Kingwell Group Limited - Proxy Solicitation & Information Statement 2018

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

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

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

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KINGWELL GROUP LIMITED 京維集團有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1195)

MAJOR TRANSACTION ACQUISITION OF PROPERTY MANAGEMENT BUSINESS

Financial Adviser

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Capitalised terms used in this cover page shall have the same meaning as those defined in this circular.

A letter from the Board is set out on pages 4 to 13 of this circular.

A notice convening the extraordinary general meeting of the Company to be held at Monet Room B, B1 Level, Intercontinental Grand Stanford Hong Kong, 70 Mody Road, Tsim Sha Tsui East, Kowloon, Hong Kong on 29 October 2018 at 11:00 a.m. is set out on page 68 of this circular. A form of proxy for the extraordinary general meeting is enclosed herein. Whether or not you are able to attend the extraordinary general meeting, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return the same to the Company’s branch share registrar, Hong Kong Registrars Limited at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong as soon as possible, but in any event not less than 48 hours before the time appointed for the holding of the extraordinary general meeting or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the extraordinary general meeting or any adjourned meeting thereof should you so wish.

21 September 2018

			Page
DEFINITIONS	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		1
LETTER FROM THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			4
APPENDIX I	–	FINANCIAL INFORMATION OF THE GROUP . . . . . . . . . . . . . . . .	14
APPENDIX II	–	ACCOUNTANTS’ REPORT OF THE TARGET BUSINESS . . . . . .	17
APPENDIX III	–	MANAGEMENT DISCUSSION AND ANALYSIS OF
		THE TARGET BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	50
APPENDIX IV	–	UNAUDITED PRO FORMA FINANCIAL INFORMATION OF
		THE ENLARGED GROUP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	55
APPENDIX V	–	GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	63
NOTICE OF THE		EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	68

– i –

DEFINITIONS

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

‘‘Acquisition’’

the sale and purchase of the Target Business pursuant to the Sale and Purchase Agreement and the transactions contemplated thereunder

‘‘associate(s)’’ has the meaning ascribed to it under the Listing Rules
‘‘Board’’ the board of Directors of the Company
‘‘Business Day(s)’’
any day other than a Saturday or Sunday on which banks are generally open for business in Hong Kong
‘‘Company’’
Kingwell Group Limited, a company incorporated in the Cayman Islands with limited liability whose issued Shares are listed on the Main Board of the Stock Exchange (stock code: 1195)
‘‘Completion’’ completion of the sale and purchase of the Target Business in accordance with the terms and conditions of the Sale and Purchase Agreement
‘‘Conditions’’ the conditions precedent to the Completion as set out in the Sale and Purchase Agreement
‘‘connected person(s)’’ has the meaning ascribed to it under the Listing Rules
‘‘Consideration’’ consideration for the Acquisition
‘‘Director(s)’’ the director(s) of the Company
‘‘EGM’’

extraordinary general meeting of the Company to be convened on 29 October 2018 for the purpose of approving the Sale and Purchase Agreement and the transactions contemplated thereunder

‘‘Enlarged Group’’ the Group upon Completion, which would include the Target Business
‘‘Group’’ the Company and its subsidiaries
‘‘HK$’’

Hong Kong dollars, the lawful currency of Hong Kong

‘‘Hong Kong’’

the Hong Kong Special Administrative Region of the PRC

– 1 –

DEFINITIONS

‘‘Independent Third Party(ies)’’ third party(ies) who is/are independent of the Company and its connected persons

‘‘Latest Practicable Date’’ 18 September 2018, being latest practicable date prior to the despatch of this circular for the purpose of ascertaining certain information contained herein
‘‘Listing Rules’’ the Rules Governing the Listing of Securities on the Stock Exchange
‘‘Long Stop Date’’ 31 December 2018
‘‘percentage ratio’’ has the same meaning ascribed to it under the Listing Rules
‘‘PRC’’ the People’s Republic of China (for the purposes of this circular, excluding Hong Kong, the Macau Special Administrative Region of the PRC and Taiwan)
‘‘Purchaser’’ Xuzhou Taihua Property Management Co., Ltd*（徐州泰華物業管理有限公司）, a company established in the PRC with limited liability and an indirect wholly-owned subsidiary of the Company
‘‘RMB’’ Renminbi, the lawful currency of the PRC
‘‘Sale and Purchase Agreement’’ the sale and purchase agreement dated 25 June 2018 entered into between the Vendor and the Purchaser in respect of, among other things, the sale and purchase of the Target Business
‘‘SFO’’ the Securities and Futures Ordinance, Chapter 571 of the Laws of Hong Kong
‘‘Shareholders’’ holder(s) of the shares of the Company
‘‘Stock Exchange’’ The Stock Exchange of Hong Kong Limited
‘‘Target Business’’ all the assets, liabilities and businesses of Foshan Tianan Hongji Property Services Co., Ltd. Xuzhou Branch Office*
（佛山天安鴻基物業服務有限公司徐州分公司）

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DEFINITIONS

‘‘Transition Period’’

the transition period commencing from the date of the Sale and Purchase Agreement, (i) up to the date of the target business has completed transfer to the Purchaser, or any of the nominated company; or (ii) 6 months after the signing of the Sale and Purchase Agreement, whichever is earlier

‘‘Vendor’’ Foshan Tianan Hongji Property Services Co., Ltd.*（佛山天安鴻基物業服務有限公司）, a company established in the PRC with limited liability
‘‘Xuzhou Branch Office’’ Foshan Tianan Hongji Property Services Co., Ltd. Xuzhou Branch Office*（佛山天安鴻基物業服務有限公司徐州分公司）, a branch incorporated in the PRC with limited liability
‘‘%’’ per cent
The English translation of the Chinese name is for identification purposes only, and should not be regarded as the official English translation of such name.

For the purpose of illustration only, amounts denominated in RMB in this circular have been translated into HK$ at the rate of RMB1.00 = HK$1.20. Such translations should not be construed as a representation that the amounts in question have been, could have been or could be converted at any particular rate or at all.

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LETTER FROM THE BOARD

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KINGWELL GROUP LIMITED 京維集團有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1195)

Executive Directors Mr. Mu Dongsheng (Chairman) Mr. Sze Ming Yee

Independent Non-Executive Directors Mr. Cheung Chuen Mr. Ling Aiwen Mr. Han Hongwei

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

Principal Place of Business In Hong Kong: Units 314-315 Wing On Plaza 62 Mody Road Tsim Sha Tsui East Kowloon, Hong Kong

21 September 2018

To the Shareholders

Dear Sir or Madam,

MAJOR TRANSACTION ACQUISITION OF PROPERTY MANAGEMENT BUSINESS

INTRODUCTION

The Board announced that on 25 June 2018 (after trading hours), the Purchaser, an indirect wholly-owned subsidiary of the Company and the Vendor entered into the Sale and Purchase Agreement, pursuant to which the Purchaser conditionally agreed to purchase and the Vendor conditionally agreed to sell the Target Business. The Consideration payable by the Purchaser is RMB9,000,000 (equivalent to approximately HK$10,800,000) in cash.

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LETTER FROM THE BOARD

The purpose of this circular is to give you, among others, (i) further details of the Sale and Purchase Agreement; (ii) financial information of the Group; (iii) financial information of the Target Business; (iv) unaudited pro forma financial information of the Enlarged Group; (v) notice of the EGM; and (vi) other information as required under the Listing Rules.

THE SALE AND PURCHASE AGREEMENT

Date 25 June 2018

Parties Xuzhou Taihua Property Management Co., Ltd*（徐州泰華物業管理有限公司）as the Purchaser

Foshan Tianan Hongji Property Services Co., Ltd.*（佛山天安鴻基物業服務有限公司）as the Vendor

The Vendor was incorporated in March 2008 in the PRC with limited liability, and is principally engaged in the property management business. The Vendor is beneficially owned as to 50% by Mr. Cai Xin Hong（蔡新宏先生）and 50% by Mr. Liu Bin（劉斌先生）. Mr. Cai Xin Hong is the founder of the Vendor and has over ten years of experience in the property management business. Mr. Liu Bin joined the Vendor in 2008 as deputy manager and became a shareholder of the Vendor in January 2017, he has 10 years of experience in the property management business and is the legal representative of the Vendor. To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, the Vendor and its ultimate beneficial owners are Independent Third Parties.

Save for the Acquisition, the Vendor does not have any other business relationship with the Company and its connected persons.

Asset to be acquired

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LETTER FROM THE BOARD

Consideration

The Consideration for the Target Business is RMB9,000,000 (equivalent to approximately HK$10,800,000), which shall be satisfied in cash by the Purchaser in the following manner:

(a) RMB6,000,000 (equivalent to approximately HK$7,200,000), representing approximately 66.67% of the Consideration, are payable within 5 Business Days after Completion has taken place; and
(b) RMB3,000,000 (equivalent to approximately HK$3,600,000), representing approximately 33.33% of the Consideration, are payable within 5 Business Days after the Transition Period has ended.

The Consideration will be financed by the Company through internal cash resources and if required, bank borrowings.

The Consideration was arrived at after arm’s length negotiations between the Vendor and the Purchaser on normal commercial terms and taken into consideration of (i) the continuous raising financial performance of the Target Business, inter alia, the audited net profit of the Target Business for the four-month period ended 30 April 2018 increased by 9.1 times as compared to the four-month period ended 30 April 2017; (ii) the future development prospect of the Target Business including the pre-service agreement entered by the Target Business to provide property management service to phase three and phase four of a property project in Xuzhou City (the ‘‘Xuzhou Project’’); (iii) the price-to-earnings ratios of the Target Business of approximately 13 times (based on earnings for the year ended 31 December 2017), which is lower than companies listed in Hong Kong principally engaged in property management business, which ranges from approximately 18 times to 48 times; and (iv) bringing into the Group the know-how to property management business. As the Target Business is a service provider with no significant tangible assets, the Company did not take into account the Target Business’s price-to-book ratio of approximately 11 times (based on net asset value as at 30 April 2018) when considering the Consideration.

Based on the aforesaid, the Directors consider that the terms and conditions of the Acquisition, including the Consideration, are fair and reasonable and are in the interests of the Company and the Shareholders as a whole.

Conditions Precedent

Completion is conditional upon the fulfillment of the following Conditions:

(a) the Shareholders having approved the Sale and Purchase Agreement and the transactions contemplated thereunder;
(b) the Purchaser having obtained approval from relevant governmental authorities for the transfer of ownership of the Target Business (if applicable);

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LETTER FROM THE BOARD

(c) completion of audit of the financial statements of the Target Business by auditors appointed by the Purchaser;
(d) the Purchaser having satisfied with the results of its due diligence review on the Target Business;
(e) the Purchaser having notified the Vendor in writing that it is satisfied with assessment report, and financial, legal, tax and commercial position of the Target Business;
(f) upon signing of the Sale and Purchase Agreement and up to the day of Completion, no occurrence of any event which may lead to the winding up of the Target Business;
(g) under reasonable commercial terms, no material adverse change has occurred to the Target Business and the Target Business shall not entered into any loan agreement, guarantee agreement, provide any illegal guarantee and involved in any unsettled litigation which are not disclosed to the Purchaser;
(h) each of the Purchaser and the Vendor is or having become a valid legal entity legally established in the PRC;
(i) the Sale and Purchase Agreement and transactions contemplated thereunder are in compliance with the memorandum and articles of association of the Purchaser and all applicable laws and regulations;
(j) the warranties given by the Purchaser and the Vendor remaining true, accurate and not misleading in all material respects upon repetition of the same immediately prior to the Completion;
(k) the Vendor having delivered all employment contracts of the Target Business’ employees and all employees of the Target Business having agreed in writing to accept the Purchaser or any entity designated by the Purchaser as their employer;
(l) the Vendor having delivered all service agreements of the Target Business to the Purchaser and apply for transfer of those agreements to the Purchaser according to requirements set out by government authorities; and
(m) the Vendor has notified and obtained written consent from its major customer on entering into the Sale and Purchaser Agreement.

None of the Conditions is waivable by the Purchaser or the Vender. As at the Latest Practicable Date, condition (c) and (h) have been fulfilled.

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LETTER FROM THE BOARD

In the event that any of the above Conditions were not fulfilled before the Long Stop Date, the Purchaser will no longer be required to purchase the Target Business, and the Sale and Purchase Agreement will be terminated. Each of the Purchaser and the Vendor may demand the other party to compensate for any loss and damages caused by violation of the Sale and Purchase Agreement by the other party.

Transfer of underlying assets, liabilities and business of the Target Business is de facto transfer of interests in the relevant company. The arrangement was in place since the Target Business has no equity and operates under a branch office of the Vendor, and the interests in branch office without equity cannot be entirely transferred to an independent third party under the PRC law. According to the Company’s PRC legal adviser, as at the Latest Practicable Date, it does not foresee any legal impediment to the transfer of the Target Business.

Transition Period

Pursuant to the Sale and Purchase Agreement, the Purchaser and the Vendor have agreed that a Transition Period commencing from the date of the Sale and Purchase Agreement, (i) up to the date of the Target Business has completed transfer to the Purchaser or any of its nominated company; or (ii) 6 months after the signing of the Sale and Purchase Agreement, whichever is earlier. During the Transition Period, the Purchaser is authorised to operate under the name of Xuzhou Branch Office.

The Purchaser subsequently obtained authorisation from the Vendor to continue operating the Target Business under its current brand name after Completion.

INFORMATION ON THE PURCHASER AND THE GROUP

The Group is principally engaged in property development and gold mining business.

The Purchaser, an indirect wholly-owned subsidiary of the Company, was established in the PRC on 24 May 2018 with limited liability and its principal activity is property management. Apart from entering into of the Sale and Purchase Agreement, the Purchaser has not conducted any business since its incorporation.

INFORMATION ON THE TARGET BUSINESS

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LETTER FROM THE BOARD

The Target Business commenced operation in July 2014, and specializes in the high-end property management sector. Services provided include provision of management and maintenance service to facilities of the estate, provision of cleaning and environmental services for common area and provision of 24 hours security services. It is the Target Business’ objective to provide customised services to cater to the need of its customers and through provision of such services, increase the value of the properties under its management.

As at the Latest Practicable Date, the Target Business is providing property management services for phase one and phase two of the Xuzhou Project. The Target Business has also entered into a pre-service agreement with a property developer, an independent third party to the Target Business and the Company, to provide property management service to serviced apartments, hotel and commercial buildings (phase three and phase four) to the Xuzhou Project when it is completed. It is expected that the serviced apartments will be completed in 2019 and the hotel and commercial buildings will be completed in 2020. The Target Business is also actively seeking opportunities for property management services with other property developments.

Based on the information provided by the Vendor, set out below is a summary of audited financial information of the Target Business for the financial years ended 31 December 2016, 2017 and for the four-month period from 1 January to 30 April 2018:

			For the
	For the	For the	period from
	year ended	year ended	1 January to
	31 December	31 December	30 April
	2016	2017	2018
	RMB	RMB	RMB
Revenue	1,808,000	4,200,000	2,093,000
Net (loss)/profit before tax	(322,000)	850,000	868,000
Net (loss)/profit after tax	(322,000)	688,000	647,000

The net assets value of the Target Business as at 31 December 2017 and 30 April 2018 amounted to approximately RMB158,000 and RMB805,000 respectively, while it recorded net liabilities of RMB530,000 as at 31 December 2016.

As at 30 April 2018, the Target Business’s assets mainly consist of trade receivables from provision of property management project which amounts to approximately RMB2,621,000 and cash and bank balances of approximately RMB1,135,000, the liabilities of the Target Business mainly consist of contract liabilities from its property management business of approximately RMB1,365,000 and other payables and accruals of approximately RMB1,615,000.

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LETTER FROM THE BOARD

REASONS FOR AND BENEFITS OF THE ACQUISITION

The Group is principally engaged in property development and gold mining business. The Target Business is a profitable, stable business with consistent income. The Target Business not only would provide profits to the Group, it would also enhance the Group’s expertise in the daily management of properties in the PRC, enabling the Group to improve the quality of the property management at the Group’s property development project Anlu Taihe Paradise located in Anlu Economic Development District, Anlu City, Hubei, the PRC. The Company considers that the Acquisition complements the Group’s property development business.

After Completion, the Company will continue the existing business of the Target Business and generate revenue from provision of property management services. The Target Business is a tailor made, high-end property management service provider with head office situated in Xuzhou City in Jiangsu Providence, the PRC. As at the Latest Practicable Date, the Target Business focuses on one property development project in Xuzhou City. Upon completion of the development of Xuzhou Project, the properties under the Target Business’ management will consists of houses, residential buildings, a hotel and commercial buildings, with combined gross floor area of approximately 347,000 square meters. The Company has no intention to dispose, terminate or scale-down any existing business of the Group and has no intention to inject any new business or change the Board composition after Completion.

Upon Completion, the Board intends to retain all 47 existing employees of the Target Business including its key management personnel to ensure smooth transition and benefit from the property management experience of the existing employees. Set out below are the biographies of key management of the Target Business:

Mr. Xie Hua Zhong, aged 45, is the engineering manager of the company. He has an education background in mechanical and electrical technology and over 25 years’ working experience in engineering and maintenance department in property management industry;
Ms. Liu Dong, aged 31, is the deputy project manager of the company. She has an education background in computer numerical control programming. Ms. Liu has over 10 years’ working experience, among which, three years were in the property management business as a customer service specialist; and
Ms. Zhang Die, aged 27, is the project manager of the company. She holds a bachelor’s degree in administrative management from Nanjing University. Ms. Zhang has 4 years’ working experience in property management industry as customer service specialist.

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LETTER FROM THE BOARD

In addition, Mr. Poon Yan Wai, the financial controller, company secretary and authorised representative of the Company, will oversee the business operation of the Target Business. Mr. Poon Yan Wai has 9 years of experience in the property management business and holds ISO 9001-2000 certificate for property management. Further to Mr. Poon Yan Wai’s experience, the Board believes that it has accumulated wealthy of experience in property management service through the Group’s other property development business. The Board considers that it has sufficient experience in running the Target Business.

The Directors are of the view that although the Acquisition is not in the ordinary and usual course of business of the Group, the terms of the Acquisition, which have been agreed after arm’s length negotiations, are on normal commercial terms and such terms are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

In considering whether to acquire the Target Business, the Company has engaged (i) PRC lawyer to perform legal due diligence on the Vendor and the Target Company; (ii) auditor to preform audit on the Target Business; and (iii) the chairman and financial controller of the Company had conducted site visits and performed due diligence work including (a) review of the Target Business’ management accounts; (b) interview staff and clients of the Target Business; (c) performed researches on the Xuzhou area; and (d) compared the Target Business with other property management businesses. Based on above due diligence work, the Directors consider that they have performed sufficient due diligence on the Target Business for the proposed Acquisition.

FINANCIAL EFFECT OF THE ACQUISITION

Upon the Completion, the Target Business will be owned by an indirect wholly-owned subsidiary of the Company and the financial results of the Target Business will be consolidated into the consolidated financial statements of the Group.

Assets and liabilities

Based on the unaudited pro forma financial information of the Enlarged Group as set out in Appendix IV to this circular, the consolidated total assets of the Enlarged Group as at 30 April 2018 would have increased from approximately RMB245.1 million to approximately RMB248.4 million on a pro forma basis, the consolidated total liabilities of the Enlarged Group as at 30 April 2018 would have increased from approximately RMB35.4 million to approximately RMB38.8 million on a pro forma basis, and the consolidated net assets of the Enlarged Group as at 30 April 2018 would have no change as approximately RMB209.7 million on a pro forma basis.

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LETTER FROM THE BOARD

Earnings

As set out in the accountants’ report of the Target Business in Appendix II to this circular and the management discussion and analysis of the Target Business in Appendix III to this circular, the Target Business had recorded net profit of RMB688,000 for the year ended 31 December 2017 and net profit of RMB647,000 for the four months ended 30 April 2018. Having taken into account the reasons for and benefits of the Acquisition discussed in the section headed ‘‘Reasons for and benefits of the Acquisition’’ above, the Board believes that the Acquisition of the Target Business is in line with the long-term strategy of the Group to diversify development and proactively search for potential investment opportunities and will enhance the overall financial performance of the Group in the future. The attention of the Shareholders is drawn to the unaudited pro forma financial information of the Enlarged Group set out in Appendix IV to this circular.

LISTING RULES IMPLICATIONS

As the relevant percentage ratios calculated pursuant to Rule 14.07 of the Listing Rules in respect of the Acquisition exceeds 25% but is less than 100%, the Acquisition constitutes a major transaction of the Company under Rule 14.06(3) of the Listing Rules and is subject to the reporting, announcement and Shareholders’ approval requirements under Chapter 14 of the Listing Rules.

The EGM will be convened for the Shareholders to consider and, if thought fit, to approve the Sale and Purchase Agreement and the transactions contemplated thereunder, including the sale and purchase of the Target Business.

EGM

The EGM will be held at Monet Room B, B1 Level, Intercontinental Grand Stanford Hong Kong, 70 Mody Road, Tsim Sha Tsui East, Kowloon, Hong Kong on 29 October 2018 at 11:00 a.m. to consider and, if thought fit, approve the Sale and Purchase Agreement and the transactions contemplated thereunder.

A notice convening the EGM is set out on pages 68 to 69 of this circular. A proxy form for use at the EGM is enclosed with this circular. Whether or not you intend to attend the EGM or any adjournment thereof, you are requested to complete the accompanying proxy form in accordance with the instructions printed thereon and return the same to the Company’s branch share registrar and transfer office in Hong Kong, Hong Kong Registrars Limited at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong, not less than 48 hours before the time appointed for holding the EGM or any adjournment thereof. Completion and return of the proxy form will not preclude you from attending and voting in person at the EGM or any adjournment thereof if you so wish.

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LETTER FROM THE BOARD

To the best of the Directors’ knowledge, information and belief, having made all reasonable enquires, no Shareholder has a material interest in the Sale and Purchase Agreement and the transactions contemplated thereunder, therefore, no Shareholder is required to abstain from voting for the resolution to be proposed at the EGM.

RECOMMENDATION

The Board (including the independent non-executive Directors) considered that the terms of the Sale and Purchase Agreement and the transactions contemplated thereunder are on normal commercial terms, fair and reasonable and in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend that the Shareholders to vote in favour of the resolution to be proposed at the EGM.

ADDITIONAL INFORMATION

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

Yours faithfully, On behalf of the Board KINGWELL GROUP LIMITED Mu Dongsheng Chairman

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. FINANCIAL SUMMARY

Financial information of the Group for each of the three financial years ended 30 June 2015, 2016 and 2017 and six months ended 31 December 2017 are disclosed in the following documents which have been published on the websites of the Stock Exchange (www.hkexnews.hk) and the Company (http://kingwell.todayir.com).

(i) annual report of the Company for the year ended 30 June 2015 (pages 35 to 131)

(http://www.hkexnews.hk/listedco/listconews/SEHK/2015/1029/LTN20151029258.pdf);

(ii) annual report of the Company for the year ended 30 June 2016 (pages 41 to 130)

(http://www.hkexnews.hk/listedco/listconews/SEHK/2016/1024/LTN20161024333.pdf);

(iii) annual report of the Company for the year ended 30 June 2017 (pages 45 to 120)

(http://www.hkexnews.hk/listedco/listconews/SEHK/2017/1027/LTN20171027331.pdf); and

(iv) interim report of the Company for the six months ended 31 December 2017 (pages 5 to 25)

(http://www.hkexnews.hk/listedco/listconews/SEHK/2018/0316/LTN20180316537.pdf)

2. INDEBTEDNESS STATEMENT

As at the close of business on 31 August 2018, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, the Group has no borrowings.

Contingent Liabilities

On 31 August 2018, guarantees given to the banks by the Group in connection with facilities granted to the buyers of certain properties developed by the Group was RMB3,169,000.

Save as aforesaid, and apart from intra-group liabilities, the Group did not have any outstanding debt securities issued and outstanding, and authorised or otherwise created but unissued, term loans, bank overdrafts and loans, other loans or other similar indebtedness, liabilities under acceptance or acceptable credits, debentures, mortgages, charges, hire purchases commitments, guarantee or other material contingent liabilities, at the close of business on 31 August 2018.

The Board has confirmed that, save as disclosed above, there has not been any material change in the indebtedness or contingent liabilities of the Group since 31 August 2018.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3. WORKING CAPITAL OF THE GROUP

The Directors, after due and careful enquiry, are of the opinion that, after taking into account the financial resources presently available to the Group including the internally generated funds, the currently available facilities and the effects of the Acquisition, and in the absence of unforeseen circumstances, the Group has sufficient working capital for its normal business for at least the next twelve months from the date of this circular.

4. MATERIAL ADVERSE CHANGE

The Directors confirmed that they are not aware of any material adverse change in the financial position of the Group since 30 June 2017 (being the date to which the latest published audited consolidated financial statements of the Group were made up) up to the Latest Practicable Date.

5. FINANCIAL AND TRADING PROSPECT OF THE ENLARGED GROUP

The Group is principally engaged in property development and gold mining business. The Group’s property development business refers to the ‘‘Anlu Taihe Paradise’’ project at Liang Ji Bei Road, Anlu Economic, Development District in Anlu City, Hubei Province in the PRC. As at 31 December 2017, the Group has 96 unsold properties comprised of villas, apartments and shops in its inventories, some of which are held as investment properties to generate rental income. The Group is actively in search of suitable site for property development projects. As at the Latest Practicable Date, negotiation of these projects are still in preliminary stages and no contracts have been entered.

The Group’s gold mining business mainly consists of (i) 51% equity interest in a gold mining company in Russian Federation, currently operates and owns the legal and beneficial interest in a mining project with an aggregate mining area of about 309.3 square kilometers; and (ii) 35% equity interest of Port First Limited which holds 70% equity interest in two gold mining companies which together hold 3 mine exploitation licenses and a gold refinery plant. The gold mining company has submitted the plan of exploitation to the local government in October 2017. However, due to a number of wildfire and environmental destruction incidents caused by mining activities in 2017, the Russian authority had raised the environment protection requirements on exploitation applications at the beginning of 2018. As the Company expects to sign an outsourcing contract with a third party in September 2018 which will modify the original submitted plan, the Company is required to resubmit a new plan of exploitation which satisfies the tightened regulation. It is expected that the reschedules will be filed in November 2018 and the exploitation approval shall be obtained on or before May 2019. After signing the outsourcing contract, the outsourcing contractor will begin the foundation work for the forthcoming exploitation process in May 2019.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Target Business is principally engaged in the provision of property management services in Xuzhou City, Jiangsu Province, the PRC. The Target Business specializes in the high-end property management sector, it mainly provides property management services to residential properties, and is expected to cover services to service apartments, hotels and commercial buildings from 2019 onwards. Services provided by the Target Business include provision of management and maintenance service to facilities of the estate, provision of cleaning and environmental services and provision of 24 hours security services. The Target Business’ aim to provide customised services to cater specific needs of its customers and through provision of such services, increase the value of the properties under its management.

After the Acquisition, the Group plans to develop its own brand name of property management service and use similar business model to enter into service agreement with other property projects in PRC and extend and enlarge its existing property development and management business. In order to sustain the continuous growth of the Group’s property development and management business, the property service projects could be residential, commercial, industrial or hotels projects.

The Group believes the Acquisition would also enhance the Group’s expertise in the daily management of properties in the PRC, enabling the Group to improve the quality of the property management at the Group’s other property development project in Anlu.

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

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ACCOUNTANTS’ REPORT OF THE TARGET BUSINESS

APPENDIX II

The following is the text of a report, prepared for inclusion in this circular, received from the independent reporting accountants of Kingwell Group Limited, Ernst & Young, Certified Public Accountants, Hong Kong.

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

The Board of Directors Kingwell Group Limited

Dear Sirs

We report on the historical financial information of Foshan Tianan Hongji Property Services Co., Ltd. Xuzhou Branch Office (the ‘‘Target Business’’) set out on pages 21 to 49, which comprises the statements of profit or loss and other comprehensive income, statements of changes in equity and statements of cash flows of the Target Business for each of the years ended 31 December 2015, 2016 and 2017, and the four months ended 30 April 2018 (the ‘‘Relevant Periods’’), and the statements of financial position of the Target Business as at 31 December 2015, 2016 and 2017 and 30 April 2018, and a summary of significant accounting policies and other explanatory information (together, the ‘‘Historical Financial Information’’). The Historical Financial Information set out on pages 21 to 49 forms an integral part of this report, which has been prepared for inclusion in the circular of Kingwell Group Limited (the ‘‘Company’’) dated 21 September 2018 (the ‘‘Circular’’) in connection with the proposed acquisition of the Target Business by a subsidiary of the Company.

DIRECTORS’ RESPONSIBILITY FOR THE HISTORICAL FINANCIAL INFORMATION

The directors of Foshan Tianan Hongji Property Services Co., Ltd. (the ‘‘Directors’’) are responsible for the preparation of the Historical Financial Information that gives a true and fair view in accordance with the basis of preparation set out in note 2.1 to the Historical Financial Information, and for such internal control as the Directors determine is necessary to enable the preparation of the Historical Financial Information that is free from material misstatement, whether due to fraud or error.

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ACCOUNTANTS’ REPORT OF THE TARGET BUSINESS

APPENDIX II

REPORTING ACCOUNTANTS’ RESPONSIBILITY

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

Our work involved performing procedures to obtain evidence about the amounts and disclosures in the Historical Financial Information. The procedures selected depend on the reporting accountants’ judgement, including the assessment of risks of material misstatement of the Historical Financial Information, whether due to fraud or error. In making those risk assessments, the reporting accountants consider internal control relevant to the entity’s preparation of the Historical Financial Information that gives a true and fair view in accordance with the basis of preparation set out in note 2.1 to the Historical Financial Information in order to design procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Our work also included evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Directors, as well as evaluating the overall presentation of the Historical Financial Information.

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

OPINION

In our opinion, the Historical Financial Information gives, for the purposes of the accountants’ report, a true and fair view of the financial position of the Target Business as at 31 December 2015, 2016 and 2017 and 30 April 2018, and of the financial performance and cash flows of the Target Business for each of the Relevant Periods in accordance with the basis of preparation set out in note 2.1 to the Historical Financial Information.

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ACCOUNTANTS’ REPORT OF THE TARGET BUSINESS

APPENDIX II

REVIEW OF INTERIM COMPARATIVE FINANCIAL INFORMATION

We have reviewed the interim comparative financial information of the Target Business which comprises the statement of profit or loss and other comprehensive income, statement of changes in equity and statement of cash flows for the four months ended 30 April 2017 and other explanatory information (the ‘‘Interim Comparative Financial Information’’). The Directors are responsible for the preparation and presentation of the Interim Comparative Financial Information in accordance with the basis of preparation set out in note 2.1 to the Historical Financial Information. Our responsibility is to express a conclusion on the Interim Comparative Financial Information based on our review. We conducted our review in accordance with Hong Kong Standard on Review Engagements 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the HKICPA. A review consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the Interim Comparative Financial Information, for the purposes of the accountants’ report, is not prepared, in all material respects, in accordance with the basis of preparation set out in note 2.1 to the Historical Financial Information.

REPORT ON MATTERS UNDER THE RULES GOVERNING THE LISTING OF SECURITIES ON THE MAIN BOARD OF THE STOCK EXCHANGE AND THE COMPANIES (WINDING UP AND MISCELLANEOUS PROVISIONS) ORDINANCE

ADJUSTMENTS

In preparing the Historical Financial Information, no adjustments to the Underlying Financial Statements as defined on page 21 have been made.

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ACCOUNTANTS’ REPORT OF THE TARGET BUSINESS

APPENDIX II

DIVIDENDS

We refer to note 10 to the Historical Financial Information which states that no dividends have been paid by the Target Business in respect of the Relevant Periods.

Yours faithfully,

Ernst & Young

Certified Public Accountants

Hong Kong 21 September 2018

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ACCOUNTANTS’ REPORT OF THE TARGET BUSINESS

APPENDIX II

I. HISTORICAL FINANCIAL INFORMATION

Preparation of Historical Financial Information

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

The financial statements of the Target Business for the Relevant Periods, on which the Historical Financial Information is based, were audited by Ernst & Young in accordance with Hong Kong Standards on Auditing issued by the HKICPA (the ‘‘Underlying Financial Statements’’).

The Historical Financial Information is presented in Renminbi and all values are rounded to the nearest thousand (‘‘RMB’000’’) except when otherwise indicated.

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ACCOUNTANTS’ REPORT OF THE TARGET BUSINESS

APPENDIX II

STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

Notes REVENUE 5 Cost of sales Gross profit/(loss) Other income and gains 5 Administrative expenses PROFIT/(LOSS) BEFORE TAX 6 Income tax expense 9 PROFIT/(LOSS) FOR THE YEAR/PERIOD AND TOTAL COMPREHENSIVE INCOME/(LOSS) FOR THE YEAR/PERIOD	Year ended 31 December 2015 2016 2017 RMB’000 RMB’000 RMB’000 450 1,808 4,200 (575) (1,997) (3,339) (125) (189) 861 1 – 63 (36) (133) (74) (160) (322) 850 – – (162) (160) (322) 688	Four months ended 30 April 2017 2018 RMB’000 RMB’000 (unaudited) 1,064 2,093 (974) (1,192 90 901 1 6 (27) (40 64 868 – (221 64 647	Four months ended 30 April 2017 2018 RMB’000 RMB’000 (unaudited) 1,064 2,093 (974) (1,192 90 901 1 6 (27) (40 64 868 – (221 64 647
			901 6 (40
			868 (221
			647

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ACCOUNTANTS’ REPORT OF THE TARGET BUSINESS

APPENDIX II

STATEMENTS OF FINANCIAL POSITION

Notes NON-CURRENT ASSETS Plant and equipment CURRENT ASSETS Trade receivables 11 Deposits and other receivables 12 Cash and cash equivalents 13 Total current assets CURRENT LIABILITIES Other payables and accruals 14 Contract liabilities 15 Tax payable Total current liabilities NET CURRENT ASSETS/ (LIABILITIES) TOTAL ASSETS LESS CURRENT LIABILITIES EQUITY/(DEFICIENCY IN ASSETS) Share capital 16 Retained profits/(accumulated losses) Total equity/(deficiency in assets)	As 2015 RMB’000 4 – 206 415 621 557 276 – 833 (212) (208) – (208) (208)	at 31 December 2016 2017 RMB’000 RMB’000 9 5 164 1,735 362 583 1,381 1,186 1,907 3,504 1,015 1,670 1,431 1,519 – 162 2,446 3,351 (539) 153 (530) 158 – – (530) 158 (530) 158	As at 30 April 2018 RMB’000 4
			2,621 408 1,135
			4,164
			1,615 1,365 383
			3,363
			801
			805
			– 805
			805

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ACCOUNTANTS’ REPORT OF THE TARGET BUSINESS

APPENDIX II

STATEMENTS OF CHANGES IN EQUITY

At 1 January 2015 Loss for the year and total comprehensive loss for the year At 31 December 2015 and 1 January 2016 Loss for the year and total comprehensive loss for the year At 31 December 2016 and 1 January 2017 Profit for the year and total comprehensive income for the year At 31 December 2017 and 1 January 2018 Profit for the period and total comprehensive income for the period At 30 April 2018 At 1 January 2017 Profit for the period and total comprehensive income for the period (unaudited) At 30 April 2017 (unaudited)	Share capital RMB’000 (Note 16) – – – – – – – – – – – –	Retained profits/ (accumulated losses) RMB’000 (48) (160) (208) (322) (530) 688 158 647 805 (530) 64 (466)	Total equity RMB’000 (48) (160) (208) (322) (530) 688 158 647 805 (530) 64 (466)

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ACCOUNTANTS’ REPORT OF THE TARGET BUSINESS

APPENDIX II

STATEMENTS OF CASH FLOWS

Notes CASH FLOWS FROM OPERATING ACTIVITIES Profit/(loss) before tax Adjustments for: Interest income 5 Depreciation of plant and equipment 6 Decrease/(increase) in trade receivables Decrease/(increase) in deposits and other receivables Increase/(decrease) in other payables and accruals Increase/(decrease) in contract liabilities Cash generated from/(used in) operations and net cash flows from/(used in) operating activities CASH FLOWS FROM INVESTING ACTIVITIES Interest received Purchase of items of plant and equipment Net cash flows from/(used in) investing activities NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at beginning of year/period CASH AND CASH EQUIVALENTS AT END OF YEAR/PERIOD 13	Year ended 31 December 2015 2016 2017 RMB’000 RMB’000 RMB’000 (160) (322) 850 (1) – (2) 1 2 4 (160) (320) 852 184 (164) (1,571) (18) (156) (221) (1) 458 655 276 1,155 88 281 973 (197) 1 – 2 (4) (7) – (3) (7) 2 278 966 (195) 137 415 1,381 415 1,381 1,186	Four months ended 30 April 2017 2018 RMB’000 RMB’000 (unaudited) 64 868 (1) (1 1 1 64 868 164 (886 (200) 175 (112) (55 (425) (154 (509) (52 1 1 – – 1 1 (508) (51 1,381 1,186 873 1,135	Four months ended 30 April 2017 2018 RMB’000 RMB’000 (unaudited) 64 868 (1) (1 1 1 64 868 164 (886 (200) 175 (112) (55 (425) (154 (509) (52 1 1 – – 1 1 (508) (51 1,381 1,186 873 1,135
			868
			(886 175 (55 (154
			(52
			1 –
			1
			(51 1,186
			1,135

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ACCOUNTANTS’ REPORT OF THE TARGET BUSINESS

APPENDIX II

II. NOTES TO THE HISTORICAL FINANCIAL INFORMATION

1. Information of the target business

The Target Business is a business unit of Foshan Tianan Hongji Property Services Co., Ltd. and is located in Hanyuan Road, Xincheng District, Xuzhou city, Jiangsu province, China. The Target Business is engaged in the provision of property management services.

2.1 Basis of preparation

The Historical Financial Information has 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 HKICPA and accounting principles generally accepted in Hong Kong.

All HKFRSs effective for the accounting period commencing from 1 January 2018, together with the relevant transitional provisions, have been early adopted by the Target Business in the preparation of the Historical Financial Information throughout the Relevant Periods and in the period covered by the Interim Comparative Financial Information.

The Historical Financial Information has been prepared under the historical cost convention.

2.2 Issued but not yet effective HKFRSs

The Target Business has not applied the following new and revised HKFRs, that have been issued but are not yet effective, in the Historical Financial Information:

Amendments to HKFRS 9	Prepayment Features with Negative
	Compensation1
Amendments to HKFRS 10 and	Sale or Contribution of Assets between an
HKAS 28	Investor and its Associate or Joint Venture3
HKFRS 16	Leases1
HKFRS 17	Insurance Contracts2
Amendments to HKAS 19	Plan Amendment, Curtailment or Settlement1
Amendments to HKAS 28	Long-term Interests in Associates and Joint
	Ventures1
HK(IFRIC)-Int 23	Uncertainty over Income Tax Treatments1
Annual Improvements	Amendments to HKFRS 3, HKFRS 11,
2015-2017 Cycle	HKAS 12 and HKAS 231

1 Effective for annual periods beginning on or after 1 January 2019
2 Effective for annual periods beginning on or after 1 January 2021
3 No mandatory effective date yet determined but available for adoption

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ACCOUNTANTS’ REPORT OF THE TARGET BUSINESS

APPENDIX II

Further information about the HKFRS that is expected to be applicable to the Target Business is described below:

HKFRS 16 Leases

HKFRS 16, issued in May 2016, replaces HKAS 17 Leases, HK(IFRIC)-Int 4 Determining whether an arrangement contains a Lease, HK(SIC)-Int 15 Operating Leases – Incentives and HK(SIC)-Int 27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to recognise assets and liabilities for most leases. The standard includes two recognition exemptions for lessees – leases of low-value assets and short-term leases. At the commencement date of a lease, a lessee will recognise a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). The right-of-use asset is subsequently measured at cost less accumulated depreciation and any impairment losses unless the right-of-use asset meets the definition of investment property in HKAS 40, or relates to a class of property, plant and equipment to which the revaluation model is applied. The lease liability is subsequently increased to reflect the interest on the lease liability and reduced for the lease payments. Lessees will be required to separately recognise the interest expense on the lease liability and the depreciation expense on the right-of-use asset. Lessees will also be required to remeasure the lease liability upon the occurrence of certain events, such as change in the lease term and change in future lease payments resulting from a change in an index or rate used to determine those payments. Lessees will generally recognise the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset. Lessor accounting under HKFRS 16 is substantially unchanged from the accounting under HKAS 17. Lessors will continue to classify all leases using the same classification principle as in HKAS 17 and distinguish between operating leases and finance leases. HKFRS 16 requires lessees and lessors to make more extensive disclosures than under HKAS 17. Lessees can choose to apply the standard using either a full retrospective or a modified retrospective approach. The Target Business expects to adopt HKFRS 16 from 1 January 2019. The Target Business is currently assessing the impact of HKFRS 16 upon adoption. and is considering whether it will choose to take advantage of the practical expedients available and which transition approach and reliefs will be adopted. As disclosed in note 17 to the Historical Financial Information, as at 30 April 2018, the Target Business had future minimum lease payments under non-cancellable operating leases of RMB54,000. Upon adoption of HKFRS 16, certain amounts included therein may need to be recognised as new right-of-use assets and lease liabilities. Further analysis, however, will be needed to determine the amount of new rights of use assets and lease liabilities to be recognised, including, but not limited to, any amounts relating to leases of low-value assets and short term leases, other practical expedients and reliefs chosen, and new leases entered into before the date of adoption.

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ACCOUNTANTS’ REPORT OF THE TARGET BUSINESS

APPENDIX II

2.3 Summary of significant accounting policies

Fair value measurement

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 Target Business. 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.

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 Target Business 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 Historical Financial Information 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 Historical Financial Information on a recurring basis, the Target Business 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) as at the end of each reporting period.

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ACCOUNTANTS’ REPORT OF THE TARGET BUSINESS

APPENDIX II

Related parties

A party is considered to be related to the Target Business 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 Target Business;
(ii) has significant influence over the Target Business; or
(iii) is a member of the key management personnel of the Target Business or of a parent of the Target Business;

(b) the party is an entity where any of the following conditions applies:
(i) the entity and the Target Business 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 Target Business are joint ventures of the same third party;
(iv) one entity is a joint venture of a third entity and the other entity is an associate of the third entity;
(v) the entity is a post-employment benefit plan for the benefit of employees of either the Target Business or an entity related to the Target Business;
(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 Target Business or to the parent of the Target Business.

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ACCOUNTANTS’ REPORT OF THE TARGET BUSINESS

APPENDIX II

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 Target Business 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.

Financial assets

Initial recognition and classification of financial assets

The classification of financial assets at initial recognition depends on their contractual cash flow characteristic and the business model for managing the instruments. Financial assets are classified as measured at amortized cost, fair value through profit or loss (‘‘FVTPL’’) or fair value through other comprehensive income (‘‘FVOCI’’) (either with recycling to profit or loss for debt instruments or without recycling to profit or loss for equity investments). On initial recognition, the Target Business measures a financial asset (unless, it is a trade receivable without a significant financial component that is initially measured at the transaction prices) at its fair value plus, in the case of a financial asset not at FVTPL, transaction costs that are directly attributable to the acquisition of the financial assets. The transaction costs of financial assets carried at FVTPL are recognized in profit or loss. Financial assets within embedded derivatives are considered in their entirety when determining whether their cash flow are solely payment of principal and interest.

Financial assets are measured at amortized cost if they meet both of the following conditions and are not designated as at FVTPL:

They are held within a business model whose objective is to hold financial assets to collect contractual cash flows;
The contractual terms of the financial assets give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

All regular way purchases and sales of financial assets are recognized on the trade date, that is, the date that the Target Business 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.

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ACCOUNTANTS’ REPORT OF THE TARGET BUSINESS

APPENDIX II

Subsequent measurement

Financial assets at amortised cost

These financial assets (including trade and other 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 amortized cost using the effective interest rate (‘‘EIR’’) method less any allowance for impairment. Amortized 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 EIR. The EIR amortization is included in other income and gains in profit or loss. The loss arising from impairment is recognized in profit or loss in finance costs for loans and in other expenses for receivables.

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 derecognized (i.e., removed from the Target Business’ combined statement of financial position) when:

the rights to receive cash flows from the asset have expired; or
the Target Business 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 Target Business has transferred substantially all the risks and rewards of the asset, or (b) the Target Business has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Target Business 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 Target Business’ continues to recognize the transferred asset to the extent of the Target Business’ continuing involvement. In that case, the Target Business also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Target Business 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 Target Business could be required to repay.

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ACCOUNTANTS’ REPORT OF THE TARGET BUSINESS

APPENDIX II

Impairment of financial assets

IFRS 9 requires the Target Business to record an allowance for expected credit losses (‘‘ECL’’) for financial assets measured at amortized cost, debt instruments measured at FVOCI.

The ECL allowance is based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Target Business expects to receive. The shortfall is then discounted at an approximation to the asset’s original EIR.

For all contract assets and trade receivable and other debt securities and bank balances for which credit risk has not increased significantly since initial recognition, the Target Business has applied the standard’s simplified approach and has calculated ECLs based on lifetime expected credit losses. The Target Business has established a provision matrix that is based on the Target Business’ historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.

Other financial assets are assessed for impairment based on 12-month expected credit losses: 12-month ECLs are the portion of lifetime ECLs that result from default events that are possible within the 12 months after the end of each Relevant Periods (or a shorter period if the expected life of the asset is less than 12 months).

The Target Business considers a financial asset in default when the contractual payment day is more than 90 days past due. However, in certain cases, the Target Business may also consider a financial asset to be in default when internal or external information indicates that the Target Business is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Target Business.

Financial liabilities

Initial recognition and measurement

Financial liabilities are classified as measured at amortized cost or at fair value through profit or loss (‘‘FVTPL’’). A financial liability is classified at FVTPL if it is classified as held for trading, it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value with net gain or losses, including interest expenses, recognized in profit or loss.

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ACCOUNTANTS’ REPORT OF THE TARGET BUSINESS

APPENDIX II

Other financial liabilities are subsequently measured at amortized cost using the effective interest method. Interest expenses and foreign exchange gains and losses are recognized in profit or loss. Any gain or loss on derecognition is also recognized in profit or loss.

Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR.

Derecognition of financial liabilities

A financial liability is derecognized 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 recognized in profit or loss.

Offsetting of financial instruments

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

Cash and cash equivalents

For the purpose of the statements 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 payable on demand and form an integral part of the Target Business’ cash management.

For the purpose of the statements 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.

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ACCOUNTANTS’ REPORT OF THE TARGET BUSINESS

APPENDIX II

Current income tax

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 each reporting period, taking into consideration interpretations and practices prevailing in the countries in which the Target Business operates.

Deferred tax

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

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 carryforward 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, and the carryforward 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.

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ACCOUNTANTS’ REPORT OF THE TARGET BUSINESS

APPENDIX II

The carrying amount of deferred tax assets is reviewed as 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 as 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 as at the end of each reporting period.

Deferred tax assets and deferred tax liabilities are offset if and only if the Target Business has a legally enforceable right to set off current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered.

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable for services rendered based on the consideration specified in a contract with a consumer in the ordinary cause of the Target Business’ activities, and is recognized when the performance obligation is satisfied. If the control of the services transfers over time, revenue is recognised over the period of the contract by reference to the progress towards complete satisfaction of that performance obligation. Otherwise, revenue is recognised at a point in time when the customer obtains control of the services.

Revenue from provision of property management service of the Target Business is normally recognised on a straight line basis over the period of service (usually one year). The Target Business recognises contract liabilities for consideration received in respect of unsatisfied performance obligations.

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ACCOUNTANTS’ REPORT OF THE TARGET BUSINESS

APPENDIX II

Other employee benefits

Pension scheme

The employees of the Target Business in Mainland China are required to participate in a central pension scheme operated by the local municipal government. The Target Business is required to contribute 20% of its payroll costs to the central pension scheme. The contributions are charged to the statements of profit or loss and other comprehensive income as they become payable in accordance with the rules of the central pension scheme.

Dividends

Final dividends are recognised as a liability when they are approved by the shareholders in a general meeting.

3. Significant accounting judgements and estimates

The preparation of the Historical Financial Information requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and their accompanying disclosures. 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 Target Business’ 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 Historical Financial Information:

Tax

Determining income tax provisions requires the Target Business to make judgements on the future tax treatment of certain transactions. The Target Business carefully evaluates tax implications of transactions in accordance with prevailing tax regulations and makes tax provisions accordingly.

Estimation uncertainty

The key assumptions concerning the future and other key sources of estimation uncertainty as 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.

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ACCOUNTANTS’ REPORT OF THE TARGET BUSINESS

APPENDIX II

Impairment of trade receivables

The policy for impairment of trade receivables of the Target Business is based on the evaluation of collectibility and aging analysis of trade receivables as well as other quantitative and qualitative information and on management’s judgement and assessment of the forward-looking information. Significant judgement and estimates is required in assessing the ultimate realisation of these receivables, based on the current creditworthiness, the past collection history and subsequent settlements of each customer. If the financial conditions of customers of the Target Business were to deteriorate, resulting in an impairment of their ability to make payments, additional provisions may be required. Further details are disclosed in note 11 to the financial statements.

4. Segment information

During the Relevant Periods, the Target Business is principally engaged in the provision of property management services. For management purposes, the Target Business operates in one business unit based on its services, and has one reportable operating segment.

Geographical information

All of the revenue of the Target Business were generated from external customers located in Mainland China and all of the assets of the Target Business were located in Mainland China. Accordingly, no geographical segment analysis is presented.

Information about a major customer

The revenue derived from sales to a major customer from whom the revenue individually exceeded 10% of the total revenue of the Target Business is set out below:

Property developer	Year ended 31 December 2015 2016 2017 RMB’000 RMB’000 RMB’000 450 1,543 3,027	Four months ended 30 April 2017 2018 RMB’000 RMB’000 (unaudited) 739 1,396

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ACCOUNTANTS’ REPORT OF THE TARGET BUSINESS

APPENDIX II

Revenue, other income and gains

Revenue Property management service income Other income Rental income Bank interest income Others	Year ended 31 December 2015 2016 2017 RMB’000 RMB’000 RMB’000 450 1,808 4,200 – – 59 1 – 2 – – 2 1 – 63	Four months ended 30 April 2017 2018 RMB’000 RMB’000 (unaudited) 1,064 2,093 – 2 1 1 – 3 1 6	Four months ended 30 April 2017 2018 RMB’000 RMB’000 (unaudited) 1,064 2,093 – 2 1 1 – 3 1 6
			2 1 3
			6

Profit/(loss) before tax

The following items have been charged in arriving at profit/(loss) before tax:

Cost of services provided Depreciation of plant and equipment Auditor’s remuneration Employee benefit expense: Wages and salaries Pension scheme contributions	Year ended 31 December 2015 2016 2017 RMB’000 RMB’000 RMB’000 575 1,997 3,339 1 2 4 – – – 364 1,178 2,035 92 288 384 456 1,466 2,419	Four months ended 30 April 2017 2018 RMB’000 RMB’000 (unaudited) 974 1,192 1 1 – – 540 741 125 145 665 886	Four months ended 30 April 2017 2018 RMB’000 RMB’000 (unaudited) 974 1,192 1 1 – – 540 741 125 145 665 886
			886

7. Directors’ remuneration

The Target Business did not have any directors during the Relevant Periods and the four months ended 30 April 2017.

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ACCOUNTANTS’ REPORT OF THE TARGET BUSINESS

APPENDIX II

8. Five highest paid employees

The five non-director highest paid employees for the Relevant Periods and the four months ended 30 April 2017 are as follows:

Salaries, allowances and benefits in kind Pension scheme contributions	Year ended 31 December 2015 2016 2017 RMB’000 RMB’000 RMB’000 119 207 265 30 45 53 149 252 318	Four months ended 30 April 2017 2018 RMB’000 RMB’000 (unaudited) 89 91 18 18 107 109	Four months ended 30 April 2017 2018 RMB’000 RMB’000 (unaudited) 89 91 18 18 107 109
			109

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

Nil to HK$1,000,000	Number of employees Year ended 31 December Four months ended 30 April 2015 2016 2017 2017 2018 (unaudited) 5 5 5 5 5

9. Income tax expense

The statutory income tax rate of People’s Republic of China (‘‘PRC’’) is 25% during the Relevant Periods and the four months ended 30 April 2017.

			Four months ended
Year ended 31 December			30 April
2015	2016	2017	2017 2018
RMB’000	RMB’000	RMB’000	RMB’000 RMB’000
			(unaudited)

Current – PRC Charge for the year/period	–	–	162	–	221

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ACCOUNTANTS’ REPORT OF THE TARGET BUSINESS

APPENDIX II

A reconciliation of the tax expense applicable to profit/loss before tax at the statutory rate in which the Target Business is domiciled to the tax expense at the effective tax rate, and a reconciliation of the statutory tax rate to the effective tax rate, are as follows:

Profit/(loss) before tax Tax at the statutory tax rate Expenses not deductible for tax Tax losses not recognised Tax losses utilised from previous years Tax charge at the Target Business’ effective rate	Year ended 31 December 2015 2016 2017 RMB’000 RMB’000 RMB’000 (160) (322) 850 (40) (81) 213 – 35 38 40 46 – – – (89) – – 162	Four months ended 30 April 2017 2018 RMB’000 RMB’000 (unaudited) 64 868 16 217 10 4 – – (26) – – 221	Four months ended 30 April 2017 2018 RMB’000 RMB’000 (unaudited) 64 868 16 217 10 4 – – (26) – – 221
			217 4 – –
			221

10. Dividends

No dividends were declared by the Target Business during the Relevant Periods and the fourth months ended 30 April 2017.

11. Trade receivables

Trade receivables Impairment	As 2015 RMB’000 – – –	at 31 December 2016 2017 RMB’000 RMB’000 164 1,735 – – 164 1,735	As at 30 April 2018 RMB’000 2,621 –
			2,621

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ACCOUNTANTS’ REPORT OF THE TARGET BUSINESS

APPENDIX II

Trade receivables mainly include outstanding balances from the property developer arising from the provision of property management services. A credit period of generally 6 months is granted to the property developer for whom the Target Business provides property management services. Advanced payment is normally required for the property owners for whom the Target Business provides management service. The Target Business seeks to maintain strict control over its outstanding receivables. Overdue balances are reviewed regularly by management. The Target Business does not hold any collateral or other credit enhancements over its trade receivable balances. Trade receivables are non-interest-bearing.

An ageing analysis of the trade receivables as at the end of each of the Relevant Periods, based on the invoice date, is as follows:

Within 6 months Over 6 months	As 2015 RMB’000 – – –	at 31 December 2016 2017 RMB’000 RMB’000 164 1,719 – 16 164 1,735	As at 30 April 2018 RMB’000 1,996 625
			2,621

An ageing analysis of the trade receivables as at the end of each of the Relevant Periods, based on the due date, is as follows:

Current Less than 6 months past due	As 2015 RMB’000 – – –	at 31 December 2016 2017 RMB’000 RMB’000 164 1,719 – 16 164 1,735	As at 30 April 2018 RMB’000 1,996 625
			2,621

The Target Business measures the loss allowance for trade receivables at an amount equal to lifetime ECL. The expected credit losses on trade receivables are estimated using a provision matrix by reference to past default experience of the debtor and an analysis of the debtor’s current financial position. As the Target Business did not have any historical credit loss, the Target Business expects the lifetime ECL is minimal. There has not been any significant change in the gross amounts of trade receivables that has affected the estimation of the loss allowance during the Relevant Periods.

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ACCOUNTANTS’ REPORT OF THE TARGET BUSINESS

APPENDIX II

12. Deposits and other receivable

Deposits Other receivables Advances to staffs Due from the head office of the Target Business	As 2015 RMB’000 177 29 – – 206	at 31 December 2016 2017 RMB’000 RMB’000 180 180 68 320 64 33 50 50 362 583	As at 30 April 2018 RMB’000 180 176 2 50
			408

Balance due from the head office of the Target Bussiness, Foshan Tianan Hongji Property Services Co., Ltd., is unsecured, interest-free and repayable on demand.

13. Cash and cash equivalents

Cash and bank balances	As 2015 RMB’000 415	at 31 December 2016 2017 RMB’000 RMB’000 1,381 1,186	As at 30 April 2018 RMB’000 1,135

Cash and bank balances of the Target Business denominated in RMB. 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 Target Business 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. The bank balances and pledged deposits are deposited with creditworthy banks with no recent history of default.

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ACCOUNTANTS’ REPORT OF THE TARGET BUSINESS

APPENDIX II

14. Other payables and accruals

Other payables Accruals	As 2015 RMB’000 400 157 557	at 31 December 2016 2017 RMB’000 RMB’000 652 1,054 363 616 1,015 1,670	As at 30 April 2018 RMB’000 1,080 535
			1,615

Other payables are non-interest-bearing and have an average term of 45 days.

15. Contract liabilities

Deferred revenue from the provision of property management services	As 2015 RMB’000 276	at 31 December 2016 2017 RMB’000 RMB’000 1,431 1,519	As at 30 April 2018 RMB’000 1,365

Contract liabilities relate to the Target Business’ obligation to provide property management services to customers for whom the Target Business has received consideration.

Contract liabilities are recognised as revenue when the Target Business completes the property management services under the contracts. The remaining performance obligation is expected to be recognised within one year.

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ACCOUNTANTS’ REPORT OF THE TARGET BUSINESS

APPENDIX II

Significant changes in contract liabilities during the Relevant Periods are as follows:

Revenue recognised in the statement of profit or loss and other comprehensive income that was included in contract liabilities balance at the beginning of the year/period	Year ended 31 December 2015 2016 2017 RMB’000 RMB’000 RMB’000 453 276 1,431	Four months ended 30 April 2018 RMB’000 569

16. Share capital

The Target Business was not a separate legal entity and had no issued and outstanding shares during the Relevant Periods.

17. Operating lease arrangement

As at the end of the Relevant Periods, the Target Business leases certain of its office and dormitory under operating lease arrangements. Leases are negotiated for 1 year.

Future minimum rental payable under non-cancellable operating leases at the end of each of the Relevant Periods are as follows:

Within one year	As 2015 RMB’000 –	at 31 December 2016 2017 RMB’000 RMB’000 20 114	As at 30 April 2018 RMB’000 54

– 44 –

ACCOUNTANTS’ REPORT OF THE TARGET BUSINESS

APPENDIX II

18. Related party transactions

(a) Outstanding balances with related parties:

Details of the Target Business’ outstanding balance due from its head office at the end of the Relevant Periods is disclosed in note 12 to the Historical Financial Information.

(b) Compensation of key management personnel

Salaries, allowances and benefits in kind Pension scheme contributions Total compensation paid to key management personnel	Year ended 31 December 2015 2016 2017 RMB’000 RMB’000 RMB’000 2 139 227 1 32 46 3 171 273	Four months ended 30 April 2017 2018 RMB’000 RMB’000 (unaudited) 80 59 16 12 96 71	Four months ended 30 April 2017 2018 RMB’000 RMB’000 (unaudited) 80 59 16 12 96 71
			71

19. Financial instruments by category

The carrying amounts of each of the categories of financial instruments as at the end of the Relevant Periods are as follows:

Financial assets measured at amortised cost

Trade receivables Financial assets included in deposits and other receivables Cash and cash equivalents	As 2015 RMB’000 – 206 415 621	at 31 December 2016 2017 RMB’000 RMB’000 164 1,735 298 550 1,381 1,186 1,843 3,471	As at 30 April 2018 RMB’000 2,621 406 1,135
			4,162

– 45 –

ACCOUNTANTS’ REPORT OF THE TARGET BUSINESS

APPENDIX II

Financial liabilities measured at amortised cost

Financial liabilities included in other payables and accruals	As 2015 RMB’000 400	at 31 December 2016 2017 RMB’000 RMB’000 652 1,054	As at 30 April 2018 RMB’000 1,080

20. Fair value and fair value hierarchy of financial instruments

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

The Target Business did not have any financial assets and liabilities measured or disclosed at fair value during the Relevant Periods.

21. Financial risk management objectives and policies

The main risks arising from the Target Business are credit risk and liquidity risk. Management reviews and agrees policies for managing each of these risks and they are summarised below.

Credit risk

Advanced payment is normally required for the property owners for whom the Target Business provides management service. Credit term of generally 6 months is only granted to the property developer. The Target Business trades only with recognised and creditworthy third parties. It is the Target Business’ 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 Target Business’ exposure to bad debts is not significant.

The credit risk of the Target Business’ 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.

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ACCOUNTANTS’ REPORT OF THE TARGET BUSINESS

APPENDIX II

Since the Target Business trades only with recognised and creditworthy third parties, there is no requirement for collateral. Concentrations of credit risk are managed by customer/counterparty. At 31 December 2016 and 2017 and 30 April 2018, the Target Business had certain concentrations of credit risk as 93%, 94%, and 96% of the Target Business’ trade receivables were due from the property developer.

Further quantitative data in respect of the Target Business’ exposure to credit risk arising from trade receivables are disclosed in note 11 to the Historical Financial Information.

Liquidity risk

The Target Business’ objective is to maintain sufficient cash and cash equivalents and have available funding through operation.

– 47 –

ACCOUNTANTS’ REPORT OF THE TARGET BUSINESS

APPENDIX II

The maturity profile of the Target Business’s financial liabilities as at the end of the Relevant Periods, based on the contractual undiscounted payments, is as follows:

31 December 2015 Financial liabilities included in other payables and accruals 31 December 2016 Financial liabilities included in other payables and accruals 31 December 2017 Financial liabilities included in other payables and accruals 30 April 2018 Financial liabilities included in other payables and accruals	On demand RMB’000 400 On demand RMB’000 188 On demand RMB’000 486 On demand RMB’000 870	Less than 3 months RMB’000 – Less than 3 months RMB’000 464 Less than 3 months RMB’000 568 Less than 3 months RMB’000 210	3 to less than 12 months RMB’000 – 3 to less than 12 months RMB’000 – 3 to less than 12 months RMB’000 – 3 to less than 12 months RMB’000 –	1 to 5 years RMB’000 – 1 to 5 years RMB’000 – 1 to 5 years RMB’000 – 1 to 5 years RMB’000 –	Total RMB’000 400
					Total RMB’000 652
					Total RMB’000 1,054
					Total RMB’000 1,080

22. Capital management

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

The Target Business manages its capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. The Target Business is not subject to any externally imposed capital requirements. No changes were made in the objectives, policies or processes for managing capital during the Relevant Periods.

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ACCOUNTANTS’ REPORT OF THE TARGET BUSINESS

APPENDIX II

Other payables and accruals Less: Cash and cash equivalents Net debt/(capital) Total equity/(deficiency in assets) Capital and net debt Gearing ratio	As 2015 RMB’000 557 (415) 142 (208) (66) N/A	at 31 December 2016 2017 RMB’000 RMB’000 1,015 1,670 (1,381) (1,186) (366) 484 (530) 158 (896) 642 N/A 75%	As at 30 April 2018 RMB’000 1,615 (1,135
			480
			805 1,285
			37%

23. Events occurring after the reporting period

On 25 June 2018, a subsidiary of the Company (the ‘‘Purchaser’’) and Foshan Tianan Hongji Property Services Co., Ltd. (the ‘‘Vendor’’) entered into the sale and purchase agreement, pursuant to which the Purchaser conditionally agreed to purchase and the Vendor conditionally agreed to sell the Target Business. The consideration payable by the Purchaser is RMB9,000,000 in cash.

24. Subsequent financial statements

No audited financial statements have been prepared by the Target Business in respect of any period subsequent to 30 April 2018.

– 49 –

MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET BUSINESS

APPENDIX III

Set out below is the management discussion and analysis on the Target Business for the three years ended 31 December 2015, 2016 and 2017, and for the four months ended 30 April 2018. The following information is based on the audited financial information of the Target Business as set out in Appendix II to this circular.

BUSINESS REVIEW

The Target Business represents all the assets, liabilities and businesses of a registered branch office of the Vendor, the Xuzhou Branch Office, and is principally engaged in the provision of property management services in Xuzhou City, Jiangsu Province, the PRC. The Target Business specialises in the high-end property management sector, providing property management services to residential properties. Services provided include the provision of management and maintenance services to facilities of the estate, provision of cleaning and environmental services for common area and provision of 24 hours security services, and has been highly lauded among the communities in Xuzhou City. It is the Target Business’ objective to provide customised services to cater to the needs of its customers, and through the provision of such services, increase the value of the properties under its management.

FINANCIAL REVIEW

Revenue

Revenue of Target Business is mainly generated from provision of property management services and other related services such as provision of cleaning and environmental services and 24 hours security services for properties in Xuzhou City, Jiangsu Province, the PRC.

The total revenue of the Target Business for the year ended 31 December 2017 was approximately RMB4,200,000, which represents a 132% increase when compared with that of approximately RMB1,808,000 for the year ended 31 December 2016. The total revenue of the Target Business for the year ended 31 December 2016 increased by 3.0 times when compared with that of approximately RMB450,000 for the year ended 31 December 2015. Such increasing trend in revenue was attributed to the income generated from property management services provided for phase one of the Xuzhou Project in October 2016 and phase two of the same property project in October 2017. The Target Business was established in 2014 and only started providing property management services in October 2016, as such the revenue for the year ended 31 December 2015 only comprised of income from provision of cleaning and environmental services and 24 hours security services.

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MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET BUSINESS

APPENDIX III

The total revenue of the Target Business for four months ended 30 April 2017 and 2018 was RMB1,064,000 and RMB2,093,000 respectively, which follows the trend of increasing incomes received by the Target Business over the past three financial years.

Cost of sales

Cost of sales of the Target Business mainly comprises of employee wages and pension scheme contribution. The Target Business recorded cost of sales of RMB3,339,000 for the year ended 31 December 2017, with represents a 67% increase when compared to that of RMB1,997,000 recorded for the year ended 31 December 2016. The cost of sales for the target Business for the year ended 2016 saw an increase of 2.5 times compared to that of RMB575,000 for the year ended 31 December 2015. The significant increase in cost of sales is attributed to the increase in number of employees of the Target Business as business expanded. The Target Business had 19, 44 and 60 employees as at 31 December 2015, 2016 and 2017 respectively.

Cost of sales of the Target Business for four months ended 30 April 2017 and 2018 was RMB974,000 and RMB1,192,000 respectively, which follows the trend of increasing cost of sales of the Target Business over the past three financial years.

Gross Profit or loss

The Target Business recorded gross loss of RMB125,000 and RMB189,000 for the two years ended 31 December 2015 and 2016, and gross profit of RMB861,000, RMB90,000 and RMB901,000 for the year ended 31 December 2017 and the four months ended 30 April 2017 and 2018 respectively.

The gross profit margin of the Target Business for the four months ended 30 April 2017 and 2018 are approximately 8% and 43% respectively. The increase in gross profit margin ratio was mainly attributable to the increase in income generated from commencement of property management services provided to phase two of the Xuzhou Project in October 2017 while keeping the increase in cost of sales relatively low.

Other Income and Gains

Other income mainly consists of rental fees received from third-party interior design and decoration companies for their marketing activities in the public areas of the properties managed by the Target Business. Such income usually arise when the properties managed by the Target Business is completed and being delivered to property owners, it is uncertain as to whether this income will be recurring or not.

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MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET BUSINESS

APPENDIX III

For the year ended 31 December 2017, the Target Business recorded other income and gains of approximately RMB63,000, which represents a 62.0 times increase when compared with that for the year ended 31 December 2015, which amounted to around RMB1,000. The increase was mainly due to the rental incomes of RMB59,000 recorded in 2017. Other income and gains for the year ended 31 December 2015 was only RMB1,000 generated from bank interest. There was no other income and gains for the year ended 31 December 2016.

Other income of the Target Business for four months ended 30 April 2017 and 2018 was RMB1,000 and RMB6,000 respectively, the increase is mainly due to the increase in rental income and sundry income.

Administrative Expenses

The Target Business recorded administrative expenses of approximately RMB74,000 for the year ended 31 December 2017, which amounts to a 44% decrease in administrative expenses when compared with that for the year ended 31 December 2016 of RMB133,000. The administrative expenses for the Target Business for the year ended 31 December 2016 increased by 2.7 times when compared with the approximately RMB36,000 for the year ended 31 December 2015. The increase in administrative expenses of the Target Business recorded in the year ended 31 December 2016 was attributed to expenses of staff training and staff recruitment expenses of approximately RMB52,000 to staff employed in 2016. Number of newly appointed staff decreased in 2017, leading to decrease in staff training expenses and administrative expenses.

Administrative expenses of the Target Business for four months ended 30 April 2017 and 2018 was RMB27,000 and RMB40,000 respectively, the increase is mainly due to the increase in business entertainment expenses.

Profit/(loss) for the year/period

The Target Business recorded a net profit of RMB688,000 for the year ended 31 December 2017, whereas it recorded net losses of RMB322,000 and RMB160,000 for the years ended 31 December 2016 and 2015 respectively. The increase in loss between 2015 and 2016 can be explained by significant increase in cost of sales driven by increase of employee wages and pension scheme contribution, whilst the profit recorded by the Target Business in 2017 was mainly due to the significant increase in revenue.

Profit of the Target Business for the four months ended 30 April 2018 increased by 9.1 times to RMB647,000 compared to 30 April 2017 was caused by the commencement of provision of property management services for phase two of the Xuzhou Project in October 2017.

– 52 –

MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET BUSINESS

APPENDIX III

LIQUIDITY, FINANCIAL RESOURCES AND CAPITAL STRUCTURE

As at 31 December 2015, 2016, 2017 and 30 April 2018, the total assets of the Target Business amounted to RMB625,000, RMB1,916,000, RMB3,509,000 and RMB4,168,000 respectively.

As at 31 December 2015, 2016, 2017 and 30 April 2018, the Target Business did not have any non-current liabilities, the total liabilities of the Target Business amounted to RMB833,000, RMB2,446,000, RMB3,351,000 and RMB3,363,000 respectively. As at 31 December 2015, 2016, 2017 and 30 April 2018, the Target Business had cash and cash equivalents of RMB415,000, RMB1,381,000, RMB1,186,000 and RMB1,135,000 respectively.

The Target Business monitors capital using a gearing ratio, which is net debt divided by the adjusted capital plus net debt. Net debt includes other payables and accruals, less cash and cash equivalents. As at each of 31 December 2015 and 2016, the Target Business has a net liabilities position and thus no gearing ratio is presented, as at 31 December 2017 and 30 April 2018, the gearing ratios of the Target Business are 75% and 37% respectively.

For the year ended 31 December 2017 and four months ended 30 April 2018 the Target Business recorded negative cashflow, which was mainly caused by the long credit period of 6 months offered to the property developer of the Xuzhou Project for the property management service provided to unsold properties of phase one and phase two of the Xuzhou Project. Upon the completion of sale of phase one and phase two of the Xuzhou Project, the Target Business’s property management income will be received from property owners instead, and the credit period offered to property owners will be reduced to 30 days. The Target Business is expected to record positive cash flow for the year ending 31 December 2018.

EMPLOYEES AND REMUNERATION POLICY

As at 31 December 2015, 2016, 2017 and 30 April 2018, the Target Business employed a total of 19, 44, 60 and 49 employees respectively. Total staff costs for the period for the years ended 31 December 2015, 2016, 2017 and four months ended 30 April 2018 were approximately RMB456,000, RMB1,466,000, RMB2,419,000 and RMB886,000 respectively, with the increase in total staff costs attributable to the increase in the number of employees between the relevant period. The Target Business did not have any directors’ remuneration during the Relevant Periods.

The Target Business has not paid dividends following the conclusion of the years ended 31 December 2015, 2016, 2017 and the four months ended 30 April 2018.

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MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET BUSINESS

APPENDIX III

CHARGES ON ASSETS

The Target Business did not have any charge arranged with any financial institution in Hong Kong as at 30 April 2018.

FOREIGN EXCHANGE EXPOSURE

The revenue and operating costs of the Target Business were principally denominated in RMB, and as such the exposure to the risk of foreign exchange rate fluctuations for the Target Business was low as a result of Mainland China’s Foreign Exchange Control Regulations and Administration of Settlement, Sale and Payment of Foreign Exchange Regulations. As a result, no financial instrument for hedging was employed by the Target Business.

SIGNIFICANT INVESTMENTS

The Target Business had no significant investments as at 30 April 2018.

CONTINGENT LIABILITIES

No material contingent liability had come to the attention of the Directors up to the Latest Practicable Date.

– 54 –

APPENDIX IV

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

A. UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

Introduction

The following unaudited pro forma consolidated statement of financial position (the ‘‘Unaudited Pro Forma Financial Information’’) has been prepared for the purposes of providing shareholders of the Company with information about the impact of the proposed acquisition of the assets, liabilities and business of Foshan Tianan Hongji Property Services Co., Ltd. Xuzhou Branch office,（佛山天安鴻基物業管理有限公司徐州分公司）(the ‘‘Target Business’’) (the ‘‘Acquisition’’), as if the Acquisition had taken place on 30 April 2018.

The Unaudited Pro Forma Financial Information has been prepared based on a number of assumptions, estimates and uncertainties. Accordingly, the Unaudited Pro Forma Financial Information does not purport to describe the actual financial position of the Group, as enlarged by the Acquisition, that would have been attained had the Acquisition been completed on 30 April 2018. Neither does the Unaudited Pro Forma Financial Information purport to predict the future financial position of the Enlarged Group.

The Unaudited Pro Forma Financial Information has been prepared for illustrative purposes only and because of its hypothetical nature, it may not give a true picture of the financial position of the Enlarged Group had the Acquisition been completed as of 30 April 2018.

The Unaudited Pro Forma Financial Information has been prepared based on the unaudited condensed consolidated statement of financial position of the Group as at 31 December 2017, which has been extracted from the published interim report of the Group for the six months ended 31 December 2017, and the audited statement of financial position of the Target Business as at 30 April 2018, which has been extracted from the accountants’ report of the Target Business as set out in Appendix II to this circular, after giving effect to the unaudited pro forma adjustments as described in the accompanying notes.

The Unaudited Pro Forma Financial Information should be read in conjunction with other financial information included elsewhere in this circular. The Unaudited Pro Forma Financial Information does not take into account any trading or other transactions subsequent to the dates of the respective financial statements of the companies comprising the Enlarged Group.

– 55 –

APPENDIX IV

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

NON-CURRENT ASSETS Property, plant and equipment Investment properties Intangible assets Investment in an associate Investment in a subsidiary Goodwill Deferred tax assets Total non-current assets CURRENT ASSETS Inventories Trade receivables Prepayments, deposits and other receivables Pledged deposits Cash and cash equivalents Total current assets CURRENT LIABILITIES Trade payables Other payables and accruals Contract liabilities Tax payable Total current liabilities NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Non-redeemable convertible preferred shares Deferred tax liabilities Total non-current liabilities Net Assets EQUITY Equity attributable to owners of the Company Issued capital Non-redeemable convertible preferred shares Other reserves Non-controlling interests Total Equity	The Group as at 31 December 2017 RMB’000 (Unaudited) Note 1 1,410 5,964 75,779 50,531 – – 5,190 138,874 63,260 70 298 502 42,050 106,180 1,677 18,062 – 6,217 25,956 80,224 219,098 586 8,845 9,431 209,667 252,856 2,252 (89,332) 165,776 43,891 209,667	The Target Business as at 30 April 2018 RMB’000 (Audited) Note 1 4 – – – – – – 4 – 2,621 408 – 1,135 4,164 – 1,615 1,365 383 3,363 801 805 – – – 805 – – 805 805 – 805	Subtotal RMB’000 Note 2(a) 1,414 5,964 75,779 50,531 – – 5,190 138,878 63,260 2,691 706 502 43,185 110,344 1,677 19,677 1,365 6,600 29,319 81,025 219,903 586 8,845 9,431 210,472 252,856 2,252 (88,527) 166,581 43,891 210,472	Pro forma adjustments RMB’000 RMB’000 Note 2(b) (Unaudited) – – – – – – – – 9,000 (9,000) – 8,195 – – 9,000 (805) – – – – – – – – (9,000) – (9,000) – – – – – – – – – – – (9,000) – – (805) – – – – – – – (805) – – – – – (805) – (805) – – – (805)	Pro forma of the Enlarged Group as at 30 April 2018 RMB’000 1,414 5,964 75,779 50,531 – 8,195 5,190
					147,073
					63,260 2,691 706 502 34,185
					101,344
					1,677 19,677 1,365 6,600
					29,319
					72,025
					219,098
					586 8,845
					9,431
					209,667
					252,856 2,252 (89,332
					165,776 43,891
					209,667

– 56 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

Notes:

1. BASIS OF PREPARATION

This Unaudited Pro Forma Financial Information has been prepared in accordance with Rule 4.29 of the Listing Rules and based upon: (i) the unaudited condensed consolidated statement of financial position of the Group as at 31 December 2017, which has been extracted from the unaudited interim financial statements of the Group for the six months ended 31 December 2017, and (ii) the audited statement of financial position of the Target Business as at 30 April 2018, which has been extracted from the accountants’ report of the Target Business included in Appendix II to this circular; and adjusted in accordance with the pro forma adjustments described in note 2 below, as if the Acquisition had been completed on 30 April 2018. The Unaudited Pro Forma Financial Information does not take into account any trading results or other transactions of the Group and the Target Business subsequent to 30 April 2018.

This Unaudited Pro Forma Financial Information has been prepared in a manner consistent with both the format and accounting policies adopted by the Group in the unaudited interim financial statements for the six months ended 31 December 2017.

2. NOTES TO THE PRO FORMA ADJUSTMENTS

Under Hong Kong Financial Reporting Standard 3 (Revised) ‘‘Business Combinations’’ issued by the Hong Kong Institute of Certified Public Accountants (the ‘‘HKICPA’’), the Group will apply the purchase method to account for the acquisition of the Target Business in the consolidated financial statements of the Group. The goodwill arising from the Acquisition is calculated as follows:

Notes Purchase cost of the Target Business (a) Pro forma assumed fair value of identifiable net assets acquired (b) Goodwill (b)	RMB’000 9,000 805
	8,195

(a) Pursuant to the sale and purchase agreement, the consideration for the acquisition of the Target Business is RMB9,000,000, which shall be satisfied in cash.

– 57 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

(b) For the purpose of this Unaudited Pro Forma Financial Information of the Enlarged Group, in the opinion of the directors of the Company, the fair value of the assets and liabilities of the Target Business being acquired is subject to change upon completion of the Acquisition because the fair value of the assets and liabilities being acquired shall be assessed on the date of completion.

Since this Unaudited Pro Forma Financial Information of the Enlarged Group is prepared solely for illustrative purpose, the directors had assumed that the carrying values of the identifiable assets and liabilities of the Target Business as at 30 April 2018 of RMB805,000 approximate to their fair values largely due to the short term maturities of these assets and liabilities, which will be reassessed on the completion date of the Acquisition. The fair values of the assets and liabilities being acquired may be subject to change after further assessment by the directors at the date of completion.

For the purpose of the Unaudited Pro Forma Financial Information, the goodwill of RMB8,195,000 arising from the Acquisition represents the amount by which the fair value of consideration transferred exceeds the fair value of the identifiable assets and liabilities of the Target Business to be acquired, as if the Acquisition has been completed on 30 April 2018. The amount of goodwill is subject to change when the fair value of the identifiable assets and liabilities of the Target Business is finalised on the completion date of the Acquisition.

For the purpose of the Unaudited Pro Forma Financial Information, the Group has ensured the steps taken on the assessment of goodwill have been properly performed in accordance with Hong Kong Accounting Standard 36 ‘‘Impairment of Assets’’. On that basis, the Group concluded that no impairment of goodwill is considered necessary. The Group will adopt consistent accounting policies for goodwill impairment test in future.

– 58 –

APPENDIX IV

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

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

The following is the text of a report, received from the reporting accountants of the Company, Ernst & Young, Certified Public Accountants, Hong Kong, prepared for the purpose of incorporation in this circular, in respect of the unaudited pro forma financial information of the Enlarged Group.

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

To the Directors of Kingwell Group Limited

We have completed our assurance engagement to report on the compilation of unaudited pro forma financial information of Kingwell Group Limited (the ‘‘Company’’) and its subsidiaries (hereinafter collectively referred to as the ‘‘Group’’) by the directors of the Company (the ‘‘Directors’’) for illustrative purposes only. The unaudited pro forma financial information consists of the unaudited pro forma consolidated statement of financial position of the Group as at 30 April 2018 and the related notes set out in the section A of Appendix IV to the circular dated 21 September 2018 issued by the Company (the ‘‘Circular’’) (the ‘‘Unaudited Pro Forma Financial Information’’) in connection with the proposed acquisition of the assets, liabilities and business of Foshan Tianan Hongji Property Services Co, Ltd. Xuzhou Branch office（佛山天安鴻基物業管理有限公司徐州分公司）(the ‘‘Target Business’’) (the ‘‘Acquisition’’). The applicable criteria on the basis of which the Directors have compiled the Pro Forma Financial Information are described in the notes 1 and 2 in the section A of Appendix IV to the Circular.

The Unaudited Pro Forma Financial Information has been compiled by the Directors to illustrate the impact of the Acquisition on the Group’s financial position as at 30 April 2018, as if the Acquisition had taken place at 30 April 2018. As part of this process, information about the Group’s financial position has been extracted by the Directors from the unaudited interim financial statements of the Group for the six months ended 31 December 2017. Information about the financial position of the Target Business as at 30 April 2018, has been extracted by the Directors from the accountants’ report of the Target Business as set out in Appendix II to the Circular.

– 59 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

Directors’ responsibility for the Unaudited Pro Forma Financial Information

The Directors are responsible for compiling the Unaudited Pro Forma Financial Information in accordance with paragraph 4.29 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the ‘‘Listing Rules’’) and with reference to Accounting Guideline (‘‘AG’’) 7 Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars issued by the Hong Kong Institute of Certified Public Accountants (the ‘‘HKICPA’’).

Our independence and quality control

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

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

Reporting accountants’ responsibilities

Our responsibility is to express an opinion, as required by paragraph 4.29(7) of the Listing Rules, on the Unaudited Pro Forma Financial Information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the Unaudited Pro Forma Financial Information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

We conducted our engagement in accordance with Hong Kong Standard on Assurance Engagements 3420 Assurance Engagements to Report on the Compilation of Pro Forma Financial Information Included in a Prospectus issued by the HKICPA. This standard requires that the reporting accountants plan and perform procedures to obtain reasonable assurance about whether the Directors have compiled the Pro Forma Financial Information in accordance with paragraph 4.29 of the Listing Rules and with reference to AG 7 issued by the HKICPA.

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

For purposes of this engagement, we are not responsible for updating or reissuing any reports or opinions on any historical financial information used in compiling the Unaudited Pro Forma Financial Information, nor have we, in the course of this engagement, performed an audit or review of the financial information used in compiling the Unaudited Pro Forma Financial Information.

The purpose of the Unaudited Pro Forma Financial Information included in the Circular is solely to illustrate the impact of the Acquisition on unadjusted financial information of the Group as if the Acquisition had been undertaken at an earlier date selected for purposes of the illustration. Accordingly, we do not provide any assurance that the actual outcome of the Acquisition would have been as presented.

A reasonable assurance engagement to report on whether the Unaudited Pro Forma Financial Information has been properly compiled on the basis of the applicable criteria involves performing procedures to assess whether the applicable criteria used by the Directors in the compilation of the Unaudited Pro Forma Financial Information provide a reasonable basis for presenting the significant effects directly attributable to the Acquisition, and to obtain sufficient appropriate evidence about whether:

the related pro forma adjustments give appropriate effect to those criteria; and
the Unaudited Pro Forma Financial Information reflects the proper application of those adjustments to the unadjusted financial information.

The procedures selected depend on the reporting accountants’ judgment, having regard to the reporting accountants’ understanding of the nature of the Group, the transaction in respect of which the Unaudited Pro Forma Financial Information has been compiled, and other relevant engagement circumstances.

The engagement also involves evaluating the overall presentation of the Unaudited Pro Forma Financial Information.

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

– 61 –

APPENDIX IV

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

In our opinion:

(a) the Unaudited Pro Forma Financial Information has been properly compiled on the basis stated;
(b) such basis is consistent with the accounting policies of the Group; and
(c) the adjustments are appropriate for the purpose of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

Yours faithfully,

Ernst & Young

Certified Public Accountants Hong Kong 21 September 2018

– 62 –

GENERAL INFORMATION

APPENDIX V

1. RESPONSIBILITY STATEMENT

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

2. DIRECTORS’ INTERESTS IN SECURITIES

As at the Latest Practicable Date, the interests and short positions of the Directors and chief executive of the Company in the Shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which (a) were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO); or (b) were required pursuant to Section 352 of the SFO to the entered in the register referred to therein; or (c) were required pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the ‘‘Model Code’’) as set out in Appendix 10 of the Listing Rules to be notified to the Company and the Stock Exchange, were as follows:

Long positions in Shares and options of the Company

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

Notes:

(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.
(2) 13,000,000 shares options are held by Mr. Mu Dongsheng.

– 63 –

APPENDIX V

GENERAL INFORMATION

Save as disclosed above, as at the Latest Practicable Date, none of the Directors, chief executive of the Company and their associates had any interests and short positions in the Shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which (a) were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO); or (b) were required pursuant to Section 352 of the SFO to be entered in the register referred to therein; or (c) were required pursuant to the Model Code to be notified to the Company and the Stock Exchange.

3. SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, so far as is known to the Directors and chief executive of the Company, no other parties (other than a Director and chief executive of the Company) who had interests or short positions in the Shares and underlying shares of the Company which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO, or, who were, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group or had any options in respect of such capital.

4. COMPETING INTEREST

As at the Latest Practicable Date, the Directors confirm that neither themselves nor any of their respective close associates (as defined in the Listing Rules) were interested in any business apart from the business of the Group which competed, or was likely to compete, either directly or indirectly, with the business of the Group.

5. INTEREST IN ASSETS

As at the Latest Practicable Date, none of the Directors had any interest, direct or indirect, in any assets which had been, since 30 June 2017 (being the date to which the latest published audited financial statements of the Company were made up) and up to the Latest Practicable Date, acquired or disposed of by or leased to any member of the Group, or were proposed to be acquired or disposed of by or leased to any member of the Group.

6. INTEREST IN CONTRACT OR ARRANGEMENT

The Directors confirm that there was no contract or arrangement subsisting at the Latest Practicable Date in which they were materially interested and which was significant in relation to the business of the Group.

– 64 –

GENERAL INFORMATION

APPENDIX V

7. LITIGATION

The Directors confirm that none of the member of the Group was engaged in any litigation or claims of material importance and no litigation or claim of material importance was pending or threatened against any member of the Group as at the Latest Practicable Date.

8. EXPERT AND CONSENT

The following is the qualification of the expert who has provided its opinion or advice, which are contained in this circular:

Name			Qualification
Ernst	&	Young	Certified Public Accountants

Ernst & Young had given and has not withdrawn its written consent to the issue of this circular, with the inclusion therein of its letter and/or report or the references to its name in the form and context in which it appears.

As at the Latest Practicable Date, Ernst & Young did not have any shareholding in any member of the Group or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for any securities in any member of the Group.

As at the Latest Practicable Date, Ernst & Young did not have any direct or indirect interest in any assets which had since 30 June 2017, being the date to which the latest published audited financial statements of the Company were made up, been acquired or disposed of by or leased to or are proposed to be acquired or disposed of by or leased to any member of the Group.

9. MATERIAL CONTRACTS

Save for the Sale and Purchase Agreement, the Directors are not aware of any contracts that are or may be material, not being contracts entered into in the ordinary course of business, and had been entered into by any member of the Group within two years immediately preceding the Latest Practicable Date.

10. SERVICE CONTRACTS

The Directors confirm that as at the Latest Practicable Date, the Directors did not have any existing or proposed service contract with any member of the Group (excluding contracts to expire or may be terminated by the employer within a year without payment of any compensation (other than statutory compensation)).

– 65 –

GENERAL INFORMATION

APPENDIX V

11. MISCELLANEOUS

(a) The company secretary of the Company is Mr. Poon Yan Wai, who is a Fellow Member of The Hong Kong Institute of Certified Public Accountants. He also holds a Bachelor’s degree in Accountancy and a Master’s degree in Corporate Finance from Hong Kong Polytechnic University.
(b) The registered office of the Company is at Royal Bank of Canada Trust Company (Cayman) Limited, 4th Floor, Royal Bank House, 24 Shedden Road, George Town, KY1-1111, Cayman Islands and the head office and principal place of business in Hong Kong is at Units 314-315, Wing On Plaza, 62 Mody Road, Tsim Sha Tsui East, Kowloon, Hong Kong.
(c) The principal share registrar and transfer office of the Company in the Cayman Islands is SMP Partners (Cayman) Limited at The Royal Bank House – 3rd Floor, 24 Shedden Road, P.O. Box 1586, Grand Cayman, KY1-1110, Cayman Islands. The branch share registrar and transfer office of the Company in Hong Kong is Hong Kong Registrars Limited at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.
(d) The English text of this circular shall prevail over the Chinese text in case of inconsistencies.

12. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection at the principal place of business of the Company at Units 314-315, Wing On Plaza, 62 Mody Road, Tsim Sha Tsui East, Kowloon, Hong Kong during normal business hours on any business day up to and including the date which is 14 days from the date of this circular:

(a) the memorandum and articles of association of the Company;
(b) the annual reports of the Group for the two financial years ended 30 June 2016 and 2017;
(c) the interim report of the Group for the 6 months ended 31 December 2017;
(d) the accountants’ report on the financial information of the Target Business from Ernst & Young, the text of which is set out in Appendix II to this circular;

– 66 –

GENERAL INFORMATION

APPENDIX V

(e) the report from Ernst & Young on the unaudited pro forma financial information of the Enlarged Group upon Completion, the text of which is set out in Appendix IV to his circular;
(f) the written consent reference to in the section headed ‘‘Expert and Consent’’ in the appendix;
(g) the Sale and Purchase Agreement; and
(h) this circular.

– 67 –

NOTICE OF EGM

==> picture [69 x 70] intentionally omitted <==

KINGWELL GROUP LIMITED 京維集團有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1195)

NOTICE IS HEREBY GIVEN that a extraordinary general meeting (the ‘‘EGM’’) of Kingwell Group Limited (the ‘‘Company’’) will be held at Monet Room B, B1 Level, Intercontinental Grand Stanford Hong Kong, 70 Mody Road, Tsim Sha Tsui East, Kowloon, Hong Kong on 29 October 2018 at 11:00 a.m. for the purpose of considering and, if thought fit, passing (with or without modifications) the following resolution of the Company.

Words and expressions that are not expressly defined in this notice of EGM shall bear the same meaning as that defined in the circular dated 21 September 2018, a copy of which is marked ‘‘A’’ and tabled before the EGM and initialled by the chairman of the EGM for identification purpose.

ORDINARY RESOLUTION

‘‘THAT:

(a) the Sale and Purchase Agreement entered into between the Vendor and the Purchaser (a copy of which is marked ‘‘B’’ and tabled before the EGM and initialled by the chairman of the EGM for identification purpose), any other transaction documents in connection therewith and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified; and
(b) any Director be and is hereby authorised to do all such acts and things and execute and deliver all such documents whether under the common seal of the Company or otherwise as may be necessary, desirable or expedient to carry out or to give effect to any or all transactions contemplated under the Sale and Purchase Agreement.’’

Yours faithfully, On behalf of the Board KINGWELL GROUP LIMITED Mu Dongsheng

Chairman

Hong Kong, 21 September 2018

– 68 –

NOTICE OF EGM

Registered Office: Principal Place of Business Cricket Square In Hong Kong: Hutchins Drive Units 314-315 P.O. Box 2681 Wing On Plaza Grand Cayman 62 Mody Road KY1-1111 Tsim Sha Tsui East Cayman Islands Kowloon, Hong Kong

Notes:

The resolution set out in this notice of EGM will be taken by poll pursuant to the Listing Rules and the results of the poll will be published on the websites of the Stock Exchange and the Company in accordance with the Listing Rules.
Any member entitled to attend and vote at the EGM is entitled to appoint one or more proxies to attend and, on a poll, vote on his/her behalf. A proxy needs not be a member of the Company.
The instrument appointing a proxy shall be in writing under the hand of the appointor or of his/her attorney duly authorised in writing or, if the appointor is a corporation, either under its common seal or under the hand of an officer, attorney or other person authorised to sign the same.
Completion and return of the form of proxy will not preclude members from attending and voting in person at the EGM or at any adjourned meeting (as the case may be) should they so wish. If the relevant member attends the EGM, the form of proxy shall be deemed to be revoked.
In order to be valid, the form of proxy, together with the power of attorney or other authority (if any) under which it is signed, or a notarially certified copy of such power or authority, must be deposited at the Company’s Hong Kong branch share registrar, Hong Kong Registrars Limited at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for holding the EGM or any adjourned meeting (as the case may be).
Whether or not you intend to attend the EGM in person, you are urged to complete and return the form of proxy in accordance with the instructions printed thereon.
Where there are joint registered holders of any Share, any one of such joint registered holders may vote at the EGM, either in person or by proxy, in respect of such Share as if he/she was solely entitled thereto, but if more than one of such joint registered holders are present at the EGM, whether in person or by proxy, the joint registered holders present whose name stands first on the register of members of the Company in respect of the Shares shall be accepted to the exclusion of the votes of the other registered holders.
The register of members of the Company will be closed, for the purpose of determining the identity of members who are entitled to attend and vote at the EGM, from 23 October 2018 to 29 October 2018, both days inclusive, during which period no transfers of shares will be effected. In order to be eligible to attend and vote at the EGM, all properly completed and duly stamped transfer forms accompanied by the relevant share certificates must be lodged with the Company’s Hong Kong branch share registrar, Hong Kong Registrars Limited at Shops 1712-1716, 17th floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong, for registration not later than 4:30 p.m. on 22 October 2018.

– 69 –

AI assistant

Kingwell Group Limited — Proxy Solicitation & Information Statement 2018

49757_rns_2018-09-21_7f2958e5-0308-4ecf-9183-8e3e9fc19111.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

KINGWELL GROUP LIMITED 京維集團有限公司

MAJOR TRANSACTION ACQUISITION OF PROPERTY MANAGEMENT BUSINESS

Financial Adviser

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

KINGWELL GROUP LIMITED 京維集團有限公司

MAJOR TRANSACTION ACQUISITION OF PROPERTY MANAGEMENT BUSINESS

INTRODUCTION

LETTER FROM THE BOARD

THE SALE AND PURCHASE AGREEMENT

Asset to be acquired

Consideration

Conditions Precedent

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Transition Period

INFORMATION ON THE PURCHASER AND THE GROUP

INFORMATION ON THE TARGET BUSINESS

LETTER FROM THE BOARD

LETTER FROM THE BOARD

REASONS FOR AND BENEFITS OF THE ACQUISITION

LETTER FROM THE BOARD

FINANCIAL EFFECT OF THE ACQUISITION

Assets and liabilities

LETTER FROM THE BOARD

Earnings

LISTING RULES IMPLICATIONS

EGM

LETTER FROM THE BOARD

RECOMMENDATION

ADDITIONAL INFORMATION

1. FINANCIAL SUMMARY

2. INDEBTEDNESS STATEMENT

Contingent Liabilities

3. WORKING CAPITAL OF THE GROUP

4. MATERIAL ADVERSE CHANGE

5. FINANCIAL AND TRADING PROSPECT OF THE ENLARGED GROUP

APPENDIX I

The Board of Directors Kingwell Group Limited

Dear Sirs

DIRECTORS’ RESPONSIBILITY FOR THE HISTORICAL FINANCIAL INFORMATION

REPORTING ACCOUNTANTS’ RESPONSIBILITY

OPINION

REVIEW OF INTERIM COMPARATIVE FINANCIAL INFORMATION

REPORT ON MATTERS UNDER THE RULES GOVERNING THE LISTING OF SECURITIES ON THE MAIN BOARD OF THE STOCK EXCHANGE AND THE COMPANIES (WINDING UP AND MISCELLANEOUS PROVISIONS) ORDINANCE

ADJUSTMENTS

DIVIDENDS

I. HISTORICAL FINANCIAL INFORMATION

Preparation of Historical Financial Information

STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

STATEMENTS OF FINANCIAL POSITION

STATEMENTS OF CHANGES IN EQUITY

STATEMENTS OF CASH FLOWS

II. NOTES TO THE HISTORICAL FINANCIAL INFORMATION

1. Information of the target business

2.1 Basis of preparation

2.2 Issued but not yet effective HKFRSs

HKFRS 16 Leases

2.3 Summary of significant accounting policies

Fair value measurement

Related parties

Leases

Financial assets

Initial recognition and classification of financial assets

Subsequent measurement

Financial assets at amortised cost

Derecognition of financial assets

Financial liabilities

Derecognition of financial liabilities

Offsetting of financial instruments

Cash and cash equivalents

Income tax

Current income tax

Deferred tax

Kingwell Group Limited Proxy Solicitation & Information Statement 2018