Natural Beauty Bio-Technology Limited — Proxy Solicitation & Information Statement 2014

Oct 17, 2014

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in the Company, you should at once hand this circular to the purchaser or the transferee or to the bank, stockbroker or other agent through whom the sale was effected for transmission to the purchaser or the transferee.

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

This circular is for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for securities of the Company.

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VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION

PROPOSED ACQUISITION OF COMPANIES IN RETAILING BUSINESS

AND

CONTINUING CONNECTED TRANSACTIONS

Financial adviser to the Company

Independent financial adviser to the Independent Shareholders

A letter from the Board is set out on pages 8 to 47 of this circular. A letter from Platinum Securities containing its advice to the Independent Shareholders is set out on pages 48 to 81 of this circular.

A notice convening the EGM to be held at the Harbour View Ballroom, Four Seasons Hotel, 8 Finance Street, Central, Hong Kong, on Tuesday, 4 November 2014 at 11:00 a.m. is set out on pages N-1 to N-3 of this circular. A form of proxy for use by the Independent Shareholders at the EGM is also enclosed. Whether or not you are able to attend the meeting, you are requested to complete the form of proxy in accordance with the instructions printed thereon and return the same to the share registrar of the Company, Tricor Standard Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong as soon as possible and in any event not less than 48 hours before the time for holding the meeting or adjourned meeting (as the case may be) at which the person named in such form of proxy proposes to vote or, in the case of a poll taken more than 48 hours after it was demanded, not less than 24 hours before the time appointed for the taking of the poll. Completion and return of the form of proxy will not preclude you from attending and voting at the meeting, or any adjourned meeting, should you so wish.

17 October 2014

CONTENTS

Expected Timetable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	ii
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Corporate Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Parties Involved in the Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
2. The Acquisition Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
3. Information on the Target Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
4. Information on the business of Citistore HK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
5. Shareholding structure of the Target Group before and after Completion . . . . . . . . . . . . .	21
6. Reasons for and benefits of the Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	24
7. Financial effects of the Acquisition on the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	26
8. Intended level of dividends following Completion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	27
9. Prospects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	27
10. Proposed new Director and Senior Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	29
11. Continuing Connected Transactions and the Framework Agreement . . . . . . . . . . . . . . . . .	30
12. Relationship with the HLD Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	44
13. Implications of the Acquisition and the Continuing Connected Leasing Transactions
under the Listing Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	45
14. Principal businesses of the HLD Group and of the Group . . . . . . . . . . . . . . . . . . . . . . . .	46
15. The EGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	46
16. Closure of the register of members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	47
17. Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	47
18. Additional information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	47
Letter from Platinum Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	48
Forward-Looking Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	82
Industry Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	83
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	89
Appendix I — Financial Information on the Group . . . . . . . . . . . . . . . . . . . . . . . . . .	I-1
Appendix II — Accountants’ Report on the Financial Information of the Target
Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	II-1
Appendix III — Management Discussion and Analysis on the Target Group . . . . . . . .	III-1
Appendix IV — Unaudited Pro Forma Financial Information on the Enlarged
Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	IV-1
Appendix V — General Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	V-1
Notice of EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	N-1

— i —

2014

EXPECTED TIMETABLE

Latest time for lodging transfers of Shares in order to be entitled to attend and vote at the EGM . . . . . . . . . . . . . . . . . 4:30 p.m. on Friday, 31 October

Closure of the register of members of the Company for determination of entitlements to attend and vote

at the EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Monday, 3 November to Tuesday, 4 November (both days inclusive)

Latest time for lodging forms of proxy for the EGM . . . . . . . 11:00 a.m. on Saturday, 1 November EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11:00 a.m. on Tuesday, 4 November Announcement of the results of the EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . Tuesday, 4 November

— ii —

DEFINITIONS

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

DEFINITIONS

• “Accountants’ Report”

the accountants’ report on the Target Group during the Reporting Period, the text of which is set out in Appendix II to this circular;

• “Acquisition”

• the acquisition by the Purchaser of the Sale Share pursuant to the Acquisition Agreement;

• “Acquisition Agreement”

• the conditional agreement dated 5 September 2014 entered into between HLD and the Purchaser in relation to the Acquisition;

• “Announcement”

• the announcement dated 5 September 2014 issued by the Company relating to, among other things, the Acquisition;

• “Annual Caps”

• the annual caps for the amounts expected to be paid by Citistore HK to the HLD Group in respect of the Continuing Connected Leasing Transactions for each of the financial years ending 31 December 2014, 2015, 2016, 2017, 2018, 2019, 2020, 2021, 2022 and 2023, as more particularly described under “ 11. Continuing Connected Transactions and the Framework Agreement ” in the Letter from the Board in this circular;

• “associate” has the meaning ascribed to it under the Listing Rules;

• “Board” the board of Directors;

• “Business Day”

• a day (other than Saturday, Sunday, public holiday, or a day on which a tropical cyclone signal no.8 or above or black rainstorm signal is hoisted in Hong Kong) on which banks in Hong Kong are generally open for business;

• “BVI” the British Virgin Islands;

• “Camay”

• Camay Investment Limited, a company incorporated in BVI with limited liability and a wholly-owned subsidiary of HLD;

• “Citistore HK”

• Citistore (Hong Kong) Limited, a company incorporated in Hong Kong with limited liability and a wholly-owned subsidiary of Camay;

— 1 —

DEFINITIONS

• “Citistore HK Offices” the existing office premises leased by Citistore HK from members of the HLD Group as more particularly described under “ 11. Continuing Connected Transactions and the Framework Agreement ” in the Letter from the Board in this circular;

• “Citistore Stores” the department stores operated under the name “Citistore” by Citistore HK, as more particularly described in the section headed “4. Information on the Business of Citistore HK ” in the Letter from the Board in this circular, and “Citistore Store” means any one of them;

• “Company”

• Henderson Investment Limited (恒基兆業發展有限公司), a company incorporated in Hong Kong with limited liability, the shares of which are listed on the Main Board of the Stock Exchange (stock code: 97);

• “Completion” the completion of the Acquisition in accordance with the terms of the Acquisition Agreement;

• “Conditions Precedent”

• the conditions precedent the fulfilment (or, where applicable, waiver) of which the Acquisition is subject to, as described in the section headed “ 2. The Acquisition Agreement — Conditions Precedent ” in the Letter from the Board in this circular;

• “connected person”

• has the meaning ascribed to it under the Listing Rules;

• “Consideration” the consideration of HK$934,500,000 payable by the Purchaser in respect of the Acquisition under the Acquisition Agreement;

• “Continuing Connected Leasing Transactions”

• the present and future continuing connected transactions relating to leasing and licensing of premises entered into between Citistore HK and members of the HLD Group from time to time under the Framework Agreement as more particularly described under “ 11. Continuing Connected Transactions and the Framework Agreement ” in the Letter from the Board in this circular;

• “controlling shareholder”

has the meaning ascribed to it under the Listing Rules;

• “Director(s)” the director(s) of the Company;

• “EBITDA”

• earnings before finance cost, income tax, depreciation and amortisation;

— 2 —

DEFINITIONS

“EGM”

the extraordinary general meeting of the Company convened to be held at Harbour View Ballroom, Four Seasons Hotel, 8 Finance Street, Central, Hong Kong, on Tuesday, 4 November 2014 at 11:00 a.m. (or any adjournment thereof) to approve, among other things, the Acquisition, the Continuing Connected Leasing Transactions and the proposed Annual Caps;

• “Enlarged Group” the Group (including the Target Group) following Completion;

• “Existing HLD Tenancy collectively, the existing leases or tenancy agreements Agreements” between Citistore HK as tenant and members of the HLD Group as landlord, as more particularly described under the section headed “ 11. Continuing Connected Transactions and the Framework Agreement ” in the Letter from the Board in this circular;

• “Framework Agreement” the framework agreement dated 15 October 2014 entered into between the Company and HLD relating to leases and licences of premises, such framework agreement to take effect from the date of Completion, as more particularly described under the section headed “ 11. Continuing Connected Transactions and the Framework Agreement ” in the Letter from the Board in this circular;

• “Group” the Company and its subsidiaries;

• “HIBOR” the applicable Screen Rate as of 11:00 a.m. (Hong Kong time) on the first day of any period for which an interest rate is to be determined for the offering of deposits in Hong Kong dollars for one month’s period or, if no Screen Rate is available for Hong Kong dollars, the percentage rate per annum as certified by HLD as the cost to HLD’s funding;

• “HK Ferry” Hong Kong Ferry (Holdings) Company Limited (香港小輪(集 團)有限公司), a company incorporated in Hong Kong with limited liability, the shares of which are listed on the Main Board of the Stock Exchange (stock code: 50);

• “HK Ferry Group” HK Ferry and its subsidiaries; “HK$” Hong Kong dollars, the lawful currency of Hong Kong; “HLD” Henderson Land Development Company Limited (恒基兆業地 產有限公司), a limited liability company incorporated in Hong Kong, the shares of which are listed on the Main Board of the Stock Exchange (stock code: 12);

— 3 —

DEFINITIONS

• “HLD Group” HLD and its subsidiaries (excluding the Group and the Target Group);

• “Hong Kong” the Hong Kong Special Administrative Region of the People’s Republic of China;

• “Independent Shareholders” the Shareholders other than HLD, Dr. Lee Shau Kee and their respective associates;

• “Latest Practicable Date” 10 October 2014, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information for inclusion in this circular;

• “Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange;

• “Max-mercan” Max-mercan Investment Limited, a company incorporated in Hong Kong with limited liability;

• “Miramar” Miramar Hotel and Investment Company, Limited (美麗華酒 店企業有限公司), incorporated in Hong Kong with limited liability, the shares of which are listed on the Main Board of the Stock Exchange (stock code: 71);

• “Miramar Group” Miramar and its subsidiaries; “Platinum Securities” Platinum Securities Company Limited, a corporation licensed under the SFO to carry out Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities under the SFO and the independent financial adviser appointed by the Company to advise the Independent Shareholders regarding the terms of the Acquisition, the Continuing Connected Leasing Transactions and the proposed Annual Caps;

• “PRC” People’s Republic of China, for the purpose of this circular, excluding Hong Kong, the Macao Special Administrative Region of the People’s Republic of China and Taiwan;

• “Purchaser” Newmarket International Limited, a company incorporated in the BVI with limited liability and a wholly-owned subsidiary of the Company;

• “Puretech” Puretech Investment Limited, a company incorporated in Hong Kong with limited liability and a wholly-owned subsidiary of Camay;

• “Reporting Period” the three financial years ended 31 December 2013 and the six months ended 30 June 2014;

— 4 —

DEFINITIONS

“Sale Share”	one share of Camay, representing	one share of Camay, representing		the entire issued share	the entire issued share	the entire issued share
	capital of Camay;
“SFO”	Securities and Futures Ordinance (Chapter 571 of the					laws of
	Hong Kong);
“Shareholders”	holders of the Shares;
“Shares”	the shares of the Company;
“Stock Exchange”	The Stock Exchange of Hong	Kong		Limited;
“Target Group”	Camay and its subsidiaries	as	at		Completion,	namely,
	Citistore HK and Puretech;
“%”	per cent.

— 5 —

CORPORATE INFORMATION

The Company	Henderson Investment Limited
Registered Office	72-76/F
	Two International Finance Centre
	8 Finance Street, Central
	Hong Kong
The Purchaser	Newmarket International Limited
	(a wholly-owned subsidiary of the Company)
Directors of the Company
Executive Directors	Dr. Lee Shau Kee (Chairman and Managing Director)
	Mr. Lee Ka Kit (Vice Chairman)
	Mr. Lam Ko Yin, Colin (Vice Chairman)
	Mr. Lee Ka Shing (Vice Chairman)
	Mr. Lee Tat Man
Independent Non-executive	Mr. Kwong Che Keung, Gordon
Directors	Professor Ko Ping Keung
	Mr. Wu King Cheong
	Mr. Leung Hay Man
Company Secretary	Mr. Liu Cheung Yuen, Timon
Registrar	Tricor Standard Limited
	Level 22, Hopewell Centre
	183 Queen’s Road East
	Wanchai
	Hong Kong
Auditor	PricewaterhouseCoopers
	22nd Floor, Prince’s Building
	10 Chater Road
	Central
	Hong Kong

— 6 —

PARTIES INVOLVED IN THE ACQUISITION

The Vendor	Henderson Land Development Company Limited
	72-76/F
	Two International Finance Centre
	8 Finance Street, Central
	Hong Kong
The Purchaser	Newmarket International Limited
	(a wholly-owned subsidiary of the Company)
Financial Adviser to the Company	The Hongkong and Shanghai Banking Corporation
	Limited
	1 Queen’s Road Central
	Hong Kong
Legal Adviser to the Company	Woo Kwan Lee & Lo
	26th Floor, Jardine House
	1 Connaught Place
	Central, Hong Kong
Auditor of the Company	PricewaterhouseCoopers
	22nd Floor, Prince’s Building
	10 Chater Road
	Central, Hong Kong
Reporting Accountant on the Target	KPMG
Group	8th Floor, Prince’s Building
	10 Chater Road
	Central, Hong Kong
Independent Financial Adviser to the	Platinum Securities Company Limited
Independent Shareholders	21/F, LHT Tower
	31 Queen’s Road Central
	Hong Kong

— 7 —

LETTER FROM THE BOARD

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Executive Directors:

Lee Shau Kee (Chairman and Managing Director) Lee Ka Kit (Vice Chairman) Lam Ko Yin, Colin (Vice Chairman) Lee Ka Shing (Vice Chairman) Lee Tat Man

Registered Office:

72-76/F Two International Finance Centre 8 Finance Street Central Hong Kong

Independent Non-executive Directors:

Kwong Che Keung, Gordon Ko Ping Keung Wu King Cheong Leung Hay Man

17 October 2014

To the Shareholders

Dear Sir or Madam,

VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION

PROPOSED ACQUISITION OF COMPANIES IN RETAILING BUSINESS

AND

CONTINUING CONNECTED TRANSACTIONS

1. INTRODUCTION

In the Announcement, the Company announced that on 5 September 2014, HLD entered into the Acquisition Agreement with the Purchaser (a wholly-owned subsidiary of the Company) pursuant to which HLD agreed to sell, and the Purchaser agreed to purchase, the Sale Share for a consideration of HK$934,500,000. Subject to the fulfilment of the Conditions Precedent, under the Acquisition, the Group will acquire the Target Group which is principally engaged in the operation of department stores in Hong Kong under the name “Citistore”.

The Acquisition constitutes a very substantial acquisition of the Company under Chapter 14 of the Listing Rules as at least one of the percentage ratios in respect of the Acquisition exceeds 100%.

— 8 —

LETTER FROM THE BOARD

Further, as HLD is the controlling shareholder and holding company of the Company, and thus a connected person of the Company, the Acquisition also constitutes a connected transaction of the Company under Chapter 14A of the Listing Rules. The Acquisition is therefore subject to the Independent Shareholders’ approval.

Following Completion, Citistore HK will become a subsidiary of the Company, and the Existing HLD Tenancy Agreements will become continuing connected transactions of the Company. The Company has entered into the Framework Agreement with HLD to regulate the Existing HLD Tenancy Agreements and any new tenancy and licence agreements that may be entered into between members of the Group and members of the HLD Group after Completion.

As the percentage ratios in respect of the Annual Caps will be more than 5%, and each of the Annual Caps exceeds HK$10,000,000, the Framework Agreement is subject to the reporting, and independent shareholders’ approval requirements, under Chapter 14A of the Listing Rules.

The purpose of this circular is to provide you with (i) further details of the Acquisition and the Continuing Connected Leasing Transactions; (ii) a letter from Platinum Securities to the Independent Shareholders relating to the Acquisition and the Continuing Connected Leasing Transactions; (iii) financial information on the Group; (iv) the accountant’s report on the financial information of the Target Group; (v) unaudited pro forma financial information on the Enlarged Group; (vi) the notice of the EGM; and (vii) other information as required under the Listing Rules.

2. THE ACQUISITION AGREEMENT

Date

5 September 2014

Parties

Vendor : HLD, the controlling shareholder and holding company of the Company Purchaser : the Purchaser, a wholly-owned subsidiary of the Company

Interest to be acquired by the Group

The Acquisition comprises the acquisition by the Purchaser of the Sale Share from HLD. The Sale Share represents the entire issued share capital of Camay, and the Target Group comprises Camay and its subsidiaries as at Completion, namely, Citistore HK and Puretech.

Consideration

The Consideration for the acquisition of the Sale Share, in the sum of HK$934,500,000, will be payable by the Purchaser to HLD at Completion. The Consideration will be payable in cash, or if elected by the Purchaser, all or part of the Consideration may also be settled by the Purchaser by way

— 9 —

LETTER FROM THE BOARD

of issuing at Completion a promissory note in favour of the HLD for such part of the Consideration elected to be so settled. Such promissory note will be unsecured and repayable by 31 December 2014 (or such other dates as may be agreed between the parties) and bear interest at HIBOR plus 0.84% per annum.

It is intended that at Completion the Consideration in the sum of HK$934.5 million will, after deducting a sum equivalent to the amount then owing by the HLD Group to the Target Group to be applied towards settlement of such amount so owing, be settled by the Purchaser to HLD: (i) as to approximately HK$300 million in cash; and (ii) as to the balance by way of issuing a promissory note in favour of HLD. The amount to be so settled by way of the promissory note represents part of the Group’s existing long-term bank deposits, and the promissory note is expected to be repaid by the Purchaser to HLD by late December 2014 when the long-term bank deposits can be uplifted.

The Consideration was determined after arm’s length negotiations between HLD and the Purchaser, taking into consideration the profit and total comprehensive income for the financial year ended 31 December 2013 of the Target Group and a price to earnings multiple of 7 times based thereon. The Directors consider using a price to earnings multiple to be an appropriate valuation metric to adopt for a profitable department store business and note that this is a metric commonly referred to by research analysts and the investment communities. The Directors consider a price-to-book ratio to be a less appropriate metric given (i) the stock price of retail companies is generally driven to a larger extent by sales volume and earnings and to a lesser extent by the value of the assets used in generating them, (ii) department store operators generally have different asset profiles for their businesses, and adopt different strategies with respect to owning or leasing of their store premises, thus impacting negatively on how meaningful comparisons between such businesses are based on assets and accordingly on the validity of a valuation metric that relies on making such comparisons and (iii) the Target Group has a relatively low asset base as it does not own any property, and conducts all of its operations through leasing and licensing arrangements.

HLD has confirmed that it has no intention to exercise its right under the Acquisition Agreement to declare and pay dividends out of the retained earnings of Camay and Citistore HK prior to Completion. As further detailed under the section headed “ 4. Information on the business of Citistore HK — Financial information ” below, assuming that Completion takes place at the end of November 2014, it is estimated that the amount of dividends of the Target Group to be waived by HLD as mentioned above should be no less than HK$78 million. If the dividends to be so waived at such amount is also taken into account as, in effect, a reduction in the Consideration, the implied price to earnings multiple of 7 times for the Acquisition mentioned above may potentially be lowered to approximately 6.4 times.

When determining the Consideration, the parties to the Acquisition also took into account the dividends in the amount of approximately HK$527.9 million distributed by Camay to HLD on 30 June 2014 (particulars of which are set out on page III-11 of this circular), and such distribution of dividends is part of the deal of the Acquisition.

The Consideration is expected to be financed by internal resources of the Group and/or bank financing.

— 10 —

LETTER FROM THE BOARD

Conditions Precedent

Completion is conditional upon the fulfilment (or waiver, in certain cases as stated below) of the following conditions precedent:

• (a) the approval by the Independent Shareholders at an EGM of:

• (i) the Acquisition Agreement and the transactions contemplated under the Acquisition Agreement; and

• (ii) the continuing connected transactions of the Company that may arise as a result of Completion and the annual caps for such transactions as may be required under Chapter 14A of the Listing Rules;

• (b) there having been no material breach of the representations, warranties and undertakings in, or any term of, the Acquisition Agreement by HLD; and

• (c) the obtaining of all other relevant third party consents, permits, approvals, authorisations and waivers as are necessary or appropriate for the entering into and consummation of the transactions contemplated under the Acquisition Agreement.

The Purchaser may at any time waive the Conditions Precedent set out in (b) and (c) above either in whole or in part, and such waiver may be made subject to such terms and conditions as the Purchaser may require.

If any Condition Precedent has not been fulfilled (or waived, if applicable) on or before 31 March 2015 (or such later date as otherwise agreed between the parties in writing), the Acquisition Agreement will terminate and be of no further effect, and no party will have any liability to the other party under or in connection with the Acquisition Agreement, save in respect of any antecedent breach.

Warranties and indemnities

Representations and warranties in respect of the Target Group (including those in relation to title to assets and inventories, financial and tax matters, record keeping, business operations, compliance with laws and certain other representations and warranties commonly included in similar transactions) have been given by HLD under the Acquisition Agreement.

A deed of tax covenant will be entered into between HLD, the Purchaser and the Target Group at Completion, pursuant to which HLD will indemnify the Purchaser and the Target Group in respect of certain tax liabilities of the Target Group, including those tax liabilities relating to events occurring on or before Completion.

Completion

Completion is to take place on the third Business Day after the fulfilment (or, where applicable, waiver) of all the Conditions Precedent (or such other date as agreed between the parties in writing). Subject to the Conditions Precedent having been fulfilled (or, where applicable, waived), Completion is expected to take place before the end of December 2014.

— 11 —

LETTER FROM THE BOARD

3. INFORMATION ON THE TARGET GROUP

The principal business activity of Camay is investment holding. Camay is the holding company of Citistore HK and certain other subsidiaries.

Citistore HK is principally engaged in the retailing business in Hong Kong, with an emphasis on department store operations. Currently, it operates six department stores under the name “Citistore” and a specialty store under the name “id:c” in Hong Kong. The six department stores are located in Tsuen Wan, Yuen Long, Ma On Shan, Tseung Kwan O, Tai Kok Tsui and Tuen Mun, and the specialty store is located in Tsim Sha Tsui. Certain trademarks registered in Hong Kong and in the PRC relating to the retailing business of Citistore HK are held by Citistore HK and Puretech, particulars of which are described in the section headed “ 4. Information on the business of Citistore HK — Business — Trademarks ” below.

The principal business activity of Puretech is the holding of trademark.

4. INFORMATION ON THE BUSINESS OF CITISTORE HK

Business

Overview

Citistore HK principally operates general merchandising stores in Hong Kong, with a particular focus on housewares, cosmetics, apparel, foods and daily necessities, as well as a Japanese branded apparel specialty store. Since the opening of the first and the largest Citistore Store in Tsuen Wan in December 1989, the Target Group has built a strong brand name in Hong Kong for its Citistore Stores, which currently comprise six main branches in residential areas and densely populated locations in close proximity to local transport hubs.

As of the Latest Practicable Date, the Citistore Stores were offering goods and merchandise ranging from apparel and cosmetics, to foods, confectionary, luggage, furniture, toys, appliances, kitchenware and other housewares. The “Citistore” brand aims to provide a “one-stop” shopping experience for its customers through a vast selection of merchandise at reasonable and competitive prices, and sources its products locally as well as from Japan, Korea, Europe and the PRC. Merchandise at Citistore Stores are sold by means of direct sales as well as consignment and concessionaire sales, with new products and product categories being introduced from time to time having regard to market trends and consumer preferences and demands.

Aside from the Citistore Stores, the Target Group has also operated “id:c” since late 2005, an apparel retail store offering trendy collections of casual clothes, bags, shoes and accessories from Japanese brands with a view to attracting young consumers. The “id:c” brand has a specialty store located in Miramar Shopping Mall, Tsim Sha Tsui, as well as counters in all Citistore Stores except the Yuen Long and Tuen Mun branches Citistore Stores.

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As part of a plan to reinvigorate the “Citistore” brand, a new “Citistore” corporate logo was introduced in 2006. The Tsuen Wan Citistore Store was later revamped with the theme of “Blue Sky, Wide Ocean” in 2011 with a view to enhancing the customers’ overall shopping experience. The transformation has created a more stylish and elegant shopping environment with a large housewares department as well as a designated area within the store namely, “KidS’quare” which carries various children’s and babies’ brands of repute. Renovations were also made to the Tseung Kwan O, Tuen Mun and Yuen Long Citistore Stores in 2012, 2013 and earlier this year respectively.

For the last three financial years, the Target Group achieved growth in its turnover, increasing from approximately HK$709.3 million to approximately HK$763.8 million, then further to approximately HK$807.0 million for the financial years ended 31 December 2011, 2012 and 2013 respectively. For the six months ended 30 June 2014, turnover of approximately HK$418.7 million was recognised by the Target Group. The Target Group’s profit and total comprehensive income for the year also increased from approximately HK$111.0 million to approximately HK$122.9 million, then further to approximately HK$133.5 million for the financial years ended 31 December 2011, 2012 and 2013 respectively. For the six months ended 30 June 2014, the profit and total comprehensive income of the Target Group was approximately HK$61.7 million.

Store Format

All Citistore Stores and the “id:c” specialty store are located within shopping malls, some of which occupy several floors within such locations, and have been designed to maximise efficiency and to complement the broad range of merchandise offered with a sleek, convenient layout.

The visual displays at Citistore Stores feature changes reflecting seasonal and holiday promotions, with clear in-store signs to assist customers in identifying different sections of each Citistore Store as well as each of the branded consignment and concessionaire shelves and counters. All Citistore Stores also feature periodical in-store announcements as a means of promoting various sales campaigns, as well as ambient music to create a comfortable shopping environment.

Store Locations

As at the Latest Practicable Date, Citistore HK operated six department stores under the name “Citistore” and a specialty store under the name “id:c” in Hong Kong.

Five of the department stores are located in the New Territories, namely, in Tsuen Wan, Yuen Long, Ma On Shan, Tuen Mun and Tseung Kwan O whilst one of the department stores and the speciality store are located in Tai Kok Tsui and Tsim Sha Tsui, respectively. With a view to offering convenience to their consumers, all of the Citistore Stores are located in well established, densely-populated residential districts and are easily accessible by public transport.

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Merchandise

“Citistore” offers a diversified range of merchandise, with a particular focus on housewares, cosmetics, apparel, food and daily necessities, which can be broadly categorised into “apparels”, “household and toys”, “cosmetics” and “foods”.

Product category	Merchandise
“Apparels”	include casual, sports and outdoor		apparel for men			and
	women, clothing for children and		infants,		underwear,
	pyjamas, maternity wear,	accessories, bags,			shoes	and
	luggage
“Household and toys”	include kitchenware, glass	and china,	electrical	appliances,
	electrical personal care	products,	bedding,	gifts,		toys,
	furniture, bathroom accessories and towels
“Cosmetics”	include cosmetics, skincare	products and perfume
“Foods”	include bakery shop, café,	snacks, confectionary,			beverages,
	health supplements and condiments

Direct sale

Direct sale is the sale of products sourced and purchased by Citistore HK directly from its suppliers. Over 22% of the merchandise offered by Citistore HK under the “apparels” and “household and toys” product categories is sold by way of direct sale as is a majority of the products sold in “id:c”.

Terms and conditions with suppliers are negotiated on a case by case basis having regard to, among other things, the business relationship with the supplier, market demand for the product, the availability of alternative sources of supply and the costs of the products.

As at the Latest Practicable Date, the Target Group had approximately 400 suppliers.

Concessionaire sales

Citistore HK’s concessionaire sales are conducted by licensing of portions of shop spaces to its concessionaires for setting up their own concession counters for sale of their products. Over 64% of the merchandise offered under the “cosmetics” product category by Citistore HK are sold by way of concessionaire sales.

Licensing agreements of Citistore HK with concessionaires are negotiated on a case by case basis having regard to, among other things, the business relationship with the concessionaire, the popularity, market standing, brand image and targeted consumer group of the concessionaire, market demand for the product offered, the location of the concessionaire counter concerned and the location of the Citistore Store concerned. Licence periods typically run for an initial term of 2 years or more and early termination by either party is allowed subject to 6 months’ prior notice.

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As at the Latest Practicable Date, the Target Group had approximately 90 concessionaires and approximately 170 concessionaire counters.

Consignment sale

Consignment sale is the sale of a consignor’s own products on the shelves or in other designated areas or spaces. Within Citistore HK’s department stores, over 72% of merchandise under the “foods” product category is sold by way of sale on consignment.

Consignment agreements of Citistore HK with consignors are negotiated on a case by case basis having regard to, among other things, the business relationship with the consignor, market demand for the product offered and space occupied by the consignors’ products. The initial term of a consignment agreement ranges from 14 days to 1 year and early termination by either party is allowed subject to prior notice.

As at the Latest Practicable Date, the Target Group had approximately 830 consignors.

Suppliers and procurement

Citistore HK has a centralised procurement system for sourcing merchandise for direct sale and for sale on consignment and concession.

In-house market research is conducted on a regular basis to study prevailing market trends, consumer preferences and demands. The merchandise mix in each Citistore Store is reviewed from time to time and adjustments to the merchandise mix are made with reference to, among other things, the in-house market research data, internal sales figures, seasonality, and each individual Citistore Store’s gross floor area, pedestrian flows and location. The merchandise procurement team reaches out to suppliers, concessionaires and consignors to discuss and develop potential business relationships.

Customers, sales and marketing

The Citistore Stores primarily aim to attract expenditure as a “one-stop” store offering products and merchandise designed to meet the lifestyle needs of the average household in this modern society. Basic training is provided to all of the Citistore Stores’ sales employees and store management staff to maintain the quality of customer service. Each Citistore Store has a return policy which allows the return/exchange of defective goods and products within 7 days provided that they are accompanied by a sales receipt. Complimentary car parking services are offered at most of the stores to their customers through promotional arrangements with the landlords and the management offices of the shopping malls in which they are located. Other customer services include free gift wrapping, the provision of gift certificates, and free delivery services in respect of purchases of Citistore merchandise.

Citistore Stores run sales campaigns in respect of holidays and festivities, mainly during April to May, September to October, December, and the Chinese Lunar New Year. During such periods, special selections of merchandise and discounts to pricing are offered to customers, accompanied by various promotional activities such as gift rewards and lucky draws. Concessionaires are often invited

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to give exclusive discounts on selected items during such sales campaigns as a means of promotion. Catalogue leaflets of Citistore Stores are distributed to residential complexes in their locale during each sales campaign, and external advertising signages in close proximity to the Citistore Stores are also licensed by Citistore HK to facilitate the promotion of the “Citistore” brand name.

Competition

The local retail industry in Hong Kong is highly competitive. Citistore HK offers a wide range of merchandise, mostly affordable houseware and daily necessities, aimed primarily at families and young people at reasonable and competitive prices. Direct competitors to the business of Citistore HK include supermarkets, department stores, e-commerce operators and other retail outlets that offer similar merchandise in or nearby districts where the Citistore Stores are located.

Properties

As at the Latest Practicable Date, the Target Group did not own any property, and Citistore HK conducted all its operations through leasing and licensing arrangements with the HLD Group, groups of listed associated companies of HLD, and other external third parties. A total of 19 properties have been rented by Citistore HK in Hong Kong, comprising retail outlets, warehouses and office premises. The gross floor area of all Citistore Stores is 505,233 sq. ft., while the gross floor area of the id:c specialty store is 6,318 sq. ft. The four warehouses rented by the Target Group from independent third parties cover a gross floor area of approximately 43,000 sq. ft. in aggregate, and the office spaces rented by the Target Group from the HLD Group cover a gross floor area of 24,423 sq. ft. in aggregate. As at the Latest Practicable Date, the Citistore Stores were operating under long-term lease arrangements, with most of the leases being for a term of nine years.

The expenditure on rent and rates of the Target Group for its rented properties was approximately HK$170 million, approximately HK$176 million and approximately HK$190 million for the financial years ended 31 December 2011, 2012 and 2013 respectively.

For further information regarding the leasing and licensing arrangements between the Target Group and the HLD Group and leasing and licensing arrangements between the Target Group and groups of listed associated companies of HLD, please refer to the section headed “ 11. Continuing Connected Transactions and the Framework Agreement ” below.

Operations and Internal Control

Most Citistore Stores open from 10:00 a.m. to 10:00 p.m. daily. Depending on the location, some stores have slightly different opening hours. Special opening hours may apply during festive seasons, such as Christmas and Chinese Lunar New Year. Each of the Citistore Stores are managed by one store manager who is in charge of the overall operations of the store and whose general responsibilities include the supervision of the day-to-day operations of each Citistore Store, proper training and instruction of front-line sales employees, the assistant store managers, floor managers and clerks, advising the personnel of concessionaire counters, as well as management of stock and inventory. The store manager of each Citistore Store reports to the management of Citistore HK, which imposes standardised operational standards upon all six branches of the Citistore Stores.

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The operations of the Target Group as a whole are organised by function, with individual teams managing operational logistics, inventory management, human resources, accounting and finance, information technology, sales and marketing, and merchandise procurement. In terms of support by information technology, the Target Group utilises a SAP management system, and it is estimated that the annual maintenance costs of such management system is approximately HK$1 million.

The quality control of products is monitored by merchandise procurement personnel during negotiations and through on-going communication with suppliers, consignors and concessionaires. As per the arrangements between Citistore HK and consignors and concessionaires generally, the liability, if any, for defective products sold by consignment or concessionaires in Citistore Stores is borne by the relevant consignors or concessionaire.

The corporate communication and marketing aspects of the Citistore Stores’ operations are also managed centrally, with regular internal reviews being conducted in respect of the effectiveness of sales campaigns and other promotional activities held, for the purposes of enhancing the future performance of each of the Citistore Stores.

Logistics and warehouses

The stock and inventory levels of the Citistore Stores are monitored by merchandising procurement personnel through information technology systems, and input from the store managers from each Citistore Store. Orders are placed with suppliers to ensure that adequate inventory levels are maintained. The engagement of new suppliers, concessionaires and consignors is subject to review by and the approval of the merchandise procurement department. The Target Group requires all its suppliers to provide relevant certification in respect of goods and merchandise.

For the purposes of minimising safety risks, most food products sold in the Citistore Stores are dry or preserved foods that have long-shelf lives. The expiry dates of such food products offered in Citistore Stores are regularly checked in accordance with inventory management procedures, and the Target Group has obtained all necessary licences in connection with the provision of foods in the Citistore Stores. The Target Group also has a policy of writing off inventory which is damaged, or aged stock which is no longer in saleable condition. The amount of inventory written off was no more than 0.20%, 0.40% and 0.19% of the turnover of the Target Group for the financial years ended 31 December 2011, 2012 and 2013 respectively.

Except for large-scale or bulky merchandise, which are delivered to the warehouses leased by Citistore HK, most goods are distributed directly by suppliers to the relevant Citistore Stores, at which time front-line sales employees conduct quality control checks in accordance with centralised operational procedures upon receipt. For large-scale or bulky merchandise, quality control checks are carried out in the warehouses of Citistore HK, which are primarily located in properties leased by Citistore HK in Tsuen Wan, New Territories. Regular deliveries from such warehouses to the relevant department stores or retail outlets are generally conducted internally, although part of the deliveries also out-sourced during peak seasons. Deliveries of goods from consignors or concessionaires are, in general, managed by such consignors and concessionaires, and do not utilise the Target Group’s warehouse and logistics resources.

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Trademarks

As at the Latest Practicable Date, the Target Group had 16 registered trademarks in Hong Kong and 1 registered trademark in the PRC. Other than the “Citistore 千色” and “id:c” trademarks, other trademarks including “TabeRu-Ru”, “KidS’quare”, and “homix” are primarily used by Citistore HK to differentiate between various sections of its retail business under the “Citistore” brand.

Insurance

Insurance policies have been obtained by Citistore HK for its assets and inventories, covering certain losses caused by accidents and natural disasters such as fire. The Target Group also maintains insurance policies for public liabilities which cover death and property loss of third parties caused by accidents that occur in the department stores and insurance policies for employees’ compensation.

Financial information

Set out below is certain financial information in relation to the Target Group based on the audited combined accounts of the Target Group:

	For the six
	months ended	**For **	**the financial year **		ended
	30 June	31 December	31 December	31 December
	2014	2013	2012		2011
	HK$ million	HK$ million	HK$ million		HK$ million
Turnover	419	807	764		709
Profit before taxation	74	160	148		133
Profit and total comprehensive
income for the year/period	62	133	123		111

The net asset value of the Target Group as at 30 June 2014 (based on the audited combined accounts of the Target Group for the six months ended 30 June 2014) amounted to approximately HK$15.8 million.

Under the Acquisition Agreement, HLD may arrange for Camay and Citistore HK to declare and pay dividends out of their respective retained earnings prior to Completion. Nonetheless, HLD has confirmed that it has no intention to exercise such right under the Acquisition Agreement to arrange for any dividend to be declared or paid by Camay or Citistore HK in respect of any of the retained earnings of the Target Group as at 30 June 2014 (amounting to approximately HK$15.8 million) or in respect of any of the profits from 1 July 2014 to Completion, which is expected to be at the end of November 2014 subject to the fulfillment of all the Conditions Precedent.

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Assuming that Completion takes place at the end of November 2014, it is estimated that the amount of dividends of the Target Group to be waived by HLD as mentioned above should be no less than HK$78 million, by taking into account the retained earnings of the Target Group as at 30 June 2014 and the combined profits of the Target Group for the three months ended 30 September 2014 as stated in the unaudited combined management accounts of the Target Group, and making reference to the combined profits of the Target Group for the two months from 1 October 2013 to 30 November 2013 as stated in the unaudited combined monthly management accounts of the Target Group.

Upon Completion, members of the Target Group will become subsidiaries of the Company and the financial results of the Target Group will be consolidated into the Group’s financial statements.

Management and employees

As at 30 June 2014, the Target Group had 835 employees in Hong Kong. Of these, 631 were full-time employees, 3 were contract employees and 201 were part-time employees. The following table sets forth the breakdown of the Target Group’s employees by department:

Function Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Warehouse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retail operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

No. of Employees

13 64 20 738 835

The remuneration packages for full-time employees of the Target Group typically comprise basic salaries, allowances, medical benefits, and discretionary year-end bonuses, while remuneration packages for part-time employees typically comprise basic salaries and allowances. A defined contribution retirement plan is provided by the Target Group towards the Mandatory Provident Fund for eligible employees in Hong Kong, while due to historical factors, long-time employees of the Target Group receive the benefit of ORSO contributions.

Competitive strengths

The management of the Target Group believes that the following are competitive strengths that have contributed to the Target Group’s success:

Well-recognised household name with convenient store location

Established since 1989, Citistore is a household name with over 20 years of operating track record which has been well-recognised by consumers for its affordable daily necessities. The Citistore Stores are located in well established, densely-populated residential districts and are in close proximity to local transport hubs. Such strategic store locations allow the retailing business of Citistore HK to penetrate its targeted consumers and in turn strengthen its competitive position in the market.

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Leverage on relationship with the HLD Group

There is limited availability of quality retail premises with a gross floor area of over 50,000 sq. ft. that is suitable for department stores operation in the Hong Kong leased property market. The rental level of sizeable premises in prime locations in established residential districts is often high and has been on a rising trend in the past years. In addition, costs for relocation and renovation of premises can be significant to a department store operator given the large floor spaces and the importance of interior decoration to the overall shopping experience.

As described in the section headed “ 11. Continuing Connected Transactions and the Framework Agreement ” below, Citistore HK has entered into certain long-term tenancy and licensing arrangements with the HLD Group involving pre-determined basic rent and turnover rent terms. The total gross floor area of the properties under these leases and licences amounts to 421,691 sq. ft..

Such tenancy and licensing arrangements with the HLD Group provide the Target Group the clear visibility on its future rental obligations with historical support and facilitate the management of the Target Group in future planning and budgeting of the business. In addition to the support from the HLD Group in the supply of retail or other spaces for the retailing business, it is also intended that after Completion the Target Group will consider leasing retail and other properties from other landlords if the need for retail or other properties arises and appropriate properties are available.

Effective merchandising strategy

As one of the merchandising strategies of Citistore HK is to source and purchase quality products which are not commonly offered by its competitors, the procurement team carries out regular visits in the PRC and other countries with a view to discovering new suppliers and new products which are attractive to its consumers.

The management of the Target Group believes that its merchandising strategy is effective and provides Citistore HK with significant competitive advantages in term of market share and sales growth.

Strong relationship with brand owners

During its long operating track record, Citistore HK has built up strong relationships with its suppliers, consignors and concessionaires. Over 20 years of business relationship has been developed with the major suppliers, consignors and concessionaires. These strong relationships facilitate Citistore HK’s ability to procure a stable and continuous supply of a wide range of merchandise and to better position itself to negotiate favourable terms for direct, concessionaire and consignment sales.

Experienced management team

The Target Group has built up an experienced management team with in-depth understanding of its business and operation as well as knowledge of the local retailing industry. Most of the members of the senior management have been participating in the “Citistore” business for over 15 years. They provide valuable insight, vision and expertise in the Target Group’s strategies formulation and are instrumental to the growth and development of the business.

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5. SHAREHOLDING STRUCTURE OF THE TARGET GROUP BEFORE AND AFTER COMPLETION

Restructuring of Camay, its subsidiaries and its previous subsidiaries

Before the Acquisition Agreement was entered into, Camay was the holding company of a number of subsidiaries including Citistore HK, Puretech and certain other subsidiaries not engaged in Citistore HK’s retailing business. The corporate structure of Camay and its then subsidiaries as at 30 June 2014 was as set out below:

==> picture [427 x 227] intentionally omitted <==

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

Camay
100% 100%
Citistore HK Max-mercan
100% 100% 100% 100% 100%
Well Future Wiselin
Citistore (China) Oven Supreme
Development Puretech Investment
Limited Limited
Limited Limited
90% 100%
Citistore Bright Sheen
(Guangzhou) Development
Limited Limited
----- End of picture text -----

The principal activities of those subsidiaries and previous subsidiaries of Camay other than Citistore HK and Puretech shown above (the “ Carve-out Companies ”) are as follows:

• (i) Max-mercan — investment holding

• (ii) Citistore (China) Limited — investment holding (being the intermediate holding company of Citistore (Guangzhou) Limited)

• (iii) Citistore (Guangzhou) Limited, Bright Sheen Development Limited, Well Future Development Limited and Oven Supreme Limited are all inactive.

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• (iv) Wiselin Investment Limited — investment holding of listed securities amounting to approximately 13.62% of the issued shares of HK Ferry as at the Latest Practicable Date.

In order to streamline the process of the Acquisition and to reduce the transaction costs of the Acquisition, it is provided under the Acquisition Agreement that Camay and its subsidiaries are to undergo a restructuring prior to Completion, whereby all Carve-out Companies will be transferred out of Camay so as to form the shareholding structure immediately prior to Completion as shown in the simplified shareholding structure chart below:

==> picture [287 x 136] intentionally omitted <==

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

HLD
approximately 69.27% 100%
the Company Camay
100% 100% 100%
the Purchaser Citistore HK Puretech
----- End of picture text -----

Wiselin Investment Limited had been transferred out of Camay and Bright Sheen Development Limited and Puretech had become directly held by Max-mercan and Camay, respectively, prior to the entering into of the Acquisition Agreement and the remaining steps of such restructuring will be carried out on or before Completion. The shareholding structure of the Target Group immediately after Completion is expected to be as set out in the simplified chart below:

==> picture [289 x 215] intentionally omitted <==

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

HLD
approximately 69.27%
the Company
100%
the Purchaser
100%
Camay
100% 100%
Citistore HK Puretech
----- End of picture text -----

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The Accountants’ Report on the Target Group

In the Accountants’ Report, the financial information of the Target Group includes the results of Camay, Citistore HK and Puretech and excludes the results of the Carve-out Companies. As described above, the Target Group formed a part of the larger group of Camay and all of its subsidiaries (the “ Overall Group ”) during the Reporting Period. The financial information of the Target Group included in the Accountants’ Report is prepared to present the results of the Target Group during the Reporting Period on a carve-out basis, rather than to present the financial information of the Overall Group prepared on an overall group approach which would include historical financial information of the Carve-out Companies.

While Hong Kong Financial Reporting Standards do not provide any explicit guidance on the preparation and presentation of carve-out financial statements, the accounting standards do not prohibit such basis of preparation of financial information. When preparing the financial information of the Target Group to be included in the Accountants’ Report, the Company has made reference to Standards for Investment Reporting 2000 (Revised), Investment Reporting Standards Applicable to Public Reporting Engagements on Historical Financial Information issued by The Auditing Practices Board of the Financial Reporting Council of the United Kingdom, which provides, inter alia, that where a business has formed part of a larger group but has not been accounted for separately, it may be desirable to present a separate track record for that business, derived from the records of the overall group.

In compiling the financial information of the Target Group set out in the Accountants’ Report, the Directors considered that it is more appropriate to present the financial information of the Target Group during the Reporting Period on a “carve-out” basis, rather than to present the financial information of the Overall Group prepared on an overall approach due to the following reasons:

• The Target Group is clearly delineated from the Carve-out Companies in terms of the nature of business and management.

• There are clearly identifiable assets, liabilities, revenue and expenditures of the Target Group and of the Carve-out Companies respectively.

• It is practicable to identify the historical financial information attributable to the Target Group’s business given that the accounting books and records of the Target Group are maintained separately from the accounting books and records of the Carve-out Companies.

• The Carve-out Companies do not form part of the assets to be acquired by the Company under the Acquisition and hence their historical financial information is not relevant to the trading record of the business proposed to be acquired. The Directors believe that presenting the consolidated financial information of the Overall Group, which would include the results of Carve-out Companies that are not the subject of the Acquisition, would provide irrelevant and potentially misleading financial information to the Shareholders and investors.

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• The consolidated financial information of the Overall Group had never been prepared by management of the Target Group on a standalone basis.

• Presenting the financial information of the Target Group on a “carve-out” basis would provide more direct and relevant information to the Shareholders and investors.

6. REASONS FOR AND BENEFITS OF THE ACQUISITION

The Board believes the reasons for and the benefits of the Acquisition are as follow:

1. Diversification of the existing portfolio of the Group

Infrastructure investment in the PRC currently represents the only business of the Group. Due to the on-going arbitration case as mentioned below, the Group has not been recognising revenue since 20 March 2012. The Acquisition will enable the Group to diversify its business and revenue sources, thereby enhancing its resilience to fluctuations in the business environment.

2. Acquisition of a business with established market position

The business of Citistore HK is a Hong Kong-based retail business with six department stores operating under the name “Citistore” and one specialty store operating under the name “id:c”.

All six “Citistore” department stores are located in established residential districts. These stores offer a diversified range of goods and merchandise, including apparel, cosmetics, housewares, foods and daily necessities, which enable customers to enjoy the convenience of a one-stop shopping experience for a wide variety of products at reasonable and competitive prices.

The “id:c” specialty store of Citistore HK offers an attractive collection of apparel brands from Japan. With the strategic store location at the heart of Tsim Sha Tsui, a key tourists shopping area, the store is well-positioned to target demand from local shoppers and tourists.

With more than 20 years of operating track record, the retailing business of the Target Group has built a strong brand that is trusted among the consuming public in Hong Kong.

3. Strategically located retail network with a proven track record of stable growth and profitability

Leveraging on more than 20 years of retail operating experience and in-depth understanding of the consumer spending habits as well as characteristics of each of the districts that they serve, the stores of the Target Group are strategically located to balance convenience to their customers and cost efficiency. Many of the product offerings are affordable daily necessities for which demand does not fluctuate significantly regardless of changes in the overall market conditions. The Target Group has therefore been able to achieve sustained growth in turnover, with year-on-year growth rates of 7.7% and 5.7% for the financial years ended 31 December 2012 and 2013 respectively.

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By optimising the merchandise mix to best serve the daily household needs of the target consumers and launching targeted marketing campaigns, the Target Group has been able to achieve consistent improvements in profitability, with EBITDA margins of 20.5%, 21.0% and 22.1% for the financial years ended 31 December 2011, 2012 and 2013 respectively.

The Acquisition is therefore made with a view to bringing in incremental stable earnings and an incremental cashflow stream for the Group.

4. Well-positioned to capture future growth opportunities through the Group’s listed platform

After the Completion, the Target Group will represent the largest business of the Group and is expected to benefit from renewed management focus. With access to capital markets financing through its listed platform, the Group intends to continue to leverage the recognition of the names “Citistore” and “id:c” and the strong relationship with brand owners to continue rolling out new stores to solidify Citistore HK’s presence in the Hong Kong retail market. The Group will also continue to introduce new products and product categories at the stores in order to capture additional market opportunities and to expand its customer base.

The Board considers that the terms of the Acquisition Agreement are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

In particular, in relation to the proposal for part of the Consideration to be settled by a promissory note to be issued by the Purchaser to HLD at Completion, as mentioned above, the amount intended to be so settled by way of promissory note represents part of the Group’s existing long-term bank deposits, and the promissory note is expected to be repaid by the Purchaser to HLD by late December 2014 when the long-term bank deposits can be uplifted. Before the long-term bank deposits are uplifted, the Group is able to earn deposit interest income under the long-term bank deposits at rates ranging from 1.7% to 3.8% per annum, which are expected to be higher than the proposed interest rate of the promissory note at HIBOR plus 0.84% per annum (equivalent to 1.06% per annum, assuming HIBOR to be at 0.22% according to The Hong Kong Association of Banks as at the Latest Practicable Date). In any event, the long-term bank deposits can only be uplifted shortly before the end of December 2014, after the expected Completion Date. In the circumstances, the Directors consider that it is in the interests of the Company and the Shareholders to settle part of the Consideration by way of the promissory note, notwithstanding that the promissory note will be interest bearing.

Since Dr. Lee Shau Kee, Mr. Lee Ka Kit, Mr. Lee Ka Shing and Mr. Lee Tat Man are each regarded as having a material interest in the transactions under the Acquisition Agreement and the Continuing Connected Leasing Transactions by virtue of their deemed interest in shares of HLD or being a family member of Dr. Lee Shau Kee, they have each abstained from voting on the relevant resolutions of the Board approving the Acquisition Agreement and the Annual Caps for the Continuing Connected Leasing Transactions pursuant to the articles of association of the Company and the Listing Rules.

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LETTER FROM THE BOARD

7. FINANCIAL EFFECTS OF THE ACQUISITION ON THE GROUP

As referred to in “ Appendix IV - Unaudited Pro Forma Financial Information on the Enlarged Group ” to this circular, on the basis of the notes set out therein for the purposes of illustrating the effects of the Acquisition, the financial effects of the Acquisition on the Group would be as follows:

• (a) the unaudited consolidated total assets of the Group would increase by approximately HK$754 million, or approximately 47.7%, from approximately HK$1,580 million as at 30 June 2014 to approximately HK$2,334 million if the Acquisition had taken place on 30 June 2014. Such increase is mainly attributable to the recognition by the Enlarged Group of an intangible asset (being trademarks) of approximately HK$51 million and goodwill arising from the Acquisition of approximately HK$858 million, partly offset by the decrease in cash and cash equivalents of approximately HK$310 million due to settlement of the Consideration as if the Acquisition had taken place on 30 June 2014;

• (b) the unaudited consolidated total liabilities of the Group would increase by approximately HK$772 million, or approximately 2,757.1%, from approximately HK$28 million as at 30 June 2014 to approximately HK$800 million if the Acquisition had taken place on 30 June 2014. Such increase is mainly attributable to the recognition by the Enlarged Group of the trade and other payables of the Target Group of approximately HK$223 million, and the carrying amount of the promissory note of approximately HK$508 million to be issued by the Group to settle part of the Consideration as if the Acquisition had taken place on 30 June 2014;

• (c) the unaudited consolidated net assets of the Group would decrease by approximately HK$18 million, or approximately 1.2%, from approximately HK$1,552 million as at 30 June 2014 to approximately HK$1,534 million if the Acquisition had taken place on 30 June 2014;

• (d) the deficit of approximately HK$23 million in the consolidated total comprehensive income of the Group for the six months ended 30 June 2014 would be turnaround to a surplus of approximately HK$21 million for the same period if the Acquisition had taken place on 1 January 2014;

• (e) the unaudited consolidated loss attributable to Shareholders of approximately HK$9 million for the six months ended 30 June 2014 would be turnaround to an unaudited consolidated profit attributable to Shareholders of approximately HK$35 million for the same period if the Acquisition had taken place on 1 January 2014; and

• (f) the net decrease in cash and cash equivalents of the Group of approximately HK$707 million for the six months ended 30 June 2014 would increase by approximately HK$340 million, or approximately 48.1%, to approximately HK$1,047 million for the same period if the Acquisition had taken place on 1 January 2014. Such increase is attributable to (i) a decrease in net cash generated from operating activities of approximately HK$11 million; and (ii) an increase in net cash used in investing activities of approximately HK$329 million.

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8. INTENDED LEVEL OF DIVIDENDS FOLLOWING COMPLETION

If the Acquisition becomes unconditional and is completed, the Board intends to recommend the payment of dividends amounting to no less than HK4 cents per Share for each financial year, for a period of three financial years starting from the year during which Completion takes place (which will be the financial years ending 31 December 2014, 2015 and 2016, if Completion takes place before the end of December 2014 as currently expected).

9. PROSPECTS

At present, the core asset of the Group is its 60% interest in Hangzhou Henderson Qianjiang Third Bridge Company Limited (the “ Joint Venture Company ”) which has been granted the operating right of Hangzhou Qianjiang Third Bridge for a period of 30 years from 20 March 1997 (commencement date of bridge operation). This project was approved by Hangzhou Foreign Economic Relations and Trade Commission in 1997 and was further approved by National Development and Reform Commission (formerly known as State Development & Planning Committee) in 1999. The General Office of the People’s Government of Zhejiang Province notified Zhejiang Province Department of Communications and other relevant government authorities in 2003 to provisionally fix the period for entitlement to toll fees in respect of 39 toll roads and highways in the province. In the case of Hangzhou Qianjiang Third Bridge, which was also included in the list, the period was provisionally fixed at 15 years (from 20 March 1997 to 19 March 2012). The Joint Venture Company immediately took action to seek clarification and obtained from the Hangzhou Municipal Bureau of Communications a written pledge that the operating period of 30 years would remain unchanged. They also shared the view that the operating right and the toll fee collection right should be for the same period. For the sake of reassurance, the Joint Venture Company wrote to the People’s Government of Zhejiang Province and Zhejiang Province Department of Communications (collectively the “Authorities”) in June 2011 requesting their confirmation that both the operating right and the toll fee collection right would last for the same period of 30 years. The Joint Venture Company also on 9 February 2012 filed with the Legislative Affairs Office of the People’s Government of Zhejiang Province an administrative reconsideration application for the purpose of seeking an order to oblige the Authorities to carry out their statutory duties to officially confirm that the toll fee collection right of Hangzhou Qianjiang Third Bridge should be for a period of 30 years.

On 20 March 2012, the Joint Venture Company received a letter dated 18 March 2012 from 杭 州市城巿“四自”工程道路綜合收費管理處 (Hangzhou City “Sizi” Engineering & Highway General Toll Fee Administration Office) (the “Hangzhou Toll Office”), which stated that, because the General Office of the People’s Government of Zhejiang Province in 2003 provisionally fixed the period of entitlement to toll fees in respect of Hangzhou Qianjiang Third Bridge to end on 19 March 2012, they would, commencing from 20 March 2012, provisionally suspend payment of toll fees to the Joint Venture Company in respect of Hangzhou Qianjiang Third Bridge. The Hangzhou Toll Office is the relevant government body in Hangzhou that records the traffic flow and makes payments of toll fees from Hangzhou Qianjiang Third Bridge pursuant to the terms of an agreement dated 5 February 2004 (the “ Collection Agreement ”) entered into between the Joint Venture Company and the Hangzhou Toll Office. The Hangzhou Toll Office also stated in the letter that they would, in accordance with the terms of the Collection Agreement, continue to record the traffic flow of Hangzhou Qianjiang Third Bridge and work with the Joint Venture Company. The Joint Venture Company was instructed by the

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Company to write to the Hangzhou Toll Office to state that the action taken by the Hangzhou Toll Office had no legal or contractual basis and was unacceptable, and to ask the Hangzhou Toll Office to clarify the basis of their action. The letter also called on the Hangzhou Toll Office to continue to perform its obligations under the Collection Agreement failing which the Joint Venture Company would have no alternative but to take legal action to protect its interests. Subsequent to further negotiations with the Authorities, the Joint Venture Company on 6 June 2012 received a letter from Hangzhou Municipal Bureau of Communications which stated that Hangzhou Municipal Bureau of Communications had been confirmed and assigned by Hangzhou Municipal People’s Government to negotiate concretely with the Joint Venture Company and strive to properly deal with the related matters resulting from the provisional suspension of the toll fee payment of Hangzhou Qianjiang Third Bridge commencing from 20 March 2012 as soon as possible. The letter also stated that the corresponding compensation matters proposed by the Joint Venture Company would also be dealt with in due course. However, Hangzhou Municipal Bureau of Communications still failed to put forward any acceptable proposal or compensation offer regarding the toll fee collection right of Hangzhou Qianjiang Third Bridge. Consequential upon the failure of the relevant authority to put forward any formal proposal or compensation offer regarding the toll fee collection right, for the sake of prudence, the toll revenue commencing from 20 March 2012 has not been recognised in the accounts of the Group.

On 17 September 2012, the Joint Venture Company filed an arbitration application with China International Economic and Trade Arbitration Commission in relation to the toll fees of Hangzhou Qianjiang Third Bridge. Arbitration proceedings commenced on 14 April 2014 but no conclusion has been reached. The arbitration tribunal considered that both parties should pursue further negotiations to seek a settlement plan and the joint venture company has written to Hangzhou Municipal People’s Government accordingly. In July 2014, the arbitration tribunal requested both parties to submit their own settlement plans and gave an indication of a possible meeting in September 2014 for mediation. However, up to the Latest Practicable Date, the arbitration tribunal had yet to fix the date for the mediation meeting. The Group is still awaiting the arbitration tribunal’s notice on the date of such meeting.

For further details in relation to the toll fee collection right in respect of Hangzhou Qianjiang Third Bridge and the arbitration proceedings, please refer to the 2014 interim report of the Company, and previous annual and interim reports and relevant announcements of the Company.

The Group will follow up closely with the development of the arbitration case and continue to pursue further negotiations with the relevant PRC authority with a view to achieving a settlement that is in the interest of the Group and its shareholders as a whole.

There is no certainty as to the final outcome of the arbitration proceedings. If the Acquisition becomes unconditional and is completed, and the arbitration proceedings confirm the Joint Venture Company’s toll fee collection right in Hangzhou Qianjiang Third Bridge, the Company intends to continue with the Group’s infrastructure business in relation to the bridge, together with the department store business of the Target Group. On the other hand, if the Group ceases to have an economic interest in Hangzhou Qianjiang Third Bridge, the Company intends to operate the department store business through the Target Group after the completion of the Acquisition, and will

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in any event consider other investment opportunities as and when they arise, including investments in the infrastructure business if there are suitable opportunities. If and only if the Joint Venture Company’s toll fee collection right in Hangzhou Qianjiang Third Bridge is confirmed and toll fee payment is resumed, recognition of toll revenue will resume in the accounts of the Group.

10. PROPOSED NEW DIRECTOR AND SENIOR MANAGEMENT

The Company intends to retain the existing management team of the Target Group following Completion of the Acquisition, while the Board will retain the responsibility of monitoring and overseeing the corporate management and financial affairs of the Enlarged Group. It is proposed that Mr. LI Ning will be appointed as an additional Executive Director upon Completion of the Acquisition. Other than the above, there is no other proposed change to the existing composition of the Board or the senior management of the Group following completion of the Acquisition.

Set out below are the brief biographies of Mr. LI Ning and the senior management of the Target Group who are involved in the management of the business of the Target Group throughout the Reporting Period and up to present:

LI Ning BSc, MBA , aged 57, of 71/F, Two International Finance Centre, 8 Finance Street, Central, Hong Kong is currently and has been an executive director of HLD since 1992. He holds a B.Sc. degree from Babson College and an M.B.A. degree from the University of Southern California. Mr. Li set up the business of Citistore Stores in 1989 and he has been managing the business since then in the capacity as a director, being a veteran with 25 years’ experience in the department store business. Mr. Li is also an executive director of HK Ferry, a listed associated company of HLD. Mr. Li also served as an executive Director of the Company from 1990 to 2010. He previously served as an independent non-executive director of Glencore International plc, a listed company, until his resignation on 2 May 2013. He is the son-in-law of Dr. Lee Shau Kee, the spouse of Ms. Lee Pui Man, Margaret and the brother-in-law of Mr. Lee Ka Kit and Mr. Lee Ka Shing.

FONG Chun Wa, Benny BBA (Accounting), FCCA, FCPA (Aust.) , aged 54, of 71/F, Two International Finance Centre, 8 Finance Street, Central, Hong Kong joined the HLD Group in 1996 with primary responsibility for managing the business of Citistore Stores and is presently the Assistant General Manager of Retail and Hotel Management Department and the General Manager of Citistore HK. Mr. Fong is a fellow of both the Association of Chartered Certified Accountants and CPA Australia. He has over 30 years of experience in retail management, accounting, auditing and financing.

LEE Miu Yee, Cynthia BSc , aged 61, of 9/F, City Landmark I, 68 Chung On Street, Tsuen Wan, New Territories, Hong Kong joined Citistore in 1996 and is presently the Assistant General Manager of Citistore HK. Ms. Lee holds a Bachelor of Science degree from the University of Alberta, Canada. She has over 33 years’ experience in the management and operation of department stores. Her major duties are to lead and manage the merchandising, concessionary counters, advertising and sales promotion, and human resources, as well as to formulate business development plans. Prior to joining Citistore, she was the Merchandising Manager of Yaohan Department Store (HK) Ltd. and the Assistant Store Manager of Klasse Department Store.

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WONG Tam Hing, Lily, aged 61, of 9/F, City Landmark I, 68 Chung On Street, Tsuen Wan, New Territories, Hong Kong joined Citistore in 2012 and is presently the Assistant General Manager of Citistore HK. Her major duties are the store operations and warehouse management. She has more than 35 years of experience in retail store operation management in Hong Kong, Macau and China. Prior to joining Citistore, she was the Retail Operation Manager of FENDI in LVMH Group HK. During her 10 years’ service with LVMH Group HK, she also managed the retail operation of FENDI stores in Macau & China. She had also served Kwok Hang Holdings Ltd. as Group Operation Manager, Lane Crawford HK as Assistant Store Operation Manager and Hang Lung Matsuzakaya Co. Ltd. as Assistant Manager.

LEUNG Kwok Hei, Anthony BSc, PgD, MBA, MRICS, MCIOB, MAIB, MHKICM , aged 47, of 71/F, Two International Finance Centre, 8 Finance Street, Central, Hong Kong joined the HLD Group in 1997 with primary responsibility for managing the business of Citistore Stores and is presently the Project Manager of Retail and Hotel Management Department. Mr. Leung holds a BSc degree from the City University of Hong Kong and a MBA degree from the University of Reading, UK. He is a Chartered Surveyor and a Chartered Builder and has over 25 years’ experience in project management, asset development and retail business strategy formulation. His major duties are the overall control of store renovation and image, and the formulation of new store expansion plans.

None of the above senior management members had any management role in the Carve-out Companies throughout the Reporting Period and up to present.

11. CONTINUING CONNECTED TRANSACTIONS AND THE FRAMEWORK AGREEMENT

For the purposes of the business operations of Citistore HK, a number of transactions have been entered into, and will following Completion continue to be entered into, between Citistore HK and certain members of the HLD Group. Upon Completion, Citistore HK will become a subsidiary of the Company. Since HLD is a controlling shareholder and holding company of the Company, certain subsisting transactions of Citistore HK with members of the HLD Group will constitute continuing connected transactions of the Group under Chapter 14A of the Listing Rules following Completion.

1. Description of the transactions

Citistore HK has, in its ordinary and usual course of business, entered into property leasing and licensing arrangements with members of the HLD Group to lease and obtain licences from the HLD Group properties for Citistore HK’s use. Currently, leasing and licensing arrangements between Citistore HK and certain members of the HLD Group in respect of the following properties are in force and are expected to remain in effect upon Completion:

• (i) office premises in City Landmark I at 68 Chung On Street, Tsuen Wan, New Territories, Hong Kong; and

• (ii) various shopping mall premises in Tsuen Wan, Yuen Long, Ma On Shan, Tseung Kwan O and Tuen Mun in respect of the Target Group’s operations of the Citistore Stores in the abovementioned districts of Hong Kong.

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2. The principal terms of the Existing HLD Tenancy Agreements

Most of the Existing HLD Tenancy Agreements between Citistore HK and the HLD Group include fixed tenancy terms ending on or before 30 September 2023, and provisions with respect to adjustment of rental and other ancillary expenses payable during such fixed terms. The licensing arrangements with the HLD Group with respect to the operations of each of the Citistore Stores and the Citistore HK Offices (except for the Ma On Shan branch of the Citistore Stores with no licensing arrangements) are contained in the relevant Existing HLD Tenancy Agreements. These licensing arrangements mainly involve licenses for the use of wall signages, lighting boxes, the installation of entrance porches, and the use of lavatories and other common areas of the shopping malls in which the relevant shop premises leased by Citistore HK are located.

It is anticipated that Sunshine City Plaza in Ma On Shan, being the shopping mall at which the Ma On Shan branch of the Citistore Stores is located, will undergo renovation in the near future, and the principal portion of the premises currently being leased by Citistore HK will be relocated to another newly renovated space on the same floor (being the third floor) of the shopping mall in a different area. There are specific arrangements under the relevant Existing HLD Tenancy Agreement in relation to relocation, the rent and terms for leasing of such premises, including a rental concession during periods affected.

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				Turnover Rent Provisions			— 8% of annual turnover	(on an aggregate basis	for all shop premises of	the Tsuen Wan Citistore	Store)		— Turnover rent payable	instead of basic rent if	higher than the basic	rent payable			— 8% of annual turnover	(on an aggregate basis	for all shop premises of	the Tsuen Wan Citistore	Store)		— Turnover rent payable	instead of basic rent if	higher than the basic	rent payable
	Third part of the fixed term			Duration Basic Rent per month	(HK$)		1 October 2020 - Open market rent as agreed	30 September 2023 between the parties, which	shall be no less than the	monthly rent immediately	payable prior to the	expiration of the second	part of the fixed term, and	no more than 115% of the	average of the monthly	basic rent payable during	the second part of the fixed	term.	1 October 2020 - Open market rent as agreed	30 September 2023 between the parties, which	shall be no less than the	monthly rent immediately	payable prior to the	expiration of the second	part of the fixed term, and	no more than 115% of the	average of the monthly	basic rent payable during	the second part of the fixed	term.
Term *Note 1	Lettable First part of the fixed term Second part of the fixed term		Area Basic Rent	Premises in sq.ft Duration per month Duration Basic Rent per month	(HK$) (HK$)	Tsuen Wan Branch of Citistore Stores at City Landmark II, 67 - 95, Tsuen Wan Market Street, Tsuen Wan Town Lot No. 301	Shop Nos. G9 - G12, 1,893 1 October 2014 - 370,000 1 October 2017 - 7% increase in basic rent	G/F 30 September 2017 30 September 2020 from the basic rent of each	preceding year										Shop Nos. G13 - G16 133,469 1 October 2014 - 5,369,444 1 October 2017 - 7% increase in basic rent	and Shops G24 - G29, 30 September 2017 30 September 2020 from the basic rent of each	G/F; Whole of 1/F; preceding year	Portion of 2/F;	Remaining Portion of	2/F; and Shops 301 -	303 on 3/F

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			Turnover Rent Provisions		— 8% of annual turnover	(on an aggregate basis	for all shop premises of	the Tsuen Wan Citistore	Store)		— Turnover rent payable	instead of basic rent if	higher than the basic	rent payable			— 8% of annual turnover	(on an aggregate basis	for all shop premises of	the Tsuen Wan Citistore	Store)		— Turnover rent payable	instead of basic rent if	higher than the basic	rent payable				— 8% of annual turnover	(on an aggregate basis	for all shop premises of	the Yuen Long Citistore	Store)		— Turnover rent payable	instead of basic rent if	higher than the basic	rent payable
Third part of the fixed term			Duration Basic Rent per month	(HK$)	1 October 2020 - Open market rent as agreed	30 September 2023 between the parties, which	shall be no less than the	monthly rent immediately	payable prior to the	expiration of the second	part of the fixed term, and	no more than 115% of the	average of the monthly	basic rent payable during	the second part of the fixed	term.	1 October 2020 - Open market rent as agreed	30 September 2023 between the parties, which	shall be no less than the	monthly rent immediately	payable prior to the	expiration of the second	part of the fixed term, and	no more than 115% of the	average of the monthly	basic rent payable during	the second part of the fixed	term.		1 October 2020 - Open market rent as agreed	30 September 2023 between the parties, which	shall be no less than the	monthly rent immediately	payable prior to the	expiration of the second	part of the fixed term, and	no more than 115% of the	average of the monthly	basic rent payable during	the second part of the fixed	term.
Lettable First part of the fixed term Second part of the fixed term		Area Basic Rent	Premises in sq.ft Duration per month Duration Basic Rent per month	(HK$) (HK$)	Shops G18A, G18B, 2,951 1 May 2015 - 490,000 1 October 2017 - 7% increase in basic rent	G19-G23, G/F 30 September 2017 30 September 2020 from the basic rent of each	*Note 1 & 2 preceding year										Shops G17, G/F 547 1 October 2015 - 110,000 1 October 2017 - 7% increase in basic rent	*Note 1 & 2 30 September 2017 30 September 2020 from the basic rent of each	preceding year										Yuen Long Branch of Citistore Stores at Citimall, 1 Kau Yuk Road, Yuen Long, New Territories Yuen Long Town Lot No. 464	Shop Nos 1 - 3, 35 - 39 4,296 1 October 2014 - 305,000 1 October 2017 - 7% increase in basic rent	& 48 - 49, 2/F 30 September 2017 30 September 2020 from the basic rent of each	preceding year

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LETTER FROM THE BOARD

				Turnover Rent Provisions		— 8% of annual turnover	(on an aggregate basis	for all shop premises of	the Yuen Long Citistore	Store)		— Turnover rent payable	instead of basic rent if	higher than the basic	rent payable			— 8% of annual turnover	(on an aggregate basis	for all shop premises of	the Yuen Long Citistore	Store)		— Turnover rent payable	instead of basic rent if	higher than the basic	rent payable
	Third part of the fixed term			Duration Basic Rent per month	(HK$)	1 October 2020 - Open market rent as agreed	30 September 2023 between the parties, which	shall be no less than the	monthly rent immediately	payable prior to the	expiration of the second	part of the fixed term, and	no more than 115% of the	average of the monthly	basic rent payable during	the second part of the fixed	term.	1 October 2020 - Open market rent as agreed	30 September 2023 between the parties, which	shall be no less than the	monthly rent immediately	payable prior to the	expiration of the second	part of the fixed term, and	no more than 115% of the	average of the monthly	basic rent payable during	the second part of the fixed	term.
Term *Note 1	Second part of the fixed term			Duration Basic Rent per month	(HK$)	1 October 2017 - 7% increase in basic rent	30 September 2020 from the basic rent of each	preceding year										1 October 2017 - 7% increase in basic rent	30 September 2020 from the basic rent of each	preceding year
	First part of the fixed term		Basic Rent	Duration per month	(HK$)	Phase I: Phase I:		1 October 2014 - 1,128,000	30 June 2015			Phase II: Phase II:		1 July 2015 - 1,297,000	30 September 2017			13 November 2015 - 275,000	30 September 2017
	Lettable		Area	in sq.ft		47,927												2,586
				Premises		Whole of 3/F and 4/F												Shop Nos 31 - 34, 40 -	42 and 45 - 47, 2/F	*Note 1 & 2

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			Turnover Rent Provisions			8% of annual turnover (if	higher than the basic rent	payable)										Nil												Nil
Third part of the fixed term			Duration Basic Rent per month	(HK$)		1 October 2020 - Open market rent as agreed	30 September 2023 between the parties, which	shall be no less than the	monthly rent immediately	payable prior to the	expiration of the second	part of the fixed term, and	no more than 115% of the	average of the monthly	basic rent payable during	the second part of the fixed	term.	1 October 2020 - Open market rent as agreed	30 September 2023 between the parties, which	shall be no less than the	monthly rent immediately	payable prior to the	expiration of the second	part of the fixed term, and	no more than 115% of the	average of the monthly	basic rent payable during	the second part of the fixed	term.	1 October 2020 - Open market rent as agreed	30 September 2023 between the parties, which	shall be no less than the	monthly rent immediately	payable prior to the	expiration of the second	part of the fixed term, and	no more than 115% of the	average of the monthly	basic rent payable during	the second part of the fixed	term.
Lettable First part of the fixed term Second part of the fixed term		Area Basic Rent	Premises in sq.ft Duration per month Duration Basic Rent per month	(HK$) (HK$)	Ma On Shan Branch of Citistore Stores at Sunshine City Plaza, Ma On Shan, Sha Tin Town Lot No. 307 *Note 5	Shop No. 3048, Level 3 54,748 Phase I: Phase I: 1 October 2017 - 7% increase in basic rent	30 September 2020 from the basic rent of each	1 October 2014 - 1,259,204 preceding year	30 June 2015			Phase II: Phase II:		1 July 2015 - 1,448,000	30 September 2017			Shop Nos. 3043-44 and 5,997 1 October 2014 - 304,750 1 October 2017 - 7% increase in basic rent	3045 - 47, Level 3 30 September 2017 30 September 2020 from the basic rent of each	preceding year										Shop Nos. 3057 - 3058, 814 1 October 2014 - 58,068 1 October 2017 - 7% increase in basic rent	Level 3 30 September 2017 30 September 2020 from the basic rent of each	preceding year

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			Turnover Rent Provisions		Nil												Nil			— 9.5% of annual turnover	(on an aggregate basis	for all shop premises of	the Tseung Kwan O	Citistore Store)		— Turnover rent payable	instead of basic rent if	higher than the basic	rent payable
Third part of the fixed term			Duration Basic Rent per month	(HK$)	1 October 2020 - Open market rent as agreed	30 September 2023 between the parties, which	shall be no less than the	monthly rent immediately	payable prior to the	expiration of the second	part of the fixed term, and	no more than 115% of the	average of the monthly	basic rent payable during	the second part of the fixed	term.	Not applicable Not applicable			1 October 2020 - Open market rent as agreed	30 September 2023 between the parties, which	shall be no less than the	monthly rent immediately	payable prior to the	expiration of the second	part of the fixed term, and	no more than 115% of the	monthly basic rent	immediately payable prior	to the expiration of the	second part of the fixed	term.
Lettable First part of the fixed term Second part of the fixed term		Area Basic Rent	Premises in sq.ft Duration per month Duration Basic Rent per month	(HK$) (HK$)	Shop No. 3059, Level 3 1,478 1 October 2014 - 89,436 1 October 2017 - 7% increase in basic rent	30 September 2017 30 September 2020 from the basic rent of each	preceding year										Shop 2110, Level 2 5,166 1 October 2014 - 110,000 Not applicable Not applicable	*Note 1 & 4 26 April 2015	Tseung Kwan O Branch of Citistore Stores at Metro City Phase II, Tseung Kwan O Town Lot No. 27	Shop Nos. 2047 - 51, 42,680 Phase I: 861,740 1 October 2017 - 1,184,900	Level 2 30 September 2020	*Note 2 & 6 1 October 2014 -	30 November 2014			Phase II: 947,920		1 December 2014 -	30 September 2017

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			Turnover Rent Provisions		— 9.5% of annual turnover	(on an aggregate basis	for all shop premises of	the Tseung Kwan O	Citistore Store)		— Turnover rent payable	instead of basic rent if	higher than the basic	rent payable			— 9.5% of annual turnover	(on an aggregate basis	for all shop premises of	the Tseung Kwan O	Citistore Store)		— Turnover rent payable	instead of basic rent if	higher than the basic	rent payable				— 8% of annual turnover	of the Tuen Mun	Citistore Store shop	premises		— Turnover rent payable	if higher than the basic	rent payable
Third part of the fixed term			Duration Basic Rent per month	(HK$)	1 October 2020 - Open market rent as agreed	30 September 2023 between the parties, which	shall be no less than the	monthly rent immediately	payable prior to the	expiration of the second	part of the fixed term, and	no more than 115% of the	average of the monthly	basic rent payable during	the second part of the fixed	term.	1 October 2020 - Open market rent as agreed	30 September 2023 between the parties, which	shall be no less than the	monthly rent immediately	payable prior to the	expiration of the second	part of the fixed term, and	no more than 115% of the	average of the monthly	basic rent payable during	the second part of the fixed	term.		1 October 2020 - Open market rent as agreed	30 September 2023 between the parties, which	shall be no less than the	monthly rent immediately	payable prior to the	expiration of the second	part of the fixed term, and	no more than 115% of the	average of the monthly	basic rent payable during	the second part of the fixed	term.
Lettable First part of the fixed term Second part of the fixed term		Area Basic Rent	Premises in sq.ft Duration per month Duration Basic Rent per month	(HK$) (HK$)	Shop Nos. 2054 - 56 12,703 1 October 2014 - 300,000 1 October 2017 - 7% increase in basic rent	Level 2 30 September 2017 30 September 2020 from the basic rent of each	preceding year										Shop Nos. 2063 - 65 on 3,392 1 October 2014 - 186,560 1 October 2017 - 7% increase in basic rent	Level 2 30 September 2017 30 September 2020 from the basic rent of each	preceding year										Tuen Mun Branch of Citistore Stores at North Wing, Trend Plaza, Tuen Mun Town Lot No. 282	Portion of L3, North 17,683 1 October 2014 - 890,000 1 October 2017 - 7% increase in basic rent	Wing 30 September 2017 30 September 2020 from the basic rent of each	preceding year

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Term *Note 1	Lettable First part of the fixed term Second part of the fixed term Third part of the fixed term	Area Basic Rent	Premises in sq.ft Turnover Rent Provisions Duration per month Duration Basic Rent per month Duration Basic Rent per month	(HK$) (HK$) (HK$)	The Offices of Citistore HK Offices	Whole of 8/F and 9/F., 22,724 Phase I: Phase I: 1 October 2017 - 483,567 Not applicable Not applicable Not applicable	City Landmark I, No. 68 * expressed 30 September 2020	Chung On Street, Tsuen in terms of 1 October 2014 - 386,308	Wan, Town Lot No. 328, gross floor 31 July 2015	New Territories area	*Note 1	Phase II: Phase II:	1 August 2015 - 420,394	30 September 2017	*Notes:	1: Except in respect of those tenancy agreements marked by *Note 1, all Existing HLD Tenancy Agreements have a fixed term of nine years, from 1 October 2014 - 30 September	2023.	2: Each of these tenancy agreements provides for a rent-free period of 3 months.	3: This tenancy agreement provides for a rent-free period of 6 months.	4: All basic rents set out in the table above are exclusive of management fees, air conditioning charges, promotional levies and government rates (as applicable), save for the	tenancy agreement marked_*Note 4. Please also see _Note 6 below. The amounts of the basic rents (including the agreed adjustments of those amounts for subsequent periods	after the first part of the fixed term) under the tenancy agreements have been determined after taking into account a number of factors, including the district, size and location	of the relevant premises, the anticipated rise in market rental levels, the affordability of the rental to Citistore HK, the parties’ commitment to a long nine-year tenancy term,	the contribution of Citistore HK as the major anchor tenant in the relevant shopping mall, and (where applicable) the inclusion of turnover rent provisions in the tenancy	agreements.	5: In respect of the existing premises of the Ma On Shan branch of the Citistore Stores, the monthly basic rent payable in respect of the second and third parts of the fixed	term are set out above for illustrative purposes. It is anticipated that, in the year 2017, the relocation arrangements between Citistore HK and the relevant landlord(s) under	the current tenancy arrangements for the Ma On Shan branch of the Citistore Stores shall come into effect, and accordingly, the rental payment arrangements described above	would not apply, and the following lease arrangements shall apply:

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Turnover Rent	— 8% of annual turnover		— Turnover rent payable instead of	basic rent if higher than the basic	rent payable		— The turnover rent element shall not	apply during the period of	renovation works on Level 3,	Sunshine City Plaza, and the	monthly basic rent shall be reduced	by HK$11 per sq.ft. of lettable area.
Premises Lettable Area in sq.ft. Term Rent payable per month (HK$)	The relocated premises on Between 55,784 sq.ft. and The lease commencement date shall be Up to 30 September 2017: 23.00 per sq.ft.	Level 3 of Sunshine City 68,180 sq.ft. of lettable area, subject to the progress of renovation of lettable area	Plaza, No. 18 On Luk Street, or otherwise as mutually works at Sunshine City Plaza, but shall	Shatin, New Territories agreed between the parties not be in any event later than 31 May From 1 October 2017 - 30 September	2017 (or such other date as may be 2018: 24.61 per sq.ft. of lettable area	mutually agreed between the parties).	From 1 October 2018 - 30 September	In any event, the fixed term of this 2019: 26.33 per sq.ft. of lettable area	tenancy arrangement shall expire on 30	September 2023.*Note 3 From 1 October 2019 - 30 September	2020: 28.17 per sq.ft. of lettable area		From 1 October 2020 - 30 September	2023: Open market rent as agreed between	the parties, which shall be no less than the	monthly rent payable for the month of	September 2020, and no more than 115%	of the average of the monthly basic rent	payable from 1 October 2017 - 30	September 2020.	6: The basic rent for this tenancy agreement is inclusive of management fees, air-conditioning charges and promotion levy (if any).

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LETTER FROM THE BOARD

3. Historical transaction amounts

For each of the financial years ended 31 December 2011, 2012 and 2013, the aggregate annual rental payments, air conditioning charges, licence fees and management fees (as applicable) paid by the Target Group to the HLD Group pursuant to tenancy and licensing arrangements then in place in respect of premises under the Existing HLD Tenancy Agreements were approximately HK$157.0 million, approximately HK$161.4 million and approximately HK$175.0 million respectively.

4. Principal terms of the Framework Agreement

As provided above, the terms of the Existing HLD Tenancy Agreements will not expire by the date of Completion. The Company and the HLD Group intend that the Existing HLD Tenancy Agreements will continue following Completion. Further, Citistore HK may from time to time enter into further and other tenancy and licensing transactions for the use of properties with relevant members of the HLD Group. Therefore, to ensure that all tenancy and licensing transactions between relevant members of the HLD Group and Citistore HK comply with Chapter 14A of the Listing Rules, the Company entered into the Framework Agreement with HLD on 15 October 2014, which will take effect from the date of Completion and will be for a term commencing from the date of Completion to 30 September 2023 (both days inclusive).

The Framework Agreement stipulates that all tenancy and licensing transactions between relevant members of the HLD Group and relevant members of the Group must be (i) on normal commercial terms with reference to prevailing market terms; (ii) in the ordinary and usual course of business of such relevant members of the Group; and (iii) comparable to the rates at which the relevant members of the HLD Group lease or license the use of similar premises to other tenants or licensees which are independent third parties, at or around the relevant time, and will be on terms which are no less favourable to such relevant members of the Group than those offered by members of the HLD Group to its then existing tenants or licensees of similar premises which are independent third parties.

Under the Framework Agreement, all the Existing HLD Tenancy Agreements will be treated and regarded as having been made pursuant to the Framework Agreement from the date of Completion onwards.

The principal terms of the Framework Agreement can be summarised as follows:

Date: 15 October 2014 Parties: HLD, and the Company Term: from the date of Completion to 30 September 2023 Main terms: Pursuant to the Framework Agreement, it was agreed, among other things, that members of the Group may lease and/or license various premises from members of the HLD Group, as they may mutually agree from time to time.

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LETTER FROM THE BOARD

Each of the Company and HLD will, and will procure their respective subsidiaries to, enter into individual leasing and licensing agreements in respect of certain premises in Hong Kong during the term thereof on terms that are in line with the terms of the Framework Agreement. Each of such individual lease or licence agreements will set out specific terms of the leases or licences (as applicable), including but not limited to particulars of the premises, rental or licence fees (as applicable) and other fees payable and the payment terms thereof, which shall be determined principally by arms’ length negotiations with reference to the prevailing market rents and/or licensing fees of similar premises in the relevant areas from time to time.

The terms of each such tenancy or licensing agreement made under the Framework Agreement shall be determined according to the following procedures:

• (i) In respect of new rental or licensing arrangements between members of the HLD Group and members of the Group, the respective proposed parties to these rental arrangements shall enter into arms’ length negotiations.

• (ii) In respect of renewal of existing rental or licensing arrangements by the exercise of options in respect of such arrangements, the relevant members of the HLD Group and relevant members of the Group shall negotiate in accordance with the terms and conditions of the existing lease or license regarding the exercise of options.

• (iii) During the negotiations with respect to new or renewal rental or licensing arrangements, the relevant members of the HLD Group and the relevant members of the Group shall have regard to the pricing policy as set out in the Framework Agreement (the “ Pricing Policy ”). Under the Pricing Policy, the rent, license fees, and other terms of each tenancy and licensing transaction under the Framework Agreement should be determined by taking into account the particular circumstances of the proposed arrangement, including but not limited to the district, vicinity, size and location of the premises concerned, the business to be carried on at such premises, the proposed length of the term of lease or license, as well as the possible contribution, if any, of the potential tenant to the building or shopping mall in which such relevant premises are located. Such circumstances shall be considered with reference to market comparables as may be obtained from the Land Registry of Hong Kong or from enquiries with property agencies.

• (iv) Should the parties to new or renewal rental or licensing arrangements reach a consensus, the relevant lease or licensing agreement will be finalised and entered into.

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LETTER FROM THE BOARD

5. Proposed annual caps

In accordance with Rule 14A.53 of the Listing Rules, the Company has set annual caps for the maximum aggregate amount payable by the Group to the HLD Group under the Framework Agreement (including the amounts payable by the Group under the Existing HLD Tenancy Agreements and those under other tenancy and licensing arrangements that may be entered into with the HLD Group):

Financial year ending 31 December 20141 2015 2016 2017 2018 2019 2020 2021 2022 20232	Proposed Annual Cap in respect of all tenancy and licensing transactions between the	Proposed Annual Cap	Proposed Annual Cap	Proposed Annual Cap	Proposed Annual Cap
		in respect of all tenancy and licensing		in respect of all
			HLD Group and the
					Target Group
					(HK$’million) 39 243 264 263 280 296 315 338 351 268

Notes:

• (1) For the financial year ending 31 December 2014, only tenancy and licensing transaction amounts after Completion are counted towards and compared with the Annual Cap, as only transactions after Completion will constitute connected transactions of the Company.

• (2) For the financial year ending 31 December 2023, only tenancy and licensing transaction amounts during the period from 1 January 2023 to 30 September 2023 are counted towards and compared with the Annual Cap.

The abovementioned Annual Caps have been determined by reference to, among other things, (i) the basic rent and turnover rent provisions under the respective Existing HLD Tenancy Agreements and aggregate amounts payable by the Target Group to the HLD Group pursuant to previous tenancy and licensing arrangements of approximately HK$157.0 million, approximately HK$161.4 million and approximately HK$175.0 million respectively for the three years ended 31 December 2013; (ii) the estimated turnover for each Citistore Store on premises leased from the HLD Group for the relevant financial periods which is estimated to increase in the range of 3% to 8% each year; (iii) estimated increase in the management fee and air-conditioning charges of 6% for each year in respect of the terms of the Existing HLD Tenancy Agreements; and (iv) a buffer not exceeding 20% to account for inflation, new leases or licenses that may be entered into from time to time under the Framework Agreement and the potential trend of leasing market conditions.

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LETTER FROM THE BOARD

For those Existing HLD Tenancy Agreements with a fixed term of nine years, the basic rent payable for the third part of the fixed term is open market rent as agreed between the parties, subject to the requirement that such open market rent would be subject to a maximum cap. In arriving at the Annual Caps, such maximum caps were also assumed to be the basic rent payable for the third part of the fixed term for those relevant Existing HLD Tenancy Agreements.

The Company considers that it is fair and reasonable for the buffer referred to in item (iv) above to be included in determining the Annual Caps, considering the involvement of turnover rent which is difficult to estimate with certainty, the level of the buffer which is not excessive, and the need to allow adequate flexibility for the property leasing and licensing transactions for Citistore HK after Completion which are important for the business operations of Citistore HK.

6. Listing Rule requirements

As the relevant percentage ratios in respect of the Annual Caps will be more than 5% and each of the Annual Caps exceeds HK$10,000,000, the Framework Agreement is subject to the reporting, announcement, and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

7. Reasons for and benefits of entering into the Framework Agreement

The Citistore Stores at Tsuen Wan, Yuen Long, Ma On Shan, Tseung Kwan O and Tuen Mun have been operating at the premises owned by the HLD Group for a number of years. Relocation of such Citistore Stores would impact adversely upon the stability of the business of the Target Group, and also lead to the incurring of significant costs. The Directors believe that the entering into of the Framework Agreement is in the best interest of the Company, given that the Framework Agreement will, after having been approved by the Independent Shareholders and following Completion, accommodate the existing and future leasing and licensing agreements between the Group and the HLD Group under a common framework agreement. Members of the Group may enter into leasing and licensing transactions with members of the HLD Group from time to time within the ambit of the Framework Agreement, without the need for the Company to further comply with announcement and/or independent shareholders’ approval requirements (as applicable) on each occasion. This will provide the Company and its subsidiaries, including Citistore HK following Completion, with flexibility and a cost effective means to make use of opportunities to lease or license commercial premises of the HLD Group for its operations as and when necessary. Further, the Directors consider that the procedures and manner for the determination of the terms and conditions of each tenancy and licensing agreements entered into under the Framework Agreement, including the Pricing Policy, shall ensure that such terms and conditions will be similar to market comparables at the relevant time, and thus the tenancy and licence agreements will be on normal commercial terms and not prejudicial to the interests of the Company and its minority shareholders.

The Directors consider that the terms of the Framework Agreement have been negotiated on an arm’s length basis and on normal commercial terms and are fair and reasonable and in the best interests of the Group and its Shareholders, and that the Annual Caps are fair and reasonable and in the interests of the Group and its Shareholders as a whole.

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LETTER FROM THE BOARD

8. Other Continuing Connected Transactions relating to properties leasing and licensing transactions with the HK Ferry Group and the Miramar Group

Citistore HK (a) leases Shop Nos. G01, Portion of G31, G35-G50, Portion of G51, Portion of G52, G63-74 and corridors and atrium on Ground Floor, and Shop Nos. 127-161 and corridors and toilets on Level 1, Metro Harbour Plaza, Tai Kok Tsui, Kowloon, Hong Kong at a monthly rent of HK$470,000.00 plus annual turnover rent of 7% of the excess of the annual gross turnover over HK$120 million; and (b) licences signages on the walls and at the entrance of Metro Harbour Plaza at aggregate licence fees of HK$2,460.00 per month from subsidiaries of HK Ferry for a term from 1 July 2014 to 30 June 2017.

Citistore HK also leases Shop 2004, 2nd Floor, Miramar Shopping Centre, 132 Nathan Road, Tsim Sha Tsui, Kowloon, Hong Kong from a subsidiary of Miramar at a rent of HK$290,000.00 per month or 10% of the annual turnover, whichever is higher on an annual basis, for a term from 3 October 2014 to 2 October 2017.

As each of HK Ferry and Miramar is an associate of HLD, the above transactions entered into by Citistore HK will become continuing connected transactions of the Company after the Completion. Subject to Completion, the Company will disclose details of these transactions following Completion and will comply with the annual review and reporting requirements under Chapter 14A of the Listing Rules in respect of such transactions.

12. RELATIONSHIP WITH THE HLD GROUP

HLD currently (through its wholly-owned subsidiaries) holds approximately 69.27% of all the issued Shares as at the Latest Practicable Date, and is the controlling shareholder and the holding company of the Company. As payment of the Consideration for the Acquisition does not involve any issue of new Shares, it will not result in any change to the current percentage shareholding of HLD in the Company upon Completion.

The Target Group, being subsidiaries of HLD, currently leases and licenses properties from other subsidiaries of HLD and subsidiaries of HK Ferry and Miramar, being associated companies of HLD, for use as department stores, shop and offices for the business operations of Citistore HK. As the Target Group will become subsidiaries of the Company upon Completion, such leasing and licensing arrangements will constitute continuing connected transactions of the Company under Chapter 14A of the Listing Rules after Completion. Further details are set out in the section headed “ 11. Continuing Connected Transactions and the Framework Agreement ” above.

In addition, on 15 October 2014, the Company entered into the Framework Agreement with HLD, under which the Group may, from time to time during a period of nine years from the date of Completion, enter into, extend, amend, or exercise renewal options for, one or more leases and licences in respect of properties of the HLD Group for the Group’s use as department stores, shops, offices, and other uses in its business operations. In compliance with connected transactions requirements under Chapter 14A of the Listing Rules, the leases and licences will be on normal commercial terms or better to the Group. Further details relating to continuing connected transactions

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LETTER FROM THE BOARD

of the Company constituted upon Completion, including annual cap amounts and annual review, reporting and disclosure requirements, are set out in the section headed “ 11. Continuing Connected Transactions and the Framework Agreement ” above.

The principal business activities of the HLD Group include property development and investment. The Directors believe that, following Completion, the business operation of Citistore HK will benefit from the Group’s relationship with the HLD Group in relation to opportunities to lease and license properties from the HLD Group and from groups of associated or related companies of HLD for use in the business operations of Citistore HK. This is particularly beneficial to Citistore HK, given that the large floor space required to accommodate department store business is not easily available in the open market. The Directors also believe that, with HLD being its controlling shareholder and holding company, following Completion the Group will further benefit from the expertise of the management team of the HLD Group.

As described in the section headed “ 11. Continuing Connected Transactions and the Framework Agreement ” above, Citistore HK has entered into certain long-term tenancy and licensing arrangements with the HLD Group. The total gross floor area of the properties under these leases and licences amounts to 421,691 sq. ft.. Currently, shopping mall premises in Tsuen Wan, Yuen Long, Ma On Shan, Tseung Kwan O and Tuen Mun (representing a majority of the retail property space used in Citistore HK’s operations of the Citistore Stores) are leased or licensed from the HLD Group. The office premises used by Citistore HK as offices in Hong Kong are also leased from the HLD Group. In addition, shopping mall premises in Tai Kok Tsui and a specialty store in Tsim Sha Tsui are leased by Citistore HK from groups of listed associated companies of HLD. In terms of the proportions of property spaces currently leased or licensed for use in its business, Citistore HK may be regarded as relying mainly on the supply from the HLD Group and from listed associated companies of HLD.

The tenancy and licensing arrangements with the HLD Group provide the Target Group with clear visibility on its future rental obligations with historical support and facilitate the management of the Target Group in future planning and budgeting of the business. On the other hand, there is no contractual or other legal commitment on the part of the Target Group to lease or license properties exclusively from the HLD Group, and the Target Group will be free to consider leasing or licensing retail, office or other properties for its business from other landlords, whether upon the expiry of the existing leases and licences, or when additional floor space is required by the Target Group. It is intended that after Completion, the Target Group will consider leasing retail and other properties from other landlords, if the need for such properties arises and appropriate properties are available.

13. IMPLICATIONS OF THE ACQUISITION AND THE CONTINUING CONNECTED LEASING TRANSACTIONS UNDER THE LISTING RULES

The Acquisition constitutes a very substantial acquisition of the Company under Chapter 14 of the Listing Rules as at least one of the percentage ratios in respect of the Acquisition exceeds 100%. Further, as HLD is the controlling shareholder and holding company of the Company, and thus a connected person of the Company, the Acquisition also constitutes a connected transaction of the Company under Chapter 14A of the Listing Rules. The Acquisition is therefore subject to the approval of the Independent Shareholder under Chapters 14 and 14A of the Listing Rules.

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LETTER FROM THE BOARD

The Framework Agreement entered into by the Company with HLD constitutes continuing connected transaction of the Company under Chapter 14A of the Listing Rules. As the percentage ratios in respect of the Annual Caps for the Continuing Connected Leasing Transactions exceed 5%, the Framework Agreement is subject to the approval of the Independent Shareholders under Chapter 14A of the Listing Rules.

14. PRINCIPAL BUSINESSES OF THE HLD GROUP AND OF THE GROUP

HLD is an investment holding company and the principal business activities of its subsidiaries are property development and investment, construction, infrastructure, hotel operation, finance, department store operation, project management, investment holding and property management.

The principal business activities of the Group are investment holding and infrastructure.

15. THE EGM

Set out on pages N-1 to N-3 of this circular is a notice convening the EGM to be held at Harbour View Ballroom, Four Seasons Hotel, 8 Finance Street, Central, Hong Kong, on Tuesday, 4 November 2014 at 11:00 a.m. at which resolution will be proposed and, if thought fit, passed to approve (i) the Acquisition Agreement and the transactions contemplated thereunder; and (ii) the Framework Agreement, the Continuing Connected Leasing Transactions and the Annual Caps.

As HLD is a party to the Acquisition Agreement and is materially interested in the Continuing Connected Leasing Transactions, HLD, Dr. Lee Shau Kee and their respective associates, who are in aggregate interested in 2,115,274,943 Shares, representing approximately 69.41% of the total number of issued Shares of the Company as at the Latest Practicable Date, are required to abstain from voting on the resolution approving the Acquisition Agreement and the transactions contemplated thereunder, the Framework Agreement and the Continuing Connected Leasing Transactions which will be taken by poll.

A form of proxy for use by the Independent Shareholders at the EGM is enclosed. Independent Shareholders are advised to read the notice and to complete the accompanying form of proxy for use at the EGM in accordance with the instructions printed thereon and return the same to the share registrar of the Company, Tricor Standard Limited, Level 22, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for holding the EGM or any adjourned meeting (as the case may be) at which the person named in such form of proxy proposes to vote or, in the case of a poll taken more than 48 hours after it was demanded, not less than 24 hours before the time appointed for the taking of the poll. Completion and return of the form of proxy will not preclude Shareholders from attending and voting in person at the EGM if they so wish.

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LETTER FROM THE BOARD

16. CLOSURE OF THE REGISTER OF MEMBERS

For the purpose of determination of entitlements to attend and vote at the EGM, the register of members of the Company will be closed from Monday, 3 November 2014 to Tuesday, 4 November 2014, both days inclusive. In order to qualify for attending and voting at the EGM, all completed transfer forms accompanied by the relevant share certificates must be lodged with the share registrar of the Company, Tricor Standard Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong, not later than 4:30 p.m. on Friday, 31 October 2014.

17. RECOMMENDATIONS

The Board considers that the Acquisition, the Framework Agreement, the Continuing Connected Leasing Transactions and the proposed Annual Caps are fair and reasonable and in the interests of the Company and the Shareholders as a whole. Accordingly, the Board recommends that the Independent Shareholders should vote in favour of the resolution which will be proposed at the EGM.

As all independent non-executive Directors are also independent non-executive directors of HLD, they are considered not to be independent to advise the Independent Shareholders on the Acquisition, the Framework Agreement, the Continuing Connected Leasing Transactions and the Annual Caps or on how to vote on the resolution to be proposed at the EGM. Therefore, no independent board committee of the Company has been formed to make recommendations to the Independent Shareholders in connection with the aforesaid.

18. ADDITIONAL INFORMATION

Your attention is drawn to the letter of advice from Platinum Securities to the Independent Shareholders in respect of the Acquisition, the Framework Agreement, the Continuing Connected Transactions and the proposed Annual Caps and the information set out in the appendices to this circular.

Yours faithfully, For and on behalf of the Board Dr. Lee Shau Kee Chairman and Managing Director

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LETTER FROM PLATINUM SECURITIES

The following is the text of the letter of advice from the Independent Financial Adviser to the Independent Shareholders for the purpose of incorporation into this circular.

PLATINUM Securities Company Limited 21/F LHT Tower 31 Queen’s Road Central Hong Kong Telephone (852) 2841 7000 Facsimile (852) 2522 2700 Website www.platinum-asia.com

17 October 2014

To the Independent Shareholders

Dear Sir or Madam,

VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION

PROPOSED ACQUISITION OF COMPANIES IN RETAILING BUSINESS AND CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

We refer to our engagement as the Independent Financial Adviser to advise the Independent Shareholders in relation to (i) the Acquisition Agreement and (ii) the Continuing Connected Leasing Transactions (together the “Transactions”). Details are contained in the Letter from the Board as set out in the circular of the Company dated 17 October 2014 (the “Circular”) of which this letter forms part. Terms used in this letter shall have the same meanings as defined in the Circular unless the context requires otherwise.

In our capacity as the Independent Financial Adviser, our role is to advise the Independent Shareholders as to whether the Transactions are in the ordinary and usual course of business of the Group and whether the terms of each of (i) the Acquisition Agreement and (ii) the Continuing Connected Leasing Transactions respectively were agreed on normal commercial terms and are fair and reasonable, and in the interests of the Company and the Shareholders as a whole.

In formulating our opinion, we have relied on the information and facts supplied to us by the Directors and/or management of the Company. We have discussed with the management of the Company (the “Management”) their plans and prospects of the Company and the Target Group. We have reviewed, among other things: (i) the Acquisition Agreement; (ii) the announcement of the Company dated 5 September 2014; (iii) the Unaudited Pro Forma Financial Statement on the Enlarged Group; (iv) the audited annual report of the Company for the year ended 31 December 2011 (“2011 Annual Report”); (v) the audited annual report of the Company for the year ended 31 December 2012

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LETTER FROM PLATINUM SECURITIES

(“2012 Annual Report”); (vi) the audited annual report of the Company for the year ended 31 December 2013 (“2013 Annual Report”); (vii) the unaudited interim report for the six months period ended 30 June 2014 (“2014 Interim Report”); and (viii) the Accountants’ Report on the Target Group.

We have assumed that all information, facts, opinions and representations contained in the Circular are true, complete and accurate in all material respects and we have relied on the same, except that no assumption is made by us in respect of our own opinions contained in the Circular. The Directors have confirmed that they take full responsibility for the contents in the Circular and have made all reasonable inquiries that no material facts have been omitted from the information supplied to us.

We have no reason to suspect that any material facts or information have been withheld or to doubt the truth, accuracy or completeness of all facts as set out in the Circular and of the information and representations provided to us by the Directors and/or the Management. Furthermore, we have no reason to suspect the reasonableness of the opinions and representations expressed by the Directors and/or the Management, which have been provided to us. In line with normal practice, we have not, however, conducted a verification process of the information supplied to us, nor have we conducted any independent in-depth investigation into the business and affairs of the Company or the Target Group. We consider that we have reviewed sufficient information to enable us to reach an informed view and to provide a reasonable basis for our opinion regarding the Transactions.

During the past two years, Mr. Lenny Li, for and on behalf of Platinum Securities Company Limited, signed the opinion letter from the independent financial adviser in relation to the announcement issued by Miramar dated 5 December 2013 in respect of continuing connected transaction — the lease agreement between Intelligent House Limited as landlord and Mira Moon Limited as tenant. This engagement was limited to providing independent advisory services to the independent board committee of Miramar pursuant to the Listing Rules to confirm that it is the normal business practice for contracts of that type to be of such duration. Under this engagement, Platinum Securities Company Limited received normal professional fees from Miramar. Notwithstanding the past engagement, as at the Latest Practicable Date, we are independent from, and are not associated with the Company or any other party to the Transactions, or their respective substantial shareholder(s) or connected person(s), as defined under the Listing Rules and accordingly, are considered eligible to give independent advice on the Transactions. We will receive a fee from the Company for our role as the Independent Financial Adviser to the Independent Shareholders in relation to the Transactions. Apart from this normal professional fee payable to us in connection with this appointment, no arrangements exist whereby we will receive any fees or benefits from the Company or any other party to the Transactions or their respective substantial shareholder(s) or connected person(s), as defined under the Listing Rules.

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LETTER FROM PLATINUM SECURITIES

PRINCIPAL FACTORS AND REASONS CONSIDERED

In formulating and giving our independent financial advice to the Independent Shareholders, we have taken into account the following principal factors:

I. THE ACQUISITION

1 Background of the Acquisition

With reference to the announcement of the Company dated 5 September 2014, HLD entered into the Acquisition Agreement with the Purchaser (a wholly-owned subsidiary of the Company), pursuant to which HLD agreed to sell, and the Purchaser agreed to purchase, the Sale Share for the Consideration of HK$934,500,000. Subject to the fulfillment of the Conditions Precedent, under the Acquisition the Group will acquire the Target Group which is principally engaged in the operation of department stores in Hong Kong under the name “Citistore”.

Following Completion, Citistore HK will become a subsidiary of the Company, and the Existing HLD Tenancy Agreements will become continuing connected transactions of the Company. The Company has entered into the Framework Agreement with HLD to regulate the Existing HLD Tenancy Agreements and new tenancies and license agreements that may be entered into between members of the Group and members of the HLD Group, which shall be effective upon Completion.

1.1 Background and financial information of the Group

The Company is a subsidiary of HLD and the Shares have been listed in Hong Kong since 1972. As referred in the Letter from the Board in the Circular, the principal business activities of the Group are investment holding and infrastructure.

Set out below is a highlight of the consolidated balance sheets of the Group:

Table 1: Financial highlight of the Group — Balance Sheet

	As at	As at	As at	As at
	31 December	31 December	31 December	30 June
	2011	2012	2013	2014
	HK$ million	HK$ million	HK$ million	HK$ million
	(audited)	(audited)	(audited)	(unaudited)
Intangible operating right	454	415	394	375
Long-term bank deposits	—	—	—	676
Cash and cash equivalents	1,355	1,277	1,185	472
Net assets	1,839	1,747	1,636	1,552
Total equity attributable to the
Shareholders	1,633	1,536	1,433	1,360

Source: 2011 Annual Report, 2012 Annual Report, 2013 Annual Report, 2014 Interim Report

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LETTER FROM PLATINUM SECURITIES

Besides the cash and cash equivalents and long-term bank deposits, the core asset of the Group is its 60% interest in Hangzhou Qianjiang Third Bridge in Zhejiang Province. As previously announced by the Company on various occasions, commencing from 20 March 2012, payment of the toll fee in respect of Hangzhou Qianjiang Third Bridge to a joint venture company of the Group was provisionally suspended, notwithstanding that the operating right granted to the joint venture company is for a period of 30 years from 20 March 1997 and the toll fee collection agreement signed with the joint venture company in 2004.

Set out below is a highlight of the consolidated statement of profit or loss and other comprehensive income of the Group:

Table 2: Financial highlight of the Group — Profit or Loss and Other Comprehensive Income

				**For the **	six months	six months
	**For the **	**year ended 31 **	December	**ended **	30 June
	2011	2012	2013	2013	2014
	HK$ million	HK$ million	HK$ million	HK$ million	HK$ million
	(audited)	(audited)	(audited)	(unaudited)	(unaudited)
Turnover	299	63	—	—		—
Profit/(loss)
attributable to
equity shareholders
for the year/period	108	25	10	7		(9)
Total comprehensive
income/(loss)
attributable to
equity shareholders
for the year/period	140	25	19	12		(12)
Earnings/(loss) per
Share (HK cents)	3.5	0.8	0.3	0.2		(0.3)
Dividend per Share
(HK cents)	4.0	4.0	4.0	2.0		2.0

Source: 2011 Annual Report, 2012 Annual Report, 2013 Annual Report, 2014 Interim Report

Consequential upon the failure of the relevant authority to put forward any formal proposal or compensation offer regarding the toll fee collection right, for the sake of prudence, the toll revenue commencing from 20 March 2012 has not been recognised in the accounts of the Group.

On 17 September 2012, the joint venture company filed an arbitration application with China International Economic and Trade Arbitration Commission in relation to the toll fees of Hangzhou Qianjiang Third Bridge. Arbitration proceedings commenced on 14 April 2014 but no conclusion has been reached. The arbitration tribunal considered that both parties should pursue further negotiations to seek a settlement plan and the joint venture company has written to

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LETTER FROM PLATINUM SECURITIES

Hangzhou Municipal People’s Government accordingly. In July 2014, the arbitration tribunal requested both parties to submit their own settlement plans and gave an indication of a possible meeting in September 2014 for mediation. However, up to the Latest Practicable Date, the arbitration tribunal had yet to fix the date for the mediation meeting. The Group is still awaiting the arbitration tribunal’s notice on the date of such meeting.

For further details in relation to the toll fee collection right in respect of Hangzhou Qianjiang Third Bridge and the arbitration proceedings, please refer to the 2014 Interim Report, and previous annual and interim reports and relevant announcements of the Company.

The Group will follow up closely with the development of the arbitration case and continue to pursue further negotiations with the relevant PRC authority with a view to achieving a settlement that is in the interests of the Group and its shareholders as a whole.

There is no certainty as to the final outcome of the arbitration proceedings. If the Acquisition becomes unconditional and is completed, and the arbitration proceedings confirm the joint venture company’s toll fee collection right in Hangzhou Qianjiang Third Bridge, the Company intends to continue with the Group’s infrastructure business in relation to the bridge, together with the department store business of the Target Group. On the other hand, if the Group ceases to have an economic interest in Hangzhou Qianjiang Third Bridge, the Company intends to run the department store business through the Target Group after the completion of the Acquisition, and will in any event consider other investment opportunities as and when they arise, including investments in the infrastructure business if there are suitable opportunities. If and only if the joint venture company’s toll fee collection right in Hangzhou Qianjiang Third Bridge is confirmed and toll fee payment is resumed, recognition of toll revenue will resume in the accounts of the Group.

1.2 Background and financial information of the Target Group

Camay

Camay is a company incorporated in BVI with limited liability and a wholly-owned subsidiary of HLD. The principal business activity of Camay is investment holding. Camay is the holding company of Citistore HK and certain other subsidiaries.

Citistore HK

Citistore HK is principally engaged in the retailing business in Hong Kong, with an emphasis on department store operations. Currently, it operates six department stores under the name “Citistore” and a specialty store under the name “id:c” in Hong Kong. The six department stores are located in Tsuen Wan, Yuen Long, Ma On Shan, Tseung Kwan O, Tai Kok Tsui and Tuen Mun, and the specialty store is located in Tsim Sha Tsui. Certain trademarks registered in Hong Kong and in the PRC related to the retailing business of Citistore HK are held by Citistore HK and Puretech.

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LETTER FROM PLATINUM SECURITIES

Puretech

The principal business activity of Puretech is the holding of trademarks.

Table 3: Financial Highlight of the Target Group — Combined Statement of Comprehensive Income

				For the six
				months ended
	**For the **	**year ended 31 **	December	30 June
	2011	2012	2013	2014
	HK$ million	HK$ million	HK$ million	HK$ million
	(audited)	(audited)	(audited)	(audited)
Turnover	709	764	807	419
Administrative expenses	45	49	58	30
Profit attributable to equity
shareholders for the year/period	111	123	133	62
Profit and total comprehensive
income attributable to equity
shareholders for the year/period	111	123	133	62

With reference to the Accountants’ Report on the Target Group as set out in Appendix II to the Circular, for the last three financial years, the Target Group achieved growth in its turnover, increasing from approximately HK$709 million to HK$764 million, then further to HK$807 million for the financial years ended 31 December 2011, 2012 and 2013 respectively. For the six months ended 30 June 2014, turnover of approximately HK$419 million was recognised.

The Target Group’s profit and total comprehensive income for the year also increased from approximately HK$111 million to HK$123 million, then further to HK$133 million for the financial years ended 31 December 2011, 2012 and 2013 respectively. For the six months ended 30 June 2014, the profit and total comprehensive income of the Target Group was approximately HK$62 million.

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LETTER FROM PLATINUM SECURITIES

Table 4: Financial Highlight of the Target Group — Combined Balance Sheet

	As at	As at	As at	As at
	31 December	31 December	31 December	30 June
	2011	2012	2013	2014
	HK$ million	HK$ million	HK$ million	HK$ million
	(audited)	(audited)	(audited)	(audited)
Amounts due from immediate
holding company	363	466	576	127
Cash and cash equivalents	16	25	42	20
Net assets	226	348	482	16
Total equity attributable to
shareholders	226	348	482	16

The net assets of the Target Group as at 30 June 2014 (based on the audited combined accounts of the Target Group for the six months ended 30 June 2014) amounted to approximately HK$16 million. In addition, the Target Group did not have any bank loans as at 30 June 2014.

Upon Completion, members of the Target Group will become subsidiaries of the Company and the financial results of the Target Group will be consolidated into the Group’s financial statements.

As at the Latest Practicable Date, the Target Group did not own any property, and Citistore HK conducts all its operations through leasing and licensing arrangements with the HLD Group, groups of listed associated companies of HLD, and other external third parties. Total of 19 properties have been rented by Citistore HK in Hong Kong, comprising retail outlets, warehouses and office premises.

The expenditures on rental and rates of the Target Group for their rented properties were approximately HK$170 million, approximately HK$176 million, and approximately HK$190 million for the financial years ended 31 December 2011, 2012 and 2013, respectively.

For further information regarding the leasing and licensing arrangements between the Target Group and the HLD Group and leasing arrangements between the Target Group and groups of listed associated companies of HLD, please refer to below in sections headed “Continuing Connected Leasing Transactions” and the section headed “Continuing Connected Transactions and the Framework Agreement” in the Letter from the Board in the Circular.

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LETTER FROM PLATINUM SECURITIES

1.3 Shareholding structure before Completion

Before the Acquisition Agreement was entered into, Camay was the holding company of a number of subsidiaries including Citistore HK, Puretech and certain other subsidiaries not engaged in Citistore HK’s retailing business. The corporate structure of Camay and its then subsidiaries as at 30 June 2014 was as set out below:

==> picture [368 x 269] intentionally omitted <==

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

Camay
100% 100%
Citistore HK Max-mercan
100%
Citistore Well Future Wiselin
(China) Development Oven Supreme Limited Puretech Investment
Limited Limited Limited
90% 100%
Citistore Bright Sheen
(Guangzhou) Development
Limited
----- End of picture text -----

Source: the Letter from the Board in the Circular

The principal activities of those subsidiaries and previous subsidiaries of Camay other than Citistore HK and Puretech shown above (the “Carve-out Companies”) are as follows: -

• (i) Max-mercan — investment holding

• (ii) Citistore (China) Limited — investment holding (being the intermediate holding company of Citistore (Guangzhou) Limited)

• (iii) Citistore (Guangzhou) Limited, Bright Sheen Development Limited, Well Future Development Limited and Oven Supreme Limited are all inactive.

• (iv) Wiselin Investment Limited — investment holding of listed securities amounting to approximately 13.62% of the issued shares of HK Ferry as at the Latest Practicable Date.

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LETTER FROM PLATINUM SECURITIES

In order to streamline the process of the Acquisition and to reduce the transaction costs of the Acquisition, it is provided under the Acquisition Agreement that Camay and its subsidiaries are to undergo a restructuring prior to Completion, whereby all Carve-out Companies will be transferred out of Camay so as to form the shareholding structure immediately prior to Completion as shown in the simplified shareholding structure chart below:

==> picture [287 x 136] intentionally omitted <==

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

HLD
approximately 69.27% 100%
the Company Camay
100%
100% 100%
the Purchaser Citistore HK Puretech
----- End of picture text -----

Source: the Letter from the Board in the Circular

1.4 Shareholding structure after Completion

Wiselin Investment Limited had been transferred out of Camay and Bright Sheen Development Limited and Puretech had become directly held by Max-mercan and Camay, respectively, prior to the entering into of the Acquisition Agreement and the remaining steps of such restructuring will be carried out on or before the Completion. The shareholding structure of the Target Group immediately after Completion is expected to be as set out in the simplified chart below:

==> picture [289 x 214] intentionally omitted <==

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

HLD
approximately 69.27%
the Company
100%
the Purchaser
100%
Camay
100% 100%
Citistore HK Puretech
----- End of picture text -----

Source: the Letter from the Board in the Circular

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LETTER FROM PLATINUM SECURITIES

1.5 Industry overview

Set out below is the statistics of GDP per capita and GDP per capita growth rate of Hong Kong over the past 5 years.

Table 5: The Historical GDP Statistics of Hong Kong

					2009	2010	2011	2012	2013
GDP	per	capita	(HK$)		237,960	252,887	273,550	284,721	295,701
GDP	per	capita	growth	rate	-3.0%	6.3%	8.2%	4.1%	3.9%

Source: Census and Statistics Department, Hong Kong

Set out below is the historical population of Hong Kong from 2009 to 2013.

Table 6: The Historical Population of Hong Kong

	2009	2010	2011	2012	2013
Population (’000)	6,996	7,052	7,112	7,178	7,222
Growth Rate	0.5%	0.8%	0.9%	0.9%	0.6%

Source: Census and Statistics Department, Hong Kong

Set out below is the historical Hong Kong composite consumer price index (the “CPI”) from 2009 to July 2014.

Table 7: The Historical Hong Kong CPI

	December	December	December	December	December	July
	2009	2010	2011	2012	2013	2014
CPI	100	103	109	113	118	121
CPI Growth Rate
(year-on-year)	1.3%	2.9%	5.7%	3.7%	4.3%	4.0%

Source: Census and Statistics Department, Hong Kong

The GDP per capita in Hong Kong was worth HK$295,701 in 2013, increased by approximately 24% since 2009. Over the past 5 years, the population growth rate of Hong Kong remained steady at around 1% per year on average since 2009. The total population in Hong Kong was recorded at about 7.2 million people in 2013 from about 7.0 million in 2009, increasing by 226,000 people during the last 5 years.

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LETTER FROM PLATINUM SECURITIES

Referring to table 7, the CPI growth rate maintained stable at around 3.6% on average since 2009, which reflects the inflation faced by consumers has been mild. According to the retail sales statistics published by Census and Statistics Department, Hong Kong’s total retail sales value started to drop in February 2014, and in July 2014, fell 3.2% year on year. The decline can be attributed to the notable 22.2% decrease in the sales category of ‘jewellery, watches and clocks and valuable gifts’. However, the value of sales of wearing apparel increased by 5.0%, medicines and cosmetics increased by 14.3%, footwear, allied products and other clothing accessories increased by 10.5%, comparing July 2014 with July 2013.

Based on our review, we consider that the month-to-month rates of changes based on the CPI series are affected by seasonal variations. With the consumption pattern of Mainland Chinese continuing to shift towards the mid-end of the market, demand for shopping space continued to shift to mass-market retailers and those targeting local consumers. The improvement in spending by local residents is closely related to the economic rebound started in the third quarter of 2013, which helped boost consumer confidence and income. The increasing job opportunities, stabilising the median household income and rebound in property prices have created a positive wealth effect to the local consumption. Therefore, we are still cautiously optimistic that the positive consumer sentiment will continue to lead the way in the growth of retail market.

In light of the analysis above, we are of the view that Citistore HK would benefit from the positive factors of the retail market and hence the Acquisition is fair and reasonable and in the interest of the Company and Shareholders as a whole.

2 Reasons for and benefits of the Acquisition

We note that the reasons for and benefits of the Acquisition, as explained by the Board, are as follows:

2.1 Diversification of the existing portfolio of the Group

Infrastructure investment in the PRC currently represents the only business of the Group. Due to the on-going arbitration case as mentioned above, the Group has not been recognising revenue since 20 March 2012. The Acquisition will enable the Group to diversify its business and revenue sources, thereby enhancing its resilience to fluctuations in the business environment.

Currently, the core operating assets of the Group comprises its 60% interest in Hangzhou Qianjiang Third Bridge. The historical financial performance has been affected by not recognising the toll fee revenue since the financial year ended 31 December 2012. The Group’s consolidated profit attributable to Shareholders have declined, falling 76.9% in 2012 compared to 2011, dropping 60.0% in 2013 compared to 2012, and a loss of approximately HK$9 million for the six months ended 30 June 2014.

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LETTER FROM PLATINUM SECURITIES

FIGURE 1: HENDERSON INVESTMENT LIMITED’S SHARE PRICE VERSUS HANG SENG INDEX IN % MOVEMENT (FROM 2011 TO THE LATEST PRACTICABLE DATE)

==> picture [429 x 192] intentionally omitted <==

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

10%
5%
0%
Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14
-5%
-10%
-15%
-20%
-25%
-30%
-35%
-40%
Hang Seng Index Henderson Investment Limited (97.HK)
----- End of picture text -----

Source: Bloomberg

The Company’s share price has mostly underperformed against the Hang Seng Index since the beginning of 2011, due to a series of announcements by the Company on various occasions, of the suspension of payment of the toll fee in respect of Hangzhou Qianjiang Third Bridge. It should be noted that the Company’s share price outperformed Hang Seng Index on the next business day after the publication of the Announcement of the Company on 5 September 2014. The closing price of the share on 8 September 2014 surged 20.6% to HK$0.82, as compared to its closing price as at 5 September 2014 at HK$0.68.

We understand from the Management and as disclosed in 2011 Annual Report, 2012 Annual Report, 2013 Annual Report and 2014 Interim Report, the Group has been endeavored to identify suitable investments, in order to develop and expand the business of the Group.

Furthermore, we have reviewed the Unaudited Pro Forma Financial Information on the Enlarged Group as set out in Appendix IV to the Circular and concur with the view of the Management. We have also performed a detailed analysis below in section headed “5. Financial impacts of the Acquisition” and believe there would be potential positive effect on the earnings of the Enlarged Group.

Given the Company’s recent financial performance and uncertain final outcome of the arbitration proceedings as mentioned above, we are of the view that diversifying the existing investment of the Group is a reasonable option for attracting revenue sources, thereby enhancing the Company’s resilience to fluctuations in the business environment and securing the continued listing of the Company’s Shares.

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LETTER FROM PLATINUM SECURITIES

2.2 Acquisition of a business with established market position

The business of Citistore HK is a Hong Kong-based retail business with six department stores operating under the name “Citistore” and one specialty store operating under the name “id:c”.

With reference to the Letter from the Board, all six “Citistore” department stores are located in established residential districts. These stores offer a diversified range of apparel, cosmetics, housewares, foods and daily necessities, which enable customers to enjoy the convenience of a one-stop shopping experience for a wide variety of products at reasonable and competitive prices. Merchandise of Citistore Stores are sold by means of direct sales as well as consignment and concessionaire sales, with new products and product categories being introduced from time to time in accordance with prevailing market trends and consumer preferences and demands. The “id:c” specialty store of Citistore HK offers an attractive collection of apparel brands from Japan. With the strategic store location at the heart of Tsim Sha Tsui, a key tourists shopping area, the store is well-positioned to target demand from local shoppers and tourists.

According to the information provided by Citistore HK, the first and the largest Citistore Store was opened in December 1989 in Tsuen Wan. In between 1990-2000, there were four more department stores opened, namely, in the order of openings, Tuen Mun, Yuen Long, Ma On Shan and Tseung Kwan O. The most recent Citistore opening was back to 2006 in Tai Kok Tsui. Taking into account the opening of Tsim Sha Tsui “id:c” specialty store in 2005, which was once in Citistore format opened in 1998, the average store life of the Target Group’s store profile is approximately 17.6 years, which is considered to be stable with long operating track record.

In addition, we understand from the management of Citistore HK that instead of adopting aggressive store opening strategy, the Tsuen Wan department store was revamped with the theme of “Blue Sky, Wide Ocean” in 2011. The transformation has created a more stylish and elegant shopping environment with a large household department as well as a separate area within the store namely, “KidS’quare” which carries various reputed children’s and babies’ brands. Renovations were made to the Tseung Kwan O, Tuen Mun and Yuen Long Citistore Stores, in 2012, 2013 and earlier this year respectively, in order to enhance the customers’ overall shopping experience.

With its over 20 years of operating track record, we agree that the retailing business of the Target Group has built a strong brand that is trusted among the consuming public in Hong Kong.

2.3 Strategically located retail network with a proven track record of stable growth and profitability

Leveraging on more than 20 years of retail operating experience and in-depth understanding of the consumer spending habits as well as characteristics of each of the districts that they serve, the stores of the Target Group are strategically located to balance convenience to their customers and cost efficiency.

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LETTER FROM PLATINUM SECURITIES

According to the statistics of the Census and Statistics Department, we concur that Citistore Stores are strategically located in established residential districts and are in close proximity to local transport hub, as the average number of households in Tsuen Wan, Tuen Mun, Yuen Long, Sha Tin, Sai Kung and Yau Tsim Mong is approximately 156,000 in 2013. These districts with the presence of Citistore Stores are within the Top 10 number of household by District Council in Hong Kong. Furthermore, the “id:c” specialty store is strategically located in the prime tourists shopping areas of Tsim Sha Tsui. The Board believes that the strategic store locations allow penetration of the retailing business of Citistore HK to its targeted consumers which in turn strengthen its competitive position in the market.

Based on the information provided by Citistore HK, the majority of the stores have recorded positive same store sales growth in each of the financial years ended 31 December 2011, 2012 and 2013 and the six-month period ended 30 June 2014, except certain stores were undergoing renovation which had a temporary negative same store sales growth during the relevant periods. We understand from the management of Citistore HK that many of the product offerings are affordable household necessities for which demand does not fluctuate significantly regardless of changes in the overall market conditions. The Target Group has therefore been able to achieve sustained growth in turnover, with year-on-year growth rates of 7.7% and 5.6% for the financial years ended 31 December 2012 and 2013 respectively and EBITDA margins recorded at 20.5%, 21.0% and 22.1% for the financial years ended 31 December 2011, 2012 and 2013 respectively.

Since the Target Group has been able to achieve consistent improvements in profitability, we agree that the Acquisition is therefore made with a view to bringing in incremental stable earnings and cash flow stream for the Group.

2.4 Well-positioned to capture future growth opportunities through the Group’s listed platform

The Board believes that after the Completion, the Target Group will represent the largest business of the Group. With access to capital markets financing through its listed platform, the Group intends to continue to leverage the recognition of the names “Citistore” and “id:c” and the strong relationship with brand owners to continue rolling out new stores to solidify Citistore HK’s presence in the Hong Kong retail market.

Having taken into account the reasons above, we consider that the Acquisition represents another step forward to expand the Group’s investment in order to capture improvement in market conditions and diversify its business risk.

In light of the above, we are of the view that although the Acquisition is not in the ordinary and usual course of business of the Group, it is in line with the business strategy of the Group and in the interests of and beneficial to the Company and the Shareholders as a whole.

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LETTER FROM PLATINUM SECURITIES

3 The Acquisition Agreement

Date : 5 September 2014

• Parties : (1) Vendor, HLD, the controlling shareholder and holding company of the Company

• (2) the Purchaser, a wholly-owned subsidiary of the Company;

• Interest to be : The Acquisition comprises the acquisition by the Purchaser of the acquired by the Sale Share from HLD. The Sale Share represents the entire issued Group share capital of Camay, and the Target Group comprises Camay and its subsidiaries as at Completion, namely, Citistore HK and Puretech.

Consideration

• : The Consideration for the acquisition of the Sale Share, in the sum of HK$934,500,000, will be payable by the Purchaser to HLD at Completion. The Consideration will be payable in cash, or if elected by the Purchaser, all or part of the Consideration may also be settled by the Purchaser by way of issuing at Completion a promissory note in favour of HLD for such part of the Consideration elected to be so settled, and such promissory note will be unsecured and repayable by 31 December 2014 (or such other dates as may be agreed between the parties) and bear interest at the rate of HIBOR plus 0.84% per annum.

It is intended that at Completion the Consideration in the sum of HK$934.5 million will, after deducting a sum equivalent to the amount then owing by the HLD Group to the Target Group to be applied towards settlement of such amount so owing, be settled by the Purchaser to HLD: (i) as to approximately HK$300 million in cash, and (ii) as to the balance by way of issuing a promissory note in favour of HLD. The amount to be so settled by way of promissory note represents part of the Group’s existing long-term bank deposits, and the promissory note is expected to be repaid by the Purchaser to HLD by late December 2014 when the long-term bank deposits can be uplifted.

The Consideration was determined after arm’s length negotiations between HLD and the Purchaser, taking into consideration the historical financial performance of the Target Group. The Consideration is expected to be financed by internal resources of the Group and/or bank financing.

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LETTER FROM PLATINUM SECURITIES

Conditions Precedent

• : Completion is conditional upon the fulfilment (or waiver, in certain cases as stated below) of the following conditions precedent:

• (a) the approval by the Independent Shareholders at an EGM of:

  • (i) the Acquisition Agreement and the transaction contemplated under the Acquisition Agreement; and

  • (ii) the continuing connected transaction of the Company arising as a result of the Completion, and the annual caps for such transaction as may be required under Chapter 14A of the Listing Rules;

• (b) there having been no material breach of the representations, warranties and undertakings in or any term of the Acquisition Agreement by HLD; and

• (c) the obtaining of all other relevant third party consents, permits, approvals, authorisations and waivers as are necessary or appropriate for the entering into and of the transaction contemplated under the Acquisition Agreement.

The Purchaser may at any time waive the Conditions Precedent set out in (b) and (c) above either in whole or in part, and such waiver may be made subject to such terms and conditions as the Purchaser may require.

If any Condition Precedent has not been fulfilled (or waived, if applicable) on or before 31 March 2015 (or such later date as ot herwise agreed between the parties in writing), the Acquisition Agreement will terminate and be of no further effect, and no party will have any liability to the other party under or in connection with the Acquisition Agreement, save in respect of any antecedent breach.

3.1 Warranties and indemnities

Representations and warranties in respect of the Target Group (including those in relation to title to assets and inventories, financial and tax matters, record keeping, business operations, compliance with laws and certain other representations and warranties commonly included in similar transaction) have been given by HLD under the Acquisition Agreement.

A deed of tax covenant will be entered into among HLD, the Purchaser and the Target Group at Completion, pursuant to which HLD will indemnify the Purchaser and the Target Group in respect of certain tax liabilities of the Target Group, including those tax liabilities relating to events occurring on or before Completion.

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LETTER FROM PLATINUM SECURITIES

3.2 Completion

Completion is to take place on the third Business Day after the fulfilment (or, where applicable, waiver) of all the Conditions Precedent (or such other date as agreed between the parties in writing). Subject to the Conditions Precedent having been fulfilled (or, where applicable, waived), Completion is expected to take place before the end of December 2014.

4 Principal factors considered regarding the Consideration

As discussed with the Management, the Consideration payable by the Company of HK$934,500,000, subject to the fulfillment of the Conditions Precedent, was determined after arm’s length negotiations between HLD and the Purchaser, taking into consideration the audited combined profit and total comprehensive income of the Target Group for the financial year ended 31 December 2013 and a price-to-earnings multiple (“P/E”) of 7 times.

4.1 Comparable Companies

With reference to the Letter from the Board, the Directors consider the price to earnings multiple to be an appropriate valuation methodology to be adopted for a profitable department store business and note that this is a metric commonly referred to by research analysts and the investment communities. The Directors consider a price-to-book ratio to be a less appropriate metric given (i) the stock price of retail companies is generally driven to a larger extent by sales volume and earnings and to a lesser extent by the value of the assets used in generating them, (ii) department store operators generally have different asset profiles for their businesses, and adopt different strategies with respect to owning or leasing of their store premises, thus impacting negatively on how meaningful comparisons between such businesses are based on assets and accordingly on the validity of a valuation metric that relies on making such comparisons and (iii) the Target Group has a relatively low asset base as it does not own any property, and conducts all its operations through leasing and licensing arrangements.

In order to assess the fairness and reasonableness of the Consideration, we have attempted to identify all comparable companies of the Target Group (the “Comparable Companies”) that (i) are currently listed on the Main Board of the Stock Exchange; (ii) with principal business in operating department stores; and (iii) have more than 50% of turnover generated from the operations in Hong Kong. Based on these criteria, we have identified Lifestyle International Holding Ltd., Wing On Co. International Ltd., and The Sincere Co., Ltd. as Comparable Companies. The aforesaid Comparable Companies have been selected exhaustively based on the above criteria, which has been identified to the best of our endeavours, in our research through the public information. Despite the difference in size of these Comparable Companies, as reflected by the market capitalization, we are of the view that they are carrying out similar businesses and are appropriate comparables. There are only three Comparable Companies qualified in our selection basis as we consider that those retail companies listed on the Main Board of the Stock Exchange but generating most of their revenue, i.e. more than 50% of turnover, from the PRC retail market are not applicable to our analysis, given that the Target Group has operation only in Hong Kong retail market which differs from the PRC retail market. Despite a relatively small population size, we consider that the Comparable Companies have similar business as the Target Group and are fair and representative for our analysis purpose.

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LETTER FROM PLATINUM SECURITIES

As discussed with the Management, we understand that the valuation multiples used for the determination of the Consideration include P/E. In our assessment, we have considered the P/E ratio and price-to-sales (“P/S”) ratio which are commonly used as benchmarks in valuing retail business. We did not adopt the price-to-book (“P/B”) ratio in our Comparable Companies analysis because the valuation of companies in the retail industry is not driven by their net asset value but their earnings and sales instead. In addition, we also consider that as (i) the Target Group does not own any properties; (ii) Citistore HK conducts all its operations through leasing and licensing arrangements with the HLD Group and groups of listed associated companies of HLD for the retail spaces and office, while warehouses are leased from other external third parties; and (iii) there are long-term committed leasing and licensing arrangements between the Target Group and the HLD Group and other external third parties to ensure that the operation of the Target Group would not be interrupted for a period of considerable length after the completion of the Acquisition, the core business activities of the Target Group are not driven by the assets on the balance sheet, therefore it is not sensible or appropriate to value the Target Group based on its asset value.

Table 8 — Comparable Companies Analysis on P/E ratio and P/S ratio

		Market
		Capitalisation as
		at the Latest
		Practicable Date	P/E	P/S
		(HK$ million)	(Times)	(Times)
Company Name	Ticker	(Note 1)	(Note 2)	(Note 3)
Lifestyle International Holdings Ltd.	1212 HK	23,789	9.72	3.99
Wing On Co. International Ltd.	289 HK	6,733	5.13	3.49
The Sincere Co., Ltd. (Note 4)	244 HK	345	N/A	0.78
		Maximum	9.72	3.99
		Minimum	5.13	0.78
		Average	7.43	2.75
Implied Valuation of the Acquisition
(Note 5 & 6)			7.00	1.16

Source: Bloomberg, latest annual or interim results of respective companies

Notes:

• 1 Market capitalisation of the Comparable Companies are calculated based on their respective closing prices as at the Latest Practicable Date and the total number of issued shares as extracted from their respective latest published annual reports.

• 2 Unless as otherwise specified, the P/E ratios of the Comparable Companies are calculated based on the market capitalisation of the respective Comparable Companies as at the Latest Practicable Date divided by the net profit after tax attributable to shareholders of the respective Comparable Companies as extracted from their respective latest published annual reports.

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LETTER FROM PLATINUM SECURITIES

• 3 Unless as otherwise specified, the P/S ratios of the Comparable Companies are calculated based on the market capitalisation of the respective comparable companies as at the Latest Practicable Date divided by the turnover of the respective Comparable Companies as extracted from their respective latest published annual reports.

• 4 As The Sincere Co., Ltd. recorded negative earnings for the financial year ended 28 February 2014 in its latest 2013/14 annual report, leading to an ineffective P/E ratio, The Sincere Co., Ltd. is excluded in our P/E ratio analysis. We noted that The Sincere Co., Ltd. recorded a net profit for the previous financial year ended 28 February 2013, but consider that it is not appropriate to calculate P/E multiple and make comparison on basis different from the others.

• 5 The implied P/E ratio of the Acquisition is calculated based on the Consideration of HK$934,500,000 divided by the net profit after tax attributable to Shareholders of the Target Group for the financial year ended 31 December 2013, i.e., HK$133,496,396.

• 6 The implied P/S ratio of the Acquisition is calculated based on the Consideration of HK$934,500,000 divided by the turnover of the Target Group for the financial year ended 31 December 2013, i.e., HK$806,973,683.

Referring to Table 8, the P/E ratios of the Comparable Companies range from approximately 5.13 times to 9.72 times (the “P/E Range”), with average of approximately 7.43 times (the “Average P/E”). We note that the implied P/E ratio of the Acquisition of 7 times is within the P/E Range and very close to the Average P/E. Furthermore, we noted that if the dividends of the Target Group to be waived by HLD, as mentioned in the Section headed “4. Information on the business of Citistore HK — Financial Information” in the Letter from the Board, is taken into account, the implied P/E ratio of the Acquisition may potentially be lowered to approximately 6.4 times.

The P/S ratios of the Comparable Companies range from approximately 0.78 times to 3.99 times (the “P/S Range”), with an average of approximately 2.75 times (the “Average P/S”). We note that the implied P/S ratio for the Acquisition is also within the P/S Range, and is in favorable price as compared to the Average P/S.

Nevertheless, we observed that the implied P/B ratio of the Acquisition, if calculated based on the Consideration of HK$934.5 million divided by the net asset value of the Target Group of HK$15.8 million as at 30 June 2014, is approximately 59 times. The implied P/B ratio of the Acquisition could be explained by the fact that (i) the Target Group has different assets portfolio as compared to the Comparable Companies, where the Target Group does not own any properties; and (ii) Citistore HK conducts all its operations through leasing and licensing arrangements with landlords and licensors. As mentioned above, we are of the view that the P/B ratio is a less appropriate metric for valuing the Target Group. As the stock price of retail companies is generally driven to a larger extent by sales volume and earnings and to a lesser extent by the value of the assets used in generating them, we are of the view that placing a discount on the implied P/E ratio and P/S ratio due to the fact of different assets portfolio is not applicable.

We also highlight HLD confirms that it has no intention to exercise its right under the Acquisition Agreement to declare and pay dividends out of the retained earnings of Camay and Citistore HK prior to Completion. With reference to the Letter from the Board, assuming that Completion takes place at the end of November 2014, it is estimated that the amount of dividends of the Target Group to be waived by HLD as mentioned above should be no less than HK$78

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million, by taking into account the retained earnings of the Target Group as at 30 June 2014 and the combined profits of the Target Group for the three months ended 30 September 2014 as stated in the unaudited combined management accounts of the Target Group, and making reference to the combined profits of the Target Group for the two months from 1 October 2013 to 30 November 2013 as stated in the unaudited combined monthly management accounts of the Target Group. Such dividend waiver arrangement is expected to have a positive effect on the net asset value of the Target Group as of Completion and such positive effect has not yet been taken into account in the calculation of the implied P/B ratio of the Acquisition discussed above. As such, we are of the view that the P/B ratio of the Acquisition is acceptable.

Given that (i) the implied P/E ratio for the Acquisition (7.0 times) was determined after arm’s length negotiation between the parties; (ii) the implied P/E ratio of the Acquisition is lower than the Average P/E; and (iii) the implied P/S ratio of the Acquisition is less than the Average P/S, and (iv) potential positive effect on the net asset value of the Target Group as of Completion is due to the dividend waiver arrangement, we are of the view that the Consideration is fair and reasonable and in the interests of the Company and the Shareholders as a whole.

4.2 Manner of payment

We noted that the Consideration for the Acquisition of the Sale Share, in the sum of HK$934,500,000 will be payable by the Purchaser to HLD at Completion. The Consideration will be payable in cash, or if elected by the Purchaser, all or part of the Consideration may also be settled by the Purchaser by way of issuing at Completion a promissory note in favour of HLD for such part of the Consideration elected to be so settled, such promissory note to be unsecured and repayable by 31 December 2014 (or such other dates as may be agreed between the parties) and bear interest at HIBOR plus 0.84% per annum.

We are given to understand that at Completion the Consideration in the sum of HK$934.5 million will, after deducting a sum equivalent to the amount then owing by the HLD Group to the Target Group to be applied towards settlement of such amount so owing, be settled by the Purchaser to HLD: (i) as to approximately HK$300 million in cash, and (ii) as to the balance by way of issuing a promissory note in favour of HLD. The amount to be so settled by way of promissory note represents part of the Group’s existing long-term bank deposits, and the promissory note is expected to be repaid by the Purchaser to HLD by late December 2014 when the long-term bank deposits can be uplifted. Before the long-term bank deposits can be uplifted, we are of the view that the issuance of promissory note is a reasonable option for short-term financing and in the meantime, the Company is able to earn the bank deposits interest income. We understand from the Management that the interest rates of the long-term bank deposits ranged from 1.7% to 3.8% per annum, which is higher than the proposed interest rate of the promissory note at HIBOR plus 0.84% per annum, i.e. 1.06% (assuming HIBOR at 0.22% according to The Hong Kong Association of Banks at the Latest Practicable Date). Hence, we are of the view that it is in the interests of the Company and the Shareholders to issue the promissory note for short-term financing while continue to earn interest income from the long-term bank deposits.

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Regarding the interest rate associated with the promissory note, we have made reference to effective interest rate adopted by HLD, the Company’s holding company, given that neither the Company nor the Target Group has any bank loan as at 30 June 2014. We are of the view that the proposed interest rate, i.e., 1.06% as mentioned above, is no less favorable than the effective floating interest rate of HLD’s bank loans and overdrafts, which was 1.68% per annum, according to the Annual Report of HLD for the financial year ended 31 December 2013.

The Consideration was determined after arm’s length negotiations between HLD and the Purchaser, taking into consideration the historical financial performance of the Target Group. The Consideration is expected to be financed by internal resources of the Group and/or bank financing.

In accordance with the discussion above, we are of the view that the manner of payment is fair and reasonable and in the interests of the Company and the Shareholders as a whole.

4.3 Distribution of retained earnings prior to Completion

We noted that the Acquisition Agreement included a term that HLD may arrange for Camay and Citistore HK to declare and pay dividends out of their respective retained earnings prior to Completion. Nonetheless, HLD has confirmed that it has no intention to exercise such right under the Acquisition Agreement to arrange for any dividend to be declared or paid by Camay or Citistore HK in respect of any of the retained earnings of the Target Group as at 30 June 2014 (amounting to approximately HK$15.8 million) or in respect of any of the profits from 1 July 2014 to Completion, which is expected to be at the end of November 2014 subject to the fulfillment of all the Conditions Precedent.

With reference to the Letter from the Board, assuming that Completion takes place at the end of November 2014, it is estimated that the amount of dividends of the Target Group to be waived by HLD as mentioned above should be no less than HK$78 million, by taking into account the retained earnings of the Target Group as at 30 June 2014 and the combined profits of the Target Group for the three months ended 30 September 2014 as stated in the unaudited combined management accounts of the Target Group, and making reference to the combined profits of the Target Group for the two months from 1 October 2013 to 30 November 2013 as stated in the unaudited combined monthly management accounts of the Target Group.

We are of the view that such dividend waiver arrangement, which has been confirmed by HLD, will be favourable to the Company and in the interests of the Company and the Shareholders as a whole, given there is expected to be positive effect on the net asset value of the Target Group at Completion.

4.4 Intended level of dividends following Completion

If the Acquisition becomes unconditional and is completed, the Board intends to recommend the payment of dividends amounting to no less than HK4 cents per Share for each financial year, for a period of three financial years starting from the year during which Completion takes place (which will be the financial years ending 31 December 2014, 2015 and

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2016, if Completion takes place before the end of December 2014 as currently expected). With reference to the section head “Background and financial information of the Group”, the Company distributed HK4 cents for the financial years of 2011, 2012 and 2013. We consider that the proposed dividend policy that no less than HK4 cents for a period of three financial years starting from the year during which Completion takes place is consistent with the Company’s existing dividend policy, and has no material change to the dividend policy of the Company.

In accordance with the discussion above, we are of the view that the intended level of dividends following Completion is fair and reasonable and in the interests of the Company and the Shareholders as a whole.

5 Financial impacts of the Acquisition

Upon Completion, the Target Group will become wholly owned subsidiaries of the Company and the financial information of member companies of the Target Group will be consolidated into the consolidated financial statements of the Company. Independent Shareholders should note that the discussion of the financial impacts of the Acquisition on the Group is based on the illustrative scenario provided in the Unaudited Pro Forma Financial Information on the Enlarged Group in Appendix IV to the Circular, which is based, inter alia, on the assumption that Completion had taken place on 1 January 2014 (in relation to the impact on earnings and cashflows) and on 30 June 2014 (in relation to the impact on net assets).

5.1 Effect on earnings

Upon Completion, the Target Group will represent the largest business of the Group and is expected to benefit from renewed management focus. Referring to the Unaudited Pro Forma Financial Information on the Enlarged Group as shown in Appendix IV in the Circular, the loss attributable to Shareholders of approximately HK$9 million for the six months ended 30 June 2014 would be turnaround to a profit attributable to Shareholders of approximately HK$35 million for the same period as if the Acquisition had taken place on 1 January 2014.

5.2 Effect on net asset value

The unaudited consolidated net assets of the Group would decrease slightly by approximately 1.2%, from approximately HK$1,552 million as at 30 June 2014 to approximately HK$1,534 million as if the Acquisition had taken place on 30 June 2014. The legal and professional fees and other expenses relating to the Acquisition in the aggregate amount of approximately HK$8 million is an attributable factor to the decrease. Such change would have no material impact on the financial position of the Group.

5.3 Effect on cash/working capital

As the Consideration will be payable by the Purchaser to HLD at Completion in cash, or if elected by the Purchaser, all or part of the Consideration may also be settled by the Purchaser by way of issuing at Completion a promissory note in favour of HLD for such part of the Consideration elected to be so settled, we consider the cash and working capital of the Group will

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be decreased. With reference to the Unaudited Pro Forma Financial Information on the Enlarged Group as shown in Appendix IV to the Circular, cash and cash equivalents of the Group would decrease from approximately HK$472 million to approximately HK$174 million and net current assets of the Group of approximately HK$509 million would turn to net current liabilities of approximately HK$488 million as if the Acquisition had taken place on 30 June 2014. However, having considered the reasons for and benefits of the Acquisition and the expected increase in profit that the Acquisition would bring to the Group, we are of the view that the adverse financial impact of the Acquisition in terms of cash and working capital is acceptable. Besides, we understand from the Management that by late December 2014 when the long-term bank deposits of the Group can be uplifted, the promissory note is expected to be repaid by the Purchaser out of the proceeds from the uplifted long-term bank deposits. As a result, we consider the effect on the cash and working capital will not be material.

In view of (i) the positive effect on the earnings of the Group; (ii) no material impact on the net asset value of the Group; and (iii) the acceptable level of the financial impact in terms of cash and working capital of the Group, which is temporary in nature, we are of the view that the Acquisition will have an overall positive financial effect on the Group in the long run and be in the interests of the Company and the Shareholders as a whole.

II. CONTINUING CONNECTED LEASING TRANSACTIONS

1 Background and reason for entering into the Continuing Connected Leasing Transactions

Reference is made to the section headed “11. Continuing Connected Leasing Transactions and the Framework Agreement” as set out in the Letter from the Board in the Circular of which this letter form part relating to, among other things, the Continuing Connected Leasing Transactions. Citistore HK, being a subsidiary of HLD, currently lease and license properties from certain members of the HLD Group, for use as department stores, shop and offices for the business operations of Citistore HK.

Upon Completion, Citistore HK will become a subsidiary of the Company, HLD is the controlling shareholder and holding company of the Company, certain subsisting transactions of Citistore HK with members of the HLD Group will constitute continuing connected transactions of the Company under Chapter 14A of the Listing Rules after Completion.

In our capacity as Independent Financial Adviser, our role is to advise the Independent Shareholders as to whether the Continuing Connected Leasing Transactions (including the proposed annual caps) are on normal commercial terms, in the ordinary and usual course of business of the Company, on terms that are fair and reasonable, in the interests of the Company and the Shareholders as a whole.

In addition, in accordance with the requirements of Rule 14A.52 of the Listing Rules, in our capacity as the independent financial adviser to the Independent Shareholders, our role is to give an independent opinion as to whether the duration of the Framework Agreement, with leasing term in excess of three years, requires such longer period and to confirm that it is normal business practice for agreements of this type to be of such duration.

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2 Principal factors and reasons considered

In formulating our opinion in relation to the Continuing Connected Leasing Transactions and giving our independent financial advice to the Independent Shareholders, we have considered the following principal factors and reasons:

2.1 The existing tenancy and licensing transactions between the HLD Group and The Target Group

Prior to the Completion, we understand that Citistore HK has, in its ordinary and usual course of business, entered into property leasing and licensing arrangements with members of the HLD Group to lease and obtain licences with respect to certain HLD Group properties as tenant and/or licensee (the “Existing HLD Tenancy Agreements”). Based on our discussion with the Management, tenancy and licensing agreements in respect of the following properties are currently in force and are expected to remain in effect upon Completion (assuming Completion takes place in December 2014):

• (i) office premises in City Landmark I at 68 Chung On Street, Tsuen Wan, New Territories, Hong Kong; and

• (ii) various shopping mall premises in Tsuen Wan, Yuen Long, Ma On Shan, Tseung Kwan O and Tuen Mun in respect of the Target Group’s operations of the Citistore Stores in the abovementioned districts of Hong Kong.

As set out in section headed “11. Continuing Connected Leasing Transactions and the Framework Agreement” in the Letter from the Board in the Circular, most of the Existing HLD Tenancy Agreements between Citistore HK and the HLD Group include fixed tenancy terms ending on or before 30 September 2023. The terms of the Existing HLD Tenancy Agreements will not expire by the date of Completion, except for the Ma On Shan branch of the Citistore Stores, will undergo renovation in the near future, and principal portion of the premises will be relocated to another newly renovated space on the same floor of the shopping mall in a different area.

Each of the Existing HLD Tenancy Agreements provides for an adjustment of rental and other ancillary expenses payable during the fixed term ending 30 September 2023.

2.2 Principal terms of the Framework Agreement

Referring to section headed “11. Continuing Connected Leasing Transactions and the Framework Agreement” as set out in the Letter from the Board in the Circular, to ensure that all tenancy and licensing transactions between relevant members of the HLD Group and relevant members of the Group comply with Chapter 14A of the Listing Rules, the Company entered into the Framework Agreement with HLD on 15 October 2014, which will take effect from the date of Completion and will be for a term commencing from the date of Completion to 30 September 2023 (both days inclusive).

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Under the Framework Agreement, all the Existing HLD Tenancy Agreements will be treated and regarded as having been made pursuant to the Framework Agreement from the date of Completion onwards.

The principal terms of the Framework Agreement can be summarised as follows:

Date:

15 October 2014

Parties: HLD and the Company Term: from the date of Completion to 30 September 2023

Main terms:

The Framework Agreement, it was agreed, among other things, that members of the Group may lease and/or license various premises from members of the HLD Group.

Each of the Company and HLD will, and will procure their respective subsidiaries to, enter into individual lease and licence agreements in respect of certain premises in Hong Kong during the term thereof on terms that are in line with the terms of the Framework Agreement. Each of such individual lease or licence agreements will set out specific terms of the leases or licences (as applicable), including but not limited to particulars of the premises, rental or licence fees (as applicable) and other fees payable and the payment terms thereof, which shall be determined principally by arms’ length negotiations with reference to the prevailing market rents and/or licensing fees of similar premises in the relevant areas from time to time.

Pricing terms:

The Framework Agreement stipulates that all tenancy and licensing transactions between relevant members of the HLD Group and relevant members of the Group must be (i) on normal commercial terms with reference to prevailing market terms; (ii) in the ordinary and usual course of business of the Company; and (iii) comparable to the rates at which the relevant members of the HLD Group lease or license the use of similar premises to other tenants or licensees which are independent third parties, at or around the relevant time, and will be on terms which are no less favourable to such relevant members of the Group than those offered by members of the HLD Group to its then existing tenants or licensees of similar premises which are independent third parties.

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We also noted from the Letter from the Board that the terms of each such tenancy or licensing agreement made under the Framework Agreement shall be determined according to the following procedures:

• (i) In respect of new rental or licensing arrangements between members of the HLD Group and members of the Group, the respective proposed parties to these rental arrangements shall enter into arms’ length negotiations.

• (ii) In respect of renewal of existing rental or licensing arrangements by exercise of options in respect of such arrangements, the relevant members of the HLD Group and relevant members of the Group shall negotiate in accordance with the terms and conditions of the existing lease or license regarding the exercise of options.

• (iii) During the negotiations with respect to new or renewal rental or licensing arrangements, the relevant members of the HLD Group and the relevant members of the Group shall have regard to the pricing policy as set out in the Framework Agreement (the “ Pricing Policy ”). Under the Pricing Policy, the rent, license fees, and other terms of each tenancy and licensing transaction under the Framework Agreement should be determined by taking into account the particular circumstances of the proposed arrangement, including but not limited to the district, vicinity, size and location of the premises concerned, the business to be carried on at such premises, the proposed length of the term of lease or license, as well as the possible contribution, if any, of the potential tenant to the building or shopping mall in which such relevant premises are located. Such circumstances shall be determined by reference to market comparables as may be obtained from the Land Registry of Hong Kong or from enquiries with property agencies.

• (iv) Should the parties to new or renewal rental or licensing arrangements reach a consensus, the relevant lease or licensing agreement will be finalized and entered into.

In assessing the fairness and reasonableness of the terms of the Existing HLD Tenancy Agreements, we have obtained and reviewed a comparable analysis performed by the Management. We are provided with two sample sets of the leasing agreements entered into by members of the HLD Group with Citistore HK, or with other tenants who are independent third parties of the HLD Group and the relevant premises. We have been given to understand that the Management assessed the selection criteria with reference to the district, vicinity, size and location of the premises concerned, the business to be carried on at such premises, the proposed length of the term of lease or license, as well as the possible contribution, if any, of the potential tenant to the building or shopping mall in which such relevant premises are located. We have assessed the selection criteria set by the Management, and are given to understand that the sources of information are from the Land Registry of Hong Kong or from enquiries with property agencies. Based on samples sets of leasing agreements provided by the Management, we agreed that the comparables selected by the Management are appropriate and we noted that the terms

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offered by the members of the HLD Group are (i) on normal commercial terms with reference to prevailing market; (ii) in the ordinary and usual course of business of Citistore HK; and (iii) no less favourable to Citistore HK than those offered by members of the HLD Group to its then existing tenants or licensees of similar premises which are independent third parties.

We have also interviewed with the Management in relation to the consideration for each tenancy and licensing agreement entered into under (or regarded as having been made pursuant to) the Framework Agreement and we have been briefed about the procedures of arriving at the quote for the leasing transactions under the Existing HLD Tenancy Agreements, which were consistent with the Pricing Policy as stipulated in the Framework Agreement. In addition, we have been given to understand that the Management has planned the relevant internal control policies and the objective of such polices, among others, to evaluate and to review the implementation of Pricing Policy in order to govern the conduct of the Continuing Connected Leasing Transactions and safeguard the interests of the Independent Shareholders.

2.3 Reasons for and benefits of entering into the Framework Agreement

As stated in the Letter from the Board in the Circular, the Citistore Stores have been operating at the aforesaid premises owned by the HLD Group for a number of years. Relocation of such Citistore Stores would impact adversely upon the stability of the business of the Group, and also lead to the incurring of significant costs. The Directors believe that the entering into of the Framework Agreement is in the best interest of the Company, given that the Framework Agreement would, after having been approved by the Independent Shareholders and following Completion, accommodate the existing and future leasing and licensing agreements between the Group and the HLD Group under a common framework agreement.

Members of the Group may enter into leasing and licensing transactions with the members of the HLD Group from time to time within the ambit of the Framework Agreement, without the need for the Company to further comply with announcement and/or independent shareholders’ approval requirements (as applicable) on each occasion. We concur with the view of the Directors that this would provide the Company and its subsidiaries, including Citistore HK following Completion, the flexibility and cost effectiveness to make use of opportunities to lease or take up the licence of commercial premises of the HLD Group for its operations as and when necessary. Further, we concur with the Directors that the procedures and manner for the determination of the terms and conditions of each tenancy and licensing agreement entered into under the Framework Agreement, including the Pricing Policy, shall ensure that such terms and conditions will be similar to market comparables at the relevant time, and thus the tenancy and licensing agreements will be on normal commercial terms and not prejudicial to the interest of the Company and its minority shareholders.

3 Historical transaction amounts

For each of the financial years ended 31 December 2011, 2012 and 2013, the aggregate annual rental payments, air conditioning charges, licence fees and management fees (as applicable) payable by the Target Group to the HLD Group pursuant to tenancy and licensing arrangements then in place in respect of premises under the Existing HLD Tenancy Agreements were approximately HK$157.0 million, approximately HK$161.4 million and approximately HK$175.0 million respectively.

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The historical transaction amounts had increased during the three financial years ended 31 December 2013, which was primarily driven by the turnover rent, where the Target Group achieved growth in turnover from approximately HK$709.3 million for the financial year ended 31 December 2011 to approximately HK$763.8 million for the financial year ended 31 December 2012 and further to approximately HK$807.0 million for the financial year ended 31 December 2013.

4 Proposed annual cap and its basis of determination

The proposed annual cap for the on-going transaction contemplated by the Framework Agreement are set out as follows:

Financial year ending 31 December

Proposed annual cap in respect of the all tenancy and licensing transactions between the HLD Group and the Target Group (HK$ million)

20141	39
2015	243
2016	264
2017	263
2018	280
2019	296
2020	315
2021	338
2022	351
20232	268

Notes:

• (1) For the financial year ending 31 December 2014, only tenancy and licensing transaction amounts after Completion are counted towards and compared with the Annual Cap, as only transactions after Completion will constitute connected transactions of the Company.

• (2) For the financial year ending 31 December 2023, only tenancy and licensing transaction amounts during the period from 1 January 2023 to 30 September 2023 are counted towards and compared with the Annual Cap.

As stated in the Letter from the Board in the Circular, the Annual Caps have been determined by reference to, among other things, are

• (i) the basic rent and turnover rent provisions under the respective Existing HLD Tenancy Agreements;

• (ii) the estimated turnover for each Citistore Store for the relevant financial year of periods;

• (iii) estimated increase in the management fee and air-conditioning charges for each year in respect of the terms of the Existing HLD Tenancy Agreements; and

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• (iv) a buffer of not exceeding 20% to account for inflation, new leases or licenses that may be entered into from time to time under the Framework Agreement and the potential trend of leasing market conditions.

In assessing the fairness and reasonableness of the Annual Caps, we have reviewed and discussed with the information provided by the Management, including the calculation of the Annual Caps and the respective supporting documents for the calculation. Save for the proposed Annual Caps for the financial years ending 31 December 2014 and 2023 where the tenancy and licensing transaction amounts are not counted for full year, the proposed Annual Caps generally increase with average yearly rate of 5.4%, which is primarily driven by the expansion of store floors in the respective periods, and the increase in the basic rent payable by the escalating clause in the second and third parts of the fixed term. In respect of the turnover rent, we are given to understand that it was reference to historical year-on-year turnover growth rates.

In addition, we note that the Annual Cap for the financial year ending 31 December 2016 spikes by 8.8%, then drops slightly by 0.4% for the financial year ending 31 December 2017, which is due to the relocation of Ma On Shan branch of the Citistore Stores which will undergo renovation in the third quarter of 2016, and the principal portion of the premises leased by Citistore HK (the “Existing Premises”) will be relocated on the same floor of the shopping mall in a different location (the “Relocated Premises”). The Management expects a surge in turnover rent due to the launch of the removal sales in the Existing Premises, while the basic rent will be payable for both the Existing Premises and the Relocated Premises during the renovation. The basic rent in Ma On Shan branch of the Citistore Stores will slightly drop when the lease for the Existing Premises is terminated.

We are given to understand that the buffer of not exceeding 20% includes (i) inflation, (ii) new leases or licenses that may be entered into from time to time under the Framework Agreement and (iii) the potential trend of leasing market conditions. In respect of (i) the inflation factor (which may vary in nature and can be economic, otherwise and will result in a rise in rental), we have researched on Bloomberg that the consumer price index in Hong Kong illustrated a steady upward-moving trend in the recent three years of 4.06%, 4.33% and 4% respectively. Bloomberg also anticipated Hong Kong will experience a year-on-year growth of 3.5% and 3.1% in 2015 and 2016 respectively. Regarding (ii) the new leases or licenses that maybe entered into from time to time, we have been given to understand that this is in line with the Management’s expansion plan by way of expanding the floor area and number of stores, and if and when suitable spaces arise, Management is of the view that 10% increase in floor space is not unexpected. In respect of (iii) the potential trend of leasing market conditions, according to Hong Kong Rating and Valuation Department, the historical New Territories retail rental index illustrated an upward-moving trend over the past 9 years and the average growth rate was approximately 5.8%. Based on the historical upward-moving trend on both CPI and leasing market trend and in order to be in line with the future business planning, we concur with the Directors that the level of buffer, which is not excessive, and the need to allow adequate flexibility for the property leasing and licensing transactions of Citistore HK after Completion which are important for the business operation of Citistore HK.

Having considered the above factors, we are of the view that the proposed annual caps for the Framework Agreement are fair and reasonable.

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5 Justification for a longer duration for the sizeable retailing floor space

The durations of the Existing HLD Tenancy Agreements are in excess of three years and the Framework Agreement is in the term of nine years. In accordance to Rule 14A.52 of the Listing Rules, we as the independent financial adviser shall explain why both the Continuing Connected Transactions and Framework Agreement requires longer terms, and to confirm that it is the normal business practice for contracts of this type to be of such duration.

Based on our discussion with the Board, from the tenants’ perspective, a contract of three-year duration is not practical and commercially sensible with sizeable floor spaces, as tenants usually incur substantial initial outlay for renovation and the building marketing and branding image to the respective residential districts.

In addition, from the shopping mall landlords’ perspective, different landlords may have different branding and marketing strategies for their respective shopping malls. Replacing a tenant that occupied sizeable floor will require the landlords to re-decorate the establishment to the standard stores and identify the right tenants. This is an expensive and time consuming exercise, which requires a particular establishment to be closed for an extensive period of time for refitting and negotiating with the potential tenants for occupying such sizeable floor spaces.

It is therefore not in the commercial interest of Citistore HK to change their store locations in a frequent manner, as there is limited availability of quality retail premises with sizable gross floor area that is suitable for department stores in the Hong Kong leased property market. In addition, costs for relocation and renovation of premises can be significant to a department store operator given the large floor spaces and the importance of interior decoration to the overall shopping experience.

We also concur with the Director’s view that having a longer duration than three years of tenancy and licensing arrangements will provide the Group a clear visibility on future expenditure on the rent and will facilitate the management of the Group in future planning and budgeting of the business. Therefore, we are of the view that the Framework Agreement requires a duration of nine years and it is normal business practice for agreements of this type to be of such duration.

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5.1 The duration of the Continuing Connected Leasing Transactions and Framework Agreement in the normal business practice

Set out below are examples of the leasing arrangements with long term tenure of the companies engaged in the retail business:

Table 9 — Market Comparables with Long Term Tenure Leasing Arrangements

		Lease	Location (Approximate
Company	Tenure	Commencement	Gross/ Lettable Area)
#Taste, A.S.	3 years fixed, another	February 2014	Citimall, Yuen Long
Watson Group	3 years option to renew		(Lettable 19,795 sq. ft.)
(HK) Ltd
*Wellcome, The	3 years fixed, another	October 2012	Kwong Wah Centre,
Dairy Farm Co.,	3 years option to renew		Yuen Long (Gross
Ltd			10,120 sq. ft.)
*ParknShop, A.S.	3 years fixed, 3 years	August 2013	Ma On Shan Plaza, Ma
Watson Group	option to renew, another		On Shan (Gross 40,000
(HK) Ltd	3 years option to renew		sq. ft.)
#AEON Stores	9 years	February 2013	Panda Place, Tsuen Wan
(Hong Kong)			(Gross 120,000 sq. ft.)
Co., Ltd
	9 years	June 2010	Tuen Mun Town Plaza,
			Phase 1, Tuen Mun
			(Gross 152,000 sq. ft.)
#H & M, H&M	10 years	April 2012	Metro City Plaza II,
Hennes &			Tseung Kwan O
Mauritz Ltd			(Lettable 26,230 sq. ft.)
#Zara, Zara Asia	12 years	December 2011	Metro City Plaza II,
Ltd.			Tseung Kwan O
			(Lettable 23,910 sq. ft.)

Source: *Land Registry #lease information from Henderson Land and various property agencies

As illustrated in Table 9 above, the duration of the lease arrangement for sizeable floor spaces in the similar shopping malls ranges from 6 to 12 years, including the renewal options. It is not unusual for the department store operators or other retail business players in Hong Kong to enter into long term leasing contracts, therefore, we are in the view that the duration of the Existing HLD Tenancy Agreements in excess of three years and up to nine years is in line with the normal business practice.

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In addition, we concur that the duration of the Framework Agreement should be equivalent to the lease periods stipulated in the Existing HLD Tenancy Agreements to ensure an effective operation of the Framework Agreement.

Therefore, we are of the view that the durations of the Framework Agreement which require a period of nine years is normal business practice for contracts of this type to be of such duration.

6 Requirements under the Listing Rules regarding the Continuing Connected Leasing Transactions

We have discussed with the Management and understand that the Company has implemented stringent measures to track the turnover rent with a designated team to monitor the monthly rental level with the use of sales data generated from SAP system. The rental record has been tracked and categorised into base rent and turnover rent, such record has been reviewed by both internal and external auditors annually. As advised by the Management, the Company will actively monitor the progress and utilising of the Annual Caps to ensure compliance with the Listing Rules from time to time.

In addition, pursuant to Rules 14A.55 to 14A.59 of the Listing Rules, the Continuing Connected Leasing Transactions are subject to the following annual review requirements:

• (a) each year the independent non-executive Directors must review the Continuing Connected Leasing Transactions and confirm in the annual report and accounts that the Continuing Connected Leasing Transactions have been entered into:

• in the ordinary and usual course of business of the Group;

• on normal commercial terms or better; and

• according to the relevant agreement governing them on terms that are fair and reasonable and in the interests of the Group and the Shareholders as a whole.

• (b) each year the auditor of the Company must provide a letter to the Board (with a copy provided to the Stock Exchange at least 10 business days prior to the bulk printing of the Company annual report) confirming whether anything has come to their attention that causes them to believe that the Continuing Connected Leasing Transactions:

• have not been approved by the board of directors of the Company;

• were not, in all material respects in accordance with the pricing policies of the Company if the transactions involve the provision of goods or services by the Company;

• were not entered into, in all material respects, in accordance with the relevant agreement governing the transactions; and

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LETTER FROM PLATINUM SECURITIES

• have exceeded the cap.

• (c) The Company shall allow, and shall procure the relevant counterparty to the Continuing Connected Leasing Transactions to allow, the Company’s auditors sufficient access to their records for the purpose of reportings on the Continuing Connected Leasing Transactions. The Board must state in the annual report whether its auditor have confirmed the matters stated in paragraph (b) above; and

• (d) The Company shall promptly notify the Stock Exchange and publish an announcement if the independent non-executive directors and/or the auditors cannot confirm the matters as required. The Exchange may require the listed issuer to re-comply with the announcement and shareholders’ approval requirements and may impose additional conditions.

In light of the reporting requirements relating to the Continuing Connected Leasing Transactions, in particular, (i) the restriction of the value of the Continuing Connected Leasing Transactions by way of the proposed caps; and (ii) the ongoing review by the independent non-executive Directors and the auditor of the Company on the terms of the Continuing Connected Leasing Transactions and the proposed caps not being exceeded, we are of the view that appropriate measures will be in place to govern the conduct of the Continuing Connected Leasing Transactions and safeguard the interests of the Independent Shareholders.

Based on the above discussions, we consider that the terms of the Framework Agreement have been negotiated on an arm’s length basis and on normal commercial terms and are fair and reasonable and in the best interest of the Group and its Shareholders, and that the Annual Caps are fair and reasonable and in the interests of the Group and its Shareholders as a whole. In addition, we are of the opinion that the duration of the Framework Agreement, being in excess of three years, require a period of nine years and it is normal business practice for agreements of this type to be of such duration.

RECOMMENDATION

In relation to the Transactions, we have considered the above principal factors and reasons, in particular, having taken into account the following in arriving at our opinion:

• (i) upon Completion, the Group would be able to diversify the existing portfolio of the Group, which is in line with the business strategy of the Group and in the interests of the Company and the Shareholders as a whole;

• (ii) from the perspective of the Comparable Companies analysis, the Consideration is fair and reasonable so far as the Independent Shareholders are concerned and in the interests of the Company and the Shareholder as a whole;

• (iii) the Acquisition will have a potential positive effect on the earnings of the Group and is in the interests of the Company and the Shareholders as a whole;

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LETTER FROM PLATINUM SECURITIES

• (iv) the terms of the Framework Agreements are agreed on normal commercial terms and the Annual Caps are fair and reasonable;

• (v) the tenancy and licensing arrangements with the HLD Group provide the Target Group the clear visibility on future rental with historical support and would facilitate the management of the Target Group in future planning and budgeting of the business, and will assist the Target Group in leveraging on its relationship with the HLD Group; and

• (vi) the Framework Agreement requires a period of nine years and it is normal business practice for agreements of this type to be of such duration.

Having considered the above, we are of the view that although the Acquisition is not in the ordinary and usual business of the Group, it is in line with the business strategy of the Group. We are also of the view that the Acquisition Agreement and the transactions contemplated thereunder including but not limited to the Framework Agreement, the Continuing Connected Leasing Transactions and the proposed Annual Caps for such transactions as may be required under Chapter 14A of the Listing Rules, were agreed on normal commercial terms and are fair and reasonable, and in the interests of the Company and the Shareholders as a whole. The duration of the Framework Agreement, being in excess of three years, requires a longer period than three years and it is normal business practice for agreements of this type to be of a duration of nine years. Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolution to be proposed at the EGM.

Yours faithfully, For and on behalf of

Platinum Securities Company Limited

Lenny Li

Director and Co-head of Corporate Finance

Mr. Lenny Li is a licensed person registered with the Securities and Futures Commission and as a responsible officer of Platinum Securities Company Limited to carry out Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities under the SFO and has over eight years of experience in corporate finance industry.

— 81 —

FORWARD-LOOKING STATEMENTS

This circular contains forward-looking statements that state the intentions, beliefs, expectations or predictions for the future that are, by their nature, subject to significant risks and uncertainties, including the risk factors described in this circular. These forward-looking statements include all statements in this circular that are not historical facts, including, without limitation, statements relating to:

• the financial, business, operation and trading prospects of the Group, the Target Group and the Enlarged Group;

• the nature and scale of, and potential for, future developments of the Group, the Target Group and the Enlarged Group;

• the strategies, plans, objectives, goals, the ability of implementing the strategies and achieving the plans, objectives and goals of the Enlarged Group;

• prospective financial matters regarding the business of the Target Group and the Enlarged Group;

• future capital needs and capital expenditure plans of the Enlarged Group;

• the future developments, trends and conditions of the industry in Hong Kong; and

• the future developments, trends and conditions of the economy in Hong Kong

When used in this circular, the words “aim”, “anticipate”, “believe”, “could”, “estimate”, “expect”, “going forward”, “intend”, “may”, “ought to”, “plan”, “project”, “seek”, “should”, “will”, “would” and similar expressions, as they relate to the Group, the Target Group and/or the Enlarged Group, are typically used for the forward-looking statements. Such forward-looking statements reflect the views of the management of the Group or the Target Group (as the case may be) as of the date of this circular with respect to future events and are subject to certain risks, uncertainties and assumptions, including the risk factors described in this circular. Actual results and events may differ materially from information contained in the forward-looking statements as a result of a number of factors, including:

• the Enlarged Group’s ability to effectively manage its expansion plans;

• the Enlarged Group’s ability to foresee and respond to consumer preferences and demands;

• prospective financial information of the Enlarged Group; and

• other factors beyond control of the Enlarged Group.

Should any of such risks or uncertainties materialize, or should the underlying assumptions prove to be incorrect, the results of operations and financial condition of the Group, the Target Group and/or the Enlarged Group may be adversely affected and may vary materially from those described herein as anticipated, believed or expected. Accordingly, forward-looking statements are not a guarantee of future performance and you should not place undue reliance on such forward-looking statements. Moreover, the forward-looking statements should not be regarded as representations by the Company that its plans and objectives will be achieved.

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INDUSTRY OVERVIEW

The sources of the statistics, industry data and other information relating to the economy and the industry contained below are considered by the Company to be appropriate sources for such statistics, industry data and information. While the Company and its advisors have taken reasonable care in extracting and reproducing such statistics, industry data and information, such information has not been independently verified by the Company, its Directors, agents or advisers.

Analysis of the key economic indicators of Hong Kong

Citistore HK principally operates general merchandising stores in Hong Kong, with a particular focus on housewares, cosmetics, apparel and daily necessities.

According to the Census and Statistics Department, nominal GDP of Hong Kong, capitalizing on domestic economic growth, experienced stable growth from approximately HK$1,707 billion in 2008 to approximately HK$2,125 billion in 2013, representing a CAGR of approximately 4.5% from 2008 to 2013, except a slight decrease in 2009 due to the global financial crisis (Figure 1)

The Report on 2013 Economic Background and 2014 Prospects published by the Economic Analysis and Business Facilitation Unit under the Financial Secretary’s Office predicts that, over the medium term, with lower growth potential of major advanced economies, emerging markets will be the key growth drivers of the world. Taking into account Mainland China’s growth prospects as well as Hong Kong’s advantages and demographic challenges, the economy is expected to attain a growth trend of 3.5% per annum from 2015 to 2018.

Figure 1: Gross domestic product in Hong Kong at current market prices (HK$ billion), 2008-2013

==> picture [307 x 161] intentionally omitted <==

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

2,500
2,125
2,037
1,934
2,000
1,776
1,707 1,659
1,500
1,000
500
0
2008 2009 2010 2011 2012 2013
Gross domestic product, current prices (HK$ billion)
2008-2013: 4.5% CAGR
----- End of picture text -----

Source: Census and Statistics Department

Analysis of the key growth drivers of retail sales value in Hong Kong

Historically, there has been a positive correlation between growth in GDP and retail sales value (“RSV”), with retail sales tending to move in the same direction as GDP growth, but with the movement being of a higher magnitude.

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INDUSTRY OVERVIEW

The value of retail sales has been bolstered by domestic consumption and consumer confidence, which have been influenced by various “feel-good” factors, for example:

a) Unemployment rate

The impact of the global financial crisis in 2008 has subdued, and the seasonally adjusted unemployment rate has gradually fallen from 5.4% in May-July 2009 to 3.3% in June-Aug 2014.[1]

• b) Property price

Due primarily to the monetary easing policies implemented by major economies since the on-set of the global financial crisis, Hong Kong property prices have increased significantly which has in turn contributed to more positive consumer sentiment. The Centa-City Index, which reflects private residential property prices, has rebounded and more than doubled from its trough of 55.46 in December 2008 to 121.13 in July 2014.[2]

c) Stock market

The Hang Seng Index has also recovered from 11,922 (6th March 2009 close), its trough during the height of the global financial crisis, to 23,089 (Latest Practicable Date close). This is primarily attributable to the global monetary easing and signs of economic recovery in major economies.

All the above factors have contributed to the improving consumer confidence level which has driven growth in the value of retail sales, as illustrated by the recovering Index of Consumer Sentiment[3] which has recovered from 66.8 in September 2008, the trough at the time of the global financial crisis, to 84.2 in June 2014.

Strong growth in tourism spending has also contributed to the faster growth in the value of retail sales when compared to historical GDP growth. The influx of visitors from Mainland China and increase in total spending by visitors from Mainland China also supported growth in overall Hong Kong retail sales since 2003. Based on Hong Kong Tourism Board data, the number of visitors from Mainland China has increased from approximately 8.5 million in 2003 to approximately 40.7 million in 2013, representing a CAGR of approximately 17% for the period 2003-2013. Total spending by overnight visitors from Mainland China on shopping increased from HK$20.2 billion in 2003 to

1 Source: General Household Survey, Census and Statistics Department. Unemployment rate refers to the proportion of unemployed persons in the labour force. Unemployment rate (seasonally adjusted) refers to the unemployment rate adjusted for seasonal variations. June—August 2014 unemployment rate is a provisional figure.

2 Source: Centaline Property Agency Ltd. Centa-City Index is a monthly index based on all transaction records as registered with the Land Registry to reflect property price movements in previous months. July 1997 level is rebased at 100.

3 The Index of Consumer Sentiment is compiled by The Centre for Quality of Life at The Chinese University of Hong Kong (CUHK). A higher index indicates people are more optimistic about the present situation and future development of economic conditions. The baseline is January 2000 (index = 100).

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INDUSTRY OVERVIEW

HK$109.4 billion in 2013, representing a CAGR of approximately 18% for the period 2003-2013. However, the increased tourist spending has been less relevant for Citistore HK, given that it is positioned to target local residential spending with products focused on affordable household needs.

Analysis of the Hong Kong Retail Market

According to the Census and Statistics Department, the value of retail sales (“RSV”) in Hong Kong increased from approximately HK$273 billion in 2008 to approximately HK$494 billion in 2013, representing a CAGR of approximately 12.6% during the period 2008 to 2013 (Figure 2). “Jewellery, watches, clocks and valuable gifts” (referred below as “Luxury Goods”) and “electrical goods, photographic equipment”, which were among the more popular tourist spending categories, were bolstered by the rapid growth in PRC tourists arrival and total spending during the period. (Figure 3)

Additionally, growth in average retail price level also contributed to the overall growth in the value of retail sales (Figure 4). Inflation was one of the major factors driving the growth in average retail price level, as illustrated by the increase in Composite Consumer Price Index from 97.8 in 2008 to 115.1 in 2013.[4] The surge in the price of gold during the period drove up the average retail price of jewelry and contributed to the increase in the value of retail sales of jewelry. However, increase in the retail sales value of Luxury Goods was less relevant to Citistore HK’s operations due to its limited exposure to sales of Luxury Goods.

Figure 2: Value of Retail Sales in Hong Kong (HK$ billion), 2008-13

==> picture [287 x 161] intentionally omitted <==

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

600
494
500
445
406
400
325
300 273 275
200
100
0
2008 2009 2010 2011 2012 2013
Hong Kong Retail Sales Value (HK$ bn)
2008-13: 12.6% CAGR
----- End of picture text -----

Source: Census and Statistics Department

4 Source: Census and Statistics Department. CPI indices are compiled to reflect the impact of consumer price changes on households in different expenditure ranges. October 2009 - September 2010 = 100

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INDUSTRY OVERVIEW

Figure 3: Breakdown of retail sales value in Hong Kong by type of retail outlet (HK$ billion), 2013[5]

	% of 2013 RSV	2008-2013 RSV CAGR
Jewellery, Watches, Clocks & Valuable Gifts	23.9%	22.6%
Other Consumer Goods	17.3%	9.8%
Consumer Durable Goods	16.4%	13.7%
Clothing, Footwear & Allied Products	12.7%	11.7%
Department Stores	10.4%	13.1%
Supermarkets	9.9%	7.6%
Food, Alcoholic Drinks & Tobacco	7.2%	5.3%
Fuels	2.1%	3.3%

Figure 4: Year-on-year growth of total retail sales value and retail sales volume in Hong Kong, 2009-2013

==> picture [310 x 171] intentionally omitted <==

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

30%
25%
Price increase
20%
15%
10%
5%
0%
2009 2010 2011 2012 2013
-5%
Year on year change in sales volume Year on year change in sales value
----- End of picture text -----

Source: Census and Statistics Department

5 Statistics on retail sales by type of retail outlet are outlet statistics, not commodity statistics. Hence, for example, statistics on “clothing, footwear and allied products” do not relate to the total sales of clothing, footwear and allied products, but to the total sales in those shops selling such commodities either as the only items or as the principal items. Sales figures for those outlets may therefore include other commodities. Conversely, some sales of clothing, footwear and allied products may have been subsumed in the sales figures for other outlets

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INDUSTRY OVERVIEW

Analysis of the Hong Kong Retail Market, 2014 year-to-date performance

According to the Census and Statistics Department, the total value of retail sales in July 2014 was provisionally estimated at HK$38.7 billion, a decrease of 3.1% from the total value of retail sales in July 2013. The value of total retail sales decreased by 1.5% in value for the first seven months of 2014 relative to the same period in 2013. After netting out the effect of price changes over the same period, the retail sales volume for the first seven months of 2014 decreased by 1.5% year-on-year.

The decrease in the value of retail sales was mainly due to the decline in retail sales volume of Luxury Goods by 15.1% and in “Electrical goods and photographic equipment” by 9.1% in the first seven months in 2014 relative to the first seven months of 2013. Moreover, the average selling price of these two categories also declined due to the drop in sale of some “big-ticket” items. As a result, the overall value of retail sales of Luxury Goods and the “Electrical goods and photographic equipment” declined by 17.5% and 14.3% respectively in the first seven months of 2014 relative to the first seven months of 2013. However, the value of retail sales of product categories that were more closely related to local consumption experienced moderate growth over the same period. For instance, the value of retail sales of “Wearing apparel”, “Supermarket sales”, “Food, alcoholic drinks and tobacco” increased by 7.7%, 5.9% and 7.1% year-on-year respectively in the first seven months of 2014.

Analysis of the Hong Kong Department Store Market

According to the Census and Statistics Department, department store sales represented the fifth largest type of retail outlet in the overall retail market in Hong Kong in terms of value of retail sales in 2013, representing 10.4% of the overall value of retail sales in 2013. The value of retail sales in department stores in Hong Kong increased from approximately HK$28 billion in 2008 to approximately HK$52 billion in 2013, representing a CAGR of approximately 13.1% from 2008 to 2013. (Figure 5)

“Clothing and footwear”, “Medicines, cosmetics & toilet requisites”, “Travel and sports goods and household goods” were the three largest product categories in department store retail sales and represented 30.2%, 23.5% and 16.2% of the total department store market respectively. (Figure 6) “Medicines, cosmetics & toilet requisites”, which was a popular product category for tourists, recorded 18.0% CAGR in 2008-2013 and was one of the key growth drivers in the overall department store market.

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INDUSTRY OVERVIEW

Figure 5: Value of retail sales in department stores in Hong Kong (HK$ billion), 2008-2013

==> picture [291 x 167] intentionally omitted <==

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

60
52
50
44
40
40
33
30 28 28
20
10
0
2008 2009 2010 2011 2012 2013
Hong Kong Department Store Retail Sales Value (HK$ billion)
2008-2013: 13.1% CAGR
----- End of picture text -----

Source: Census and Statistics Department

Citistore HK’s stores are mainly located in established residential areas and focus on daily necessities and household spending. With less exposure to tourism spending (especially the high-growth “Medicine, cosmetics and toilet requisites” and Luxury Goods categories), Citistore’s growth in gross sales proceeds has generally been more stable as compared to that of the overall department store industry.

Figure 6: Breakdown of Value of Retail Sales in Hong Kong Department Stores by broad product category, 2013

==> picture [374 x 164] intentionally omitted <==

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

||||
|---|---|---|
|2008-2013 RSV|
|% of 2013 RSV|
|CAGR|
|Clothing & Footwear|30.2%|11.4%|
|Medicines, Cosmestics & Toilet Requisites|23.5%|18.0%|
|Travel & Sports Goods & Household Goods|16.2%|16.9%|
|Supermarket (SM) Section|10.0%|8.5%|
|Electrical App., Furniture & Durable Goods|8.3%|9.0%|
|Jewellery, Watches & Gifts|6.3%|17.6%|
|Food, Alcoholic Drinks & Tobacco|5.5%|7.3%|
|Indicates key Citistore HK product categories|

----- End of picture text -----

Source: Census and Statistics Department

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RISK FACTORS

When considering the Acquisition, please carefully consider the risk factors set out in this section and other materials set out in this circular. If any possible event set out in this section occurs, the Enlarged Group’s business, financial condition, results of operations and prospects may be adversely affected.

1. RISKS RELATING TO THE BUSINESS OF THE TARGET GROUP

Reliance on concessionaires, consignors and suppliers

The retailing business of Citistore HK comprises the sale of goods on consignment, direct sale of goods that it sources, and licensing of portions of shop space to concessionaires. The success of the Target Group’s business depends on the ability of Citistore HK to retain the existing concessionaires and consignors and to attract new ones appropriate for its stores, and to source merchandise and goods from its suppliers. The current contracts with concessionaires and consignors typically allow early termination by service of notice of three to six months by either party, and typically there are no fixed supply contracts with suppliers of goods for direct sale. In the event that the major concessionaires, consignors or suppliers terminate the agreements entered into with Citistore HK or fail to enter into new agreements with Citistore HK on terms acceptable to Citistore HK after the expiry or termination of the existing ones, Citistore HK may not be able to meet the demand of its customers, offer merchandise and goods at competitive prices or maintain its revenue level, and the profitability and results of operation of the Target Group may be adversely affected. There is no assurance that Citistore HK will be able to develop business relationships with new concessionaires, consignors or suppliers in a timely manner or to negotiate favourable contractual terms with them.

Reliance on the HLD Group for leasing and licensing arrangements

The Target Group itself does not own any property, and Citistore HK currently conducts all its retailing operations through leasing and licensing of properties from the HLD Group and groups of listed associates of HLD. For the financial years ended 31 December 2011, 2012 and 2013 and the six months ended 30 June 2014, the aggregate rental payments, air conditioning charges, licence fees and management fees (as applicable) paid by the Target Group to the HLD Group and to subsidiaries of its listed associates were approximately HK$167.7 million, approximately HK$173.2 million, approximately HK$186.7 million and approximately HK$96.0 million respectively.

While the lease terms are for as long as nine years for most of the Citistore Stores, the Target Group’s ability to renew existing leasing and licensing arrangements upon their expiry is important to its business operations. After the expiry of the Existing HLD Tenancy Agreements, if Citistore HK is unable to renew such leasing and licensing arrangements, it would have to identify other retail properties for leasing from other landlords and there is no assurance that they will be on terms as favourable as those under the Existing HLD Tenancy Agreements. Further, the Target Group will incur additional costs in relocating its operations, thus increasing its costs of operation. The business and financial prospects of the Target Group may thus be adversely affected.

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RISK FACTORS

Risks of product liability claims and infringement of third party trademarks

The retailing business of Citistore HK exposes the Target Group to product liability risks and potential infringement of trademarks or other intellectual property rights of third parties. Although Citistore HK endeavours to maintain effective control over the quality of merchandise it sells and to examine merchandise that it sources or sells by consignment, there is no assurance that it will not be subject to product liability claims from customers if any merchandise sold at its stores (including those sold by concessionaires or consignors, and those directly sold by it) is faulty or defective or that potential infringement of trademark or other intellectual property rights by sale of merchandise can be detected in advance. Any responsibility of Citistore HK for the deficiency in merchandise quality or intellectual property rights infringement may result in damages, legal costs and expenses borne by itself, for which it may or may not be able to recover from the relevant concessionaire, consignor or supplier. Such liability for defective products or infringing merchandise sold may have an adverse effect on the business, financial condition, results of operations and prospects of the Target Group.

Reputation risks

Market recognition of the names “Citistore”, “千色” and “id:c” has been a key to the success of the retailing operations of Citistore HK. The brands are trusted among the consuming public in Hong Kong as a general merchandising store offering a wide variety of products at reasonable and competitive prices. In the event that Citistore HK fails to take adequate measures to maintain its control over the quality of its sales services or of the merchandise supplied by it or other permitted brand users, the reputation and consumer perception of the name “Citistore”, “千色” and “id:c” may deteriorate and the business, results of operation and prospects of the Target Group may be adversely affected.

Changing consumer preferences and demands

The performance of the retailing business of Citistore HK depends to a considerable extent on its ability to foresee and respond to changing consumer preferences and demands in the Hong Kong market. Consumer preferences and demands may be affected by a number of factors, including fashion trends, consumption habits and lifestyle changes, which change from time to time and are beyond the control of Citistore HK. In the event that Citistore HK is unable to foresee and respond swiftly to the changing consumer preferences and demands, or that the mix of products offered or its marketing strategies do not fit the tastes or preferences of the customers in the districts where its stores and shop operate, the market share and results of operation of its retailing business may be adversely affected.

Risks of overstocking, shortages or loss of products

To optimize its retailing business, Citistore HK has to constantly monitor and evaluate its inventory and stocks in its stores and warehouses to ensure that popular merchandise and products are sufficient and to minimize the overstocking of unpopular one. Failure to effectively manage its inventory and stocks resulting in the overstocking of merchandise and products may adversely affect the profitability and operations of Citistore HK. There is no assurance that such significant write-offs will not happen in the future.

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RISK FACTORS

Risk of insufficient insurance coverage

Citistore HK maintains various insurance policies which cover, among others, property all risks, third party liability and employees’ compensation. However, there may be circumstances under which Citistore HK may not be covered for certain types of perils which its business may encounter. Any uninsured losses or amounts, or claims of insured losses exceeding the limits of its insurance policy, if materialized, may have adverse impact on the Target Group’s profitability and results.

Risks of defective conditions of the leased premises

The retailing business of Citistore HK is carried on in premises which are leased. Moreover, Citistore HK leases warehouses and office premises for its operation. The proper functioning and the conditions of such premises have a direct impact on the business of Citistore HK. Any accident or malfunctioning at such premises, such as the occurrence of power shortages, fire, disruptions to gas or water supplies or flooding may result in interruption to or delay in its business operation and damages to its products and merchandise, and the Target Group may suffer loss as a result thereof. Any such defect of the leased properties for a significant period could have an adverse effect on the business and results of operations of Citistore HK.

2. RISKS RELATING TO THE ACQUISITION

Implementation of future developments after Completion

Any future development plans of the Enlarged Group to open new stores or shops will involve significant devotion of capital expenditures. New store or shop openings may be delayed or adversely affected by risks or uncertainties, including market conditions, capital adequacy, availability of financial resources, and the ability of the Enlarged Group to identify and lease suitable quality sizeable premises on terms acceptable to it, to recruit, train and retain sufficient staff, and to accommodate additional requirements relating to procurement, sales and marketing, logistics and warehouses, and other additional operational and technological demands.

Future plans of the Enlarged Group to introduce new products categories may be delayed or adversely affected by risks or uncertainties, including the ability of the Enlarged Group to foresee consumer preferences and demands, to identify and develop business relationships with new brand owners in a timely manner and on terms acceptable to it, and to launch appropriate advertisements and sales and marketing campaigns to develop awareness of the new product categories.

There is no assurance that any future development plans for the Target Group after Completion will be implemented or implemented in a profitable manner. If the Target Group is unable to achieve the desired economic results and commercial success through implementation of future plans, the results of operations, financial condition, profitability and prospects of the Enlarged Group may be adversely affected.

— 91 —

RISK FACTORS

Reliance on the management personnel of the Target Group

The business performance of Citistore HK depends on, among other things, its strong relationship with suppliers, consignors and concessionaires, the procurement, sales and marketing strategies, its quality and financial control measures, and human resources management, which depend to a significant extent on the expertise and experience of the management personnel of the Target Group and, after Completion, the Enlarged Group. In addition, implementation of any future development plans of the business of the Target Group will require substantial attention and efforts from the management personnel of the Enlarged Group.

3. RISKS RELATING TO THE RETAILING INDUSTRY IN HONG KONG

Intense competition

The local retail industry in Hong Kong is highly competitive. Citistore HK faces intense competition from a vast number of competitors, including other department stores, supermarkets and retail outlets, which offer similar merchandise in the districts where the department stores and specialty store of Citistore HK are located, as well as e-commerce operators and other retail operators. There is no assurance that the Target Group will be able to compete successfully with its competitors. If Citistore HK fails to compete effectively against its competitors, it may be unable to maintain its market share and thus causing adverse effect to the Target Group’s profitability and results.

Increase in rental, staff cost and other operating cost

Like other market players in the retail industry in Hong Kong, Citistore HK’s operations require the use of sizeable floor spaces for its stores, and the service of a significant number of staff. For the financial years ended 31 December 2011, 2012 and 2013 and the six months ended 30 June 2014, expenditure on rent and rates represented approximately 29.1%, 28.2%, 28.6% and 28.0% respectively of its operating costs, and staff costs represented approximately 20.8%, 20.2%, 20.4% and 20.9% respectively of its operating costs. With a limited supply of land, the sale price and rental level of property in Hong Kong has generally been high. If Citistore HK fails to secure the use of floor spaces for its department stores and specialty store at a reasonable and affordable rental level, secure the continued service of its staff, and control its other costs, there may be a material adverse effect to the Target Group’s profitability and results.

Hong Kong economy

The local retail industry is affected by changes in the Hong Kong economy. In the event of any adverse change to the economic environment in Hong Kong, consumers’ levels of disposable income, consumption sentiments and demands may be adversely affected, which may lead to an adverse impact on the sales, business and results of operations of Citistore HK.

— 92 —

RISK FACTORS

Epidemic disease outbreak

The local retail industry in Hong Kong is susceptible to the outbreak of epidemic diseases. In the event of any recurrence of severe acute respiratory syndrome or outbreak of swine or avian influenza or other severe epidemic diseases in Hong Kong, consumers’ confidence in the Hong Kong economy, the pedestrian flow in shopping malls and retail outlets as well as consumers’ consumption sentiments may be materially impaired, which may lead to an adverse impact on the sales, business and results of operations of the Target Group.

4. RISKS RELATING TO THIS CIRCULAR

Certain statistics, industry data and other information relating to the economy and the industry contained in this circular were derived from various official sources, government publications and other entities and may not be reliable

Certain statistics, industry data and other information relating to the economy and the industry contained in this circular were directly or indirectly derived from various official sources, government publications, the Chinese University of Hong Kong (for Index of Consumer Sentiment), the Hong Kong Tourism Board and Centaline Property Agency Ltd. While the Directors have no reason to believe that such statistics, industry data and information are false or misleading or that any fact has been omitted that would render such statistics, industry data and information false or misleading, none of the Company, its Directors, agents or advisors to the Company have prepared or independently verified the accuracy or completeness of such statistics, data and information. Due to possible flawed collection methods and discrepancies in information derived from official sources, government publications and the aforesaid entities, statistics, industry data and other information relating to the economy and the industry contained in this circular may be inaccurate or may not be comparable to statistics produced from other sources.

No representation or assurance is given as to the accuracy or completeness of the statistics, industry data and other information relating to the economy and the industry contained in this circular. Careful consideration should be given as to how much weight or importance should be attached or placed on such statistics, data and information.

— 93 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

SUMMARY OF FINANCIAL INFORMATION

The financial information of the Group for the three years ended 31 December 2013 and for the six months ended 30 June 2014 are disclosed in the Company’s annual reports for the years ended 31 December 2011, 2012 and 2013 and interim report for the six months ended 30 June 2014, respectively, which are incorporated by reference into this circular. The said annual reports and interim report of the Company are available on the Company’s website at www.hilhk.com and the website of the Stock Exchange at www.hkexnews.hk.

In each of the annual reports of the Company for the years ended 31 December 2012 and 2013, the auditor of the Company issued an opinion on the consolidated accounts of the Group with an emphasis of matter on the uncertainties related to whether Hangzhou Municipal Bureau of Communications and/or other relevant government authorities would ultimately confirm that both the operating right and the toll fee collection right of Hangzhou Qianjiang Third Bridge last for a period of 30 years expiring on 19 March 2027, and to the outcome of the arbitration. Such opinion of the auditor of the Company was not qualified in respect of such matter.

INDEBTEDNESS

As at the close of business on 31 August 2014, being the latest practicable date for the purpose of this statement of indebtedness prior to the printing of this circular, apart from intragroup liabilities and normal trade and other payables, the Enlarged Group did not have any material outstanding loan capital, bank overdrafts, loans, mortgages, charges or other similar indebtedness, hire purchase or finance lease commitments, liabilities under acceptances or acceptance credits, guarantees or other contingent liabilities.

WORKING CAPITAL

Taking into account of the projected cash flow contribution of the Target Group, the Directors are of the opinion that the Group has sufficient working capital for its present requirements, that is for the next 12 months from the date of this circular.

MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Group since 31 December 2013, being the date to which the latest published audited consolidated accounts of the Company were made up.

MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

Set out below is the management discussion and analysis of the results of the Group for each of the financial years ended 31 December 2011, 2012 and 2013 and the six months ended 30 June 2014. The information is extracted from the annual and interim reports of the Company for the relevant financial years and financial period, respectively, published on both the website of the Stock Exchange (www.hkexnews.hk) and the website of the Company (www.hilhk.com).

— I-1 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

The management discussion and analysis for each financial year or the financial period should be read in conjunction with the financial information of the Group included in the respective annual or interim reports of the Company.

Critical accounting estimates and judgements

(a) Uncertainty related to the toll fee collection right period

As at the date of issue of these accounts, the Group is waiting for the People’s Government of Zhejiang Province (浙江省人民政府) and the Zhejiang Province Department of Communications (浙江省交通運輸廳) (collectively, the “Authorities”) to confirm that both the operating right and the toll fee collection right of Hangzhou Qianjiang Third Bridge last for a same period of 30 years and the outcome of the arbitration case.

The Group has obtained a legal opinion from an independent PRC law firm in respect of Hangzhou Qianjiang Third Bridge, the toll fee collection right enjoyed by Hangzhou Henderson Qianjiang Third Bridge Company, Limited (the “Joint Venture Company”) should be for the same period of 30 years as the operating right enjoyed by the Joint Venture Company. Based on such advice, amortisation and calculation of the recoverable amount of the intangible operating right in these accounts are on the basis that both the operating right and the toll fee collection right of Hangzhou Qianjiang Third Bridge last for a period of 30 years expiring on 19 March 2027. There is, however, uncertainty as to any further response of the Authorities and/or Hangzhou Municipal Bureau of Communications (杭州市交通運輸局) and the outcome of the arbitration case. Based on the future development of the aforesaid, the Group would have to reconsider the remaining useful life and/or the recoverable amount of the intangible operating right. These accounts do not include any adjustment on the carrying amount of the intangible operating right that would result from the future development of the aforesaid.

(b) Impairment of receivables

If circumstances indicate that the carrying amount of receivables may not be recoverable, an impairment loss may be recognised. The carrying amount of a receivable is reviewed regularly in order to assess whether the recoverable amount has declined below the carrying amount. The Group estimates the future cash flows from the receivable with reference to, among others, the age of the receivable, counterparties’ creditworthiness and repayment history.

— I-2 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

• (c) Income tax

The Group is subject to withholding income tax in relation to profit distributions from its investment projects in mainland China. Management has exercised the judgement that profits from the Group’s investment projects in mainland China are recognised on an accrual basis, and the provision for withholding income tax has been made in the Group’s accounts accordingly. Where a different basis is adopted by the tax authorities in mainland China in assessing the Group’s withholding income tax liability relating to the distribution of profits from the Group’s investment projects in mainland China, the amount of the Group’s withholding income tax liability may be different from the amount of the provision for withholding income tax made in the Group’s accounts.

Management discussion and analysis of the Group for the six months ended 30 June 2014

Material acquisitions and disposals

The Group did not undertake any significant acquisition or disposal of subsidiaries or assets during the six months ended 30 June 2014.

Results of operations

During the six months ended 30 June 2014, the Group was engaged in the infrastructure business in mainland China, through its holding of the right to operate a toll bridge, Hangzhou Qianjiang Third Bridge, in Hangzhou, Zhejiang Province.

Due to the Hangzhou Toll Office[6] continuing to provisionally suspend payment of the toll fees generated by Hangzhou Qianjiang Third Bridge to the Group during the six months ended 30 June 2014, no toll fee income was recognised in the Group’s condensed interim financial statements for the six months ended 30 June 2014. Nevertheless, for the six months ended 30 June 2014, the Group recognised the following:-

• (i) direct costs (comprising mainly the amortisation charge on the carrying amount of intangible operating right in relation to Hangzhou Qianjiang Third Bridge, and repairs and maintenance costs) of HK$24 million (six months ended 30 June 2013: HK$19 million);

• (ii) other income in the net amount of HK$11 million (comprising mainly bank interest income of HK$15 million which is being offset by a net foreign exchange loss of HK$5 million due to the Renminbi depreciating against the Hong Kong dollar by 1.0% during the period) (six months ended 30 June 2013: HK$26 million, which comprised mainly bank interest income of HK$13 million and a net foreign exchange gain of HK$10 million due to the Renminbi appreciating against the Hong Kong dollar by 1.8% during the period);

6 杭州市市區公共停車場(庫)建設發展中心 or Hangzhou City Urban Public Carpark Construction & Development Centre, formerly known as 杭州市城巿“四自”工程道路綜合收費管理處 or Hangzhou City “Sizi” Engineering & Highway General Toll Fee Administration Office, alias the “Hangzhou Toll Office”

— I-3 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(iii) administrative expenses of HK$5 million (six months ended 30 June 2013: HK$3 million);

• (iv) nil income tax charge for the period (six months ended 30 June 2013: income tax charge of HK$3 million which was due primarily to an under-provision of HK$2 million of income tax of prior years); and

• (v) non-controlling interests’ attributable share of loss for the period of HK$9 million (six months ended 30 June 2013: HK$6 million).

As a result, the loss attributable to equity shareholders for the six months ended 30 June 2014 amounted to HK$9 million (six months ended 30 June 2013: profit attributable to equity shareholders of HK$7 million).

Notwithstanding the suspension in the payment of toll fee income by the Hangzhou Toll Office to the Group during the six months ended 30 June 2014, the toll fee income generated by Hangzhou Qianjiang Third Bridge during the six months ended 30 June 2014 amounted to HK$126 million (six months ended 30 June 2013: HK$155 million), representing a period-on-period decrease of 18.7%. The average daily number of vehicles which used Hangzhou Qianjiang Third Bridge during the six months ended 30 June 2014 was 62,133 (six months ended 30 June 2013: 77,215), representing a period-on-period decrease of 19.5% mainly due to the impact of the road construction works of 西興互通道路改建工程 (being part of the Hangzhou Airport Road project) which commenced in April 2014 and led to the closure of the south link bridge and reduction in traffic at the southbank of Hangzhou Qianjiang Third Bridge.

Financial resources, liquidity and loan maturity profile

At 30 June 2014, the Group had no bank borrowings (31 December 2013: Nil). The Group had cash and bank balances and long-term bank deposits of HK$1,148 million at 30 June 2014 (31 December 2013: cash and bank balances HK$1,185 million).

During the six months ended 30 June 2014, the Group did not recognise any finance costs (six months ended 30 June 2013: Nil).

Treasury and financial management

The Group’s financing and treasury activities are centrally managed at the corporate level. As at 30 June 2014, the Group was not a contractual party to any arrangements in relation to any derivative financial instruments for speculative or hedging purposes. The Group monitors closely its foreign exchange rate exposure (in relation to its investment in the infrastructure business in mainland China which is denominated in Renminbi and the bank deposits in Hong Kong denominated in Renminbi which are not hedged) and will consider hedging these exposures should the need arise.

Apart from the foregoing, the Group did not have any material exposure to movements in foreign exchange rates as at 30 June 2014. As the Group had no borrowings as at 30 June 2014, it had no material exposure to movements in interest rates.

— I-4 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Charge on assets

No asset of the Group was charged to any parties as at 30 June 2014 and 31 December 2013.

Capital commitments

As at 30 June 2014 and 31 December 2013, the Group did not have any capital commitments.

Contingent liabilities

As at 30 June 2014 and 31 December 2013, the Group did not have any contingent liabilities.

Committed borrowing facilities

As at 30 June 2014 and 31 December 2013, the Group did not have any committed borrowing facilities.

Employees and remuneration policy

As at 30 June 2014, the Group had 57 (31 December 2013: 58) full-time employees. The remuneration of the employees was in line with the market level of pay in the industry. Discretionary year-end bonuses were payable to the employees based on individual performance. Other benefits to the employees included medical insurance, retirement scheme, training programmes and education subsidies.

Total staff costs for the six months ended 30 June 2014 amounted to HK$3 million (six months ended 30 June 2013: HK$3 million).

Management discussion and analysis of the Group for the financial year ended 31 December 2013

Material acquisitions and disposals

The Group did not undertake any significant acquisition or disposal of subsidiaries or assets during the financial year ended 31 December 2013.

Results of operations

During the financial year ended 31 December 2013, the Group was engaged in the infrastructure business in mainland China, through its holding of the right to operate a toll bridge, Hangzhou Qianjiang Third Bridge, in Hangzhou, Zhejiang Province.

— I-5 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

The Hangzhou Toll Office continued to provisionally suspend payment of the toll fee generated by the toll bridge to the Group (the suspension having commenced on 20 March 2012) during the financial year ended 31 December 2013. Accordingly, no toll fee income was recognised in the Group’s consolidated accounts for the financial year ended 31 December 2013 (financial year ended 31 December 2012: HK$63 million, representing the toll fee income during the period from 1 January 2012 to 19 March 2012).

Nevertheless, for the year ended 31 December 2013, the Group recognised the following:-

• (i) direct costs (comprising mainly the amortisation charge on the carrying amount of intangible operating right in relation to Hangzhou Qianjiang Third Bridge) of HK$39 million (financial year ended 31 December 2012: HK$47 million);

• (ii) other income and other gains (comprising mainly bank and other interest income and net foreign exchange gain) of HK$50 million (financial year ended 31 December 2012: HK$38 million);

• (iii) administrative expenses of HK$12 million (financial year ended 31 December 2012: HK$18 million);

• (iv) income tax charge of HK$3 million which mainly relates to an under-provided tax charge in respect of previous years (financial year ended 31 December 2012: HK$6 million); and

• (v) non-controlling interests’ attributable share of loss for the year of HK$14 million (financial year ended 31 December 2012: non-controlling interests’ attributable share of profit for the year of HK$5 million).

As a result, the Group’s consolidated profit attributable to equity shareholders for the financial year ended 31 December 2013 amounted to HK$10 million (financial year ended 31 December 2012: HK$25 million).

Notwithstanding the suspension in the payment of toll fee income by the Hangzhou Toll Office to the Group during the financial year ended 31 December 2013, the toll fee income generated by Hangzhou Qianjiang Third Bridge during the financial year ended 31 December 2013 amounted to HK$318 million (financial year ended 31 December 2012: HK$317 million), representing a year-on-year increase of 0.3%. The average daily number of vehicles which used Hangzhou Qianjiang Third Bridge during the financial year ended 31 December 2013 was 77,376 (financial year ended 31 December 2012: 77,615), representing a year-on-year decrease of 0.3% as the monthly traffic volume of Hangzhou Qianjiang Third Bridge recorded a month-on-month decrease of between 2% and 4% during the second half of 2013, due to (i) the record high temperatures of July and August which hampered the activity of travellers using Hangzhou Qianjiang Third Bridge; and (ii) the road construction works in the neighbouring area of Hangzhou Qianjiang Third Bridge during the period from September to December which resulted in a decrease in commuters using Hangzhou Qianjiang Third Bridge.

— I-6 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Financial resources, liquidity and loan maturity profile

As at 31 December 2013, the Group had no bank borrowings (31 December 2012: Nil). The Group had cash and bank balances of HK$1,185 million at 31 December 2013 (31 December 2012: HK$1,277 million).

During the financial year ended 31 December 2013, the Group did not recognise any finance costs (financial year ended 31 December 2012: Nil).

Treasury and financial management

The Group’s financing and treasury activities are centrally managed at the corporate level. As at 31 December 2013, the Group was not a contractual party to any arrangements in relation to any derivative financial instruments for speculative or hedging purposes. The Group monitors closely its foreign exchange rate exposure (in relation to its investment in the infrastructure business in mainland China which is denominated in Renminbi and the bank deposits in Hong Kong denominated in Renminbi which are not hedged) and will consider hedging these exposures should the need arise.

Apart from the foregoing, the Group did not have any material exposure to movements in foreign exchange rates at 31 December 2013. As the Group had no borrowings as at 31 December 2013, it had no material exposure to movements in interest rates.

Charge on assets

No asset of the Group was charged to any parties as at 31 December 2013 and 31 December 2012.

Capital commitments

As at 31 December 2013 and 31 December 2012, the Group did not have any capital commitments.

Contingent liabilities

As at 31 December 2013 and 31 December 2012, the Group did not have any contingent liabilities.

Committed borrowing facilities

As at 31 December 2013 and 31 December 2012, the Group did not have any committed borrowing facilities.

— I-7 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Employees and remuneration policy

As at 31 December 2013, the Group had 58 (31 December 2012: 60) full-time employees. The remuneration of the employees was in line with the market level of pay in the industry. Discretionary year-end bonuses were payable to the employees based on individual performance. Other benefits to the employees included medical insurance, retirement scheme, training programmes and education subsidies.

Total staff costs for the financial year ended 31 December 2013 amounted to HK$6 million (financial year ended 31 December 2012: HK$7 million), which comprised of staff costs (other than directors’ remuneration) for the year of HK$5 million (financial year ended 31 December 2012: HK$6 million) and directors’ remuneration for the year of HK$1 million (financial year ended 31 December 2012: HK$1 million).

Management discussion and analysis of the Group for the financial year ended 31 December 2012

Material acquisitions and disposals

The Group did not undertake any significant acquisition or disposal of subsidiaries or assets during the financial year ended 31 December 2012.

Results of operations

During the financial year ended 31 December 2012, the Group was engaged in the infrastructure business in mainland China, through its holding of the right to operate a toll bridge, Hangzhou Qianjiang Third Bridge, in Hangzhou, Zhejiang Province.

Turnover for the financial year ended 31 December 2012 amounted to HK$63 million (financial year ended 31 December 2011: HK$299 million), representing a decrease of HK$236 million, or 79%, from that for the corresponding financial year ended 31 December 2011. The Hangzhou Toll Office had provisionally suspended payment of the toll fee to the Group in respect of Hangzhou Qianjiang Third Bridge (the suspension having commenced on 20 March 2012). Consequential upon the failure of the relevant authority to put forward any formal proposal or compensation offer regarding the toll fee collection right and pending the final conclusion of the resulting arbitration case, the toll fee income (after deduction of business tax) during the period from 20 March 2012 to 31 December 2012 in the amount of RMB207 million, or equivalent to HK$254 million, was not recognised in the Group’s consolidated accounts for the financial year ended 31 December 2012 which explains the abovementioned decrease in turnover for the financial year ended 31 December 2012. Accordingly, profit attributable to equity shareholders for the financial year ended 31 December 2012 also decreased by HK$83 million, or 77%, to HK$25 million (financial year ended 31 December 2011: HK$108 million).

— I-8 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Notwithstanding the suspension in the payment of toll fee income generated by the Hangzhou Toll Office to the Group for the period from 20 March 2012 to 31 December 2012, the toll fee income generated by Hangzhou Qianjiang Third Bridge during the financial year ended 31 December 2012 amounted to HK$317 million (financial year ended 31 December 2011: HK$299 million), representing an increase of 6% over that for the corresponding financial year ended 31 December 2011.

Financial resources, liquidity and loan maturity profile

As at 31 December 2012, the Group had no bank borrowings (31 December 2011: Nil). As a result, the Group had cash and bank balances of HK$1,277 million at 31 December 2012 (31 December 2011: HK$1,355 million).

During the financial year ended 31 December 2012, the Group did not recognise any finance costs (financial year ended 31 December 2011: Nil).

Treasury and financial management

The Group’s financing and treasury activities are centrally managed at the corporate level. As at 31 December 2012, the Group was not a contractual party to any arrangements in relation to any derivative financial instruments for speculative or hedging purposes. The Group monitors closely its foreign exchange rate exposure (in relation to its investments in the infrastructure business in mainland China which is denominated in Renminbi and is not hedged) and will consider hedging these exposures should the need arise.

Apart from the foregoing, the Group did not have any material exposure to movements in foreign exchange rates as at 31 December 2012. As the Group had no borrowings as at 31 December 2012, it had no material exposure to movements in interest rates.

Charge on assets

No asset of the Group was not charged to any parties as at 31 December 2012 and 31 December 2011.

Capital commitments

As at 31 December 2012 and 31 December 2011, the Group did not have any capital commitments.

Contingent liabilities

As at 31 December 2012 and 31 December 2011, the Group did not have any contingent liabilities.

— I-9 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Committed borrowing facilities

As at 31 December 2012 and 31 December 2011, the Group did not have any committed borrowing facilities.

Employees and remuneration policy

As at 31 December 2012, the Group had 60 (31 December 2011: 64) full-time employees. The remuneration of the employees was in line with the market level of pay in the industry. Discretionary year-end bonuses were payable to the employees based on individual performance. Other benefits to the employees included medical insurance, retirement scheme, training programmes and education subsidies.

Total staff costs for the year ended 31 December 2012 amounted to HK$7 million (year ended 31 December 2011: HK$9 million), which comprised of staff costs (other than directors’ remuneration) for the year of HK$6 million (year ended 31 December 2011: HK$8 million) and directors’ remuneration for the year of HK$1 million (year ended 31 December 2011: HK$1 million).

FINANCIAL AND TRADING PROSPECTS OF THE GROUP

As discussed in the section headed “ 9. Prospects” in the “Letter from the Board”, the core asset of the Group at present is its 60% interest in Hangzhou Qianjiang Third Bridge in Zhejiang Province. The Group will follow up closely with the development of the arbitration case and continue to pursue further negotiations with the relevant PRC authority with a view to achieving a settlement that is in the interests of the Group and its shareholders as a whole.

If the Acquisition becomes unconditional and is completed, and the arbitration proceedings confirm the Joint Venture Company’s toll fee collection right in Hangzhou Qianjiang Third Bridge, the Company intends to continue with the Group’s infrastructure business in relation to the bridge, together with the department store business of the Target Group. On the other hand, if the Group ceases to have an economic interest in Hangzhou Qianjiang Third Bridge, the department store business of the Target Group will become the core operation of the Group, until other investment opportunities arise and further investment is made.

The performance of the Target Group’s business is highly correlated with local consumption activity in Hong Kong, given the department stores’ location in established residential districts and focus on daily household products. According to the Census and Statistics Department, sales of daily consumer products demonstrated stable growth in the first seven months in 2014, with clothing, footwear and allied products increased by 7.7% year-on-year, and food, alcoholic drinks and tobacco (other than sales in supermarket) increased by 7.1% year-on-year. The Company is cautiously optimistic that the department store business of the Target Group, which will become subsidiaries of the Group after the Completion, will continue its stable growth for the remainder of the current financial year.

— I-10 —

APPENDIX II ACCOUNTANTS’ REPORT ON THE FINANCIAL INFORMATION OF THE TARGET GROUP

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

8th Floor Prince’s Building 10 Chater Road Central Hong Kong

17 October 2014

The Board of Directors Henderson Investment Limited

Dear Sirs,

INTRODUCTION

We set out below our report on the financial information relating to Camay Investment Limited (the “Target Company”) and its subsidiaries that are to remain as at the completion of the proposed acquisition of the entire share capital of the Target Company by Henderson Investment Limited (the “Company”), namely Citistore (Hong Kong) Limited (“Citistore HK”) and Puretech Investment Limited (“Puretech”) (hereinafter collectively referred to as the “Target Group”) comprising the combined balance sheets of the Target Group as at 31 December 2011, 2012 and 2013 and 30 June 2014 and the combined statements of comprehensive income, the combined statements of changes in equity and the combined cash flow statements of the Target Group, for each of the years ended 31 December 2011, 2012 and 2013 and the six months ended 30 June 2014 (the “Relevant Periods”), together with the explanatory notes thereto (the “Financial Information”), for inclusion in the circular of the Company dated 17 October 2014 (the “Circular”) in connection with the proposed acquisition of the Target Group by the Company.

The Target Company was incorporated in the British Virgin Islands on 3 May 2006 and registered as a limited liability company.

As at the date of this report, no audited financial statements have been prepared for the Target Company, as it is an investment holding company and not subject to statutory audit requirements under the relevant rules and regulations in the jurisdiction of incorporation.

The entities comprising the Target Group have adopted 31 December as their financial year end date. Details of the entities comprising the Target Group that are subject to audit during the Relevant Periods and the names of the respective auditors are set out in note 23 of Section B. The statutory financial statements of these companies were prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

— II-1 —

ACCOUNTANTS’ REPORT ON THE FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

The directors of the Target Company have prepared the combined financial statements of the Target Group for the Relevant Periods (the “Underlying Financial Statements”) on the same basis as used in the preparation of the Financial Information set out in Section B. The Underlying Financial Statements for each of the years ended 31 December 2011, 2012 and 2013 and the six months ended 30 June 2014 were audited by us under separate terms of engagement with the Target Company in accordance with Hong Kong Standards on Auditing issued by the HKICPA.

The Financial Information has been prepared by the directors of the Company for inclusion in the Circular based on the Underlying Financial Statements, with no adjustments made thereon and in accordance with the applicable disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”).

DIRECTORS’ RESPONSIBILITY FOR THE FINANCIAL INFORMATION

The directors of the Company are responsible for the preparation of the Financial Information that gives a true and fair view in accordance with HKFRSs issued by the HKICPA and the applicable disclosure provisions of the Listing Rules, and for such internal control as the directors of the Company determine is necessary to enable the preparation of the Financial Information that is free from material misstatement, whether due to fraud or error.

REPORTING ACCOUNTANTS’ RESPONSIBILITY

Our responsibility is to form an opinion on the Financial Information based on our procedures performed in accordance with Auditing Guideline “Prospectuses and the Reporting Accountant” (Statement 3.340) issued by the HKICPA. We have not audited any financial statements of the Target Company or the other entities comprising the Target Group in respect of any period subsequent to 30 June 2014.

OPINION

In our opinion, the Financial Information gives, for the purpose of this report and on the basis of preparation set out in Section B below, a true and fair view of the state of affairs of the Target Group as at 31 December 2011, 2012 and 2013 and 30 June 2014 and the Target Group’s combined results and cash flows for the Relevant Periods then ended.

CORRESPONDING FINANCIAL INFORMATION

For the purpose of this report, we have also reviewed the unaudited corresponding interim financial information of the Target Group comprising the combined statement of comprehensive income, the combined statement of changes in equity and the combined cash flow statement for the six months ended 30 June 2013, together with the notes thereon (the “Corresponding Financial Information”), for which the Company’s directors are responsible, in accordance with Hong Kong Standard on Review Engagements 2410 “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” issued by the HKICPA.

— II-2 —

APPENDIX II

ACCOUNTANTS’ REPORT ON THE FINANCIAL INFORMATION OF THE TARGET GROUP

The directors of the Company are responsible for the preparation of the Corresponding Financial Information in accordance with the same basis adopted in respect of the Financial Information. Our responsibility is to express a conclusion on the Corresponding Financial Information based on our review.

A review consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion on the Corresponding Financial Information.

Based on our review, for the purpose of this report, nothing has come to our attention that causes us to believe that the Corresponding Financial Information is not prepared, in all material respects, in accordance with the same basis adopted in respect of the Financial Information.

— II-3 —

APPENDIX II

ACCOUNTANTS’ REPORT ON THE FINANCIAL INFORMATION OF THE TARGET GROUP

A FINANCIAL INFORMATION

• 1 Combined statements of comprehensive income (Expressed in Hong Kong dollars)

Section B Note Turnover 4 Direct costs Other revenue 5 Other net income/(loss) 5 Administrative expenses Other operating expenses Profit from operations Finance cost 6(a) Profit before taxation 6 Income tax 7(a) Profit and total comprehensive income for the year/period		Year ended 31 December 2011 2012 2013 709,347,676 763,845,386 806,973,683 (525,148,703) (552,650,930) (583,607,756) 184,198,973 211,194,456 223,365,927 8,571,753 8,734,874 18,202,463 1,565 19,059 (72,398) (44,733,963) (49,062,823) (57,711,620) (14,872,066) (23,081,932) (23,790,287) 133,166,262 147,803,634 159,994,085 (18,046) (19,399) (15,658) 133,148,216 147,784,235 159,978,427 (22,179,190) (24,862,826) (26,482,031) 110,969,026 122,921,409 133,496,396	Year ended 31 December 2011 2012 2013 709,347,676 763,845,386 806,973,683 (525,148,703) (552,650,930) (583,607,756) 184,198,973 211,194,456 223,365,927 8,571,753 8,734,874 18,202,463 1,565 19,059 (72,398) (44,733,963) (49,062,823) (57,711,620) (14,872,066) (23,081,932) (23,790,287) 133,166,262 147,803,634 159,994,085 (18,046) (19,399) (15,658) 133,148,216 147,784,235 159,978,427 (22,179,190) (24,862,826) (26,482,031) 110,969,026 122,921,409 133,496,396	Six months ended 30 June	Six months ended 30 June	Six months ended 30 June
		2011 709,347,676 (525,148,703) 184,198,973 8,571,753 1,565 (44,733,963) (14,872,066) 133,166,262 (18,046) 133,148,216 (22,179,190) 110,969,026	2012 763,845,386 (552,650,930) 211,194,456 8,734,874 19,059 (49,062,823) (23,081,932) 147,803,634 (19,399) 147,784,235 (24,862,826) 122,921,409		2013 (Unaudited) 392,149,035 (284,120,755) 108,028,280 4,367,458 (38,956) (28,307,475) (12,572,087) 71,477,220 (6,743) 71,470,477 (11,827,248) 59,643,229	2014 418,704,764 (307,306,435)
						111,398,329 4,853,294 560 (29,924,770) (12,398,599)
						73,928,814 (7,582)
						73,921,232 (12,267,051)
						61,654,181

The accompanying notes form part of the Financial Information.

— II-4 —

APPENDIX II

ACCOUNTANTS’ REPORT ON THE FINANCIAL INFORMATION OF THE TARGET GROUP

2 Combined balance sheets

(Expressed in Hong Kong dollars)

Section B Note Non-current assets Fixed assets 9 Deferred tax assets 7(c) Current assets Inventories 10 Trade and other receivables 11 Amounts due from immediate holding company 12 Amounts due from fellow subsidiaries 12 Amounts due from related companies 12 Cash and cash equivalents Current liabilities Trade and other payables 13 Rental deposits Amounts due to fellow subsidiaries 12 Amounts due to related companies 12 Tax payable 7(c) Net current assets/(liabilities)		At 31 December	At 31 December	2013 55,302,802 1,346,351 56,649,153 - - - - - - - - - - - - 56,727,213 10,749,735 575,548,524 23,397,409 604,766 41,732,621 708,760,268 - - - - - - - - - - - - (239,181,743) (11,508,982) (23,618,398) — (9,122,079) (283,431,202) - - - - - - - - - - - - ----------------------------------------------- 425,329,066 - - - - - - - - - - - - -----------------------------------------------		At 30 June
		2011 29,990,322 724,728 30,715,050 - - - - - - - - - - - - 67,063,875 9,182,111 362,692,832 14,400,987 — 15,870,480 469,210,285 - - - - - - - - - - - - (226,718,595) (8,906,672) (30,993,542) (150,270) (7,595,842) (274,364,921) - - - - - - - - - - - - ----------------------------------------------- 194,845,364 - - - - - - - - - - - - -----------------------------------------------	2012 55,298,720 — 55,298,720 - - - - - - - - - - - - 60,931,929 10,320,718 466,098,533 23,397,810 661,552 24,746,916 586,157,458 - - - - - - - - - - - - (239,688,251) (10,461,045) (42,244,245) — (261,964) (292,655,505) - - - - - - - - - - - - ----------------------------------------------- 293,501,953 - - - - - - - - - - - - -----------------------------------------------			2014 77,197,362 1,345,997
						78,543,359 - - - - - - - - - - - - 55,341,323 8,596,014 126,655,656 — 787,663 20,394,018
						211,774,674 - - - - - - - - - - - - (222,883,595) (12,019,514) (24,241,741) — (15,394,716)
						(274,539,566) - - - - - - - - - - - - ----------------------------------------------- (62,764,892) - - - - - - - - - - - - -----------------------------------------------

— II-5 —

APPENDIX II

ACCOUNTANTS’ REPORT ON THE FINANCIAL INFORMATION OF THE TARGET GROUP

2 Combined balance sheets (continued)

(Expressed in Hong Kong dollars)

Section B Note Total assets less current liabilities Non-current liability Deferred tax liabilities 7(c) NET ASSETS CAPITAL AND RESERVE Share capital 14 Retained profits TOTAL EQUITY		At 31 December	At 31 December	2013 481,978,219 — 481,978,219 8 481,978,211 481,978,219		At 30 June
		2011 225,560,414 — 225,560,414 8 225,560,406 225,560,414	2012 348,800,673 (318,850) 348,481,823 8 348,481,815 348,481,823			2014 15,778,467 —
						15,778,467
						8 15,778,459
						15,778,467

The accompanying notes form part of the Financial Information.

— II-6 —

APPENDIX II

ACCOUNTANTS’ REPORT ON THE FINANCIAL INFORMATION OF THE TARGET GROUP

3 Combined statements of changes in equity

(Expressed in Hong Kong dollars) Section B Note Balance at 1 January 2011 Change in equity for 2011: Profit and total comprehensive income for the year Balance at 31 December 2011 Balance at 1 January 2012 Change in equity for 2012: Profit and total comprehensive income for the year Balance at 31 December 2012 Balance at 1 January 2013 Change in equity for 2013: Profit and total comprehensive income for the year Balance at 31 December 2013 Balance at 1 January 2014 Changes in equity for the six months ended 30 June 2014: Profit and total comprehensive income for the period Dividend declared and approved during the period 15 Balance at 30 June 2014	Share capital 8 — 8 8 — 8 8 — 8 8 — — 8	Retained profits 114,591,380 110,969,026 225,560,406 225,560,406 122,921,409 348,481,815 348,481,815 133,496,396 481,978,211 481,978,211 61,654,181 (527,853,933) 15,778,459	Total equity 114,591,388 110,969,026 225,560,414 225,560,414 122,921,409 348,481,823 348,481,823 133,496,396 481,978,219 481,978,219 61,654,181 (527,853,933) 15,778,467

— II-7 —

APPENDIX II

ACCOUNTANTS’ REPORT ON THE FINANCIAL INFORMATION OF THE TARGET GROUP

3 Combined statements of changes in equity (continued)

(Expressed in Hong Kong dollars)

Section B Note Balance at 1 January 2013 Change in equity for the six months ended 30 June 2013: (Unaudited) Profit and total comprehensive income for the period (Unaudited) Balance at 30 June 2013 (Unaudited)	Share capital 8 — 8	Retained profits 348,481,815 59,643,229 408,125,044	Total equity 348,481,823 59,643,229
			408,125,052

The accompanying notes form part of the Financial Information.

— II-8 —

APPENDIX II

ACCOUNTANTS’ REPORT ON THE FINANCIAL INFORMATION OF THE TARGET GROUP

4 Combined cash flow statements

(Expressed in Hong Kong dollars)

Operating activities Profit before taxation Adjustments for: (Gain)/loss on disposal of fixed assets Depreciation Finance cost Operating profit before change in working capital (Increase)/decrease in inventories (Increase)/decrease in trade and other receivables Increase in amounts due from immediate holding company Decrease/(increase) in amounts due from fellow subsidiaries Decrease/(increase) in amounts due from related companies Increase/(decrease) in trade and other payables Increase in rental deposits Increase/(decrease) in amounts due to fellow subsidiaries Increase/(decrease) in amounts due to related companies Cash generated from operations Hong Kong Profits Tax paid Net cash generated from/(used in) operating activities Investing activities Payment for purchase of fixed assets Proceeds from disposal of fixed assets Net cash used in investing activities		Year ended 31 December 2011 2012 2013 133,148,216 147,784,235 159,978,427 (2,129) (77,559) (5,305) 12,240,652 12,336,063 18,032,164 18,046 19,399 15,658 145,404,785 160,062,138 178,020,944 (12,640,747) 6,131,946 4,204,716 (2,149,579) (1,138,607) (429,017) (126,946,560) (103,405,701) (109,449,991) 198,504 (8,996,823) 401 270,542 (661,552) 56,786 72,889,463 12,969,656 (506,508) 966,932 1,554,373 1,047,937 17,787,717 11,250,703 (18,625,847) 118,446 (150,270) — 95,899,503 77,615,863 54,319,421 (21,807,291) (31,153,126) (19,287,117) 74,092,212 46,462,737 35,032,304 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (32,857,218) (37,683,902) (18,046,941) 14,500 117,000 16,000 (32,842,718) (37,566,902) (18,030,941) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -	Year ended 31 December 2011 2012 2013 133,148,216 147,784,235 159,978,427 (2,129) (77,559) (5,305) 12,240,652 12,336,063 18,032,164 18,046 19,399 15,658 145,404,785 160,062,138 178,020,944 (12,640,747) 6,131,946 4,204,716 (2,149,579) (1,138,607) (429,017) (126,946,560) (103,405,701) (109,449,991) 198,504 (8,996,823) 401 270,542 (661,552) 56,786 72,889,463 12,969,656 (506,508) 966,932 1,554,373 1,047,937 17,787,717 11,250,703 (18,625,847) 118,446 (150,270) — 95,899,503 77,615,863 54,319,421 (21,807,291) (31,153,126) (19,287,117) 74,092,212 46,462,737 35,032,304 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (32,857,218) (37,683,902) (18,046,941) 14,500 117,000 16,000 (32,842,718) (37,566,902) (18,030,941) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -		Six months ended 30 June	Six months ended 30 June
		2011 133,148,216 (2,129) 12,240,652 18,046	2012 147,784,235 (77,559) 12,336,063 19,399		2013 (Unaudited) 71,470,477 3,204 8,171,583 6,743	2014 73,921,232 3,079 9,729,641 7,582
		145,404,785 (12,640,747) (2,149,579) (126,946,560) 198,504 270,542 72,889,463 966,932 17,787,717 118,446	160,062,138 6,131,946 (1,138,607) (103,405,701) (8,996,823) (661,552) 12,969,656 1,554,373 11,250,703 (150,270)		79,652,007 (3,600,039) (5,325,695) (9,341,195) 400 85,576 (42,060,329) 392,725 (16,089,583) 7,742	83,661,534 1,385,890 2,153,721 (78,961,065) 23,397,409 (182,897) (29,584,769) 510,532 623,343 —
		95,899,503 (21,807,291)	77,615,863 (31,153,126)		3,721,609 —	3,003,698 (5,994,060)
		74,092,212 - - - - - - - - - - - - (32,857,218) 14,500	46,462,737 - - - - - - - - - - - - (37,683,902) 117,000		3,721,609 - - - - - - - - - - - - (11,355,660) —	(2,990,362) - - - - - - - - - - - - (18,340,659) —
		(32,842,718) - - - - - - - - - - - -	(37,566,902) - - - - - - - - - - - -		(11,355,660) - - - - - - - - - - - -	(18,340,659) - - - - - - - - - - - -

— II-9 —

APPENDIX II

ACCOUNTANTS’ REPORT ON THE FINANCIAL INFORMATION OF THE TARGET GROUP

4 Combined cash flow statements (continued)

(Expressed in Hong Kong dollars)

Financing activity Interest paid Net cash used in financing activity Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the year/period Cash and cash equivalents at the end of the year/period		Year ended 31 December 2011 2012 2013 (18,046) (19,399) (15,658) (18,046) (19,399) (15,658) - - - - - - - - - - - ----------------------------------------- - - - - - - - - - - - ----------------------------------------- - - - - - - - - - - - ----------------------------------------- 41,231,448 8,876,436 16,985,705 (25,360,968) 15,870,480 24,746,916 15,870,480 24,746,916 41,732,621	Year ended 31 December 2011 2012 2013 (18,046) (19,399) (15,658) (18,046) (19,399) (15,658) - - - - - - - - - - - ----------------------------------------- - - - - - - - - - - - ----------------------------------------- - - - - - - - - - - - ----------------------------------------- 41,231,448 8,876,436 16,985,705 (25,360,968) 15,870,480 24,746,916 15,870,480 24,746,916 41,732,621	Six months ended 30 June	Six months ended 30 June	Six months ended 30 June
		2011 (18,046) (18,046) - - - - - - - - - - - ----------------------------------------- 41,231,448 (25,360,968) 15,870,480	2012 (19,399) (19,399) - - - - - - - - - - - ----------------------------------------- 8,876,436 15,870,480 24,746,916		2013 (Unaudited) (6,743) (6,743) - - - - - - - - - - - ----------------------------------------- (7,640,794) 24,746,916 17,106,122	2014 (7,582)
						(7,582) - - - - - - - - - - - ----------------------------------------- (21,338,603) 41,732,621
						20,394,018

Cash and cash equivalents represent cash at bank and in hand.

The accompanying notes form part of the Financial Information.

— II-10 —

ACCOUNTANTS’ REPORT ON THE FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

B NOTES TO THE FINANCIAL INFORMATION

• (Expressed in Hong Kong dollars unless otherwise indicated)

1 General information

(a) Background

The Target Company is a limited liability company incorporated in the British Virgin Islands (“BVI”) on 3 May 2006. The registered address of its office is Pasea Estate, Road Town, Tortola, BVI and the principal place of business is 72/F-76/F, Two International Finance Centre, 8 Finance Street, Central, Hong Kong. The principal activity of the Target Company is investment holding.

The reporting entity comprises the Target Company and its subsidiaries, namely Citistore HK and Puretech, but excluding Max-mercan Investment Limited (“Max-mercan”) and its other subsidiaries (the “Max-mercan Group”). Particulars of the subsidiaries of the Target Group included in the preparation of the Financial Information are as follows:

			Proportion of	Proportion of
			**ownership **	interest
			Target
	Place of	Issued and	Group’s	Held by
	incorporation	paid up	effective	the Target	Principal
Name of subsidiary	and business	capital	interest	Company	activity
Citistore (Hong Kong)	Hong Kong	1 share	100%	100%	Department
Limited					store
					operation
Puretech Investment	Hong Kong	2 shares	100%	100%	Holding of
Limited					trademarks

The details of group structure and basis of preparation and presentation for the Financial Information of the Target Group are disclosed in notes 1(b) and 2(a) respectively.

(b) Proposed Acquisition

On 5 September 2014, the Company announced its proposal to acquire the entire interest of the Target Group at an aggregate consideration of $934,500,000 (the “Proposed Acquisition”) pursuant to the acquisition agreement entered into between a wholly-owned subsidiary of the Company as the purchaser and Henderson Land Development Company Limited as the vendor (the “Acquisition Agreement”).

Under the Acquisition Agreement, the Target Company and its subsidiaries will undergo a corporate restructuring prior to the completion of the Proposed Acquisition, under which all subsidiaries of the Target Company except Citistore HK and Puretech will be transferred out of the Target Company prior to the completion of the Proposed Acquisition.

— II-11 —

ACCOUNTANTS’ REPORT ON THE FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

2 Significant accounting policies

(a) Basis of preparation and presentation

The business of the Target Group has formed a part of the larger group of the Target Company and all of its subsidiaries (the “Overall Group”) during the Relevant Periods.

For the purpose of preparation of the Financial Information of the Target Group, the assets and liabilities, and the results of the Target Company, Citistore HK and Puretech are combined and the Max-mercan Group is excluded (i.e. a “carve-out” basis) as compared with the assets and liabilities, and the results of the Overall Group prepared on a consolidated basis.

Management of the Company is of the view that it is more appropriate to present the Financial Information of the Target Group during the Relevant Periods on a “carve-out” basis, rather than to present the financial information of the Overall Group prepared on a consolidated basis, due to the following reasons:

• The Target Group is clearly delineated from the Max-mercan Group in terms of the nature of business and management.

• There are clearly identifiable assets, liabilities, revenue and expenditures of the Target Group and of the Max-mercan Group respectively.

• It is practicable to identify the historical financial information attributable to the Target Group’s business given that the accounting books and records of the Target Group are maintained separately from the accounting books and records of the Max-mercan Group.

• The Max-mercan Group does not form part of the assets to be acquired by the Company under the Proposed Acquisition and hence its historical financial information is not relevant to the trading record of the business proposed to be acquired. The Company’s management believes that presenting the consolidated financial information of the Overall Group, which would include the results of Max-mercan Group that is not the subject of the Proposed Acquisition, would provide irrelevant and potentially misleading financial information to the users of the Financial Information.

• The consolidated financial information of the Overall Group had never been prepared by management of the Target Group on a standalone basis.

• Presenting the Financial Information of the Target Group on a “carve-out” basis would provide more direct and relevant information to the users of the Financial Information.

No significant adjustments or allocations of expenses were made in the Financial Information.

— II-12 —

ACCOUNTANTS’ REPORT ON THE FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

2 Significant accounting policies (continued)

(a) Basis of preparation and presentation (continued)

For the purpose of the Proposed Acquisition as stated in note 1(b), the Financial Information of the Target Group has been prepared and presented on the basis as if the corporate restructuring as stated in note 1(b) had been completed as at the beginning of the Relevant Periods and the group structure of the Target Group remained unchanged throughout the Relevant Periods.

Intra-group balances and transactions, and any unrealised profit or loss arising from intra-group transactions, are eliminated in preparing the Financial Information of the Target Group. Unrealised losses resulting from intra-group transactions are eliminated in the same way as unrealised gains but only to the extent that there is no evidence of impairment.

There were no transactions between the Target Group and the Max-mercan Group during the Relevant Periods.

(b) Statement of compliance

The Financial Information set out in this report has been prepared in accordance with HKFRSs, which collective term includes Hong Kong Accounting Standards and related interpretations promulgated by the HKICPA. Further details of the significant accounting policies adopted are set out in the remainder of this Section B.

The HKICPA has issued a number of new and revised HKFRSs. For the purpose of preparing this Financial Information, the Target Group has adopted all applicable new and revised HKFRSs to the Relevant Periods, except for any new standards or interpretations that are not yet effective for the Relevant Periods. The revised and new accounting standards and interpretations issued but not yet effective for the accounting periods beginning on or after 1 January 2014 are set out in note 22.

The Financial Information also complies with the applicable disclosure provisions of the Listing Rules.

The accounting policies set out below have been applied consistently to all periods presented in the Financial Information.

The Corresponding Financial Information for the six months ended 30 June 2013 has been prepared in accordance with the same basis and accounting policies adopted in respect of the Financial Information.

(c) Basis of measurement

The measurement basis used in the preparation of the Financial Information is the historical cost basis.

— II-13 —

APPENDIX II

ACCOUNTANTS’ REPORT ON THE FINANCIAL INFORMATION OF THE TARGET GROUP

2 Significant accounting policies (continued)

(d) Use of estimates and judgements

The preparation of Financial Information in conformity with HKFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Judgements made by management in the application of HKFRSs that have significant effect on the Financial Information and major sources of estimation uncertainty are discussed in note 21.

(e) Subsidiaries

Subsidiaries are entities controlled by the Target Group. The Target Group controls an entity when it is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. When assessing whether the Target Group has power, only substantive rights (held by the Target Group and other parties) are considered.

An investment in a subsidiary is combined into the Financial Information of the Target Group from the date that control commences until the date that control ceases.

When the Target Group loses control of a subsidiary, it is accounted for as a disposal of the entire interest in that subsidiary, with a resulting gain or loss being recognised in profit or loss. Any interest retained in that former subsidiary at the date when control is lost is recognised at fair value and this amount is regarded as the fair value on initial recognition of a financial asset or, when appropriate, the cost on initial recognition of an investment in an associate or a joint venture.

— II-14 —

APPENDIX II

ACCOUNTANTS’ REPORT ON THE FINANCIAL INFORMATION OF THE TARGET GROUP

2 Significant accounting policies (continued)

(f) Fixed assets and depreciation

Fixed assets are stated at cost less accumulated depreciation and impairment losses.

Depreciation is calculated to write off the cost of items of fixed assets, less their estimated residual value, if any, using the straight-line method over their estimated useful lives as follows:

• Leasehold improvements Over the unexpired term of lease

• Furniture and equipment and motor vehicles 5 years

Both the useful life of an asset and its residual value, if any, are reviewed annually.

The carrying amounts of fixed assets are reviewed for indications of impairment at each balance sheet date. An impairment loss is recognised in profit or loss if the carrying amount of an asset, or the cash-generating unit to which it belongs, exceeds its recoverable amount. The recoverable amount of an asset, or of the cash-generating unit to which it belongs, is the greater of its fair value less costs of disposal and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is reversed if there has been a favourable change in the estimates used to determine the recoverable amount.

Gains or losses arising from the retirement or disposal of an item of fixed assets are determined as the difference between the net disposal proceeds and the carrying amount of the item and are recognised in profit or loss on the date of retirement or disposal.

(g) Leased assets

An arrangement, comprising a transaction or a series of transactions, is or contains a lease if the Target Group determines that the arrangement conveys a right to use a specific asset or assets for an agreed period of time in return for a payment or a series of payments. Such a determination is made based on an evaluation of the substance of the arrangement and is regardless of whether the arrangement takes the legal form of a lease.

(i) Classification of assets leased to the Target Group

Assets that are held by the Target Group under leases which transfer to the Target Group substantially all the risks and rewards of ownership are classified as being held under finance leases. Leases which do not transfer substantially all the risks and rewards of ownership to the Target Group are classified as operating leases.

— II-15 —

ACCOUNTANTS’ REPORT ON THE FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

2 Significant accounting policies (continued)

(g) Leased assets (continued)

(ii) Operating lease charges

Where the Target Group has the use of assets held under operating leases, payments made under the leases are charged to profit or loss in equal instalments over the accounting periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the leased asset. Lease incentives received are recognised in profit or loss as an integral part of the aggregate net lease payments made. Contingent rentals are charged to profit or loss in the accounting period in which they are incurred.

(h) Inventories

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

Cost is calculated using the weighted average cost formula and comprises all costs of purchase and the costs incurred in bringing the inventories to their present location and condition. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs necessary to make the sale.

When inventories are sold, the carrying amount of those inventories is recognised as an expense in the period in which the related revenue is recognised. The amount of any write-down of inventories to net realisable value and all losses of inventories are recognised as an expense in the period in which the write-down or loss occurs. The amount of any reversal of any write-down of inventories is recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs.

(i) Trade and other receivables

Trade and other receivables are initially recognised at fair value and thereafter stated at amortised cost using the effective interest method, less allowance for impairment of doubtful debts, except where the receivables are interest-free loans made to related parties without any fixed repayment terms or the effect of discounting would be immaterial. In such cases, the receivables are stated at cost less allowance for impairment of doubtful debts.

Impairment losses for doubtful debts are recognised when there is objective evidence of impairment and are measured as the difference between the carrying amount of the financial assets and the estimated future cash flows, discounted at the asset’s original effective interest rate where the effect of discounting is material. Objective evidence of impairment includes observable data that comes to the attention of the Target Group about events that have an impact on the asset’s estimated future cash flows such as significant financial difficulty of the debtor.

— II-16 —

ACCOUNTANTS’ REPORT ON THE FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

2 Significant accounting policies (continued)

(i) Trade and other receivables (continued)

Impairment losses for trade debtors included within trade and other receivables whose recovery is considered doubtful but not remote are recorded using an allowance account. When the Target Group is satisfied that recovery is remote, the amount considered irrecoverable is written off against trade debtors directly and any amounts held in the allowance account relating to that debt are reversed. Subsequent recoveries of amounts previously charged to the allowance account are reversed against the allowance account. Other changes in the allowance account and subsequent recoveries of amounts previously written off directly are recognised in profit or loss.

(j) Trade and other payables

Trade and other payables are initially recognised at fair value and are subsequently stated at amortised cost unless the effect of discounting would be immaterial, in which case they are stated at cost.

(k) Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and in hand, demand deposits with banks and other financial institutions, and short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, having been within three months of maturity at acquisition. Bank overdrafts that are repayable on demand and form an integral part of the Target Group’s cash management are also included as a component of cash and cash equivalents for the purpose of the cash flow statement.

(l) Employee benefits

Salaries, annual bonuses, paid annual leave, contributions to defined contribution retirement plans and the cost of non-monetary benefits are accrued in the period in which the associated services are rendered by employees. Where payment or settlement is deferred and the effect would be material, these amounts are stated at their present values.

(m) Income tax

Income tax for the period comprises current tax and movements in deferred tax assets and liabilities. Current tax and movements in deferred tax assets and liabilities are recognised in profit or loss except to the extent that they relate to items recognised in other comprehensive income or directly in equity, in which case the relevant amounts of tax are recognised in other comprehensive income or directly in equity, respectively.

Current tax is the expected tax payable on the taxable income for the period, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous periods.

— II-17 —

APPENDIX II

ACCOUNTANTS’ REPORT ON THE FINANCIAL INFORMATION OF THE TARGET GROUP

2 Significant accounting policies (continued)

(m) Income tax (continued)

Deferred tax assets and liabilities arise from deductible and taxable temporary differences respectively, being the differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases. Deferred tax assets also arise from unused tax losses and unused tax credits. Apart from differences which arise on initial recognition of assets and liabilities, all deferred tax liabilities, and all deferred tax assets to the extent that it is probable that future taxable profits will be available against which the asset can be utilised, are recognised.

The amount of deferred tax recognised is measured based on the expected manner of realisation or settlement of the carrying amount of the assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. Deferred tax assets and liabilities are not discounted.

The carrying amount of a deferred tax asset is reviewed at each balance sheet date and is reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow the related tax benefit to be utilised. Any such reduction is reversed to the extent that it becomes probable that sufficient taxable profits will be available.

Current tax balances and deferred tax balances, and movements therein, are presented separately from each other and are not offset. Current tax assets are offset against current tax liabilities, and deferred tax assets against deferred tax liabilities, if the Target Company or the Target Group has the legally enforceable right to set off current tax assets against current tax liabilities.

(n) Provisions and contingent liabilities

Provisions are recognised for liabilities of uncertain timing or amount when the Target Group has a legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Where the time value of money is material, provisions are stated at the present value of the expenditure expected to settle the obligation.

Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events, are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.

— II-18 —

ACCOUNTANTS’ REPORT ON THE FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

2 Significant accounting policies (continued)

(o) Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable. Provided it is probable that the economic benefits will flow to the Target Group and the revenue and costs, if applicable, can be measured reliably, revenue is recognised in profit or loss as follows:

(i) Sale of goods

Revenue arising from sale of goods from department store operation is recognised when goods are delivered which is taken to be the point in time when the customer has accepted the goods and the related risks and rewards of ownership. Revenue is after deduction of any trade discounts.

(ii) Rental income from operating leases

Rental income receivable under operating leases is recognised in profit or loss in equal instalments over the accounting periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the use of the leased asset. Lease incentives granted are recognised in profit or loss as an integral part of the aggregate net lease payments receivable. Contingent rentals are recognised as income in the accounting period in which they are earned.

• (iii) Promotion income, rental for antenna site, sponsorship fees, renovation refurbishment income, goods redemption income and repairs and maintenance fees income are recognised when services are provided.

(p) Translation of foreign currencies

Foreign currency transactions during the period are translated at the foreign exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at the foreign exchange rates ruling at the balance sheet date. Exchange gains and losses are recognised in profit or loss.

(q) Borrowing costs

Borrowing costs are expensed in the period in which they are incurred.

— II-19 —

APPENDIX II

ACCOUNTANTS’ REPORT ON THE FINANCIAL INFORMATION OF THE TARGET GROUP

2 Significant accounting policies (continued)

(r) Related parties

• (a) A person, or a close member of that person’s family, is related to the Target Group if that person:

• (i) has control or joint control over the Target Group;

• (ii) has significant influence over the Target Group; or

• (iii) is a member of the key management personnel of the Target Group or the Target Group’s parent.

• (b) An entity is related to the Target Group if any of the following conditions applies:

• (i) The entity and the Target Group are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others).

• (ii) One entity is an associate or a joint venture of the other entity (or an associate or a joint venture of a member of a group of which the other entity is a member).

• (iii) Both entities are joint ventures of the same third party.

• (iv) One entity is a joint venture of a third entity and the other entity is an associate of the third entity.

• (v) The entity is a post-employment benefit plan for the benefit of employees of either the Target Group or an entity related to the Target Group.

• (vi) The entity is controlled or jointly controlled by a person identified in (a) above.

• (vii) A person identified in (a)(i) above has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).

Close family members of a person are those family members who may be expected to influence, or be influenced by, that person in their dealings with the entity.

3 Segment information

No analysis of the Target Group’s turnover, other income and contribution to operating profit for the Relevant Periods set out by operating segment is provided as the Target Group has only one single operating segment, and all of the revenue and other income, results and assets of the Target Group are attributable to one market in Hong Kong.

— II-20 —

APPENDIX II

ACCOUNTANTS’ REPORT ON THE FINANCIAL INFORMATION OF THE TARGET GROUP

4 Turnover

The principal activity of the Target Group is department store operation.

Turnover represents the sales value of goods supplied to customers, rental income from consignment and concessionaire counters and promotion income earned during the Relevant Periods and is analysed as follows:

Sale of goods Rental income from consignment counters Rental income from concessionaire counters Promotion income		Year ended 31 December 2011 2012 2013 346,985,427 373,641,620 398,568,180 224,079,730 235,055,414 237,342,638 131,627,833 148,339,195 163,989,164 6,654,686 6,809,157 7,073,701 709,347,676 763,845,386 806,973,683	Year ended 31 December 2011 2012 2013 346,985,427 373,641,620 398,568,180 224,079,730 235,055,414 237,342,638 131,627,833 148,339,195 163,989,164 6,654,686 6,809,157 7,073,701 709,347,676 763,845,386 806,973,683	Six months ended 30 June	Six months ended 30 June	Six months ended 30 June
		2011 346,985,427 224,079,730 131,627,833 6,654,686 709,347,676	2012 373,641,620 235,055,414 148,339,195 6,809,157 763,845,386		2013 (Unaudited) 191,224,070 116,656,585 80,799,769 3,468,611 392,149,035	2014 207,596,002 124,019,182 83,519,298 3,570,282
						418,704,764

During the Relevant Periods, receipts from sale of goods by consignment and concessionaire counters collected by the Target Group on their behalf are as follows:

Receipts on behalf of consignment counters Receipts on behalf of concessionaire counters	Year ended 31 December 2011 2012 2013 784,741,007 814,127,909 810,720,313 497,202,389 552,242,456 589,050,898 1,281,943,396 1,366,370,365 1,399,771,211	Year ended 31 December 2011 2012 2013 784,741,007 814,127,909 810,720,313 497,202,389 552,242,456 589,050,898 1,281,943,396 1,366,370,365 1,399,771,211	Six months ended 30 June	Six months ended 30 June	Six months ended 30 June
	2011 784,741,007 497,202,389 1,281,943,396	2012 814,127,909 552,242,456		2013 (Unaudited) 399,548,569 293,431,950 692,980,519	2014 421,570,520 295,942,227
		1,366,370,365			717,512,747

— II-21 —

APPENDIX II

ACCOUNTANTS’ REPORT ON THE FINANCIAL INFORMATION OF THE TARGET GROUP

5 Other revenue and other net income/(loss)

(a) Other revenue Compensation income (note) Rental for antenna site Sponsorship fees Renovation refurbishment income Goods redemption income Repairs and maintenance fees charged to consignors Sundry income (b) Other net income/(loss) Gain/(loss) on disposal of fixed assets Exchange (loss)/gain		Year ended 31 December 2011 2012 2013 — — 8,304,809 3,673,900 4,006,500 4,568,080 2,454,500 2,802,600 3,563,900 792,364 609,170 344,593 354,440 186,299 432,595 68,322 45,256 79,546 1,228,227 1,085,049 908,940 8,571,753 8,734,874 18,202,463 Year ended 31 December 2011 2012 2013 2,129 77,559 5,305 (564) (58,500) (77,703) 1,565 19,059 (72,398)	Year ended 31 December 2011 2012 2013 — — 8,304,809 3,673,900 4,006,500 4,568,080 2,454,500 2,802,600 3,563,900 792,364 609,170 344,593 354,440 186,299 432,595 68,322 45,256 79,546 1,228,227 1,085,049 908,940 8,571,753 8,734,874 18,202,463 Year ended 31 December 2011 2012 2013 2,129 77,559 5,305 (564) (58,500) (77,703) 1,565 19,059 (72,398)	Six months ended 30 June	Six months ended 30 June
				2013 2014 (Unaudited) — — 2,259,820 2,311,560 1,421,800 1,495,800 249,083 292,699 — — 42,949 46,111 393,806 707,124 4,367,458 4,853,294 Six months ended 30 June	2014 — 2,311,560 1,495,800 292,699 — 46,111 707,124
					4,853,294
		2011 2,129 (564) 1,565	2012 77,559 (58,500) 19,059	2013 (Unaudited) (3,204) (35,752) (38,956)	2014 (3,079) 3,639
					560

Note: The amount for the year ended 31 December 2013 represented a one-off compensation income receivable upon an agreement entered into by the Target Group in 2013 with regard to the early surrender of the tenancy lease of Level 1 of the Tseung Kwan O Store.

— II-22 —

APPENDIX II

ACCOUNTANTS’ REPORT ON THE FINANCIAL INFORMATION OF THE TARGET GROUP

6 Profit before taxation

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

(a) Finance cost Interest on bank overdrafts (b) Staff costs Salaries, wages and other benefits Contributions to defined contribution retirement plan (c) Other items Depreciation Auditor’s remuneration Rentals receivable* Less: Direct outgoings Operating lease charges in respect of rental premises Cost of inventories (note 10)		Year ended 31 December 2011 2012 2013 18,046 19,399 15,658 116,414,740 120,720,899 129,971,498 4,877,724 5,132,180 5,460,005 121,292,464 125,853,079 135,431,503 12,240,652 12,336,063 18,032,164 202,800 209,700 216,000 (355,707,563) (383,394,609) (401,331,802) 259,982,937 275,351,500 298,846,947 (95,724,626) (108,043,109) (102,484,855) 169,907,105 175,846,077 189,867,895 225,980,110 247,347,040 256,305,959	Year ended 31 December 2011 2012 2013 18,046 19,399 15,658 116,414,740 120,720,899 129,971,498 4,877,724 5,132,180 5,460,005 121,292,464 125,853,079 135,431,503 12,240,652 12,336,063 18,032,164 202,800 209,700 216,000 (355,707,563) (383,394,609) (401,331,802) 259,982,937 275,351,500 298,846,947 (95,724,626) (108,043,109) (102,484,855) 169,907,105 175,846,077 189,867,895 225,980,110 247,347,040 256,305,959	Six months ended 30 June	Six months ended 30 June	Six months ended 30 June
		2011 18,046 116,414,740 4,877,724 121,292,464 12,240,652 202,800 (355,707,563) 259,982,937 (95,724,626) 169,907,105 225,980,110	2012 19,399 120,720,899 5,132,180 125,853,079 12,336,063 209,700 (383,394,609) 275,351,500 (108,043,109) 175,846,077 247,347,040		2013 (Unaudited) 6,743 63,817,274 2,784,372 66,601,646 8,171,583 100,200 (197,456,354) 146,441,661 (51,014,693) 93,523,193 123,966,460	2014 7,582
						69,854,656 3,030,887
						72,885,543
						9,729,641 102,600 (207,538,480) 156,866,631
						(50,671,849) 97,965,439 134,894,951

• Included contingent rental income of $173,073,630, $179,766,902, $178,652,347 and $94,757,293 for the years ended 31 December 2011, 2012 and 2013 and the six months ended 30 June 2014 respectively (six months ended 30 June 2013: $88,731,675).

— II-23 —

APPENDIX II

ACCOUNTANTS’ REPORT ON THE FINANCIAL INFORMATION OF THE TARGET GROUP

7 Income tax

(a) Income tax in the combined statements of comprehensive income represents:

	Year ended 31 December	Year ended 31 December	Year ended 31 December	Six months ended 30 June	Six months ended 30 June
	2011	2012	2013	2013	2014
				(Unaudited)
Current tax
Provision for Hong Kong Profits Tax at
16.5% on the estimated assessable
profits for the years/periods	21,753,322	22,923,267	27,104,259	11,018,220	12,266,697
Under-provision in respect of prior years	129,298	907,981	1,052,973	1,052,973	—
One-off rebate of Hong Kong Profits Tax	—	(12,000)	(10,000)	(10,000)	—
	21,882,620	23,819,248	28,147,232	12,061,193	12,266,697
Deferred tax
Origination and reversal of temporary
differences	296,570	1,043,578	(1,665,201)	(233,945)	354
	22,179,190	24,862,826	26,482,031	11,827,248	12,267,051

Pursuant to the rules and regulations of the BVI, the Target Group is not subject to any income tax in the BVI.

— II-24 —

APPENDIX II

ACCOUNTANTS’ REPORT ON THE FINANCIAL INFORMATION OF THE TARGET GROUP

7 Income tax (continued)

(b) Reconciliation between income tax expenses and accounting profits at applicable tax rate:

Profit before taxation Notional tax on profit before taxation calculated at 16.5% Tax effect of non-taxable revenue Tax effect of non-deductible expenses Tax effect of temporary differences recognised in prior years now derecognised Under-provision in respect of prior years One-off rebate of Hong Kong Profits Tax Actual tax expense		Year ended 31 December 2011 2012 2013 133,148,216 147,784,235 159,978,427 21,969,456 24,384,399 26,396,440 — (561) — 209,240 244,599 104,685 (128,804) (661,592) (1,062,067) 129,298 907,981 1,052,973 — (12,000) (10,000) 22,179,190 24,862,826 26,482,031	Year ended 31 December 2011 2012 2013 133,148,216 147,784,235 159,978,427 21,969,456 24,384,399 26,396,440 — (561) — 209,240 244,599 104,685 (128,804) (661,592) (1,062,067) 129,298 907,981 1,052,973 — (12,000) (10,000) 22,179,190 24,862,826 26,482,031	Six months ended 30 June	Six months ended 30 June
		2011 133,148,216 21,969,456 — 209,240 (128,804) 129,298 — 22,179,190	2012 147,784,235 24,384,399 (561) 244,599 (661,592) 907,981 (12,000) 24,862,826	2013 (Unaudited) 71,470,477 11,792,629 — 34,619 (1,042,973) 1,052,973 (10,000) 11,827,248	2014 73,921,232
					12,197,003 — 70,048 — — —
					12,267,051

(c) Income tax in the combined balance sheets represents:

(i) Current tax

Provision for Hong Kong Profits Tax for the years/period Provisional Hong Kong Profits Tax paid Balance of Hong Kong Profits Tax provision relating to prior years/period Tax payable		**At **	31 December	2013 27,104,259 (17,982,180) 9,122,079 — 9,122,079	At 30 June	At 30 June
		2011 21,753,322 (14,157,480) 7,595,842 — 7,595,842	2012 22,923,267 (22,661,303) 261,964 — 261,964			2014 12,266,697 —
						12,266,697 3,128,019
						15,394,716

— II-25 —

APPENDIX II

ACCOUNTANTS’ REPORT ON THE FINANCIAL INFORMATION OF THE TARGET GROUP

7 Income tax (continued)

(c) Income tax in the combined balance sheets represents: (continued)

• (ii) Deferred tax

Deferred tax (assets)/liabilities recognised:

The component of deferred tax (assets)/liabilities recognised in the combined balance sheets and the movements during the Relevant Periods are as follows:

	Depreciation in
	excess of the related
Deferred tax arising from:	depreciation allowances
At 1 January 2011	(1,021,298)
Charged to profit or loss	296,570
At 31 December 2011 and 1 January 2012	(724,728)
Charged to profit or loss	1,043,578
At 31 December 2012 and 1 January 2013	318,850
Credited to profit or loss	(1,665,201)
At 31 December 2013 and 1 January 2014	(1,346,351)
Charged to profit or loss	354
At 30 June 2014	(1,345,997)

8 Directors’ remuneration

Directors’ remuneration during the Relevant Periods is disclosed as follows:

Directors’ fees Salaries, allowances and benefits in kind Discretionary bonuses Retirement scheme contributions Total		Year ended 31 December 2011 2012 2013 — — — — — — — — — — — — — — —	Year ended 31 December 2011 2012 2013 — — — — — — — — — — — — — — —	Six months ended 30 June	Six months ended 30 June
		2011 — — — — —	2012 — — — — —	2013 (Unaudited) — — — — —	2014 — — — —
					—

— II-26 —

APPENDIX II

ACCOUNTANTS’ REPORT ON THE FINANCIAL INFORMATION OF THE TARGET GROUP

9 Fixed assets

Leasehold improvements Cost: At 1 January 2011 30,885,007 Additions 30,701,047 Disposals (20,400) At 31 December 2011 61,565,654 ------------ At 1 January 2012 61,565,654 Additions 33,772,331 Disposals (653,270) At 31 December 2012 94,684,715 ------------ At 1 January 2013 94,684,715 Additions 15,144,196 Disposals (995,558) At 31 December 2013 108,833,353 ------------ At 1 January 2014 108,833,353 Additions 31,258,312 Disposals (131,001) At 30 June 2014 139,960,664 ------------	Furniture and equipment 16,379,697 1,695,308 (41,842) 18,033,163 ------------ 18,033,163 3,911,571 (1,473,686) 20,471,048 ------------ 20,471,048 2,476,848 (466,142) 22,481,754 ------------ 22,481,754 368,968 (55,897) 22,794,825 ------------	Motor vehicles 432,910 460,863 — 893,773 ------------ 893,773 — — 893,773 ------------ 893,773 425,897 — 1,319,670 ------------ 1,319,670 — — 1,319,670 ------------	Total 47,697,614 32,857,218 (62,242) 80,492,590 ------------ 80,492,590 37,683,902 (2,126,956) 116,049,536 ------------ 116,049,536 18,046,941 (1,461,700) 132,634,777 ------------ 132,634,777 31,627,280 (186,898) 164,075,159 ------------

— II-27 —

APPENDIX II

ACCOUNTANTS’ REPORT ON THE FINANCIAL INFORMATION OF THE TARGET GROUP

9 Fixed assets (continued)

Leasehold improvements Accumulated depreciation: At 1 January 2011 26,127,623 Charge for the year 9,492,906 Written back on disposals (18,360) At 31 December 2011 35,602,169 ------------ ----------------------------------------------- At 1 January 2012 35,602,169 Charge for the year 10,519,694 Written back on disposals (653,270) At 31 December 2012 45,468,593 ------------ ----------------------------------------------- At 1 January 2013 45,468,593 Charge for the year 15,829,914 Written back on disposals (995,557) At 31 December 2013 60,302,950 ------------ ----------------------------------------------- At 1 January 2014 60,302,950 Charge for the period 8,576,689 Written back on disposals (131,001) At 30 June 2014 68,748,638 ------------ ----------------------------------------------- Net book value: At 31 December 2011 25,963,485 At 31 December 2012 49,216,122 At 31 December 2013 48,530,403 At 30 June 2014 71,212,026	Furniture and equipment 12,097,282 2,568,991 (31,511) 14,634,762 ------------ ----------------------------------------------- 14,634,762 1,637,615 (1,434,245) 14,838,132 ------------ ----------------------------------------------- 14,838,132 2,016,398 (455,448) 16,399,082 ------------ ----------------------------------------------- 16,399,082 1,020,985 (52,818) 17,367,249 ------------ ----------------------------------------------- 3,398,401 5,632,916 6,082,672 5,427,576	Motor vehicles 86,582 178,755 — 265,337 ------------ ----------------------------------------------- 265,337 178,754 — 444,091 ------------ ----------------------------------------------- 444,091 185,852 — 629,943 ------------ ----------------------------------------------- 629,943 131,967 — 761,910 ------------ ----------------------------------------------- 628,436 449,682 689,727 557,760	Total 38,311,487 12,240,652 (49,871) 50,502,268 ------------ ----------------------------------------------- 50,502,268 12,336,063 (2,087,515) 60,750,816 ------------ ----------------------------------------------- 60,750,816 18,032,164 (1,451,005) 77,331,975 ------------ ----------------------------------------------- 77,331,975 9,729,641 (183,819) 86,877,797 ------------ ----------------------------------------------- 29,990,322 55,298,720 55,302,802 77,197,362

— II-28 —

APPENDIX II

ACCOUNTANTS’ REPORT ON THE FINANCIAL INFORMATION OF THE TARGET GROUP

10 Inventories

Inventories in the combined balance sheets comprise:

Finished goods	At 31 December 2011 2012 2013 67,063,875 60,931,929 56,727,213	At 30 June
		2014 55,341,323

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

Carrying amount of inventories sold Write-down of inventories		Year ended 31 December 2011 2012 2013 224,574,347 244,284,767 254,785,398 1,405,763 3,062,273 1,520,561 225,980,110 247,347,040 256,305,959	Year ended 31 December 2011 2012 2013 224,574,347 244,284,767 254,785,398 1,405,763 3,062,273 1,520,561 225,980,110 247,347,040 256,305,959	Six months ended 30 June	Six months ended 30 June	Six months ended 30 June
		2011 224,574,347 1,405,763 225,980,110	2012 244,284,767 3,062,273 247,347,040		2013 (Unaudited) 122,715,937 1,250,523 123,966,460	2014 134,887,364 7,587
						134,894,951

11 Trade and other receivables

Trade debtors Deposits and prepayments		At 31 December 2011 2012 2013 7,462,128 7,992,562 9,199,599 1,719,983 2,328,156 1,550,136 9,182,111 10,320,718 10,749,735	At 31 December 2011 2012 2013 7,462,128 7,992,562 9,199,599 1,719,983 2,328,156 1,550,136 9,182,111 10,320,718 10,749,735	At 30 June	At 30 June
		2011 7,462,128 1,719,983 9,182,111	2012 7,992,562 2,328,156 10,320,718		2014 5,798,641 2,797,373
					8,596,014

At 30 June 2014, all of the trade and other receivables are expected to be recovered or recognised as expense within one year except for various deposits of $200,700, $448,245, $556,245 and $556,245 at 31 December 2011, 2012 and 2013 and 30 June 2014 which are expected to be recovered after more than one year.

— II-29 —

APPENDIX II

ACCOUNTANTS’ REPORT ON THE FINANCIAL INFORMATION OF THE TARGET GROUP

11 Trade and other receivables (continued)

Trade debtors that are not impaired

At each of the balance sheet dates, the ageing analysis of trade debtors that are neither individually nor collectively considered to be impaired is as follows:

	**At **	31 December		At 30 June
	2011	2012	2013	2014
Neither past due nor impaired	580,353	170,954	153,985	181,449
	------------	------------	------------	------------
Less than 1 month past due	6,478,973	7,489,504	9,036,323	5,612,598
1 month to 3 months past due	402,802	332,104	9,291	4,594
	6,881,775	7,821,608	9,045,614	5,617,192
	------------	------------	------------	------------
	-----------------------------------------------	-----------------------------------------------	-----------------------------------------------	-----------------------------------------------
	7,462,128	7,992,562	9,199,599	5,798,641

Receivables which were neither past due nor impaired relate to a wide range of customers for whom there was no recent history of default.

Receivables which were past due but not impaired relate to customers who have a good track record of trading with the Target Group. Based on past experience, management considers that no impairment allowance is necessary in respect of these balances as there has not been a significant change in credit quality and the balances are still considered to be fully recoverable.

12 Amounts due from/(to) immediate holding company, fellow subsidiaries and related companies

The amounts due from/(to) immediate holding company, fellow subsidiaries and related companies are unsecured, interest-free and recoverable/(repayable) on demand.

— II-30 —

APPENDIX II

ACCOUNTANTS’ REPORT ON THE FINANCIAL INFORMATION OF THE TARGET GROUP

13 Trade and other payables

Trade payables Accrued expenses Other payables		At 31 December 2011 2012 2013 196,002,992 206,318,860 205,326,320 30,008,172 32,604,491 32,790,610 707,431 764,900 1,064,813 226,718,595 239,688,251 239,181,743	At 31 December 2011 2012 2013 196,002,992 206,318,860 205,326,320 30,008,172 32,604,491 32,790,610 707,431 764,900 1,064,813 226,718,595 239,688,251 239,181,743		At 30 June
		2011 196,002,992 30,008,172 707,431	2012 206,318,860 32,604,491 764,900		2014 181,478,110 40,810,542 594,943
		226,718,595	239,688,251		222,883,595

All of the trade and other payables are interest-free and repayable within one year or on demand.

At each of the balance sheet dates, the ageing analysis of trade payables is as follows:

Due within 30 days or on demand Due after 30 days but within 60 days Due after 60 days but within 90 days		At 31 December 2011 2012 2013 180,889,044 189,674,707 189,483,791 14,800,178 16,535,287 15,740,598 313,770 108,866 101,931 196,002,992 206,318,860 205,326,320	At 31 December 2011 2012 2013 180,889,044 189,674,707 189,483,791 14,800,178 16,535,287 15,740,598 313,770 108,866 101,931 196,002,992 206,318,860 205,326,320		At 30 June
		2011 180,889,044 14,800,178 313,770	2012 189,674,707 16,535,287 108,866		2014 166,565,139 14,205,137 707,834
		196,002,992	206,318,860		181,478,110

14 Share capital

Issued and fully paid: 1 ordinary share of US$1	At 31 December 2011 2012 2013 No. of shares HK$ No. of shares HK$ No. of shares HK$ 1 8 1 8 1 8	At 30 June
		2014 No. of shares HK$ 1 8

The Target Company was authorised to issue a maximum of 50,000 shares with no par value.

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Target Company. All ordinary shares rank equally with regard to the Target Company’s residual assets.

— II-31 —

APPENDIX II

ACCOUNTANTS’ REPORT ON THE FINANCIAL INFORMATION OF THE TARGET GROUP

14 Share capital (continued)

Capital management

The Target Group’s primary objectives when managing capital are to safeguard the Target Group’s ability to continue as a going concern, so that it can continue to provide financial returns to the shareholder, and by securing access to financing sources at reasonable costs.

The Target Group defines “capital” as including all components of equity. Trading balances that arise as a result of trading transactions with other group companies are not regarded by the Target Group as capital.

The Target Group’s capital structure is regularly reviewed and managed with due regard to the capital management practices of the group to which the Target Group belongs. Adjustments are made to the capital structure in light of changes in economic conditions affecting the Target Group, to the extent that these do not conflict with the directors’ fiduciary duties towards the Target Group.

The Target Group was not subject to externally imposed capital requirements during the Relevant Periods and at each of the balance sheet dates.

15 Dividend

According to the resolution of the sole member of the Target Company, the Target Company declared an interim dividend for the six months ended 30 June 2014 for an aggregate amount of $527,853,933 to its immediate holding company. The amount, representing a major non-cash transaction, was settled through current accounts with its immediate holding company.

16 Financial risk management and fair values of financial instruments

Exposure to credit, liquidity, interest rate and foreign currency risks arises in the normal course of the Target Group’s business. The Target Group’s exposure to these risks and the financial risk management policies and practices used by the Target Group to manage these risks are described below.

(a) Credit risk

The Target Group’s credit risk is primarily attributable to trade debtors. Management has a credit policy in place and the exposures to these credit risks are monitored on an ongoing basis.

In respect of the trade debtors, regular review and follow-up actions are carried out on overdue amounts to minimise exposure to credit risk. An ageing analysis of the receivables is prepared on a regular basis and is closely monitored to minimise any credit risk associated with these receivables.

— II-32 —

ACCOUNTANTS’ REPORT ON THE FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

16 Financial risk management and fair values of financial instruments (continued)

(a) Credit risk (continued)

The Target Group has no concentrations of credit risk in view of its large number of customers. The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the combined balance sheets.

Further quantitative disclosures in respect of the Target Group’s exposure to credit risk arising from trade debtors are set out in note 11.

(b) Liquidity risk

The Target Group’s policy is to regularly monitor its current and expected liquidity requirements to ensure that it maintains sufficient reserves of cash and adequate funding from its group companies to meet its liquidity requirement in the short and longer term.

All remaining contractual maturities at each of the balance sheet dates of the Target Group’s financial liabilities, which are based on contractual undiscounted cash flow and the earliest date on which the Target Group can be required to pay, are within one year or on demand.

(c) Interest rate risk

At each of the balance sheet dates, the Target Group did not have any assets or liabilities which would expose the Target Group to significant interest rate risk.

(d) Foreign currency risk

Except for the following, the Target Group has no significant exposure to foreign currency risk as substantially all of the Target Group’s transactions are denominated in Hong Kong dollars.

The foreign currency exposure arises mainly from deposits and prepayments that are denominated in Japanese Yen and expressed in Hong Kong dollars for presentation purposes amounting to $983,868, $714,339, $680,427 and $590,776 at 31 December 2011, 2012 and 2013 and 30 June 2014 respectively.

Assuming that the relevant foreign currencies had strengthened/weakened by 5% at 31 December 2011, 2012 and 2013 and 30 June 2014 respectively, with all other variables held constant, the impact on the Target Group’s profit after tax and total equity is not expected to be material.

The sensitivity analysis above assumes that the change in foreign exchange rates had been applied to re-measure those financial instruments held by the Target Group which expose the Target Group to foreign currency risk at each of the balance sheet dates.

— II-33 —

ACCOUNTANTS’ REPORT ON THE FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

16 Financial risk management and fair values of financial instruments (continued)

(e) Fair value measurement

All financial instruments are carried at amounts not materially different from their fair values as at 31 December 2011, 2012 and 2013 and 30 June 2014.

17 Capital commitments

Capital commitments outstanding at each of the balance sheet dates not provided for in the Financial Information were as follows:

Contracted for	At 31 December 2011 2012 2013 5,509,888 — —	At 30 June
		2014 3,540,834

18 Significant leasing arrangements

At each of the balance sheet dates, the Target Group was both a lessor and a lessee under operating leases. Details of the Target Group’s commitments under non-cancellable operating leases are set out as follows:

(a) Lessor

The Target Group leases out certain shop spaces under operating leases. The leases typically run for an initial period of one month to three years, with an option to renew the lease after that date of which time all terms are re-negotiated. Contingent rental income is calculated based on the excess of certain percentages of turnover of the relevant operation occupying the shop spaces over a fixed portion of the monthly rentals.

The total future minimum lease payments under non-cancellable operating leases are receivable as follows:

	**At **	31 December	At 30 June
	2011	2012 2013	2014
Within 1 year	123,428,320	117,419,981 104,337,171	171,275,357
After 1 year but within 5 years	35,449,928	11,933,790 13,948,560	22,062,527
	158,878,248	129,353,771 118,285,731	193,337,884

— II-34 —

ACCOUNTANTS’ REPORT ON THE FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

18 Significant leasing arrangements (continued)

(b) Lessee

The Target Group leases a number of properties held under operating leases. The leases typically run for an initial period of one to nine years, with an option to renew the lease after that date at which time all terms are re-negotiated. Contingent rental expense is calculated based on the excess of certain percentages of turnover of the relevant operation over a fixed portion of the monthly rentals.

The total future minimum lease payments under non-cancellable operating leases are payable as follows:

Within 1 year After 1 year but within 5 years After 5 years		At 31 December 2011 2012 2013 109,342,011 174,401,030 178,891,546 47,089,432 285,542,588 128,542,259 — 34,836,060 22,892,268 156,431,443 494,779,678 330,326,073	At 31 December 2011 2012 2013 109,342,011 174,401,030 178,891,546 47,089,432 285,542,588 128,542,259 — 34,836,060 22,892,268 156,431,443 494,779,678 330,326,073		At 30 June
		2011 109,342,011 47,089,432 —	2012 174,401,030 285,542,588 34,836,060		2014 182,602,572 80,924,431 16,920,372
		156,431,443	494,779,678		280,447,375

19 Material related party transactions

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

Year ended 31 December 2011 2012 2013 (i) Compensation income receivable from fellow subsidiaries — — 8,304,809 (ii) Professional fee payable to a fellow subsidiary 7,867,356 8,404,919 8,628,112 (iii) Cleaning service fee payable to a fellow subsidiary 3,738,856 4,061,122 4,697,771	Six months ended 30 June
	2013 2014 (Unaudited) — — 4,314,056 4,532,513 2,216,772 2,591,759

— II-35 —

APPENDIX II

ACCOUNTANTS’ REPORT ON THE FINANCIAL INFORMATION OF THE TARGET GROUP

19 Material related party transactions (continued)

(iv) Rental expenses payable to — fellow subsidiaries — related companies (v) Electricity charges payable to — fellow subsidiaries — related companies (vi) Electricity charges receivable from a fellow subsidiary (vii) Car park expenses payable to — fellow subsidiaries — related companies (viii) Purchases from a fellow subsidiary (ix) Advertising expenses payable to a fellow subsidiary	Year ended 31 December 2011 2012 2013 157,030,225 161,426,923 174,973,718 10,736,602 11,783,671 11,699,879 143,384 107,463 18,217 54,387 119 — 57,627 — — 801,335 869,615 900,659 76,465 93,751 124,620 16,860 123,120 45,800 — 941,250 142,500	Six months ended 30 June
		2013 2014 (Unaudited) 86,243,723 90,171,582 5,873,721 5,845,668 18,053 17,010 — — — — 451,204 401,378 61,785 69,970 33,800 6,000 — —

Note: In the opinion of the directors of the Target Company, these transactions were carried out on normal commercial terms and in the ordinary course of business.

20 Parent and ultimate holding companies

At each of the balance sheet dates, the directors of the Target Company considered the immediate parent company to be Henderson Land Development Company Limited, and the ultimate holding company to be Henderson Development Limited, both of which are incorporated in Hong Kong. Henderson Land Development Company Limited produces financial statements available for public use.

21 Accounting estimates and judgements

The key sources of estimation uncertainty and critical accounting judgements in applying the Target Group’s accounting policies are described below.

— II-36 —

APPENDIX II ACCOUNTANTS’ REPORT ON THE FINANCIAL INFORMATION OF THE TARGET GROUP

21 Accounting estimates and judgements (continued)

Recognition of deferred tax asset

At 31 December 2011 and 2013 and 30 June 2014, the Target Group had recognised a deferred tax asset in relation to depreciation in excess of the related depreciation allowances as set out in note 7(c). The realisability of deferred tax assets mainly depends on whether it is probable that future taxable profits or taxable temporary differences will be available against which related tax benefit under the deferred tax asset can be utilised. In cases where the actual future taxable profits or taxable temporary differences generated are less than expected, a reversal of deferred tax assets may arise, which will be recognised in profit or loss in the period in which such a reversal takes place.

22 Possible impact of amendments, new standards and interpretations issued but not yet effective for the Relevant Periods

Up to the date of issue of this Financial Information, the HKICPA has issued a few amendments and new standards which are not yet effective for the Relevant Periods and which have not been adopted in the presentation of this Financial Information. These include the following which may be relevant to the Target Group.

		Effective for
		accounting periods
		beginning on or
		after
Annual	improvements to HKFRSs 2010-2012 cycle	1 July 2014
Annual	improvements to HKFRSs 2011-2013 cycle	1 July 2014
HKFRS	15, Revenue from contracts with customers	1 January 2017
HKFRS	9, Financial instruments	1 January 2018

The Target Group is in the process of making an assessment of what the impact of these amendments and new standards is expected to be in the period of initial application. So far, it has concluded that the adoption of them is unlikely to have a significant impact on the Financial Information.

— II-37 —

APPENDIX II

ACCOUNTANTS’ REPORT ON THE FINANCIAL INFORMATION OF THE TARGET GROUP

23 Information on statutory financial statements of the subsidiaries of the Target Group

The statutory financial statements of the subsidiaries of the Target Group, which were subject to audit during the Relevant Periods, were prepared in accordance with HKFRSs. The statutory auditors of these financial statements are indicated below:

Statutory Name of subsidiary Financial period auditor Citistore (Hong Kong) Limited Years ended 31 December KPMG 2011, 2012 and 2013 Puretech Investment Limited Years ended 31 December KPMG 2011, 2012 and 2013

24 Subsequent events

Save as disclosed in note 1(b), there were no material events affecting the Target Group subsequent to 30 June 2014 and at the date of approval of the Financial Information.

C SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the Target Company and its subsidiaries comprising the Target Group in respect of any period subsequent to 30 June 2014.

Yours faithfully

KPMG

Certified Public Accountants Hong Kong

— II-38 —

MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET GROUP

APPENDIX III

OVERVIEW

The Target Group is principally engaged in the retailing business in Hong Kong, with an emphasis on department store operations. Currently, it operates six department stores under the name “Citistore” and a specialty store under the name “id:c” in Hong Kong.

The Target Group achieved growth in turnover from approximately HK$709.3 million for the financial year ended 31 December 2011 to approximately HK$763.8 million for the financial year ended 31 December 2012 and to approximately HK$807.0 million for the financial year ended 31 December 2013. For the six months ended 30 June 2014, turnover of approximately HK$418.7 million was recognised.

Profit and total comprehensive income for the year increased from approximately HK$111.0 million for the financial year ended 31 December 2011 to approximately HK$122.9 million for the financial year ended 31 December 2012 and to approximately HK$133.5 million for the financial year ended 31 December 2013. For the six months ended 30 June 2014, the profit and total comprehensive income was approximately HK$61.7 million.

BASIS OF PREPARATION AND PRESENTATION OF FINANCIAL INFORMATION

Please refer to note 2(a) of Section B in “Appendix II - Accountants’ Report on the Financial Information of the Target Group” for details on the basis of preparation and presentation of financial information.

GENERAL FACTORS AFFECTING THE TARGET GROUP’S RESULTS OF OPERATIONS AND FINANCIAL POSITION

Cost of inventories sold

Cost of inventories sold represents the cost of merchandise procured by the Target Group and sold via direct sales. It is the largest component of direct costs, and has a direct impact on margins. For the financial years ended 31 December 2011, 2012 and 2013 and the six months ended 30 June 2014, cost of inventories sold represented approximately 31.9%, 32.4%, 31.8% and 32.2% of turnover respectively.

The Target Group actively monitors the purchase price of inventories and has been able to achieve a reasonable stability in the cost of inventories sold expressed as a percentage of turnover over the financial years ended 31 December 2011, 2012 and 2013 and the six months ended 30 June 2014. In sourcing for merchandise, the Target Group’s merchandising team performs research on the availability, cost and quality of comparable products to ensure the lowest priced products with the desired quality are sourced. The centralised merchandising process enables discounts to be enjoyed through bulk purchases. For products sourced overseas, the merchandising team generally deals directly with the vendors rather than the intermediaries or traders, to eliminate the additional costs which will otherwise be paid to the intermediaries or traders.

— III-1 —

MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET GROUP

APPENDIX III

Rent and rates

The Target Group leases all of the store outlets, offices and warehouses it operates. For the financial years ended 31 December 2011, 2012 and 2013 and the six months ended 30 June 2014, total rent and rates[7] represented approximately 24.0%, 23.0%, 23.5% and 23.4% of turnover respectively.

The rental payable in respect of each of the Target Group’s stores comprises both a fixed element and an element correlated to the actual turnover of the store. At present, all of the Citistore Stores of the “Citistore” brand are operating under long-term lease arrangements with most leases being for a term of nine years. The relatively long dated lease agreements provide visibility on future rental, and enable the Target Group to effectively manage its rental expenses.

Staff salaries and related expenses

These comprise staff salaries, provident fund contributions, staff welfare payments, staff meals and staff medical expenses, as well as recruitment and training expenses. They represent one of the major cost and expense items of the Target Group. For the financial years ended 31 December 2011, 2012 and 2013 and the six months ended 30 June 2014, staff salaries and related expenses represented approximately 17.1%, 16.5%, 16.8% and 17.4% of turnover respectively.

The Target Group regularly performs reviews of its operational processes to ensure that they are streamlined and productivity is optimised. For instance, since 2012, in line with industry practice, the Target Group terminated its practice of putting individual price tags on the majority of products which effectively reduced the amount of manual work required at the stores.

Seasonality

The Target Group experiences seasonal fluctuations in turnover. Sales from December to February are generally higher than the other months of the year mainly due to marketing and promotion events and increased sales driven by the holiday seasons. For the financial years ended 31 December 2011, 2012 and 2013, the aggregate retail revenue for the months of January, February and December represented approximately 32.8%, 32.6% and 30.6% respectively of the total retail revenue[8] for the year. The Target Group generally needs a higher level of working capital for merchandising in anticipation of increased sales of specific products during these months.

7 Total rent and rates represent the rent and rates grouped under both direct costs and administrative expenses in the combined statements of comprehensive income

8 Total retail revenue represents the aggregate gross sales proceeds from direct sales, as well as sales at concessionaire and consignment counters

— III-2 —

MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET GROUP

APPENDIX III

CRITICAL ACCOUNTING POLICIES AND ACCOUNTING JUDGEMENTS

(a) Critical accounting policies

The financial information set out in the Accountants’ Report has been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”), which collective term includes Hong Kong Accounting Standards and related interpretations promulgated by the Hong Kong Institute of Certified Public Accountants (“HKICPA”). The significant accounting policies adopted by the Target Group are set out in further details in Note 2 under Section B of the Accountants’ Report set out in Appendix II to this circular. Some of the accounting policies involve judgements and assumptions made by the management, all of which are subject to inherent uncertainties. The following paragraphs summarise the critical accounting policies and accounting judgements applied in the preparation of the Target Group’s combined financial statements.

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable. Provided it is probable that the economic benefits will flow to the Target Group and the revenue and costs, if applicable, can be measured reliably, revenue is recognised in profit or loss as follows:

(i) Sale of goods

Revenue arising from sale of goods from department store operation is recognised when goods are delivered which is taken to be the point in time when the customer has accepted the goods and the related risks and rewards of ownership. Revenue is after deduction of any trade discounts.

• (ii) Rental income from operating leases

Rental income receivable under operating leases is recognised in profit or loss in equal instalments over the accounting periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the use of the leased asset. Lease incentives granted are recognised in profit or loss as an integral part of the aggregate net lease payments receivable. Contingent rentals are recognised as income in the accounting period in which they are earned.

• (iii) Promotion income, rental for antenna site, sponsorship fees, renovation refurbishment income, goods redemption income and repairs and maintenance fees income are recognised when services are provided.

— III-3 —

MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET GROUP

APPENDIX III

(b) Critical accounting judgements

The key sources of estimation uncertainty and critical accounting judgements in applying the Target Group’s accounting policies are described below.

Recognition of deferred tax asset

During the Reporting Period, the Target Group had recognised deferred tax assets in relation to depreciation in excess of the related depreciation allowances. The realisability of deferred tax assets mainly depends on whether it is probable that future taxable profits or taxable temporary differences will be available against which related tax benefit under the deferred tax asset can be utilised. In cases where the actual future taxable profits or taxable temporary differences generated are less than expected, a reversal of deferred tax assets may arise, which will be recognised in profit or loss in the period in which such a reversal takes place.

DESCRIPTION OF SELECTED ITEMS IN THE COMBINED STATEMENTS OF COMPREHENSIVE INCOME

Turnover. Turnover comprises of revenue from sale of goods, rental income from consignment counters, rental income from concessionaire counters and promotion income.

The following table illustrates the breakdown of the Target Group’s turnover during the financial years ended 31 December 2011, 2012 and 2013 and the six months ended 30 June 2013 and 2014:

Financial year ended 31 December Six months ended 30 June 2011 2012 2013 2013 (unaudited) 2014 (HK$, except for percentages) Sale of goods 346,985,427 48.9% 373,641,620 48.9% 398,568,180 49.4% 191,224,070 48.8% 207,596,002 49.6% Rental income from consignment counters 224,079,730 31.6% 235,055,414 30.8% 237,342,638 29.4% 116,656,585 29.7% 124,019,182 29.6% Rental income from concessionaire counters 131,627,833 18.6% 148,339,195 19.4% 163,989,164 20.3% 80,799,769 20.6% 83,519,298 19.9% Promotion income 6,654,686 0.9% 6,809,157 0.9% 7,073,701 0.9% 3,468,611 0.9% 3,570,282 0.9%	Financial year ended 31 December 2011 2012 2013	Six months ended 30 June
		2013 (unaudited) 2014
Total turnover 709,347,676 100.0% 763,845,386 100.0% 806,973,683 100.0% 392,149,035 100.0% 418,704,764 100.0%

Turnover from sale of goods represents the revenue from sales of merchandise which the Target Group sourced directly from suppliers. It was the largest component of the Target Group’s turnover. Rental income from consignment counters and concessionaire counters represent the rental income from consignees and concessionaires respectively (please refer to “Section 4 - Information on the business of Citistore HK” in the Letter from the Board for details on consignment and concessionaire sales). Promotion income represents the income charged on consignees and concessionaires for promotion services.

— III-4 —

MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET GROUP

APPENDIX III

Direct costs. Direct costs mainly consist of cost of inventories sold under direct sales, rent and rates, and staff salaries and related expenses (including staff welfare payments, staff medical expenses, staff meals expenses and provident fund contributions). For the financial years ended 31 December 2011, 2012 and 2013 and the six months ended 30 June 2014, cost of inventories sold represented approximately 31.9%, 32.4%, 31.8% and 32.2% of turnover respectively. For the financial years ended 31 December 2011, 2012 and 2013 and the six months ended 30 June 2014, rent and rates represented approximately 23.6%, 22.5%, 22.6% and 22.4% of turnover respectively. For the financial years ended 31 December 2011, 2012 and 2013 and the six months ended 30 June 2014, staff salaries and related expenses represented approximately 13.9%, 13.3%, 13.4% and 14.0% of turnover respectively.

Set out below is the breakdown of direct costs for each of the financial years ended 31 December 2011, 2012 and 2013 and the six months ended 30 June 2013 and 2014:

Financial year ended 31 December Six months ended 30 June 2011 2012 2013 2013 (unaudited) 2014 (HK$, except for percentages) Direct costs Opening inventories 54,423,128 67,063,875 60,931,929 60,931,929 56,727,213 Purchases 238,620,857 241,215,094 252,101,243 127,566,499 133,509,061 Closing inventories (67,063,875) (60,931,929) (56,727,213) (64,531,968) (55,341,323) 225,980,110 43.0% 247,347,040 44.8% 256,305,959 43.9% 123,966,460 43.6% 134,894,951 43.9% Rent and rates 167,678,482 31.9% 171,694,683 31.1% 182,388,416 31.2% 90,080,756 31.7% 93,694,126 30.5% Staff salaries 88,194,132 16.8% 90,357,883 16.3% 96,477,190 16.5% 47,060,346 16.6% 52,367,494 17.0% Depreciation 10,596,270 2.0% 11,094,362 2.0% 14,972,438 2.6% 6,694,567 2.4% 8,146,652 2.6% Electricity, water, gas and telephone 9,050,402 1.7% 9,070,065 1.6% 9,700,655 1.7% 4,705,241 1.7% 4,927,619 1.6% Staff meals 3,420,385 0.6% 4,394,575 0.8% 4,221,862 0.7% 2,091,157 0.7% 2,003,477 0.7% Provident fund contributions 4,069,042 0.8% 4,250,044 0.8% 4,480,395 0.8% 2,277,923 0.8% 2,501,326 0.8% Cleaning service fee (net of reimbursements) 3,484,268 0.7% 3,910,638 0.7% 4,286,806 0.7% 2,025,140 0.7% 2,376,014 0.8% Security guard service charges 3,147,227 0.6% 3,255,640 0.6% 3,418,549 0.6% 1,759,199 0.6% 1,802,108 0.6% Operation expenses 2,713,713 0.5% 2,651,279 0.5% 2,242,195 0.4% 720,894 0.3% 1,731,771 0.6% Staff welfare 1,896,781 0.4% 1,282,104 0.2% 1,775,095 0.3% 1,140,657 0.4% 1,172,597 0.4% Staff medical 824,873 0.2% 1,069,186 0.2% 1,020,339 0.2% 596,122 0.2% 439,347 0.1% Repairs and maintenance 2,927,143 0.6% 1,012,557 0.2% 993,073 0.2% 374,660 0.1% 524,688 0.2% Insurance 710,194 0.1% 711,841 0.1% 803,307 0.1% 388,474 0.1% 436,216 0.1% Printing and stationery 354,903 0.1% 463,970 0.1% 456,396 0.1% 202,983 0.1% 221,426 0.1% Registration, search fee and stamp duty 49,873 0.0% 37,632 0.0% 18,718 0.0% — — 24,369 0.0% Subscription fee 25,400 0.0% 25,400 0.0% 25,400 0.0% 25,400 0.0% 29,000 0.0% Postage and couriers 25,505 0.0% 22,031 0.0% 20,963 0.0% 10,776 0.0% 13,254 0.0% 299,168,593 57.0% 305,303,890 55.2% 327,301,797 56.1% 160,154,295 56.4% 172,411,484 56.1% Total direct costs 525,148,703 100.0% 552,650,930 100.0% 583,607,756 100.0% 284,120,755 100.0% 307,306,435 100.0%	Financial year ended 31 December 2011 2012 2013	Six months ended 30 June
		2013 (unaudited) 2014
		123,966,460 43.6% 134,894,951 43.9% 90,080,756 31.7% 93,694,126 30.5% 47,060,346 16.6% 52,367,494 17.0% 6,694,567 2.4% 8,146,652 2.6% 4,705,241 1.7% 4,927,619 1.6% 2,091,157 0.7% 2,003,477 0.7% 2,277,923 0.8% 2,501,326 0.8% 2,025,140 0.7% 2,376,014 0.8% 1,759,199 0.6% 1,802,108 0.6% 720,894 0.3% 1,731,771 0.6% 1,140,657 0.4% 1,172,597 0.4% 596,122 0.2% 439,347 0.1% 374,660 0.1% 524,688 0.2% 388,474 0.1% 436,216 0.1% 202,983 0.1% 221,426 0.1% — — 24,369 0.0% 25,400 0.0% 29,000 0.0% 10,776 0.0% 13,254 0.0%
		160,154,295 56.4% 172,411,484 56.1% 284,120,755 100.0% 307,306,435 100.0%

— III-5 —

APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET GROUP

Other revenue. Other revenue primarily consisted of miscellaneous income including rental for antenna site, sponsorship fees, a one-off compensation fee income receivable upon early surrender of the tenancy lease of level 1 of the Tseung Kwan O Store in the financial year ended 31 December 2013 and sundry income.

Please refer to note 5(a) of Section B in “Appendix II — Accountants’ Report on the Financial Information of the Target Group” for further details.

Other net income/(loss). Other net income / (loss) consists of the gain / (loss) on disposal of fixed assets and exchange gain / (loss). Other net income / (loss) for each of the financial years ended 31 December 2011, 2012 and 2013 and the six months ended 30 June 2014 amounted to net income of HK$1,565, net income of HK$19,059, net loss of HK$72,398 and net income of HK$560 respectively.

Administrative expenses. Administrative expenses primarily consisted of staff salaries, professional fees, rent and rates and bank charges. Set out below is the breakdown of administrative expenses for each of the financial years ended 31 December 2011, 2012 and 2013 and the six months ended 30 June 2013 and 2014:

Administrative expenses Staff salaries Professional fees Rent and rates Bank charges Computer expenses Depreciation Provident fund contributions Overseas travels Local travels Auditor’s remuneration Staff medical Staff welfare Staff meals Recruitment and training Entertainment Bad debts Sundry expenses	Financial year ended 31 December 2011 2012 2013	Six months ended 30 June
		2013 (unaudited) 2014
	(HK$) 21,548,088 22,995,151 25,648,387 9,185,118 9,189,428 9,874,915 2,445,106 4,230,594 7,565,704 3,841,750 4,153,714 4,475,003 2,470,361 2,622,547 2,980,145 1,644,382 1,241,701 3,059,726 808,682 882,136 979,610 703,651 651,038 642,667 351,515 389,341 428,635 202,800 209,700 216,000 233,565 307,593 335,597 184,910 176,862 242,111 112,006 137,545 250,917 51,756 94,723 40,323 6,523 7,318 6,252 6,000 — — 937,750 1,773,432 965,628	12,413,884 13,379,904 5,053,109 4,700,413 3,485,312 4,271,313 2,159,440 2,310,348 1,488,120 1,485,706 1,477,016 1,582,989 506,449 529,561 345,229 379,723 214,787 229,503 100,200 102,600 174,701 175,086 218,662 195,854 121,745 120,897 14,475 15,291 3,548 3,282 — — 530,798 442,300
	44,733,963 49,062,823 57,711,620	28,307,475 29,924,770

— III-6 —

APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET GROUP

Other operating expenses. Other operating expenses represent the advertising and promotion expenses incurred primarily for the retailing operations. These expenses for each of the financial years ended 31 December 2011, 2012 and 2013 and the six months ended 30 June 2014 amounted to approximately HK$14.9 million, HK$23.1 million, HK$23.8 million and HK$12.4 million respectively.

Finance cost. Finance cost consists of interest expenses incurred on bank overdrafts. Finance costs for each of the financial years ended 31 December 2011, 2012 and 2013 and the six months ended 30 June 2014 amounted to HK$18,046, HK$19,399, HK$15,658 and HK$7,582 respectively.

Income tax. The Target Group is subject to profits tax in Hong Kong at a rate of 16.5% on the estimated assessable profit for the year. Income tax for each of the financial years ended 31 December 2011, 2012 and 2013 and the six months ended 30 June 2014 amounted to approximately HK$22.2 million, HK$24.9 million, HK$26.5 million and HK$12.3 million respectively.

Citistore HK had settled all the Hong Kong profits tax liabilities for the financial years ended 31 December 2011 and 2012, and will settle the final Hong Kong profits tax liability for the financial year ended 31 December 2013 and the provisional Hong Kong profits tax liability for the financial year ending 31 December 2014 in November 2014 and January 2015. Each of Camay and Puretech had no profit tax liability for the financial years ended 31 December 2011, 2012 and 2013 and the six months ended 30 June 2014.

During the financial years ended 31 December 2011, 2012 and 2013 and the six months ended 30 June 2014, there were no disputes or unresolved tax issues between any of Citistore HK, Camay or Puretech with the relevant tax authorities.

REVIEW OF HISTORICAL OPERATING RESULTS

The six months ended 30 June 2014 compared to the six months ended 30 June 2013

Turnover. For the six months ended 30 June 2014, turnover was approximately HK$418.7 million, an increase of approximately HK$26.6 million, or approximately 6.8%, from approximately HK$392.1 million for the six months ended 30 June 2013. The increase was primarily driven by the increase in turnover of approximately HK$16.4 million from the sale of goods and approximately HK$10.1 million from concessionaire and consignment rental income.

Direct costs. Direct costs increased by approximately HK$23.2 million, or approximately 8.2%, from approximately HK$284.1 million for the six months ended 30 June 2013 to approximately HK$307.3 million for the six months ended 30 June 2014. The increase was primarily driven by the increase in cost of inventories sold of approximately HK$10.9 million, increase in rent of approximately HK$3.6 million and increase in staff salaries and related expenses of approximately HK$5.3 million.

— III-7 —

APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET GROUP

Gross profit. Gross profit increased by approximately HK$3.4 million, or approximately 3.1%, from approximately HK$108.0 million for the six months ended 30 June 2013 to approximately HK$111.4 million for the six months ended 30 June 2014.

Administrative expenses. For the six months ended 30 June 2014, administrative expenses were approximately HK$29.9 million, an increase of approximately HK$1.6 million, or approximately 5.7%, from approximately HK$28.3 million for the six months ended 30 June 2013. The increase was primarily due to the increases in Citistore’s staff salaries and related expenses of approximately HK$1.0 million as well as rental expenses on Citistore’s office and warehouse of approximately HK$0.8 million.

Profit and total comprehensive income for the period. The above primarily resulted in an increase in profit and total comprehensive income of approximately HK$2.1 million, or approximately 3.5%, from approximately HK$59.6 million for the six months ended 30 June 2013 to approximately HK$61.7 million for the six months ended 30 June 2014.

The financial year ended 31 December 2013 compared to the financial year ended 31 December 2012

Turnover. For the financial year ended 31 December 2013, turnover was approximately HK$807.0 million, an increase of approximately HK$43.2 million, or approximately 5.7%, from approximately HK$763.8 million for the financial year ended 31 December 2012. The increase was mainly attributable to the increase in concessionaire rental income and the increase in turnover from the sale of goods, for reasons that (i) the Tseung Kwan O Store was in full operation during the financial year ended 31 December 2013, whilst it was under renovation during the period from February 2012 to May 2012; and (ii) after the completion of renovation of the Tuen Mun Store in April 2013, the improved merchandise mix resulted in stronger sales performance for the financial year ended 31 December 2013. Both stores contributed an increase in concessionaire rental income of approximately HK$10.2 million and an increase in turnover from the sale of goods of approximately HK$18.9 million.

Direct costs. Direct costs increased by approximately HK$30.9 million, or approximately 5.6%, from approximately HK$552.7 million for the financial year ended 31 December 2012 to approximately HK$583.6 million for the financial year ended 31 December 2013. The increase was primarily driven by increases in rent and rates and in the cost of inventories sold. The increase in rent and rates was due to the renewal of tenancy leases for the Tsuen Wan Store, the Yuen Long Store and the Ma On Shan Store in July 2012, which resulted in an increase in effective rent of 20%, 20% and 26% respectively. The increase in the cost of inventory sold was due to increase in the amount of direct sales during the year.

Gross profit. Gross profit increased by approximately HK$12.2 million, or approximately 5.8%, from approximately HK$211.2 million for the financial year ended 31 December 2012 to approximately HK$223.4 million for the financial year ended 31 December 2013.

— III-8 —

MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET GROUP

APPENDIX III

Administrative expenses. For the financial year ended 31 December 2013, administrative expenses were approximately HK$57.7 million, an increase of approximately HK$8.6 million, or approximately 17.5%, from approximately HK$49.1 million for the financial year ended 31 December 2012. The increase was primarily due to (i) the increase in rent and rates due to relocation of Citistore’s head office in October 2012 and the renewal of tenancy leases of Citistore’s store operation office and warehouse, in the aggregate amount of approximately HK$3.3 million; and (ii) the increase in staff salaries and bonus provision of approximately HK$2.6 million.

Profit and total comprehensive income for the year. In addition to the items described above, there was also an increase in other revenue of approximately HK$9.5 million (primarily due to a one-off compensation fee income of approximately HK$8.3 million receivable under an agreement entered into in 2013 with regard to the early surrender of the tenancy lease of level 1 of the Tseung Kwan O Store), which were partially offset by the net increase in other expenses of approximately HK$11.1 million (primarily due to the increases in (i) administrative expenses of approximately HK$8.6 million as discussed above; (ii) other operating expenses of approximately HK$0.7 million; and (iii) income tax of approximately HK$1.6 million), leading to an increase in profit and total comprehensive income of approximately HK$10.6 million, or approximately 8.6%, from approximately HK$122.9 million for the financial year ended 31 December 2012 to approximately HK$133.5 million for the financial year ended 31 December 2013.

The financial year ended 31 December 2012 compared to the financial year ended 31 December 2011

Turnover. For the financial year ended 31 December 2012, turnover was approximately HK$763.8 million, an increase of approximately HK$54.5 million, or approximately 7.7%, from approximately HK$709.3 million for the financial year ended 31 December 2011. The increase was mainly attributable to the increase in concessionaire rental income and the increase in turnover from the sale of goods, for reasons that (i) the Tsuen Wan Store was in full operation during the financial year ended 31 December 2012, whilst it was under renovation during the period from February 2011 to June 2011; and (ii) the Yuen Long Store recorded a stronger sales performance during the year ended 31 December 2012 as it benefitted from stronger patronage from customers in the Yuen Long and Tin Shui Wai districts. Both stores contributed to an increase in concessionaire rental income of approximately HK$17.6 million and an increase in turnover from the sale of goods of approximately HK$23.8 million.

Direct costs. Direct costs increased by approximately HK$27.6 million, or approximately 5.3%, from approximately HK$525.1 million for the financial year ended 31 December 2011 to approximately HK$552.7 million for the financial year ended 31 December 2012. The increase was primarily driven by an increase in the cost of inventories sold due to an increase in the amount of direct sales during the year.

Gross profit. Gross profit increased by approximately HK$27.0 million, or approximately 14.7%, from approximately HK$184.2 million for the financial year ended 31 December 2011 to approximately HK$211.2 million for the financial year ended 31 December 2012.

— III-9 —

APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET GROUP

Administrative expenses. For the financial year ended 31 December 2012, administrative expenses were approximately HK$49.1 million, an increase of approximately HK$4.4 million, or approximately 9.8%, from approximately HK$44.7 million for the financial year ended 31 December 2011. The increase was primarily due to (i) the increase in rent and rates due to the relocation of Citistore’s head office in October 2012 of approximately HK$2.0 million; and (ii) the increase in staff salaries of approximately HK$1.4 million.

Profit and total comprehensive income for the year. In addition to the increase in administrative expenses as described above, there was also a net increase in (i) other operating expenses of approximately HK$8.2 million; and (ii) income tax of approximately HK$2.7 million, which partially offset the increase in gross profit as discussed above. This led to an increase in profit and total comprehensive income of approximately HK$11.9 million, or approximately 10.7%, from approximately HK$111.0 million for the financial year ended 31 December 2011 to approximately HK$122.9 million for the financial year ended 31 December 2012.

NET CURRENT ASSETS / (LIABILITIES) AND WORKING CAPITAL

As at 31 December 2011 2012 2013 (HK$) Current assets Inventories 67,063,875 60,931,929 56,727,213 Trade and other receivables 9,182,111 10,320,718 10,749,735 Amounts due from immediate holding company 362,692,832 466,098,533 575,548,524 Amounts due from fellow subsidiaries 14,400,987 23,397,810 23,397,409 Amounts due from related companies — 661,552 604,766 Cash and cash equivalents 15,870,480 24,746,916 41,732,621 Total current assets 469,210,285 586,157,458 708,760,268 Current liabilities Trade and other payables (226,718,595) (239,688,251) (239,181,743) Rental deposits (8,906,672) (10,461,045) (11,508,982) Amounts due to fellow subsidiaries (30,993,542) (42,244,245) (23,618,398) Amounts due to related companies (150,270) — — Tax payable (7,595,842) (261,964) (9,122,079) Total current liabilities (274,364,921) (292,655,505) (283,431,202) Net current assets/(liabilities) 194,845,364 293,501,953 425,329,066	As at 31 December 2011 2012 2013	As at 30 June 2014 55,341,323 8,596,014 126,655,656 — 787,663 20,394,018 211,774,674 (222,883,595) (12,019,514) (24,241,741) — (15,394,716) (274,539,566) (62,764,892)
	(HK$) 67,063,875 60,931,929 56,727,213 9,182,111 10,320,718 10,749,735 362,692,832 466,098,533 575,548,524 14,400,987 23,397,810 23,397,409 — 661,552 604,766 15,870,480 24,746,916 41,732,621
	(274,364,921) (292,655,505) (283,431,202) 194,845,364 293,501,953 425,329,066

— III-10 —

APPENDIX III

MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET GROUP

The Target Group had net current assets of approximately HK$194.8 million, HK$293.5 million and HK$425.3 million as at 31 December 2011, 2012 and 2013 respectively, and net current liabilities of approximately HK$62.8 million as at 30 June 2014. The net current liabilities position as at 30 June 2014 was primarily due to the fact that the Target Group distributed total dividends of approximately HK$527.9 million to its immediate holding company on 30 June 2014, which comprised of dividend payments previously paid to Camay by Citistore HK for the financial years ended 31 December 2011, 2012 and 2013 and the six months ended 30 June 2014 determined based on the amount of distributable profits generated, but which had not yet been paid by Camay to HLD. In anticipation of the change in ownership of the Target Group resulting from the Acquisition, the dividends were paid by Camay to HLD on 30 June 2014.

The Target Group generated net cash inflows from operating activities for the financial years ended 31 December 2011, 2012 and 2013 (the net cash outflow from operating activities of approximately HK$3.0 million for the six months ended 30 June 2014 was largely due to payment of surplus funds from Citistore HK to HLD). Upon Completion, the Target Group will also become part of and be supported by the Group. Hence the Directors believe it is appropriate to adopt the going concern basis for the preparation of the financial statements of the Target Group. Similarly, in view of the net cash inflows from the current operating activities of the Target Group, the support by the HLD Group (before Completion) and the support to be provided by the Group (after Completion), it is considered appropriate for dividends to be declared and paid by the Target Group to its current shareholder in the amount of the distributable profits generated by the Target Group’s business, but which had not yet been paid by the Target Group to its current shareholder, HLD.

Trade and other receivables

Trade and other receivables comprise trade debtors and deposits and prepayments. The majority of the retail customers of the Target Group settle transactions with payment at the time of sale with cash or credit card. For credit card transactions, settlement typically takes place two business days after the transaction. Accordingly, trade debtors are primarily related to the amounts receivable for credit card sales during the last few days before the end of the financial year/period, as well as the advanced payments for certain purchases of goods and merchandise.

Please refer to note 11 of Section B in “Appendix II — Accountants’ Report on the Financial Information of the Target Group” for the ageing analysis of trade debtors.

— III-11 —

APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET GROUP

The following table sets forth the turnover days of trade debtors for the financial years ended 31 December 2011, 2012 and 2013 and the six months ended 30 June 2014.

Trade debtors turnover (days)	Financial year ended 31 December 2011 2012 2013	Six months ended 30 June
		2014
	3.2 3.7 3.9	3.2

Note: Trade debtors turnover days is calculated by dividing the average balance of trade debtors (equals to the sum of the beginning and closing balances for each period, divided by two) by turnover and multiplying the results by the number of days in the financial year/period.

Inventories

Inventories primarily consist of store merchandise, which the Target Group purchased from its suppliers.

Please refer to note 10 of Section B in “Appendix II — Accountants’ Report on the Financial Information of the Target Group” for the inventories balances as at 31 December 2011, 2012 and 2013 and as at 30 June 2014.

The following table sets forth the inventories turnover days for the financial years ended 31 December 2011, 2012 and 2013 and the six months ended 30 June 2014.

Inventories turnover (days)	Financial year ended 31 December 2011 2012 2013	Six months ended 30 June
		2014
	98.1 94.4 83.8	75.2

Note: Inventories turnover days is calculated by dividing the average balance of inventories (equals to the sum of the beginning and closing balances for each period, divided by two) by cost of inventories sold, and multiplying the results by the number of days in the financial year/period.

The decrease in inventories turnover days was primarily due to an improvement in inventory management by the Target Group which resulted in a lower level of inventories being kept by the business and a lower level of ageing inventory.

Trade and other payables

Please refer to note 13 of Section B in “Appendix II — Accountants’ Report on the Financial Information of the Target Group” for the trade and other payables and the ageing analysis of trade payables as at 31 December 2011, 2012 and 2013 and as at 30 June 2014.

— III-12 —

APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET GROUP

The following table sets forth the trade payable turnover days for the financial years ended 31 December 2011, 2012 and 2013 and the six months ended 30 June 2014.

Trade payables turnover (days)	Financial year ended 31 December 2011 2012 2013	Six months ended 30 June
		2014
	51.4 59.7 59.9	54.3

Note: Trade payable turnover days is calculated by dividing the average balance of trade payables (equals to the sum of the beginning and closing balances for each period, divided by two) by the sum of (i) the cost of inventories sold and (ii) the net amount payable to the consignment and concessionaire counters (such net amount representing the net amount of sales revenue of consignment and concessionaire counters after deducting the rental income to which the Target Group is entitled), and multiplying the results by the number of days in the financial year/period.

Amounts due from / (to) immediate holding company, fellow subsidiaries and related companies

As at 30 June 2014, the aggregate amounts due from immediate holding company and related companies less the net amount due to fellow subsidiaries resulted in a net amount receivable of approximately HK$103.2 million.

The following sets out the breakdown of the amounts due from / (to) immediate holding company, fellow subsidiaries and related companies as at 30 June 2014:

	Balance as at
Party	30 June 2014	Nature of transactions
	(HK$)
Amount due from immediate holding company
HLD	126,655,656	Repatriation of surplus funds from
		Citistore HK to HLD
Amounts due from/(to) fellow subsidiaries
Broad Capital Limited	(913,018)	Cleaning expenses
Citistore (China) Limited	(558,885)	Sale proceeds of the staff quarters,
		received on behalf of Citistore (China)
		Limited
Dekker Investment Ltd	(7,803)	Rental expense
Dillinger Investment Limited	(499,294)	Rental expense
Easefine Development Limited	(15,460)	Rental, carpark coupon and wall
		signage expenses

— III-13 —

APPENDIX III

MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET GROUP

	Balance as at
Party	30 June 2014	Nature of transactions
	(HK$)
Easeluck Development Limited	(363,056)	Rental expense
Egeria Investment Limited	(4,343)	Rental and wall signage expenses, net
		of compensation fee income for early
		surrender of the tenancy lease of level
		1 of the Tseung Kwan O Store in 2013
Evercot Enterprise Company Limited	(5,746,021)	Rental, electricity, carpark coupon and
		wall signage expenses, net of
		compensation fee income for early
		surrender of the tenancy lease of level
		1 of the Tseung Kwan O Store in 2013
Henderson Property Agency Limited	728,000	Purchase of gift certificates by
		Henderson Property Agency Limited
		from Citistore HK
Jekyll Investment Limited	(184,322)	Rental expense
Join Fortune Development Limited	(477,776)	Rental and wall signage expenses, net
		of compensation fee income for early
		surrender of the tenancy lease of level
		1 of the Tseung Kwan O Store in 2013
Millap Limited	(5,892,513)	Rental, electricity, carpark coupon and
		wall signage expenses, net of
		compensation fee income for early
		surrender of the tenancy lease of level
		1 of the Tseung Kwan O Store in 2013
Shung King Development Company	(10,188,589)	Rental, electricity, carpark coupon and
Limited		wall signage expenses, net of
		compensation fee income for early
		surrender of the tenancy lease of level
		1 of the Tseung Kwan O Store in 2013
Sibyl Investment Limited	(118,661)	Rental and electricity expenses
Net amount due to fellow subsidiaries	(24,241,741)
Amounts due from related companies
HKF Property Investment Limited	336,063	Reimbursement of turnover rent by the
		landlord
Shahdan Limited	441,600	Rental deposit

— III-14 —

APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET GROUP

	Balance as at
Party	30 June 2014	Nature of transactions
	(HK$)
Sunlight Crownwill Limited	10,000	Rental deposit
Total amount due from related	787,663
companies

As shown in the table above, the current accounts between Citistore HK and its fellow subsidiaries (all being the subsidiaries of HLD) are accounted for in aggregate and hence any outstanding balance between Citistore HK and such fellow subsidiaries is shown on a net basis.

The outstanding balances as at 30 June 2014 were unsecured, interest-free and recoverable / repayable on demand and were not fully repaid / settled as at the Latest Practicable Date. The amount due from immediate holding company will be fully recovered by the Company and settled upon the Completion. The proceeds from the sale of staff quarters received on behalf of Citistore (China) Limited was an occasional one-off incident. The compensation fee income for early surrender of tenancy lease also occurred only occasionally. The transactions which gave rise to other balances shown in the table above will continue after the Completion and will constitute continuing connected transactions of the Company after the Completion. Rental expenses and expenses for use of licensed premises and wall signages will fall under the ambit of the Framework Agreement for which the Company is seeking the approval by the Independent Shareholders. The Company anticipates that the other continuing connected transactions will according to applicable percentage ratios calculations be either fully exempt from requirements under Chapter 14A of the Listing Rules, or subject only to reporting and announcement requirements and exempt from the circular and shareholders’ approval requirements.

As the amounts due from/ (to) immediate holding company, fellow subsidiaries and related companies represented transactions between members of the Target Group and HLD and its subsidiaries (other than the Target Group) and associates, the amounts were unsecured, interest-free and recoverable/(repayable) on demand.

FINANCIAL POSITION

Fixed assets

Fixed assets consisted of leasehold improvements, furniture and equipment and motor vehicles. As at 31 December 2011, 2012 and 2013 and as at 30 June 2014, the net book values of the Target Group’s fixed assets were approximately HK$30.0 million, HK$55.3 million, HK$55.3 million and HK$77.2 million respectively.

— III-15 —

APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET GROUP

The increase in total fixed assets from 31 December 2011 to 31 December 2012 was primarily due to the increase in leasehold improvements in relation to the renovation of (i) the Tseung Kwan O Store during the period from February 2012 to May 2012; and (ii) Citistore’s head office following its relocation in October 2012.

Leasehold improvements Furniture and equipment Motor vehicles Total fixed assets	As at 31 December 2011 2012 2013	As at 30 June
		2014
	(HK$) 25,963,485 49,216,122 48,530,403 3,398,401 5,632,916 6,082,672 628,436 449,682 689,727 29,990,322 55,298,720 55,302,802	71,212,026 5,427,576 557,760 77,197,362

CASH FLOW AND LIQUIDITY

Historically, the Target Group’s principal source of funding has been cash generated from its retail operations. The primary liquidity requirements are to finance working capital and to fund capital expenditures and the growth and expansion of the Group’s retail operations.

Net cash used in/ generated from operating activities

For the six months ended 30 June 2014, net cash used in operating activities amounted to approximately HK$3.0 million. This amount comprised (i) operating profit before changes in working capital of approximately HK$83.7 million; (ii) changes in working capital, net current assets and liabilities, as well as changes in the amounts due from/to group companies and related companies which amounted to a net total cash outflow of approximately HK$80.7 million; and (iii) profits tax paid of approximately HK$6.0 million.

For the financial year ended 31 December 2013, net cash generated from operating activities amounted to approximately HK$35.0 million. This amount comprised (i) operating profit before changes in working capital of approximately HK$178.0 million; (ii) changes in working capital, net current assets and liabilities, as well as changes in the amounts due from/to group companies and related companies which amounted to a net total cash outflow of approximately HK$123.7 million; and (iii) profits tax paid of approximately HK$19.3 million.

For the financial year ended 31 December 2012, net cash generated from operating activities amounted to approximately HK$46.5 million. This amount comprised (i) operating profit before changes in working capital of approximately HK$160.1 million; (ii) changes in working capital, net current assets and liabilities, as well as changes in the amounts due from/to group companies and related companies which amounted to a net total cash outflow of approximately HK$82.5 million; and (iii) profits tax paid of approximately HK$31.1 million.

— III-16 —

APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET GROUP

For the financial year ended 31 December 2011, net cash generated from operating activities amounted to approximately HK$74.1 million. This amount comprised (i) operating profit before changes in working capital of approximately HK$145.4 million; (ii) changes in working capital, net current assets and liabilities, as well as changes in the amounts due from/to group companies and related companies which amounted to a net total cash outflow of approximately HK$49.5 million; and (iii) profits tax paid of approximately HK$21.8 million.

Net cash used in investing activities

For the financial years ended 31 December 2011, 2012 and 2013 and the six months ended 30 June 2014, net cash used in investing activities amounted to approximately HK$32.8 million, HK$37.6 million, HK$18.0 million and HK$18.3 million respectively. The aforementioned net cash used in investing activities mainly comprised of payments for the purchase of leasehold improvements in the respective years/period.

Net cash used in financing activity

For the financial years ended 31 December 2011, 2012 and 2013 and the six months ended 30 June 2014, net cash used in financing activity amounted to HK$18,046, HK$19,399, HK$15,658 and HK$7,582 respectively, which related to interest expense for the respective years/period.

Committed borrowing facilities

As at 31 December 2011, 2012 and 2013 and as at 30 June 2014, the Target Group did not have any committed borrowing facilities.

CAPITAL EXPENDITURES

The following sets out the breakdown of capital expenditures for the financial year ended 31 December 2011, 2012 and 2013 and the six months ended 30 June 2014.

Leasehold improvements Furniture and equipment Motor vehicles Total addition to fixed assets	Financial year ended 31 December 2011 2012 2013	Six months ended 30 June
		2014
	(HK$) 30,701,047 33,772,331 15,144,196 1,695,308 3,911,571 2,476,848 460,863 — 425,897 32,857,218 37,683,902 18,046,941	31,258,312 368,968 — 31,627,280

— III-17 —

APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET GROUP

As at 31 December 2011 and 30 June 2014, the Target Group had capital commitments contracted but not provided for in the amount of approximately HK$5.5 million and HK$3.5 million respectively. There were no capital commitment as at 31 December 2012 and 2013.

CAPITAL STRUCTURE

Due to the nature of business operation of Citistore HK which is the cash generating unit of the Target Group, the Target Group generates sufficient cashflow to finance its operating and capital expenditure requirements. For the financial years ended 31 December 2011, 2012 and 2013 and the six months ended 30 June 2014, and as at the Latest Practicable Date, the Target Group did not have any borrowings or equity financing requirement, with the exception of a bank overdraft facility of HK$10 million with interest chargeable on daily balances at the lending bank’s best lending rate, and which is repayable on demand. Such bank overdraft facility provides a standby funding source to the Target Group in the event that the amounts of cash settlements for the purchase of goods and merchandise exceed the amounts of recoveries from trade receivables at any point in time.

MATERIAL RELATED PARTY TRANSACTIONS

The following table sets out the breakdown of the material related party transactions of the Target Group for the financial years ended 31 December 2011, 2012, 2013 and the six months ended 30 June 2013 and 2014:

Name of related parties i. Compensation fee income receivable from fellow subsidiaries Egeria Investment Limited Evercot Enterprise Company Limited Join Fortune Development Limited Millap Limited Shung King Development Company Limited Total	Financial year ended 31 December 2011 2012 2013	Six months ended 30 June
		2013 (unaudited) 2014
	(HK$) — — 11,627 — — 3,782,010 — — 850,412 — — 374,547 — — 3,286,213 — — 8,304,809	— — — — — — — — — — — —
ii. Professional fee payable to a fellow subsidiary Henderson Real Estate Agency Limited iii. Cleaning service fee payable to a fellow subsidiary Broad Capital Limited	7,867,356 8,404,919 8,628,112 3,738,856 4,061,122 4,697,771	4,314,056 4,532,513 2,216,772 2,591,759

— III-18 —

APPENDIX III

MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET GROUP

iv. Rental expenses payable to : - fellow subsidiaries Dekker Investment Limited Dillinger Investment Limited Easefine Development Limited Easeluck Development Limited Egeria Investment Limited Evercot Enterprise Company Limited Jekyll Investment Limited Join Fortune Development Limited Millap Limited Shung King Development Company Limited Sibyl Investment Limited Total	Financial year ended 31 December 2011 2012 2013	Six months ended 30 June
		2013 (unaudited) 2014
	(HK$) 77,458 85,350 96,261 4,956,264 5,461,219 6,159,397 4,186,228 4,469,396 4,798,205 3,603,889 3,971,062 4,478,734 36,753 22,406 24,140 26,598,191 23,494,294 25,765,741 1,829,683 2,016,095 2,273,839 2,761,848 2,160,152 2,945,405 73,807,437 80,427,350 83,475,435 38,654,908 38,746,999 44,344,128 517,566 572,600 612,433 157,030,225 161,426,923 174,973,718	48,332 60,667 3,092,584 3,881,852 2,397,454 2,416,647 2,248,736 2,822,643 11,355 12,802 12,459,545 13,071,352 1,141,676 1,433,047 1,403,271 1,582,235 41,600,420 42,226,397 21,537,638 22,348,100 302,712 315,840 86,243,723 90,171,582
- related companies HKF Property Investment Limited 7,885,856 8,333,155 8,338,755 Shahdan Limited 2,405,612 3,282,041 3,301,225 Sunlight Crownwill Limited 445,134 168,475 59,899 Total 10,736,602 11,783,671 11,699,879		4,168,878 4,169,878 1,646,662 1,675,790 58,181 — 5,873,721 5,845,668
v. Electricity charges payable to: - fellow subsidiaries Dekker Investment Limited 595 656 135 Dillinger Investment Limited 38,090 42,000 8,626 Easefine Development Limited — — — Easeluck Development Limited 27,697 30,540 6,272 Egeria Investment Limited 23 — — Evercot Enterprise Company Limited 21,845 5,883 — Jekyll Investment Limited 14,062 15,505 3,184 Join Fortune Development Limited 1,684 — — Millap Limited 7,561 932 — Shung King Development Company Limited 30,866 11,816 —		134 — 8,547 — — — 6,216 — — — — 5,252 3,156 — — — — 2,495 — 8,911

— III-19 —

APPENDIX III

MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET GROUP

Sibyl Investment Limited Total	Financial year ended 31 December 2011 2012 2013	Six months ended 30 June
		2013 (unaudited) 2014
	(HK$) 961 131 — 143,384 107,463 18,217	— 352 18,053 17,010
- related companies HKF Property Investment Limited — — — Shahdan Limited 54,387 119 — Sunlight Crownwill Limited — — — Total 54,387 119 —		— — — — — — — —
vi. Electricity charges receivable from a fellow subsidiary Goodwill Management Limited 57,627 — — vii. Car park expenses payable to: - fellow subsidiaries Dekker Investment Limited — — — Dillinger Investment Limited — — — Easefine Development Limited 118,658 124,141 114,616 Easeluck Development Limited — — — Egeria Investment Limited — — — Evercot Enterprise Company Limited 109,007 124,014 145,305 Jekyll Investment Limited — — — Join Fortune Development Limited — — — Millap Limited 337,718 353,024 326,217 Shung King Development Company Limited 235,952 268,436 314,521 Sibyl Investment Limited — — — Total 801,335 869,615 900,659		— — — — — — 59,120 49,402 — — — — 70,727 66,793 — — — — 168,264 140,606 153,093 144,577 — — 451,204 401,378
- related companies HKF Property Investment Limited 76,465 93,751 124,620 Shahdan Limited — — — Sunlight Crownwill Limited — — — Total 76,465 93,751 124,620		61,785 69,970 — — — — 61,785 69,970
viii. Purchases from a fellow subsidiary Megastrength Security Services Company Limited 16,860 123,120 45,800 ix. Advertising expenses payable to a fellow subsidiary Henderson Club Limited — 941,250 142,500		33,800 6,000 — —

— III-20 —

APPENDIX III

MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET GROUP

The compensation fee income receivable from fellow subsidiaries (for early surrender of tenancy lease) only occurs occasionally. The professional fee payable to a fellow subsidiary (for accounting-related services) will cease upon Completion. The other material related party transactions mentioned in the table above will continue after the Completion. Given that each of the abovementioned related parties (except for Sunlight Crownwill Limited which is deemed as a connected person of HLD under the Listing Rules as from 30 April 2009) is either a subsidiary of HLD or of its associates, each related party is a connected person of the Company and thus, those transactions which will continue after Completion between any such related party with members of the Target Group would constitute connected transactions or continuing connected transactions of the Company. Rental expenses and expenses for use of licensed premises and wall signages will fall under the ambit of the Framework Agreement for which the Company is seeking the approval by the Independent Shareholders. The Company anticipates that the other connected transactions or the other continuing connected transactions will according to applicable percentage ratios calculations be either fully exempt from requirements under Chapter 14A of the Listing Rules, or subject only to reporting and announcement requirements and exempt from the circular and shareholders’ approval requirements.

BUSINESS PROSPECTS

For the financial years ended 31 December 2011, 2012 and 2013 and the six months ended 30 June 2014, no new product or service was introduced or announced.

MATERIAL ACQUISITION AND DISPOSAL

For the financial years ended 31 December 2011, 2012 and 2013 and the six months ended 30 June 2014, the Target Group did not undertake any significant acquisition or disposal of subsidiaries or assets.

EMPLOYEES AND REMUNERATION POLICY

As at 31 December 2011, 2012 and 2013 and as at 30 June 2014, the Target Group had 612, 614, 614 and 631 full-time employees respectively and 195, 176, 170 and 201 part-time employees respectively.

The remuneration of the employees was in line with the market level of pay in the industry. The remuneration packages for full-time employees of the Target Group typically comprise basic salaries, certain allowances, medical benefits and discretionary year-end bonuses, while remuneration packages for part-time employees typically comprise basic salaries and certain allowances. A defined contribution retirement plan is provided by the Target Group towards the Mandatory Provident Fund for eligible employees in Hong Kong, while due to historical factors, long-time employees of the Target Group receive the benefit of ORSO contributions. On-going training programme is also offered to all employees of the Target Group.

— III-21 —

APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET GROUP

For the financial years ended 31 December 2011, 2012 and 2013 and the six months ended 30 June 2014, staff salaries and related expenses amounted to approximately HK$121.3 million, HK$125.9 million, HK$135.4 million and HK$72.9 million respectively.

Citistore HK provides training to the frontline employees at the Citistore Stores on customer service and product knowledge (especially for new products) on an ongoing basis.

CONTINGENT LIABILITIES

As at 31 December 2011, 2012 and 2013 and as at 30 June 2014, the Target Group did not have any contingent liabilities.

CHARGES ON ASSETS

Assets of the Target Group were not charged to any parties as at 31 December 2011, 2012 and 2013 and as at 30 June 2014.

OFF-BALANCE SHEET ARRANGEMENTS

As at 31 December 2011, 2012 and 2013 and as at 30 June 2014, the Target Group did not have any off-balance sheet arrangements.

KEY FINANCIAL RATIOS

The following table sets forth certain financial ratios as at the dates or for the financial years/period indicated:

Key Financial Ratios Return on equity1 Return on assets2 Current ratio3 Debt to equity ratio4	As at and for the financial year ended 31 December 2011 2012 2013	As at and for the six months ended June 30
		2014
	49.2% 35.3% 27.7% 22.2% 19.2% 17.4% 171.0% 200.3% 250.1% — — —	781.5% 42.5% 77.1% —

Notes:

1. Return on equity is calculated as the profit and total comprehensive income attributable to the shareholder of the Target Group for the financial year / annualised period divided by the equity attributable to the shareholder of the Target Group as at the respective dates.

— III-22 —

APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET GROUP

1. Return on assets is calculated as the profit and total comprehensive income attributable to the shareholder of the Target Group for the financial year / annualised period divided by the total assets of the Target Group as at the respective dates.

2. Current ratio is calculated as the total current assets divided by the total current liabilities as at the respective dates.

3. Debt to equity ratio is calculated by dividing total bank loans and bank overdrafts by capital and reserves attributable to the Target Group’s shareholder as at the respective dates.

Return on equity

As at 31 December 2011, 2012 and 2013 and as at 30 June 2014, the return on equity amounted to approximately 49.2%, 35.3%, 27.7% and 781.5% respectively. The increase from 31 December 2013 to 30 June 2014 was mainly due to the decrease in the amount of equity attributable to the shareholder of the Target Group as at 30 June 2014, following the payment of total dividends of approximately HK$527.9 million by the Target Group to its immediate holding company on 30 June 2014.

Return on assets

As at 31 December 2011, 2012 and 2013 and as at 30 June 2014, the return on assets amounted to approximately 22.2%, 19.2%, 17.4% and 42.5% respectively. The decrease from 31 December 2011 to 31 December 2013 was primarily due to the year-on-year increase in the amount due from immediate holding company, following the payment by the Target Group to such immediate holding company of surplus funds generated from its operations. The increase from 31 December 2013 to 30 June 2014 was primarily due to the decrease in amount due from immediate holding company, following the payment of dividends by the Target Group to such immediate holding company on 30 June 2014 as referred to in the paragraph “Return on equity” above.

Current ratio

As at 31 December 2011, 2012 and 2013 and as at 30 June 2014, the current ratio amounted to approximately 171.0%, 200.3%, 250.1% and 77.1% respectively. The increase from 31 December 2011 to 31 December 2013 was primarily due to the year-on-year increase in the amount due from immediate holding company, for the reason as explained in the paragraph “Return on assets” above. The decrease from 31 December 2013 to 30 June 2014 was primarily due to the decrease in the amount due from immediate holding company as at 30 June 2014, for the reason as explained in the paragraph “Return on assets” above.

FINANCIAL RISK FACTORS

Please refer to note 16 of Section B in “Appendix II — Accountants’ Report on the Financial Information of the Target Group” for discussion on financial risk factors.

— III-23 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

APPENDIX IV

The following is an illustrative and unaudited pro forma consolidated balance sheet, unaudited pro forma consolidated statement of profit or loss and other comprehensive income and unaudited pro forma consolidated cash flow statement of the Enlarged Group (the “unaudited pro forma financial information”), which has been prepared on the basis of the notes set out below and in accordance with Rule 4.29 of the Listing Rules for the purpose of illustrating the effects of the Acquisition on the Group for the inclusion in this circular (the “Circular”).

The unaudited pro forma financial information of the Enlarged Group has been prepared to illustrate the effect of the proposed Acquisition on the Group’s financial position as at 30 June 2014 and the Group’s financial performance and cash flows for the six months ended 30 June 2014 as if the Acquisition had taken place at 30 June 2014 and 1 January 2014 respectively.

The unaudited pro forma financial information has been prepared using accounting policies consistent with that of the Group as set out in the Company’s published interim report for the six months ended 30 June 2014.

The unaudited pro forma consolidated balance sheet of the Enlarged Group is prepared based on the unaudited consolidated balance sheet of the Group as at 30 June 2014 as extracted from the Company’s published interim report for the six months ended 30 June 2014 and the audited combined balance sheet of the Target Group as at 30 June 2014 as extracted from the accountant’s report on the financial information of the Target Group as set out in Appendix II to the Circular as if the Acquisition had been completed on 30 June 2014.

The unaudited pro forma consolidated statement of profit or loss and other comprehensive income and unaudited pro forma consolidated cash flow statement of the Enlarged Group are prepared based on the results and cash flows of the Group for six months ended 30 June 2014 respectively as extracted from the Company’s published interim report for the six months ended 30 June 2014 and the audited results and cash flows of the Target Group for the six months ended 30 June 2014 as extracted from the accountant’s report on the financial information of the Target Group as set out in Appendix II to the Circular as if the Acquisition had been completed on 1 January 2014.

The unaudited pro forma financial information should be read in conjunction with the financial information contained in this Circular and the accountant’s report on the financial information of the Target Group as set out in Appendix II to the Circular.

This unaudited pro forma financial information has been prepared by the Directors for illustrative purpose only and is based on a number of assumptions, estimates and uncertainties. Because of its hypothetical nature, it may not give a true picture of the financial position, results of operations and cash flows of the Enlarged Group had the Acquisition been completed on 30 June 2014 or 1 January 2014, where applicable, or on any future date.

— IV-1 —

APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

(i) Unaudited Pro Forma Consolidated Balance Sheet of the Enlarged Group as at 30 June 2014

Unaudited consolidated balance sheet of the Group as at 30 June 2014 HK$ million ASSETS AND LIABILITIES Non-current assets Fixed assets 1 Intangible operating right 375 Intangible asset — Goodwill — Long-term bank deposits 676 Deferred tax assets — Non-current receivable 1 1,053 Current assets Inventories — Trade and other receivables 55 Amount due from an intermediate holding company — Amount due from a related company — Cash and cash equivalents 472 527	Pro forma adjustments Audited combined balance sheet of the Target Group as at 30 June 2014 The Enlarged Group Note 1 Note 2 Note 3 Note 4 HK$ million HK$ million HK$ million HK$ million HK$ million 77 — — — 78 — — — — 375 — — 51 — 51 — — 858 — 858 — — — — 676 1 — — — 1 — — — — 1 78 — 909 — 2,040 55 — — — 55 9 — — — 64 127 (127) — — — 1 — — — 1 20 (310) — (8) 174 212 (437) — (8) 294	Pro forma adjustments Audited combined balance sheet of the Target Group as at 30 June 2014 The Enlarged Group Note 1 Note 2 Note 3 Note 4 HK$ million HK$ million HK$ million HK$ million HK$ million 77 — — — 78 — — — — 375 — — 51 — 51 — — 858 — 858 — — — — 676 1 — — — 1 — — — — 1 78 — 909 — 2,040 55 — — — 55 9 — — — 64 127 (127) — — — 1 — — — 1 20 (310) — (8) 174 212 (437) — (8) 294
		2,040
		55 64 — 1 174
		294

— IV-2 —

APPENDIX IV

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

(i) Unaudited Pro Forma Consolidated Balance Sheet of the Enlarged Group as at 30 June 2014 (continued)

Unaudited consolidated balance sheet of the Group as at 30 June 2014 HK$ million Current liabilities Trade and other payables 17 Promissory note — Rental deposits — Amounts due to fellow subsidiaries — Current taxation 1 18 Net current assets/(liabilities) 509 Total assets less current liabilities 1,562 Non-current liability Deferred tax liabilities 10 NET ASSETS 1,552 CAPITAL AND RESERVES Share capital and other statutory capital reserve 612 Other reserves 748 Total equity attributable to equity shareholders of the Company 1,360 Non-controlling interests 192 TOTAL EQUITY 1,552	Pro forma adjustments Audited combined balance sheet of the Target Group as at 30 June 2014 The Enlarged Group Note 1 Note 2 Note 3 Note 4 HK$ million HK$ million HK$ million HK$ million HK$ million 223 — — — 240 — 508 — — 508 12 — — — 12 24 — (18) — 6 15 — — — 16 274 508 (18) — 782 (62) (945) 18 (8) (488) 16 (945) 927 (8) 1,552 — — 8 — 18 16 (945) 919 (8) 1,534 — — — — 612 — (10) — (8) 730 — (10) — (8) 1,342 — — — — 192 — (10) — (8) 1,534	Pro forma adjustments Audited combined balance sheet of the Target Group as at 30 June 2014 The Enlarged Group Note 1 Note 2 Note 3 Note 4 HK$ million HK$ million HK$ million HK$ million HK$ million 223 — — — 240 — 508 — — 508 12 — — — 12 24 — (18) — 6 15 — — — 16 274 508 (18) — 782 (62) (945) 18 (8) (488) 16 (945) 927 (8) 1,552 — — 8 — 18 16 (945) 919 (8) 1,534 — — — — 612 — (10) — (8) 730 — (10) — (8) 1,342 — — — — 192 — (10) — (8) 1,534
		782
		(488)
		1,552 18
		1,534
		612 730
		1,342 192
		1,534

— IV-3 —

APPENDIX IV

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

• (ii) Unaudited Pro Forma Consolidated Statement of Profit or Loss and Other Comprehensive Income of the Enlarged Group for the six months ended 30 June 2014

				Pro forma adjustments	Pro forma adjustments
		Unaudited	Audited
	consolidated		combined
	profit or loss		profit or loss
		and other	and other
	comprehensive		comprehensive
	income of the		income of the
	Group for the		Target Group
	six months		for the six
		ended 30	months ended				The
		June 2014	30 June 2014				Enlarged
			Note 1	Note 2	Note 3	Note 4	Group
	HK$ million		HK$ million	HK$ million	HK$ million	HK$ million	HK$ million
Turnover		—	419	—	—	—	419
Direct costs		(24)	(308)	—	—	—	(332)
		(24)	111	—	—	—	87
Other revenue		—	5	—	—	—	5
Other income/other gains, net		11	—	(10)	—	—	1
Administrative expenses		(5)	(30)	—	—	(8)	(43)
Other operating expenses		—	(12)	—	—	—	(12)
(Loss)/profit from operations		(18)	74	(10)	—	(8)	38
Finance costs		—	—	—	—	—	—
(Loss)/profit before taxation		(18)	74	(10)	—	(8)	38
Income tax		—	(12)	—	—	—	(12)
(Loss)/profit for the period		(18)	62	(10)	—	(8)	26
Other comprehensive income for
the period		(5)	—	—	—	—	(5)
Total comprehensive income for
the period		(23)	62	(10)	—	(8)	21
(Loss)/profit for the period
attributable to:
Equity shareholders of the
Company		(9)	62	(10)	—	(8)	35
Non-controlling interests		(9)	—	—	—	—	(9)
		(18)	62	(10)	—	(8)	26
Total comprehensive income for
the period attributable to:
Equity shareholders of the
Company		(12)	62	(10)	—	(8)	32
Non-controlling interests		(11)	—	—	—	—	(11)
		(23)	62	(10)	—	(8)	21

— IV-4 —

APPENDIX IV

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

(iii) Unaudited Pro Forma Consolidated Cash Flow Statement of the Enlarged Group for the six months ended 30 June 2014

Unaudited consolidated cash flow of the Group for the six months ended 30 June 2014 HK$ million Operating activities (Loss)/profit before taxation (18) Adjustments for: Interest (income)/expense (16) Amortisation of intangible operating right 16 Depreciation — Net foreign exchange loss 5 Operating (loss)/profit before changes in working capital (13) Decrease in non-current receivable and trade and other receivables 28 Decrease in inventories — Increase in amount due from an intermediate holding company — Decrease in amounts due from fellow subsidiaries — Decrease in trade and other payables (1) Increase in rental deposits and amounts due to fellow subsidiaries — Cash generated from operating activities 14 Net tax paid (3) Net cash generated from operating activities 11	Pro forma adjustments Audited combined cash flow of the Target Group for the six months ended 30 June 2014 The Enlarged Group Note 1 Note 2 Note 3 Note 4 HK$ million HK$ million HK$ million HK$ million HK$ million 74 (10) — (8) 38 — 10 — — (6) — — — — 16 10 — — — 10 — — — — 5 84 — — (8) 63 2 — — — 30 1 — — — 1 (79) — — — (79) 23 — — — 23 (29) — — — (30) 1 — — — 1 3 — — (8) 9 (6) — — — (9) (3) — — (8) —	Pro forma adjustments Audited combined cash flow of the Target Group for the six months ended 30 June 2014 The Enlarged Group Note 1 Note 2 Note 3 Note 4 HK$ million HK$ million HK$ million HK$ million HK$ million 74 (10) — (8) 38 — 10 — — (6) — — — — 16 10 — — — 10 — — — — 5 84 — — (8) 63 2 — — — 30 1 — — — 1 (79) — — — (79) 23 — — — 23 (29) — — — (30) 1 — — — 1 3 — — (8) 9 (6) — — — (9) (3) — — (8) —
		63 30 1 (79) 23 (30) 1
		9 (9)
		—

— IV-5 —

APPENDIX IV

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

(iii) Unaudited Pro Forma Consolidated Cash Flow Statement of the Enlarged Group for the six months ended 30 June 2014 (continued)

Unaudited consolidated cash flow of the Group for the six months ended 30 June 2014 HK$ million Investing activities Interest received 19 Increase in long-term bank deposits (676) Additions to fixed assets — Acquisition of the Target Group — Net cash used in investing activities (657) Financing activity Dividend paid to shareholders (61) Net cash used in financing activity (61) Net decrease in cash and cash equivalents (707) Cash and cash equivalents at 1 January 1,185 Effect of foreign exchange rate changes (6) Cash and cash equivalents at 30 June 472	Pro forma adjustments Audited combined cash flow of the Target Group for the six months ended 30 June 2014 The Enlarged Group Note 1 Note 2 Note 3 Note 4 HK$ million HK$ million HK$ million HK$ million HK$ million — (10) — — 9 — 508 — — (168) (19) — — — (19) — (808) — — (808) (19) (310) — — (986) — — — — (61) — — — — (61) (22) (310) — (8) (1,047) 42 — — — 1,227 — — — — (6) 20 (310) — (8) 174	Pro forma adjustments Audited combined cash flow of the Target Group for the six months ended 30 June 2014 The Enlarged Group Note 1 Note 2 Note 3 Note 4 HK$ million HK$ million HK$ million HK$ million HK$ million — (10) — — 9 — 508 — — (168) (19) — — — (19) — (808) — — (808) (19) (310) — — (986) — — — — (61) — — — — (61) (22) (310) — (8) (1,047) 42 — — — 1,227 — — — — (6) 20 (310) — (8) 174
		(986)
		(61)
		(61)
		(1,047) 1,227 (6)
		174

— IV-6 —

APPENDIX IV

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

1. The financial information of the Target Group is extracted from the accountant’s report on the Target Group as set out in Appendix II to this Circular.

2. Under the Acquisition Agreement, the Consideration of HK$935 million will be payable by the Purchaser to HLD at Completion in cash, or if elected by the Purchaser, all or part of the Consideration may also be settled by the Purchaser by way of issuing at Completion a promissory note in favour of HLD for such part of the Consideration elected to be so settled, and such promissory note will be unsecured and repayable by 31 December 2014 (or such other dates as may be agreed between the parties) and bear interest at the rate of HIBOR plus 0.84% per annum. For the purpose of the unaudited pro forma financial information of the Enlarged Group, it is assumed that after deducting the HK$127 million owing by the HLD Group to the Target Group, the Consideration amounting to HK$300 million will be settled in cash by the Purchaser at Completion, and the remaining part of the Consideration of HK$508 million (assuming the fair value of the promissory note as at 30 June 2014 is the same) will be settled by the Purchaser by way of issuing at Completion a promissory note in favour of HLD with a maturity date of one month from the date of issuance and bearing interest at the rate of HIBOR of 0.21% plus 0.84% per annum. The estimated finance cost of the promissory note under this assumption is approximately HK$0.4 million.

The estimated direct reduction in interest income of approximately HK$9.8 million is based on the assumption that the Acquisition had taken place on 1 January 2014 and there is a reduction in the Group’s bank deposits for a period of five to six months with interest rates ranging from 1.7% to 3.8% per annum.

1. Upon Completion, the identifiable assets and liabilities of the Target Group will be accounted for in the consolidated financial statements of the Enlarged Group at their fair values as required by the acquisition method in accordance with HKFRS 3 (Revised) “ Business Combinations ”. For the purpose of the unaudited pro forma financial information of the Enlarged Group and for illustrative purpose only, the Group has carried out a provisional purchase price allocation exercise in accordance with HKFRS 3 (Revised). The adjustments in Note 3 represent the fair value adjustments applied to the identifiable assets and liabilities, and the goodwill arising from the Acquisition. For the purpose of the unaudited pro forma financial information of the Enlarged Group and for illustrative purpose only, the value of the trademarks owned by the Target Group was taken to be approximately HK$51 million, based on the directors’ estimate of their fair

— IV-7 —

APPENDIX IV

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

value. The valuation of trademarks was based on the income approach, relief-from-royalty method. Goodwill of approximately HK$858 million is attributable to the Target Group’s management expertise and workforce. Details of the identifiable assets and liabilities of the Target Group to be accounted for in the unaudited pro forma consolidated balance sheet of the Enlarged Group and the calculation of goodwill are as follows:

	Carrying	Fair value
	amount	adjustment	Fair value
	HK$ million	HK$ million	HK$ million
Fixed assets	77	—	77
Deferred tax assets	1	—	1
Trademarks	—	51	51
Inventories	55	—	55
Trade and other receivables	9	—	9
Amount due from an intermediate holding
company	127	—	127
Amount due from a related company	1	—	1
Cash and cash equivalents	20	—	20
Trade and other payables	(223)	—	(223)
Rental deposits	(12)	—	(12)
Amounts due to fellow subsidiaries	(24)	18	(6)
Current taxation	(15)	—	(15)
Deferred tax liability	—	(8)	(8)
Identifiable net assets	16	61	77
			HK$ million
Consideration			935
Less: Fair value of identifiable net assets			(77)
Goodwill			858

Since the fair values and the carrying amounts of the identifiable assets and liabilities of the Target Group as at the date of Completion may be materially different from the values used in the preparation of the unaudited pro forma financial information of the Enlarged Group, the actual amounts of the assets, liabilities and goodwill to be recorded in the consolidated financial statements of the Enlarged Group upon Completion may be materially different from the estimated amounts shown in this Appendix.

1. This adjustment represents legal and professional fees and other expenses relating to the Acquisition, which will become payable at Completion by the Purchaser.

— IV-8 —

APPENDIX IV

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

1. For the purpose of the unaudited pro forma financial information of the Enlarged Group, the Group’s management has performed an impairment assessment on the goodwill arising from the Acquisition and the intangible asset in accordance with Hong Kong Accounting Standard 36 “ Impairment of Assets ” and considers that there would have been no impairment of the goodwill or intangible asset if the Acquisition had been completed on 30 June 2014 for the purpose of unaudited pro forma consolidated balance sheet of the Enlarged Group and 1 January 2014 for the purpose of unaudited pro forma consolidated statement of profit or loss and other comprehensive income and unaudited pro forma consolidated cash flow statement of the Enlarged Group. The recoverable amount under impairment assessment was derived based on the value-in-use approach and this approach will be adopted by the Group in the preparation of consolidated financial statements in the subsequent accounting periods.

2. No other adjustments have been made to reflect any trading result or other transactions of the Group and the Target Group entered into subsequent to 30 June 2014. Unless otherwise stated, the adjustments above do not have a recurring effect.

— IV-9 —

APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

The following is the full text of a report received from PricewaterhouseCoopers, Certified Public Accountants, Hong Kong, for the purpose of incorporation into this circular.

==> picture [70 x 47] intentionally omitted <==

INDEPENDENT REPORTING ACCOUNTANTS’ ASSURANCE REPORT ON THE COMPILATION OF UNAUDITED PRO FORMA FINANCIAL INFORMATION INCLUDED IN A CIRCULAR

TO THE DIRECTORS OF HENDERSON INVESTMENT LIMITED

We have completed our assurance engagement to report on the compilation of unaudited pro forma financial information of Henderson Investment Limited (the “Company”) and its subsidiaries (collectively the “Group”) and Camay Investment Limited and its subsidiaries (the “Target Group”) (collectively the “Enlarged Group”) by the directors for illustrative purposes only. The unaudited pro forma financial information consists of the unaudited pro forma consolidated balance sheet as at 30 June 2014, the unaudited pro forma consolidated statement of profit or loss and other comprehensive income for the period ended 30 June 2014, the unaudited pro forma consolidated cash flow statement for the period ended 30 June 2014 and related notes (the “Unaudited Pro Forma Financial Information”) as set out on pages IV-2 to IV-9 of the Company’s circular dated 17 October 2014, in connection with the proposed acquisition of the Target Group (the “Transaction”) by the Company. The applicable criteria on the basis of which the directors have compiled the Unaudited Pro Forma Financial Information are described on page IV-1.

The Unaudited Pro Forma Financial Information has been compiled by the directors to illustrate the impact of the Transaction on the Group’s financial position as at 30 June 2014 and the Group’s financial performance and cash flows for the period ended 30 June 2014 as if the Transaction had taken place on 30 June 2014 and 1 January 2014 respectively. As part of this process, information about the Group’s financial position, financial performance and cash flows has been extracted by the directors from the Group’s financial statements for the period ended 30 June 2014, on which a review report has been published.

Directors’ Responsibility for the Unaudited Pro Forma Financial Information

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

— IV-10 —

APPENDIX IV

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

Reporting Accountants’ Responsibilities

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

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

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

The purpose of unaudited pro forma financial information included in a circular is solely to illustrate the impact of a significant event or transaction on the unadjusted financial information of the entity as if the event had occurred or the transaction had been undertaken at an earlier date selected for purposes of the illustration. Accordingly, we do not provide any assurance that the actual outcome of the Transaction at 30 June 2014 would have been as presented.

A reasonable assurance engagement to report on whether the unaudited pro forma financial information has been properly compiled on the basis of the applicable criteria involves performing procedures to assess whether the applicable criteria used by the directors in the compilation of the unaudited pro forma financial information provide a reasonable basis for presenting the significant effects directly attributable to the event or transaction, and to obtain sufficient appropriate evidence about whether:

• The related pro forma adjustments give appropriate effect to those criteria; and

• The unaudited pro forma financial information reflects the proper application of those adjustments to the unadjusted financial information.

The procedures selected depend on the reporting accountants’ judgment, having regard to the reporting accountants’ understanding of the nature of the company, the event or transaction in respect of which the unaudited pro forma financial information has been compiled, and other relevant engagement circumstances.

— IV-11 —

APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

The engagement also involves evaluating the overall presentation of the unaudited pro forma financial information.

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

Opinion

In our opinion:

• (a) the Unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated;

• (b) such basis is consistent with the accounting policies of the Group; and

• (c) the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

PricewaterhouseCoopers

Certified Public Accountants Hong Kong, 17 October 2014

— IV-12 —

GENERAL INFORMATION

APPENDIX V

1. RESPONSIBILITY STATEMENT

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

2. DISCLOSURE OF INTERESTS

(a) Directors’ interests

As at the Latest Practicable Date, the interests and short positions of each Director and chief executive of the Company in the shares, underlying shares and debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO) (other than the interests which Dr. Lee Shau Kee, Mr. Lee Ka Kit and Mr. Lee Ka Shing were taken or deemed under Part XV of the SFO to have in unlisted associated corporations of the Company which were solely derived from their interests or deemed interests in Henderson Development Limited (“HD”), HLD and/or the Company, in respect of which an application for waiver from strict compliance with the disclosure requirements under Rule 14.66(3) and Rule 14A.70(14) of the Listing Rules and paragraph 38(1) of Appendix 1B to the Listing Rules has been made to the Stock Exchange on the basis that the disclosure of which would result in particulars being given which are not material in the context of the Group and are excessive in length) 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 as recorded in the register required to be kept under Section 352 of the SFO or which were notified to or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers were as follows:

Ordinary Shares (unless otherwise specified)

Long Positions
Name of	Name of		Personal	Family	Corporate	Other
Company	Director	Note	Interests	Interests	Interests	Interests	Total	% Interest
The Company	Lee Shau Kee	1			2,115,274,943		2,115,274,943	69.41
	Lee Ka Kit	1				2,110,868,943	2,110,868,943	69.27
	Lee Ka Shing	1				2,110,868,943	2,110,868,943	69.27
	Lee Tat Man	2	6,666				6,666	0.00

— V-1 —

GENERAL INFORMATION

APPENDIX V

Long Positions

Name of	Name of		Personal	Family	Corporate	Other
Company	Director	Note	Interests	Interests	Interests	Interests	Total	% Interest
HLD	Lee Shau Kee	3	9,654,499		2,048,944,665		2,058,599,164	68.62
	Lee Ka Kit	3				2,047,807,010	2,047,807,010	68.26
	Lee Ka Shing	3				2,047,807,010	2,047,807,010	68.26
	Lee Tat Man	4	136,788				136,788	0.00
HD	Lee Shau Kee	5			8,190		8,190	100.00
					(Ordinary		(Ordinary
					A Shares)		A Shares)
	Lee Shau Kee	6			3,510		3,510	100.00
					(Non-voting		(Non-voting
					B Shares)		B Shares)
	Lee Shau Kee	7	35,000,000		15,000,000		50,000,000	100.00
			(Non-voting		(Non-voting		(Non-voting
			Deferred		Deferred		Deferred
			Shares)		Shares)		Shares)
	Lee Ka Kit	5				8,190	8,190	100.00
						(Ordinary	(Ordinary
						A Shares)	A Shares)
	Lee Ka Kit	6				3,510	3,510	100.00
						(Non-voting	(Non-voting
						B Shares)	B Shares)
	Lee Ka Kit	7				15,000,000	15,000,000	30.00
						(Non-voting	(Non-voting
						Deferred	Deferred
						Shares)	Shares)
	Lee Ka Shing	5				8,190	8,190	100.00
						(Ordinary	(Ordinary
						A Shares)	A Shares)
	Lee Ka Shing	6				3,510	3,510	100.00
						(Non-voting	(Non-voting
						B Shares)	B Shares)
	Lee Ka Shing	7				15,000,000	15,000,000	30.00
						(Non-voting	(Non-voting
						Deferred	Deferred
						Shares)	Shares)

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GENERAL INFORMATION

APPENDIX V

Long Positions

Name of	Name of		Personal	Family	Corporate	Other
Company	Director	Note	Interests	Interests	Interests	Interests	Total	% Interest
Heyield Estate	Lee Shau Kee	8			100		100	100.00
Limited
	Lee Ka Kit	8				100	100	100.00
	Lee Ka Shing	8				100	100	100.00
Pettystar	Lee Shau Kee	9			3,240		3,240	80.00
Investment
Limited	Lee Ka Kit	9				3,240	3,240	80.00
	Lee Ka Shing	9				3,240	3,240	80.00

Save as disclosed above, as at the Latest Practicable Date none of the Directors or the chief executive of the Company had any interests or short positions in any shares, underlying shares or debentures of the Company or its associated corporations (within the meaning of Part XV of the SFO) other than the interests which Dr. Lee Shau Kee, Mr. Lee Ka Kit and Mr. Lee Ka Shing were taken or deemed under Part XV of the SFO to have in unlisted associated corporations of the Company which were solely derived from their interests or deemed interests in HD, HLD and/or the Company, in respect of which an application for waiver from strict compliance with the disclosure requirements under Rule 14.66(3) and Rule 14A.70(14) of the Listing Rules and paragraph 38(1) of Appendix 1B to the Listing Rules has been made to the Stock Exchange.

(b) Directors’ interests in assets of the Group

As at the Latest Practicable Date, save for the interests of the Directors and proposed Director in the Acquisition, the Existing HLD Tenancy Agreements and the leases and/or licences entered into by Citistore HK with the HK Ferry Group and the Miramar Group through their interests in the shares of HLD mentioned above and through the personal interests of Dr. Lee Shau Kee, Mr. Lam Ko Yin, Colin, and Mr. Leung Hay Man in 799,220, 150,000 and 2,250 shares in HK Ferry, respectively, none of the Directors or proposed Director had any direct or indirect interest in any assets which had been, since 31 December 2013 (being the date to which the latest published audited consolidated accounts of the Company were made up), acquired or disposed of by, or leased to any member of the Group, or were proposed to be acquired or disposed of by, or leased to, any member of the Group.

(c) Directors’ interests in contracts of the Group

Save for the interests of the Directors in the Acquisition Agreement, the Existing HLD Tenancy Agreements and the Framework Agreement through their interests in the shares of HLD as disclosed above, none of the Directors was materially interested in any contract or arrangement subsisting at the Latest Practicable Date and which is significant in relation to the business of the Group.

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GENERAL INFORMATION

APPENDIX V

(d) Substantial Shareholders’ and Others’ Interests

As at the Latest Practicable Date, so far as is known to the Directors and the chief executive of the Company, the following persons (not being Directors or chief executives of the Company), had an interest or short position in the Shares and underlying shares of the Company as recorded in the register required to be kept under Section 336 of the SFO:

Long Positions

	No. of shares
	in which
	interested	% Interest
Substantial Shareholders:
Rimmer (Cayman) Limited (Note 1)	2,110,868,943	69.27
Riddick (Cayman) Limited (Note 1)	2,110,868,943	69.27
Hopkins (Cayman) Limited (Note 1)	2,110,868,943	69.27
HD (Note 1)	2,110,868,943	69.27
HLD (Note 1)	2,110,868,943	69.27
Kingslee S.A. (Note 1)	2,110,868,943	69.27
Banshing Investment Limited (Note 1)	843,249,284	27.67
Markshing Investment Limited (Note 1)	602,398,418	19.77
Covite Investment Limited (Note 1)	363,328,900	11.92
Persons other than Substantial Shareholders:
Gainwise Investment Limited (Note 1)	217,250,000	7.13

Notes:

1. Of these shares, (i) 843,249,284 shares, 602,398,418 shares, 363,328,900 shares, 217,250,000 shares and 84,642,341 shares were respectively owned by Banshing Investment Limited, Markshing Investment Limited, Covite Investment Limited, Gainwise Investment Limited and Darnman Investment Limited, all of which were wholly-owned subsidiaries of Kingslee S.A. which was 100% held by HLD which in turn was taken to be 68.20% held by HD; and (ii) 3,000,000 shares and 1,406,000 shares were respectively owned by Tako Assets Limited and Thommen Limited, both were wholly-owned subsidiaries of HK Ferry in which Dr Lee Shau Kee together with HLD held 33.55%. Hopkins (Cayman) Limited (“Hopkins”) as trustee of a unit trust (the “Unit Trust”) owned all the issued ordinary shares of HD. Rimmer (Cayman) Limited (“Rimmer”) and Riddick (Cayman) Limited (“Riddick”), as trustees of respective discretionary trusts, held units in the Unit Trust. The entire issued share capital of Hopkins, Rimmer and Riddick were owned by Dr Lee Shau Kee. Dr Lee Shau Kee was taken to be interested in these shares by virtue of the SFO. As Directors of the Company and discretionary beneficiaries of two discretionary trusts holding units in the Unit Trust, Mr Lee Ka Kit and Mr Lee Ka Shing were taken to be interested in these shares by virtue of the SFO.

2. Mr Lee Tat Man was the beneficial owner of these shares.

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APPENDIX V

GENERAL INFORMATION

3. Of these shares, Dr Lee Shau Kee was the beneficial owner of 9,654,499 shares, and for the remaining 2,048,944,665 shares, (i) 897,168,664 shares were owned by HD; (ii) 160,821,512 shares were owned by Richbond Investment Limited which was a wholly-owned subsidiary of HD; (iii) 230,452,102 shares were owned by Cameron Enterprise Inc.; 495,425,632 shares were owned by Believegood Limited which was wholly-owned by South Base Limited; 94,937,415 shares were owned by Prosglass Investment Limited which was wholly-owned by Jayasia Investments Limited; 87,358,640 shares were owned by Fancy Eye Limited which was wholly-owned by Mei Yu Ltd.; 73,049,536 shares were owned by Spreadral Limited which was wholly-owned by World Crest Ltd.; and Cameron Enterprise Inc., South Base Limited, Jayasia Investments Limited, Mei Yu Ltd. and World Crest Ltd. were wholly-owned subsidiaries of Yamina Investment Limited which in turn was 100% held by HD; (iv) 6,779,146 shares were owned by Superfun Enterprises Limited, a wholly-owned subsidiary of The Hong Kong and China Gas Company Limited (“China Gas”) which was 41.50% held by HLD which in turn was taken to be 68.20% held by HD; (v) 1,814,363 shares were owned by Fu Sang Company Limited (“Fu Sang”); and (vi) 774,618 shares and 363,037 shares were respectively owned by Tako Assets Limited and Thommen Limited, both were wholly-owned subsidiaries of HK Ferry in which Dr Lee Shau Kee together with HLD held 33.55%. Dr Lee Shau Kee was taken to be interested in HD as set out in Note 1, Fu Sang (all the issued ordinary shares of which were owned by Hopkins as trustee of the Unit Trust), China Gas and HLD by virtue of the SFO. As Directors of the Company and discretionary beneficiaries of two discretionary trusts holding units in the Unit Trust, Mr Lee Ka Kit and Mr Lee Ka Shing were taken to be interested in these shares by virtue of the SFO.

4. Mr Lee Tat Man was the beneficial owner of these shares.

5. These shares were held by Hopkins as trustee of the Unit Trust.

6. These shares were held by Hopkins as trustee of the Unit Trust.

7. Of these shares, Dr Lee Shau Kee was the beneficial owner of 35,000,000 shares, and Fu Sang owned the remaining 15,000,000 shares.

8. Of these shares, (i) 80 shares were owned by Tactwin Development Limited, a wholly-owned subsidiary of HLD; (ii) 10 shares were owned by Henderson Finance Company Limited, a wholly-owned subsidiary of HD; and (iii) 5 shares each were owned by Perfect Bright Properties Inc. and Furnline Limited, and Jetwin International Limited was the sole holder of A shares of each of Perfect Bright Properties Inc. and Furnline Limited (the “A Shares”) with the A Shares being entitled to all their interests and, liable for all liabilities in Heyield Estate Limited. Triton (Cayman) Limited as trustee of a unit trust owned all the issued share capital of Jetwin International Limited. Triumph (Cayman) Limited and Victory (Cayman) Limited, as trustees of respective discretionary trusts, held units in the unit trust. The entire share capital of Triton (Cayman) Limited, Triumph (Cayman) Limited and Victory (Cayman) Limited were owned by Dr Lee Shau Kee who was taken to be interested in such shares by virtue of the SFO. As discretionary beneficiaries of the discretionary trusts holding units in such unit trust, Mr Lee Ka Kit and Mr Lee Ka Shing were taken to be interested in such shares by virtue of the SFO.

9. Of these shares, (i) 3,038 shares were owned by HLD; and (ii) 202 shares were owned by Allied Best Investment Limited which was 50% held by each of Perfect Bright Properties Inc. and Furnline Limited, and Jetwin International Limited was the sole holder of A shares of each of Perfect Bright Properties Inc. and Furnline Limited (the “A Shares”) with the A Shares being entitled to all their interests and, liable for all liabilities in Allied Best Investment Limited.

3. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors or proposed Director had entered, or proposed to enter into a service contract with any member of the Group which is not determinable by the Group within one year without payment of compensation, other than statutory compensation.

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GENERAL INFORMATION

APPENDIX V

4. COMPETING INTERESTS

As at the Latest Practicable Date, so far as the Directors are aware, none of the Directors or proposed Director or their respective associates had any interest in a business which competes or is likely to compete with the business of the Group.

5. LITIGATION

As at the Latest Practicable Date, save for the arbitration proceedings in relation to the toll fee collection right of a joint venture company of the Group as referred to in the section headed “ 9. Prospects ” in the Letter from the Board in this circular, none of the members of the Group and the Target Group was engaged in any litigation or claim of material importance and no litigation or claim of material importance was known to the Directors to be pending or threatened against any member of the Group and the Target Group.

6. EXPERTS AND CONSENTS

The following are the qualifications of experts who have given opinions or advice which are contained in this circular:

Name	Qualifications
Platinum Securities	a corporation licensed under the SFO to carry out Type 1
	(dealing in securities) and Type 6 (advising on corporate
	finance) regulated activities under the SFO
PricewaterhouseCoopers	Certified Public Accountants
KPMG	Certified Public Accountants

As at the Latest Practicable Date, none of the experts has any shareholding in any member of the Group or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

As at the Latest Practicable Date, none of the experts have any direct or indirect interest in any assets which had been since 31 December 2013 (being the date to which the latest published audited consolidated accounts of the Company were made up) acquired or disposed of by or leased to, or which were proposed to be acquired or disposed of by or leased to, any member of the Group.

Each of Platinum Securities, PricewaterhouseCoopers and KPMG has given and has not withdrawn their respective written consent to the issue of this circular with the inclusion herein of their respective opinions, letters or reports dated 17 October 2014 and the references to its name, in the form and context in which they respectively appear.

— V-6 —

GENERAL INFORMATION

APPENDIX V

7. MATERIAL CONTRACTS

As at the Latest Practicable Date, the following contracts, not being contracts entered into in the ordinary course of business, were entered into by members of the Group and the Target Group within the two years immediately preceding the date of this circular and are or may be material:

• (i) the Acquisition Agreement; and

• (ii) the Framework Agreement.

8. GENERAL

• (a) The secretary of the Company is Mr. Liu Cheung Yuen, Timon, B.Ec., F.C.P.A., C.A.(Aust.), F.C.S., F.C.I.S.

• (b) The registered office of the Company is situated at 72-76/F, Two International Finance Centre, 8 Finance Street, Central, Hong Kong.

• (c) The share registrar of the Company is Tricor Standard Limited of Level 22, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.

• (d) The English text of this circular shall prevail over the Chinese text in case of inconsistency.

9. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the offices of Woo Kwan Lee & Lo at 26th Floor, Jardine House, 1 Connaught Place, Central, Hong Kong during normal business hours on any Business Day up to and including the date of the EGM:

• (a) the articles of association of the Company;

• (b) the annual report of the Company for each of the two financial years ended 31 December 2012 and 2013;

• (c) the interim report of the Company for the six months ended 30 June 2014;

• (d) the accountants’ report on the financial information of the Target Group issued by KPMG, the text of which is set out in this circular;

• (e) the unaudited pro forma financial information on the Enlarged Group and the comfort letter thereon from PricewaterhouseCoopers, the text of which is set out in this circular;

• (f) the letter from Platinum Securities, the text of which is set out in this circular;

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GENERAL INFORMATION

APPENDIX V

• (g) the written consents referred to in the paragraph headed “Experts and Consents” of this appendix;

• (h) the Acquisition Agreement;

• (i) the Existing HLD Tenancy Agreements and the Framework Agreement; and

• (j) the lease and licences entered into by Citistore HK with subsidiaries of HK Ferry and the lease entered into by Citistore HK with a subsidiary of Miramar as referred to in the Letter from the Board in this circular.

— V-8 —

NOTICE OF EGM

==> picture [317 x 68] intentionally omitted <==

NOTICE IS HEREBY GIVEN that an extraordinary general meeting of the shareholders of Henderson Investment Limited (the “Company”) will be held at Harbour View Ballroom, Four Seasons Hotel, 8 Finance Street, Central, Hong Kong on Tuesday, 4 November 2014 at 11:00 a.m. (“Meeting”) for the purpose of considering and, if thought fit, passing, with or without modification, the following resolution of the Company:

ORDINARY RESOLUTION

“THAT:

• (A) the conditional agreement dated 5 September 2014 and entered into between Newmarket International Limited, a wholly-owned subsidiary of the Company, and Henderson Land Development Company Limited (the “Acquisition Agreement”, a copy of which has been produced to this meeting and marked “A” and signed by the chairman of the Meeting (the “Chairman”) for the purpose of identification) in relation to the Acquisition (as defined and described in the circular dated 17 October 2014 despatched to the shareholders of the Company of which the notice convening the Meeting forms part (the “Circular”), a copy of which has been produced to the Meeting and marked “B” and signed by the Chairman for the purpose of identification) and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified;

• (B) the Framework Agreement (as defined and described in the Circular) and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified;

• (C) the aggregate annual caps in respect of the Continuing Connected Leasing Transactions (as defined and described in the Circular) for the nine years ending 31 December 2023 as stated in the section headed “11. Continuing Connected Transactions and the Framework Agreement — 5. Proposed annual caps” contained in the Letter from the Board in the Circular , be and are hereby approved; and

• (D) the directors of the Company (the “Directors”) be and are hereby authorised for and on behalf of the Company to sign, execute, perfect, perform and deliver all such agreements, instruments, deeds and documents and do all such acts or things and take all steps as they may in their absolute discretion consider to be necessary, desirable or expedient in order to implement or give effect to or complete the Acquisition Agreement, the Framework

— N-1 —

NOTICE OF EGM

Agreement, the Existing HLD Tenancy Agreements and the transactions contemplated thereunder, and the making and giving of and agreeing to such variations, amendments, modifications, waivers or extensions thereto as the Directors deem to be necessary, desirable or expedient.”

By order of the Board Timon LIU Cheung Yuen Company Secretary

Hong Kong, 17 October 2014

Registered Office:

72-76/F Two International Finance Centre 8 Finance Street Central Hong Kong

Notes:

• (1) At the above Meeting, the Chairman will exercise his power under Article 80 of the Articles of Association to put the resolution to be voted on by way of a poll.

• (2) A member of the Company (“Member”) entitled to attend and vote at the above Meeting is entitled to appoint one or more proxies to attend and speak and on a poll, to vote instead of him at the Meeting, and separate proxies may be appointed by a Member to represent the respective number of shares held by the Member as specified in the relevant proxy form. A proxy need not be a Member. The form of proxy and the power of attorney or other authority, if any, under which it is signed (or a notarially certified copy of that power of authority) must be lodged at the share registrar of the Company, Tricor Standard Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong not less than 48 hours before the time appointed for holding the Meeting or adjourned meeting (as the case may be) at which the person named in such form of proxy proposes to vote or, in the case of a poll taken more than 48 hours after it was demanded, not less than 24 hours before the time appointed for the taking of the poll.

• (3) Where there are joint registered holders of any share, any one of such persons may vote at the meeting, either personally or by proxy, in respect of such share as if he were solely entitled thereto, but if more than one of such joint holders are present at the meeting personally or by proxy, that one of the said persons so present whose name stands first on the Register of Members in respect of such share shall alone be entitled to vote in respect thereof.

— N-2 —

NOTICE OF EGM

• (4) For the purpose of determining shareholders of the Company who are entitled to attend and vote at the above Meeting, the Register of Members of the Company will be closed from Monday, 3 November 2014 to Tuesday, 4 November 2014, both days inclusive, during which period no transfer of shares will be registered. In order to qualify for attending at the above Meeting, all transfer documents accompanied by the relevant share certificates must be lodged with the Company’s Registrar, Tricor Standard Limited, Level 22, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong not later than 4:30 p.m. on Friday, 31 October 2014.

— N-3 —