Launch Tech Company Limited — Annual Report 2016

Apr 3, 2017

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2016

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創新在改變

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Contents

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	PAGE(S)
CORPORATE PROFILE	2
MANAGEMENT DISCUSSION AND ANALYSIS	3
DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT	14
CORPORATE GOVERNANCE REPORT	18
ENVIRONMENTAL, SOCIAL AND GOVERNANCE REPORT	26
DIRECTORS’ REPORT	35
AUDITOR’S REPORT	42
CONSOLIDATED BALANCE SHEET AND BALANCE SHEET OF THE COMPANY	47
CONSOLIDATED INCOME STATEMENT AND INCOME STATEMENT OF THE COMPANY	51
CONSOLIDATED CASH FLOW STATEMENT AND CASH FLOW STATEMENT OF THE COMPANY	53
CONSOLIDATED STATEMENT OF MOVEMENT ON EQUITY
AND STATEMENT OF MOVEMENT ON EQUITY OF THE COMPANY	57
NOTES TO THE FINANCIAL STATEMENTS	61
FINANCIAL SUMMARY	194
CORPORATE INFORMATION	195

Annual Report 2016 1

Corporate Profile

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Launch Tech Company Limited (the “Company”), which was established in 1992, was listed in the Growth Enterprise Market of the Stock Exchange of Hong Kong (the “HKEX”) (stock code: 8196) in 2002 and was transferred to the Main Board of the HKEX (stock code: 2488) in 2011. The Company is one of China’s earliest high and new technology enterprises that started in the research, development and production of automotive diagnosis, testing, maintenance and tire equipment. For years, with the technical and branch advantages in automotive diagnosis, the Company has been in the leading position in the industry of automotive diagnosis equipment. In 2013, the Company adjusted its development strategies and determined to be transformed into a global core enterprise of Internet of Vehicles, and has currently become the leader of Internet of Vehicles industry.

The Company always insists on the principle of technical innovation and independent research and development, and currently owns the most powerful research and development team with the largest size around the world. Besides the research centers established in Shanghai and Shenzhen, the Company has also set up research and development teams in the U.S., Germany, Japan, Korea and Latin America. After years of accumulation, the Company has had hundreds of patent technologies and obtained hundreds of honors issued by governmental authorities and authoritative industry journals in China, the U.S., Germany and Australia, etc.

In terms of traditional businesses, the Company proposed the concept of “automotive aftermarket” in China as early as 1994, and developed product lines such as automotive diagnosis, inspection and maintenance and lifts on the basis of advanced automotive diagnosis and inspection technologies, developing special equipment for automotive maintenance and repair industry. Among others, the “Electronic Eye” has become a synonym for automotive diagnosis computer with “X431” representing the highest level in the diagnostic technologies of the industry.

In terms of Internet of Vehicles businesses, based on the accumulation of technologies for more than twenty years, the Company has developed Internet of Vehicles chipsets with proprietary intellectual property rights, launched a series of Internet of Vehicles products with the first global remote automotive diagnosis function and become the first enterprise in the world with real Internet of Vehicles technologies. Launch golo eco-chain is leading the development of the Internet of Vehicles industry.

In the PRC market, the Company has 8 branches and several tens of offices, and has developed hundreds of dealers and nearly a hundred of authorized training centers. In overseas, the Company has a subsidiary in Germany and has more than two hundred dealers throughout Europe, America, Australia and Asia.

Innovation lies in changes. Based on the corporate culture of “innovation, quality, efficiency, professionalism and competitiveness” and the people-oriented and constantly-innovating spirit, the Company is marching forward along the road of high technologies.

Launch Tech Company Limited

2

Management Discussion and Analysis

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1. EntErprisE’s DirEctions, stratEgiEs anD actions

In 2016, the Group adhering to the “becoming the global Internet of Vehicle core enterprise” as the direction of development orientation, determining specific strategies to achieve the development objective of becoming the global Internet of Vehicle Big Data (based on VIN) service provider, carried out positive exploration and practices. Based on this strategic objective, the Group has clearly identified and optimized the Group’s four core businesses: to vigorously develop and promote the Internet-based automotive diagnostic equipment, to develop B2B2C cooperation model of the Internet of Vehicle business, and vigorously develop the vehicle maintenance technicians operating platform, and actively explore the advanced technologies of intelligent automotive and others.

In 2016, the Group actively promoted the thought of lean entrepreneurship; sized up the situation, adjusted the business strategies in a timely manner, and accurately monitored and influenced the development trends of the market. Having considered the Group’s core competencies and Big Data demands, focused on expansion of key businesses and reduction of investment on those business with high cost in introduction of new customers, and controlled of financial costs and management fees. These series of measures brought immediate positive results to the Group’s performance by revealing a turn of deficits to surplus in 2016. We are going to elaborate and analyze the business starting from the Direction, Strategies and actions, and then the Operations as follows.

Annual Report 2016

3

Management Discussion and Analysis

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Directions

Automotive Diagnosis Reports

The number of automotive diagnostic reports, being a core indicator of the Group’s Big Data strategy, revealed an explosive growth in 2016. From the daily average of around 300 reports at the beginning to the daily average of nearly 200,000 reports in 2016, there was an over-600 times rapid growth in two years. With increasing popularity of Internet-based diagnostic equipment and the gradual replacement of non-networked diagnostic equipment, the number of automotive diagnostic reports is expected to continuously maintain high growth.

Diagnostic Equipment

In line with spirit of innovation, the Group continued to invest in new products. Compared with the original year of relatively stable traditional automotive diagnostic equipment market, the new Internet-based automotive diagnostic equipment to open the market space again. The Group is committed to upgrading all non-networked diagnostic equipment into Internet-based diagnostic equipment, resulting rapid expansion of market space is. In 2016, the sales volume of automotive diagnostic equipment reached a new height, providing important support for the Group’s turn of deficits to surplus. In the next few years, series of new products will be launched to meet the needs of different market applications, to improve efficiency and experience, high gross margin networked diagnostic equipment is expected to have a more obvious trend of growth, and continuously contribute a better profit to the Group.

Internet of Vehicle

In 2016, the Group carried out a bold adjustment and optimization of strategies in accordance with the market development trend and situation, through establishment of the core diagnostic technologies, and cloud-based diagnostic technologies. Focusing the B-type customers in the industrial chain, with our primary objective of “Sharing, Building and Creating Together” we used to exporting our core service capabilities, diagnostic technologies, to our cooperative partners-, so as to create value for them, and help them better serve their users. The Group ceased to directly serve the C-type customers which can completely avoid direct competition with our B-type customers. The fully open model is highly recognized by B-type customers and with smooth progress of cooperation. In future, our diagnostic technology will be used as a link, through continuous cooperation and integration of resources, to form a closed-loop automotive after service ecology which gathers vehicle maintenance business, vehicle maintenance technicians and owners of the, and so to facilitate more cooperation with different related industries.

4 Launch Tech Company Limited

Management Discussion and Analysis

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Repair Technicians

In 2016, the Group introduced Internet experts to our dedicated subsidiary which committed to gather the domestic automotive repair technicians around the nation together to our golo technicians platform. Through professional operation, we created a skill and technology enhancement platform for learning experience sharing and exchange among technicians. Introduced the second generation of golo box smart hardware with “pocket x431” for the definition, become a car diagnostic tool which is more suitable for portable use for the mobile and group technicians. Via powerful functions of golo car cloud platform, technicians can now use smart phone APP to provide instant remote diagnosis and repair services, for golo car Cloud box users, simultaneously enabling repairs cooperative remote car repairs with different technicians, building up a cooperative and learning platform for technicians to work with sharing and learning. As a result, experience accumulation and technological enhancement becomes more efficiently and effectively.

Future Technology

In 2016, the Group set up Beijing Future Laboratory, focusing on ADAS, V2X, artificial intelligence, in-depth learning and other advanced technology for future. We actively introduced talents, together with the accumulation of more than 20 years of the Group’s automotive technology, on the one hand did various pre-research, on the other hand quickly promoted production process for different application scenes. Significant progress was revealed by our application of nearly 100 patents, and the V2 project, a specific order project for Shenzhen Municipal Government Science and Technology, after three years of efforts, is currently about to enter test run process.

Big Data

In 2016, the Group considered the continuation of accumulating automobile and related operating data as our main current objective. To this end, the Group has introduced a more active and pragmatic open cooperation strategies targeting typical enterprises of operators, insurance companies, automobile manufacturers, used vehicles industry, after-vehicle service industry, auto parts industry, logistics industry and other sectors, to carry out in-depth cooperation to further optimize the completion of the development of Internet of Vehicle business layout. At the same time, the Group actively explored and prepared the data mining and application of large data. Based on our own mass maintenance and operation data, the Group actively promoted the commercial value of Big Data mining from multi-dimensional mining and combined with industry’s application, for the purpose of exploration of new business models. As in the field of automotive diagnostic equipment which we are familiar with, for the first time in the industry, we realize to achieve artificial intelligence based vehicle diagnostic technology, in which the upcoming new artificial intelligence diagnostic equipment AIT not only processes a lot of rooms for imagination, but will also bring more market opportunities.

Annual Report 2016 5

Management Discussion and Analysis

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In 2016, the Group through the golo car cloud platform as the center of the global car repairs and car life platform, and based on the platform of a series of Internet of Vehicle intelligent hardware, opened cooperation with core diagnostic technology services partners, and established a commercial closed-loop based on the owners, technicians, vehicle repair companies, third-party applications and service enterprises etc.. Based on these cross-industry integration capabilities and innovative business models, the Group is at the forefront of the Internet of Vehicle industry.

strategies and actions

2016, being the third year that the Group’s development and marketing the Internet of Vehicle business is also the timing that the Group fully implemented strategic transformation as planned. In order to quickly finish the layout, the Group has continuously optimized the business strategy, acted firmly and steadily, made decisive adjustment on high paid-slow return part of the class-C business, meanwhile speed up in promotion of Internet based diagnostic equipment business which is with high margins and can facilitate accumulation of Big Data. Looking forward, we are going to set up our plan mainly in the following six aspects:

1. To speed up the progress of research and development, and actively promote new series of automotive diagnostic equipment products, fill the gaps and quickly occupied the market;

2. To introduce a reasonable preferential policy for existing diagnostic equipment users to replace the new Internet-based diagnostic equipment, to rapidly increase the proportion of internet-based diagnostic equipment;

3. For the Internet of Vehicle business, to implement a comprehensive open strategy, and vigorously develop a variety of B2B2C cooperation models;

4. For the golo technicians, to full implement Internet business management ideas to improve product user activity level for the management objectives;

5. To introduce professionals, to continuously analyze and optimize Big Data structure, making data collection more completely and effectively;

6. To expand and invest more to R & D team for future technologies on Internet of Vehicle.

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Management Discussion and Analysis

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Based on the above strategies, for the businesses for vehicle repair enterprises, vehicle repair technicians and third party application service providers, we have carried out actions and achieved good results in the key development goals as following:

• 1) Developed and promoted the sale of new series of automobile diagnostic equipment and resulting the increase in turnover with improved gross profit margin;

• 2) no longer to subsidize the way to the market for the golo series of network hardware, the average gross margin significantly picked up;

• 3) vigorously developed channels, which a series of B2B2C cooperation gradually landed. Based on the cooperation and sharing model, an expansion of user base is noted and demonstrating a good development model and trends with typical cooperation with such as China Mobile（中國移動）, CAR Inc

• （神州租車）, Germany ZF, TCL Communications, TongFangCloud（同方雲計算）, Guizhou Babaxiu （貴州 巴巴修）etc.;

• 4) around the big data strategy, continued to vigorously promote the car cloud diagnostic equipment; at the same time offered at a very favorable update price for existing equipment users, to replace their existing traditional diagnostic equipment to new one with remote diagnostic function;

• 5) actively explore the car repair technicians market segments, by enhancing overall their operational capacity, provided to domestic car repair technicians more than 30,000 sets of golo technician box, portable car diagnostic tools with real-name system;

• 6) introduced professionals and pave the way for future layout for ADAS, V2X, artificial intelligence, in-depth learning and other advanced technology areas, and gradually materialize it by steps.

Driven by the above strategies, the average decline in gross margin of automobile diagnostic equipment has been reversed and started to rise slightly. The shipments revealed a continuous increase, and the market share of enterprise users has increased significantly. The total market share of car users has also increased steadily and revenue from Internet of Vehicle business has significantly improved. In addition, vehicle operating data collected through car cloud diagnostic equipment also showed a rapid increase. By the end of the reporting period, 45 million copies of vehicle repair data reports were collected.

Through a series of positive adjustments, the improvement of sale of traditional business performance with higher gross profit; and Internet of Vehicle business no longer requires a huge investment and so the loss gradually narrowed; these trends were fully realized as management expected.

Annual Report 2016 7

Management Discussion and Analysis

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The Group has established a golo car network, a core car diagnostic technology ecosystem of the owners, vehicle repair technicians, vehicle repair companies, third-party application service providers to achieve the reservation and accumulation of advanced technologies, reached a basic completion of the car network development stage layout, obtaining a good brand advantage in the industry. Based on vehicle maintenance and operation of Big Data is maturing and can be able to attract a large number of industry concerns, with infinite space for expansion, the Group has stabilized leading edge for the future development in the Internet of Vehicle industry, and has full of confidence for the future development.

2. analysis of opEration

In 2016, artificial intelligence has become a crazy hot pursuit of capital market. Since artificial intelligence can not be separated from Big Data, automotive data is an important source of vehicle maintenance data, the Group has been actively expanding the layout and doing the appropriate preparation to transform to initiative and large-scale, in order to obtain high efficiency.

our plan

As a Internet of Vehicle Big Data (based on VIN) service provider, the Group used our automotive diagnostic technology as the core of our Internet of Vehicle business. Via real-time remote diagnosis technology as a link, through outputting core service capabilities for the owners, vehicle maintenance companies, vehicle maintenance technicians, Third-party applications and other users to provide a wealth of services to achieve efficient, safe and comfortable vehicle management and user experience. Focus on the future, the Group is speeding up the progress of landing work of promotion for ADAS, V2X and other projects. At the same time, the Group is actively exploring the commercial value of Big Data mining, insurance, and combining second-hand cars, automotive service and other industries to create more value for the industry.

artificial intelligence once again leads the industry to change

In 2016, Machine Learning made a breakthrough, driving all walks of life made great progress in the application of artificial intelligence. The Group having successful experience in leading the traditional automotive market into the mobile Internet era, is committed to initiate the application of Deep Learning technology in automotive diagnostic equipment. Moreover, by upgrading remote diagnosis, real-time monitoring, online database, technicians mutual helping and other advanced features again brought great solutions to after-service technology sharing, manual sharing and other rigid needs, leading the change in the industry, significant efficiency enhancement, optimize the experience optimization, and so increase in competitiveness.

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Management Discussion and Analysis

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Deepen core diagnostic technology, layout “cloud Diagnostics”

In the year 2016, the Group strengthened the R & D, continued to deepen core diagnostic technology, modularize and stabilize diagnostic functions, and set standards to serve the of B-type customers with different industry needs. Cloud Diagnostic technology promoted the Group to transform from an equipment manufacturer to automotive diagnostic service providers. The Group and partners can continuously improve the upgrade of diagnostic technology and services, and offer real time services to customers. In Diagnostic data cloud, all diagnosis and other related data uploaded to the cloud not only provided a base for optimization of diagnostic technology to the Group and partners industry but also being a link these data and other data for chain partners, and so a reliable basis facilitating secondary value mining of data for different Application scenarios and the industries.

continue to introduce new products

In the year 2016, the Group launched two series of “New diagnostic equipment” and “New heavy vehicle diagnostic equipment” which become a hot issue in the industry. The Group fully integrated the channels to further improve the market share of Internet diagnostic equipment, and on the same time formed a large-scale automotive market Big Data to realize the exploration of Big Data. The Group is committed to upgrading all nonnetworked diagnostic equipment to Internet-based diagnostic equipment, to create a sharp increase in market space. The next two years, compared with the originally relatively stable traditional diagnostic equipment market, there will be a significant increase in sales of high-margin equipment, with an expected profit. The upcoming launch of the new artificial intelligence diagnostic equipment AIT also bring imaginative spaces to the market.

sharing, Building, creating

In 2016, the Group’s wide business strategy attracted more B-side partners to build a Internet of Vehicle ecology together. The program we launched not only for passenger cars, but also for commercial vehicles; not only offer customers to provide their services through an overall module, but also a choice of separate chip program to achieve their same purpose with higher stability. What the Group offered is one of the most advanced and comprehensive data collection solution in the industry. “Make Competitors to Friends”, the Group, via active provision of strong technical supports to “Competitors”, a very positive impact on the rapidly expansion of the Internet of Vehicle market is so expected.

actively introduce talent and influential people of the internet

In 2016, the Group set up a “Committee of Internet Strategies”, with Mr. Ye Peng, former vice president of Alibaba as Chairman, and Mr. Guo Zhaohui, former vice president of Amazon China, and former CEO of Shanda Guokr （盛大果殼） as a member. Internet executives joined, on the one hand highlighted the industry’s recognition of the Group’s strategies and the development prospects, on the other hand that the Group’s succeed in introduction of talents, attracting more excellent professionals to join the group to in the coming future to work together for a further prosperous business.

Annual Report 2016

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Management Discussion and Analysis

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Unique maintenance technician resources

In 2016, the Group taking the advantage of our unique golo technician box, rapidly expanded auto-repair technicians group and society. Relying on the introduction of Internet professional team, the newly established subsidiary specialized to increase operational efforts to build a platform for technicians to learn, to exchange, to earn and so facilitate the formation of technician ecosystem, development of shared economy, realization of realtime remote diagnosis, achievement of collaborative repair, and sharing of resources within the technician society. Reputation of Golo technician box continues to rise in the technician society, while a significant spread effect is noted in the market. The group is now increasing efforts to integrate the core technicians into the core service capabilities, and gradually to the third party service platform. Through opening of the core service capabilities, it will greatly enhance competitiveness of golo car network ecology.

Deepen the car diagnostic equipment business, and gradually to the diagnosis of saas cloud service providers to evolve

In 2016, the Group developed micro-car diagnostic chip technology with independent intellectual property rights. With continuous innovation on diagnostic equipment’s miniaturization and connectivity to Internet, equipment connected can upload diagnostic reports onto the cloud automatically. The Group also vigorously promote the “cloud diagnostic” applications, which the diagnosis is no longer simply relying on human judgment, but a more scientific approach through the “cloud diagnosis”. The Group gradually transform from the role of equipment provider to a service provider. Services reliance together with advance business model innovation gradually achieve SAAS cloud diagnosis service.

Environmental protection drive, new outbreak in internet of commercial vehicle

In 2016, the Ministry of Environmental Protection issued “Strengthening of motor vehicle environmental supervision work-Notice”, clearly mentioned strict implementation of motor vehicle emission inspection system. The environmental protection department established and standardized the motor vehicle emission inspection system in accordance with the “Atmospheric Law”. The car manufacturers and car owners should carry out emission inspection according to law and upload the environmental inspection data and electronic inspection report to environmental protection department. Ministry of Environmental Protection developed national six standards, clearly proposed to improve the OBD monitoring requirements and greenhouse gas synergistic control. As long as commercial vehicles are now be subject to supervision, the Group has made advance layout on commercial vehicle OBD data collection, by improving module, various forms of solutions with setting line to T-Box to meet different market needs. For OBD emission monitoring aspects, we are based on upcoming outbreak of commercial vehicle network, the Group is well prepared to face coming challenge.

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Management Discussion and Analysis

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Big Data connects everything

In 2016, the Group firmly considered vehicle and related operational data as our current primary objectives, focusing the redeployment and planning of each line of businesses, and the implementation of product upgrades, prioritizing business promotion together with Big data collection needs and purpose. We flexibly worked with Partners to achieve data sharing and exchange, extension or supplement upstream and downstream data in the ecological chain, enabling richer and more accurate Big Data in collection and accumulation. The Group connects partners through diagnostic technology and connects industry chain through Big Data. In 2016, the Group has completed a Big Data PaaS hierarchical storage, and is committed for combination of different industry’s applications, mining and transformation of data values, connecting everything and so working for a better future.

Health and internet of Vehicle, go hand in hand

In 2016, the Group having followed the successful launch of smart health wristband with human and environmental perception, continued to devote to advanced technology and devices around the Internet of Vehicle environment, such as artificial intelligence and somatosensory sensors. We make positive progress on correlation algorithm based on driving behavioral analysis, promoting applications of wearable innovative products in high-end auxiliary driving, which is definitely a typical cross borders collaboration.

advanced technology reveals the coming of future

In 2016, the Group continued to increase investment and actively explore the layout of V2X, ADAS, artificial intelligence, in-depth learning and other advanced technology areas. Project V2X, an exclusive project for Shenzhen Municipal Government Science and Technology, after three years of development, now is about to have road test-run. Artificial intelligence, in-depth learning and other technologies are striving to blossom to take the lead in automotive industry. Accumulation of valuable experiences about future smart and unmanned vehicles is expected.

With more than accumulation of automotive diagnostic technology and experience over 20 years, the Group a few years ago early having recognized future industry’s demands and development trends, injected a lot of resource in Internet of Vehicle related research and development. In 2016, the Group continued to increase the R & D talents of Internet technology in the areas such as application planning, platform development and Big Data mining, and accelerated upgrading and innovation of the Internet of Vehicle, and so achieved good results in products, technology development and application.

As of 2016, the Group has received more than 200 patents granted by the State, including nearly 100 invention patents; 750 out of 754 patents under the current application are invention patents; nearly 100 certified software copyrights obtained and. 4 software copyrights is under current application. The Group’s development of the world’s first OBD technology based patent chip has been further improved, has become a core automotive data collection product, changing the traditional vehicle maintenance mode and car life. Repair technicians can now provide real-time remote maintenance and repair services, which this way of service production is now a benchmark for the construction of internet of Vehicle ecosystem.

Annual Report 2016

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Management Discussion and Analysis

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3. opEration ManagEMEnt

In the year of 2016, the Group made the strategic adjustment on our business strategies. Based on the core strategy of collection of Big Data, we changed the original strategy of investing in the C-type customers. Instead we focused high-margin operations, stabilization of cash flow, cost reduction, and constantly optimization of internal management and adjustment on business structure, and so remarkable results is noted. The major marketing efforts are: 1) to improve the market share by strengthening marketing of Internet-based automotive diagnostic equipment and accumulation of diagnostic reports; 2) to develop cooperative relationships with B-type customers of major industries, aiding them provide to quality services Internet of Vehicle end-users; 3) to focus on the promotion of high value-added diagnostic products, and meanwhile control the level of resources allocated to low-margin business.

In 2016, compared with previous year, the quantity of Internet car diagnostic equipment sold is about 13 million units, representing an increase of over 30,000 units and, an increase of 33%; average gross margin increased by 6% to about 44%; overseas operating income of 300 million, showing an increase of 12%; Domestic operating income of 500 million, showing an increase of 25%; total operating income of 800 million, showing an increase of 20%; reflecting the succeed in realization of the series of steady growth strategies implemented.

In view of the Finance management, in order to maintain its leading position, in 2016 the Group has been continuously and actively injecting resources for innovate new products, R&D and human resources areas. With the active and flexible market strategies, a remarkable growth of revenue and better gross margin were contributed by the new diagnostic products. Together with prudent fiscal policy by management, significant drop in financial costs was also noted. AS a result, by the end of this reporting period operating losses turned to income with significant improvement in cash flow as well.

Major financial Data for the reverse of loss to profit

With improved sales figures and increased gross profit margin noted in 2016, together with the lower finance cost resulting from the lowered borrowing level, we successfully turn the loss in 2015 of 93 millions to a profit of 21 million in 2016, revealing a net change of 114 million.

	RMB million
Gross profit increase resulting from improved sales	105
Decrease in finance cost due to lower borrowing level	14
Profit tax impact	-5
Change in net profit compared to last year	114
principal sources and Usage of fund

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Management Discussion and Analysis

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Cash flows from operating activities

The Company’s cash inflows are mainly derived from revenue of goods selling. Cash outflow was mainly related to production and operating activities. The Company’s cash inflow from operating activities for the reporting period amounted to 935,000,000, while cash outflow amounted to 828,000,000. The net cash inflow from operating activities amounted to 107,000,000.

Cash flows from investing activities

Cash inflow from investing activities during the reporting period amounted to 1,000,000. Cash outflow for investing activities amounted to 51,000,000, which was mainly used for capital expenditure on fixed assets and capitalized research and development costs. The above expenditures were partly financed by the Company’s internal resources and bank loans. Net cash outflow from investing activities for the reporting period amounted to 50,000,000.

Cash flows from financing activities

Cash inflow from financing activities during the reporting period amounted to 404,000,000, which was mainly derived from bank loans and placement of new shares. Cash outflow from financing activities during the reporting period amounted to 584,000,000 was mainly for repayment of bank loans and interest. Net cash outflow from financing activities for the reporting period amounted to 234,000,000.

Total net cash outflow for the year was of 117,000,000 and the cash and cash equivalents was 279,000,000.

capital structure

The Company’s capital structure consists of interests and liabilities attributable to shareholders during the reporting period. Interests attributable to shareholders amounted to 591,000,000; and total liabilities amounted to 723,000,000. Total assets amounted to 1,314,000,000. As at the end of the year, the Company’s gearing ratio calculated by total liabilities divided by interests attributable to shareholders was 0.85 (2015: 1.10). Resulting from the decreased borrowings and improved profitability, the gearing ratio reveals a fall of 25% to and reach our satisfactory gearing ratio level of below 1.00.

4. fUtUrE prospEcts

The Group will focus on the development of application technologies and services on Internet of Vehicle, and endeavor to create the automobile repair and maintenance and car life ecology based on the golo car cloud platform. In O2O, insurance, used cars, fleet management and other fields the Group will continue to actively carry out exploration and cooperation of Big Data applications, and to achieve the realization of Big Data operations. By strengthening and optimizing internal control, and meanwhile by ceaselessly deepening “Innovation, Quality, Efficiency, Professional, Competitive”, our enterprise’s culture and stimulating the creativity of our staff, enhances our overall competitive advantage, and of course create better results to our shareholder.

Annual Report 2016 13

Directors, Supervisors and Senior Management

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DirEctors

Executive Directors

Mr. Liu Xin , also known as Louis Liu , aged 48, executive director and chairman of the Company. Mr. Liu is the founder of the Company and has over 10 years of experience in corporate management, business development, product development and marketing in the computer and automotive diagnostic and testing industries. He is currently the vice chairman of China Automotive Maintenance and Repair Trade Association. He is a graduate of Chengdu Technology University (currently known as Sichuan University) with a bachelor’s degree in applied physics. Mr. Liu is mainly responsible for the strategic planning, overall management, establishment of strategic alliances and development of overseas marketing and sales channel. He is concurrently the director of Launch Europe GmbH, Shanghai Launch, Launch Software and Shenzhen Langqu. He is also the legal representative of Shanghai Launch and Shenzhen Langqu. Mr. Liu Xin is the brother of Mr. Liu Jun and Ms. Liu Yong.

Mr. Liu Jun , also known as Charles Liu , aged 46, executive director and chief executive officer of the Company. Mr. Liu is the co-founder of the Company and is the brother of Mr. Liu Xin and Ms. Liu Yong. Mr. Liu has over 10 years of experience in corporate management, business development and product development in the automotive diagnostic and testing industry. He is a graduate of Tsinghua University with a bachelor’s degree in radio electronics engineering. Mr. Liu had served as the head of the Company’s R&D department and led the development of the first generation of Electronic Eye in November 1994, and was honoured as one of the Shenzhen Ten Outstanding Young Technology Experts in 1998. He is currently responsible for the daily operations of the Company, and also supervision of the Company’s R&D and finance. He is concurrently the director of Shanghai Launch, Launch Software and Shenzhen Langqu.

Ms. Huang Zhaohuan , aged 52, head of the Company’s domestic marketing centre. Ms. Huang is a graduate of Nanchong Teaching University with a bachelor’s degree in mathematics. She is currently responsible for the development and management of the Company’s domestic sales network, marketing activities and relationships with major clients. She joined the Company in 1996.

Mr. Jiang Shiwen , aged 44, chief information officer of the Company. Mr. Jiang graduated from Dalian University of Technology and Shanghai Jiao Tong University with a master’s degree in mathematics and an MBA degree. Prior to joining the Company in 2002, he had respectively worked for several major private and foreign enterprises as an development engineer, in charge of the R&D work relating to large scale management system, e-commerce system and embedded system. Mr. Jiang oversees the construction, implementation and maintenance of the entire IT system of the Company. He has led the Company with success in the planning, design and online operation of a number of large IT networks including ERP, CRM and OA systems. He is concurrently the director of Launch Software.

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Directors, Supervisors and Senior Management

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DirEctors (continued)

non-executive Director

Ms. Liu Yong , aged 53, non-executive director of the Company since June 1997, and is the sister of Mr. Liu Xin and Mr. Liu Jun. Ms. Liu studied at Dalian Foreign Language Institute, and had served as the general manager of Sunshine Travel Agency and the sales department and public relations department of Guilin Holidays Inn and Guilin Rong Hu Hotel, respectively. Ms. Liu has extensive experience in corporate management, sales and marketing and public relations management. She is concurrently a director of Shenzhen De Shi Yu.

independent non-executive Directors

Mr. Liu Yuan , aged 42, director of Kaiqiao (Beijing) Investment Management Company Limited (凱橋（北京）投資管理 有限公司 ). He had served as the head of the Shenzhen Branch and vice president of a governed branch of the Bank of China. Mr. Liu graduated from the Economic Law Department of Zhongnan University of Economics and Law （中南 財經政法大學） with degree of Bachelor of Law.

Ms. Zhang Yan , aged 34, PRC certified public accountant. Ms. Zhang graduated from the Accounting Department of School of Business of Zhengzhou University. She served as auditor of Beijing Zhongzhou Guanghua Accounting Firm （北京中洲光華會計師事務所） Henan branch from July 2005 to January 2007; audit project manager of Ascenda Huazheng Zhongzhou (Beijing) CPA Limited （天健華證中洲（北京）會計師事務所） Henan branch from January 2007 to July 2008; audit project manager of (Beijing) Ascenda Certified Public Accountants Limited （天健光華（北京）會計師 事務所） Henan branch from July 2008 to December 2009; audit project manager of Ascenda Zhengxin (Beijing) CPA Limited （天健正信會計師事務所） Henan branch from December 2009 to October 2012. Since October 2012, she has been the chief financial officer of Henan Maincare Biotech Co., Ltd*（河南美凱生物科技有限公司）.

Mr. Ning Bo , aged 39, graduated from Southwest University of Science and Technology majoring in accounting. Mr. Ning served as a credit manager in the branch of Bank of Communications at Wenjin, Shenzhen, from 2001 to 2002; and manager of auditing department in Shenzhen Commercial Bank (currently renamed as Ping An Bank) from 2002 to 2009. From 2009 to 2014, he worked in Shenzhen Shanghai Pudong Development Bank as the deputy general manager of the first business department and vice president of Xinzhou branch. Since 2014, Mr. Ning has been the general manager of Shenzhen Zhongzheng Hengshi Investment Co., Ltd.（深圳中正恒石投資有限公司）.

Annual Report 2016 15

Directors, Supervisors and Senior Management

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MEMBErs of sUpErVisory coMMittEE

Supervisory committee in the PRC has similar functions as audit committee, which mainly reviews the financial results of the Company and the decisions made by the Board. Supervisors can represent the interest of shareholders or employees, and independent supervisors are recruited from outside and not related to any of the directors, supervisors, promoters and employees of the Company. Mr. Yang Yi is appointed as a supervisor through the recommendation of the Company’s employees. Mr. Sun Zhongwen and Mr. Du Xuan are appointed as independent supervisors.

Mr. Sun Zhongwen , aged 71, graduate from Changsha Railway University (now named as Central South University) with a bachelor’s degree. Since 1968, he had been an engineer, chief engineer and director of the engineering deportment of the Liuzhou Railway Administration of the Ministry of Railways, and vice president of the Liuzhou Railway Administration and standing committee member of the Communist Party. In 1997, he was appointed as the deputy mayor of the Guilin Municipal Government in Guangxi, secretary of the work committee and director of the management committee of the Guilin National Hi-Tech Zone, then served as the deputy director of the NPC Standing Committee. Mr. Sun retired in 2006.

Mr. Du Xuan , aged 53, graduated from of the Computer Department of University of Electronic Science and Technology of China with a bachelor’s degree in senior engineering. He has been the chairman of Shenzhen Kingdom Technology Co., Ltd. ( 深圳市金證科技股份有限公司 ) since 1998, director of Shenzhen Farad Electric Co., Ltd. vice chairman of Shenzhen Computer Software Association （深圳市計算機軟件協會） and vice chairman of Shenzhen Young Entrepreneurs Association （深圳市青年企業家協會） since 2001.

Mr. Yang Yi , aged 44, graduated with market marketing specialty from the Liaoning Anshan Ministry of Metallurgy Management Institute in 1995. He Joined the Company in 2006, and was responsible for the branch office and department supervisory work, and now he is the department head of automobile diagnosis division, being responsible for research and development and market supervisory works. Before joining the Company Mr. Yang worked in Vtech Group as the department head of China market division, was elected as the employee representative supervisor at the employee representative meeting of the Company held on 23 June 2016.

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Directors, Supervisors and Senior Management

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sEnior ManagEMEnt

Mr. Guo Feng , aged 42, deputy general manager of the Company. Mr. Guo graduated from Xian Electronic Technology University majoring in Communication Engineering. He had been responsible for the R&D and implementation of automatic control system of large building projects. He joined the Company in 1999 and had served as general manager at different departments including the R&D engineering and operations, and successfully led the R&D and improvement of a series of products including engine analyzer with comprehensive functions.

Mr. Zhang Wei , aged 45, chief technology officer of the Company. Mr. Zhang graduated from Tsinghua University and Chinese Academy of sciences with an MS degree. Prior to joining in the Company in 2008, he had worked as a high school teacher, chief representative in China of a foreign-invested enterprise, deputy general manager and chief technology officer of a major private enterprise, in charge of research and development projects. Mr. Zhang is now responsible for formulating the strategies and implementing research for the next generation products. He is a key executor of the Company’s technology strategies.

Mr. Zhang Jiangbo , aged 40, secretary of the Board, graduated from Wuhan Technical University of Surveying and Mapping with an associate degree and obtained a master degree in business administration (MBA) in Lanzhou University. Since joining the Company in 2000, Mr. Zhang had been the head of the IT department, system operation manager and chief product director of the Company. Mr. Zhang is currently responsible for the development, management, key client support and marketing of the Internet of Vehicle business of the Company.

QUalifiED accoUntant anD coMpany sEcrEtary

Mr. Liu Chunming , aged 41, financial controller and company secretary of the Company. Mr. Liu is a qualified accountant and obtained a bachelor’s degree (Honours) in accountancy from the City University of Hong Kong in 1997. He is a fellow member of the Association of Chartered Certified Accountants, and prior to joining the Company in 2002, he had worked in an international audit firm for few years.

coMpliancE officEr

Mr. Liu Jun , executive director, compliance officer and authorised representative of the Company. Mr. Liu advises on and assisting the Board in implementing procedures to ensure that the Company complies with the Listing Rules and other relevant laws and regulations applicable to the Company and responding efficiently to all inquiries directed to the Company by the Stock Exchange.

Annual Report 2016 17

Corporate Governance Report

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corporatE goVErnancE practicE

The Group commits to maintaining and ensuring a high level of corporate governance standards and continuously reviews and improves our corporate governance and internal controls practices. Set out below are the principles of corporate governance as adopted by the Company during the reporting year.

DistinctiVE rolE of cHairMan anD cHiEf EXEcUtiVE officEr

The Chairman of the Board is responsible for leading the Board of Directors in establishing and monitoring the implementation of strategies and plans to create values for shareholders.

The Chief Executive Officer is responsible for managing the operation of the Group’s businesses, proposing strategies to the Board and the effective implementation of the strategies and policies adopted by the Board.

tHE BoarD

As of 31 December 2016, there were eight members on the Board, including the Chairman, three Executive Directors, two Non-Executive Directors (“NEDs”) and three Independent Non-Executive Directors (“INEDs”).

Save for Ms. Liu Yong is the sister of Mr. Liu Xin and Mr. Liu Jun, there is no financial business, family or other material relationship among the members of the Board.

The INEDs are considered by the Board to be independent of the management and free of any relationship that could materially interfere with the exercise of their independent judgments. The Board considered that each of the INEDs brings his own relevant expertise to the Board and its deliberations.

None of the INEDs has any business or financial interests with the Group nor has any relationship with other directors and confirmed their independences to the Group pursuant to Rule 3.13 of the Listing Rules.

The Board meets regularly to discuss and formulate the overall strategy as well as the operation and financial performance of the Group. Directors may participate either in person or through electronic means of communications.

The Board met regularly during the year and on ad hoc basis as required by business needs. The Board’s primary purpose is to set and review the overall strategic development of the Group and to oversee the achievement of the plans to enhance shareholders’ value. Daily operational decisions are delegated to the Executive Directors. The Board met a total of 11 times during the year. The NED and INEDs may take independent professional advice at the Company’s expense in carrying out their functions.

The Company appointed each of the NEDs during the Annual General Meeting or by the Board for new appointment during the year. The term of each of these appointments shall be expired up to the forthcoming Annual General Meeting and can offer for re-election in the Annual General Meeting.

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Corporate Governance Report

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tHE BoarD (continued)

responsibilities of the Board

The Board reviews the performance of the operating divisions with reference to their respective agreed budgets and business objectives on a regular basis and also exercises a number of reserved powers which include:

• convening shareholders’ meetings and reporting on their work at such meetings;

• implementing resolutions passed at shareholders’ meetings;

• formulating the Company’s business plans and investment proposals;

• preparing the Company’s annual financial budget and final accounts;

• formulating proposals for profit distribution and for setting off of accumulated losses of the Company;

• formulating proposals for increase or reduction in registered capital and the issuance of debt securities of the Company;

• formulating proposals for merger, demerger, or dissolution of the Company;

• formulating the internal management structure of the Company;

• appointing or dismissing the chief executive officer of the Company and appointing or dismissing the deputy general manager, financial controller and other senior management at the recommendation of the chief executive officer and determination of matters relating to their remuneration;

• formulating the basic management system of the Company;

• formulating proposals for amendments to the articles of association; and

• carrying out other powers conferred by shareholders’ meetings.

According to Code A.1.8 of the CG Code, the Company should arrange appropriate insurance cover in respect of legal action against its directors. The Company is negotiating with the relevant insurance agents about the liability insurance for the Directors and will arrange such insurance cover in due course.

All Directors are encouraged to participate in continuous professional development to develop and refresh their knowledge and skills. The Company has arranged in-house trainings for all Directors in the form of seminar and provision of training materials on corporate governance, regulatory development and other relevant topics.

Annual Report 2016

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Corporate Governance Report

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DElEgation By tHE BoarD

The management, consisting of Executive Directors along with other senior executives, is delegated with responsibilities for implementing the strategy and direction as adopted by the Board from time to time, and conducting the day-today operations of the Group. Executive Directors and senior executives meet regularly to review the performance of the businesses of the Group as a whole, co-ordinate overall resources and make financial and operational decisions. The Board also gives clear directions as to their powers of management including circumstances where management should report back, and will review the delegation arrangements on a periodic basis to ensure that they remain appropriate to the needs of the Group.

BoarD coMMittEEs

The Board has established three committees and has delegated various responsibilities to the committees including the audit committee (the “Audit Committee”), the remuneration committee (the “Remuneration Committee”) and the nomination committee (the “Nomination Committee”). All the Board Committees perform their distinct roles in accordance with their respective terms of reference which are available to shareholders on the Company’s website. The Board Committees are provided with sufficient resources to discharge their duties and, upon reasonable request, are able to seek independent professional advice in appropriate circumstances, at the Company’s expense.

aUDit coMMittEE

The Audit Committee was established by the Company, with written terms of reference in compliance with the requirements as set out in Appendix 14 of the Listing Rules. The principal duties of the committee are the review and supervision of the Company’s reporting process and internal control. The members of the Audit Committee are as follows:

Name	Position in the Audit Committee	Position in the Board
Ms. Zhang Yan	Chairman	Independent Non-executive Director
Mr. Liu Yuan	member	Independent Non-executive Director
Mr. Ning Bo	member	Independent Non-executive Director

The Audit Committee is required to assist the Board to fulfill its responsibilities related to external financial reporting, associated announcements and system of internal control. During the year, the Audit Committee reviewed the interim and annual reports. Additional meetings may also be held by the Audit Committee from time to time to discuss special projects or other issues that the Audit Committee considered necessary.

The Audit Committee is also responsible for the development, implementation and monitoring of the Groups’ policy on external audit. The Audit Committee recommended the appointment and reappointment of the external auditors.

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Corporate Governance Report

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rEMUnEration coMMittEE

The primary duties of the Remuneration Committee are, amongst other things, to review and determine the terms of remuneration packages, bonuses and other compensation payable to the Directors and senior management and to make recommendation to the Board on the Group’s policy and structure for all remuneration of the Directors and senior management. The Remuneration Committee comprises one Executive Director, namely, Mr. Liu Jun and two independent non-executive Directors, namely Mr. Ning Bo and Mr. Liu Yuan. Mr. Liu Yuan has been appointed as the chairman of the Remuneration Committee. No meeting was held by the Remuneration Committee during the year ended 31 December 2016.

noMination coMMittEE

The principal duties of the Nomination Committee are to identify and nominate suitable candidates for the appointment of the Directors and make recommendations to the Board on succession planning for the Directors. The Nomination Committee comprises one Executive Director, namely, Mr. Liu Xin and two Independent Non-executive Directors, namely Mr. Ning Bo and Mr. Liu Yuan. Mr. Ning Bo has been appointed as the chairman of the Nomination Committee. No meeting was held by the Nomination Committee during the year ended 31 December 2016.

MEEtings attEnDancE

	Board	Audit Committee
Number of Meetings	11	2
Executive Directors
Mr. Liu Xin	11	N/A
Mr. Liu Jun	11	N/A
Mr. Jiang Shiwen	11	N/A
Ms. Huang Zhaohuan	9	N/A
Non-executive Director
Ms. Liu Yong	8	N/A
Independent Non-executive Directors
Mr. Liu Yuan	10	2
Mr. Ning Bo	11	2
Ms. Zhang Yan	8	2

Annual Report 2016

21

Corporate Governance Report

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financial rEporting anD intErnal control

financial reporting

The Board, supported by the finance department, is responsible for the preparation of the financial statements of the Company and the Group. The Board aims to present a clear and balanced assessment of the Group’s performance in the annual and interim reports to the shareholders, and make appropriate disclosure and announcements in a timely manner. Management would provide such explanation and information to the Board as will enable the Board to make an informal assessment of the financial and other information put before the Board for approval.

As at 31 December 2016, the Directors are not aware of any material uncertainties relating to events or conditions which may cast significant doubt upon the Company’s ability to continue as a going concern. Accordingly, the Directors have prepared the financial statements of the Company on a going-concern basis.

The working scope and reporting responsibilities of Da Hua Certified Public Accountants (Special General Partnership), the Company’s external auditor, are set out on the “Auditor’s Report” in this annual report.

External auditor’s remuneration

For the year ended 31 December 2016, the remunerations paid or payable to the external auditor in respect of its audit services and nonaudit services are approximately RMB660,000 and RMB0, respectively.

internal control

The Board is responsible for the internal control of the Group and for reviewing its effectiveness. Procedures have been designed for safeguarding assets against unauthorized use or disposition, the maintenance of proper accounting records for the provision of reliable financial information for internal use or for publications and the compliance of applicable laws, rules and regulations.

The internal control are reviewed and assessed on an on-going basis by the Executive Directors, and will be further reviewed and assessed at least once each year by the Board.

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Corporate Governance Report

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coMpany sEcrEtary anD sHarEHolDErs’ rigHts

company secretary

All Directors have access to the services of the company secretary who regularly updates the Board on governance and regulatory matters. Any Director, who wishes to do so in the furtherance of his or her duties, may seek independent professional advice through the chairman at the Company’s expense. The availability of professional advice extends to the Audit, Remuneration and other Committees.

Minutes of Board meetings are taken by the company secretary or the secretary to the Board and, together with any supporting Board papers, are available to all Board members. Board meetings are structured to encourage open and frank discussions to ensure the Non-executive Directors provide effective enquiries to each Executive Director. When necessary, the Independent Non-executive Directors meet privately to discuss matters which are relevant to their specific responsibility.

shareholders’ rights

Shareholders seeking to convene an extraordinary general meeting of shareholders or a class meeting of shareholders shall proceed in accordance with the following procedure:

• (1) Two or more shareholders holding more than one-tenth (including 10%) of the voting shares at the meeting proposed to be held may, by signing one written request or several counterparts of same stating the subject matter of the meeting, require the Board of Directors to convene an extraordinary general meeting of shareholders or a class meeting of shareholders. Upon receipt of the foregoing written request(s), the Board of Directors shall proceed to do so as soon as possible accordingly. The foregoing number of voting shares referred to shall be calculated as at the date of the delivery of the written request(s);

• (2) If the Board of Directors fails to issue a notice of convening such a meeting within thirty days from the date of the receipt of the foregoing written request(s), the shareholders who have made the request may themselves convene such a meeting in a procedure as far as possible same as that of such meetings to be convened by the Board of Directors, within four months from the date of receipt of such request(s) by the Board.

Where the Company convenes the general meeting of shareholders, the written notice shall be given, forty-five days in advance, to inform all shareholders whose names appear in the share register of the matters proposed to be considered at the meeting and the date and venue of the meeting. Any shareholder intending to attend the general meeting of shareholders shall serve the Company, twenty days before the date of the meeting, with the written reply stating his intention to attend the meeting.

Notice of general meeting of shareholders shall not be given more than 60 days before the date of the meeting. When calculating the period of giving the notice, it shall not include the date of the meeting and the date of sending the notice.

Annual Report 2016

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Corporate Governance Report

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coMpany sEcrEtary anD sHarEHolDErs’ rigHts (continued)

In respect of the annual general meeting convened by the Company, the shareholders holding more than five percent (including 5%) of the total voting shares of the Company are entitled to propose to the Company any new resolutions in writing, provided such resolution shall be submitted to the Company at least seven days before convening the annual general meeting. The Company shall include, in the agenda of such meeting, those proposed matters which are within the terms of reference of the general meeting.

Detailed procedures for shareholders to propose a person for election as a Director are available on the Company’s website.

Enquiries to the Board

Enquiries may be put to the Board through the Company’s Principal Place of Business in Shenzhen and Hong Kong or through email, address please refer to “Corporate Information” section.

inVEstor rElations anD coMMUnications WitH sHarEHolDErs

The management believes that effective and proper investor relations play a vital role in creating shareholders’ value, enhancing the corporate transparency as well as establishing market confidence. As such, the Company has adopted a stringent internal control system to ensure true, accurate, complete and timely disclosure of relevant information pursuant to requirements of relevant laws and regulations in order to ensure all shareholders equal access to information. In addition, the Company has taken measures to ensure effective shareholders’ communication and transparency, including:

• maintained contacts with shareholders and investors through various channels such as meetings, telephone and emails;

• regularly update the Company’s news and developments through the investor relations section of the Company’s website;

• arranged on-site visits to the Group’s projects for investors and research analysts.

Through the above measures, the Company endeavours to communicate with the investment community and provide them with the latest development of the Group and the automotive after market.

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inVEstor rElations anD coMMUnications WitH sHarEHolDErs (continued)

information disclosure

The Company discloses information in compliance with the Listing Rules, and publishes periodic reports and announcements to the public in accordance with the relevant laws and regulations. The primary focus of the Company is to ensure information disclosure is timely, fair, accurate, truthful and complete, thereby enabling shareholders, investors as well as the public to make rational and informed decisions.

constitutional documents

During the Relevant Period, there are certain changes in the Company’s constitutional documents and the latest version has been uploaded to the Company’s and HKEx’s website.

sEcUritiEs transactions By DirEctors

The Company has adopted a code of conduct regarding securities transactions by Directors on terms no less exacting than the required standard of dealings set out in Appendix 10 of the Listing Rules. The Company has also made specific enquiry of all Directors and the Company are not aware of any non-compliance with the required standard of dealings and the code of conduct regarding securities transactions by Directors adopted by the Company throughout the year.

DirEctors’ anD inDEpEnDEnt aUDitor’s rEsponsiBilitiEs for accoUnts

The Directors’ responsibilities for the accounts and the responsibilities of the external independent auditor to the shareholders are set out in the Audit Report.

looKing forWarD

The Group will keep on reviewing its corporate governance standards on a timely basis and the Board endeavors to take the necessary actions to ensure the compliance with the provisions of the Code on Corporate Governance Practices introduced by the Stock Exchange.

Annual Report 2016 25

Environmental, Social and Governance Report

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The Group believes that sound environmental, social and governance (“ESG”) performance is vital to sustainable development of our business and community. The Group is committed, to achieving not only strong financial results, but also enhancement of environmental protection, social responsibility and effective corporate governance.

The Board is responsible for the Group’s ESG strategy and reporting. The Group established an ESG working team to engage cross department management and staff to identify relevant ESG issues and so evaluate the materiality to the Group’s business as well as stakeholders, through operations review and internal discussions. Disclosures relating to the material ESG issues identified have been included in this ESG Report pursuant to the requirements of Appendix 27 of the Listing Rules (the “ESG Guide”).

a. EnVironMEntal

The Group established environmental policies and passed measurable environmental objectives to employees. We, through training, education and communication, proactively encouraged them to protect the environment with our ultimate goal that all employees’ adoption of environmentally-responsible behavior in both their workplace and daily lives.

The Group always keeps itself up-to-date on developments in local legislation and standards for environmental protection and is committed to achieving a level of environmental performance that goes beyond compliance. During the Reporting Period, the Group did not experience any cases of non-compliance relating to environmental laws and regulations in our operation places.

a1 Emissions

The Group’s major carbon dioxide emissions is from energy usage. The Group has developed various energy-saving initiatives to reduce the carbon footprint. Waste generated from the Group’s business activities mainly consists of paper (e.g. office paper) during the Reporting Period. No substantial hazardous waste was produced by the Group during the Reporting Period. The Group has launched a number of waste management programs, including:

• Recycling of glass, cardboard, paper materials, metal, printing cartridges and batteries, with collection facilities placed across the properties; and

• to encourage staff to reduce paper consumption by double-sided printing and reusing papers printed on one side.

• Proactively encourage recycling of old and outdated products for use in R&D department.

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Environmental, Social and Governance Report

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a2 Use of resources

With the vision of helping to protect the planet and of incorporating environmental sustainability into our business functions and processes, the Group proactively seeks opportunities for increasing operating efficiency in order to reduce the use of resources. The Group also closely monitors the utilization of resources and reports this aspect of performance to senior management. Appropriate remedial actions for efficiency enhancement in the use of resources are taken, whenever necessary.

To achieve higher energy efficiency, the Group implemented the following key initiatives:

• Blinds for windows to reduce solar heat in air-conditioned areas and hence the strength of airconditioning could be reduced;

• to switch off lights and air-conditioning in the work stations where not in use; and

• energy saving lights used in most parts of the Group’s properties.

• A2.1 Annual Usage of Electricity in 2016 is 7,000 KWH

A2.2 Annual Usage of water in 2016 is 75 thousand tons

• A2.3 Management regularly review and continuously improve energy efficiency plan and perform useful evaluation with reference to Key Performance Indicator (“KPI”).

• A2.4 The Group did not have any problem in the source of usable water. During the year, water consumed by the Group was not material; nevertheless, we actively promotes water efficient practices.

• A2.5 The total packing material used in 2016 was 360 tons representing 0.43kg of packing materials used for every RMB 1,000 sales of products. The Group will actively review, and under the condition that not affecting the safety and protection level of large equipment products in the logistic process, reduce the use of packing materials, including adopt electronic user‘s manual, and select lightweighted materials and recycle friendly materials and adopt other measures so as to reduce the harmful impact by the packing materials.

a3 the environment and natural resources air quality

In order to aid to improve air quality, the Group aims to reduce air emissions generated from its properties by green initiatives.

• A3.1 The Group’s operation does not bring significant harmful impact on environment and natural resources; however we do control the number of vehicles of the Group, the management of logistic and goods delivery and is committed to encourage our staff to take public transportation, for the purpose of reduction of car pollutants’ impact on the environment by vehicles.

Annual Report 2015 27

Environmental, Social and Governance Report

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B. social

B1 Employment labour practices

To ensure the ability of operation under professional and ethical labour practices, the Group has developed and clearly communicated to all employees clear work procedures with robust control mechanisms. Certain policies to govern employees’ affairs such as payroll, attendance and termination are clearly set out in staff appointment letters in compliance with relevant labour laws in the PRC. Overseas offices are in compliance with the relevant labour laws and regulations in the place of operations respectively.

The Group also aims to promote the diversity of workforce, including in terms of age, gender and nationality, as well as a culture of equal opportunity. The management regularly reviews the Group’s remuneration policy with reference to relevant market standards.

B1.1 Total workforce by gender, employment type, age group and geographical region

As at 31 December 2016, number of employees of the Group is 1,161, including:

By gender: Male Female By functions: Administrative Selling and distribution Production R&D By age group: Under 30 31-50 51 or above By geographical: Domestic Overseas	No. of employees 845 316
	1,161
	148 341 170 502
	1,161
	462 653 46
	1,161
	1,142 19
	1,161

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Environmental, Social and Governance Report

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• B1.2 Employee turnover rate by gender, age group and geographical region.

The Group has certain adjustment on the operation and resulted to the increase in turnover and turn of loss to profit. The adjustment including streamline the sales department and cessation of R&D projects with lower feasibility. During the year, about 600 employees (around 35%) reduced, including 400 from sales department and 150 from R&D department.

B2 Health and safety

The Group has established a set of policies which is focused on maintaining a healthy and safety working environment, and which includes the following requirements:

• The facilities operated by employees should meet safety and health standards;

• Expertise advice should be obtained to identify health and safety risk in the operations and the corresponding mitigating actions that should be taken; and

• relevant information and training should be provided to employees in respect of risks to their health and safety which may arise out of their work.

The Group did not violate any health and safety laws and regulations of the place of operations, where applicable, during the Reporting Period.

B2.1 there is zero fatality in 2016.

• B2.2 Lost days due to work injury

In 2016, one injured workers with 16 days of injury holidays approved is reported and such worker has been well recovered after receiving appropriate medical treatment and having adequate rest.

• B2.3 Occupational health and safety measures

The Group has established a mechanism for monitoring occupational health and safety, as well as procedures for dealing with related risks. The Group engages employees in the determination of appropriate occupational health and safety precautionary measures. Accident reporting and investigation procedures have also been adopted for the follow-up of any health and safety incidents.

Regular inspections and management review of health and safety have been performed to ensure the effectiveness of the policies and measures.

Annual Report 2015 29

Environmental, Social and Governance Report

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B3 Development and training Employee development and training

The Group strives to promote the long-term development of its employees by providing learning opportunities that broaden their skills and make them valuable assets to the Group.

Various employee training programs and seminars are offered to employees including in the areas of production, finance, technology, rules and regulations, supervisory and managerial skills, as well as various technical training courses relating to their respective job duties.

B3.1 and 3.2 Employee Training

Gender Male Female Total Functions Administrative Selling and distribution Production R&D Total Age group Below 30 31-50 51 or above Total Geographical Domestic Overseas Total	No. of Training Hours Average Training employees Completed Hours Completed 845 49,439 58.51 316 17,115 54.16
	1,161 66,554
	148 1,650 11.14 341 2,720 7.97 170 16,808 98.87 502 45,376 90.39
	1,161 66,554
	462 26,473 57.30 653 39,901 61.10 46 180 3.91
	1,161 66,554
	1142 66292 58.04 19 262 13.79
	1,161 66,554

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B4 labour standards

The Group strictly follows the “Special protection provisions for underage workers” and Labour Contract Law of the PRC”, prohibits the use of child and forced labour in the Group, and is totally committed to creating a work environment which respects human rights. During suppliers selection procedures, we also consider the factors above as critical assessment criterions.

B4.1 Regular Inspection

In addition to having well-established recruitment processes requiring background checks on candidates and formalized reporting procedures to address any exceptions found, the Group also performs regular reviews and inspections to detect the existence of any child or forced labour in the operations.

B4.2 Contingency Measures

When irregular situation discovered, immediate cessation, internal investigation and follow-up review of existing policies and improvement of prevention mechanism will be implemented;

B5 supply chain management

The Group has a complete set of supplier eligibility and supplier process management, and all candidate suppliers are required during the supplier selection process. Qualification assessment and material assessment of the factors including dual confirmations, before being added to the group supplier list. Supplier qualification assessment is according to supplier qualification, certification of Supplier quality system, suppliers’equipment/technical capacity/production process control, supplier delivery response speed, suppliers’ costing, the compliance of the supplier’s environment, labor and social environmental laws and the protection of intellectual property rights, and also sample inspection and evaluation, are performed and considered in order to get a comprehensive selection of suitable suppliers.

Supplier process management is mainly supplier performance management, from supplier process quality, supplier delivery, cost, supplier customer service response system, supplier process control, change management, after-sales service, supplier social responsibility for regular occasional supplier assessment, problem tracking and supplier consultation.

Annual Report 2015

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Environmental, Social and Governance Report

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The Group strictly used a material procurement authorization system: for material procurement amounted below 100 thousand, it has to be approved by the responsible person and financial manager of respective units; For amount between 101-300 thousand it has to be approved by the headquarters of the financial manager, or supply chain director; For the amount over 300 thousand CEO’s approval is required.

B5.1 Number of suppliers by region

The Group currently has a total of about 300 suppliers, more than 95% of suppliers are local suppliers which are easily for us to assess and monitor and also have more stability in supply and logistic cost.

B5.2 Usual Practice in engaging Suppliers

All suppliers are managed in accordance with the above management methods and are regularly reviewed by management to improve performance.

B6 product responsibility

The Group aims to achieve the highest possible standard with all the products sold and services provided. The Group has established relevant policies which cover products and service quality guarantee, safety, fair advertising and after-sale service in order to ensure relevant measures comply with the laws and regulations.

B6.1 Percentage of total products sold or shipped subject to recalls for safety and health reasons

In 2016 no material products sold or shipped subject to recalls for safety and health reasons was reported.

B6.2 Complaints and response

The Group stepping at the front of the industry’s technology, on the same time pays high attention to the quality and safety of products and services. The Group set up relevant quality and safety inspection policies for different products and services, communicate and confirm the orders and working plan with customer before the orders and project starts and actively coordinate the process of the logistics and project with customers. In 2016, the Group did not have any significant complaints or requests to withdraw the order or terminate project due to poor quality and safety problem. If a complaint should arise, the Company will immediately assess the complaint and conduct an internal investigation into the matter to identify the source of the issue. The Group has close connection with customers. If the customers do not satisfy the quality and the safety of our products and services, the Group arranges sufficient channels and staffs for customers to communicate and provide the solutions to the problems as soon as possible.

Launch Tech Company Limited

32

Environmental, Social and Governance Report

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B6.3 Intellectual property rights

The routine work of the Group always involves customers, suppliers and our own intellectual property rights (“IPR”), therefore protection of IPR is an extremely important mission to the Group. The Group adds protective clauses to the contracts entered into with customers and suppliers to safeguard the IPR. The Group’s relevant department also reviews every operational contract to ensure that the contract safeguard the IPR of each other. Furthermore, The Group also requests technical specialists of product development and production to sign strict confidentiality agreements to avoid leakage of confidential information. The Group also complies with relevant legislation of data privacy. Any infringement of the Group‘s IPR discovered on the market might report to the relevant legal authorities and if necessary might seek indemnity from counter parties through appropriate legal channels.

B6.4 Quality assurance process and recall procedures

Prior to dispatch, products in the warehouse will be subject to strict quality inspection. For equipment received under the trade in sales arrangements, immediately safety checks will be performed to prevent any threat to plant safety. The Group has guidelines to improve the recycling rate of recycled products and prioritize the usage of recycled products in R&D areas as part of the R & D materials, and for those parts that cannot be used, staff will be disposed of in accordance with the Group’s Waste Disposal Guidelines to reduce unnecessary waste.

B6.5 Consumer data protection and privacy policies

The Group strictly stipulates that employees comply with the established Consumer Data Protection and Privacy Policy and strictly limit the confidentiality of all customers only can be accessed by employees who are responsible for the project work of the relevant clients.

B7 anti-corruption and money laundering

The Group has in place a number of policies addressing anti-corruption (such as acceptance of gifts, and conflicts of interest and money laundering), which provide guidance to employees in these areas. In the employment contract, the Group included requirement for employees to strictly maintain business ethics standards to avoid any corruption and bribery. Any conflicts of interests is required to be reported to the Group’s management in a timely manner. Employees who participate in the business operations and represent the professional image of the Company are forbidden to use business opportunities or privilege to acquire personal interest or benefit.

Annual Report 2015

33

Environmental, Social and Governance Report

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• B7.1 Legal cases

During the Reporting Period, no legal case regarding corruption was brought against the Group or its employees. Also, there were no cases of non-compliance with laws and regulations on anti-money laundering in the places of operations.

B7.2 Preventive Measures

In addition, the Group has established prevention system by setting up communication channels for faults and anti-corruption reporting. The whistle-blowing system can handle any breach of laws and regulations.

Relevant articles on anti-corruption and anti-money laundering are provided to employees for their study and reference in order to raise their awareness of the code of conduct as well as related procedures and guidelines.

B8 community investment

As a corporate citizen, we promote the social contribution of the Group’s members to the local community where we operate. We emphasize via training and education to raise the sense of social responsibility among employees and encourage them to make better contributions to our community during and after work. We would like to increase social investment to create a more favorable environment for our communities and businesses.

Launch Tech Company Limited

34

Directors’ Report

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The Directors present their annual report and the audited financial statements of the Company for the year ended 31 December 2016.

principal actiVitiEs

The Company is engaged in the provision of products and services serving the automotive aftermarket and the automobile industry in the PRC and certain overseas countries. The principal activities of its subsidiaries are set out in the notes to the financial statements.

rEsUlts anD appropriations

Details of the results of the Group and appropriations of the Company for the year are set out in the consolidated statement of comprehensive income and consolidated statement of changes in equity respectively and the accompanying notes to the financial statements; at the period end, the distributable profit was amounted to approximately RMB142 million.

The Directors do not recommend the payment of a final dividend.

BUsinEss rEViEW anD prospEcts

A review of the financial performance and business of the Group during the year 2016 and a discussion on the Group’s future business development are set out in the sections headed and “Management Discussion and Analysis” of this report.

sHarE capital

Movements in share capital are set out in the notes to the financial statements.

fiXED assEts

Details of the movements in the fixed assets of the Group and the Company during the year are set out in notes to the financial statements.

DirEctors anD sUpErVisors

The directors and supervisors of the Company during the year and up to the date of this report were:

Executive directors:

Mr. Liu Xin (Chairman) (reappointed on 15 June 2016)

Mr. Liu Jun (Chief Executive Officer) (reappointed on 15 June 2016)

Mr. Jiang Shiwen

Ms. Huang Zhao Huan

Annual Report 2016

35

Directors’ Report

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DirEctors anD sUpErVisors (continued)

Non-executive director:

Ms. Liu Yong (reappointed on 15 June 2016)

Independent Non-executive Directors:

Mr. Liu Yuan (reappointed on 15 June 2016) Ms. Zhang Yan Mr. Ning Bo

Supervisors:

Mr. Sun Zhongwen Mr. Du Xuan Mr. Zhang Jiangbo (resigned on 23 June 2016)

Mr. Yang Yi (appointed on 23 June 2016)

All Directors and Supervisors have entered into service contracts with the Company, for a term of three years.

In accordance with the provisions of the Company’s Articles of Association, the term of office of the Directors shall be three years commencing from the date of appointment or re-election and renewable upon re-appointment or reelection. In accordance with the provisions of the Company’s Articles of Association and the PRC Company Law, the term of office of supervisors shall also be three years and renewable upon re-appointment or re-election.

None of the Directors or Supervisors has a service contract with the Company which is not determinable by the Company within one year without payment of compensation, other than statutory compensation.

DirEctors’, sUpErVisors’ anD cHiEf EXEcUtiVEs’ intErEsts in sEcUritiEs

• (a) interests and short positions of Directors, chief executives and supervisors of the company in the share capital of the company and its associated corporations

As at 31 December 2016, the Directors, chief executives and supervisors of the Company have the following interests and short positions in the shares, debentures or underlying shares of the Company or its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (“SFO”)) which have been 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 are taken or deemed to have under such provisions of the SFO) or which have been required, pursuant to section 352 of the SFO, to be entered in the register referred to therein or which have been required, pursuant to the Model Code For Securities Transactions by Directors of Listed Issuers (the “Model Code”) of the Listing Rules relating to securities transactions by the Directors, to be notified to the Company and the Stock Exchange, were as follows:

36 Launch Tech Company Limited

Directors’ Report

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DirEctors’, sUpErVisors’ anD cHiEf EXEcUtiVEs’ intErEsts in sEcUritiEs (continued)

• (a) interests and short positions of Directors, chief executives and supervisors of the company in the share capital of the company and its associated corporations (continued)

Long positions in Shares

Domestic Shares

				Approximate	Approximate
				percentage of	percentage of
		Capacity in		the Company’s	the Company’s
		which shares	Number of	issued	total issued
Name of Director		were held	domestic shares	domestic shares	shares
Mr. Liu Xin		Beneficiary owner	66,000,000	40.00%	20.05%
	Interest in	a controlled company	49,432,000	34.00%	15.02%
				(Note 1)
	Interest in	a controlled company	9,948,500	6.84%	3.02%
				(Note 2)
Mr. Liu Jun	Interest in	a controlled company	49,432,000	34.00%	15.02%
				(Note 3)
Ms. Liu Yong	Interest in	a controlled company	9,948,500	6.84%	3.02%
				(Note 4)

Notes:

• (1) Mr. Liu Xin holds 60.00% interest in 深圳市浪曲科技開發有限公司 (“Shenzhen Langqu”) which holds approximately 34.00% interest in the issued domestic shares of the Company. The corporate interest of Mr. Liu Xin in the Company duplicates with that held by Mr. Liu Jun in the Company. By virtue of Mr. Liu Xin’s holding more than one-third interest in Shenzhen Langqu, Mr. Liu Xin is deemed, under Part XV of the SFO, to be interested in approximately 34.00% interest in the issued domestic shares of the Company apart from his personal interest of 40.00% interest in the issued domestic shares of the Company.

• (2) Mr. Liu Xin holds 40.00% interest in 深圳市得時域投資有限公司 (“Shenzhen De Shi Yu”) which holds approximately 6.84% interest in the issued domestic shares of the Company. By virtue of Mr. Liu Xin’s holding more than one-third interest in Shenzhen De Shi Yu, Mr. Liu Xin is deemed, under the Part XV of the SFO, to be interested in 6.84% interest in the issued domestic shares of the Company apart from his personal interest of 40.00% interest in the issued domestic shares of the Company.

• (3) Mr. Liu Jun holds 40.00% interest in Shenzhen Langqu which holds approximately 34.00% interest in the issued domestic shares of the Company. The corporate interest of Mr. Liu Jun in the Company duplicates with that held by Mr. Liu Xin in the Company. By virtue of Mr. Liu Jun’s holding more than one-third interest in Shenzhen Langqu which holds approximately 34.00% interest in the issued domestic shares of the Company, Mr. Liu Jun is deemed, under Part XV of the SFO, to be interested in approximately 34.00% interest in the issued domestic shares of the Company.

• (4) Ms. Liu Yong holds 60.00% interest in Shenzhen De Shi Yu which holds approximately 6.84% interest in the issued domestic shares of the Company. The corporate interest of Ms. Liu Yong in the Company duplicates with that held by Ms. Liu Xin in the Company. By virtue of Ms. Liu Yong’s holding more than one-third interest in Shenzhen De Shi Yu, Ms. Liu Yong is deemed, under the Part XV of the SFO, to be interested in 6.84% interest in the issued domestic shares of the Company.

Save as disclosed above, as at 31 December 2016, none of the Directors, chief executives or supervisors of the Company has any personal, family, corporate or other interests or short positions in any shares, debentures or underlying shares of the Company or any of its associated corporations as defined in the SFO.

Annual Report 2016

37

Directors’ Report

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DirEctors’, sUpErVisors’ anD cHiEf EXEcUtiVEs’ intErEsts in sEcUritiEs (continued)

• (b) persons and substantial shareholders who have an interest or short position which is discloseable under Divisions 2 and 3 of part XV of the sfo

So far as known to the Directors, as at 31 December 2016, the following (not being a Director or supervisor of the Company) have an interest or short position in the shares or underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions of 2 and 3 of Part XV of the SFO or be directly or indirectly interested in 5% 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:

Long positions in shares and underlying shares in the Company

(i) Domestic Shares

			Approximate	Approximate
			percentage of	percentage of
	Capacity in		the Company’s	the Company’s
	which shares	Number of	issued	total issued
Name	were held	domestic shares	domestic shares	shares
Shenzhen	Interest of corporation	49,432,000	34.00%	15.02%
Langqu	controlled by substantial		(Note)
	shareholder
Xizang	Interest of corporation	20,000,000	12.12%	6.08%
Ruidong	controlled by substantial
Wealth	shareholder
Investment
Co., Ltd
（西藏瑞東財富
投資有限責任
公司）

Note:

The legal and beneficial interests in the shares of Shenzhen Langqu are owned by Mr. Liu Xin as to 60% and by Mr. Liu Jun as to 40% respectively. Mr. Liu Xin and Mr. Liu Jun are therefore deemed to be interested in all domestic shares registered in the name of Shenzhen Langqu under Part XV of the SFO.

Launch Tech Company Limited

38

Directors’ Report

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DirEctors’, sUpErVisors’ anD cHiEf EXEcUtiVEs’ intErEsts in sEcUritiEs (continued)

• (b) persons and substantial shareholders who have an interest or short position which is discloseable under Divisions 2 and 3 of part XV of the sfo (continued)

• (ii) H Shares

Nil

DirEctors’ intErEsts in contracts anD connEctED transactions

No contracts of significance to which the Company or any of its subsidiaries was a party and in which a director of the Company had a material interest, whether directly or indirectly, subsisted at the end of the year or at any time during the year ended 31 December 2016.

MaJor cliEnts anD sUppliErs

During the year, the aggregate turnover attributable to the Group’s five largest clients was approximately 20% of the Group’s total turnover and the Group’s largest client accounted for approximately 8% of the Group’s turnover.

During the year, the aggregate purchases attributable to the Group’s five largest suppliers was approximately 44% of the Group’s total purchases and the Group’s largest supplier accounted for approximately 22% of the Group’s total purchases.

None of the Directors, or Supervisors, their associates or any shareholder of the Company (which to the knowledge of the Directors and Supervisors own more than 5% of the Company’s issued share capital) had any interest in any of the five largest clients or suppliers of the Group.

pUrcHasE, salE or rEDEMption of tHE coMpany’s listED sEcUritiEs

Neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the Company’s listed securities during the year.

Annual Report 2016

39

Directors’ Report

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sUfficiEncy of pUBlic float

The Company has maintained the public float as required by the Listing Rules during the Relevant Period.

prE-EMptiVE rigHts

There are no provisions for pre-emptive rights under the Company’s articles of association, the laws of the PRC, which would oblige the Company to offer new Shares on a pro-rata basis to existing shareholders.

EMployEEs anD rEMUnEration

As at 31 December 2016, the Group had 1,142 and 19 employees based in the PRC and overseas respectively. For the year ended 31 December 2016, the total staff cost net of the remunerations of the Directors and supervisors amounted to approximately RMB173 million. The Group remunerates employees by their performance and experience. Emolument or remuneration may include salary, overtime allowance, bonus and various subsidies.

The emolument of the Directors are determined, having regard to the Company’s operating results, individual Directors’ performance and comparable market trends.

It has adopted a share option scheme whereby employees of the Group may be granted options to acquire shares. The Group also offers staff benefits such as professional training programs enhance staffs’ skills, knowledge and sense of belonging.

sEcUritiEs transactions By DirEctors

The Company has adopted a code of conduct regarding securities transactions by Directors on terms no less exacting than the required standard of dealings set out in Appendix 10 of the Listing Rules. The Company has also made specific enquiry of all Directors and the Company are not aware of any non-compliance with the required standard of dealings and the code of conduct regarding securities transactions by Directors adopted by the Company throughout the year.

coMpEting intErEsts

None of the Directors or the management shareholders of the Company or their respective associates (as defined in the Listing Rules) had an interest in a business which causes or may cause significant competition with the business of the Group.

Launch Tech Company Limited

40

Directors’ Report

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inDEpEnDEnt aUDitor

A resolution will be proposed at the forthcoming annual general meeting of the Company to re-appoint the auditor, Da Hua Certified Public Accountants (Special General Partnership).

The accounts for the years 2015 and 2014 of the Group were audited by Da Hua Certified Public Accountants (Special General Partnership).

closUrE of rEgistEr

The Registrar of members will be closed from 22 April 2017 to 23 May 2017, both dates inclusive for the annual general meeting of the Company to be held on 23 May 2017. All transfer accompanies by the relevant share certificates must be lodged with the Company’s H Share registrar no later than 4:30 p.m. on 21 April 2017.

By order of the Board

Launch Tech Company Limited

Liu Xin

Chairman

Shenzhen, the PRC

17 March 2017

Annual Report 2016

41

Auditor’s Report

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DaHuaShenZi (2017) no.002789

To all shareholders of Launch Tech Company Limited:

1. opinion

We have audited the Financial Statements of Launch Tech Company Limited (“Launch Tech”), which comprise its and consolidated balance sheets as at 31 December 2016, and its and consolidated income statements, its and consolidated cash flow statements, its and consolidated statements of change in equity for the year then ended, and notes to the financial statements.

In our opinion, the attached Financial Statements prepared in accordance with the requirements of Accounting Standards for Business Enterprises, give a true and fair view of Launch Tech’s and consolidated financial position as at 31 December 2016, and of its and consolidated financial performance and cash flows for the year then ended 2016.

2. Basis for opinion

We conducted our audit in accordance with China Standards on Auditing. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Launch Tech in accordance with the China Standards on Auditing’s Code of Ethics for Professional Accountants (“the Code”), and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

3. KEy aUDit MattErs

Key audit matters are the matters that, in our professional judgment, were of most significance in our audit of the Financial Statements of the current period. These matters were addressed in the context of our audit of the Financial Statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

We determine that the following are key audit matters that need to be communicated in the audit report.

(1) capitalization of research and development Expenditure

1. Description of the matter

During 2016, Launch Tech incurred research and development expenditure amounted to 133,933,800, of which the amount of 54,119,200 was subject to capitalization and the amount of 79,814,600 was charged as expenses. Since the amount of capitalization is material, and the capitalization which subject to review of its compliance with requirements under Accounting Standards for Business Enterprises involves significant Management judgments, this area is considered as a key audit issue.

42 Launch Tech Company Limited

Auditor’s Report

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3. KEy aUDit MattErs (CoNTINuED)

• (1) capitalization of research and development Expenditure (continued)

2. Audit response

In the course of the audit, we reviewed Launch Tech’s capitalization policy of research and development expenditure (see Notes IV to the Financial Statements, Significant Accounting Policy, Accounting Estimates (XVI) Intangible Assets and Development Expenditure), and assess Launch Tech’s research and development expenditure capitalization policy. Launch Tech’s standards of research and development expenditure capitalization, are clear and well defined, and in line with the provisions of Accounting Standards for Business Enterprises. Having obtained relevant information about the capitalized projects (including the “Project Report”, “Overall Design Solutions”, “Product Business Plan”, “Sales Forecast and Financial Assessment Report”, “Results Report”, etc.), and according to the relevant information obtained, analysed and judged whether each project was consistent with relevant Launch Tech’s capitalization policies.

Based on the audit evidence obtained, we have reached the audit conclusion that Management’s recognition of capitalization of research and development expenditure is reasonable and the relevant disclosures in the notes VII(12) to the financial statements are appropriate.

• (2) provision for impairment of proprietary technologies intangible assets

1. Description of the matter

As of December 31, 2016, Launch Tech owned has proprietary technologies with a book value of 125,337,600. Launch Tech’s Management in accordance with the lower of the book value and recoverable amount of these proprietary technologies to evaluate its recoverability and make provision for impairment on some proprietary technologies amounted to 20,205,500. For the proprietary technologies that has not been subject to provision for impairment, Launch Tech’s Management expected that the recoverable amount would be higher than the book value and therefore considered there was no impairment. The formation of these conclusions was relied on significant Management judgment, so this field is a key audit matter.

2. Audit response

During the audit, we obtained the economic benefits and the expected future economic data information of the proprietary technology of Launch Tech, and evaluated the assumptions on the future economic benefits used by the Launch Tech’s Management.

Annual Report 2016 43

Auditor’s Report

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3. KEy aUDit MattErs (CoNTINuED)

• (2) provision for impairment of proprietary technologies intangible assets (continued)

2. Audit response (Continued)

Based on the audit evidence obtained, we have obtained the audit conclusion that the provision for impairment on proprietary technologies intangible assets made by the Management is reasonable and the relevant disclosures in the notes VII (11) and (35) to the financial statements are appropriate.

4. otHEr inforMation

The management of Launch Tech are responsible for the other information. The other information comprises the information included in the annual report, but does not include the Financial Statements and our auditor’s report thereon.

Our opinion on the Financial Statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the Financial Statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the Financial Statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.

If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

5. rEsponsiBilitiEs of tHE ManagEMEnt anD tHosE cHargED WitH goVErnancE for tHE financial statEMEnts

The Management of Launch Tech are responsible for the preparation of the Financial Statements that give a true and fair view in accordance with Accounting Standards for Business Enterprises, and to enable such internal control to be fairly reflected, designed, exercised and maintained as the Management determine is necessary to enable the preparation of Financial Statements that are free from material misstatement, whether due to fraud or error.

In preparing the Financial Statements, the Management are responsible for assessing the Launch Tech’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Management either intend to liquidate the Launch Tech or to cease operations, or have no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Launch Tech’s financial reporting process.

Launch Tech Company Limited

44

Auditor’s Report

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6. aUDitor’s rEsponsiBilitiEs for tHE aUDit of tHE financial statEMEnts

Our objectives are to obtain reasonable assurance about whether the Financial Statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with China Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these Financial Statements.

As part of an audit in accordance with China Standards on Auditing, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

• I. Identify and assess the risks of material misstatement of the Financial Statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• II. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of internal control.

• III. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Management.

• IV. Conclude on the appropriateness of the Management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Launch Tech’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the Financial Statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Launch Tech to cease to continue as a going concern.

• V. Evaluate the overall presentation, structure and content of the Financial Statements, including the disclosures, and whether the Financial Statements represent the underlying transactions and events in a manner that achieves fair presentation.

Annual Report 2016 45

Auditor’s Report

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6. aUDitor’s rEsponsiBilitiEs for tHE aUDit of tHE financial statEMEnts (CoNTINuED)

• VI. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Launch Tech to express an opinion on the Financial Statements. We are responsible for the direction, supervision and performance of the Launch Tech audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the Financial Statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Da Hua Certified Public Accountants (Special General Partnership)

Chinese Certified Public Accountant:

Beijing, China Chinese Certified Public Accountant:

17 March 2017

Launch Tech Company Limited

46

Consolidated Balance Sheet

2016 (Expressed in Renminbi)

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Note VII Current assets: Bank balances and cash 1 Bills receivable 2 Accounts receivable 3 Prepayments 4 Other receivables 5 Inventories 6 Other current assets 7 Total current assets Non-current assets: Fixed assets 9 Construction in progress 10 Intangible assets 11 Development expenditure 12 Goodwill 13 Deferred income tax assets 14 Other non-current assets 15 Total non-current assets Total assets Current liabilities: Short-term borrowings 16 Accounts payable 17 Receipts in advance 18 Employee remuneration payable 19 Tax payables 20 Other payables 21 Non-current liabilities due within one year 22 Total current liabilities Non-current liabilities: Long-term borrowings 23 Deferred income 24 Total non-current liabilities Total liabilities	2016 2015 279,285,875.90 415,464,672.34 21,825,071.53 17,036,907.00 232,262,423.02 241,169,471.34 52,441,476.55 57,399,353.54 18,538,048.22 39,648,210.28 112,747,368.47 101,939,465.29 4,591,043.25 7,886,496.93
	721,691,306.94 880,544,576.72
	357,858,779.08 387,455,236.13 18,066,974.12 1,718,549.29 174,827,700.73 191,031,014.69 27,767,751.41 11,067,683.04 1,139,412.80 1,139,412.80 4,203,375.52 6,988.56 7,993,843.94 6,911,826.72
	591,857,837.60 599,330,711.23
	1,313,549,144.541,479,875,287.95
	384,374,000.00 560,767,159.96 94,392,524.66 88,357,296.14 61,061,913.18 79,364,620.11 2,848,980.63 3,930,285.40 11,144,019.08 5,085,902.08 12,832,830.76 12,576,859.75 505,399.54 468,152.45
	567,159,667.85 750,550,275.89
	676,536.08 1,190,145.51 22,331,000.00 25,500,000.00
	23,007,536.08 26,690,145.51
	590,167,203.93 777,240,421.40

Annual Report 2016

47

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Consolidated Balance Sheet

2016 (Expressed in Renminbi)

Note VII Shareholders’ equity: Share capital 25 Capital reserve 26 Other comprehensive income 27 Surplus reserve 28 Undistributed profit 29 Total owners’ equity attributable to parent company Minority shareholders’ equity Total shareholders’ equity Total liabilities and shareholders’ equity	2016 2015 329,160,000.00 329,160,000.00 231,020,325.76 231,421,588.86 3,332,286.09 3,221,298.19 18,099,377.81 18,099,377.81 141,981,816.61 120,570,279.29
	723,593,806.27 702,472,544.15 -211,865.66 162,322.40
	723,381,940.61 702,634,866.55
	1,313,549,144.541,479,875,287.95

The attached notes are an integral part of these financial statements.

Launch Tech Company Limited

48

Balance Sheet

2016 (Expressed in Renminbi)

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Note XVI Current assets: Bank balances and cash Bills receivable Accounts receivable 1 Prepayments Other receivables 2 Inventories Other current assets Total current assets Non-current assets: Long-term equity investments 3 Fixed assets Intangible assets Development expenditure Other non-current assets Total non-current assets Total assets	2016 2015 256,155,073.12 402,247,836.57 21,568,571.53 17,036,907.00 222,530,588.55 218,675,329.07 46,621,887.16 71,815,630.96 71,116,976.43 59,427,606.73 71,591,403.55 65,064,161.47 2,411,050.54 5,459,652.77
	691,995,550.88 839,727,124.57
	202,555,576.68 184,513,562.18 243,288,852.40 262,904,104.12 82,835,837.49 72,217,014.86 13,995,880.12 10,677,389.64 2,928,360.00 2,928,360.00
	545,604,506.69 533,240,430.80
	1,237,600,057.571,372,967,555.37

Annual Report 2016

49

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Balance Sheet

2016 (Expressed in Renminbi)

Note XVI Current liabilities: Short-term borrowings Accounts payable Receipts in advance Employee benefits payables Tax payables Other payables Total current liabilities Non-current liabilities: Deferred income Total liabilities Shareholders’ equity: Share capital Capital reserve Surplus reserve Undistributed profits Total shareholders’ equity Total liabilities and shareholders’ equity	2016 2015 383,374,000.00 530,767,159.96 353,780,470.33 335,936,924.43 58,532,138.93 72,325,517.98 232,590.88 1,527,947.97 4,671,942.11 3,326,946.00 24,999,900.27 23,922,771.66
	825,591,042.52 967,807,268.00
	22,331,000.00 25,500,000.00
	847,922,042.52 993,307,268.00
	329,160,000.00 329,160,000.00 231,122,518.70 231,523,781.80 18,099,377.81 18,099,377.81 -188,703,881.46 -199,122,872.24
	389,678,015.05 379,660,287.37
	1,237,600,057.571,372,967,555.37

The attached notes are an integral part of these financial statements.

50 Launch Tech Company Limited

2016 (Expressed in Renminbi)

Consolidated Income Statement

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	Note VII	2016	2015
operating income	30	835,053,156.36	697,597,929.64
Less: Operating costs	30	460,003,587.78	427,983,171.61
Tax and surcharge	31	9,485,126.03	4,154,526.73
Selling expenses	32	107,029,197.55	140,904,132.03
Administrative expenses	33	228,042,758.15	196,474,968.34
Finance costs	34	3,270,145.98	16,699,476.48
Impairment loss on assets	35	20,467,399.80	22,676,442.73
Add: Gain on investments	36	-604,656.50	2,592,876.71
operating profit (loss “–”)		6,150,284.57	-108,701,911.57
Add: Non-operating income	37	20,413,851.19	14,972,085.28
Less: Non-operating expenses	38	1,382,473.06	1,127,719.08
Total profit (loss “–”)		25,181,662.70	-94,857,545.37
Less: Income tax expenses	39	4,144,313.44	-903,700.91
Net profit (loss “–”)		21,037,349.26	-93,953,844.46
Net profit attributable to owners of parent company		21,411,537.32	-93,898,654.34
Profit or loss attributable to minority shareholders
(loss “–”)		-374,188.06	-55,190.12
other comprehensive income		110,987.90	698,023.53
Total comprehensive income (loss “–”)		21,148,337.16	-93,255,820.93
Total comprehensive income attributable
to owners of parent company (loss “–”)		21,522,525.22	-93,200,630.81
Total comprehensive income attributable
to minority shareholders (loss “–”)		-374,188.06	-55,190.12
Earnings per share:
Basic earnings per share (loss “–”)		0.0650	-0.3111

Annual Report 2016

51

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Income Statement

2016 (Expressed in Renminbi)

Note XVI Total operating income 4 Less: Operating costs 4 Tax and levies Selling expenses Administrative expenses Finance costs Add: Impairment loss on assets Investment income operating profit (loss “-”) Add: Non-operating income Less: Non-operating expenditure Total profit (loss “-”) Less: Income tax expenses Net profit (loss “-”) Total comprehensive income (loss “-”)	2016 2015 789,810,683.46 643,066,271.81 542,822,272.52 474,474,996.27 6,391,434.71 2,311,037.51 70,959,147.47 122,289,670.09 147,231,039.42 120,513,086.34 5,031,590.17 13,402,030.71 12,690,546.37 17,801,691.65 – 2,592,876.71
	4,684,652.80 -105,133,364.05
	6,295,628.09 1,980,039.85 561,290.11 314,692.74 10,418,990.78 -103,468,016.94 – – 10,418,990.78 -103,468,016.94
	10,418,990.78 -103,468,016.94

The attached notes are an integral part of these financial statements.

52 Launch Tech Company Limited

Consolidated Cash Flow Statement

2016 (Expressed in Renminbi)

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Note VII Cash flows from operating activities: Cash received from sales of goods and rendering of services Refund of taxes and levies Other cash receipts relating to operating activities 40 Sub-total of cash inflows from operating activities Cash paid for goods and services Cash paid to and on behalf of employees Payments of taxes and levies Other cash payments relating to operating activities 40 Sub-total of cash outflows from operating activities Net cash flows from operating activities Cash flows from investing activities: Cash received from return of investments Cash received from disposals of fixed assets, intangible assets and other long-term assets Cash received from other investing activities Sub-total of cash inflows from investing activities Cash paid to acquire and construct fixed assets, intangible assets and other long-term assets Cash paid for investment Sub-total of cash outflows from investing activities Net cash flows from investing activities	2016 2015 876,002,517.01 782,279,295.93 26,610,302.47 33,882,548.84 32,020,880.16 26,198,157.80
	934,633,699.64 842,360,002.57
	480,913,819.49 573,451,267.78 184,758,243.87 169,890,772.50 41,634,650.76 31,677,730.88 120,549,021.25 143,224,315.29
	827,855,735.37 918,244,086.45
	106,777,964.27 -75,884,083.88
	– 2,592,876.71 590,329.87 7,463,014.64 – 50,000,000.00
	590,329.87 60,055,891.35
	49,721,744.35 48,709,118.19 1,146,723.42 –
	50,868,467.77 48,709,118.19
	-50,278,137.90 11,346,773.16

Annual Report 2016 53

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Consolidated Cash Flow Statement

2016 (Expressed in Renminbi)

Note VII Cash flows from financing activities Cash receipts from investors Cash received from borrowings Other cash received relating to financing activities Sub-total of cash inflows from financing activities Cash repayments of borrowings Cash payments for interest expenses, distribution of dividend or profits Other Cash payments for financing activities Sub-total of cash outflows from financing activities Net cash flows from financing activities Impact on cash by changes in foreign exchange rates Net increase in cash and cash equivalents Add: Cash and cash equivalents at beginning of the period Cash and cash equivalents at end of the period	2016 2015 -401,263.10 217,033,161.66 384,374,000.00 731,025,123.87 21,478,990.00 104,219,060.14
	405,451,726.901,052,277,345.67
	560,767,159.96 782,477,688.16 22,925,548.96 35,309,283.97 807,000.00 –
	584,499,708.92 817,786,972.13
	-179,047,982.02 234,490,373.54
	5,920,810.59 5,933,808.30
	-116,627,345.06 175,886,871.12 393,985,682.34 218,098,811.22
	277,358,337.28 393,985,682.34

The attached notes are an integral part of these financial statements.

54 Launch Tech Company Limited

Cash Flow Statement

2016 (Expressed in Renminbi)

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Note XVI Cash flows from operating activities: Cash received from sales of goods and rendering of services Refund of taxes and levies Other cash receipts relating to operating activities Sub-total of cash inflows from operating activities Cash paid for goods and services Cash paid to and on behalf of employees Payments of taxes and levies Other cash payments relating to operating activities Sub-total of cash outflows from operating activities Net cash flows from operating activities Cash flows from investing activities: Cash received from return of investments Cash received from disposals of fixed assets, intangible assets and other long-term asset Cash received from other investing activities Sub-total of cash inflows from investing activities Cash paid to acquire and construct fixed assets, intangible assets and other long-term assets Cash paid for investments Sub-total of cash outflows from investing activities Net cash flows from investing activities	2016 2015 862,035,985.04 748,715,516.68 15,867,492.07 22,351,723.01 11,775,332.60 13,006,778.89
	889,678,809.71 784,074,018.58
	592,020,607.51 624,959,886.40 119,690,633.96 122,695,237.98 18,473,271.71 13,413,756.52 103,952,266.93 115,285,774.38
	834,136,780.11 876,354,655.28
	55,542,029.60 -92,280,636.70
	– 2,592,876.71 63,450.32 7,193,395.08 – 50,000,000.00
	63,450.32 59,786,271.79
	19,720,490.02 23,499,903.59 18,042,014.50 15,100,000.00
	37,762,504.52 38,599,903.59
	-37,699,054.20 21,186,368.20

Annual Report 2016 55

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Cash Flow Statement

2016 (Expressed in Renminbi)

Note XVI Cash flows from financing activities Cash receipts from investors Cash received from borrowings Cash receipts from other financing activities Sub-total of cash inflows from financing activities Cash repayments of borrowings Cash payments for interest expenses, distribution of dividend or profits Other Cash repayments for financing activities Sub-total of cash outflows from financing activities Net cash flows from financing activities Impact or cash by changes in foreign exchange rates Net increase in cash and cash equivalents Add: Cash and cash equivalents at beginning of the period Cash and cash equivalents at end of the period	2016 2015 -401,263.10 217,033,161.66 383,374,000.00 701,025,123.87 21,478,990.00 104,219,060.14
	404,451,726.901,022,277,345.67
	530,767,159.96 752,347,895.03 21,952,644.80 29,631,469.83 807,000.00 –
	553,526,804.76 781,979,364.86 -149,075,077.86 240,297,980.81
	4,761,329.01 4,399,143.50
	-126,470,773.45 169,203,712.31 380,768,846.57 207,165,990.76
	254,298,073.12 376,369,703.07

The attached notes are an integral part of these financial statements.

56 Launch Tech Company Limited

Consolidated Statement of Movement on Equity 2016 (Expressed in Renminbi)

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Ending balance of previous year opening balance of current year Changes for current period (“-” decrease) Comprehensive income Issue of share capital Ending balance for current period

2016 Attributable to shareholders of the parent company Other Total comprehensive Surplus Undistributed Minority shareholders’ Share capital Capital reserve income reserves profits interests equity 329,160,000.00 231,421,588.86 3,221,298.19 18,099,377.81 120,570,279.29 162,322.40 702,634,866.55 329,160,000.00 231,421,588.86 3,221,298.19 18,099,377.81 120,570,279.29 162,322.40 702,634,866.55 – -401,263.10 110,987.90 – 21,411,537.32 -374,188.06 20,747,074.06 – – 110,987.90 – 21,411,537.32 -374,188.06 21,148,337.16 – -401,263.10 – – – – -401,263.10

329,160,000.00 231,020,325.76 3,332,286.09 18,099,377.81 141,981,816.61 -211,865.66 723,381,940.61

The attached notes are an integral part of these financial statements.

Annual Report 2016

57

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Consolidated Statement of Movement on Equity

2016 (Expressed in Renminbi)

Ending balance of previous year opening balance of current year Changes for current period (“-” decrease) Comprehensive income Issue of share capital Ending balance for current period

2015 Attributable to shareholders of the parent company Other Total comprehensive Surplus Undistributed Minority shareholders’ Share capital Capital reserve income reserves profits interests equity 301,800,000.00 41,748,427.20 2,523,274.66 18,099,377.81 214,468,933.63 217,512.52 578,857,525.82 301,800,000.00 41,748,427.20 2,523,274.66 18,099,377.81 214,468,933.63 217,512.52 578,857,525.82 27,360,000.00 189,673,161.66 698,023.53 – -93,898,654.34 -55,190.12 123,777,340.73 – – 698,023.53 – -93,898,654.34 -55,190.12 -93,255,820.93 27,360,000.00 189,673,161.66 – – – – 217,033,161.66

329,160,000.00 231,421,588.86 3,221,298.19 18,099,377.81 120,570,279.29 162,322.40 702,634,866.55

The attached notes are an integral part of these financial statements.

58 Launch Tech Company Limited

Statement of Movement on Equity

2016 (Expressed in Renminbi)

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			2016
					Total
			Surplus	Undistributed	shareholders’
	Share capital	Capital reserve	reserve	profits	equity
Ending balance of previous year	329,160,000.00	231,523,781.80	18,099,377.81	-199,122,872.24	379,660,287.37
opening balance of current year	329,160,000.00	231,523,781.80	18,099,377.81	-199,122,872.24	379,660,287.37
Changes for current
period (“-” decrease)	–	-401,263.10	–	10,418,990.78	10,017,727.68
Total comprehensive income	–	–	–	10,418,990.78	10,418,990.78
Issue of hare capital	–	-401,263.10	–	–	-401,263.10
Ending balance for current period	329,160,000.00	231,122,518.70	18,099,377.81	-188,703,881.46	389,678,015.05

The attached notes are an integral part of these financial statements.

Annual Report 2016

59

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Statement of Movement on Equity

2016 (Expressed in Renminbi)

Ending balance of previous year opening balance of current year Changes for current period (“-” decrease) Total comprehensive income Issue of share capital Ending balance for current period	2015 Total Surplus Undistributed shareholders’ Share capital Capital reserve reserve profits equity 301,800,000.00 41,850,620.14 18,099,377.81 -95,654,855.30 266,095,142.65 301,800,000.00 41,850,620.14 18,099,377.81 -95,654,855.30 266,095,142.65 27,360,000.00 189,673,161.66 – -103,468,016.94 113,565,144.72 – – – -103,468,016.94 -103,468,016.94 27,360,000.00 189,673,161.66 – – 217,033,161.66
	329,160,000.00 231,523,781.80 18,099,377.81 -199,122,872.24 379,660,287.37

The attached notes are an integral part of these financial statements.

Launch Tech Company Limited

60

Notes to the Financial Statements

2016 (Expressed in Renminbi)

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I. GENERAL INFoRMATIoN oF THE CoMPANY

• (i) place of registration, type of organization and address of headquarter

Launch Tech Company Limited (hereinafter referred to as the “Company”) is a joint-stock limited liability company converted from Shenzhen Launch Computer Company Limited in April 2001 pursuant to the “Reply on Consenting to the Establishment of Launch Tech Company Limited by Way of Promotion” (Shen Fu Gu [2001] No.16 issued by the People’s Government of Shenzhen, Guangdong Province, and Shenzhen Dahua Tiancheng Certified Public Accountants verified the capital of the promoters and issued the Capital Verification Report Shen Hua (2001) Yan Zi No. 050 on 13 April 2001. On 1 June 2001, the Company received the Business License for Legal Person Enterprises (registration No.: 4403012020436) issued by the Administration of Shenzhen for Industry and Commerce after turned into a joint stock company, and the name was changed to Launch Tech Company Limited with a registered capital of RMB33 million.

In 2002, pursuant to the “Reply on Consenting to the Issuance of Overseas Listed Foreign Shares of Launch Tech Company Limited” (Zheng Jian Zi (2002) No.13) of China Securities Regulatory Commission (“CSRC”), the Company issued 110 million foreign shares (H shares) of RMB0.10 each listing on the Growth Enterprise Market (“GEM”) of the Stock Exchange of Hong Kong Limited, with registered capital increasing to RMB44 million, which was verified by Huazheng Certified Public Accountants Co., Ltd. with Capital Verification Report (Hua Zheng Yan Zi Bao Zi (2002) No. 328) issued on 23 December 2002.

In 2003, pursuant to the “Reply on Consenting to the Additional Issuance of Overseas Listed Foreign Shares of Launch Tech Company Limited” (Zheng Jian Guo He Zi (2003) No.33 of CSRC), an addition of 80 million foreign shares (H shares) of RMB0.10 each were offered and listed on the GEM of the Stock Exchange of Hong Kong Limited, with registered capital increasing to RMB52 million, which was verified by Shenzhen Dahua Tiancheng Certified Public Accountants with Capital Verification Report (Shen Hua (2003) Yan Zi No. 063).

On 4 November 2004, Shenzhen Deshiyu Investment Co., Ltd. signed the Equity Transfer Agreement with China Special Situations Holdings(1)(BVI)Limited, China Special Situations Holdings(2)(BVI)Limited, Crosby China Chips Holdings(1)(BVI) Limited, respectively, pursuant to which, Shenzhen Deshiyu transferred 277,200.00 shares, 2,000,000.00 shares and 1,646,700.00 shares respectively to the above mentioned companies. On 18 January 2005, the Ministry of Commerce issued the “Reply of the Ministry of Commerce on Approving the Change of Launch Tech Company Limited into A Foreign Invested Joint Stock Company ”(Shang Zi Pi (2005) No. 63) approving the equity transfer and change of the Company into a foreign invested joint stock company, and issued the Certificate for Approval of Establishment of A Foreign Invested Enterprises (Shang Wai Zi Zi Shen Zi (2005) No. 0003). The equity transfer was also approved by Shenzhen Bureau of Trade and Industry with the “Reply on Approving the Change of Launch Tech Company Limited into A Foreign Invested Joint Stock Company” (Shen Zi Gong Zi Fu (2005) No. 0058).

Annual Report 2016 61

Notes to the Financial Statements 2016 (Expressed in Renminbi)

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I. GENERAL INFoRMATIoN oF THE CoMPANY (Continued)

• (i) place of registration, type of organization and address of headquarter (continued)

In 2006, pursuant to the “Reply on Consenting to the Additional Issuance of Overseas Listed Foreign Shares of Launch Tech Company Limited” (Zheng Jian Guo He Zi (2005) No.33 of CSRC), additional 38 million foreign shares (H shares) of RMB0.10 each were issued and issued on the GEM of the Stock Exchange of Hong Kong Limited, with registered capital increasing to RMB55.8 million, which was verified by Zhongtian Huazheng CPA Co., Ltd. with Capital Verification Report (Zhong Tian Hua Zheng (Jing) Yan Zi (2006) No. 3001) issued on 17 January 2006.

On 11 December 2007, pursuant to the “Reply on Consenting to the Additional Issuance of Overseas Listed Foreign Shares of Launch Tech Company Limited” (Zheng Jian Guo He Zi (2007) No.24 of CSRC), additional 45.6 million foreign shares (H shares) of RMB0.10 each were issued and listed on the GEM of the Stock Exchange of Hong Kong Limited with registered capital increasing to RMB60.36 million, which was verified by Zhonglian CPA Co., Ltd Shenzhen Branch with Capital Verification Report (Zhong Lian Shen Suo Yan Zi (2008) No. 029).

Pursuant to the “Reply on Consenting to the Transfer of Listing of Launch Tech Company Limited to the Main Board of the HKEX” dated 6 January 2011 (CSRC Approval (2011) No. 15 of CSRC) and the approval of the Hong Kong Stock Exchange, share consolidation of the Company was completed on 21 March 2011 and the nominal value per share was consolidated from RMB0.10 to RMB1.00, with total number of shares of the Company changing from 603.6 million shares to 60.36 million shares. The Company was listed on the Main Board of the Hong Kong Stock Exchange on 28 March 2011 with stock code HK2488.

Pursuant to the resolution for shares conversion from capital reserve approved in the Annual General meeting held on 16 June 2014(H shareholders annual general meeting and domestic shareholders annual general meeting), converted 40 additional shares for each 10 existing shares, the Company’s total number of shares changed from 60.36 million to 301.8 million.

Pursuant to the “Reply on Consenting to the Additional Issuance of Overseas Listed Foreign Shares of Launch Tech Company Limited” dated 6 January 2015 (CSRC Approval (2015) No. 1863 of CSRC) and the approval of the Hong Kong Stock Exchange, additional 27.36 million foreign shares (H shares) were issued and listed on the main board of Stock Exchange of Hong Kong Limited with total number of the Company’s shares increasing from 301.8 million to 329.16 million, which was verified by Shenzhen Yongming CPA Co., Ltd with Capital Verification Report (Shen Yong Yan Zi (2016) No. 003).

62 Launch Tech Company Limited

Notes to the Financial Statements

2016 (Expressed in Renminbi)

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I. GENERAL INFoRMATIoN oF THE CoMPANY (Continued)

(i) place of registration, type of organization and address of headquarter (continued) Uniform Social Credit Code: 914403002794827320.

Registered address of the Company: 2-8 Floors, Xin Yan Building, Bagua Number Four Road, Futian District, Shenzhen.

Principal place of business of the Company: Launch Industrial Park, North of Wuhe Road, Banxuegang, Longgang District, Shenzhen.

Legal representative: Liu Xin.

(ii) scope of operation

General operations: research, development, production and sale of automotive diagnostic, testing, repair and maintenance equipment and relevant software; research, development, production and sale of automotive electronic products; provision of network information service (excluding commodities subject to exclusive operation, control, and franchising, and restricted items); operation of import and export business as specified in Grading Certificate for Self-operated Import and Export Business (Shen Mao Deng Ji Zheng Zi No. 17).

(iii) Business nature and major activities of the company

The Company belongs to the industry of automotive maintenance and repair equipment for automotive aftermarket, and its major operating activities are production and sales of automotive diagnostic and testing equipment.

(iV) approval of the financial statements

These financial statements were approved by the Board of Directors on 17 March 2017.

Annual Report 2016 63

Notes to the Financial Statements

2016 (Expressed in Renminbi)

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II. SCoPE oF CoNSoLIDATED FINANCIAL STATEMENTS

During the period, 7 entities were consolidated in the consolidated financial statements, which were:

				Percentage
			Shareholding	of Voting
Name of Subsidiary	Type of Subsidiary	Grade	Percentage	Rights
			(%)	(%)
Shanghai Launch Mechanical	Wholly-owned subsidiary	One	100.00	100.00
Equipment Co., Ltd.
(“Shanghai Launch”)
Launch Software Development	Wholly-owned subsidiary	One	100.00	100.00
Co., Ltd. (“Launch Software”)
Xi’an Launch Software	Wholly-owned subsidiary	One	100.00	100.00
Technology Co., Ltd.
(“Xi’an Launch”)
Launch Europe GmbH	Wholly-owned subsidiary	One	100.00	100.00
Shenzhen Peng Ao Da	Controlling subsidiary	One	88.00	88.00
Technology Co. Ltd.
(Peng Ao Da)
Shenzhen Haishiwei Heath	Wholly-owned subsidiary	One	100.00	100.00
Technology Co., Ltd.
(“Shenzhen Haishiwei”)
Shenzhen Golo Software	Wholly-owned subsidiary	One	100.00	100.00
Co., Ltd. (“Golo Internet”)
Shenzhen PengJuShu
Information Technology Co., Ltd.	Controlling subsidiary	One	97.00	97.00
(”PJS“)
Launch Tech International Co., Ltd.	Wholly-owned subsidiary	One	100.00	100.00
(“Launch International ”)

There were 2 additional entities included in the consolidated financial statements during the period as follows:

Inclusion of new subsidiaries, special subject, control through entrusted or leased operation, in to the scope of consolidation in this period

Name	Reasons
PJS	Investment establishment
Launch International	Investment establishment

The details of changes in the entities that were included in the consolidated financial statements during the period were set out in “Note VIII, CHANGE IN THE SCOPE OF CONSOLIDATION”.

Launch Tech Company Limited

64

Notes to the Financial Statements

2016 (Expressed in Renminbi)

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III. BASIS oF PREPARATIoN oF THE FINANCIAL STATEMENTS

(i) Basis of preparation of the financial statements

The financial statements of the Company were prepared on the going concern basis according to the transactions and matters actually occurred, and recognitions and measurements were made in accordance with the Accounting Standards for Enterprises – Basic Standards published by the Ministry of Finance and specific accounting standards, guidance on application of accounting standards for enterprises, interpretations to accounting standards for enterprises and other relevant requirements (hereinafter collectively referred to as the “Accounting Standards for Enterprises”), in combination with the provisions of the Rules for the Information Disclosure and Compilation of Companies Publicly Issuing Securities No.15: General Provisions for Financial Statements (Revised in 2014) of CSRC.

In addition, these financial statements are also in compliance with the disclosure requirements of the Companies Ordinance in Hong Kong and the applicable disclosure rules of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited.

(ii) going concern

Pursuant to the Company’s assessment on the continuing operation viability of the Company within 12 months since the end of the reporting period, and there are no matters or events that may raise any material doubts on the continuing operation viability of the Company was discovered, and thus this financial statements were prepared under going concern basis.

IV. SIGNIFICANT ACCouNTING PoLICIES AND ACCouNTING ESTIMATES

(i) statement of compliance

The financial statements prepared by the Company meet the requirements of the enterprise accounting standards; exactly and completely reflect the financial status, operation result, and cash flow, etc. of the Company.

(ii) accounting period

The accounting year of the Company is from January 1 each year to December 31 of the same year in western calendar.

Annual Report 2016 65

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Notes to the Financial Statements

2016 (Expressed in Renminbi)

IV. SIGNIFICANT ACCouNTING PoLICIES AND ACCouNTING ESTIMATES (Continued)

(iii) functional currency

Renminbi is the functional currency.

The functional currency of the overseas subsidiaries shall be the currencies of the economic environment where its operations are located, which is converted to Renminbi for the purpose of preparing the financial statements.

• (iV) accounting treatments of business combinations involving entities under common control and entities not under common control

1. If the terms, conditions and economic effects of transactions for the purpose of realizing business combination in phases, fall in the following one or more situations, regard multiple transactions as a package transaction for accounting treatment:

  - 1) these transactions were entered into at the same time or after considering the effects of each other;

  - 2) only when regarding these transactions as a whole, can it achieve a complete business result;

  - 3) the occurrence of one transaction depends on the occurrence of at least one other transaction;

  - 4) a transaction is not economical when treated alone, but is economical when considered with other transactions.

2. Business combinations involving entities under common control

For assets and liabilities acquired under business combinations, the assets, liabilities (including the value of goodwill on acquisition) on the date of combination is included in the consolidated financial statements using the book values. If there is any difference between the book values of net assets acquired and the consideration(or the total amount of face value of issued shares), share premium in capital reserve is adjusted If the share premium in capital reserve is insufficient, the retained earnings are adjusted.

If there is any contingent consideration required to be recognized as estimated obligations or assets, capital reserve (capital or share premium) is adjusted by the difference between the amount of such estimated obligations or assets and the amount of settlement of subsequent contingent consideration; where the capital reserve is insufficient, the retained earnings are adjusted.

Launch Tech Company Limited

66

Notes to the Financial Statements

2016 (Expressed in Renminbi)

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IV. SIGNIFICANT ACCouNTING PoLICIES AND ACCouNTING ESTIMATES (Continued)

• (iV) accounting treatments of business combinations involving entities under common control and entities not under common control (continued)

2. Business combinations involving entities under common control (Continued) For business combination finally realized through several transactions, in case of a package transaction, those transactions are accounted as one transaction to acquire the control; in case of no package transaction, on the date of acquisition of the control, the capital reserve is adjusted by the difference between the initial investment cost of long-term equity investment and the sum of the book value before the combination and the book value of the new payment consideration for further acquisition of shares on the date of combination; where the capital reserve is insufficient, the retained earnings are adjusted. For the equity investment held before the date of combination, the other comprehensive income measured and recognized under the equity method or financial instrument recognition and measurement standards are not accounted until the accounting treatment for the disposal of relevant assets or liabilities of the investee is adopted the same for the disposal of such equity investment; changes in the owners’ equity other than the net losses and profits, other comprehensive income and profit distribution in the net assets of the investee that is recognized under the equity method, is not accounted, until disposal of such investment is transferred to current profit and losses.

Annual Report 2016 67

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Notes to the Financial Statements

2016 (Expressed in Renminbi)

IV. SIGNIFICANT ACCouNTING PoLICIES AND ACCouNTING ESTIMATES (Continued)

• (iV) accounting treatments of business combinations involving entities under common control and entities not under common control (continued)

3. Business combinations involving entities not under common control

On the date of acquisition, when there is any difference between the fair values and book values of the assets provided and liabilities incurred or borne by the Company as combination considerations, such differences shall be charged to profit and loss for the period.

Goodwill is recognized when the combination cost paid by the Company is higher than the share of the fair value of the net tangible assets in the acquiree obtained through the combination. When the combination cost paid is lower than the fair value of the share of the fair value of the net tangible assets in the acquiree obtained through the combination, such difference shall be recognized in profit or loss for the period.

In a business combination involving entities not under common control that is realized in phases through multiple exchange transactions, in case of a package transaction, should be accounted with all transactions as the one to acquire the control; in case of non-package transaction, should be accounted under equity method: the equity investment held before the date of combination, the sum of the book value of the equity investment held by the acquiree before the date of acquisition and the cost of new investment on the date of acquisition are recognized as the initial investment cost of such investment; due to the other comprehensive income accounted and recognized under equity method, the equity investment held before the date of acquisition is accounted on the same basis as used for disposal of relevant assets or liabilities of the investee when disposal of such investment. Where the equity investment held before the date of combination is accounted according to the recognition and measurement criteria for financial instruments, the sum of the fair value of such equity investment on the date of combination and the new investment cost are accounted as the initial investment cost on the date of combination. The difference between the fair value of the original equity and its book value and the accumulative changes originally included in the other comprehensive income are transferred to current investment income on the date of combination.

68 Launch Tech Company Limited

Notes to the Financial Statements

2016 (Expressed in Renminbi)

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IV. SIGNIFICANT ACCouNTING PoLICIES AND ACCouNTING ESTIMATES (Continued)

(iV) accounting treatments of business combinations involving entities under common control and entities not under common control (continued)

4. Relevant expenses in relation to combination

All direct fees for audit, legal and assessment occurred for the purpose of business combination are credited in profit or loss in the period when they incurred; trading fees for issue of equity, shall be directly charged to equity.

(V) preparation of consolidated financial statements

1. Scope of Consolidation

The scope of consolidation of the consolidated financial statements of the Company is determined on the basis of control. All subsidiaries (including individual entities controlled by the parent company) are included in the consolidated financial statements.

2. Procedures

The consolidated financial statements shall be prepared by the Company based on the financial statements of the Company and its subsidiaries and other relevant information. When the Company prepared consolidated financial statements, considered the whole business group as a single accounting entity. Pursuant to recognition, measurements and requirement of relevant accounting standards, basing on the consistent accounting policies, reflected the business group’s financial positions, business results and cashflows.

All subsidiaries within the scope of consolidation of the consolidated financial statements shall adopt accounting policies and financial period consistent with the Company. When there is any inconsistency on the accounting policies or financial period adopted by the subsidiaries and the Company, the financial statements of subsidiaries are adjusted according to the accounting policies or financial period adopted by the Company as necessary.

When consolidating the financial statements, the effects on the consolidated balance sheets, consolidated incomes statements, consolidated cash flow statements and consolidated statements of changes in shareholders’ equity due to internal transactions between the Company and its subsidiaries and among the subsidiaries shall be offset. For the consolidated financial statements, when there is divergence in the recognition of a single transaction by the Company and its subsidiaries, the Company’s position shall be taken up for adjustment on such transaction.

The owners’ equity, the minority interest on net profit or loss for the period and comprehensive income should be separately disclosed under owners’ equity in the consolidated balance sheet, and net profit and comprehensive income in the consolidated income statement.

Annual Report 2016 69

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Notes to the Financial Statements

2016 (Expressed in Renminbi)

IV. SIGNIFICANT ACCouNTING PoLICIES AND ACCouNTING ESTIMATES (Continued)

(V) preparation of consolidated financial statements (continued)

2. Procedures (Continued)

When loss for the period attributable to minority shareholders of a subsidiary exceeds the initial share of owners’ equity in the subsidiary owned by such minority shareholders, the excess amount shall still be deducted against shareholders’ equity.

For subsidiaries due to business combination involving entities under common control, their assets, liabilities (includes goodwill acquired), using on the book value of the ultimate controller’s financial statement as basis to adjust their own financial statements.

Where as for For subsidiaries due to business combination involving entities not under common control, using the fair value on the acquisition as basis to adjust their own financial statements.

(1) addition of subsidiary or business

During the reporting period, initial amount in the consolidated balance sheets are adjusted for the addition of new subsidiaries and businesses due to business combinations involving entities under common control. The income, expenses and profits of the subsidiaries from the beginning of the consolidation to the end of the reporting period are included in the consolidated income statements, and the cash flows of the subsidiaries and the businesses from the beginning of the consolidation to the end of the reporting period are included in the consolidated cash flow statements. At the same time adjust those relevant items of comparison of financial statements, considering the reporting entity exists since the date of establishment of control.

For exercising control over investee under common control due to the addition of investment, shall consider those entities consolidated since the date of control began and adjust the existing conditions. Between the later of the date of those equity held originally or the date of both parties under common control to combination date, those identifiable profit or loss, other comprehensive income and other change in net assets, shall be separately charged to initial amount of the comparative statements or the profit and loss of the period.

Launch Tech Company Limited

70

Notes to the Financial Statements 2016 (Expressed in Renminbi)

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IV. SIGNIFICANT ACCouNTING PoLICIES AND ACCouNTING ESTIMATES (Continued)

(V) preparation of consolidated financial statements (continued)

2. Procedures (Continued)

(1) addition of subsidiary or business (continued)

During the reporting period, initial amount in the consolidated balance sheets are not adjusted for the addition of new subsidiaries and businesses due to business combinations involving entities not under common control. The income, expenses and profits of the subsidiaries from the date of acquisition to the end of the reporting period are included in the consolidated income statements, and the cash flows of the subsidiaries and businesses from the date of acquisition to the end of the reporting period are included in the consolidated cash flow statements.

For exercising control over investee not under common control due to addition of investment, those equity held before acquisition date is subject to re-measurement using fair value. Differences between fair value and book value is charged to investment income for the period. For movement in owners’ equity other than other comprehensive income and ex-dividend profit or loss, other comprehensive income and distributable profits, equity held before acquisition date which was measured under equity method; and relevant other comprehensive income and movement in other owners’ equity were changed to the profit or loss of the financial period of the acquisition date, but except other comprehensive income occurred due to movement of net assets and liabilities under the remeasurement of defined benefit plan by the investor.

(2) Disposal of subsidiary or business

• 1) General treatments

During the reporting period, for disposal of subsidiaries and businesses by the Company, the income, expenses and profits of the subsidiaries from the beginning of the period to the date of disposal are included in the consolidated income statements, and the cash flows of the subsidiaries and businesses from the beginning of the period to the date of disposal are included in the consolidated cash flow statements.

When the Company loses control on its former subsidiary due to partial disposal of equity investment or otherwise, the remaining invested equity after disposal is re-measured based on the fair value at the date when control was lost. The difference between the sum of consideration received from disposal of equity and the fair value of the remaining equity, and the share of net assets calculated on an continual basis starting from the date of acquisition based on the former holding ratio, shall be recognized as the investment gain for the period when control was lost. Other comprehensive income and ex-dividend proift or loss, other comprehensive income and distributable profits associated with equity investment in the former subsidiary shall be transferred to investment gain upon the loss of control, but except other comprehensive income occurred due to movement of net assets and liabilities under the remeasurment of defined benefit plan by the investor.

Annual Report 2016 71

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Notes to the Financial Statements

2016 (Expressed in Renminbi)

IV. SIGNIFICANT ACCouNTING PoLICIES AND ACCouNTING ESTIMATES (Continued)

(V) preparation of consolidated financial statements (continued)

2. Procedures (Continued)

• (2) Disposal of subsidiary or business (continued)

  • 2) Piecemeal disposal of subsidiary

Through piecemeal disposals of equity of subsidiary until loss of control, normally those transactions would be accounted as a package of transactions if those arrangements and conditions and economic impacts of disposal transactions fullfiled one or more of the following situations:

• A. Such transactions are occurred together or made under considerations of mutual impacts;

• B. A complete business consequence could only be made under such series of transactions;

• C. The occurance of a transaction is dependent on occurance of at least one transaction;

• D. One transaction itself is not economical itself, but when considered together with other transactions would become economical.

Transactions for partly disposal of subsidiary until losing control which is considered as a package of transactions, the Company treats this as one transaction under accounting treatment; however the difference between each transaction proceeds and the net asset value of that disposal, is firstly treated as other comprehensive and then charged together to profit or loss for the period until the control of subsidiary lost.

Transactions for partly disposal of subsidiary until losing control which is not considered as a package of transactions, before lossing control, treat it as the same as transactions for not lossing control and treat as general disposal under accounting treatment when the control of subsidiary lost.

Launch Tech Company Limited

72

Notes to the Financial Statements

2016 (Expressed in Renminbi)

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IV. SIGNIFICANT ACCouNTING PoLICIES AND ACCouNTING ESTIMATES (Continued)

• (V) preparation of consolidated financial statements (continued)

2. Procedures (Continued)

  - (3) acquisition of minority interest of subsidiary

When there is a difference between Company acquired minority interests as long term equity investment and basing on the new shareholding ratio owned the subsidiary under continuing calculation from the acquisition date(or combination date), the difference would be adjusted to the share premium of capital reserve in the consolidated balance sheet. If the share premium is insufficient, charge to the retained profits.

• (4) partly disposal of subsidiary without losing control

Under the situation the difference between the proceeds from disposal of subsidiary without lossing control and the attributable net assets value of the subsidiary continuously calculated from the acquisition date or combination date, the difference would be adjusted to the share premium of capital reserve in the consolidated balance sheet. If the share premium is insufficient, charge to the retained profits.

• (Vi) accounting treatment of joint venture arrangement and joint operations

1. Classification of joint venture arrangements

The Company classifies the joint venture arrangements into joint venture and joint operation according to the structure, legal form of joint venture arrangement, the terms agreed in the arrangement, other relevant matters and situations.

Any joint venture arrangement that is not achieved by a separate entity shall be classified as a joint operation. Any joint venture arrangement that is achieved by a separate entity shall be generally classified as a joint venture. But if a joint venture arrangement is conclusively proved to meet any of the following conditions and meets the provisions of relevant laws and regulations, it shall be classified as joint operation:

• (1) its legal form shows the joint ventures enjoy rights to and assume obligations for relevant assets and liabilities respectively in the arrangement.

• (2) contract terms of the joint venture arrangement stipulate that the joint ventures enjoy rights to and assume obligations for relevant assets and liabilities respectively in the arrangement.

• (3) other relevant facts and situations show that the joint ventures enjoy rights to and assume obligations for relevant assets and liabilities respectively in the arrangement. For example, the joint ventures enjoy almost all output related to the arrangement and repayment of liabilities in the arrangement consecutively relies on the joint ventures’ supports.

Annual Report 2016

73

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Notes to the Financial Statements

2016 (Expressed in Renminbi)

IV. SIGNIFICANT ACCouNTING PoLICIES AND ACCouNTING ESTIMATES (Continued)

(Vi) accounting treatment of joint venture arrangement and joint operations (continued) 2. Accounting method for joint operation

• The Company recognizes the following items related to its share of benefits in the joint operation and conducts accounting treatment in accordance with relevant accounting standards for business enterprises:

• (1) assets it solely holds and its share of jointly-held assets based on its percentage;

• (2) liabilities it solely assumes and its share of jointly-assumed liabilities based on its percentage;

• (3) incomes from sale of output enjoyed by it from the joint operation;

• (4) incomes from sale of output from the joint operation based on its percentage; and

• (5) separate costs and costs for the joint operation based on its percentage.

When the Company invests or sells assets and others in or to the joint operation (except for assets that constitute business), only that part of profits or losses from the transaction attributable to other participants to the joint operation shall be recognized before such assets and others are sold by the joint operation to a third party. If the invested or sold assets are of impairment loss subject to the Accounting Standards for Business Enterprises No.8--Assets Impairment and other provisions, the Company shall recognize such loss in full.

When the Company purchases assets and others from the joint operation (except for assets that constitute business), only that part of profits or losses from the transaction attributable to other participants to the joint operation shall be recognized before such assets and others are sold to a third party. If the purchased assets are of impairment loss subject to the Accounting Standards for Business Enterprises No.8 – Assets Impairment and other provisions, the Company shall recognize its part of such loss based on its percentage.

If the Company has no joint control over a joint operation enjoys and assumes relevant assets and liabilities of the joint operation, it shall conduct accounting treatment in accordance with aforesaid principle; or it shall do the same in accordance with relevant accounting standards for business enterprises.

Launch Tech Company Limited

74

Notes to the Financial Statements

2016 (Expressed in Renminbi)

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IV. SIGNIFICANT ACCouNTING PoLICIES AND ACCouNTING ESTIMATES (Continued)

(Vii) Determination criteria for cash and cash equivalents

In preparing cash flow statements, the Company’s cash on hand and deposits that can be readily utilized for payment are recognized as cash. Investments that satisfy four conditions, namely short duration (normally means maturity within three months from the purchase date), high liquidity, readily convertible into known amount of cash and minimal risk of value change, are recognized as cash equivalents.

(Viii) foreign currency businesses and translation of foreign currency statements

1. Foreign currency businesses

Foreign currency business transaction are recognized at the beginning and translated into Renminbi using the spot exchange rate prevailing on the date when transaction occurred.

Balance of monetary items in foreign currency are translated using the spot exchange rate prevailing on the balance sheet date, and the exchange differences arising therefrom are recognized in profit or loss for the period, except for special foreign currency loans related to acquisition and construction of assets that satisfy capitalization requirements, whose exchange differences are accounted for using principles on capitalization of loan expenses. Non-monetary items in foreign currency measured at historical cost are translated using the spot exchange rate prevailing on the date when transaction occurred and its functional currency shall remain unchanged.

Non-monetary items in foreign currency carried at fair value are translated using the spot exchange rate prevailing on the date when such fair value was determined, and any exchange difference arising therefrom is recognized in profit or loss for the period. In case of non-monetary items in foreign currency available for sales, the exchange difference arising therefrom is included in the other comprehensive income.

2. Translation of foreign currency statements

Items of assets and liabilities in the balance sheet are translated using the spot exchange rate prevailing at the balance sheet date. Items in the owners’ equity, except for “undistributed profits”, are translated using the spot exchange rate prevailing at the time of occurrence. Items of income and expenses in the income statement are translated using the spot exchange rate prevailing at the date of transaction. The foreign currency translation difference arisen as a result of the above currency translation is included in the other comprehensive income.

Annual Report 2016 75

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Notes to the Financial Statements

2016 (Expressed in Renminbi)

IV. SIGNIFICANT ACCouNTING PoLICIES AND ACCouNTING ESTIMATES (Continued)

• (Viii) foreign currency businesses and translation of foreign currency statements (continued) 2. Translation of foreign currency statements (Continued) When disposing of an overseas operation, the foreign currency translation difference for items under the other comprehensive income in the balance sheet that are related to such overseas operation are transferred from the other comprehensive income to profit or loss for the period; when disposing of partial overseas equity investment or due to other reasons causing decrease in holding ratio of overseas operation but not losing control, the foreign currency translation difference attributable for disposed is transferred to minority interests but not profit or loss for the period. In occasion disposal of equity interest in foreign associate or joint operation, the foreign currency translation difference attributable to the portion disposed of is transferred to profit or loss for the period.

• (iX) financial instruments

Financial instruments include financial assets, financial liabilities and equity instruments.

1. Classification of financial instruments

The Company classifies the financial assets and financial liabilities into different categories according to the contractual terms of the financial instruments and the economic substance reflected rather than the legal form and in combination with the purposes for holding such financial assets and undertaking of financial liabilities: financial assets (or financial liabilities) measured at fair value and changes of which are included in current profit and loss; held-to-maturity investment; accounts receivable; financial assets available for sale and other financial liabilities, etc.

2. Recognition and measurement of financial instruments

• (1) financial assets (financial liabilities) measured at fair value through profit or loss for the period

Financial assets or financial liabilities measured at fair value through profit or loss for the period, including financial assets or financial liabilities held for trading and financial assets or financial liabilities designated at fair value through profit or loss for the period.

The financial assets or liabilities meeting any of the following requirements shall be classified as trading financial assets or financial liabilities:

• (1) The purpose to acquire the said financial assets or undertake the financial liabilities is mainly for selling or repurchase of them in the near future;

Launch Tech Company Limited

76

Notes to the Financial Statements

2016 (Expressed in Renminbi)

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IV. SIGNIFICANT ACCouNTING PoLICIES AND ACCouNTING ESTIMATES (Continued)

• (iX) financial instruments (continued)

2. Recognition and measurement of financial instruments (Continued)

• (1) financial assets (financial liabilities) measured at fair value through profit or loss for the period (continued)

• (2) Forming a part of the identifiable combination of financial instruments which are managed in a centralized way and for which there are objective evidences proving that the enterprise may manage the combination by way of short-term profit making in the near future;

• (3) Being a derivative instrument, excluding the designated derivative instruments which are effective hedging instruments, or derivative instruments to financial guarantee contracts, and the derivative instruments which are connected with the equity instrument investments for which there is no quoted price in the active market, whose fair value cannot be reliably measured, and which shall be settled by delivering the said equity instruments.

Only when any of the following requirements is met, they can be initially recognized, as financial assets or financial liabilities as measured at its fair value and of which the variation is included in the current profits and losses:

• (1) The designation is able to eliminate or obviously reduce the discrepancies in the recognition or measurement of relevant gains or losses arisen from the different basis of measurement of the financial assets or financial liabilities;

• (2) The official written documents on risk management or investment strategies of the enterprise concerned have recorded that the combination of said financial assets, the combination of said financial liabilities, or the combination of said financial assets and financial liabilities will be managed and evaluated on the basis of their fair values and be reported to the key management personnel;

• (3) Mixed instrument containing one or more embedded derivative instruments, unless the embedded derivative instruments do not materially change the cash flows of the mixed instruments, or the embedded instruments obviously should not be separated from relevant mixed instruments;

Annual Report 2016 77

Notes to the Financial Statements 2016 (Expressed in Renminbi)

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IV. SIGNIFICANT ACCouNTING PoLICIES AND ACCouNTING ESTIMATES (Continued)

(iX) financial instruments (continued)

2. Recognition and measurement of financial instruments (Continued)

• (1) financial assets (financial liabilities) measured at fair value through profit or loss for the period (continued)

• (4) Mixed instrument containing embedded derivative instrument that is required to be separated but cannot be individually measured on acquisition or subsequent balance sheet date.

For financial assets or financial liabilities that are measured at fair value and the change of which are included in current profit and loss, the fair value on acquisition (deducting declared but not distributed cash dividend or due but not claimed debt interests) is determined as the initial recognition value and relevant trading expenses are included in current profit and loss. Interests or cash acquired during the holding period are recognized as investment income, the fair value changes in which are included in current profit and loss. At the time of disposal, the difference between fair value and initial recognition amount is recognized as investment income and gains or losses on changes in fair value are adjusted at the same time.

(2) accounts receivable

Accounts receivable refers to non-derivative assets which are without quotation, with fixed or confirmed collectible amounts.

The debt receivable due to the sale of goods or provision of services by the Company and the debt instruments of other enterprises held by the Company (except for those quoted on an active market), including accounts receivable and other receivables, are recognized using the contractual amount receivable from the buyer or the agreed fees as initial recognition amount; those of a financing nature are recognized using its current value as initial recognition amount.

Upon receipt or disposal, the difference between the consideration received and the carrying amount of the receivable is recognized in profit or loss for the period.

(3) Held-to-maturity investments

Held-to-maturity investment refers to a non-derivative financial asset with a fixed date of maturity, a fixed or determinable amount of repo price and which the Company holds for a definite purpose or the enterprise is able to hold until its maturity.

78 Launch Tech Company Limited

Notes to the Financial Statements 2016 (Expressed in Renminbi)

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IV. SIGNIFICANT ACCouNTING PoLICIES AND ACCouNTING ESTIMATES (Continued)

(iX) financial instruments (continued)

2. Recognition and measurement of financial instruments (Continued)

(3) Held-to-maturity investments (continued)

For the held-to-maturity investment, the sum of the fair value on acquisition (deducting the debt interests with due invest payment period but not yet claimed) and relevant trading expenses are the initial recognition amount. During the holding period, the interest income is calculated based on amortized costs and effective interest rate and included in the investment income. Effective interests rate is determined on acquisition, and remains unchanged in the expected existing or applicable shorter period. During disposal, the difference between the price and the book value of the investment is included in the investment income.

Where the Company sells its outstanding held-to-maturity investment within the current accounting year or re-classifies it as the amount of available-for-sale financial asset, and the such amount is considerably large as compared with the amount before such investment is sold or re-classified, the surplus of such investment shall be re-classified as an available-forsales financial asset; on the date of reclassification, the difference between the book value of the investment and its fair value is included in the other comprehensive income; and transferred out when the available-for-sales financial asset is impaired or de-recognized and included in current profit and loss. However, the following circumstances shall be excluded:

• 1) The date of sale or re-classification is quite near to the maturity date or the repo date of the said investment (e.g., within 3 months prior to maturity) that any change of the market interest rate will produce little impact upon the fair value of the said investment.

• 2) Enterprise has received almost all the initial principal of the investment according to the provisions on repayment of the contract.

• 3) The sale or re-classification is caused by any independent event that the enterprise cannot control, is predicted not to occur again and is hard to be reasonably predicted.

Annual Report 2016 79

Notes to the Financial Statements

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2016 (Expressed in Renminbi)

IV. SIGNIFICANT ACCouNTING PoLICIES AND ACCouNTING ESTIMATES (Continued)

(iX) financial instruments (continued)

2. Recognition and measurement of financial instruments (Continued)

(4) available-for-sale financial assets

Available-for-sale financial asset refers to the non-derivative financial assets which are designated as available for sales when they are initially recognized as well as the financial assets other than other financial assets.

For financial assets available for sales, the fair value on acquisition (deducting declared but not distributed cash dividend or due but not claimed debt interests) is determined as the initial recognition value and relevant trading expenses are included in current profit and loss. Interests or cash dividends acquired during the holding period are recognized as investment income. Gains or losses on changes in the fair value of available-for-sales financial assets, other than impairment loss and the exchange difference from the financial assets in foreign currency, are directly included in the other comprehensive income. During the disposal, the difference between the price acquired and the book value of the financial assets; and meanwhile, the accumulative changes in fair value of the original value included in the comprehensive income corresponding to the disposal is transferred out and include in gains or losses on investment.

The equity instrument investments for which there is no quotation in the active market and whose fair value cannot be measured reliably, and the derivative financial assets which are connected with the said equity instrument and must be settled by delivering the said equity instrument shall be measured at their costs.

(5) other financial liabilities

The sum of fair value and relevant transaction fees is used as the initial recognition amount. Amortization cost is used for subsequent measurements.

3. Recognition and measurement of transfer of financial assets

For transfer of financial assets of the Company, a financial asset i s derecognized when substantially all of the risks and return on the ownership of the financial asset have been transferred to the transferee; no derecognition is made if substantially all of the risks and return on the financial asset are retained.

Launch Tech Company Limited

80

Notes to the Financial Statements

2016 (Expressed in Renminbi)

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IV. SIGNIFICANT ACCouNTING PoLICIES AND ACCouNTING ESTIMATES (Continued)

(iX) financial instruments (continued)

3. Recognition and measurement of transfer of financial assets (Continued)

When determining whether the above derecognition conditions for the transfer of financial asset have been met, the material aspect overrides the formal aspect. Transfer of financial assets of the Company is classified into entire transfer and partial transfer of financial assets. When the transfer of a financial asset satisfies the derecognition conditions, the difference between the two amounts below are recognized in profit or loss for the period:

• (1) carrying amount of the financial asset transferred;

• (2) the sum of the consideration received from the transfer and the accumulated change in fair value originally recognized directly in owners’ equity (when the transfer involves available-forsale financial assets).

When the partial transfer of a financial asset satisfies the derecognition conditions, the carrying amount of the entire financial asset transferred is amortized according to the respective fair value between the derecognized portion and the not derecognized portion, and the difference between the two amounts below is recognized in profit or loss for the period:

• (1) carrying amount of the derecognized portion;

• (2) the sum of the consideration received from transfer of the derecognized portion and the accumulated change in fair value of the corresponding derecognized portion originally recognized directly in owners’ equity (when the transfer involves available-for-sale financial assets).

When the transfer of a financial asset does not satisfy the derecognition conditions, the financial asset continues to be recognized and the consideration received is recognized as a financial liability.

Annual Report 2016 81

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Notes to the Financial Statements

2016 (Expressed in Renminbi)

IV. SIGNIFICANT ACCouNTING PoLICIES AND ACCouNTING ESTIMATES (Continued)

• (iX) financial instruments (continued)

4. Derecognition of financial liabilities

A financial liability or its portion is derecognized when all or a portion of the current obligations of the financial liability is released. Existing financial liability is derecognized when the Company enters into an agreement with the creditor to replace the existing financial liability with newly committed financial liability under materially different contractual conditions, and at the same time the new financial liability is recognized.

When material amendments are made to all a portion of the contractual conditions of an existing financial liability, the existing financial liability or its portion is derecognized and the financial liability with amended conditions is recognized as a new financial liability.

When the all or a portion of a financial liability is derecognized, the difference between the carrying amount of the financial liability derecognized and the consideration paid (including the non-cash assets transferred out or newly committed financial liability) is recognized in profit or loss for the period.

When the Company repurchases a portion of a financial liability, on the repurchase date the overall carrying amount of the financial liability is allocated based on the relative fair value of the portion continued to be recognized and the derecognized portion. The difference between the carrying amount allocated to the derecognized portion and the consideration paid (including the non-cash assets transferred out or newly committed financial liability) is recognized in profit or loss for the period.

5. Determination of the fair value of financial assets and financial liabilities

For financial assets and financial liabilities of the Company measured at fair value which an actively traded market exists, their fair values are determined based on the prices quoted on the actively traded market; Quotations in active markets include quotes for related assets or liabilities, which can be easily and regularly obtained from exchanges, traders, brokers, industry groups, pricing institutions or regulators, and which represent the actual and frequently fair trade transaction are occurring in the market. for financial assets initially obtained or derived or financial liabilities assumed, fair value is determined based on market transaction prices. for financial assets and financial liabilities which no actively traded market exists, their fair values are determined using valuation techniques; For valuation, the Company adopts those adequate data available and suitable for current situation and valuation techniques supported by other information, and choose input value with same features used by market players for transactions of relevant assets or liabilities, and managed to preferentially use relevant observable input value. Under the circumstance that is unable to obtain observable input value or infeasible, use unobservable input value.

82 Launch Tech Company Limited

Notes to the Financial Statements

2016 (Expressed in Renminbi)

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IV. SIGNIFICANT ACCouNTING PoLICIES AND ACCouNTING ESTIMATES (Continued)

• (iX) financial instruments (continued)

6. Provision for impairment of financial assets (excluding receivables)

On balance sheet date, the carrying amounts of financial assets (except for those measured at fair value through profit or loss of the period) are assessed for impairment. Provision for impairment is made when there exists objective evidence that impairment of a financial asset has occurred.

For financial assets, objective evidence of impairment includes, but not limited to:

• (1) significant financial difficulty of the issuer or debtor;

• (2) breach of contract, such as delinquency or default in interest and principal payments made by the debtor;

• (3) the creditor, for economic or legal reasons, granting concession to the debtor in financial difficulty;

• (4) it becoming probable that the debtor will enter bankruptcy or financial reorganization;

• (5) the disappearance of an active market for that financial asset because of financial difficulties of the issuer;

• (6) upon an overall assessment of a group of financial assets, observable data indicates that there is a measurable decrease in the estimated future cash flows from the group of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the group. Such observable data includes adverse change in the payment status of debtor of the group of assets, or increased unemployment rate in the country or region where the debtor is located, decreased price of collateral in the region where it belongs, recession in the industry, etc.;

• (7) significant adverse changes in the technological, market, economic or legal environment in which the issuer of equity instrument operates, indicating that the cost of the equity instrument investment may not be recovered by the investor;

• (8) a significant or prolonged decline in the fair value of the investment in equity instrument;

Annual Report 2016 83

Notes to the Financial Statements

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2016 (Expressed in Renminbi)

IV. SIGNIFICANT ACCouNTING PoLICIES AND ACCouNTING ESTIMATES (Continued)

(iX) financial instruments (continued)

6. Provision for impairment of financial assets (excluding receivables) (Continued) Specific method for impairment of financial assets:

(1) Impairment of available-for-sale financial asset

The Company adopts specific identification to evaluate the equity instrument investment if the fair value of the equity instrument investment on the balance sheet date is less than 50%(inclusive) of the cost or is lower than the cost for more than one year (inclusive), impairment is indicated. If the fair value is less than 20% (inclusive) but not reached 50%, the Company will consider other relevant elements such as price fluctuations to determine whether impairment existed.

The costs stated in the preceding paragraph are based on the initial acquisition cost of the available-for-sale equity instrument less any recoverable amount and impaired amount. For equity investment without active resale market, current market return rate is applied in the discounted cashflow method to calculate the current value. The available-for-sale equity instrument in the active market is determined at the closing price of the stock exchange at the end of the period, unless there is a limited saleable period for that value of the availablefor-sale equity. For the sale of the available-for-sale equity instrument for with limited period of sale, the market participant shall be determined at the closing price of the stock exchange after deducting the amount of compensation required by the market participant for the risk of not being able to sell the equity instrument in the open market for a specified period.

Where an available-for-sale financial asset is impaired, even if the recognition of the financial asset has not been terminated, the accumulative losses arising from the decrease of the fair value of the owner’s equity which was directly included shall be transferred out and recorded into the profits and losses of the current period. The accumulative losses that are transferred out shall be the balance obtained from the initially obtained costs of the sold financial asset after deducting the principals as taken back, the current fair value and the impairment-related losses as was recorded into the profits and losses of the current period.

As for the available-for-sale debt instruments whose impairment-related losses have been recognized, if, within the accounting period thereafter, the fair value has risen and are objectively related to the subsequent events that occur after the originally impairment-related losses were recognized, the originally recognized impairment-related losses shall be reversed and be recorded into the profits and losses of the current period. For impairment losses on availablefor-sale equity instruments, the loss shall be reversed when its price has risen subsequently; for those which open market quotation is absent or the fair value could not be reliably measured or its settlement is there is linked to the settlement of its derivative instruments, the related losses shall not be reversed.

Launch Tech Company Limited

84

Notes to the Financial Statements

2016 (Expressed in Renminbi)

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IV. SIGNIFICANT ACCouNTING PoLICIES AND ACCouNTING ESTIMATES (Continued)

(iX) financial instruments (continued)

6. Provision for impairment of financial assets (excluding receivables) (Continued)

• (2) Provision for impairment of held-to-maturity financial assets:

If there is objective evidence that indicates impairment has occurred on a held-to-maturity investment, the difference between its carrying amount and the present value of its estimated future cash flow is recognized as impairment loss. If there is subsequent evidence to prove that its value has recovered, the originally recognized impairment loss may be reversed and recognized in profit or loss for the period, however the carrying amount so reversed may not exceed the amortization cost of the financial asset at the date of reversal had there been no provision for impairment.

7. offset of financial assets and financial liabilities

Financial assets and financial liabilities are presented in the balance sheet respectively and are not offset with each other. However, the net value after offset is presented in the balance sheet when the following conditions are satisfied:

• (1) The Company has the legal right to offset the recognized amount and such right is exercisable;

• (2) The Company plans to settle by net amount or realize the financial assets and repay the financial liabilities at the same time.

(X) receivables

1. Individually significant receivables subjected to provision for bad debts on individual basis

Recognition criteria for provision for bad debts on individually significant receivables on individual basis: a receivable accounting for over 5% of the portion or exceeding RMB10 million are determined as an individually significant receivable.

Provision for bad debts of individually significant receivables: Individually tested for impairment. The difference between the present value of the estimated future cash flow and its higher carrying amount is provided for impairment and recognized in profit or loss for the period. For a receivable which impairment has not occurred after being tested individually, it is classified into a corresponding portfolio for provision for bad debts.

2. Receivables subjected to provision for bad debts on portfolio basis

(1) Determination criterion for credit risks characteristics of a portfolio of receivables:

Receivables that are individually insignificant, is classified by credit risks into several portfolio with those that are individually significant without impairment after separate tests. Based on the actual loss rate of the portfolio of receivables with similar credit characteristics in previous years in combination with the current situation, the provision for bade debts is determined.

Annual Report 2016 85

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Notes to the Financial Statements

2016 (Expressed in Renminbi)

• IV. SIGNIFICANT ACCouNTING PoLICIES AND ACCouNTING ESTIMATES (Continued)

• (X) receivables (continued)

  2. Receivables subjected to provision for bad debts on portfolio basis (Continued)

   - **(1) Determination criterion for credit risks characteristics of a portfolio of receivables: (Continued)**
  

Basis for determination of portfolio:

Name of portfolio	Method of provision	Basis for determination of portfolio
Risk free portfolio	No provision to be made	Referring to operation nature, and ascertain it
		as risk-free item, mainly include VAT
		refund receivables.
Aged portfolio	Aged group analysis	Including all receivables not belongs to the
		portfolio above, the Company refers to
		experience on historical provision ratio
		used to make the best estimation, and
		refers to aged analysis to catergorize
		credit risk portfolio.

(2) Provision for portfolio based on credit risk characteristics:

① Provision for bad debts based on aged group analysis:

	Provision	Provision
	proportion	proportion
	for accounts	for other
Ageing	receivable (%)	receivables (%)
Under 1 year	5.00	5.00
1-2 years	10.00	10.00
2-3 years	30.00	30.00
3-4 years	50.00	50.00
4-5 years	80.00	80.00
Over 5 years	100.00	100.00

Launch Tech Company Limited

86

Notes to the Financial Statements

2016 (Expressed in Renminbi)

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IV. SIGNIFICANT ACCouNTING PoLICIES AND ACCouNTING ESTIMATES (Continued)

(X) receivables (continued)

2. Receivables subjected to provision for bad debts on portfolio basis (Continued)

(2) Provision for portfolio based on credit risk characteristics: (Continued)

② Provision for bad debts based on other methods:

	Provision	Provision
	proportion	proportion
	for accounts	for other
Name of Portfolio	receivables (%)	receivables (%)
Value Added Tax refund receivables	N/A	0.00

3. Individually insignificant receivables subjected to provision for bad debts on individual basis

Reason for provision bad debts for individual receivable: objective evidence shows that the Company cannot collect payment according to the original terms of the receivables.

Method of provision for bad debts: provision is made according to the difference between the book value and the present value of the estimated future cash flows of the receivables.

(Xi) inventories

1. Classification of inventories

Inventories refer to the completed products or merchandize, semi-finished products under production process, and materials and items consumed during production or provision of labor services which are held for sale by the Company over the course of ordinary activities. These mainly include raw materials, semi-finished products and merchandizes in inventory.

2. Valuation of inventories

Inventories are initially measured at cost upon acquisition, which includes procurement costs, processing costs and other costs. The prices of inventories are calculated using weighted average method when they are delivered.

Annual Report 2016 87

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Notes to the Financial Statements

2016 (Expressed in Renminbi)

IV. SIGNIFICANT ACCouNTING PoLICIES AND ACCouNTING ESTIMATES (Continued)

(Xi) inventories (continued)

3. Determination criteria for the net realizable value of inventories and provision for inventory impairment

When a comprehensive count of inventories is done at the end of the period, provision for inventory impairment is allocated or adjusted using the lower of the cost of inventory and the net realizable value. The net realizable value of stock in inventory (including finished products, inventory merchandize and materials for sale) that can be sold directly is determined using the estimated saleable price of such inventory deducted by the cost of sales and relevant taxation over the course of ordinary production and operation. The net realizable value of material in inventory that requires processing is determined using the estimated saleable price of the finished product deducted by the cost to completion, estimated cost of sales and relevant taxation over the course of ordinary production and operation. The net realizable value of inventory held for performance of sales contract or labor service contract is determined based on the contractual price; in case the amount of inventory held exceeds the contractual amount, the net realizable value of the excess portion of inventory is calculated using the normal saleable price.

Provision for impairment is made according to individual items of inventories at the end of the period; however, for inventories with large quantity and low unit price, the provision is made by categories; inventories of products that are produced and sold in the same region or with the same or similar purpose or usage and are difficult to be measured separately are combined for provision for impairment.

If the factors causing a previous write-off of inventory value has disappeared, the amount written-off is reversed and the amount provided for inventory impairment is reversed and recognized in profit or loss for the period.

4. Inventory system

Perpetual inventory system is adopted.

5. Amortization of low-value consumables and packaging

• (1) Low-value consumables are amortized by one-time write-off;

• (2) Packaging materials are amortized by one-time write-off;

• (3) Other supplementary materials are amortized by one-time write-off.

Launch Tech Company Limited

88

Notes to the Financial Statements 2016 (Expressed in Renminbi)

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IV. SIGNIFICANT ACCouNTING PoLICIES AND ACCouNTING ESTIMATES (Continued)

(Xii) long-term equity investments

1. Initial determination of investment costs

• (1) For long-term equity investment formed by business combination, details of accounting policies are set out in “Accounting treatments of business combinations involving entities under common control and entities not under common control” of notes IV/(IV).

• (2) Long-term equity investments obtained through other means Initial investment costs of long-term equity investment obtained through cash payment is determined by the actual consideration paid. The initial investment cost consists of the expenses directly relevant to the obtainment of the long-term equity investment, taxes and other necessary expenses.

Initial investment costs of long-term equity investment obtained through issuance of equity securities is determined by the fair value of the equity securities issued; trading expenses incurred during insurance or acquisition of equity instrument that may be directly attributable to equity trade can be deducted from the equity.

The initial investment costs of long-term equity investment obtained in an exchange of nonmonetary assets is determined using the fair value of the asset surrendered, provided that the asset received in exchange for non-monetary asset has a commercial substance and the fair value of both the asset received and the asset surrendered can be reliably measured, except there is definite evidence that the fair value of the asset received is more reliable; the initial investment costs of a long-term equity investment in a nonmonetary asset exchange that cannot satisfy the above conditions is determined by the carrying amount of the asset surrendered and the amount of relevant taxation payable.

The initial investment costs of a long-term equity investment obtained through debt restructuring is determined based on the fair value.

2. Subsequent measurement and profit or loss recognition

(1) Cost method

The Company may adopt the cost method for accounting of the long-term equity investment controlled by the investee, and measure the investment at the initial investment cost, which can be adjusted by addition or recovery of investment.

Except for the price actually paid for obtaining the investment or the cash dividends or profits declared but not yet distributed which is included in the consideration, the Company recognizes cash dividends or profits declared by the investee as current investment gains.

Annual Report 2016 89

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Notes to the Financial Statements

2016 (Expressed in Renminbi)

IV. SIGNIFICANT ACCouNTING PoLICIES AND ACCouNTING ESTIMATES (Continued)

• (Xii) long-term equity investments (continued)

2. Subsequent measurement and profit or loss recognition (Continued)

(2) Equity method

The Company adopts the equity method for accounting of long-term equity investment in joint ventures and associates; where part of the equity investment of the investing party is indirectly held by venture capital institutions, mutual funds, trust companies or similar subjects including unit-linked insurance fund, the investment is measured at fair value, the changes in which are included in the profit and loss.

When the initial investment cost of the long-term equity investment exceeds the share of fair value in the net tangible assets in the investee, the initial investment cost of a long-term equity investment is not adjusted based on such difference. When the initial investment cost is lower than the share of fair value in the net tangible asset in the investee, such difference is recognized in profit or loss for the period.

After the Company acquires a long-term equity investment, it shall, in accordance with its attributable share of the net profit or loss and other comprehensive income realized by the investee, recognize the investment income and other comprehensive income respectively and simultaneously adjust the book value of the long-term equity investment. The Company shall, in the light of the profits or cash dividends that the invested entity declares to distribute, reduce the book value of the long-term equity investment correspondingly. As to any change in owners’ equity of the investee other than net profit or loss, other comprehensive income and profit distribution, the Company shall adjust the book value of the long-term equity investment and include such change into the owners’ equity.

The Company shall, based on the fair value of identifiable net assets of the invested entity when it obtains the investment, recognize its attributable share of the net profit or loss of the invested entity after it adjusts the net profit of the invested entity. The profit or loss of the unrealized internal transaction between the Company and the associates, joint ventures be deducted with the part attributable to the Company according to the proportion the Company is entitled to, and the gains or losses on investment shall be recognized on such basis.

90 Launch Tech Company Limited

Notes to the Financial Statements 2016 (Expressed in Renminbi)

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IV. SIGNIFICANT ACCouNTING PoLICIES AND ACCouNTING ESTIMATES (Continued)

(Xii) long-term equity investments (continued)

2. Subsequent measurement and profit or loss recognition (Continued)

(2) Equity method (Continued)

Recognition of loss in the investee by the Company shall follow this order: firstly, reduce the carrying amount of the long-term equity investments; secondly, if the carrying amount of longterm equity investments is insufficient for such reduction, continue to recognize such investment loss to the extent of the carrying amount of the long-term equity net investment in the investee and reduce the carrying amount of long-term receivables. Finally, after the above treatment, if the Company still bears additional obligations stipulated under the investment contract or agreement, the estimated obligations assumed are recognized as estimated obligations and recognized in profit or loss for the period.

If the investee records a profit subsequently, after reducing the attributable loss that is not yet recognized, the treatment by the Company shall be the reverse of the above order: reverse the carrying balance of estimated obligations already recognized, restore the carrying amount that physically constitute the long-term interests and long-term equity investment in the investee, and recognize investment gain.

3. Change of the accounting methods for long-term equity investments.

(1) Change of measurement at fair value to accounting under equity method

• Where the equity investment held by the Company have no control, joint control or significant impact on the investee and that are accounted according to the financial instrument recognition and measurement criteria can place significant impact or carry out common control but cannot control the investee due to addition of investment, the sum of the fair value of the equity investment originally held determined subject to the Accounting Standards for Enterprises No.22-Recognition and Measurement of Financial Instruments and the new investment cost are determined to be the initial investment cost accounted under equity method.

Annual Report 2016 91

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Notes to the Financial Statements

2016 (Expressed in Renminbi)

IV. SIGNIFICANT ACCouNTING PoLICIES AND ACCouNTING ESTIMATES (Continued)

(Xii) long-term equity investments (continued)

3. Change of the accounting methods for long-term equity investments. (Continued)

(1) Change of measurement at fair value to accounting under equity method (Continued)

Where the equity investment originally held is classified into available-for-sale financial assets, the difference between the fair value and the book value and the accumulative changes in fair value that are originally included in other comprehensive income are included in current profit and losses under equity method.

The book value of the long-term equity investment is adjusted by the difference between the fair value shares of the identifiable net assets of the investee on the date of additional investment determined by calculation of the new shareholding proportion after such additional investment and the initial investment cost under equity cost and is included in current non-operating income.

(2) Change of measurement at fair value or accounting under equity method to cost method

The equity investment of the investee held by the Company with no control, joint control or significant impact and accounted according to the financial instrument recognition and measurement criteria, or the long-term equity investment in associates or joint venture originally held that can be controlled due to addition of investment, the sum of the book value of the original equity investment and the cost of new investment is changed to be accounted under cost method and recognized as the initial investment cost when preparing individual financial statements.

The other comprehensive income recognized due to the adoption of cost method for the equity investment held before the date of acquisition shall be accounted on the same basis for the disposal of relevant assets or liabilities of the investee during the disposal of such investment.

Equity investment held before the date of acquisition shall be subject to Accounting Standards for Enterprises No.22-Recognition and Measurement of Financial Instruments and the accumulated fair value changes that were originally included in other comprehensive income shall be included in current profit or loss under cost method.

Launch Tech Company Limited

92

Notes to the Financial Statements

2016 (Expressed in Renminbi)

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IV. SIGNIFICANT ACCouNTING PoLICIES AND ACCouNTING ESTIMATES (Continued)

(Xii) long-term equity investments (continued)

3. Change of the accounting methods for long-term equity investments. (Continued)

(3) Change of accounting under equity method to measurement at fair value

Where the Company losses common control or significant impact over the investee due to disposal of some of the equity investment, the remaining equity after disposal shall be subject to accounting under Accounting Standards for Enterprises No.22-Recognition and Measurement of Financial Instruments, and the difference between the fair value on the date when the common control or significant impact is lost and the book value is included in current profit or loss.

Other comprehensive income that is recognized due to adoption of the equity method shall be subject to accounting on the same basis for disposal of relevant assets or liabilities of the investee at the time when the equity method is ceased.

(4) Change of cost method to equity method

Where the Company losses the control over the investee due to disposal of some of the equity investment, and the remaining equity after disposal can place common control or significant impact over investee, it should be changed to equity method in preparing individual financial statements and the remaining equity shall be adjusted as if the equity method is adopted at the acquisition.

(5) Change of cost method into measurement at fair value

Where the Company losses the control over the investee due to disposal of some of the equity investment, and the remaining equity after disposal cannot place common control or significant impact over investee, the accounting should be changed and become subject to Accounting Standards for Enterprises No.22-Recognition and Measurement of Financial Instruments, and the difference between the fair value on the date when the control is lost and the book value is included in current profit and loss.

4. Disposal of long-term equity investment

When an investing party disposes of long-term equity investment, the difference between its book value and the payment actually acquired shall be included in the current profit or loss. When an investing party disposes of long-term equity investment measured by employing the equity method, accounting treatment of the portion previously included in other comprehensive income shall be made on the same basis as would be required if the invested entity had directly disposed of the assets or liabilities related thereto according to the corresponding proportion.

Annual Report 2016 93

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Notes to the Financial Statements

2016 (Expressed in Renminbi)

IV. SIGNIFICANT ACCouNTING PoLICIES AND ACCouNTING ESTIMATES (Continued)

(Xii) long-term equity investments (continued)

4. Disposal of long-term equity investment. (Continued)

If the terms, conditions and economic effects of transactions in relation to the disposal of equity investments in subsidiaries, fall in the following one or more situations, regard multiple transactions as a package transaction for accounting treatment:

• (1) these transactions were entered into at the same time or after considering the effects of each other;

• (2) only when regarding these transactions as a whole, can it achieve a complete business result;

• (3) the occurrence of one transaction depends on the occurrence of at least one other transaction;

• (4) a transaction is not economical when treated alone, but is economical when considered with other transactions.

When an entity loses control on its original subsidiary due to partial disposal of equity investment or otherwise, it does not belongs to a package transaction, and the accounting treatment shall be differentiated by separate financial statements and consolidated financial statements:

• (1) in separate financial statements, for equity disposed, the accounting treatment for disposal of equity, the difference between the book value and the actual payment is included in current profit or loss. Where the remaining equity after disposal can implement common control or place significant impact over the investee, the equity method is adopted for accounting treatment, and the remaining equity is adjusted as if the equity is adopted at the time of acquisition; where the remaining equity after disposal cannot implement common control or place significant impact over the investee, relevant provisions of Accounting Standards for Enterprises No.22Recognition and Measurement of Financial Instruments shall be adopted for accounting, and the difference between the fair value on the date when the control is lost and the book value is included in current profit or loss.

Launch Tech Company Limited

94

Notes to the Financial Statements

2016 (Expressed in Renminbi)

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IV. SIGNIFICANT ACCouNTING PoLICIES AND ACCouNTING ESTIMATES (Continued)

(Xii) long-term equity investments (continued)

4. Disposal of long-term equity investment. (Continued)

• (2) In consolidated financial statements, for the transactions before the loss of control over subsidiaries, the capital reserve (share premium) is adjusted by the difference between the price of disposal and the net asset shares of subsidiaries continuously calculated since the date of acquisition or combination corresponding to the long-term equity investment; where the capital reserve is insufficient, retained earnings are adjusted; at the time of loss of control over subsidiaries, the remaining equity are re-measured according to the fair value at the date of loss of control. The difference between the sum of the price acquired for disposal of equity and the fair value of the remaining equity less shares of net assets constantly calculated since the date of acquisition based on the original shareholding proportion is included in the investment income in the period when the control is lost and is written down to good will. Relevant other comprehensive income related to original equity investment in the subsidiaries is transferred to current investment income at the time of loss of control.

Transactions in relation to the disposal of equity investments in subsidiaries until control is lost belong to a package transaction, and the accounting treatment shall be differentiated by separate financial statements and consolidated financial statements:

• (1) in separate financial statements, the difference between the book value of the long-term equity investment corresponding to disposal price and equity disposed before the loss of control is recognized as investment is recognized other comprehensive income; and transferred to current profit or loss at the time of loss of control.

• (2) in consolidated financial statements, the difference between the accumulated disposal considerations before control is lost and the share of net assets in the subsidiary is recognized as other comprehensive income, and shall be transferred to profit or loss for the period when control was lost.

Annual Report 2016 95

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Notes to the Financial Statements

2016 (Expressed in Renminbi)

IV. SIGNIFICANT ACCouNTING PoLICIES AND ACCouNTING ESTIMATES (Continued)

(Xii) long-term equity investments (continued)

5. Criteria for determination of common control and significant impact

If the Company collectively control certain arrangement with the other participants as agreed, and the decisions on the activities that may have significant impact on the return of arrangement exit with consistent agreement from participants sharing the control power, then the Company and the other participants are deemed to have common control over certain arrangement, which is joint venture arrangement.

Where the joint venture arrangement is realized through individual entity, it is judged according to relevant agreement that, when the Company is entitled to rights over the net assets of such entity, the entity is a joint venture and adopts equity method for accounting treatment. If judged according to relevant agreement that, the Company has no rights over the net assets of such entity, such entity is joint operation, and the Company recognize the items in relation to the shares in the joint operation and adopts provisions of relevant accounting standards for accounting treatment.

Significant impact refers to the power of an investing party to participate in making decisions on the financial and operating policies of an invested entity, but not to control or jointly control together with other parties over the formulation of these policies. The Company determines, the significant impact is placed on investee in one or more situations as follows after a comprehensive consideration of all facts and situations: (1) dispatching representatives in the board of directors or similar power organ of the investee; (2) participating in the formulation of the financial and operation policies of the investee; (3) having significant deals with the investee; (4) dispatching management personnel to the investee; and (5) providing key technical data to investee.

(Xiii) fixed assets

1. Recognition of fixed assets

Fixed assets refer to tangible assets held for the production of merchandize, provision of labor services, renting or operational management with useful life over one accounting year. Fixed assets are recognized when all of the following conditions are met:

• (1) economic benefits related to such fixed assets are likely to flow into the enterprise;

• (2) costs of such fixed assets can be reliably measured.

Launch Tech Company Limited

96

Notes to the Financial Statements

2016 (Expressed in Renminbi)

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IV. SIGNIFICANT ACCouNTING PoLICIES AND ACCouNTING ESTIMATES (Continued)

(Xiii) fixed assets (continued)

2. Initial measurement of fixed assets

The fixed assets of the Company are initially measured at cost. The cost of the externally purchased fixed assets include the purchase price, the import duties, and the other expenditure direct attributable to such assets for such assets to be available for its intended use. The cost of a selfconstructed fixed asset consists of all necessary expenses incurred for enabling the asset to be available for its intended use. The cost invested to a fixed asset by the investor is determined according to the value agreed upon in the investment contract or agreement. Where the valued agreed upon in the said investment contract or agreement is unfair, the said cost will be determined according to the fair value of the asset. Where the price for purchase of the fixed assets exceeds the deferred payment on normal credit terms with substantial financing nature, the cost is determined on the basis of the present value of the purchase price. The difference between the actual payment and the purchase price, besides being capitalized, shall be included in current profit or loss during the credit period.

3. Subsequent measurement and disposal of fixed assets

• (1) Depreciation of fixed assets

The depreciation of fixed assets is provided within the estimated useful life based on the value carried less the expected net residue. For fixed assets with impairment provided, the depreciation can be determined based on the book value less the provision for impairment in future period and the remaining useful life.

The Company determines the useful life and estimated residual value of fixed assets based on their nature and use condition. The useful life, estimated residual value and method of depreciation of fixed assets are re-assessed at the end of the period, corresponding adjustment is made when any difference from the originally estimated amount is found.

Annual Report 2016 97

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Notes to the Financial Statements

2016 (Expressed in Renminbi)

IV. SIGNIFICANT ACCouNTING PoLICIES AND ACCouNTING ESTIMATES (Continued)

(Xiii) fixed assets (continued)

3. Subsequent measurement and disposal of fixed assets (Continued)

• (1) Depreciation of fixed assets (Continued)

The period of depreciation and depreciation ratio of different categories of assets are as follows:

		Period of		Annual
	Method of	depreciation	Residual	depreciation
Category	depreciation	(year)	ratio (%)	ratio (%)
Buildings	Average year method	20-25	5	4.75-3.8
Machinery	Average year method	5-10	5	19-9.5
Electronic equipment	Average year method	5	5	19
Transportation vehicle	Average year method	4-5	5	23.75-19
Other equipment	Average year method	5	5	19

(2) Subsequent expenses of fixed assets

For subsequent expenses in relation to fixed assets, those that comply with the recognition criteria for fixed assets are included in the costs of fixed assets; those that do not are included in current profit or loss at the time of incurrence.

(3) Disposal of fixed assets

A fixed asset is derecognized when the disposal or expected use or disposal of such fixed asset cannot create any economic benefits. The disposal income from sale, transfer, retirement or damage of fixed assets is recognized in profit or loss for the period after deducting its carrying amount and relevant taxation.

4. Determination basis, measurement and depreciation method of fixed assets acquired under financial lease

The fixed asset leased by the Company will be recognized as fixed asset acquired under finance leases when it complies with one or more of the following standards:

• (1) The ownership of the leased asset will be transferred to the Company upon expiry of the lease term.

Launch Tech Company Limited

98

Notes to the Financial Statements

2016 (Expressed in Renminbi)

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IV. SIGNIFICANT ACCouNTING PoLICIES AND ACCouNTING ESTIMATES (Continued)

(Xiii) fixed assets (continued)

4. Determination basis, measurement and depreciation method of fixed assets acquired under financial lease (Continued)

• (2) The Company has the option to acquire the leased asset, and the acquisition consideration is expected to be much lower than the fair value of the leased asset at the time when the right of option is exercised. Therefore, it can be reasonably confirmed from the commencement date of the lease term that Company will exercise the right of option.

• (3) Even if the ownership of the leased asset will not be transferred, the lease term accounts for the most of useful life of the leased asset.

• (4) The present value of the minimum lease payment made by the Company at the commencement date of the lease almost equals to the fair value of the leased asset at the commencement date of the lease.

• (5) The leased asset is of a specialized nature that only the Company can use it without making major modifications.

The value of the leased asset acquired under finance leases is recorded as the lower of the fair value of the leased asset and the present value of the minimum lease payment at the commencement date of the lease. The minimum lease payment is recognized as long-term payable, and the difference between them is recognized as unrecognized finance charge. Initial direct costs that are attributable to the leased item incurred during the process of negotiating and securing the lease agreement, such as handling fees, attorney fees, traveling expenses and stamp duty, are also credited to the value of the leased asset. Unrecognized finance charge is amortized using effective interest method over the lease term.

In calculating the depreciation of the fixed asset acquired under finance leases, the Company adopted a depreciation policy consistent with that for fixed assets owned by the Company. If there is reasonable certainty that the Company will obtain ownership of the leased asset upon expiry of the lease term, the leased asset is depreciated over its useful life. If there is no reasonable certainty that the Company will obtain ownership of the leased asset upon expiry of the lease term, the leased asset is depreciated over the shorter of the lease term and its useful life.

Annual Report 2016 99

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Notes to the Financial Statements

2016 (Expressed in Renminbi)

IV. SIGNIFICANT ACCouNTING PoLICIES AND ACCouNTING ESTIMATES (Continued)

(XiV) constructions in progress

1. Initial determination of construction in progress

The self-constructed constructions in progress of the Company are measured at actual cost, which consist of the necessary expenses required for bringing such constructions to the expected useable conditions including the cost of construction materials, labor costs, relevant taxes, borrowings capitalized.

2. Criteria and timing for conversion of construction in progress into fixed assets

The initial book values of the fixed assets are stated at total expenditures incurred before construction in progress reaching the working condition for their intended use. For construction in progress that has reached working conditions for its intended use but for which the completion of settlement has not been handled, it shall be transferred into fixed assets at the estimated value according to the project budget, construction price or actual cost, etc. from the date when it reaches the working conditions for its intended use. And the fixed assets shall be depreciated in accordance with the Company’s policy on fixed asset depreciation. Adjustment shall be made to the originally and provisionally estimated value based on the actual cost after the completion of settlement is handled, but depreciation already provided will not be adjusted.

(XV) Borrowing expenses

1. Principles of recognizing capitalization of borrowing expenses

The loan expenses of the Company directly attributable to the construction or production of an asset meeting capitalization conditions are capitalized and recognized in relevant asset costs; other loan expenses are recognized as expenses based on the amount incurred and recognized in profit or loss for the period.

An asset that meets the capitalization conditions refers to fixed assets, real estate investments and inventories that require a considerable amount of time for construction or production to reach the expected usable or saleable condition.

Loan expenses are capitalized when all of the following conditions are met:

• (1) the asset expense has occurred, which includes expenses in the form of cash paid, nonmonetary asset transferred or interest-bearing obligations assumed for the construction or product of an asset that meets capitalization conditions;

• (2) the loan expenses have occurred;

• (3) the necessary construction or production activities for bringing the asset to the expected usable or saleable conditions have started.

100 Launch Tech Company Limited

Notes to the Financial Statements

2016 (Expressed in Renminbi)

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IV. SIGNIFICANT ACCouNTING PoLICIES AND ACCouNTING ESTIMATES (Continued)

(XV) Borrowing expenses

2. Capitalization period of borrowing expenses

Capitalization period refers to the time starting from the loan expenses are capitalized to the time capitalization is stopped, except for the period which capitalization of loan expenses is suspended.

When the construction or production of an asset meeting capitalization conditions has reached expected useful or saleable conditions, the capitalization of loan expenses is stopped.

When the a portion of the construction or production of an asset meeting capitalization conditions has completed and can be used individually, the capitalization of loan expenses of such portion of asset is stopped.

When portions of the construction or production of an asset have been completed but will only become useful or saleable after the entire asset is completed, the capitalization of loan expenses is stopped when the entire asset is completed.

3. Suspension of capitalization period

Capitalization of loan expenses is suspended when any abnormal interruption continues for over three months during the construction or production of an asset that meets capitalization conditions. If such interruption is a necessary procedure for the construction or production of the asset that meets capitalization conditions, the loan expenses are continued to be capitalized. The loan expenses incurred during the interruption are recognized as profit or loss for the period, and capitalization of loan expenses continues when the construction or production activities of the asset resumes.

4. Calculation of capitalized amount of borrowing expenses

Interest expenses of special loans (net of interest income from unutilized loans deposited in bank or investment gain earned from temporary investment) and supplementary expenses incurred for the construction or production of asset that meets capitalization conditions before the asset reaches expected useable or saleable condition are capitalized.

The interest amount that should be capitalized on normal borrowings is calculated based on the weighted average of expenses of the aggregate asset exceeding the expenses of the portion of special loan multiplied by the capitalization ratio of the normal borrowings utilized. Capitalization ratio is calculated based on normal weighted average interest rate.

When there is discount or premium in the loan, the discount or premium to be amortized in each accounting period is determined using effective interest method and the interest amount for each period is adjusted.

Annual Report 2016 101

Notes to the Financial Statements

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2016 (Expressed in Renminbi)

IV. SIGNIFICANT ACCouNTING PoLICIES AND ACCouNTING ESTIMATES (Continued)

(XVi) intangible assets and development expenses

Intangible assets refer to the identifiable non-monetary assets owned or controlled by the Company which have no physical form, including land use rights, proprietary technology, and others.

1. Initial measurement of intangible assets

The cost of externally purchased intangible assets includes the purchase price, relevant taxation and other expenses directly attributable to bringing the asset to expected usage. If payment for the price of intangible assets purchased is delayed beyond normal credit conditions and is in fact financing in nature, the cost of the intangible asset is determined based on the present value of the purchase price.

For intangible asset obtained through debt restructuring for offsetting the debt of the debtor, the entry value of the intangible asset is determined based on its fair value, and the difference between the carrying amount of the restructured debt and the fair value of the intangible asset used for offsetting the debt is recognized in profit or loss for the period.

The entry value of intangible asset received in an exchange for non-monetary asset is based on the fair value of the asset surrendered, provided that the asset received in exchange for non-monetary asset has a commercial substance and the fair value of both the asset received and the asset surrendered can be reliably measured, except there is definite evidence that the fair value of the asset received is more reliable; for exchange of nonmonetary asset that cannot satisfy the above conditions, the cost of the intangible asset received is based on the carrying amount of the asset surrendered and the amount of relevant taxation payable, and no profit or loss is recognized.

For intangible asset obtained through business absorption or combination of entities under common control, the entry value is determined by the carrying amount of the combined party; for intangible asset obtained through business absorption or merger of entities not under common control, the entry value is determined by the fair value of the intangible asset.

The cost of an internally developed intangible asset include: the materials consumed in developing the intangible asset, labor costs, registration fees, amortization of other patented rights and licensed rights used during the development process, interest expenses meeting capitalization conditions, and other direct costs for bringing the intangible asset to expected usage.

Launch Tech Company Limited

102

Notes to the Financial Statements

2016 (Expressed in Renminbi)

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IV. SIGNIFICANT ACCouNTING PoLICIES AND ACCouNTING ESTIMATES (Continued)

(XVi) intangible assets and development expenses (continued)

2. Subsequent measurement

The Company determines the useful life of intangible assets on acquisition, which are classified as intangible life with limited life and indefinite life.

(1) Intangible asset with a limited life

Intangible asset with a limited life is depreciated using straight line method over the term which it brings economic benefit to the Company. The estimated useful life and basis for the intangible assets with a limited life are as follows:

Item	Estimated useful life	Basis
Land use right	50 years	Title certificate
Proprietary technology	5-8 years	Expected period of benefit

The useful life and depreciation method of intangible assets with limited life are re-assessed at the end of each period. If the original estimate varies, corresponding adjustments are made.

Upon re-assessment, at the end of the period there was no difference in the useful life and depreciation method of intangible assets from the previous estimates.

(2) Intangible assets with indefinite useful life

If the term of economic benefit the intangible asset can bring to the Company cannot be estimated, it is deemed to be an intangible asset with indefinite life. Intangible assets with indefinite useful life are as follows:

Item

Basis

Membership of Mission Hills Golf Club China It is determined as an intangible asset with indefinite life since it is a life membership

Intangible assets with indefinite useful life are not amortized during the holding period. The useful life of intangible assets with indefinite life is re-assessed at the end of each period. If it is re-assessed to remain indefinite at the end of the period, impairment tests shall be conducted during reach accounting period.

Upon re-assessment, the useful life of this type of intangible assets was still indefinite.

Annual Report 2016 103

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Notes to the Financial Statements

2016 (Expressed in Renminbi)

IV. SIGNIFICANT ACCouNTING PoLICIES AND ACCouNTING ESTIMATES (Continued)

• (XVi) intangible assets and development expenses (continued)

3. Specific criteria in dividing the research stage and development stage of internal research and development projects of the Company

Research stage:

Prior to the set up of the R & D project, analysis will be made in respect of market demand, product concept design, product technology, intellectual property and internal demand and other content, and then product development financial evaluation will be made. According to the reviewed “overall design plan “ Specific plans such as plans of testing, processing, software, hardware and structural packaging outline etc will be made and sales forecast and financial evaluation report will be prepared and so the “product business plan” will be developed. After the final decisional review done by integrated product management team, product development project team will be formed. And finally the issuer will set up a product development project group before the period and identify it as the research stage.

Development stage:

After the formation of the product development project team, the project team will start to carry out the development of the products, verify the research and development results, and then produce new or substantially improved products. the decision review team will assess and confirm the level of satisfaction of the quality and then the development project team issued a product summary report into the product release stage. The above period is identified as the development stage.

The expenditure of internal research and development project incurred during the development stage are recognised as an intangible asset in the case where it is confirmed that the asset is technically feasible for its use and that the product generated by the asset could be proved to be accepted by the market customers. Otherwise, at the time of incurrence the expenditure is charged to profit and loss for such period. The expenses in the development stage of internal research and development projects are recognized as expense in profit or loss for the period.

104 Launch Tech Company Limited

Notes to the Financial Statements

2016 (Expressed in Renminbi)

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IV. SIGNIFICANT ACCouNTING PoLICIES AND ACCouNTING ESTIMATES (Continued)

(XVi) intangible assets and development expenses (continued)

4. Specific criteria of capitalization for expenses during development stage

The expenses during development stage of internal research and development projects are recognized as intangible asset when all of the below conditions are met:

• (1) it is technically feasible to complete the intangible asset to bring it to useable or saleable conditions;

• (2) there is intention to complete the intangible asset for use or sale;

• (3) there is a way for generating economic benefits from the intangible asset, including the ability to prove there exists a market for products produced using the intangible asset or there exists a market for the intangible asset itself; for intangible asset to be used internally, its usability can be proved;

• (4) there is sufficient support in the areas of technology, financial and other resources to complete the development of the intangible asset, and there is the ability to use or sell the intangible asset;

• (5) the expenses attributable to the development stage of the intangible asset can be reliably measured.

The expenses during development stage that do not comply with the conditions above are included current profit or loss on incurrence. Development expense included in profit or loss in previous period are not re-recognized as assets in subsequent period. Capitalized expenses during development stage are presented as development expenses on the balance sheet and transferred to intangible assets since they reach the intended use.

Annual Report 2016 105

Notes to the Financial Statements

2016 (Expressed in Renminbi)

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IV. SIGNIFICANT ACCouNTING PoLICIES AND ACCouNTING ESTIMATES (Continued)

(XVii) impairment of long-term assets

The Company makes a judgment on whether there is any sign of possible long-term assets impairment on the balance sheet date. Where there is any evidence indicating a possible impairment of assets, the Company shall, on the basis of single item assets, estimate the recoverable amount. Where it is difficult to do so, it shall determine the recoverable amount of the group assets on the basis of the asset group to which the asset belongs.

The estimate of the recoverable amount of the assets are determined at the higher of the net amount of the fair value less the disposal expenses and the present value of the estimated future cash flows.

Where the measurement result of the recoverable amount indicates that the recoverable amount of the long-term asset is lower than its carrying value, the carrying value of the asset shall be recorded down to the recoverable amount, and the reduced amount shall be recognized as the loss of asset impairment and be recorded as the profit or loss for the current period. Simultaneously, a provision for the asset impairment shall be made accordingly. Once the asset impairment loss is recognized, it will not be reversed for the value recovered in the subsequent periods.

After the loss of asset impairment has been recognized, the depreciation or amortization expenses of the impaired asset shall be adjusted accordingly in the future periods so as to amortize the post-adjustment carrying value of the asset systematically (deducting the expected net salvage value) within the residual service life of the asset.

No matter whether there is any sign of possible assets impairment, the business reputation formed by the merger of enterprises and intangible assets with uncertain service lives shall be subject to impairment test every year.

When making impairment task on the goodwill shall, amortise the book value of goodwill to asset group or combination of asset group, which are expected to be beneficial from business combination. When making an impairment test on the relevant asset groups or combination of asset groups containing goodwill, if any evidence shows that the impairment of asset groups or combinations of asset groups is possible, the Company shall first make an impairment test on the asset groups or combinations of asset groups not containing the goodwill, calculate the recoverable amount, compare it with the relevant carrying value and recognize the corresponding impairment loss. Then the Company shall make an impairment test of the asset groups or combinations of asset groups containing goodwill, and compare the carrying value of these asset groups or combinations of asset groups (including the carrying value of the goodwill apportioned thereto) with the recoverable amount. Where the recoverable amount of the relevant assets or combinations of the asset groups is lower than the carrying value thereof, it shall recognize the impairment loss of the goodwill.

106 Launch Tech Company Limited

Notes to the Financial Statements

2016 (Expressed in Renminbi)

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IV. SIGNIFICANT ACCouNTING PoLICIES AND ACCouNTING ESTIMATES (Continued)

(XViii) Employee compensation

Employee compensation refers to all kinds of remunerations and other relevant reimbursements made by enterprises to their employees in exchange for services of said employees, including short-term employee remuneration, post-employment benefits, termination benefits and other long-term employee benefits.

1. Short-term remuneration

Short-term remuneration refers to the employee compensation in addition to post-employment benefits and termination benefits, which are required to be fully paid within 12 months upon the annual reporting period when the employees provide relevant services. During the accounting period when the employees provides services, the Company recognizes the short-term remuneration payable as liabilities and includes them into relevant asset costs and expenses according to benefits from the services provided by employees.

2. Post-employment benefits

“Post-employment benefit” refers to all kinds of remunerations and benefits other than short-term remuneration and termination benefits that are provided by the Company after the retirement of the employees or termination of labor ration with enterprises in exchange for services provided by employees. The post-employment benefits are categorized as defined contribution plans and defined benefit plans.

The defined contribution plans under the post-employment benefits are mainly for the participation in the social basis endowment insurance and unemployment insurance organized and carried out by local labor and social guarantee authorities. During the accounting period when the employees provide services for the Company, the payable amount of defined contribution plans is recognized as liabilities and included in current profit or loss or relevant costs of assets.

The Company has no other payment obligations after making the above-mentioned payment periodically according to the standards specified by the country.

Annual Report 2016 107

Notes to the Financial Statements

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2016 (Expressed in Renminbi)

IV. SIGNIFICANT ACCouNTING PoLICIES AND ACCouNTING ESTIMATES (Continued)

(XViii) Employee compensation (continued)

3. Termination benefits

Termination benefit refers to indemnity provided by enterprises for employees for the purpose of terminating labor relation with the employees before the expiry of the labor contract or encouraging employees to accept downsizing voluntarily. When the earlier of Company cannot unilaterally withdraws the employment relations or cut-down proposals and the date of confirmation of relevant cost and expenses on paying termination benefits, those liabilities arising from the confirmed terminations is charged to profit or loss for the period.

The Company provides early retirement benefits to those employees who accepted early retirement arrangement. Early retirement benefits mean payment of those salaries and paid social insurance and other expenses made to those who are under the government regulated retirement age and their early retirement were approved by the Company’s management. The Company will pay early retirement benefits to those employees from the early retirement date to normal retirement date and consider the cost as liability and one-off charge to the profit and loss for the period. Difference arising from change in assumption on acturial calculation and change in benefit standards, will be charged to profit or loss for the period when it incurs.

4. other long-term employee benefit

Other long-term employee benefits refer to all the employee compensations other than short-term remuneration, post-employment benefits and termination benefits.

For other long-term employee benefits qualified for defined contribution plans, during the accounting period when the employees provide services for the Company, the amount payable is recognized as liabilities and included in current profit and loss or relevant asset cost; in any other circumstances, the other long-term employee benefits are calculated by actuary with the expected accumulative benefit unit method on balance sheet date, and benefit obligations arising from defined benefit plans attributable to the period when the employees provide services, and are included in current profit or loss or relevant asset costs.

(XiX) income

1. Specific determination criteria for timing of recognition of income from sale of merchandize Income from sale of merchandize is recognized when: the Company has transferred the key risks and return on the ownership of the merchandize to the buyer; the Company has not retained continued management rights associated with ownership and no longer exercises effective control on the merchandize sold; the amount of income can be reliably measured; the relevant economic benefits are very likely to flow to the enterprise; the costs incurred or to be incurred can be reliably measured.

108 Launch Tech Company Limited

Notes to the Financial Statements

2016 (Expressed in Renminbi)

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IV. SIGNIFICANT ACCouNTING PoLICIES AND ACCouNTING ESTIMATES (Continued)

• (XiX) income (continued)

1. Specific determination criteria for timing of recognition of income from sale of merchandize (Continued)

  - Specific procedures for recognition of income from sale of merchandize of the Company are as follows:

  - ① Export business: after the contract is signed, the Company organizes production according to the contract. There are different modes of settlement when the good is delivered: where the acquirer designates shipping company under FOB mode, income is recognized when bill of landing is obtained after the good crossed the ship’s rail, and the export declaration shall be approved by the custom; where the seller arranges freight and transport insurance under CIF mode, income is recognized when bill of landing is obtained after the good crossed the ship’s rail, and the export declaration shall be approved by the custom; where the acquirer designates delivery point under mode DDU, income is recognized when receipt is provided by the acquirer and the entitlement of payment is obtained; where the good is delivered in the place in which the Company is located or other designated places (such as airport) under mode EXW, income is recognized when the delivery is finished and delivery receipt is obtained.

  - ② Domestic business: under the distributor model, income is recognized when the good is delivered and the amount is received or the proof of its receipt is obtained; for key customers and government procurement projects, income is recognized when the good is delivered, the sales invoice from the sales department is received, and the outbound order of the warehouse is received with the confirmation notice from the customs.

For the software upgrade business of the Company, income is recognized when the labor service is provided, the amount is received or the proof of its receipt is obtained.

Contractual fee or negotiated price is received using the deferred method; if it is in fact financing in nature, the fair value of the receivable contractual or negotiated price is recognized as income from sale of merchandize.

Annual Report 2016 109

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Notes to the Financial Statements

2016 (Expressed in Renminbi)

IV. SIGNIFICANT ACCouNTING PoLICIES AND ACCouNTING ESTIMATES (Continued)

(XiX) income (continued)

2. Criteria for recognition of alienating the right to use assets

When the economic benefit related to the transaction will very likely flow to the enterprise and the income amount can be reliably measured, the income amount from alienating the right to use assets is recognized according to the below conditions:

• (1) interest income is calculated based on the time period and actual interest rate the bank balances and cash of the Company is used by the other party;

• (2) asset use income is calculated using the charging period and method stipulated in the relevant contract or agreement.

(XX) government subsidies

1. Classification

Government subsidies refer to monetary and non-monetary assets received from the government without compensation, however excluding the capital invested by the government as a corporate owner. According to the subsidy object stipulated in the documents of relevant government, government subsidies are divided into subsidies related to assets and subsidies related to revenue.

For categories of government subsidies have not been specified in the government documents, the Company made the judgement and categorise them according to nature when subsidy received. Relevant basis of judgments are disclosed in the “deferred income/other operating income” which is Notes 7 to the financial statements.

Government subsidies related to assets is obtained by the Company for the purposes of constructing or forming long-term assets in other ways. Government subsidies related to revenue refer to the government subsidies other than those related to assets.

2. Recognition of government subsidies

Where evidence shows that the Company complies with relevant conditions of policies for financial supports and are expected to receive funds rapidly at the end of the period, the amount receivable is recognized as the government subsidies. Otherwise, the government subsidy is recognized upon receipt.

Government subsidies in the form of monetary assets are stated at the amount received or receivable. Government subsidies in the form of non-monetary assets are measured at fair value; if fair value cannot be obtained, a nominal amount (RMB1) is used. Government subsidies that are measured at nominal amount shall be recognized in profit or loss for the period directly.

Launch Tech Company Limited

110

Notes to the Financial Statements

2016 (Expressed in Renminbi)

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IV. SIGNIFICANT ACCouNTING PoLICIES AND ACCouNTING ESTIMATES (Continued)

(XX) government subsidies (continued)

3. Accounting treatment

Government subsidies related to assets are recognized as deferred income, and are recognized as non-operation income in each period over the useful term of the constructed or purchased asset.

Government subsidies related to revenue aimed at compensating for relevant expenses or losses to be incurred by the enterprise in subsequent periods are recognized as deferred income once received, and are recognized as non-operation income in the periods when relevant expenses are recognized. Government subsidies aimed at compensating for relevant expenses or losses the enterprise that are already incurred are recognized as deferred income directly once received.

When it is required to return recognized government subsidy, if there is relevant balance of deferred income, it shall be written down to relevant book value of relevant deferred income, and the excess is included in current profit or loss; where there is no relevant deferred income, it shall be directly included in current profit or loss.

(XXi) Deferred tax assets and deferred tax liabilities

Deferred tax assets and deferred tax liabilities are measured and recognized based on the difference (temporary difference) between the taxable base of assets and liabilities and book value. On balance sheet date, the deferred tax assets and deferred tax liabilities are measured at the applicable tax rate during the period, when it is expected to recover such assets or repay such liabilities.

1. Criteria for recognition of deferred income tax assets

The Company recognizes deferred income tax assets arising from deductible temporary difference to the extent it is probably that future taxable amount will be available against which the deductible temporary difference can be utilized. However, the deferred income tax assets arising from the initial recognition of assets or liabilities in transactions with the following features are not recognized: (1) the transaction is not a business combination; or (2) neither the accounting profit or the taxable income or deductible losses is affected when the transaction occurs.

For deductible temporary difference in relation to investment in the associates, corresponding deferred income tax assets are recognized in the following conditions: the temporary difference is probably reversed in a foreseeable future and it is likely that taxable income is obtained for deduction of the deductible temporary difference in the future.

Annual Report 2016 111

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Notes to the Financial Statements

2016 (Expressed in Renminbi)

IV. SIGNIFICANT ACCouNTING PoLICIES AND ACCouNTING ESTIMATES (Continued)

(XXi) Deferred tax assets and deferred tax liabilities (continued)

2. Criteria for recognition of deferred income tax liabilities

• The Company recognizes deferred income tax liabilities on the temporary difference between the taxable but not yet paid taxation in the current and previous periods, excluding

• (1) temporary difference arising from the initial recognition of goodwill;

• (2) transactions or events arising from no business combination, and neither the accounting profit or the taxable income (or deductible losses) is affected when the transaction or event occurs;

• (3) for taxable temporary difference in relation to investment in subsidiaries or associates, the time for reversal of the difference can be controlled and the difference is probably not reversed in a foreseeable future.

(XXii) changes in key accounting policies and accounting estimates

1. Changes in accounting policies

There were no changes in key accounting policies during the reporting period.

2. Changes in accounting estimates

There were no changes in key accounting estimates during the reporting period.

V. STATEMENT oF CHANGES To THE FINANCIAL STATEMENTS

Ministry of Finance on December 3, 2016 issued the “VAT accounting treatment” (accounting [2016] No. 22).

“VAT Accounting Regulations” stipulates that the subject name of “business tax and surcharges” should be adjusted to “tax and surcharges”. The tax is levied on operations which consumption tax, urban maintenance and construction tax, property tax, land tax, transportation usage tax, stamp duty and other related taxes and fees are adjusted to be grouped under the “Tax and surcharges” in the income statement.

“Value-added tax accounting regulations” also clearly require debit balance of “tax payable” under the “pay VAT”, “VAT payable”, “Input tax deductibles”, “Input tax certifiable”, “value Tax retained for deductions “ at the end of the year should be based on the situation, classified as “other current assets “or” other non-current assets “in the balance sheet. Credit balance of ” tax payable-to be transferred tax “ at the year end shall be according to the situation, stated in the “other current liabilities” or “other non-current liabilities” items in the balance sheet.

112 Launch Tech Company Limited

Notes to the Financial Statements

2016 (Expressed in Renminbi)

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V. STATEMENT oF CHANGES To THE FINANCIAL STATEMENTS (Continued)

The Company in accordance with the requirements of ”VAT Accounting Regulations”, adjusted the relevant impact on assets and liabilities and relevant income statement items for transactions occurred in the period from 1 May 2016 to the implementation date of this regulation including the adjustment of property tax, land use tax, travel tax and stamp duty amounted to RMB 2,547,102.37 from “Administrative expenses” to “tax and surcharges”; reclassification of amounted RMB 4,591,043.25 from “tax payable” to “Other current assets” of; for transactions made between January 1 and April 30, 2016, there is no retrospective adjustment; the financial statements for comparable periods in the financial statements for 2016 are also not retrospectively adjusted.

VI. TAXATIoN

• (i) Main tax types and tax rates of the company

Tax type	Basis of taxation	Tax rate
Value-added tax	Sales of goods	17%
	Provision of services	6%
	Overseas sales; provision of processing	19%
	repair and maintenance labor services
	(German subsidiary)
Business tax	Income before tax reform to VAT	5%
Urban construction tax	Turnover tax amount payable	5%, 7%
Education surcharges	Turnover tax amount payable	3%
Local education surcharges	Turnover tax amount payable	2%
Property tax	70% property historical cost or rental income	1.2%, 12%
Tax rates of different tax entities:
Name		Tax Rate
The Company		15.00%
Launch Software		15.00%
Shanghai Launch		25.00%
Launch Europe GmbH		19.00%
Golo Internet		25.00%
Xi’an Launch		25.00%
Peng Ao Da		15.00%
PJS		25.00%
Launch International		16.50%

Annual Report 2016

113

Notes to the Financial Statements

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2016 (Expressed in Renminbi)

VI. TAXATIoN (Continued)

(ii) preferential tax policies and basis

Pursuant to Guo Fa [1997] Article No.8 “Notice Concerning the Implementation of Tax Exemption, Offsetting and Refund Procedures for Goods Exported by Production Enterprises for Their Own Account or by Foreign Trade Enterprises Upon Appointment as Agents for Production Enterprises”, the “tax exemption, offsetting and refund” procedures are applicable to the value-added tax of the export products sold by the Company. Pursuant to the “Notice Concerning Further Increasing the Export Tax Refund Rate of Selected Merchandize” (Cai Shui (2009) No.88) dated 3 June 2009 issued by Ministry of Finance and State Administration of Taxation, starting from 1 June 2009, the effective tax refund rate for different product companies are 9%, 15% and 17%, respectively.

Pursuant to “Notice Concerning Value-Added Tax Policy on Software Products” (Cai Shui (2011) No.100) issued by Ministry of Finance and State Administration of Taxation, starting from 1 January 2011, the sale of proprietarily developed software products by the Company and its subsidiary Launch Software) is subject to value-added tax of 17% at statutory tax rate, and for any effective tax of value-added tax burden exceeding 3%, tax refund is immediate given upon collection.

Pursuant to Shenzhen Science, Industry, Trade and Information Technology Commission Chan Ye Zi [2009] No.25, the Company was recognized as a new and high technology enterprise with new and high technology enterprise certificate number GR201544201449, and passed the review on 12 September 2012; according to the provisions of The Law of the People’s Republic of China on Enterprise Income Tax, the applicable tax rate of the Company for 2016 was 15%.

Launch Software was recognized as a new and high technology enterprise with new and high technology enterprise certificate number GR201644201968; according to the provisions of the Law of the People’s Republic of China on Enterprise Income Tax, the applicable tax rate of Launch Software for 2016 was 15%.

Peng Ao Da was recognized as a new and high technology enterprise with new and high technology enterprise certificate number GF201544200122; according to the provisions of the Law of the People’s Republic of China on Enterprise Income Tax, the applicable tax rate of Peng Ao Da for 2016 was 15%.

Launch Tech Company Limited

114

Notes to the Financial Statements 2016 (Expressed in Renminbi)

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Vii. EXplanatory notEs for Main itEMs in consoliDatED financial statEMEnts

(The following amounts were in RMB if not otherwise specified)

(1) Bank balances and cash

Item Cash on hand Bank deposit Other bank balances and cash Total Including: total amount of deposits overseas	Ending Beginning balance balance 1,239,401.42 2,567,187.00 277,239,474.48 391,418,495.34 807,000.00 21,478,990.00
	279,285,875.90 415,464,672.34
	1,874,166.78 1,729,102.01

Upto 31 December 2016, other than the time deposit of RMB 1,050,000.00 pledged by Launch Software, the Company’s subsidiary, for a loan, there are no other items pledged, freezed or with potential risk on collection. Details of pledged deposit see (42).

Details of restricted bank balances and cash are listed as follow:

Item Guarantee deposits Time deposits or call deposits for guarantee Deposits for acceptance draft Total	Ending Beginning balance balance 807,000 52,990.00 1,050,000 – – 21,426,000.00
	1,857,000 21,478,990.00

Other explanations on bank balance and cash:

The decrease of 32.78% is mainly arising from the funding from borrowing decreased during the period.

Annual Report 2016 115

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Notes to the Financial Statements

2016 (Expressed in Renminbi)

Vii. EXplanatory notEs for Main itEMs in consoliDatED financial statEMEnts (continued)

• (2) Bills receivable

1. Categories of bills receivable

Item Bank acceptance notes Commercial acceptance bill Total	Ending Beginning balance balance 21,525,071.53 16,836,907.00 300,000.00 200,000.00
	21,825,071.53 17,036,907.00

2. The Company had no pledged bills receivable at the end of the period.

3. Endorsed or discounted bills receivable that are not mature on balance sheet date

Items Bank acceptance notes Total	Confirmed at Unconfirmed at the period end the period end 26,809,211.70 –
	26,809,211.70 –

116 Launch Tech Company Limited

Notes to the Financial Statements 2016 (Expressed in Renminbi)

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Vii. EXplanatory notEs for Main itEMs in consoliDatED financial statEMEnts (continued)

(3) accounts receivable

1. Accounts receivable disclosed by categories

Categories Accounts receivable that are individually significant and are subjected to provision for bad debts on individual basis Accounts receivable that are subjected to provision for bad debts on portfolio basis Accounts receivable that are individually insignificant but are subjected to provision for bad debts on individual basis Total Continued: Categories Accounts receivable that are individually significant and are subjected to provision for bad debts on individual basis Accounts receivable that are subjected to provision for bad debts on portfolio basis Accounts receivable that are individually insignificant but are subjected to provision for bad debts on individual basis Total	Ending balance Carrying balance Provision for bad debts Amount Proportion (%) Amount Proportion (%) Book value 314,874,345.42 99.57 82,611,922.40 26.24 232,262,423.02 1,351,522.81 0.43 1,351,522.81 100.00
	316,225,868.23 100.00 83,963,445.21 26.55 232,262,423.02
	Beginning balance Carrying balance Provision for bad debts Amount Proportion (%) Amount Proportion (%) Book value 317,069,893.16 99.25 75,900,421.82 23.94 241,169,471.34 2,408,794.46 0.75 2,408,794.46 100.00 –
	319,478,687.62 100.00 78,309,216.28 24.51 241,169,471.34

Annual Report 2016 117

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Notes to the Financial Statements

2016 (Expressed in Renminbi)

Vii. EXplanatory notEs for Main itEMs in consoliDatED financial statEMEnts (continued)

• (3) accounts receivable (continued)

1. Accounts receivable disclosed by categories (Continued) (1) aging of accounts receivable within the group:

Aging Under 1 year including: within 90 days 91-180 days 181-270 days 271-365 days 1-2 years 2-3 years 3-4 years 4-5 years Over 5 years Total	Ending balance Accounts Provision for receivable bad debts Proportion (%) 133,171,654.87 6,658,582.75 5.00 86,753,967.43 4,337,698.38 5.00 16,573,738.28 828,686.91 5.00 23,236,450.65 1,161,822.53 5.00 6,607,498.51 330,374.93 5.00 62,778,513.92 6,277,851.38 10.00 47,754,094.56 14,326,228.40 30.00 19,746,283.93 9,873,141.97 50.00 29,738,401.36 23,790,721.12 80.00 21,685,396.78 21,685,396.78 100.00
	314,874,345.42 82,611,922.40 26.24

Explanations of the basis for determination of the portfolio:

The best estimates for the proportion of provision for the accounts receivable has been made according to the pass experience, and classified the credit risk portfolio with reference to the aging of the accounts receivable.

The Company mainly offered credit terms from 30 to 210 days to trading customers. Customers with good and long term records or major customers, or for those the Company decided to maintain long term operation relationship, would be offered different credit terms.

The aging of the not-past-due and overdue accounts receivable are as follows:

Items Not past due overdue Total	Ending balance Beginning balance Carring balance Provision Book valueCarring balance Provision Book value 74,266,039.83 3,713,301.99 70,552,737.84 61,183,510.02 3,059,175.50 58,124,334.52 241,959,828.40 80,250,143.22 161,709,685.18258,295,177.60 75,250,040.78 183,045,136.82
	316,225,868.23 83,963,445.21 232,262,423.02319,478,687.62 78,309,216.28 241,169,471.34

118 Launch Tech Company Limited

Notes to the Financial Statements

2016 (Expressed in Renminbi)

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Vii. EXplanatory notEs for Main itEMs in consoliDatED financial statEMEnts (continued)

(3) accounts receivable (continued)

1. Accounts receivable disclosed by categories (Continued)

• (2) accounts receivable subjected to provision for bad debts that are individually significant or insignificant but carried out impairment test on individual basis at the end of the period

		Ending	balance
Company name	Accounts receivable	Provision	Age	Reasons for provision
Shenzhen Jinnongxiang Electronic
Technology Co., Ltd	1,205,174.98	1,205,174.98	Over 5 years	Low recoverability due to significant risk
Hafei Automobile Co., Ltd sales branch	146,347.83	146,347.83	Over 5 years	Low recoverability due to significant risk
Total	1,351,522.81	1,351,522.81

2. Provision, recovery or reversal of the provision for bad debts during the period

The amount of provision for bad debts during the period amounted to RMB12,147,722.58; and no written back of provision for bad debts during the period is noted.

Annual Report 2016

119

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Notes to the Financial Statements

2016 (Expressed in Renminbi)

Vii. EXplanatory notEs for Main itEMs in consoliDatED financial statEMEnts (continued)

• (3) accounts receivable (continued)

3. Accounts receivable actually written off during the reporting period

Item	Amounts written off
Accounts receivable actually written off	6,493,493.65

Accounts receivable actually written off are as follows:

Nature of Name accounts receivable Launch Technology Canada Inc. Payment for goods Disbrat Service Automotovos LTDA. Payment for goods TECNOSERVICE SRL, Roma Payment for goods FILIPPETTI SRL, Cattolica Payment for goods L’Autoservices SRL, Castenedolo (BS) Payment for goods Haining Lotus Passenger Car Co., Ltd Payment for goods Shanghai Hankook Tire Sales Co., Ltd Payment for goods WAS GmbH, Erkrath Payment for goods 14 accounts with insignificant amounts Payment for goods Total

Verification Whether arising Amounts Reason for procedures from connected written off write-off fulfilled transaction 3,356,885.55 Uncollectible Approved by general No managers’ meeting 1,663,538.57 Uncollectible Approved by general No managers’ meeting 575,725.60 Uncollectible Approved by general No managers’ meeting 194,834.20 Uncollectible Approved by general No managers’ meeting 125,939.80 Uncollectible Approved by general No managers’ meeting 110,400.00 Uncollectible Approved by general No managers’ meeting 98,271.60 Uncollectible Approved by general No managers’ meeting 96,994.72 Uncollectible Approved by general No managers’ meeting 270,903.61 Uncollectible Approved by general No managers’ meeting 6,493,493.65

Launch Tech Company Limited

120

Notes to the Financial Statements

2016 (Expressed in Renminbi)

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Vii. EXplanatory notEs for Main itEMs in consoliDatED financial statEMEnts (continued)

(3) accounts receivable (continued)

4. Top five accounts receivable by ending balance collection of the borrower

Name Launch Tech (USA), Inc. Launch Tech Japan.Inc. Launch Ibérica, S.L. Matco Tools Launch Technologies SA (PTY) LTD Total	Proportion in ending balance already of Provision accounts made for Ending balance receivable (%) bad debts 119,790,447.27 37.88 17,637,454.59 27,065,309.21 8.56 19,839,112.54 15,763,292.84 4.98 2,838,533.11 14,640,316.38 4.63 732,015.82 10,108,211.38 3.20 3,253,306.94
	187,367,577.08 59.25 44,300,423.00

(4) prepayments

1. Classification based on aging

Aging Under 1 year 1-2 years 2-3 years Over 3 years Total	Ending balance Beginning balance Amount Proportion (%) Amount Proportion (%) 35,206,105.50 67.13 35,598,349.15 62.02 5,609,999.74 10.70 11,787,437.14 20.53 5,517,159.71 10.52 2,431,620.71 4.24 6,108,211.60 11.65 7,581,946.54 13.21
	52,441,476.55 100.00 57,399,353.54 100.00

Annual Report 2016 121

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Notes to the Financial Statements

2016 (Expressed in Renminbi)

Vii. EXplanatory notEs for Main itEMs in consoliDatED financial statEMEnts (continued)

• (4) prepayments (continued)

2. Prepayments with significant balances aged over 1 year and reasons of failure of timely settlement

Name Shenzhen Kangmai Technology Co., Ltd Shenzhen Jiayang Electronic Co., Ltd Total	Ending balance Aging Reasons 1,111,358.97 2-3 years not yet due 4,577,722.21 Within 3 years not yet due 5,689,080.18

3. Top five prepayments by ending balance of collection of prepaid objects

Name Shenzhen Ouya Meihua Electronic Technology Co., Ltd. Shenzhen Sanmu Communications Technology Co., Ltd. Shenzhen Jiayang Electronic Co., Ltd. JVC Inc. Shenzhen Fulunda Procession Industrial Technology Total	Proportion Ending in total Year of balanceprepayment prepayment Reasons (%) 9,668,745.87 18.44 2016 still processing 5,941,410.25 11.33 2016 still processing 4,577,721.21 8.73 2014 still processing 2,467,425.30 4.71 2016 still processing 1,600,898.69 3.05 2016 still processing 24,256,201.32 46.26

122 Launch Tech Company Limited

Notes to the Financial Statements

2016 (Expressed in Renminbi)

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(5) other receivables

1. Disclosure of other receivables by categories:

Categories Other receivables that are individually significant and are provided for bad debts on individual basis Other receivables that are provided for bad debts on basis of credit risk portfolio Other receivables that are individually insignificant but are provided for bad debts on individual basis Total Continued: Categories Other receivables that are individually significant and are provided for bad debts on individual basis Other receivables that are provided for bad debts on basis of credit risk portfolio Other receivables that are individually insignificant but are provided for bad debts on individual basis Total	Ending balance Carrying balance Provision for bad debts Amount Proportion (%) Amount Proportion (%) Book value 21,455,442.34 80.58 2,917,394.12 13.60 18,538,048.22 5,172,221.34 19.42 5,172,221.34 100.00
	26,627,663.68 100.00 8,089,615.46 30.38 18,538,048.22
	Beginning balance Carrying balance Provision for bad debts Amount Proportion (%) Amount Proportion (%) Book value 42,906,264.66 93.63 3,258,054.38 7.59 39,648,210.28 2,920,780.57 6.37 2,920,780.57 100.00 –
	45,827,045.23 100.00 6,178,834.95 13.48 39,648,210.28

Annual Report 2016

123

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Notes to the Financial Statements

2016 (Expressed in Renminbi)

Vii. EXplanatory notEs for Main itEMs in consoliDatED financial statEMEnts (continued)

• (5) other receivables (continued)

1. Disclosure of other receivables by categories: (Continued)

• Explanations of categories of other receivables:

• (1) Detailed of other receivables that are subjected to provision for bad debts based on aging analysis:

Aging Under 1 year 1-2 years 2-3 years 3-4 years 4-5 years Over 5 years Total	Ending balance Other Provision for Proportion of receivables bad debts provision (%) 9,581,684.74 479,084.24 5.00 6,609,468.64 660,946.87 10.00 1,308,995.48 392,698.65 30.00 1,639,366.09 819,683.05 50.00 332,883.75 266,307.00 80.00 298,674.31 298,674.31 100.00
	19,771,073.01 2,917,394.12 14.76

Explanations of the basis for determination of the portfolio:

The best estimates for the proportion of provision for the accounts receivable has been made according to the pass experience, and classified the credit risk portfolio with reference to the aging of the receivables.

Launch Tech Company Limited

124

Notes to the Financial Statements

2016 (Expressed in Renminbi)

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Vii. EXplanatory notEs for Main itEMs in consoliDatED financial statEMEnts (continued)

(5) other receivables (continued)

1. Disclosure of other receivables by categories: (Continued)

• (2) Detailed of other receivables that are subjected to provision for bad debts through other methods

Name of portfolio Value Added Tax refund Total	Ending balance Provision for Proportion of Other receivables bad debts provision (%) 1,684,369.33 No provision 1,684,369.33 No provision

Explanations of the basis for determination of the portfolio:

It is determined according to the business nature that there is no credit risk, including: VAT refund.

Annual Report 2016

125

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Notes to the Financial Statements

2016 (Expressed in Renminbi)

Vii. EXplanatory notEs for Main itEMs in consoliDatED financial statEMEnts (continued)

• (5) other receivables (continued)

1. Disclosure of other receivables by categories: (Continued) (3) other receivables subjected to provision for bad debts that are individually significant or insignificant but carried out impairment test on individual basis at the end of the period:

		Carrying	balance
		Amount of
		provision for
Name	Other receivables	bad debts	Aged	Reasons
Shenzhen Lianqiang Technology Co., Ltd	1,100,000.00	1,100,000.00	Within 5 years	Low recoverability
				due to significant risk
Guangzhou Zhogngong Commercial	304,000.00	304,000.00	Over 5 years	Low recoverability due
Newspaper & Media Co., Ltd.				to significant risks
Shenzhen Xianglian Metal Produces Co., Ltd.	300,000.00	300,000.00	Over 5 years	Low recoverability due
				to significant risks
Shenzhen ShijiHengXing Technology Co., Ltd.	274,225.13	274,225.13	Over 5 years	Low recoverability due
				to significant risks
Shanghai Qi Hao Industrial Co., Ltd	250,000.00	250,000.00	Over 5 years	Low recoverability
				with significant risk
Shenzhen Changchuang Electronic	210,000.00	210,000.00	Over 5 years	Low recoverability due
Technology Co., Ltd				to significant risks
Wuxi Songzhi Precision Machinery	199,999.95	199,999.95	Within 5 years	Low recoverability
Manufacturing Co., Ltd				due to significant risk
Shenzhen Defeng Mold Co., Ltd.	197,075.43	197,075.43	Over 5 years	Low recoverability due
				to significant risks
Foshan Nanhai LiXiDa Electric Appliance Co., Ltd	162,414.64	162,414.64	Over 5 years	Low recoverability
				due to significant risk
Shenzhen Haolida Ultrasonic Equipment Co., Ltd.	159,999.99	159,999.99	Over 5 years	Low recoverability due
				to significant risks
Shenzhen Changlongxing Metal Product Co., Ltd.	150,000.00	150,000.00	Over 5 years	Low recoverability due
				to significant risks
Sub-total of 36 insignificant account	1,864,506.20	1,864,506.20	Over 5 years	Low recoverability due
				to significant risks
Total	5,172,221.34	5,172,221.34

126 Launch Tech Company Limited

Notes to the Financial Statements

2016 (Expressed in Renminbi)

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Vii. EXplanatory notEs for Main itEMs in consoliDatED financial statEMEnts (continued)

(5) other receivables (continued)

2. Provision, recovery or reversal of the provision for bad debts during the period

The amount of provision for bad debts during the period amounted to RMB3,308,318.89; and there is no recovery or written back of provision for bad debts during the period is noted.

3. other receivables actually written off during the reporting period

Item Other receivables actually written off Details of other receivables written off: Nature of other Name receivables Shenzhen Bao’an LongHua NamDa Deposit Pneumatic hydraulic Sales Department BYD Precision Manufacturing Co., Ltd Deposit Shanghai University of Technology Deposit Zhenyuan Automobile Technology Co., Ltd. Li Guo Building Property Deposit Sub-total of 14 insignificant account Current accounts Total	Amounts written off 1,397,538.38 Verification Whether arising Amounts Reason for Procedures from connected written off write-off fulfilled transaction 750,000.00 Uncollectible Approved by general No managers’ office 299,999.99 Uncollectible Approved by general No managers’ office 282,000.00 Uncollectible Approved by general No managers’ office 31,797.00 Uncollectible Approved by general No managers’ office 33,741.39 Uncollectible Approved by general No managers’ office 1,397,538.38	Amounts written off 1,397,538.38

Annual Report 2016

127

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Notes to the Financial Statements

2016 (Expressed in Renminbi)

Vii. EXplanatory notEs for Main itEMs in consoliDatED financial statEMEnts (continued)

(5) other receivables (continued)

4. other receivables by natures

Item Deposits Imprest Company borrowings Export tax refund receivables Others Total	Ending Beginning balance balance 1,540,020.51 1,514,346.90 11,109,781.23 18,185,119.13 4,019,070.00 13,049,650.40 1,684,369.33 6,917,086.63 8,274,422.61 6,160,842.17
	26,627,663.68 45,827,045.23

5. Top five other receivables by ending balance collected by borrowers

Name Nature Beijing Yunfeng Culture Temporary Investment Co., Ltd borrowing VAT refundable Levy refund Jiang Shiwen Temporary borrowing China Unicom Shenzhen Branch Current account Shenzhen Lianqiang Tech Co., Ltd. Others Total	Proportion in the ending balance Provision for of other bad debts of Ending balance Aging receivables (%) ending balance 2,300,000.00 Within 4 years 8.64 980,000.00 1,684,369.33 Within 1 year 6.33 1,632,745.00 Within 1 year 6.13 81,637.25 1,283,792.65 Within 1 year 4.82 64,189.63 1,100,000.00 Over 5 years 4.13 1,100,000.00 8,000,906.98 30.05 2,225,826.88	Proportion in the ending balance Provision for of other bad debts of Ending balance Aging receivables (%) ending balance 2,300,000.00 Within 4 years 8.64 980,000.00 1,684,369.33 Within 1 year 6.33 1,632,745.00 Within 1 year 6.13 81,637.25 1,283,792.65 Within 1 year 4.82 64,189.63 1,100,000.00 Over 5 years 4.13 1,100,000.00 8,000,906.98 30.05 2,225,826.88
		30.05 2,225,826.88

128 Launch Tech Company Limited

Notes to the Financial Statements 2016 (Expressed in Renminbi)

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Vii. EXplanatory notEs for Main itEMs in consoliDatED financial statEMEnts (continued)

• (6) inventories

1. Categories

Categories
Item Raw materials Work-in-progress Finished goods Total	Ending balance Beginning balance Provision for Provision for Carrying balance impairment Book valueCarrying balance impairment Book value 17,113,460.95 – 17,113,460.95 19,529,850.05 – 19,529,850.05 9,157,436.72 – 9,157,436.72 7,968,208.34 – 7,968,208.34 86,476,470.80 – 86,476,470.80 74,441,406.90 – 74,441,406.90
	112,747,368.47 – 112,747,368.47101,939,465.29 – 101,939,465.29

As at 31 December 2016 no provision for impairment on inventories were made as there was no signs of impairment noted.

(7) other current assets

other current assets
Item Input tax pending for deduction Input tax pending for certification Total	Ending Beginning balance balance 2,338,215.60 2,644,181.62 2,252,827.65 5,242,315.31
	4,591,043.25 7,886,496.93

Explanations on other current assets

Decrease in other current assets of 41.79% compared with last year was mainly due to the decrease in Input tax pending for certification.

Annual Report 2016 129

2016 (Expressed in Renminbi)

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Notes to the Financial Statements

Vii. EXplanatory notEs for Main itEMs in consoliDatED financial statEMEnts (continued)

(8) long term equity investment

			Change in current period	Change in current period
	Beginning			Profit/loss based
Investee	Balance	Additions	Deductions	on equity method	Other Adjustments
1. Jointly controlled company
R & Launch Corporation		1,146,723.42		-604,656.50
Total		1,146,723.42		-604,656.50
Continued:
		Change in	current period
	Other movement	Dividend			Ending balance
Investee	on equity	declared	Impairment	Others Ending balance	of Impairment
1. Jointly controlled company
R & Launch Corporation			542,066.92
Total			542,066.92

(9) fixed assets at cost and accumulated depreciation

1. Fixed asset

		Machinery and	Electronic	Transport	Other
Item	Buildings	equipment	equipment	equipment	equipment	Total
I. Total original carrying value
1. Beginning balance	412,395,075.64	48,209,428.91	104,932,610.26	25,320,966.65	108,419,816.55	699,377,898.01
2. Increase for the period	–	1,339,674.52	3,046,686.79	1,872,374.16	3,449,766.68	9,708,502.15
Purchase	–	1,339,674.52	3,046,686.79	1,872,374.16	3,449,766.68	9,708,502.15
3. Decrease for the period	–	1,921,749.80	812,688.11	1,784,432.29	2,851,870.68	7,370,740.88
Disposal or scrapping	–	1,921,749.80	812,688.11	1,784,432.29	2,851,870.68	7,370,740.88
4. Ending balance	412,395,075.64	47,627,353.63	107,166,608.94	25,408,908.52	109,117,712.55	701,715,659.28

130 Launch Tech Company Limited

Notes to the Financial Statements 2016 (Expressed in Renminbi)

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Vii. EXplanatory notEs for Main itEMs in consoliDatED financial statEMEnts (continued)

(9) fixed assets at cost and accumulated depreciation (continued)

1. Fixed asset (Continued)

		Machinery and	Electronic	Transport	Other
Item	Buildings	equipment	equipment	equipment	equipment	Total
II. Accumulated depreciation
1. Beginning balance	89,386,526.60	33,199,036.28	79,901,696.43	20,634,726.71	88,800,675.86	311,922,661.88
2. Increase for the period	18,383,117.52	3,562,526.51	8,121,159.09	1,799,429.02	5,855,570.46	37,721,802.60
Provisions	18,383,117.52	3,562,526.51	8,121,159.09	1,799,429.02	5,855,570.46	37,721,802.60
3. Decrease for the period	–	973,022.10	549,997.93	1,621,020.87	2,643,543.38	5,787,584.28
Disposal or scrapping	–	973,022.10	549,997.93	1,621,020.87	2,643,543.38	5,787,584.28
4. Ending balance	107,769,644.12	35,788,540.69	87,472,857.59	20,813,134.86	92,012,702.94	343,856,880.20
III. Provision for impairment	–	–	–	–	–	–
IV.Total Book value
1. Book value at the end of the period	304,625,431.52	11,838,812.94	19,693,751.35	4,595,773.66	17,105,009.61	357,858,779.08
2. Book value at the beginning of
the period	323,008,549.04	15,010,392.63	25,030,913.83	4,686,239.94	19,619,140.69	387,455,236.13

Annual Report 2016

131

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Notes to the Financial Statements

2016 (Expressed in Renminbi)

Vii. EXplanatory notEs for Main itEMs in consoliDatED financial statEMEnts (continued)

(9) fixed assets at cost and accumulated depreciation (continued)

2. Fixed assets with title certificates not properly handled at the end of the period

Item Buildings Total	Carrying Amount Reasons 107,362,485.03 Application in progress 107,362,485.03

3. other explanations on fixed assets

The original book value of the pledged fixed assets at the end of the period was RMB202,694,643.35, see Note XII(I) for details.

(10) construction in progress

1. Construction in progress

Item Xian Launch building Other sporadic projects Total	Ending balance Beginning balance Provision for Provision for Carrying balance impairment Book valueCarrying balance impairment Book value 18,005,435.66 – 18,005,435.66 – – – 61,538.46 – 61,538.46 1,718,549.29 – 1,718,549.29
	18,066,974.12 – 18,066,974.12 1,718,549.29 – 1,718,549.29

Launch Tech Company Limited

132

Notes to the Financial Statements 2016 (Expressed in Renminbi)

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Vii. EXplanatory notEs for Main itEMs in consoliDatED financial statEMEnts (continued)

• (10) construction in progress (continued)

2. Changes in significant construction in progress

Name Xian Launch building Total Continued:	Transfer to fixed assets Beginning during current balance Increase period Decrease Ending balance 1,718,549.29 16,286,886.37 – – 18,005,435.66
	1,718,549.29 16,286,886.37 – – 18,005,435.66

					Including:
		Proportion			amount of	Interest
		of project		Accumulative	interest	capitalization
		investment	Project	amount of	capitalization	rate for
	Budget	in the	progress	interest	for current	current
Name	(0’000)	budget (%)	(%)	capitalization	period	period (%)	Fund source
Xian Launch building	14,065.00	12.80	12.80	–	–	–	Self-financing

3. other Explanation on Construction in progress

The increase of 951.29% is mainly due to the increase of construction cost of Xi’an Launch Building.

Annual Report 2016 133

Notes to the Financial Statements

2016 (Expressed in Renminbi)

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Vii. EXplanatory notEs for Main itEMs in consoliDatED financial statEMEnts (continued)

(11) intangible assets

1. Intangible assets

		Patented
Item	Land use right	technology	Others	Total
I. Total original carrying value
1. Beginning balance	55,745,726.09	282,105,985.34	1,177,350.41	339,029,061.84
2. Increase for the period	–	37,419,094.19	–	37,419,094.19
Purchase	–	37,419,094.19	–	37,419,094.19
3. Decrease for the period	–	–	–	–
4. Ending balance	55,745,726.09	319,525,079.53	1,177,350.41	376,448,156.03
II. Accumulated amortization
1. Beginning balance	6,082,764.07	126,179,120.71	–	132,261,884.78
2. Increase for the period	1,350,215.42	47,802,901.32		49,153,116.74
Provisions	1,350,215.42	47,802,901.32		49,153,116.74
3. Decrease for the period
4. Ending balance	7,432,979.49	173,982,022.03	–	181,415,001.52

Launch Tech Company Limited

134

Notes to the Financial Statements 2016 (Expressed in Renminbi)

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Vii. EXplanatory notEs for Main itEMs in consoliDatED financial statEMEnts (continued)

• (11) intangible assets (continued)

1. Intangible assets (Continued)

		Patented
Item	Land use right	technology	Others	Total
III. Provisions for impairment
1. Beginning balance	–	15,736,162.37	–	15,736,162.37
2. Increase for the period	–	4,469,291.41	–	4,469,291.41
Provisions	–	4,469,291.41	–	4,469,291.41
3. Decrease for the period	–	–	–	–
4. Ending balance	–	20,205,453.78	–	20,205,453.78
IV. Total Book value
1. Book value at the end
of the period	48,312,746.60	125,337,603.72	1,177,350.41	174,827,700.73
2. Book value at the beginning
of the period	49,662,962.02	140,190,702.26	1,177,350.41	174,827,700.73

Annual Report 2016

135

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Notes to the Financial Statements

2016 (Expressed in Renminbi)

Vii. EXplanatory notEs for Main itEMs in consoliDatED financial statEMEnts (continued)

(11) intangible assets (continued)

2. Explanations on intangible assets

• (1) The proportion of the intangible assets arising from internal research and development of the Company at the end of the reporting period in the original book value of intangible assets was 71.95%.

• (2) The other in the intangible assets is Membership of Mission Hills Golf Club China, which was purchased by the Company in 2008. As the membership is life-time, it is an intangible assets with indefinite useful life. According to the provisions of the accounting standards, the Company did not amortize the asset, and there was no impairment after testing.

• (3) The original book value of the pledged intangible assets at the end of the period was RMB13,511,684.63, see Note XIII(i) for details

Launch Tech Company Limited

136

Notes to the Financial Statements 2016 (Expressed in Renminbi)

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(12) Development expenditure

2016

Item X431 Pro3S X431 PADIII goloX CR4-9 series PRO Mini Passenger vehicle line set Commercial vehicle line set Passenger vehicle module AIT PAD IV-HD development HTT emission inspection Diagnosis Cloud Handfree Laser wheel aligner G1wristband H1wristband PDG500S Total

Increase for the period Transferred out Internal Included development in current Recognized as Beginning balance expenditure Others profit or loss intangible assets Ending balance 4,899,448.87 5,508,460.42 10,407,909.29 2,669,663.02 7,256,210.44 9,925,873.46 3,108,277.75 2,495,021.66 5,603,299.41 8,240,631.42 1,621,666.90 6,618,964.52 4,817,141.14 1,297,333.52 3,519,807.62 3,370,545.66 648,666.76 2,721,878.90 1,560,327.32 324,333.38 1,235,993.94 3,748,954.20 902,313.12 2,846,641.08 5,617,558.86 1,946,000.28 3,671,558.58 3,272,560.89 207,207.74 3,065,353.15 4,288,554.86 414,415.49 3,874,139.37 2,601,134.96 621,623.23 1,979,511.73 2,116,953.58 1,036,038.72 1,080,914.86 5,562,351.66 699,304.15 4,863,047.51 4,048,011.96 276,059.78 3,771,952.18 390,293.40 650,579.84 1,040,873.24

11,067,683.04 65,154,998.87 11,035,836.31 37,419,094.19 27,767,751.41

Annual Report 2016 137

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Notes to the Financial Statements

2016 (Expressed in Renminbi)

Vii. EXplanatory notEs for Main itEMs in consoliDatED financial statEMEnts (continued)

(12) Development expenditure (continued)

2015

Item golo5 golo6 CRP Touch Pro X431 Pro3S X431 PADIII 神州租車項目 移動4G項目 goloZ goloX X431 Maxme X431 PRO4 CAT-501S X-831M CRP Premium PDG800 PDG500S Total

Increase for the period Transferred out Internal Included development in current Recognized as Beginning balance expenditure Others profit or loss intangible assets Ending balance 2,944,678.52 5,046,575.90 7,991,254.42 4,115,692.66 4,029,794.91 8,145,487.57 5,044,458.33 5,044,458.33 4,899,448.87 4,899,448.87 2,669,663.02 2,669,663.02 3,007,869.48 3,007,869.48 5,085,953.16 5,085,953.16 5,123,867.62 5,123,867.62 3,108,277.75 3,108,277.75 7,903,693.03 1,041,841.56 8,945,534.59 5,618,668.90 1,560,290.27 7,178,959.17 3,161,602.57 3,161,602.57 3,515,445.62 3,515,445.62 7,069,202.52 7,069,202.52 492,263.07 624,951.34 1,117,214.41 390,293.40 390,293.40

21,074,996.18 55,379,536.32 65,386,849.46 11,067,683.04

Explanation on Development projects:

Increase in development expenditure of 150.89% is mainly due to the increase in development efforts and increase new projects.

Launch Tech Company Limited

138

Notes to the Financial Statements

2016 (Expressed in Renminbi)

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(13) goodwill

1. original book value of goodwill

Investee Launch Europe GmbH Total	Increase Beginning From business Decrease balance combination Disposal Ending balance 1,139,412.80 1,139,412.80
	1,139,412.80 1,139,412.80

2. other Explanations on Goodwill

As at 31 December 2016, the Company conducted discounting calculation with a discount rate of 5.88% for the abovementioned goodwill based on estimated cash flow to determine whether impairment occur, no impairment was found after calculation and thus no impairment is considered necessary for the abovementioned goodwill. Determination the future cash flow discount rate of 5.88%; is by consideration of macroeconomic situation, using the assumption that 20% increment on interest rate for loan with period of five-year or above for estimation on company’s overall asset values of December 31, 2016, and then calculate the total value of shareholders equity, which the total value of shareholders = the value of the total assets-interest-bearing debt.

• (14) Deferred tax assets and deferred tax liabilities

1. Deferred income tax assets not written off

Item Provisions for asset impairment Total	Ending balance Beginning balance Deductible Deferred Deductible Deferred temporary income temporary income differences tax assets differences tax assets 18,404,516.89 4,203,375.52 46,590.37 6,988.56
	18,404,516.89 4,203,375.52 46,590.37 6,988.56

Annual Report 2016 139

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Notes to the Financial Statements

2016 (Expressed in Renminbi)

Vii. EXplanatory notEs for Main itEMs in consoliDatED financial statEMEnts (continued)

(14) Deferred tax assets and deferred tax liabilities (continued)

2. unrecognized deferred tax assets

Item (1) Deductible temporary differences Bad debt provision – accounts receivable Bad debt provision – other receivables Provision for impairment of intangible assets Provision for impairment of long term equity impairment (2) Deductible losses (3) Internal unrealised profits Total	Ending Beginning balance balance 94,396,064.48 100,177,623.23 69,678,815.77 78,309,216.28 7,879,370.57 6,132,244.58 16,295,811.22 15,736,162.37 542,066.92 – 175,304,532.26 227,924,644.10 4,770,289.04 7,938,697.67
	274,470,885.78 336,040,965.00

3. Deductible loss of unrecognised deferred assets will be falling due

Item 2017 2018 2019 2020 2021 Total	Ending Beginning balance balance Note 23,810,922.97 45,888,537.50 100,607.84 100,607.84 38,607,403.02 38,607,403.02 76,610,479.41 76,610,479.41 36,175,119.02 – 175,304,532.26 161,207,027.77

140 Launch Tech Company Limited

Notes to the Financial Statements 2016 (Expressed in Renminbi)

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• (15) other non-current assets

Item Prepayment for properties Total	Ending Beginning balance balance 7,993,843.94 6,911,826.72
	7,993,843.94 6,911,826.72

(16) short-term borrowings

1. Categories

Item Guaranteed Secured + guaranteed Pledged deposits Banking acceptance draft financing Total	Ending Beginning balance balance 130,000,000.00 219,347,159.96 253,374,000.00 270,000,000.00 1,000,000.00 – – 71,420,000.00
	384,374,000.00 560,767,159.96

Explanation of classification of short-term borrowings:

See note 42 for the details on pledged deposits. See Note XII (V) 2. Guarantee and Note XIII (I) 2. relevant notes on other significant commitment for the detailed explanation of the guaranteed borrowings and the secured + guarantee borrowings.

Annual Report 2016 141

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Notes to the Financial Statements

2016 (Expressed in Renminbi)

Vii. EXplanatory notEs for Main itEMs in consoliDatED financial statEMEnts (continued)

(17) accounts payable

Item Under 1 year 1-2 years 2-3 years Over 3 years Total	Ending Beginning balance balance 91,001,472.44 84,412,542.71 2,260,010.28 1,616,623.84 23,404.67 1,282,317.77 1,107,637.27 1,045,811.82
	94,392,524.66 88,357,296.14

1. Key accounts payable with aging of over 1 year

Name Shenzhen Jiangxi New Microelectronics Co., Ltd Shenzhen Meibai Electronics Co., Ltd Dongguan Jin Deer Battery Technology Co., Ltd Total	Reasons for no repayment or Ending balance settlement 1,242,029.84 Settlement date undue 1,611,342.44 Settlement date undue 303,404.33 Settlement date undue 3,156,776.61

(18) receipts in advance

1. Receipts in advance

Item Under 1 year Total	Ending Beginning balance balance 61,061,913.18 79,364,620.11
	61,061,913.18 79,364,620.11

2. There is no significant receipt in advance aged over 1 year.

Launch Tech Company Limited

142

Notes to the Financial Statements 2016 (Expressed in Renminbi)

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• (19) Employee remuneration payables

1. Employee remuneration payables

Item	Beginning balance	Increase	Decrease	Ending balance
Short-term remuneration	3,930,285.41	176,793,049.39	178,000,890.43	2,722,443.37
Post-employment benefits-
Defined contributions plan	–	18,045,074.50	18,045,074.50	–
Termination benefit	–	5,630,577.66	5,504,041.40	126,536.26
Total	3,930,285.41	200,468,701.55	201,550,006.33	2,848,980.63
Short-term remuneration
Item	Beginning balance	Increase	Decrease	Ending balance
Salaries, bonus,
allowance and subsidies	1,425,582.32	150,209,932.75	150,572,613.30	1,062,901.77
Staff welfare		9,139,954.56	9,139,954.56
Social insurance fees		7,137,377.24	7,137,377.24
Including: Basic medical insurance fees		6,075,282.88	6,075,282.88
Injury insurance fees		414,874.83	414,874.83
Maternity insurance fees		647,219.53	647,219.53
Housing provident fund		9,368,464.18	9,368,464.18
Union funds and employee
education funds	2,504,703.09	937,320.66	1,782,481.15	1,659,542.60
Total	3,930,953.03	176,793,049.39	178,000,890.43	2,722,444.37

2. Short-term remuneration

Annual Report 2016 143

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Notes to the Financial Statements

2016 (Expressed in Renminbi)

Vii. EXplanatory notEs for Main itEMs in consoliDatED financial statEMEnts (continued)

(19) Employee remuneration payables (continued)

3. Defined contribution plans

Item	Beginning balance	Increase	Decrease	Ending balance
Basic pension	–	17,511,812.41	17,511,812.41	–
Unemployment insurance fees	–	533,262.09	533,262.09	–
Total	–	18,045,074.50	18,045,074.50	–

Explanation of defined contribution plan:

The basic pension and unemployment insurance fees under the defined contribution plan are social insurance provided and paid according to Regulations of Shenzhen Special Economic Zone on Social Endowment Insurance and Several Provisions of Shenzhen Special Economic Zone on Unemployment Insurance issued by Shenzhen Administration Bureau of Social Insurance Fund.

The calculation basis for the basic pension is: the payment base for the employees each month is the total salary of last month; the base for newly employed or re-employed and employees of newly established employers of the total salary of the first month. Where the total salary exceeds 300% of the monthly average salary of Shenzhen in the previous year, the excess shall not be included in the payment base; the payment base shall not be less than the minimum salary standard released by the city government. Employers shall use the total of payment base of their employees as the payment base for employers. The calculation formula for basic pension is payment base for employers X 14.00% (2015: 13%).

The calculation basis for unemployment insurance fees: employers shall pay based on 0.9% of minimum monthly salary of Shenzhen for employees that should participate in the unemployment insurance.

Launch Tech Company Limited

144

Notes to the Financial Statements 2016 (Expressed in Renminbi)

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(20) tax payables

Item VAT Business tax EIT Personal income tax Urban maintenance and construction tax Real estate tax Land use tax Education surcharge Others Total	Ending balanceBeginning balance 868,557.20 2,193,339.26 14,965.32 156,480.71 6,129,828.80 – 1,111,950.09 955,769.21 1,108,538.69 202,623.99 1,011,464.85 988,433.97 119,799.62 327,918.63 778,122.10 143,643.70 792.41 117,692.61
	11,144,019.08 5,085,902.08

Explanation on Tax Payables

Increase of 119.12% is mainly due to the increase in Urban maintenance and construction tax and Education surcharge resulting from increase in year end balance of Tax refundable tax for Tax Exemption, Offset and Refund of goods.

(21) other payables

1. Presentation of other payables by aging

Aging Under 1 year 1-2 years 2-3 years Over 3 years Total	Ending balanceBeginning balance 6,984,541.99 8,855,375.96 3,689,990.37 492,225.17 251,823.77 1,709,705.19 1,906,474.63 1,519,553.43
	12,832,830.76 12,576,859.75

Annual Report 2016

145

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Notes to the Financial Statements

2016 (Expressed in Renminbi)

Vii. EXplanatory notEs for Main itEMs in consoliDatED financial statEMEnts (continued)

• (21) other payables (continued)

2. Significant other payables with aging of over 1 year

Name Shanghai Jiading Hongmin Recycled Resources Utilization Co., Ltd Shenzhen Jinbolun Electronics Technology Co., Ltd Shanghai Nanhui Constructions Group Xingang Construction Co., Ltd Shenzhen Easttop Supply Chain Management Ltd Shenzhen Shangjia Car maintenance tool co., Ltd Total	Reason for un-repayment Ending balance or settlement 350,000.00 Security deposit not yet due 300,000.00 Security deposit not yet due 276,750.00 Security deposit not yet due 205,000.00 Security deposit not yet due 200,000.00 Security deposit not yet due 1,331,750.00

(22) non-current liabilities due within one year

Item Long-term borrowing due within 1 year Total	Ending balanceBeginning balance 505,399.54 468,152.45
	505,399.54 468,152.45

146 Launch Tech Company Limited

Notes to the Financial Statements 2016 (Expressed in Renminbi)

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• (23) long-term borrowings

1. Categories

Categories House mortgage repayment Total	Ending balanceBeginning balance 676,536.08 1,190,145.51
	676,536.08 1,190,145.51

Explanation of house mortgage repayment: on 4 March 2014, Launch Software, a subsidiary of the Company, signed a house loan contract with Ping An Bank Co., Ltd. with the period of loan from 31 March 2014 to 27 February 2019; the loan should be repaid with average capital plus interests; as of 31 December 2016, the balance of the loan contract was RMB1,181,935.62.

(24) Deferred income

Item	Beginning balance	Increase	Decrease	Ending balance
Asset-related
government subsidies	25,500,000.00	–	3,169,000.00	22,331,000.00
Total	25,500,000.00	–	3,169,000.00	22,331,000.00

Annual Report 2016 147

2016 (Expressed in Renminbi)

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Notes to the Financial Statements

Vii. EXplanatory notEs for Main itEMs in consoliDatED financial statEMEnts (continued)

(24) Deferred income (continued)

1. Deferred income in relation to government subsidies

Item a. Research on Critical Technique of Automobile Comprehensive Performance Testing, Development of its Product Series and its Industrialization b. Research on critical technique on remote access of Internet of vehicle under in-car environment c. Research on critical technique on Internet of Vehicle big data obtainment and analysis platform Total	Amount included Amount of new in non-operating Beginning subsidies for income for Other Ending Asset-related/ balance current period current period changes balance income-related 20,000,000.00 – 3,169,000.00 – 16,831,000.00 Asset-related 4,500,000.00 – – – 4,500,000.00 Asset-related 1,000,000.00 – – – 1,000,000.00 Asset-related 25,500,000.00 – 3,169,000.00 – 22,331,000.00

2. other explanations of deferred income

• a. Representing the amount of “Research on Critical Technique of Automobile Comprehensive Performance Testing, Development of its Product Series and its Industrialization” fund amounted to 20 million received from Shenzhen Financial Bureau pursuant to Cai Jian [2010] No. 251 of the Ministry of Finance, which will mainly be used for the project’s infrastructure and the purchase of equipment. Main body of the research buildings relating to this project has been completed, and transferred to fixed assets on 31 December 2015.

Launch Tech Company Limited

148

Notes to the Financial Statements

2016 (Expressed in Renminbi)

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• (24) Deferred income (continued)

2. other explanations of deferred income (Continued)

• b. Representing the amount of “Research on critical technique on remote access of Internet of vehicle under in-car environment” fund amounted to 4.5 million received from Science and Technology Innovation Committee of Shenzhen Municipality pursuant to document “STIC(2015) No.208” which will mainly be used for the project’s research and development. The period of co-operation is from 8 October 2015 to 30 September 2017. As of 31 December 2016, the project is still under development stage.

• c. Representing the amount of “Research on critical technique on Internet of Vehicle big data obtainment and analysis platform” fund amounted to 1 million received from Science and Technology Innovation Committee of Shenzhen Municipality pursuant to document “STIC(2014) No.320” which will mainly be used for the project’s research and development. The period of co-operation is from 9 January 2015 to 8 January 2017. As of 31 December 2016, the project is still under development stage.

(25) share capital

			Increase(+)/Decrease(-) in current period	Increase(+)/Decrease(-) in current period
		Issuance of		Transfer
Item	Beginning balance	new shares	Bonus shares	from reserve	Others	Sub-total	Ending balance
Total number of
shares	329,160,000.00	–	–	–	–	–	329,160,000.00

Annual Report 2016

149

2016 (Expressed in Renminbi)

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Notes to the Financial Statements

Vii. EXplanatory notEs for Main itEMs in consoliDatED financial statEMEnts (continued)

(26) capital reserve

Item	Beginning balance	Increase	Decrease	Ending balance
Capital premium
(share premium)	231,421,588.86	–	401,263.10	231,020,325.76
Other capital reserve
Total	231,421,588.86	–	401,263.10	231,020,325.76

Explanation of capital reserve:

The decrease in capital reserves is mainly due to legal fee relating to the additional issue of overseas listed foreign shares on 29 December 2015.

Launch Tech Company Limited

150

Notes to the Financial Statements

2016 (Expressed in Renminbi)

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(27) other comprehensive income

				Current	period
					After-tax
					income
					attributable to
			Beginning	Current period	the parent
	Item		balance	before tax	company	Ending balance
	Translation difference
	of foreign currency
	statements		3,221,298.19	110,987.90	110,987.90	3,332,286.09
	Total of other
	comprehensive income		3,221,298.19	110,987.90	110,987.90	3,332,286.09
(28)	surplus reserve
	Item	Beginning balance		Increase	Decrease	Ending balance
	Statutory surplus
	reserve	18,099,377.81				18,099,377.81
	Discretionary surplus
	reserve
	Total	18,099,377.81				18,099,377.81

Annual Report 2016 151

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Notes to the Financial Statements

2016 (Expressed in Renminbi)

Vii. EXplanatory notEs for Main itEMs in consoliDatED financial statEMEnts (continued)

(29) Undistributed profits

Item Undistributed profits at the end of last period before adjustment Adjustment of total undistributed profits at the beginning of the period (“+” for increase and “-” for decrease) Undistributed profits at the beginning of the period after adjustment Add: Net profits attributable to owners of parent company during this period Undistributed Profits at the end of period	Provision or distribution Amount proportion (%) 120,570,279.29 – – 120,570,279.29 – 21,411,537.32 –
	141,981,816.61

(30) operating income and operating costs

1. operating income and operating costs

Item Principal operation Other operations Total	Current period Previous period Income Cost Income Cost 818,148,347.46 459,861,117.69683,678,245.76 427,983,171.61 16,904,808.90 142,470.09 13,919,683.88 –
	835,053,156.36 460,003,587.78697,597,929.64 427,983,171.61

Launch Tech Company Limited

152

Notes to the Financial Statements 2016 (Expressed in Renminbi)

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(31) Business tax and surcharges

Item Business tax City maintenance and construction tax Education surcharges Real estate Land use tax Other Total	Current period Previous period 292,500.88 850,472.03 3,875,938.16 1,844,622.22 2,765,628.43 1,418,193.51 1,913,520.81 – 543,509.78 – 94,027.97 41,238.97
	9,485,126.03 4,154,526.73

Explanations on Tax and surcharge:

Increase of 128.31% is mainly due to the reclassification of Real estate tax, Land use tax, Stamp duties and Vehicle and vessel usage tax from Administrative expenses from May onward. It is also contributed by the increase in additional tax payment resulting from the relatively high Free Offset and refund tax balance at the year end.

Annual Report 2016 153

Notes to the Financial Statements

2016 (Expressed in Renminbi)

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(32) selling expenses

Item Remuneration Depreciation expenses Rental expenses Utilities Office expenses Exhibition expenses Advertising and printing expenses Travelling expenses Vehicle expenses Repair costs Entertainment Postage Storage and transportation fees Amortization of low-cost consumables Customs fees Commissions Training expenses After-sales service costs Cost of annual meeting Insurance Others Total

Current period Previous period 58,811,576.07 57,613,366.28 522,092.99 626,702.64 3,850,023.76 5,219,539.36 828,949.03 930,100.79 1,209,609.99 1,318,214.62 4,287,508.52 4,091,623.35 3,959,134.50 8,858,626.74 4,060,495.07 5,221,687.24 902,389.97 1,050,327.92 27,148.86 36,302.21 499,639.16 587,999.11 1,319,080.60 1,336,199.48 3,295,947.39 3,494,052.44 232,755.25 398,526.59 1,386,806.97 1,130,544.96 11,738,224.69 12,426,083.29 1,432,656.43 655,681.06 7,492,346.75 35,061,017.02 324,214.26 167,224.40 223,207.52 234,358.36 625,389.77 445,954.17

107,029,197.55 140,904,132.03

154 Launch Tech Company Limited

Notes to the Financial Statements

2016 (Expressed in Renminbi)

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(33) administrative expenses

Item Remuneration Office expenses Travelling expenses Entertainment Taxation Inventories losses Amortization of low-cost consumables Auditing and consulting expenses Legal consultancy expenses Depreciation expenses Research and development expenses Union funds and employee education funds Vehicles and storage and transportation costs Repairs and maintenance expenses Amortization of intangible assets Patent application and inspection certification fees Other expenses Total

Current period Previous period 32,040,929.99 27,584,134.21 5,344,384.61 6,498,544.97 4,239,144.55 3,416,770.49 5,021,118.13 2,742,871.39 1,294,239.78 3,139,046.32 4,929,459.49 5,910,114.11 621,244.41 259,074.01 2,762,635.10 2,756,801.74 3,346,822.58 2,043,031.99 20,246,098.60 19,188,264.13 79,814,679.44 62,352,282.17 3,665,392.44 3,248,756.33 4,662,060.68 4,262,928.47 5,096,584.56 1,825,013.72 49,153,116.74 45,115,361.68 2,095,366.35 2,258,612.94 3,709,480.70 3,873,359.67

228,042,758.15 196,474,968.34

Annual Report 2016 155

2016 (Expressed in Renminbi)

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Notes to the Financial Statements

Vii. EXplanatory notEs for Main itEMs in consoliDatED financial statEMEnts (continued)

(34) finance costs

Categories Interest expenses Less: Interest income Exchange differences Others Total	Current period Previous period 22,925,548.95 35,309,283.96 1,065,680.25 2,932,062.12 -21,389,448.39 -18,513,041.82 2,799,725.67 2,835,296.46
	3,270,145.98 16,699,476.48

Explanation on finance costs:

Financial costs reduced by 80.42% is mainly due to the increase in exchange difference resulting from relatively large fluctuations in exchange rate reduction in interest expenses resulting from the decrease in borrowings and in this period.

(35) asset impairment losses

Item Bad debt Impairment loss on inventories Impartment loss on intangible assets Loss on impairment on long term equity investment Total	Current period Previous period 15,456,041.47 21,310,252.45 – 12,537.47 4,469,291.41 1,353,652.81 542,066.92 –
	20,467,399.80 22,676,442.73

(36) investment income

1. Details of investment income

Item Gain/loss on long term equity investment Others Total	Current period Previous period -604,656.50 – – 2,592,876.71
	-604,656.50 2,592,876.71

Launch Tech Company Limited

156

Notes to the Financial Statements 2016 (Expressed in Renminbi)

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Vii. EXplanatory notEs for Main itEMs in consoliDatED financial statEMEnts (continued)

(37) non-operating income

Item Gain on disposals of non-current assets Including: Gain on disposals of fixed assets Government grants Including: value-added tax refund Others Total	Amount recorded in non-recurring Current period Previous period gain or loss 2,936.75 1,387,424.43 2,936.75 2,936.75 1,387,424.43 2,936.75 19,123,427.65 12,406,578.82 9,169,192.23 9,954,235.42 9,081,978.82 – 1,287,486.79 1,178,082.03 1,287,486.79
	20,413,851.19 14,972,085.28 10,459,615.77

Annual Report 2016 157

Notes to the Financial Statements

2016 (Expressed in Renminbi)

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Vii. EXplanatory notEs for Main itEMs in consoliDatED financial statEMEnts (continued)

• (37) non-operating income (continued)

1. Government grants recognized in profits or losses

			Asset-related/
Item	Current period	Previous period	Income-related
Transfer from deferred income	3,169,000.00	–	Asset related
Shenzhen science and technology (patent) reward	–	100,000.00	Income-related grants
Shenzhen patent and overseas trademarks subsidy	390,000.00	149,600.00	Income-related grants
Intellectual property reward of special fund for industry
development of Futian District, Shenzhen	–	33,000.00	Income-related grants
Shenzhen market Supervision Administration Bureau subsidy	–	32,000.00	Income-related grants
Shenzhen computer software copyright registration subsidy	18,000.00	–	Income-related grants
Shenzhen specialized subsidy for design of integrated circuit	–	3,000,000.00	Income-related grants
Shenzhen Enterprises’ working injury protection
and safety manufacturing rewards	–	10,000.00	Income-related grants
Shenzhen Electric Energy Efficiency Subsidy	22,000.00	–	Income-related grants
Shenzhen City SME information construction funding	480,000.00	–	Income-related grants
Shenzhen Internationalisation enhancement fund	97,097.00	–	Income-related grants
Shenzhen Longgang District Labor Relations Harmony Garden Bonus	10,000.00	–	Income-related grants
Shenzhen City, unemployed insurance steady Income subsidies	332,282.84	–	Income-related grants
Shenzhen Maternity Insurance Allowance	23,272.39	–	Income-related grants
Shenzhen City 2016 annual domestic market development project funding	11,840.00	–	Income-related grants
Shenzhen City 2016 annual high-tech industry special funds	1,033,700.00	–	Income-related grants
Shenzhen Science and Technology Innovation Committee – 2016
Enterprise research and development funding	3,462,000.00	–	Income-related grants
Nanshan District Science and Technology Bureau patent grant	120,000.00	–	Income-related grants
Total	9,169,192.23	3,324,600.00

158 Launch Tech Company Limited

Notes to the Financial Statements 2016 (Expressed in Renminbi)

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Vii. EXplanatory notEs for Main itEMs in consoliDatED financial statEMEnts (continued)

(38) non-operating expenses

Item Total loss on disposals of non-current assets Including: Loss on disposals of fixed assets Others Total	Amount recorded in non-recurring Current period Previous period gain or loss 815,011.38 273,803.90 815,011.38 815,011.38 273,803.90 815,011.38 567,461.68 853,915.18 567,461.68
	1,382,473.06 1,127,719.08 1,382,473.06

(39) income tax expense

Item Current income tax expenses Deferred income tax expenses Total	Current period Previous period 8,340,700.40 902,451.31 -4,196,386.96 -1,249.59
	4,144,313.44 -903,700.91

Annual Report 2016 159

Notes to the Financial Statements

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2016 (Expressed in Renminbi)

Vii. EXplanatory notEs for Main itEMs in consoliDatED financial statEMEnts (continued)

• (40) notes to in cash flow statement

1. other cash receipts relating to operating activities

Item Interest income Government grants Other non-operating income Current accounts Total	Current Period Previous period 1,065,680.25 2,932,062.12 6,000,192.23 8,824,600.00 1,216,948.17 1,178,082.03 23,738,059.51 13,263,413.65
	32,020,880.16 26,198,157.80

2. other cash payments relating to operating activities

Item Administrative expenses Selling expenses Bank charges and other Non-operating expenses Other current accounts Total	Current Period Previous period 61,405,777.76 47,026,046.64 47,291,715.31 83,091,923.90 2,799,725.67 2,835,296.46 567,461.68 853,915.18 8,484,340.83 9,417,133.11
	120,549,021.25 143,224,315.29

3. Cash received from other financing activities

Item Decrease in restricted monetary item Total	Current period Previous period 21,478,990.00 104,219,060.14
	21,478,990.00 104,219,060.14

160 Launch Tech Company Limited

Notes to the Financial Statements 2016 (Expressed in Renminbi)

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Vii. EXplanatory notEs for Main itEMs in consoliDatED financial statEMEnts (continued)

(41) supplementary information of cash flow statement

1. Supplementary Information of Cash Flow Statement

Item	Current period	Previous period
1. Reconciliation of net income to
cash flows from operating activities:
Net Income	21,037,349.26	-93,953,844.46
Add: Provision for impairment on assets	20,467,399.80	22,676,442.73
Depreciation of fixed assets, oil and gas assets
and productive biological assets	37,721,802.60	36,913,163.28
Amortization of intangible assets	49,153,116.74	45,115,361.68
Loss on disposals of fixed assets, intangible
assets and other long-term assets (“-” for gains)	812,074.63	-1,113,620.53
Losses on scrapping of fixed assets (“-” for gains)
Finance costs (“-” for gains)	22,925,548.95	35,309,283.96
Investments losses (“-” for gains)	604,656.50	-2,592,876.71
Decrease in deferred tax assets (“-” for increase)	-4,196,386.96	-1,249.59
Decrease in inventories (“-” for increase)	-10,807,903.18	-8,166,307.00
Decrease in operating receivables (“-” for increase)	-14,090,043.54	-29,195,594.99
Increase in operating payables (“-” for decrease)	-15,729,111.91	-80,874,842.25
Net cash flows from operating activities	107,898,502.89	-75,884,083.88
2. Investing and financing activities that do not
involve cash receipts and payments	–	–
3. Net increase in cash and cash equivalents
Cash at the end of the period	277,428,875.90	393,985,682.34
Less: Cash at the beginning of the period	393,985,682.34	218,098,811.22
Add: Cash equivalent at the end of the period	–	–
Less: Cash equivalent at the beginning of the period	–	–
Net increase in cash and cash equivalents	-116,556,806.44	175,886,871.12

Annual Report 2016

161

Notes to the Financial Statements

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2016 (Expressed in Renminbi)

Vii. EXplanatory notEs for Main itEMs in consoliDatED financial statEMEnts (continued)

• (41) supplementary information of cash flow statement (continued)

2. Composition of cash and cash equivalents

Item	Ending	balance	Beginning balance
1. Cash	277,428,875.90		393,985,682.34
Including: Cash deposits	1,239,401.42		2,567,187.00
Available-for-use bank deposit	276,189,474.48		391,418,495.34
2. Cash equivalents
Including: bond investment maturing
within three months		–	–
3. Cash and cash equivalents as at
the end of the period	277,428,875.90		393,985,682.34
Including: Restricted cash and cash
equivalent in the parent company
or subsidiaries in the Group		–	–
assets with restricted ownership or use rights
		Reason for
Item	Balance	restriction
Bank balance and cash	1,857,000.00	Pledged borrowing,
		guarantee deposits
Fixed assets	202,694,643.35	Security for borrowings
Intangible assets	13,511,684.63	Mortgage loan
Total	218,063,327.98

• (42) assets with restricted ownership or use rights

Other Explanations：

As of 31 December 2016, the Company placed a fixed deposit of RMB1,050,000.00 as pledge for a shortterm loan of 1,000,000.00 granted by Penglong branch of Bank of China with a term from 29 November 2016 to 29 November 2017.

Launch Tech Company Limited

162

Notes to the Financial Statements

2016 (Expressed in Renminbi)

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Vii. EXplanatory notEs for Main itEMs in consoliDatED financial statEMEnts (continued)

(43) foreign currency items

1. Foreign currency items

			Ending balance
	Ending balance		converted
Item	in foreign currency	Exchange rate	in RMB
Bank balances and cash	–	–	44,672,525.94
Including: USD	6,108,561.51	6.9370	42,375,091.19
Euro	296,141.48	7.3068	2,163,846.57
HKD	149,409.38	0.89451	133,648.18
Accounts receivable	–	–	287,959,530.43
Including: USD	39,656,921.62	6.9370	275,100,065.28
Euro	1,759,931.18	7.3068	12,859,465.15

2. Foreign operating Entities

		Main item of
		the financial	Exchange
Name of investee	Currency	statements	rate	Note
Launch Europe GmbH	Euro	Long-term equity	10.1172	Historical exchange rate
		investments		of investment
			9.1577	Historical exchange rate
				of investment
		Net assets (other than	10.0000	Historical exchange rate
		undistributed profits)		when occurrence
		Profit and loss	7.3417	Annual average
				exchange rate
		Other items	7.3068	Year-end exchange rate
Launch International	HKD	Long term investment	0.84029	historical rate
		Revenue items	0.85715	Annual average rate
		Other items	0.89451	Year end rate

Annual Report 2016 163

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Notes to the Financial Statements

2016 (Expressed in Renminbi)

Viii. cHangE in tHE scopE of consoliDation

(1) acquisition of subsidiaries through establishment or investment

		Registration		Registered
Name	Type	place	Business Nature	capital	Major operation
PJS	Limited Liability	Shenzhen	Technology	10,000,000.00	Computer hardware and software,
	Company		Development		communications equipment, technology
					development and sales
Launch International	Limited Company	Hong Kong	Automobile repair	HK$50,000	Car diagnosis, testing, maintenance
			and maintenance		equipment sales, information network
			equipment		services
Continued:
				Project balance
				for constitution
			Actual invested	of investment to
	Shareholding	Voting right	amount at the	net investment
Name	(%)	(%)	period end	in substance	Included in consolidation
PJS	97	97	2,000,000.00		Yes
Launch International	100	100	HK$50,000.00		Yes
Continued:
		unified
		Social		Amount to offset	equity used to offset
Name	Enterprise type	code	Minority interest	minority interest	minority interest
PJS	Limited Liability	91440300	-46,599.85
	Company	MA5DD
		38916
Launch International	Limited Company	2228017	–

164 Launch Tech Company Limited

Notes to the Financial Statements 2016 (Expressed in Renminbi)

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iX. EQUity intErEsts in otHEr EntitiEs

• (i) Equity interests in subsidiaries

1. Composition of the Group

				Shareholding	Shareholding
				proportion (%)
	Principal place	Registration				Way of
Name of subsidiaries	of operation	place	Business nature	Direct	Indirect	acquisition
Shanghai Launch	Shanghai	Shanghai	Production of automobiles maintenance machines and	100	–	Establishment
			equipment and automobile warranty machines such as
			automobile spray booths, tire balancer, tire changer, 4-wheel
			aligner, frame racks and automobile testing line.
Xi’an Launch	Xi’an	Xi’an	Development, production and sales of automotive diagnosis,	100	–	Establishment
			inspection, repair and maintenance software; development,
			production and sales of auto electronic products.
Launch Software	Shenzhen	Shenzhen	Development and sales of computer software and hardware;	100	–	Business
			computer network engineering and development and			combination
			consulting of computer technology, import and export			under common
			business.			control
Launch Europe GmbH	Germany	Germany	Sales of computer software and hardware, consulting services	100	–	Business
			of electronic products and technical.			combination not
						under common
						control
Peng Ao Da	Shenzhen	Shenzhen	Auto electronic products, automotive inspection equipment,	88	–	Business
			automotive fault diagnostic software, computer network			combination not
			engineering, technological development, purchase and sales			under common
			of computer software and hardware.			control
Shenzhen Haishiwei	Shenzhen	Shenzhen	Health care management consultation(not include medical	100	–	Establishment
			treatments); Health care products development; computer
			software and hardware and periherals, mobile phone,
			communication products, electronic products development
			and distribution; chip development and distribution; goods
			and technologies import and export.
Golo Internet	Shenzhen	Shenzhen	Computer software and hardware technology development	100	–	Establishment
			and distribution; computer network projects; computer
			technology development, consultation and technical services;
			import and export.
PJS	Shenzhen	Shenzhen	Computer hardware and software, communications	97		Establishment
			equipment, technology development and sales, computer
			graphic design, graphic design, corporate image planning,
			Internet information consultation.
Launch International	Hong Kong	Hong Kong	Car diagnosis, testing, maintenance equipment sales,	100		Establishment
			information network services.

Annual Report 2016 165

Notes to the Financial Statements

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2016 (Expressed in Renminbi)

X. DisclosUrE of risKs in rElation to financial instrUMEnts

The Company may face all kinds of financial risks in its operating activities: credit risks, liquidity risks and market risks (mainly foreign exchange risk sand interests rate risk). The overall risk management plan of the Company focuses on the unpredictability of the financial market and strives to reeducate potential adverse impact on the financial results of the Company.

(i) credit risks

The credit risks of the Company mainly comes from bank balances and cash, bills receivable, accounts receivable and other receivables. The management has formulated certain credit policies and constantly supervise the exposure to such credit risks.

Bank balance and cash held by the Company are mainly deposited in financial institutions such as statecontrolled banks and other large to medium size commercial banks. The management believes that, the commercial banks have good reputation and asset status with low credit risks, and no significant credit risk and no significant losses from beach of contracts are expected.

For accounts receivable, the other receivables and bills receivable, the Company has adopted relevant policies to control the exposure to the credit risks. The Company assesses the credit quality of customers based on the financial conditions of the customers, possibility to obtain security from any third party, credit records and other factors such as current market status, and set up relevant credit period. The Company will monitor the credit records of customers on a periodical basis. For customers with no good credit records, the Company will press for payment in writing, reduce or cancel the credit period to make sure that the overall credit risks of the Company is within a controllable range.

As of 31 December 2016, receivables of top five customers of the Company accounted for 43.45% (2015: 52.46%) of the total receivables of the Company.

The maximum credit risk exposure for the Company is the book value of each item of financial assets (including the derivative financial instruments). The Company has not provided any security that may expose the Company to any credit risks.

Launch Tech Company Limited

166

Notes to the Financial Statements

2016 (Expressed in Renminbi)

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X. DisclosUrE of risKs in rElation to financial instrUMEnts (continued)

(ii) liquidity risks

Liquidity risk refers to the risk that the Company may not obtain sufficient funds in time to satisfy the demands for business development or repayment of the debts when due and other payment obligations.

The finance department of the Company constantly supervises the short-term and long-term demands for funds of the Company to make sure to maintain sufficient cash reserve; and meanwhile, the department also supervises compliance with loan agreements, the commitment from major financial institutions for sufficient reserve funds to satisfy the short-term and long-term demands for funds.

As of 31 December 2016, all the financial assets and financial liabilities of the Company are presented at undiscounted contractual cash flows by maturity date as follows:

Item Bank balances and cash Accounts receivable Other receivables Sub-total Short-term borrowings Accounts payable Other payables Long-term borrowing fall due with one year Long-term borrowings Sub-total	Ending balance Net carrying value Original carrying value Under 1 year 1-2 years 2-5 years Over 5 years 279,285,875.90 279,285,875.90 279,285,875.90 232,262,423.02 316,225,868.23 216,748,990.16 98,125,355.26 1,351,522.81 18,538,048.22 26,627,663.68 19,155,442.34 2,300,000.00 5,172,221.34
	530,086,347.14 622,139,407.81 515,190,308.40 100,425,355.26 6,523,744.15
	384,374,000.00 384,374,000.00 384,374,000.00 94,392,524.66 94,392,524.66 94,392,524.66 12,832,830.76 12,832,830.76 11,501,080.76 1,331,750.00 505,399.54 505,399.54 505,399.54 676,536.08 676,536.08 545,610.05 130,926.03
	492,781,291.04 492,781,291.04 490,773,004.96 1,877,360.05 130,926.03

Annual Report 2016 167

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Notes to the Financial Statements

2016 (Expressed in Renminbi)

X. DisclosUrE of risKs in rElation to financial instrUMEnts (continued)

• (ii) liquidity risks (continued)

Continued

Item Bank balances and cash Accounts receivable Other receivables Sub-total Short-term borrowings Accounts payable Other payables Long-term borrowing fall due with one year Long-term borrowings Sub-total	Beginning balance Net carrying value Original carrying value Under 1 year 1-2 years 2-5 years Over 5 years 415,464,672.34 415,464,672.34 415,464,672.34 241,169,471.34 319,478,687.62 219,353,543.96 100,125,143.66 39,648,210.28 45,827,045.23 39,162,447.63 6,664,597.60
	696,282,353.96 780,770,405.19 673,980,663.93 106,789,741.26
	489,347,159.96 489,347,159.96 489,347,159.96 88,357,296.14 88,357,296.14 88,357,296.14 12,576,859.75 12,576,859.75 12,576,859.75 468,152.45 468,152.45 468,152.45 1,190,145.51 1,190,145.51 505,399.54 684,745.97
	102,592,453.85 102,592,453.85 101,402,308.34 505,399.54 684,745.97

(iii) Market risks

1. Exchange rate risk

The principal places of operation of the Company are located in China and the major businesses are settled in RMB. However, the recognized foreign currency assets and liabilities as well as the foreign currency transactions in the future (the functional currency of foreign assets and liabilities as well as the transactions are mainly USD and Euro) remain exposed to exchange rate risks. The finance department of the Company is in charge of supervising the foreign currency transaction and the size of foreign assets and liabilities so as to reduce the exposure to exchange rate risks.

Launch Tech Company Limited

168

Notes to the Financial Statements

2016 (Expressed in Renminbi)

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iX. DisclosUrE of risKs in rElation to financial instrUMEnts (continued)

(iii) Market risks (continued)

1. Foreign exchange risk (Continued)

• (1) No forward foreign contract has been signed by the Company during the year.

• (2) as of 31 December 2016, the amounts of financial assets and financial liabilities in foreign currency held by the Company that is converted to RMB are presented as follows:

Item Foreign currency financial assets: Bank balance and cash Accounts receivable Sub-total Continued: Item Foreign currency financial assets: Bank balance and cash Accounts receivable Sub-total Foreign currency financial liabilities: Accounts payable Sub-total	Ending balance USD Euro HKD AUD JPY Total 42,375,091.19 2,163,846.57 133,648.18 44,672,585.94 275,100,065.28 12,859,465.15 287,959,530.43
	317,475,156.47 15,023,311.72 133,648.18 332,632,116.37
	Beginning balance USD Euro HKD AUD JPY Total 22,060,380.51 2,308,093.03 161,972,363.86 1.8 186,340,839.20 284,243,963.31 13,181,577.43 297,425,540.75
	306,304,343.82 15,489,670.46 161,972,363.86 1.8 483,766,379.95
	198,655.66 198,655.66
	198,655.66 198,655.66

Annual Report 2016 169

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Notes to the Financial Statements

2016 (Expressed in Renminbi)

iX. DisclosUrE of risKs in rElation to financial instrUMEnts (continued)

(iii) Market risks (continued)

1. Foreign exchange risk (Continued)

• (3) Sensitivity analysis:

As of 31 December 2016, for the financial assets and financial liabilities of the Company in USD and Euro, if RMB appreciates or depreciates by 10% against USD and EUR with other factors remaining unchanged, the net profits of the Company will reduce or increase by RMB33,263,211.64 (2015: approximately RMB48,356,772.00).

2. Interest rate risks

The interest rate risk of the Company mainly comes from the bank borrowing. Financial liabilities with floating interest rate expose the Company to interest rate risk in cash flows; financial liabilities with fixed interest rate expose the Company to interest rate risk in fair value. The Company determines the comparative proportion of fixed rate and floating rate according to the market environment.

The finance department of the Company constantly supervise the interest rate level of the Company. Rise in the interest level will increase the cost of interest-bearing debts and the interest expenses of interest-bearing debts with floating rate that have not yet been repaid, and may have material adverse impact on the financial results of the Company. The management will make timely adjustment to reduce the interest rate risks according to the latest market conditions.

• (1) The Company had no interest rate swap arrangement during the year.

• (2) As of 31 December 2016, the Company’s long-term interest-bearing debt is the contract with floating interest rate dominated in RMB, and the value is RMB385,555,935.62. See Note VII (16), (22) and (23) for details.

• (3) Sensitivity analysis:

As of 31 December 2016, if the interest rate of the loan with floating rate rises or falls by 50 basis points with the other factors remaining unchanged, the net profits of the Company reduces or increases by approximately RMB1,927,779.68 (2015: approximately RMB2,455,027.29).

It is assumed in the sensitivity analysis above that, changes in interest rate occurred on the balance sheet date and were applied to all borrowings of the Company with floating rate.

Launch Tech Company Limited

170

Notes to the Financial Statements

2016 (Expressed in Renminbi)

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Xi. fair ValUE

• (i) financial instrument measured at fair value

As of 31 December 2016, the Company had no financial instruments measured at fair value.

• (ii) financial assets and financial liabilities that are not measured at fair value

Financial assets and financial liabilities that are not measured at fair value mainly include accounts receivable, short-term borrowing, accounts payable, non-current liabilities maturing within one year and long-term borrowings.

There are small differences between the book values of the financial assets and financial liabilities that are not measured at fair value and their fair values.

Xii. rElatED partiEs anD connEctED transactions

• (1) the ultimate controlling shareholder of the company

The ultimate controlling shareholder of the Company is Mr. Liu Xin.

• (2) Details of subsidiaries of the company are set out in note iX (1) “Equity interests in subsidiaries”.

• (3) Joint operation and associate

Details of joint operation or associate are as follows:

Name Relationship Shenzhen Launch Guangtong Internet Finance Associate Services Co., Ltd (“Launch GT”) R & Launch Corporation Associate

• Note 1: On 13 August 2015, Launch GT has been registered with business licence which the Company obliged to contribute 49%, Shenzhen Zhonglian Guangtong Assets Management Co., Ltd obliged to contribute 51%, as at 31 December 2016, no contribution has been made by the Company.

• Note 2: R & LAUNCH Corporation is a jointly controlled company invested by the Group through Launch International. On 17 June 2016, Launch International, the Company’s subsidiary, invested USD 174,287.32 (translated as 200,000,000KRW, translated to RMB1,146,723.42) for holding of 50.00% interest, and TAI-HWAN RHEE invested 200,000,000 KRW for holding of 50.00% interest.

Annual Report 2016 171

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Notes to the Financial Statements

2016 (Expressed in Renminbi)

Xii. rElatED partiEs anD connEctED transactions (continued)

(4) other related parties

Name Relation Shenzhen Langqu Technology Shareholder Development Co., Ltd. Liu Xin Beneficial controlling person Liu Jun Brother of beneficial controlling person Jiang Shiwen Executive director of the Company Shenzhen Huidong Creative Shareholder of PJS, the Company’s subsidiary. Technology Co., Ltd

(5) connected transactions

1. For the subsidiaries which are controlled by the Company and consolidated into the consolidated financial statements, the transactions amongst them and that between the Company and them have been eliminated.

2. Related party transactions for sale of goods and provision of services

Nature of related Related parties transactions R & Launch Corporation Sales of goods Total	Current period Previous period 1,406,765.71
	1,406,765.71

3. Related party transactions for procurement of goods, to accept the labor services

Nature of related Related parties transactions Shenzhen Huidong Creative Technical services Technology Co., Ltd Liu Jun Purchase of vehicle Total	Current period Previous period 1,550,000.00 700,000.00
	2,250,000.00

Launch Tech Company Limited

172

Notes to the Financial Statements

2016 (Expressed in Renminbi)

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Xii. rElatED partiEs anD connEctED transactions (continued)

(5) connected transactions (continued)

4. Provision of fund to Related parties

Related parties Jiang Shiwen Total	Beginning Provision Ending balance of fund Repayment balance 1,955,577.73 322,832.73 1,632,745.00
	1,955,577.73 322,832.73 1,632,745.00

5. Cash in advance for Related parties

Related parties Liu Xin Liu Jun Total	Beginning Debit in Credit in balance the period the period Ending balance Nature of borrowing 3,849,911.10 3,849,911.10 Travelling and entertainment expenses 3,499,525.00 3,499,525.00 Travelling and entertainment expenses
	7,349,436.10 7,349,436.10

Annual Report 2016

173

Notes to the Financial Statements

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2016 (Expressed in Renminbi)

Xii. rElatED partiEs anD connEctED transactions (continued)

• (5) connected transactions (continued)

6. Guarantee with related parties (1) The Company as warrantee

Details of guarantee are as follows:

No. Warrantor a Launch Software, Shanghai Launch, Liu Xin, Liu Jun b Liu Xin, Liu Jun c Shanghai Launch, Shenzhen Langqu, Liu Xin, Hu Fang, LiuJun, Li Xiao Xia d Launch Software, Shanghai Launch, Liu Xin, Liu Jun Total

Amount Ending Date of Completed guaranteed balance commencement Maturity date or not 140,000,000.00 26,000,000.00 2016/2/29 2019/2/28 No 20,000,000.00 2016/3/28 2019/3/27 No 13,874,000.00 2016/11/30 2019/5/26 No 33,500,000.00 2016/12/9 2019/12/8 No 160,000,000.00 20,000,000.00 2016/1/26 2019/1/26 No 40,000,000.00 2016/2/24 2019/2/24 No 20,000,000.00 2016/4/26 2019/2/26 No 50,000,000.00 2016/5/26 2019/2/26 No 30,000,000.00 2016/6/23 2019/2/23 No 70,000,000.00 70,000,000.00 2016/3/11 2019/2/19 No 160,000,000.00 60,000,000.00 2016/5/19 2019/5/18 No

530,000,000.00 383,374,000.00

Launch Tech Company Limited

174

Notes to the Financial Statements

2016 (Expressed in Renminbi)

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Xii. rElatED partiEs anD connEctED transactions (continued)

(5) connected transactions (continued)

6. Guarantee with related parties (Continued)

• (1) The Company as warrantee (Continued)

• Explanation of guarantee with related parties

• a) The Company entered into the maximum amount consolidated credit facility agreement “Nong Yin Shou Zi 2016 No. 1031” with Shenzhen Central District Branch of Agricultural Bank of China (for a maximum consolidated credit facility of RMB 140 million), as of 31 December 2016, the balance of borrowing under such facility was RMB 93.374 million.

• b) The Company entereed into the consolidated credit facility agreement “2015 Zhen Zhong Yin She Zong Xie Zi No.0000859” with Shenzhen Shekou Branch of Bank of China (for a credit facility RMB 160 million), borrowing limit was RMB 160 million; as of 31 December 2016, the balance of borrowing under such facility was RMB160 million.

• c) The Company entereed into the consolidated credit facility agreement “10206215025” with Shenzhen Branch of Guangdong Development Bank Co., Ltd (Ceiling of facility RMB140 million, with exposure of RMB70 million), as of 31 December 2016, the balance of borrowing under such facility was RMB70 million.

• d) The Company entereed into the consolidated credit facility agreement “Jie 2016 Zong 12007 NanShan” with Shenzhen Huaqiaocheng Branch of China Construction Bank (for a credit facility of RMB 100 million), with borrowing limit of RMB 60 million as of 31 December 2016, the balance of borrowing under such facility was RMB 60 million.

Annual Report 2016 175

Notes to the Financial Statements

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2016 (Expressed in Renminbi)

Xii. rElatED partiEs anD connEctED transactions (continued)

(5) connected transactions (continued)

7. Key management personnel remuneration

• (1) Remunerations of Directors and supervisors

Item	Current period	Previous period
Key management personnel remunerations	3,642,330.63	2,641,939.70

Remuneration for directors and supervisors in 2016 are as follows:

		Salaries and	Retirement
Name	Fees	subsidies	benefit	Total
Executive directors
Liu Xin		492,000.00	53,422.46	545,422.46
Liu Jun		456,266.00	53,422.46	509,688.46
Huang Zhaohuan		712,500.00	46,964.70	759,464.70
Jiang Shiwen		948,600.00	53,422.46	1,002,022.46
Non-executive directors
Liu Yong	50,000.00			50,000.00
Independent non-executive directors
Ning Bo	50,000.00			50,000.00
Liu Yuen	50,000.00			50,000.00
Zhang Yan	50,000.00			50,000.00
Supervisors
Sun Zhong Wen	10,000.00			10,000.00
Du Xuen	10,000.00			10,000.00
Yang Yi		575,000.00	30,732.55	605,732.55
Total	220,000.00	3,184,366.00	237,964.63	3,642,330.63

Launch Tech Company Limited

176

Notes to the Financial Statements

2016 (Expressed in Renminbi)

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Xii. rElatED partiEs anD connEctED transactions (continued)

(5) connected transactions (continued)

7. Key management personnel remuneration (Continued)

• (2) Five highest paid personnels

2016, 2 directors were included in the 5 highest paid personnels.

Name Executive directors Huang Zhaohuan Jiang Shiwen Non-directors Zhang Wei Zhang JiangBo Xu XiangMin Total	Salaries and Retirement Fees subsidies benefit Total 712,500.00 46,964.70 759,464.70 948,600.00 53,422.46 1,002,022.46 782,364.00 51,710.19 834,074.19 696,000.00 53,116.46 749,116.46 561,000.00 53,116.46 614,116.46
	3,700,464.00 258,330.27 3,958,794.27

8. Amount due from/to related parties (1) Amount due from related parties

	Related	Ending	balance	Beginning	balance
Item	parties	Book value	Provision	Book value	Provision
Other receivables	Jiang Shiwen	1,632,745.00	81,637.25

Annual Report 2016 177

Notes to the Financial Statements

2016 (Expressed in Renminbi)

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Xiii. significant coMMitMEnts anD contingEnt liaBilitiEs

(i) significant commitments

1. ongoing lease agreements and related financial influence

As at 31 December 2016, the amount payables of irrevocable operating lease under the signed lease agreements during the following period are as follows:

Aging Under 1 year 2-5 years Over 5 years Total	Current period Previous period 1,620,706.33 943,590.45 240,000.00 157,230.83 –
	1,860,706.33 1,100,821.28

2. other significant finance commitments

(1) Pledge of assets (details, amount and impact to be indicated)

The Company pledged its properties and buildings with an original value of 54,581,743.00 as the mortgage to provide pledge guarantee for the maximum amount consolidated credit facility agreement “Nong Yin Shou Zi 2016 No.1031” with Shenzhen Meilin sub branch of Agricultural Bank of China (for a maximum consolidated credit facility of RMB 140 million from 25 October 2016 to 24 October 2017), as of 31 December 2016, the balance of borrowing under such facility was RMB 95 million.

Shanghai Launch the company’s subsidiary pledged its properties and buildings with an original value of 148,112,900.35 and land use right with original value of 13,511,684.63 as the mortgage to provide pledge guarantee for the credit facilities agreement “2015 Zhen Zhong Yin She Zong Xie Zi No.0000859” with Shenzhen Shekou Branch of Bank of China (for a credit facility RMB 160 million from 27 August 2015 to 28 August 2018); as of 31 December 2015, the balance of borrowing under such facility wa RMB160 million.

Besides the commitment above, the Company had no significant commitments that should be disclosed as at 31 December 2016.

(ii) contingent liabilities on the balance sheet date

The Company has no contingent liabilities that need to be disclosed.

XiV. post-BalancE sHEEt EVEnts

As of the date of the annual report, there is no material post-balance sheet event which is required to be disclosed but has not been disclosed.

178 Launch Tech Company Limited

Notes to the Financial Statements 2016 (Expressed in Renminbi)

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XV. otHEr significant EVEnts

(i) prior accounting error

No errors from previous periods were identified during the reporting period using the retrospective restatement method.

No errors from previous periods were identified during the reporting period under prospective application method.

(ii) segment information

1. Determination criterion and accounting policies for reporting segment Operating segments of the Company are identified on the basis of internal organization structure, management requirements and internal reporting system. An operating segment represents a component of the Company that satisfied the following criteria simultaneously:

• (1) its business activities are engaged to earn revenue and incur expenses;

• (2) its operating results are regularly reviewed by the Company’s management to make decisions on resources allocation performance assessment;

• (3) its financial information, operating results, cash flow and related accounting information is available to the Company.

The Company determines the reporting segment based on the operating segment, and the operating segment that meets any of the following conditions is determined as the reporting segment:

• (1) The segment income of the operating segment accounts for 10% of total income of all segments or more;

• (2) The absolute amount of profit (losses) of the segment account for 10% of the higher of the absolute amount of total profits of the profiting segment and the absolute amount of total losses of the unprofitable segment or more.

Where the proportion of the total external revenue of the operating segment determined to be reporting segments according to the accounting policies above does not amount to 75%, the number of reporting segments should be increased; operating segments that are not determined to be reporting ones can be included in the scope of reporting ones according to the following rules till the proportion reaches 75%:

Annual Report 2016 179

Notes to the Financial Statements

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2016 (Expressed in Renminbi)

XV. otHEr significant EVEnts (continued)

(ii) segment information (continued)

1. Determination criterion and accounting policies for reporting segment (Continued)

• (1) The operating segments, which the management believes may be useful for users of accounting information if their information is disclosed, are determined as reporting segments;

• (2) one or more operating segments with economic features with similar features that are qualified for combination the operating segment are combined as one reporting segment.

The transfer price among segments is determined with reference to the market price, and assets used joint by segments and relevant expenses are distributed among segments according to the proportion of income.

2. Factors considered when determine reportable segments of the Company, types of products and services of reportable segments

Reporting segments of the Company are business units providing different products and services. As each business requires different skills and market strategies, each segment is managed independently.

The Company has three reporting segments: automotive diagnosis segment, lift segment and overseas sales segment. The automotive diagnosis segment covers research and development, production and sales of automotive diagnostic and inspection products. The lift segment covers research and development, production and sales of machinery products in the automotive aftermarket. The overseas sales segment covers development and maintenance of European distributors and customers.

180 Launch Tech Company Limited

Notes to the Financial Statements

2016 (Expressed in Renminbi)

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XV. otHEr significant EVEnts (continued)

(ii) segment information (continued)

3. Financial information of the reporting segment

Current unit: RMB

				Ending balance/Current period
		Automotive		Overseas
Item		diagnosis segment	Lift segment	sales segment	Write-off	Total
I.	Operating income	852,132,455.34	207,956,173.37	77,292,112.39	302,257,046.12	835,123,694.98
	Including: Revenue from
	external transaction	698,108,567.60	59,723,014.99	77,292,112.39		835,123,694.98
	Revenue from
	inter-segment
	transaction	154,023,887.74	148,233,158.38		302,257,046.12
II.	Operating expenses	293,227,931.92	23,434,418.56	16,493,856.76	10,796,217.99	343,952,425.23
	Including: income from investment
	in associates and
	joint ventures	-604,656.50				–604,656.50
	Impairment loss of assets	17,707,455.38	2,435,796.86	324,147.56		20,467,399.80
	Depreciation and amortization
	expenses	78,536,290.68	8,194,311.04	144,317.62		86,874,919.34
III.	Operating profit(loss)	8,251,689.03	10,584,975.96	3,176,589.08	-3,168,408.63	25,181,662.70
IV.	Income tax expenses	203,353.51	2,865,521.21	1,075,438.72		4,144,313.44
V.	Net profits (losses)	8,048,335.52	7,719,454.75	2,101,150.36	-3,168,408.63	21,037,349.26
VI.	Total assets	350,408,855.65	197,252,000.93	72,471,640.99	693,416,646.97	1,313,549,144.54
VII.	Total liabilities	38,012,234.25	62,948,108.27	58,256,289.71	430,950,571.70	590,167,203.93
VIII.	Other significant non-monetary items
	1. Capital expenditure	49,448,756.56	120,117.00	152,870.79		49,721,744.35

The accounting policy of operating segments of the Company is the same as the accounting policy stated in the section of “The Significant Accounting Policies and Accounting Estimates”.

Annual Report 2016 181

Notes to the Financial Statements

2016 (Expressed in Renminbi)

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XVi. EXplanatory notEs for Main itEMs in financial statEMEnts of tHE parEnt coMpany

• (1) accounts receivable

1. Accounts receivable disclosed by categories

		Ending balance	Ending balance
	Carrying balance		Provision for bad debts
Categories	Amount	Proportion (%)	Amount	Proportion (%)	Book value
Accounts receivable that are individually
significant and are subjected to provision
for bad debts on individual basis
Accounts receivable that are subjected to
provision for bad debts
on portfolio basis	289,795,743.69	99.54	67,265,155.14	23.21	222,530,588.55
Accounts receivable that are
individually insignificant but are
subjected to provision for bad
debts on individual basis	1,351,522.81	0.46	1,351,522.81	100.00	–
Total	291,147,266.50	100.00	68,616,677.95	23.57	222,530,588.55
Continued:
		Beginning balance
	Carrying balance		Provision for bad debts
Categories	Amount	Proportion (%)	Amount	Proportion (%)	Book value
Accounts receivable that are individually
significant and are subjected to provision
for bad debts on individual basis
Accounts receivable that are subjected to
provision for bad debts on portfolio basis	281,175,103.19	99.52	62,499,774.12	22.23	218,675,329.07
Accounts receivable that are
individually insignificant but are
subjected to provision for bad
debts on individual basis	1,351,522.81	0.48	1,351,522.81	100
Total	282,526,626.00	100	63,851,296.93	22.6	218,675,329.07

Launch Tech Company Limited

182

Notes to the Financial Statements 2016 (Expressed in Renminbi)

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XVi. EXplanatory notEs for Main itEMs in financial statEMEnts of tHE parEnt coMpany (continued)

(1) accounts receivable (continued)

1. Accounts receivable disclosed by categories (Continued)

• (1) Explanation of accounts receivable:

Aging of accounts receivable within the group:

Aging Under 1 year including: within 90 days 91-180 days 181-270 days 271-365 days 1-2 years 2-3 years 3-4 years 4-5 years Over 5 years Total

Ending balance Accounts Provision for Proportion of receivable bad debts provision (%) 108,655,395.63 5,432,769.78 5.00 63,869,031.04 3,193,451.56 5.00 15,794,597.46 789,729.87 5.00 22,274,397.24 1,113,719.86 5.00 6,717,369.89 335,868.49 5.00 52,206,586.97 5,220,658.70 10.00 35,733,231.54 10,719,969.46 30.00 11,525,829.21 5,762,914.61 50.00 26,099,328.51 20,879,462.81 80.00 19,249,379.78 19,249,379.78 100.00

253,469,751.64 67,265,155.14

Explanations of the basis for determination of the portfolio:

The Company made the best estimates for the proportion of provision for the accounts receivable according to the pass experience, and classified the credit risk portfolio with reference to the aging of the accounts receivable.

The Company mainly offered credit terms from 30 to 210 days to trading customers. Customers with good and long term records or major customers, or for those the Company decided to maintain long term operation relationship, would be offered different credit terms.

The aging of the not-past-due and overdue accounts receivable are as follows:

Items Not past due overdue Total	Ending balance Beginning balance Carring balance Provision Book value Carring balance Provision Book value 84,161,308.96 4,208,065.45 79,953,243.51 73,211,024.96 3,660,551.25 69,550,473.71 206,985,957.54 64,408,612.50 142,577,345.04 209,315,601.04 60,190,745.68 149,124,855.36
	291,147,266.50 68,616,677.95 222,530,588.55 282,526,626.00 63,851,296.93 218,675,329.07

Annual Report 2016 183

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Notes to the Financial Statements

2016 (Expressed in Renminbi)

XVi. EXplanatory notEs for Main itEMs in financial statEMEnts of tHE parEnt coMpany (continued)

(1) accounts receivable (continued)

1. Accounts receivable disclosed by categories (Continued)

• (2) Accounts receivable with provision made for bad debts by other methods within the group

		Ending balance
		Provision for	Proportion of
Name	Accounts receivable	bad debts	provision (%)
Related parties within the			No provisions
range of consolidation	36,325,992.05		are made
Total	36,325,992.05

• (3) Accounts receivable subjected to provision for bad debts that are individually significant or insignificant but carried out impairment test on individual basis at the end of the period

		Ending	balance
Company name	Accounts receivable	Provision		Age	Reasons for provision
Shenzhen Jinnongxiang	1,205,174.98	1,205,174.98	Over 5	years	Low recoverability due
Electronic Technology					to significant risk
Co., Ltd
Hafei Automobile Co., Ltd	146,347.83	146,347.83	Over 5	years	Low recoverability due
sales branch					to significant risk
Total	1,351,522.81	1,351,522.81

2. Provision, recovery or reversal of the provision for bad debts during the period

The amount of provision for bad debts during the period amounted to RMB9,266,046.21; and there is no amount of written back of the provision for bad debts during the period.

Launch Tech Company Limited

184

Notes to the Financial Statements 2016 (Expressed in Renminbi)

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XVi. EXplanatory notEs for Main itEMs in financial statEMEnts of tHE parEnt coMpany (continued)

(1) accounts receivable (continued)

3. Accounts receivable actually written off during the reporting period

Item Amount written off Accounts receivable actually written off 4,50,665.19

Details of significant accounts receivable actually written off:

Name Nature Launch Technology Canada Inc. Payment for goods Disbrat Service Automotovos LTDA. Payment for goods Haining Lotus Passenger Car Co., Ltd Payment for goods Shanghai Hankook Tire Sales Co., Ltd Payment for goods L-M/S Ned University of Payment for goods Engineering & Technology Central Purchasing Inc. Payment for goods L-Rally Auto Service CO., LTD Payment for goods 38 accounts with insignificant amounts Payment for goods Total

Whether arising from Amount Approval connected written off Reason Procedure transaction 3,356,885.55 Uncollectible Approved by General No Managers’ meeting 745,481.76 Uncollectible Approved by General No Managers’ meeting 110,400.00 Uncollectible Approved by General No Managers’ meeting 98,271.60 Uncollectible Approved by General No Managers’ meeting 49,743.00 Uncollectible Approved by General No Managers’ meeting 26,337.26 Uncollectible Approved by General No Managers’ meeting 25,300.42 Uncollectible Approved by General No Managers’ meeting 88,245.60 Uncollectible Approved by General No Managers’ meeting 4,500,665.19

Annual Report 2016 185

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Notes to the Financial Statements

2016 (Expressed in Renminbi)

XVi. EXplanatory notEs for Main itEMs in financial statEMEnts of tHE parEnt coMpany (continued)

(1) accounts receivable (continued)

5. Top five accounts receivable by ending balance collection of the borrower

Name Launch Tech (USA), Inc. Launch Europe GmbH Launch Tech Japan.Inc. Launch Ibérica, S.L. Matco Tools Total	Proportion in ending balance Provision already of accounts made for Ending balance receivable (%) bad debts 97,089,803.92 33.35 11,430,779.51 36,325,992.05 12.48 – 27,065,124.34 9.30 19,839,094.55 15,763,292.84 5.41 2,838,533.11 14,640,316.38 5.03 732,015.82
	190,884,529.53 65.57 34,840,422.99

(2) other receivables

1. Disclosure of other receivables by categories:

Categories Other receivables that are individually significant and are provided for bad debts on individual basis Other receivables that are provided for bad debts on basis of credit risk portfolio Other receivables that are individually insignificant but are provided for bad debts on individual basis Total	Ending balance Carrying balance Provision for bad debts Amount Proportion (%) Amount Proportion (%) Book value 73,847,016.10 93.57 2,730,039.67 3.70 71,116,976.43 5,073,221.34 6.43 5,073,221.34 100.00 –
	78,920,237.44 100.00 7,803,261.01 9.89 71,116,976.43

Launch Tech Company Limited

186

Notes to the Financial Statements 2016 (Expressed in Renminbi)

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XVi. EXplanatory notEs for Main itEMs in financial statEMEnts of tHE parEnt coMpany (continued)

• (2) other receivables (continued)

1. Disclosure of other receivables by categories: (Continued)

Categories Other receivables that are individually significant and are provided for bad debts on individual basis Other receivables that are provided for bad debts on basis of credit risk portfolio Other receivables that are individually insignificant but are provided for bad debts on individual basis Total	Beginning balance Carrying balance Provision for bad debts Amount Proportion (%) Amount Proportion (%) Book value 62,563,046.45 95.68 3,135,439.72 5.01 59,427,606.73 2,821,780.57 4.32 2,821,780.57 100
	65,384,827.02 100 5,957,220.29 9.11 59,427,606.73

(1) Detailed of other receivables that are subjected to provision for bad debts based on aging analysis:

Aging Under 1 year 1-2 years 2-3 years 3-4 years 4-5 years Over 5 years Total	Ending balance Other Provision for Proportion of receivables bad debts provision (%) 8,101,971.43 405,098.58 5.00 6,450,453.14 645,045.32 10.00 1,211,560.66 363,468.20 30.00 1,639,366.09 819,683.05 50.00 260,920.53 208,736.42 80.00 288,008.10 288,008.10 100.00
	17,952,279.95 2,730,039.67 15.21

Annual Report 2016 187

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Notes to the Financial Statements

2016 (Expressed in Renminbi)

XVi. EXplanatory notEs for Main itEMs in financial statEMEnts of tHE parEnt coMpany (continued)

• (2) other receivables (continued)

1. Disclosure of other receivables by categories: (Continued) (2) Detailed of other receivables that are subjected to provision for bad debts through other methods

Name of portfolio Related party in the scope of consolidation Total	Ending balance Other Provision for Proportion of receivables bad debts provision (%) 55,894,736.15 No provision
	55,894,736.15

Launch Tech Company Limited

188

Notes to the Financial Statements 2016 (Expressed in Renminbi)

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XVi. EXplanatory notEs for Main itEMs in financial statEMEnts of tHE parEnt coMpany (continued)

2. other receivables that are individually significant or insignificant but carried out impairment test on individual basis at the end of the period:

Name Shenzhen Liangqiang Technology Co., Ltd Guangzhou Zhogngong Commercial Newspaper & Media Co., Ltd. Shenzhen Xianglian Metal Produces Co., Ltd. Shenzhen Shiji Hengxing Technology Co., Ltd. Shanghai Qi Hao Industrial Co., Ltd Shenzhen Changchuang Electronic Technology Co., Ltd Wuxi Songzhi Precision Machinery Manufacturing Co., Ltd. Shenzhen Defeng Mold Co., Ltd. Foshan Nanhai LiXiDa Electric Appliance Co., Ltd Shenzhen Haolida Ultrasonic Equipment Co., Ltd. Shenzhen Changlongxing Metal Product Co., Ltd. Sub-total of 35 insignificant account Total

Carrying balance Amount of Other provision for receivables bad debts Aging Reason 1,100,000.00 1,100,000.00 Within 5 years Low recoverability with significant risk Low recoverability 304,000.00 304,000.00 Over 5 years due to significant risks Low recoverability 300,000.00 300,000.00 Over 5 years due to significant risks Low recoverability 274,225.13 274,225.13 Over 5 years due to significant risks 250,000.00 250,000.00 Over 5 years Low recoverability with significant risk Low recoverability 210,000.00 210,000.00 Over 5 years due to significant risks 199,999.95 199,999.95 Within 5 years Low recoverability with significant risk 197,075.43 197,075.43 Over 5 years Low recoverability due to significant risks 162,414.64 162,414.64 Over 5 years Low recoverability with significant risk Low recoverability 159,999.99 159,999.99 Over 5 years due to significant risks Low recoverability 150,000.00 150,000.00 Over 5 years due to significant risks 1,765,506.20 1,765,506.20 Over 5 years Low recoverability due to significant risks 5,073,221.34 5,073,221.34

Annual Report 2016 189

2016 (Expressed in Renminbi)

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Notes to the Financial Statements

XVi. EXplanatory notEs for Main itEMs in financial statEMEnts of tHE parEnt coMpany (continued)

(2) other receivables (continued)

2. Provision, recovery or reversal of the provision for bad debts during the period

• The amount of provision for bad debts during the period amounted to RMB3,234,892.62; and the amount of write-off of the provision for bad debts during the period amounted to RMB266,913.40.

3. other receivables actually written off during the reporting period

Item	Amounts written off
Other receivables actually written off	1,388,851.90
Details of other receivables written off:

Nature of other Name receivables Pneumatic Hydraulic Operation Department Deposits of South China U Bao’an district Shenzhen BYD Precision Manufacturing Co., Ltd Deposits Shanghai technology U Zhenyuan Car Technology Deposits Co., Ltd LiGuo Building property Deposits 12 accounts with insignificant amounts Imprest Total

Whether arising from Amounts Reason for Approval connected written off write-off Procedure transaction 750,000.00 Uncollectible Approved by No General Manager meeting 299,999.99 Uncollectible Approved by No General Manager meeting 282,000.00 Uncollectible Approved by No General Manager meeting 31,797.00 Uncollectible Approved by No General Manager meeting 25,054.91 Uncollectible Approved by No General Manager meeting 1,388,851.90

190 Launch Tech Company Limited

Notes to the Financial Statements

2016 (Expressed in Renminbi)

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XVi. EXplanatory notEs for Main itEMs in financial statEMEnts of tHE parEnt coMpany (continued)

(2) other receivables (continued)

4. other receivables by nature

Item Deposits Imprest Borrowings Export tax refundable Others Total	Ending balanceOpenning balance 1,136,820.51 1,284,154.78 10,445,961.53 17,517,279.25 59,913,806.15 36,120,455.29 – 4,758,866.04 7,423,649.25 5,704,071.66
	78,920,237.44 65,384,827.02

5. Top five other receivables by ending balance collected by borrowers

Name Nature Haishiwei Borrowings LAUNCH EUROPE Borrowings Golo Internet Borrowings Shanghai Launch Borrowings Beijing Yunfeng Culture and Borrowings Investment Co., Ltd. Total	Proportion in the ending Provision for balance of other bad debts of Ending balance Aging receivables(%) ending balance 21,282,873.27 Within 2 year 26.97 – 18,674,985.83 Within 3 year 23.66 – 10,179,027.45 Within 1 years 2.99 – 2,850,525.81 Within 3 year 3.61 – 2,300,000.00 Within 4 year 2.91 980,000.00 55,287,912.36 70.05 980,000.00

• (3) long-term equity investment

Nature Investment in subsidiaries Total	Ending balance Beginning balance Carrying Provision for Carrying Provision for balance bad debts Book value balance bad debts Book value 202,555,576.68 202,555,576.68184,513,562.18 184,513,562.18
	202,555,576.68 202,555,576.68184,513,562.18 184,513,562.18

Annual Report 2016

191

Notes to the Financial Statements

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2016 (Expressed in Renminbi)

XVi. EXplanatory notEs for Main itEMs in financial statEMEnts of tHE parEnt coMpany (continued)

• (3) long-term equity investment (continued)

1. Investment in subsidiaries

Investee Shanghai Launch Launch Software LAUNCH EUROPE GmbH Xi’an Launch Peng Ao Da Golo Internet Shenzhen Haishiwei PJS Launch International Total

Provision made Ending balance Initial investment Beginning Ending for impairment of provision cost balance Increase Decrease balance for current period for impairment 68,180,685.53 97,781,423.66 97,781,423.66 35,080,263.52 35,080,263.52 35,080,263.52 671,875.00 671,875.00 671,875.00 35,000,000.00 35,000,000.00 16,000,000.00 51,000,000.00 880,000.00 880,000.00 880,000.00 10,000,000.00 10,000,000.00 10,000,000.00 5,100,000.00 5,100,000.00 5,100,000.00 2,000,000.00 2,000,000.00 2,000,000.00 42,014.50 42,014.50 42,014.50

156,954,838.55 184,513,562.18 18,042,014.50 202,555,576.68

2. other explanations

The increase is in long term investment is due to the establishment of new subsidiaries PJS, Launch International and additional investment in Xi’an Launch.

• (4) operating income and operating costs

operating income and operating costs

Item Major business Other business Total	Current period Previous period Income Cost Income Cost 748,385,673.54 542,822,272.52 609,090,572.81 474,474,996.27 41,425,009.92 – 33,975,699.00
	789,810,683.46 542,822,272.52 643,066,271.81 474,474,996.27

Launch Tech Company Limited

192

Notes to the Financial Statements

2016 (Expressed in Renminbi)

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XVii. sUpplEMEntary inforMation

• (1) Details of non-operating profit and loss for the period

Item Gain or loss on disposal of non-current assets Government grants recognized in profits or losses (excluding those government grants that are closely relevant to the Group’s business and are received with fixed amounts or with fixed percentage based on unified standards promulgated by government) Other non-operating income and expenses other than the aforementioned items Impact of income tax Impact of minority shareholders’ interests (after tax) Total

Amount Note -812,074.63 9,169,192.23 720,025.11 74,341.93 19,618.71

8,983,182.07

(2)	return on net assets and earnings per share	return on net assets and earnings per share
		Weighted average	Earnings per share
	Profits of the reporting period	return on net assets (%)	Basic	Diluted
	Net profit attributable to ordinary
	shareholders of the Company	3.00	0.0650	0.0650
	Net profit after deducting non-recurring
	profit and loss attributable to ordinary
	shareholders of the Company	1.74	0.0378	0.0378

Annual Report 2016 193

Financial Summary

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Operating revenue Net Profit (loss) Adjusted EPS (RMB) Total Assets Total Liabilities Net Assets Adjusted NAV per share (RMB)	RMB million 2016 2015 2014 2013 2012 835 698 731 678 612 21 -94 -47 7 -44 0.065 -0.311 -0.156 0.023 -0.146
	1,314 1,480 1,482 1,370 1,233 590 777 903 747 617 724 703 579 623 616 2.200 2.135 1.917 2.063 2.04

194 Launch Tech Company Limited

Corporate Information

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DirEctors of tHE coMpany

Executive Directors

Mr. Liu Xin (Chairman) Mr. Liu Jun (Chief executive officer) Mr. Jiang Shiwen Ms. Huang Zhao Huan

non-executive Director

Ms. Liu Yong

noMination coMMittEE

Mr. Liu Xin Mr. Ning Bo Mr. Liu Yuan

aUDit coMMittEE

Ms. Zhang Yan Mr. Liu Yuan Mr. Ning Bo

independent non-executive Directors

Ms. Zhang Yan Mr. Liu Yuan Mr. Ning Bo

sUpErVisors

Mr. Sun Zhongwen Mr. Du Xuan Mr. Yang Yi

coMpliancE officEr

Mr. Liu Jun

aUtHorisED rEprEsEntatiVEs

Mr. Liu Jun Mr. Liu Chun Ming, FCCA

aUDitor

QUalifiED accoUntant

Mr. Liu Chun Ming, FCCA

coMpany sEcrEtary

Mr. Liu Chun Ming, FCCA

BoarD sEcrEtary

Mr. Zhang Jiangbo

rEMUnEration coMMittEE

Mr. Liu Jun Mr. Ning Bo Mr. Liu Yuan

Da Hua Certified Public Accountants (Special General Partnership) 12th Floor, Building No.7, Block No. 16 Xi Si Huan Zhong Road Haidian District, Beijing 100039 People’s Republic of China

lEgal aDVisErs

BEIJING DENTONS (SHENZHEN) LAW FIRM 17/F, Public Transportation Mansion, 1001 Lianhua Branch Road, Futian District, Shenzhen 518036, People’s Republic of China

Annual Report 2016 195

Corporate Information

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Hong Kong sHarE rEgistrar anD transfEr officE

stocK coDE

2488

Computershare Hong Kong Investor Services Limited Shops 1712-16, 17th Floor, Hopewell Centre 183 Queen’s Road East Wanchai Hong Kong

WEBsitE

www.cnlaunch.com

inVEstor rElationsHip

rEgistErED officE

investor@cnlaunch.com

2-8 Floors Xin Yang Building Bagua Number Four Road Futian District Shenzhen, the PRC

principal placE of BUsinEss in tHE prc

Launch Industrial Park

North of Wuhe Road, Banxuegang, Longgang District, Shenzhen, the PRC

BooK closE DatE for annUal gEnEral MEEting

• From 22 April 2017 to 23 May 2017, both dates inclusive.

• All transfers accompanied by relevant share certificates must be lodged with the Company’s H Share registrar no later than 4:30 p.m. on 21 April 2017.

Launch Shanghai Base No. 661 Baian Road, Angtin Zhen, Jiading District, Shanghai, the PRC

principal placE of BUsinEss in Hong Kong

Unit 1104 Crawford House 70 Queen’s Road Central

Hong Kong

196 Launch Tech Company Limited

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官網／official website : www.cnlaunch.com 服務熱線／TEL : 4000 666 666