Pacific Online Limited — Annual Report 2020

Apr 15, 2021

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CONTENTS

Corporate Information	2
Chairman’s Statement	3
Management Discussion and Analysis	5
Directors’ and Senior Management’s Profiles	8
Corporate Governance Report	13
Environmental, Social and Governance Report	26
Directors’ Report	51
Independent Auditor’s Report	68
Consolidated Income Statement	75
Consolidated Statement of Comprehensive Income	76
Consolidated Balance Sheet	77
Consolidated Statement of Changes in Equity	79
Consolidated Statement of Cash Flows	80
Notes to the Consolidated Financial Statements	81
Financial Summary	152

CORPORATE INFORMATION

BOARD OF DIRECTORS

Executive Directors

Dr. Lam Wai Yan (Chairman and Chief Executive Officer) Mr. Ho Kam Wah

Mr. Wang Ta-Hsing

Independent Non-executive Directors

Mr. Tsui Yiu Wa, Alec Mr. Thaddeus Thomas Beczak

Mr. Lam Wai Hon, Ambrose

COMPANY SECRETARY

Mr. Wong Huk Yung, Hudson

AUTHORISED REPRESENTATIVES

Mr. Wang Ta-Hsing Mr. Wong Huk Yung, Hudson

AUDIT COMMITTEE

Mr. Tsui Yiu Wa, Alec (Chairman) Mr. Thaddeus Thomas Beczak Mr. Lam Wai Hon, Ambrose

REMUNERATION COMMITTEE

Mr. Tsui Yiu Wa, Alec (Chairman) Mr. Thaddeus Thomas Beczak Mr. Lam Wai Hon, Ambrose

NOMINATION COMMITTEE

Dr. Lam Wai Yan (Chairman) Mr. Tsui Yiu Wa, Alec Mr. Thaddeus Thomas Beczak

PRINCIPAL BANKERS

Bank of China China Construction Bank China Merchants Bank OCBC Wing Hang Bank

AUDITOR

PricewaterhouseCoopers Certified Public Accountants Registered Public Interest Entity Auditor

PRINCIPAL SHARE REGISTRAR AND TRANSFER OFFICE

Tricor Services (Cayman Islands) Limited Second Floor, Century Yard Cricket Square, P.O. Box 902 Grand Cayman, KY1–1103 Cayman Islands

HONG KONG BRANCH SHARE REGISTRAR AND TRANSFER OFFICE

Tricor Investor Services Limited Level 54, Hopewell Centre 183 Queen’s Road East Hong Kong

REGISTERED OFFICE

Second Floor, Century Yard Cricket Square, P.O. Box 902 Grand Cayman, KY1–1103 Cayman Islands

PRINCIPAL PLACE OF BUSINESS

115 Gaopu Road Tianhe, Guangzhou PRC Postcode: 510663

PLACE OF BUSINESS IN HONG KONG

Portion of Unit 807, Tower 2 Lippo Centre, 89 Queensway Hong Kong

GROUP’S PORTAL ADDRESSES

www.pconline.com.cn www.pcauto.com.cn www.pclady.com.cn www.pcbaby.com.cn www.pchouse.com.cn

WEBSITE ADDRESS

corp.pconline.com.cn

STOCK CODE

543

2 Annual Report 2020 Pacific Online Limited

CHAIRMAN’S STATEMENT

On behalf of the board of directors (the “Board”) of Pacific Online Limited (the “Company”) and its subsidiaries (collectively referred to as the “Group”), I would like to present the performance of the Company for the 2020 fiscal year.

For the whole of 2020, the Company’s revenue was RMB967.5 million, a decrease of 2.4% from last year. The profit attributable to equity holders was RMB161.9 million, a year-on-year increase of 5.7%. The Company’s restructuring in the past few years has yielded improvements in gross profit margin but was still exposed to an increase in longer receivables. Moving forward, we are focused on developing the Company’s human capital as the key to drive our innovation strategy, product development and strengthening the Company’s core competencies.

The Company has faced a number of challenges in the past year owing to both the impacts of the COVID-19 global pandemic and the Sino-US trade relationship.

As a result of nationwide pandemic restrictions in the first half of 2020, the industry was subject to material disruptions in operations before significantly rebounding in the latter half of the year. However, when compared to 2019, overall car sales in China still decreased by 6.8%. In spite of this, PCauto was able to increase revenues by 6.7% and maintain consistent cash flows throughout 2020. PCauto’s “Cool Car Project” collaboration with the Alipay platform has continued to successfully develop new marketing products and expand the Company’s footprint in the aftersales market. While changes in consumer behavior has led to development in live broadcasting and VR entertainment offerings, opening the door to new collaborative opportunities and partners.

The developments of the Sino-US trade relationship had an adverse impact on China’s private businesses, with electronic technology firms being amongst the hardest hit, subsequently affecting many of our partners’ domestic business. These developments, in addition to market changes in advertising, have affected almost all consumers in the PConline, PClady, PChouse, and PCbaby categories. Faced with these challenges, PConline has responded by identifying new marketing channel strategies, refining our understanding of customer needs, and further developing our content offerings. PCbaby, PClady and PChouse took this opportunity to further implement restructuring to reposition the platform with a greater focus on new mobile product development and consumer experience in the future.

Looking ahead towards 2021, the Company remains cautiously optimistic of the impact from the global pandemic and ongoing trade tensions. The Company has been proactive in ensuring that both the Company and employees remain minimally affected by these events and we will continue to closely monitor the impact that global developments will have on our related industries. We are confident that the Company’s focus on enabling product innovation and developing our human capital in the coming year will continue to drive the Company forward.

Annual Report 2020 3 Pacific Online Limited

CHAIRMAN’S STATEMENT

APPRECIATION

I would like to take this opportunity to express my sincerest gratitude on behalf of the Board to all of my employees and shareholders for their continuous effort and support.

Lam Wai Yan

Chairman

Hong Kong, 29 March 2021

4 Annual Report 2020 Pacific Online Limited

MANAGEMENT DISCUSSION AND ANALYSIS

REVENUE

Revenue decreased 2.4% from RMB990.8 million for the year ended 31 December 2019 to RMB967.5 million for the year ended 31 December 2020.

Revenue for PCauto, the Group’s automobile portal, increased 6.7% from RMB776.3 million for the year ended 31 December 2019 to RMB828.5 million during the year ended 31 December 2020. The increase in revenue for PCauto was primarily due to increased spending from both auto manufacturers and dealership customers in the second half of the year. As a percentage of revenue, PCauto accounted for 78.3% during the year ended 31 December 2019 and 85.6% during the year ended 31 December 2020.

Revenue for PConline, the Group’s IT and consumer electronics portal, decreased 22.3% from RMB132.8 million during the year ended 31 December 2019 to RMB103.1 million during the year ended 31 December 2020. The decrease was due to decline in demand from consumer electronics manufacturers. As a percentage of revenue, PConline accounted for 13.4% during the year ended 31 December 2019 and 10.7% during the year ended 31 December 2020.

Revenue from other operations, including PClady, PCbaby and PChouse portals, decreased by 56.2% from RMB81.8 million during the year ended 31 December 2019 to RMB35.8 million during the year ended 31 December 2020. The decrease was mainly due to the slowdown in advertising demand from these general consumer markets. As a percentage of revenue, revenue from other operations accounted for 8.3% during the year ended 31 December 2019 and 3.7% during the year ended 31 December 2020.

COST OF REVENUE

Cost of revenue increased 6.1% from RMB383.5 million during the year ended 31 December 2019 to RMB407.0 million during the year ended 31 December 2020. Gross profit margin was 61.3% during the year ended 31 December 2019 and 57.9% during the year ended 31 December 2020.

The increase in cost of revenue was mainly due to an increase in outsourcing production costs offsetting decrease in other taxes and surcharges.

SELLING AND MARKETING COSTS

Selling and marketing costs decreased 26.2% from RMB257.7 million during the year ended 31 December 2019 to RMB190.1 million during the year ended 31 December 2020. The decrease in selling and marketing expenses was mainly due to the decrease in advertising expenses and less employee benefit expenses.

Annual Report 2020 5 Pacific Online Limited

MANAGEMENT DISCUSSION AND ANALYSIS

ADMINISTRATIVE EXPENSES

Administrative expenses increased by 19.6% from RMB67.7 million during the year ended 31 December 2019 to RMB80.9 million during the year ended 31 December 2020, mainly due to a compensation payment of RMB12.0 million for a commercial settlement during the year.

NET IMPAIRMENT LOSSES ON FINANCIAL ASSETS

Net impairment losses on financial assets increased by 75.7% from RMB32.5 million during the year ended 31 December 2019 to RMB57.0 million during the year ended 31 December 2020. The increase was mainly due to longer receivables outstanding during the year.

PRODUCT DEVELOPMENT EXPENSES

Product development expenses decreased by 13.8% from RMB77.8 million during the year ended 31 December 2019 to RMB67.0 million during the year ended 31 December 2020. The decrease was due to decrease in personnel-related expenses in the Group’s research and development team.

OTHER INCOME

Other income was RMB20.2 million during the year ended 31 December 2020 and RMB9.7 million during the year ended 31 December 2019. The increase was mainly due to increase in government grants and additional deduction of input value-added taxes.

FINANCE INCOME AND COST

Net finance income decreased 14.5% from RMB6.7 million during the year ended 31 December 2019 to RMB5.7 million during the year ended 31 December 2020. The decrease was mainly due to increase in net foreign exchange losses during the year.

INCOME TAX EXPENSE

Income tax expenses decreased 16.2% from RMB33.1 million during the year ended 31 December 2019 to RMB27.7 million during the year ended 31 December 2020.

NET PROFIT ATTRIBUTABLE TO EQUITY HOLDERS

Net profit attributable to equity holders increased 5.7% from RMB153.1 million during the year ended 31 December 2019 to RMB161.9 million during the year ended 31 December 2020.

6 Annual Report 2020 Pacific Online Limited

MANAGEMENT DISCUSSION AND ANALYSIS

LIQUIDITY AND FINANCIAL RESOURCES

As of 31 December 2020, the Group had short-term deposits and cash totaling RMB474.1 million, compared with RMB428.0 million as of 31 December 2019.

In 2020, net cash generated from operating activities was RMB206.3 million, net cash used in investing activities was RMB150.8 million, net cash used in financing activities was RMB122.8 million, with a net decrease in cash and cash equivalents of RMB67.3 million for year 2020.

In 2019, net cash generated from operating activities was RMB122.5 million, net cash generated from investing activities was RMB49.2 million, net cash used in financing activities was RMB153.5 million, with a net increase in cash and cash equivalents of RMB18.2 million for year 2019.

The Company had no external debt as of 31 December 2019 and 31 December 2020.

BANK BORROWINGS

As of both 31 December 2020 and 31 December 2019, the Group did not have any bank borrowings and therefore, its gearing ratio, representing the ratio of total bank borrowings to shareholders’ equity, was nil for both years.

MATERIAL ACQUISITIONS AND DISPOSALS

During the year ended 31 December 2020, the Group had no material acquisitions or disposals of subsidiaries and associates.

CHARGES ON ASSETS

As at 31 December 2020, the Group had no bank deposits or other assets pledged to secure its banking facilities.

FOREIGN EXCHANGE RISK

The Group’s operating activities were principally carried out in China with most of its transactions denominated and settled in Renminbi, and therefore the overall foreign currency risk was not considered to be significant.

Annual Report 2020 7 Pacific Online Limited

DIRECTORS’ AND SENIOR MANAGEMENT’S PROFILES

EXECUTIVE DIRECTORS

Dr. Lam Wai Yan (“Dr. Lam”) , aged 69, is an executive director, the Chairman of the Board and of the nomination committee and the Chief Executive Officer of the Company, a director of certain subsidiaries of the Company and a substantial shareholder of the Company. Dr. Lam obtained a bachelor’s degree in Science from the University of Texas at EL PASO in 1975 and a doctor’s degree in Professional Studies from Middlesex University in 2014. He has extensive local and overseas general management experience and has more than 20 years of experience in IT industry. He had been a vice president and director of Dean Witter Reynolds Inc. from 1979 to 1989 and a director of CLSA Limited (formerly known as “Credit Lyonnais Securities (Asia) Limited”) from 1990 to 1991. Dr. Lam co-founded the Group and has played a key role in developing the businesses of the Group since 1997 and led the Group to become one of the leading specialized content portal in China.

Mr. Ho Kam Wah (“Mr. Ho”) , aged 68, is an executive director of the Company and a director of certain subsidiaries of the Company. He is also a director and the controlling shareholder of Treasure Field Holdings Limited, a substantial shareholder of the Company. Mr. Ho obtained a bachelor’s degree in Science from Illinois State University in 1976. He is principally involved in strategic planning and assisting in overall management and business development of the Group. Mr. Ho co-founded the Group and has played a major role in developing the businesses of the Group since 1997 and has an extensive management experience over 20 years in IT industry.

Mr. Wang Ta-Hsing (“Mr. Wang”) , (alias: Wang Jeff Da-Shin), aged 46, is an executive director of the Company and a director of certain subsidiaries of the Company. He joined the Group in 2005. Mr. Wang obtained a bachelor’s degree in Science from the University of California, Berkeley in 1998 and a master’s degree in Business Administration from Columbia University in 2004. Mr. Wang is responsible for financing and accounting management of the Group. Mr. Wang has been the director of Kwong Fong Industries Corporation (a company listed on the Taiwan Stock Exchange) since June 2012.

8 Annual Report 2020 Pacific Online Limited

DIRECTORS’ AND SENIOR MANAGEMENT’S PROFILES

INDEPENDENT NON-EXECUTIVE DIRECTORS

Mr. Tsui Yiu Wa, Alec (“Mr. Tsui”) , aged 71, is an independent non-executive director, the chairman of both the audit committee and remuneration committee and a member of the nomination committee of the Company. He joined the Group in November 2007. Mr. Tsui obtained a bachelor’s degree in Science (Industrial Engineering) and a master’s degree in Engineering (Industrial Engineering) from the University of Tennessee, Knoxville in 1975 and 1976, respectively. He attended the Programme for Senior Managers in Government at the John F. Kennedy School of Government, Harvard University in 1993. He has been a member of the Hong Kong Securities and Investment Institute (formerly known as “Hong Kong Securities Institute”) since 1998. Mr. Tsui has over 30 years’ extensive experience in finance and administration, corporate and strategic planning, information technology and human resources management, having served at various international companies. He held key positions at the Securities and Futures Commission of Hong Kong prior to joining the Hong Kong Stock Exchange in 1994 as an executive director of the finance and operations services division and becoming the chief executive in 1997. He was also the chairman of the Hong Kong Securities and Investment Institute from 2001 to 2004. He was an adviser and a council member of the Shenzhen Stock Exchange from July 2001 to June 2002.

Mr. Tsui was an independent non-executive director of China Oilfield Services Limited, China Power International Development Limited, Summit Ascent Holdings Limited and DTXS Silk Road Investment Holdings Company Limited (companies all listed on the Stock Exchange). He has resigned as an independent non-executive director of Melco Resorts and Entertainment (Philippines) Corporation (a company listed on Philippine Stock Exchange) in November 2020. Mr. Tsui acts as an independent non-executive director of the following listed companies:

Name of listed companies

COSCO SHIPPING International (Hong Kong) Co., Ltd. ATA Creativity Global Melco Resorts & Entertainment Limited Hua Medicine

Annual Report 2020 9 Pacific Online Limited

DIRECTORS’ AND SENIOR MANAGEMENT’S PROFILES

Mr. Thaddeus Thomas Beczak (“Mr. Beczak”) , aged 70, is an independent non-executive director and a member of the audit committee, remuneration committee and nomination committee of the Company. He joined the Group in November 2007. Mr. Beczak graduated from Georgetown University (B.S.F.S.) and Columbia University (M.B.A.). He is a member of the board of advisers of the School of Foreign Service at Georgetown University.

Mr. Beczak was previously the vice chairman of China Renaissance Holdings Limited and chairman of China Renaissance Securities (Hong Kong) Limited until June 2014. Mr. Beczak was a senior advisor to Nomura International (Hong Kong) Limited and non-executive chairman of Nomura Asia Holding N.V. From September 1997 until December 2003, Mr. Beczak was a director of Kerry Holdings Limited. During this time he also held various board and operating positions within the group including deputy chairman of SCMP Holdings Limited and publisher of South China Morning Post Publishers Limited, deputy chairman of Shangri-La Asia Limited, deputy chairman of Kuok Philippines Properties (now known as “Shang Properties, Inc.”), a director of China World Trade Center Limited and a director of Kerry Properties Limited. From November 1997 until December 2002, Mr. Beczak was the chairman of the Listing Committee of Hong Kong Stock Exchange and a member of board of directors of the Hong Kong Stock Exchange from 1998 until 2001. From June 2001 until May 2007, he was a member of the Advisory Committee of the Securities and Futures Commission in Hong Kong. Currently, he is a member of the international advisory committee of the China Securities Regulatory Commission (CSRC). Prior to joining the Kerry group, Mr. Beczak was a managing director of J.P. Morgan Inc. and president of J.P. Morgan Inc. and president of J.P. Morgan Securities Asia from 1990 until 1997. While at J.P. Morgan, Hong Kong, he was a director of the Bank of the Philippine Islands and a committee member of the Hong Kong Association of Banks.

Currently, Mr. Beczak is acting as non-executive director of a number of non-listed companies, including MUFG Securities Asia (Singapore) Limited and MUFG Securities Asia Limited. Mr. Beczak also acts as an independent non-executive director of Phoenix Media Investment (Holdings) Limited (a listed company formerly known as “Phoenix Satellite Television Holdings Limited”).

10 Annual Report 2020 Pacific Online Limited

DIRECTORS’ AND SENIOR MANAGEMENT’S PROFILES

Mr. Lam Wai Hon, Ambrose (“ Mr. Lam ”), aged 67, is an independent non-executive director and a member of the audit committee and remuneration committee of the Company. He joined the Group in October 2018.

Mr. Lam joined Yue Xiu Securities Holdings Limited in November 2019 and currently serves as its chief executive officer. Mr. Lam was the chairman of Able Capital Partners Limited when he left the company in October 2019. Between April 2011 and October 2017, Mr. Lam served as the chief executive officer and latterly, country head (China & Hong Kong) of Investec Capital Asia Limited (formerly known as Access Capital Limited of which Mr. Lam was a director and the cofounder prior to its acquisition by Investec Bank PLC in April 2011). Prior to establishing Access Capital Limited in 2000, Mr. Lam was the managing director and head of Investment Banking for Greater China of Deutsche Bank AG. He was also the managing director and head of Investment Banking for Greater China of Bankers Trust Company, and the managing director of Yuanta Securities (Hong Kong) Company Limited. Mr. Lam started his investment banking career with Kleinwort Benson Group in London in 1984 before joining Standard Chartered Asia Limited in Hong Kong where he held the position of managing director in corporate finance.

Mr. Lam is an independent non-executive director of Genting Hong Kong Limited and Playmates Toys Limited, which are listed on the Stock Exchange, and an independent non-executive director of Lei Shing Hong Limited. Mr. Lam was also an independent non-executive director of China Agri-Industries Holdings Limited, which was a listed company on the Stock Exchange until the listing of its shares thereon was withdrawn voluntarily on 23 March 2020.

Mr. Lam is a fellow member of the Institute of Chartered Accountants in England and Wales and an associate member of the Hong Kong Institute of Certified Public Accountants. He holds a Bachelor of Arts (Honours) degree in Economics & Accounting from University of Newcastle Upon Tyne in England.

Annual Report 2020 11 Pacific Online Limited

DIRECTORS’ AND SENIOR MANAGEMENT’S PROFILES

SENIOR MANAGEMENT

Ms. Zhang Cong Min (“Ms. Zhang”) , aged 53, is the Chief Operating Officer of the Company and a director of certain subsidiaries of the Company. Ms. Zhang had been an executive director of the Company from August 2007 to December 2018. Ms. Zhang graduated EMBA programme from China Europe International Business School (中歐國際工商學院) in 2011 and obtained a bachelor’s degree in Chemical Analysis from the University of Science and Technology of China (中國科學技術大學) in 1991. Ms. Zhang joined the Group in January 2003. Prior to joining the Group, Ms. Zhang worked as a marketing manager and assistant general manager of Guangdong Pacific Electronic Technology Mall Co., Ltd. (廣東太平洋電子科技廣場有 限公司). Ms. Zhang has over 20 years of experience in operation management and IT industry. She has held various management positions in the Group.

Ms. Fan Zeng Chun (“Ms. Fan”) , aged 50, is the vice president responsible for finance of the PRC operations in the Group. She joined the Group in 2003. Prior to joining the Group, Ms. Fan worked as a senior accounting manager at Guangdong Pacific Electronic Technology Mall Co., Ltd. (廣東太平洋電子科技廣場有限公司). Ms. Fan is a qualified accountant (enterprise) and certified internal auditor. Ms. Fan graduated from the Zhejiang Zhijin Economic Professional School (浙江治金經濟專科學校) with a Certificate of Industrial Economics (經濟系工業經濟專業專 科).

Mr. Wong Huk Yung, Hudson (“Mr. Wong”) , aged 55, is the company secretary and financial controller of the Group and joined the Group in 2005. He is a member of the Hong Kong Institute of Certified Public Accountants. Prior to joining the Group, Mr. Wong was a qualified accountant working for international accounting firms and a Hong Kong listed company. He obtained a bachelor’s degree in Economics and Accounting from University of Reading.

12 Annual Report 2020 Pacific Online Limited

CORPORATE GOVERNANCE REPORT

The Board presents this Corporate Governance Report in the Company’s annual report for the year ended 31 December 2020.

CORPORATE GOVERNANCE PRACTICES

The Company acknowledges the important roles of its Board in providing effective leadership and direction to the Group’s business, and ensuring transparency and accountability of the Company’s operations. The Board sets appropriate policies and implements corporate governance practices appropriate to the conduct and growth of the Group’s business.

The Company has applied the principles set out in the Corporate Governance Code (the “CG Code”) as contained in Appendix 14 of the Rules (the “Listing Rules”) Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”).

In the opinion of the Board, the Company has complied with the code provisions set out in the CG Code throughout the year ended 31 December 2020, save for the deviation from the code provision A.2.1 which requires that the roles of chairman and chief executive should be separate and should not be performed by the same individual. Key corporate governance principles and practices of the Company as well as details relating to the foregoing deviation are summarized below.

The Board will continue to enhance its corporate governance practices appropriate to the conduct and growth of its business and to review such practices from time to time to ensure that they comply with statutory and professional standards and align with the latest development.

THE BOARD

Responsibilities and Delegation

The Board is responsible for overall management and control of the Company. Its main roles are to provide leadership and to approve strategic policies and plans with a view to enhancing shareholder value. All directors carry out their duties in good faith and in compliance with applicable laws and regulations, taking decisions objectively and acting in the interests of the Company and its shareholders at all times.

The Board reserves for its decision on all major matters of the Company, including approval and monitoring of all policy matters, overall strategies and budgets, internal control and risk management systems, material transactions (in particular those that may involve conflict of interests), financial information, appointment of directors and other significant financial and operational matters.

All directors have timely access to all relevant information as well as the advice and services of the Company Secretary and senior management. Any director may request independent professional advice in appropriate circumstances at the Company’s expenses, upon reasonable request made to the Board.

Annual Report 2020 13 Pacific Online Limited

CORPORATE GOVERNANCE REPORT

The Board has delegated a schedule of responsibilities to the executive directors and senior management of the Company. These responsibilities include implementing decisions of the Board and directing and co-ordinating day-to-day operation and management of the Company. The delegated functions and responsibilities are periodically reviewed by the Board. Approval has to be obtained from the Board prior to any significant transactions entered into by the aforesaid officers.

Board Composition

The following chart illustrated the structure and membership of the Board and the Board committees as at 31 December 2020:

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Board of Directors
Executive Directors
Dr. Lam Wai Yan (Chairman of the Board and Chief Executive Officer)
Mr. Ho Kam Wah
Mr. Wang Ta-Hsing
Independent Non-executive Directors
Mr. Tsui Yiu Wa, Alec
Mr. Thaddeus Thomas Beczak
Mr. Lam Wai Hon, Ambrose
Executive Committee Audit Committee Remuneration Committee Nomination Committee
Dr. Lam Wai Yan Mr. Tsui Yiu Wa, Alec Mr. Tsui Yiu Wa, Alec Dr. Lam Wai Yan (Chairman)
(Chairman) (Chairman) (Chairman) Mr. Tsui Yiu Wa, Alec
Mr. Ho Kam Wah Mr. Thaddeus Thomas Beczak Mr. Thaddeus Thomas Beczak Mr. Thaddeus Thomas Beczak
Mr. Wang Ta-Hsing Mr. Lam Wai Hon, Ambrose Mr. Lam Wai Hon, Ambrose
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The Board has at all times during the year ended 31 December 2020 met the requirements of the Listing Rules of having at least three independent non-executive directors (representing at least one-third of the Board) with at least one independent non-executive director possessing appropriate professional qualifications and accounting and related financial management expertise.

The Board has maintained the necessary balance of skills and experience appropriate for the business requirements and objectives of the Group and for the exercise of independent judgement.

The biographical details of the directors of the Company are set out under the section headed “Directors’ and Senior Management’s Profiles” in this annual report. None of the members of the Board is related to one another.

14 Annual Report 2020 Pacific Online Limited

CORPORATE GOVERNANCE REPORT

The Company has received written annual confirmation from each independent non-executive director of his independence pursuant to the requirements of the Listing Rules. The Company considers all independent non-executive directors to be independent in accordance with the independence guidelines set out in the Listing Rules.

Chairman and Chief Executive Officer

Code provision A.2.1 of the CG Code stipulates that the roles of chairman and chief executive should be separate and should not be performed by the same individual.

Dr. Lam Wai Yan currently assumes the role of both the Chairman and the Chief Executive Officer of the Company. As Dr. Lam is a co-founder of the Group and has extensive experiences in the internet industry, the Board believes that this structure provides the Group with strong and consistent leadership and allows for more effective and efficient business planning and decisions as well as execution of long-term business strategies. As such, it is beneficial to the business prospects of the Group.

The Board considers that the current structure of vesting the roles of Chairman and Chief Executive Officer in the same person will not impair the balance of power and authority between the Board and the management of the Company. The Board shall review this structure from time to time to ensure appropriate and timely action to meet changing circumstances.

Appointment, Re-Election and Removal of Directors

Each of the executive directors of the Company is engaged on a service agreement with the Company for a term of three years. The Company has also issued a letter of appointment to each of the independent non-executive directors of the Company for a term of three years.

According to the Company’s Articles of Association (the “Articles of Association”), all directors of the Company are subject to retirement by rotation at least once every three years and are eligible for re-election at annual general meetings of the Company. Any new director appointed by the Board to fill a casual vacancy shall submit himself/herself for re-election by shareholders at the first general meeting and any new director appointed by the Board as an addition to the Board shall submit himself/herself for re-election by shareholders at the next following annual general meeting.

Pursuant to the above provisions in the Articles of Association, Mr. Ho Kam Wah and Mr. Tsui Yiu Wa, Alec shall retire by rotation at the forthcoming 2021 annual general meeting of the Company (the “2021 AGM”). The Company’s circular, sent together with this annual report, contains detailed information of such retiring directors as required by the Listing Rules.

Annual Report 2020 15 Pacific Online Limited

CORPORATE GOVERNANCE REPORT

Training and Continuous Professional Development of Directors

Each newly appointed director of the Company receives induction on the first occasion of his/ her appointment, so as to ensure he/she has appropriate understanding of the business and operations of the Group and that he/she is fully aware of his/her responsibilities and obligations under the Listing Rules and relevant regulatory requirements.

Directors should participate in appropriate continuous professional development to develop and refresh their knowledge and skills to ensure that their contribution to the Board remains informed and relevant. Internally-facilitated briefings for directors will be arranged and reading materials on relevant topics will be issued to directors where appropriate. All directors are encouraged to attend relevant training courses at the Company’s expenses.

During the year ended 31 December 2020, the Company has (i) organized briefings conducted by the Company Secretary for all the directors, namely, Dr. Lam Wai Yan, Mr. Ho Kam Wah, Mr. Wang Ta-Hsing, Mr. Tsui Yiu Wa, Alec, Mr. Thaddeus Thomas Beczak and Mr. Lam Wai Hon, Ambrose, on corporate governance and update on the Listing Rules amendments; and (ii) provided reading materials on regulatory update to all the directors for their reference and studying.

Model Code for Securities Transactions

The Company has adopted its own code of conduct governing directors’ dealings in the Company’s securities (the “Own Code”) on terms no less exacting than the Model Code for Securities Transactions by Directors of Listed Issuers (the “Model Code”) as set out in Appendix 10 to the Listing Rules. Specific enquiry has been made to all the Company’s directors and they have confirmed that they have complied with the Own Code and the Model Code throughout the period from 1 January 2020 to the date of this report.

The Company has also established written guidelines no less exacting than the Model Code (the “Employees Written Guidelines”) for securities transactions by employees who are likely to possess inside information of the Company and/or its securities. No incident of non-compliance of the Employees Written Guidelines by the employees was noted by the Company.

In case the Company is aware of any restricted period for dealings in the Company’s securities, the Company will notify its directors and relevant employees in advance.

16 Annual Report 2020 Pacific Online Limited

CORPORATE GOVERNANCE REPORT

Attendance Records of Directors and Committee Members

The attendance records of each director at the Board and Board Committee meetings and the general meeting of the Company held during the year ended 31 December 2020 is set out in the table below:

Attendance/Number of Meetings

					Annual
		Audit	Remuneration	Nomination	General
Name of Director	Board	Committee	Committee	Committee	Meeting
Dr. Lam Wai Yan	4/4	—	—	1/1	1/1
Mr. Ho Kam Wah	4/4	—	—	—	1/1
Mr. Wang Ta-Hsing	4/4	—	—	—	1/1
Mr. Tsui Yiu Wa, Alec	4/4	2/2	1/1	1/1	1/1
Mr. Thaddeus Thomas Beczak	4/4	1/2	1/1	1/1	1/1
Mr Lam Wai Hon, Ambrose	4/4	2/2	1/1	—	1/1

Apart from regular Board meetings, the Chairman of the Board also held a meeting with the independent non-executive directors without the presence of executive directors during the year.

BOARD COMMITTEES AND CORPORATE GOVERNANCE FUNCTIONS

The Board has established four Board committees, namely, the Executive Committee, the Audit Committee, the Remuneration Committee and the Nomination Committee, for overseeing particular aspects of the Company’s affairs. All Board committees have been established with defined written terms of reference, which are posted on the Company’s website (http://corp. pconline.com.cn) and on the Stock Exchange’s website (www.hkexnews.hk) (except for the written terms of reference of the Executive Committee which is available to shareholders upon request). All the Board committees should report to the Board on their decisions or recommendations made.

Executive Committee

The Executive Committee comprises all the executive directors of the Company with the Chairman of the Board, Dr. Lam Wai Yan, acting as the Chairman of the Committee. The Executive Committee operates as a general management committee under the direct authority of the Board to increase the efficiency for the business decision. It monitors the execution of the Company’s strategic plans and operations of all business units of the Group and discusses and makes decisions on matters relating to the management and day-to-day operations of the Group.

Annual Report 2020 17 Pacific Online Limited

CORPORATE GOVERNANCE REPORT

Audit Committee

The Audit Committee comprises a total of three members, namely, Mr. Tsui Yiu Wa, Alec (Chairman), Mr. Thaddeus Thomas Beczak and Mr. Lam Wai Hon, Ambrose, all of whom are independent non-executive directors of the Company. None of the members of the Audit Committee is a former partner of the Company’s existing external auditor.

The principal duties of the Audit Committee are to (i) review the financial statements and reports and consider any significant or unusual items raised by the financial officers of the Group or external auditor before submission to the Board; (ii) review and monitor the external auditor’s independence and objectivity and the effectiveness of the audit process; (iii) make recommendations to the Board on the appointment, re-appointment and removal of external auditor; and (iv) review the Company’s financial controls, internal control, risk management systems and associated procedures and arrangements to enable employees of the Company to raise, in confidence, concerns about possible improprieties in financial reporting, internal control or other matters of the Company.

During the year ended 31 December 2020, the Audit Committee has performed the following major tasks:

• Review and discussion of the annual financial statements, results announcement and report for the year ended 31 December 2019, the related accounting principles and practices adopted by the Group and the relevant audit findings; the report on the Company’s risk management and internal control systems; the recommendation on the re-appointment of the external auditor; and the recommendation on the review of the internal audit function; and

• Review and discussion of the interim financial statements, results announcement and report for the six months ended 30 June 2020 and the related accounting principles and practices adopted by the Group; and the review of the arrangements for employees of the Company to raise concerns about possible improprieties.

The external auditor was invited to attend the Audit Committee meetings held during the year to discuss with the Audit Committee members on issues arising from the audit and financial reporting matters. The Audit Committee also met the external auditor twice without the presence of the executive directors. Besides, there is no disagreement between the Board and the Audit Committee regarding the re-appointment of external auditor.

Remuneration Committee

The Remuneration Committee comprises a total of three members, namely, Mr. Tsui Yiu Wa, Alec (Chairman), Mr. Thaddeus Thomas Beczak and Mr. Lam Wai Hon, Ambrose, all of whom are independent non-executive directors of the Company.

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The principal duties of the Remuneration Committee are to (i) make recommendations to the Board on the Company’s remuneration policy and structure for directors and members of senior management and the establishment of a formal and transparent procedure for developing such remuneration policy and structure; (ii) make recommendations on the remuneration packages of directors and senior management (i.e. the model described in the code provision B.1.2(c)(ii) of the CG Code was adopted); and (iii) review and approve performance-based remuneration by reference to corporate goals and objectives.

During the year ended 31 December 2020, the Remuneration Committee has reviewed and made recommendations on the payment of discretionary bonus to the executive directors of the Company and remuneration package of the directors and senior management of the Company.

Pursuant to code provision B.1.5 of the CG Code, the annual remuneration of the members of senior management by band for the year ended 31 December 2020 is set out below:

	Number of
	individuals
HKD0 to HKD2,500,000	2
Over HKD2,500,000	1
	3

Details of the remuneration of each director of the Company for the year ended 31 December 2020 are set out in note 7 to the consolidated financial statements contained in this annual report.

Nomination Committee

The Nomination Committee comprises a total of three members, being one executive director, namely, Dr. Lam Wai Yan (Chairman), and two independent non-executive directors, namely, Mr. Tsui Yiu Wa, Alec and Mr. Thaddeus Thomas Beczak. Accordingly, a majority of the members are independent non-executive directors of the Company.

The principal duties of the Nomination Committee are to (i) review the Board composition, develop and formulate relevant procedures for the nomination and appointment of directors; (ii) make recommendations to the Board on the rotation, appointment and succession planning of directors; and (iii) assess the independence of independent non-executive directors of the Company.

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CORPORATE GOVERNANCE REPORT

The Company recognises and embraces the benefits of having a diverse Board and sees increasing diversity at the Board level as an essential element in maintaining the Company’s competitive advantage. A new Board Diversity Policy was adopted by the Company during the year under review, pursuant to which the Nomination Committee will review annually the structure, size and composition of the Board and where appropriate, make recommendations on changes to the Board to complement the Company’s corporate strategy and to ensure that the Board maintains a balanced diverse profile. In relation to reviewing and assessing the Board composition, the Nomination Committee is committed to diversity at all levels and will consider a number of aspects, including but not limited to gender, age, cultural and educational background, professional qualifications, skills, knowledge and regional and industry experience.

The Company aims to maintain an appropriate balance of diversity perspectives that are relevant to the Company’s business growth and is also committed to ensuring that recruitment and selection practices at all levels (from the Board downwards) are appropriately structured so that a diverse range of candidates are considered. The Board will consider setting measurable objectives to implement the Board Diversity Policy and review such objectives from time to time to ensure their appropriateness and ascertain the progress made towards achieving those objectives.

During the year under review, in response to the amendment to the CG Code effective on 1 January 2019, the Company has also adopted the Director Nomination Policy. Such policy sets out the selection criteria and process and the Board succession planning considerations in relation to nomination and appointment of directors of the Company and aims to ensure that the Board has a balance of skills, experience and diversity of perspectives appropriate to the Company and the continuity of the Board and appropriate leadership at Board level.

The Director Nomination Policy sets out the factors for assessing the suitability and the potential contribution to the Board of a proposed candidate, including but not limited to the following: character and integrity; qualifications including professional qualifications, skills, knowledge and experience that are relevant to the Company’s business and corporate strategy; diversity in all aspects, including but not limited to gender, age (18 years or above), cultural and educational background, ethnicity, professional experience, skills, knowledge and length of service; requirements of independent non-executive directors on the Board and independence of the proposed Independent Non-executive Directors in accordance with the Listing Rules; and commitment in respect of available time and relevant interest to discharge duties as a member of the Board and/or Board committee(s) of the Company.

During the year ended 31 December 2020, the Nomination Committee has performed the following major tasks:

• Review of the structure, size and composition of the Board to ensure that it has a balance of expertise, skills and experience appropriate to the requirements of the business of the Company;

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• Recommendation of the re-appointment of those directors standing for re-election at the 2020 annual general meeting of the Company; and

• Assessment of the independence of the independent non-executive directors of the Company.

Corporate Governance Functions

The Board is responsible for performing the functions set out in the code provision D.3.1 of the CG Code.

During the year ended 31 December 2020, the Board has reviewed the Company’s corporate governance policies and practices, training and continuous professional development of directors and senior management, the Company’s policies and practices on compliance with legal and regulatory requirements, the Company’s compliance of the Model Code and Employees Written Guidelines, and the Company’s compliance with the CG Code and disclosure in this Corporate Governance Report.

DIRECTORS’ RESPONSIBILITIES FOR FINANCIAL REPORTING IN RESPECT OF THE FINANCIAL STATEMENTS

The directors have acknowledged their responsibilities for preparing the financial statements of the Company for the year ended 31 December 2020.

The Board is responsible for presenting a balanced, clear and understandable assessment of interim and annual reports, inside information announcements and other disclosures required under the Listing Rules and other regulatory requirements. The management has provided such explanation and information to the Board as necessary to enable the Board to make an informed assessment of the financial information and position of the Group put forward to the Board for approval.

There are no material uncertainties relating to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern.

RISK MANAGEMENT AND INTERNAL CONTROLS

The Board is committed to complying with legal and regulatory requirements in relation to governance, risk management, compliance and internal control of operations of the Group. The Board acknowledges that it has overall responsibility for evaluating and determining the nature and extent of the risks it is willing to take to achieve the Company’s strategic objectives, as well as establishing and maintaining an appropriate and effective risk management and internal control system.

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CORPORATE GOVERNANCE REPORT

The risk management and internal control system in place in the Company is largely top-down, involving the Board, the Audit Committee, the management and key business units, all of them play important roles in the system to ensure that risks are properly managed. The system is designed to provide reasonable but not absolute assurance against material misstatement or loss, and to manage rather than eliminate risk of failure to meet the business objectives.

The Company identifies risks from a long-term perspective, as well as those on medium and short-term horizons. Regular reviews of the online advertising industry were conducted to provide such guidance. Research on laws, regulations and industrial standards was also conducted to enable the Company to anticipate potential changes and to consult with relevant experts as necessary.

In setting up the risk management and internal control system, the Company’s objectives are as follows:

• Identify risks that may potentially impact the Company’s performance

• Introduce appropriate controls to manage identified risks

• Provide the Board and management of the Company with reasonable assurance that the Company’s business objectives will be achieved

The Board, supported by the Audit Committee as well as the management, has conducted a review of the Company’s risk management and internal control systems, including the financial, operational and compliance controls, for the year ended 31 December 2020. The review covered financial reporting and operating functions, as well as the adequacy of resources, staff qualifications and experiences, training programmes and budget of the Company’s accounting, internal audit and financial reporting functions. The review was also supplemented by an external review performed by an independent advisory firm during the year. This review has been conducted based on risk parameters such as the probability and hazard of the risks, critical points that may trigger the risk control measures, and the prioritization of risk control, among others. Relevant information has been collected through the management during the assessment period to classify and analyse the risk sources identified and to make reasonable estimates about the probability of the risks as well as the losses they may generate.

The approach used in the risk assessment and internal control review was as follows:

• Review existing documentation and conduct interviews with management and key process owners to identify and document key risk areas

• Identify, aggregate and analyse existing and emerging risks

• Identify and assess mitigating actions for identified risks

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• Perform testing procedures to evaluate the existence and effectiveness of internal controls in relation to processes

• Perform walkthrough tests to determine if the key controls were in place and effective for monitoring the processes, as well as to identify any control weaknesses

During the independent review, key issues in relation to financial, information technology, operational and legal compliance controls and risk management functions have been examined and findings and recommendations for improvement have been provided to the Audit Committee.

The Company has carried out improvement measures in accordance with the findings of the review during the year, and it is expected that ongoing review of the same nature will be conducted in subsequent years.

The Company has developed its disclosure policy which provides a general guide to the directors, officers, senior management and relevant employees of the Company in handling confidential information, monitoring information disclosure and responding to enquiries. Control procedures have been implemented to ensure that unauthorized access and use of inside information are strictly prohibited.

EXTERNAL AUDITORS AND AUDITORS’ REMUNERATION

The statement of the external auditors of the Company about their reporting responsibilities on the Company’s consolidated financial statements for the year ended 31 December 2020 is set out under the section headed “Independent Auditor’s Report” in this annual report.

The fees paid/payable to the Group’s external auditors in respect of audit services and non-audit services for the year ended 31 December 2020 are analyzed below:

	Fees paid/payable
Type of servicesprovided by the Group’s external auditors	(RMB)
Audit services (including interim review)	3,670,000
Non-audit services*	419,000
TOTAL	4,089,000

• The non-audit services conducted by the external auditors include providing professional services on tax filings and other relevant services.

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COMPANY SECRETARY

During the year ended 31 December 2020, Mr. Wong Huk Yung, Hudson, the Company Secretary, has taken no less than 15 hours of relevant professional trainings to update his skills and knowledge.

COMMUNICATIONS WITH SHAREHOLDERS AND INVESTORS

The Board believes that effective communication with shareholders is essential for enhancing investor relations and investors’ understanding of the Group’s business performance and strategies. The Group also recognizes the importance of transparency and timely disclosure of its corporate information, which enables shareholders and investors to make the best investment decision.

The Company maintains a website at “http://corp.pconline.com.cn”, as a communication platform with shareholders and investors, where information of the Company’s announcement, financial information and other information are available for public access. Shareholders and investors may send written enquiries or requests to the Company using the below contact details:

Address: Portion of Unit 807, Tower Two, Lippo Centre, 89 Queensway, Hong Kong (For the attention of the Investor Relations Department)

Email: ir@pconline.com.cn

The Board welcomes views of shareholders and encourages them to attend general meetings to raise any concerns they might have with the Board or the management directly. The Chairman of the Board, independent non-executive directors as well as the Chairman and/or other members of the Audit Committee, Remuneration Committee and Nomination Committee will normally attend the annual general meetings and other shareholders’ meetings of the Company to respond to enquiries.

The Company continues to enhance communication and relationship with its shareholders and investors. Designated senior management maintains regular dialogue with institutional investors and analysts to keep them informed of the Group’s developments.

POLICIES RELATING TO SHAREHOLDERS

The Company has in place a Shareholders’ Communication Policy to ensure that shareholders’ views and concerns are appropriately addressed. The policy is regularly reviewed to ensure its effectiveness.

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The Company has adopted a Dividend Policy on payment of dividends. Depending on the financial conditions of the Company and the Group and the conditions and factors as set out in the Dividend Policy, dividends may be proposed and/or declared by the Board during a financial year and any final dividend for a financial year will be subject to the shareholders’ approval.

SHAREHOLDERS’ RIGHTS

As one of the measures to safeguard shareholders’ interests and rights, separate resolutions are proposed at shareholders’ meetings on each substantial issue, including the election of individual directors, for shareholders’ consideration and voting. Besides, the Company’s shareholders may convene an extraordinary general meeting or put forward proposals at shareholders’ meetings pursuant to the Company’s Articles of Association as follows:

• (i) Any one or more shareholders holding at the date of deposit of the requisition not less than one-tenth of the paid up capital of the Company carrying the right of voting at general meetings of the Company shall at all times have the right, by written requisition to the Board or the Company Secretary of the Company, to require an extraordinary general meeting to be called by the Board for the transaction of any business specified in such requisition.

• (ii) If a shareholder wishes to propose a person other than a retiring director for election as a director of the Company at a general meeting, the shareholder (other than the person to be proposed) duly qualified to attend and vote at the general meeting shall send a written notice, duly signed by the shareholder, of his/her intention to propose such person for election and also a notice signed by the person to be proposed of his/her willingness to be elected. These notices should be lodged at the Company’s head office in Hong Kong or the Company’s registration office (i.e. Tricor Investor Services Limited) at least 7 days prior to the date of the general meeting. If the notices are submitted after the dispatch of the notice of the general meeting appointed for such election, the period for lodgement of such notices shall commence on the day after the dispatch of the notice of such general meeting and end no later than 7 days prior to the date of such general meeting.

For the avoidance of doubt, shareholders must deposit and send the original duly signed written requisition, notice or statement (as the case may be) to the Company’s head office in Hong Kong and provide their full name, contact details and identification in order to give effect thereto. Shareholders’ information may be disclosed as required by law.

During the year under review, the Company has not made any changes to its Articles of Association. An up-to-date version of the Company’s Articles of Association is available on the websites of the Stock Exchange (www.hkexnews.hk) and the Company (http://corp.pconline.com.cn).

All resolutions put forward at shareholders’ meetings will be voted by poll pursuant to the Listing Rules and the poll voting results will be posted on the websites of the Stock Exchange and the Company immediately after the relevant general meetings.

Annual Report 2020 25 Pacific Online Limited

ENVIRONMENTAL, SOCIAL AND GOVERNANCE REPORT

REPORTING STANDARD, PERIOD AND SCOPE

This report (the “ESG Report”) has been prepared in accordance with the Environmental, Social and Governance Reporting Guide (“ESG Reporting Guide”) as set out in Appendix 27 to the Listing Rules issued by the Stock Exchange.

The ESG Report describes the Environmental, Social and Governance (the “ESG”) progress made by the Company during the year ended 31 December 2020 (the “Reporting Period”). The Company employs a total of 1,106 employees, while the scope of the ESG Report covers business operation in offices located in Guangzhou, Beijing and Shanghai totalling 1,081 employees. The total employees referred in this ESG report are those within this reporting scope.

The ESG Report is prepared in both Chinese and English, and in case of any discrepancy or inconsistency between the two versions, the English version shall prevail.

ABOUT THE COMPANY

Pacific Online Limited (the “Company”) was founded in 1997, committed to providing professional services for IT, automotive, fashion, and children’s education industries and consumers in the People's Republic of China ("PRC").

The Company has five specialised websites, namely PConline (太平洋電腦網), PCauto (太平洋汽車 網), PClady (太平洋時尚網), PCbaby (太平洋親子網) and PChouse (太平洋家居網), as well as an e-commerce portal.

OUR COMMITMENT AND APPROACH TO ENVIRONMENTAL, SOCIAL AND GOVERNANCE

The Board recognizes the importance of ESG in meeting the changing expectations of stakeholders while enhancing the value and performance of the Company. Hence the Board, working together with the management, has committed to environmental protection by taking on the overall responsibility of assessing and identifying risks associated with ESG matters of the Company, and also engaging in a mission to promote the environmental and socially sustainable culture among all our employees to maintain long-term growth of the Company.

The Board has set up an ESG working group and delegates its ESG duties to the working group which helps to develop, manage and execute policies, and systems related to ESG. These policies are further communicated downward to staff in all departments and subsidiaries of the Group. By using a top-down approach, we assimilate ESG concepts into our daily operations at the workplace through policies and guidelines, so that each of our employees becomes ambassador of the sustainability efforts, thus ensuring that the scope of the ESG coverage is sufficiently broad to cover the significant parts of our businesses. Our employees are responsible for complying with different ESG related policies and executing accordingly with the Group’s ESG works while the ESG working group is responsible for the collection of data, disclosure of information, and notification to the Board in a timely manner.

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STAKEHOLDER ENGAGEMENT AND MATERIALITY ASSESSMENT

Stakeholder Engagement

The Company values its stakeholders and endeavours to understand and accommodate their views and interests relating ESG through constructive communication and the fostering of strong relationships. The Company takes into account stakeholders’ expectations in formulating ESG operational strategies and measures, while also strive to create greater value for our environment and community through the mutual cooperation and active engagement with various stakeholders.

The stakeholder groups, their expectations and their typical communication channels with the Company are shown below:

			Typical communication	Typical communication
Stakeholdergroups	Expectations		channels
Online users/customers	•	Information quality	•	Company tours
	•	Advertisement quality	•	Collection of complaints and
				feedback
	•	Collection of users’ infor-
		mation and information	•	Online survey
		protection
			•	Regular communication via
	•	Information completeness and		email or telephone
		correctness
			•	User’s experience programmes
	•	Intellectual property rights
			•	Product testing, reviews and
	•	Innovation and update of		feature reports
		information
			•	Online chat rooms or forums
			•	Interest clubs
			•	Financial reports,
				announcements and circulars
				and other documents of the
				Company released to the
				public

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ENVIRONMENTAL, SOCIAL AND GOVERNANCE REPORT

				Typical communication	Typical communication
Stakeholder	groups	Expectations		channels
Suppliers		•	Good and long-term business	•	Regular communication via
			relationship		email or telephone
		•	Fair and honest dealing	•	Regular progress meetings or
					reports
		•	Information sharing
Shareholders	and investors	•	Return on investment	•	Shareholders’ meetings, AGM,
					etc.
		•	Information disclosure and
			transparency	•	Financial reports,
					announcements and circulars,
		•	Protect the rights and interests		and other documents of the
			of shareholders		Company released to the
					public
		•	Disclose relevant and accurate
			information in a timely	•	Listed companies regulatory
			manner		disclosures through
					shareholders’ individual
		•	Improve corporate governance		corporate communication
		•	Run business in compliance		channels, electronic means or otherwise
			with laws and regulations
				•	Roadshows/conference calls/
		•	Combat corruption and the upholding of integrity		meetings with investors/ shareholders
				•	Enquiries via telephone/emails
				•	Investors’ on-site visit

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			Typical communication	Typical communication
Stakeholdergroups	Expectations		channels
Employees	•	Training	•	Team sharing
	•	Salary and welfare	•	Mentoring by direct supervisor
	•	Working environment	•	Employee notice boards
	•	Health and safety protection	•	Training, seminars and
				workshops
	•	Career development and
		opportunities	•	Employee orientation
	•	Innovation	•	Employee memorandum
	•	Intellectual property rights	•	Collection of feedback,
				through emails and face-to-
	•	Competitiveness		face meetings
			•	Employee activities and team-
				building exercises
			•	Company’s facilities
Local communities, non-	•	Employment opportunities	•	Charitable activities
government
organisations and the	•	Ecological environment	•	Community investment and
general public				service
	•	Community development
			•	Stakeholder engagement
	•	Social common wealth
			•	Environmental protection
	•	Enthusiasm towards public		activities
		welfare
			•	Sponsorships and donations
	•	Charitable donations
	•	Reduce pollutant emissions
	•	Waste reduction

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• Typical communication

• Stakeholder groups Expectations channels Media • Transparency of information • Website information disclosure on SEHK and the

• • Good media relations Company

• Financial reports, announcements and circulars and other publicly available information

Materiality Assessment

During the Reporting Period, we have managed to communicate with our stakeholders and discovered several potential material issues related to ESG which may affect the Group in the long term. We have further categorized these issues into various areas in accordance with the ESG Reporting Guide, collected relevant information from the affected stakeholders to estimate the impact of these ESG issues to the Group. After our analysis, the issues that are material to the Group are shown as below:

==> picture [353 x 324] intentionally omitted <==

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

10
11
9
7
8
5
1 6
2 3 12
4
14
13
Importance to stakeholders
Low Medium High
High
Medium
Importance to Business
Low
----- End of picture text -----

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	Environment		Employee
1.	Environmental compliance	5.	Salary and welfare
2.	Investment in environmental protection	6.	Health and safety protection
3.	Greenhouse gas emissions	7.	Employee diversifcation
4.	Waste management	8.	Training and career development
	Business		Community
9.	Personal data protection	Community development 13.
Product quality 10.		Charitable donations and 14.
Intellectual property rights 11.			community service
Supply chain management 12.

Based on the above analysis, the Group will improve its ESG performance continuously in order to meet the different expectations of stakeholders, provide feedback to stakeholders and response to its risk. Details of our work under these ESG aspects during the Reporting Period will be presented in the next sections in four subject areas, namely “Our Environment”, “Our Employees”, “Our Business” and “Our Community”.

OUR ENVIRONMENT

The Company is aware of the importance in tackling climate change and the risks of possible environmental impact from its business. It has therefore been our mission to conduct business in an environmentally responsible manner, reducing the environmental impact from its operations in the most effective way.

The Company is primarily engaged in the online advertising business, mainly involves office activities with no industrial process, and hence direct impact to the environment is minimal. Nonetheless, in order to further minimise impact of our operations to the environment, direct or otherwise, the Company actively pursues environmental-friendly measures and has implemented various policies and measures as described in the section headed “Environmental protection measures” under “Aspect A3: Environment and Natural Resources”.

Annual Report 2020 31 Pacific Online Limited

ENVIRONMENTAL, SOCIAL AND GOVERNANCE REPORT

The Company endeavours to comply with applicable environmental laws and regulations, including but not limited to Environmental Protection Law of the People’s Republic of China (中 華人民共和國環境保護法), Environmental Protection Tax Law of the People’s Republic of China (中華人民共和國環境保護稅法), Water Pollution Prevention and Control Law of the People’s Republic of China (中華人民共和國水污染防治法), Law of the People’s Republic of China on the Prevention and Control of Atmospheric Pollution (中華人民共和國大氣污染防治法), Law of the People’s Republic of China on the Prevention and Control of Environmental Pollution by Solid Wastes (中華人民共和國固體廢物污染環境防治法). During the Reporting Period, there was no significant breach of any environmental laws and regulations (2019: nil).

In the next sections we detailed the ESG performances of the Company with regards to emissions and waste, use of resources, and environment and natural resources.

Aspect A1: Emissions and Wastes

Air emissions

Air emissions directly emitted were primarily attributed to the use of Company vehicles during the Reporting Period. Due to the outbreak of COVID-19 pandemic, there was a decrease in vehicle usage and hence a drop in emission during the Reporting Period. The amounts of the different types of direct air emissions emitted during the Reporting Period by the Company were as follows:

were as follows:
		2020	2019
(Units: kilograms)		Emission Emission	Emission	Emission
Direct air emissions(note 2)	Emission Sources	amounts intensities(note 1)	amounts	intensities(note 1)
Nitrogen Oxides (“NOx”)		3.09 0.34	9.42	0.94
Sulphur Oxides (“SOx”)	Company vehicles	0.11 0.01	0.25	0.03
Particulate Matter (“PM”)		0.68 0.07	0.69	0.07

Note 1: Intensity is measured by dividing the relevant emissions by the average number of vehicles owned by the Company during the year.

Note 2: Direct air emissions are calculated with reference to “Technical Guidelines for the Compilation of Air Pollutant Emission of Motor Vehicles (Trial)” (道路機動車大氣污染物排放清單編制技術指南（試行）) issued by the Ministry of Ecology and Environment of the People’s Republic of China.

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Green House Gases (“GHG”) emissions

The amount of different types of GHG emissions[(note 1)] in CO2 equivalent emissions (“CO2e”) during the Reporting Period was as follows:

during the Reporting Period was as follows:	during the Reporting Period was as follows:
2020 (Units: Tonnes of CO2e) Scope of GHG emissions Emission sources Emission amounts Emission intensities(note 2)		2019 Emission amounts Emission intensities(note 2)
	Emission intensities(note 2)
Scope 1 Direct Emissions Company vehicles 17.05 Scope 2 EnergyIndirect Emissions Purchased electricity 2,893.43		45.95 0.04 2,654.00 2.36
	0.02
	2.68
Total 2,910.48		2,699.95 2.40
	2.70

Note 1: GHG emissions are calculated with reference to the “How to prepare an ESG Report? — Appendix II: Reporting Guidance on Environmental KPIs” issued by the HKEX and “Greenhouse Gas Accounting Tool for Chinese Cities” issued by the World Resources Institute.

Note 2: Intensity is measured by dividing the relevant emissions by the number of employees as at year end.

During the Reporting Period, the majority of GHG emissions were scope 2, energy indirect emissions, which was a result of office electricity consumption at approximately 2,893 (2019: 2,654) tonnes CO2e. This has increased slightly by 9% compared to last year because the Company has increased the number of live events that increases power consumption.

Meanwhile, the Company’s vehicles also generated a relatively small amount of GHG emissions during their usage, at approximately 17 (2019:46) tonnes CO2e. As explained in the above paragraph, the outbreak of COVID-19 has decreased the usage of vehicles, so as the related GHG emission decreased accordingly. The intensities of GHG emissions have remained relatively stable year-on-year for both scope 1 and scope 2.

To further cut down on these emissions, the Company has adopted a number of measures which are regularly carried out in the course of our daily operations which are described in detail in the later section titled “Environmental protection measures”.

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Wastes

As we are primarily engaged in the provision of internet advertising services, we did not generate any hazardous waste during the Reporting Period and had generated only an insignificant amount of non-hazardous domestic wastes such as food wraps, drinking cans and bottles, waste paper products, stationeries and disposal of office supplies for the three offices. By considering our business nature and cost-effectiveness, data were not collected for the insignificant small amount of non-hazardous wastes as they are immaterial compared to other aspects.

In spite of the small amount of waste produced, waste reduction measures were implemented internally to further reduce the amount of waste around the building in the long term, which will be detailed in the later section titled “Environmental protection measures”. For Shanghai office, it has adhered to the “Domestic Waste Management Law” (上海市生活垃圾管理條例), a Shanghai government regulation for the classification of domestic wastes. Domestic wastes are classified into four categories: recyclables, harmful garbage, wet garbage, and dry garbage. Employees in the Shanghai office have since been obliged to reduce waste, first by separating domestic waste, then by taking responsibility as the producer of these waste.

Aspect A2: Use of Resources

The amount of consumption by types of energy or resources during the Reporting Period was as follows:

follows:
		2020	2019
		Consumption Consumption	Consumption	Consumption
Energy consumption	Units	amounts intensities(note 1)	amounts	intensities(note 1)
Electricity	kWh	3,435,390 3,177.97	3,032,870	2,693.49
Unleadedpetrol(note 2)	kWh(note 3)	75,756 70.08	167,418	148.68
Total	kWh	3,511,146 3,248.05	3,200,288	2,842.17

Note 1: Intensity is measured by dividing the relevant emissions by the number of employees as at year end.

Note 2: The consumption of unleaded petrol is 7,817 litres during the Reporting Period, 17,275 litres for the period ended 31 December 2019.

Note 3: To convert units to kWh, the Company applied the conversion factors sourced from the “Energy Statistics Manual” issued by the International Energy Agency.

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ENVIRONMENTAL, SOCIAL AND GOVERNANCE REPORT

		2020	2019	2019
		Consumption Consumption	Consumption	Consumption
Resources consumption	Units	amounts intensities(note 1)	amounts	intensities(note 1)
Water	Tonnes	74,793 69.19	79,625	70.71

Note 1: Intensity is measured by dividing the relevant emissions by the number of employees as at year end.

As detailed in the section headed “Emissions and Wastes”, electricity consumption was a major contributor of indirect GHG emission during the Reporting Period. For water usage, there was no issue in sourcing water. We do not use packaging materials in the course of our business as we are primarily engaged in the provision of internet advertising services. As explained in the above paragraph, the increase in electricity usage was a result of the Company increased in the number of live events hosted during the Reporting Period, which increased power consumption.

Both energy and resource conservation are essential parts of the Company ESG strategy. The Company would continue to keep track of consumption on energy and resources and implement corrective action to align with the environmental conversation goal of the Company. Further details on the implementation of these ESG measures are described in the later section titled “Environmental protection measures”.

Aspect A3: Environment and Natural Resources

The Company’s business operation does not involve in the significant use of natural resources, and hence has little adverse impact on the environment in this respect. Nonetheless, as outlined in the next section, the Company is committed to environmental protection and has adopted and implemented a number of measures to reduce the negative impact on its environment and habitat.

Environmental protection measures

The Company has always put great emphasis on energy and resource conservation, which is shown by its engagement in energy savings and implementation of workplace strategies to reduce energy and water consumption.

Accordingly, the Company has the following measures which are carried out and reviewed regularly to achieve its ESG strategy, to reduce its environmental impact in the course of daily operations in the long term:

• Policies and procedures are regularly updated to incorporate rules and guidelines on environmental protection in order raise employee awareness on the importance of protecting the environment and to assimilate them into their daily workflows;

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ENVIRONMENTAL, SOCIAL AND GOVERNANCE REPORT

• Specifically, through these rules and guidelines, the Company encourages the management and employees to minimise the company’s environmental impact by performing the following in different areas:

• Energy Use

• i. Carpooling (i.e. share car) wherever possible for regular commuting and to/from external meetings;

• ii. Turning off computers and office equipment when leaving the office, closing windows when the air conditioning is in use, etc.;

• iii. Inspecting our electricity and power equipment regularly to ensure safety as well as operating efficiency;

• iv. Staying at the office after work hours only if necessary and work from home instead of office should they need to work during the weekends;

• v. Utilizing digital devices to the greatest extent for internal meeting and internal communications to reduce business travel and energy consumption;

• vi. Investigate and explore additional means to enhance the energy efficiency of electrical appliances, such as air-conditioning, lighting and electrical installations, and other office equipment in working areas, wherever possible;

• vii. Maintaining workplace temperature at a comfortable level for the purpose of energy conservation and reduction of emissions. The Company refers to the relevant standards recommended by the General Office of the State Council, for instance controlling the temperature of the work environment at 26.0°C during the summer period to reduce excessive air-conditioning;

viii. Use of sunlight to reduce electricity usage in washrooms wherever possible.

• Paper Use

• i. Reusing or recycling packaging such as plastic or paper bag, and paper cartons;

• ii. Adopting office automation and reduce excessive printing by going paperless as far as possible;

• iii. Reusing printed paper wherever possible, subject to the personal data privacy requirements;

• iv. Thinking twice before printing any email, and the message “Please consider the environment before printing this email” is attached to the bottom of every email sent to remind the recipient to do the same;

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• v. Closely monitor the number of annual reports printed annually to avoid wastage.

• Waste management

• i. Providing and promoting the use of green facilities such as waste separation bins and used battery collection wherever possible;

• ii. Adopting appropriate disposal procedures for disposal of electronic waste, for instance disposing of computers with authorized e-waste collection and computer recycling service sites for recycling when necessary;

• iii. Providing suitable facilities wherever possible and encourages employees to sort and recycle waste products wherever possible.

• Others

• i. Make suggestions to improve the existing “Green Procurement Practice Guide” so as to provide updated information on how to take into account environmental considerations during the procurement process;

• ii. Centralizing the orders for office supplies from various departments to reduce delivery distance, thus reduce indirect emissions from transportation;

• iii. Water-efficient sensor taps are installed wherever possible to avoid unnecessary water wastage.

Aspect A4: Climate Change

The Company acknowledges that climate change poses different kinds of risks as well as opportunities to the company’s operations. Climate change risks include bad weather such as extreme cold or heat, heavy rain, storm, typhoon, and other extreme weather events that can disrupt operations by damaging power grid, communication infrastructures, obstructing and injuring our staff on the way or during their work, and also disastrous events incidental to these weather such as the fire hazard from overheated equipment in severe heat waves cause by global warming. All these events may bring severe impact to the company’s operations. In response, the Company will identify these risks and prioritise those which have severe impact to take precaution measures first. Then at the same time the Company will also identify, if any, opportunities where changing of the business processes may be possible, in order that these severe impact to operations may be mitigated or avoided.

Annual Report 2020 37 Pacific Online Limited

ENVIRONMENTAL, SOCIAL AND GOVERNANCE REPORT

OUR EMPLOYEES

The Company values its employees and is committed to providing a fair and equitable work environment for all employees. In this section, we detailed the various policies and practices adopted by the Company with regards to employment, health and safety, development and training, and labour standards.

Aspect B1: Employment

The Company’s Employee Handbook has clear standard policies and procedures to deal with recruitment, employee movement, performance review, salary adjustments, promotions, and termination of employment.

Through these policies and procedures, the Company is committed to ensuring employees are recruited, remunerated, and promoted based on their merit, qualifications, competence, suitability, and contribution to the Company. The Company is an equal opportunities employer which is committed to maintaining a diverse workforce without regard to age, gender, family status, sexual orientation, disability, ethnicity, religion, and political beliefs. Discrimination is explicitly prohibited in the workplace.

The Company is also committed to attracting, retaining, and motivating the best candidates and employees. The Company offers competitive remuneration packages to the right employees including year-end bonus and share option offered based on individual performances, as well as standard entitlements including paid annual leave, marriage leave, maternity leave, and other allowances such as meal and trade allowance.

Candidates are recruited from three sources: campus recruitment, online recruitment, and talents recommendation program. This comprehensive approach on candidate recruitment ensures the Company has maximised its reach to appropriate candidates with potential talents. The talents recommendation program enables current employees to recommend their friends, families or old colleagues who are suitable to join the Company.

38 Annual Report 2020 Pacific Online Limited

ENVIRONMENTAL, SOCIAL AND GOVERNANCE REPORT

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

Legal welfare
Basic insurance
Fixed income Housing provident fund
Basic salary
Luncheon allowance Remuneration Holidays and leaves
Transportation allowance and welfare
Statutory holidays
Welfare Paid annual leave
Paid sick leave
Remuneration
and incentives
Floating income
Year-end bonus Cares to staff
Special awards Staff recreational club
Share options Annual tours
Others
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Employees at all levels of the Company are expected to conduct in an appropriate manner, with integrity, impartiality, and honesty.

The Company is committed to complying with laws and regulations relating to the employment of labour, including the Labour Law of Peoples’ of Republic of China (中華人民共和國勞動法), the Labour Contract Law of the People’s Republic of China (中華人民共和國勞動合同法) and other relevant laws and regulations. During the Reporting Period, there was no significant breach of any laws and regulations related to the employment of labour (2019: nil).

Annual Report 2020 39 Pacific Online Limited

ENVIRONMENTAL, SOCIAL AND GOVERNANCE REPORT

Workforce

As at the end of Reporting Period, the number of employee within the scope was 1,081 employees (2019: 1,212), they were located in China. The number and ratios between male and female and different age groups are depicted below:

Employees by gender

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%
100
90
80
513 598
70 (47%) (49%)
Female
60
Male
50
40
30 568 614
20 (53%) (51%)
10
0
2020 2019
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Employees by age group

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

%
41 (4%) 11 (1%)
100
90
80 507 487 Over 50
(40%)
70 (47%)
30–50
60
Below 30
50
40
714
30 533
(59%)
20 (49%)
10
0
2020 2019
----- End of picture text -----

As at the end of the Reporting Period, we achieved a gender-balanced workforce with 568 male and 513 female staff, male-to-female ratio is approximately 1:1. The majority of our employees were aged below their 30s, showing the success in our commitment in attracting younger generations in joining our dynamic workforce.

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All employees at the end of the Reporting Period are full-time employees.

Employee retention

The employee turnover rate[(note 1)] categorised by gender and age groups were as follows:

The employee turnover rate(note 1)categorised by gender and age groups were	as follows:
2020	2019(note 2)
Employee turnover by gender Male 267 (47%) Female 245 (48%) Employee turnover by age group Below 30 340 (64%) 30–50 171 (34%) Above 50 1 (2%)	270 (44%) 260 (43%) 368 (52%) 159 (33%) 3 (27%)

Note 1: The percentage are calculated with reference to the “How to prepare an ESG Report? — Appendix III: Reporting Guidance on Social KPIs” issued by the HKEX, i.e. the number of turnover staff divided by the number of staff as at respective year end.

Note 2: The percentage calculation are updated to have a meaningful comparison with the Reporting Period.

During the Reporting Period, a total of 512 (2019: 530) employees left the Company; of these 267 were male and 245 were female and resulting in an overall turnover rate of 47%. Employees aged below 30 years old has a higher employee turnover rate than the 30–50 age group and above 50 age group. Above 50 age group has the lowest turnover rate (2%), illustrating a stronger employee retention of employees in this age group compared to the other two age groups.

Aspect B2: Health and Safety

Our employees are mainly office-based thus risk to physical health and safety is not a significant concern for the Company. Nonetheless, the Company acknowledges the significance of employees’ occupational health and safety, and is committed and has engaged in significant efforts in providing and maintaining a safe and healthy working environment to mitigate any occupational or health risks in our employees, and for the compliance of relevant laws and regulations. During the Reporting Period, the Company has complied with Law of the People’s Republic of China on the Prevention and Treatment of Occupational Diseases (中華人民共和國職 業病防治法) as well as other relevant laws and regulations in relations to occupational health and safety in PRC. There was no significant work-related injury and fatality recorded for the past three years, including the Reporting Period.

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ENVIRONMENTAL, SOCIAL AND GOVERNANCE REPORT

The Company’s head office is located in a compound that has a spacious 3 block of office buildings each with 5 floors, totalling a gross floor area of approximately 30,000 square metres. These buildings are surrounded by a staggering 5,000 square metres garden which helps our employees to reduce stress as well as to help purify air that our employees breathe in.

To ensure the physical safety of our assets and our employees, the Company has deployed security guards at the office and their surrounding area at the Company. The Company also provides other recreational facilities, such as canteen, basketball court, café, leisure room, nursery room, table tennis tables, yoga room for our employees to relax and feel content, preventing potential health risks for long-term desk work.

Moreover, the Company has set up a “staff recreational club” in order to develop a sense of belonging for our employees which organises activities for our employees, for instance, basketball games, yoga class, company travel, and annual dinner, etc. These activities also help to promote work-life balance for our employees, so as to ease their working pressure.

The outbreak of COVID-19 pandemic is a global health crisis that affects many individuals, including our staff and their friends and families. During these period, the Company has monitored the changing situation diligently and response to them as quickly as possible in order to protect the health and safety of our employees. For instance, we issued notices in a timely manner to employees for them to protect themselves; we also distributed protective materials such as masks and anti-bacterial hand sanitiser, and also conducted comprehensive disinfection of office areas. Moreover, we comply with government policies and regulations, and also follow national guidelines to support the halting the outbreak.

Aspect B3: Development and Training

The continuing development and learning needs of our employees are essential to the growth of the Company. The Company has established policies on employee development and training in our Employee Handbook in order to standardize and systematize training within the Company. The Administration department is responsible for formulating the annual training plan based on survey results of the training needs of different departments and this includes a range of internal training opportunities for all levels of our employees, these training opportunities are divided into three types.

The first type is offered to new employees, including new employees’ orientation, induction training, “one-on-one” mentorship program, and exchange program. The second type is work-related trainings such as editing training and sales training to improve business skills and technical skills for company’s daily operation. The last type is management trainings to middle and senior management for improving professional capability, and develop skills to coach their staff.

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For the delivery of training, the Company has launched “cloud-learning” last year which is an online training platform for employees to conduct trainings in a more efficient way. Employees can ask questions anytime on the platform outside of the time reserved for training section. Apart from receiving internal training, employees may also be sponsored by the Company to receive external training for the enrichment their skills and knowledge. Employees receiving external training are responsible for conducting knowledge transfer internally in order to create a positive learning atmosphere among employees. Additionally, other forms of training are also available including seminars, self-learning by employees and online learning.

Training development

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Project name
Curriculum system Editing training
01
Sales training
New staff training program New Editors training camp
Interns training program TYPE 1 “Battlefield pilot” program
Induction Business Curriculum system
trainings trainings 02
Project name
Project name Bringing in, sending out
Bringing in, sending out
PC development I program TYPE 2
Changing program
Sailing program
PC talk
TYPE 3
Management
trainings
General management training
New management training
Curriculum system Middle management training
03
Senior management training
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Annual Report 2020 43 Pacific Online Limited

ENVIRONMENTAL, SOCIAL AND GOVERNANCE REPORT

During the Reporting Period, there was a total of 534 (2019: 306) trained employees and the percentage of total employees who took part in training is 49% (2019: 27%). A total of approximately 5,944 (2019: 2,408) training hours was completed by these trained employees which took place in PRC, average training hours per employee are 5.50 (2019: 2.14) training hours. The details of these trainings are shown in the table below:

Number of employees trained	2020	2020
	Percentage of employees trained	Total training hours	Average training hours
By gender Male 219 Female 315 By employee role Senior Management 63 Middle Management 102 General Executives 369 Number of employees trained
	41%	2,246	3.95
	59%	3,698	7.21
	12%	823	5.45
	19%	917	4.98
	69%	4,204	5.64
	2019 Percentage of employees trained Total training hours		Average training hours
By gender Male 169 Female 137 By employee role Senior Management 23 Middle Management 46 General Executives 237	55% 1,228 45% 1,180 8% 52 15% 216 77% 2,140		2.15 2.12 0.37 1.27 2.63

Both the total and average training hour has doubled due to the successful launch of “cloud-learning” in which training can be conducted online and the capacity of employees for each training could be increased compared to last year.

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Aspect B4: Labour Standards

As the Company considers child and forced labour unacceptable, it has established clear management procedures to effective control over non-recruitment of both child labour and forced labour. The management procedures clearly stipulated that stringent examination on identify documents such as ID card should be conducted during the recruitment process to verify the authenticity of the candidate’s purported age and other personal information. This helps to ensure there is non-recruitment of child labour at the initial.

Moreover, in order to forbidden forced labour, employee work schedules are set up fairly to keep within standard working hours (i.e. 40 hours per week) and all employees are provided with appropriate leave entitlements including annual leave, sick leave, marriage leave, maternity leave, examination leave, and compassionate leave.

The Company is committed to complying with Labour Law of the People’s Republic of China (中 華人民共和國勞動法) in relations to child and forced labour, as well as other relevant laws and regulations in PRC relating to the protection of rights and interests of labourers, and there was no (2019: no) case of non-compliance with these laws and regulations during the Reporting Period.

OUR BUSINESS

In the same way we build and maintain our loyal user base on our portals, we build a harmonious relationship with our stakeholders — online users, customers, suppliers, investors, employees, government bodies and communities. Through their valuable feedback and participation, we build a cornerstone for the Company and also an approach to continuously improve our ESG system in order to operate our business in an environmentally and socially responsible way.

In this section we detailed the various policies and practices adopted by the Company with regards to supply chain management, product responsibility, and anti-corruption.

Aspect B5: Supply Chain Management

In order to better manage the supply chain, we have established “Procurement Process” to standardise the procurement process and to set up criteria and requirements for the selection of suppliers in order to enhance the efficiency of procurement.

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We maintain an approved suppliers list from which to purchase IT services, office equipment, and office supplies. Suppliers on the approved suppliers’ list are carefully assesses based on criteria such as the quality of goods and services provided, their reputation in the public and in the industry, and whether or not they have complied with laws and regulations in the PRC. Before the signing of contract with suppliers, we conduct due diligence to have a better understand of their background, identify areas for further investigation and reduces risks associated with the decision to engage with them. We regularly review, supervise and update the approved suppliers’ list to maintain control of the quality of our procurements. We review those suppliers that have failed to fulfil our standard, which may then be subjected to removal from the approved list. As at the end of the Reporting Period, we have a total of 1,842 suppliers, all are from China.

Aspect B6: Product Responsibility

Quality assurance

As an online content provider, the Company regularly promotes different products and services of our clients. Although the ultimate responsibility of the quality of these products and services lies with these clients. However, we ensure that we only promote products and services from reputable brands, and as part of the content of our reviews we perform our own tests in order to introduce or compare these products and services to our users. In September 2020, our company was officially awarded the “Outstanding Partner Award” issued by Huawei Information Flow Platform.

Moreover, the Company understands that improving its quality, meeting the needs and preferences of consumers are key elements for its sustainable development and thus it has launched a user experience enhancement program which aims to listen and understand consumers’ requirements and needs. This program provides consumers with surveys, free downloads and new products trial, collects feedback for further quality improvement.

Complaint handling

The Company treats all grievances and complaints seriously and views them as means to consistently improve the quality of the services we offer. The Company has established grievance procedures to receive suggestions and complaints from online users, customers, suppliers and employees as outlined in the later section “Aspect B7: Anti-corruption”. During the Reporting Period the Company has received and handled a total of 66 cases of complaint from third parties, these complaints include possible false information and content on our websites, unauthorized dissemination of works and suspected of infringement. Our handling procedures include deletion of information and content on our websites, apology to the third-party and make compensation when necessary. The handling procedures and results are filed afterwards for our own record. None of these complaints is significant in nature that requires excessive attention (2019: nil).

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In addition, as an online content provider, we may encounter situation with illegal and inappropriate content, and we treat these seriously. We have established “Measures for the Acceptance and Handle of Reports on illegal and inappropriate information” (“Measures”) aiming at fulfilling the responsibility as a website and handling the reporting information in a timely manner. The Measures clarifies the responsibilities of each unit for handling illegal and inappropriate content, sets up the procedures of accepting reports on illegal and inappropriate information and suggests the relevant response to handle the reports on illegal and inappropriate information.

The content review department is the main department responsible for the reporting of illegal and inappropriate content on website, while the website editing department and technical department are assisting in handling the reported information. We have set up both telephone and mailbox for others to report on illegal and bad information on Pacific Online network. Staff on duty is responsible for answering the call and making relevant phone records; as for the reporting mailbox, staff on duty regularly check the mailbox and maintain records.

Once the company receives report on illegal and inappropriate information, the following process are being carry out:

1. The content review department classifies, screen and verifies the reported content in detail;

2. For true reported information, deal with them as soon as possible. After the report handling process is completed, promptly report to the reporter and indicate to reporter if feedback is impossible;

3. Important reporting information involving content that endangers national security, disrupts social order, etc., should be reported to relevant competent authorities in a timely manner; and

4. Information collected in the process of report acceptance and handling shall be sorted and archived timely and kept confidential in all time.

Protection of intellectual property

The Company respects and protects intellectual property rights. It examines the content of the product, testing, reviews and writes feature reports for the products with intellectual property rights (“IP rights”).

The Company takes appropriate action to protect intellectual property rights, which gives the business its competitive edge. The Legal Department is responsible for the registration of the Company’s self-created trademarks and patents, and advises on the rights to use images. Unauthorized software is strictly forbidden.

Annual Report 2020 47 Pacific Online Limited

ENVIRONMENTAL, SOCIAL AND GOVERNANCE REPORT

Internally, the Company organises regular business training on intellectual property rights to improve employees’ awareness of intellectual property rights protection and enable them to contribute to exploring potential intellectual property rights. The training on intellectual property rights is suitable for new-join editors, and the content of training include updates on the Adverting Law of the People Republic of China, knowledge for copyright and training for photography skills.

With regarding to purchased copyright for images and music, the Company set up rules to monitor the usage of them. The Company also set up “Memo on copyright management for Editor” (“Memo”) for the purpose to enhance the management of copyright within the company, monitor the content of each websites, and ensure copyright are use legally. The memo is suitable for editors and other staff that are working on edition work and should be implement accordingly. The memo states out the procedures of handling complaints in case of infringement to provide guidance to our employees.

In case there are infringement conducted by our employees for the first time, the editorial department would give warning verbally. If losses are caused to the Company, the Company has the right to demand compensation from the responsible person. As for the second time infringement, written warning would be given to the employees and filed by the Human Resources Department.

Externally, the Company has established whistle-blowing procedures for external parties to report any suspicious infringement and misuse of intellectual property rights that conducted without the permission of the copyright owner to us for further investigation.

The Company is committed to complying with relevant laws and regulations in areas for protection of intellectual property, include but not limited to Copyright Law of the People’s Republic of China (中華人民共和國著作權), Tort Law of the People’s Republic of China (侵權責任 法) and Regulation on the Protection of the Right to Network Dissemination of Information (信 息網絡傳播權保護條例). During the Reporting Period, the Company has not engaged in and has not been threatened with significant claim for infringement of any IP rights, whether as a claimant or as a defendant (2019: nil). The Company has taken all reasonable measures to prevent infringement of IP rights.

Information security and Personal data protection

The Company considers that privacy and security of information are critical operating principles. It recognizes the importance of keeping personal information of the users in strict confidence. The Company has implemented various information privacy and information security programmes to protect the security of corporate data as well as personal data privacy by adopting multiple means, for instance authority management, password management, information output, dissemination, and backup. All employees have the responsibility to protect information security and for related parties of the Company, such as suppliers, service providers, their safety requirements and safety responsibilities should also be clarified.

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Under the information security policy, our employees’ duties include the following:

1. Learn and understand Company’s Information Security System and receive information security-related training so as to increase safety awareness;

2. Protect the information resources he/she keeps and own, and establish relevant information security policies, strategies and procedures;

3. Obliged to explain all the behaviours he/she does for information resources; and

4. In case suspects or believes that the information is not properly protected, he/she must promptly report the security management representative, including to report information security events and incidents.

In addition to the privacy and information security policy, our employees are bound by the terms of their employment contracts, the employee confidentiality regulations and the employee code of conduct to ensure that confidential information is properly protected and such information is kept in strict confidence, and that any information that has come in their possession as a result of their employment with us will not be disclosed to any person without the prior approval. Any unauthorized copying, dissemination or disclosure of confidential information, including identities and transaction records of customers, is strictly prohibited. We restrict the use of personal information collected by the Company for specific purposes, obtaining consent from online users and customers before we collect personal information, and use them only for their intended purpose, and destroy these data when they are no longer required.

Recognizing privacy is one of the essential operation principles, The Company has disclosed its personal data protection policy on its website in order to enhance transparency on the above issue. As part of the information privacy and information security programmes, any external parties such as users, contractors and regulators, are welcomed to report complaints, provide suggestions and recommendations regarding our privacy policies through the channels at the bottom of our website.

The Company is committed to complying with relevant laws and regulations including the Cybersecurity Law of the People’s Republic of China (中華人民共和國網絡安全法), the Company Law of the People’s Republic of China (中華人民共和國公司法), the Contract Law of the People’s Republic of China (中華人民共和國合同法), Consumer Rights Protection Law of the People’s Republic of China (中華人民共和國消費者權益保護法), E-Commerce Law of the People’s Republic of China (中華人民共和國電子商務法) relating to customer data protection and privacy.

Aspect B7: Anti-corruption

The Company is committed to adhering to the highest ethical standards and maintaining a corporate culture of integrity and justice for preventing, detecting and reporting all types of fraud, including corruption.

Annual Report 2020 49 Pacific Online Limited

ENVIRONMENTAL, SOCIAL AND GOVERNANCE REPORT

The Employee Handbook stipulates that if an employee receives money, gifts or rebates as bribes, the Company has the right to terminate the employment contract and reserves the right to further legal action. In case there are any reported case regarding corruption, the human resources department together with the relevant functional departments are responsible for investigation and those responsible will be disciplined where proven violation has occurred. Any incompliance with laws will be reported to law enforcement authorities for handling. The Company also requires employees to sign a “Written Commitment on Integrity” to prevent any bribery, extortion, fraud and money laundering activities happening during the transactions with supplier and clients. Under this written commitment, employees are committed to maintaining a health and good business relationship with customers, partners, or their employees and relatives and do not ask for or give away (including but not limited to transfer, lending, gifting, etc.) any material improper benefits.

As part of our internal grievance handling procedures, external parties such as users, contractors and regulators, and internal parties such as employees, can report complaints to us which can include actual or suspected cases of corruption or fraud, through our hotline and email listed at the bottom of our websites.

Externally, the Company operates online portals for different categories of products and services and has standard procedures for handling complaints. Each portal takes immediate action on receipt of any complaint, resolving such or following up until resolution. Complaints are filed weekly for future reference. Internally, whistle-blowing procedure includes mailboxes for employees to raise concerns or report any misconduct or dishonest activities, such as suspected corruption, fraud and other forms of criminality, directly to the CEO and/or COO.

There was no significant legal case or incident regarding fraud or corruption found by or reported to the Company during the Reporting Period (2019: nil).

OUR COMMUNITY

Aspect B8: Community Investment

The Company encourages employees to contribute their time and efforts in participating in various local community activities and events. The Company creates job opportunities for the community, and also takes part in youth development initiatives and recovery efforts in the wake of significant natural disasters.

50 Annual Report 2020 Pacific Online Limited

DIRECTORS’ REPORT

The Board is pleased to present the annual report and the audited consolidated financial statements of the Group for the year ended 31 December 2020.

GROUP REORGANISATION

The Company was incorporated on 27 August 2007 as an exempted company with limited liability under the Companies Law, Cap. 22, (Law 3 of 1961, as combined and revised) of the Cayman Islands. The Company is an investment holding company of the companies now comprising the Group.

The Company’s shares have been listed on main board of the Stock Exchange since 18 December 2007. After the completion of group reorganisation as set out in the prospectus of the Company dated 5 December 2007 (the “Prospectus”), pursuant to an agreement dated 12 November 2007, the Company acquired the entire issued capital of Takehigh Industry Limited through a share swap and became the holding company of the companies now comprising the Group.

PRINCIPAL ACTIVITIES

The Company is an investment holding company and its subsidiaries are principally engaged in the provision of internet advertising services in the People’s Republic of China. The activities of its subsidiaries are set out in note 17 to the consolidated financial statements. There were no significant changes in the nature of the Group’s principal activities during the year.

BUSINESS REVIEW

A review of the Group’s business during the year, which includes a discussion of the principal risks and uncertainties facing by the Group, an analysis of the Group’s performance using financial key performance indicators, particulars of important events affecting the Group, an indication of likely future developments in the Group’s business and discussion on the Company’s environmental policies and performances and the relationships with its stakeholders, can be found in the Chairman’s Statement, Management Discussion and Analysis, Corporate Governance Report and Environmental, Social and Governance Report contained in this annual report. The review forms part contained in this directors’ report.

RESULTS AND DIVIDENDS

The results of the Group for the year ended 31 December 2020 are set out in the consolidated income statement on page 75.

The Board has recommended the payment of a final cash dividend of RMB13.00 cents per ordinary share for the year ended 31 December 2020 (the “Proposed Final Dividend”), which compares with RMB10.80 cents for 2019. The final dividend is subject to the shareholders’ approval at the Company’s forthcoming annual general meeting to be held on Monday, 17 May 2021 (the “2021 AGM”). The Proposed Final Dividend will be paid in cash on Monday, 7 June 2021 to shareholders whose names appear on the register of members of the Company at the close of business on Wednesday, 26 May 2021.

Annual Report 2020 51 Pacific Online Limited

DIRECTORS’ REPORT

CLOSURE OF REGISTER OF MEMBERS

For determining the entitlement to attend and vote at the 2021 AGM, the register of members of the Company will be closed from Wednesday, 12 May 2021 to Monday, 17 May 2021, both days inclusive, during which period no transfer of shares of the Company will be registered. In order to be eligible to attend and vote at the 2021 AGM, unregistered holders of shares of the Company should ensure that all share transfer documents accompanied by the relevant share certificates must be lodged with the Company’s branch share registrar in Hong Kong, Tricor Investor Services Limited, at Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong, for registration not later than 4:30 p.m. on Tuesday, 11 May 2021.

For determining the entitlement to the Proposed Final Dividend, the register of members of the Company will also be closed from Tuesday, 25 May 2021 to Wednesday, 26 May 2021, both days inclusive, during which period no transfer of shares of the Company will be registered. In order to be eligible to receive the Proposed Final Dividend, unregistered holders of shares of the Company should ensure that all share transfer documents accompanied by the relevant share certificates must be lodged with the Company’s branch share registrar in Hong Kong, Tricor Investor Services Limited, at the above address, for registration not later than 4:30 p.m. on Monday, 24 May 2021.

FINANCIAL SUMMARY

A summary of the published results and assets, liabilities and assets less liabilities of the Group for the last five financial years, as extracted from the audited financial statements, is set out on page 152 of the annual report. This summary does not form part of the audited financial statements.

PROPERTY AND EQUIPMENT

Details of movements in the property and equipment of the Group during the year are set out in note 13 to the consolidated financial statements.

SHARE CAPITAL

Details of movements in the share capital of the Company during the year are set out in note 23 to the consolidated financial statements.

EQUITY-LINKED AGREEMENTS

Details of the equity-linked agreements entered into by the Company are disclosed under the paragraph headed “Share Option Plan” in this directors’ report.

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DIRECTORS’ REPORT

SHARE OPTION PLAN

The Company has adopted a Share Option Plan at the annual general meeting of the Company held on 19 May 2017. Summary of the Share Option Plan is as follows:

1. Purpose

2. Participants

3. Total number of ordinary shares available for issue

To advance the interests of the Company and its shareholders by enabling the Company to grant share options to attract, retain and reward the eligible persons, to provide to the eligible persons a performance incentive for continued and improved services with the Company and its subsidiaries, and to enhance such persons’ contribution to increase the profits by encouraging capital accumulation and share ownership.

• Any directors (whether executive or non-executive and whether independent or not), any employee (whether full-time or part-time), any consultant or adviser of or to the Company or the Group (whether on an employment, contractual or honorary basis and whether paid or unpaid), who, in the absolute opinion of the Board, have contributed to the Company or the Group.

• 113,320,566 shares, being approximately 10% of the issued share capital as at the date of this annual report.

Annual Report 2020 53 Pacific Online Limited

DIRECTORS’ REPORT

1. Maximum entitlement Where any grant or further grant of options to a participant would of each participant result in the total number of shares issued and to be issued upon exercise of all the options already granted and to be granted to such person (including exercised, cancelled and outstanding options) in the 12-month period up to and including the date of such grant or further grant representing in aggregate over 1% of the total number of shares in issue, such grant or further grant must be separately approved by the shareholders in a general meeting.

Where any grant or further grant of options to a substantial shareholder or an independent non-executive director of the Company, or any of their respective associates, would result in the total number of shares issued and to be issued upon exercise of all options already granted and to be granted (including exercised, cancelled and outstanding options) to such person in the 12-month period up to and including the date of such grant:

• (a) representing in aggregate over 0.1% of the relevant class of shares in issue; and

• (b) having an aggregate value, based on the closing price of the shares at the date of each grant, in excess of HKD5,000,000,

such grant or further grant of options must be approved by the shareholders in a general meeting.

1. Period within which An option may be exercised at any time during a period to be the securities must be determined and notified by the Board to each grantee, but shall not taken up under an be more than 10 years from the date of grant of options subject to option the provisions for early termination set out in the Share Option Plan.

2. Minimum period for There is no minimum period for which an option granted must be which an option must held before it can be exercised except otherwise imposed by the be held before it can directors. be exercised

3. Acceptance of offer Options granted must be taken up within 28 days from the date of offer, upon payment of HKD1 per grant.

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DIRECTORS’ REPORT

1. Basis of determining Determined by the Board but shall not be less than the highest of (i) the exercise price the closing price of the ordinary shares as stated in the Stock Exchange’s daily quotations sheet on the date of offer of the grant of options, which must be a trading day; (ii) the average closing price of the ordinary shares as stated in the Stock Exchange’s daily quotations sheets for the five trading days immediately preceding the date of offer of the grant of options; and (iii) the nominal value of an ordinary share of the Company.

2. Remaining life of the It will remain in force for a period of 10 years, commencing on scheme 19 May 2017.

As at 31 December 2020, the Company has no outstanding share options under the Share Option Plan. No share options have been granted/exercised/cancelled/lapsed under the Share Option Plan during the year ended 31 December 2020.

SHARE AWARD SCHEME

The Board adopted a restricted share award scheme (the “Share Award Scheme”) on 10 January 2011 (the “Adoption Date”) as an incentive to retain and encourage the eligible participants for the continual operation and development of the Group. Eligible participants include any director, any employee, any consultant or adviser of or to the Company or the Group and who, in the absolute opinion of the Board, have contributed to the Company or the Group.

Pursuant to the Share Award Scheme, the Board may, from time to time, at its absolute discretion select eligible participants and determine the number of shares to be awarded. The aggregate number of shares to be awarded by the Board throughout the duration of the Share Award Scheme shall not exceed 2.5% of the issued share capital of the Company as at the Adoption Date. The term of the Share Award Scheme is 10 years commencing from the Adoption Date and it has expired on 9 January 2021.

During the year, 6,800,000 shares were granted under the Share Award Scheme. Further details are set out in note 24 to the consolidated financial statements.

Annual Report 2020 55 Pacific Online Limited

DIRECTORS’ REPORT

Given that the 2011 Restricted Share Award Scheme has been expired on 9 January 2021 and among the threshold of up to 2.5% of the then issued share capital of the Company which the Board can award, the Board had already awarded nearly half of it, the Board has resolved on 21 December 2020 (the “New Adoption Date”) to adopt a new restricted share award scheme (the “New Share Award Scheme”) with a term of 10 years commencing from the New Adoption Date as an incentive to retain and encourage the eligible participants for the continual operation and development of the Group, pursuant to which the restricted shares are comprised of (i) new shares to be allotted and issued to selected participants under the general mandate or specific mandate sought from the shareholders of the Company in general meetings from time to time; and/or (ii) existing shares to be purchased by the trustee from the market out of cash contributed by the Group. The shares will be held in trust for the relevant selected participant until such shares are vested with the relevant selected participants in accordance with the provisions of the New Share Award Scheme.

The Board has implemented the New Share Award Scheme in accordance with the terms of the scheme rules including to provide necessary funds to the trustee for purchase of shares up to the scheme mandate.

The New Share Award Scheme shall be subject to the administration of the Board in accordance with the Scheme Rules.

The Board or the Management Committee shall not make any further award of restricted shares which will result in the aggregate number of restricted shares awarded by the Board or the Management Committee throughout the duration of the New Share Award Scheme to be in excess of 5% of the issued share capital of the Company as at the New Adoption Date. The maximum number of restricted shares which may be awarded to a selected participant under the New Share Award Scheme shall not exceed 0.5% of the issued share capital of the Company as at the New Adoption Date.

Details of the New Share Award Scheme were disclosed in the Company’s announcements dated 21 December 2020 and 29 December 2020.

During the year, no shares were granted under the New Share Award Scheme.

PRE-EMPTIVE RIGHTS

There are no provisions for pre-emptive rights under the Company’s Articles of Association, or the laws of the Cayman Islands, which would oblige the Company to offer new shares on a prorata basis to existing shareholders.

PURCHASE, SALE OR REDEMPTION OF THE COMPANY’S LISTED SECURITIES

Neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the Company’s listed securities during the year ended 31 December 2020.

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DIRECTORS’ REPORT

RESERVES

Details of movements in the reserves of the Company and the Group during the year are set out in note 29 and note 24 to the consolidated financial statements, respectively.

DISTRIBUTABLE RESERVES OF THE COMPANY

As at 31 December 2020, the Company had distributable reserves amounting to RMB1,070.9 million (2019: RMB1,024.6 million).

Under the Companies Law, Cap. 22 (Law 3 of 1961, as combined and revised) of the Cayman Islands, the share premium account and the retained earnings are distributable to the shareholders of the Company provided that immediately following the date on which any dividend is proposed to be distributed, the Company will be able to pay its debts as they fall due in the ordinary course of business.

MAJOR CUSTOMERS AND SUPPLIERS

In the year under review, sales to the Group’s five largest customers accounted for 24.2% of the total sales for the year and sales to the largest customer included therein amounted to 6.3%. Purchases from the Group’s five largest suppliers accounted for 24.8% of the total purchases for the year and purchase from the largest supplier included therein amounted to 7.4%.

None of the directors or any of their close associates or any shareholders (which, to the best knowledge of the directors, own more than 5% of the number of issued shares of the Company) had any beneficial interest in the Group’s five largest customers or five largest suppliers.

EMPLOYEES AND REMUNERATION POLICIES

As at 31 December 2020, the Group had 1,106 employees (2019: 1,212). The Group determines its staff’s remuneration based on factors such as qualifications and years of experience.

COMPLIANCE WITH THE RELEVANT LAWS AND REGULATIONS

As far as the Board is aware, the Company has complied in material respects with the relevant laws and regulations that have a significant impact on the business and operation of the Company.

MANAGEMENT CONTRACTS

No contract concerning the management and administration of the whole or any substantial part of the business of the Group were entered into or existed during the year.

Annual Report 2020 57 Pacific Online Limited

DIRECTORS’ REPORT

DIRECTORS

The directors of the Company during the year were as follows:

Executive Directors:

Dr. Lam Wai Yan

(Chairman and Chief Executive Officer)

Mr. Ho Kam Wah

• Mr. Wang Ta-Hsing

Independent Non-executive Directors:

• Mr. Tsui Yiu Wa, Alec

• Mr. Thaddeus Thomas Beczak

• Mr. Lam Wai Hon, Ambrose

In accordance with Article 87 of the Company’s Articles of Association, Mr. Ho Kam Wah and Mr. Tsui Yiu Wa, Alec shall retire from office by rotation at the 2021 AGM and, be eligible, will offer themselves for re-election at the 2021 AGM.

The Company has received annual confirmations of independence from Mr. Tsui Yiu Wa, Alec, Mr. Thaddeus Thomas Beczak and Mr. Lam Wai Hon, Ambrose pursuant to Rule 3.13 of the Listing Rules. The Company considers the independent non-executive directors to be independent as at the date of this report.

DIRECTORS’ SERVICE CONTRACTS

None of the directors being proposed for re-election at the 2021 AGM has a service agreement with the Company, which is not determinable by the Company within one year without payment of compensation, other than statutory compensation.

DIRECTORS’ INTERESTS IN TRANSACTIONS, ARRANGEMENTS OR CONTRACTS

No director nor a connected entity of a director had a material interest, either directly or indirectly, in any transactions, arrangements or contracts of significance to the Group’s businesses to which the Company, its subsidiaries, its fellow subsidiaries or its holding companies was a party during the year.

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DIRECTORS’ REPORT

INDEMNITY OF DIRECTORS

A permitted indemnity provision (as defined in the Hong Kong Companies Ordinance) for the benefit of the directors of the Company is currently in force and was in force throughout the year.

DIRECTORS’ INTERESTS IN THE SHARES AND UNDERLYING SHARES OF THE COMPANY AND ITS ASSOCIATED CORPORATIONS

As at 31 December 2020, the interests of the directors of the Company in the shares and underlying shares of the Company (within the meaning of Part XV of the Securities and Futures Ordinance (the “SFO”)) as recorded in the register required to be kept by the Company under Section 352 of the SFO or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code were as follows:

Interests in shares of the Company

			Number of	Percentage of
	Long/		ordinary	the Company’s
	Short		shares in the	issued share
Name of director	position	Capacity	Company	capital†
Dr. Lam Wai Yan	Long	Beneficial owner	320,810,561	28.29%
Mr. Ho Kam Wah	Long	Interests held by a controlled	99,348,480	8.76%
		corporation (Note)
	Long	Beneficial owner	3,491,565	0.31%
			102,840,045	9.07%
Mr. WangTa-Hsing	Long	Beneficial owner	3,458,015	0.30%
Mr. Tsui Yiu Wa, Alec	Long	Beneficial owner	232,051	0.02%
Mr. Thaddeus Thomas Beczak	Long	Beneficial owner	232,051	0.02%

Note: These shares were held by Treasure Field Holdings Limited, a controlled corporation of Mr. Ho Kam Wah.

† The percentage represents the number of ordinary shares interested divided by the number of the Company’s issued shares as at 31 December 2020.

Annual Report 2020 59 Pacific Online Limited

DIRECTORS’ REPORT

Save as disclosed above, as at 31 December 2020, none of the directors or chief executive of the Company had any interests or short positions in the shares and underlying shares or debentures of the Company or any associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which he/she was deemed or taken to have under such provisions of the SFO) or which were required to be entered into the register kept by the Company pursuant to Section 352 of the SFO or which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code.

DIRECTORS’ RIGHTS TO ACQUIRE SHARES OR DEBENTURES

Save as disclosed in the above paragraphs headed “Share Option Plan” and “Share Award Scheme” in this directors’ report and in note 24 to the consolidated financial statements, at no time during the year were rights to acquire benefits by means of the acquisition of shares in or debentures of the Company granted to any director or their respective spouse or minor children, or were any such rights exercised by them; or was the Company, its holding company, or any of its subsidiaries or fellow subsidiaries a party to any arrangement to enable the directors to acquire such rights in any other body corporate.

SUBSTANTIAL SHAREHOLDERS’ INTERESTS IN THE SHARES AND UNDERLYING SHARES OF THE COMPANY

As at 31 December 2020, as far as the directors of the Company are aware, the following persons (other than the directors and chief executives of the Company) had interests of 5% or more in the shares of the Company as recorded in the register required to be kept by the Company under Section 336 of the SFO:

					Percentage
			Number of		of the
			ordinary		Company’s
Name of	Long/Short		shares in the		issued share
substantial shareholder	position	Capacity	Company	Note	capital†
Ms. Ma Muk Lan	Long	Interests of spouse	320,810,561	(1)	28.29%
GallopAssets Management Limited	Long	Beneficial owner	296,172,030	(2)	26.12%
J.P. Morgan Trust Company	Long	Trustee	296,172,030	(2)	26.12%
(Bahamas) Limited as trustee of
The GallopTrust
Treasure Field Holdings Limited	Long	Beneficial owner	99,348,480	(3)	8.76%

60 Annual Report 2020 Pacific Online Limited

DIRECTORS’ REPORT

Notes:

• (1) Ms. Ma Muk Lan was deemed to be interested in 320,810,561 shares of the Company through the interests of her spouse, Dr. Lam Wai Yan.

• (2) These shares were held by Gallop Assets Management Limited, the entire issued share capital of which was owned by J.P. Morgan Trust Company (Bahamas) Limited as trustee of The Gallop Trust. As such, J.P. Morgan Trust Company (Bahamas) Limited as trustee of The Gallop Trust was deemed to be interested in 296,172,030 shares of the Company held by Gallop Assets Management Limited.

• (3) The interests of Treasure Field Holdings Limited was also disclosed as the interests of Mr. Ho Kam Wah in the above section headed “Directors’ interests in the shares and underlying shares of the Company and its associated corporations”.

• The percentage represents the number of ordinary shares interested divided by the number of the Company’s issued shares as at 31 December 2020.

Save as disclosed above, as at 31 December 2020, no person, other than the directors of the Company whose interests are set out in the above section headed “Directors’ interests in the shares and underlying shares of the Company and its associated corporations”, had an interest or a short position in the shares and underlying shares of the Company as recorded in the register required to be kept by the Company under Section 336 of the SFO.

DIRECTORS’ INTERESTS IN COMPETING BUSINESS

As at 31 December 2020, to the best knowledge of the directors, none of the directors and their respective associates was considered to have any interests in businesses which compete or are likely to compete, either directly or indirectly, with the businesses of the Group, other than those businesses where the directors were appointed as directors to represent the interests of the Company and/or the Group.

CORPORATE GOVERNANCE

Details of the corporate governance are set out in the section headed “Corporate Governance Report” in this annual report.

SUFFICIENCY OF PUBLIC FLOAT

Based on the information that is publicly available to the Company and within the knowledge of the directors of the Company as at the date of this annual report, the Company has maintained a sufficient public float.

CONNECTED TRANSACTIONS

A summary of the related party transactions entered into the Group during the year ended 31 December 2020 is contained in note 28 to the consolidated financial statements.

Annual Report 2020 61 Pacific Online Limited

DIRECTORS’ REPORT

During the year ended 31 December 2020, save for the continuing connected transactions as disclosed below, we have not entered into any connected transaction or continuing connected transaction which should be disclosed pursuant to the requirements of Rule 14A of the Listing Rules.

Structure Contract Transactions

The Group had continuing connected transactions in the form of structure contracts (the “Structure Contract Transactions”).

PConline Structure Contracts

The Group conducts its online advertising business through Guangzhou Yingxin Computer Technology Exchange Co., Ltd. (“GZ Yingxin”), Guangdong Pacific Internet Information Service Co., Ltd. (“GDP Internet”) and the subsidiaries of GDP Internet under the structure contracts entered into with the Company’s wholly-owned subsidiary, Guangzhou Pacific Computer Information Consulting Co., Ltd. (“GZP Computer”) (the “Existing PConline Structure Contracts”). GZ Yingxin, a company incorporated in the PRC with limited liability that holds 100% of the equity interest of GDP Internet, was owned as to 40% by Ms. Zhang Cong Min (“Ms. Zhang”), 30% by Ms. Lu Wu Qing (“Ms. Lu”) and 30% by Ms. Fan Zeng Chun (“Ms. Fan”) (collectively known as “GZ Yingxin Shareholders”). On 10 September 2018, an equity transfer agreement was entered into between Ms. Lu and Ms. Zhang in relation to the transfer of Ms. Lu’s equity interest in GZ Yingxin to Ms. Zhang. After the said transfer, as at 31 December 2018, GZ Yingxin was owned as to 70% by Ms. Zhang and 30% by Ms. Fan (collectively known as “Existing GZ Yingxin Shareholders”). On 15 October 2018, the amended and restated PConline structure contracts, entered by GZP Computer, GZ Yingxin, GDP Internet, Ms. Lu, Ms. Zhang and Ms. Fan (the “Amended and Restated PConline Structure Contracts”), had replaced the Existing PConline Structure Contracts. On 14 February 2019, an equity transfer agreement was entered into between Ms. Zhang and Ms. Yang Tian Ying (“Ms. Yang”) in relation to the transfer of Ms. Zhang’s equity interest in GZ Yingxin to Ms. Yang. After the said transfer, as at 31 December 2019, GZ Yingxin was owned as to 70% by Ms. Yang and 30% by Ms. Fan (collectively known as “New GZ Yingxin Shareholders”). On 15 February 2019, the further amended and restated PConline structure contracts, entered by GZP Computer, GZ Yingxin, GDP Internet and New GZ Yingxin Shareholders (the “Further Amended and Restated PConline Structure Contracts”), had replaced the Amended and Restated PConline Structure Contracts. Pursuant to the Further Amended and Restated PConline Structure Contracts, the Company will operate its online business relating to the portals of PConline, PCauto and PCbady through GZ Yingxin, GDP Internet, and the subsidiaries of GDP Internet.

62 Annual Report 2020 Pacific Online Limited

DIRECTORS’ REPORT

As a result of the Further Amended and Restated PConline Structure Contracts, the Group can continue to recognize and receive the economic benefit of the business and operations of GZ Yingxin, GDP Internet and the subsidiaries of GDP Internet. The Further Amended and Restated PConline Structure Contracts are also designed to provide the Company with effective control over and (to the extent permitted by PRC law) the right to acquire the equity interests of GZ Yingxin Shareholders in GZ Yingxin and the equity interests of GZ Yingxin in, or assets of, GDP Internet and the subsidiaries of GDP Internet. Further details relating to the Existing PConline Structure Contracts/the Amended and Restated PConline Structure Contracts/the Further Amended and Restated PConline Structure Contracts are disclosed in the section headed “Structure Contracts” in the Prospectus and the Company’s announcements dated 16 October 2018 and 18 February 2019.

PClady Structure Contracts

The Company envisaged that one of its existing portals, PClady (www.PClady.com.cn) which is specialized in women lifestyle-related topics, would be able to attract different and specific group of investors. Under the structure contracts entered into with the Company’s whollyowned subsidiary, Guangzhou Fengwang Information Technology Co., Ltd. (“GZFW Technology”) on 30 June 2015, the Group conducts its online business relating to PClady portal through Guangzhou Yingyue Computer Technology Co., Ltd. (“GZ Yingyue“), Guangzhou Shangjin Internet Co., Ltd. (“GZS Internet”) and Guangzhou Shangjin Advertising Co., Ltd. (“GZS Advertising”) (the “PClady Structure Contracts”). GZ Yingyue, a company incorporated in the PRC with limited liability that holds 100% of the equity interest of GZS Internet and GZS Advertising (a wholly-owned subsidiary of GZS Internet), was owned as to 60% by Ms. Zhang and 40% by Ms. Lu, (collectively known as “GZ Yingyue Shareholders”). On 10 September 2018, an equity transfer agreement was entered into between Ms. Lu and Ms. Yang Tian Ying (“Ms. Yang”) in relation to the transfer of Ms. Lu’s equity interest in GZ Yingyue to Ms. Yang. After the said transfer, as at 31 December 2018, GZ Yingyue was owned as to 60% by Ms. Zhang and 40% by Ms. Yang (collectively known as “Existing GZ Yingyue Shareholders”). On 15 October 2018, the amended and restated PClady structure contracts, entered by GZFW Technology, GZ Yingyue, GZS Internet, Ms. Lu, Ms. Zhang and Ms. Yang (the “Amended and Restated PClady Structure Contracts”), had replaced the PClady Structure Contracts. On 14 February 2019, an equity transfer agreement was entered into between Ms. Zhang and Ms. Fan in relation to the transfer of Ms. Zhang’s equity interest in GZ Yingyue to Ms. Fan. After the said transfer, as at 31 December 2019, GZ Yingyue was owned as to 60% by Ms. Fan and 40% by Ms. Yang (collectively known as “New GZ Yingyue Shareholders”). On 15 February 2019, the further amended and restated PClady structure contracts, entered by GZFW Technology, GZ Yingyue, GZS Internet and New GZ Yingyue Shareholders (the “Further Amended and Restated PClady Structure Contracts”), had replaced the Amended and Restated PClady Structure Contracts. Pursuant to the Further Amended and Restated PClady Structure Contracts, the Company will operate its online business relating to the portal of PClady through GZ Yingyue, GZS Internet and GZS Advertising.

Annual Report 2020 63 Pacific Online Limited

DIRECTORS’ REPORT

As a result of the Further Amended and Restated PClady Structure Contracts, the Group can continue to recognize and receive the economic benefit of the business and operations of GZ Yingyue, GZS Internet and GZS Advertising. The Further Amended and Restated PClady Structure Contracts are also designed to provide the Company with effective control over and (to the extent permitted by PRC law) the right to acquire the equity interests of GZ Yingyue Shareholders in GZ Yingyue and the equity interests of GZ Yingyue in, or assets of, GZS Internet and GZS Advertising. Further details relating to the PClady Structure Contracts/the Amended and Restated PClady Structure Contracts/the Further Amended and Restated PClady Structure Contracts are disclosed in the Company’s announcements dated 2 July 2015, 16 October 2018 and 18 February 2019.

PChouse Structure Contracts

The Company operates its online business through Guangzhou Yingyou Information Technology Co., Ltd. (“GZ Yingyou”), Guangzhou Shangcong Online Technology Co., Ltd. (“GZ Shangcong Online”) and Guangzhou Shangcong Advertising Co., Ltd. (“GZ Shangcong Advertising”) (“the “PChouse Structure Contracts”). GZ Yingyou, a company incorporated in the PRC with limited liability that holds 100% of the equity interest of GZ Shangcong Online, was owned as to 60% by Ms. Zhang and 40% by Ms. Yang (collectively known as “GZ Yingyou Shareholders”) as at 31 December 2019. On 14 February 2019, an equity transfer agreement was entered into between Ms. Zhang and Ms. Fan in relation to the transfer of Ms. Zhang’s equity interest in GZ Yingyou to Ms. Fan. After the said transfer, as at 31 December 2019, GZ Yingyou was owned as to 60% by Ms. Fan and 40% by Ms. Yang (collectively known as “New GZ Yingyou Shareholders”). On 15 February 2019, the amended and restated PChouse structure contracts, entered by Guangzhou Yurui Information Technology Co., Ltd. (“GZYR Technology”), GZ Yingyou, GZ Shangcong Online and New GZ Yingyou Shareholders (the “Amended and Restated PChouse Structure Contracts”), had replaced the Existing PChouse Structure Contracts. Pursuant to the Amended and Restated PChouse Structure Contracts, the Company will operate its online business relating to the portal of PChouse through GZ Yingyou, GZ Shangcong Online, and GZ Shangcong Advertising.

As a result of the Amended and Restated PChouse Structure Contracts, the Group is able to recognize and receive the economic benefit of the business and operations of GZ Yingyou, GZ Shangcong Internet and GZ Shangcong Advertising. The Amended and Restated PChouse Structure Contracts are also designed to provide the Company with effective control over and (to the extent permitted by PRC law) the right to acquire the equity interests of GZ Yingyou Shareholders in GZ Yingyou and the equity interests of GZ Yingyou in, or assets of, GZ Shangcong Online. Further details relating to the PChouse Structure Contracts/Amended and Restated PChouse Structure Contracts are disclosed in the Company’s announcements dated 7 August 2018 and 18 February 2019.

64 Annual Report 2020 Pacific Online Limited

DIRECTORS’ REPORT

During the year ended 31 December 2020, the revenue subject to the Amended and Restated PConline Structure Contracts/Further Amended and Restated PConline Structure Contracts, the Amended and Restated PClady Structure Contracts/Further Amended and Restated PClady Structure Contracts and PChouse Structure Contracts/Amended and Restated PChouse Structure Contracts (collectively the “Contracts”) was RMB966 million. As at 31 December 2020, the total assets subject to the Contracts was RMB742 million.

Risk factors in relation to the Contracts

The risks associated with the Contracts were set out in the Prospectus and the Company’s announcements dated 2 July 2015, 7 August 2018, 16 October 2018 and 18 February 2019 (the “Announcements”) and are highlighted as follows:

• If the PRC government finds that the Contracts with the structure for operating the Group’s businesses in China do not comply with the applicable PRC laws and regulations, or if these regulations or their interpretations change in the future, the Group could be subject to severe consequences, including the nullification of the contractual arrangements and the relinquishment of the Group’s interest in the domestic entities.

• The Company relies on the Contracts to control and obtain the economic benefits from the Group’s domestic entities, which may not be as effective in providing operational control as direct ownership.

• Certain terms of the Contracts may not be enforceable under the PRC laws.

• The Existing GZ Yingxin Shareholders/New GZ Yingxin Shareholders, Existing GZ Yingyou Shareholders/New GZ Yingyou Shareholders and Existing GZ Yingyue Shareholders/New GZ Yingyue Shareholders may have conflicts of interest with the Group, which may materially and adversely affect the Group’s business.

• GZP Computer, GZFW Technology and GZYR Technology’s ability to acquire the respective entire equity interests in GZ Yingxin, GDP Internet, GZ Yingyue, GZS Internet, GZ Yingyou and GZS Shangcong Online may be subject to the limitations and substantial costs.

• The Contracts may be subject to the scrutiny of the PRC tax authorities and additional tax may be imposed.

Annual Report 2020 65 Pacific Online Limited

DIRECTORS’ REPORT

In light of the above risks associated with the Contracts, the Group has adopted relevant procedures and internal control measures to ensure the effective operation of the Group and the implementation of the Contracts, including (i) discuss and make all necessary modification to the Contracts in order to maintain the economic interests; (ii) regular report by relevant divisions of the Group to the senior management of the Company in relation to the compliance of the Contracts; (iii) regular report by the senior management of the Group to the Board any non-compliance issues; (iv) retain legal adviser and/or other professional to assist the Group to deal with specific issues arising from the Contracts, if required; and (v) annual review by the independent non-executive directors of the Company the compliance of the Contracts.

As at the date of this annual report, there has been no material change in the Contracts and/or the circumstances under which they were adopted.

The independent non-executive directors of the Company have reviewed the continuing connected transactions for the year ended 31 December 2020 and confirmed the Structure Contract Transactions had been entered into in accordance with the relevant provisions of the structure contracts; the terms of the structure contracts remain unchanged and consistent with those disclosed in the Prospectus and the Announcements; and no dividends have been made by GZ Yingxin to Existing GZ Yingxin Shareholders/New GZ Yingxin Shareholders, by GZ Yingyou to Existing GZ Yingyou Shareholders/New GZ Yingyou Shareholders and by GZ Yingyue to Existing GZ Yingyue Shareholders/New GZ Yingyue Shareholders; and any new structural contractual arrangements entered into, renewed and/or “cloned” during the year ended 31 December 2020 are fair and reasonable so far as the Company is concerned and in the interests of the Company and its shareholders as a whole.

The auditor of the Company was engaged to report on the Group’s continuing connected transactions in accordance with Hong Kong Standard on Assurance Engagements 3000 (Revised) “Assurance Engagements Other Than Audits or Reviews of Historical Financial Information” and with reference to Practice Note 740 “Auditor’s Letter on Continuing Connected Transactions under the Hong Kong Listing Rules” issued by the Hong Kong Institute of Certified Public Accountants. The auditor of the Company has issued his unqualified letter containing his findings and conclusions in respect of the aforesaid continuing connected transactions in accordance with Listing Rule 14A.56. A copy of the auditor’s letter has been provided by the Company to the Stock Exchange.

66 Annual Report 2020 Pacific Online Limited

DIRECTORS’ REPORT

AUDITOR

A resolution will be proposed at the 2021 AGM to re-appoint Messrs. PricewaterhouseCoopers as auditor of the Company.

On behalf of the Board

Lam Wai Yan Chairman

29 March 2021

Annual Report 2020 67 Pacific Online Limited

INDEPENDENT AUDITOR’S REPORT

To the Shareholders of Pacific Online Limited

(incorporated in the Cayman Islands with limited liability)

OPINION

What we have audited

The consolidated financial statements of Pacific Online Limited (the “Company”) and its subsidiaries (the “Group”) set out on pages 75 to 151, which comprise:

• the consolidated balance sheet as at 31 December 2020;

• the consolidated income statement for the year then ended;

• the consolidated statement of comprehensive income for the year then ended;

• the consolidated statement of changes in equity for the year then ended;

• the consolidated statement of cash flows for the year then ended; and

• the notes to the consolidated financial statements, which include a summary of significant accounting policies.

PricewaterhouseCoopers, 22/F, Prince’s Building, Central, Hong Kong T: +852 2289 8888, F: +852 2810 9888, www.pwchk.com

68 Annual Report 2020 Pacific Online Limited

INDEPENDENT AUDITOR’S REPORT

Our opinion

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

BASIS FOR OPINION

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

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

Independence

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

Annual Report 2020 69 Pacific Online Limited

INDEPENDENT AUDITOR’S REPORT

KEY AUDIT MATTERS

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

Key audit matter identified in our audit relates to recoverability of trade receivables.

Key Audit Matter How our audit addressed the Key Audit Matter Recoverability of Trade Receivables Our audit procedures in relation to management’s assessment on the impairment Refer to Note 4(a) (critical accounting of trade receivables included: estimates and judgments) and Note 20 (trade receivables) to the consolidated financial We understood, evaluated and validated, on a statements.

We understood, evaluated and validated, on a sampling basis, the key controls in place over management’s assessment on ECL of trade receivables and assessed the inherent risk of material misstatement by considering the degree of estimation uncertainty and other inherent risk factors;

As at 31 December 2020, the net book value o f t r a d e r e c e i v a b l e s a m o u n t e d t o RMB610,629,000 (after the provision of RMB147,132,000), which approximated to 40% of the Group’s total assets.

We obtained the documentation of management’s assessment on ECL of trade receivables. We discussed with management to understand the ECL model and estimates used to assess the ECL rate. We evaluated the management’s estimated ECL by considering the reputation and financial capability of the customers against the publicly available information, and the cash collection performance against the historical payment records. We also considered and evaluated the appropriateness of the impairment model adopted by management.

The Group applied the HKFRS 9 simplified approach to measure lifetime expected credit losses (“ECL”) allowance for trade receivables.

Management estimated the ECL rate, individually, for the trade receivables identified as significant to the Group or with objective evidence of impairment, by considering the market conditions, their knowledge about the customers (including their reputation, financial capability and payment history), the current and forwardlooking information on macroeconomic factors, and the subsequent settlement of each customer.

70 Annual Report 2020 Pacific Online Limited

INDEPENDENT AUDITOR’S REPORT

Key Audit Matter

How our audit addressed the Key Audit Matter

Recoverability of Trade Receivables (continued) Management estimated the ECL rate, collectively, for other insignificant trade receivables, by considering the market conditions, the aging profile, and the current and forward-looking information on macroeconomic factors that relevant to determine the ability of customers to settle the receivables in the future. The judgements and estimations are subject to high degree of estimation uncertainty. The inherent risk in relation to the assessment of ECL of trade receivables is considered relatively higher due to uncertainty of significant assumptions used. We focused on this area because of the significance of the trade receivables balance and management’s judgements involved in the impairment assessment.

We tested, on a sampling basis, the accuracy of the trade receivables aging report prepared by management. We compared the historical credit losses incurred with the historical ECL. We evaluated whether management’s assessment on the current and forward- looking macroeconomic factors that impact the ability of customers to settle the trade receivables in the future was appropriate by considering the external market information. We checked the subsequent settlement of trade receivables on a sampling basis to the relevant bank receipts. We found that management’s judgments and estimates used in the assessment of recoverability of trade receivables were supported by available evidences.

OTHER INFORMATION

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

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

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

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

Annual Report 2020 71 Pacific Online Limited

INDEPENDENT AUDITOR’S REPORT

RESPONSIBILITIES OF DIRECTORS AND THOSE CHARGED WITH GOVERNANCE FOR THE CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. We report our opinion solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. Reasonable assurance is a high level of assurance, but it is not a guarantee that an audit conducted in accordance with HKSAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

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

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

72 Annual Report 2020 Pacific Online Limited

INDEPENDENT AUDITOR’S REPORT

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

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

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

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

• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

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

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

Annual Report 2020 73 Pacific Online Limited

INDEPENDENT AUDITOR’S REPORT

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

The engagement partner on the audit resulting in this independent auditor’s report is Ho Chiu Yin, Ivan.

PricewaterhouseCoopers Certified Public Accountants

Hong Kong, 29 March 2021

74 Annual Report 2020 Pacific Online Limited

CONSOLIDATED INCOME STATEMENT

		Year ended 31 December
	Note	2020 2019 RMB’000 RMB’000
Revenue Cost of revenue	5 6	967,470 990,823 (407,014) (383,546)
Gross profit		560,456 607,277
Selling and marketing costs	6	(190,140) (257,662)
Administrative expenses	6	(80,946) (67,663)
Product development expenses	6	(67,006) (77,768)
Net impairment losses on financial assets	3.1(b)	(57,018) (32,457)
Other income	8	20,211 9,694
Operating profit		185,557 181,421
Finance income Finance cost		7,605 7,164 (1,875) (461)
Finance income — net	9	5,730 6,703
Share of net losses of an associate accounted for using
the equitymethod		— (356)
Profit before income tax Income tax expense	10	191,287 187,768 (27,713) (33,088)
Profit for theyear		163,574 154,680
Attributable to:
— Equity holders of the Company		161,887 153,124
— Non-controllinginterests		1,687 1,556
		163,574 154,680
Earnings per share for profit attributable to
equity holders of the Company for the year
— Basic and diluted (RMB)	11	14.33 cents 13.62 cents

The above consolidated income statement should be read in conjunction with the accompanying notes.

Annual Report 2020 75 Pacific Online Limited

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

	Year ended 31 December	Year ended 31 December
	2020	2019
	RMB’000	RMB’000
Profit for the year	163,574	154,680
Items that will not be reclassified to profit or loss
Changes in value of financial assets at fair value through
other comprehensive income	9,909	7,244
Other comprehensive income for theyear, net of tax	9,909	7,244
Total comprehensive income for theyear	173,483	161,924
Attributable to:
— Equity holders of the Company	171,796	160,368
— Non-controllinginterests	1,687	1,556
	173,483	161,924

The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.

76 Annual Report 2020 Pacific Online Limited

CONSOLIDATED BALANCE SHEET

		As at 31	December
		2020	2019
	Note	RMB’000	RMB’000
ASSETS
Non-current assets
Right-of-use assets	14	15,425	15,774
Property and equipment	13	196,687	173,383
Investment property	15	47,913	43,282
Intangible assets	16	9,079	9,477
Deferred income tax assets Financial assets at fair value through other	19	55,281	50,489
comprehensive income	21	62,785	52,876
		387,170	345,281
Current assets
Trade and note receivables, other receivables and
prepayments	20	652,443	644,472
Short-term bank deposits with original terms of over
three months Restricted cash	22 22	117,249 30	2,100 —
Cash and cash equivalents	22	356,807	425,942
		1,126,529	1,072,514
Total assets		1,513,699	1,417,795
EQUITY
Equity attributable to equity holders of
the Company
Ordinary shares	23	10,491	10,491
Reserves	24	1,049,655	991,931
Non-controlling interests		1,060,146 5,309	1,002,422 3,622
Total equity		1,065,455	1,006,044

Annual Report 2020 77 Pacific Online Limited

CONSOLIDATED BALANCE SHEET

		As at 31	December
		2020	2019
	Note	RMB’000	RMB’000
LIABILITIES
Non-current liabilities
Lease liabilities	14	74	14
Current liabilities
Accruals and other payables	25	348,350	316,384
Contract liabilities		48,118	45,956
Current income tax liabilities		51,394	49,004
Lease liabilities	14	308	393
		448,170	411,737
Total liabilities		448,244	411,751
Total equity and liabilities		1,513,699	1,417,795

The above consolidated balance sheet should be read in conjunction with the accompanying notes.

The financial statements on pages 75 to 151 were approved by the board of directors on 29 March 2021 and were signed on its behalf.

Lam Wai Yan Director

Wang Ta-Hsing Director

78 Annual Report 2020 Pacific Online Limited

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Attributable to equity holders of the Company

					Non-
		Ordinary			controlling	Total
		shares	Reserves	Subtotal	interests	equity
	Note	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
Balance at 1 January 2019		10,491	984,176	994,667	2,066	996,733
Comprehensive income
Profit for the year		—	153,124	153,124	1,556	154,680
Other comprehensive income		—	7,244	7,244	—	7,244
Total comprehensive income		—	160,368	160,368	1,556	161,924
Transactions with shareholders
Cash dividends relating to 2018	12	—	(153,133)	(153,133)	—	(153,133)
Share Award Scheme
— value of employee services	24(a)	—	520	520	—	520
Balance at 31 December 2019		10,491	991,931	1,002,422	3,622	1,006,044
Comprehensive income
Profit for the year		—	161,887	161,887	1,687	163,574
Other comprehensive income		—	9,909	9,909	—	9,909
Total comprehensive income		—	171,796	171,796	1,687	173,483
Transactions with shareholders
Cash dividends relating to 2019	12	—	(122,162)	(122,162)	—	(122,162)
Share Award Scheme
— value of employee services	24(a)	—	8,090	8,090	—	8,090
Balance at 31 December 2020		10,491	1,049,655	1,060,146	5,309	1,065,455

The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.

Annual Report 2020 Pacific Online Limited

79

CONSOLIDATED STATEMENT OF CASH FLOWS

		Year ended 31 December
	Note	2020 2019 RMB’000 RMB’000
Cash flows from operating activities
Cash generated from operations	26(a)	236,374 165,111
Income taxpaid		(30,115) (42,578)
Net cashgenerated from operatingactivities		206,259 122,533
Cash flows from investing activities
Placement of short-term bank deposits with original
terms of over three months Receipt from maturity of short-term bank deposits with		(117,249) (4,350)
original terms of over three months		2,100 53,000
Interest received Purchase of property and equipment		7,605 7,164 (46,408) (7,158)
Disposals of property and equipment		2,225 545
Purchase of intangible assets		(14) (738)
Disposal of a subsidiary		445 —
Dividends received		525 729
Net cash (used in)/generated from investingactivities		(150,771) 49,192
Cash flows from financing activities
Cash dividends paid	12	(122,162) (153,133)
Leasepayments	26(b)	(622) (407)
Net cash used in financingactivities		(122,784) (153,540)
Net (decrease)/increase in cash and cash
equivalents		(67,296) 18,185
Cash and cash equivalents at beginning of year		425,942 408,191
Exchange losses on cash and cash equivalents		(1,839) (434)
Cash and cash equivalents at end ofyear	22	356,807 425,942

The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.

80 Annual Report 2020 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. GENERAL INFORMATION

(a) General information

Pacific Online Limited (the “Company”) was incorporated on 27 August 2007 as an exempted company with limited liability under the Company Law, Cap.22, (Law 3 of 1961, as combined and revised) of the Cayman Islands. The address of its registered office is Second Floor, Century Yard, Cricket Square, P.O. Box 902, Grand Cayman, KY1-1103, Cayman Islands.

The Company and its subsidiaries (together, the “Group”) are principally engaged in the provision of internet advertising services in the People’s Republic of China (the “PRC”).

The Company has its shares listed on The Stock Exchange of Hong Kong Limited since 18 December 2007.

These consolidated financial statements are presented in Renminbi (“RMB”), unless otherwise stated.

These consolidated financial statements have been approved for issue by the board of directors (the “Board”) of the Company on 29 March 2021.

(b) Operations of the online advertising business of the Group

The PRC laws and regulations limit foreign ownership of companies providing valueadded telecommunications services, which include online advertising through the internet. In order for the Group to provide such services in the PRC, the following arrangements have been made:

• Establishment of Guangzhou Yingxin Computer Technology Exchange Co., Ltd. (廣 州英鑫計算機科技交流有限公司, “GZ Yingxin”)

GZ Yingxin, a PRC limited liability company, was established on 25 November 2003 by Ms. Zhang Cong Min, Ms. Fan Zeng Chun and Ms. Lu Wu Qing, employees of Takehigh Industrial Limited (裕向實業有限公司) (“Takehigh”) and its subsidiaries (together, the “Takehigh Group”), who are PRC citizens as its legal owners (the “3 Registered Owners”). Takehigh also made loans to the 3 Registered Owners for financing their initial working capital in establishing GZ Yingxin. Through the execution of various contracts and agreements (collectively defined as “Structure Contracts”, see below for more details) among the Takehigh Group, GZ Yingxin and the 3 Registered Owners, the Takehigh Group controls GZ Yingxin. GZ Yingxin has been accounted for as a subsidiary of the Takehigh Group.

Annual Report 2020 81 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. GENERAL INFORMATION (CONTINUED)

(b) Operations of the online advertising business of the Group (Continued)

• Transfer/acquisition of equity ownership of certain PRC operating companies to GZ Yingxin

Through various equity transfer arrangements commenced after the establishment of GZ Yingxin, all the equity interests of two operating companies in the PRC, Guangzhou Pacific Advertising Co., Ltd. (廣州市太平洋廣告有限公司, “GZP Advertising”) and Guangdong Pacific Internet Information Service Co., Ltd. (廣東 太平洋互聯網信息服務有限公司, “GDP Internet”) were transferred to GZ Yingxin in August 2007.

Thereafter, GZ Yingxin became the holding company of GDP Internet and GZP Advertising.

• Structure Contracts arrangements made between Takehigh Group and GZ Yingxin Group

In addition to GZ Yingxin’s arrangement, Structure Contracts have also been executed among Guangzhou Pacific Computer Information Consulting Co., Ltd. (廣 州太平洋電腦信息咨詢有限公司, “GZP Computer”), a subsidiary of the Takehigh Group, the subsidiaries of GZ Yingxin, and the 3 Registered Owners. Through these contractual arrangements, Takehigh can exercise effective financial and operational control over GZ Yingxin and its subsidiaries (collectively the “GZ Yingxin Group”). Takehigh and GZP Computer are also entitled to substantially all the operating profits and residual benefits generated by GZ Yingxin Group under these arrangements. In particular, the 3 Registered Owners are required under the contractual arrangements made with the Takehigh Group to transfer their interests in GZ Yingxin to the Takehigh Group or its designee, upon the Takehigh Group’s request at the lowest amount of consideration permitted by PRC law and upon the time when the relevant PRC law and regulations allow such to do so.

Further, the Takehigh Group owns the intellectual property developed by GDP Internet and it also receives the cash flows derived from the operations of GDP Internet and its subsidiaries through the levying of service and consultancy fees. The ownership interests in GZ Yingxin and GDP Internet have also been pledged by the 3 Registered Owners to the Takehigh Group.

As a result of the contractual arrangements, Takehigh has rights to variable returns from its involvement with GZ Yingxin Group and has ability to affect those returns through its power over GZ Yingxin Group and is considered to control GZ Yingxin Group.

82 Annual Report 2020 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. GENERAL INFORMATION (CONTINUED)

(b) Operations of the online advertising business of the Group (Continued)

• Similar Structure Contracts arrangements made subsequent to GZ Yingxin Group

Similar Structure Contracts were also executed for other PRC operating companies established by the Group subsequently. All these PRC operating companies are treated as controlled structured entities of the Company and their financial statements have been consolidated by the Company.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

This note provides a list of the significant accounting policies adopted in the preparation of these consolidated financial statements. These policies have been consistently applied to all the years presented, unless otherwise stated.

2.1 Basis of preparation

(i) Compliance with Hong Kong Financial Reporting Standards (“HKFRSs”) and Hong Kong Companies Ordinance (Cap. 622)

The consolidated financial statements of the Group have been prepared in accordance with HKFRSs and the disclosure requirements of the Hong Kong Companies Ordinance (Cap. 622).

(ii) Historical cost convention

The consolidated financial statements have been prepared under the historical cost convention, except for financial assets at fair value through other comprehensive income, which is measured at fair value.

Annual Report 2020 83 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.1 Basis of preparation (Continued)

(iii) New and amended standards adopted by the Group

The Group has applied the following standards and amendments for the first time for their annual reporting period commencing 1 January 2020:

• Amendments to HKAS 1 and HKAS 8 “Definition of Material”;

• Amendments to HKFRS 3 “Definition of a Business”;

• Amendments to HKFRS 9, HKAS 39 and HKFRS 7 “Interest Rate Benchmark Reform”;

• Amendments to HKFRS 16 “COVID-19 Related Rent Concessions”;

• Conceptual Framework for Financial Reporting 2018 “Revised Conceptual Framework for Financial Reporting”.

The amendments listed above did not have any impact on the amounts recognised in prior periods and are not expected to significantly affect the current or future periods.

84 Annual Report 2020 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.1 Basis of preparation (Continued)

(iv) New standards, amendments to standards and interpretations not yet adopted

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

		Effective for annual
		periods beginning on
		or after
Amendments to	Property, Plant and Equipment:	1 January 2022
HKAS 16	Proceeds before intended use
Amendments to	Reference to the Conceptual	1 January 2022
HKFRS 3	Framework
Amendments to	Onerous Contracts — Cost of Fulfilling	1 January 2022
HKAS 37	a Contract
Annual	Improvements to HKFRS 1, HKFRS 9,	1 January 2022
Improvements to	HKFRS 16 and HKAS 41
HKFRS Standards
2018–2020
HKFRS 17	Insurance Contracts	1 January 2023
Amendments to	Classification of Liabilities as Current	1 January 2023
HKAS 1	or Non-current
Amendments to	Sale or contribution of assets between	To be determined
HKFRS 10 and	an investor and its associate or joint
HKAS 28	venture

Annual Report 2020 85 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.2 Principles of consolidation and equity accounting

2.2.1 Subsidiaries

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

The directors of the Company have concluded that it is appropriate to include the PRC operating companies under Structure Contracts as stated in Note 17(a) in its consolidated financial statements, notwithstanding lack of the legal ownership, because as described in Note 1(b), the Company has rights to variable returns from its involvement with these companies and has the ability to affect those returns through its power over these companies and is considered to control these companies. Consequently, the Company regards these companies as consolidated structured entities under HKFRSs.

Intra-group transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of transferred asset. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated balance sheet, respectively.

2.2.2 Associates

An associate is an entity over which the Group has significant influence but not control or joint control. Investment in an associate is accounted for using the equity method of accounting (Note 2.2.3), after initially being recognised at cost.

86 Annual Report 2020 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.2 Principles of consolidation and equity accounting (Continued)

2.2.3 Equity accounting

Under the equity method of accounting, the investments are initially recognised at cost and adjusted thereafter to recognise the Group’s share of the postacquisition profits or losses of the investee in profit or loss, and the Group’s share of movements in other comprehensive income of the investee in other comprehensive income. Dividends received or receivable from associates are recognised as a reduction in the carrying amount of the investment.

When the Group’s share of losses in an equity-accounted investment equals or exceeds its interest in the entity, including any other unsecured long-term receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the other entity.

Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in these entities. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of equity accounted investees have been changed where necessary to ensure consistency with the policies adopted by the Group.

The carrying amount of equity-accounted investments is tested for impairment in accordance with the policy described in Note 2.9.

2.2.4 Changes in ownership interests

The Group treats transactions with non-controlling interests that do not result in a loss of control as transactions with equity owners of the Group. A change in ownership interest results in an adjustment between the carrying amounts of the controlling and non-controlling interests to reflect their relative interests in the subsidiary. Any difference between the amount of the adjustment to noncontrolling interests and any consideration paid or received is recognised in a separate reserve within equity attributable to owners of the Group.

Annual Report 2020 87 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.2 Principles of consolidation and equity accounting (Continued)

2.2.4 Changes in ownership interests (Continued)

When the Group ceases to consolidate or equity account for an investment because of a loss of control or significant influence, any retained interest in the entity is remeasured to its fair value with the change in carrying amount recognised in profit or loss. This fair value becomes the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss or transferred to another category of equity as specified/permitted by applicable HKFRSs.

If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income are reclassified to profit or loss where appropriate.

2.2.5 Business combinations

The acquisition method of accounting is used to account for all business combinations, regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the:

• fair values of the assets transferred,

• liabilities incurred to the former owners of the acquired business,

• equity interests issued by the Group,

• fair value of any asset or liability resulting from a contingent consideration arrangement, and

• fair value of any pre-existing equity interest in the subsidiary.

88 Annual Report 2020 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.2 Principles of consolidation and equity accounting (Continued)

2.2.5 Business combinations (Continued)

Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquired entity on an acquisition-by-acquisition basis either at fair value or at the non-controlling interest’s proportionate share of the acquired entity’s net identifiable assets.

Acquisition-related costs are expensed as incurred.

The excess of the

• consideration transferred,

• amount of any non-controlling interest in the acquired entity, and

• acquisition-date fair value of any previous equity interest in the acquired entity.

Over the fair value of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the business acquired, the difference is recognised directly in profit or loss as a bargain purchase.

Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value with changes in fair value recognised in profit or loss.

If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date. Any gains or losses arising from such remeasurement are recognised in profit or loss.

Annual Report 2020 89 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.3 Separate financial statements

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

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

2.4 Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-makers. The chief operating decision-makers, who are responsible for allocating resources and assessing performance of the operating segments, have been identified as the executive directors that make strategic decisions.

2.5 Foreign currency translation

(a) Functional and presentation currency

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

(b) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rates are generally recognised in profit or loss. They are deferred in equity if they relate to qualifying cash flow hedges and qualifying net investment hedges or are attributable to part of the net investment in a foreign operation.

Foreign exchange gains and losses are presented in the statement of profit or loss on a net basis within finance income — net.

90 Annual Report 2020 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.5 Foreign currency translation (Continued)

(b) Transactions and balances (Continued)

Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss. For example, translation differences on non-monetary assets and liabilities such as equities held at fair value through profit or loss (“FVPL”) are recognised in profit or loss as part of the fair value gain or loss and translation differences on non-monetary assets such as equities classified as financial assets at fair value through other comprehensive income (“FVOCI”) are recognised in other comprehensive income.

(c) Group companies

The results and financial position of all the group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

• assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;

• income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and

• all resulting currency differences are recognised in other comprehensive income.

On consolidation, exchange differences arising from the translation of the net investment in foreign operations are taken to shareholders’ equity. On the disposal of a foreign operation, all of the currency translation differences accumulated in equity in respect of that operation attributable to the equity holders of the Company are reclassified to profit or loss.

In the case of a partial disposal that does not result in the Group losing control over a subsidiary that includes a foreign operation, the proportionate share of accumulated currency translation differences are re-attributed to non-controlling interests and are not recognised in profit or loss.

Annual Report 2020 91 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.6 Property and equipment

Property and equipment is stated at historical cost less accumulated depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

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

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

Buildings	39–47 years
Building improvements	10 years
Leasehold improvements	the shorter of their useful lives
	and the lease terms
Computers and servers	3–5 years
Motor vehicles	5 years
Furniture, fittings and equipment	5 years

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (Note 2.9).

Gains and losses on disposals are determined by comparing proceeds with the carrying amount and are recognised within administrative expenses in the consolidated income statement.

2.7 Investment properties

Investment properties, principally freehold office buildings, are held for long-term rental yields and are not occupied by the Group. Investment property is initially measured at cost, including related transaction costs and where applicable borrowing costs. The Group adopts the cost model for subsequent measurement for investment properties.

92 Annual Report 2020 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.8 Intangible assets

(a) Computer software and technology

Acquired computer software and technology are capitalised on the basis of costs incurred to acquire and bring to use the specific software. These costs are amortised over their estimated useful lives of two years.

(b) Club membership

Club membership is stated at cost less impairment losses, if any. No amortisation is charged as the club membership has an indefinite useful life because the Company has the contractual right to control over the asset and legal rights with no definite period.

(c) Brand and technology

Brand and technology acquired in a business combination are recognised at fair value at the acquisition date. Brand and technology have a finite useful life and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost of brand and technology over their estimated useful lives of 5 to 10 years.

(d) Goodwill

Goodwill is measured as described in Note 2.2.5. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill is not amortised but it is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cashgenerating units that are expected to benefit from the business combination in which the goodwill arose. The units or groups of units are identified at the lowest level at which goodwill is monitored for internal management purposes, being the operating segments.

Annual Report 2020 93 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.9 Impairment of non-financial assets

Assets that have an indefinite useful life, for example club membership and goodwill, are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (“cash generating units”). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at the end of each reporting period.

2.10 Investments and other financial assets

(a) Classification

The Group classifies its financial assets in the following measurement categories:

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

• those to be measured at amortised cost.

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

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

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

(b) Recognition and derecognition

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

94 Annual Report 2020 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.10 Investments and other financial assets (Continued)

(c) Measurement

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

Debt instruments

Subsequent measurement of debt instruments depends on the Group’s business model for managing the asset and the cash flow characteristics of the asset.

Trade and note receivables, other receivables that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortised cost. Interest income from these financial assets is included in finance income using the effective interest rate method. Any gain or loss arising on derecognition is recognised directly in profit or loss and presented in other gains/(losses) (if any), together with foreign exchange gains and losses. Impairment losses are presented as separate line item in the consolidated income statement.

Equity instruments

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

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

Annual Report 2020 95 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.10 Investments and other financial assets (Continued)

(d) Impairment

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

For trade receivables, the Group applies the simplified approach permitted by HKFRS 9, which requires expected lifetime losses to be recognised from initial recognition of the receivables. Impairment on note receivables and other receivables is measured as either 12-month expected losses or lifetime expected losses. If a significant increase in credit risk of a receivable occurred since initial recognition, then impairment is measured as lifetime expected credit losses.

2.11 Offsetting financial instruments

Financial assets and liabilities are offset and the net amount is reported in the consolidated balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. The Group has also entered into arrangements that do not meet the criteria for offsetting but still allow for the related amounts to be set off in certain circumstances, such as bankruptcy or the termination of a contract.

2.12 Trade and note receivables, other receivables

Trade receivables are amounts due from customers for services performed in the ordinary course of business. They are generally due for settlement within one year and therefore are all classified as current assets.

Trade receivables are recognised initially at the amount of consideration that is unconditional unless they contain significant financing components, when they are recognised at fair value. The Group holds the trade receivables with the objective of collecting the contractual cash flows and therefore measures them subsequently at amortised cost using the effective interest method. See Note 2.10 for further information about the Group’s accounting for trade receivables and for a description of the Group’s impairment policies.

96 Annual Report 2020 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.13 Cash and cash equivalents

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

2.14 Share capital

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

Where any group company purchases the Company’s equity share capital (treasury shares), the consideration paid, including any directly attributable incremental costs (net of income taxes) is deducted from equity attributable to the Company’s equity holders until the shares are cancelled or reissued. Where such shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the Company’s equity holders.

2.15 Accruals and other payables

Accruals and other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method unless the effect of discounting would be immaterial, in which case they are stated at cost.

2.16 Current and deferred income tax

The income tax expense or credit for the period is the tax payable on the current period’s taxable income based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses.

(a) Current income tax

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

Annual Report 2020 97 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.16 Current and deferred income tax (Continued)

(b) Deferred income tax

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

Deferred tax assets are recognised only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses.

Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in foreign operations where the company is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future.

Deferred tax assets and liabilities are offset where there is a legally enforceable right to offset current tax assets and liabilities and where the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

98 Annual Report 2020 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.17 Employee benefits

(a) Pension obligations

The group companies incorporated in the PRC contributes based on certain percentage of the salaries of the employees to a defined contribution retirement benefit plan organised by relevant government authorities in the PRC on a monthly basis. The government authorities undertake to assume the retirement benefit obligations payable to all existing and future retired employees under these plans and the Group has no further obligation for post-retirement benefits beyond the contributions made.

The group companies incorporated in Hong Kong operate a defined contribution plan, the assets of which are generally held in a separate trustee-administered fund. These group companies pay fixed contribution into such defined contribution plan and have no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee services in the current and prior periods.

Contributions to these defined contributions plans are expensed as incurred.

(b) Housing benefits

Full-time PRC employees of the Group are entitled to participate in governmentsponsored housing funds. The Group contributes to these funds based on certain percentages of the salaries of these employees on a monthly basis. The Group’s liability in respect of these funds is limited to the contribution payable in each period. Contributions to the housing funds are expensed as incurred.

Annual Report 2020 99 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.18 Share-based payment

The Group operates a number of share-based compensation plans (including share option schemes and share award schemes), under which the Group receives services from employees as consideration for equity instruments (including share options and awarded shares) of the Company. The fair value of the employee services received in exchange for the grant of equity instruments of the Company is recognised as an expense over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied, and credited to share-based compensation reserve under equity.

For grant of share options, the total amount to be expensed is determined by reference to the fair value of the options granted by using the Binomial valuation model or the Trinomial valuation model, which includes the impact of market performance conditions (such as the Company’s share price) but excludes the impact of service condition and non-market performance conditions. For grant of awarded shares, the total amount to be expensed is determined by reference to the market price of the Company’s shares at the grant date.

Non-market performance and services conditions are included in assumptions about the number of options that are expected to become vested.

From the perspective of the Company, the Company grants its equity instruments to employees of its subsidiaries to exchange for their services related to the subsidiaries. Accordingly, the share-based compensation expenses, which are recognised in the consolidated financial statements, are treated as part of the “interests in subsidiaries” in the Company’s balance sheet.

When the options are exercised, the proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium.

100 Annual Report 2020 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.19 Revenue recognition

The Group derives its advertising services revenues from placing online advertisements such as banners, links and logos on the Group’s websites in the PRC as well as organising offline activities for its customers under fixed-price contracts.

The majority of the online advertisement are provided for a fixed period of time with no guaranteed minimum impression level. Therefore, revenue from providing online advertisements is recognised based on the actual service provided as at the end of the reporting period as proportion of the total services to be provided because the customer receives and use the benefits simultaneously. The proportion is determined based on the actual displaying hours of the advertisement relative to the total expected displaying hours. Revenue derived from offline activities services is recognised at a point in time when the activity is completed and accepted by the customer.

Some contracts include multiple deliverables, such as providing online advertisement services and organising offline activities to help the customers promote their products. There contracts are therefore accounted for by two separate performance obligations.

Where the contracts include multiple performance obligations, the transaction price will be allocated to each performance obligation based on the stand-alone selling prices. Where these are not directly observable, they are estimated based on expected cost plus margin.

Estimates of revenues, cost or extent of progress towards completion are revised if circumstances change. Any resulting increases or decreases in estimated revenues or costs are reflected in profit or loss in the period in which the circumstances that give rise to the revision become known by management.

For advertising contracts, the Group collected fixed amount as agreed in contracts on a payment schedule. If the services rendered exceed the payments, a contract asset is recognised. If the payments exceed the services rendered, a contract liability is recognised. The Group invoiced on a regular basis based on the services rendered and the consideration is recorded as receivables when invoiced.

Annual Report 2020 101 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.20 Earnings per share

(a) Basic earnings per share

Basic earnings per share is calculated by dividing:

• the profit attributable to owners of the Company, excluding any costs of servicing equity other than ordinary shares

• by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year and excluding treasury shares.

(b) Diluted earnings per share

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

• the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares, and

• the weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares.

2.21 Dividend income

Dividends are received from financial assets measured at FVPL and at FVOCI. Dividends are recognised as other income in profit or loss when the right to receive payment is established.

2.22 Interest income

Interest income is presented as finance income where it is earned from financial assets that are held for cash management purposes. Any other interest income is included in other income.

Interest income is calculated by applying the effective interest rate to the gross carrying amount of a financial asset except for financial assets that subsequently become credit-impaired. For credit-impaired financial assets the effective interest rate is applied to the net carrying amount of the financial asset (after deduction of the loss allowance).

102 Annual Report 2020 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.23 Product development expenses

Expenditure on product development research is expensed as incurred.

Expenditure on development or from the development phase of an individual project is recognised as an internally generated intangible if, and only if, the Group can demonstrate all of the following:

• the technical feasibility of completing the intangible asset so that it will be available for use or sale;

• its intention to complete the intangible asset and use or sell it;

• its ability to use or sell the intangible asset;

• how the intangible asset will generate probable future economic benefits;

• the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and

• its ability to measure reliably the expenditure attributable to the intangible asset during its development.

Other development expenditures that do not meet these criteria are recognised as expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period.

2.24 Leases

Leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Group.

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

• fixed payments (including in-substance fixed payments), less any lease incentives receivable;

• variable lease payment that are based on an index or a rate, initially measured using the index or rate as at the commencement date;

• amounts expected to be payable by the Group under residual value guarantees.

Annual Report 2020 103 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.24 Leases (Continued)

• the exercise price of a purchase option if the Group is reasonably certain to exercise that option, and

• payments of penalties for terminating the lease, if the lease term reflects the Group exercising that option.

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

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

To determine the incremental borrowing rate, the Group:

• where possible, uses recent third-party financing received by the individual lessee as a starting point, adjusted to reflect changes in financing conditions since third party financing was received;

• uses a build-up approach that starts with a risk-free interest rate adjusted for credit risk for leases held by the Group, which does not have recent third party financing, and

• makes adjustments specific to the lease, for example, term, country, currency and security.

A leasee is exposed to potential future increases in variable lease payments based on an index or rate, which are not included in the lease liability until they take effect. When adjustments to lease payments based on an index or rate take effect, the lease liability is reassessed and adjusted against the right-of-use asset.

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

104 Annual Report 2020 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.24 Leases (Continued)

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

• the amount of the initial measurement of lease liability;

• any lease payments made at or before the commencement date less any lease incentives received;

• any initial direct costs, and

• restoration costs.

Right-of-use assets are generally depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis.

Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less.

Lease income from operating leases where the Group is a lessor is recognised in income on a straight-line basis over the lease term (Note 8). Initial direct costs incurred in obtaining an operating lease are added to the carrying amount of the underlying asset and recognised as expense over the lease term on the same basis as lease income. The respective leased assets are included in the balance sheet based on their nature.

Lease prepayment for land use right is up-front payment to acquire long-term interest in land. Lease prepayment is carried at cost less accumulated amortisation and impairment losses. Amortisation is provided to write off the cost of lease prepayment on a straight-line basis over the remaining periods of the lease which are from 35 years to 45 years.

2.25 Dividend distribution

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

Annual Report 2020 105 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.26 Government grants

Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions.

Government grants relating to costs are deferred and recognised in the consolidated income statement over the period necessary to match them with the costs that they are intended to compensate.

Government grants relating to property and equipment are included in non-current liabilities as deferred government grants and are credited to the consolidated income statement on a straight-line basis over the expected lives of the related assets.

3. FINANCIAL RISK MANAGEMENT

3.1 Financial risk factors

The Group’s activities expose it to a variety of financial risks: market risk, credit risk and liquidity risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance.

(a) Market risk

(i) Foreign exchange risk

The Group mainly operates in the PRC and most of the Group’s transactions, assets and liabilities are denominated in RMB. To maintain the flexibility in the Company and Hong Kong subsidiaries’ payment of daily operation, the Group holds certain monetary assets denominated in Hong Kong dollar (“HKD”) or US dollar (“USD”) subject to certain thresholds stated in its treasury mandate. This exposes the Group to foreign exchange risk.

There is no other written policy to manage the foreign exchange risk in relation to HKD and USD as management considers that such risk could not be effectively reduced in a low-cost way. Accordingly, the Group did not purchase any forward contract to hedge the foreign exchange risk during the year ended 31 December 2020 (2019: same).

106 Annual Report 2020 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

3. FINANCIAL RISK MANAGEMENT (CONTINUED)

3.1 Financial risk factors (Continued)

(a) Market risk (Continued)

(i) Foreign exchange risk (Continued)

At 31 December 2020, the exchange rate of RMB to HKD and USD were 0.8416 and 6.5249 respectively. If RMB had strengthened/weakened by 0.5% against the HKD/USD with all other variables held constant, post tax profit for the year would have been RMB73,000 (2019: RMB90,000) lower/higher, mainly as a result of net foreign exchange losses/gains in HKD/USD denominated cash at bank. Similarly, the impact on equity would have been RMB314,000 (2019: RMB264,000) lower/higher due to the foreign exchange impact in USD denominated financial assets at FVOCI as at 31 December 2020.

(ii) Price risk

The Group is exposed to price risk because of investments held by the Group and classified on the consolidated balance sheet as financial assets at FVOCI. The Group is not exposed to commodity price risk. To manage its price risk arising from the investments, the Group diversifies its portfolio. The investments made by the Group are either for the purpose of improving investment yield and maintaining high liquidity level simultaneously, or for strategic purpose. Each investment is managed by senior management on a case by case basis.

Financial assets at FVOCI is held for strategic rather than trading purposes. The Group does not actively trade these investments.

The sensitivity analysis is determined based on the exposure to equity price risks of underlying investments related to financial assets at FVOCI at the end of the reporting period. If equity prices of the respective underlying investments held by the Group had been 5% higher/lower as at 31 December 2020, the other comprehensive income would have been approximately RMB3,139,000 (2019: RMB2,644,000) higher/lower.

Annual Report 2020 107 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

3. FINANCIAL RISK MANAGEMENT (CONTINUED)

3.1 Financial risk factors (Continued)

(a) Market risk (Continued)

(iii) Interest rate risk

Interest rate risk relates to the risk that fair value or cash flows of a financial instrument will fluctuate because of changes in market interest rates. Any change in the interest rate promulgated by banks from time to time is not considered to have significant impact to the Group.

For deposits held in banks which are interest bearing, as at 31 December 2020, if the market interest rates had been 0.5% higher/lower with all other variables held constant, post-tax profit for the year would have been RMB2,150,000 (2019: RMB1,945,000) higher/lower, mainly as a result of higher/lower interest income on bank deposits.

Other financial assets and liabilities do not have material interest rate risk.

(b) Credit risk

Credit risk arises from cash and cash equivalents, deposits with banks, as well as trade and note receivables, other receivables.

(i) Risk management

To manage this risk, deposits are mainly placed with state-owned financial institutions in the PRC and international financial institutions outside the PRC of high credit quality. There was no recent history of default of cash and cash equivalents and deposits from these financial institutions.

For trade receivables, the Group assesses the credit quality of the customers and debtors, taking into account their financial position, past experience and other factors. Individual credit terms are granted based on internal assessment results in accordance with guidance set by top management and are reviewed by sales department manager.

Note receivables and other receivables are normally bank acceptance note, advance to employees and deposits, the directors are of the opinion that no significant credit risk exists.

108 Annual Report 2020 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

3. FINANCIAL RISK MANAGEMENT (CONTINUED)

3.1 Financial risk factors (Continued)

(b) Credit risk (Continued)

(ii) Impairment of financial assets

The Group applies the HKFRS 9 simplified approach to measuring the expected credit losses which uses a lifetime expected loss allowance for all trade receivables. Impairment on note receivables and other receivables is measured as either 12-month expected credit losses or lifetime expected credit losses, depending on whether there has been a significant increase in credit risk since initial recognition. Management assessed that the expected credit losses of note receivables and other receivables were immaterial.

To measure the expected credit losses of trade receivable, individual credit evaluation on significant customers and debtors is performed by management. These evaluation focused on the customer and debtor’s payment history and current and future ability for payment taking into account the information specific to the customer and debtor as well as pertaining to the current and future general economic environment in which the customer and debtor operated.

For those not subject to individual credit evaluation or individually assessed as not impaired, management collectively assessed the expected credit losses taking into account of the ageing analysis and the history of bad debt losses in respect of those groups of customers and debtors. The historical loss rates are adjusted to reflect current and forward-looking information affecting the ability of the customers and debtors to settle the receivables.

The ending loss allowances for trade receivables reconcile to the opening loss allowances as follows:

allowances as follows:
	2020	2019
	RMB’000	RMB’000
At beginning of the year	108,427	78,763
Impairment charge of receivables	57,018	32,457
Receivables written off	(18,313)	(2,793)
At end of theyear	147,132	108,427

Annual Report 2020 109 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

3. FINANCIAL RISK MANAGEMENT (CONTINUED)

3.1 Financial risk factors (Continued)

(b) Credit risk (Continued)

• (ii) Impairment of financial assets (Continued)

Trade receivables are written off when management considers there is no reasonable expectation of recovery. Subsequent recoveries of amounts previously written off are credited to profit or loss.

All of the above impairment charge relate to receivables arising from contracts with customers.

While cash and cash equivalents are also subject to impairment requirements of HKFRS 9, the identified impairment loss was immaterial.

(c) Liquidity risk

The Group aims to finance its operations with its own capital and earnings. It did not have any borrowings or credit facilities committed/utilised during the year ended 31 December 2020 (2019: same). Management considers that the Group does not have significant liquidity risk.

3.2 Capital risk management

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

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

110 Annual Report 2020 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

3. FINANCIAL RISK MANAGEMENT (CONTINUED)

3.3 Fair value estimation

This section explains the judgements and estimates made in determining the fair values of the financial instruments that are recognised and measured at fair value in the financial statements. To provide an indication about the reliability of the inputs used in determining fair value, the Group has classified its financial instruments into the three levels prescribed under the accounting standards. An explanation of each level follows underneath the table.

Level 1 RMB’000	Level 2	Level 3	Total
	RMB’000	RMB’000	RMB’000
Financial assets Financial assets at FVOCI 31 December 2020 —
	—	62,785	62,785
Level 1 RMB’000	Level 2 RMB’000	Level 3 RMB’000	Total RMB’000
Financial assets Financial assets at FVOCI 31 December 2019 —	—	52,876	52,876

Level 1: The fair value of financial instruments traded in active markets (such as publicly traded derivatives, and trading and financial assets at FVOCI) is based on quoted market prices at the end of the reporting period. The quoted market price used for financial assets held by the Group is the current bid price. These instruments are included in level 1.

Level 2: The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined using valuation techniques which maximise the use of observable market data and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.

Level 3: If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. This is the case for unlisted equity securities.

Annual Report 2020 111 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

3. FINANCIAL RISK MANAGEMENT (CONTINUED)

3.3 Fair value estimation (Continued)

Specific valuation techniques used to value financial instruments include:

• the use of quoted market prices or dealer quotes for similar instruments

• the fair value of interest rate swaps is calculated as the present value of the estimated future cash flows based on observable yield curves

• the fair value of forward foreign exchange contracts is determined using forward exchange rates at the balance sheet date

• the fair value of the remaining financial instruments is determined using discounted cash flow analysis.

The changes in level 3 instruments for the year ended 31 December 2020 are presented in Note 21.

The directors determine the fair value of the Group’s financial instrument carried at fair value in level 3 at each of the reporting dates.

For the year ended 31 December 2020, there were no significant changes in the business or economic circumstances that affect the fair value of the Group’s financial assets and financial liabilities (2019: same).

3.4 Fair value of financial assets and liabilities measured at amortised cost

The carrying amounts of the Group’s trade and note receivables and other receivables and accruals and other payables approximate their fair values due to their short maturities.

112 Annual Report 2020 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

4. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

The preparation of financial statements requires the use of accounting estimates which, by definition, will seldom equal the actual results. Management also needs to exercise judgement in applying the Group’s accounting policies.

Estimates and judgements are continually evaluated. They are based on historical experience and other factors, including expectations of future events that may have a financial impact on the entity and that are believed to be reasonable under the circumstances.

(a) Impairment of receivables

The Group records impairment of receivables with an assessment made by management on the recoverability of trade and note receivables other receivables, which is based on assumptions about risk of default and expected loss rates. The Group uses judgement in making these assumptions and selecting the inputs to the impairment calculation, based on the Group’s past history, existing market conditions as well as forward looking estimates at the end of each reporting period.

Where the expectation is different from the original estimate, such difference will impact both the carrying value of trade and note receivables other receivables and the impairment charge in the period in which such estimate has been changed.

(b) Income taxes and deferred taxation

The Group is mainly subject to income tax in the PRC. There are transactions (including entitlement to preferential tax treatment and deductibility of expenses) where the ultimate tax determination is uncertain until the final tax position is confirmed by relevant tax authorities. In addition, the Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

Deferred tax assets are recognised for all temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available in the future against which the temporary differences, the carry forward of unused tax credits and unused tax losses could be utilised. Deferred income tax is determined using tax rates and laws that have been enacted or substantially enacted at the balance sheet date and which are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. The directors consider that there would be adequate taxable profits to be generated in the future in order to utilise these deferred tax assets recognised.

Annual Report 2020 113 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

4. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS (CONTINUED)

(c) Fair value of financial assets at FVOCI

Financial assets at FVOCI is carried at their fair value. The fair value of the financial assets at FVOCI was determined by reference to valuations conducted on the underlying investments by the independent third party partner using valuation techniques which involve certain assumptions. Favourable or unfavourable changes to these assumptions may result in changes in the fair value of the Group’s financial assets at FVOCI and corresponding adjustments to the changes in fair value reported in other comprehensive income and the carrying amount of financial assets at FVOCI included in the consolidated financial statements.

When there has been a significant or prolonged decline in the fair value of an investment below their cost, impairment assessment would be performed by the directors of the Company. The determination of what is significant or prolonged requires judgement. In making this judgement, the directors evaluate, among other factors, historical share price movements and the duration and extent to which the fair value of an investment is less than its cost.

5. SEGMENT INFORMATION

The chief operating decision-makers have been identified as the executive directors who make strategic decisions.

The Group is principally engaged in the provision of advertising services for different commodities. The chief operating decision-makers review the Group’s internal reports in order to assess performance and allocate resources. Management has determined the operating segments based on these internal reports.

The chief operating decision-makers consider the advertising business from the perspective of the different internet portals which it operates. As all revenues of the Group are generated from customers in the PRC, they are not further evaluated on a geographic basis.

The chief operating decision-makers assess the performance of the operating segments based on revenues generated. The reportable operating segments are grouped into PCauto, PConline and others. The Company currently does not allocate cost of revenue, operating costs or assets to its segments, as its chief operating decision-makers do not use this information to allocate resources to or evaluate the performance of the operating segments. Therefore, the Company does not report a measure of profit or total assets for each reportable segment.

Revenues of other segments relate to those generated from other portals, including baby and home products and other services.

114 Annual Report 2020 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

5. SEGMENT INFORMATION (CONTINUED)

There were no inter-segment sales for the year ended 31 December 2020 (2019: same). The revenue from external parties reported to the chief operating decision-makers is measured in a manner consistent with that in the consolidated income statement.

	PCauto	PConline	Others	Total
	RMB’000	RMB’000	RMB’000	RMB’000
For the year ended
31 December 2020
Timing of revenue recognition
— Over time	729,121	96,223	30,472	855,816
— At apoint in time	99,391	6,895	5,368	111,654
Revenue	828,512	103,118	35,840	967,470
For the year ended
31 December 2019
Timing of revenue recognition
— Over time	727,401	127,852	76,566	931,819
— At apoint in time	48,882	4,915	5,207	59,004
Revenue	776,283	132,767	81,773	990,823

Though the Company is domiciled in the Cayman Islands, for the year ended 31 December 2020, all revenues of the Group were derived from external customers and they were all generated from the PRC (2019: same).

As at 31 December 2020, other than club membership included in the intangible assets and financial assets at FVOCI, majority of other non-current assets of the Group were located in the PRC (31 December 2019: same).

For the year ended 31 December 2020, there was no revenue derived from a single external customer accounting for ten percent or more of the Group’s revenues (2019: same).

The Group does not disclose information about remaining unsatisfied performance obligations as permitted under the practical expedient in accordance with HKFRS 15 as their original expected duration is less than one year.

Annual Report 2020 115 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

6. EXPENSES BY NATURE

Expenses included in cost of revenue, selling and marketing costs, administrative expenses and product development expenses are analysed as follows:

2020 RMB’000	2019 RMB’000
Employee benefit expenses (Note 7) 247,725 Service commission to advertising agencies 158,164 Outsourcing production cost 138,742 Advertising expenses 88,017 Technology service fees 26,279 Bandwidth and server custody fees 17,407 Depreciation and amortisation expenses — Depreciation of property and equipment (Note 13) 13,913 — Amortisation of intangible assets (Note 16) 412 — Amortisation of right-of-use assets (Note 14) 910 Lawsuit compensation (i) 12,000 Travelling and entertainment expenses 7,606 Other taxes and surcharge (ii) 7,075 Conference and office expenses 5,278 Auditors’ remuneration — Audit services 3,670 — Non-audit services 419 Professional fees 2,932 Expenses related to short term leases 2,029 Impairment charge of investment in an associate — Other expenses 12,528	284,014 152,704 86,205 134,487 25,990 17,889 14,206 154 709 — 14,304 29,529 5,827 3,670 515 1,453 3,623 1,031 10,329
Total cost of revenue, selling and marketing costs, administrative expenses and product development expenses 745,106	786,639

Product development expenses are mainly included in employee benefit expenses and depreciation of property and equipment and amortisation of intangible assets. No product development expenses were capitalised for the year ended 31 December 2020 (2019: same).

• (i) It represents a payment to a third party for the settlement of a lawsuit.

• (ii) Certain subsidiaries operating in the PRC enjoyed a tax relief in cultural construction fees which formed major part of other taxes and surcharge.

116 Annual Report 2020 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

7. EMPLOYEE BENEFIT EXPENSES

EMPLOYEE BENEFIT EXPENSES
2020 RMB’000	2019 RMB’000
Wages, salaries and bonuses and other benefits 215,452 Social security contributions 9,969 Contributions to pension schemes (a) 10,435 Contributions to housingfund 11,869	237,042 13,416 21,115 12,441
247,725	284,014

(a) Pensions scheme — defined contribution plans

The PRC employees of the Group participate in defined contribution retirement schemes, which are administrated and operated by the local government authorities, based on laws and regulations in the PRC. Each employee covered by these schemes is entitled to, after their retirement from the Group, a monthly pension as determined by these schemes. The Group made monthly contributions to the retirement schemes at rates ranging from 14% to 20% of the basic salaries of employees during the year ended 31 December 2020 (2019: same).

All the Hong Kong employees of the Group participate in a mandatory provident scheme (the “MPF Scheme”). Under the MPF Scheme, each company of the Group in Hong Kong (the employer) and its employees make monthly contributions to the scheme at 5% of the employees’ earnings as defined under the Mandatory Provident Fund legislation. The contributions from each of the employers and employees are subject to a cap of HKD1,500 per month and thereafter contributions are voluntary.

The Group has no other obligations for the payment of retirement and other postretirement benefits of employees or retirees other than the payments mentioned above.

Annual Report 2020 117 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

7. EMPLOYEE BENEFIT EXPENSES (CONTINUED)

(b) Five highest paid individuals

The five individuals whose emoluments were the highest in the Group for the year include one (2019: one) director whose emolument is reflected in the analysis presented in Note 7(c). The emoluments payable to the remaining four (2019: four) individuals during the year are as follows:

individuals during the year are as follows:
	2020 2019 RMB’000 RMB’000
Basic salaries, housing allowances, other allowances
and benefits in kind Contributions topension schemes	10,349 8,838 205 283
	10,554 9,121

The emoluments of the remaining four (2019: four) individuals fell within the following bands:

	Number of	individuals
	2020	2019
Emolument bands
HKD1,500,001 to HKD2,000,000	—	3
HKD2,000,001 to HKD2,500,000	3	—
HKD5,000,001 to HKD5,500,000	—	1
HKD6,000,001 to HKD6,500,000	1	—
	4	4

118 Annual Report 2020 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

7. EMPLOYEE BENEFIT EXPENSES (CONTINUED)

(c) Benefits and interests of directors

Directors’ and chief executive’s emoluments

The remuneration of every director and the chief executive for the year ended 31 December 2020 is set out below:

					Employer’s
					contributions
					to a
					retirement
			Discretionary	Housing	benefit
Name of director	Fees	Salaries	bonuses	allowance	scheme	Total
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
Chairman and chief executive
officer (“CEO”)
Dr. Lam Wai Yan	—	831	2,243	1,832	—	4,906
Executive directors
Mr. Wang Ta-Hsing (“Mr. Wang”)	—	373	—	—	16	389
Mr. Ho Kam Wah	—	4	—	—	—	4
Independent non-executive
directors
Mr. Tsui Yiu Wa, Alec	374	—	—	—	—	374
Mr. Thaddeus Thomas Beczak	374	—	—	—	—	374
Mr. Lam Wai Hon, Ambrose	374	—	—	—	—	374
Total	1,122	1,208	2,243	1,832	16	6,421

Annual Report 2020 Pacific Online Limited

119

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

7. EMPLOYEE BENEFIT EXPENSES (CONTINUED)

(c) Benefits and interests of directors (Continued)

Directors’ and chief executive’s emoluments (Continued)

The remuneration of every director and the chief executive for the year ended 31 December 2019 is set out below:

					Employer’s
					contributions
					to a
					retirement
			Discretionary	Housing	benefit
Name of director	Fees	Salaries	bonuses	allowance	scheme	Total
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
Chairman and chief executive
officer (“CEO”)
Dr. Lam Wai Yan	—	772	1,710	1,814	—	4,296
Executive directors
Mr. Wang Ta-Hsing (“Mr. Wang”)	—	369	—	—	16	385
Mr. Ho Kam Wah	—	4	—	—	—	4
Independent non-executive
directors
Mr. Tsui Yiu Wa, Alec	370	—	—	—	—	370
Mr. Thaddeus Thomas Beczak	370	—	—	—	—	370
Mr. Lam Wai Hon, Ambrose	370	—	—	—	—	370
Total	1,110	1,145	1,710	1,814	16	5,795

During the year ended 31 December 2020, none (2019: none) of the directors waived or agreed to waive any emoluments and no emoluments were paid by the Group to any of the directors or the five highest paid individuals as an inducement to join or upon joining the Group or as compensation for loss of office (2019: same).

During the year, no retirement benefits, payments or benefits in respect of termination of directors’ services were paid or made, directly or indirectly, to the directors; nor are any payable (2019: same). No consideration was provided to or receivable by third parties for making available directors’ services (2019: same). There are no loans, quasi-loans or other dealings in favour of the directors, their controlled bodies corporate and connected entities (2019: same).

No director of the Company and their connected entities had a material interest, directly or indirectly, in any significant transactions, arrangements and contracts in relation to the Company’s business to which the Company was or is a party that subsisted at the end of the year or at any time during the year (2019: same).

120 Annual Report 2020 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

8. OTHER INCOME

OTHER INCOME
2020 RMB’000	2019 RMB’000
Government grants (i) 6,977 Additional deduction of input value-added tax 6,072 Rental income 4,951 Gain on disposal of a subsidiary (ii) 1,686 Dividend income on financial assets at FVOCI 525	5,399 752 2,814 — 729
20,211	9,694

• (i) There are no unfulfilled conditions or other contingencies relating to these grants.

• (ii) During the year ended 31 December 2020, the Company disposed of an immaterial subsidiary of the Group to third parties.

9. FINANCE INCOME — NET

2020 RMB’000	2019 RMB’000
Finance income — Interest income 7,605	7,164
Finance cost — Interest expense on lease liabilities (36) — Net foreign exchange losses (1,839)	(27) (434)
(1,875)	(461)
Finance income — net 5,730	6,703

Annual Report 2020 121 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

10. INCOME TAX EXPENSE

INCOME TAX EXPENSE
2020 RMB’000	2019 RMB’000
PRC current tax 32,505 Deferred taxation (4,792)	30,555 2,533
27,713	33,088

The Company, which is a Cayman Islands corporation, is not subject to any profits tax. The subsidiaries of the Group incorporated in Hong Kong were not subject to Hong Kong profits tax as they had no assessable income arising in or derived from Hong Kong during the year ended 31 December 2020 (2019: same).

Current taxation primarily represented the provision for PRC Corporate Income Tax (“CIT”) for subsidiaries operating in the PRC. These subsidiaries are subject to CIT on their taxable income as reported in their respective statutory financial statements adjusted in accordance with the relevant tax laws and regulations in the PRC.

Pursuant to the PRC Corporate Income Tax Law (“CIT Law”), the CIT rate for domestic enterprises and foreign invested enterprises is 25%. In addition, the CIT Law provides for, among others, a preferential tax rate of 15% for enterprises qualified as High and New Technology Enterprises (“HNTE”). GZP Computer and GDP Internet, the principal operating subsidiaries of the Company, successfully renewed the certificate of HNTE in 2020. Therefore, the applicable income tax rate is 15% for the three years from 2020 to 2022. Guangzhou Kuche Information Technology Co., Ltd. (廣州酷車信息科技有限公司, “GZ Kuche”), a PRC operating subsidiary of the Company, was formally designated as HNTE in 2020 and the applicable income tax rate is 15% for the three years from 2020 to 2022. Guangzhou Yurui Information Technology Co., Ltd. (廣州裕睿信息科技有限公司, “GZ Yurui”), a PRC operating subsidiary of the Company, was formally designated as HNTE in 2019 and the applicable income tax rate is 15% for the three years from 2019 to 2021. Assuming that there is no change to the relevant laws and regulations, the directors consider that these four subsidiaries will be granted the preferential tax treatment through an application of renewal, and accordingly, tax rate of 15% has been applied when considering the deferred income tax. All the other PRC entities of the Group are subject to CIT at a rate of 25% in accordance with CIT Law.

122 Annual Report 2020 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

10. INCOME TAX EXPENSE (CONTINUED)

According to CIT Law, a withholding income tax of 10% will be levied on the immediate holding companies outside the PRC when their PRC subsidiaries declare dividends out of profits earned after 1 January 2008. A lower 5% withholding income tax rate may be applied when the immediate holding companies of the PRC subsidiaries are established in Hong Kong and fulfil requirements under the tax treaty agreements between the relevant authorities of the PRC and Hong Kong. Hence, the Group used 5% as its withholding tax rate for certain Hong Kong intermediate holding companies which are expected to fulfill the aforesaid conditions.

The tax on the Group’s profit before income tax differs from the theoretical amount that would arise using the statutory tax rate applicable to profits of all the consolidated PRC entities as follows:

	2020 2019 RMB’000 RMB’000
Profit before income tax expense	191,287 187,768
Tax calculated at the statutory tax rate of 25%
(2019: 25%)	47,822 46,942
Tax effects of
— Tax concessions available to certain PRC subsidiaries (a)	(23,231) (23,857)
— Income not subject to tax	(503) (908)
— Expenses not deductible for tax purposes (b)	4,156 4,730
— Utilisation of previously unrecognised tax losses	(4,608) —
— Unrecognised tax losses	3,754 6,447
— Additional deduction on product development expenses	(8,927) (9,266)
Withholding tax on the earnings to be remitted by PRC
subsidiaries	9,250 9,000
Income tax expense	27,713 33,088

(a) It represented the preferential tax treatments relating to HNTE enjoyed by certain PRC subsidiaries of the Group.

• (b) Expenses not deductible for tax purposes mainly included expenses incurred by the Company and subsidiaries incorporated in Hong Kong.

Annual Report 2020 123 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

11. EARNINGS PER SHARE

(a) Basic

Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year (excluding the ordinary shares purchased by the Group and held for the Share Award Scheme (Note 24(a)).

the Share Award Scheme (Note 24(a)).
2020	2019
Profit attributable to equity holders of the Company (RMB’000) 161,887	153,124
Weighted average number of ordinary shares for basic earningsper share (thousand shares) 1,129,413	1,124,230
Basic earningsper share (RMB) 14.33 cents	13.62 cents

(b) Diluted

Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares, and the weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares.

Diluted earnings per share equals to basic earnings per share as there were no potential diluted shares outstanding for the year ended 31 December 2020 (2019: same).

124 Annual Report 2020 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

12. DIVIDENDS

A final dividend in respect of the year ended 31 December 2019 of RMB10.80 cents per ordinary share (final dividend in respect of the year ended 31 December 2018: RMB13.62 cents per ordinary share) was approved by the shareholders at the annual general meeting in May 2020. Such final dividend for 2019 totalling RMB122,162,000 was paid in 2020, which has already excluded the dividend related to the ordinary shares held for the Share Award Scheme of RMB316,000 (final dividend for 2018 of RMB153,133,000 excluding the dividend related to the ordinary shares held for the Share Award Scheme of RMB1,325,000) (Note 24(a)).

The directors recommended the payment of a final dividend of RMB13.00 cents per ordinary share in cash for the year ended 31 December 2020, totalling RMB147,427,000 based on the ordinary shares in issue as of 31 December 2020. Such final dividend is to be approved by the shareholders at the annual general meeting of the Company to be held in May 2021. These consolidated financial statements do not reflect this dividend payable.

Annual Report 2020 Pacific Online Limited

125

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

13. PROPERTY AND EQUIPMENT

						Furniture,
		Building	Leasehold	Computers	Motor	fittings and
	Buildings	improvements	improvements	and servers	vehicles	equipment	Total
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
At 1 January 2019
Cost	170,353	49,892	8,481	38,454	6,208	11,978	285,366
Accumulated depreciation	(26,479)	(31,452)	(5,075)	(28,208)	(3,889)	(9,287)	(104,390)
Net book amount	143,874	18,440	3,406	10,246	2,319	2,691	180,976
Year ended 31 December 2019
Opening net book amount	143,874	18,440	3,406	10,246	2,319	2,691	180,976
Additions	—	814	—	3,088	2,176	1,080	7,158
Disposals	—	—	—	(180)	(274)	(91)	(545)
Depreciation (Note 6)	(3,848)	(5,086)	(804)	(2,856)	(685)	(927)	(14,206)
Closing net book amount	140,026	14,168	2,602	10,298	3,536	2,753	173,383
At 31 December 2019
Cost	170,353	50,706	8,481	39,773	6,583	12,423	288,319
Accumulated depreciation	(30,327)	(36,538)	(5,879)	(29,475)	(3,047)	(9,670)	(114,936)
Net book amount	140,026	14,168	2,602	10,298	3,536	2,753	173,383
Year ended 31 December 2020 Opening net book amount Additions Disposals Disposal of a subsidiary (Note 8) Transfers Depreciation (Note 6)	140,026 41,955 — — (5,943) (4,062)	14,168 1,991 — — — (5,186)	2,602 — (1,798) — — (804)	10,298 1,765 (208) (1,023) — (2,849)	3,536 8 (156) — — (726)	2,753 689 (63) — — (286)	173,383 46,408 (2,225) (1,023) (5,943) (13,913)
Closing net book amount	171,976	10,973	—	7,983	2,662	3,093	196,687
At 31 December 2020
Cost	205,028	52,697	—	36,437	6,122	12,634	312,918
Accumulated depreciation	(33,052)	(41,724)	—	(28,454)	(3,460)	(9,541)	(116,231)
Net book amount	171,976	10,973	—	7,983	2,662	3,093	196,687

Annual Report 2020 Pacific Online Limited

126

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

13. PROPERTY AND EQUIPMENT (CONTINUED)

Depreciation expense has been charged to the consolidated income statement as follows:

	2020 2019 RMB’000 RMB’000
Cost of revenue Selling and marketing costs	4,909 5,530 4,509 4,189
Administrative expenses	3,670 3,674
Product development expenses	825 813
	13,913 14,206

Annual Report 2020 127 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

14. LEASES

This note provides information for leases where the Group is a lessee.

(a) Amounts recognised in the consolidated balance sheet

The consolidated balance sheet shows the following amounts relating to leases:

Right-of-use assets

Land used rights RMB’000	Properties RMB’000	Total RMB’000
At 1 January 2019 Cost 15,696 Accumulated amortisation —	224 —	15,920 —
Net book amount 15,696	224	15,920
Year ended 31 December 2019 Opening net book amount 15,696 Addition — Amortisation charges (Note 6) (324)	224 563 (385)	15,920 563 (709)
Closingnet book amount 15,372	402	15,774
At 31 December 2019 Cost 18,390 Accumulated amortisation (3,018)	787 (385)	19,177 (3,403)
Net book amount 15,372	402	15,774
Year ended 31 December 2020 Opening net book amount 15,372 Addition — Amortisation charges (Note 6) (324)
	402	15,774
	561	561
	(586)	(910)
Closingnet book amount 15,048
	377	15,425
At 31 December 2020 Cost 18,390 Accumulated amortisation (3,342)
	1,348	19,738
	(971)	(4,313)
Net book amount 15,048
	377	15,425

128 Annual Report 2020 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

14. LEASES (CONTINUED)

(a) Amounts recognised in the consolidated balance sheet (Continued)

Lease liabilities

	At 31 December	At 31 December
	2020	2019
	RMB’000	RMB’000
Current	308	393
Non-current	74	14
	382	407

(b) Amounts recognised in the consolidated income statement

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

Depreciation charge of right-of-use assets

Depreciation charge of right-of-use assets
2020 RMB’000	2019 RMB’000
Land used rights 324 Properties 586	324 385
910	709
Interests expenses included in finance cost (Note 9) 36	27
Expense relating to short-term leases and leases of low-value assets (Note 6) 2,029	3,623

The total cash outflow for leases for the year ended 31 December 2020 was RMB2,651,000 (2019: RMB4,030,000).

Annual Report 2020 129 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

15. INVESTMENT PROPERTIES

	Buildings
	RMB’000
At 1 January 2019
Cost	52,654
Accumulated depreciation	(8,183)
Net book amount	44,471
Year ended 31 December 2019
Opening net book amount	44,471
Depreciation	(1,189)
Closingnet book amount	43,282
At 31 December 2019
Cost	52,654
Accumulated depreciation	(9,372)
Net book amount	43,282
Year ended 31 December 2020
Opening net book amount	43,282
Transfer from owner-occupied properties	5,943
Depreciation	(1,312)
Closingnet book amount	47,913
At 31 December 2020
Cost	59,934
Accumulated depreciation	(12,021)
Net book amount	47,913

For minimum lease payments receivable on leases of investment properties, refer to Note 27(a)(i).

130 Annual Report 2020 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

16. INTANGIBLE ASSETS

Computer software and technology Club membership RMB’000 RMB’000	Computer software and technology Club membership RMB’000 RMB’000	Brand and technology (a) Goodwill (a) Total RMB’000 RMB’000 RMB’000	Brand and technology (a) Goodwill (a) Total RMB’000 RMB’000 RMB’000	Brand and technology (a) Goodwill (a) Total RMB’000 RMB’000 RMB’000
At 1 January 2019 Cost 14,855 8,793 Accumulated amortisation and impairment (14,755) —		2,300 4,622 30,570 (2,300) (4,622) (21,677)
Net book amount 100 8,793		— — 8,893
Year ended 31 December 2019 Opening net book amount 100 8,793 Additions 738 — Amortisation charge (Note 6) (154) —		— — 8,893 — — 738 — — (154)
Closingnet book amount 684 8,793		— — 9,477
At 31 December 2019 Cost 15,593 8,793 Accumulated amortisation and impairment (14,909) —		2,300 4,622 31,308 (2,300) (4,622) (21,831)
Net book amount 684 8,793		—	—	9,477
Year ended 31 December 2020 Opening net book amount 684 8,793 Additions 14 — Amortisation charge (Note 6) (412) —
		—	—	9,477
		—	—	14
		—	—	(412)
Closingnet book amount 286
	8,793	—	—	9,079
At 31 December 2020 Cost 15,607 8,793 Accumulated amortisation and impairment (15,321) —
	8,793	—	—	24,400
		—	—	(15,321)
Net book amount 286 8,793
		—	—	9,079

Annual Report 2020 131 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

16. INTANGIBLE ASSETS (CONTINUED)

• (a) Brand and technology and goodwill were written off due to de-registration of a subsidiary during the year ended 31 December 2020.

Amortisation has been charged to the consolidated income statement as follows:

	2020	2019
	RMB’000	RMB’000
Administrative expenses	409	152
Cost of revenue	3	2
	412	154

17. SUBSIDIARIES

The Group’s subsidiaries at 31 December 2020 are set out below. Unless otherwise stated, they have share capital consisting solely of ordinary shares, and the proportion of ownership interests held equals the voting rights held by the Group. The place of incorporation or registration is also their principal place of business.

			Particulars of
			issued share
			capital or
	Place of incorporation and	Principal activities and place of	registered	Interest
Name	kind of legal entity	operation	capital	held
Pacific E-Commerce Limited	Hong Kong, limited liability	Investment holding in Hong Kong	HKD2	100%
(太平洋在線有限公司)	company
New Forest Limited	Hong Kong, limited liability	Investment holding in Hong Kong	HKD1	100%
(新林有限公司)	company
Takehigh	Hong Kong, limited liability	Investment holding in Hong Kong	HKD11,875	100%
	company
Winsom Technology Limited	Hong Kong, limited liability	Investment holding in Hong Kong	HKD10,000	100%
(偉信科技有限公司)	company
Smooth Choice Limited	Hong Kong, limited liability	Investment holding in Hong Kong	HKD100	100%
(輝淩有限公司)	company
Fortune Asset Limited	Hong Kong, limited liability	Investment holding in Hong Kong	HKD1	100%
(福聲有限公司)	company
Unique Fast Limited	Hong Kong, limited liability	Investment holding in Hong Kong	HKD100	100%
(快尊有限公司)	company

132 Annual Report 2020 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

17. SUBSIDIARIES (CONTINUED)

			Particulars of
			issued share
			capital or
	Place of incorporation and	Principal activities and place of	registered	Interest
Name	kind of legal entity	operation	capital	held
GZP Computer	The PRC, wholly foreign owned	Information technology and software	RMB80,000,000	100%
	enterprise	development and provision of
		computer information consultancy
		services in the PRC
GZP Advertising (a)	The PRC, limited liability	Provision of advertising services in the	RMB500,000	100%
	company	PRC
GDP Internet (a)	The PRC, limited liability	Provision of online advertising services	RMB10,000,000	100%
	company	in the PRC
GZ Yingxin	The PRC, limited liability	Provision of computer technology	RMB5,700,000	100%
	company	services in the PRC
Shanghai Pan-Pacific Information	The PRC, wholly foreign owned	Not yet commenced formal operations	USD140,000	100%
Technology Co., Ltd.	enterprise
(上海環宇太平洋信息科技有限公司)
Guangzhou Fengwang Technology	The PRC, wholly foreign owned	Information technology and software	RMB3,500,000	100%
Co., Ltd.	enterprise	development and provision of
(廣州鋒網資訊科技有限公司)		computer information consultancy
		services in the PRC
Guangzhou Pacific Online	The PRC, limited liability	Not yet commenced formal operations	RMB500,000	100%
Technology Co., Ltd.	company
(廣州太平洋網絡科技有限公司)
Shanghai Yingzhen Online	The PRC, limited liability	Not yet commenced formal operations	RMB500,000	100%
Technology Co., Ltd.	company
(上海英臻網絡科技有限公司)
Beijing Taihe Xinyang Online	The PRC, limited liability	Not yet commenced formal operations	RMB500,000	100%
Technology Co., Ltd.	company
(北京太合新洋網絡科技有限公司)
Guangzhou Chuangcheng Online	The PRC, limited liability	Not yet commenced formal operations	RMB500,000	100%
Technology Co., Ltd.	company
(廣州創程網絡科技有限公司)
Guangzhou Yingyue Computer	The PRC, limited liability	Information technology and software	RMB3,200,000	100%
Technology Co., Ltd.	company	development and provision of
(廣州英悅計算机科技有限公司) (a)		computer information consultancy
		services in the PRC

Annual Report 2020 133 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

17. SUBSIDIARIES (CONTINUED)

			Particulars of
			issued share
			capital or
	Place of incorporation and	Principal activities and place of	registered	Interest
Name	kind of legal entity	operation	capital	held
Guangzhou Shangjin Internet Co.,	The PRC, limited liability	Provision of online advertising services	RMB3,000,000	100%
Ltd. (廣州尚進網絡有限公司) (a)	company	in the PRC
Guangzhou Shangjin Advertising	The PRC, limited liability	Provision of advertising services in the	RMB500,000	100%
Co., Ltd.	company	PRC
(廣州市尚謹廣告有限公司) (a)
GZ Yurui	The PRC, wholly foreign owned	Information technology and software	RMB2,000,000	100%
	enterprise	development and provision of
		computer information consultancy
		services in the PRC
Guangzhou Yingyou Information	The PRC, limited liability	Information technology and software	RMB2,000,000	100%
Technology Co., Ltd.	company	development and provision of
(廣州英佑信息科技有限公司) (a)		computer information consultancy
		services in the PRC
Guangzhou Shangcong Online	The PRC, limited liability	Provision of online advertising services	RMB2,000,000	100%
Technology Co., Ltd.	company	in the PRC
(廣州尚聰網絡技術有限公司) (a)
Guangzhou Shangcong Advertising	The PRC, limited liability	Provision of advertising services in the	RMB500,000	100%
Co., Ltd.	company	PRC
(廣州市上聰廣告有限公司) (a)
Guangzhou Yingku Online Co., Ltd.	The PRC, limited liability	Not yet commenced formal operations	RMB1,200,000	100%
(廣州英酷網絡有限公司)	company
GZ Kuche	The PRC, limited liability	Operation of online platform for	RMB5,000,000	70%
	company	automobile maintainers

(a) The Company does not have legal ownership in the equity of these PRC operating companies. Nevertheless, as described in Note 1(b), through Structure Contracts entered into with the registered owners of these PRC operating companies, the Company and its legally owned subsidiaries control these PRC operating companies by way of controlling their voting rights. As a result, these PRC operating companies are presented as controlled structured entities of the Company.

Annual Report 2020 Pacific Online Limited

134

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

17. SUBSIDIARIES (CONTINUED)

• (b) In connection with the implementation of the Share Award Scheme of the Group mentioned in Note 24(a), the Company has set up a structured entity, and its particulars are as follows:

Structured entity Principal activities Share Award Scheme Trust Administering and holding the Company’s shares acquired for a share award scheme which is set up for the benefits of eligible directors and employees of the Group

As the Company has rights to variable returns from the contributions of the employees who are awarded with the shares by the scheme through their continued employment with the Group and has ability to affect those returns through its power to govern the financial and operating policies of the Share Award Scheme Trust, the directors of the Company consider that it is appropriate to consolidate the Share Scheme Trust in accordance with the requirements of HKFRSs.

The Company has set up a new consolidated trustee due to the renewal of the Share Award Scheme (Note 24(a)). The contract terms of the new trustee has no material difference from those of the former.

(c) Significant restrictions

Cash and short-term deposits held in the PRC are subject to local exchange control regulations. These regulations provide for restrictions on exporting capital from the PRC, other than through normal dividends.

The carrying amount of the assets included within the consolidated financial statements to which these restrictions apply was RMB293,939,000 as at 31 December 2020 (31 December 2019: RMB259,943,000).

Annual Report 2020 135 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

18. FINANCIAL INSTRUMENTS BY CATEGORY

(a) The Group holds the following financial instruments:

31 December 2020	Financial assets at amortised cost RMB’000	Financial assets at FVOCI RMB’000	Total RMB’000
Current assets
Trade and note receivables, other
receivables excluding prepayments
(Note 20)	644,821	—	644,821
Short-term bank deposits with original
terms of over three months (Note 22)	117,249	—	117,249
Cash and cash equivalents (Note 22)	356,807	—	356,807
Restricted cash (Note 22)	30	—	30
Non-current assets
Financial assets at FVOCI (Note 21)	—	62,785	62,785
Total	1,118,907	62,785	1,181,692
	Financial
	assets at	Financial
	amortised	assets at
31 December 2019	cost	FVOCI	Total
	RMB’000	RMB’000	RMB’000
Current assets
Trade and note receivables, other
receivables excluding prepayments
(Note 20)	642,742	—	642,742
Short-term bank deposits with original
terms of over three months (Note 22)	2,100	—	2,100
Cash and cash equivalents (Note 22)	425,942	—	425,942
Non-current assets
Financial assets at FVOCI (Note 21)	—	52,876	52,876
Total	1,070,784	52,876	1,123,660

136 Annual Report 2020 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

18. FINANCIAL INSTRUMENTS BY CATEGORY (CONTINUED)

(a) The Group holds the following financial instruments: (Continued)

Financial liabilities at amortised cost 2020 2019 RMB’000 RMB’000	Financial liabilities at amortised cost 2020 2019 RMB’000 RMB’000
Current liabilities Accruals and other payables excluding other tax payable and salaries payable (Note 25) 292,822 Lease liabilities 308 Non-current liabilities Lease liabilities 74	266,120 393 14
Total 293,204	266,527

The Group’s exposure to various risks associated with the financial instruments is disclosed in Note 3. The maximum exposure to credit risk at the end of the reporting period is the carrying amount of each class of financial assets mentioned above.

19. DEFERRED INCOME TAX

The analysis of deferred tax assets is as follows:

At 31 December 2020 2019 RMB’000 RMB’000	At 31 December 2020 2019 RMB’000 RMB’000
Deferred income tax assets: — to be recovered after more than 12 months 45,535 — to be recovered within 12 months 9,746	41,012 9,477
55,281	50,489

Annual Report 2020 137 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

19. DEFERRED INCOME TAX (CONTINUED)

The movement of deferred income tax assets during the year is as follows:

Provision

Provision
for impairment of trade receivables RMB’000	Accrued advertising and other expenses RMB’000	Advertising expenses in excess of allowance RMB’000	Tax losses RMB’000	Total RMB’000
At 1 January 2019 18,493 Credited/(charged) to the consolidated income statement 5,751	6,920 11	18,844 (6,114)	8,765 (2,181)	53,022 (2,533)
At 31 December 2019 24,244 Credited/(charged) to the consolidated income statement 8,831	6,931 1,683	12,730 (7,068)	6,584 1,346	50,489 4,792
At 31 December 2020 33,075
	8,614	5,662	7,930	55,281

The Group only recognises deferred income tax assets for cumulative tax losses if it is probable that future taxable amounts will be available to utilise those tax losses. Management will continue to assess the recognition of deferred income tax assets in future reporting periods. As at 31 December 2020, the Group did not recognise deferred income tax assets of RMB15,858,000 (31 December 2019: RMB14,426,000) in respect of cumulative tax losses amounting to RMB65,497,000 (31 December 2019: RMB57,705,000).

The expiry date of tax losses carried forward in respect of which deferred tax assets have not been accounted for is as follows:

At 31 December 2020 2019 RMB’000 RMB’000	At 31 December 2020 2019 RMB’000 RMB’000
Expire in 2021 1,196 Expire in 2022 5,122 Expire in 2023 9,001 Expire in 2024 8,190 Expire in 2025 11,920 Expire over 5years 30,068	5,655 8,697 9,835 8,612 — 24,906
65,497	57,705

For subsidiaries qualified as HNTE, the tax losses are valid for deduction for an extended period of 10 years.

138 Annual Report 2020 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

20. TRADE AND NOTE RECEIVABLES, OTHER RECEIVABLES AND PREPAYMENTS

At 31 December 2020 2019 RMB’000 RMB’000	At 31 December 2020 2019 RMB’000 RMB’000
Trade receivables, net of impairment provision (a) 610,629 Other receivables (b) 27,707 Prepayments 7,622 Notes receivable 6,485	622,965 19,308 1,730 469
652,443	644,472

As of 31 December 2020, trade and note receivables, other receivables were all denominated in RMB (31 December 2019: same).

(a) Trade receivables, net of impairment provision

Credit terms granted by the Group are generally within a period of three months to one year. The ageing analysis of the trade receivables (net of impairment provision of RMB147,132,000 (31 December 2019: RMB108,427,000)) based on recognition date is as follows:

At 31 December 2020 2019 RMB’000 RMB’000	At 31 December 2020 2019 RMB’000 RMB’000
Current to 6 months 410,063 6 months to 1 year 98,937 1 year to 2 years 90,629 Above 2years 11,000	347,183 203,797 60,985 11,000
610,629	622,965

Annual Report 2020 139 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

20. TRADE AND NOTE RECEIVABLES, OTHER RECEIVABLES AND PREPAYMENTS (CONTINUED)

(b) Other receivables

	At 31 December	At 31 December
	2020	2019
	RMB’000	RMB’000
Input value-added tax deductible	9,925	8,998
Advance to employees	6,404	4,424
Advance to a third party	4,792	—
Rental receivables	1,051	1,190
Others	5,535	4,696
	27,707	19,308

The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivables mentioned above. The Group does not hold any collateral as security.

21. FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME

INCOME
2020 RMB’000	2019 RMB’000
At beginning of the year 52,876 Changes in fair value 9,909	45,632 7,244
At end of theyear 62,785	52,876

In June 2014, the Group made an equity investment with an amount of USD5,000,000 in an entity who invested in shares of companies principally engaged in Internet business, in which the Group does not have control or significant influence. The directors classified the investment as financial assets at FVOCI. As at 31 December 2020, the Group held around 43% (31 December 2019: 44%) interests of the entity.

The fair value of investment is based on the fair value of underlying investments held by the entity, which are mainly influenced by the market price and recent trading price of the shares invested.

140 Annual Report 2020 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

22. CASH AND CASH EQUIVALENTS AND SHORT-TERM BANK DEPOSITS WITH ORIGINAL TERMS OF OVER THREE MONTHS

At 31 December 2020 2019 RMB’000 RMB’000	At 31 December 2020 2019 RMB’000 RMB’000
Cash at bank and on hand 148,937 Short-term bank deposits 325,149	88,375 339,667
474,086 Less: Short-term bank deposits with original terms of over three months (117,249) Restricted cash (30)	428,042 (2,100) —
Cash and cash equivalents 356,807	425,942

As at 31 December 2020, except for the cash on hand, most of the cash and cash equivalents of the Group were placed in listed state-owned banks or listed commercial banks in mainland China or Hong Kong (31 December 2019: same). Management did not expect any losses from non-performance by these counterparties.

23. ORDINARY SHARES

						Authorised ordinary shares	Authorised ordinary shares	Authorised ordinary shares
						Number of
						shares
						(in thousand)	HKD’000	RMB’000
At	31	December	2019	and	2020	100,000,000	1,000,000	969,200
						Issued and fully paid up
						Number of
						shares
						(in thousand)	HKD’000	RMB’000
At	31	December	2019	and	2020	1,134,055	11,341	10,491

As at 31 December 2020, the total number of issued ordinary shares of the Company was 1,134,055,000 shares (31 December 2019: 1,134,055,000 shares) which included 2,933,000 shares (31 December 2019: 9,733,000) held under the Share Award Scheme (Note 24 (a)).

Annual Report 2020 141 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

24. RESERVES

				Shares held
			Capital	for Share	Statutory	Financial
	Share	Merger	redemption	Award	reserve	assets at	Retained
	premium	reserve	reserve	Scheme	funds	FVOCI	earnings	Total
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
At 1 January 2019	399,201	4	306	(10,749)	43,418	14,435	537,561	984,176
Share Award Scheme (a)
— value of employee services	—	—	—	520	—	—	—	520
Change in fair value of financial assets at FVOCI	—	—	—	—	—	7,244	—	7,244
Profit for the year	—	—	—	—	—	—	153,124	153,124
Cash dividends relating to 2018	—	—	—	—	—	—	(153,133)	(153,133)
At 31 December 2019 Share Award Scheme (a) — value of employee services Change in fair value of financial assets at FVOCI Profit for the year Cash dividends relating to 2019	399,201 — — — —	4 — — — —	306 — — — —	(10,229) 8,090 — — —	43,418 — — — —	21,679 — 9,909 — —	537,552 — — 161,887 (122,162)	991,931 8,090 9,909 161,887 (122,162)
At 31 December 2020	399,201	4	306	(2,139)	43,418	31,588	577,277	1,049,655

(a) Share Award Scheme

On 10 January 2011, the Board approved and adopted the Share Award Scheme for selected employees of the Group. The Group has set up a trust (the “Share Award Scheme Trust”) for the purpose of administering the Share Award Scheme and holding shares awarded or to be awarded to the employees (the “Awarded Shares”) before vesting. Unless early terminated by the Board, the Share Award Scheme shall be valid and effective for a term of ten years commencing on 10 January 2011.

Pursuant to the Board’s resolution passed on 21 December 2020 (the “Adoption Date”), as the above-mentioned Shared Award Scheme will be expired on 9 January 2021, the Company has adopted a new scheme with a term of 10 years commencing from 21 December 2020 (the “New Scheme”). The New Scheme does not constitute a share option scheme and is a discretionary scheme of the Company.

The Board implements the scheme in accordance with the terms of the scheme rules including providing necessary funds to the trustee for the purchase of shares up to 5% of the issued share capital of the Company as of the Adoption Date.

Employees are not entitled to dividends on any awarded shares until these shares are transferred to them at the end of the vesting period.

142 Annual Report 2020 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

24. RESERVES (CONTINUED)

(a) Share Award Scheme (Continued)

The movements in the number of shares held for the Share Award Scheme for the year that ended are as follows:

	Number of
	shares to be
	awarded
	(thousands)	RMB’000
At 1 January 2020 Granted and transferred	9,733 (6,800)	10,229 (8,090)
At 31 December 2020	2,933	2,139
At 1 January 2019	10,033	10,749
Granted and transferred	(300)	(520)
At 31 December 2019	9,733	10,229

For the Awarded Shares granted under the Share Award Scheme, the fair value is recognised as an expense over the period in which the vesting conditions are fulfilled. The total amount to be expensed over the vesting period is determined by reference to the fair value of the Awarded Shares granted.

During the year ended 31 December 2020, 6,800,000 shares originally held by the trustee was granted and transferred to certain employees upon the grant of such Awarded Shares. A credit of RMB8,090,000 to equity was recorded in the Group’s consolidated balance sheet.

The fair value of the Awarded Shares was calculated based on market prices of the Company’s shares as at the respective grant dates. A total expense of RMB5,698,000 was recognised for employee services received in respect of the Share Award Scheme for the year ended 31 December 2020 (2019: RMB520,000).

Annual Report 2020 143 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

24. RESERVES (CONTINUED)

(a) Share Award Scheme (Continued)

If the employees leave the Group before the vesting period stipulated in the agreement with the Group, the employees are required to pay back the Group in cash amounting to the fair value of the shares at grant date in proportion to the unserviced period. An asset of RMB2,392,000 was recognised in other receivable in the consolidated financial statements.

During the year ended 31 December 2020, the Share Award Scheme Trust received cash dividend amounting to RMB316,000 (2019: RMB1,325,000) which will be used to pay for the fees of trust or purchase a maximum number of shares as specified by the Board.

25. ACCRUALS AND OTHER PAYABLES

At 31 December 2020 2019 RMB’000 RMB’000	At 31 December 2020 2019 RMB’000 RMB’000
Accrued expenses (a) 280,621 Salaries payable 47,874 Other tax payable 7,654 Otherpayables (b) 12,201	252,733 44,746 5,518 13,387
348,350	316,384

• (a) Accrued expenses of the Group mainly represented accrued service commission fees payable to advertising agencies and accrued advertising expenses.

• (b) Other payables of the Group mainly represented deposits due to third parties.

144 Annual Report 2020 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

26. CASH FLOW INFORMATION

(a) Cash generated from operations

Reconciliation of profit before income tax to cash generated from operations is as follows:

2020 RMB’000	2019 RMB’000
Profit before income tax 191,287 Adjustments for: — Impairment charge of receivables 57,018 — Impairment charge of investment in an associate — — Share of losses of an associate — — Finance income — net (5,730) — Depreciation of property and equipment (Note 13) 13,913 — Depreciation of investment property (Note 15) 1,312 — Gain on disposal of a subsidiary (Note 8) (1,686) — Dividend income on financial assets at FVOCI (525) — Amortisation of right-of-use asset (Note 14) 910 — Amortisation of intangible assets (Note 16) 412 — Non-cash employee benefit expenses — Share Award Scheme 5,698	187,768 32,457 1,031 356 (6,703) 14,206 1,189 — (729) 709 154 520
262,609 Changes in working capital: — Trade and note receivables, other receivables and prepayments (67,703) — Accruals and other payables 39,004 — Contract liabilities 2,494 — Restricted cash (30)	230,958 (75,038) 13,176 (3,985) —
Cashgenerated from operations 236,374	165,111

Annual Report 2020 145 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

26. CASH FLOW INFORMATION (CONTINUED)

• (b) This section sets out a reconciliation of liabilities arising from financing activities:

	Lease
	liabilities
	RMB’000
Net debt as at 1 January 2019	(224)
Cash flows	407
Addition of lease liabilities	(563)
Interest expenses	(27)
Net debt as at 31 December 2019	(407)
Cash flows	622
Addition of lease liabilities Interest expenses	(561) (36)
Net debt as at 31 December 2020	(382)

27. COMMITMENTS

(a) Operating lease commitments

(i) The Group as lessor

Some parts of the Group’s office building are leased to tenants under long-term operating lease. Minimum lease payments receivable on leases of investment properties are as follows:

	At 31 December	At 31 December
	2020	2019
	RMB’000	RMB’000
Not later than one year	4,937	4,669
Later than oneyear but not later than fiveyears	9,214	8,404
	14,151	13,073

146 Annual Report 2020 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

27. COMMITMENTS (CONTINUED)

(a) Operating lease commitments (Continued)

(ii) The Group as leasee

The Group leases offices and buses under non-cancellable operating lease agreements. The leases have varying terms and renewal rights. The Group has recognised right-of-use assets for these leases, except for short-term and lowvalue leases, see Note 14 for further information.

The future aggregate minimum lease payments under non-cancellable operating leases not recognised in the consolidated financial statements are as follows:

	At 31 December	At 31 December
	2020	2019
	RMB’000	RMB’000
Not later than one year	518	240
Later than one year but not later than
fiveyears	75	—
	593	240

28. RELATED PARTY TRANSACTIONS

Related parties are those parties that have the ability to control the other party or exercise significant influence in making financial and operating decisions. Parties are also considered to be related if they are subject to common control.

(a) Name and relationship with related parties

Name Relationship

Mr. Wang Kexim Company Limited (“Kexim”) Beijing Pacific Times Property Management Co., Ltd. Guangdong EJauto Information Technology Co., Ltd. (“EJauto”)

Key management personnel of the Group Controlled by Mr. Wang Controlled by Mr. Wang

Associate

Annual Report 2020 147 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

28. RELATED PARTY TRANSACTIONS (CONTINUED)

(b) Related party transactions

The Group undertook the following related party transactions during the year:

The Group undertook the following related party transactions during	the year:
2020 RMB’000	2019 RMB’000
Rental expenses for office: Kexim 300	300
Property management service for office: Beijing Pacific Times Property Management Co., Ltd. 147	116
Advertising service revenue: EJauto —	567

These transactions were conducted at terms pursuant to agreements entered into between the Group and the respective related parties.

(c) Balances with related parties

At 31 December 2020 2019 RMB’000 RMB’000	At 31 December 2020 2019 RMB’000 RMB’000
Included in other payables: EJauto (i) 5,388	5,388

(i) The amounts represented deposits from the related party and are unsecured and interest-free.

148 Annual Report 2020 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

28. RELATED PARTY TRANSACTIONS (CONTINUED)

(d) Key management personnel compensation

Key management includes the executive directors, the CEO and other senior executives. The aggregate compensation paid/payable to key management for employee services excluding the executive directors and the CEO whose details have been reflected in Note 7 is as follows:

been reflected in Note 7 is as follows:
	2020	2019
	RMB’000	RMB’000
Basic salaries, housing allowances and benefits
in kind	7,034	6,419
Contributions topension schemes	137	88
	7,171	6,507

Annual Report 2020 149 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

29. BALANCE SHEET AND RESERVE MOVEMENT OF THE COMPANY

As at 31 2020 Note RMB’000	December 2019 RMB’000
ASSETS Non-current assets Intangible assets 8,793 Interests in subsidiaries 288,295 Dividend due from subsidiaries 170,000	8,793 285,105 163,000
467,088	456,898
Current assets Amounts due from subsidiaries 81,927 Dividend due from subsidiaries 537,000 Cash and cash equivalents 8,700	81,980 503,805 5,370
627,627	591,155
Total assets 1,094,715	1,048,053
EQUITY AND LIABILITIES Equity Ordinary shares 10,491 Reserves (a) 1,070,943	10,491 1,024,587
Total equity 1,081,434	1,035,078
Current liabilities Accruals and other payables 2,824 Amounts due to subsidiaries 10,457	2,399 10,576
Total current liabilities 13,281	12,975
Total equity and liabilities 1,094,715	1,048,053

150 Annual Report 2020 Pacific Online Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

29. BALANCE SHEET AND RESERVE MOVEMENT OF THE COMPANY (CONTINUED)

(a) Reserve movement of the Company

Share premium RMB’000	Capital redemption reserve RMB’000	Contributed surplus RMB’000	Shares held for Share Award Scheme RMB’000	Retained earnings RMB’000	Total RMB’000
At 1 January 2019 384,201 Share Award Scheme — value of employee services — Profit for the year — Cash dividends relating to 2018 —	306 — — —	88,277 — — —	(10,749) 520 — —	556,435 — 158,730 (153,133)	1,018,470 520 158,730 (153,133)
At 31 December 2019 384,201 Share Award Scheme — value of employee services — Profit for the year — Cash dividends relating to 2019 —	306	88,277	(10,229)	562,032	1,024,587
	—	—	8,090	—	8,090
	—	—	—	160,428	160,428
	—	—	—	(122,162)	(122,162)
At 31 December 2020 384,201
	306	88,277	(2,139)	600,298	1,070,943

Annual Report 2020 151 Pacific Online Limited

FINANCIAL SUMMARY

A summary of the results and of the assets and liabilities of the Group for the last five financial years, as extracted from the published audited financial statements and restated/reclassified/represented as appropriate, is set out below.

RESULTS 2020 RMB’000	Year ended 31 December 2019 2018 2017 2016 RMB’000 RMB’000 RMB’000 RMB’000
Revenue 967,470 Profit before income tax 191,287 Income tax expense (27,713)	990,823 1,022,699 963,599 974,261 187,768 161,257 127,923 180,149 (33,088) (27,944) (22,606) (28,953)
Profit for theyear 163,574	154,680 133,313 105,317 151,196
Attributable to: Equityholders of the Company 161,887	153,124 132,747 105,317 151,196
ASSETS, LIABILITIES AND ASSETS LESS LIABILITIES Total assets 1,513,699 Total liabilities 448,244	1,417,795 1,410,909 1,397,248 1,366,550 411,751 414,176 416,839 354,539
Total assets less liabilities 1,065,455	1,006,044 996,773 980,409 1,012,011

152 Annual Report 2020 Pacific Online Limited