation:
Corporate and other unallocated assets			10,163
			400,169
Segment liabilities	101	49,717	49,818
Reconciliation:
Corporate and other unallocated liabilities			49,713
			99,531
Other segment information:
Share of loss of an associate	(2,391)	–	(2,391)
Depreciation	–	464	464
Investment in an associate	137,789	–	137,789
Capital expenditure	2,149	212	2,361

Kingwell Group Limited ANNUAL REPORT 2016

Notes to Financial Statements (Continued)

30 June 2016

4. OPERATING SEGMENT INFORMATION (Continued)

Geographical information

(a) Revenue from continuing operations of RMB8,670,000 (2015: RMB9,412,000) was derived from sales to external customers located in Mainland China.
(b) Non-current assets

	2016	2015
	RMB’000	RMB’000
Mainland China	137,695	185,538
Hong Kong	139	179
Russia	69,511	75,325
	207,345	261,042

The non-current asset information from continuing operations above is based on the locations of the assets, which excludes deferred tax assets.

Information about major customers

During the year, no revenue from transactions with a single external customer amounted to 10% or more of the Group’s total revenue generated from continuing operations (2015: Nil).

78 Kingwell Group Limited ANNUAL REPORT 2016

30 June 2016

Notes to Financial Statements (Continued)

5. REVENUE, OTHER INCOME AND GAINS

Revenue represents revenue from sale of properties, net of sales related taxes.

An analysis of revenue, other income and gains is as follows:

		2016	2015
	Notes	RMB’000	RMB’000
Revenue Sale of properties		8,670	9,412
Other income
Bank interest income		12	697
Rental income		1,740	1,666
		1,752	2,363
Gains
Fair value gains on investment properties	14	–	7,141
Gain on disposal of a subsidiary	32	–	4,630
		–	11,771
		1,752	14,134

Kingwell Group Limited ANNUAL REPORT 2016

Notes to Financial Statements (Continued)

30 June 2016

6. LOSS BEFORE TAX

The Group’s loss before tax from continuing operations is arrived at after charging/(crediting):

		2016	2015
	Notes	RMB’000	RMB’000
Cost of properties sold		7,111	6,866
Depreciation		375	464
Minimum lease payments under operating leases		752	2,700
Auditors’ remuneration Staff costs (excluding directors’ remuneration):		1,828	1,814
Salaries and wages		6,292	7,190
Pension scheme contributions		156	314
Equity-settled share option expense	29	12,129	22,659
		18,577	30,163
Foreign exchange differences, net*		1,719	6,738
Changes in fair value of investment properties	14	2,305	(7,141)
Write-down of inventories to net realisable value* Direct operating expenses (including repairs and maintenance)	17	9,235	–
arising from rental-earning investment properties		305	52

These amounts were included in “other expenses” in the consolidated statement of profit or loss and other comprehensive income.

7. FINANCE COSTS

An analysis of finance costs is as follows:

	2016	2015
	RMB’000	RMB’000
Interest on:
Other borrowings	1,241	1,759
Non-redeemable convertible preferred shares	55	78
Promissory note	3,321	6,614
	4,617	8,451

80 Kingwell Group Limited ANNUAL REPORT 2016

30 June 2016

Notes to Financial Statements (Continued)

8. DIRECTORS’ REMUNERATION

Directors’ remuneration for the year, disclosed pursuant to the Listing Rules, section 383(1)(a), (b), (c) and (f) of the Hong Kong Companies Ordinance and Part 2 of the Companies (Disclosure of Information about Benefits of Directors) Regulation, is as follows:

Group 2016 2015 RMB’000 RMB’000 Fees 323 337	Group 2016 2015 RMB’000 RMB’000 Fees 323 337
Other emoluments: Salaries, allowances and benefits in kind 1,350 1,964 Pension scheme contributions 16 21 Performance related bonuses 50 48
	1,416 2,033
	1,739 2,370
(a)	Independent non-executive directors The fees paid to independent non-executive directors during the year were as follows: 2016 2015 RMB’000 RMB’000 Mr. Cheung Chuen 120 100 Ms. Wong Lai Wing 17 190 Mr. Huang Jian Zi 4 47 Mr. Ling Aiwen& 91 – Mr. Han Hongwei& 91 –
	323 337

Resigned as independent non-executive director on 31 July 2015.
& Appointed as independent non-executive director since 31 July 2015.

There were no other emoluments payable to the independent non-executive directors during the current year and the prior year.

Kingwell Group Limited ANNUAL REPORT 2016

Notes to Financial Statements (Continued)

30 June 2016

8. DIRECTORS’ REMUNERATION (Continued)

(b) Executive directors

Executive directors
	Salaries,
	allowances	Pension
	and benefits	scheme	Performance	Total
	in kind	contributions	related bonuses	remuneration
	RMB’000	RMB’000	RMB’000	RMB’000
2016 Mr. Sze Ming Yee Mr. Hui Lung Hing* Mr. Yang Xue Jun Mr. Mu Dongsheng&	199 464 230 457	10 6 – –	– 25 25 –	209 495 255 457
	1,350	16	50	1,416

Retired as executive director on 18 December 2015.
& Appointed as executive director on 15 January 2016.

	Salaries,
	allowances	Pension
	and benefits	scheme	Performance	Total
	in kind	contributions	related bonuses	remuneration
	RMB’000	RMB’000	RMB’000	RMB’000
2015
Mr. Xiang Song*	261	–	–	261
Mr. Lin Wan Xin&	174	–	–	174
Ms. Xu Yue Yue&	174	–	–	174
Mr. Sze Ming Yee	190	9	–	199
Mr. Hui Lung Hing	950	12	24	986
Mr. Yang Xue Jun#	215	–	24	239
	1,964	21	48	2,033

Resigned as executive director and chief executive on 31 May 2015.
& Resigned as executive directors on 31 May 2015.
Appointed as chief executive on 31 May 2015.

There was no arrangement under which a director waived or agreed to waive any remuneration during the year.

82 Kingwell Group Limited ANNUAL REPORT 2016

30 June 2016

Notes to Financial Statements (Continued)

9. FIVE HIGHEST PAID EMPLOYEES

The five highest paid employees during the year included three (2015: one) directors, details of whose remuneration are set out in note 8 above. Details of the remuneration of the remaining two (2015: four) non-director, highest paid employees for the year are as follows:

	2016	2015
	RMB’000	RMB’000
Salaries, allowances and benefits in kind	1,097	875
Equity-settled share option expense	–	1,486
Pension scheme contributions	20	21
	1,117	2,382

The number of non-director, highest paid employees whose remuneration fell within the following bands is as follows:

	Number of
	2016	2015
Nil to HK$1,000,000	2	3
HK$1,000,001 to HK$1,500,000	–	–
HK$1,500,001 to HK$2,000,000	–	–
HK$2,000,001 to HK$2,500,000	–	1
	2	4

Kingwell Group Limited ANNUAL REPORT 2016

Notes to Financial Statements (Continued)

30 June 2016

10. INCOME TAX

The Company is a tax exempted company registered in the Cayman Islands and conducts substantially all of its business through its subsidiaries established in Mainland China (the “PRC Subsidiaries”) and Russia.

No provision for Hong Kong profits tax has been made (2015: Nil) as the Group did not generate any assessable profits in Hong Kong during the year. Taxes on profits assessable elsewhere have been calculated at the rates of tax prevailing in the countries in which the Group operates, based on existing legislation, interpretations and practices in respect thereof.

	2016	2015
	RMB’000	RMB’000
Current – Mainland China
Provision for corporate income tax	–	–
Provision for LAT	897	1,514
Deferred (note 26)	(3,277)	1,392
Total tax (credit)/charge for the year	(2,380)	2,906

84 Kingwell Group Limited ANNUAL REPORT 2016

30 June 2016

Notes to Financial Statements (Continued)

10. INCOME TAX (Continued)

A reconciliation of the tax expense applicable to loss before tax from continuing operations at the statutory tax rate for the country in which a major subsidiary of the Company is domiciled to the tax expense at the effective tax rate is as follows:

	2016	2015
	RMB’000	RMB’000
Loss before tax from continuing operations	(49,020)	(55,173)
Tax at the statutory tax rate of 25%	(12,255)	(13,793)
Lower tax rates for specific provinces or enacted by local authorities	3,458	5,290
Expenses not deductible for tax	57	213
Effect of withholding tax at 5% on the distributable profits of
the Group’s PRC subsidiary	(404)	41
Loss attributable to an associate Tax losses not recognised	1,416 4,675	395 9,625
Provision for LAT	897	1,514
Tax effect of LAT	(224)	(379)
Tax (credit)/charge at the Group’s effective rate	(2,380)	2,906
The Group’s effective income tax rate	4.9%	(5.3%)

11. DISCONTINUED OPERATION

On 27 August 2014, the Company entered into a sale and purchase agreement with Splendid Vantage Limited, an independent third party, for the disposal of the Company’s 100% equity interests in Superford Holding Limited and its subsidiary (collectively the “Superford Group”) to Splendid Vantage Limited for a cash consideration of HK$700,000 (equivalent to RMB557,000). Superford Holding Limited holds a 100% equity interest in Fujian Fuqiang Delicate Circuit Plate Co., Ltd., which is engaged in the manufacture and trading of rigid printed circuit boards. The shareholders approved the transaction by poll at the extraordinary general meeting held on 23 October 2014. The disposal of the Superford Group was completed on 31 October 2014. With the Superford Group being disposed of and classified as a discontinued operation, the electronic products business is no longer included in the note for operating segment information. Further details are set out in note 32 to the financial statements.

Kingwell Group Limited ANNUAL REPORT 2016

Notes to Financial Statements (Continued)

30 June 2016

11. DISCONTINUED OPERATION (Continued)

The results of the Superford Group for the period from 1 July 2014 to the disposal date were presented as follows:

	RMB’000
Revenue	20,561
Other income	73
Expenses	(32,633)
Finance costs	(3,321)
Loss before tax from the discontinued operation	(15,320)
Gain on disposal (note 32)	89,162
Profit for the year from the discontinued operation	73,842

The net cash flows incurred by the Superford Group for the period from 1 July 2014 to the disposal date were as follows:

	RMB’000
Operating activities	1,171
Investing activities	(81)
Financing activities	(3,321)
Net cash outflow	(2,231)
	RMB cents
	(Restated)
Earnings per share:
Basic, from the discontinued operation	3.18
Diluted, from the discontinued operation	3.02

86 Kingwell Group Limited ANNUAL REPORT 2016

30 June 2016

Notes to Financial Statements (Continued)

11. DISCONTINUED OPERATION (Continued)

The calculations of basic and diluted earnings per share from the discontinued operation were based on:

	2015
	(Restated)
Profit attributable to ordinary equity holders of the Company from the discontinued operation	RMB73,842,000
Weighted average number of ordinary shares in issue during the year used
in the basic earnings per share calculation (note 12)	2,324,792,000
Weighted average number of ordinary shares used
in the diluted earnings per share calculation (note 12)	2,441,745,000

12. (LOSS)/EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE COMPANY

The calculation of the basic loss per share amount is based on the loss for the year attributable to ordinary equity holders of the Company of RMB44,401,000 (2015: a profit of RMB20,922,000), and the weighted average number of ordinary shares of 2,469,315,000 (2015: 2,324,792,000 (restated)) in issue during the year.

The calculation of the basic loss per share amount for the loss from continuing operations is based on the loss for the year from continuing operations attributable to ordinary equity holders of the Company of RMB44,401,000 (2015: RMB52,920,000), and the weighted average number of ordinary shares of 2,469,315,000 (2015: 2,324,792,000 (restated)) in issue during the year.

The calculation of the diluted loss per share amount is based on the loss for the year attributable to ordinary equity holders of the Company of RMB44,401,000. The weighted average number of ordinary shares used in the calculation is the number of ordinary shares in issue during the year, as used in the basic loss per share calculation, and the weighted average number of ordinary shares assumed to have been issued at no consideration on the deemed exercise or conversion of all dilutive potential ordinary shares into ordinary shares.

No adjustment has been made to the basic loss per share amount presented for the year ended 30 June 2016 and the basic loss per share amount for loss from continuing operations presented for the years ended 30 June 2016 and 2015 in respect of a dilution as the impact of the warrants, share options and non-redeemable convertible preferred shares outstanding had an anti-dilutive effect on the basic loss per share amounts presented.

Kingwell Group Limited ANNUAL REPORT 2016 87

Notes to Financial Statements (Continued)

30 June 2016

12. (LOSS)/EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE COMPANY (Continued)

The calculations of basic and diluted earnings per share for the year ended 30 June 2015 were based on:

	RMB’000
Earnings
Profit attributable to ordinary equity holders of the Company, used
in the basic earnings per share calculation:	20,922
	Number of
	shares
	(Restated)*
Shares
Weighted average number of ordinary shares in issue during the year
used in the basic earnings per share calculation	2,324,792,000
Effective of dilution – weighted average number of ordinary shares:
Warrants	3,077,000
Share options	103,876,000
Non-redeemable convertible preferred shares	10,000,000
	2,441,745,000

The weighted average number of ordinary shares for the purpose of basic and diluted earnings/(loss) per share for the year ended 30 June 2015 has been restated to reflect the impact of the Open Offer of the Company in November 2015. Further details are set out in note 28 to the financial statements.

88 Kingwell Group Limited ANNUAL REPORT 2016

30 June 2016

Notes to Financial Statements (Continued)

13. PROPERTY, PLANT AND EQUIPMENT

				Furniture
		Leasehold	Plant and	and	Motor
	Buildings	improvements	machinery	fixtures	vehicles	Total
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
30 June 2016
Cost:
At 1 July 2015 Disposals Transfer to investment properties	2,235 (45)	395 –	16 –	609 –	1,718 (248)	4,973 (293)
(note 14) Exchange realignment	(23) –	– 33	– –	– 42	– 5	(23) 80
At 30 June 2016	2,167	428	16	651	1,475	4,737
Accumulated depreciation: At 1 July 2015 Depreciation provided	1,013	395	16	491	674	2,589
during the year Disposals Transfer to investment properties	84 (4)	– –	– –	24 –	267 (59)	375 (63)
(note 14) Exchange realignment	(1) –	– 33	– –	– 26	– –	(1) 59
At 30 June 2016	1,092	428	16	541	882	2,959
Net book value:
At 30 June 2015	1,222	–	–	118	1,044	2,384
At 30 June 2016	1,075	–	–	110	593	1,778

Kingwell Group Limited ANNUAL REPORT 2016 89

Notes to Financial Statements (Continued)

30 June 2016

13. PROPERTY, PLANT AND EQUIPMENT (Continued)

				Furniture
		Leasehold	Plant and	and	Motor	Construction
	Buildings	improvements	machinery	fixtures	vehicles	in progress	Total
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
30 June 2015
Cost:
At 1 July 2014	73,837	501	132,171	92,577	7,368	49	306,503
Additions	45	–	60	110	80	244	539
Transfers	–	–	–	5	288	(293)	–
Disposals	–	–	–	–	(878)	–	(878)
Disposal of subsidiaries (note 32)	(71,647)	(103)	(132,215)	(92,079)	(5,138)	–	(301,182)
Exchange realignment	–	(3)	–	(4)	(2)	–	(9)
At 30 June 2015	2,235	395	16	609	1,718	–	4,973
Accumulated depreciation:
At 1 July 2014	11,000	450	78,823	30,818	3,884	–	124,975
Depreciation provided during the year	854	–	223	103	422	–	1,602
Disposals	–	–	–	–	(478)	–	(478)
Disposal of subsidiaries (note 32)	(10,841)	(52)	(79,030)	(30,427)	(3,152)	–	(123,502)
Exchange realignment	–	(3)	–	(3)	(2)	–	(8)
At 30 June 2015	1,013	395	16	491	674	–	2,589
Impairment:
At 1 July 2014	30,890	51	49,651	60,209	935	–	141,736
Disposal of subsidiaries (note 32)	(30,890)	(51)	(49,651)	(60,209)	(935)	–	(141,736)
At 30 June 2015	–	–	–	–	–	–	–
Net book value:
At 30 June 2014	31,947	–	3,697	1,550	2,549	49	39,792
At 30 June 2015	1,222	–	–	118	1,044	–	2,384

90 Kingwell Group Limited ANNUAL REPORT 2016

30 June 2016

Notes to Financial Statements (Continued)

14. INVESTMENT PROPERTIES

	2016	2015
	RMB’000	RMB’000
Carrying amount at beginning of the year	45,817	14,890
Transfer from completed properties held for sale	–	23,786
Transfer from owner-occupied property (note 13) Transfer to non-current assets classified as held for sale (note 21) Disposals Net (loss)/gain from a fair value adjustment (notes 5, 6)	22 (39,270) (314) (2,305)	– – – 7,141
Carrying amount at end of the year	3,950	45,817

The Group’s investment properties consist of certain commercial properties in Mainland China. The directors of the Company have determined that the investment properties are commercial properties, based on the nature, characteristics and risks of each property. The Group’s investment properties were revalued on 30 June 2016 based on valuations performed by Roma Appraisals Limited, independent professionally qualified valuers, at RMB3,950,000. Each year, the Group’s directors and the chief financial officer decide to appoint which external valuer to be responsible for the external valuations of the Group’s properties. Selection criteria include market knowledge, reputation, independence and whether professional standards are maintained. The Group’s directors and the chief financial officer have discussions with the valuer on the valuation assumptions and valuation results when the valuation is performed.

The investment properties are leased to third parties under operating leases, further summary details of which are included in note 34(a) to the financial statements.

Kingwell Group Limited ANNUAL REPORT 2016

Notes to Financial Statements (Continued)

30 June 2016

14. INVESTMENT PROPERTIES (Continued)

Fair value hierarchy

The following table illustrates the fair value measurement hierarchy of the Group’s investment properties:

Fair value measurement at 30 June 2016 using

Recurring fair value measurement for: Commercial properties	Quoted prices in active markets (Level 1) Significant observable inputs (Level 2) Significant unobservable inputs (Level 3) Total RMB’000 RMB’000 RMB’000 RMB’000

	– – 3,950 3,950

Recurring fair value measurement for: Commercial properties	Fair value measurement at 30 June 2015 using Quoted prices in active markets (Level 1) Significant observable inputs (Level 2) Significant unobservable inputs (Level 3) Total RMB’000 RMB’000 RMB’000 RMB’000 – – 45,817 45,817

During the year, there were no transfers of fair value measurements between Level 1 and Level 2 and no transfers into or out of Level 3 (2015: Nil).

92 Kingwell Group Limited ANNUAL REPORT 2016

30 June 2016

Notes to Financial Statements (Continued)

14. INVESTMENT PROPERTIES (Continued)

Fair value hierarchy (Continued)

Reconciliation of fair value measurements categorised within Level 3 of the fair value hierarchy:

	Commercial
	properties
	RMB’000
Carrying amount at 1 July 2014	14,890
Transfer from completed properties held for sale	23,786
Net gain from a fair value adjustment recognised in other income and gains in profit or loss (note 5)	7,141
Carrying amount at 30 June 2015 and 1 July 2015	45,817
Transfer from owner-occupied property	22
Transfer to non-current assets classified as held for sale	(39,270)
Disposals	(314)
Net loss from a fair value adjustment recognised in other expenses in profit or loss (note 6)	(2,305)
Carrying amount at 30 June 2016	3,950

Below is a summary of the valuation techniques used and the key inputs to the valuation of investment properties:

	Valuation techniques	Significant unobservable inputs	Range or weighted average	Range or weighted average
			2016	2015
Commercial properties	Direct comparison approach	a. Market monthly rental (RMB/sq.m.)	a. 5 – 13	a. 5 – 12
		b. Yield per annum	b. 2.5% – 6.3%	b. 4.5% – 5%
		c. Market unit sale rate (RMB/sq.m.)	c. 2,000 – 2,900	c. 2,000 – 3,000

The direct comparison approach requires a valuation by assuming sale of the property interests in its existing state with the benefit of vacant possession and by making reference to comparable sales transactions as available in the relevant market and also considers the basis of capitalisation of the net income receivable, if necessary.

Kingwell Group Limited ANNUAL REPORT 2016 93

Notes to Financial Statements (Continued)

30 June 2016

15. INTANGIBLE ASSETS

	Mining and	Exploration and
	exploration rights	evaluation assets	Total
	RMB’000	RMB’000	RMB’000
Cost: At 1 July 2015 Disposal Exchange realignment	66,741 – (4,001)	8,311 (982) (591)	75,052 (982) (4,592)
At 30 June 2016	62,740	6,738	69,478
Accumulated amortisation:
At 1 July 2015	–	–	–
Provided for the year	–	–	–
At 30 June 2016	–	–	–
Net carrying amount:
At 30 June 2015	66,741	8,311	75,052
At 30 June 2016	62,740	6,738	69,478

94 Kingwell Group Limited ANNUAL REPORT 2016

30 June 2016

Notes to Financial Statements (Continued)

15. INTANGIBLE ASSETS (Continued)

	Mining and	Exploration
	exploration	and evaluation	Computer
	rights	assets	software	Total
	RMB’000	RMB’000	RMB’000	RMB’000
Cost:
At 1 July 2014	110,784	10,915	1,134	122,833
Addition	–	1,905	–	1,905
Disposal of subsidiaries (note 32)	–	–	(1,134)	(1,134)
Exchange realignment	(44,043)	(4,509)	–	(48,552)
At 30 June 2015	66,741	8,311	–	75,052
Accumulated amortisation:
At 1 July 2014	–	–	929	929
Provided for the year	–	–	46	46
Disposal of subsidiaries (note 32)	–	–	(975)	(975)
At 30 June 2015	–	–	–	–
Net carrying amount:
At 30 June 2014	110,784	10,915	205	121,904
At 30 June 2015	66,741	8,311	–	75,052

16. INVESTMENT IN AN ASSOCIATE

	2016	2015
	RMB’000	RMB’000
Share of net assets	85,493	91,143
Goodwill on acquisition	46,646	46,646
	132,139	137,789

Kingwell Group Limited ANNUAL REPORT 2016

Notes to Financial Statements (Continued)

30 June 2016

16. INVESTMENT IN AN ASSOCIATE (Continued)

On 30 January 2015, the Company acquired a 35% equity interest in Port First Limited (“Port First”) at a consideration of HK$187,500,000, of which (i) HK$100,000,000 (equivalent to RMB79,191,000) was paid in cash and (ii) the remaining HK$87,500,000 (equivalent to RMB69,250,000) was settled by the Company by the issue of a promissory note (note 27), which was a three-year note with an interest rate of 6% per annum from the acquisition date. Port First is an investment holding company and its subsidiaries, Longkou Jinxin Gold Co., Ltd.（龍口市金鑫黃金有限公司）and Longkou Jinhui Gold Co., Ltd.（龍口市金匯黃金有限公司）, are engaged in mining, processing, refining and sale of gold bars in Mainland China.

Particulars of the associate are as follows:

		Place of	Percentage of
		incorporation/	ownership interest
		registration	attributable to
Name	Particulars of issued shares held	and business	the Group	Principal activity
Port First	Ordinary shares of US$1.00 each	BVI	35	Investment holding

Port First which is considered a material associate of the Group, is a strategic partner of the Group engaged in the gold mining business and is accounted for using the equity method.

96 Kingwell Group Limited ANNUAL REPORT 2016

30 June 2016

Notes to Financial Statements (Continued)

16. INVESTMENT IN AN ASSOCIATE (Continued)

The following table illustrates the summarised financial information of Port First and its subsidiaries adjusted for any differences in accounting policies and reconciled to the carrying amount in the consolidated financial statements:

	2016	2015
	RMB’000	RMB’000
Current assets	13,373	11,885
Non-current assets	512,106	536,505
Current liabilities	(64,453)	(64,514)
Non-current liabilities	(112,468)	(112,405)
Net assets	348,558	371,471
Non-controlling interests	(104,293)	(111,062)
	244,265	260,409
Reconciliation to the Group’s interest in the associate:
Proportion of the Group’s ownership	35%	35%
Group’s share of net assets of the associate, excluding goodwill	85,493	91,143
Goodwill on acquisition	46,646	46,646
Carrying amount of the investment	132,139	137,789
		The period from
		the acquisition
		date to
	2016	30 June 2015
	RMB’000	RMB’000
Revenue Loss for the year attributable to:	58,313	29,840
Owners of Port First	(16,180)	(6,830)
Non-controlling interests of Port First	(6,896)	(2,232)
Total comprehensive loss attributable to:
Owners of Port First	(16,142)	(6,509)
Non-controlling interests of Port First	(6,896)	(2,232)

Kingwell Group Limited ANNUAL REPORT 2016 97

Notes to Financial Statements (Continued)

30 June 2016

17. INVENTORIES

	2016	2015
	RMB’000	RMB’000
Property development
Completed properties held for sale	79,650	95,643

During the year, a provision for impairment of RMB9,235,000 (2015: Nil) (note 6) is recognised to write down the inventories to net realisable value.

18. TRADE RECEIVABLES

	2016	2015
	RMB’000	RMB’000
Trade receivables	234	–
Impairment	–	–
	234	–

The Group’s trade receivables arise from the sale of properties. Considerations in respect of the properties sold are payable by the buyers in accordance with the terms of the related sale and purchase agreements. Trade receivables are noninterest-bearing.

The balances of the trade receivables as at 30 June 2016 aged within 1 month based on the invoice date, which were neither past due nor impaired. Based on past experience, the directors of the Company are of the opinion that no provision for impairment is necessary in respect of these balances as they are still considered fully recoverable.

19. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES

	2016	2015
	RMB’000	RMB’000
Deposits and other receivables	4,006	2,968

None of the above assets is either past due or impaired. The financial assets included in the above balances relate to receivables for which there was no recent history of default.

98 Kingwell Group Limited ANNUAL REPORT 2016

Notes to Financial Statements (Continued)

30 June 2016

20. CASH AND CASH EQUIVALENTS AND PLEDGED DEPOSITS

	2016	2015
	RMB’000	RMB’000
Cash and bank balances	38,779	37,063
Time deposits	735	1,262
	39,514	38,325
Less: Time deposits pledged for banking facilities (note)	(735)	(1,262)
Cash and cash equivalents	38,779	37,063

At the end of the reporting period, the cash and bank balances of the Group denominated in RMB amounted to RMB3,296,000 (2015: RMB1,001,000). The RMB is not freely convertible into other currencies, however, under Mainland China’s Foreign Exchange Control Regulations and Administration of Settlement, Sale and Payment of Foreign Exchange Regulations, the Group is permitted to exchange RMB for other currencies through banks authorised to conduct foreign exchange business.

Cash at banks earns interest at floating rates based on daily bank deposit rates. Short term time deposits are made for varying periods of between six and twelve months depending on the immediate cash requirements of the Group, and earn interest at the respective short term time deposit rates. The bank balances and pledged deposits are deposited with creditworthy banks with no recent history of default.

Note: The balances of the property development and property leasing segment were pledged to banks in respect of mortgage loan facilities granted by the banks to the buyers of certain properties developed by the Group.

21. NON-CURRENT ASSETS CLASSIFIED AS HELD FOR SALE

On 7 August and 28 August 2015, the Group entered into letters of intent to dispose of certain investment properties, which located in Anlu City, Hubei Province, PRC, to an independent thirty party (the “Buyer”). On 26 September 2016, the Group entered into a sale and purchase agreement with the Buyer to dispose of the investment properties for a consideration of RMB39,394,000. Details of the transaction are set out in the announcement of the Company dated 26 September 2016.

On 8 April 2016, the Group entered into an agreement with an individual to dispose of an investment property, which located in Anlu City, Hubei Province, PRC, for a consideration of RMB270,000. The disposal of an investment is not yet completed as at 30 June 2016.

During the year, the above investment properties were classified as held for sale and the fair value measurement is RMB39,270,000 as at 30 June 2016.

Kingwell Group Limited ANNUAL REPORT 2016

Notes to Financial Statements (Continued)

30 June 2016

22. TRADE PAYABLES

An aged analysis of the trade payables as at the end of the reporting period, based on the invoice date, is as follows:

	2016	2015
	RMB’000	RMB’000
Within 1 month	–	3,398
3 months to 1 year	1	–
Over 1 year	2,598	3,006
	2,599	6,404

The trade payables are non-interest-bearing and are normally settled on 180-day terms.

23. OTHER PAYABLES AND ACCRUALS

2016 RMB’000 Advances from customers 34,447 Accruals 33 Other payables 14,260	2015 RMB’000 11,984 93 20,070
48,740	32,147

Included in the other payables was an amount due to a subsidiary of Port First, Longkou Jinxin Gold Co., Ltd., of RMB3,004,000 (2015: RMB2,957,000), which was interest-free and repayable on demand.

Other payables are non-interest-bearing and have an average term of six months.

100 Kingwell Group Limited ANNUAL REPORT 2016

30 June 2016

Notes to Financial Statements (Continued)

24. INTEREST-BEARING OTHER BORROWINGS

2016	RMB’000	2015	RMB’000 17,600
Effective interest rate (%) Maturity		Effective interest rate (%) Maturity 8.65-9.22 2016.02 2016 RMB’000 –
– –	–

			2015 RMB’000 17,600

25. NON-REDEEMABLE CONVERTIBLE PREFERRED SHARES

The Company allotted and issued 93,000,000 non-redeemable convertible preferred shares (“CPS”) at HK$1.00 per CPS on 3 May 2011. The holder of the CPS has the right to convert the CPS into a total of 310,000,000 ordinary shares at a price of HK$0.30 per share on any business day after the issue date. A non-cumulative dividend of 2% per annum on the face value is payable by the Company annually in arrears on each anniversary date of the issue date, subject to sufficient reserves permissible by laws from time to time.

Initial recognition of the CPS recognised at the issuance date was calculated as follows:

	RMB’000
Fair value of the CPS	77,820
Equity component of the CPS	(69,801)
Liability component of the CPS	8,019

The Black-Scholes model was used to value the fair value of the CPS. The inputs to the model were as follows:

Valuation date	3 May 2011
Share price	HK$0.32
Exercise price	HK$0.30
Risk-free rate	0.169%
Expected volatility	35.577%
Expected dividend yield	–

The liability component represents the Company’s contractual obligation of interest payment to the holders of the CPS. For the fair value of the liability component of the CPS at initial recognition, the effective interest rate method was adopted in the valuation. The effective interest rate used in the valuation was 12.867%.

101

Kingwell Group Limited ANNUAL REPORT 2016

Notes to Financial Statements (Continued)

30 June 2016

25. NON-REDEEMABLE CONVERTIBLE PREFERRED SHARES (Continued)

The carrying amounts of the liability component of the CPS during the year were calculated as follows:

	2016	2015
	RMB’000	RMB’000
Beginning of the year	408	967
Interest expense	55	78
Conversion	–	(636)
Exchange realignment	36	(1)
End of the year	499	408

On 7 November 2014 and 5 December 2014, 3,000,000 and 2,000,000 CPS were converted into ordinary shares at a price of HK$0.30 per share, respectively, resulting in the issue of an aggregate of 16,666,667 shares of HK$0.10 each. Upon the conversion of the CPS, the related portion of the equity component of HK$4,486,000 (equivalent to RMB3,752,000) recognised upon initial recognition and the carrying amount of the liability component of HK$799,000 (equivalent to RMB636,000) were transferred to share capital of HK$1,667,000 (equivalent to RMB1,395,000) and share premium of HK$3,618,000 (equivalent to RMB2,993,000), respectively.

26. DEFERRED TAX

The movements in deferred tax liabilities and assets during the year are as follows:

Deferred tax liabilities

Deferred tax liabilities
		Fair value	Revaluation
	Withholding	adjustment of	of investment
	taxes	properties	properties	Others	Total
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
At 1 July 2014	1,015	9,426	947	79	11,467
Charged/(credited) to profit or
loss during the year (note 10)	41	(147)	1,846	235	1,975
At 30 June 2015 and 1 July 2015	1,056	9,279	2,793	314	13,442
Charged/(credited) to profit or
loss during the year (note 10)	(404)	(357)	(576)	56	(1,281)
At 30 June 2016	652	8,922	2,217	370	12,161

102 Kingwell Group Limited ANNUAL REPORT 2016

30 June 2016

Notes to Financial Statements (Continued)

26. DEFERRED TAX (Continued)

Deferred tax liabilities (Continued)

Pursuant to the PRC Corporate Income Tax Law, a 10% withholding tax is levied on dividends declared to foreign investors from the foreign investment enterprises established in Mainland China. The requirement is effective from 1 January 2008 and applies to earnings after 31 December 2007. A lower withholding tax rate may be applied if there is a tax treaty between Mainland China and the jurisdiction of the foreign investors. For the Group, the applicable rate is 5% (2015: 5%). The Group is therefore liable for withholding taxes on dividends distributed by those subsidiaries established in Mainland China in respect of earnings generated from 1 January 2008.

Deferred tax assets

Deferred tax assets
	Write-down of
	inventories
	to net	Provision	Accruals and
	realisable value	for LAT	other provision	Total
	RMB’000	RMB’000	RMB’000	RMB’000
At 1 July 2014	–	890	718	1,608
Credited to profit or loss
during the year (note 10)	–	311	272	583
At 30 June 2015 and 1 July 2015	–	1,201	990	2,191
Credited/(charged) to profit or
loss during the year (note 10)	2,308	196	(508)	1,996
At 30 June 2016	2,308	1,397	482	4,187

Deferred tax assets have not been recognised in respect of the following item:

	2016	2015
	RMB’000	RMB’000
Tax losses	525,164	497,570

The Group has tax losses arising in Hong Kong of RMB510,741,000 (2015: RMB486,213,000) that are available indefinitely for offsetting against future taxable profits of the companies in which the losses arose.

The Group also has tax losses arising in Mainland China of RMB3,107,000 (2015: RMB2,824,000) that will expire in five years for offsetting against future taxable profits.

The Group also has tax losses arising in Russia of RMB11,316,000 (2015: RMB8,533,000) that will expire in six to ten years for offsetting against future taxable profits.

103

Kingwell Group Limited ANNUAL REPORT 2016

Notes to Financial Statements (Continued)

30 June 2016

26. DEFERRED TAX (Continued)

Deferred tax assets (Continued)

Deferred tax assets have not been recognised in respect of the above items as they have arisen in subsidiaries that have been loss-making for some time and it is not considered probable that taxable profits will be available against which the above items can be utilised.

27. PROMISSORY NOTE

As part of the consideration for the acquisition of a 35% equity interest in Port First, the Company issued a promissory note with a principal amount of HK$87,500,000 (equivalent to RMB69,250,000) and a maturity date of 30 January 2018. The promissory note carried interest at a rate of 6% per annum. The fair value of the promissory note at initial recognition was HK$76,920,000 (equivalent to RMB60,877,000) which was determined by independent professionally qualified valuers. The effective interest rate of the promissory note was 10.3% per annum.

The Company is allowed to redeem the outstanding promissory note in any amount so long as giving written notice at least 7 days in advance. The Company has early redeemed the promissory note with the whole principal amount as at 30 June 2016.

The movements of the promissory note during the year were as follows:

	2016	2015
	RMB’000	RMB’000
At beginning of the year At the issuance date, at fair value Interest expense Interest payable Early redemption Exchange realignment	22,621 – 3,321 (150) (27,011) 1,219	– 60,877 6,614 (1,261) (43,528) (81)
At end of the year	–	22,621

104 Kingwell Group Limited ANNUAL REPORT 2016

Notes to Financial Statements (Continued)

30 June 2016

28. SHARE CAPITAL

Shares
	2016	2015
	HK$’000	HK$’000
Authorised:
5,000,000,000 (2015: 5,000,000,000) ordinary shares of HK$0.10 each	500,000	500,000
100,000,000 (2015: 100,000,000) CPS of HK$1.00 each	100,000	100,000
	600,000	600,000
	2016	2015
	RMB’000	RMB’000
Issued and fully paid:
2,884,091,737 (2015: 2,595,682,564) ordinary shares	252,856	229,285

During the years, the movements in share capital were as follows:

(a) On 5 November 2015, 288,409,173 offer shares were issued at the subscription price of HK$0.16 per offer share on the basis of one offer share for every nine existing ordinary shares of the Company held under the open offer (the “Open Offer”), resulting in an increase of share capital and share premium of HK$28,841,000 (equivalent to RMB23,571,000) and HK$17,305,000 (equivalent to RMB14,144,000), respectively. All the consideration for the Open Offer was received in cash.
(b) On 27 January 2015, 185,000,000 shares were placed to 11 placees, independent third parties of the Group, at a placing price of HK$0.47 per share (the “2015 Placing”), resulting in the issue of 185,000,000 shares of HK$0.10 each. The 2015 Placing gave rise to an increase of share capital and share premium of HK$18,500,000 (equivalent to RMB14,600,000) and HK$68,450,000 (equivalent to RMB54,019,000), respectively. Proceeds from the 2015 Placing of HK$86,950,000 (equivalent to RMB68,619,000) were satisfied by cash.
(c) In the prior year, the subscription rights attaching to 28,000,000, 31,200,000, 5,384,000 and 29,060,000 share options were exercised at the subscription prices of HK$0.287, HK$0.449, HK$0.306 and HK$0.610 per share, respectively, resulting in the issue of 93,644,000 shares of HK$0.10 each for a total cash consideration, before expenses, of HK$41,419,000 (equivalent to RMB32,800,000). An amount of HK$20,916,000 (equivalent to RMB16,564,000) was transferred from the share option reserve to the share premium account upon exercise of the share options.
(d) On 7 November 2014 and 5 December 2014, 3,000,000 and 2,000,000 CPS were converted into ordinary shares at a price of HK$0.30 per share, respectively, resulting in the issue of an aggregate of 16,666,667 shares of HK$0.10 each. Further details are set out in note 25 to the financial statements.

Kingwell Group Limited ANNUAL REPORT 2016 105

Notes to Financial Statements (Continued)

30 June 2016

28. SHARE CAPITAL (Continued)

(e) In the prior year, 15,000,000 and 3,000,000 shares of HK$0.10 each were issued for cash at the subscription prices of HK$0.29 and HK$0.75 per share, respectively, pursuant to the exercise of the Company’s warrants for a total cash consideration, before expenses, of HK$6,600,000 (equivalent to RMB5,221,000). Further details are set out in note 30(iv) to the financial statements.

A summary of movements in the Company’s share capital and share premium account is as follows:

		Number of		Share premium
	Notes	shares in issue	Issued capital	account	Total
			RMB’000	RMB’000	RMB’000
At 1 July 2014		2,282,371,897	204,451	559,559	764,010
Placing of shares	(b)	185,000,000	14,600	54,019	68,619
Share options exercised	(c)	93,644,000	7,415	25,385	32,800
Transfer from share option reserve	(c)	–	–	16,564	16,564
Conversion of CPS	(d)	16,666,667	1,395	2,993	4,388
Warrants exercised	(e)	18,000,000	1,424	3,941	5,365
At 30 June 2015		2,595,682,564	229,285	662,461	891,746
Issue of shares	(a)	288,409,173	23,571	14,144	37,715
At 30 June 2016		2,884,091,737	252,856	676,605	929,461

Share options

Details of the Company’s share option scheme and the share options issued under the scheme are included in note 29 to the financial statements.

29. SHARE OPTIONS

The Group has launched six lots of share options (the “Options”) on 26 May 2010, 8 November 2010, 11 May 2011, 8 January 2014, 9 January 2015 and 14 October 2015, respectively, for the purpose of providing incentives and rewards to the eligible participants who contribute to the success of the Group’s operations. Eligible participants of the Options include the Company’s executive directors, employees and consultants.

The maximum number of unexercised share options currently permitted to be granted is an amount equivalent, upon their exercise, to 10% of the shares of the Company in issue at any time. The maximum number of shares issuable under share options to each eligible participant in the Options within any 12-month period is limited to 1% of the shares of the Company in issue at any time. Any further grant of share options in excess of this limit is subject to shareholders’ approval in a general meeting.

106 Kingwell Group Limited ANNUAL REPORT 2016

30 June 2016

Notes to Financial Statements (Continued)

29. SHARE OPTIONS (Continued)

Share options granted to a director, chief executive or substantial shareholder of the Company, or to any of their associates, are subject to approval in advance by the independent non-executive directors. In addition, any share options granted to a substantial shareholder or an independent non-executive director of the Company, or to any of their associates, in excess of 0.1% of the shares of the Company in issue at any time and with an aggregate value (based on the price of the Company’s shares at the date of grant) in excess of HK$5 million, within any 12-month period, are subject to shareholders’ approval in advance in a general meeting.

The offer of a grant of share options may be accepted within 7 days from the date of offer, upon payment of a nominal consideration of HK$1 in total by the grantee.

The exercise price of share options is determinable by the directors, but may not be less than the highest of (i) the Stock Exchange closing price of the Company’s shares on the date of offer of the share options; (ii) the average Stock Exchange closing price of the Company’s shares for the five trading days immediately preceding the date of offer; and (iii) the nominal value of the shares.

Share options do not confer rights on the holders to dividends or to vote at shareholders’ meetings.

Details of the six lots of share options granted are as follows:

(a) The first lot of share options

On 26 May 2010, 75,000,000 share options were granted to the eligible participants of the Group. The exercise price of the options is HK$0.287 per share.

The share options were exercisable any time within five years starting from 26 May 2010 with no service conditions and performance conditions attached.

The exercise price of the share options was subject to adjustment in the case of conversion of statutory reserves into capital, split-up of shares, merging of shares, dividend distribution, or other similar changes in the Company’s stock price.

The fair value of the first lot of equity-settled share options was estimated as at the date of grant using the Binomial Option Pricing model, taking into account the terms and conditions upon which the options were granted.

The following table lists the inputs to the model used:

		Options
	Options	granted to
	granted to	employees and
	directors	consultants
Stock price per share	HK$0.285	HK$0.285
Exercise price per share	HK$0.287	HK$0.287
Expected volatility	68.608%	68.608%
Risk-free interest rate	1.524%	1.524%
Expected life	5 years	5 years
Sub-optional factor	2.8	2.8
Fair value per share	HK$0.1473	HK$0.0916

107

Kingwell Group Limited ANNUAL REPORT 2016

Notes to Financial Statements (Continued)

30 June 2016

29. SHARE OPTIONS (Continued)

(a) The first lot of share options (Continued)

The expected life of the options was based on the historical data and was not necessarily indicative of the exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility was indicative of future trends, which may also not necessarily be the actual outcome.

(b) The second lot of share options

On 8 November 2010, 31,200,000 share options were granted to the eligible participants of the Group. The exercise price of the options is HK$0.449 per share.

The share options were exercisable any time within five years starting from 8 November 2010 with no service conditions and performance conditions attached.

The fair value of the second lot of equity-settled share options was estimated as at the date of grant using the BlackScholes model, taking into account the terms and conditions upon which the options were granted. The following table lists the inputs to the model used:

Stock price per share	HK$0.435
Exercise price per share	HK$0.449
Expected volatility	91.434%
Risk-free interest rate	0.454%
Expected life	5 years
Fair value per share	HK$0.224

On 11 May 2011, 45,000,000 share options were granted to the eligible participants of the Group. The exercise price of the options is HK$0.306 per share.

The share options were exercisable any time within five years starting from 11 May 2011 with no service conditions and performance conditions attached.

108 Kingwell Group Limited ANNUAL REPORT 2016

30 June 2016

Notes to Financial Statements (Continued)

29. SHARE OPTIONS (Continued)

(c) The third lot of share options (Continued)

The fair value of the third lot of equity-settled share options was estimated as at the date of grant using the BlackScholes model, taking into account the terms and conditions upon which the options were granted. The following table lists the inputs to the model used:

Stock price per share	HK$0.305
Exercise price per share	HK$0.306
Expected volatility	86.216%
Risk-free interest rate	0.759%
Expected life	5 years
Fair value per share	HK$0.151

(d) The fourth lot of share options

On 8 January 2014, 91,500,000 share options were granted to the eligible participants of the Group. The exercise price of the options is HK$0.610 per share.

The share options are exercisable any time within five years starting from 8 January 2014 with no service conditions and performance conditions attached.

The exercise price of the share options is subject to adjustment in the case of conversion of statutory reserves into capital, split-up of shares, merging of shares, dividend distribution, or other similar changes in the Company’s stock price.

The fair value of the fourth lot of equity-settled share options was estimated as at the date of grant using the Binomial Option Pricing model, taking into account the terms and conditions upon which the options were granted. The following table lists the inputs to the model used:

Stock price per share	HK$0.600
Exercise price per share	HK$0.610
Expected volatility	68.363%
Risk-free interest rate	1.437%
Expected life	5 years
Fair value per share	HK$0.34

Kingwell Group Limited ANNUAL REPORT 2016 109

Notes to Financial Statements (Continued)

30 June 2016

29. SHARE OPTIONS (Continued)

(d) The fourth lot of share options (Continued)

(e) The fifth lot of share options

On 9 January 2015, 102,300,000 share options were granted to the eligible participants of the Group. The exercise price of the options is HK$0.582 per share.

The share options are exercisable any time within five years starting from 9 January 2015 with no service conditions and performance conditions attached.

The fair value of the share options granted was HK$28,644,000 (HK$0.28 each) (equivalent to RMB22,659,000 (RMB0.22 each)), of which the Group recognised a share option expense of RMB22,659,000 during the year ended 30 June 2015.

The fair value of the fifth lot of equity-settled share options was estimated as at the date of grant using the Binomial Option Pricing model, taking into account the terms and conditions upon which the options were granted. The following table lists the inputs to the model used:

Stock price per share	HK$0.550
Exercise price per share	HK$0.582
Expected volatility	61.462%
Risk-free interest rate	1.237%
Expected life	5 years
Fair value per share	HK$0.28

110 Kingwell Group Limited ANNUAL REPORT 2016

30 June 2016

Notes to Financial Statements (Continued)

29. SHARE OPTIONS (Continued)

(f) The sixth lot of share options

On 14 October 2015, 87,000,000 share options were granted to the eligible participants of the Group. The exercise price of the options is HK$0.30 per share.

The share options are exercisable any time within four years starting from 14 October 2015 with no service conditions and performance conditions attached.

The fair value of the share options granted during the year was HK$14,790,000 (HK$0.17 each) (equivalent to RMB12,129,000 (RMB0.14 each)), of which the Group recognised a share option expense of RMB12,129,000 during the year ended 30 June 2016.

The fair value of the sixth lot of equity-settled share options was estimated as at the date of grant using the Binomial Option Pricing model, taking into account the terms and conditions upon which the options were granted. The following table lists the inputs to the model used:

Stock price per share	HK$0.30
Exercise price per share	HK$0.30
Expected volatility	77.888%
Risk-free interest rate	0.634%
Expected life	4 years
Fair value per share	HK$0.17

The expected life of the options is based on the historical data and is not necessarily indicative of the exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome.

Kingwell Group Limited ANNUAL REPORT 2016 111

Notes to Financial Statements (Continued)

30 June 2016

29. SHARE OPTIONS (Continued)

Movement in the first lot of share options for eligible participants for the year ended 30 June 2015 was as follows:

	Total number
	of share options	Weighted
	outstanding	average
	during	exercise price
	the year ended	per share
	30 June 2015	(HK$)
Outstanding at beginning of year	28,000,000	0.287
Exercised during the year	(28,000,000)	0.287
Outstanding at end of year	–
Exercisable at end of year	–

Movement in the second lot of share options for eligible participants for the year ended 30 June 2015 was as follows:

	Total number of
	share options	Weighted
	outstanding	average
	during	exercise price
	the year ended	per share
	30 June 2015	(HK$)
Outstanding at beginning of year	31,200,000	0.449
Exercised during the year	(31,200,000)	0.449
Outstanding at end of year	–
Exercisable at end of year	–

112 Kingwell Group Limited ANNUAL REPORT 2016

30 June 2016

Notes to Financial Statements (Continued)

29. SHARE OPTIONS (Continued)

Movement in the third lot of share options for eligible participants for the year ended 30 June 2015 was as follows:

	Total number of
	share options	Weighted
	outstanding	average
	during	exercise price
	the year ended	per share
	30 June 2015	(HK$)
Outstanding at beginning of year	5,384,000	0.306
Exercised during the year	(5,384,000)	0.306
Outstanding at end of year	–
Exercisable at end of year	–

Movements in the fourth lot of share options for eligible participants during the years were as follows:

Total number of share options outstanding during the year ended 30 June 2016 Weighted average exercise price per share (HK$) Outstanding at beginning of year 49,796,000 0.610 Adjusted during the year (note) 1,991,840 0.587 Exercised during the year – 0.587	Total number of share options outstanding during the year ended 30 June 2015 Weighted average exercise price per share (HK$) 78,856,000 0.610 – – (29,060,000) 0.610 49,796,000 0.610 49,796,000
Outstanding at end of year 51,787,840 0.587
Exercisable at end of year 51,787,840

Kingwell Group Limited ANNUAL REPORT 2016 113

Notes to Financial Statements (Continued)

30 June 2016

29. SHARE OPTIONS (Continued)

Movements in the fifth lot of share options for eligible participants during the years were as follows:

Total number of share options outstanding during the year ended 30 June 2016 Weighted average exercise price per share (HK$) Outstanding at beginning of year 102,300,000 0.582 Adjusted during the year (note) 4,092,000 0.560 Granted during the year – –	Total number of share options outstanding during the year ended 30 June 2015 Weighted average exercise price per share (HK$) – – – – 102,300,000 0.582 102,300,000 0.582 102,300,000
Outstanding at end of year 106,392,000 0.560
Exercisable at end of year 106,392,000

Note: Upon completion of the Open Offer of the Company during the year, the exercise price and the number of outstanding share options were adjusted.

Movements in the sixth lot of share options for eligible participants during the year were as follows:

	Total number of
	share options	Weighted
	outstanding	average
	during	exercise price
	the year ended	per share
	30 June 2016	(HK$)
Outstanding at beginning of year	–	–
Granted during the year	87,000,000	0.30
Outstanding at end of year	87,000,000	0.30
Exercisable at end of year	87,000,000

The weighted average share price at the date of exercise for share options exercised during the year ended 30 June 2015 was HK$1.119 per share.

114 Kingwell Group Limited ANNUAL REPORT 2016

30 June 2016

Notes to Financial Statements (Continued)

29. SHARE OPTIONS (Continued)

At the end of the reporting period, the Company had 245,179,840 (2015: 152,096,000) share options outstanding under the Options. The exercise in full of the outstanding share options would, under the present capital structure of the Company, result in the issue of 245,179,840 (2015: 152,096,000) additional ordinary shares of the Company and additional share capital of HK$24,518,000 (equivalent to RMB20,955,000) (2015: HK$15,210,000, equivalent to RMB12,037,000) and share premium of HK$91,561,000 (equivalent to RMB78,254,000) (2015: HK$74,704,000, equivalent to RMB59,121,000) (before issue expenses and amounts to be transferred from share option reserve).

Subsequent to the end of the reporting period, no share options were exercised. At the date of approval of these financial statements, the Company had 245,179,840 share options outstanding under the Options, which represented approximately 8.50% of the Company’s shares in issue as at that date.

30. RESERVES

The amounts of the Group’s reserves and the movements therein for the current and prior years are presented in the consolidated statement of changes in equity on pages 45 to 46 of the financial statements.

(i) Share premium account

Under the Companies Law (Revised) of the Cayman Islands, share premium is distributable to shareholders, subject to the condition that the Company cannot declare or pay a dividend, or make a distribution out of share premium if (a) it is, or would after the payment be, unable to pay its liabilities as they become due, or (b) the realisable value of its assets would thereby be less than the aggregate of its liabilities and its issued share capital account.

(ii) Share option reserve

Share option reserve comprises the portion of the grant date fair value of unexercised share options granted under the share option scheme adopted by the Company.

(iii) Statutory reserve

In accordance with the PRC regulations, each of the PRC Subsidiaries is required to allocate 10% of its profit after tax, as determined under the PRC accounting regulations, to the statutory reserve until such reserve reaches 50% of its registered capital. Part of the statutory reserve may be used either to offset losses, or to be converted to increase the paid-up capital, provided that the remaining balance after the capitalisation is not less than 25% of the registered capital.

115

Kingwell Group Limited ANNUAL REPORT 2016

Notes to Financial Statements (Continued)

30 June 2016

30. RESERVES (Continued)

(iv) Warrants reserve

On 31 January 2012, the Company issued 100,000,000 warrants at an issue price of HK$0.01 per warrant. Each warrant entitles the holder thereof to subscribe for one ordinary share at a subscription price of HK$0.29 per share, from the date of issue to 31 January 2015. The total consideration of HK$1,000,000 (equivalent to RMB814,000) received was credited directly to the warrants reserve in equity in 2012. In previous years, 85,000,000 warrants were exercised and the related portion of the warrants reserve of HK$850,000 (equivalent to RMB695,000) was transferred to share premium. During 2015, the remaining 15,000,000 warrants were exercised and the related portion of the warrants reserve of HK$150,000 (equivalent to RMB120,000) was transferred to share premium.

On 21 May 2014, the Company issued 370,000,000 warrants at an issue price of HK$0.01 per warrant. Each warrant entitles the holder thereof to subscribe for one ordinary share at a subscription price of HK$0.75 per share, from the date of issue to 20 May 2015. The total consideration of HK$3,700,000 (equivalent to RMB2,930,000) received was credited directly to the warrants reserve in equity. In 2015, 3,000,000 warrants were exercised and the related portion of the warrants reserve of HK$30,000 (equivalent to RMB24,000) was transferred to share premium. The remaining 367,000,000 warrants expired on 20 May 2015, and the relevant warrants reserve of HK$3,670,000 (equivalent to RMB2,905,000) was transferred to accumulated losses.

(v) Capital contribution reserve

The capital contribution reserve represents the difference between the fair value of the interest-free financial assistance provided by the former shareholder of the Company initially recognised in the financial statements and the nominal amount of cash received/receivable by the Group.

116

Kingwell Group Limited ANNUAL REPORT 2016

Notes to Financial Statements (Continued)

30 June 2016

31. PARTLY-OWNED SUBSIDIARY WITH MATERIAL NON-CONTROLLING INTERESTS

Details of the Group’s subsidiary that has material non-controlling interests are set out below:

	2016	2015
Percentage of equity interest held by non-controlling interests:
Commerce Prosper Limited	49%	49%
	2016	2015
	RMB’000	RMB’000
Loss for the year allocated to non-controlling interests:
Commerce Prosper Limited	(2,239)	(5,159)
	2016	2015
	RMB’000	RMB’000
Accumulated balances of non-controlling interests at the reporting dates:
Commerce Prosper Limited	42,900	45,650

The following tables illustrate the summarised financial information of the above subsidiary. The amounts disclosed are before any inter-company eliminations:

	Commerce Prosper Limited	Commerce Prosper Limited
	2016	2015
	RMB’000	RMB’000
Revenue	–	–
Total expenses	(4,570)	(10,528)
Loss for the year	(4,570)	(10,528)
Total comprehensive loss for the year	(4,570)	(10,528)
Current assets	23,775	24,642
Non-current assets	63,865	68,626
Current liabilities	(88)	(105)
Net cash flows from/(used in) operating activities Net cash flows from/(used in) investing activities	1,958 1,900	(9,617) (662)
Net cash flows from financing activities	–	2,965
Net increase/(decrease) in cash and cash equivalents	3,858	(7,314)

Kingwell Group Limited ANNUAL REPORT 2016 117

Notes to Financial Statements (Continued)

30 June 2016

32. DISPOSAL OF SUBSIDIARIES

As detailed in note 11 to the financial statements, the Company disposed of its 100% equity interest in the Superford Group to an independent third party for a cash consideration of HK$700,000 (equivalent to RMB554,000) on 31 October 2014. In addition, on 12 June 2015, the Company disposed of its 100% equity interest in Artic Hong Kong Limited (“Artic”) to an independent third party at a cash consideration of HK$2. Artic was an investment holding company and dormant during the year ended 30 June 2015.

	Superford
	Group	Artic	Total
	RMB’000	RMB’000	RMB’000
Net liabilities disposed of:
Property, plant and equipment (note 13)	35,918	26	35,944
Prepaid land lease payments	1,711	–	1,711
Intangible assets (note 15)	159	–	159
Prepayments and other receivables	7,587	303	7,890
Inventories	7,739	–	7,739
Trade receivables	18,359	–	18,359
Equity investments at fair value through profit or loss	151	–	151
Cash and cash equivalents	104,301	275	104,576
Trade payables	(20,893)	–	(20,893)
Other payables and accruals	(91,176)	(2,681)	(93,857)
Interest-bearing bank and other borrowings	(134,530)	–	(134,530)
	(70,674)	(2,077)	(72,751)
Reclassification of exchange fluctuation reserve to
profit or loss upon disposal of subsidiaries	(17,934)	(2,553)	(20,487)
Gain on disposal	89,162	4,630	93,792
	554	–	554
Satisfied by:
Cash	554	–	554

118 Kingwell Group Limited ANNUAL REPORT 2016

30 June 2016

Notes to Financial Statements (Continued)

32. DISPOSAL OF SUBSIDIARIES (Continued)

An analysis of the net outflow of cash and cash equivalents in respect of the disposal of subsidiaries was as follows:

	Superford
	Group	Artic	Total
	RMB’000	RMB’000	RMB’000
Cash consideration	554	–	554
Cash and cash equivalents disposed of	(104,301)	(275)	(104,576)
Net outflow of cash and cash equivalents in respect
of the disposal of subsidiaries	(103,747)	(275)	(104,022)

33. CONTINGENT LIABILITIES

At the end of the reporting period, contingent liabilities of the Group not provided for in the consolidated financial statements were as follows:

	2016	2015
	RMB’000	RMB’000
Guarantees given to banks in connection with facilities granted to: Buyers of certain properties developed by the Group	735	1,262

As at 30 June 2016, banking facilities of RMB735,000 were granted to the buyers of certain properties developed by the Group (2015: RMB1,262,000).

119

Kingwell Group Limited ANNUAL REPORT 2016

Notes to Financial Statements (Continued)

30 June 2016

34. OPERATING LEASE ARRANGEMENTS

(a) As lessor

The Group leases its investment properties (note 14) under operating lease arrangements, with leases negotiated for terms ranging from one to two years (2015: three to ten years). The terms of the leases generally also require the tenants to pay security deposits and provide for periodic rent adjustments according to the then prevailing market conditions.

At 30 June 2016, the Group had total future minimum lease receivables under non-cancellable operating leases with its tenants falling due as follows:

	2016	2015
	RMB’000	RMB’000
Within one year	577	1,684
In the second to fifth years, inclusive	39	6,344
After five years	–	4,796
	616	12,824

During the year, the Group has entered into letters of intent to dispose of certain investment properties to a lessee and the leases will be terminated upon completion of the disposal. Further details are set out in note 21 to the financial statements.

(b) As lessee

The Group leases certain of its office premises under operating lease arrangements for lease terms of one year. At 30 June 2016, the Group had total future minimum lease payments under non-cancellable operating leases falling due as follows:

	2016	2015
	RMB’000	RMB’000
Within one year	673	473

120 Kingwell Group Limited ANNUAL REPORT 2016

30 June 2016

Notes to Financial Statements (Continued)

35. COMMITMENTS

In addition to the operating lease commitments detailed in note 34(b) above, the Group had the following capital commitments at the end of the reporting period:

	2016	2015
	RMB’000	RMB’000
Contracted, but not provided for: Acquisition of a subsidiary	176,000	–

On 29 June 2016, the Company and Quick Nimble Group Limited (“Quick Nimble”), a company incorporated in the BVI, entered into the sale and purchase agreement, pursuant to which the Company conditionally agreed to purchase the entire issued share capital of Quick Nimble at the consideration of RMB176,000,000. The consideration will be fully satisfied by the allotment and issue of not more than 692,182,017 shares at the initial issue price of HK$0.301 per share. Upon completion the reorganisation of Shenzhen Zhongke Blue Sky Investment Limited (“Zhongke”), a company established in the PRC, Quick Nimble will hold a 51% equity interest in Zhongke. Zhongke and its subsidiaries are principally engaged in investment, development, construction and operation of renewable energy power plants in the PRC. Details of the transaction are set in the announcement of the Company dated 29 June 2016.

36. RELATED PARTY TRANSACTIONS

(a) Other transaction with a related party:

The Company entered into a lease agreement with Truroll Investment Limited, of which Mr. Hui Lung Hing was the chairman until 3 March 2015. Mr. Hui Lung Hing is also a substantial shareholder, a former executive director and the former chairman of the Company. Pursuant to the agreement, the Company agreed to pay a monthly rental of HK$50,000 in respect of the Company’s occupation of Units 314-315, Wing On Plaza, 62 Mody Road, Tsimshatsui East, Kowloon, Hong Kong. During the year ended 30 June 2015, the Company paid a total rental of HK$600,000 (equivalent to RMB475,000) to Truroll Investment Limited. Upon Mr. Hui Lung Hing’s retirement as chairman of Truroll Investment Limited, this transaction no longer constituted a related party transaction during the year ended 30 June 2016.

(b) Outstanding balance with a related party:

Details of the Group’s amount due to an associate are included in note 23 to the financial statements.

121

Kingwell Group Limited ANNUAL REPORT 2016

Notes to Financial Statements (Continued)

30 June 2016

36. RELATED PARTY TRANSACTIONS (Continued)

	2016	2015
	RMB’000	RMB’000
Short term employee benefits	1,047	1,522
Equity-settled share option expense	–	1,878
Post-employment benefits	17	36
Total compensation paid to key management personnel	1,064	3,436

Further details of directors’ emoluments are included in note 8 to the financial statements.

The related party transaction in respect of item (a) above constituted connected transaction or continuing connected transaction as defined in Chapter 14A of the Listing Rules during the year ended 30 June 2015.

37. FINANCIAL INSTRUMENTS BY CATEGORY

The carrying amounts of each of the categories of financial instruments as at the end of the reporting period are as follows:

2016

	Loans and
	receivables
	RMB’000
Financial assets
Trade receivables	234
Financial assets included in prepayments, deposits and other receivables	4,006
Pledged deposits	735
Cash and cash equivalents	38,779
	43,754

122 Kingwell Group Limited ANNUAL REPORT 2016

30 June 2016

Notes to Financial Statements (Continued)

37. FINANCIAL INSTRUMENTS BY CATEGORY (Continued)

2016 (Continued)

	Financial
	liabilities at
	amortised cost
	RMB’000
Financial liabilities
Trade payables	2,599
Financial liabilities included in other payables and accruals	7,346
Non-redeemable convertible preferred shares	499
	10,444

2015
	Loans and
	receivables
	RMB’000
Financial assets
Financial assets included in prepayments, deposits and other receivables	2,845
Pledged deposits	1,262
Cash and cash equivalents	37,063
	41,170
	Financial
	liabilities at
	amortised cost
	RMB’000
Financial liabilities
Trade payables	6,404
Financial liabilities included in other payables and accruals	21,447
Interest-bearing other borrowings	17,600
Non-redeemable convertible preferred shares	408
Promissory note	22,621
	68,480

Kingwell Group Limited ANNUAL REPORT 2016 123

Notes to Financial Statements (Continued)

30 June 2016

38. FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS

The carrying amounts and fair values of the Group’s financial instruments, other than those with carrying amounts that reasonably approximate to fair values, are as follows:

	Carrying amounts	Carrying amounts	Fair values
	2016	2015	2016	2015
	RMB’000	RMB’000	RMB’000	RMB’000
Financial liabilities
Non-redeemable convertible preferred shares	499	408	499	408
Promissory note	–	22,621	–	22,621
	499	23,029	499	23,029

Management has assessed that the fair values of trade receivables, financial assets included in prepayments, deposits and other receivables, pledged deposits, cash and cash equivalents, trade payables, financial liabilities included in other payables and accruals, and interest-bearing other borrowings approximate to their carrying amounts largely due to the short term maturities of these instruments.

The Group’s finance department headed by the chief financial officer is responsible for determining the policies and procedures for the fair value measurement of financial instruments. The finance manager reports directly to the chief financial officer and the audit committee. At each reporting date, the finance department analyses the movements in the values of financial instruments and determines the major inputs applied in the valuation. The valuation is reviewed and approved by the chief financial officer.

The fair values of the financial assets and liabilities are included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The fair values of non-redeemable convertible preferred shares and a promissory note have been calculated by discounting the expected future cash flows using rates currently available for instruments with similar terms, credit risk and remaining maturities. The Group’s own nonperformance risk for the non-redeemable convertible preferred shares and promissory note at the end of each of the years was assessed to be insignificant.

124 Kingwell Group Limited ANNUAL REPORT 2016

30 June 2016

Notes to Financial Statements (Continued)

38. FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS (Continued)

Fair value hierarchy

The following tables illustrate the fair value measurement hierarchy of the Group’s financial instruments:

Liabilities for which fair values are disclosed:

As at 30 June 2016

Non-redeemable convertible preferred shares	Fair value measurement using Quoted prices in active markets (Level 1) Significant observable inputs (Level 2) Significant unobservable inputs (Level 3) Total RMB’000 RMB’000 RMB’000 RMB’000

	– 499 – 499

As at 30 June 2015

Non-redeemable convertible preferred shares Promissory note	Fair value measurement using Quoted prices in active markets (Level 1) Significant observable inputs (Level 2) Significant unobservable inputs (Level 3) Total RMB’000 RMB’000 RMB’000 RMB’000 – 408 – 408 – 22,621 – 22,621
	– 23,029 – 23,029

During the year, there were no transfers of fair value measurements between Level 1 and Level 2 and no transfers into or out of Level 3 for the financial liabilities (2015: Nil).

Kingwell Group Limited ANNUAL REPORT 2016 125

Notes to Financial Statements (Continued)

30 June 2016

39. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Group’s principal financial instruments comprise other interest-bearing loans, non-redeemable convertible preferred shares, a promissory note and cash and pledged deposits. The main purpose of these financial instruments is to raise finance for the Group’s operations. The Group has various other financial assets and liabilities such as trade receivables and trade payables, which arise directly from its operations.

The main risks arising from the Group’s financial instruments are interest rate risk, credit risk and liquidity risk. The board of directors reviews and agrees policies for managing each of these risks and they are summarised below.

Interest rate risk

The Group’s operating results and cash flows are not substantially affected by changes in market interest rates. In addition, the Group has no significant interest-bearing assets and liabilities except for cash and cash equivalents, pledged deposits and interest-bearing other borrowings and the promissory note. Cash at banks earns interest at floating rates based on daily bank deposit rates, and has no material exposures to interest rate risk. All of the Group’s interest-bearing other borrowings and the promissory note bore interest at fixed rates.

The interest rates and terms of repayment of the Group’s borrowings are disclosed in notes 24 and 27 to the financial statements.

Credit risk

The Group trades only with recognised and creditworthy third parties. It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis and the Group’s exposure to bad debts is not significant. For transactions that are not denominated in the functional currency of the relevant operating unit, the Group does not offer credit terms without the specific approval of management.

The credit risk of the Group’s other financial assets, which comprise cash and cash equivalents and other receivables arises from default of the counterparty, with a maximum exposure equal to the carrying amounts of these instruments.

Since the Group trades only with recognised and creditworthy third parties, there is no requirement for collateral. Concentrations of credit risk are managed by customer. The Group is not exposed to material credit risk for the two years.

Further quantitative data in respect of the Group’s exposure to credit risk arising from trade and other receivables are disclosed in notes 18 and 19 to the financial statements.

126 Kingwell Group Limited ANNUAL REPORT 2016

30 June 2016

Notes to Financial Statements (Continued)

39. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)

Liquidity risk

The Group monitors its risk to a shortage of funds using a recurring liquidity planning tool. This tool considers the maturity of both its financial instruments and financial assets (e.g., trade receivables) and projected cash flows from operations.

The maturity profile of the Group’s financial liabilities as at the end of the reporting period, based on the contractual undiscounted payments, is as follows:

Group

		2016	2016
	On demand
	or less than
	12 months	1 to	5	years	Total
	RMB’000	RMB’000			RMB’000
Trade payables	2,599			–	2,599
Financial liabilities included
in other payables and accruals	7,346			–	7,346
Non-redeemable convertible preferred shares	–			499	499
	9,945			499	10,444
		2015
	On demand
	or less than
	12 months	1 to 5		years	Total
	RMB’000	RMB’000			RMB’000
Trade payables	6,404			–	6,404
Financial liabilities included
in other payables and accruals	21,447			–	21,447
Interest-bearing other borrowings	18,408			–	18,408
Non-redeemable convertible preferred shares	–			408	408
Promissory note	–		22,621		22,621
	46,259		23,029		69,288

Kingwell Group Limited ANNUAL REPORT 2016 127

Notes to Financial Statements (Continued)

30 June 2016

39. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)

Capital management

The primary objectives of the Group’s capital management are to safeguard the Group’s ability to continue as a going concern and to maintain healthy capital ratios in order to support its business and maximise shareholders’ value.

The Group manages its capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. The Group is not subject to any externally imposed capital requirements. No changes were made in the objectives, policies or processes for managing capital during the years ended 30 June 2016 and 2015.

The Group monitors capital using a gearing ratio, which is net debt divided by the adjusted capital plus net debt. Net debt includes trade payables, other payables and accruals, interest-bearing other borrowings, a promissory note, less cash and cash equivalents. Capital includes the non-redeemable convertible preferred shares and equity attributable to owners of the Company.

The gearing ratios as at the end of the reporting periods were as follows:

	2016	2015
	RMB’000	RMB’000
Trade payables	2,599	6,404
Other payables and accruals	48,740	32,147
Interest-bearing other borrowings	–	17,600
Promissory note	–	22,621
Less: Cash and cash equivalents	(38,779)	(37,063)
Net debt	12,560	41,709
Non-redeemable convertible preferred shares, the liability component	499	408
Equity attributable to owners of the Company	260,401	254,988
Adjusted capital	260,900	255,396
Capital and net debt	273,460	297,105
Gearing ratio	5%	14%

40. EVENTS AFTER THE REPORTING PERIOD

On 26 September 2016, the Group entered into a sale and purchase agreement with the Buyer to dispose of certain investment properties for a consideration of RMB39,394,000. Details of the transaction are set out in the announcement of the Company dated 26 September 2016.

128 Kingwell Group Limited ANNUAL REPORT 2016

30 June 2016

Notes to Financial Statements (Continued)

41. STATEMENT OF FINANCIAL POSITION OF THE COMPANY

2016 RMB’000 NON-CURRENT ASSETS Property, plant and equipment 139 Investments in subsidiaries 105,845 Investment in an associate 132,139	2015 RMB’000 152 208,320 137,789
Total non-current assets 238,123	346,261
CURRENT ASSETS Due from subsidiaries 6,465 Prepayments, deposits and other receivables 83 Cash and cash equivalents 3,318	3,396 368 7,452
Total current assets 9,866	11,216
CURRENT LIABILITIES Other payables and accruals 5,118	6,333
Total current liabilities 5,118	6,333
NET CURRENT ASSETS 4,748	4,883
TOTAL ASSETS LESS CURRENT LIABILITIES 242,871	351,144
NON-CURRENT LIABILITIES Non-redeemable convertible preferred shares 499 Promissory note –	408 22,621
Total non-current liabilities 499	23,029
Net assets 242,372	328,115
EQUITY Issued capital 252,856 Non-redeemable convertible preferred shares (note) 2,252 Other reserves (note) (12,736)	229,285 2,252 96,578
Total equity 242,372	328,115

Mu Dongsheng Director

Yang Xue Jun Director

129

Kingwell Group Limited ANNUAL REPORT 2016

Notes to Financial Statements (Continued)

30 June 2016

41. STATEMENT OF FINANCIAL POSITION OF THE COMPANY (Continued)

Note:

A summary of the Company’s reserves is as follows:

				Non-
				redeemable
		Share	Share	convertible			Capital	Exchange
		premium	option	preferred	Warrants	Capital	contribution	fluctuation	Accumulated
	Notes	account	reserve	shares	reserve	reserve	reserve	reserve	losses	Total
		RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
At 1 July 2014		559,559	31,185	6,004	3,049	19	48,448	(18,723)	(581,128)	48,413
Loss for the year		–	–	–	–	–	–	–	(54,980)	(54,980)
Other comprehensive income
for the year:
Exchange differences on translation		–	–	–	–	–	–	296	–	296
Total comprehensive income/(loss)
for the year		–	–	–	–	–	–	296	(54,980)	(54,684)
Placing of shares	28(b)	54,019	–	–	–	–	–	–	–	54,019
Exercise of share options	28(c)	25,385	–	–	–	–	–	–	–	25,385
Transfer from share option reserve	28(c)	16,564	(16,564)	–	–	–	–	–	–	–
Equity-settled share option arrangements	29(e)	–	22,659	–	–	–	–	–	–	22,659
Exercise of warrants	28(e)	3,941	–	–	(144)	–	–	–	–	3,797
Transfer of warrants reverse
upon expiry of the warrants	30(iv)	–	–	–	(2,905)	–	–	–	2,905	–
Conversion of non-redeemable
convertible preferred shares	28(d)	2,993	–	(3,752)	–	–	–	–	–	(759)
At 30 June 2015		662,461	37,280	2,252	–	19	48,448	(18,427)	(633,203)	98,830
At 1 July 2015		662,461	37,280	2,252	–	19	48,448	(18,427)	(633,203)	98,830
Loss for the year		–	–	–	–	–	–	–	(135,581)	(135,581)
Other comprehensive loss for the year:
Exchange differences on translation		–	–	–	–	–	–	(6)	–	(6)
Total comprehensive loss for the year		–	–	–	–	–	–	(6)	(135,581)	(135,587)
Issue of shares Equity-settled share option	28(a)	14,144	–	–	–	–	–	–	–	14,144
arrangements	29(f)	–	12,129	–	–	–	–	–	–	12,129
At 30 June 2016		676,605	49,409	2,252	–	19	48,448	(18,433)	(768,784)	(10,484)

42. APPROVAL OF THE FINANCIAL STATEMENTS

The financial statements were approved and authorised for issue by the board of directors on 28 September 2016.

130

Kingwell Group Limited ANNUAL REPORT 2016

Five Year Financial Summary

2016 RMB’000 RESULTS CONTINUING OPERATIONS Revenue 8,670	Years ended 30 June 2015 2014 2013 2012* RMB’000 RMB’000 RMB’000 RMB’000 (Restated) (Restated) (Restated) 9,412 27,086 83,168 168,210
Loss from operations (38,740) Finance costs (4,617) Share of loss of an associate (5,663)	(44,331) (44,685) (3,336) (58,407) (8,451) (4,188) (6,986) (10,960) (2,391) – – –
Loss before tax (49,020) Income tax credit/(expense) 2,380	(55,173) (48,873) (10,322) (69,367) (2,906) (1,392) (8,431) (8,099)
Loss for the year from continuing operations (46,640) DISCONTINUED OPERATION Profit/(loss) for the year from a discontinued operation –	(58,079) (50,265) (18,753) (77,466) 73,842 (51,999) (87,919) (127,125)
(Loss)/profit for the year (46,640)	15,763 (102,264) (106,672) (204,591)
(Loss)/profit attributable to: Owners of the Company (44,401) Non-controlling interests (2,239)	20,922 (101,101) (105,684) (204,591) (5,159) (1,163) (988) –
(46,640)	15,763 (102,264) (106,672) (204,591)
Dividends –	– – – –

Note:

According to HKFRS 5 “Non-current assets held for sale and discontinued operations”, the results of the discontinued operation were presented separately in the consolidated statement of profit or loss and other comprehensive income and prior years’ results were re-presented.

Kingwell Group Limited ANNUAL REPORT 2016 131

Five Year Financial Summary (Continued)

			As at 30 June
	2016	2015	2014	2013	2012
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
ASSETS AND LIABILITIES
Property, plant and equipment	1,778	2,384	39,792	45,880	64,611
Other non-current assets	209,754	260,849	146,605	146,211	5,012
Net current assets	104,429	73,876	66,934	35,029	170,826
Total assets less current liabilities	315,961	337,109	253,331	227,120	240,449
Non-current liabilities	(12,660)	(36,471)	(34,534)	(89,382)	(86,317)
Net assets	303,301	300,638	218,797	137,738	154,132
EQUITY
Issued capital	252,856	229,285	204,451	163,540	142,239
Non-redeemable convertible
preferred shares	2,252	2,252	6,004	17,263	69,801
Equity component of
the convertible note	–	–	–	305	–
Other reserves	5,293	23,451	(63,597)	(117,674)	(57,908)
Non-controlling interests	42,900	45,650	71,939	74,304	–
	303,301	300,638	218,797	137,738	154,132

132 Kingwell Group Limited ANNUAL REPORT 2016

AI assistant

Kingwell Group Limited — Annual Report 2016

49757_rns_2016-10-24_506c841a-0e26-4dde-b674-9d5b280a3e2b.pdf

Contents

Corporate Information

DIRECTORS

COMPANY SECRETARY

AUDITORS

REGISTERED OFFICE

HEAD OFFICE AND PRINCIPAL PLACE OF BUSINESS

AUTHORISED REPRESENTATIVES

AUDIT COMMITTEE

REMUNERATION COMMITTEE

NOMINATION COMMITTEE

CORPORATE GOVERNANCE COMMITTEE

PRINCIPAL SHARE REGISTRAR AND TRANSFER OFFICE

HONG KONG BRANCH REGISTRAR AND TRANSFER OFFICE

TRADING CODE ON THE STOCK EXCHANGE OF HONG KONG LIMITED

WEBSITE

Financial Results

Chairman’s Statement

Mu Dongsheng

Management Discussion and Analysis

RESULTS

BUSINESS REVIEW

Gold Mining Business

Management Discussion and Analysis (Continued)

Property Development and Property Leasing Business

Geographic Information

Management Discussion and Analysis (Continued)

BUSINESS PROSPECTS

LIQUIDITY, FINANCIAL RESOURCES AND CAPITAL STRUCTURE

Management Discussion and Analysis (Continued)

SIGNIFICANT INVESTMENTS

ACQUISITION AND DISPOSAL OF SUBSIDIARIES AND ASSOCIATED COMPANIES

EMPLOYEES‘ INFORMATION

CHARGES ON GROUP ASSETS

FUTURE PLANS FOR MATERIAL INVESTMENTS AND EXPECTED SOURCES OF FUNDING

Management Discussion and Analysis (Continued)

EXPOSURE TO FLUCTUATIONS IN EXCHANGE RATES

CAPITAL COMMITMENTS

CONTINGENT LIABILITIES

DIRECTORS

Executive Directors

Independent Non-executive Directors

SENIOR MANAGEMENT

Corporate Governance Report

CODE PROVISION A.2.1

CODE PROVISION E.1.2

A. SECURITIES TRANSACTIONS BY DIRECTORS

Corporate Governance Report (Continued)

B. BOARD OF DIRECTORS

1. Composition of the Board of Directors

Corporate Governance Report (Continued)

3. Board Meetings and Board Practices

Directors’ Attendance at Board Meetings

Corporate Governance Report (Continued)

4. General Meetings

5. Directors’ Training

Corporate Governance Report (Continued)

6. Independent Non-executive Directors

7. Chairman and Chief Executive Officer

8. Appointment, Re-election and Removal of Directors

Corporate Governance Report (Continued)

9. Remuneration of Directors and Senior Management

C. BOARD COMMITTEES

1. Remuneration Committee

Corporate Governance Report (Continued)

2. Audit Committee

Corporate Governance Report (Continued)

3. Nomination Committee

4. Corporate Governance Committee

Corporate Governance Report (Continued)

D. ACCOUNTABILITY AND AUDIT

1. Directors’ and Auditors’ Responsibility for the Consolidated Financial Statements

2. Auditors’ Remuneration

E. COMPANY SECRETARY

Corporate Governance Report (Continued)

F. SHAREHOLDERS’ RIGHTS

Convening an extraordinary general meeting

Kingwell Group Limited Annual Report 2016