LH Group Limited - Annual Report 2020

ANNUAL REPORT

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CONTENTS
Corporate Information	2
Financial Highlights and Calendar	4
Chairman’s Statement	5
Management Discussion and Analysis	8
Directors and Senior Management	18
Report of the Directors	23
Corporate Governance Report	37
Environmental, Social and Governance Report	48
Independent Auditor’s Report	83
Consolidated Statement of Comprehensive Income	89
Consolidated Statement of Financial Position	90
Consolidated Statement of Changes in Equity	92
Consolidated Statement of Cash Flows	93
Notes to the Consolidated Financial Statements	94
Summary Financial Information	160

Corporate Information

BOARD OF DIRECTORS

AUTHORISED REPRESENTATIVES

Executive Directors

Mr. Wong Kit Lung Simon Prof, JP (Chairman and Chief Executive Officer) Ms. Ko Sau Chee Grace (Vice Chairperson) Mr. Ho Chi Wai

Ms. Chan Hiu Yi Ms. Ko Sau Chee Grace (appointed with effect from 1 September 2020) Mr. Ho Chi Wai

(resigned with effect from 1 September 2020)

Independent non-executive Directors

Mr. Sin Yat Kin SBS , CSDSM Ms. Hung Lo Shan Lusan Mr. Hung Wai Man Prof, JP

AUDIT COMMITTEE

Ms. Hung Lo Shan Lusan (Chairperson) Mr. Hung Wai Man Prof, JP Mr. Sin Yat Kin SBS, CSDSM

REMUNERATION COMMITTEE

Mr. Sin Yat Kin SBS, CSDSM (Chairperson) Mr. Wong Kit Lung Simon Prof, JP Ms. Hung Lo Shan Lusan

NOMINATION COMMITTEE

Mr. Wong Kit Lung Simon Prof, JP (Chairperson) Mr. Sin Yat Kin SBS , CSDSM Mr. Hung Wai Man Prof, JP

JOINT COMPANY SECRETARIES

Ms. Chan Hiu Yi (ACG, ACS) Ms. Yu Wing Sze (ACG, ACS)

AUDITOR

LEGAL ADVISER

Michael Li & Co. 19/F., Prosperity Tower No. 39 Queen’s Road Central Central, Hong Kong

REGISTERED OFFICE

Walkers Corporate Limited 190 Elgin Avenue George Town Grand Cayman KY1-9008 Cayman Islands

PRINCIPAL PLACE OF BUSINESS IN HONG KONG

Unit 03, L22, Tower 1 Enterprise Square Five 38 Wang Chiu Road Kowloon Bay, Kowloon Hong Kong

HONG KONG SHARE REGISTRAR

Computershare Hong Kong Investor Services Limited Shops 1712–1716 17/F, Hopewell Centre 183 Queen’s Road East Wanchai Hong Kong

PricewaterhouseCoopers Certified Public Accountants Registered Public Interest Entity Auditor 22/F, Prince’s Building Central Hong Kong

2 LH GROUP LIMITED Annual Report 2020

Corporate Information

CAYMAN ISLANDS PRINCIPAL SHARE REGISTRAR AND TRANSFER OFFICE

Walkers Corporate Limited 190 Elgin Avenue George Town Grand Cayman KY1-9008 Cayman Islands

PRINCIPAL BANKERS

Bank of China (Hong Kong) Limited Shanghai Commercial Bank Limited Industrial and Commercial Bank of China (Asia) Limited China Citic Bank (International) Limited

COMPANY WEBSITE

www.lhgroup.com.hk

STOCK CODE

1978

LISTING DATE

30 May 2018

Annual Report 2020 LH GROUP LIMITED

Financial Highlights and Calendar

FINANCIAL HIGHLIGHTS

For the year ended 31 December

	2020 2019 *HK$ million* HK$ million
Revenue Profit/(loss) attributable to the shareholders of the Company Earnings/(loss) per share Basic and diluted_(HK cents) Interim dividend per share(HK cents) Special dividend per share(HK cents) Proposed final dividend per share(HK cents)_	802.9 1,005.8 140.3 (11.2) 17.54 (1.40) — 4.96 — 5.00 13.16

CALENDAR

Interim Results Announcement Annual Results Announcement

Closure of Register of Members

Annual General Meeting — Proposed final dividend

Annual General Meeting

Payable date of final dividend

27 August 2020 29 March 2021 31 May 2021–3 June 2021 (both days inclusive) 9 June 2021–11 June 2021 (both days inclusive) 3 June 2021 On or around 25 June 2021

4 LH GROUP LIMITED Annual Report 2020

Chairman’s Statement

To all shareholders:

I am writing at the time when the global economy and the local catering industry are entering into the post-epidemic era. Businesses and consumers are gradually adapting to the new business environment after the novel coronavirus disease (“ COVID-19 ”) epidemic and are welcoming recovery.

On behalf of the board (the “ Board ”) of directors (the “ Directors ”), I present to you the annual results of LH Group Limited (the “ Company ”), together with its subsidiaries (the “ Group ”), for the year ended 31 December 2020.

For the Group, 2020 is a year full of challenges and miracles. It is a year of change and growth.

Looking back on the past year, COVID-19 has spread around the world, severely affecting various economies and industries, with the local catering industry being one of the industries to bear the brunt. At the forefront of epidemic prevention and control, the Group actively implemented a series of epidemic prevention and control measures during the year before relevant regulatory requirements were imposed (for details, please refer to the “Management Discussion and Analysis” section contained in this report). For example, the early implementation of measures such as the set up of the role of “Designated Table Cleaners” since July 2020 and the self-checks of six air changes per hour since August 2020 are highly recognised by local epidemic experts, and thereby successfully built customers’ confidence in restaurants of the Group.

According to the announcement issued by the Centre for Health Protection of the Department of Health, there were a total of seven visits of confirmed cases/suspected cases to our restaurants in 2020. The Group suspended its operations immediately in a proactive manner and engaged professional cleaning company to thoroughly clean and sanitize the relevant restaurants whenever such visits occurred. Besides, the Group promptly arranged every employee who was involved to receive COVID-19 testing and kept disclosure of information in an open and transparent manner, thereby successfully avoided possible group outbreaks.

As the business of the Group has been severely hit by the COVID-19 epidemic and various stringent and mandatory social distancing measures were implemented during the year, such as seating restrictions, reduced operating hours and other tighter constraints to contain the virus, a severe monthly loss was recorded due to a sharp drop in turnover in several months. However, due to the trust and support of customers in the epidemic prevention and control measures of the Group and the joint efforts of the Group’s employees, the Group showed strong resilience in the other months in which the aforementioned measures were relieved, which had significantly recouped revenues and brought considerable profits in those months. This not only offset the losses of other months, helped the Group to tide over the difficulties together, but also contributed to profits of the Group for the year ended 31 December 2020.

Annual Report 2020 LH GROUP LIMITED

Chairman’s Statement

MULTI-BRAND STRATEGY

We strive to realize an effective multi-brand strategy to achieve the goal of providing customers with value-for-money food and dining experiences through different brands. Although the epidemic is severe, it has not hindered our determination and pace to expand our business. During the year, the Group actively identified business opportunities and realized the plan of opening new stores. It also appropriately adjusted its store and brand portfolio through internal elimination of the weak and retention of the strong, and allocated resources to develop more potential brands in order to strengthen the future profitability of the Group.

On the basis of the brand layout of “ Gyu-Kaku ( 牛角 ) ”, “ On-Yasai ( 溫野菜 ) ” and “ Mou Mou Club ( 牛涮鍋 ) ”, we first launched “ Gyu-Kaku Buffet ( 牛角 Buffet) ” in Hong Kong in 2018, which has been highly praised and loved by customers in the past two years. In 2020, in view of the popularity of the brand in Hong Kong, the Group opened the second local “ Gyu-Kaku Buffet ( 牛角 Buffet) ” in Mira Place, Tsim Sha Tsui, which proved the market appeal of the brand. In 2021, we will continue to look for strategic locations to set up new stores of different brands and launch more new brands in the local market, including but not limited to new concept hot pot restaurants and all-day casual dining restaurants to attract a wider spectrum of diners in due course. Combined with strategies and actions both in place, we will consolidate our market position and actively expand our business and brand portfolio.

LOOKING AHEAD TO 2021

Throughout 2020, we were delighted to see the substantial sales growth and strong profitability of the restaurants of the Group in several months when social distancing measures have been released slightly, even during the gloom of COVID-19. We expect that the roll-out of vaccination plan on a mass scale globally and the recommendation of issuing electronic consumption vouchers with a total value of HK$5,000 to each eligible person by the Financial Secretary in the 2021-22 Budget Proposal will help to facilitate the speedy recovery of the local consumption market and bring significant opportunity of business growth to the Group, provided that the epidemic situation in Hong Kong would not deteriorate in 2021.

Crisis creates opportunities. In the face of changes in 2021, I will closely monitor the latest development and dynamic of epidemic and industry with the management of the Group. Meanwhile, we will actively rejuvenate our operations and seek for development opportunities among changes to create more value for our shareholders. With a robust financial position and brand layout, combined with strategies and actions both in place, we believe that the Group will weather the storm and achieve further growth in 2021.

DIVIDEND

After meeting various challenges during the year, the financial position of the Group remained stable. We hope to share the results with all shareholders. After considering the economic outlook, the financial position of the Group, its future expansion plans and other factors, the Board recommended the payment of a final dividend of HK13.16 cents per share.

LH GROUP LIMITED Annual Report 2020

Chairman’s Statement

APPRECIATION AND BLESSINGS

On behalf of the Board, I would like to express my sincere gratitude and appreciation to the staff of the Group for their dedication and efforts during the year. I would also like to thank our customers, vendors, landlords and professional parties for their continuous trust and unreserved support to tide over the difficulties together with the Group during this difficult period. To our shareholders, I am grateful for your trust in us.

Finally, I wish you all the best of health.

Wong Kit Lung Simon Prof, JP

Chairman

Hong Kong, 29 March 2021

Annual Report 2020 LH GROUP LIMITED

Management Discussion and Analysis

Throughout the financial year ended 31 December 2020, the Group’s business was adversely affected by the outbreak of COVID-19, causing dramatic decline in the Group’s revenue during most of the months in the year in which various stringent and mandatory social distancing measures, such as seating restrictions, reduced operating hours and other tighter constraints to contain the virus, were in place under the Prevention and Control of Disease (Requirements and Directions) (Business and Premises Regulation Chapter 599F of the Laws of Hong Kong). For further information in relation to the seating restrictions and reduced operating hours of restaurants, please refer to the calendars as set out on pages 10 to 11 of this report.

At the early stage of outbreak of the epidemic in mid-February in 2020, out of consideration for public health, and in order to address the then mounting public concern about the potential risk of infection associated with aerosol transmission from hotpot meals, the Group has decided to temporarily suspend the operation of all “On-Yasai ( 溫野菜 )” and “Mou Mou Club ( 牛涮鍋 )” restaurants of the Group for about two weeks. Such decision has not only brought unprecedented impact to the Group’s revenue of that month, but also endangered the Group’s financial condition. In order to survive the crisis, the Group adopted positive measures in response to the epidemic. Around two weeks later, the said restaurants were gradually reopened by the Group, with a pledge of upholding public health and a series of epidemic prevention measures adopted in order to protect the well being of our staff and customers.

Pioneering measures taken to tackle COVID-19 impact before relevant regulatory requirements

Since February 2020, temporary table partitions/barriers were set up between tables in each restaurant in order to reduce direct face-to-face encounter between customers and our restaurant staff and prevent the spread of viruses by droplets; and since May 2020, permanent, durable and easy to clean table partitions/barriers had been set up and photocatalytic disinfection had been carried out in all restaurants to further enhance the protection for our customers;
Since February 2020, we have imposed self-restriction of seating capacity to no more than 50% in our restaurants at the height of the pandemic;
Since 31 July 2020, we have set up the role of “Designated Table Cleaners” in our restaurants whose role is to clean and disinfect tables (including partitions) and seats, and collect, clean and disinfect used food trays and tableware, so as to segregate their duties with other restaurant staff who are responsible for delivering dishes and other restaurant duties;
Since late August 2020, self-checks have been conducted to ensure each of our restaurants has good ventilation of a minimum of six air changes per hour, with the related notice placed in our door-fronts;
Since February 2020, heightening and redoubling our effort on restaurants’ hygiene and cleaning with appropriate disinfectants, including hourly hand washing by all employees and thorough cleaning and disinfection by designated workers after the customers have left;
Since June 2020, pioneering the development of “Red and Green Light Warning System” which could provide customers the most updated information on whether any confirmed cases of COVID-19 has recently visited our restaurants;

LH GROUP LIMITED Annual Report 2020

Management Discussion and Analysis

Since February 2020, all restaurant staff are required to wear masks, and at their discretion, protective eyewear, provided by the Company, when they are on duty;
Since February 2020, adoption of infection control measures, including body temperature screening and provision of hand sanitiser, in our restaurants; and
Since February 2020, setting up air purifiers in our restaurants.

In addition, the Group also strictly abides by the mandatory social distancing measures and/ or restrictions applicable to the catering industry, including but not limited to seating restrictions, reduced operating hours and other epidemic prevention constraints, imposed by the Hong Kong Government. The Group also initiated different cost saving measures and explored new income sources including developing takeaway and online businesses. The chairman and vice-chairperson of the Board also took a 50% cut to their monthly remuneration on a voluntary basis for a period of three months, starting from March 2020. During the year, the Group also distributed approximately HK$30 million of “Re-supporting Coupon” (再幫襯銀票) to customers who dined in our restaurants to encourage them to visit the restaurants again. Although the additional discounts indirectly caused a slight increase to the Group’s cost of food and beverages as a percentage of revenue, it also brought huge net revenue for the Group amid the COVID-19 pandemic.

The Group’s initiative in pioneering these epidemic prevention measures, and top-notch hygiene standard as we always uphold towards protecting the wellbeing of staff and customers, are highly recognised by local epidemic experts and our customers as illustrating a proactive responsibility of our leadership, and thereby greatly fostered and enhanced the trust and confidence of the diners of our restaurants.

According to the announcement issued by the Centre for Health Protection of the Department of Health, there were a total of seven visits of confirmed cases/suspected cases to our restaurants in 2020. The Group suspended its operations immediately in a proactive manner and engaged professional cleaning company to thoroughly clean and sanitize the relevant restaurants whenever such visits occurred. Besides, the Group promptly arranged every employee who was involved to conduct COVID-19 testing and kept disclosure of information in an open and transparent manner, thereby successfully avoided possible group outbreaks.

Owing to the outbreak of COVID-19 and the stringent and mandatory social distancing measures, the revenue of the Group has invariably suffered a significant decrease during most of the months in the financial year ended 31 December 2020 and recorded a significant loss. The subsidies and relief solutions offered by the Hong Kong Government during the year were timely help to the Group and its employees in the COVID-19 battered economy of Hong Kong. The Group is thankful to its customers for their unwithering support despite the aforesaid stringent and effective measures and for the effort of each and every of its staff. The Group showed strong resilience and agility in the relevant months in which the aforementioned measures were relieved, which had rapidly recouped revenues (see the Comparable Restaurant Revenue Chart set out in the section headed “Financial Review — Revenue” below) and brought considerable profits to the Group in the relevant months. This not only offset the losses of other months, helped the Group to tide over the difficulties together, but also successfully contributed to profits of the Group for the year ended 31 December 2020.

Annual Report 2020 LH GROUP LIMITED

Management Discussion and Analysis

Restrictions on the maximum number of persons for each table under Chapter 599F of the Laws of Hong Kong

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LH GROUP LIMITED Annual Report 2020

Management Discussion and Analysis

Restrictions on the dine-in hours of restaurants under Chapter 599F of the Laws of Hong Kong

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Annual Report 2020 LH GROUP LIMITED 11

Management Discussion and Analysis

BUSINESS REVIEW

We are a full service multi-brand restaurant group in Hong Kong specialising in Asian (in particular Japanese) and Cantonese cuisine, with value-for-money, quality service and quality food as our major competitiveness.

As at 31 December 2020, the Group operated one Cantonese restaurant under the self-owned brand “Pot Master (煲仔王)” in Hong Kong; and 37 Asian restaurants under two self-owned brands, namely, “Mou Mou Club (牛涮鍋)” and “Peace Cuisine (和平飯店)”, and four franchised brands, namely “GyuKaku (牛角)”, “Gyu-Kaku Jinan-Bou (牛角次男坊)”, “On-Yasai (溫野菜)” and “Yoogane (柳氏家)”, which served quality, value-for-money delicacies to diversified customer segments seeking a wide array of culinary experiences. We pride ourselves in the extensive market coverage of our brand portfolio, which allows us to tap into customer segments spanning across mid-to-high end market to mass market with different culinary preferences.

The following table sets forth the number of restaurants we operated as at the dates indicated.

	As at 31 December 2020 2019	As at 31 December 2020 2019
	2020
Cantonese cuisine restaurants — Self-owned brands Asian cuisine restaurants — Self-owned brands — Franchised brands Sub-total of Asian restaurants: Total:	1 13 24 37 38	2 14 22 36 38

FINANCIAL REVIEW

Revenue

The Group’s revenue decreased by approximately 20.2%, or approximately HK$202.9 million, from approximately HK$1,005.8 million for the year ended 31 December 2019 to approximately HK$802.9 million for the year ended 31 December 2020. The Group’s revenue was adversely affected by the outbreak of COVID-19 in 2020 in which various stringent and mandatory social distancing measures, such as seating restrictions, reduced operating hours and other constraints to contain the virus were in place.

Asian cuisine restaurants — franchised brands remained as the main pillar of revenue, constituting approximately 66.8% of the total revenue for the year ended 31 December 2020 (2019: 56.3%).

The revenue from Asian cuisine restaurants — self-owned brands decreased by approximately HK$79.3 million or approximately 28.7%, from approximately HK$275.8 million to approximately HK$196.5 million.

12 LH GROUP LIMITED Annual Report 2020

Management Discussion and Analysis

In addition to the effect of COVID-19, the significant decrease in revenue from Cantonese cuisine restaurants is also due to the disposal of three Cantonese cuisine restaurants in April 2019 and the closure of one Cantonese cuisine restaurant in September 2020.

	For theyear ended 31 December 2020 2019 Revenue % of total Revenue Revenue % of total Revenue *HK$’000* *(%)* HK$’000 (%)	For theyear ended 31 December 2020 2019 Revenue % of total Revenue Revenue % of total Revenue *HK$’000* *(%)* HK$’000 (%)	For theyear ended 31 December 2020 2019 Revenue % of total Revenue Revenue % of total Revenue *HK$’000* *(%)* HK$’000 (%)	For theyear ended 31 December 2020 2019 Revenue % of total Revenue Revenue % of total Revenue *HK$’000* *(%)* HK$’000 (%)
	2020 Revenue % of total Revenue *HK$’000* *(%)*
Cantonese cuisine restaurants — Self-owned brands Asian cuisine restaurants — Self-owned brands — Franchised brands Sub-total of restaurant operations Sale of food ingredients and others Total		8.2 24.5 66.8 99.5 0.5 100.0	148,972 275,764 566,354 991,090 14,686 1,005,776	14.8 27.4 56.3 98.5 1.5 100.0

	65,999

	196,512
	536,674

	799,185
	3,667

	802,852

The following chart sets forth the change in revenue of comparable restaurants in each month in 2020 compared with the corresponding month in 2019:

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HK'M Comparable shop monthly revenue
80
70
60
50
40
30
20
10
-
Jan Feb March April May June July Aug Sep Oct Nov Dec
2020 2019
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Annual Report 2020 LH GROUP LIMITED

Management Discussion and Analysis

Most of the months in 2020 recorded a decrease in the revenue of comparable restaurants compared with the same month in 2019. The revenue for comparable restaurants decreased most significantly in July, August and December 2020 as no dine-in were allowed after 6 pm during the months. Even in the gloom of COVID-19, during the months when social distancing measures have been released slightly (such as May, June, October and November 2020), our management observed that comparable restaurants still recorded considerable sales growth and showed strong recovery.

Other income and gains

The Group’s other income and gains increased significantly by approximately 2,002.4%, or approximately HK$90.5 million, from approximately HK$4.5 million for the year ended 31 December 2019 to approximately HK$95.0 million for the year ended 31 December 2020. The increase was due to one-off government subsidies of approximately HK$43.8 million and net gain from lease modification of approximately HK$46.0 million for the year ended 31 December 2020.

Cost of food and beverages

The Group’s cost of food and beverages decreased by approximately 13.9%, or approximately HK$40.7 million, from approximately HK$292.8 million for the year ended 31 December 2019 to approximately HK$252.1 million for the year ended 31 December 2020. The decrease was in line with the decrease in revenue during the year ended 31 December 2020. The cost of food and beverages as a percentage of revenue increased to approximately 31.4% for the year ended 31 December 2020 (2019: 29.1%), which was mainly due to greater meal discounts offered to both dine-in and takeaway customers in 2020.

Staff costs

The Group’s staff costs decreased by approximately 29.1%, or approximately HK$87.6 million, from approximately HK$301.4 million for the year ended 31 December 2019 to approximately HK$213.8 million for the year ended 31 December 2020. Such decrease was primarily due to wage subsidies of approximately HK$43.1 million granted from the Employment Support Scheme under the AntiEpidemic Fund launched by the Hong Kong Government and the decreased salary and wages during the year ended 31 December 2020 as we disposed three Cantonese cuisine restaurants on 30 April 2019. The staff costs as a percentage of revenue decreased to approximately 26.6% for the year ended 31 December 2020 (2019: 30.0%).

Property rentals and related expenses

The Group’s property rentals and related expenses decreased by approximately 54.2%, or approximately HK$39.9 million, from approximately HK$73.6 million for the year ended 31 December 2019 to approximately HK$33.7 million for the year ended 31 December 2020. Such decrease was mainly attributable to most leases were accounted for under HKFRS 16 as right-of-use assets and lease liabilities instead of property rentals expenses during the year ended 31 December 2020, while some leases were short-term leases at the initial adoption of HKFRS 16 for the year ended 31 December 2019. In addition, rent concessions from certain landlords resulting in more affordable rental rates were accounted for during the year ended 31 December 2020 while there was no such concession for the year ended 31 December 2019.

14 LH GROUP LIMITED Annual Report 2020

Management Discussion and Analysis

Profit/loss for the year

Profit for the year ended 31 December 2020 amounted to approximately HK$140.3 million while there was a loss of approximately HK$11.3 million for the year ended 31 December 2019. Such increase in profit was mainly due to the combined effect of (i) decrease in provision for impairment of property, plant and equipment and right-of-use assets by approximately HK$52.2 million as compared with the year ended 31 December 2019; and (ii) other factors discussed above.

Excluding one-off and non-recurring items, i.e. government grants, net gain from lease modification, provision for impairment, gain on disposal of subsidiaries and loss on disposal of financial assets at fair value through profit or loss, the core profit before tax from our operation for the year ended 31 December 2020 was approximately HK$27.3 million, decreased by approximately 57.3%, or approximately HK$36.7 million, from approximately HK$64.0 million for the year ended 31 December 2019.

LIQUIDITY AND FINANCIAL RESOURCES

The Group financed its business with internally generated cash flows and proceeds received from the listing. As at 31 December 2020, the Group had short term bank deposits of approximately HK$159.6 million (2019: approximately HK$132.4 million) and cash and cash equivalents of approximately HK$179.1 million (2019: approximately HK$130.8 million). Most bank deposits and cash were denominated in Hong Kong dollar. The Group will continue to use the internal generated cash flows and proceeds received from the listing as a source of funding for future developments.

As at 31 December 2020, the Group’s total current assets and current liabilities were approximately HK$397.8 million (2019: approximately HK$313.8 million) and approximately HK$217.1 million (2019: approximately HK$290.0 million) respectively, while the current ratio was about 1.8 times (2019: about 1.1 times).

As at 31 December 2020, the gearing ratio of the Group was not applicable as it had no outstanding interest-bearing bank borrowings. The gearing ratio equals total interest-bearing bank borrowings divided by total equity and multiplied by 100%.

SIGNIFICANT INVESTMENTS

As at 31 December 2020, the Group did not hold any significant investments.

MATERIAL ACQUISITIONS AND DISPOSALS OF SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES

The Group has no material acquisition or disposal of subsidiaries, associates or joint ventures during the year ended 31 December 2020.

EVENTS AFTER THE REPORTING PERIOD

No significant events occurred after the reporting period and up to the date of this report.

Annual Report 2020 LH GROUP LIMITED

Management Discussion and Analysis

PLEDGE OF ASSETS

As at 31 December 2020, the Group did not pledge any assets.

EMPLOYEES AND REMUNERATION POLICIES

As at 31 December 2020, the Group had 1,344 employees (2019: 930 employees). The remuneration of the employees is determined by reference to prevailing market terms and in accordance with the performance, qualification and experience of each individual employee. Details of remuneration of employees during the Reporting Year are set out in Note 9 to the financial statements.

The emoluments of the Directors are recommended by the remuneration committee of the Company, with reference to their respective contribution of time, effort and expertise on the Company’s matters. The Company has adopted a share option scheme (the “ Share Option Scheme ”) on 4 May 2018 to reward the participants defined thereunder for their contribution to the Group’s success and to provide them with incentives to further contribute to the Group. The Share Option Scheme has become effective on 30 May 2018. In addition, employees are entitled to performance and discretionary new year bonuses.

No share option was granted during the year ended 31 December 2020. As at 31 December 2020, the Company had no outstanding share option under the Share Option Scheme.

FOREIGN EXCHANGE EXPOSURE

Most of the transactions of the Group are denominated in Hong Kong dollars and the Group is not exposed to any significant foreign exchange exposure.

CONTINGENT LIABILITIES

As at 31 December 2020, the Group did not have any material contingent liabilities.

OFF-BALANCE SHEET COMMITMENTS AND ARRANGEMENT

As at the date of this report, the Group had not entered into any off-balance sheet transactions.

16 LH GROUP LIMITED Annual Report 2020

Management Discussion and Analysis

PROSPECTS

The outbreak of COVID-19 since early 2020 has significantly undermined catering businesses in Hong Kong. The management considers that the major uncertainties in the business performance of the Group in 2021 are subject to whether the epidemic will rebound from time to time. Throughout 2020, the management was delighted to see the substantial sales growth and strong profitability of our restaurants in several months when social distancing measures have been released slightly, even during the gloom of COVID-19. The management expects that the roll-out of vaccination plan on a mass scale globally and the recommendation of issuing electronic consumption vouchers with a total value of HK$5,000 to each eligible person by the Financial Secretary in the 2021-22 Budget Proposals will help to facilitate the speedy recovery of the local consumption market and bring significant opportunity of business growth to the Group, provided that the epidemic situation in Hong Kong would not deteriorate in 2021.

Where there is crisis, there is opportunity. The current crisis provided an opportunity to reflect on our conventional business model and processes, which may be favourable for the Group’s longterm development. In the face of setbacks stemming from dampened consumer sentiment and dine-in demand, the Group has agilely opened up and has been strengthening our food delivery and takeaway services to recoup revenue for the Group. To further capitalise its competitive advantage, the Group will also continue to expand its online businesses via proprietary and thirdparty platforms. Furthermore, the Group will continue to keep abreast of the latest trends not only by improving the application of our technology and information system, but also by allocating more resources to strengthen online and digital system management, in a bid to improve the efficiency and effectiveness of business processes. The Group will also appropriately adjust the restaurant and brand portfolio through phasing out those with weaker performance from time to time, and allocate resources to develop and explore brands with better potential and profitability.

With our diversified multi-brand strategy and over-three-decade corporate history, the Group has been well-recognised by our customers and different landlords as a credible and respected restaurants operator. The Group will leverage its healthy financial position to optimise its restaurant network and bring in/ develop new brands according to market trends to flourish our brand portfolio to cater for different market needs and solidify our market penetration. The Group will roll out new brands which includes but not limited to new concept hotpot restaurants and all-day dining in the local market to attract a wider spectrum of diners in due course.

Crisis creates opportunities. In the face of changes in 2021, the management will closely monitor the latest development and dynamic of epidemic and industry. Meanwhile, the management will actively rejuvenate our operations and seek for development opportunities among changes to create more value for our shareholders. With a robust financial position and brand layout, combined with strategies and actions both in place, the management believes that the Group will weather the storm and achieve further growth.

Annual Report 2020 LH GROUP LIMITED 17

Directors and Senior Management

EXECUTIVE DIRECTORS

Mr. WONG Kit Lung Simon ( 黃傑龍 ) , Prof, JP , aged 47, was appointed as the Director on 20 June 2017 and was re-designated as executive Director on 8 August 2017. Mr. Wong is the Chairman and Chief Executive Officer of the Group and is the chairperson of the nomination committee of the Company (the “ Nomination Committee ”) and a member of the remuneration committee of the Company (the “ Remuneration Committee ”). He is a director of all subsidiaries of the Group. He is primarily responsible for the overall management, strategic planning, brand management, business development, public relations and cooperation of the Group. In carrying out his responsibilities, Mr. Wong has provided the Group with leadership, vision with reformation, marketing and public relations strategies. Mr. Wong has over 23 years of working and management experience in the engineering and restaurant management sectors.

Mr. Wong holds various public positions in Hong Kong, including:

Year of
appointment	Organisation	Current position
2021	Environmental Campaign Committee	Chairman
2021	Environment and Conservation Fund Committee	Member
2020	Quality Tourism Services Association	Chairman
2019	Employees Retraining Board	Vice Chairman
2019	Hong Kong Tourism Board	Member
2018	Commission on Poverty	Member
2017	Finance Committee of the Mandatory Provident Fund	Chairman
	Schemes Authority
2017	Mandatory Provident Fund Schemes Authority	Non-executive director
2017	Catering Industry Training Advisory Committee	Chairman
2017	Food Wise Hong Kong Steering Committee	Member
2017	Advisory Council on the Environment	Member
2016	Advisory Committee on Enhancing Self-Reliance Through	Member
	District Partnership Programme
2016	Hong Kong Japanese Food and Cuisine Association	Founding Chairman
2014	Institution of Dining Art	President
2012	Food Business and Related Services Task Force of the	Member
	Business Facilitation Advisory Committee

Mr. Wong became a member of the Institution of Highways & Transportation in the United Kingdom in September 1999. He was elected as a member and chartered professional engineer of the Institution of Engineers in Australia in April 2001. He was elected as a registered professional engineer in the civil practice area of the National Professional Engineers Register in Australia in April 2001. He was admitted as a member and chartered civil engineer of the Institution of Civil Engineers in the United Kingdom in December 2001, and he was subsequently registered by the Engineering Council in the United Kingdom in May 2002 to use the title of chartered engineer. Mr. Wong, who has satisfied the requirements under the Recognition of Prior Learning mechanism (Chinese Catering Industry), obtained a Statement of Attainment in Control Cost of Chinese Catering Organizations (Level 4) by the Vocational Training Council in Hong Kong in 28 December 2017.

18 LH GROUP LIMITED Annual Report 2020

Directors and Senior Management

Mr. Wong obtained his Bachelor of Engineering in Civil Engineering degree from the University of New South Wales in Australia in May 1997. He obtained his Master of Business Administration (Electronic Commerce) degree from Charles Sturt University in Australia (through long distance learning) in November 2001. Mr. Wong was elected as one of the Ten Outstanding Young Persons by the Junior Chamber International Hong Kong in October 2011. He was appointed as Justice of the Peace in July 2014. In January 2019, he was appointed as Adjunct Professor of College of Business of City University of Hong Kong.

Ms. KO Sau Chee Grace ( 高秀芝 ) , aged 55, was appointed as the Director on 20 June 2017 and was re-designated as executive Director on 8 August 2017. She is the vice chairperson of the Group.

Ms. Ko is a director of all subsidiaries of the Group. She is primarily responsible for the strategic planning, business development, system building and procurement matters of the Group. She is responsible for overlooking the implementation of corporate policies and strategies mainly in areas of procurement management, supply chain management, food quality and occupational safety control, together with human resources management. In carrying out her responsibilities, she has provided the Group with her passion, vision, leadership, innovation and insightfulness. Ms. Ko has over 25 years of working experience and extensive management experience in the Group.

Ms. Ko obtained her Master of Business Administration in Management degree from the Charter University in March 2014 in the United States of America (through long distance learning). Since 2018, Ms. Ko has been nominated as our representative of the Gender Focal Point Network set up by the Women’s Commission.

Annual Report 2020 LH GROUP LIMITED 19

Directors and Senior Management

INDEPENDENT NON-EXECUTIVE DIRECTORS

Mr. SIN Yat Kin ( 單日堅 ) , SBS, CSDSM , aged 63, was appointed as the independent non-executive Director with effect from 30 May 2018. Mr. Sin is also a chairperson of the Remuneration Committee and a member of each of the Nomination Committee and the audit committee of the Company (the “ Audit Committee ”). Mr. Sin has around 40 years of experience in public disciplinary services and management.

Prior to joining the Group, from June 1979 to December 2015, Mr. Sin worked at the Hong Kong Correctional Services Department where his final position was the Commissioner of Correctional Services. From June 2015 to present, he has worked at the Hong Kong Football Association as a nonclub-linked director. From June 2015 to present, he has been a member of the executive committee of the Hong Kong Playground Association. Since July 2017, he has been the vice chairman of the Hong Kong Playground Association. Since 18 January 2018, he has been the Chief of Staff of AMTD Group. From April 2019 to present, he has been the council member of The Hong Kong Polytechnic University. Mr. Sin is also currently a member of the consultation council of the Hong Kong Army Cadets Association.

Mr. Sin obtained his Master of Social Sciences degree from The University of Hong Kong in December 2002. Mr. Sin was awarded a 2007 Hong Kong Correctional Services Medal for Distinguished Service. He was awarded a 2009 Chief Executive’s Commendation for Government/ Public Service and a 2014 Silver Bauhinia Star in Hong Kong.

Ms. HUNG Lo Shan Lusan ( 熊璐珊 ) , aged 54, was appointed as the independent non-executive Director with effect from 30 May 2018. Ms. Hung is also the chairperson of the Audit Committee and a member of the Remuneration Committee. Ms. Hung has over 34 years of experience in accounting, tax and strategic planning.

Prior to joining the Group, from March 1987 to March 1990, Ms. Hung worked as an accountant at Weston Woodley & Robertson. From May 1990 to June 1993, she worked at Ernst & Young where her last position was deputy manager of tax department. From November 1993 to April 2002, she worked with Grant Thornton where her final position was partner. During her tenure at Grant Thornton, she worked at Grant Thornton — Los Angeles as a manager on secondment from December 1995 to February 1997. From January 2003 to September 2005, she was a director of the Chartered Accountants Australia & New Zealand (formerly known as the Institute of Chartered Accountants in Australia). From 2013 to 2015, she was the president of the Association of Women Accountants in Hong Kong. From April 2002 to present, she has been an executive director of Higuma Consulting Limited. Ms. Hung was appointed as Head of Tax, Pacific Jade Tax Consultancy Limited from 3 October 2018. She served as a member of the Housing Authority — Finance Committee (2014–2019) and Subsidised Housing Committee (2014–2017). She currently serves as a member of the Housing Authority — internal audit sub-committee (since April 2018) and the Hong Kong Breast Cancer Foundation — audit committee since March 2019. Ms. Hung has been appointed as the Hong Kong representative of the Beijing Women’s Federation since 2014 and a member of executive committee since 2019, and a member of the Shandong Committee of the Chinese People’s Political Consultative Conference since 2018.

Ms. Hung was admitted to membership of the Chartered Accountants Australia and New Zealand in April 1990, and was admitted as a fellow member in June 2000. She was admitted as a member of the Hong Kong Society of Accountants in December 1991, and was subsequently admitted as a fellow of Hong Kong Institute of Certified Public Accountants (formerly known as the Hong Kong Society of Accountants) in November 1999. She was admitted as a fellow of the Taxation Institute of Hong Kong in September 2010, and was registered as a Certified Tax Adviser since September 2010 and a Chartered Tax Adviser in 2021.

LH GROUP LIMITED Annual Report 2020

Directors and Senior Management

Ms. Hung obtained her Bachelor of Commerce in Accounting degree from the University of New South Wales in Australia in April 1988. She completed the Women’s Directorship Programme at The University of Hong Kong in June 2013, and subsequently completed the Board Directorship Programme in July 2013.

Mr. Hung Wai Man ( 洪爲民 ) , Prof, JP , aged 52, was appointed as the independent non-executive Director of the Company in May 2018. He is also a member of each of the Audit Committee and the Nomination Committee. Prof. Hung has over 30 years of experience in management consulting, project management and outsourcing services.

Prof. Hung is the Principal Liaison Officer for Hong Kong, Shenzhen Qianhai Authority, Executive Chairman of Chinese Big Data Society, and Adjunct Professor of the Belt and Road Research Institute of Hainan University.

Prof. Hung is a seasoned ICT professional and angel investor. He has worked in the computer industry for over 30 years. A well-known figure in the industry, Prof. Hung has extensive experience in management consulting, project management and outsourcing services. Prof. Hung is a Chartered Information Technology Professional and a fellow of the British Computer Society, the Hong Kong Institute of Directors, the Hong Kong Computer Society and the Internet Professional Association. He has been appointed as the Global Council by the World Summit Awards.

Prof. Hung is currently a Deputy to the 13th National People’s Congress, Vice President of Guangdong’s Association For Promotion of Cooperation between Guangdong, Hong Kong and Macao, Chairman of Hong Kong Road Safety Association, Chairman Emeritus of the Y.Elites Association, President Emeritus of Internet Professional Association, Vice Chairman of the Monte Jade Science and Technology Association of Hong Kong, Secretary General of Hong KongASEAN Economic Cooperation Foundation and Council Member of Hong Kong Professionals and Senior Executives Association etc. In 2012 to 2014, he had served as an associate member of the Central Policy Unit of the HKSAR Government. In 2008, Prof. Hung was selected as one of the Ten Outstanding Young Persons of Hong Kong. He was a Standing Committee Member of the 11th All China Youth Federation. In 2015, he was appointed as a Justice of the Peace by the Hong Kong SAR Government. In 2016, he was given the Asia Social Innovation Leadership Award by CMO Asia.

Prof. Hung graduated from the Hong Kong Polytechnic University with a Higher Diploma in Maths, Statistics and Computing. He then obtained a BA(Hons) from the University of Bolton, MBA from the University of Hull and MA in Public and Comparative History from the Chinese University of Hong Kong. He also obtained a LLM and LLD from the Renmin University of China and PhD in Business Administration from Bulacan State University, the Philippines.

Prof. Hung currently is an independent non-executive director of Sino Hotels (Holdings) Limited (Stock Code: 1221), VSTECS Holdings Limited (Stock Code: 856) and Sprocomm Intelligence Limited (Stock Code: 1401), the shares of which are listed on the Main Board of The Stock Exchange of Hong Kong Limited (the “ Stock Exchange ”).

Annual Report 2020 LH GROUP LIMITED 21

Directors and Senior Management

SENIOR MANAGEMENT

Mr. MAK Ka Chun ( 麥家俊 ) , aged 45, joined the Group in April 2012. Mr. Mak is our general manager (Asian cuisine) and is primarily responsible for the overall Asian cuisine general management matters of the Group. He has approximately 26 years of experience in the food and beverage industry, in particular in relation to Asian cuisine general management.

Prior to joining the Group, Mr. Mak has worked in several conventional and exhibition companies and chain restaurants, responsible for day to day operations and ad-hoc catering functions. From April 2012 to present, Mr. Mak has worked for Kabushikigaisha Limited and he is currently the general manager (Asian cuisine) of Kabushikigaisha Limited.

Mr. Mak obtained a certificate of training from the Accredited Certification International Limited in relation to hazard analysis and critical control points. He also obtained a Certificate of Completion for a course entitled Basic Food Hygiene Certificate for Hygiene Managers by the City University of Hong Kong in June 2010.

Mr. HO Chi Wai ( 何志偉 ) , aged 50, was appointed as the Director on 20 June 2017 and was redesignated as executive Director on 8 August 2017. Mr. Ho resigned as executive Director with effect from 1 September 2020. He is the head of accounting of the Group and is primarily responsible for the overall management of financial affairs and budgeting of the Group. Mr. Ho has over 30 years of professional services experience with auditing, accounting and financial management.

Prior to joining the Group in 1996, he worked with Lai & Fan, Sothertons and lastly served as an audit senior where he was primarily responsible for handling clients of trading, industrial and investment businesses from July 1990 to February 1994. From March 1994 to July 1996, he worked with Ho & Au Yeung and lastly served as an audit senior.

Mr. Ho was admitted as an associate of the Association of Chartered Certified Accountants in July 1999 and subsequently admitted as a fellow in July 2004. He was admitted as a member of the Hong Kong Institute of Certified Public Accountants in October 2000. Mr. Ho was awarded a Diploma in Accountancy by the Vocational Training Council in Hong Kong in July 1990.

22 LH GROUP LIMITED Annual Report 2020

Report of the Directors

The Directors present their report together with the audited financial statements of the Group for the year ended 31 December 2020 (the “ Reporting Year ”).

PRINCIPAL ACTIVITIES

The principal activity of the Company is investment holding. Its subsidiaries are principally engaged as full-service restaurants operator serving Asian cuisine including Japanese, Korean, Cantonese and Shanghainese cuisine in Hong Kong. Details of the principal activities of the Company’s major subsidiaries are set out in Note 32 to the financial statements.

BUSINESS REVIEW

The detailed business review of the Group’s performance for the Reporting Year with analysis using financial key performance indicators is set out on “Management Discussion and Analysis” section in this report.

There are certain risks involved in the Group’s operations, which may affect our business and results of operations.

(i) The limited choices of commercially attractive locations, failure to renew existing leases, breach of lease agreements, or increase in rental expenses;
(ii) We may not be able to implement and manage our growth strategies effectively;
(iii) Uncertainties on obtaining or renewing the licenses and permits for our operations for factors beyond our control;
(iv) Opening new restaurants could result in fluctuations in our financial performance, and sales of our existing restaurants may be negatively affected if new restaurants are opened nearby;
(v) The Group’s success depends substantially on the market recognition of our brands, and any damage to our brands could materially affect our business and results of operations;
(vi) If there is any adverse incident associated with the quality of food and services or if the hygiene standards of our restaurants fall below the relevant statutory requirements, our restaurant business and reputation could be affected;
(vii) The operations are susceptible to fluctuation in the supply, quality or costs of food ingredients; and
(viii) Difficulties in recruitment and retention of employees.

Annual Report 2020 LH GROUP LIMITED 23

Report of the Directors

ENVIRONMENTAL, SOCIAL AND GOVERNANCE (“ ESG ”) POLICIES AND PERFORMANCES

The Group is committed to building a sustainable future. It assesses the materiality of various ESG issues and take measures to control the environmental and social impacts during operations. All businesses are required to comply with all applicable ESG laws and regulations strictly. The Group strives to minimize its environmental impacts through effective air emissions control, enhancing water and energy efficiency, proper waste management and resources conservation. The Group also puts effort into creating positive social impacts by protecting labour right and maintaining integrity. Discussion on the Group’s ESG initiatives, performance and applicable ESG laws and regulations can be found in the ESG Report on pages 48 to 82 of this report.

COMPLIANCE WITH LAWS AND REGULATIONS

As far as the Board is aware, the Group has complied with the relevant laws and regulations that may cause a significant impact on the business and operation of the Group in the event of a material breach or non-compliance. During the Reporting Year, there was no material breach or noncompliance with the applicable laws and regulations by the Group.

RESULTS AND DIVIDENDS

The results of the Group for the Reporting Year and the state of affairs of the Group are set out in the consolidated financial statements on pages 89 to 159 of this report.

The Board has recommended the payment of a final dividend of HK13.16 cents per ordinary share, totalling HK$105,280,000 to the shareholders of the Company (the “ Shareholders ”) whose names will appear on the register of members of the Company on Friday, 11 June 2021, subject to the approval of the Shareholders at the Annual General Meeting (the “ AGM ”). Details of dividends for the Reporting Year are set out in Note 11 to the financial statements.

DIVIDEND POLICY

Pursuant to the dividend policy of the Company, the Board may declare the payment of dividend of the Company after considering the below factors:

(a) the results of operations of the Group;
(b) economic and market conditions that may have an impact on the business or financial performance and position of the Group;
(c) cash available for distribution as dividends from subsidiaries;
(d) restrictions under the Cayman Island Laws and the Company’s amended and restated memorandum and articles of association (the “ Articles of Association ”), including approval of the Shareholders; and
(e) any other factors that the Board deems relevant.

LH GROUP LIMITED Annual Report 2020

Report of the Directors

After considering the above factors, the Board intends to recommend dividends of no less than 50% of the profit and total comprehensive income after tax attributable to the Shareholders in a financial year.

For the Reporting Year, the proposed dividend represented approximately 75% of profit and total comprehensive income after tax attributable to the Shareholders.

The Board reviews the Company’s dividend policy regularly to ensure that the policy is appropriate considering the Group’s ongoing development plans.

USE OF NET PROCEEDS FROM LISTING

The net proceeds from the IPO on 30 May 2018 after deducting share issuance expenses and listing expenses (the “ Net Proceeds ”) was approximately HK$178,610,000. As at 31 December 2020 and LPD, the Company had used approximately HK$92,947,000 and approximately HK$98,131,000, respectively, of the Net Proceeds for the purposes as set out in the prospectus of the Company dated 15 May 2018 (the “ Prospectus ”), representing approximately 52.0% and approximately 54.9%, respectively, of the Net Proceeds.

Use of Net Proceeds	Actual Net Proceeds *HK$’000*	Utilisation from 1 January 2020 to 31 December 2020 *HK$’000*	Amount utilised as at LPD *HK$’000*	Unutilised Net Proceeds as at LPD Revised allocation of the unutilised Net Proceeds as at LPD Expected timeline for utilisation of the unutilised Net Proceeds *HK$’000* *HK$’000*	Unutilised Net Proceeds as at LPD Revised allocation of the unutilised Net Proceeds as at LPD Expected timeline for utilisation of the unutilised Net Proceeds *HK$’000* *HK$’000*
Opening a total of eight restaurants under our self-owned brands — One Cantonese cuisine restaurant_(note a) — Seven Asian cuisine restaurants(note a) Opening 19 restaurants under franchised brands Additional working capital, strategic investment and other generate corporate purposes Opening restaurants under our self-owned and franchised brands Total _Note:	14,830 45,232 100,659 17,889 — 178,610	— 3,438 8,642 — — 12,080	— 22,716 57,526 17,889 — 98,131	14,830 22,516 43,133 — — 80,479	— — — — — — — — 80,479 On or before 31 December 2022 80,479

(a) “Peace Cuisine” brand has been classified from “Cantonese cuisine — self-owned brands” to “Asian cuisine — self-owned brands” as management had realigned the Group’s business strategy. Accordingly, the category under which “Peace Cuisine” belonged to was reclassified and the respective use of proceeds have been reclassified from “Cantonese cuisine restaurant” to “Asian cuisine restaurant” to conform with the segment presentation.

(b) Latest practicable date (“ LPD ”) being 26 April 2021.

SUMMARY FINANCIAL INFORMATION

A summary of the results, assets and liabilities of the Group for the past five financial years is set out on page 160 of this report.

Annual Report 2020 LH GROUP LIMITED

Report of the Directors

PROPERTY, PLANT AND EQUIPMENT

Details of movements in property, plant and equipment of the Group during the Reporting Year are set out in Note 13(a) to the financial statements.

SHARE CAPITAL

Details of movements in the share capital of the Company during the Reporting Year are set out in Note 28 to the financial statements.

PURCHASE, SALE OR REDEMPTION OF LISTED SECURITIES

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

PRE-EMPTIVE RIGHTS

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

RESERVES

Movements in the reserves of the Group and the Company during the Reporting Year are set out in the consolidated statement of changes in equity on page 92 of this report and Notes 24 and 31(b) to the financial statements, respectively.

DISTRIBUTABLE RESERVES

As at 31 December 2020, the distributable reserves of the Company, including the share premium account, calculated in accordance with the Companies Law (Cap. 22, Law 3 of 1961 as consolidated and revised) of the Cayman Islands, amounted to approximately HK$260,445,000.

EQUITY-LINKED AGREEMENTS

Saved for the Share Option Scheme mentioned in this report, no equity-linked agreements were entered into by the Company during or at the end of the Reporting Year.

PENSION SCHEMES

Details of the pension schemes of the Group are set out in Note 2.18 to the financial statements under “Employees benefits” on page 105 of this annual report.

LH GROUP LIMITED Annual Report 2020

Report of the Directors

CHARITABLE DONATIONS

During the Reporting Year, charitable donations made by the Group amounted to approximately HK$381,000 (2019: approximately HK$438,000). Details of the charity activities and donations are set out in the ESG Report on pages 48 to 82 of this report.

MAJOR CUSTOMERS AND SUPPLIERS

For the Reporting Year, the aggregate amount of revenue attributable to the Group’s five largest customers represented less than 30% of the Group’s total revenue.

The amount of purchases of the largest supplier represented 24.8% (2019: 21.3%) of the total purchases for the Reporting Year. The aggregate purchases attributable to the Group’s five largest suppliers represented 54.4% (2019: 48.4%) of the total purchases for the Reporting Year.

None of the Directors, their respective associates (as defined in the Rules Governing the Listing of Securities on the Stock Exchange (the “ Listing Rules ”)) or any Shareholders, which to the best knowledge of the Directors, owns more than 5% of the Company’s issued share capital, has any interests in the share capital of any of the above five largest suppliers of the Group.

RELATIONSHIPS WITH EMPLOYEES, SUPPLIERS AND CUSTOMERS

The Group understands that employees are our valuable partners. The Group provides competitive remuneration package to attract and motivate the employees. The Group regularly reviews the remuneration package of employees and makes necessary adjustments to conform to the market standard.

The Group’s business is built on a customer-oriented culture. The Group also understands that it is important to maintain good relationship with its suppliers and customers to fulfil its immediate and long-term goals. To maintain its market competitiveness within the industry, the Group aims at delivering constantly high standards of quality in the products and services to its customers. During the Reporting Year, there was no material and significant dispute between the Group and its suppliers and/or customers.

Annual Report 2020 LH GROUP LIMITED 27

Report of the Directors

DIRECTORS

The Directors during the Reporting Year and up to the date of this report were:

Executive Directors

Mr. Wong Kit Lung Simon Prof, JP (Chairman and Chief Executive Officer) Ms. Ko Sau Chee Grace (Vice Chairperson) Mr. Ho Chi Wai (resigned with effect from 1 September 2020)

Independent non-executive Directors

Mr. Sin Yat Kin SBS , CSDSM Ms. Hung Lo Shan Lusan Mr. Hung Wai Man Prof, JP

Pursuant to the Articles of Association, Ms. Hung Lo Shan Lusan and Mr. Hung Wai Man shall retire by rotation at the forthcoming AGM. Both of them, being eligible, will offer themselves for re-election at the forthcoming AGM.

BIOGRAPHIES OF DIRECTORS AND SENIOR MANAGEMENT

The biographical details of the Directors and senior management of the Company are set out on pages 18 to 22 of this report.

DIRECTORS’ SERVICE CONTRACTS

Each of the executive Directors entered into a service agreement with the Company for a term of three years commencing from 30 May 2018. They are subject to retirement by rotation and re-election at the AGM of the Company under the Articles of Association. Either party may terminate the service agreement by giving the other party not less than one month notice in writing or by the payment of wages in lieu of the outstanding notice.

Each of the independent non-executive Directors entered into a letter of appointment with the Company for a term of three years commencing from 30 May 2018. They are subject to retirement by rotation and re-election at the AGM of the Company under the Articles of Association. Either party may terminate the letter of appointment by giving the other party not less than one month notice in writing or by the payment of wages in lieu of the outstanding notice.

None of the Directors proposed for re-election at the forthcoming AGM has a service agreement/letter of appointment with the Company and/or any of its subsidiaries, which is not determinable by the Company within one year without payment of compensation, other than statutory compensation.

DIRECTORS’ REMUNERATION

Details of the remuneration of the Directors are set out in Note 33 to the financial statements, which are recommended by the Remuneration Committee by reference to the performance of the individual and the Company as well as market practice and conditions.

28 LH GROUP LIMITED Annual Report 2020

Report of the Directors

SENIOR MANAGEMENT’S REMUNERATION

The emoluments of senior management fell within the following bands:

Number of senior management Year ended 31 December

	2020	2019
Nil to HK$1,000,000 HK$1,000,001 to HK$1,500,000 HK$1,500,001 to HK$2,000,000	1 — 1 2	— 2 — 2

PERMITTED INDEMNITY PROVISION

Pursuant to the Articles of Association and subject to the applicable laws and regulations, every Director shall be indemnified and secured harmless out of the assets of the Company and against all losses or liabilities incurred or sustained by reason of any act done, concurred in or omitted in or about the execution of their duties. Such permitted indemnity provision has been in force throughout the Reporting Year. The Company has arranged for appropriate directors’ and officers’ liability insurance coverage for the Directors and officers of the Group.

DIRECTORS’ MATERIAL INTERESTS IN TRANSACTIONS, ARRANGEMENTS AND CONTRACTS

No transactions, arrangements and contracts of significance in relation to the Group’s business to which the Company’s subsidiaries, fellow subsidiaries or its parent company was a party and in which a Director and the Director’s connected party had a material interest, whether directly or indirectly, subsisted at any time during or at the end of the Reporting Year.

CONTROLLING SHAREHOLDERS’ INTEREST IN CONTRACTS

None of the Company or any of its subsidiaries entered into contract of significance with the controlling shareholders or any of its subsidiaries other than the Group, nor was there any contract of significance between the Group and the controlling shareholders or any of its subsidiaries other than the Group in relation to provision of services.

MANAGEMENT CONTRACTS

No contracts concerning the management and administration of the whole or any substantial part of the business of the Company were entered into or existed during or at the end of the Reporting Year.

Annual Report 2020 LH GROUP LIMITED 29

Report of the Directors

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

(i) Interest in the Company

As at 31 December 2020, the interests and short positions of the Directors and chief executives of the Company in the shares, underlying shares and debentures of the Company or its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (the “ SFO ”)) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they were taken or deemed to have under such provisions of the SFO), or which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein, or which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers contained in the Appendix 10 of the Listing Rules (the “ Model Code ”) are as follows:

				Approximate	Long
				percentage of	position/
			Number of	shareholding in	Short
Name of Director	Capacity/Nature of interest		Shares	the Company	position
				*(%)*
Mr. Wong Kit Lung Simon(2)	Interest held jointly with other		600,000,000	75%	L(1)
		persons; interest in a controlled
		corporation
Ms. Ko Sau Chee Grace(2)	Interest held jointly with other		600,000,000	75%	L(1)
		persons; interest in a controlled
		corporation

Notes:

(1) The letter “L” denotes the person’s long position in the shares of the Company (the “ Shares ”).
(2) Mr. Wong Kit Lung Simon, Mr. Ko Cheuk Kuen, Mr. Wong Yiu Hung, Mr. Liu Cheung, Mr. Liu Chi Hung Peter, Mr. Lau Kwong Kwan, Hop Kwan Holdings Limited (“ Hop Kwan ”) and Ms. Ko Sau Chee Grace are parties acting in concert (having the meaning ascribed to it under the Hong Kong Codes on Takeovers and Mergers and Share Repurchases (the “ Takeover Code ”)). Under the SFO, Mr. Lam Kwan Ying and Ms. Chan Wai Chun are deemed or taken to be interested in the shares to be held by Hop Kwan. As such, Mr. Wong Kit Lung Simon, Mr. Ko Cheuk Kuen, Mr. Wong Yiu Hung, Mr. Liu Cheung, Mr. Liu Chi Hung Peter, Mr. Lau Kwong Kwan, Hop Kwan, Mr. Lam Kwan Ying, Ms. Chan Wai Chun and Ms. Ko Sau Chee Grace will for the purpose of the SFO together through LHG Holdings Limited (“ LHG Holdings ”) control 75% of the entire share capital of the Company.

LH GROUP LIMITED Annual Report 2020

Report of the Directors

(ii) Interest in the associated corporation

				Approximate
		Name of associated	Number of	percentage of
Name of Director	Position in the Company	corporation	Shares held	shareholding
				*(%)*
Mr. Wong Kit Lung Simon	Executive Director	LHG Holdings	290,358	29.03%
Ms. Ko Sau Chee Grace	Executive Director	LHG Holdings	100,100	10.01%

Save as disclosed above, as at 31 December 2020, none of the Directors or chief executives of the Company had or was deemed to have any interests or short positions in the Shares, underlying Shares or debentures of the Company or its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO), or which were required to be recorded in the register to be kept by the Company pursuant to section 352 of the SFO, or which were required, pursuant to the Model Code, to be notified to the Company and the Stock Exchange.

DIRECTORS’ RIGHT TO ACQUIRE SHARES OR DEBENTURES

Save as disclosed in this report, at no time during the Reporting Year was the Company, its holding company or any of its subsidiaries, a party to any arrangements which enable the Directors and the chief executives of the Company to acquire benefits by means of an acquisition of Shares or debentures of the Company or any other body corporate; and none of the Directors, or their spouses or children under the age of 18, had any rights to subscribe for the securities of the Company, or had exercised any such right during the Reporting Year.

Annual Report 2020 LH GROUP LIMITED 31

Report of the Directors

SUBSTANTIAL SHAREHOLDERS’ INTERESTS AND SHORT POSITIONS IN SHARES AND UNDERLYING SHARES

As at 31 December 2020, within the knowledge of the Directors, the following persons (other than the Directors or chief executive of the Company) had an interest or a short position in the Shares or underlying Shares which would be required to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO or as recorded in the register required to be kept by the Company pursuant to Section 336 of the SFO:

				Approximate	Long position/
			Number of	percentage of	Short position/
Name of Shareholder	Capacity/Nature of interest		Shares	shareholding	Lending pool
				*(%)*
LHG Holdings(2)	Beneficial owner		600,000,000	75%	L(1)
Mr. Ko Cheuk Kuen(6)	Interest held jointly with other		600,000,000	75%	L(1)
		persons; interest in a controlled
		corporation
Mr. Wong Yiu Hung(6)	Interest held jointly with other		600,000,000	75%	L(1)
		persons; interest in a controlled
		corporation
Mr. Liu Cheung(6)	Interest held jointly with other		600,000,000	75%	L(1)
		persons; interest in a controlled
		corporation
Mr. Liu Chi Hung Peter(6)	Interest held jointly with other		600,000,000	75%	L(1)
		persons; interest in a controlled
		corporation
Mr. Lau Kwong Kwan(6)	Interest held jointly with other		600,000,000	75%	L(1)
		persons; interest in a controlled
		corporation
Hop Kwan(3)(6)	Interest held jointly with other		600,000,000	75%	L(1)
		persons; interest in a controlled
		corporation
Mr. Lam Kwan Ying(3)(4)(6)	Interest of spouse; interest held		600,000,000	75%	L(1)
		jointly with other persons; interest
		in a controlled corporation
Ms. Chan Wai Chun(3)(5)(6)	Interest of spouse; interest held		600,000,000	75%	L(1)
		jointly with other persons; interest
		in a controlled corporation

LH GROUP LIMITED Annual Report 2020

Report of the Directors

Notes:

(1) The letter “L” denotes the person’s long position in the Shares.
(2) LHG Holdings is an investment-holding company incorporated in the British Virgin Islands (“ BVI ”) and owned as to 29.03%, 2.99%, 10.01%, 11.99%, 11.99%, 11.99%, 11.99% and 10.01% by Mr. Wong Kit Lung Simon, Mr. Wong Yiu Hung, Mr. Ko Cheuk Kuen, Mr. Liu Cheung, Mr. Liu Chi Hung Peter, Mr. Lau Kwong Kwan, Hop Kwan and Ms. Ko Sau Chee Grace respectively.
(3) Mr. Lam Kwan Ying and Ms. Chan Wai Chun each owns 18.33% and 68.33% of Hop Kwan respectively and therefore under the SFO, Mr. Lam Kwan Ying and Ms. Chan Wai Chun are deemed or taken to be interested in the Shares to be held by Hop Kwan.
(4) Mr. Lam Kwan Ying is the spouse of Ms. Chan Wai Chun and is deemed or taken to be interested in all the Shares in which Ms. Chan Wai Chun has, or is deemed to have, an interest for the purpose of the SFO.
(5) Ms. Chan Wai Chun is the spouse of Mr. Lam Kwan Ying and is deemed or taken to be interested in all the Shares in which Mr. Lam Kwan Ying has, or is deemed to have, an interest for the purpose of the SFO.
(6) Mr. Wong Kit Lung Simon, Mr. Ko Cheuk Kuen, Mr. Wong Yiu Hung, Mr. Liu Cheung, Mr. Liu Chi Hung Peter, Mr. Lau Kwong Kwan, Hop Kwan, and Ms. Ko Sau Chee Grace are parties acting in concert (having the meaning ascribed to it under the Takeover Code). Under SFO, Mr. Lam Kwan Ying and Ms. Chan Wai Chun are deemed or taken to be interested in the shares to be held by Hop Kwan. As such, Mr. Wong Kit Lung Simon, Mr. Ko Cheuk Kuen, Mr. Wong Yiu Hung, Mr. Liu Cheung, Mr. Liu Chi Hung Peter, Mr. Lau Kwong Kwan, Hop Kwan, Mr. Lam Kwan Ying, Ms. Chan Wai Chun and Ms. Ko Sau Chee Grace will for the purpose of the SFO together through LHG Holdings control 75% of the entire share capital of the Company.

Save as disclosed above, as at 31 December 2020, the Directors are not aware of any other person (other than the Directors or chief executives of the Company) who had an interest or a short position in the Shares or underlying Shares as recorded in the register required to be kept by the Company pursuant to section 336 of the SFO.

SUFFICIENCY OF PUBLIC FLOAT

Based on the information that is publicly available to the Company and within the knowledge of the Directors, the Company has maintained a sufficient public float of at least 25% of the issued Shares during the Reporting Year and up to the date of this report.

DEED OF NON-COMPETITION

As set out in the Prospectus, the Company’s controlling shareholders, namely LHG Holdings, Mr. Wong Kit Lung Simon, Mr. Ko Cheuk Kuen, Mr. Wong Yiu Hung, Mr. Liu Cheung, Mr. Liu Chi Hung Peter, Mr. Lau Kwong Kwan, Hop Kwan and Ms. Ko Sau Chee Grace (the “ Covenantors ”) entered into the deed of non-competition (the “ Deed of Non-competition ”) in favour of the Company (for itself and as trustee for other members of the Group) on 4 May 2018.

Each of the Covenantors has provided to the Company a written confirmation in respect of his/ her/its compliance with the Deed of Non-competition for the year ended 31 December 2020. The independent non-executive Directors of the Company have reviewed the written confirmations made by each of the Covenantors in respect of his/her/its compliance with the undertakings in the Deed of Non-competition and have confirmed that, as far as they can ascertain, there is no breach of any of the undertakings in the Deed of Non-competition given by the Covenantors.

Annual Report 2020 LH GROUP LIMITED

Report of the Directors

SHARE OPTION SCHEME

On 4 May 2018, the Share Option Scheme was approved and adopted by the Shareholders. The purpose of the Share Option Scheme is to incentivize and recognize and acknowledge the employees or directors of members of the Group or associated companies of the Company or any advisors, consultants, suppliers, clients, distributors etc. (the “ Eligible Persons ”) for their contribution to the Group and attract and retain talent or otherwise maintain an on-going business relationship with them.

Pursuant to the Share Option Scheme, the Board (including any committee or delegate of the Board appointed by the Board to perform any of its functions pursuant to the rules of the Share Option Scheme) may, at its absolute discretion, offer to grant an option to subscribe for such number of Shares as the Board may determine to an Eligible Person.

The maximum number of Shares which may be issued upon exercise of all options to be granted under the Share Option Scheme and any other schemes of the Company must not in aggregate exceed 10% of the total number of Shares in issue as at the listing date of the Company (the “ Listing Date ”), being 80,000,000 Shares, or such higher limit as the Stock Exchange may allow pursuant to a waiver granted at the Stock Exchange’s discretion (the “ Scheme Mandate Limit ”).

The total number of Shares which may be issued on the exercise of options granted and to be granted under the Share Option Scheme and any other schemes is 80,000,000 Shares, representing 10% of the issued share capital of the Company as at the date of this report.

Options lapsed in accordance with the terms of the Share Option Scheme and any other scheme of the Company will not be counted for the purpose of calculating the Scheme Mandate Limit.

At any time, the maximum number of Shares which may be issued upon exercise of all outstanding options granted and not yet exercised under the Share Option Scheme and any other schemes of the Company to Eligible Persons must not exceed 30% of the total number of Shares in issue from time to time.

No options shall be granted to any Eligible Person under the Share Option Scheme and any other schemes of the Company which, if exercised, would result in such Eligible Person becoming entitled to subscribe for such number of Shares as, when aggregated with the total number of Shares already issued or to be issued to him under all options granted to him (including exercised, cancelled and outstanding options) in the 12-month period up to and including the date of offer of such options, exceeds 1% of the Shares in issue at such date or such higher limit as the Stock Exchange may allow pursuant to a waiver granted at the Stock Exchange’s discretion. Any further grant of options to an Eligible Person in excess of this 1% limit or such higher limit as the Stock Exchange may allow pursuant to a waiver granted at the Stock Exchange’s discretion shall be subject to the approval of the Shareholders in general meeting with such Eligible Person and his close associates (or if such Eligible Person is a connected person of the Company, his associates) abstaining from voting.

34 LH GROUP LIMITED Annual Report 2020

Report of the Directors

The share options granted shall be open for acceptance before the acceptance date (as prescribed by the Company). An offer of share options not accepted within the said period shall be deemed irrevocably declined. An amount of HK$1.00 is payable upon acceptance of the grant of the share options and such payment shall not be refundable and shall not be deemed to be a part payment of the exercise price.

The exercise price shall be such price as determined by the Board and notified to an option-holder and which shall not be less than the higher of (i) the closing price of the Shares as stated in the Stock Exchange’s daily quotation sheets on the date of offer of the option; (ii) the average of the closing price of the Shares as stated in the Stock Exchange’s daily quotation sheets for the five trading days immediately preceding the date of offer of the option; and (iii) the nominal value of the Shares.

The Share Option Scheme shall be valid and effective for a period of ten years commencing on the date of its adoption. Accordingly, as at 31 December 2020, the remaining life of the Share Option Scheme is approximately 7.5 years.

Any option shall be vested on an option-holder immediately upon his acceptance of the offer of options provided that if any vesting schedule and/or conditions are specified in the offer of the option, such option shall only be vested on an option-holder according to such vesting schedule and/ or upon the fulfillment of the vesting conditions (as the case may be). Any vested option which has not lapsed and which conditions have been satisfied or waived by the Board in its sole discretion may, unless the Board determines otherwise in its absolute discretion, be exercised at any time from the day after the offer of options is deemed to be granted and accepted. Any option which remain unexercised shall lapse upon the expiry of the option period, which period shall be determined by the Board and shall not exceed ten years from the offer date of the option.

No share options had been granted under the Share Option Scheme since its adoption (including the year ended 31 December 2020). There was no outstanding share options as at 31 December 2020.

DIRECTORS’ INTERESTS IN COMPETING BUSINESS

During the Reporting Year and up to the date of this report, none of the Directors had an interest in a business, which competes or may compete, either directly or indirectly, with the business of the Group.

RELATED PARTY TRANSACTIONS

Details of the related party transactions undertaken by the Group during the Reporting Year are set out in Note 19 to the financial statements. These related party transactions did not constitute connected transactions or continuing connected transactions under the Listing Rules. The Company has complied with the disclosure requirements in accordance with Chapter 14A of the Listing Rules.

Annual Report 2020 LH GROUP LIMITED 35

Report of the Directors

EVENT AFTER THE REPORTING YEAR

No significant events occurred after the Reporting Year and up to the date of this report.

AUDITOR

The consolidated financial statements for the Reporting Year have been audited by PricewaterhouseCoopers who will retire and, being eligible, offer themselves for re-appointment at the forthcoming AGM of the Company.

On behalf of the Board

Wong Kit Lung Simon Prof, JP Chairman

Hong Kong, 29 March 2021

36 LH GROUP LIMITED Annual Report 2020

Corporate Governance Report

CORPORATE GOVERNANCE PRACTICES

The Group is committed to maintaining high standards of corporate governance to safeguard the interests of the Shareholders and to enhance corporate value and accountability. The Company has adopted the Corporate Governance Code and the Corporate Governance Report (the “ CG Code ”) contained in Appendix 14 to the Listing Rules as its own code of corporate governance.

During the Reporting Year, save for the deviation from code provision A.2.1 of the CG Code regarding the separation of the roles of the chairman and the chief executive officer detailed in “Chairman and Chief Executive Officer” section in this Corporate Governance report, the Company had complied with all the code provisions of the CG Code and adopted most of the best practices set out therein.

The Company will continue to review and enhance its corporate governance practices to ensure compliance with CG code.

MODEL CODE FOR SECURITIES TRANSACTIONS

The Company has adopted the Model Code as its own code of conduct regarding securities transactions of the Directors. Having made specific enquiry with the Directors, all Directors confirmed that they have complied with the required standard as set out in the Model Code for the Reporting Year.

BOARD OF DIRECTORS

The Board is responsible for the leadership and control of the Company. It is collectively responsible for promoting the success of the Company by directing and supervising its affairs. The Board takes decisions objectively in the interests of the Company. All Directors have carried out their duties in good faith, in compliance with applicable laws and regulations and in the interests of the Company and its Shareholders at all times.

The Board undertakes responsibility for decision making in major Company matters, including: approval and monitoring of all policy matters, overall strategies and budgets, internal control and risk management systems, material transactions and other significant financial and operational matters.

The Board has delegated the authority and responsibility for the day-to-day management and operation of the Group to the management. The management is responsible for implementing the decisions of the Board, directing and coordinating operations, managing the Group in accordance with the strategies and plans as approved by the Board and formulating and monitoring the operation plans.

All Directors have full and timely access to all relevant information as well as the advice and services of the company secretary of the Company, with a view to ensuring that Board procedures and all applicable laws and regulations are followed. Each Director is normally able to seek independent professional advice in appropriate circumstances at the Company’s expense, upon making request to the Board.

Annual Report 2020 LH GROUP LIMITED 37

Corporate Governance Report

The Company has arranged for appropriate insurance cover for Directors’ and officers’ liabilities in respect of legal actions against its Directors and senior management arising out of corporate activities.

The Board comprises five members, consisting of two executive Directors and three independent non-executive Directors. The executive Directors and independent non-executive Directors during the Reporting Year and up to the date of this report were as follows:

Executive Directors

Mr. Wong Kit Lung Simon Prof, JP (Chairman and Chief Executive Officer) Ms. Ko Sau Chee Grace (Vice Chairperson)

Mr. Ho Chi Wai (resigned with effect from 1 September 2020)

Independent non-executive Directors

Mr. Sin Yat Kin SBS, CSDSM Ms. Hung Lo Shan Lusan

Mr. Hung Wai Man Prof, JP

Biographies and relationships among members of the Board are set out in the “Directors and Senior Management” section on pages 18 to 22 of this report. None of the Directors have any personal relationship (including financial, business, family or other material or relevant relationship) with any other Directors.

For the Reporting Year, the Board at all times met the requirements of Rules 3.10(1), 3.10(2) and 3.10A of the Listing Rules relating to the appointment of at least three independent non-executive Directors, representing at least one-third of the Board, with at least one independent non-executive Director possessing appropriate professional qualifications or accounting or related financial management expertise.

The Company has received from each of the independent non-executive Directors (the “ INEDs ”) an annual confirmation in writing of his/her independence pursuant to Rule 3.13 of the Listing Rules. Furthermore, the Board is not aware of any relationship or circumstances which would interfere with the exercise of the independent judgment of the INEDs. Accordingly, the Company considers that all the INEDs are independent.

38 LH GROUP LIMITED Annual Report 2020

Corporate Governance Report

During the Reporting Year, four regular Board meetings and one general meeting were held. The attendance records of the Directors at the Board meetings, Board committee meetings and annual general meeting of the Company held during the Reporting Year are set out below:

		Number of meetings attended/held	Number of meetings attended/held	Number of meetings attended/held
					Annual
		Nomination	Remuneration	Audit	General
	Board	Committee	Committee	Committee	Meeting
Executive Directors
Mr. Wong Kit Lung Simon_Prof, JP_	4/4	1/1	1/1	—	1/1
Ms. Ko Sau Chee Grace	4/4	—	—	—	1/1
Mr. Ho Chi Wai (resigned with
effect from 1 September 2020)	3/3	—	—	—	1/1
Independent non-executive
Directors
Mr. Sin Yat Kin_SBS, CSDSM_	4/4	1/1	1/1	2/2	1/1
Ms. Hung Lo Shan Lusan	4/4	—	1/1	2/2	1/1
Mr. Hung Wai Man_Prof, JP_	4/4	1/1	—	2/2	1/1

CHAIRMAN AND CHIEF EXECUTIVE OFFICER

Pursuant to code provision A.2.1 of the CG Code, the roles of chairperson and the chief executive officer should be separate and should not be performed by the same individual. Mr. Wong Kit Lung Simon (“ Mr. Wong ”) currently holds both positions. Mr. Wong has been the key leadership figure of the Group who has been primarily involved in the formulation of business strategies and determination of the overall direction of the Group. He has also been chiefly responsible for the Group’s operations as he directly supervises our senior management. Taking into account the continuation of the implementation of our business plans, the Directors (including the independent non-executive Directors) consider Mr. Wong as the best candidate for both positions and the present arrangements are beneficial and in the interests of the Group and the Shareholders as a whole. The balance of power and authority is ensured by the operation of the senior management and the Board, which comprises experienced and high-calibre individuals. The Board currently comprises two executive Directors (including Mr. Wong) and three independent non-executive Directors and therefore has a fairly strong independence element in its composition.

APPOINTMENT AND RE-ELECTION OF DIRECTORS

Annual Report 2020 LH GROUP LIMITED

Corporate Governance Report

CONTINUOUS PROFESSIONAL DEVELOPMENT OF DIRECTORS

During the Reporting Year, all Directors had participated in continuous professional development activities either by attending training courses, reading materials or attending seminars, conference and/or forums to develop and refresh their knowledge and skills on the roles and functions of a director of a listed corporation in compliance with code provision A.6.5 of the CG Code.

During the Reporting Year, a summary of the Directors’ participation in continuous professional development is set out below:

Directors		Type of trainingNote
Executive Directors
Mr. Wong Kit Lung Simon_Prof, JP_		A,B,C
Ms. Ko Sau Chee Grace		A,B,C
Mr. Ho Chi Wai		A,B,C
Independent non-executive Directors
Mr. Sin Yat Kin_SBS, CSDSM_		A,B,C
Ms. Hung Lo Shan Lusan		A,B,C
Mr. Hung Wai Man_Prof, JP_		A,B,C

Notes:

A: Attending relevant laws and regulations training
B: Reading relevant materials
C: Attending seminars and/or conference and/or forums

BOARD COMMITTEES

The Board has established three committees, namely, the Nomination Committee, the Remuneration Committee and the Audit Committee, for overseeing particular aspects of the Company’s affairs. All Board committees of the Company are established with defined written terms of reference. The terms of reference of the Board committees are posted on the Company’s website and the Stock Exchange’s website and are available to Shareholders upon request. 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.

==> picture [469 x 144] intentionally omitted <==

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Board of Directors
Remuneration Committee Audit Committee Nomination Committee
(2 out of 3 are independent non-executive Directors) (all independent non-executive Directors) (2 out of 3 are independent non-executive Directors)
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LH GROUP LIMITED Annual Report 2020

Corporate Governance Report

NOMINATION COMMITTEE

The Nomination Committee currently comprises the following three Directors with two being independent non-executive Directors:

Executive Director:

Mr. Wong Kit Lung Simon Prof, JP (Chairperson)

Independent non-executive Directors:

Mr. Sin Yat Kin SBS, CSDSM

Mr. Hung Wai Man Prof, JP

The Nomination Committee is primarily responsible for reviewing the structure, size, composition and diversity of the Board and to make recommendations on any proposed changes to the Board to complement the corporate strategy of the Company; making recommendations to the Board on the appointment and succession planning of Directors; and assessing the independence of independent non-executive Directors.

The Nomination Committee has adopted certain nomination criteria which set out a set of nomination procedures and selection criteria for Directors. The Nomination Committee shall evaluate and select candidates based on the criteria by reference to character and integrity, business experience relevant and beneficial to the Company, qualifications including professional qualifications, skills and knowledge that are relevant to the Company’s business and corporate strategy, willingness to devote adequate time to discharge duties as a member of the Board and other significant commitments, present needs of the Board for particular expertise, skills or experience and whether the candidates would satisfy those needs, requirement for the Board to have independent Directors in accordance with the Listing Rules and whether the candidates for independent Directors would be considered independent with reference to the independence guidelines set out in the Listing Rules and the board diversity policy and any measurable objectives adopted by the Nomination Committee for achieving diversity on the Board.

The Board adopts a Board Diversity Policy which sets out its approach to achieve and maintain its diversity through consideration of a number of measurable objectives including skills, professional experience, cultural and educational background, gender, age, as well as other attributes and strengths that are required for the Company’s business from time to time. Board appointments are made on a merit basis and candidates are considered against objective selection criteria, with due regard for the benefits of diversity on the Board.

The Nomination Committee is delegated by the Board to review the Board Diversity Policy on a regular basis, make recommendations on measurable objectives for achieving diversity of the Board as appropriate and monitor the progress on achieving the objectives. The Nomination Committee has also adopted specific procedures for nomination and appointment of director to the Board.

The Nomination Committee held one meeting during the Reporting Year. All members of the Nomination Committee attended the meeting.

The terms of reference of the Nomination Committee is available on the websites of the Company and the Stock Exchange.

Annual Report 2020 LH GROUP LIMITED

Corporate Governance Report

The work performed by the Nomination Committee during the Reporting Year is summarised below:

(a) reviewed the structure, size, composition and diversity of the Board to ensure that it has a balance of expertise, skills and experience appropriate for the requirements of the business of the Company;
(b) developed the criteria for identifying and assessing the qualifications of and evaluating candidates for directorship;
(c) assessed the independence of independent non-executive Directors;
(d) made recommendations to the Board on the appointment or re-appointment of Directors and succession planning for Directors; and
(e) reviewed the Board’s diversity policy, the measurable objectives that the Board had set for implementing the Board’s diversity policy and the progress of achieving the objectives.

REMUNERATION COMMITTEE

The Remuneration Committee consists of three Directors, two of whom are independent non-executive Directors:

Executive Director:

Mr. Wong Kit Lung Simon Prof, JP

Independent non-executive Directors:

Mr. Sin Yat Kin SBS, CSDSM (Chairperson)

Ms. Hung Lo Shan Lusan

The primary duties of the Remuneration Committee include: (i) making recommendations to the Directors regarding our policy and structure for the remuneration of all our Directors and senior management and on the establishment of a formal and transparent procedure for developing remuneration policies; (ii) making recommendations to the Board on the remuneration packages of our Directors and senior management; and (iii) reviewing and approving the management’s remuneration proposals with reference to the Board’s corporate goals and objectives.

The Remuneration Committee held one meeting during the Reporting Year. All members of the Remuneration Committee attended the meeting.

The terms of reference of the Remuneration Committee is available on the websites of the Company and the Stock Exchange.

The major work performed by the Remuneration Committee during the Reporting Year is summarised below:

(a) made recommendations to the Board on the Company’s policy and structure for remuneration of all directors and senior management and on the establishment of a formal and transparent procedure for developing remuneration policy;
(b) reviewed and approved the management’s remuneration proposals with reference to the Board’s corporate goals and objectives;

LH GROUP LIMITED Annual Report 2020

Corporate Governance Report

(c) made recommendations to the Board on the remuneration packages of Directors and senior management;
(d) considered salaries paid by comparable companies, time commitment and responsibilities and employment conditions elsewhere in the Group; and
(e) ensured that no Director or any of his associates was involved in deciding his/her own remuneration.

AUDIT COMMITTEE

The Audit Committee consists of three independent non-executive Directors:

Ms. Hung Lo Shan Lusan (Chairperson, with professional qualification in accountancy)
Mr. Hung Wai Man Prof, JP
Mr. Sin Yat Kin SBS, CSDSM

The primary duties of the Audit Committee are to assist the Board by providing an independent view of the effectiveness of the financial reporting process, internal control and risk management system of the Group, to oversee the audit process and to develop and review our policies.

The Audit Committee held two meetings during the Reporting Year. All members of the Audit Committee attended the meeting. The external auditors were also invited to attend the meeting.

The terms of reference of the Audit Committee is available on the websites of the Company and the Stock Exchange.

The major work performed by the Audit Committee during the Reporting Year is summarised below:

(a) reviewed and monitored the external auditor’s independence and objectivity and the effectiveness of the audit process in accordance with applicable standards;
(b) developed and implemented policy on engaging an external auditor to supply non-audit services;
(c) monitored integrity of the Company’s financial statements, the interim and annual report and reviewed significant financial reporting judgments contained in them;
(d) reviewed the Company’s financial controls, risk management and internal control systems;
(e) discussed the risk management and internal control system with management to ensure that management has performed its duty to have effective systems;
(f) considered major investigation findings on risk management and internal control matters as delegated by the Board or on its own initiative and management’s response to these findings;
(g) reviewed the Group’s financial and accounting policies and practices;

Annual Report 2020 LH GROUP LIMITED

Corporate Governance Report

(h) reviewed the external auditor’s management letter, any material queries raised by the auditor to management about accounting records, financial accounts or systems of control and management’s response; and
(i) acted as the key representative body for overseeing the Company’s relations with the external auditor.

The Company’s annual results for the Reporting Year have been reviewed by the Audit Committee.

CORPORATE GOVERNANCE FUNCTIONS

The Board recognizes that corporate governance should be the collective responsibility of the Directors and their corporate governance duties include:

(a) to develop and review the Company’s policies and practices on corporate governance;
(b) to review and monitor the training and continuous professional development of the Directors and senior management;
(c) to review and monitor the policies and practices of the Company on compliance with legal and regulatory requirements;
(d) to develop, review and monitor the code of conduct of employees and Directors; and
(e) to review compliance with the CG Code and disclosure in the Corporate Governance Report.

During the Reporting Year, the above corporate governance function has been performed by the Board and the Board has reviewed the Company’s compliance with the CG Code.

AUDITOR’S REMUNERATION

During the Reporting Year, the fees paid/payable to the auditor in respect of audit and non-audit services provided by the auditor of the Company were as follows:

	Fees paid/ payable HK$’000
Audit services Non-audit services — Taxation — Agreed upon procedures Total	2,100 800 132 3,032

JOINT COMPANY SECRETARIES

Ms. Chan Hiu Yi is a joint company secretary of the Company. She joined the Group since 2010 and is also our administration manager. She is primarily responsible for the overall administrative and company secretarial matters of the Group. Ms. Chan has more than 10 years of experience in the company secretarial position.

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Ms. Chan is an associate member of both The Hong Kong Institute of Chartered Secretaries and The Chartered Governance Institute in the United Kingdom. Ms. Chan obtained her Bachelor of Arts in Travel and Tourism Management degree from the University of Northumbria in the United Kingdom in July 2008 (by long distance learning) and obtained her Master of Corporate Governance degree from The Open University of Hong Kong in November 2017. Ms. Chan was granted a Certificate in Company Secretarial Practice — Part I: Company Secretarial Practice by The Hong Kong Management Association in July 2013. She was granted a Certificate in Company Secretarial Practice — Part II: Company Law by The Hong Kong Management Association in October 2013. She was subsequently granted a Certificate in Company Secretarial Practice — Part III: Public and Listed Companies by The Hong Kong Management Association in December 2013.

In order to uphold good corporate governance and ensure compliance with the Listing Rules and applicable Hong Kong laws, the Company also engages Ms. Yu Wing Sze of TMF Hong Kong Limited (a company secretarial service provider) as the other joint company secretary to assist Ms. Chan to discharge her duties as one of the joint company secretaries of the Company.

During the Reporting Year, Ms. Chan Hiu Yi and Ms. Yu Wing Sze had confirmed that they undertook no less than 15 hours of relevant professional trainings to update the skills and knowledge in compliance with Rule 3.29 of the Listing Rules.

SHAREHOLDERS’ RIGHTS

Procedures for Shareholders to Convene an Extraordinary General Meeting (“EGM”)

Pursuant to article 64 of the Articles of Association, extraordinary general meetings shall be convened on the requisition of one or more Shareholders holding, at the date of deposit of the requisition, not less than one tenth of the paid up capital of the Company having the right of voting at general meetings. Such requisition shall be made in writing to the Board or the Secretary for the purpose of requiring an EGM to be called by the Board for the transaction of any business specified in such requisition. Such meeting shall be held within two months after the deposit of such requisition. If within 21 days of such deposit, the Board fails to proceed to convene such meeting, the requisitionist(s) himself (themselves) may do so in the same manner, and all reasonable expenses incurred by the requisitionist(s) as a result of the failure of the Board shall be reimbursed to the requisitionist(s) by the Company.

Procedures for Raising Enquiries

Shareholders may send their enquiries or comments to the following:

Address: Unit 03, L22, Tower 1, Enterprise Square Five, 38 Wang Chiu Road, Kowloon Bay, Hong Kong Email: [email protected]

Procedures for Putting Forward Proposals at Shareholders’ Meetings

There are no provisions allowing Shareholders to move new resolutions at the general meetings under the Companies Law (Revised) of Cayman Islands. However, pursuant to the Articles of Association, Shareholders who wish to move a resolution may by means of requisition to convene an EGM following the procedures set out above.

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COMMUNICATION WITH SHAREHOLDERS AND INVESTORS

The Company considers that effective communication with Shareholders is essential for enhancing investor relations and investor understanding of the Group’s business performance and strategies. The Company also recognises the importance of transparency and timely disclosure of corporate information, which will enable Shareholders and investors to make the best investment decisions.

The general meetings of the Company provide a forum for communication between the Board and the Shareholders. The Chairman of the Board as well as chairmen of the Nomination Committee, Remuneration Committee and Audit Committee or, in their absence, other members of the respective committees are available to answer questions at general meetings.

The AGM of the Company will be held on Thursday, 3 June 2021. The notice of AGM will be sent to Shareholders at least 20 clear business days before the AGM.

To promote effective communication, the Company maintains a website at www.lhgroup.com.hk where up-to-date information and updates on the Company’s financial information, corporate governance practices and other information are posted.

CONSTITUTIONAL DOCUMENTS

Pursuant to a special resolution of the Shareholders passed on 4 May 2018, the Articles of Association were adopted with effect from the date of the listing of the Shares on the Stock Exchange on 30 May 2018. During the Reporting Year, there had been no significant change in the Company’s constitutional documents. The Articles of Association are available on the websites of the Company and the Stock Exchange.

RISK MANAGEMENT AND INTERNAL CONTROL

The Board has overall responsibility for the establishment, maintenance and review of the Group’s risk management and internal control system to safeguard shareholder investments and the assets of the Group. The risk management and internal control system of the Group aims to facilitate effective and efficient operation which in turn minimises the risks to which the Group is exposed. The system can only provide reasonable but not absolute assurance against misstatement or losses.

The Audit Committee, acting on behalf of the Board, reviews the effectiveness of the Company’s risk management and internal control systems on an on-going basis and reports to the Board. The Board has considered the advice from the Audit Committee, and has discussed and reviewed the effectiveness of the risk management and internal control system of the Group for the year ended 31 December 2020, which included the implemented system and procedures, covering financial, operational and legal compliance controls and risk management functions. The Directors consider that the Group has implemented appropriate procedures safeguarding the Group’s assets against unauthorised use or misappropriation, maintaining proper accounting records, execution with appropriate authority and compliance of the relevant laws and regulations.

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The Board considered that the risk management and internal control system is adequate and effective. The Group recognises that good risk management is essential for the long-term development on the Group’s business. Management is responsible for establishing, implementing, reviewing and evaluating the sound and effective internal control system underpinning the risk management framework. The management has formulated the risk management and control framework. All employees are committed to implementing the risk management framework into the daily operation.

The Group acknowledges its responsibilities under the provisions of Part XIVA of SFO and the Listing Rules relating to the disclosure of inside information to the public. Policies, procedures and internal controls had been set out for the handling and dissemination of inside information to ensure inside information is kept confidential and disseminated to the public in a timely manner.

The Company does not have an internal audit function and is currently of the view that there is no immediate need to set up an internal audit function within the Group in light of the size, nature and complexity of the Group’s business. It was decided that the Board would be directly responsible for risk management and internal control of the Group and for reviewing its effectiveness.

OBJECTIVES OF RISK MANAGEMENT AND INTERNAL CONTROL

The Group has adopted a three-tier risk management approach to identify, assess, mitigate and handle risks. At the first line of defence, business units are responsible for identifying, assessing and monitoring risks associated with each business or deal. The management, as the second line of defence, defines rule sets and models, provides technical support, develops new systems and oversees portfolio management. It ensures that risks are within the acceptable range and that the first line of defence is effective. As the final line of defence, the Audit Committee ensures that the first and second lines of defence are effective through constant inspection and monitoring.

DIRECTORS’ RESPONSIBILITIES IN RESPECT OF THE FINANCIAL STATEMENTS

The Directors acknowledge their responsibilities for preparing the financial statements of the Group for the year ended 31 December 2020. The Directors are not aware of any material uncertainties relating to events or conditions that may cast significant doubt upon the Group’s ability to continue as a going concern.

The statement of the independent auditors of the Group about their reporting responsibilities on the financial statements is set out in the “Independent Auditor’s Report” on pages 83 to 88 of this report.

There is no disagreement between the Board and the Audit Committee regarding the selection, appointment, resignation or dismissal of external auditors.

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APPROACH

The Group is committed to maintaining a strong position as a leading restaurant group which serves quality, value-for-money delicacies, with a wide array of fine food, to the diversified customer segments seeking for enjoyable experiences as a gourmand.

The Group recognizes its responsibility to be accountable to all its stakeholders, including customers, Shareholders and potential investors, employees, suppliers, non-governmental organizations (“ NGOs ”) and the local community, etc.. Understanding the needs and expectations of its stakeholders is the key to the Group’s success. As each stakeholder requires a different engagement approach, the Group has established a tailor-made communication method in order to better meet each stakeholder’s expectations.

Within the Group, we place a huge emphasis on monitoring the risks and exploring potential opportunities. For the sake of striking a balance among business needs, social demands and environmental impacts, we are committed to continuously monitoring the risks and opportunities which exist in our daily operations, and embracing transparent corporate culture to ensure that our sustainability strategies are well communicated to our employees, customers, suppliers, the communities and other stakeholders.

To implement sustainability strategies which apply to all levels of management and staff of the Group, the top-down approach is adopted for the following sustainability strategies:

To achieve environmental sustainability
To respect human rights and social culture
To support our employees
To sustain local communities

Our Vision and Mission

We continuously adapt to the culinary tastes of our customers and set culinary trends through a spirit of innovation, paving the way for diversification and internationalization of our cuisine offering.

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ABOUT THIS REPORT

The Group is pleased to present its ESG report to all of its stakeholders. The content contained herein focuses on providing an overview of the ESG performance of our major operations in Hong Kong for the Reporting Year. It helps us to keep a close eye on our current ESG performance as well as the opportunities to improve our ESG performance in the future.

Scope of the Report

This report has been prepared in accordance with the “Environmental, Social and Governance Reporting Guide” in Appendix 27 to the Listing Rules on the Stock Exchange. The two ESG subject areas, namely Environmental and Social, are disclosed separately, highlighting the impacts of the operations of the Group in Hong Kong from 1 January 2020 to 31 December 2020.

For the Reporting Year, the material ESG issues are those which have or may have a significant impact on:

Anti-pandemic measures
Energy saving
Food waste reduction
Promotion of diversity at workplace
Food safety
Community investment

The data and information used in this report are referenced from our archived documents, records, statistics and research. Financial data are extracted from or calculated based on the Group’s audited annual financial statements for the year ended 31 December 2020.

Information and Feedback

For the details in relation to our financial performance and corporate governance, please visit our website on http://www.lhgroup.com.hk/ and our Annual Report. We also treasure your feedback and comments on our sustainability performance, please send your feedback and other sustainability enquiries to us at [email protected].

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OUR STAKEHOLDERS

We actively strive to better understand and engage our stakeholders to ensure continuous ESG improvements. We strongly believe that our stakeholders play a crucial role in sustaining the success of our business in the challenging catering market.

Stakeholders	Probable issues of concern	Probable issues of concern	Communication and responses	Communication and responses
HKEx	Compliance with Listing		Meetings, training, roadshows,
		Rules, timely and accurate		workshops, programs, website
		announcements.		updates and announcements.
Government	Compliance with laws and		Interaction and visits, government
		regulations, prevention of tax		inspections, tax returns, and
		evasion, and social welfare.		annual returns.
Suppliers	Payment schedule and stable		Site visits.
		demand.
Shareholders/Investors	Corporate governance		Organizing and participating
		mechanism, business strategies		in seminars, interviews,
		and performance, and		shareholders’ meetings, issue
		investment returns.		of financial reports and/or
				operation reports for investors,
				media and analysts.
Media & Public	Corporate governance,		Issue of newsletters on the
		environmental protection, and		Company’s website.
		human right.
Customers	Food and service quality, delivery		Issue of newsletters on the
		time, reasonable prices,		Company’s website.
		sanitary condition of restaurants
		and labour protection.
Employees	Employee rights and benefits,		Union activities, training,
		employee compensation,		employee satisfaction survey,
		training and development, work		interviews with employees,
		hours, and working environment		employee handbooks, internal
		and industrial safety.		memos, and employee
				suggestion boxes.
Community	Community environment,		Community activities, employee
		employment and community		voluntary activities, community
		development, and charitable		welfare subsidies and
		donations.		charitable donations.

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Gaining Social Recognition for 2020

	Awards	Organizers	Organizers
	Social Capital Builder Logo Award	Community Investment and Inclusion Fund
	社會資本動力標誌獎
	Service Talent Award: The Potential Brand	Hong Kong Retail Management Association
	Award — Silver Award
	傑出服務獎:最具潛質品牌獎—銀獎
	Service Talent Award: New Participating	Hong Kong Retail Management Association
	Brands — Food Shops (Supervisory
	Level) Gold Award
	傑出服務獎: STA新秀—食品及餐廳組別
	（主管級別）金獎
	Service Talent Award: New Participating	Hong Kong Retail Management Association
	Brands — Food Shops (Junior Frontline
	Level) Silver Award
	傑出服務獎: STA新秀—食品及餐廳組別
	（基層級別）銀獎
	Service Talent Award: Excellent Service	Hong Kong Retail Management Association
	Stars
	傑出服務獎:優質服務之星
	Happiness at Work 5+	Promoting Happiness Index Foundation
	開心工作間5+
	Partner Employer Award 5+	The Hong Kong General Chamber of Small and
	友商有良嘉許5+		Medium Business
	Mental Health Friendly Supreme	Department of Health
	Organisation
	精神健康友善卓越機構
	Family-friendly Good Employer	Labour Department
「友」「家」好僱主

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Awards	Organizers	Organizers
HK Pro ID Award:	Hong Kong Professional Interior Designer Association
Best Shop Design — Silver Award
香港專業室內設計大獎：
最佳商店設計—銀獎
Tiptop Service Award — Persistently	Tiptop Consultants Limited
Outstanding Service Outlet
天高服務獎—持續超卓表現分店
Green Council Corporate Member	Green Council
Certificate
環保促進會企業會員
5 Years Plus Caring Company	The Hong Kong Council of Social Service
商界展關懷5+
Good MPF Employer Award	Mandatory Provident Fund Schemes Authority
積金好僱主
e-Contribution Award	Mandatory Provident Fund Schemes Authority
電子供款獎
MPF Support Award	Mandatory Provident Fund Schemes Authority
積金推動獎
Best Ever Dining Awards	Weekend Weekly
Best Japanese Restaurant	U Magazine
Hong Kong Famous Brands	Asia Brands Association

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Environmental Matters

We are committed to promoting environmental protection and conservation and we have been undertaking various initiatives in this respect.

Act Green

Energy Saving

Together with our employees, we have been enhancing our environmental awareness by means of strengthening education on ESG good practice and encouraging our employees to make commitment towards building a healthier environment. We promote energy reduction and conservation by launching relevant environmental protection policies outlined below:

Air filter of refrigerator, iceAir-conditioning and In office, most of the making machine and ventilation systems lighting is switched ice-cream machine undergo regular off during lunchtime. are washed weekly maintenance and to maintain their cleaning. energy efficiency.

Knowing that natural resources is limited, we utilise natural resources in a more energy efficient way so as to sustain energy use for present and future operation. We cooperate with The Hong Kong and China Gas Company Limited to promote the use of a series of energy efficient kitchen appliances, ranging from food steamers, steam cabinets, Chinese wok range, cool kitchen stockpots to dishwashers.

By utilizing the exhaust heat, less fuel is consumed to produce heat energy, whilst the steaming effect of food steamer is further improved with the reduction of energy consumption by nearly 30%. This kind of heat recovery system is not only energy-saving, but also environmentally friendly. The indoor temperature of the kitchen is reduced by about 2 degrees Celsius due to the functioning of the heat recovery system which indirectly saves the electricity required for the air-conditioning.

We also implemented an intelligent air conditioning blower control system in restaurants to adjust temperature and fan speed automatically. The fans can also be used under the mode of preset time that appropriate adjustments would be made during peak hours, non-peak hours or specific hours, reducing the electricity consumption by 15% to 30% in average.

Our restaurants adopt LED lighting. The life span of a LED light bulb can last up to 15,000 hours so as to reduce frequent light bulb replacements and minimise the generation of waste. Moreover, using LED technology can save energy up to the level of 80% more than the case of traditional lighting, which, in turn, can reduce the greenhouse gas (“ GHG ”) emissions from purchased electricity.

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Energy Consumption, Emissions and GHGs Emissions

Gaseous Fuel Consumption

	*Unit*	2020	2019
Consumption	Kilograms	4,563,365	4,761,685
Consumption intensity	Kilograms/HK$ million revenue	5,684	4,734
Nitrogen oxides emissions	Kilograms	86	146
Sulphur oxides emissions	Kilograms	1	1
GHGs emissions	Kilograms	13,514,417	13,931,417
GHGs emissions intensity	Kilograms/HK$ million revenue	16,832	13,851

Electricity Consumption

	*Unit*	2020	2019
Electricity consumption	kWh	8,460,002(1)	9,956,427(1)
Electricity consumption	kWh/HK$ million revenue	10,537	9,899
intensity
GHGs emissions	Kilograms	4,560,655(2)	5,395,851(2)
GHGs emissions intensity	Kilograms/HK$ million revenue	5,680	5,365

(1) The effect of electricity produced by renewable energy purchased from CLP Power Hong Kong Limited/the Hongkong Electric Co. Ltd, was excluded.

(2) Included the effect of the amount of electricity produced by renewable energy purchased from CLP Power Hong Kong Limited/the Hongkong Electric Co. Ltd which reduce GHGs emissions.

Recycling & Reduction

We set out an “Environmental Code” for all our staff, with some of the rules highlighted as follows:

Recycling box

Appropriate signage is placed on the recycling box stating what type of wastes or recyclable materials should be put into the box.
Staff are encouraged to sort the waste before putting it into the appropriate recycling boxes.

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Printing practices

Double-sided printing is set as the default setting on computers, single-sided printing has to be manually selected.
Staff are encouraged to circulate documents through electronic means such as emails or encrypted universal serial buses.
For any paper that has been used for single-sided printing, it should be reused when there is no confidential information shown on the printed side of the paper.
Staff conduct meetings by circulating meeting materials through iPad to achieve paperless office environment.

Wastes trimming

Bottled water is not used in office to reduce the generation of plastic waste.

Since May 2019, no plastic straws are distributed to our customers. We provide straws made of sugar cane fibres only upon request by the customers with HK$2 charged for each straw. Straws made of sugar cane fibres are natural and bio-degradable. They are free of plastic and eco-friendly. We also offered HK$10 deduction for certain meal sets if the customers do not use a straw. No disposable tableware sets were provided to customers proactively for takeaway. Request for each tableware set is subject to surcharge of HK$2. We aim to create greater incentives for customers to reduce not only the use of plastic materials, but also reduce solid waste.

Generation of Packaging Materials

Source	*Unit*	2020	2019
Takeaway boxes	kilogram	97,303	9,059
Plastic bags	kilogram	2,666	4,320
Paper bags	kilogram	10,122	—

Packaging materials for takeaways had increased significantly during the epidemic in 2020, especially when restrictions on dine-in hours were in place. While the increase in takeaway is unavoidable, we hope to be more environmentally friendly. We offer an extra 5% off for customers who bring their own containers for takeaway. To safeguard the hygiene of the food and avoid cross-contamination, restaurant staff present the food on the table and customers put the food into their own containers themselves. Even when takeaway boxes are required, most of our takeaway boxes are reusable, in a hope that customers will reuse them. We hope we can arouse citizens’ awareness to reducing disposables and develop the habit of bringing own containers when ordering takeaway.

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Water Usage

Water Consumption

		*Unit*		2020	2019
Water consumption		Cubic metres		230,590.34	286,828.81
Water consumption intensity		Cubic metres/HK$ million revenue		287.20	285.17

The water consumption decreased by 56,238.47 cubic metres compared with previous year to 230,590.34 cubic metres for the Reporting Year. The average water consumption per HK$ million revenue were fairly constant for both years.

With the “Environmental Code” implemented in all of our outlets, we utilize water resources wisely. Although we do not have any issue in sourcing water and the existing supply of water does meet our daily operational needs, we still strive to reduce water usage and increase overall water usage efficiency.

Water is used in a wide variety of areas such as washing, dishwashing and ice-making. To avoid unnecessary use of water, defrosting of the ice from the inner wall of the refrigerator is adopted regularly to keep the temperature in the refrigerator at a sufficiently low level so that the bacterial growth is relatively low and the shelf life of food can also increase as a result. Apart from avoiding unnecessary use of water, we reduce water consumption by using the dishwasher which consumes one litre less water than other dishwashers available in the market for each usage.

We monitor water usage on a monthly basis, and will continue to explore practical and feasible ways to reduce water consumption.

Eat Green

Green Meal

Supporting Sustainable Seafood

Being the second highest seafood consumer in Asia and eighth-largest seafood consumer in the world, each of the Hong Kong people consumes approximately 71.8 kg of seafood in a year, which is more than three times higher than the global average. Therefore, as consumers, the food choices we provide are instrumental in supporting sustainable fisheries, and restoring depleted local fish stock. The Group was the first mover in introducing eco-friendly seafood wedding banquet menu with sustainable seafood and no shark fins are included in the menu in response to the “No Shark Fin” policy of WWF-Hong Kong. Currently, Peace Cuisine also offered sustainable seafood in our menu.

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Low-carbon Meal

We partner with GreenMonday and offer vegetarian dishes in all of our restaurants in Hong Kong. By offering vegetarian options for the customers who care for the earth and animals, we hope that lowcarbon food culture can be promoted amongst the friends and relatives. Along the way, we take a big leap forward to practice environmental protection.

We also offer plant-based burger steaks and “Omnipork” in dim sum, dishes and hot pot dishes. Its unique vegan protein formula mainly comprises elements such as peas, non-genetically modified soybeans, mushrooms and rice which are rich in amino acids which are important to the human health.

Food Waste Reduction

At “Mou Mou Club”, coupons would be given to wise eaters. By finishing all food in the plates, customers will be awarded a coupon for their next visit, and we will donate HK$5 to the World Green Organization to support environmental conservation.

Hong Kong is suffering a mounting waste disposal problem, aggravated by a throwaway culture. Food waste, at about 3,500 tonnes, now makes up as much as 40% of the materials dumped in the landfills in Hong Kong every day. Hence, some of our restaurants have been cooperating with the shopping malls that are installed with food waste processors which could recycle food waste into fertilizers, therefore, not only reducing land pollution, but also improving effectiveness of farming.

Waste Cooking Oil Recycling

Proper recycling of waste cooking oil can not only convert it into industrial product such as biodiesel, and soap etc., but also avoid environmental pollution resulting from its improper handling; thereby, protecting the environment and, at the same time, preventing the waste cooking oil from re-entering the food chain. During the Reporting Year, we collected and recycled 8,315 (2019: 21,163) litres of cooking oil.

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Drive Green

Vehicle Emission Standard

Motor vehicle gas emissions are the major source of roadside pollution in Hong Kong. To improve roadside air quality, more stringent requirements for the quality of motor vehicles fuels should be adopted. In this regard, most of our vehicles are using Euro V motor vehicle fuel which has around 80% less sulphur contents than the ultra-low sulphur diesel in the local market.

During the Reporting Year, we owned a fleet of 8 (2019: 8) vehicles mainly for the delivery and transportation of food ingredients and other supplies from the central processing and logistic centre to our restaurants.

Use of Vehicles, Emissions and GHGs Emissions

	*Unit*	2020	2019
Total mileage travelled	Kilometers	210,051	207,328
Total fuel consumed	Liters	38,731	38,811
Nitrogen oxides emissions	Grams	334,184	317,437
Sulphur oxides emissions	Grams	620	619
Particulate matter	Grams	32,147	30,566
GHGs emissions(1)	Kilograms	105,157	105,169

(1) Greenhouse gases include carbon dioxide, methane and nitrous oxide.

Compliance

We comply with all relevant laws and regulations that relate to environmental protection in Hong Kong, including, but not limited to, “Air Pollution Control Ordinance”, “Waste Disposal Ordinance” and “Water Pollution Control Ordinance”, which have a significant impact on us.

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SOCIAL – OUR PARTNERS

Company Philosophy

We encourage our customers to complement our employees whenever they appreciate the services delivered by our employees. In this respect, a card with personal email address and Facebook page link of the Chairman is placed on every table in our restaurants. This allows customers to express their appreciation of our employees’ services. In this way, we aspire to increase our employees’ job satisfaction and sense of achievement.

Many businesses consider employees as their “most valuable assets”. However, we consider employees as our “partners”. In LH Group, we strive to create an organisation culture in which appreciation and positive energy are the norms rather than expectations.

With the worldwide rampant spread of COVID-19, experts appealed to us to wear masks and maintain social distance. The frontline employees stood fast at their positions and exerted the greatest endeavor to create one and another moving stories. In order to praise the frontline staff, the 2020 customer experience enhancement program with the theme of “sincere, dedicated and considerate service” was launched again, during which “my favorite customer ambassador” was selected by customers. The program enabled employees to win recognition with satisfactory service and built excellent service culture.

Welfare and Benefits

We have offered different kinds of paid leave to our employees, including but not limited to the following:

Birthday is a key milestone in a person’s life. For this
Paid Birthday reason, birthday leave is granted to our employees for their
Leave celebration on these big days.
• We deeply understand the importance of giving back to the society. Therefore, we encourage our employees to actively take part in community services so as to contribute to a more
Paid Volunteer sustainable society. Leave • Actions always speak louder than words. That’s why we offer our employees paid volunteer leaves, as a means of motivating them to participate in voluntary work.
• Since March 2013, we already granted a 5-day full-paid
5-day Full-paid paternity leave to all of our eligible employees. This is better Paternity Leave than the statutory 5-day paternity leave which is paid four
Since March 2013, we already granted a 5-day full-paid paternity leave to all of our eligible employees. This is better than the statutory 5-day paternity leave which is paid four fifths.

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Staff Meals

As the old saying — “A well-fed team is a happy team” goes, we understand the importance of making our employees happy. In this respect, staff meals are offered to our employees to build empathy and happiness in the workplace. By offering free lunch and staff discounted meals, we strive to treat our employees well and bring everyone within the Company together as a team.

Education Sponsorship for Children of Employees

Children are the pillars of our society. Accordingly, we believe that investing in children is one of the most effective means of facilitating and sustaining community development. We aspire to support children’s education via offering education sponsorship for the children of our employees. Ultimately, we wish to ease part of the financial burden of our employees.

Re-employment of Retirees

We consider re-employment of retirees as a mutually beneficial scheme to both of our employees and us. Therefore, we allow our employees to work beyond their retirement age until the age of 70 after evaluation.

Enhancing Bonding Among the Team

Team bonding is vital in cultivating cohesive organizational culture and nurturing a positive work attitude which is crucial to employee engagement. Thus, we are devoted to enhancing trust and cohesion among our employees.

The Group proactively participated in the competitions for HKRMA Service & Courtesy Award to reward frontline staff with excellent service, in order to improve their service level, broaden their insight and enhance cohesion. In 2020, five elite service staff from its self-owned brand Mou Mou Club-V Walk Branch attended the competition, which motivated the team, and fostered excellent service culture.

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Motivating and Retaining Talents

For effective personnel management, we offer rewards to our employees based on their performance in different key aspects. By this approach, we hope to motivate staff and boost morale. To appreciate the hard work of our employees, we offer monthly performance bonus with reference to multiple perspectives such as monthly revenue, operating costs, hygiene condition, feedback from secret customers, and the number of cases of work-related injury.

Promoting Diversity at Workplace

During the Reporting Year, we were awarded with “Partner Employer Award 5+”. The award commends our efforts in building an inclusive society and promoting corporate social responsibilities.

The Group obtained the honor of “2020 Social Capital Builder-Logo Award” for two consecutive times, which commended the contributions to the social capital development in Hong Kong, and enabled social circles to witness the achievements of the establishment of social capital in Hong Kong.

We believe that a diversified team is helpful to the success of our business. We strive to ensure that our recruitment process is fair and without any discrimination. Equal opportunities are offered to disabled and rehabilitated persons. As such, we aspire to promote disability inclusion, and demonstrate care and acceptance to enable rehabilitated people to reintegrate themselves into the society.

Moreover, we strive to promote gender equality in the workplace. To arouse awareness of genderrelated issues, we have joined the Network of Gender Focal Point established by the Government and Women’s Commission. Our executive Director, Ms. Ko Sau Chee Grace, has been nominated as our representative of Gender Focal Point Network of the Women’s Commission since 2018, who serves as the contact person for coordination of gender-related matters between the Government and us.

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As at 31 December 2020, the Group had 1,344 (2019: 930) employees all based in Hong Kong. The details by gender, employment type and age group shown as follows.

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BY GENDER BY AGE GROUP
Above 50
Female 19% (254) Below 25
49% 30% (404)
(658)
40-49
13% (171)
Male
51% 25-29
(686) 30-39 16% (217)
22% (298)
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BY EMPLOYMENT TYPE
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Permanent staff Part-time staff
58% (784) 42% (560)
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During the Reporting Year, a total of 936 (2019: 688) members of staff resigned or dismissed from their positions in Hong Kong. The statistics for staff turnover rates is as follows.

	Age Group	Age Group	Age Group	Age Group	Age Group	Gender	Gender
	Below 25	25–29	30–39	40–49	Above 50	Male	Female
	Average monthly turnover rate
2020	7%	5%	5%	5%	6%	6%	6%
2019	9%	6%	4%	7%	6%	6%	6%

Average monthly turnover rate is the number of leavers of each category of the year divided by the number of employees of that category at the end of the year, and divided by 12 months.

Compliance

As a responsible employer, we comply with all relevant employment laws and regulations that have a significant impact on us, including but not limited to “Employment Ordinance”, “Mandatory Provident Fund Schemes Ordinance”, “Minimum Wage Ordinance”, “Sex Discrimination Ordinance” and “Employees’ Compensation Ordinance” in Hong Kong.

To avoid forced and child labour, Human Resources Department performs detailed interview screening procedures for each candidate. A thorough background check is conducted to verify the personal data stated on the application forms by examining the applicants’ original identity card and making detailed inquiries to ensure that we do not employ child labour.

If management discovered any child labour, we would immediately terminate the contract and investigate into the incident. Forced labour is strictly prohibited by the Group with zero tolerance. We are serious about child labour and shall take disciplinary actions against any staff members who are accountable for the causes of the incident.

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SOCIAL – EMPLOYMENT AND LABOUR PRACTICE

Developing Talent

We consider employees as our partners. Thus, we place great emphasis on personal development of our employees. A wide range of training programs are provided to our employees to enhance their knowledge and capabilities. During the Reporting Year, 3,494 (2019: 5,918) hours of training were recorded.

Our employees have the expertise and vast experience in their positions with adequate training provided. Meat planer operators must be trained and they have to obtain relevant certificate to prove that they are qualified and capable of operating the meat planer machines in order to ensure that the food quality is maintained.

The online training platform (LMS) has been established, in order to provide more non-face-to-face training and more interactive learning mode for employees during the pandemic period. More than 20 online courses were newly established throughout the year, covering professional knowledge and skills of frontline employees, occupational and food safety, anti-corruption, and good faith training.

“Cool” Kitchen

Kitchen is commonly perceived as a place full of hidden hazards. We strive to minimize potential kitchen hazards and make kitchen a “cool” place to work. During the Reporting Year, no record of work-related fatality was recorded.

Meat Slicer Training are provided to our newly recruited meat slicers. Upon completion of the training, “Authorized Slicer Certification” would be granted to the relevant employees. Moreover, the name of our “Certified Meat Slicers” are displayed on every Meat Slicing Machine. With this precautionary measure, we ensure that only the staff holding the certification are allowed to operate the Meat Slicers.

We have made use of various “Green Energy-Efficient Catering Equipment”, including but not limited to “Highly Efficient Low Noise Wok Range” and “Highly Efficient Cool Kitchen Stockpot”. The equipment offers a number of features, which helps make our kitchen “cool”.

Pre-mix Burner
Minimizes heat loss and noise level for achieving a more comfortable working environment.
Preinstalled Flame Failure Device, “Hybrid Flame Ionization Detection” (HFID)
Offers fast response cut-off time, which further enhances occupational safety.

Moreover, we have adopted the use of dishwashers and mesh belt cleaners to automate the work processes of dishwashing and mesh-cleaning. Through the application of automation of some kitchen work processes, we aim to reduce employee workload and ease employees’ burden at workplace.

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Care About Well-being of Employees

Full health is a state of complete physical, mental and social well-being and not merely the absence of disease or infirmity. Not only do we care about our employees’ health and physical safety, but we also pay attention to their mental well-being so as to help realize their potential capacity.

Physical Well-being

We focus on creating a team of healthy and well-motivated employees. Therefore, we have made every effort to improve the physical well-being of our employees.

Confronted with the COVID-19, in addition to the annual free influenza vaccination program, the Group also provided anti-pandemic materials (including alcohol hand sanitizers and masks) for colleagues. The Group released the personal preventive and sanitary measures in the monthly electronic bulletin, and posted them in the information column at the obvious position. Each colleague is required to attend online courses for the prevention of COVID-19 infection, have their temperature examined and fill in the record form before going to work, use alcohol hand sanitizers, and clean and disinfect hands at fixed time. All the employees mutually inspected personal sanitary and health conditions, and enhanced their consciousness of supervision, in order to guarantee their health and fight against the pandemic with concerted efforts.

In order to protect our employees, we purchase medical insurance for employees and offer them discounts for dental and body check-up through cooperation with external medical institutions.

Moreover, written guidelines and training sessions related to occupational health and safety are provided to our employees to make sure that they fully understand the risk factors involved and the corresponding protective measures. Various protective accessories such as protective gloves and goggles, and allowances for safety shoes are provided to our employees. We also post reminders in the workplace to remind employees to wear such accessories at work.

Fire escape route map is posted in prominent position.

Suitable kits should be used to prevent burns when touching hot objects.

When carrying out high-risk duties such as using meat planers and burners, operators are reminded to pay special attention to industrial safety.

Before cleaning and inspection of the kitchen machines, power should be switched off to ensure occupational safety.

When carrying/transferring loads heavier than five kg, another employee/other employees should be present for offering assistance.

When lifting objects to a position above eye level, ladder should be used.

When handling chemicals including bleach and detergent, appropriate safety goggles and gloves should be used.

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Mental Well-being

LH Group and Kabushikigaisha Limited were awarded the “Happiness at Work 5+” by the Promoting Happiness Index Foundation for the eighth consecutive year. We recognise happy workplace and promote happy working environment in order to ensure positive mental well-being among our employees. By this way, we would like to attract and retain more talents to join us together to build this happy and motivative atmosphere inside the Group. Besides, we have signed the Joyful@Healthy Workplace Charter organised by Occupational Safety and Health Council to undertake that we will take actions in promoting healthy diet, physical activity and mental well-being within the Group.

The Group was awarded the Good Employer Charter 2020 by the Labour Department to commend our employee-oriented personnel management measures that kept abreast of the times and the joint establishment of the family-friendly harmonious workplace. In addition, we were also honored as the Family-friendly Good Employer in commendation of our effective family-friendly employment practices.

To relieve employees’ stress from their daily life, we not only provide festive snacks and after-work interest classes, but also regularly published mental health information through the Company’s electronic publications and set up an online advice collection channel to help employees sort out their emotions and work efficiently.

Flexible Working Hours

We value the well-being of our employees. Therefore, we strive to offer greater autonomy of employees over their work so as to improve work-life balance and cater for their needs. In LH Group, both office and frontline employees are allowed to decide their own working schedules, and they may work on a part-time or full-time basis upon their choice. We also offered work-from-home options for office employees in view of the COVID-19 pandemic.

We understand that many housewives have the desire to work, and yet the desire is restrained by the heavy household workload in taking care of their children. Our flexible working schedules are especially fit for housewives known as “housewives shift” which is offered to housewives in order to allow them to strike a balance between work and family matters. In fact, some of our employees are even allowed to work for two hours per day.

Compliance

We are dedicated to providing a pleasant and safe working environment for all of our employees. Occupational health and safety of our employees are of our top priority. We strictly comply with all relevant laws and regulations regarding workplace safety that have a significant impact on us, including but not limited to “Occupational Safety and Health Ordinance” and “Factories and Industrial Undertakings Ordinance”.

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SOCIAL – OPERATING PRACTICES

Supply Chain Management

The Group places great emphasis on supply chain management. We support the purchases of environmentally-friendly and socially responsible products to minimize the environmental impact caused by our business operations, and thus enhance our service quality and performance standard. During the Reporting Year, we had cooperated with approximate 255 (2019: 306) Hong Kong based suppliers.

Environmentally Responsible

Environmental costs, eco-feature and eco-performance are taken into consideration by management prior to each of our purchase transactions. To achieve sustainable procurements, various measures are implemented:

Purchases of Ingredients Purchases of Cleaning Supplies Our Priority: Organic, fresh, Our Priority: Bio-degradable garbage bags locally-produced, sustainable, and environmentally friendly detergent, hydroponic and environmentallyas well as towels made of organic cotton certified ingredients and green tissue paper

Purchases of Catering Equipment

Our Priority: Catering equipment with eco-labels (including but not limited to Green Specifications specified by Environmental Protection Department, and Energy Efficiency Labels issued by Electrical and Mechanical Services Department)

Socially Responsible

We cooperate closely with our suppliers to ensure the quality of our products and services provided to our customers and to fulfil our social responsibility. We have been purchasing from socially responsible suppliers who comply with the requirements of ISO 22000 “Food Safety Management System” to uphold the food safety standard along the supply chain.

Besides, annual appraisal of our major suppliers is done to ensure the abovementioned quality performance, and in this regard, we request the suppliers to provide documents for verifying the sources of supplies, such as certificates of origin.

Before accepting deliveries of supplies, we conduct quality inspection in accordance with our standards for different ingredients. If there is any discrepancy found, we will return them to the suppliers and request re-delivery, failing which we will take further actions as appropriate.

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Striving to Create Great Customer Experience

The Group strictly complies with the relevant laws and regulations relating to product responsibility that have a significant impact on us, including but not limited to the “Trade Descriptions Ordinance” and “Sale of Goods Ordinance” in Hong Kong. All photos of the menu are captured from the original dishes to avoid misinterpretation, and descriptions are detailed on the menu regarding the components of food.

The Group strictly complies with the advertising requirements. All kinds of advertisements shown on leaflets or company websites are carefully drafted to avoid the use of false or misleading descriptions. All final drafts of the advertisements must be approved by our management before their bulk printing or uploading on websites.

We have registered trademarks which are important to our business. We regularly monitor our trademarks to prevent them from being infringed. We are committed to protecting intellectual property rights with great care during our daily operations, while we carry on our business operations.

We have introduced a robot staff named “Niku” in one of our restaurants. Niku not only helps to deliver food to customers, but also brings joy to our customers with her friendly outlook and she can even sing birthday songs in Japanese. This creates a great experience for our customers.

In the face of epidemic, more customers prefer to order takeaway and stay at home for meals. In order to cater for the needs of these customers, we have opened up and strengthened our food delivery and takeaway services, through our online food delivery platform “Kabu-go” and also third-party platforms. Through these platforms, customers can still enjoy our meals while staying at home.

The Group is innovative to explore and develop different means in order to enhance customer experience of our customers in different sectors. By launching the “Kabu App”, we are dedicated to connecting with our customers and delivering to them a pleasant dining experience.

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i-Queue

Use your mobile phone to pick up tickets anytime and anywhere, while physical presence is not required.

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Booking

Secure your table in our restaurants for the preferred time from 24 hours up to 60 days in advance without waiting.

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Member Area

Get your exclusive discounts and e-coupons without bringing your physical card.

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Latest News

Keep you updated with our latest promotion and menu.

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Customers’ opinions and feedback help to drive continuous improvement and are vital to our pursuit of excellence. Various communication channels such as emails and customer service hotline have been established with the aim to better address our customers’ concerns. We make every effort to promptly investigate and resolve all disputes and complaints lodged by the customers. Upon receipt of a complaint, the responsible personnel will investigate into the matter and appropriate action will then be taken in a timely manner.

Striving to Provide Excellent Quality

We work our best to ensure that our customers can consistently enjoy good quality food, and standardized food recipes are provided to our chefs who are required to work out the time of the relevant cooking procedures for preparing the food in seconds, with an aim to treat each dish on the food recipes in an accurate way.

Storage Quality Control

The shelf lives of different food ingredients vary. We regularly assess the freshness of seafood, frozen meat and canned food which have shelf lives ranging generally from one day to one week, one to six months, and one to two years, respectively.
We keep record of the delivery and expiry dates of each batch of food ingredients, conduct monthly inventory count and monitor the quality of inventory on a daily basis to ensure that the food ingredients are used well before their expiry dates.

Logistics Quality Control

We deliver food ingredients with our own trucks from our central processing and logistic centre to our restaurants at least once every day to ensure their freshness.
We have formulated requirements of the hygienic condition and temperature of the refrigerated trucks.

Restaurant Quality Control

We have formulated standard recipes and cooking procedures for our dishes.
We conduct spot-checks of our restaurants with respect to their ambience, service quality, food quality and restaurant management.
We hold performance evaluation meetings regularly as for food and service quality.
We have engaged an independent consulting company to send secret customers to evaluate our restaurants’ ambience, service quality, food quality and restaurant management.

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Striving to Enhance Customer Privacy

We have launched “Kabu Pass” to recruit members of Kabushikigaisha Limited in order to build customer trust and loyalty. In this respect, we strictly comply with all laws and regulations regarding data privacy and protection, including but not limited to, “Personal Data (Privacy) Ordinance” in Hong Kong.

We handle members’ personal information with great care. Accordingly, measures have been established to reduce the risk of leaking confidential information to outsiders. Members’ data are stored in a separate server which is protected by firewall. Proper authorization is needed for any access to the server, and regular data backup is done to protect the members’ data.

Striving to Ensure Food Safety

A substantial portion of the food ingredients used in our restaurants is initially delivered to our central processing and logistic centre in Yau Tong. Our quality and safety department oversees the quality of food during the transportation process from the central processing and logistic centre to our restaurants and that stored at our restaurants.

Quality and safety department is responsible for handling and addressing food quality and safety issues, formulating and reviewing food safety policies and guidelines, and managing our central processing and logistic centre to ensure our compliance with ISO 9001 and ISO 22000 standards, and provide food safety training to our employees.

We comply with all relevant laws and regulations regarding food safety that have a significant impact on us, including but not limited to, “Food Safety Ordinance” in Hong Kong.

Traceable Food Sourcing

Apart from the vendor assessment as mentioned above, we also trace the source of food to ensure its quality. To uphold a high hygienic standard of food, certificate of country of origin is obtained from our vendors with the certificate issued by the relevant issuing authority of the country of origin which accompanies the imports for certifying that the food products concerned are fit for human consumption. Inspectors also keep track of the expiry dates of food to ensure that our customers are served with fresh food in respect of which it is safe to eat.

Personal Hygiene

Personal hygiene is the key requirement for all our employees especially for those who are responsible to handle food directly. We stipulate operating procedures on personal hygiene for employees to understand the importance of personal hygiene, by which we ensure that we can provide our customers with assurance of the quality of meals served in our restaurants.

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Hand hygiene is the primary measure proven to be effective in preventing the spread of antimicrobial resistance. In this regard, every frontline staff member has been well trained with the proper hand washing procedures.

Food Processing

We have stipulated an internal quality control procedures and requirements for frontline staff to follow when handling food. For instance, staff are told to use particular chopping boards, knifes and towels for handling raw meat, cooked vegetable, ready-to-eat vegetable and cooked meat respectively to avoid cross-contamination.

To ensure preservation of food safety, we look into each piece of equipment and appliances used. Regular cleaning of refrigerators, chopping boards, meat chopper machines and ice-cream machines is done in order to attain a high food safety standard. Regular monitoring of the temperature of the refrigerators is made for ensuring that food is kept in good condition under a constant temperature range. Equipment is routinely calibrated, inspected and checked with proper records kept to ensure proper functioning of the relevant equipment.

With all the effort spent, we got an average score of 92.2 (2019: 94.9) out of 100 for all the food safety inspections done by independent third party for our restaurants. The inspections were focused on several areas: Escherichia coli and Salmonella concentration on food samples; aerobic plate count; Escherichia coli and Staphylococcus aureus concentration on knifes, chopping boards, fridge door handles, food storage containers and staff’s hands.

Corporate Integrity

We comply with all relevant laws and regulations that have a significant impact on us including but not limited to the “Prevention of Bribery Ordinance”. During the Reporting Year, no concluded legal cases regarding corrupt practices brought against the Group or our employees were noted.

The Group does not tolerate any form of corruption (including the giving and receiving of bribes) and we take the most serious view of any attempt to commit corrupt practices by members of staff, contractors, agents and business partners. Cases of suspected corruption will be properly investigated and appropriate actions, including disciplinary measures, reporting to the appropriate authorities, prosecution and active pursuit of recovery will be taken.

We encourage all management and employees to report violations or suspected violations to the Group when they have serious concerns about possible improprieties in the matters of finance and accounting or other matters of suspected irregularities in the Group.

We are committed to engaging in numerous voluntary works and social service activities as well as cooperating with NGOs to help the young and the underprivileged.

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Caring About People

Pioneering Anti-pandemic Measures

As a socially responsible restaurant group, we care about the well being of staff and customers. We have implemented a series of pioneering anti-pandemic measures in our restaurants before relevant regulatory requirements, including but not limited to setting up of partitions since February 2020, setting up the role of “Designated Table Cleaners” since 31 July 2020, self-checks conducted to ensure each of our restaurants has ventilation of a minimum of six air changes per hour since late August 2020. Please refer to the “Management Discussion and Analysis” section of this report for details of our pioneering anti-pandemic measures.

In addition, all of our restaurants have obtained the “Anti-Epidemic Hygiene Measures Certification” issued by the Hong Kong Quality Assurance Agency (HKQAA) in 2020, which requires implementation of ten hygiene measures by the restaurants and unannounced on-site audit by HKQAA.

Cooperating with “Commission on Poverty ( 扶貧委員會 )”

The Group has been engaging in charitable and social work activities to help the young and underprivileged. We have been one of the major donors supporting the “Future Stars — Upward Mobility Scholarship (明日之星 — 上游獎學金)” programme launched by the Commission on Poverty since 2015, which aims to assist Secondary 3 to 6 students from underprivileged backgrounds by way of scholarships of HK$5,000 each.

Supporting “Orbis World Sight Day”

The Group acted as the “Darkness to Go Action Partner” in supporting “Orbis World Sight Day 2020” to focus global attention on blindness and visual impairment. To show our support in this meaning event, HK$5-HK$10 will be donated to Orbis upon purchase of specific food items in our restaurants during the campaign period.

Acted as corporate partner for university projects

The Group acted as a corporate partner for the Company Consultancy Projects for marketing final year students of the City University of Hong Kong. Students were given different topics based on real business situation and they had to conduct marketing research and provide business solutions for the company. Our marketing colleagues acted as advisers and provide feedback to the students’ proposals. It was a great learning opportunity for both our colleagues and the students. Students had a chance to work for a real business case, which enhance their business acumen and prepare them for the future career challenges. On the other hand, the students provided creative ideas and valuable insights to the Company.

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Caring About the Environment

Support Environmental Protection by Saving and Waste Reduction

The Group promotes green work and life through various measures, such as posting tips regarding environmental protection to guide and remind employees to conserve electricity and actively participate in the green recycling programmes organised in the shopping malls and the communities.

Encourage customers to bring their own containers for takeaway

We offered an extra 5% off for customers who bring their own containers for takeaway. We hope we can arouse citizens’ awareness to reducing disposables and develop the habit of bringing own containers when ordering takeaway.

Discourage the use of disposable tableware

No disposable tableware sets were provided to customers proactively for takeaway. Request for each tableware set is subject to surcharge of HK$2. We aim to encourage customers to reduce the use of plastic disposables and develop the habit of using reusable tableware even when ordering takeaway.

Discourage the use of straws

No straws were distributed to customers proactively. We provide straws made of sugar cane fibres as an alternative only upon request by the customers with $2 charged for each straw. We also offered price deduction for certain meal sets if the customers do not use a straw. We aim to create greater incentives for customers to reduce not only the use of plastic materials, but also reduce solid waste.

	2020	2019
Charitable donations (in HK$)	381,000	438,000
Corporate charitable activities:
Aggregate hours spent on charitable activities by employee volunteers	—	28
Number of employee volunteers	—	63

Note:

No corporate charitable activities were held in 2020 due to the outbreak of COVID-19.

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HKEX Environmental, Social and Governance Guide Content Index

Aspect	Description	Chapter
A1 Emissions
General Disclosure	Information on:	Environmental Matters –
	(a) the policies; and	Compliance
	(b) compliance with relevant
	laws and regulations that
	have a significant impact on
	the issuer relating to air and
	greenhouse gas emissions,
	discharges into water
	and land, and generation
	of hazardous and non-
	hazardous waste.
KPI A1.1	The types of emissions and	Act Green – Energy Saving
	respective emissions data.	Drive Green – Vehicle Emission
		Standard
KPI A1.2	Greenhouse gas emissions in	Act Green – Energy Saving
	total (in tonnes) and, where	Drive Green – Vehicle Emission
	appropriate, intensity (e.g. per	Standard
	unit of production volume, per
	facility).
KPI A1.3	Total hazardous waste produced	Not Applicable
	(in tonnes) and, where
	appropriate, intensity (e.g. per
	unit of production volume, per
	facility).
KPI A1.4	Total non-hazardous waste	Eat Green – Food Waste
	produced (in tonnes) and,	Reduction
	where appropriate, intensity
	(e.g. per unit of production
	volume, per facility).
KPI A1.5	Description of measures to	Act Green
	mitigate emissions and results
	achieved.
KPI A1.6	Description of how hazardous	Eat Green — Food Waste
	and non-hazardous wastes are	Reduction
	handled, reduction initiatives
	and results achieved.

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Aspect	Description	Chapter
A2 Use of Resources
General Disclosure	Policies on the efficient use of	Act Green
	resources, including energy,
	water and other raw materials.
KPI A2.1	Direct and/ or indirect energy	Act Green – Energy Saving
	consumption by type (e.g.	Drive Green – Vehicle Emission
	electricity, gas or oil) in total	Standard
	(kWh in ’000s) and intensity
	(e.g. per unit of production
	volume, per facility).
KPI A2.2	Water consumption in total	Act Green – Recycling &
	and intensity (e.g. per unit	Reduction
	of production volume, per
	facility).
KPI A2.3	Description of energy use	Act Green – Recycling &
	efficiency initiatives and	Reduction
	results achieved.	Act Green – Energy Saving
KPI A2.4	Description of whether there is	Act Green – Recycling &
	any issue in sourcing water	Reduction
	that is fit for purpose, water
	efficiency initiatives and
	results achieved.
KPI A2.5	Total packaging material used	Act Green – Recycling &
	for finished products (in	Reduction
	tonnes) and, if applicable,
	with reference to per unit
	produced.
A3 The Environment and Natural Resources
General Disclosure	Policies on minimizing the	Eat Green
	issuer’s significant impact on
	the environment and natural
	resources.
KPI A3.1	Description of the significant	Eat Green
	impacts of activities on the
	environment and natural
	resources and the actions
	taken to manage them.

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Environmental, Social and Governance Report

Aspect	Description	Chapter
B1 Employment
General Disclosure	Information on:	Social – Our Partners –
	(a) the policies; and	Compliance
	(b) compliance with relevant
	laws and regulations that
	have a significant impact
	on the issuer relating to
	compensation and dismissal,
	recruitment and promotion,
	working hours, rest periods,
	equal opportunity, diversity,
	anti-discrimination, and other
	benefits and welfare.
KPI B1.1	Total workforce by gender,	Promote Diversity at Workplace
	employment type, age group
	and geographical region.
KPI B1.2	Employee turnover rate by	Promote Diversity at Workplace
	gender, age group and
	geographical region.
B2 Health and Safety
General Disclosure	Information on:	“Cool” Kitchen
	(a) the policies; and	Social – Employment and Labour Practice – Compliance
	(b) compliance with relevant laws
	and regulations that have
	a significant impact on the
	issuer relating to providing a
	safe working environment and
	protecting employees from
	occupational hazards.
KPI B2.1	Number and rate of work-related	“Cool” Kitchen
	fatalities.
KPI B2.2	Lost days due to work injury.	Not Disclose
KPI B2.3	Description of occupational	Care About Well-being of
	health and safety measures	Employees
	adopted, how they are
	implemented and monitored.

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Aspect	Description	Description	Chapter
B3 Development and Training
General Disclosure	Policies on improving employees’		Developing Talent
		knowledge and skills for
		discharging duties at work.
		Description of training
		activities.
KPI B3.1	The percentage of employees		Not Disclose
		trained by gender and
		employee category (e.g.
		senior management, middle
		management).
KPI B3.2	The average training hours		Not Disclose
		completed per employee
		by gender and employee
		category.
B4 Labour Standards
General Disclosure	Information on:		Social – Our Partners –
	(a) the policies; and		Compliance
	(b) compliance with relevant laws
		and regulations that have
		a significant impact on the
		issuer relating to preventing
		child and forced labour.
KPI B4.1	Description of measures to		Social – Our Partners –
		review employment practices	Compliance
		to avoid child and forced
		labour.
KPI B4.2	Description of steps taken to		Social – Our Partners –
		eliminate such practices when	Compliance
		discovered.

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Aspect	Description	Chapter
B5 Supply Chain Management
General Disclosure	Policies on managing	Supply Chain Management
	environmental and social risks
	of the supply chain.
KPI B5.1	Number of suppliers by	Supply Chain Management
	geographical region.
KPI B5.2	Description of practices relating	Supply Chain Management
	to engaging suppliers,	Environmentally Responsible
	number of suppliers where	Socially Responsible
	the practices are being
	implemented, how they are
	implemented and monitored.
B6 Product Responsibility
General Disclosure	Information on:	Striving to Create Great Customer
	(a) the policies; and	Experience Striving to Ensure Food Safety
	(b) compliance with relevant laws	Striving to Enhance Customer
	and regulations that have	Privacy
	a significant impact on the
	issuer relating to health and
	safety, advertising, labelling
	and privacy matters relating
	to products and services
	provided and methods of
	redress.
KPI B6.1	Percentage of total products sold	Not Disclose
	or shipped subject to recalls
	for safety and health reasons.
KPI B6.2	Number of products and service	Not Disclose
	related complaints received
	and how they are dealt with.
KPI B6.3	Description of practices relating	Striving to Create Great Customer
	to observing and protecting	Experience
	intellectual property rights.
KPI B6.4	Description of quality	Striving to Provide Excellent
	assurance process and recall	Quality
	procedures.	Striving to Ensure Food Safety
KPI B6.5	Description of consumer data	Striving to Enhance Customer
	protection and privacy	Privacy
	policies, how they are
	implemented and monitored.

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Aspect	Description	Chapter
B7 Anti-corruption
General Disclosure	Information on:	Corporate Integrity
	(a) the policies; and
	(b) compliance with relevant
	laws and regulations that
	have a significant impact on
	the issuer relating to bribery,
	extortion, fraud and money
	laundering.
KPI B7.1	Number of concluded legal	Corporate Integrity
	cases regarding corrupt
	practices brought against the
	issuer or its employees during
	the reporting period and the
	outcomes of the cases.
KPI B7.2	Description of preventive	Corporate Integrity
	measures and whistle-blowing
	procedures, how they are
	implemented and monitored.

Annual Report 2020 LH GROUP LIMITED

Environmental, Social and Governance Report

Aspect	Description	Chapter
B8 Community Investment
General Disclosure	Policies on community	Caring About People
	engagement to understand	Caring About the Environment
	the needs of the communities
	where the issuer operates and
	to ensure its activities take into
	consideration the communities’
	interests.
KPI B8.1	Focus areas of contribution (e.g.	Caring About People
	education, environmental	Caring About the Environment
	concerns, labour needs,
	health, culture, sport).
KPI B8.2	Resources contributed (e.g.	Caring About People
	money or time) to the focus	Caring About the Environment
	area.

LH GROUP LIMITED Annual Report 2020

Independent Auditor’s Report

TO THE SHAREHOLDERS OF LH GROUP LIMITED

(incorporated in the Cayman Islands with limited liability)

OPINION

What we have audited

The consolidated financial statements of LH GROUP LIMITED (the “ Company ”) and its subsidiaries (the “ Group ”) set out on pages 89 to 159, which comprise:

the consolidated statement of financial position as at 31 December 2020;
the consolidated statement of comprehensive income for the year then ended;
the consolidated statement of changes in equity for the year then ended;
the consolidated statement of cash flows for the year then ended; and
the notes to the consolidated financial statements, which include a summary of significant accounting policies.

Our opinion

In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at 31 December 2020, and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards (“ HKFRSs ”) issued by the Hong Kong Institute of Certified Public Accountants (“ HKICPA ”) and have been properly prepared in compliance with the disclosure requirements of the Hong Kong Companies Ordinance.

BASIS FOR OPINION

We conducted our audit in accordance with Hong Kong Standards on Auditing (“ HKSAs ”) issued by the HKICPA. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report.

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

Independence

We are independent of the Group in accordance with the HKICPA’s Code of Ethics for Professional Accountants (“ the Code ”), and we have fulfilled our other ethical responsibilities in accordance with the Code.

Annual Report 2020 LH GROUP LIMITED 83

Independent Auditor’s Report

KEY AUDIT MATTERS

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

Key audit matter identified in our audit is related to impairment assessment of the Group’s underperforming restaurant outlets.

Key Audit Matter

How our audit addressed the Key Audit Matter

Impairment assessment of the Group’s underperforming restaurant outlets

Refer to note 2.8 and 13(a), (b)&(c) to the consolidated financial statements for the Group’s accounting policy on impairment of non-financial assets and notes on property, plant and equipment (“ PPE ”) and right-of-use assets (“ ROU ”).

The Group operates restaurant outlets on leased properties with lease terms ranging from 2 to 5 years. Management considered that each restaurant outlet constitutes a cash generating unit (“ CGU ”). Certain of the Group’s restaurant outlets were loss making which require assessment of impairment of the relevant outlets’ PPE and ROU. As at 31 December 2020, provision for impairment of PPE and ROU amounted to HK$7.0 million and HK$14.3 million respectively.

In respect of management’s impairment assessment of PPE and ROU, we carried out the following audit procedures:

evaluated the outcome of prior period impairment assessment of PPE and ROU to assess the effectiveness of management’s estimation process;
obtained an understanding of and evaluated management’s procedures in identifying the relevant CGUs having impairment indicators and preparing the Forecast for impairment testing;
compared the Group’s budgets of the relevant CGUs with the historical financial information upon which the Forecast is based;

Management’s judgement is required to identify those outlets requiring provision for impairment of PPE and ROU, including the identification of PPE and ROU impairment i n d i c a t o r s . T h e d e t e r m i n a t i o n o f t h e recoverable amount for PPE and ROU involves the use of key assumptions in a discounted cash flow forecast model (the “ Forecast ”) including estimated revenue growth rate, operating costs and discount rate.

We focused on this area because the assessment requires the use of significant estimates and judgements by management in the Forecast of revenue growth, operating costs and discount rate.

84 LH GROUP LIMITED Annual Report 2020

Independent Auditor’s Report

How our audit addressed the Key Audit
Key Audit Matter Matter • assessed the reasonableness of key assumptions used in the Forecast: — for estimated revenue growth rate and operating costs, reconciling the key input data to the Group’s business development plans and budgets, historical financial information of the relevant CGUs and made reference to our understanding and knowledge of the Group’s business as well as other available external data in the market; and
— for discount rate, made reference to the comparable external information in the industry;
• challenged management’s determination of the revenue growth rate, operating costs and discount rate;
• evaluated management’s sensitivity analysis around the key assumptions adopted to assess the potential adverse impact of a range of possible outcomes; and
tested the mathematical accuracy of the Forecast.

Based on our audit procedures performed, we found the significant judgements and assumptions used by management in the assessment were supportable with evidence obtained.

Annual Report 2020 LH GROUP LIMITED 85

Independent Auditor’s Report

OTHER INFORMATION

The directors of the Company are responsible for the other information. The other information comprises all of the information included in the annual report other than the consolidated financial statements and our auditor’s report thereon.

Our opinion on the consolidated 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 consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated 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.

RESPONSIBILITIES OF DIRECTORS AND AUDIT COMMITTEE FOR THE CONSOLIDATED FINANCIAL STATEMENTS

The directors of the Company are responsible for the preparation of the consolidated financial statements that give a true and fair view in accordance with HKFRSs issued by the HKICPA and the disclosure requirements of the Hong Kong Companies Ordinance, and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, the directors are responsible for assessing the Group’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 directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.

Audit Committee is responsible for overseeing the Group’s financial reporting process.

AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. We report our opinion solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with HKSAs 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 consolidated financial statements.

LH GROUP LIMITED Annual Report 2020

Independent Auditor’s Report

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

Identify and assess the risks of material misstatement of the consolidated 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.
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 the Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.
Conclude on the appropriateness of the directors’ 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 Group’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 consolidated 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 Group to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group 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, actions taken to eliminate threats or safeguards applied.

Annual Report 2020 LH GROUP LIMITED 87

Independent Auditor’s Report

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated 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.

The engagement partner on the audit resulting in this independent auditor’s report is Chan Kam Chiu, Raymond.

PricewaterhouseCoopers

Certified Public Accountants

Hong Kong, 29 March 2021

LH GROUP LIMITED Annual Report 2020

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2020

Note	2020 *HK$’000*	2019 HK$’000
Revenue 5(a) Other income and gains 6 Cost of food and beverages Staff costs 9 Depreciation and amortisation Depreciation of right-of-use assets 13(b) Property rentals and related expenses Fuel and utility expenses Advertising and marketing expenses Other operating expenses Provision for impairment of property, plant and equipment, net 13(a) Provision for impairment of right-of-use assets, net 13(b) Provision for impairment of intangible assets 15 Provision for impairment of financial assets 18 Gain on disposal of subsidiaries 30 Loss on disposal of financial assets at fair value through profit or loss 25(b) Finance income 7 Finance costs 7 Profit/(loss) before taxation 8 Income tax expense 10 Profit/(loss) and total comprehensive income/(loss) for the year Attributable to: Shareholders of the Company Non-controlling interests Basic and diluted earnings/(loss) per share (HK cents) 12	802,852 95,006 (252,111) (213,823) (32,822) (91,044) (33,732) (18,207) (5,731) (88,876) (5,740) (10,714) — — — — 3,775 (5,086) 143,747 (3,419) 140,328 140,328 — 140,328 17.54	1,005,776 4,519 (292,786) (301,392) (44,214) (98,805) (73,602) (24,924) (11,629) (94,800) (20,176) (48,444) (569) (3,832) 13,101 (5,000) 4,150 (8,321) (948) (10,320) (11,268) (11,226) (42) (11,268) (1.40)

Annual Report 2020 LH GROUP LIMITED 89

Consolidated Statement of Financial Position

As at 31 December 2020

Note	2020 *HK$’000*	2019 HK$’000
ASSETS NON-CURRENT ASSETS Property, plant and equipment 13(a) Right-of-use assets 13(b) Investment property 14 Intangible assets 15 Rental and utilities deposits 18 Prepayments for purchase of property, plant and equipment 18 Deferred income tax assets 23 CURRENT ASSETS Inventories 16 Trade receivables 17 Prepayments, deposits and other receivables 18 Tax recoverable Short term bank deposits 20 Cash and cash equivalents 20 Total assets EQUITY AND LIABILITIES Equity attributable to shareholders of the Company Share capital 28 Share premium 24 Reserves 24 Total equity NON-CURRENT LIABILITIES Provision for reinstatement costs 22 Lease liabilities 13(b) Deferred income tax liabilities 23	106,952 169,332 670 5,419 39,463 1,805 26,040 349,681 32,414 4,962 20,983 686 159,623 179,148 397,816 747,497 80,000 122,781 211,820 414,601 14,932 95,752 5,155 115,839	126,710 227,331 695 6,015 43,216 575 23,875 428,417 24,517 6,156 18,277 1,737 132,352 130,759 313,798 742,215 80,000 122,781 71,492 274,273 15,009 157,100 5,839 177,948

LH GROUP LIMITED Annual Report 2020

Consolidated Statement of Financial Position

As at 31 December 2020

Note	2020 *HK$’000*	2019 HK$’000
CURRENT LIABILITIES Trade payables 21 Contract liabilities, other payables and accruals 22 Tax payable Lease liabilities 13(b) Total liabilities Total equity and liabilities	37,657 81,705 4,294 93,401 217,057 332,896 747,497	44,774 88,054 25,694 131,472 289,994 467,942 742,215

Annual Report 2020 LH GROUP LIMITED 91

Consolidated Statement of Changes in Equity

For the year ended 31 December 2020

Attributable to shareholders of the Company

	Share capital (Note 28) HK$’000	Reserves (Note 24) HK$’000	Total Non- controlling Interests HK$’000 HK$’000	Total Non- controlling Interests HK$’000 HK$’000	Total HK$’000
At 1 January 2019 Loss and total comprehensive loss for the year Transactions with shareholders Dividends_(Note 11) Acquisition of non-controlling interests At 31 December 2019 and 1 January 2020 Profit and total comprehensive income for the year Transactions with shareholders Dividends(Note 11)_ At 31 December 2020	80,000 — — — 80,000	328,379 (11,226) (122,880) — 194,273	408,379 (11,226) (122,880) — 274,273	49 (42) — (7) —	408,428 (11,268) (122,880) (7) 274,273
	—	140,328	140,328	—	140,328

	—	—	—	—	—

	80,000	334,601	414,601	—	414,601

92 LH GROUP LIMITED Annual Report 2020

Consolidated Statement of Cash Flows

For the year ended 31 December 2020

Note	2020 *HK$’000*	2019 HK$’000
CASH FLOWS FROM OPERATING ACTIVITIES Cash generated from operations 25(a) Interest received Hong Kong profits tax paid, net Net cash flows generated from operating activities CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property, plant and equipment Acquisition of a subsidiary Cash and cash equivalents disposed from disposal of subsidiaries 30 Proceed from disposal of financial assets at fair value through profit or loss 25(b) Proceed from disposal of property, plant and equipment Interest received (Increase)/decrease in short term bank deposits Net cash flows used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Listing expenses paid Dividend paid 11 Acquisition of non-controlling interests 34 Principal elements of lease payments 25(c) Net cash flows used in financing activities NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at the beginning of the year CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 20	204,291 419 (26,616) 178,094 (18,368) — — — 228 2,583 (27,271) (42,828) — — — (86,877) (86,877) 48,389 130,759 179,148	244,840 402 (270) 244,972 (35,395) (35,008) (5,865) 23,500 — 3,481 15,648 (33,639) (27) (122,880) (7) (99,949) (222,863) (11,530) 142,289 130,759

Annual Report 2020 LH GROUP LIMITED 93

Notes to the Consolidated Financial Statements

1 GENERAL INFORMATION

The Company was incorporated in the Cayman Islands on 9 June 2017 as an exempted company with limited liability under the Companies Law (Cap. 22, Law 3 of 1961 as consolidated and revised) of the Cayman Islands and its shares have been listed on the Main Board of The Stock Exchange of Hong Kong Limited (the “ Stock Exchange ”) since 30 May 2018 (the “ Listing Date ”). The address of the Company’s registered office is Walkers Corporate Limited, 190 Elgin Avenue, George Town, Grand Cayman KY1-9008, Cayman Islands.

The Company is an investment holding company and its subsidiaries are principally engaged as full-service restaurants operator serving Asian cuisine including Japanese, Korean, Cantonese and Shanghainese cuisine in Hong Kong.

These consolidated financial statements are presented in Hong Kong Dollar (“ HK$ ”), unless otherwise stated.

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years and periods presented, unless otherwise stated.

2.1 Basis of preparation

The principal accounting policies applied in the preparation of the consolidated financial statements of the Group which are in accordance with the Hong Kong Financial Reporting Standards (“ HKFRSs ”) and disclosure requirements of the Hong Kong Companies Ordinance Cap. 622. These consolidated financial statements have been prepared under the historical cost convention.

The preparation of these consolidated financial statements in conformity with HKFRSs requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to these consolidated financial statements are disclosed in Note 4.

LH GROUP LIMITED Annual Report 2020

Notes to the Consolidated Financial Statements

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.1 Basis of preparation (continued)

(a) New standards and amendments to standards adopted by the Group

The Group has applied the following new and amended standards, improvements and interpretation for the first time for their annual reporting period commencing 1 January 2020:

HKFRS 3 (Amendments) Definition of a Business HKAS 1 and HKAS 8 Definition of Material (Amendments) Conceptual framework for financial Revised Conceptual Framework for Financial reporting 2018 Reporting HKFRS 9, HKAS 39 and HKFRS 7 Interest Rate Benchmark Reform (Amendments)

The Group also elected to adopt the following amendment early:

HKFRS 16 (Amendments) Covid-19-Related Rent Concessions

The amendments listed above did not have any impact on the amounts recognised in prior periods and are not expected to significantly affect the current or future periods, except for the Amendments to HKFRS 16 set out above.

(b) New standards and amendments to HKFRS in issue but not yet effective

Effective for annual periods beginning on or after

HKFRS 9, HKAS 39, Interest Rate Benchmark Reform 1 January 2021 HKFRS 7, HKFRS 4 and — Phase 2 HKFRS 16 (Amendments) Annual Improvements Annual Improvements 2018–2020 1 January 2022 Project (Amendments) Cycle Accounting Guideline 5 Merger Accounting for Common 1 January 2022 (Amendments) Control Combination HKAS 16 (Amendments) Proceeds before Intended Use 1 January 2022 HKAS 37 (Amendments) Cost of Fulfilling a Contract 1 January 2022 HKFRS 3 (Amendments) Reference to the Conceptual 1 January 2022 Framework HKAS 1 (Amendments) Classification of Liabilities as 1 January 2023 Current or Non-current HKFRS 17 Insurance Contracts 1 January 2023 Hong Kong Interpretation 5 Classification by Borrower of 1 January 2023 (2020) a Term Loan that Contains a Repayment on Demand Clause HKFRS 10 and HKAS 28 Sale or Contribution of Assets To be determined (Amendments) between an Investor and its Associate or Joint Venture

Annual Report 2020 LH GROUP LIMITED

Notes to the Consolidated Financial Statements

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.1 Basis of preparation (continued)

(b) New standards and amendments to HKFRS in issue but not yet effective (continued)

The above accounting standards and interpretations have been published that are not mandatory for 31 December 2020 reporting periods and have not been early adopted by the Group. These standards are not expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions.

(c) Changes in accounting policies

The Group has early adopted Amendments to HKFRS 16 — Covid-19-Related Rent Concessions retrospectively from 1 January 2020. The amendment provides an optional practical expedient allowing lessees to elect not to assess whether a rent concession related to COVID-19 is a lease modification. Lessees adopting this election may account for qualifying rent concessions in the same way as they would if they were not lease modifications. The practical expedient only applies to rent concessions occurring as a direct consequence of the COVID-19 pandemic and only if all of the following conditions are met:

a. the change in lease payments results in revised consideration for the lease that is substantially the same as, or less than, the consideration for the lease immediately preceding the change;
b. any reduction in lease payments affects only payments due on or before 30 June 2021; and
c. there is no substantive change to other terms and conditions of the lease.

The Group has applied the practical expedient to all qualifying COVID-19-related rent concessions. Rent concessions totalling approximately HK$14,337,000 have been accounted for as negative variable lease payments and recognised in property rentals and related expenses in the consolidated statement of comprehensive income for the year ended 31 December 2020, with a corresponding adjustment to the lease liability. There is no impact on the opening balance of equity at 1 January 2020.

96 LH GROUP LIMITED Annual Report 2020

Notes to the Consolidated Financial Statements

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.2 Subsidiaries

A subsidiary is an entity (including a structured entity) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.

2.2.1 Business combinations

The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former shareholders of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date.

The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis. Non-controlling interests in the acquiree that are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation are measured at either fair value or the present ownership interests’ proportionate share in the recognised amounts of the acquiree’s identifiable net assets. All other components of non-controlling interests are measured at their acquisition date fair value, unless another measurement basis is required by HKFRSs.

Intra-group transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated. When necessary, amounts reported by subsidiaries have been adjusted to conform with the Group’s accounting policies.

2.2.2 Separate financial statements

Investments in subsidiaries are accounted for at cost less impairment. Cost includes direct attributable costs of investment. The results of subsidiaries are accounted for by the company on the basis of dividend received and receivable.

Impairment testing of the investments in subsidiaries is required upon receiving a dividend from these investments if the dividend exceeds the total comprehensive income of the subsidiary in the period the dividend is declared or if the carrying amount of the investment in the separate financial statements exceeds the carrying amount in the consolidated financial statements of the investee’s net assets including goodwill.

Annual Report 2020 LH GROUP LIMITED

Notes to the Consolidated Financial Statements

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.3 Foreign currency translation

(a) Functional and presentation currency

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the “ functional currency ”). The consolidated financial statements are presented in HK$, which is the Company’s functional and the Group’s presentation currency.

(b) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the profit or loss.

2.4 Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker (the “ CODM ”). The CODM, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the directors of the Company, who make strategic decisions.

2.5 Property, plant and equipment

Land and buildings comprise mainly central processing and logistic centre and offices. Leasehold land classified as finance lease and all other property, plant and equipment are stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the consolidated statements of comprehensive income during the financial period in which they are incurred.

LH GROUP LIMITED Annual Report 2020

Notes to the Consolidated Financial Statements

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.5 Property, plant and equipment (continued)

Depreciation of property, plant and equipment is calculated using the straight-line method to allocate their costs to their residual values over their estimated useful lives, as follows:

— Land and buildings Over the lease term — Leasehold improvements Over the lease term — Restaurant and kitchen equipment Over the shorter of lease term or 5 years — Furniture and fixtures Over the shorter of lease term or 5 years — Office equipment 5 years — Motor vehicles 5 years

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (Note 2.8).

Gains and losses on disposals of property, plant and equipment are determined by comparing the proceeds with the carrying amount and are recognised within ‘other operating expenses’ in the consolidated statements of comprehensive income.

2.6 Investment property

Investment property, principally comprising leasehold land and buildings, is held for long-term rental yields or for capital appreciation or both, and that is not occupied by the Group.

Investment property is initially measured at cost, including related transaction costs and where applicable borrowing costs. After initial recognition, investment properties are carried at cost less accumulated depreciation and accumulated impairment losses (Note 2.8). The cost of investment property comprises its purchase price and any directly attributable expenditure. Depreciation is calculated using the straight-line method to allocate the depreciable amounts over the lease term. The residual value and useful life of the investment property is reviewed, and adjusted as appropriate, at the end of each reporting period. The effect of any revision is included in the consolidated statements of comprehensive income when the change arises.

Annual Report 2020 LH GROUP LIMITED 99

Notes to the Consolidated Financial Statements

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.7 Intangible assets

(a) Franchises

Separately acquired franchises are shown at historical cost. Franchises have a finite useful life and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost of franchises over the franchise term of 10 years.

(b) Tradename

Acquired tradename is shown at historical cost. Tradename has finite useful lives and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost of tradename over its estimated useful life.

2.8 Impairment of non-financial assets

Assets that are subject to amortisation or depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.

2.9 Financial assets

2.9.1 Classification

The Group classifies its financial assets in the following categories:

those to be measured subsequently at fair value (either through other comprehensive income, or through profit or loss); and
those to be measured at amortised cost.

The classification depends on the entity’s business model for managing the financial assets and the contractual terms of the cash flows.

100 LH GROUP LIMITED Annual Report 2020

Notes to the Consolidated Financial Statements

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.9 Financial assets (continued)

2.9.1 Classification (continued)

For assets measured at fair value, gains and losses will either be recorded in profit or loss or other comprehensive income. For investments in equity instruments that are not held for trading, this will depend on whether the Group has made an irrevocable election at the time of initial recognition to account for the equity investment at fair value through other comprehensive income (FVOCI).

The Group reclassifies debt investments when and only when its business model for managing those assets changes.

2.9.2 Measurement

At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss (FVPL), transaction costs that arc directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at fair value through profit or loss are expensed in profit or loss.

Debt instruments

Subsequent measurement of debt instruments depends on the Group’s business model for managing the asset and the cash flow characteristics of the asset. The Group classifies its debt instruments as amortised cost. Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortised cost. Interest income from these financial assets is included in finance income using the effective interest rate method. Any gain or loss arising on derecognition is recognised directly in profit or loss and presented in other gains/(losses), net, together with foreign exchange gains and losses. Impairment losses are presented as separate line item in the statement of profit or loss.

Equity instruments

The Group subsequently measures all equity investments at fair value. Where the Group’s management has elected to present fair value gains and losses on equity investments in OCI, there is no subsequent reclassification of fair value gains and losses to profit or loss following the derecognition of the investment. Dividends from such investments continue to be recognised in profit or loss as other income when the Group’s right to receive payments is established.

Changes in the fair value of financial assets at FVPL are recognised in profit or loss as applicable. Impairment losses (and reversal of impairment losses) on equity investments measured at FVOCI are not reported separately from other changes in fair value.

101

Annual Report 2020 LH GROUP LIMITED

Notes to the Consolidated Financial Statements

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.9 Financial assets (continued)

2.9.3 Recognition and derecognition

Regular way purchases and sales of financial assets are recognised on trade-date, the date on which the Group commits to purchase or sell the asset. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership.

2.10 Offsetting financial instruments

Financial assets and liabilities are offset and the net amount reported in the consolidated statement of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the company or the counterparty.

2.11 Impairment of financial assets

The Group assesses on a forward looking basis the expected credit losses associated with its debt instruments carried at amortised cost and FVOCI. The impairment methodology applied depends on whether there has been a significant increase in credit risk.

For trade receivables, the Group applies the simplified approach permitted by HKFRS 9, which requires expected lifetime losses to be recognised from initial recognition of the receivables.

Impairment on other financial assets at amortised cost is measured as either 12-month expected credit losses or lifetime expected credit loss, depending on whether there has been a significant increase in credit risk since initial recognition. If a significant increase in credit risk of a receivable has occurred since initial recognition, then impairment is measured as lifetime expected credit losses.

2.12 Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined using the first-in, first-out (FIFO) method. The cost comprises invoiced cost less purchase rebates. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses.

102 LH GROUP LIMITED Annual Report 2020

Notes to the Consolidated Financial Statements

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.13 Trade and other receivables

Trade receivables are amounts due from customers for merchandise sold or services performed in the ordinary course of business. If collection of trade and other receivables is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets.

Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less allowance for impairment.

2.14 Cash and cash equivalents

Cash and cash equivalents include cash on hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less.

2.15 Share capital

Ordinary shares are classified as equity.

Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds.

2.16 Trade and other payables

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Trade payables are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities.

Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

2.17 Current and deferred income tax

The tax expense for the period comprises current and deferred tax. Tax is recognised in the profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively.

Annual Report 2020 LH GROUP LIMITED 103

Notes to the Consolidated Financial Statements

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.17 Current and deferred income tax (continued)

(a) Current income tax

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the company’s subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

(b) Deferred income tax

Inside basis differences

Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated statements of financial position. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Outside basis differences

Deferred income tax liabilities are provided on taxable temporary differences arising from investments in subsidiaries, except for deferred income tax liability where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred income tax assets are recognised on deductible temporary differences arising from investments in subsidiaries only to the extent that it is probable the temporary difference will reverse in the future and there is sufficient taxable profit available against which the temporary difference can be utilised.

104 LH GROUP LIMITED Annual Report 2020

Notes to the Consolidated Financial Statements

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.17 Current and deferred income tax (continued)

(c) Offsetting

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

2.18 Employee benefits

(a) Pension obligations

In Hong Kong, the Group contributes to the mandatory provident fund scheme for eligible employees, the assets of which are held in a separate trustee-administered funds. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expense when they are due.

(b) Employee leave entitlements

Employee entitlements to annual leave are recognised when they accrue to employees. A provision is made for the estimated liability for annual leave as a result of services rendered by employees up to the end of the reporting period.

Employee entitlements to sick leave and maternity leave are not recognised until the time of leave.

(c) Long service payments

In Hong Kong, employees who have completed a required number of years of service to the Group are eligible for long service payments under the Hong Kong Employment Ordinance in the event of the termination of their employment, provided that such termination meet the circumstances specified in the Hong Kong Employment Ordinance.

(d) Provision for bonus plans

Bonus payments to employees are discretionary to management. Bonus payments are recognised in profit or loss in the period when the Group has formally announced the bonus payments to employees.

Annual Report 2020 LH GROUP LIMITED 105

Notes to the Consolidated Financial Statements

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.19 Provisions

Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions are not recognised for future operating losses.

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense.

2.20 Customer loyalty programme

Sales of catering services that result in award credits for customers, under the customer membership programme of the Group, are accounted for as multiple element revenue transaction and the fair value of the consideration received or receivable is allocated between the catering services provided and the awards for which they could be redeemed/entitled. Such consideration is not recognised as revenue at the time of the initial sales transaction, but is deferred and recognised as revenue when the awards are redeemed or the Group’s obligations have been fulfilled.

2.21 Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable, and represents amounts receivable for goods supplied, stated net of discounts, returns and value added taxes. If contracts involve the sale of multiple services, the transaction price will be allocated to each performance obligation based on their relative standalone selling prices. If the stand-alone selling prices are not directly observable, they are estimated based on expected cost plus a margin or adjusted market assessment approach, depending on the availability of observable information.

106

LH GROUP LIMITED Annual Report 2020

Notes to the Consolidated Financial Statements

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.21 Revenue recognition (continued)

Revenues are recognised when or as the control of the good is transferred to the customer. Depending on the terms of the contract and the laws that apply to the contract, control of the good or service may be transferred over time or at a point in time. Control of the good or service is transferred over time if the Group’s performance:

provides all of the benefits received and consumed simultaneously by the customer;
creates or enhances an asset that the customer controls as the Group performs; or
does not create an asset with an alternative use to the Group and the Group has an enforceable right to payment for performance completed to date.

If control of the asset transfers over time, revenue is recognised over the period of the contract by reference to the progress towards complete satisfaction of that performance obligation. Otherwise, revenue is recognised at a point in time when the customer obtains control of the asset. Specific criteria where revenue is recognised are described below.

(a) Restaurant operations

(i) Sale of catering services

The Group operates a chain of restaurants. Sales is recognised at a point in time when catering services have been provided to the customers. Payment of the transaction price is due immediately after dining.

(ii) Sale of membership

As part of the Group’s ordinary activities, memberships (which is a package with coupons and future discount) are sold to customers in its Asian cuisine restaurants. The receipts in respect of the coupon element are deferred and recognised as “deferred revenue” in the consolidated statement of financial position based on the expected future redemption as at year end. The Group implements a contractual expiry policy for the membership under which any unutilised coupons are fully recognised as revenue in the consolidated statement of comprehensive income upon their expiry. The receipts in respect of the discount element are recognised as revenue in the consolidated statement of comprehensive income over the term of the membership.

Annual Report 2020 LH GROUP LIMITED 107

Notes to the Consolidated Financial Statements

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.21 Revenue recognition (continued)

(b) Sale of food ingredients

Sales is recognised on the transfer of risks and rewards of ownership, being when the products are delivered to the customer. Delivery occurs when the products have been shipped to the specific location, the risks of obsolescence and loss have been transferred to the customer. A receivable is recognised when the goods are delivered as this is the point in time that the consideration is unconditional because only the passage of time is required before the payment is due.

(c) Interest income

Interest income is recognised using the effective interest method, on a timeproportion basis.

2.22 Leases

Contracts may contain both lease and non-lease components. The Group allocates the consideration in the contract to the lease and non-lease components based on their relative stand-alone prices. However, for leases of real estate for which the Group is a lessee, it has elected not to separate lease and non-lease components and instead accounts for these as a single lease component.

Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:

fixed payments (including in-substance fixed payments), less any lease incentives receivable
variable lease payment that are based on an index or a rate, initially measured using the index or rate as at the commencement date
amounts expected to be payable by the Group under residual value guarantees
the exercise price of a purchase option if the Group is reasonably certain to exercise that option, and
payments of penalties for terminating the lease, if the lease term reflects the Group exercising that option.

108 LH GROUP LIMITED Annual Report 2020

Notes to the Consolidated Financial Statements

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.22 Leases (continued)

Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability.

The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case for leases in the Group, the lessee’s incremental borrowing rate is used, being the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions.

To determine the incremental borrowing rate, the Group:

where possible, uses recent third-party financing received by the individual lessee as a starting point, adjusted to reflect changes in financing conditions since third party financing was received
uses a build-up approach that starts with a risk-free interest rate adjusted for credit risk for leases held by the Group, which does not have recent third party financing, and
makes adjustments specific to the lease, e.g. term, country, currency and security.

Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.

Right-of-use assets are measured at cost comprising the following:

the amount of the initial measurement of lease liability
any lease payments made at or before the commencement date less any lease incentives received
any initial direct costs, and
restoration costs.

Right-of-use assets are generally depreciated over the shorter of the asset‘s useful life and the lease term on a straight-line basis. If the Group is reasonably certain to exercise a purchase option, the right-of-use asset is depreciated over the underlying asset’s useful life. While the Group revalues its land and buildings that are presented within property, plant and equipment, it has chosen not to do so for the right-of-use buildings held by the Group.

Annual Report 2020 LH GROUP LIMITED 109

Notes to the Consolidated Financial Statements

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.22 Leases (continued)

Payments associated with short-term leases of equipment and vehicles and all leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise IT equipment and small items of office furniture.

Lease income from operating leases where the Group is a lessor is recognised in income on a straight-line basis over the lease term (Note 14). Initial direct costs incurred in obtaining an operating lease are added to the carrying amount of the underlying asset and recognised as expense over the lease term on the same basis as lease income. The respective leased assets are included in the balance sheet based on their nature. The Group did not need to make any adjustments to the accounting for assets held as lessor as a result of adopting the new leasing standard.

2.23 Earnings per share

(i) Basic earnings per share

Basic earnings per share is calculated by dividing:

the profit attributable to owners of the company, excluding any costs of servicing equity other than ordinary shares
by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year and excluding treasury shares.

(ii) Diluted earnings per share

Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account:

the after-income tax effect of interest and other financing costs associated with dilutive potential ordinary shares, and
the weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares.

110 LH GROUP LIMITED Annual Report 2020

Notes to the Consolidated Financial Statements

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.24 Dividend distribution

Dividend distribution to the shareholders is recognised as a liability in the consolidated financial statements in the period in which the dividends are approved by the entity’s shareholders or directors, where appropriate.

Dividend proposed or declared after the reporting period but before the financial statements are authorised for issue, are disclosed as a non-adjusting event and are not recognised as a liability at the end of the reporting period.

2.25 Government grants

Grants from the government are recognised at their fair value when there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions. Government grants relating to costs are deferred and recognised in the profit or loss over the period necessary to match them with the costs that they are intended to compensate.

3 FINANCIAL RISK MANAGEMENT

3.1 Financial risk factors

The Group’s activities expose it to variety financial risks: market risk (cash flow and fair value interest rate risk), credit risk and liquidity risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance. Management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner. Because of the simplicity of the financial structure and the current operations of the Group, no hedging activities are undertaken by management.

(a) Interest rate risk

The Group has no significant interest-bearing assets except for bank deposits, which are at variable interest rate and subject to cash flow interest rate risk. Fixed deposits are subject to fixed rates which expose the Group to fair value interest rate risk.

As at 31 December 2020, if interest rates on all interest-bearing bank deposits had been 100 basis-points higher/lower with all other variables held constant, profit after taxation would have increased/decreased by approximately HK$2,470,000 (2019: HK$1,534,000) respectively, mainly as a result of higher/lower interest income on variable rate bank deposits.

Annual Report 2020 LH GROUP LIMITED 111

Notes to the Consolidated Financial Statements

3 FINANCIAL RISK MANAGEMENT (continued)

3.1 Financial risk factors (continued)

(b) Credit risk

Credit risk refers to the risk that the counterparty to a financial instrument would fail to discharge its obligation under the terms of the financial instrument and cause a financial loss to the Group. The Group’s exposure to credit risk mainly arises from granting credit to customers in the ordinary course of its operations.

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

All of the Group’s trade and other receivables have no collateral. The Group assessed the credit quality of the counterparties by taking into account their financial position, credit history, forward looking information and other factors, Management also regularly reviews the recoverability of these receivables and follow up the disputes or amounts overdue, if any.

Cash and cash equivalents and short term bank deposit

As at 31 December 2020, the credit risk on cash at banks and short term bank deposits is limited because the counterparties are reputable and creditworthy banks, which management believes are of high-credit-quality without significant credit risk.

Trade receivables

The Group applies the simplified approach to providing for expected credited losses prescribed by HKFRS 9, which permits the use of the lifetime expected loss provision for all trade receivables. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics.

Trade receivables mainly represent receivables from reputable and creditworthy financial institutions in relation to the payment settled by credit cards by customers of which the settlement is normally within 3 days from transaction date. For the remaining customers in relation to sale of food ingredients, credit quality of the customers is assessed based on their historical settlement record. There is no concentration of credit risk as these are receivables from various counterparties.

For the trade receivables from financial institutions, the counterparties primarily reputable and creditworthy financial institutions and has strong financial position and management considers the credit risk is not high.

112 LH GROUP LIMITED Annual Report 2020

Notes to the Consolidated Financial Statements

3 FINANCIAL RISK MANAGEMENT (continued)

3.1 Financial risk factors (continued)

(b) Credit risk (continued)

Trade receivables (continued)

For trade receivables from sale of food ingredients, the Group maintains frequent communications with the counterparties. Management has closely monitored the credit qualities and the collectability of these receivables and consider that the expected credit risks of them are minimal in view of the history of cooperation with them and forward looking information.

The expected credit loss from these trade receivables is considered as immaterial and loss allowance provision recognised for these balances for the year is close to zero.

Deposits and other receivables

The directors of the Group consider the probability of default upon initial recognition of asset and whether there has been significant increase in credit risk on an ongoing basis. To assess whether there is a significant increase in credit risk the Group compares risk of a default occurring on the assets as at 31 December 2020 with the risk of default as at the date of initial recognition. Especially the following indicators are incorporated.

actual or expected significant adverse changes in business, financial economic conditions that are expected to cause a significant change to the company’s ability to meet its obligations;
actual or expected significant changes in the operating results of the company;
significant changes in the expected performance and behavior of the company, including changes in the payment status of the third party.

Regardless of the analysis above, a significant increase in credit risk is presumed if a debtor is more than 30 days past due in making a contractual payment/repayable demanded.

A default on a financial asset is when the counterparty fails to make contractual payments/repayable demanded within 90 days of when they fail due.

Annual Report 2020 LH GROUP LIMITED 113

Notes to the Consolidated Financial Statements

3 FINANCIAL RISK MANAGEMENT (continued)

3.1 Financial risk factors (continued)

(b) Credit risk (continued)

Deposits and other receivables (continued)

Financial assets are written off when there is no reasonable expectation of recovery, such as a debtor failing to engage in a repayment plan with the Group. The Group categories a loan or receivable for write off when a debtor fails to make contractual payments/repayable demanded greater than 365 days past due. Where financial assets have been written off, the Group continues to engage in enforcement activity to attempt to recover the receivable due. Where recoveries are made, these are recognised in profit or loss. The Group reviews regularly the recoverable amount of each individual receivable to ensure that adequate impairment losses are made for irrecoverable amounts. Over the term of the financial assets, the Group accounts for its credit risk by appropriately providing for expected credit losses on a timely basis. In calculating the expected credit loss rates, the Group considers historical loss rates for each category of debtors, and adjusts for forward looking macroeconomic data.

As at 31 December 2020, management consider other receivables as low credit risk as counterparties have a strong capacity to meet its contractual cash flow obligations in the near term. The Group has assessed that the expected credit losses for these receivables are immaterial under 12 months expected losses method. Thus, the loss allowance provision recognised for the year for these balances is immaterial.

(c) Liquidity risk

The Group’s policy is to maintain sufficient cash to meet its liquidity and working capital requirements.

Management monitors rolling forecasts of the Group’s liquidity reserve which comprises cash and cash equivalents (Note 20) on the basis of expected cash flows. The Group’s policy is to regularly monitor current and expected liquidity requirements, to ensure that it maintains sufficient reserves of cash to meet its liquidity requirements in the short and longer term.

114 LH GROUP LIMITED Annual Report 2020

Notes to the Consolidated Financial Statements

3 FINANCIAL RISK MANAGEMENT (continued)

3.1 Financial risk factors (continued)

(c) Liquidity risk (continued)

The table below analyses the Group’s non-derivative financial liabilities into relevant maturity groupings based on the remaining period at the end of the reporting period to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.

Contractual maturities of financial liabilities		At 31 December 2020	At 31 December 2020	Total contractual undiscounted cash flows *HK$’000*
	Less than one year *HK$’000*	Between one and two years *HK$’000*	Between two and five years *HK$’000*
Trade payables Other payables and accruals Lease liabilities Contractual maturities of financial liabilities
	37,657	—	—	37,657
	47,484	—	—	47,484
	99,435	69,255	28,255	196,945

	184,576	69,255	28,255	282,086

		At 31 December 2019		Total contractual undiscounted cash flows HK$’000
	Less than one year HK$’000	Between one and two years HK$’000	Between two and five years HK$’000
Trade payables Other payables and accruals Lease liabilities	44,774 50,966 136,334 232,074	— — 99,542 99,542	— — 65,999 65,999	44,774 50,966 301,875 397,615

Annual Report 2020 LH GROUP LIMITED 115

Notes to the Consolidated Financial Statements

3 FINANCIAL RISK MANAGEMENT (continued)

3.2 Capital risk management

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

3.3 Fair value estimation

The carrying values of the Group’s financial assets, including trade receivables, deposits and other receivables and cash and cash equivalents, and financial liabilities, including trade and other payables and lease liabilities, approximate to their fair values due to their short-term maturities. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments, unless the discounting effect is insignificant.

3.4 Offsetting financial assets and financial liabilities

There is no material offsetting, enforceable master netting arrangement and similar agreements as at 31 December 2020.

116

LH GROUP LIMITED Annual Report 2020

Notes to the Consolidated Financial Statements

4 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below.

(a) Impairment of property, plant and equipment, right-of-use assets, investment property and intangible assets

Property, plant and equipment, right-of-use assets, investment property and intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date. These calculations require the use of judgements and estimates.

Management judgement is required in the area of asset impairment particularly in assessing: (i) whether an event has occurred that may indicate that the related asset values may not be recoverable; (ii) whether the carrying value of an asset can be supported by the recoverable amount, being the higher of fair value less costs to sell or net present value of future cash flows which are estimated based upon the continued use of the asset in the business; and (iii) the appropriate key assumptions to be applied in preparing cash flow projections including whether these cash flow projections are discounted using an appropriate rate. Changing the assumptions selected by management in assessing impairment, including the discount rates or the growth rate assumptions in the cash flow projections, could materially affect the net present value used in the impairment test and as a result affect the Group’s financial position and results of operations.

The Group has material operational assets (including property, plant and equipment and right-of-use assets) used in the restaurants which are subject to impairment test in the event of financial performance is below expectation. An asset impairment assessment was carried out against the underperforming restaurants and a net impairment charge of property, plant and equipment of approximately HK$5,740,000 and right-of-use assets of approximately HK$10,714,000 were recognised for the year ended 31 December 2020. Management has performed discounted cash flow analysis on the restaurants with impairment indicator and the recoverable amounts were determined based on the higher of fair value less costs to sell and value-in-use calculations of these restaurants. Assumptions used in the calculations include the revenue growth rates, operating costs and discount rate.

Annual Report 2020 LH GROUP LIMITED 117

Notes to the Consolidated Financial Statements

4 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)

(b) Current income taxes and deferred income taxes

Significant judgement is required in determining the provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current income tax and deferred tax provisions in the period in which such determination is made.

Deferred income tax assets relating to certain temporary differences and tax losses are recognised as management considers it is likely that future taxable profits will be available against which the temporary differences or tax losses can be utilised. Where the expectation is different from the original estimates, such differences will impact the recognition of deferred income tax assets and income tax charges in the period in which such estimates are changed.

(c) Contract liabilities of customer loyalty programme

The membership fee in respect of the coupons and discount element and dining income in respect of loyalty points and renewal membership element are deferred and recognised as contract liabilities at the year end.

Significant management judgement is required in determining the fair value and expected redemption rate of loyalty points, coupons and discount and the fair value of each membership and expected renewal rate. Changing the assumptions selected by management in assessing the utilisation of membership elements may affect the Group’s financial position and results of operations.

5 REVENUE AND SEGMENT INFORMATION

(a) Revenue

Revenue represents amounts received and receivable from the operation of restaurants and sales of food ingredients and others in Hong Kong, net of discount. An analysis of revenue is as follows:

	2020 *HK$’000*	2019 HK$’000
Recognised at a point in time: Restaurant operations Sale of food ingredients and others	799,185 3,667 802,852	991,090 14,686 1,005,776

118 LH GROUP LIMITED Annual Report 2020

Notes to the Consolidated Financial Statements

5 REVENUE AND SEGMENT INFORMATION (continued)

(b) Segment information

The Directors, who are the CODM of the Group, review the Group’s internal reporting in order to assess performance and allocate resources. Management has determined the operating segments based on reports reviewed by the Directors that are used to make strategic decisions.

The Group is principally engaged in the operation of restaurant chains and sales of food ingredients in Hong Kong. Management reviews the operating results of the business by major cuisine and sale of food ingredients which the Group operates under to make decisions about resources to be allocated.

The Group has the following reporting segments:

(a)	Cantonese cuisine —	— Operation of Cantonese restaurants under the
	self-owned brands	self-established “Pot Master” and “LHGrand”
		brands, offering Cantonese cuisine
(b)	Asian cuisine — franchised	— Operation of Asian cuisine restaurants under the
	brands	franchised “Gyu-Kaku”, “On-Yasai”, “Gyu-Kaku
		Jinan-Bou” and “Yoogane” brands
(c)	Asian cuisine — self-owned	— Operation of Asian cuisine restaurants under self-
	brands	owned, including “Mou Mou Club” and “Peace
		Cuisine”
(d)	Sale of food ingredients	— Sale of food ingredients to related parties and
	and others	external third parties and other business

Segment revenue and segment profit/(loss) were the measures reported to the Directors for the purpose of resources allocation and performance assessment. Segment profit/ (loss), which is a measure of adjusted profit/(loss) before tax, was measured consistently with the Group’s profit/(loss) before tax except that finance income and unallocated cost were excluded from this measurement.

Segment assets consist primarily of property, plant and equipment, right-of-use assets, intangible assets, inventories, trade receivables, prepayments, deposits and other receivables. They exclude property, plant and equipment and prepayments, deposits and other receivables and cash and cash equivalents for general use, investment property, deferred income tax assets and tax recoverable.

Segment liabilities consist primarily of lease liabilities, trade payables and contract liabilities, other payables and accruals. They exclude other payables and accruals for general use, tax payables, deferred income tax liabilities.

All operating entities of the Group were domiciled in Hong Kong. All revenue of the Group was derived in Hong Kong. As at 31 December 2020, all non-current assets of the Group were located in Hong Kong.

Annual Report 2020 LH GROUP LIMITED 119

Notes to the Consolidated Financial Statements

5 REVENUE AND SEGMENT INFORMATION (continued)

(b) Segment information (continued)

An analysis of the Group’s revenue, profit/(loss) before taxation, depreciation and amortisation and provision for impairment for the years ended 31 December 2020 and 2019 and segment assets and liabilities as at 31 December 2020 and 2019 are as follows:

		For theyear	ended 31 December 2020	ended 31 December 2020	Total *HK$’000*
	Cantonese cuisine — self- owned brands *HK$’000*	Asian cuisine — franchised brands *HK$’000*	Asian cuisine — self-owned brands Sale of food ingredients and others *HK$’000* *HK$’000*
Segment revenue Revenue Inter-segment revenue External revenue Segment profit Depreciation and amortisation Depreciation of right-of-use assets Provision for impairment, net Segment profit Unallocated depreciation and amortisation Unallocated depreciation of right-of-use assets Unallocated costs Unallocated finance income Unallocated finance costs Profit before taxation Segment assets Segment liabilities

	65,999	536,674	196,512	91,534	890,719
	—	—	—	(87,867)	(87,867)

	65,999	536,674	196,512	3,667	802,852


	36,580	96,503	16,086	282	149,451


	(2,495)	(16,274)	(10,398)	(1,355)	(30,522)


	(1,126)	(56,935)	(28,694)	—	(86,755)


	—	(3,796)	(12,658)	—	(16,454)


					149,451
					(2,300)
					(4,289)
					(2,750)
					3,775
					(140)

					143,747


	11,942	200,949	90,422	82,532	385,845


	(6,473)	(182,898)	(87,368)	(10,899)	(287,638)

120

LH GROUP LIMITED Annual Report 2020

Notes to the Consolidated Financial Statements

5 REVENUE AND SEGMENT INFORMATION (continued)

(b) Segment information (continued)

		For theyear ended 31 December 2019	For theyear ended 31 December 2019	For theyear ended 31 December 2019	Total HK$’000
	Cantonese cuisine — self- owned brands HK$’000	Asian cuisine — franchised brands HK$’000	Asian cuisine — self-owned brands HK$’000	Sale of food ingredients and others HK$’000
Segment revenue Revenue Inter-segment revenue External revenue Segment (loss)/profit Depreciation and amortisation Depreciation of right-of-use assets Provision for impairment Segment profit Unallocated depreciation and amortisation Unallocated depreciation of right- of-use assets Unallocated costs Unallocated finance income Unallocated finance costs Unallocated gain on disposal of subsidiaries Unallocated loss on disposal of financial assets through profit or loss Loss before taxation Segment assets Segment liabilities	148,972 — 148,972 (25,931) (5,807) (16,238) (29,500) 30,982 (47,332)	566,354 — 566,354 80,945 (23,497) (50,042) (11,319) 211,644 (220,406)	275,764 — 275,764 (6,376) (12,683) (28,235) (32,202) 126,837 (126,566)	126,270 (111,584) 14,686 2,619 — — — 90,501 (24,901)	1,117,360 (111,584) 1,005,776 51,257 (41,987) (94,515) (73,021) 51,257 (2,227) (4,290) (57,565) 4,150 (374) 13,101 (5,000) (948) 459,964 (419,205)

121

Annual Report 2020 LH GROUP LIMITED

Notes to the Consolidated Financial Statements

5 REVENUE AND SEGMENT INFORMATION (continued)

(b) Segment information (continued)

A reconciliation of segment assets to the Group’s total assets is as follows:

	2020 *HK$’000*	2019 HK$’000
Segment assets Unallocated assets	385,845 361,652 747,497	459,964 282,251 742,215

A reconciliation of segment liabilities to the Group’s total liabilities is as follows:

	2020 *HK$’000*	2019 HK$’000
Segment liabilities Unallocated liabilities	287,638 45,258 332,896	419,205 48,737 467,942

(c) Contract liabilities

The Group recognised the following revenue-related contract liabilities:

	2020 *HK$’000*	2019 HK$’000
Advances from customers Deferred revenue Total contract liabilities	21 21,798 21,819	330 22,622 22,952

Advances from customers represents the payments received from customers for reservations and coupons. Deferred revenue represents the fair value of outstanding loyalty points, coupons and discount and expected renewal of membership in respect of customer loyalty programme as at year end.

122 LH GROUP LIMITED Annual Report 2020

Notes to the Consolidated Financial Statements

5 REVENUE AND SEGMENT INFORMATION (continued)

(c) Contract liabilities (continued)

The following table shows the revenue recognised related to carried forward contract liabilities.

	2020 *HK$’000*	2019 HK$’000
Restaurant operations	22,952	23,079

Due to the short-term nature of the related revenue, all the contract liabilities balance at the year end would be recognised into revenue in the next financial year. As permitted under HKFRS 15, the transaction price allocated to these unsatisfied contracts is not disclosed.

6 OTHER INCOME AND GAINS

	2020 *HK$’000*	2019 HK$’000
Other income: Government grants_(Note(a)) Promotion income from a credit card company Rental income Sponsorship income Forfeiture of deposits received from customers Sundry income Other gains: Net gain from lease modification due to early termination on leases(Note(b)) Gains on disposal of property, plant and equipment Gain on reversal of provision for reinstatement cost (Note 22(a))_ Total other income and gains	43,797 3,100 9 — — 987 47,893 45,983 228 902 47,113 95,006	— 2,800 291 254 86 1,088 4,519 — — — — 4,519

Annual Report 2020 LH GROUP LIMITED 123

Notes to the Consolidated Financial Statements

6 OTHER INCOME AND GAINS (continued)

Note:

(a) Government subsidies of HK$43,797,000 were granted from the one-off Retail Sector Subsidy Scheme and Food Licence Holders Subsidy Scheme under Anti-Epidemic Fund launched by the Government of the Hong Kong Special Administrative Region (“ HKSAR Government ”). The Group has complied with all attached conditions before 31 December 2020 and they are recognised in profit or loss in “other income and gains”.
(b) There were early termination of two leases during the year ended 31 December 2020. The right-of-use asset for one of the lease was fully written-off as at 31 December 2019 and write-off of right-of-use asset was made for the other lease during the year (Note 13(b)), which were charged to “provision for impairment of right-of-use assets, net”.

7 FINANCE INCOME AND COSTS

	2020 *HK$’000*	2019 HK$’000
Interest income from bank deposits Finance income on financial assets Finance cost paid for lease liabilities_(Note 13(b))_ Finance cost on financial assets Finance costs	3,056 719 3,775 (5,086) — (5,086)	4,150 — 4,150 (6,466) (1,855) (8,321)

124

LH GROUP LIMITED Annual Report 2020

Notes to the Consolidated Financial Statements

8 PROFIT/(LOSS) BEFORE TAXATION

Profit/(loss) before taxation is arrived at after charging/(crediting) the following:

Note	2020 *HK$’000*	2019 HK$’000
Depreciation of property, plant and equipment 13(a) Depreciation of investment property 14 Amortisation of intangible assets 15 COVID-19-related rent concessions 2.1(c) Lease payments under operating leases in respect of land and buildings: — Short term lease payments 13(b) — Contingent rental 13(b) Auditors’ remuneration: — Audit services — Non-audit services Gain on disposal of subsidiaries 30 Loss on disposal of financial assets at fair value through profit or loss		43,546 25 643 —
	32,201
	25
	596
	(14,337)

	4,194	21,763 12,935
	11,332
	15,526	34,698 2,200 550 13,101 (5,000)

	2,100
	932
	—
	—

9 STAFF COSTS

	2020 *HK$’000*	2019 HK$’000
Wages and salaries_(Note (a)) Discretionary bonuses Directors’ remuneration(Note 33)_ Retirement benefit scheme contributions Staff welfare (Reversal of provision for)/provision for untaken annual leave Reversal of provision for long service payment		253,222 13,875 8,818 12,457 9,231 4,304 (515) 301,392
	173,951
	14,906
	8,184
	10,994
	7,053
	(218)
	(1,047)

	213,823

Annual Report 2020 LH GROUP LIMITED 125

Notes to the Consolidated Financial Statements

9 STAFF COSTS (continued)

(a) Wage subsidies of HK$43,126,000 granted from the Employment Support Scheme under the Anti-Epidemic Fund launched by the HKSAR Government for the use of paying wages of employees from June to November 2020 have been received during the year ended 31 December 2020. The amounts were recognised and offset against “staff costs”.

(b) Five highest paid individuals

The five individuals whose emoluments were the highest in the Group include three (2019: three) directors whose emoluments are reflected in Note 33. The emoluments payable to the remaining two (2019: two) individuals are as follows:

	2020 *HK$’000*	2019 HK$’000
Salaries, allowances and benefits in kind Discretionary bonuses Retirement benefit scheme contribution		2,134 411 36 2,581
	2,193
	307
	36

	2,536

The emoluments of the remaining individuals fell within the following bands:

	2020	2019
Nil to HK$1,000,000 HK$1,000,001 to HK$1,500,000 HK$1,500,001 to HK$2,000,000		— 2 —
	1
	—
	1

126 LH GROUP LIMITED Annual Report 2020

Notes to the Consolidated Financial Statements

10 INCOME TAX EXPENSE

Hong Kong profits tax has been provided on the estimated assessable profits at a rate of 16.5% for the year ended 31 December 2020 (2019: 16.5%).

The major components of the income tax expense are as follows:

	2020 *HK$’000*	2019 HK$’000
Hong Kong profits tax Current income tax (Over)/under provision in prior year Deferred income tax_(Note 23)_ Total tax charge for the year	8,744 (2,476) (2,849) 3,419	18,385 1,223 (9,288) 10,320

The tax on the Group’s profit before taxation differs from the theoretical amount that would arise using the tax rate of Hong Kong as follows:

	2020 *HK$’000*	2019 HK$’000
Profit/(loss) before taxation Tax at the statutory tax rates of 16.5% Income not subject to tax Expenses not deductible for tax (Over)/under provision in prior year Utilisation of temporary differences previously not recognised Derecognition of previously recognised temporary differences on leases Tax rebate Income tax expense	143,747 23,718 (15,845) 530 (2,476) (2,090) (296) (122) 3,419	(948) (156) (2,846) 12,679 1,223 — — (580) 10,320

Annual Report 2020 LH GROUP LIMITED 127

Notes to the Consolidated Financial Statements

11 DIVIDENDS

	2020 *HK$’000*	2019 HK$’000
2019 final, nil (2018 final, paid: HK5.40 cents per ordinary share) 2020 interim, nil (2019 interim, paid: HK4.96 cents per ordinary share) 2020 special, nil (2019 special, paid: HK5.00 cents per ordinary share)	— — — —	43,200 39,680 40,000 122,880

Note:

A final dividend in respect of the year ended 31 December 2020 of HK13.16 cents per ordinary share, totalling HK$105,280,000, was proposed by the Board on 29 March 2021 which is subject to the approval of shareholders at the forthcoming annual general meeting. The proposed dividend is not reflected as dividend payable in the consolidated statement of financial position.

12 EARNINGS/(LOSS) PER SHARE ATTRIBUTABLE TO SHAREHOLDERS OF THE COMPANY

(a) Basic

Basic earnings/(loss) per share is calculated by dividing the profit/(loss) attributable to shareholders of the Company by the weighted average number of ordinary shares in issue during the year.

	2020	2019
Profit/(loss) attributable to shareholders of the Company (HK$’000) Weighted average number of shares in issue Basic earnings/(loss) per share (HK cents)	140,328 800,000,000 17.54	(11,226) 800,000,000 (1.40)

(b) Diluted

Diluted earnings/(loss) per share are the same as the basic earnings per share as there were no potentially dilutive ordinary shares issued.

128 LH GROUP LIMITED Annual Report 2020

Notes to the Consolidated Financial Statements

13(a) PROPERTY, PLANT AND EQUIPMENT

	Land and buildings HK$’000	Leasehold improvements HK$’000	Restaurant and kitchen equipment HK$’000	Furniture and fixtures HK$’000	Office equipment HK$’000	Motor vehicles HK$’000	Total HK$’000
At 1 January 2019 Cost Accumulated depreciation Accumulated impairment Net carrying amount Year ended 31 December 2019 Net carrying amount as at 31 December 2018 Change in accounting policy Opening net carrying Amount Acquisition of a subsidiary Additions Disposal of subsidiaries Depreciation Provision for impairment Closing net carrying amount At 31 December 2019 Cost Accumulated depreciation Accumulated impairment Net carrying amount	28,855 (8,342) — 20,513 20,513 — 20,513 39,488 — — (1,423) (1,689) 56,889 68,343 (9,765) (1,689) 56,889	189,353 (119,389) (1,415) 68,549 68,549 (6,063) 62,486 — 16,600 (3,426) (24,816) (11,494) 39,350 150,440 (98,325) (12,765) 39,350	115,940 (76,842) (968) 38,130 38,130 — 38,130 — 13,970 (653) (15,833) (6,802) 28,812 109,179 (72,611) (7,756) 28,812	13,415 (11,305) (52) 2,058 2,058 — 2,058 — 249 (322) (924) (191) 870 9,918 (8,793) (255) 870	2,321 (2,321) — — — — — — — — — — — 2,321 (2,321) — —	4,228 (2,911) — 1,317 1,317 — 1,317 — 22 — (550) — 789 4,253 (3,464) — 789	354,112 (221,110) (2,435) 130,567 130,567 (6,063) 124,504 39,488 30,841 (4,401) (43,546) (20,176) 126,710 344,454 (195,279) (22,465) 126,710

Annual Report 2020 LH GROUP LIMITED 129

Notes to the Consolidated Financial Statements

13(a) PROPERTY, PLANT AND EQUIPMENT (continued)

	Land and buildings Leasehold improvements *HK$’000* *HK$’000*	Land and buildings Leasehold improvements *HK$’000* *HK$’000*	Restaurant and kitchen equipment *HK$’000*	Furniture and fixtures *HK$’000*	Office equipment *HK$’000*	Motor vehicles *HK$’000*	Total *HK$’000*
Year ended 31 December 2020 Opening net carrying Amount Additions Depreciation Provision for impairment, net Closing net carrying amount At 31 December 2020 Cost Accumulated depreciation Accumulated impairment Net carrying amount

	56,889	39,350	28,812	870	—	789	126,710
	—	9,476	8,594	113	—	—	18,183
	(2,098)	(17,031)	(12,185)	(482)	—	(405)	(32,201)
	—	(3,460)	(2,238)	(42)	—	—	(5,740)

	54,791	28,335	22,983	459	—	384	106,952



	68,343	139,491	106,603	9,638	2,321	4,253	330,649
	(11,863)	(102,121)	(77,523)	(9,062)	(2,321)	(3,869)	(206,759)
	(1,689)	(9,035)	(6,097)	(117)	—	—	(16,938)

	54,791	28,335	22,983	459	—	384	106,952

13(b) LEASES

(i) Amounts recognised in the balance sheet

The consolidated statement of financial position shows the following amounts relating to leases:

	2020 *HK$’000*	2019 HK$’000
Right-of-use assets Restaurant outlets Offices Warehouse	164,786 4,282 264 169,332	218,143 8,572 616 227,331

Additions to the right-of-use assets during the year ended 31 December 2020 were HK$58,227,000 (2019: HK$116,194,000).

There was write off of right-of-use assets of approximately HK$13,670,000 due to early termination of a lease during the year ended 31 December 2020 (2019: Nil).

130

LH GROUP LIMITED Annual Report 2020

Notes to the Consolidated Financial Statements

13(b) LEASES (continued)

(i) Amounts recognised in the balance sheet (continued)

The consolidated statement of financial position shows the following amounts relating to leases:

	2020 *HK$’000*	2019 HK$’000
Lease liabilities Current Non-current		131,472 157,100 288,572

	93,401
	95,752

	189,153

(ii) Amounts recognised in the statement of profit or loss

The consolidated statement of comprehensive income shows the following amounts relating to leases:

	2020 *HK$’000*	2019 HK$’000
Depreciation charge of right-of-use assets Restaurant outlets Offices Warehouse Finance costs Expense relating to short-term leases (included in property rentals and related expenses) Expense relating to variable lease payments not included in lease liabilities (included in property rentals and related expenses) COVID-19-related rent concessions (included in property rentals and related expenses) Provision for impairment of right-of-use assets, net		94,427 4,290 88 98,805 6,466 21,763 12,935 — 48,444

	86,402
	4,290
	352

	91,044


	5,086
	4,194
	11,332
	(14,337)
	10,714

The total cash outflow for leases in 2020 was approximately HK$102,403,000 (2019: HK$134,647,000).

Annual Report 2020 LH GROUP LIMITED 131

Notes to the Consolidated Financial Statements

13(b) LEASES (continued)

(iii) The Group’s leasing activities and how these are accounted for

The Group leases various offices, warehouses and restaurant outlets. Rental contracts are typically made for fixed periods of 2 to 5 years (2019: 2 to 6 years).

Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements do not impose any covenants other than the security interests in the leased assets that are held by the lessor. Leased assets may not be used as security for borrowing purposes.

(iv) Variable lease payments

Some property leases contain variable payment terms that are linked to sales generated from a restaurant outlet. For individual restaurants, up to 32.5% (2019: 34.1%) of lease payments are on the basis of variable payment terms with percentages ranging from 7.5% to 15% (2019: 10% to 15%) of sales. Variable payment terms are used for a variety of reasons, including minimising the fixed costs base for newly established restaurant outlets. Variable lease payments that depend on sales are recognised in profit or loss in the period in which the condition that triggers those payments occurs.

13(c) IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT, RIGHT-OFUSE ASSETS, INVESTMENT PROPERTY AND INTANGIBLE ASSETS

The Group operates restaurant outlets on leased properties with lease terms ranging from 2 to 5 years. The Group regards each individual restaurant as a separately identifiable cashgenerating-unit (“ CGU ”) and performed impairment assessments on each of the CGU with impairment indicators by considering the recoverable amount of such assets at restaurant level. As at 31 December 2020, the Group’s management identified certain restaurants which were loss making and estimated corresponding recoverable amounts of their property, plant and equipment (“ PPE ”) and right-of-use (“ ROU ”) assets.

The recoverable amounts of the CGUs are determined based on value-in-use calculations, which are higher than the fair value less costs to sell calculations. The value-in-use calculations covering a period of the remaining lease term were lower than the carrying amounts of the CGUs. Accordingly, the Group recognised a net impairment charge of property, plant and equipment of HK$5.7 million and right-of-use assets of HK$10.7 million for the year ended 31 December 2020 (2019: property, plant and equipment of HK$20.2 million and right-of-use assets of HK$48.4 million).

132 LH GROUP LIMITED Annual Report 2020

Notes to the Consolidated Financial Statements

13(c) IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT, RIGHT-OFUSE ASSETS, INVESTMENT PROPERTY AND INTANGIBLE ASSETS (continued)

During the year ended 31 December 2020, the Group’s business was adversely affected by a series of COVID-19 precautionary and control measures imposed by the HKSAR Government, particularly in the food catering business whereby business hours and seat capacity are limited by law from time to time.

As at 30 June 2020, due to the poor business performance and uncertain business outlook, management performed an impairment assessment of PPE and ROU assets of outlets under certain underperforming brands. As a result, a provision of HK$9.1 million and HK$19.4 million on PPE and ROU assets respectively were recognised in the unaudited consolidated financial statements for the period ended 30 June 2020.

The actual results of these outlets in the second half of the year performed better than budget due to the easing of anti-pandemic control measures. As at 31 December 2020, management adopted a consistent approach and performed an impairment assessment based on the latest operational and financial situation, resulting in a reversal of provision of HK$3.4 million and HK$8.7 million on PPE and ROU assets respectively in the second half of the year.

Key inputs to the determination of the recoverable amount over the remaining lease period includes annual revenue growth and pre-tax discount rate. As at 31 December 2020, the annual revenue growth used by each restaurant outlet in Hong Kong is ranging from 0% to 19% (2019:-15% to 3%) for the remaining lease period. The pre-tax discount rate used to determine the recoverable amounts is approximately 14% (2019: 10.5%).

Annual Report 2020 LH GROUP LIMITED 133

Notes to the Consolidated Financial Statements

14 INVESTMENT PROPERTY

	Land and building HK$’000
At 1 January 2019 Cost Accumulated depreciation Net carrying amount Year ended 31 December 2019 Opening net carrying amount Depreciation Closing net carrying amount At 31 December 2019 Cost Accumulated depreciation Net carrying amount Year ended 31 December 2020 Opening net carrying amount Depreciation Closing net carrying amount At 31 December 2020 Cost Accumulated depreciation Net carrying amount	1,005 (285) 720 720 (25) 695 1,005 (310) 695

	695
	(25)

	670



	1,005
	(335)

	670

134 LH GROUP LIMITED Annual Report 2020

Notes to the Consolidated Financial Statements

14 INVESTMENT PROPERTY (continued)

(a) Amounts recognised in the consolidated statement of comprehensive income for investment property

	2020 *HK$’000*	2019 HK$’000
Rental income from operating leases Direct operating expenses from property that generated rental income	— — —	108 (14) 94

(b) The Group had no unprovided contractual obligations for future repairs and maintenance.
(c) The investment properties are leased to tenants under operating leases with rentals payable monthly in 2019. There are no other variable lease payments that depend on an index or rate.
(d) The Group’s investment property was valued at 31 December 2020 by management of the Company using the direct comparison approach with reference to market price per square foot of comparable properties in close proximity.

The following table summarises the quantitative information about the significant unobservable inputs used in recurring level 3 fair value measurements:

==> picture [429 x 132] intentionally omitted <==

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

Relationship of
unobservable inputs
Fair value at Unobservable Range of inputs to fair value
Description 2020 2019 inputs 2020 2019
HK$’000 HK$’000 HK$’000 HK$’000
Investment property 3,800 4,000 Price per square 10 — 13 11 — 13 The higher the price
feet per square feet,
the higher the fair
value
----- End of picture text -----

Annual Report 2020 LH GROUP LIMITED 135

Notes to the Consolidated Financial Statements

15 INTANGIBLE ASSETS

	Franchises HK$’000	Tradename HK$’000	Total HK$’000
At 1 January 2019 Cost Accumulated amortisation Net carrying amount Year ended 31 December 2019 Opening net carrying amount Amortisation Provision for impairment Closing net carrying amount At 31 December 2019 Cost Accumulated amortisation Accumulated impairment Net carrying amount Year ended 31 December 2020 Opening net carrying amount Amortisation Closing net carrying amount At 31 December 2020 Cost Accumulated amortisation Accumulated impairment Net carrying amount	4,505 (1,223) 3,282 3,282 (248) (569) 2,465 4,505 (1,471) (569) (2,465)	3,945 — 3,945 3,945 (395) — 3,550 3,945 (395) — (3,550)	8,450 (1,223) 7,227 7,227 (643) (569) 6,015 8,450 (1,866) (569) 6,015

	2,465	3,550	6,015
	(201)	(395)	(596)

	2,264	3,155	5,419



	3,505	3,945	7,450
	(672)	(790)	(1,462)
	(569)	—	(569)

	2,264	3,155	5,419

136 LH GROUP LIMITED Annual Report 2020

Notes to the Consolidated Financial Statements

16 INVENTORIES

	2020 *HK$’000*	2019 HK$’000
Food and consumables for restaurant operations and sale of food ingredients		24,517
	32,414

The cost of food and consumables for restaurant operations and sale of food ingredients recognised as expense and included in cost of food and beverages amounted to approximately HK$252,111,000 (2019: HK$292,786,000) for the year ended 31 December 2020.

17 TRADE RECEIVABLES

The Group’s trade receivables are denominated in HK$. The carrying value of trade receivables approximate their fair values due to their short-term maturities.

An ageing analysis of the trade receivables as at 31 December 2020, based on the invoice date, is as follows:

	2020 *HK$’000*	2019 HK$’000
Within 30 days 31 — 60 days 61 — 180 days		5,451 401 304 6,156
	3,237
	105
	1,620

	4,962

Trade receivables mainly represent receivables from financial institutions in relation to the payment settled by credit cards by customers of which the settlement period is normally within 3 days from transaction date. Generally, there is no credit period granted to customers, except for certain corporate customers in relation to sales of food ingredients, to which credit period of 30 days is granted by the Group, and therefore are all classified as current.

The maximum exposure to credit risk at 31 December 2020 and 2019 is the carrying value of trade receivables mentioned above. The Group does not hold any collateral as security.

Annual Report 2020 LH GROUP LIMITED 137

Notes to the Consolidated Financial Statements

18 PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES

	2020 *HK$’000*	2019 HK$’000
Prepayments Rental and utilities deposits Other receivables Less: non-current portion — Rental and utilities deposits — Prepayments for purchase of property, plant and equipment Current portion	7,881 51,013 3,357 62,251 (39,463) (1,805) 20,983	7,852 52,549 1,667 62,068 (43,216) (575) 18,277

At 31 December 2020 and 2019, the balances of deposits and other receivables were not past due. Financial assets included in the above balances relate to receivables for which there was no recent history of default. No provision for impairment was made to the rental and utilities deposits during the year (2019: approximately HK$3,832,000).

The maximum exposure to credit risk as at 31 December 2020 and 2019 was the carrying value of each class of receivable mentioned above. The Group did not hold any collateral as security. The carrying amounts of deposits and other receivables approximate to their fair values and are denominated in HK$.

138 LH GROUP LIMITED Annual Report 2020

Notes to the Consolidated Financial Statements

19 RELATED PARTY TRANSACTIONS

(a) Related party transactions

During the year, there was no related party transaction (2019: Nil).

(b) Key management compensation

Key management includes executive directors and the senior management of the Group.

Compensation of key management personnel of the Group, including directors’ remuneration as disclosed in Note 33 to these consolidated financial statements, is as follows:

	2020 *HK$’000*	2019 HK$’000
Salaries and other short-term employee benefits Discretionary bonuses Retirement benefit scheme contribution	7,870 2,101 72 10,043	8,616 1,924 138 10,678

20 CASH AND CASH EQUIVALENTS AND SHORT TERM BANK DEPOSITS

	2020 *HK$’000*	2019 HK$’000
Cash on hand Cash at banks Cash and cash equivalents Short term bank deposits — time deposits with initial maturity period over three months	1,154 177,994 179,148 159,623	2,724 128,035 130,759 132,352

All of the Group’s cash and cash equivalent are solely denominated in HK$.

The maximum exposure to credit risk of the Group is cash at banks and short term bank deposit amounting to HK$337,617,000 (2019: HK$260,387,000).

Cash at banks and short term bank deposit earn interest at floating rates based on daily bank deposit rates. The balances are deposited with creditworthy banks with no recent history of default.

Annual Report 2020 LH GROUP LIMITED 139

Notes to the Consolidated Financial Statements

21 TRADE PAYABLES

	2020 *HK$’000*	2019 HK$’000
External suppliers	37,657	44,774

An ageing analysis of the trade payables as at 31 December 2020 and 2019, based on the invoice date, is as follows:

	2020 *HK$’000*	2019 HK$’000
Within 30 days 31–60 days 61–180 days Over 180 days	19,436 18,012 94 115 37,657	28,452 16,150 45 127 44,774

The trade payables are non-interest-bearing with payment terms of 30–60 days in general (2019: 30–60 days). The carrying amounts of trade payables approximate to their fair values and are denominated in HK$.

22 CONTRACT LIABILITIES, OTHER PAYABLES AND ACCRUALS

	2020 *HK$’000*	2019 HK$’000
Rent payable Accrued employee benefit expenses Provision for long service payment Provision for untaken annual leave Provision for reinstatement costs_(Note (a))_ Contract liabilities Other accrued expenses Payables for purchase of property, plant and equipment Other payables Less: non-current portion — Provision for reinstatement costs Current portion	1,545 18,280 994 8,235 18,105 21,819 23,555 3,472 632 96,637 (14,932) 81,705	1,940 19,731 2,285 8,453 18,407 22,952 26,236 2,427 632 103,063 (15,009) 88,054

140 LH GROUP LIMITED Annual Report 2020

Notes to the Consolidated Financial Statements

22 CONTRACT LIABILITIES, OTHER PAYABLES AND ACCRUALS (continued)

The carrying amounts of other payables and accruals approximate to their fair values, as the impact of discounting is not significant, and are mainly denominated in HK$.

(a) Provision for reinstatement costs

Movements in the Group’s provision for reinstatement costs are as follows:

	2020 *HK$’000*	2019 HK$’000
At the beginning of the year Additional provision during the year Reversal of provision made in prior years_(Note 6) Disposal of subsidiaries(Note 30)_ Settlement At the end of the year	18,407 1,067 (902) — (467) 18,105	19,455 2,236 — (3,065) (219) 18,407

23 DEFERRED INCOME TAX

The movement in the deferred income tax account is as follows:

	2020 *HK$’000*	2019 HK$’000
At the end of the prior year Change in accounting policy At the beginning of the year Acquisition of a subsidiary Disposal of subsidiaries_(Note 30) Credited to the consolidated statement of comprehensive income(Note 10)_ At the end of the year	18,036 — 18,036 — — 2,849 20,885	14,620 2,803 17,423 (4,277) (4,398) 9,288 18,036

The movements in deferred income tax assets and liabilities for each of the years ended 31 December 2020 and 2019 with taking into consideration the offsetting of balances arose from right-of-use assets and lease liabilities within the same jurisdiction, are as follows:

Annual Report 2020 LH GROUP LIMITED 141

Notes to the Consolidated Financial Statements

23 DEFERRED INCOME TAX (continued)

Deferred income tax assets

	Leased assets* HK$’000	Decelerated tax depreciation HK$’000	Tax losses HK$’000	Total HK$’000
At 1 January 2019 Disposal of subsidiaries_(Note 30)_ Credited to the consolidated statement of comprehensive income At 31 December 2019 (Debited)/credited to the consolidated statement of comprehensive income At 31 December 2020	2,803 — 7,302	6,166 (835) 396	11,026 (3,563) 580	19,995 (4,398) 8,278
	10,105	5,727	8,043	23,875
	(7,596)	1,608	8,153	2,165

	2,509	7,335	16,196	26,040

The balance included impact from the impairment of leased assets.

142 LH GROUP LIMITED Annual Report 2020

Notes to the Consolidated Financial Statements

23 DEFERRED INCOME TAX (continued)

Deferred income tax liabilities

	Accelerated tax depreciation HK$’000
At 1 January 2019 Acquisition of a subsidiary Credited to the consolidated statement of comprehensive income At 31 December 2019 Credited to the consolidated statement of comprehensive income At 31 December 2020	2,572 4,277 (1,010)
	5,839
	(684)

	5,155

There is no significant unrecognised deferred income tax. Deferred income tax assets are recognised for tax loss carry-forwards to the extent that realisation of the related tax benefit through future taxable profits is probable. Tax losses amounting to HK$98,158,000 (2019: HK$ HK$48,745,000) as at 31 December 2020, have no expiry date.

Annual Report 2020 LH GROUP LIMITED 143

Notes to the Consolidated Financial Statements

24 RESERVES

	Share premium HK$’000	Retained earnings HK$’000	Other reserves (Note a) HK$’000	Total HK$’000
At 31 December 2018 Change in accounting policy Restated balance at 1 January 2019 Loss and total comprehensive loss for the year Dividends_(Note 11) At 31 December 2019 Profit and total comprehensive income for the year Dividends(Note 11)_ At 31 December 2020	122,781 — 122,781 — —	180,097 (2,118) 177,979 (11,226) (122,880)	27,619 — 27,619 — —	330,497 (2,118) 328,379 (11,226) (122,880)
	122,781	43,873	27,619	194,273
	—	140,328	—	140,328
	—	—	—	—

	122,781	184,201	27,619	334,601

(a) As at 31 December 2020 and 2019, other reserves mainly represented the excess of the aggregated capital of the companies now comprising the Group over the deemed distribution in respect of the non-controlling interest acquired during reorganization.

144 LH GROUP LIMITED Annual Report 2020

Notes to the Consolidated Financial Statements

25 NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS

(a) Cash generated from operations

Note	2020 *HK$’000*	2019 HK$’000
Profit/(loss) before taxation Adjustments for: Depreciation of property, plant and equipment 13(a) Depreciation of right-of-use assets 13(b) Depreciation of investment property 14 Provision for impairment of property, plant and equipment, net 13(a) Provision for impairment of right-of-use assets, net 13(b) Provision for impairment of intangible asset 15 Provision for impairment of financial assets Amortisation of intangible assets 15 Gain on disposal of subsidiaries 30 Gain on disposal of property, plant and equipment 6 Gain on reversal of provision for reinstatement cost 6 Gain on lease modification 6 COVID-19-related rent concessions 13(b) Loss on disposal of financial assets at fair value through profit or loss_(Note (b)) Finance costs _7 Finance income 7 Changes in working capital Inventories Trade receivables Prepayments, deposits and other receivables Trade payables Contract liabilities, other payables and accruals Cash generated from operations	143,747 32,201 91,044 25 5,740 10,714 — — 596 — (228) (902) (45,983) (14,337) — 5,086 (3,775) 223,928 (7,897) 1,194 1,820 (7,117) (7,637) 204,291	(948) 43,546 98,805 25 20,176 48,444 569 3,832 643 (13,101) — — — — 5,000 8,321 (4,150) 211,162 552 6,546 (1,581) 5,879 22,282 244,840

Annual Report 2020 LH GROUP LIMITED 145

Notes to the Consolidated Financial Statements

25 NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS (continued)

(b) In the consolidated statement of cash flows, proceeds from disposal of financial assets at fair value through profit or loss comprise:

	2020 *HK$’000*	2019 HK$’000
Fair value of put option and 2% equity interest of Aetna International Limited_(Note 30)_ Loss on disposal of financial assets at fair value through profit or loss Proceeds from disposal of financial assets at fair value through profit or loss	— — —	28,500 (5,000) 23,500

(c) Reconciliation of liabilities arising from financing activities is as follows:

	Lease liabilities 2020 2019 *HK$’000* HK$’000	Lease liabilities 2020 2019 *HK$’000* HK$’000
	2020 *HK$’000*
At the beginning of the year Addition Lease modification Principal elements of lease payments, net of COVID-19-related rent concessions COVID-19-related rent concessions Interest expense on lease liabilities Disposal of subsidiaries_(Note 30)_ At the end of the year	288,572 57,160 (60,451) (86,877) (14,337) 5,086 — 189,153	284,495 110,744 — (99,949) — 6,466 (13,184) 288,572

146 LH GROUP LIMITED Annual Report 2020

Notes to the Consolidated Financial Statements

26 CAPITAL COMMITMENTS

The Group had the following capital expenditure contracted but not yet incurred and provided for as follows:

	2020 *HK$’000*	2019 HK$’000
Leasehold improvements Contracted but not provided for 2,579 FINANCIAL INSTRUMENTS BY CATEGORY 2020 *HK$’000* Assets as per consolidated statement of financial position Financial assets at amortised cost: — Trade receivables 4,962 — Deposits and other receivables 54,556 — Short term bank deposits 159,623 — Cash and cash equivalents 179,148 Total 398,289 Liabilities as per consolidated statement of financial position Financial liabilities at amortised cost: — Trade payables 37,657 — Other payables and accruals 47,787 — Lease liabilities 189,153 Total 274,597		73 2019 HK$’000

	2,579

		6,156 54,216 132,352 130,759 323,483 44,774 50,966 288,572 384,312


	4,962
	54,556
	159,623
	179,148

	398,289




	37,657
	47,787
	189,153

	274,597

Annual Report 2020 LH GROUP LIMITED 147

Notes to the Consolidated Financial Statements

28 SHARE CAPITAL

(a) Authorised:

	2020 Number of shares Nominal value *HK$’000*	2020 Number of shares Nominal value *HK$’000*	2019 Number of shares Nominal value HK$’000	2019 Number of shares Nominal value HK$’000
At beginning and end of the year Issued and fully paid:			4,000,000,000 400,000 2019 Number of shares Nominal value HK$’000
	4,000,000,000	400,000

	2020 Number of shares Nominal value *HK$’000*
At beginning and end of the year			800,000,000	80,000
	800,000,000	80,000

(b) Issued and fully paid:

29 AMOUNTS DUE FROM/(TO) SUBSIDIARIES

Amounts due from/(to) subsidiaries are unsecured, interest-free and repayable on demand. The amounts due from subsidiaries were neither past due nor impaired. The carrying amounts of the amounts due from/(to) subsidiaries approximate to their fair values and are denominated in HK$.

148 LH GROUP LIMITED Annual Report 2020

Notes to the Consolidated Financial Statements

30 DISPOSAL OF SUBSIDIARIES

During the year ended 31 December 2019, LHG Chinese Catering Limited, a wholly-owned subsidiary of the Company, has disposed of the entire issued shares in Fameco (H.K.) Limited, The Banqueting House (TST) Co. Limited, The China House (KF) Limited, each being a company incorporated in Hong Kong with limited liability and an indirect wholly-owned subsidiary of the Company and intercompany loans in exchange for 2% equity interest in Aetna International Limited and a put option. The transaction was completed on 30 April 2019.

HK$’000

Net assets disposed of:
Property, plant and equipment
Right-of-use assets
Deferred tax assets
Trade receivables
Prepayments, deposits and other receivables
Inventories
Tax recoverable
Cash and cash equivalents
Amount due from fellow subsidiaries
Trade payables
Provision for reinstatement
Lease liabilities
Other payables and accruals
Contract liabilities
Gain on disposal of subsidiaries
Satisfied by:
Financial assets at fair value through profit or loss_(Note 25 (b))_
An analysis of the cash flows in respect of the disposal is as follows:

4,401
11,968
4,398
343
18,305
1,075
444
5,865
632
(3,432)
(3,065)
(13,184)
(1,919)
(10,432)
15,399
13,101
28,500
HK$’000
28,500
HK$’000

Cash consideration
Cash and cash equivalents disposed of
Net outflow of cash and cash equivalents in respect of the disposal

—
(5,865)
(5,865)

Annual Report 2020 LH GROUP LIMITED 149

Notes to the Consolidated Financial Statements

31 STATEMENT OF FINANCIAL POSITION AND RESERVE MOVEMENT OF THE COMPANY

(a) Statement of financial position of the Company

Note	2020 *HK$’000*	2019 HK$’000
ASSETS NON-CURRENT ASSETS Investments in subsidiaries Amounts due from subsidiaries 29 CURRENT ASSETS Prepayment Cash and cash equivalents Total assets EQUITY AND LIABILITIES Equity attributable to shareholders of the Company Share capital Share premium Accumulated losses Capital reserve Total equity CURRENT LIABILITIES Accruals and other payables Total liabilities Total equity and liabilities	93 92,787 92,880 325 247,479 340,684 80,000 122,781 (21,603) 159,267 340,445 239 239 340,684	93 190,984 191,077 508 148,171 339,756 80,000 122,781 (22,336) 159,267 339,712 44 44 339,756

150 LH GROUP LIMITED Annual Report 2020

Notes to the Consolidated Financial Statements

31 STATEMENT OF FINANCIAL POSITION AND RESERVE MOVEMENT OF THE COMPANY (continued)

(b) Reserve movement of the Company

	Share premium HK$’000	Accumulated losses HK$’000	Capital reserve (Note (i)) HK$’000	Total HK$’000
At 1 January 2019 Profit and total comprehensive income for the year Dividends_(Note 11) At 31 December 2019 and 1 January 2020 Profit and total comprehensive income for the year Dividends(Note 11)_ At 31 December 2020	122,781 — — 122,781	(22,744) 123,288 (122,880) (22,336)	159,267 — — 159,267	259,304 123,288 (122,880) 259,712
	—	733	—	733
	—	—	—	—

	122,781	(21,603)	159,267	260,445

Notes:

(i) Capital reserve of the Company represents the excess of the aggregate net assets values of the subsidiaries acquired by the Company over the nominal consideration payable by the Group for the acquisition pursuant to the Reorganisation netting off of the dividend distribution.

Annual Report 2020 LH GROUP LIMITED 151

Notes to the Consolidated Financial Statements

32 SUBSIDIARIES

Details of the principal subsidiaries as at 31 December 2020 are as follows:

Effective interest held as at

			held	as at
	Place of
	incorporation	Issued and
	and kind of	fully paid
Name	legal entity	share capital	2020	2019	Principal activities
Directly held subsidiaries:
KABUSHIKIGAISHA	BVI	US$11,990	100%	100%	Investment holding
HOLDINGS LIMITED
LHG CHINESE CATERING	BVI	US$1	100%	100%	Investment holding
LIMITED
LHG MANAGEMENT LIMITED	BVI	US$1	100%	100%	Investment holding
LHG PROCUREMENT	BVI	US$1	100%	100%	Investment holding
LIMITED
Indirectly held subsidiaries:
AB CATERING LIMITED	BVI	US$1	100%	100%	Investment holding
BRIDGE CEDAR LIMITED	Hong Kong	HK$1	100%	100%	Restaurant operation in
					Hong Kong
BRIDGE PINE LIMITED	Hong Kong	HK$1,000,000	100%	100%	Inactive
FIRST BENEFIT (SHA TIN)	Hong Kong	HK$500,000	100%	100%	Restaurant operation in
LIMITED					Hong Kong
GOAL YIELD LIMITED	Hong Kong	HK$1	100%	100%	Restaurant operation in
					Hong Kong
HERITAGE CAPITAL LIMITED	Hong Kong	HK$1	100%	100%	Restaurant operation in
					Hong Kong
HONG KONG FOOD	Hong Kong	HK$1	100%	100%	Inactive
CULTURE LIMITED
HOTPOT PNP HOLDINGS	BVI	US$1	100%	100%	Investment holding
LIMITED
KABU (DEVELOPMENT)	Hong Kong	HK$1	100%	100%	Property holding
LIMITED

152 LH GROUP LIMITED Annual Report 2020

Notes to the Consolidated Financial Statements

32 SUBSIDIARIES (continued)

Effective interest held as at

			held	as at
	Place of
	incorporation	Issued and
	and kind of	fully paid
Name	legal entity	share capital	2020	2019	Principal activities
KABU (HR) LIMITED	Hong Kong	HK$1	100%	100%	Provision of management
					service in Hong Kong
KABU (NEW SHOP) LIMITED	Hong Kong	HK$1	100%	100%	Inactive
KABU KOWLOON BAY	Hong Kong	HK$1	100%	100%	Online business operation in
LIMITED					Hong Kong
KABU LEGEND LIMITED	BVI	US$1	100%	100%	Investment holding
KABU ONE LIMITED	BVI	US$1	100%	100%	Investment holding
KABUSHIKIGAISHA LIMITED	Hong Kong	HK$28,000,000	100%	100%	Provision of management
					service in Hong Kong
KEEN WISE (MONG KOK)	Hong Kong	HK$1	100%	100%	Restaurant operation in
LIMITED					Hong Kong
KOREAN CATERING LIMITED	Hong Kong	HK$10,000	100%	100%	Investment holding
LHG CATERING LIMITED	Hong Kong	HK$1	100%	100%	Provision of management
					service in Hong Kong
LUCKY HOUSE GROUP	Hong Kong	HK$2	100%	100%	Provision of management
LIMITED					service in Hong Kong
LUVU 3000 LIMITED	Hong Kong	HK$1	100%	100%	Restaurant operation in
					Hong Kong
MAX FLOW (EAST CITY)	Hong Kong	HK$1	100%	100%	Restaurant operation in
LIMITED					Hong Kong
MAX GRANDS LIMITED	Hong Kong	HK$500,000	100%	100%	Restaurant operation in
					Hong Kong
MAX MAX LIMITED	Hong Kong	HK$1	100%	100%	Restaurant operation in
					Hong Kong

Annual Report 2020 LH GROUP LIMITED 153

Notes to the Consolidated Financial Statements

32 SUBSIDIARIES (continued)

Effective interest held as at

			held	as at
	Place of
	incorporation	Issued and
	and kind of	fully paid
Name	legal entity	share capital	2020	2019	Principal activities
MOU MOU CLUB (FANLING)	Hong Kong	HK$1	100%	100%	Restaurant operation in
LIMITED					Hong Kong
MOU MOU CLUB (HH)	Hong Kong	HK$1	100%	100%	Restaurant operation in
LIMITED					Hong Kong
MOU MOU CLUB (KB)	Hong Kong	HK$1	100%	100%	Restaurant operation in
LIMITED					Hong Kong
MOU MOU CLUB (KF)	Hong Kong	HK$2	100%	100%	Restaurant operation in
LIMITED					Hong Kong
MOU MOU CLUB (LF)	Hong Kong	HK$1	100%	100%	Restaurant operation in
LIMITED					Hong Kong
MOU MOU CLUB (No 9)	Hong Kong	HK$1	100%	100%	Restaurant operation in
LIMITED					Hong Kong
MOU MOU CLUB (PRINCE	Hong Kong	HK$300,000	100%	100%	Restaurant operation in
EDWARD) LIMITED					Hong Kong
MOU MOU CLUB (SSW)	Hong Kong	HK$1	100%	100%	Restaurant operation in
LIMITED					Hong Kong
MOU MOU CLUB (TST)	Hong Kong	HK$300,000	100%	100%	Restaurant operation in
LIMITED					Hong Kong
MOU MOU CLUB (TW)	Hong Kong	HK$1	100%	100%	Restaurant operation in
LIMITED					Hong Kong
MOU MOU CLUB LIMITED	Hong Kong	HK$1	100%	100%	Restaurant operation in
					Hong Kong
MOU MOU HOLDINGS	BVI	US$1	100%	100%	Investment holding
LIMITED
MULTI PROSPECTS LIMITED	Hong Kong	HK$500,000	100%	100%	Restaurant operation in
					Hong Kong

154 LH GROUP LIMITED Annual Report 2020

Notes to the Consolidated Financial Statements

32 SUBSIDIARIES (continued)

Effective interest held as at

			held	as at
	Place of
	incorporation	Issued and
	and kind of	fully paid
Name	legal entity	share capital	2020	2019	Principal activities
MULTI SUCCESS (KOWLOON	Hong Kong	HK$1,000,000	100%	100%	Restaurant operation in
TONG) LIMITED					Hong Kong
MULTI VICTORIES LIMITED	Hong Kong	HK$1	100%	100%	Restaurant operation in
					Hong Kong
NEKKETSU ICHIRYU	Hong Kong	HK$10,000,000	100%	100%	Investment holding
LIMITED
PEACE CUISINE (YT)	Hong Kong	HK$1	100%	100%	Restaurant operation in
LIMITED					Hong Kong
SALES BOOM LIMITED	Hong Kong	HK$1	100%	100%	Restaurant operation in
					Hong Kong
SHABUSHABU (CAUSEWAY	Hong Kong	HK$1	100%	100%	Restaurant operation in
BAY) LIMITED					Hong Kong
SHABUSHABU LIMITED	Hong Kong	HK$10,000	100%	100%	Investment holding
TREMENDOUS LUCK	Hong Kong	HK$1	100%	100%	Restaurant operation in
RESTAURANT LIMITED					Hong Kong
TRIPLE BRILLIANT	Hong Kong	HK$10,000	100%	100%	Provision of procurement
DEVELOPMENT LIMITED					and logistics services and
					trading of ingredients in
					Hong Kong
UNLIMITED REVENUE	Hong Kong	HK$1	100%	100%	Inactive
LIMITED
UPRISE BENEFIT (TSUEN	Hong Kong	HK$1,000,000	100%	100%	Restaurant operation in
WAN) LIMITED					Hong Kong
WAY SURE LIMITED	Hong Kong	HK$100	100%	100%	Property holding
WEALTHY PRAISE LIMITED	Hong Kong	HK$1	100%	100%	Restaurant operation in
					Hong Kong

Annual Report 2020 LH GROUP LIMITED 155

Notes to the Consolidated Financial Statements

32 SUBSIDIARIES (continued)

Effective interest held as at

			held	as at
	Place of
	incorporation	Issued and
	and kind of	fully paid
Name	legal entity	share capital	2020	2019	Principal activities
WEALTHY (TIN SHUI WAI)	Hong Kong	HK$1	100%	100%	Restaurant operation in
LIMITED					Hong Kong
YAKINIKU (ABERDEEN)	Hong Kong	HK$1	100%	100%	Restaurant operation in
LIMITED					Hong Kong
YAKINIKU (CB) LIMITED	Hong Kong	HK$1	100%	100%	Restaurant operation in
					Hong Kong
YAKINIKU (HK) LIMITED	Hong Kong	HK$1,000,000	100%	100%	Investment holding
YAKINIKU (KB) LIMITED	Hong Kong	HK$1	100%	100%	Restaurant operation in
					Hong Kong
YAKINIKU (MK) LIMITED	Hong Kong	HK$1	100%	100%	Restaurant operation in
					Hong Kong
YAKINIKU (TAI PO) LIMITED	Hong Kong	HK$1	100%	100%	Restaurant operation in
					Hong Kong
YAKINIKU (TM) LIMITED	Hong Kong	HK$1	100%	100%	Restaurant operation in
					Hong Kong
YAKINIKU (TW) LIMITED	Hong Kong	HK$1	100%	100%	Restaurant operation in
					Hong Kong
YAKINIKU (YL) LIMITED	Hong Kong	HK$1	100%	100%	Restaurant operation in
					Hong Kong

156 LH GROUP LIMITED Annual Report 2020

Notes to the Consolidated Financial Statements

33 BENEFITS AND INTERESTS OF DIRECTORS (DISCLOSURE REQUIRED BY SECTION 383 OF THE HONG KONG COMPANIES ORDINANCE (CAP. 622), COMPANIES (DISCLOSURE OF INFORMATION ABOUT BENEFITS OF DIRECTORS) REGULATION (CAP. 622G) AND HONG KONG LISTING RULES)

The remuneration of every director for each of the years ended 31 December 2020 and 2019 were as follows:

	Fees *HK$’000*	Salaries *HK$’000*	Discretionary bonuses *HK$’000*	Retirement benefit scheme contributions *HK$’000*	Total *HK$’000*
Year ended 31 December 2020 Chairman Mr. Wong Kit Lung, Simon_Prof, JP_ Executive directors Ms. Ko Sau Chee, Grace Mr. Ho Chi Wai_(vi) _Independent non-executive directors Ms. Hung Lo Shan Lusan Mr. Hung Wai Man_Prof_, JP Mr. Sin Yat Kin_SBS, CSDSM_ Year ended 31 December 2019 Chairman Mr. Wong Kit Lung, Simon_Prof, JP_ Executive directors Ms. Ko Sau Chee, Grace Mr. Ho Chi Wai Independent non-executive directors Ms. Hung Lo Shan Lusan Mr. Hung Wai Man_Prof_, JP Mr. Sin Yat Kin_SBS, CSDSM_


	—	2,601	1,135	18	3,754


	—	2,241	651	18	2,910
	80	631	77	12	800


	240	—	—	—	240
	240	—	—	—	240
	240	—	—	—	240

	800	5,473	1,863	48	8,184

	— — 120 240 240 240 840	2,969 2,470 923 — — — 6,362	840 520 153 — — — 1,513	38 47 18 — — — 103	3,847 3,037 1,214 240 240 240 8,818

Annual Report 2020 LH GROUP LIMITED 157

Notes to the Consolidated Financial Statements

33 BENEFITS AND INTERESTS OF DIRECTORS (DISCLOSURE REQUIRED BY SECTION 383 OF THE HONG KONG COMPANIES ORDINANCE (CAP. 622), COMPANIES (DISCLOSURE OF INFORMATION ABOUT BENEFITS OF DIRECTORS) REGULATION (CAP. 622G) AND HONG KONG LISTING RULES) (continued)
(i) The remuneration shown above represents remuneration received and receivable from the Group by these directors in their capacity as employees to the subsidiaries and no directors waived and agreed to waive any emolument during each of the years ended 31 December 2020 and 2019.
(ii) No director fees were paid to these directors in their capacity as directors of the Company or the subsidiaries and no emoluments were paid by the Company or the subsidiaries to the directors as an inducement to join the Company or the subsidiaries, or as compensation for loss of office during each of the years ended 31 December 2020 and 2019.
(iii) During each of the years ended 31 December 2020 and 2019, no retirement benefits, payments or benefits in respect of termination of directors’ services were paid or made, directly or indirectly, to the directors; nor are any payable. No consideration was provided to or receivable by third parties for making available directors’ services.
(iv) During each of the years ended 31 December 2020 and 2019, other than those disclosed in Note 19, no significant transactions, agreements and contracts in relation to the Group’s business to which the Company was a party and in which a director of the Company had material interest, whether directly or indirectly, subsisted at the end of each of the years ended 31 December 2020 and 2019.
(v) During each of the years ended 31 December 2020 and 2019, other than those disclosed in Note 19, there were no loans, quasi-loans and other dealing arrangements in favour of the directors, or controlled body corporates and connected entities of such directors.
(vi) Mr. Ho Chi Wai resigned as executive director of the Company on 1 September 2020.

158 LH GROUP LIMITED Annual Report 2020

Notes to the Consolidated Financial Statements

34 TRANSACTIONS WITH NON-CONTROLLING INTERESTS

On 26 June 2019, the Group acquired an additional 5% of the issued shares of Kabu Kowloon Bay Limited for approximately HK$7,000. Immediately prior to the purchase, the carrying value of the existing 5% non-controlling interest in Kabu Kowloon Bay Limited was approximately HK$7,000. The Group recognised a decrease in non-controlling interests of approximately HK$7,000 and a decrease in equity attributable to owners of the parent of approximately HK$7,000. The effect on the equity attributable to the owners of Kabu Kowloon Bay Limited during the year is summarised as follows:

	2019 HK$’000
Carrying amount of non controlling interests acquired Consideration paid to non controlling interests Excess of consideration paid recognised in the transactions with non controlling interests reserve within equity	7 (7) —

There were no transactions with non-controlling interests in 2020.

Annual Report 2020 LH GROUP LIMITED 159

Summary Financial Information

A summary of the consolidated results of the Group for the years ended 31 December 2016, 2017, 2018, 2019 and 2020 and the consolidated assets, liabilities and non-controlling interests of the Group as at 31 December 2016, 2017, 2018, 2019 and 2020 as extracted from the Company’s published audited financial statements is set out below:

RESULTS

	2020 *HK$’000*	Year ended 31 December 2019 2018 2017 (Note) HK$’000 HK$’000 HK$’000	Year ended 31 December 2019 2018 2017 (Note) HK$’000 HK$’000 HK$’000	Year ended 31 December 2019 2018 2017 (Note) HK$’000 HK$’000 HK$’000	2016 (Note) HK$’000
Revenue Profit/(loss) before taxation Income tax expense Profit/(loss) for the year Profit/(loss) attributable to: Shareholders of the Company Non-controlling interests	802,852 143,747 (3,419) 140,328 140,328 — 140,328	1,005,776 (948) (10,320) (11,268) (11,226) (42) (11,268)	1,004,105 43,735 (8,575) 35,160 35,211 (51) 35,160	829,152 32,224 (8,227) 23,997 22,391 1,606 23,997	743,046 49,153 (8,602) 40,551 36,281 4,270 40,551

ASSETS, LIABILITIES AND NON-CONTROLLING INTERESTS

	2020 *HK$’000*	As at 31 December 2019 2018 2017 (Note) HK$’000 HK$’000 HK$’000	As at 31 December 2019 2018 2017 (Note) HK$’000 HK$’000 HK$’000	As at 31 December 2019 2018 2017 (Note) HK$’000 HK$’000 HK$’000	2016 (Note) HK$’000
TOTAL ASSETS TOTAL LIABILITIES EQUITY Equity attributable to shareholders of the Company Non-controlling interests	747,497 (332,896) 414,601 414,601 — 414,601	742,215 (467,942) 274,273 274,273 — 274,273	573,757 (163,211) 410,546 410,497 49 410,546	346,959 (145,457) 201,502 201,502 — 201,502	428,867 (169,152) 259,175 219,547 40,168 259,175

Note: The financial data of 2016 and 2017 are extracted from the Prospectus.

160 LH GROUP LIMITED Annual Report 2020

AI assistant

LH Group Limited — Annual Report 2020

50315_rns_2021-04-29_efe51a43-3501-4690-b94e-0fe8c9b7f6f2.pdf

CONTENTS

Corporate Information

BOARD OF DIRECTORS

AUTHORISED REPRESENTATIVES

Executive Directors

Independent non-executive Directors

AUDIT COMMITTEE

REMUNERATION COMMITTEE

NOMINATION COMMITTEE

JOINT COMPANY SECRETARIES

AUDITOR

LEGAL ADVISER

REGISTERED OFFICE

PRINCIPAL PLACE OF BUSINESS IN HONG KONG

HONG KONG SHARE REGISTRAR

CAYMAN ISLANDS PRINCIPAL SHARE REGISTRAR AND TRANSFER OFFICE

PRINCIPAL BANKERS

COMPANY WEBSITE

STOCK CODE

LISTING DATE

Financial Highlights and Calendar

FINANCIAL HIGHLIGHTS

For the year ended 31 December

CALENDAR

Chairman’s Statement

MULTI-BRAND STRATEGY

LOOKING AHEAD TO 2021

DIVIDEND

APPRECIATION AND BLESSINGS

Chairman

Management Discussion and Analysis

Pioneering measures taken to tackle COVID-19 impact before relevant regulatory requirements

Management Discussion and Analysis

Management Discussion and Analysis

Restrictions on the maximum number of persons for each table under Chapter 599F of the Laws of Hong Kong

Restrictions on the dine-in hours of restaurants under Chapter 599F of the Laws of Hong Kong

BUSINESS REVIEW

FINANCIAL REVIEW

Revenue

Management Discussion and Analysis

Management Discussion and Analysis

Other income and gains

Cost of food and beverages

Staff costs

Property rentals and related expenses

Management Discussion and Analysis

Profit/loss for the year

LIQUIDITY AND FINANCIAL RESOURCES

SIGNIFICANT INVESTMENTS

MATERIAL ACQUISITIONS AND DISPOSALS OF SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES

EVENTS AFTER THE REPORTING PERIOD

Management Discussion and Analysis

PLEDGE OF ASSETS

EMPLOYEES AND REMUNERATION POLICIES

FOREIGN EXCHANGE EXPOSURE

CONTINGENT LIABILITIES

OFF-BALANCE SHEET COMMITMENTS AND ARRANGEMENT

Management Discussion and Analysis

PROSPECTS

Directors and Senior Management

EXECUTIVE DIRECTORS

Directors and Senior Management

INDEPENDENT NON-EXECUTIVE DIRECTORS

Directors and Senior Management

SENIOR MANAGEMENT

Report of the Directors

PRINCIPAL ACTIVITIES

BUSINESS REVIEW

ENVIRONMENTAL, SOCIAL AND GOVERNANCE (“ ESG ”) POLICIES AND PERFORMANCES

COMPLIANCE WITH LAWS AND REGULATIONS

RESULTS AND DIVIDENDS

DIVIDEND POLICY

Report of the Directors

USE OF NET PROCEEDS FROM LISTING

SUMMARY FINANCIAL INFORMATION

PROPERTY, PLANT AND EQUIPMENT

SHARE CAPITAL

LH Group Limited Annual Report 2020