THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in Royal Furniture Holdings Limited, you should at once hand this circular and the accompanying form of proxy to the purchaser or transferee or to the bank, licensed securities dealer, registered institution in securities, or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

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

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

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ROYALE FURNITURE HOLDINGS LIMITED 皇朝傢俬控股有限公司[*]

(Incorporated in the Cayman Islands with limited liability)

(Stock code: 1198)

(1) PROPOSED OPEN OFFER ON THE BASIS OF ONE (1) OFFER SHARE FOR EVERY EIGHT (8) SHARES HELD ON THE RECORD DATE;

(2) CONNECTED TRANSACTION;

(3) APPLICATION FOR WHITEWASH WAIVER;

(4) PROPOSED INCREASE IN AUTHORISED SHARE CAPITAL; AND

(5) NOTICE OF EXTRAORDINARY GENERAL MEETING

Independent Financial Adviser to the Independent Board Committee

and the Independent Shareholders

Capitalised Terms used in this cover page shall have the same meanings as defined in this circular.

A letter from the Independent Board Committee containing its recommendation to the Independent Shareholders in connection with the Open Offer, the Underwriting Agreement, the Whitewash Waiver and the increase in authorised share capital are set out on page 31 of this circular. A letter from Nuada Limited, the independent financial adviser to the Independent Board Committee and the Independent Shareholders, containing its advice and recommendation in connection with the Open Offer, the Underwriting Agreement and the Whitewash Waiver, is set out on pages 32 to 51 of this circular.

A notice of the EGM to be held at 10:00 a.m. on Friday, 30 June 2017 at the Room 607, 6/F, Tsim Sha Tsui Centre, 66 Mody Road, Tsim Sha Tsui East, Kowloon, Hong Kong is set out on pages EGM-1 to EGM-4 of this circular. Whether or not you are able to attend the meeting in person, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and depositQueen’s theRoadsameEast,atHongTricorKongTengisas soonLimited,as possiblethe Hongand Kongin anybranchevent notsharelessregistrarthan 48 ofhoursthe beforeCompany,the timeat Levelappointed22, Hopewellfor the holdingCentre,of183the meeting. Completion and return of the form of proxy will not preclude you from attending and voting in person at the meeting or any adjourned meeting should you so wish and in such event, the form appointing a proxy shall be deemed to be revoked.

precedentThe Open’’Offerof theis letterconditional,from theupon,Boardamongon pagesother things,9 to 30theof fulfillmentthis circular.of theIn particular,conditionstheset Openout underOffertheis sub-sectionconditional headedupon, among‘‘Conditionsother things, (i) the Whitewash Waiver having been granted by the Executive and (ii) the approval of the Open Offer, the Underwriting Agreement and the transactions contemplated thereunder and the Whitewash Waiver at the EGM by the Independent Shareholders. The includingUnderwriterbutisnotentitledlimitedunderto forcethe majeure,Underwritingas describedAgreementin theto sectionterminateheadedthe Underwriting‘‘TerminationAgreementof the Underwritingon the occurrenceAgreementof’’certainon pagesevents,7 to 8 of this circular. Accordingly, the Open Offer may or may not proceed.

Any Shareholders and potential investors of the Company contemplating buying or selling Shares up to the date on which all the conditions of the Underwriting Agreement are fulfilled (which is expected to be on 4:00 p.m. on 3 August 2017) will accordingly bear the risk that the Open Offer may not become unconditional or may not proceed. Shareholders and potential investors of the Company are advised to exercise caution when dealing in the Shares, and if they are in doubt about their position, they should consult their professional advisers.

13 June 2017

For identification purposes only

CONTENT

		Page
Expected timetable . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	ii
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Terms of Termination of the Underwriting Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . .		7
Letter from the Board . . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Letter from the Independent Board Committee	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	31
Letter from the Independent Financial Adviser	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	32
Appendix I – Financial information of the Group . . . . . . . . . . . . . . . . . . . . . . . . .		I-1
Appendix II – Unaudited pro forma financial information of the Group . . . . . .		II-1
Appendix III – Property valuation report	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	III-1
Appendix IV – General information . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	IV-1
Notice of EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	EGM-1

– i –

EXPECTED TIMETABLE

Set out below is an indicative timetable for the implementation of the Open Offer.

The timetable is subject to change in accordance with the Underwriting Agreement.

The Company will notify the Shareholders on any changes to the expected timetable as and when appropriate.

2017
Despatch of circular in relation to the Open Offer and
the Whitewash Waiver with notice of EGM . . . . . . . . . . . . . . . . . Tuesday, 13 June
Latest time for lodging transfer of Shares in order to
Qualify for attendance and voting at the EGM . . . . . . . . . . . . . . . . . . . 4:30 p.m. on
Monday, 26 June
Register of members of the Company closed for EGM . . . . . . . . . . Tuesday, 27 June to
Friday, 30 June
(both dates inclusive)
Latest time for lodging forms of proxy
for the purpose of the EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10:00 a.m. on
Wednesday, 28 June
EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10:00 a.m. on
Friday, 30 June
Announcement of results of EGM to be published
on the Stock Exchange website . . . . . . . . . . . . . . . . . . . . . . . . . . Friday, 30 June
Register of members of the Company re-opens . . . . . . . . . . . . . . . . . . Monday, 3 July
Last day of dealings in Shares on a cum-entitlement basis . . . . . . . . . . . Monday, 3 July
First day of dealings in Shares on an ex-entitlement basis . . . . . . . . . . . Tuesday, 4 July
Latest time for lodging transfers of Shares
in order to qualify for the Open Offer . . . . . . . . . . . . . . . . . . . . . . . . 4:30 p.m. on
Wednesday, 5 July
Register of members of the Company closed
for Open Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thursday, 6 July to
Wednesday, 12 July
(both dates inclusive)

– ii –

EXPECTED TIMETABLE

2017
Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wednesday, 12 July
Register of members of the Company re-opens . . . . . . . . . . . . . . . . .Thursday, 13 July
Despatch of the Prospectus Documents (in case of
the Excluded Shareholders, the Prospectus only) . . . . . . . . . . . . . .Thursday, 13 July
Latest Time for acceptance of, and payment for,
the Offer Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4:00 p.m. on
Thursday, 27 July
Open Offer and Underwriting Agreement expected to
become unconditional on or before . . . . . . . . . . . . . . . . . . . . . . . . . . 4:00 p.m. on
Thursday, 3 August
Announcement of results of acceptance of the Offer Shares
to be published on the Stock Exchange website on or before . . . . Wednesday, 9 August
Despatch of share certificates and refund cheques
(if applicable) for Offer Shares on or before . . . . . . . . . . . . . . . Thursday, 10 August
Dealings in Offer Shares commence . . . . . . . . . . . . . . . . . . . . . . . . . . . 9:00 p.m. on
Friday, 11 August
Designated broker starts to stand in the market to
provide matching service for odd lots of Shares . . . . . . . . . . . . . . . . . . 9:00 p.m. on
Friday, 11 August
Designated broker ceases to stand in the market to
provide matching service for odd lots of Shares . . . . . . . . . . . . . . . . . . 4:00 p.m. on
Friday, 1 September
Notes:

if the Latest Time for Termination falls on a Business Day on which a tropical cyclone warning signal no. 8 or above or a black rainstorm warning signal is or remains hoisted in Hong Kong between 9:00 a.m. and 4:00 p.m. on that day, the date of the Latest Time for Termination shall be the next Business Day on which no tropical cyclone warning signal no. 8 or above or no black rainstorm warning signal is or remains hoisted in Hong Kong between 9:00 a.m. and 4:00 p.m. on that day.

– iii –

EXPECTED TIMETABLE

(i) All times and dates stated above refer to Hong Kong local times and dates.
(ii) Effect of bad weather upon the latest time for acceptance of, together with payment for, the Offer Shares:

The Latest Time for Acceptance will not take place if there is a tropical cyclone warning signal number 8 or above or a ‘‘black’’ rainstorm warning:

(i) in force in Hong Kong at any local time before 12:00 noon and no longer in force after 12:00 noon on 27 July 2017. Instead the Latest Time for Acceptance will be extended to 5:00 p.m. on the same business day; or
(ii) in force in Hong Kong at any local time between 12:00 noon and 4:00 p.m. on 27 July 2017. Instead the Latest Time for Acceptance will be rescheduled to 4:00 p.m. on the following business day which does not have either of those warnings in force at any time between 9:00 a.m. and 4:00 p.m.

If the Latest Time for Acceptance does not take place on 27 July 2017, the dates mentioned in the section headed ‘‘Expected timetable’’ above in this circular may be affected. In such event, the Company will notify the Shareholders by way of announcement on any change to the expected timetable as soon as practicable.

– iv –

DEFINITIONS

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

‘‘acting in concert’’

has the meaning ascribed to it thereto in the Takeovers Code

‘‘Application Form’’ the application form for use by the Qualifying Shareholders to accept assured allotment of the Offer Shares

‘‘Announcement’’ the announcement of the Company dated 12 May 2017
‘‘associates’’
has the meaning ascribed to it thereto in the Listing Rules
‘‘Board’’ the board of Directors
‘‘Business Day’’

a day (excluding Saturday, or Sunday and any day on which a tropical cyclone warning no. 8 or above is hoisted or remains hoisted between 9:00 a.m. and 12:00 noon and is not lowered at or before 12:00 noon and is not lowered at or before 12:00 noon or on which a ‘‘black’’ rainstorm warning is hoisted or remains in effect between 9:00 a.m. and 12:00 noon and is not discontinued at or before 12:00 noon) on which licensed banks in Hong Kong are open for general business or on which the Stock Exchange is open for the transaction of business

‘‘CCASS’’
Central Clearing and Settlement System established and operated by HKSCC
‘‘Companies (Winding Up and Miscellaneous Provisions) Ordinance’’

the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Chapter 32 of the Laws of Hong Kong (as amended from time to time)

‘‘Company’’

Royale Furniture Holdings Limited (Stock Code: 1198), a company incorporated in Cayman Island with limited liability, the issued Shares of which are listed on the Main Board of the Stock Exchange

‘‘connected person’’

has the meaning ascribed to it in the Listing Rules

‘‘Director(s)’’
the director(s) of the Company from time to time

– 1 –

DEFINITIONS

‘‘EGM’’

the extraordinary general meeting of the Company convened to approve, among others, the Open Offer, the Underwriting Agreement and the transactions contemplated thereunder, as well as the Whitewash Waiver and the increase of authorised share capital

‘‘Excluded Shareholders’’
those Overseas Shareholders whom the Directors, after making relevant enquiries pursuant to Rule 13.36(2)(a) of the Listing Rules, consider it necessary or expedient to exclude from the Open Offer on account either of the legal restrictions under the laws of the relevant place or the requirements of any relevant regulatory body or stock exchange in that place
‘‘Executive’’
the Executive Director of the Corporate Finance Division of the SFC or any of his delegate
‘‘Group’’ the Company and its subsidiaries
‘‘HKSCC’’
Hong Kong Securities Clearing Company Limited
‘‘HK$’’
Hong Kong dollar(s), the lawful currency of Hong Kong
‘‘Hong Kong’’
Hong Kong Special Administrative Region of the PRC
‘‘Independent Board Committee’’

the independent committee of the Board comprising Dr. Donald H. Straszheim, Mr. Lau Chi Kit and Mr. Yue Man Yiu Matthew, established to give recommendations to the Independent Shareholders on among other things, whether the Open Offer, the Underwriting Agreement and the Whitewash Waiver are fair and reasonable and as to voting

‘‘Independent Financial Adviser’’

Nuada Limited, a corporation licensed to carry out Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities under the Securities and Futures Ordinance (Cap 571 of the Laws of Hong Kong), being the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the Open Offer, the Underwriting Agreement and the Whitewash Waiver

– 2 –

DEFINITIONS

‘‘Independent Shareholders’’
‘‘Latest Practicable Date’’
‘‘Last Trading Day’’
‘‘Latest Time for Acceptance’’
‘‘Latest Time for Termination’’
‘‘Listing Rules’’
Shareholders other than the Underwriter, any of his associates or parties acting in concert with him, Mr. Chan Wing Kit, and the persons who are involved or interested in the Open Offer, the Underwriting Agreement and the Whitewash Waiver who shall be required under the Listing Rules and/or the Takeovers Code to abstain from voting on the resolutions to approve the Open Offer, the Underwriting Agreement and the Whitewash Waiver at the EGM
9 June 2017, being the latest practicable date for ascertaining certain information in this circular
9 May 2017, being the last trading day of the Shares immediately prior to the publication of the Announcement
4:00 p.m. on 27 July 2017 or such other time or date as may be agreed between the Underwriter and the Company in writing, being the latest time for acceptance of, together with payment for, the Offer Shares

4:00 p.m. on the third Business Day after the Latest Time for Acceptance or such later time or date as may be agreed between the Underwriter and the Company in writing, being the latest time to terminate the Underwriting Agreement (provided that if the Latest Time for Termination falls on a Business Day on which a tropical cyclone warning signal no. 8 or above or a black rainstorm warning signal is or remains hoisted in Hong Kong between 9:00 a.m. and 4:00 p.m. on that day, the date of the Latest Time for Termination shall be the next Business Day on which no tropical cyclone warning signal no. 8 or above or no black rainstorm warning signal is or remains hoisted in Hong Kong between 9:00 a.m. and 4:00 p.m. on that day)

the Rules Governing the Listing of Securities on the Stock Exchange

– 3 –

DEFINITIONS

‘‘Offer Shares’’
not less than 220,297,127 and not more than 232,941,547 new Shares to be allotted and issued pursuant to the Open Offer
‘‘Open Offer’’ the proposed offer for subscription by way of open offer of the Offer Shares on an assured allotment basis at the Subscription Price to be made by the Company to the Qualifying Shareholders in the proportion of one (1) Offer Share for every eight (8) Shares held on the Record Date upon the terms and conditions of the Underwriting Agreement and the Prospectus Documents
‘‘Option(s)’’ options to subscribe for an aggregate of 122,484,360 new Shares granted by the Company, among which 21,329,000 Options are beneficially owned by the Underwriter who has undertaken to the Company not to exercise the Options prior the completion of the Open Offer
‘‘Overseas Shareholders’’ those persons whose address as shown on the register of members of the Company on the Record Date are outside Hong Kong
‘‘PRC’’ the People’s Republic of China, which for the purpose of this circular shall exclude Hong Kong, the Macau Special Administrative Region of the PRC and Taiwan
‘‘Prospectus’’ the prospectus to be despatched to the Shareholders in connection with the Open Offer
‘‘Prospectus Documents’’ together, the Prospectus and the Application Form(s)
‘‘Prospectus Posting Date’’ 13 July 2017, or such later date as may be agreed between the Company and the Underwriter in writing for the despatch of the Prospectus Documents
‘‘Qualifying Shareholder(s)’’ the person(s) whose name(s) appear on the register of members of the Company on the Record Date, other than the Excluded Shareholder(s)
‘‘Record Date’’ 12 July 2017, or such other date as may be agreed between the Company and the Underwriter in writing for the determination of the entitlements under the Open Offer

– 4 –

DEFINITIONS

‘‘Registrar’’ Tricor Tengis Limited of Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong ‘‘SFC’’ the Securities and Future Commission of Hong Kong ‘‘SFO’’ the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) ‘‘Share(s)’’ ordinary share(s) of HK$0.10 each in the share capital of the Company (or of such other nominal amount as shall result from a sub-division, consolidation, reclassification, reduction or reconstruction of the share capital of the Company from time to time) ‘‘Shareholder(s)’’ holder(s) of the Share(s) ‘‘Stock Exchange’’ The Stock Exchange of Hong Kong Limited ‘‘Subscription Price’’ the issue price of HK$0.455 per Offer Share ‘‘Takeovers Code’’ the Hong Kong Code on Takeovers and Mergers ‘‘Underwriter’’ Mr. Tse Kam an executive Director, the Chairman

Mr. Tse Kam Pang, an executive Director, the Chairman and the Chief Executive Officer of the Company and a substantial Shareholder beneficially interested in 522,121,811 Shares (including Options to subscribe 21,329,000 Shares), representing approximately 29.63% of the issued share capital of share capital of the Company as at the Latest Practicable Date

‘‘Underwriting Agreement’’ the underwriting agreement dated 9 May 2017, entered into between the Company and the Underwriter in relation to the Open Offer

‘‘Underwritten Shares’’ not less than 207,149,156 and not more than 219,793,576 Offer Shares, being the total number of Offer Shares (in the amount of not less than 220,297,127 and not more than 232,941,547 Offer Shares) less such number of Offer Shares agreed to be taken up by (i) the Underwriter (in his capacity as a Shareholder) pursuant to the Underwriting Agreement (being 13,147,971 Offer Shares), taking into account the undertaking in relation to Options to subscribe for 21,329,000 new Shares held by the Underwriter

– 5 –

DEFINITIONS

‘‘Whitewash Waiver’’ a waiver from the Executive pursuant to Note 1 on the dispensation from Rule 26 of the Takeovers Code in respect of the obligations of the Underwriter to make a mandatory general offer for all relevant securities (as defined in Note 4 to Rule 22 of the Takeovers Code) of the Company which would be triggered as a result of its underwriting obligation under the Underwriting Agreement ‘‘%’’%’’’’ per cent.

‘‘%’’%’’’’

– 6 –

TERMS OF TERMINATION OF THE UNDERWRITING AGREEMENT

The Open Offer is conditional until the conditions precedent of the Underwriting Agreement becoming unconditional and not being terminated by the Underwriter in accordance with its terms.

The Underwriter may terminate the Underwriting Agreement at any time prior to the Latest Time for Termination:

(i) in the reasonable opinion of the Underwriter, the success of the Open Offer would be materially and adversely affected by:
(a) the introduction of any new law or regulation or any change in existing law or regulation (or the judicial interpretation thereof) or other occurrence of any nature whatsoever which may in the reasonable opinion of the Underwriter materially and adversely affect the business or the financial or trading position of the Group as a whole or is materially adverse in the context of the Open Offer; or
(b) the occurrence of any local, national or international event or change (whether or not forming part of a series of events or changes occurring or continuing before, and/or after the date hereof) of a political, military, financial, economic or other nature (whether or not ejusdem generis with any of the foregoing), or in the nature of any local, national or international outbreak or escalation of hostilities or armed conflict, or affecting local securities markets which may, in the reasonable opinion of the Underwriter materially and adversely affect the business or the financial or trading position of the Group as a whole or materially and adversely prejudice the success of the Open Offer or otherwise makes it inexpedient or inadvisable to proceed with the Open Offer; or
(ii) any adverse change in market conditions (including without limitation, any change in fiscal or monetary policy, or foreign exchange or currency markets, suspension or material restriction or trading in securities) occurs which in the reasonable opinion of the Underwriter is likely to materially or adversely affect the success of the Open Offer or otherwise makes it inexpedient or inadvisable to proceed with the Open Offer; or
(iii) there is any change in the circumstances of the Company or any member of the Group which in the reasonable opinion of the Underwriter will adversely affect the operation of the Company, including without limiting the generality of the foregoing the presentation of a petition or the passing of a resolution for the liquidation or winding up or similar event occurring in respect of any of member of the Group or the destruction of any material asset of the Group; or

– 7 –

TERMS OF TERMINATION OF THE UNDERWRITING AGREEMENT

(iv) any event of force majeure including, without limiting the generality thereof, any act of God, war, riot, public disorder, civil commotion, fire, flood, explosion, epidemic, terrorism, strike or lock-out; or
(v) any other material adverse change in relation to the business or the financial or trading position of the Group as a whole whether or not ejusdem generis with any of the foregoing; or
(vi) any suspension in the trading of securities generally or the Company’s securities on the Stock Exchange for a period of more than ten consecutive Business Days, excluding any suspension in connection with the clearance of the Announcement or the Prospectus Documents or other announcements in connection with the Open Offer.

If the Underwriter terminates the Underwriting Agreement in accordance with the terms thereof, the Open Offer will not proceed.

– 8 –

LETTER FROM THE BOARD

==> picture [103 x 53] intentionally omitted <==

ROYALE FURNITURE HOLDINGS LIMITED 皇朝傢俬控股有限公司[*]

(Incorporated in the Cayman Islands with limited liability)

(Stock code: 1198)

Executive Directors: Mr. Tse Kam Pang (Chairman) Mr. Chen Hao Mr. Tse Hok Kan Mr. Chan Wing Kit

Independent non-executive Directors: Dr. Donald H. Straszheim Mr. Lau Chi Kit Mr. Yue Man Yiu Matthew

Registered office: Century Yard, Cricket Square Hutchins Drive P.O. Box 2681 GT Grand Cayman Cayman Islands British West Indies

Head office and principal place of business in Hong Kong: Room 607, 6/F Tsim Sha Tsui Centre 66 Mody Road Tsim Sha Tsui East Kowloon Hong Kong 13 June 2017

To the Qualifying Shareholders and, for information only, the Excluded Shareholders and holders of Options

Dear Sir or Madam,

(1) PROPOSED OPEN OFFER ON THE BASIS OF ONE (1) OFFER SHARE FOR EVERY EIGHT (8) SHARES HELD ON THE RECORD DATE; (2) CONNECTED TRANSACTION;

(3) APPLICATION FOR WHITEWASH WAIVER;

(4) PROPOSED INCREASE IN AUTHORISED SHARE CAPITAL AND

(5) NOTICE OF EXTRAORDINARY GENERAL MEETING

INTRODUCTION

Reference is made to the Announcement in relation to, among other things, the Open Offer, the Underwriting Agreement, the Whitewash Waiver and the increase of authorised share capital. This circular is to provide you with, among other things, (i) details of the Open Offer, the

For identification purposes only

– 9 –

LETTER FROM THE BOARD

Underwriting Agreement and the Whitewash Waiver; (ii) the increase of authorised share capital; (iii) a letter of recommendation from the Independent Board Committee in relation to the Open Offer, the Underwriting Agreement, the Whitewash Waiver and the increase of authorised share capital; (iv) a letter of advice from the Independent Financial Adviser in relation to the Open Offer, the Underwriting Agreement and the Whitewash Waiver; (v) other information required pursuant to the Listing Rules and the Takeovers Code in relation to the Open Offer, the Underwriting Agreement and the Whitewash Waiver; and (vi) a notice of the EGM.

THE OPEN OFFER

The Company proposes to raise not less than approximately HK$100,235,192 and not more than approximately HK$105,988,403 before expenses by way of the Open Offer, pursuant to which not less than 220,297,127 and not more than 232,941,547 Offer Shares will be issued at the Subscription Price of HK$0.455 per Offer Share. The Company will allot one (1) Offer Share for every eight (8) Shares held by the Qualifying Shareholders whose names appear on the register of members of the Company on the Record Date.

Issue statistics

Basis of the Open Offer – One (1) Offer Share for every eight (8) Shares the Record Date

Total number of issued – 1,762,377,017 Shares Shares as at the Latest Practicable Date

Number of Offer Shares – not less than 220,297,127 and not more than 232,941,547 Offer Shares

Subscription Price – HK$0.455 per Offer Share Underwriter – The Underwriter is a substantial Shareholder beneficially interested in 522,121,811 Shares (including Options to subscribe 21,329,000 Shares), representing approximately 29.63% of the issued share capital of the Company as at the Latest Practicable Date.

– 10 –

LETTER FROM THE BOARD

Number of Offer Shares – 13,147,971 Offer Shares irrevocably undertaken to be accepted by the Underwriter (in his capacity as a Shareholder)

Number of Offer Shares – not less than 207,149,156 and not more than to be underwritten by 219,793,576 Offer Shares (being all the Offer Shares the Underwriter (including the Offer Shares to which the Excluded Shareholder(s) would otherwise have been entitled) to be issued pursuant to the Open Offer, less those Offer Shares which the Underwriter (in his capacity as a Shareholder) has undertaken to take up). Accordingly, taking into account (i) the irrevocable undertaking of the Underwriter not to exercise the Option to subscribe for 21,329,000 new Shares held by him; and (ii) the irrevocable undertaking of the Underwriter to accept an aggregate of 13,147,971 Offer Shares, the Open Offer is fully underwritten.

Number of Shares in – not less than 1,982,674,144 and not more than issue immediately 2,096,473,924 Shares. after completion of the Open Offer

The Offer Shares proposed to be issued represent:

(a) 12.5% of the issued share capital of the Company as at the Latest Practicable Date assuming no further Shares will be issued or bought back by the Company prior to the close of the Open Offer; and
(b) approximately 11.11% of the issued share capital of the Company as enlarged by the allotment and issue of the Offer Shares, assuming no further Shares will be issued or bought back by the Company prior to the close of the Open Offer.

The aggregate nominal value of the Offer Shares is not less than HK$22,029,712 and not more than HK$23,294,155. The value of the Offer Shares under the subscription price is not less than HK$100,235,192 and not more than HK$105,988,403.

Save for the Options, as at the Latest Practicable Date, the Company had no outstanding convertible securities, options, warrants or derivatives in issue which confer any right to subscribe for, convert or exchange into Shares.

– 11 –

LETTER FROM THE BOARD

Qualifying Shareholders

The Company will send the Prospectus containing details of the Open Offer to the Qualifying Shareholders and, for information only, to the Excluded Shareholders and holders of Options. The Application Forms will also be sent to the Qualifying Shareholders only.

To qualify for the Open Offer, Shareholders must at the close of business on the Record Date be registered as a member of the Company. Shareholders having an address in Hong Kong on the register of members of the Company at the close of business on the Record Date are qualified for the Open Offer. Shareholders having addresses outside Hong Kong on the register of members of the Company at the close of business on the Record Date are qualified for the Open Offer only if the Board, after making relevant enquiry with lawyers in the relevant jurisdictions, considers that the offer to these Shareholders would not contravene any legal restriction under the laws of the relevant place or any requirement of the relevant regulatory body or stock exchange in that place and such offer will not require any relevant registration.

In order to be registered as a member of the Company on the Record Date, Shareholders must lodge the relevant transfer of Shares (with the relevant share certificates) with the Registrar, Tricor Secretaries Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong by 4:30 p.m. on 5 July 2017.

Closure of Register of Members

To ascertain a member’s entitlement to attend and vote at the EGM, the register of members of the Company will be closed from 27 June 2017 to 30 June 2017 (both days inclusive), during which no transfer of Shares will be registered. In order to qualify for the entitlement to attend and vote at the EGM, all transfer documents, together with the relevant share certificates, must be lodged for registration with the Company’s branch share registrar and transfer office in Hong Kong, Tricor Tengis Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong, no later than 4:30 p.m. (Hong Kong time) on 26 June 2017.

Rights of the Overseas Shareholders

As at the Latest Practicable Date, the Company had 20 Overseas Shareholders holding an aggregate of 111,960,816 Shares. Among such Overseas Shareholders, as shown in the register of members of the Company, 19 Shareholders are situated in PRC and 1 Shareholder is situated in British Virgin Island. The Directors have made enquiries as to whether the issue of the Offer Shares to these Overseas Shareholders may contravene the applicable securities legislation of the relevant overseas jurisdictions or the requirements of any relevant regulatory body or stock exchange pursuant to Rule 13.36(2)(a) of the Listing Rules.

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LETTER FROM THE BOARD

The Company has appointed legal advisers as to the laws of PRC and British Virgin Islands States respectively to advise on, among other things, the legality and practicability of the extension of the Open Offer to the Overseas Shareholders in PRC and British Virgin Islands respectively.

With respect to the Overseas Shareholders in PRC and British Virgin Islands, based on the respective legal advice provided by the PRC legal adviser and the British Virgin Islands legal adviser, the Directors are of the view that it is expedient to extend the Open Offer to the Overseas Shareholder in PRC and British Virgin Islands as there are no legal restrictions prohibiting the Company from making the Open Offer in both jurisdictions and no local legal or regulatory compliance is required to be attended by the Company in both jurisdictions. Accordingly, Overseas Shareholder in the PRC and British Virgin Islands together with the Shareholders with registered addresses in Hong Kong are Qualifying Shareholders, and there is no Overseas Shareholders at the Latest Practicable Date.

If there are Overseas Shareholders on the Record Date, the Company will, in accordance with the above, extend the Open Offer to such Overseas Shareholders in PRC and British Virgin Island. The result of the enquiries and the basis of the exclusion, if any, will be included in the Prospectus. If, after making such enquiry, the Board is of the opinion that it would be necessary or expedient, on account either of the legal restrictions under the laws of the relevant place or any requirement of the relevant regulatory body or stock exchange in that place, not to offer the Offer Shares to such Overseas Shareholders, the Open Offer will not be available to such Overseas Shareholders.

Accordingly, the Open Offer will not be extended to the Excluded Shareholders. The Company will send the Prospectus to the Excluded Shareholders for their information only but will not send any Application Forms in respect of the Open Offer to the Excluded Shareholders. The basis of exclusion of the Excluded Shareholders, if any, from the Open Offer will be disclosed in the Prospectus.

Fractional entitlements

The Company shall not allot any fractions of Offer Shares to the Qualifying Shareholders and fractional entitlements will be rounded down to the nearest whole number of Offer Shares. Such fractional entitlements shall be aggregated and will be dealt with as Offer Shares not accepted.

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LETTER FROM THE BOARD

TERMS OF THE PROPOSED OPEN OFFER

Subscription Price

The Subscription Price of HK$0.455 per Offer Share is payable in full when a Qualifying Shareholder accepts the Open Offer.

The Subscription Price represents:

(i) a discount of approximately 9.00% to the closing price of HK$0.50 per Share as quoted on the Stock Exchange on the Last Trading Day;
(ii) a discount of approximately 9.90% to the average closing price of approximately HK$0.505 per Share for the ten (10) consecutive trading days as quoted on the Stock Exchange up to and including the Last Trading Day;
(iii) a discount of approximately 28.73% to the audited consolidated net asset value per Share of approximately HK$0.638 (calculated by dividing the audited equity attributable to owners of the parent as at 31 December 2016 as shown in the annual report of the Company for the twelve (12) months ended 31 December 2016 of approximately HK$1,125,067,000 divided by 1,762,377,017 Shares in issue as at the date of the circular); and
(iv) a discount of approximately 8.08% to the theoretical ex-entitlement price (calculated by dividing the aggregate of (i) the market value of the Shares at the closing price as quoted on the Stock Exchange on the Last Trading Day; and (ii) the gross proceeds from the Open Offer, by the number of Shares then in issue immediately after the close of the Open Offer) of approximately HK$0.495 per Share based on the closing price per Share as quoted on the Stock Exchange on the Last Trading Day; and
(v) a premium of approximately 1.11% over the closing price of HK$0.45 per Share as quoted on the Stock Exchange on the Latest Practicable Date.

The Subscription Price was agreed based on arm’s length negotiations between the Company and the Underwriter after having taken into account primarily the unaudited consolidated net asset value per Share as at 31 December 2016. The Directors (excluding the Underwriter who has a conflict of interest and the independent non-executive Directors whose view disclosed in this circular after taking into account the advice from the independent financial adviser) consider that the terms of the Open Offer are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Each Offer Share is an ordinary share with a par value of HK$0.1.

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LETTER FROM THE BOARD

Basis of the assured allotment of the Offer Shares

One (1) Offer Share will be issued for every eight (8) Shares held by a Qualifying Shareholder on the Record Date. Acceptance of all or any part of a Qualifying Shareholder’s assured allotment should be made by completing the Application Form.

Status of the Offer Shares

When issued and fully paid, the Offer Shares will rank pari passu in all respects with the Shares then in issue. Holders of the Offer Shares will be entitled to receive all dividends and distributions which are declared, made or paid after the date of allotment of the Offer Shares in their fully-paid form.

Share certificates and refund cheques

Subject to the fulfilment of the conditions of the Open Offer, share certificates for all Offer Shares are expected to be posted to those entitled thereto by ordinary post at their own risk on 10 August 2017. If the Open Offer is terminated, refund cheques are expected to be posted to the respective Qualifying Shareholders by ordinary post at their own risk on 10 August 2017.

No application for excess Offer Shares

If application for excess Offer Shares is arranged, the Company will be required to put in additional effort and costs to administer the excess application procedures, including preparing and arranging the excess application forms, reviewing the relevant documents, liaising with professional parties and printing of application forms, etc.

Considering that each Qualifying Shareholder will be given an equal and fair opportunity to participate in the Company’s potential future development by subscribing for his entitlements under the Open Offer and maintaining their respective pro rata shareholding interests in the Company, the Directors (excluding the independent non-executive Directors) is of the view that the benefits of offering the excess application procedures do not justify the additional efforts and costs, and it is fair and reasonable and in the interests of the Company and the Independent Shareholders not to offer any excess application to the Qualifying Shareholders.

Pursuant to Rule 7.26A(2), the absence of excess application for Offer Shares by the Qualifying Shareholders must be specifically approved by the Independent Shareholders at the EGM by way of poll. Accordingly, after arm’s length negotiations with the Underwriter, the Company decided that the Qualifying Shareholders are not entitled to apply for any Offer Shares which are in excess of their assured entitlements. The Company considers that the administrative costs would be lowered without the excess application.

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LETTER FROM THE BOARD

Application for listing

The Company will apply to the Stock Exchange for the listing of, and permission to deal in, the Offer Shares. The Offer Shares shall have the same board lot size as the Shares, ie. 2,000 Shares.

No part of the share capital of the Company is listed or dealt in or on which listing or permission to deal is being or is proposed to be sought on any other stock exchange.

Subject to the grant of the approval for the listing of, and permission to deal in, the Offer Shares on the Stock Exchange, the Offer Shares will be accepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with effect from the respective commencement date of dealings in the Offer Shares on the Stock Exchange or such other date as determined by HKSCC. Settlement of transactions between participants of the Stock Exchange on any trading day is required to take place in CCASS on the second trading day thereafter. All activities under CCASS are subject to the General Rules of CCASS and CCASS Operational Procedures in effect from time to time.

Stamp duty

Dealings in the Offer Shares on the Stock Exchange will be subject to the payment of stamp duty in Hong Kong, Stock Exchange trading fees, SFC transaction levy and other applicable fees and charges in Hong Kong.

Confirming no disqualifying transaction

During the period beginning on the date which is six months prior to the date of the Announcement and up to and including the Latest Practicable Date, the Underwriter and any of his associates or parties acting in concert with him, have not dealt in the relevant securities (as defined under Note 4 to Rule 22 under Takeovers Code) of the Company.

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LETTER FROM THE BOARD

THE UNDERWRITING AGREEMENT

Principal terms of Underwriting Agreement

Date – 9 May 2017 (after trading hours) 2017 Underwriter – The Underwriter is a beneficial shareholder of the Company, and is beneficially interested in (i) 522,121,811 Shares (including Options to subscribe 21,329,000 Shares), representing approximately 29.63% of the issued share capital of the Company as at the Latest Practicable Date;

Number of Offer Shares – not less than 207,149,156 and not more than to be underwritten 219,793,576 Offer Shares (being all the Offer Shares (including the Offer Shares to which the Excluded Shareholder(s) would otherwise have been entitled) to be issued pursuant to the Open Offer, less those Offer Shares which the Underwriter (in his capacity as a Shareholder) has undertaken to take up). Accordingly, taking into account (i) the irrevocable undertaking of the Underwriter not to exercise the Option to subscribe for 21,329,000 new Shares held by him; and (ii) the irrevocable undertaking of the Underwriter to accept an aggregate of 13,147,971 Offer Shares, the Open Offer is fully underwritten.

Commission – no commission will be payable by the Company to the Underwriter

Undertaking from the Underwriter (in his capacity as a Shareholder)

The Underwriter has (in his capacity as a Shareholder) irrevocably undertaken to the Company:

(i) to accept the Offer Shares to be allotted to him and his controlled corporations on assured allotment basis (in his capacity as a Shareholder) in full pursuant to the Open Offer by lodging the Application Form in respect of the Offer Shares to be allotted to them accompanied by cheques or cashier order drawn on a licensed bank in Hong Kong for the full amount payable in respect of such Offer Shares;

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LETTER FROM THE BOARD

(ii) prior to the close of the Open Offer, he and his controlled corporations will not offer for sale, sell, transfer, contract to sell, or otherwise dispose of (including without limitation by the creation of any option, right, warrant to purchase or otherwise transfer or dispose of, or any lending, charges, pledges or encumbrances over, or by entering into any transaction which is designed to, or might reasonably be expected to, result in the disposition (whether by actual disposition or effective economic disposition due to cash settlement or otherwise)) any of the 500,792,811 Shares and the Options to subscribe for 21,329,000 Shares beneficially held by him as at the Latest Practicable Date, or to enter into any swap, derivative or other arrangement that transfers to another, in whole or in part, any of the economic consequences of the acquisition or ownership of any such Shares or such Options prior to the close of the Open Offer;
(iii) the 500,792,811 Shares and the Options to subscribe for 21,329,000 Shares registered in his name and/or under the name(s) of his nominee(s) prior to the close of the Open Offer shall remain registered under his name and/or under the name of his nominee on the Record Date and until the close of the Open Offer; and
(iv) not to exercise the Options in relation to 21,329,000 new Shares held by him prior to the close of the Open Offer.
(v) not to carry out any act (including any acquisition of voting rights by him or any parties acting in concert with him) that would render the Whitewash Waiver not being granted by the Executive or being revoked if granted.

Termination of the Underwriting Agreement

The Open Offer is conditional upon the Underwriting Agreement becoming unconditional and not being terminated by the Underwriter in accordance with its terms.

The Underwriter may terminate the Underwriting Agreement at any time prior to the Latest Time for Termination:

(i) in the reasonable opinion of the Underwriter, the success of the Open Offer would be materially and adversely affected by:
(a) the introduction of any new law or regulation or any change in existing law or regulation (or the judicial interpretation thereof) or other occurrence of any nature whatsoever which may in the reasonable opinion of the Underwriter materially and adversely affect the business or the financial or trading position of the Group as a whole or is materially adverse in the context of the Open Offer; or

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LETTER FROM THE BOARD

(b) the occurrence of any local, national or international event or change (whether or not forming part of a series of events or changes occurring or continuing before, and/or after the date hereof) of a political, military, financial, economic or other nature (whether or not ejusdem generis with any of the foregoing), or in the nature of any local, national or international outbreak or escalation of hostilities or armed conflict, or affecting local securities markets which may, in the reasonable opinion of the Underwriter materially and adversely affect the business or the financial or trading position of the Group as a whole or materially and adversely prejudice the success of the Open Offer or otherwise makes it inexpedient or inadvisable to proceed with the Open Offer; or
(ii) any adverse change in market conditions (including without limitation, any change in fiscal or monetary policy, or foreign exchange or currency markets, suspension or material restriction or trading in securities) occurs which in the reasonable opinion of the Underwriter is likely to materially or adversely affect the success of the Open Offer or otherwise makes it inexpedient or inadvisable to proceed with the Open Offer; or
(iii) there is any change in the circumstances of the Company or any member of the Group which in the reasonable opinion of the Underwriter will adversely affect the operation of the Company, including without limiting the generality of the foregoing the presentation of a petition or the passing of a resolution for the liquidation or winding up or similar event occurring in respect of any of member of the Group or the destruction of any material asset of the Group; or
(iv) any event of force majeure including, without limiting the generality thereof, any act of God, war, riot, public disorder, civil commotion, fire, flood, explosion, epidemic, terrorism, strike or lock-out; or
(v) any other material adverse change in relation to the business or the financial or trading position of the Group as a whole whether or not ejusdem generis with any of the foregoing; or
(vi) any suspension in the trading of securities generally or the Company’s securities on the Stock Exchange for a period of more than ten consecutive Business Days, excluding any suspension in connection with the Prospectus Documents or other announcements in connection with the Open Offer.

If the Underwriter terminates the Underwriting Agreement in accordance with the terms thereof, the Open Offer will not proceed.

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LETTER FROM THE BOARD

Conditions precedent

The obligations of the Underwriter under the Underwriting Agreement are conditional on the following conditions being fulfilled:

(1) the passing by the Independent Shareholders of the necessary resolutions at the EGM to approve the Open Offer (including the absence of arrangements for application for Offer Shares by the Qualifying Shareholders in excess of their assured entitlements under the Open Offer), the Underwriting Agreement and the transactions contemplated thereunder as well as the Whitewash Waiver on or before the Prospectus Posting Date;
(2) the Executive having granted (and such grant not having been withdrawn) the Whitewash Waiver;
(3) the delivery to the Stock Exchange for authorisation and the registration with the Registrar of Companies in Hong Kong respectively one copy of each of the Prospectus Documents duly signed by two Directors (or by their agents duly appointed by way of attorney) as having been approved by resolution of the Directors (and all other documents required to be attached thereto) and otherwise in compliance with the Listing Rules and the Companies (Winding Up and Miscellaneous Provisions) Ordinance not later than the Prospectus Posting Date;
(4) the posting of the Prospectus Documents to the Qualifying Shareholders and the posting of the Prospectus (marked ‘‘For Information Only’’) and a letter in the agreed form to the Excluded Shareholders, if any, explaining the circumstances in which they are not permitted to participate in the Open Offer on or before the Prospectus Posting Date;
(5) the Stock Exchange granting and not having withdrawn or revoked listing of and permission to deal in the Offer Shares by no later than the Prospectus Posting Date and the Stock Exchange not having withdrawn or revoked such listing and permission on or before the Latest Time for Termination; and
(6) the Underwriting Agreement not having been terminated pursuant to the terms of the Underwriting Agreement.

None of the conditions precedent can be waived. In the event that the above conditions have not been satisfied on or before the dates specified therein or if no such time is specified, the Latest Time for Termination (or such other time and date as the Company and the Underwriter may agree in writing), all obligations and liabilities of the parties under the Underwriting Agreement shall cease and terminate and none of the parties shall have any claim against the other. In such case, the Open Offer will not proceed.

As at the Latest Practicable Date, none of the conditions set out above had been fulfilled.

As at the Latest Practicable Date, the Underwriter had not entered into any sub-underwriting agreement(s) with any sub-underwriter(s).

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LETTER FROM THE BOARD

WARNING OF THE RISKS OF DEALING IN THE SHARES

The Open Offer is conditional upon the fulfilment of the conditions set out under the sub-section headed ‘‘Conditions precedent’’ above. The Open Offer is also subject to the Underwriter not terminating the Underwriting Agreement in accordance with the terms thereof. Accordingly, the Open Offer may or may not proceed.

Any dealings in the Shares from the date of this circular up to the date on which all the conditions are fulfilled will accordingly bear the risk that the Open Offer may or may not become unconditional or may not proceed. Any Shareholders or other persons contemplating any dealings in the Shares are recommended to consult their own professional advisers.

SHAREHOLDING STRUCTURE OF THE COMPANY

Set out below is the shareholding structure of the Company immediately before and upon completion of the Open Offer, assuming no Shares will be issued or bought back by the Company after the Latest Practicable Date and upon the close of the Open Offer (save for the exercise of Options held by optionholders other than the Underwriter):

The Underwriter and parties acting in concert with him (note 1) Directors Mr. Chen Hao (note 2) Mr. Chan Wing Kit (note 3) Dr. Donald H. Straszheim Mr. Lau Chi Kit Mr. Yue Man Yiu Matthew Others Great Diamond Developments Limited Other Shareholders Total	As at Latest Pract Shares 500,792,811 2,119,317 1,546,538 – – – 229,340,000 1,028,578,351 1,762,377,017	the icable Date Approximately % 28.42 0.12 0.09 – – – 13.01 58.36 100.00	Immediately after the close of the Open Offer (assuming all Qualifying Shareholders have taken up their respective entitlements under the Open Offer and assuming no Options have been exercised) Shares Approximately % 563,391,912 28.42 2,384,231 0.12 1,739,855 0.09 – – – – – – 258,007,500 13.01 1,157,150,646 58.36 1,982,674,144 100.00	Immediately after the close of the Open Offer (assuming none of the Qualifying Shareholders other than the Underwriter and his controlled corporations (in their capacity as Shareholders) have taken up their respective entitlements under the Open Offer and assuming no Options have been exercised) Shares Approximately % 721,089,938 36.37 2,119,317 0.11 1,546,538 0.08 – – – – – – 229,340,000 11.57 1,028,578,351 51.87 1,982,674,144 100.00	Immediately after the close of the Open Offer (assuming all Qualifying Shareholders have taken up their respective entitlements under the Open Offer and assuming all Options (other than those held by the Underwriter) have been exercised) Shares Approximately % 563,391,912 26.87 22,634,231 1.08 18,614,855 0.89 5,921,490 0.28 5,917,500 0.28 5,917,500 0.28 258,007,500 12.31 1,216,068,936 58.01 2,096,473,924 100.00	Immediately after the close of the Open Offer (assuming none of the Qualifying Shareholders other than the Underwriter and his controlled corporations (in their capacity as Shareholders) have taken up their respective entitlements under the Open Offer and assuming all Options (other than those held by the Underwriter) have been exercised) Shares Approximately % 733,734,358 35.00 20,119,317 0.96 16,546,538 0.79 5,263,547 0.25 5,260,000 0.25 5,260,000 0.25 229,340,000 10.94 1,080,950,164 51.56 2,096,473,924 100.00	Immediately after the close of the Open Offer (assuming none of the Qualifying Shareholders other than the Underwriter and his controlled corporations (in their capacity as Shareholders) have taken up their respective entitlements under the Open Offer and assuming all Options (other than those held by the Underwriter) have been exercised) Shares Approximately % 733,734,358 35.00 20,119,317 0.96 16,546,538 0.79 5,263,547 0.25 5,260,000 0.25 5,260,000 0.25 229,340,000 10.94 1,080,950,164 51.56 2,096,473,924 100.00
							10.94 51.56
							100.00

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LETTER FROM THE BOARD

Notes:

105,183,769 Shares are directly beneficially owned by the Underwriter. 185,840,120 Shares are held by Crisana International Inc. and 209,768,922 Shares are held by Charming Future Holdings Limited, both are companies wholly and beneficially owned by the Underwriter, who is deemed to be interested in the aggregate of 395,609,042 Shares held by these companies. Also, 21,329,000 Options are directly beneficially owned by the Underwriter.
The 2,119,317 Shares are directly beneficially owned by Mr. Chen Hao. Also, 18,000,000 Options are directly beneficially owned by Mr. Chen Hao.
Mr. Chan Wing Kit was interested in 36,538 Shares of the Company of which 1,579 Shares were held by him personally and 34,959 Shares were held by World Partner Development Limited, a company whose entire issued share capital is owned by Mr. Chan Wing Kit. He was also deemed to be interested in 1,510,000 Shares of the Company held by his spouse. Also, 15,000,000 Options are directly beneficially owned by Mr. Chan Wing Kit.

EQUITY FUND RAISING ACTIVITIES OF THE COMPANY IN THE PAST TWELVEMONTH PERIOD IMMEDIATELY BEFORE THE LATEST PRACTICABLE DATE

The Company has not conducted any equity fund raising activities in the past twelve months immediately preceding the Latest Practicable Date.

REASONS FOR THE OPEN OFFER AND USE OF PROCEEDS

The Group is principally engaged in the manufacture and sale of furniture.

The net proceeds from the Open Offer (after deducting the relevant expense including professional fees, printing charges and sundry expenses) will amount to not less than approximately HK$98,835,192 and not more than approximately HK$104,588,403. It is intended that out of the net proceeds, (i) approximately HK$88,951,672 to HK$94,129,561 will be used as repayment of loans by late August 2017 and September 2017; and (ii) approximately HK$9,883,520 to HK$10,458,841 will be used as general working capital of the Group.

Details of outstanding loans due by late August 2017 and September 2017 as below:

(1) One year secured bank loan from ICBC (Macau) with principal amount of HK$20,342,500 at the annual interest rate of 2.64% with maturity date on 12 August 2017 for the purpose of general working capital of the Group;
(2) One year secured bank loan from Xintang Branch of ICBC (Guangzhou) with principal amount of RMB40 million at the annual interest rate of 4.35% with maturity date on 21 September 2017 for the purpose of operation costs of PRC’s factories of the Group;

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LETTER FROM THE BOARD

(3) One year secured bank loan from Xintang Branch of ICBC (Guangzhou) with principal amount of RMB7,980,000 at the annual interest rate of 5.29% with maturity date on 11 August 2017 for the purpose of operation costs of PRC’s factories of the Group; and
(4) One year secured bank loan from Xintang Branch of ICBC (Guangzhou) with principal amount of RMB14 million at the annual interest rate of 4.79% with maturity date on 11 August 2017 for the purpose of operation costs of PRC’s factories of the Group.

The Board has considered alternative means of fund raising before resolving to the Open Offer, including debt financing (such as bank borrowings), rights issue and placing of new Shares. Regarding debt financing, the Directors are of the view that its availability is uncertain as the Company recorded net current liabilities since the financial year ended 31 December 2014 and it will be subject to negotiations and due diligence with banks which may take considerable time. Furthermore, debt financing may deteriorate the Group’s net current liabilities financial position of the Group and increase the Group’s interest burden.

Besides, the Board consider that the placing would only be available to certain placees who were not necessarily the existing Shareholders and would dilute their shareholding in the Company.

The Board also examined the possibility of fund raising by way of a rights issue which is similar to an open offer except that it allows shareholders to trade their nil-paid entitlements in the market. Despite a rights issue will provide an exit for the Qualifying Shareholder who do not take up their assured entitlements by selling their nil-paid rights, the Board noted that the adoption of such trading arrangements will carry additional expenses and administrative and liaison work for the Company and other professional parties, such as the share registrar of the Company, the financial printer and legal advisers. Having considered and balanced against the additional administrative work and cost in connection with the trading arrangements of nil-paid rights, and given that all Qualifying Shareholders can have an equal opportunity to participate in the Open Offer, the Board is the view that raising funds by way of the Open Offer is a more costeffective option than a rights issue.

After taking into account the benefits and cost of each of the alternatives, the Board is of the view and concur with the view of the management of the Company that the Open Offer allows the Group to strengthen its balance sheet without facing the increasing interest expense and minimise the cost of fund raising.

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LETTER FROM THE BOARD

The Board considers that the Open Offer will enable the Group to strengthen its capital base and provide sufficient capital to support the development of the Group’s business. The Board further considers that it is prudent to finance the Group’s long-term business development by long-term financing, preferably in the form of equity which will not increase the Group’s finance costs. The Board confirms that there is no material adverse change in the financial or trading position of the Group since the annual report of the year ended 31 December 2016.

The Board considers that the Open Offer will give the Qualifying Shareholders the opportunity to maintain their respective pro-rata shareholder interest in the Company. The Directors (excluding the independent non-executive Directors whose view will be disclosed in the circular after taking into account the advice from the independent financial adviser) are of the view that fund raising through the Open Offer is in the interests of the Company and the Shareholders as a whole. However, those Qualifying Shareholders who do not take up the Offer Shares to which they are entitled should note that their shareholdings in the Company will be diluted.

IMPLICATION UNDER THE LISTING RULES

As no excess application for Offer Shares shall be available to the Qualifying Shareholders, and the Open Offer is fully underwritten by the Underwriter (being an executive Director, the Chairman of the Company and a substantial Shareholder), (i) the absence of excess application for Offer Shares by the Qualifying Shareholders must be specifically approved by the Independent Shareholders pursuant to Rule 7.26A(2); and (ii) the transactions contemplated under the Underwriting Agreement constitute a connected transaction of the Company pursuant to Chapter 14A of the Listing Rules, and are therefore subject to Independent Shareholders’ approval. The Underwriter (being an executive Director) had abstained from voting at the Board meeting approving the Open Offer.

THE WHITEWASH WAIVER

As at the Latest Practicable Date, the Underwriter has a direct beneficial interest in 105,183,769 Shares and Options to subscribe for 21,329,000 Shares. The Underwriter is also deemed to be interested in 395,609,042 Shares through controlled corporations. Therefore, the Underwriter is beneficially interested in the aggregate of 522,121,811 Shares (including Options to subscribe 21,329,000 Shares), representing 29.63% of the issued share capital of the Company.

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LETTER FROM THE BOARD

Assuming (i) no further Shares will be issued or bought back by the Company prior to the close of the Open Offer; and (ii) none of the Qualifying Shareholders other than the Underwriter and his controlled corporations(in their capacity as Shareholders) have taken up their respective entitlements under the Open Offer, the interests in the Company held by the Underwriter and the parties acting in concert with him upon the close of the Open Offer will increase from approximately 29.63% to approximately 37.45% of the issued share capital of the Company as enlarged by the allotment and issue of the Offer Shares. The Underwriter and the parties acting in concert with him will, in the absence of the Whitewash Waiver, be obliged to make a mandatory cash offer for all issued Shares not already owned or agreed to be acquired by them pursuant to Rule 26 of the Takeovers Code and to make appropriate offer for the Options pursuant to Rule 13 of the Takeovers Code. The Underwriter has applied to the Executive for the Whitewash Waiver, which shall be subject to, among others, the approval by the Independent Shareholders at the EGM. If the Whitewash Waiver is not granted by the Executive, the Open Offer will not proceed.

Assuming all outstanding Options (other than those beneficially owned by the Underwriter) are exercised in full on or before the Record Date, the maximum number of 232,941,547 Offer Shares proposed to be allotted and issued under the Open Offer represents (a) approximately 13.22% of the Company’s issued share capital as at the Latest Practicable Date; and (b) 11.11% of the Company’s issued share capital as enlarged by the allotment and issue of 101,155,360 new Shares pursuant to the exercise of the Options and the allotment and issue of 232,941,547 Offer Shares immediately after completion of the Open Offer.

IMPLICATIONS UNDER THE TAKEOVERS CODE AND THE WHITEWASH WAIVER

An application has been made by the Underwriter to the Executive for the Whitewash Waiver in connection with the underwriting of the Open Offer by the Underwriter. The Whitewash Waiver, if granted by the Executive, would be subject to, among other things, the approval of the Open Offer and the Whitewash Waiver by the Independent Shareholders at the EGM by way of poll.

It is one of the conditions of the Underwriting Agreement that the Whitewash Waiver be granted by the Executive and approved by the Independent Shareholders at the EGM by way of poll. If the Whitewash Waiver is not granted by the Executive or not approved by the Independent Shareholders, the Underwriting Agreement will not become unconditional and the Open Offer will not proceed.

None of the Underwriter and any of his respective associates has dealt in the relevant securities (as defined under Note 4 to Rule 22 under Takeovers Code) of the Company in the six (6) months prior to the Latest Practicable Date.

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LETTER FROM THE BOARD

As at the Latest Practicable Date, the Company does not believe that the proposed Open Offer gives rise to any concerns in relation to compliance with other applicable rules or regulations (including the Listing Rules). If a concern should arise after the release of this circular, the Company will endeavor to resolve the matter to the satisfaction of the relevant authority as soon as possible but in any event before the despatch of the Whitewash circular. The Company notes that the Executive may not grant the Whitewash Waiver if the proposed Open Offer does not comply with other applicable rules and regulations.

DEALINGS AND INTEREST OF THE UNDERWRITER AND PARTIES ACTING IN CONCERT WITH HIM IN THE SECURITIES OF THE COMPANY

As confirmed by the Underwriter, as at the Latest Practicable Date, neither the Underwriter nor any parties acting in concert with him:

(a) save for the Shares and Option held by the Underwriter and his controlled corporations as set out in the section headed ‘‘Shareholding Structure of the Company’’ above, owned, controlled or had direction over any Shares and right over Shares, outstanding options, warrants, or any securities that are convertible into Shares or any derivatives in respect of securities in the Company, or hold any relevant securities (as defined in Note 4 to Rule 22 of the Takeovers Code) in the Company;
(b) had received an irrevocable commitment to vote for the Open Offer, the Underwriting Agreement and the Whitewash Waiver;
(c) had borrowed or lent any relevant securities (as defined in Note 4 to Rule 22 of the Takeovers Code) in the Company;
(d) save for the Underwriting Agreement, had any arrangement referred to in Note 8 to Rule 22 of the Takeovers Code (whether by way of option, indemnity or otherwise) in relation to the relevant securities (as defined in Note 4 to Rule 22 of the Takeovers Code) of the Company, which might be material to the Open Offer, the Underwriting Agreement and the Whitewash Waiver, with any other persons;
(e) save for the Underwriting Agreement, had any agreement or arrangement to which he is a party which relates to the circumstances in which it may or may not invoke or seek to invoke a precondition or a condition to the Open Offer, the Underwriting Agreement and the Whitewash Waiver; or
(f) had dealt in Shares, outstanding options, derivatives, warrants or other securities convertible or exchangeable into Shares, during the six months prior to the date of the Underwriting Agreement as of 9 May 2017.

– 26 –

LETTER FROM THE BOARD

ADJUSTMENTS IN RELATION TO THE OPTIONS

Pursuant to the terms of the share option scheme of the Company, the number or nominal amount of Shares comprised in each Option and/or the exercise price of the Options will be adjusted in accordance with such scheme upon the Open Offer having become unconditional. Such adjustments will be verified by the auditors of the Company and the Company will notify holders of the Options such adjustments upon the Open Offer having become unconditional. Further announcement will be made by the Company in relation to details of such adjustments.

PROPOSED INCREASE IN AUTHORISED SHARE CAPITAL

As at the Latest Practicable Date, the authorised share capital of the Company is HK$200,000,000 divided into 2,000,000,000 Shares, of which 1,762,377,017 Shares have been allotted and issued and fully paid. In order to accommodate the Offer Shares and also future expansion and growth of the Group, the Board proposes to increase the authorised share capital of the Company from HK$200,000,000 divided into 2,000,000,000 Shares to HK$400,000,000 divided into 4,000,000,000 Shares by the creation of additional 2,000,000,000 Shares.

The authorised share capital increase is subject to and conditional upon the passing of an ordinary resolution by the Shareholders at the EGM.

GENERAL

The EGM will be held to approve the Open Offer (including the absence of excess application for Offer Shares by the Qualifying Shareholders), the Underwriting Agreement and the transactions contemplated thereunder, as well as the Whitewash Waiver and the increase of authorised share capital. The Underwriter and any of his associates or parties acting in concert with him, Mr. Chan Wing Kit, and the persons who are involved or interested in the Open Offer, the Underwriting Agreement and the Whitewash Waiver will abstain from voting at the EGM. As at the Latest Practicable Date, Mr. Chan Wing Kit, an executive Director, is beneficially interested in 1,546,538 Shares and Options to subscribe for 15,000,000 Shares, representing approximately 0.09% and 0.85% of the issued share capital of the Company respectively. He was involved in the negotiations of the Underwriting Agreement on behalf of the Company and therefore will abstain from voting at the EGM.

Subject to, among others, the approval of the Open Offer, the Underwriting Agreement, the transactions contemplated thereunder as well as the Whitewash Waiver and the increase of authorised share capital at the EGM, the Company will also send a Prospectus containing details of the Open Offer to the Qualifying Shareholders and, for information only, to the Excluded Shareholders. The Application Forms will also be sent to the Qualifying Shareholders only.

– 27 –

LETTER FROM THE BOARD

INTENTION OF THE UNDERWRITER

If the Underwriter and parties acting in concert with him become the controlling Shareholders as a result of the Underwriter’s performance of the underwriting obligations under the Underwriting Agreement, the Underwriter intends to continue the existing businesses of the Group following completion of the Open Offer.

The Underwriter considered that the Open Offer is favourable to the Group as the Group will be able to obtain capital for development of the Group’s business. For further details, please refer to the section headed ‘‘REASONS FOR THE OPEN OFFER AND USE OF PROCEEDS’’ above. If the Underwriter and parties acting in concert with him become the controlling Shareholders as a result of performance of the underwriting obligations under the Underwriting Agreement, the Underwriter and the Group have no intention to introduce any material change to the existing businesses of the Group and the continued employment of the Group’s employees and has no intention to re-deploy the fixed assets of the Group other than in its ordinary course of business.

Nevertheless, the Underwriter and the Group will conduct review on the business operations of the Group from time to time following the Open Offer and consider all possible options with a view to improving the performance of the Group. The Company will comply with all applicable requirements of the Listing Rules and/or the Takeovers Code as and when appropriate.

ESTABLISHMENT OF INDEPENDENT BOARD COMMITTEE AND APPOINTMENT OF INDEPENDENT FINANCIAL ADVISER

The Company has established the Independent Board Committee comprising all independent non-executive Directors, namely Dr. Donald H. Straszheim, Mr. Lau Chi Kit and Mr. Yue Man Yiu Matthew to give recommendations to the Independent Shareholders as to whether the terms of the Open Offer, the Underwriting Agreement and the Whitewash Waiver are fair and reasonable and as to voting, and in the interests of the Company and/or the Independent Shareholders.

Nuada Limited has been appointed as the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in relation to the Open Offer, the Underwriting Agreement and the Whitewash Waiver. The appointment of the Independent Financial Adviser has been approved by the Independent Board Committee.

– 28 –

LETTER FROM THE BOARD

EGM

The EGM is convened to be held to approve the Open Offer (including the absence of excess application for Offer Shares by the Qualifying Shareholders), the Underwriting Agreement and the transactions contemplated thereunder, as well as the Whitewash Waiver. The Underwriter and any of their respective associates or parties acting in concert with them, Mr. Chan Wing Kit, and the persons who are involved or interested in the Open Offer, the Underwriting Agreement and the Whitewash Waiver will abstain from voting at the EGM. As at the Latest Practicable Date, the Underwriter was interested in 522,121,811 Shares (including Options to subscribe 21,329,000 Shares), representing approximately 29.63% of the issued share capital of the Company. Mr. Chan Wing Kit, an executive Director, was beneficially interested in 1,546,538 Shares and Options to subscribe for 15,000,000 Shares, representing approximately 0.09% and 0.85% of the issued share capital of the Company respectively.

A notice of the EGM to be held at 10:00 a.m. on Friday, 30 June 2017 at the Room 607, 6/F, Tsim Sha Tsui Centre, 66 Mody Road, Tsim Sha Tsui East, Kowloon, Hong Kong is set out on pages EGM-1 to EGM-4 of this circular for the purpose of considering and, if thought fit, approving the Open Offer, the Underwriting Agreement and the transactions contemplated thereunder, the Whitewash Waiver and the increase of authorised share capital.

The form of proxy for use at the EGM is enclosed with this circular. Whether or not you are able to attend the meeting in person, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and deposit the same at the Registrar, Tricor Tengis Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for the holding of the meeting. Completion and return of the form of proxy will not preclude you from attending and voting in person at the meeting or any adjourned meeting should you so wish and in such event, the form appointing a proxy shall be deemed to be revoked.

Subject to, among other things, the Open Offer, the Underwriting Agreement and the Whitewash Waiver being approved at the EGM, the Prospectus or Prospectus Documents, where appropriate, containing further information on the Open Offer will be despatched to the Shareholders as soon as practicable.

– 29 –

LETTER FROM THE BOARD

RECOMMENDATION

Your attention is drawn to (i) the recommendation of the Independent Board Committee to the Independent Shareholders in respect of the Open Offer, the Underwriting Agreement and the Whitewash Waiver set out in its letter on page 31 of this circular; and (ii) the advice and recommendation of the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders set out in its letter on pages 32 to 51 of this circular. The Independent Board Committee, having taken into account the advice and recommendation of Independent Financial Adviser, consider that the terms of the Open Offer, the Underwriting Agreement and the Whitewash Waiver, are fair and reasonable so far as the Independent Shareholders are concerned, and the Open Offer, the Underwriting Agreement and the Whitewash Waiver are in the interests of the Company and the Shareholders as a whole. Accordingly, the Independent Board Committee recommends the Independent Shareholders to vote in favour of the resolutions to approve the Open Offer, the Underwriting Agreement and the Whitewash Waiver at the EGM.

ADDITIONAL INFORMATION

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

Yours faithfully, By order of the Board Royale Furniture Holdings Limited Tse Kam Pang

Chairman and Chief Executive Officer

– 30 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

==> picture [103 x 53] intentionally omitted <==

ROYALE FURNITURE HOLDINGS LIMITED 皇朝傢俬控股有限公司[*]

(Incorporated in the Cayman Islands with limited liability)

(Stock code: 1198)

13 June 2017

To the Independent Shareholders

Dear Sir or Madam,

We refer to the circular of the Company dated 13 June 2017 (the ‘‘Circular’’), of which this letter forms part. Unless specified otherwise, capitalised terms used herein shall have the same meaning as those defined in the Circular.

We have been appointed to as the Independent Board Committee to advise you on the Open Offer, the Underwriting Agreement and the transactions contemplated thereunder, as well as the Whitewash Waiver. The Independent Financial Adviser has been appointed as the independent financial adviser to advise you and us in this regard. Details of its independent advice and recommendation, together with the principal factors and reasons it has taken into consideration, are set out on pages 32 to 51 of the Circular.

Having considered the respective terms of the Open Offer, the Underwriting Agreement and the Whitewash Waiver, and the advice of Independent Financial Adviser in relation thereto, we are of the opinion that the respective terms of the Open Offer, the Underwriting Agreement and the Whitewash Waiver are on normal commercial terms, and fair and reasonable so far as the Company and/or the Independent Shareholders are concerned, and the Open Offer, the Underwriting Agreement and the Whitewash Waiver are in the interests of the Company and the Shareholders as a whole. We therefore recommend that the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the EGM to approve the Open Offer, the Underwriting Agreement and the Whitewash Waiver.

Yours faithfully,

For and on behalf of the Independent Board Committee

Donald H. Straszheim Lau Chi Kit Yue Man Yiu Matthew

Independent non-executive Directors

For identification purposes only

– 31 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the text of a letter of advice to the Independent Board Committee and the Independent Shareholders from Nuada Limited dated 13 June 2017 in relation to the terms of the Open Offer, the Underwriting Agreement and the Whitewash Waiver for the purpose of inclusion in this circular.

Unit 1805-08, 18/F OfficePlus @Sheung Wan 93-103 Wing Lok Street Sheung Wan, Hong Kong 香港上環永樂街93-103號協成行上環中心18樓1805-08室

13 June 2017

To the Independent Board Committee and the Independent Shareholders of Royale Furniture Holdings Limited

Dear Sirs,

(1) PROPOSED OPEN OFFER ON THE BASIS OF ONE (1) OFFER SHARE FOR EVERY EIGHT (8) SHARES HELD ON THE RECORD DATE; (2) CONNECTED TRANSACTION; AND

(3) APPLICATION FOR THE WHITEWASH WAIVER

INTRODUCTION

We refer to our appointment to advise the Independent Board Committee and the Independent Shareholders in respect of the terms of the Open Offer, the Underwriting Agreement and the Whitewash Waiver, details of which are set out in the section headed ‘‘Letter from the Board’’ (the ‘‘Board Letter’’) in the Company’s circular dated 13 June 2017 (the ‘‘Circular’’) to the Shareholders, of which this letter forms part. Our appointment as the Independent Financial Adviser has been approved by the Independent Board Committee. Terms used in this letter shall have the same meanings as defined in the Circular unless the context requires otherwise.

On 12 May 2017, the Company announced to raise not less than approximately HK$100.24 million and not more than approximately HK$105.99 million, before expenses by way of Open Offer, pursuant to which not less than 220,297,127 Offer Shares and not more than 232,941,547 Offer Shares will be issued at the Subscription Price of HK$0.455 per Offer Share. The Company will allot one (1) Offer Share for every eight (8) Shares held by the Qualifying Shareholders whose names appear on the register of members of the Company on the Record Date. The Open Offer is not available to the Excluded Shareholders.

– 32 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Assuming all outstanding Options (other than those beneficially owned by the Underwriter) are exercised in full on or before the Record Date, the maximum number of 232,941,547 Offer Shares proposed to be allotted and issued under the Open Offer represents (a) approximately 13.22% of the Company’s issued share capital as at the Latest Practicable Date; and (b) 11.11% of the Company’s issued share capital as enlarged by the allotment and issue of 101,155,360 new Shares pursuant to the exercise of the Options and the 232,941,547 Offer Shares immediately after completion of the Open Offer.

On 9 May 2017, the Company and the Underwriter entered into an underwriting agreement. As at the Latest Practicable Date, the Underwriter has a direct beneficial interest in 105,183,769 Shares and Options to subscribe for 21,329,000 Shares. The Underwriter is also deemed to be interested in 395,609,042 Shares through controlled corporations. Therefore, the Underwriter is beneficially interested in the aggregate of 522,121,811 Shares (including Options to subscribe 21,329,000 Shares), representing 29.63% of the issued share capital of the Company.

The Underwriter has undertaken in the Underwriting Agreement (i) not to dispose of the Shares beneficially held by it prior to the close of the Open Offer and (ii) to accept all Offer Shares allotted to it (in its capacity as a Shareholder) on an assured allotment basis. Pursuant to the Underwriting Agreement, the Underwriter has conditionally agreed to underwrite, on a fully underwritten basis, the Underwritten Shares (being the total number of Offer Shares less such number of Offer Shares agreed to be taken up by the Underwriter pursuant to the aforesaid undertaking).

As no excess application for Offer Shares shall be available to the Qualifying Shareholders, and the Open Offer is fully underwritten by the Underwriter (being a substantial Shareholder), (i) the absence of excess of application for Offer Shares by the Qualifying Shareholders must be specifically approved by the Independent Shareholders pursuant to Rule 7.26A(2); and (ii) the transactions contemplated under the Underwriting Agreement constitute a connected transaction of the Company pursuant to Chapter 14A of the Listing Rules, and are therefore subject to Independent Shareholders’ approval.

Assuming (i) no further Shares will be issued or bought back by the Company prior to the close of the Open Offer; and (ii) none of the Qualifying Shareholders other than the Underwriter (in his capacity as a Shareholder) have taken up their respective entitlements under the Open Offer, the minimum interests in the Company held by the Underwriter and the parties acting in concert with him upon the close of the Open Offer will increase from approximately 29.63% to approximately 37.45% of the issued share capital of the Company as enlarged by the allotment and issue of the Offer Shares. The Underwriter and the parties acting in concert with him will, in the absence of the Whitewash Waiver, be obliged to make a mandatory cash offer for all issued Shares not already owned or agreed to be acquired by them pursuant to Rule 26 of the Takeovers Code and to make appropriate offer for the Options pursuant to Rule 13 of the Takeovers Code.

– 33 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

An application has been made by the Underwriter for the Whitewash Waiver, which shall be subject to, among others, the approval by the Independent Shareholders at the EGM. If the Whitewash Waiver is not granted by the Executive, the Open Offer will not proceed.

The EGM will be held to approve the Open Offer (including the absence of excess application for Offer Shares by the Qualifying Shareholders), the Underwriting Agreement and the transactions contemplated thereunder, as well as the Whitewash Waiver. The Underwriter and any of his respective associates or parties acting in concert with him, and persons who are involved or interested in the Open Offer, the Underwriting Agreement and the Whitewash Waiver will abstain from voting at the EGM. As at the Latest Practicable Date, Mr. Chan Wing Kit, an executive Director, is beneficially interested in 1,546,538 Shares and Options to subscribe for 15,000,000 Shares, representing approximately 0.09% and 0.85% of the issued share capital of the Company as at the Latest Practicable Date respectively. He was involved in the negotiations of the Underwriting Agreement on behalf of the Company and therefore will abstain from voting at the EGM. All of the Independent Shareholders are eligible to vote in the EGM.

The Company has established the Independent Board Committee to advise the Independent Shareholders as to (i) whether the terms of the Open Offer, the Underwriting Agreement and the Whitewash Waiver are fair and reasonable and in the interests of the Company and the Independent Shareholders, and (ii) voting by the Independent Shareholders on the relevant resolutions in the EGM by poll. We have been appointed by the Company as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in those regards. Our appointment has been approved by the Independent Board Committee.

We are independent from, and are not associated with the Company, the Underwriter or their respective substantial shareholder(s), or any party acting, or presumed to be acting, in concert with any of the above, or any company controlled by any of it/them. In the past two years prior to the date of the Underwriting Agreement, we did not act as the independent financial adviser of the Company. Apart from normal professional fees for our services to the Company in connection with this engagement, no other arrangements exist whereby we had received or will receive any fees or benefits from the Company or any other parties that could reasonably be regarded as relevant to our independence. Accordingly, we consider that we are independent under Rule 13.84 of the Listing Rules and comply with Rule 2.6 of the Takeovers Code and are eligible to give independent advice in respect of the terms of the Open Offer, the Underwriting Agreement and the Whitewash Waiver to the Independent Board Committee and the Independent Shareholders.

– 34 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

BASIS OF OUR OPINION

In formulating our opinion to the Independent Board Committee and the Independent Shareholders, we have relied on the accuracy of the statements, information, opinions and representations contained or referred to in the Circular and the information and representations provided to us by the Company, the Directors and the management of the Company. We have no reason to believe that any information and representations relied on by us in forming our opinion is untrue, inaccurate or misleading, nor are we aware of any material facts the omission of which would render the information provided and the representations made to us untrue, inaccurate or misleading. We have assumed that all information, representations and opinions contained or referred to in the Circular, which have been provided by the Company, the Directors and the management of the Company and for which they are solely and wholly responsible, were true and accurate at the time when they were made and continue to be true up to the Latest Practicable Date. Should there be any material changes after the Latest Practicable Date, the Shareholders would be notified as soon as possible.

The Directors have jointly and severally accepted full responsibility for the accuracy of the information contained in the Circular and have confirmed in the Circular, having made all reasonable enquiries, that to the best of their knowledge, opinion expressed in the Circular have been arrived at after due and careful consideration and there are no other facts the omission of which would make any statement in the Circular misleading.

We consider that we have been provided with sufficient information to reach an informed view and to provide a reasonable basis for our opinion. We have not, however, conducted any independent in-depth investigation into the business affairs of the Group.

We have not considered the tax consequences on the Qualifying Shareholders arising from the subscription for, holding of or dealing in the Offer Shares or otherwise, since these are particular to their own circumstances. Our opinion is necessarily based on the financial, economic, market and other conditions in effect and the information made available to us as at the Latest Practicable Date. Nothing contained in this letter should be construed as a recommendation to hold, sell or buy any Shares or any other securities of the Company.

This letter is issued for the information for the Independent Board Committee and the Independent Shareholders solely in connection with their consideration of the Open Offer, the Underwriting Agreement and the Whitewash Waiver and, except for its inclusion in the Circular, is not to be quoted or referred to, in whole or in part, nor shall this letter be used for any other purposes, without our prior written consent.

– 35 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our recommendation in relation to the terms of the Open Offer, the Underwriting Agreement and the Whitewash Waiver, we have considered the following principal factors and reasons:

1. Background information of the Group

(a) Business of the Group

According to the management of the Company, the Group is principally engaged in the manufacture and sale of furniture and all of the Group’s revenue are generated from sale of home furniture.

As stated in the annual report of the Group for the year ended 31 December 2016 (the ‘‘Annual Report 2016’’), the Group was able to achieve a business turnaround and recorded a profit for the year and it was the first financial year that recorded profits since the year ended 31 December 2012 (details of the financial information of the Group are set out under the paragraph headed ‘‘(b) Financial information of the Group’’ below in this letter).

According to the Annual Report 2016, further resources have been committed to enhance the recognition of the Group’s brand ‘‘Royal Furniture’’ among domestic consumers. The Group intends to provide a one-stop solution for customers in respect of their overall household furniture, and fully satisfy their consumption needs in personal style in furniture by improving the quality of the franchise stores. In order to understand the market outlook of the core business of the Company, we studied the market of home furniture in the PRC. Set out below are the latest statistics available on the online database of the National Bureau of Statistics of the PRC (the ‘‘National Bureau’’) regarding the accumulated domestic retail sales of furniture enterprises (above designated size) in the PRC from 2016 up to April 2017.

According to the statistics from the National Bureau, the accumulated domestic retail sales of furniture enterprises in the PRC (the ‘‘Accumulated Furniture Retail Sales’’) for the year ended 31 December 2016 was approximately RMB278.10 billion which represent an increase of approximately RMB33.60 billion (i.e. 13.74%) when compare to that of previous year. The Accumulated Furniture Retail Sales for the four months ended April 2017 were approximately RMB84.97 billion, which represent an increase of approximately RMB7.62 billion (i.e. 9.85%) when compared to the same period of prior year. Based on the above, we are of the view that the retail market of home furniture in PRC is encouraging and having an increasing trend.

– 36 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(b) Financial information of the Group

Set out below is an extract of the financial information of the Group from the annual reports of the Group for the year ended 31 December 2015 (the ‘‘Annual Report 2015’’) and the Annual Report 2016:

Table 1: Consolidated income statement of the Group

	For the years	ended 31	December
	2014	2015	2016
	HK$’000	HK$’000	HK$’000
	(audited)	(audited)	(audited)
Revenue	918,154	659,698	727,638
Gross profit	165,149	109,959	204,993
Profit/(Loss) for the year	(163,041)	(112,496)	34,493

Table 2: Consolidated statement of financial position of the Group

	As at 31 December	As at 31 December
	2014	2015	2016
	HK$’000	HK$’000	HK$’000
	(audited)	(audited)	(audited)
Non-current assets	1,688,007	1,558,083	1,548,819
Current assets	542,152	498,425	488,190
Cash and cash equivalents	128,355	89,831	103,516
Current liabilities	679,340	560,613	576,123
Net current liabilities	(137,188)	(62,188)	(87,933)
Equity attributable to owners of
the parent	1,159,874	1,105,811	1,125,067

As stated in the 2015 Annual Report and the 2016 Annual Report, all of the revenue of the Group was generated from the sales of home furniture. For the year ended 31 December 2015 (the ‘‘FY2015’’), the revenue of the Group dropped by approximately 28.15% to approximately HK$659.70 million as compared with a revenue of approximately HK$918.15 million for the years ended 31 December 2014. The Group recorded a loss of approximately HK$112.50 million for FY2015 as compared with a loss of approximately HK$163.04 million for the previous year. According to the Annual Report 2015, the loss was mainly due to assigning and selling self-operating stores and a downturn market.

– 37 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As stated in the Annual Report 2016, for the year ended 31 December 2016 (the ‘‘FY2016’’), the revenue of the Group increase by approximately 10.30% to approximately HK$727.64 million in FY2015 (i.e. approximately 659.70 million in FY2015) and the increase in revenue was due to the increase in premium distributors throughout the year. The management of the Company is of the view that new products with higher margin launched by the Group during the year were well accepted by the market and which was resulted in the increase of the gross profit of the Group in FY2016. The gross profit of the Group for FY2016 increased by approximately 86.42% to approximately HK$204.99 million for FY2016 (i.e. approximately 109.96 million for FY2015). The gross profit margin of the Group improved from approximately 16.67% for FY2015 to approximately 28.17% for FY2016. The Group recorded profit of approximately HK$34.49 million for FY2016. It was the first financial year that the Group recorded profits since the year ended 31 December 2012. According to the Annual Report 2016, the turnaround was mainly due to the increase in gross profit and decrease in expenditures. For FY2016, selling and distribution expenses reduced by 22.96% to approximately HK$89.50 million (i.e. approximately 116.17 million for FY2015), which was mainly due to the Group has exercised better control on promotion and exhibition expenses. Administration expenses also decreased by approximately 32.45% to approximately HK$75.49 million compared with approximately HK$111.75 million for FY2015, which was mainly due to the implementation of stringent cost control measures as well as streamlining the overall administrative processes.

The Group had a cash balance of approximately HK$103.52 million and a net current liabilities of approximately HK$87.93 million as at 31 December 2016, which represents an increase of approximately 41.39% compare with approximately HK$62.19 million as at 31 December 2015. The Group recorded net current liabilities as at 31 December 2015 and 31 December 2016 respectively mainly due to the interest-bearing bank and other borrowings amounted to approximately HK$250.69 million as at 31 December 2015 and approximately HK$228.13 million as at 31 December 2016. According to the management of the Company, the cash level of the Group as at 30 April 2017 was approximately HK$39.20 million and the Group will need to repay approximately HK$272.55 million for the outstanding principal amount and interest accrued of the loans (the ‘‘Outstanding Loans’’) in the coming twelve months. As the Company intends to allocate most of the net proceeds from the Open Offer to repay the loans of the Company (details of which are set out in the section headed ‘‘2. Background of and Reasons for the Open Offer’’ below in this letter), we consider that the Open Offer would improve the financial position of the Group.

– 38 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

2. Background of and Reasons for the Open Offer

(a) Reasons for the Open Offer and use of proceeds

The net proceeds from the Open Offer (after deducting the relevant expense including professional fees and printing charges) will amount to not less than approximately HK$98.84 million and not more than approximately HK$104.59 million. It is intended that out of the net proceeds, (i) approximately HK$88.95 million to approximately HK$94.13 million will be used as repayment of loans by late August 2017 and September 2017; and (ii) approximately HK$9.88 million to approximately HK$10.46 million will be used as general working capital of the Group.

According to the management of the Company, as at 30 April 2017, the Company will need to repay approximately HK$272.55 million of the Outstanding Loans in the coming twelve months. As stated above, the cash level of the Group as at 30 April 2017 was approximately HK$39.20 million and the Board estimates that the general working capital of the Group for the next 12 months will be approximately HK$153 million. Accordingly, we are of the view that the Group has funding needs to repay the Outstanding Loans and maintain the operation of the Group for the next 12 months.

Assuming the Open Offer will proceed, the Group will be able to allocate approximately HK$88.95 million and not more than approximately HK$94.13 million for partial repayments of the Outstanding Loans. As stated in the Annual Report 2016 under the section note 27. ‘‘INTEREST-BEARING BANK AND OTHER BORROWINGS’’ under the section headed ‘‘Notes to financial statements’’ in the Annual Report 2016, the bank loans repayable within one year of the Group as at 31 December 2016 was approximately HK$228.13 million. According to the management of the Company, the cash level of the Group as at 30 April 2017 was approximately HK$39.20 million and the Group will need to repay the Outstanding Loans of approximately HK$272.55 million in the coming twelve months, we concur with the Director’s view that the Group is in need to raise funds to repay the Outstanding Loans. The net proceeds from the Open Offer for repaying the Outstanding Loans will also reduce the Group’s liabilities and maybe able to turnaround the net current liabilities financial position of the Group (i.e. approximately HK$87.93 million for FY2016). According to the management of the Company, the Company may raise funding through debt financing such as bank loans in the future, but the Company currently has no plan to arrange other equity fund raising activities, for repayments of the Outstanding Loans.

– 39 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As mentioned above, the net proceeds from the Open Offer of not less than approximately HK$9.88 million to not more than HK$10.46 million will be allocate for the general working capital of the Group. According to the management of the Company, the general working capital for the Group for FY2016 was approximately HK$165 million and they estimate the general working capital for the coming 12 months will be approximately HK$153 million. Having considered the cash level of the Group of approximately HK$39.20 million as at 30 April 2017, we are of the view that the allocation of the net proceeds for the general working capital of the Group is justifiable.

Based on (i) our review on the Group’s business and its current financial position (as detailed in the above section headed ‘‘1. Background information of the Group’’); and (ii) the reasons for and use of proceeds from the Open Offer as stated in this section, we are of the view and concur with the view of the Directors that the conduct of the Open Offer is in the interests of the Company and the Shareholders as a whole.

(b) Fund raising alternatives

As advised by the Directors, the Board has considered alternative means of fund raising before resolving to the Open Offer, including debt financing (such as bank borrowings), rights issue and placing of new Shares. Regarding debt financing, the Directors are of the view that its availability is uncertain as the Company recorded net current liabilities since the financial year ended 31 December 2014 and it will be subject to negotiations and due diligence with banks which may take considerable time. Furthermore, debt financing may deteriorate the Group’s net current liabilities financial position of the Group (as mentioned under the section headed ‘‘1. Background information of the Group’’ as mentioned above in this letter) and increase the Group’s interest burden.

Besides, the Directors consider that the placing would only be available to certain placees who were not necessarily the existing Shareholders and would dilute their shareholding in the Company.

The Directors have also examined the possibility of fund raising by way of a rights issue which is similar to an open offer except that it allows shareholders to trade their nilpaid entitlements in the market. Despite a rights issue will provide an exit for the Qualifying Shareholder who do not take up their assured entitlements by selling their nil-paid rights, the Directors noted that the adoption of such trading arrangements will carry additional expenses and administrative and liaison work for the Company and other professional parties, such as the share registrar of the Company, the financial printer and legal advisers. Having considered and balanced against the additional administrative work and cost in connection with the trading arrangements of nil-paid rights, and given that all Qualifying Shareholders can have an equal opportunity to participate in the Open Offer, the Directors are of the view that raising funds by way of the Open Offer is a more cost-effective option than a rights issue.

– 40 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

After taking into account the benefits and cost of each of the alternatives, we are of the view and concur with the view of the management of the Company that the Open Offer allows the Group to strengthen its balance sheet without facing the increasing interest expense and minimise the cost of fund raising.

3. Principal terms of the Open Offer

(a) Basis of the Open Offer

The Company proposed to raise not less than approximately HK$100.24 million and not more than approximately HK$105.99 million before expenses by way of Open Offer, pursuant to which not less than 220,297,127 Offer Shares and not more than 232,941,547 Offer Shares will be issued at the Subscription Price of HK$0.455 per Offer Share. The Company will allot one (1) Offer Share for every eight (8) Shares held by the Qualifying Shareholders whose names appear on the register of members of the Company on the Record Date.

When issued and fully paid, the Offer Shares will rank pari passu in all respects with the Shares then in issue. Holders of the Offer Shares will be entitled to receive all dividends and distributions which are declared, made or paid on or after the date of allotment of the Offer Shares in their fully-paid form.

(b) Basis in determining the Subscription Price

The Subscription Price of HK$0.455 per Offer Share is payable in full when a Qualifying Shareholder accepts the Open Offer.

The Subscription Price represents:

(i) a discount of approximately 9.00% to the closing price of HK$0.50 per Share as quoted on the Stock Exchange on the Last Trading Day;
(ii) a discount of approximately 9.90% to the average closing price of approximately HK$0.505 per Share for the ten (10) consecutive trading days as quoted on the Stock Exchange up to and including the Last Trading Day;
(iii) a discount of approximately 28.73% to the audited consolidated net asset value per Share of approximately HK$0.638 (calculated by dividing the audited equity attributable to owners of the parent as at 31 December 2016 as shown in the Annual Report 2016 of approximately HK$1,125,067,000 by 1,762,377,017 Shares in issue as at the Latest Practicable Date); and

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(iv) a discount of approximately 8.08% to the theoretical ex-entitlement price (calculated by dividing the aggregate of (i) the market value of the Shares at the closing price as quoted on the Stock Exchange on the Last Trading Day; and (ii) the gross proceeds from the Open Offer, by the number of Shares then in issue immediately after the close of the Open Offer) of approximately HK$0.495 per Share based on the closing price per Share as quoted on the Stock Exchange on the Last Trading Day; and
(v) a premium of approximately 1.11% over the closing price of HK$0.450 per Share as quoted on the Stock Exchange on the Latest Practicable Date.

In order to assess the fairness and reasonableness of the Subscription Price, we have reviewed the trading price of the Shares for the period from 9 May 2016, being the 12month period prior to the date of the Underwriting Agreement, up to and including the Last Trading Day (the ‘‘Review Period’’). The chart below illustrates the daily closing price of the Shares (the ‘‘Closing Price’’) versus the Subscription Price of HK$0.455 per Offer Share during the Review Period:

Graph A: Historical Closing Price of the Share

==> picture [361 x 247] intentionally omitted <==

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

0.7
0.6
0.5
0.4
0.3
0.2
0.1
0.0
Closing Price Subscription Price
9/5/20169/6/20169/7/20169/8/2016 9/9/20169/10/20169/11/20169/12/20169/1/20179/2/20179/3/20179/4/20179/5/2017
----- End of picture text -----

Source: the website of the Stock Exchange

– 42 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As shown in the above chart, we note that the Closing Price shows a general upward trend throughout the Review Period. During the Review Period, the highest Closing Price were HK$0.580 recorded on 24 March 2017 and the lowest Closing Price were HK$0.285 recorded on 26 May 2016. The Subscription Price of HK$0.455 represents a discount of approximately 21.55% to the highest Closing Price during the Review Period and a premium of 59.65% to the lowest Closing Price during the Review Period. The average Closing Price of the Review Period was HK$0.426, which means the Subscription Price has a premium of approximately 6.81% over the average Closing Price during the Review Period. We also noted that the 138 out of 245 trading days of the Shares during the Review Period, the closing price of the Shares are below the Subscription Price.

As illustrated by the above chart, the Closing Price were mostly below the Subscription Price in the first half of the Review Period. The Closing price rose from HK$0.440 to HK$0.500 on 13 January 2017 and followed by an upward trend until 24 March 2017 and recorded the Highest Price. Then the Closing Price fluctuated in the range of HK$0.570 and HK$0.495 until the Last Trading Day.

Taking into consideration that, (i) the Subscription Price has a premium of 6.81% over the average Closing Price during the Review Period; and (ii) the Director is of the view that the discount of the Subscription Price to the recent market price of the Share is necessary to encourage the Qualifying Shareholders to participate the Open Offer, we are of the view that the setting of the Subscription Price is fair and reasonable so far as the Independent Shareholders are concerned.

(c) Comparison to other open offers

In order to understand the market practice in relation to the subscription prices of other open offers (with whitewash waiver application) announced by other listed companies in the Stock Exchange, we have reviewed all the proposed open offer (with whitewash waiver application) announced by other listed companies in 12 months period ended on the date of the Underwriting Agreement i.e. from 10 May 2016 to 9 May 2017 (being the date of the Underwriting Agreement). Based on the above, we identified an exhaustive list of 6 proposed open offer (with whitewash waiver application) (the ‘‘Open Offer Comparables’’).

– 43 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We consider that a review period of 12 months ended on the date of the Underwriting Agreement is appropriate because the Open Offer Comparables are considered for the purpose of providing a general reference for the market practice in relation to the subscription price of other proposed open offers as compared to the relevant prevailing market share prices. Given the differences between the listed issuers in the Open Offer Comparables and the Group in terms of business nature, financial performance and financial position, the Open Offer Comparables may not be the same as the Open Offer. Nevertheless, based on (i) the Open Offer Comparables represented the structure of Open Offers (with whitewash waiver application) as accepted by other equity underwriters in Hong Kong in the 12 months prior to the date of the Underwriting Agreement; and (ii) the terms of the Open Offer Comparables were determined under similar market condition and sentiment during the aforesaid period and they might be able to reflect the general trend of open offer transactions in the Hong Kong stock market, we consider that the Open Offer Comparables are fair and representative samples for the purpose of providing a general reference for the market practice in relation to (a) the subscription prices of other proposed open offers (with whitewash waiver application) as compared to the relevant prevailing market share prices; (b) maximum dilution effect; and (c) underwriting commissions.

Table 3: Details regarding the Open Offer Comparables are set out below:

										Whether the
						Premium to/	Premium to/			underwriter(s) is/
						(Discount of)	(Discount of)			are the connected
						closing price	the theoretical		Whitewash	person(s) of the
	Date of initial	Name of	Stock	Market	Basis of	on last	ex-entitlement	Underwriting	waiver	respective listed	Excess	Maximum
No.	announcement	the company	code	capitalisation	entitlement	rading day	price	commission	application	company	Application	dilution
				(HK$)		(%)	(%)	(%)		(Note 2)		(Note 3)
				(Note 1)		(Note 2)	(Note 2)
1	16 May 2016	Culture Landmark Investment	674	423,926,238	1 for 2	(49.15)	(38.78)	0	Yes	Yes	No	33.33%
		Limited
2	17 June 2016	Tesson Holdings Limited	1201	467,822,516	3 for 4	1.27	0.76	0	Yes	Yes	No	42.86%
3	18 October 2016	New Silkroad Culturaltainment	472	3,505,439,472	2 for 5	4.58	3.23	0	Yes	Yes	Yes	28.57%
		Limited
4	16 February 2017	China Luemena New	67	7,004,824,238	1 for 1	(99.36)	(98.73)	N/A	Yes	N/A	No	50.00%
		Materials Corp. (Note 4)				(Note 5)	(Note 5)	(Note 6)		(Note 6)
5	20 March 2017	Flyke International	1998	308,788,000	3 for 5	(74.08)	(64.11)	N/A	Yes	N/A	No	37.50%
		Holdings Ltd. (Note 7)				(Note 5)	(Note 5)	(Note 6)		(Note 6)
6	20 April 2017	i-CABLE COMMUNICATIONS	1097	1,227,022,564	5 for 3	(65.57)	(41.67)	2.00%	Yes	No	No	62.50%
		LIMITED
			Average	2,156,303,838		(47.05)	(39.88)	0.50%				42.46%
			Maximum	7,004,824,238		4.58	3.23	2.00%				62.50%
			Minimum	308,788,000		(99.36)	(98.73)	0				28.57%
			Company	881,188,509		9.00	8.08	0	Yes	Yes	No	11.11%

Notes:

The figures are based on (i) the issued shares and (ii) the closing price of the share of the listed companies; and (ii) the closing price as at the respective last trading days before entering into respective underwriting agreements.
Based on the information disclosed in the initial announcements of the Open Offer Comparables respectively.

– 44 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Maximum dilution effect of each of the Open Offer Comparables are calculated as: (number of offer shares to be issued under the basis of entitlement)/(number of existing shares held for the entitlement for the offer shares under the basis of entitlement + number of offer shares to be issued under the basis of entitlement) x 100%).
China Luemena New Materials Corp. has been suspended for trading since 25 March 2014 and has not been resumed for trading as at the Latest Practicable Date.
The closing price on the respective last trading days were adjusted by the proposed capital reorganisation of respective companies.
The relevant companies had not entered into any underwriting agreement as at the Latest Practicable Date.
Flyke International Holdings Ltd. has been suspended for trading since 31 March 2014 and has not been resumed for trading as at the Latest Practicable Date.

As shown on the above list of the Open Offer Comparables, the subscription prices of the Open Offer Comparables were set at either premiums over or discounts to (i) the respective closing prices on the last trading day prior to the date of the corresponding initial announcements, ranging from a premium of approximately 4.58% to a discount of 99.36% with an average discount of approximately 47.05%; and (ii) the theoretical ex-entitlement prices, ranging from a premium of approximately 3.23% to a discount of approximately 98.73% with an average discount of approximately 39.88%. The discount represented by the Subscription Price to (i) the Closing Price on the Last Trading Day of approximately 9.00%; and (ii) the theoretical ex-entitlement price of the Open Offer of approximately 8.08% were lower than the respective average discounts of the Open Offer Comparables and within the range of discounts of the Open Offer Comparables.

Having considered that:

(i) the net proceeds from the Open Offer will improve the net current liabilities financial position of the Group as mentioned under the section headed ‘‘1. Background information of the Group’’;
(ii) the Subscription Price has a premium of 6.81% over the average Closing Price during the Review Period; and
(iii) the discount represented by the Subscription Price to (a) the Closing Price on the Last Trading Day; and (b) the theoretical ex-entitlement price of the Open Offer were lower than the respective average discounts of the Open Offer Comparables and within the range of the discounts of the Open Offer Comparables,

– 45 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

we are of the view and concur with the view of the Directors that the Subscription Price is fair and reasonable so far as the Independent Shareholders are concerned and is in the interests of the Company and the Independent Shareholders as a whole.

(d) Underwriting Commission

As stated in the Board Letter, no commission will be payable by the Company to the Underwriter. As shown on the above table of the Open Offer Comparables, we note that the underwriting commissions of the Open Offer Comparables were either zero or 2.00% (2 out of 6 Open Offer Comparables had not entered into any underwriting agreement as at the Latest Practicable Date), and have an average of approximately 0.50%, of the aggregate subscription price in respect of the numbers of underwritten shares. Considering that no commission is payable by the Company which is more favourable to the Company compare with those of the Open Offer Comparables, we consider the underwriting commission of the Underwriting Agreement is fair and reasonable.

(e) Potential dilution effect on the interests of the Independent Shareholders

Upon completion of the Open Offer, Qualifying Shareholders who elect to subscribe for their assured entitlements in full under the Open Offer will retain their current proportionate shareholding in the Company. Qualifying Shareholders who do not elect to subscribe for their assured entitlements in full under the Open Offer will be diluted after completion of the Open Offer.

In the case that none of the Qualifying Shareholders other than the Underwriter and his controlled corporations (in their capacity as Shareholders) have taken up their respective entitlements under the Open Offer, assuming (i) no Options have been exercised on or before the Record Date, shareholding interests of the public Shareholders will decrease from 58.36% as at the Latest Practicable Date to approximately 51.87% immediately upon completion of the Open Offer, representing a possible dilution of approximately 11.12% in their shareholding interests arising from the Open Offer; (ii) all Options (other than those held by the Underwriter) have been exercised in full on or before the Record Date, shareholding interests of the public Shareholders will decrease from 58.36% as at the Latest Practicable Date to 51.56% immediately upon completion of the Open Offer, representing a possible dilution of approximately 11.65% in their shareholding interest arising from the Open Offer.

As shown on the above table of the Open Offer Comparables, we note that the maximum dilution impact of the Open Offer Comparables were within the range of 28.57% to 62.50% and with an average of approximately 42.46%, considering that the maximum dilution impact of the Open Offer as stated in the above paragraph is lower than the maximum dilution impact of all of the Open Offer Comparables, we consider that the possible dilution effect on the Independent Shareholders to be acceptable.

– 46 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(f) No Application for Excess Offer Shares

According to the management of the Company, if application for excess Offer Shares is arranged, the Company will be required to put in additional effort and costs to administer the excess application procedures, including preparing and arranging the excess application forms, reviewing the relevant documents, liaising with professional parties and printing of application forms, etc. After discussion with the management of the Company, it is estimated that additional costs would be at least HK$100,000.

Taking into account (i) all Qualifying Shareholders are offered an equal opportunity to participate in the Open Offer; (ii) the net current liabilities financial position of the Group as stated under the section headed ‘‘1. Background information of the Group’’ above in this letter while the absence of excess application will lower the administrative costs (additional costs would be at least HK$100,000 for excess application arrangements) to complete the Open Offer; (iii) the funding needs of the Group in the coming 12 months as stated under the section headed ‘‘2. Background of and Reasons for the Open Offer’’ and it is in the interests of the Company to lower the administrative costs of the Open Offer (additional costs would be at least HK$100,000 for excess application arrangements); and (iv) 5 out of 6 Open Offer Comparables did not arrange excess applications as stated in the paragraph headed ‘‘(c) Comparison to other open offers’’ above in this letter, we are of the view that that absence of excess application of the Open Offer is justifiable.

4. Financial effects of the Open Offer

According to the unaudited pro forma financial information of the Group set out in Appendix II to the Circular, the audited consolidated net tangible assets of the Group attributable to owners of the Company was approximately HK$1,054.86 million as at 31 December 2016.

– 47 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(a) Net tangible assets

Assuming no outstanding Share Options are exercised and no other issue of Share on or before the Record Date (the ‘‘Scenario I’’), (i) the unaudited pro forma adjusted consolidated net tangible assets of the Group attributable to owners of the Company would increase to approximately HK$1,153.69 million as at 31 December 2016 upon completion of the Open Offer; and (ii) the unaudited pro forma adjusted consolidated net tangible assets per Share would decrease from approximately HK$0.599 to approximately HK$0.582.

Assuming all outstanding Share Options other than those held by the Underwriter are exercised (the ‘‘Scenario II’’), (i) the unaudited pro forma adjusted consolidated net tangible assets of the Group attributable to owners of the Company would increase to approximately HK$1,159.45 million as at 31 December 2016 upon completion of the Open Offer; and (ii) the unaudited pro forma adjusted consolidated net tangible assets per Share would decrease from approximately HK$0.599 to approximately HK$0.553.

(b) Liquidity

According to the Annual Report 2016, as at 31 December 2016, the cash and cash equivalents of the Group was approximately 103.52 million and the Group had current assets of approximately HK$488.19 million, current liabilities of approximately HK$576.12 million. Accordingly, the current ratio of the Group (being the current assets of the Group divided by the current liabilities of the Group) as at 31 December 2016 was approximately 84.74%. Immediately upon completion of the Open Offer, the cash and cash equivalents of the Group is expected to increase by the expected net proceeds from the Open Offer of not less than approximately HK$98.84 million and not more than approximately HK$104.59 million.

Assuming Scenario I happens and the net proceeds of the Open Offer will be approximately HK$98.84 million, the current ratio of the Group will be increased from 84.74% to approximately 101.89%. Assuming Scenario II happens and the net proceeds of the Open Offer will be approximately 104.59 million, the current ratio of the Group will be increased from 84.74% to approximately 102.89%. As such, the current ratio and the liquidity of the Group will be improved upon the completion of the Open Offer.

(c) Gearing Ratio

According to the Annual Report 2016, as at 31 December 2016, the gearing ratio of the Group (being the total of (i) trade payables; (ii) other payables and accruals; (iii) medium term bonds; (iv) interest-bearing bank and other borrowings; (v) loan from noncontrolling interests; and (vi) loan from a director, less cash and cash equivalents of the Group (the ‘‘Net Debt’’), divided by the equity attributable to owners of the parent plus Net Debt) was approximately 31.89%. Upon completion of the Open Offer, the equity attributable to owners of the parent would be enlarged by the expected net proceeds from the Open Offer of not less than approximately HK$98.84 million and not more than approximately HK$104.59 million.

– 48 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Assuming Scenario I happens and the net proceeds of the Open Offer will be approximately HK$98.84 million, the gearing ratio of the Group will be improved from approximately 31.89% to approximately 30.09%. Assuming Scenario II happens and the net proceeds of the Open Offer will be approximately HK$104.59 million, the gearing ratio of the Group will be improved from approximately 31.89% to approximately 29.99%. As such the gearing ratio of the Group is expected to improve upon completion of the Open Offer.

Although the unaudited pro forma adjusted consolidated net tangible assets value per Share will decrease, the Open Offer will improve (i) the liquidity position of the Group; and (ii) the gearing ratio of the Group. Hence, we are of the view that the Open Offer are in the interests of the Company and the Shareholders as a whole.

Shareholders should note that the aforesaid analyses are for illustrative purpose only and do not purport to represent the financial position of the Group upon completion of the Open Offer.

5. Whitewash Waiver

As at the Latest Practicable Date, the Underwriter has a direct beneficial interest in 105,183,769 Shares and Options to subscribe for 21,329,000 Shares. The Underwriter is also deemed to be interested in 395,609,042 Shares through controlled corporations. Therefore, the Underwriter is beneficially interested in the aggregate of 522,121,811 Shares (including Options to subscribe 21,329,000 Shares) representing 29.63% of the issued share capital of the Company.

Assuming (i) no further Shares will be issued or bought back by the Company prior to the close of the Open Offer; and (ii) none of the Qualifying Shareholders other than the Underwriter (in his capacity as a Shareholder) have taken up their respective entitlements under the Open Offer, the interests in the Company held by the Underwriter and the parties acting in concert with him upon the close of the Open Offer will increase from approximately 29.63% to approximately 37.45% of the issued share capital of the Company as enlarged by the allotment and issue of the Offer Shares. The Underwriter and the parties acting in concert with it will, in the absence of the Whitewash Waiver, be obliged to make a mandatory cash offer for all issued Shares not already owned or agreed to be acquired by them pursuant to Rule 26 of the Takeovers Code and to make appropriate offer for the Options pursuant to Rule 13 of the Takeovers Code.

– 49 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Based on our analysis of the benefits and terms of the Open Offer in this letter, we consider that the Open Offer is in the interests of the Company and the Independent Shareholders. If the Whitewash Waiver is not approved by the Independent Shareholders at the EGM, the Open Offer will not proceed and the Company will lose all the benefits that are expected to be brought by the completion of the Open Offer, i.e. to turnaround the net current liabilities of the financial position of the Group and support the general working capital of the Group. Accordingly, we are of view that for the purposes of implementing the Open Offer, the approval of the Whitewash Waiver by the Independent Shareholders at the EGM is in the interests of the Company and the Independent Shareholders.

RECOMMENDATION

Taking into account the factors and reasons as mentioned in this letter, including:

(i) the proceeds from the Open Offer for partial repayments of the Outstanding Loans may reduce the liabilities of the Group and maybe able to turnaround the net current liabilities of the Group as stated under the section headed ‘‘as stated under the paragraph headed ‘‘(a) Reasons for the Open Offer and use of proceeds’’ above in this letter;
(ii) taking into account the benefits and cost of each of the alternatives, the Open Offer represents an appropriate means for fund raising to strengthen its balance sheet without facing the increasing interest expense and minimise the cost of fund raising as stated under the paragraph headed ‘‘(b) Fund raising alternatives’’ and ‘‘(e) No Application for Excess Offer Shares’’ above in this letter;
(iii) the discount of Subscription Price to the market price is fair and reasonable considering the Subscription Price is higher than the average Closing Price throughout the Review Period under the paragraph headed ‘‘(b) Basis in determining the Subscription Price’’ above in this letter;

– 50 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(iv) the discounts of the Subscription Price are less than the average of the discounts of Open Offer Comparables and the maximum dilution impact of the Open Offer is lower than all of the Open Offer Comparables as stated under the section headed ‘‘(c) Comparison to other open offers’’ above in this letter;
(v) no underwriting commission will be payable by the Company and the absent of application for excess offer shares can lower additional costs of the Open Offer is fair and reasonable; and
(vi) the Open Offer is conducted on the basis that all Qualifying Shareholders have been offered the same opportunity to maintain their proportionate interests in the Company and allows the Qualifying Shareholders to participate in the future growth of the Company, and the maximum dilution effect only occur when the Qualifying Shareholders do not subscribe for their proportionate Offer Shares,

we consider that the terms of the Open Offer and the Underwriting Agreement are fair and reasonable so far as the Independent Shareholders are concerned and the Open Offer and the entering of the Underwriting Agreement are in the interests of the Company and the Independent Shareholders as a whole. Accordingly, we recommend the Independent Shareholders, and advise the Independent Board Committee to recommend to the Independent Shareholders to vote in favour of the relevant resolutions to approve the Open Offer and the Underwriting Agreement to be proposed at the EGM.

The Open Offer are conditional upon the approval of the Whitewash Waiver. If the Whitewash Waiver is not approved, the Open Offer will not proceed. Having taken into account our recommendation on the Open Offer above, we consider the Whitewash Waiver is fair and reasonable so far as the Independent Shareholders are concerned and is in the interests of the Company and the Independent Shareholders as whole. Accordingly, we recommend the Independent Shareholders, and advise the Independent Board Committee to recommend the Independent Shareholders to vote in favour of the relevant resolution to approve the Whitewash Waiver to be proposed at the EGM.

Yours faithfully, For and on behalf of Nuada Limited

Kim Chan

Director

Kevin Wong Vice President

Mr. Kim Chan is a person licensed to carry out type 6 (advising on corporate finance) regulated activity under the SFO and is a responsible officer of Nuada Limited who has over 16 years of experience in corporate finance industry.

Mr. Kevin Wong is a person licensed to carry out type 6 (advising on corporate finance) regulated activity under the SFO and is a responsible officer of Nuada Limited who has over 13 years of experience in corporate finance industry.

– 51 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. SUMMARY OF FINANCIAL INFORMATION

The financial information of the Group for each of the three years ended 31 December 2014, 2015 and 2016 respectively had been set out in the annual reports and/or annual results announcement of the Company for these three years respectively and are available on the website of the Stock Exchange as specifically set out below:

Financial year ended Website 31 December 2014 http://www.hkexnews.hk/listedco/listconews/SEHK/2015/ 0429/LTN20150429690.pdf 31 December 2015 http://www.hkexnews.hk/listedco/listconews/SEHK/2016/ 0427/LTN20160427272.pdf 31 December 2016 http://www.hkexnews.hk/listedco/listconews/SEHK/2017/ 0426/LTN20170426645.pdf

The above annual reports and/or annual results announcement of the Company are also available at the website of the Company at http://www.hkroyal.com/.

I – 1

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The following is the summary of the consolidated financial information of the Group for each of the three years ended 31 December 2014, 2015 and 2016, which were extracted from the Company’s relevant annual reports or annual results announcement respectively.

Revenue Profit/(Loss) before tax Income tax credit/(expense) Profit/(Loss) for the year Attributable to: Owners of the parent Non-controlling interests Dividend Dividend per Share Earnings/(Loss) per share attributable to ordinary equity holders of the parent Basic and diluted	For the year ended 31 December 2016 2015 2014 HK$’000 HK$’000 HK$’000 727,638 659,698 918,154 22,824 (112,824) (162,817) 11,669 328 (224) 34,493 (112,496) (163,041) 43,204 (97,463) (151,646) (8,711) (15,033) (11,395) 34,493 (112,496) (163,041) – – – Nil Nil Nil HK2.45 cents HK(6.08) cents HK(10.88) cents

I – 2

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Assets and Liabilities Total assets Total liabilities Net assets Non-controlling interests Equity attributable to owners of the parent	As 2016 HK$’000 2,037,009 (838,550) 1,198,459 (73,392) 1,125,067	at 31 December 2015 2014 HK$’000 HK$’000 2,056,508 2,230,159 (883,169) (980,056) 1,173,339 1,250,103 (67,528) (90,229) 1,105,811 1,159,874

There were neither extraordinary nor exceptional item during each of the three years ended 31 December 2016.

The reports of auditors of the Company, Ernst & Young, for the three years ended 31 December 2016 do not contain any qualification

I – 3

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2. AUDITED CONSOLIDATED FINANCIAL STATEMENTS

The following is the full text of the audited consolidated financial statements of the Group for the year ended 31 December 2016 as extracted from the annual report of the Company for the year ended 31 December 2016:

CONSOLIDATED STATEMENT OF PROFIT OR LOSS

Year ended 31 December 2016

Notes REVENUE 5 Cost of sales Gross profit Other income and gains 5 Selling and distribution expenses Administrative expenses Finance costs 7 Share of losses of associates 18 Impairment of trade receivables, net 6 Other expenses 6 PROFIT/(LOSS) BEFORE TAX 6 Income tax credit 10 PROFIT/(LOSS) FOR THE YEAR Attributable to: Owners of the parent Non-controlling interests EARNINGS/(LOSS) PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE PARENT 12 Basic and diluted	2016 HK$’000 727,638 (522,645) 204,993 11,411 (89,501) (75,491) (20,093) – (2,311) (6,184) 22,824 11,669 34,493 43,204 (8,711) 34,493 HK2.45 cents	2015 HK$’000 659,698 (549,739) 109,959 30,385 (116,169) (111,752) (23,822) (767) (658) – (112,824) 328 (112,496) (97,463) (15,033) (112,496) HK(6.08) cents

I – 4

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Year ended 31 December 2016

Note PROFIT/(LOSS) FOR THE YEAR OTHER COMPREHENSIVE LOSS Other comprehensive loss to be reclassified to profit or loss in subsequent periods: Available-for-sale investments: Changes in fair value 19 Reclassification adjustments for gains included in the consolidated statement of profit or loss – gain on disposal 19 Exchange differences on translation of foreign operations Net other comprehensive loss to be reclassified to profit or loss in subsequent periods Other comprehensive income not to be reclassified to profit or loss in subsequent periods: Gains on property revaluation Income tax effect Net other comprehensive income not to be reclassified to profit or loss in subsequent periods OTHER COMPREHENSIVE LOSS FOR THE YEAR, NET OF TAX TOTAL COMPREHENSIVE INCOME/(LOSS) FOR THE YEAR Attributable to: Owners of the parent Non-controlling interests	2016 HK$’000 34,493 – (421) (421) (90,450) (90,871) 111,621 (27,906) 83,715 83,715 (7,156) 27,337 14,439 12,898 27,337	2015 HK$’000 (112,496) 421 (173) 248 (63,347) (63,099) – – – – (63,099) (175,595) (157,212) (18,383) (175,595)

I – 5

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

31 December 2016

Notes NON-CURRENT ASSETS Property, plant and equipment 13 Investment properties 14 Prepaid land lease payments 15 Goodwill 16 Intangible assets 17 Investments in associates 18 Total non-current assets CURRENT ASSETS Inventories 20 Trade receivables 21 Available-for-sale investment 19 Pledged deposits 23 Prepayments, deposits and other receivables 22 Cash and cash equivalents 23 Total current assets CURRENT LIABILITIES Trade payables 24 Other payables and accruals 25 Interest-bearing bank and other borrowings 27 Tax payable Total current liabilities NET CURRENT LIABILITIES TOTAL ASSETS LESS CURRENT LIABILITIES	2016 HK$’000 1,006,092 398,483 74,036 67,730 2,478 – 1,548,819 221,099 34,465 3,215 39,737 86,158 103,516 488,190 107,450 137,502 228,132 103,039 576,123 (87,933) 1,460,886	2015 HK$’000 1,293,665 – 189,255 67,730 1,025 6,408 1,558,083 221,039 21,753 24,285 48,444 93,073 89,831 498,425 75,096 120,679 250,692 114,146 560,613 (62,188) 1,495,895

I – 6

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Medium term bonds 26 Interest-bearing bank and other borrowings 27 Loan from non-controlling interests 32 Loan from a director 35(c) Deferred tax liabilities 28 Deferred government grant Total non-current liabilities Net assets EQUITY Equity attributable to owners of the parent Share capital 29 Reserves 31 Non-controlling interests Total equity	2016 HK$’000 1,460,886 15,833 91,709 37,565 12,000 56,371 48,949 262,427 1,198,459 176,238 948,829 1,125,067 73,392 1,198,459	2015 HK$’000 1,495,895 – 199,912 38,139 – 30,304 54,201
		322,556
		1,173,339
		176,238 929,573
		1,105,811 67,528
		1,173,339

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Year ended 31 December 2016

			Attributabl	e to owners of the parent	e to owners of the parent	Exchange fluctuation reserve Accumulated losses Total Non- controlling interests Total equity HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 177,547 (126,865) 1,159,874 90,229 1,250,103 – (97,463) (97,463) (15,033) (112,496) – – 421 – 421 – – (173) – (173) (59,997) – (59,997) (3,350) (63,347) (59,997) (97,463) (157,212) (18,383) (175,595) – – 66,720 – 66,720 – – (1,322) – (1,322) – – 33,852 – 33,852 – – 3,899 – 3,899 – 890 – – – – – – (4,318) (4,318) – 33,423 – – – – (721) – – – 117,550 (190,736) 1,105,811 67,528 1,173,339	Exchange fluctuation reserve Accumulated losses Total Non- controlling interests Total equity HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 177,547 (126,865) 1,159,874 90,229 1,250,103 – (97,463) (97,463) (15,033) (112,496) – – 421 – 421 – – (173) – (173) (59,997) – (59,997) (3,350) (63,347) (59,997) (97,463) (157,212) (18,383) (175,595) – – 66,720 – 66,720 – – (1,322) – (1,322) – – 33,852 – 33,852 – – 3,899 – 3,899 – 890 – – – – – – (4,318) (4,318) – 33,423 – – – – (721) – – – 117,550 (190,736) 1,105,811 67,528 1,173,339	Exchange fluctuation reserve Accumulated losses Total Non- controlling interests Total equity HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 177,547 (126,865) 1,159,874 90,229 1,250,103 – (97,463) (97,463) (15,033) (112,496) – – 421 – 421 – – (173) – (173) (59,997) – (59,997) (3,350) (63,347) (59,997) (97,463) (157,212) (18,383) (175,595) – – 66,720 – 66,720 – – (1,322) – (1,322) – – 33,852 – 33,852 – – 3,899 – 3,899 – 890 – – – – – – (4,318) (4,318) – 33,423 – – – – (721) – – – 117,550 (190,736) 1,105,811 67,528 1,173,339
Share capital HK$’000 139,338 – – – –	Share premium account HK$’000 814,404 – – – –	Share option reserve HK$’000 23,801 – – – –	Asset revaluation reserve HK$’000 123,960 – – – –	Available- for-sale investment revaluation reserve Statutory reserve HK$’000 HK$’000 173 7,516 – – 421 – (173) – – –
– 27,800 – 9,100 – – – – –	– – – 248 38,920 – – – (1,322) – – – 37,492 (12,740) – – – 3,899 – – – (890) – – – – – – – – (33,423) – – – – –				– – – – – – – – 721
176,238	889,494	14,070	90,537	421	8,237	117,550	67,528	1,173,339

I – 8

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

			Attributabl	e to owners of the parent
Share capital HK$’000 176,238 – – – –	Share premium account HK$’000 889,494 – – – –	Share option reserve HK$’000 14,070 – – – –	Asset revaluation reserve HK$’000 90,537 – – – 57,161 #	Available- for-sale investment revaluation reserve Statutory reserve HK$’000 HK$’000 421 8,237 – – (421) – – – – –
– – – – –	– – – – –	– 4,817 – – –	57,161 (421) – – – – – – – (5,459) – – – – 298
176,238	889,494 18,887 142,239* –

The asset revaluation reserve arose from a change in use from an owner-occupied property to investment properties carried at fair value on 31 December 2016.
These reserve accounts comprise the consolidated reserves of HK$948,829,000 (2015: HK$929,573,000) in the consolidated statement of financial position.

I – 9

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED STATEMENT OF CASH FLOWS

Year ended 31 December 2016

Notes CASH FLOWS FROM OPERATING ACTIVITIES Profit/(loss) before tax Adjustments for: Finance costs 7 Share of losses of associates 18 Interest income 5 Gain on disposal of items of property, plant and equipment 5 Gain on disposal of available-for-sale investments 5 Depreciation 6 Recognition of prepaid land lease payments 6 Amortisation of intangible assets 6 Write-down/(reversal of write-down) of inventories to net realisable value 6 Impairment of trade receivables 6 Equity-settled share option expense 6 Loss on disposal of associates 6 (Increase)/decrease in inventories (Increase)/decrease in trade receivables Increase in prepayments, deposits and other receivables Increase/(decrease) in trade payables Increase/(decrease) in other payables and accruals Cash generated from/(used in) operations Income taxes paid Net cash flows from/(used in) operating activities	2016 HK$’000 22,824 20,093 – (94) (126) (866) 60,346 4,412 540 1,840 2,311 4,817 6,184 122,281 (21,148) (16,524) (10,025) 31,697 10,287 116,568 (649) 115,919	2015 HK$’000 (112,824) 23,822 767 (281) (21,172) (208) 68,109 4,711 421 (4,368) 658 3,899 – (36,466) 57,959 2,912 (35,705) (486) (37,743) (49,529) (234) (49,763)

I – 10

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes Net cash flows from/(used in) operating activities CASH FLOWS FROM INVESTING ACTIVITIES Interest received Purchases of items of property, plant and equipment 13 Additions to intangible assets 17 Additions to available-for-sale investment Proceeds from disposal of items of property, plant and equipment Decrease/(increase) in pledged deposits Proceeds from disposal of available-for-sale investments Net cash flows from/(used in) investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of shares 29 Share issue expenses 29 Issue of medium term bonds 26 New bank and other loans Repayment of bank and other loans Loan from a director Loan from non-controlling interests Interest paid Dividends paid to non-controlling shareholders Net cash flows (used in)/from financing activities NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at beginning of year Effect of foreign exchange rate changes, net CASH AND CASH EQUIVALENTS AT END OF YEAR ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash and cash equivalents as stated in the statement of cash flows 23	2016 HK$’000 115,919 94 (23,291) (2,059) (3,215) 688 5,365 23,611 1,193 – – 15,290 220,017 (321,141) 12,000 – (17,331) (7,034) (98,199) 18,913 89,831 (5,228) 103,516 103,516	2015 HK$’000 (49,763) 281 (69,459) (589) (23,864) 77,378 (40,949) 27,602 (29,600) 100,572 (1,322) – 317,510 (345,440) – 548 (20,433) (4,318) 47,117 (32,246) 128,355 (6,278) 89,831 89,831

I – 11

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS

31 December 2016

Corporate and Group Information

Royale Furniture Holdings Limited is a limited liability company incorporated in the Cayman Islands. The registered office address of the Company is located at Century Yard, Cricket Square, Hutchins Drive, Grand Cayman, the Cayman Islands.

The Company is an investment holding company. The Company and its subsidiaries (collectively referred to as the ‘‘Group’’) were principally engaged in the manufacture and sale of furniture.

In the opinion of the directors, the immediate and ultimate holding companies of the Company are Crisana International Inc. and Charming Future Holding Limited, which are incorporated in the British Virgin Islands.

Information about subsidiaries:

Particulars of the Company’s principal subsidiaries as of 31 December 2016 are as follows:

			Nominal value of
	Place of		issued and fully
	incorporation/	Place of	paid-up share/	Percentage of equity
Name	registration	operations	registered capital	attributable to the Company		Principal activities
				Direct	Indirect
Chitaly (BVI) Limited	British Virgin	Hong Kong	Ordinary US$1,000	100	–	Investment holding
	Islands (‘‘BVI’’)
Hong Kong Royal Furniture	Hong Kong	Hong Kong	Ordinary US$10,000	–	100	Investment holding
Holding Limited
Chitaly Furniture Limited	Hong Kong	Hong Kong	Ordinary HK$10,000	–	100	Investment holding
						and sale of
						furniture
Wanlibao (Guangzhou)	PRC	Mainland	Paid-up registered	–	100	Manufacture and sale
Furniture Limited*		China	US$5,700,000			of furniture
Guangzhou Yufa Furniture	PRC	Mainland	Paid-up registered	–	100	Manufacture and sale
Company Limited*		China	HK$50,800,000			of furniture
Hong Kong Wong Chiu	BVI	Macau	Ordinary US$1	–	100	Sale of furniture
Furniture Holding Limited
Guangzhou Fuli Furniture	PRC	Mainland	Ordinary	–	100	Manufacture and sale
Company Limited*		China	HK$65,000,000			of furniture

I – 12

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

			Nominal value of
	Place of		issued and fully
	incorporation/	Place of	paid-up share/	Percentage of equity
Name	registration	operations	registered capital	attributable to the Company		Principal activities
				Direct	Indirect
Realink Investment Group	BVI	Hong Kong	Ordinary US$1	–	100	Investment holding
Limited
Sinofull Macao Commercial	Macau	Macau	Ordinary HK$10,000	–	100	Sale of furniture
offshore Limited
Beijing Yufa Furniture	PRC	Mainland	Ordinary	–	50**	Manufacture and sale
Company Limited		China	RMB2,000,000			of furniture
(‘‘Beijing Yufa’’)
Beauty City Holdings Limited	BVI	Hong Kong	Ordinary HK$1	–	100	Investment holding
Jiangxi Furun Furniture	PRC	Mainland	Ordinary	–	100	Manufacture and sale
Company Limited*		China	US$15,000,000			of furniture
Harbin Royal Furniture	PRC	Mainland	Ordinary	–	100	Sale of furniture
Company Limited*		China	HK$20,000,000
Shenzhen Bokaimai Furniture	PRC	Mainland	Ordinary	–	65	Manufacture and sale
Company Limited		China	RMB2,000,000			of furniture
(‘‘Bokaimai’’)
Tianjin Royal Furniture	PRC	Mainland	Ordinary	–	55	Manufacture and sale
Company Limited		China	RMB150,000,000			of furniture
Guangzhou Royal Furniture	PRC	Mainland	Ordinary	–	100	Manufacture and sale
Company Limited*		China	RMB10,000,000			of furniture

These subsidiaries are registered as wholly-foreign-owned enterprises under PRC law.
** The Group has obtained the voting power to appoint and remove the majority of the board of directors of Beijing Yufa based on the assignment of voting rights from the other shareholder of Beijing Yufa to the Group. Hence, Beijing Yufa is controlled by the Group and is consolidated in the financial statements.

The above table lists the principal subsidiaries of the Company which, in the opinion of the directors, principally affected the results for the year or formed a substantial portion of the net assets of the Group. To give details of other subsidiaries would, in the opinion of the directors, result in particulars of excessive length.

I – 13

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2.1 Basis of Preparation

These financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards (‘‘HKFRSs’’) (which include all Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (‘‘HKASs’’) and Interpretations) issued by the Hong Kong Institute of Certified Public Accountants (‘‘HKICPA’’), accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. They have been prepared under the historical cost convention, except for investment properties, certain buildings classified as property, plant and equipment, and equity investments which have been measured at fair value. These financial statements are presented in Hong Kong dollars and all values are rounded to the nearest thousand except when otherwise indicated.

The Group recorded a consolidated net profit of HK$34,493,000 (2015: net loss HK$112,496,000) for the year ended 31 December 2016 and as at that date, the Group recorded net current liabilities of HK$87,933,000 (2015: HK$62,188,000). In view of these circumstances, the directors of the Company have given consideration to the future liquidity, future performance of the Group, the existing banking facilities and other available sources of finance in assessing whether the Group will have sufficient cash flows to continue as a going concern.

In order to improve the Group’s liquidity and cash flows to sustain the Group as a going concern, the Group implemented or is in the process of implementing the following measures:

a) The Group is taking measures to tighten cost controls over administrative and other operating expenses aiming at improving the working capital and cash flow position of the Group including closely monitoring the daily operating expenses.
b) The Group is restructuring the mix of its products with the aim to increase the portion of products with higher margin so as to attain profitable and positive cash flow operations. In addition, the Group from time to time reviews its investment projects and may adjust its investment strategies in order to enhance the cash flow position of the Group whenever it is necessary.
c) The Group is actively following up with its debtors on outstanding receivables.

I – 14

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The Directors of the Company have prepared a cash flow forecast for the Group which covers a period of twelve months from the end of the reporting period. They are of the opinion that, taking into account the above-mentioned plans and measures, the Group will have sufficient working capital to finance its operations and meet its financial obligations as and when they fall due in the foreseeable future. Accordingly, the Directors are of the opinion that it is appropriate to prepare the consolidated financial statements of the Group for the year ended 31 December 2016 on a going concern basis.

Basis of consolidation

The consolidated financial statements include the financial statements of the Group for the year ended 31 December 2016 (the ‘‘Current Year’’). A subsidiary is an entity (including a structured entity), directly or indirectly, controlled by the Company. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee (i.e., existing rights that give the Group the current ability to direct the relevant activities of the investee).

When the Company has, directly or indirectly, less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

(a) the contractual arrangement with the other vote holders of the investee;
(b) rights arising from other contractual arrangements; and
(c) the Group’s voting rights and potential voting rights.

The financial statements of the subsidiaries are prepared for the same reporting period as the Company, using consistent accounting policies. The results of subsidiaries are consolidated from the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases.

Profit or loss and each component of other comprehensive income are attributed to the owners of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control described above. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.

I – 15

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

If the Group loses control over a subsidiary, it derecognises (i) the assets (including goodwill) and liabilities of the subsidiary, (ii) the carrying amount of any non-controlling interests and (iii) the cumulative translation differences recorded in equity; and recognises (i) the fair value of the consideration received, (ii) the fair value of any investment retained and (iii) any resulting surplus or deficit in profit or loss. The Group’s share of components previously recognised in other comprehensive income is reclassified to profit or loss or retained profits, as appropriate, on the same basis as would be required if the Group had directly disposed of the related assets or liabilities.

2.2 Changes in Accounting Policies and Disclosures

The Group has adopted the following new and revised HKFRSs for the first time for the Current Year’s financial statements.

Amendments to HKFRS 10, Investment Entities: Applying the Consolidation HKFRS 12 and Exception HKAS 28 (2011) Amendments to HKFRS 11 Accounting for Acquisitions of Interests in Joint Operations HKFRS 14 Regulatory Deferral Accounts Amendments to HKAS 1 Disclosure Initiative Amendments to HKAS 16 Clarification of Acceptable Methods of Depreciation and HKAS 38 and Amortisation Amendments to HKAS 16 Agriculture: Bearer Plants and HKAS 41 Amendments to HKAS 27 Equity Method in Separate Financial Statements (2011) Annual Improvements Amendments to a number of HKFRSs 2012-2014 Cycle

I – 16

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Except for the amendments to HKFRS 10, HKFRS 12 and HKAS 28 (2011), amendments to HKFRS 11, HKFRS 14, amendments to HKAS 16 and HKAS 41, amendments to HKAS 27 (2011), and certain amendments included in the Annual Improvements 2012-2014 Cycle, which are not relevant to the preparation of the Group’s financial statements, the nature and the impact of the amendments are described below:

(a) Amendments to HKAS 1 include narrow-focus improvements in respect of the presentation and disclosure in financial statements. The amendments clarify:
(i) the materiality requirements in HKAS 1;
(ii) that specific line items in the statement of profit or loss and the statement of financial position may be disaggregated;
(iii) that entities have flexibility as to the order in which they present the notes to financial statements; and
(iv) that the share of other comprehensive income of associates and joint ventures accounted for using the equity method must be presented in aggregate as a single line item, and classified between those items that will or will not be subsequently reclassified to profit or loss.

Furthermore, the amendments clarify the requirements that apply when additional subtotals are presented in the statement of financial position and the statement of profit or loss. The amendments have had no significant impact on the Group’s financial statements.

(b) Amendments to HKAS 16 and HKAS 38 clarify the principle in HKAS 16 and HKAS 38 that revenue reflects a pattern of economic benefits that are generated from operating a business (of which the asset is part) rather than the economic benefits that are consumed through the use of the asset. As a result, a revenuebased method cannot be used to depreciate property, plant and equipment and may only be used in very limited circumstances to amortise intangible assets. The amendments are applied prospectively. The amendments have had no impact on the financial position or performance of the Group as the Group has not used a revenue-based method for the calculation of depreciation of its non-current assets.

I – 17

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2.3 Issued But Not Yet Effective Hong Kong Financial Reporting Standards

The Group has not applied the following new and revised HKFRSs, that have been issued but are not yet effective, in these financial statements.

Amendments to HKFRS 2	Classification and Measurement of Share-based
	Payment Transactions2
Amendments to HKFRS 4	Applying HKFRS 9 Financial Instruments with
	HKFRS 4 Insurance Contracts2
HKFRS 9	Financial Instruments2
Amendments to HKFRS 10	Sale or Contribution of Assets between an Investor
and HKAS 28 (2011)	and its Associate or Joint Venture4
HKFRS 15	Revenue from Contracts with Customers2
Amendments to HKFRS 15	Clarifications to HKFRS 15 Revenue from Contracts
	with Customers2
HKFRS 16	Leases3
Amendments to HKAS 7	Disclosure Initiative1
Amendments to HKAS 12	Recognition of Deferred Tax Assets for Unrealised
	Losses1

1 Effective for annual periods beginning on or after 1 January 2017
2 Effective for annual periods beginning on or after 1 January 2018
3 Effective for annual periods beginning on or after 1 January 2019
4 No mandatory effective date yet determined but available for adoption

I – 18

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Further information about those HKFRSs that are expected to be applicable to the Group is as follows:

The HKICPA issued amendments to HKFRS 2 in August 2016 that address three main areas: the effects of vesting conditions on the measurement of a cash-settled share-based payment transaction; the classification of a share-based payment transaction with net settlement features for withholding a certain amount in order to meet the employee’s tax obligation associated with the share-based payment; and accounting where a modification to the terms and conditions of a share-based payment transaction changes its classification from cash-settled to equity-settled. The amendments clarify that the approach used to account for vesting conditions when measuring equity-settled share-based payments also applies to cash-settled share-based payments. The amendments introduce an exception so that a share-based payment transaction with net share settlement features for withholding a certain amount in order to meet the employee’s tax obligation is classified in its entirety as an equity-settled share-based payment transaction when certain conditions are met. Furthermore, the amendments clarify that if the terms and conditions of a cash-settled share-based payment transaction are modified, with the result that it becomes an equitysettled share-based payment transaction, the transaction is accounted for as an equity-settled transaction from the date of the modification. The Group expects to adopt the amendments from 1 January 2018. The amendments are not expected to have any significant impact on the Group’s financial statements.

In September 2014, the HKICPA issued the final version of HKFRS 9, bringing together all phases of the financial instruments project to replace HKAS 39 and all previous versions of HKFRS 9. The standard introduces new requirements for classification and measurement, impairment and hedge accounting. The Group expects to adopt HKFRS 9 from 1 January 2018. During 2016, the Group performed a high-level assessment of the impact of the adoption of HKFRS 9. This preliminary assessment is based on currently available information and may be subject to changes arising from further detailed analyses or additional reasonable and supportable information being made available to the Group in the future. The expected impacts arising from the adoption of HKFRS 9 are summarised as follows:

(a) Classification and measurement

The Group does not expect that the adoption of HKFRS 9 will have a significant impact on the classification and measurement of its financial assets. It expects to continue measuring at fair value all financial assets currently held at fair value. Equity investments currently held as available for sale will be measured at fair value through other comprehensive income as the investments are intended to be held for the foreseeable future and the Group expects to apply the option to present fair value changes in other comprehensive income. Gains and losses recorded in other comprehensive income for the equity investments cannot be recycled to profit or loss when the investments are derecognised.

I – 19

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Impairment

HKFRS 9 requires an impairment on debt instruments recorded at amortised cost or at fair value through other comprehensive income, lease receivables, loan commitments and financial guarantee contracts that are not accounted for at fair value through profit or loss under HKFRS 9, to be recorded based on an expected credit loss model either on a twelve-month basis or a lifetime basis. The Group expects to apply the simplified approach and record lifetime expected losses that are estimated based on the present value of all cash shortfalls over the remaining life of all of its trade and other receivables. The Group will perform a more detailed analysis which considers all reasonable and supportable information, including forward-looking elements, for estimation of expected credit losses on its trade and other receivables upon the adoption of HKFRS 9.

Amendments to HKFRS 10 and HKAS 28 (2011) address an inconsistency between the requirements in HKFRS 10 and in HKAS 28 (2011) in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The amendments require a full recognition of a gain or loss when the sale or contribution of assets between an investor and its associate or joint venture constitutes a business. For a transaction involving assets that do not constitute a business, a gain or loss resulting from the transaction is recognised in the investor’s profit or loss only to the extent of the unrelated investor’s interest in that associate or joint venture. The amendments are to be applied prospectively. The previous mandatory effective date of amendments to HKFRS 10 and HKAS 28 (2011) was removed by the HKICPA in January 2016 and a new mandatory effective date will be determined after the completion of a broader review of accounting for associates and joint ventures. However, the amendments are available for application now.

I – 20

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

HKFRS 15 establishes a new five-step model to account for revenue arising from contracts with customers. Under HKFRS 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The principles in HKFRS 15 provide a more structured approach for measuring and recognising revenue. The standard also introduces extensive qualitative and quantitative disclosure requirements, including disaggregation of total revenue, information about performance obligations, changes in contract asset and liability account balances between periods and key judgements and estimates. The standard will supersede all current revenue recognition requirements under HKFRSs. In June 2016, the HKICPA issued amendments to HKFRS 15 to address the implementation issues on identifying performance obligations, application guidance on principal versus agent and licences of intellectual property, and transition. The amendments are also intended to help ensure a more consistent application when entities adopt HKFRS 15 and decrease the cost and complexity of applying the standard. The Group expects to adopt HKFRS 15 on 1 January 2018 and is currently assessing the impact of HKFRS 15 upon adoption.

HKFRS 16 replaces HKAS 17 Leases, HK(IFRIC)-Int 4 Determining whether an Arrangement contains a Lease, HK(SIC)-Int 15 Operating Leases – Incentives and HK(SIC)-Int 27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to recognise assets and liabilities for most leases. The standard includes two recognition exemptions for lessees – leases of low-value assets and short-term leases. At the commencement date of a lease, a lessee will recognise a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). The right-of-use asset is subsequently measured at cost less accumulated depreciation and any impairment losses unless the right-of-use asset meets the definition of investment property in HKAS 40. The lease liability is subsequently increased to reflect the interest on the lease liability and reduced for the lease payments. Lessees will be required to separately recognise the interest expense on the lease liability and the depreciation expense on the right-of-use asset. Lessees will also be required to remeasure the lease liability upon the occurrence of certain events, such as change in the lease term and change in future lease payments resulting from a change in an index or rate used to determine those payments. Lessees will generally recognise the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset. Lessor accounting under HKFRS 16 is substantially unchanged from the accounting under HKAS 17. Lessors will continue to classify all leases using the same classification principle as in HKAS 17 and distinguish between operating leases and finance leases. The Group expects to adopt HKFRS 16 on 1 January 2019 and is currently assessing the impact of HKFRS 16 upon adoption.

I – 21

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Amendments to HKAS 7 require an entity to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes. The amendments will result in additional disclosure to be provided in the financial statements. The Group expects to adopt the amendments from 1 January 2017.

Amendments to HKAS 12 were issued with the purpose of addressing the recognition of deferred tax assets for unrealised losses related to debt instruments measured at fair value, although they also have a broader application for other situations. The amendments clarify that an entity, when assessing whether taxable profits will be available against which it can utilise a deductible temporary difference, needs to consider whether tax law restricts the sources of taxable profits against which it may make deductions on the reversal of that deductible temporary difference. Furthermore, the amendments provide guidance on how an entity should determine future taxable profits and explain the circumstances in which taxable profit may include the recovery of some assets for more than their carrying amount. The Group expects to adopt the amendments from 1 January 2017.

2.4 Summary of Significant Accounting Policies

Investments in associates

An associate is an entity in which the Group has a long term interest of generally not less than 20% of the equity voting rights and over which it is in a position to exercise significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies.

The Group’s investments in associates are stated in the consolidated statement of financial position at the Group’s share of net assets under the equity method of accounting, less any impairment losses. Adjustments are made to bring into line any dissimilar accounting policies that may exist.

The Group’s share of the post-acquisition results and other comprehensive income of the associates are included in the consolidated statement of profit or loss and consolidated other comprehensive income, respectively. In addition, when there has been a change recognised directly in the equity of the associates, the Group recognises its share of any changes, when applicable, in the consolidated statement of changes in equity. Unrealised gains and losses resulting from transactions between the Group and its associates are eliminated to the extent of the Group’s investment in the associates, except where unrealised losses provide evidence of an impairment of the assets transferred. Goodwill arising from the acquisition of the associates is included as part of the Group’s investment in associates.

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When an investment in an associate is classified as held for sale, it is accounted for in accordance with HKFRS 5 Non-current Assets Held for Sale and Discontinued Operations.

Business combinations and goodwill

Business combinations are accounted for using the acquisition method. The consideration transferred is measured at the acquisition date fair value which is the sum of the acquisition date fair values of assets transferred by the Group, liabilities assumed by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. For each business combination, the Group elects whether to measure the non-controlling interests in the acquiree that are present ownership interests and entitle their holders to a proportionate share of net assets in the event of liquidation at fair value or at the proportionate share of the acquiree’s identifiable net assets. All other components of non-controlling interests are measured at fair value. Acquisition-related costs are expensed as incurred.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts of the acquiree.

If the business combination is achieved in stages, the previously held equity interest is remeasured at its acquisition date fair value and any resulting gain or loss is recognised in profit or loss.

Any contingent consideration to be transferred by the acquirer is recognised at fair value at the acquisition date. Contingent consideration classified as an asset or liability is measured at fair value with changes in fair value recognised in profit or loss. Contingent consideration that is classified as equity is not remeasured and subsequent settlement is accounted for within equity.

Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred, the amount recognised for non-controlling interests and any fair value of the Group’s previously held equity interests in the acquiree over the identifiable net assets acquired and liabilities assumed. If the sum of this consideration and other items is lower than the fair value of the net assets acquired, the difference is, after reassessment, recognised in profit or loss as a gain on bargain purchase.

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APPENDIX I

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. The Group performs its annual impairment test of goodwill as at 31 December. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units.

Impairment is determined by assessing the recoverable amount of the cashgenerating unit (group of cash-generating units) to which the goodwill relates. Where the recoverable amount of the cash-generating unit (group of cash-generating units) is less than the carrying amount, an impairment loss is recognised. An impairment loss recognised for goodwill is not reversed in a subsequent period.

Where goodwill has been allocated to a cash-generating unit (or group of cashgenerating units) and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on the disposal. Goodwill disposed of in these circumstances is measured based on the relative value of the operation disposed of and the portion of the cash-generating unit retained.

Fair value measurement

The Group measures its investment properties and equity investments at fair value at the end of each reporting period. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either in the principal market for the asset or liability, or in the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible by the Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

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The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

Level 1 – based on quoted prices (unadjusted) in active markets for identical assets or liabilities Level 2 – based on valuation techniques for which the lowest level input that is significant to the fair value measurement is observable, either directly or indirectly Level 3 – based on valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable

For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by reassessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

Impairment of non-financial assets

Where an indication of impairment exists, or when annual impairment testing for an asset is required (other than inventories, financial assets, investment properties, goodwill and non-current assets), the asset’s recoverable amount is estimated. An asset’s recoverable amount is the higher of the asset’s or cash-generating unit’s value in use and its fair value less costs of disposal, and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case the recoverable amount is determined for the cash-generating unit to which the asset belongs.

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APPENDIX I

An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the assets. An impairment loss is charged to the statement of profit or loss in the period in which it arises in those expense categories consistent with the function of the impaired asset.

An assessment is made at the end of each reporting period as to whether there is an indication that previously recognised impairment losses may no longer exist or may have decreased. If such an indication exists, the recoverable amount is estimated. A previously recognised impairment loss of an asset other than goodwill is reversed only if there has been a change in the estimates used to determine the recoverable amount of that asset, but not to an amount higher than the carrying amount that would have been determined (net of any depreciation/amortisation) had no impairment loss been recognised for the asset in prior years. A reversal of such an impairment loss is credited to the statement of profit or loss in the period in which it arises, unless the asset is carried at a revalued amount, in which case the reversal of the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

Related parties

A party is considered to be related to the Group if:

(a) the party is a person or a close member of that person’s family and that person
(i) has control or joint control over the Group;
(ii) has significant influence over the Group; or
(iii) is a member of the key management personnel of the Group or of a parent of the Group;

(b) the party is an entity where any of the following conditions applies:
(i) the entity and the Group are members of the same group;
(ii) one entity is an associate or joint venture of the other entity (or of a parent, subsidiary or fellow subsidiary of the other entity);
(iii) the entity and the Group are joint ventures of the same third party;

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APPENDIX I

(iv) one entity is a joint venture of a third entity and the other entity is an associate of the third entity;
(v) the entity is a post-employment benefit plan for the benefit of employees of either the Group or an entity related to the Group;
(vi) the entity is controlled or jointly controlled by a person identified in (a);
(vii) a person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity); and
(viii) the entity, or any member of a group of which it is a part, provides key management personnel services to the Group or to the parent of the Group.

Property, plant and equipment and depreciation

Property, plant and equipment, other than construction in progress, are stated at cost or valuation less accumulated depreciation and any impairment losses. When an item of property, plant and equipment is classified as held for sale or when it is part of a disposal group classified as held for sale, it is not depreciated and is accounted for in accordance with HKFRS 5. The cost of an item of property, plant and equipment comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use.

Expenditure incurred after items of property, plant and equipment have been put into operation, such as repairs and maintenance, is normally charged to the statement of profit or loss in the period in which it is incurred. In situations where the recognition criteria are satisfied, the expenditure for a major inspection is capitalised in the carrying amount of the asset as a replacement. Where significant parts of property, plant and equipment are required to be replaced at intervals, the Group recognises such parts as individual assets with specific useful lives and depreciates them accordingly.

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APPENDIX I

Valuations are performed frequently enough to ensure that the fair value of a revalued asset does not differ materially from its carrying amount. Changes in the values of property, plant and equipment are dealt with as movements in the asset revaluation reserve. If the total of this reserve is insufficient to cover a deficit, on an individual asset basis, the excess of the deficit is charged to the statement of profit or loss. Any subsequent revaluation surplus is credited to the statement of profit or loss to the extent of the deficit previously charged. An annual transfer from the asset revaluation reserve to retained profits is made for the difference between the depreciation based on the revalued carrying amount of an asset and the depreciation based on the asset’s original cost. On disposal of a revalued asset, the relevant portion of the asset revaluation reserve realised in respect of previous valuations is transferred to retained profits as a movement in reserves.

Depreciation is calculated on the straight-line basis to write off the cost of each item of property, plant and equipment to its residual value over its estimated useful life. The principal annual rates used for this purpose are as follows:

Buildings	5%
Leasehold improvements	20% – 33%
Plant and machinery	10%
Furniture, fixtures and office equipment	20%
Motor vehicles	20%

Where parts of an item of property, plant and equipment have different useful lives, the cost or valuation of that item is allocated on a reasonable basis among the parts and each part is depreciated separately. Residual values, useful lives and the depreciation method are reviewed, and adjusted if appropriate, at least at each financial year end.

An item of property, plant and equipment including any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss on disposal or retirement recognised in the statement of profit or loss in the year the asset is derecognised is the difference between the net sales proceeds and the carrying amount of the relevant asset.

Construction in progress represents a building under construction, which is stated at cost less any impairment losses, and is not depreciated. Cost comprises the direct costs of construction, and capitalised borrowing costs on related borrowed funds during the period of construction. Construction in progress is reclassified to the appropriate category of property, plant and equipment when completed and ready for use.

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APPENDIX I

Investment properties

Investment properties are interests in land and buildings (including the leasehold interest under an operating lease for a property which would otherwise meet the definition of an investment property) held to earn rental income and/or for capital appreciation, rather than for use in the production or supply of goods or services or for administrative purposes; or for sale in the ordinary course of business. Such properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are stated at fair value, which reflects market conditions at the end of the reporting period.

Gains or losses arising from changes in the fair values of investment properties are included in the statement of profit or loss in the year in which they arise.

Any gains or losses on the retirement or disposal of an investment property are recognised in the statement of profit or loss in the year of the retirement or disposal.

For a transfer from investment properties to owner-occupied properties, the deemed cost of a property for subsequent accounting is its fair value at the date of change in use. If a property occupied by the Group as an owner-occupied property becomes an investment property, the Group accounts for such property in accordance with the policy stated under ‘‘Property, plant and equipment and depreciation’’ up to the date of change in use, and any difference at that date between the carrying amount and the cost of the property is accounted for as a revaluation in accordance with the policy stated under ‘‘Property, plant and equipment and depreciation’’ above.

Intangible assets (other than goodwill)

Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is the fair value at the date of acquisition. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are subsequently amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each financial year end.

Intangible assets with indefinite useful lives are tested for impairment annually either individually or at the cash-generating unit level. Such intangible assets are not amortised. The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether the indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is accounted for on a prospective basis.

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Patents and licences

Purchased patents and licences are stated at cost less any impairment losses and are amortised on the straight-line basis over their estimated useful lives of 2 to 10 years.

Research and development costs

All research costs are charged to the statement of profit or loss as incurred.

Expenditure incurred on projects to develop new products is capitalised and deferred only when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete the project and the ability to measure reliably the expenditure during the development. Product development expenditure which does not meet these criteria is expensed when incurred.

Deferred development costs are stated at cost less any impairment losses and are amortised using the straight-line basis over the commercial lives of the underlying products not exceeding three years, commencing from the date when the products are put into commercial production.

Leases

Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Where the Group is the lessor, assets leased by the Group under operating leases are included in non-current assets, and rentals receivable under the operating leases are credited to the statement of profit or loss on the straight-line basis over the lease terms. Where the Group is the lessee, rentals payable under operating leases net of any incentives received from the lessor are charged to the statement of profit or loss on the straight-line basis over the lease terms.

Prepaid land lease payments under operating leases are initially stated at cost and subsequently recognised on the straight-line basis over the lease terms.

Investments and other financial assets

Initial recognition and measurement

Financial assets are classified at initial recognition, as available-for-sale financial assets and loans and receivables. When financial assets are recognised initially, they are measured at fair value, plus transaction costs that are attributable to the acquisition of the financial assets.

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APPENDIX I

All regular way purchases and sales of financial assets are recognised on the trade date, that is, the date that the Group commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace.

Subsequent measurement

The subsequent measurement of financial assets depends on their classification as follows:

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such assets are subsequently measured at amortised cost using the effective interest rate method less any allowance for impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and includes fees or costs that are an integral part of the effective interest rate. The effective interest rate amortisation is included in other income and gains in the statement of profit or loss. The loss arising from impairment is recognised in the statement of profit or loss in finance costs for loans and in other expenses for receivables.

Available-for-sale financial investments

Available-for-sale financial investments are non-derivative financial assets in listed and unlisted equity investments and debt securities. Equity investments classified as available for sale are those which are neither classified as held for trading nor designated as at fair value through profit or loss. Debt securities in this category are those which are intended to be held for an indefinite period of time and which may be sold in response to needs for liquidity or in response to changes in market conditions.

After initial recognition, available-for-sale financial investments are subsequently measured at fair value, with unrealised gains or losses recognised as other comprehensive income in the available-for-sale investment revaluation reserve until the investment is derecognised, at which time the cumulative gain or loss is recognised in the statement of profit or loss in other income, or until the investment is determined to be impaired, when the cumulative gain or loss is reclassified from the available-forsale investment revaluation reserve to the statement of profit or loss in other gains or losses. Interest and dividends earned whilst holding the available-for-sale financial investments are reported as interest income and dividend income, respectively and are recognised in the statement of profit or loss as other income in accordance with the policies set out for ‘‘Revenue recognition’’ below.

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APPENDIX I

When the fair value of unlisted equity investments cannot be reliably measured because (a) the variability in the range of reasonable fair value estimates is significant for that investment or (b) the probabilities of the various estimates within the range cannot be reasonably assessed and used in estimating fair value, such investments are stated at cost less any impairment losses.

The Group evaluates whether the ability and intention to sell its available-for-sale financial assets in the near term are still appropriate. When, in rare circumstances, the Group is unable to trade these financial assets due to inactive markets, the Group may elect to reclassify these financial assets if management has the ability and intention to hold the assets for the foreseeable future or until maturity.

For a financial asset reclassified from the available-for-sale category, the fair value carrying amount at the date of reclassification becomes its new amortised cost and any previous gain or loss on that asset that has been recognised in equity is amortised to profit or loss over the remaining life of the investment using the effective interest rate. Any difference between the new amortised cost and the maturity amount is also amortised over the remaining life of the asset using the effective interest rate. If the asset is subsequently determined to be impaired, then the amount recorded in equity is reclassified to the statement of profit or loss.

Derecognition of financial assets

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognised when:

the rights to receive cash flows from the asset have expired; or
the Group has transferred its rights to receive cash flows from the asset, or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘‘pass-through’’ arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risk and rewards of ownership of the asset. When it has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the Group continues to recognise the transferred asset to the extent of the Group’s continuing involvement. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.

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APPENDIX I

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.

Impairment of financial assets

The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. An impairment exists if one or more events that occurred after the initial recognition of the asset have an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that a debtor or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and observable data indicating that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

Financial assets carried at amortised cost

For financial assets carried at amortised cost, the Group first assesses whether impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment.

The amount of any impairment loss identified is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate (i.e., the effective interest rate computed at initial recognition).

The carrying amount of the asset is reduced either directly or through the use of an allowance account and the loss is recognised in the statement of profit or loss. Interest income continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. Loans and receivables together with any associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to the Group.

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APPENDIX I

If, in a subsequent period, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a write-off is later recovered, the recovery is credited to the statement of profit or loss.

Available-for-sale financial investments

For available-for-sale financial investments, the Group assesses at the end of each reporting period whether there is objective evidence that an investment or a group of investments is impaired.

If an available-for-sale asset is impaired, an amount comprising the difference between its cost (net of any principal payment and amortisation) and its current fair value, less any impairment loss previously recognised in the statement of profit or loss, is removed from other comprehensive income and recognised in the statement of profit or loss.

In the case of equity investments classified as available for sale, objective evidence would include a significant or prolonged decline in the fair value of an investment below its cost. ‘‘Significant’’ is evaluated against the original cost of the investment and ‘‘prolonged’’ against the period in which the fair value has been below its original cost. Where there is evidence of impairment, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognised in the statement of profit or loss – is removed from other comprehensive income and recognised in the statement of profit or loss. Impairment losses on equity instruments classified as available for sale are not reversed through the statement of profit or loss. Increases in their fair value after impairment are recognised directly in other comprehensive income.

The determination of what is ‘‘significant’’ or ‘‘prolonged’’ requires judgement. In making this judgement, the Group evaluates, among other factors, the duration or extent to which the fair value of an investment is less than its cost.

Financial liabilities

Initial recognition and measurement

Financial liabilities are classified, at initial recognition, as loans and borrowings, as appropriate.

All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings, net of directly attributable transaction costs.

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APPENDIX I

The Group’s financial liabilities include trade payables, other payables and accruals, medium term bonds, interest-bearing bank and other borrowings, loan from a director and a loan from non-controlling interests.

Subsequent measurement

The subsequent measurement of financial liabilities depends on their classification as follows:

Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss.

Financial liabilities are classified as held for trading if they are acquired for the purpose of repurchasing in the near term. This category includes derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships as defined by HKAS 39. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Gains or losses on liabilities held for trading are recognised in the statement of profit or loss. The net fair value gain or loss recognised in the statement of profit or loss does not include any interest charged on these financial liabilities.

Loans and borrowings

After initial recognition, medium term bonds, interest-bearing bank and other borrowings, loan from a director and a loan from non-controlling interests are subsequently measured at amortised cost, using the effective interest rate method unless the effect of discounting would be immaterial, in which case they are stated at cost. Gains and losses are recognised in the statement of profit or loss when the liabilities are derecognised as well as through the effective interest rate amortisation process.

Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest rate amortisation is included in finance costs in the statement of profit or loss.

Derecognition of financial liabilities

A financial liability is derecognised when the obligation under the liability is discharged or cancelled, or expires.

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APPENDIX I

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and a recognition of a new liability, and the difference between the respective carrying amounts is recognised in the statement of profit or loss.

Offsetting of financial instruments

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

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined on the weighted average basis and, in the case of work in progress and finished goods, comprises direct materials, direct labour and an appropriate proportion of overheads and/or, where appropriate, subcontracting charges. Net realisable value is based on estimated selling prices less any estimated costs to be incurred to completion and disposal.

Cash and cash equivalents

For the purpose of the consolidated statement of cash flows, cash and cash equivalents comprise cash on hand and demand deposits, and short term highly liquid investments that are readily convertible into known amounts of cash, are subject to an insignificant risk of changes in value and have a short maturity of generally within three months when acquired, less bank overdrafts which are repayable on demand and form an integral part of the Group’s cash management.

For the purpose of the consolidated statement of financial position, cash and cash equivalents comprise cash on hand and at banks, including term deposits, and assets similar in nature to cash, which are not restricted as to use.

Provisions

A provision is recognised when a present obligation (legal or constructive) has arisen as a result of a past event and it is probable that a future outflow of resources will be required to settle the obligation, provided that a reliable estimate can be made of the amount of the obligation.

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APPENDIX I

When the effect of discounting is material, the amount recognised for a provision is the present value at the end of the reporting period of the future expenditures expected to be required to settle the obligation. The increase in the discounted present value amount arising from the passage of time is included in finance costs in the statement of profit or loss.

Income tax

Income tax comprises current and deferred tax. Income tax relating to items recognised outside profit or loss is recognised outside profit or loss, either in other comprehensive income or directly in equity.

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period, taking into consideration interpretations and practices prevailing in the countries in which the Group operates.

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

when the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
in respect of taxable temporary differences associated with investments in subsidiaries and associates, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, the carryforward of unused tax credits and any unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, the carryforward of unused tax credits and unused tax losses can be utilised, except:

when the deferred tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

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in respect of deductible temporary differences associated with investments in subsidiaries and associates, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at the end of each reporting period and are recognised to the extent that it has become probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be recovered.

Deferred tax liabilities are recognised for all taxable temporary differences, except:

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

Government grants

Government grants are recognised at their fair value where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. When the grant relates to an expense item, it is recognised as income over the periods that the costs, which it is intended to compensate, are expensed.

Where the grant relates to an asset, the fair value is credited to a deferred income account and is released to the statement of profit or loss over the expected useful life of the relevant asset by equal annual instalments or deducted from the carrying amount of the asset and released to the statement of profit or loss by way of a reduced depreciation charge.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Revenue recognition

Revenue is recognised when it is probable that the economic benefits will flow to the Group and when the revenue can be measured reliably, on the following bases:

(a) from the sale of goods and the related installation, when the significant risks and rewards of ownership have been transferred to the buyer, provided that the Group maintains neither managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold;
(b) maintenance service income, when the underlying services have been rendered;
(c) rental income, on a time proportion basis over the lease terms; and
(d) interest income, on an accrual basis using the effective interest method by applying the rate that exactly discounts the estimated future cash receipts over the expected life of the financial instrument or a shorter period, when appropriate, to the net carrying amount of the financial asset.

Share-based payments

The Company operates a share option scheme for the purpose of providing incentives and rewards to eligible participants who contribute to the success of the Group’s operations. Employees (including directors) of the Group receive remuneration in the form of share-based payments, whereby employees render services as consideration for equity instruments (‘‘equity-settled transactions’’).

The cost of equity-settled transactions with employees for grants after 7 November 2002 is measured by reference to the fair value at the date at which they are granted. The fair value is determined by an external valuer using a binomial model, further details of which are given in note 30 to the financial statements.

The cost of equity-settled transactions is recognised in employee benefit expense, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled in employee benefit expense. The cumulative expense recognised for equity-settled transactions at the end of each reporting period until the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. The charge or credit to the statement of profit or loss for a period represents the movement in the cumulative expense recognised as at the beginning and end of that period.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Service and non-market performance conditions are not taken into account when determining the grant date fair value of awards, but the likelihood of the conditions being met is assessed as part of the Group’s best estimate of the number of equity instruments that will ultimately vest. Market performance conditions are reflected within the grant date fair value. Any other conditions attached to an award, but without an associated service requirement, are considered to be non-vesting conditions. Non-vesting conditions are reflected in the fair value of an award and lead to an immediate expensing of an award unless there are also service and/or performance conditions.

For awards that do not ultimately vest because non-market performance and/or service conditions have not been met, no expense is recognised. Where awards include a market or non-vesting condition, the transactions are treated as vesting irrespective of whether the market or non-vesting condition is satisfied, provided that all other performance and/or service conditions are satisfied.

Where the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified, if the original terms of the award are met. In addition, an expense is recognised for any modification that increases the total fair value of the share-based payments, or is otherwise beneficial to the employee as measured at the date of modification.

Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. This includes any award where non-vesting conditions within the control of either the Group or the employee are not met. However, if a new award is substituted for the cancelled award, and is designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph.

The dilutive effect of outstanding options is reflected as additional share dilution in the computation of loss per share.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Other employee benefits

Pension schemes

The Group operates a defined contribution Mandatory Provident Fund retirement benefit scheme (the ‘‘MPF Scheme’’) under the Mandatory Provident Fund Schemes Ordinance, for all of its employees in Hong Kong. Contributions are made based on a percentage of the employees’ basic salaries and are charged to the statement of profit or loss as they become payable in accordance with the rules of the MPF Scheme. The assets of the MPF Scheme are held separately from those of the Group in an independently administered fund. The Group’s employer contributions vest fully with the employees when contributed into the MPF Scheme, except for the Group’s employer voluntary contributions, which are refunded to the Group when the employee leaves employment prior to the contributions vesting fully, in accordance with the rules of the MPF Scheme.

The employees of the Group’s subsidiaries which operate in Mainland China are required to participate in a central pension scheme operated by the local municipal government. These subsidiaries are required to contribute 5% of their payroll costs to the central pension scheme. The contributions are charged to the statement of profit or loss as they become payable in accordance with the rules of the central pension scheme.

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, i.e., assets that necessarily take a substantial period of time to get ready for their intended use or sale, are capitalised as part of the cost of those assets. The capitalisation of such borrowing costs ceases when the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs capitalised. All other borrowing costs are expensed in the period in which they are incurred. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Dividends

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

Interim dividends are simultaneously proposed and declared, because the Company’s memorandum and articles of association grant the directors the authority to declare interim dividends. Consequently, interim dividends are recognised immediately as a liability when they are proposed and declared.

Foreign currencies

These financial statements are presented in Hong Kong dollars, which is the Company’s functional and presentation currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Foreign currency transactions recorded by the entities in the Group are initially recorded using their respective functional currency rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency rates of exchange ruling at the end of the reporting period. Differences arising on settlement or translation of monetary items are recognised in the statement of profit or loss.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was measured. The gain or loss arising on translation of a non-monetary item measured at fair value is treated in line with the recognition of the gain or loss on change in fair value of the item (i.e., translation difference on the item whose fair value gain or loss is recognised in other comprehensive income or profit or loss is also recognised in other comprehensive income or profit or loss, respectively).

The functional currencies of certain overseas subsidiaries and associates are currencies other than the Hong Kong dollar. As at the end of the reporting period, the assets and liabilities of these entities are translated into Hong Kong dollars at the exchange rates prevailing at the end of the reporting period and their statements of profit or loss are translated into Hong Kong dollars at the weighted average exchange rates for the year.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The resulting exchange differences are recognised in other comprehensive income and accumulated in the exchange fluctuation reserve. On disposal of a foreign operation, the component of other comprehensive income relating to that particular foreign operation is recognised in the statement of profit or loss.

Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on acquisition are treated as assets and liabilities of the foreign operation and translated at the closing rate.

For the purpose of the consolidated statement of cash flows, the cash flows of overseas subsidiaries are translated into Hong Kong dollars at the exchange rates ruling at the dates of the cash flows. Frequently recurring cash flows of overseas subsidiaries which arise throughout the year are translated into Hong Kong dollars at the weighted average exchange rates for the year.

3. Significant Accounting Judgements and Estimates

The preparation of the Group’s financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and their accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amounts of the assets or liabilities affected in the future.

Judgements

In the process of applying the Group’s accounting policies, management has made the following judgements, apart from those involving estimations, which have the most significant effect on the amounts recognised in the financial statements:

Operating lease commitments – Group as lessor

The Group has entered into commercial property leases on certain properties. The Group has determined, based on an evaluation of the terms and conditions of the arrangements, that it retains all the significant risks and rewards of ownership of these properties which are leased out on operating leases.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Classification between investment properties and owner-occupied properties

The Group determines whether a property qualifies as an investment property, and has developed criteria in making that judgement. Investment property is a property held to earn rentals or for capital appreciation or both. Therefore, the Group considers whether a property generates cash flows largely independently of the other assets held by the Group. Some properties comprise a portion that is held to earn rentals or for capital appreciation and another portion that is held for use in the production or supply of goods or services or for administrative purposes. If these portions could be sold separately or leased out separately under a finance lease, the Group accounts for the portions separately. If the portions could not be sold separately, the property is an investment property only if an insignificant portion is held for use in the production or supply of goods or services or for administrative purposes. Judgement is made on an individual property basis to determine whether ancillary services are so significant that a property does not qualify as an investment property.

Estimation uncertainty

The key assumptions concerning the future and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below.

Taxation

Current tax is provided at the amounts expected to be paid, and deferred tax is provided on temporary differences between the tax bases of assets and liabilities and their carrying amounts, at the rates that have been enacted or substantively enacted by the balance sheet date.

The Group operates in a multinational tax environment and there are transfer pricing matters under the tax laws. The management applies a risk based approach in estimating the income tax liabilities. These estimates take into account, as appropriate, the probability that the Group would be able to obtain compensatory adjustments under international tax treaties. For details, please refer to note 10 to the financial statements.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Impairment of goodwill

The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the value in use of the cash-generating units to which the goodwill is allocated. Estimating the value in use requires the Group to make an estimate of the expected future cash flows from the cash-generating units and also to choose a suitable discount rate in order to calculate the present value of those cash flows. The carrying amount of goodwill at 31 December 2016 was HK$67,730,000 (2015: HK$67,730,000). Further details are given in note 16 to the financial statements.

Recognition of a deferred tax liability for withholding taxes

The New PRC Corporate Income Tax Law, which became effective on 1 January 2008, states that the distribution of dividends by a foreign-invested enterprise established in Mainland China to its foreign investors in respect of its earnings, from 1 January 2008 or thereafter, shall be subject to withholding corporate income tax at a rate of 5% or 10%. The Group carefully evaluates the necessity of dividend distribution of its PRC subsidiaries out of profits earned after 1 January 2008 and makes decisions on such dividend distributions based on the senior management’s judgement. For details, please refer to note 28 to the financial statements.

Estimation of fair value of investment properties

The Group engaged LCH (Asia-Pacific) Surveyors Limited, independent professionally qualified valuer, to perform the valuation of the Group’s investment properties at the end of the reporting period.

In determine the fair value, the valuer has based on reliable estimates of future cash flows, supported by the terms of any existing lease and other contracts and (when possible) by external evidence such as current market rents for similar properties in the same location and condition, and using discount rates that reflect current market assessments of the uncertainty in the amount and timing of the cash flows.

As at 31 December 2016, the carrying amount of investment properties was HK$398,483,000 (2015: Nil). Further details, including the key assumptions used for fair value measurement and a sensitivity analysis, are given in note 14 to the financial statements.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Write-down of inventories

The write-down of inventories to net realisable value is made based on the estimated net realisable value of the inventories. The assessment of the write-down required involves management judgements and estimates. Where the actual outcome or expectation in future is different from the original estimate, such differences will have an impact on the carrying value of the inventories and the write-down/write-back of the inventories in the period in which such estimate has been changed. During the year ended 31 December 2016, a write-down of the inventories of HK$1,840,000 (2015: reversal of a write down of HK$4,368,000) was recognised in the statement of profit or loss. As at 31 December 2016, the carrying amount of the write-down of the inventories amounted to HK$55,802,000 (2015: HK$53,962,000).

Impairment of trade receivables

The impairment of trade receivables is made based on the assessment of the recoverability of the trade receivables. The identification of doubtful debts requires management judgements and estimates. Where the actual outcome or expectation in future is different from the original estimate, such differences will have an impact on the carrying amounts of the receivables and the impairment/write-back of trade receivables in the period in which the estimate has been changed. During the year ended 31 December 2016, impairment losses of HK$2,311,000 (2015: HK$658,000) of trade receivables were recognised in the statement of profit or loss. As at 31 December 2016, the carrying amount of the impairment losses of trade receivables was HK$10,819,000 (2015: HK$9,095,000). Further details are given in note 21 to the financial statements.

Impairment of non-financial assets (other than goodwill)

The Group assesses whether there are any indicators of impairment for all nonfinancial assets at the end of each reporting period. The non-financial assets are tested for impairment when there are indicators that the carrying amounts may not be recoverable. An impairment exists when the carrying value of an asset or a cashgenerating unit exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. The calculation of the fair value less costs of disposal is based on available data from binding sales transactions in an arm’s length transaction of similar assets or observable market prices less incremental costs for disposing of the asset. When value in use calculations are undertaken, management must estimate the expected future cash flows from the asset or cash-generating unit and choose a suitable discount rate in order to calculate the present value of those cash flows.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Share-based payments

The Group measures the costs of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. Estimating the fair value for share-based payments requires determining the most appropriate valuation model for a grant of equity instruments, which is dependent on the terms and conditions of the grant. This also requires determining the most appropriate inputs to the valuation model including the expected life of the options, volatility and dividend yield and making assumptions about them. The assumptions and models used for the estimation of the fair value for share-based payments are disclosed in note 30 to the financial statements.

Fair values of financial instruments

The fair values of the Group’s financial instruments are not materially different from their carrying amounts. Fair value estimates are made at a specific point in time and based on relevant market information and information about the financial instruments. These estimates are subjective in nature, involve uncertainties and matters of significant judgement and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Fair values of property, plant and equipment

In the absence of current prices in an active market for similar properties, the Group considers information from a variety of sources, including: (a) current prices in an active market for properties of a different nature, condition or location, adjusted to reflect those differences; (b) recent prices of similar properties on less active markets, with adjustments to reflect any changes in economic conditions since the date of the transactions that occurred at those prices; and (c) discounted cash flow projections based on reliable estimates of future cash flows, supported by the terms of any existing lease and other contracts and (when possible) by external evidence such as current market rents for similar properties in the same location and condition, and using discount rates that reflect current market assessments of the uncertainty in the amount and timing of the cash flows. As at 31 December 2016, the carrying amounts of the property, plant and equipment approximated to their fair values. For details, refer to note 13 to the financial statements.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. Operating Segment Information

The Group is principally engaged in the manufacture and sale of home furniture. All of the Group’s products are of a similar nature and subject to similar risk and returns. Accordingly, the Group’s operating activities are attributable to a single operating segment.

Information about a major customer

No revenue from sales to a single customer amounted to 10% or more of the Group’s revenue during the year (2015: Nil).

5. Revenue, Other Income and Gains

Revenue represents the net invoiced value of goods sold, net of value-added tax (the ‘‘VAT’’), and after allowances for returns and trade discounts. All significant intra-group transactions have been eliminated on consolidation.

An analysis of revenue, other income and gains is as follows:

Revenue Sale of goods Other income and gains Interest income Gain on disposal of items of property, plant and equipment Gain on disposal of available-for-sale investments Sales of scraps Government subsidy Rental income	2016 HK$’000 727,638 94 126 866 1,511 1,837 6,977 11,411	2015 HK$’000 659,698
		281 21,172 208 7,529 1,195 –
		30,385

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

6. Profit/(loss) Before Tax

The Group’s profit/(loss) before tax is arrived at after charging/(crediting):

Notes Cost of inventories sold Depreciation 13 Recognition of prepaid land lease payments 15 Amortisation of intangible assets 17 Research and development costs Minimum lease payments under operating leases Auditor’s remuneration Employee benefit expense (including directors’ remuneration (note 8)): Wages and salaries Equity-settled share option expense 30 Pension scheme contributions Write-down/(reversal of write-down) of inventories to net realisable value** Impairment of trade receivables, net 21 Bank interest income## Gain on disposal of items of property, plant and equipment## Loss on disposal of associates###	2016 HK$’000 520,805 60,346 4,412 540 9,887 23,752 1,680 135,188 4,817 8,246 148,251 1,840 2,311 (94) (126) 6,184	2015 HK$’000 554,107 68,109 4,711 421 5,171 51,529 1,855 139,590 3,899 11,789 155,278 (4,368) 658 (281) (21,172) –

The amortisation of intangible assets and research and development costs for the year have been included in ‘‘Administrative expenses’’ on the face of the consolidated statement of profit or loss.
** The write-down of inventories to net realisable value has been included in ‘‘Cost of sales’’ on the face of the consolidated statement of profit or loss.
These items have been included in ‘‘Other income and gains’’ on the face of the consolidated statement of profit or loss.
The loss on disposal of associates has been included in ‘‘Other expenses’’ on the face of the consolidated statement of profit or loss.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

7. Finance Costs

Interest on medium term bonds (note 26) Interest on bank loans Interest on a loan from non-controlling interests (note 32) Interest on other loans	2016 HK$’000 543 15,003 2,762 1,785 20,093	2015 HK$’000 – 15,008 2,038 6,776
		23,822

8. Directors’ Remuneration

Directors’ remuneration for the year, disclosed pursuant to the Listing Rules, section 383(1)(a), (b), (c) and (f) of the Hong Kong Companies Ordinance and Part 2 of the Companies (Disclosure of Information about Benefits of Directors) Regulation, is as follows:

Fees Other emoluments: Salaries, allowances and benefits in kind Equity-settled share option expense Pension scheme contributions	2016 HK$’000 1,941 6,165 3,978 – 12,084	2015 HK$’000 1,880
		4,289 164 9
		6,342

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

During the year, certain directors were granted share options, in respect of their services to the Group, under the share option scheme of the Company, further details of which are set out in note 30 to the financial statements. The fair value of such options, which has been recognised in the statement of profit or loss over the vesting period, was determined as at the date of grant and the amount included in the financial statements for the Current Year is included in the above directors’ remuneration disclosures.

2016 Executive directors: Mr. Tse Kam Pang Mr. Tse Wun Cheung (resigned on 1 February 2016) Mr. Tse Hok Kan (appointed on 1 February 2016) Mr. Chan Wing Kit (appointed on 1 March 2016) Mr. Chen Hao Independent non-executive directors: Dr. Donald H. Straszheim Mr. Lau Chi Kit Mr. Yue Man Yiu, Matthew	Fees HK$’000 300 25 275 250 300 1,150 311 240 240 791 1,941	Salaries, allowances and benefits in kind HK$’000 2,850 75 1,080 1,020 1,140 6,165 – – – – 6,165	Equity-settled share option expense HK$’000 1,047 – – 1,047 1,047 3,141 279 279 279 837 3,978	Total remuneration HK$’000 4,197 100 1,355 2,317 2,487
				10,456
				590 519 519
				1,628
				12,084

The remuneration was calculated from the commencement of the appointment as a director.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2015 Executive directors: Mr. Tse Kam Pang Mr. Chang Chu Fai, Johnson Francis (retired on 5 June 2015) Mr. Tse Wun Cheung Mr. Chen Hao Non-executive director: Mr. Ma Gary Ming Fai (resigned on 1 April 2015) Independent non-executive directors: Dr. Donald H. Straszheim Mr. Lau Chi Kit Mr. Yue Man Yiu, Matthew	Fees HK$’000 300 129 300 300 1,029 60 311 240 240 791 1,880	Salaries, allowances and benefits in kind HK$’000 1,950 599 975 765 4,289 – – – – – 4,289	Equity-settled share option expense HK$’000 – – – 123 123 41 – – – – 164	Pension scheme contributions HK$’000 – 9 – – 9 – – – – – 9	Total remuneration HK$’000 2,250 737 1,275 1,188
					5,450
					101
					311 240 240
					791
					6,342

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

9. Five Highest Paid Employees

The five highest paid employees during the year are four (2015: four) directors, details of whose remuneration are set out in note 8 above. Details of the remuneration of the nondirector highest paid employee for the year are as follows:

Salaries, allowances and benefits in kind Equity-settled share option expense	2016 HK$’000 440 559 999	2015 HK$’000 492 –
		492

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

Nil to HK$1,000,000	Number of employees 2016 2015 1 1

10. Income Tax

Hong Kong profits tax has not been provided as the Group did not generate any assessable profits in Hong Kong during the year (2015: Nil). Taxes on profits assessable elsewhere have been calculated at the rates of tax prevailing in the jurisdictions in which the Group operates.

Current – PRC Charge for the year Overprovision in prior years Deferred (note 28) Total tax credit for the year	2016 HK$’000 7,624 (17,454) (1,839) (11,669)	2015 HK$’000 1,511 – (1,839)
		(328)

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

A reconciliation of the tax expense applicable to profit/(loss) before tax at the applicable rate for the jurisdiction in which the Company and the majority of its subsidiaries are domiciled to the tax expense at the effective tax rate is as follows:

Profit/(loss) before tax Tax at the applicable tax rate at 25% (2015: 25%) Lower tax rates for specific provinces or enacted by local authority Loss attributable to associates Adjustments in respect of current tax of previous periods Income not subject to tax Expenses not deductible for tax Tax losses not recognised Tax losses utilised from previous periods Tax credit at the Group’s effective rate	2016 HK$’000 % 22,824 5,706 25.0 (13,718) (60.1) – – (17,454) (76.5) – – 3,494 15.3 11,496 50.4 (1,193) (5.2) (11,669) (51.1)	2015 HK$’000 % (112,824) (28,206) 25.0 11,201 (9.9) 192 (0.2) – – (5,293) 4.7 3,085 (2.7) 18,802 (16.7) (109) 0.1 (328) 0.3	2015 HK$’000 % (112,824) (28,206) 25.0 11,201 (9.9) 192 (0.2) – – (5,293) 4.7 3,085 (2.7) 18,802 (16.7) (109) 0.1 (328) 0.3
			0.3

The Group has tax losses arising in Hong Kong and other jurisdictions of HK$305,190,000 (2015: HK$280,421,000) that are available for offsetting against future taxable profits of the companies in which the losses arose. Deferred tax assets have not been recognised in respect of these losses as they have arisen in subsidiaries that have been lossmaking for some time. Apart from the above, there were no significant unrecognised deferred tax assets at 31 December 2016.

Under Decree – Law no. 58/99/M, companies in Macau incorporated under that Decree – Law (referred to as the ‘‘58/99/M Companies’’) are exempted from Macau complementary tax (Macau income tax) as long as they do not sell their products to a Macau resident company. Sinofull Macao Commercial Offshore Limited (‘‘Sinofull’’), a subsidiary of the Group, is qualified as a 58/99/M Company.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

11. Dividends

The directors of the Company have resolved not to declare a final dividend for the year ended 31 December 2016 (2015: Nil).

12. Earnings/(loss) Per Share Attributable to Ordinary Equity Holders of the Parent

The calculation of basic earnings (2015: loss) per share is based on the profit (2015: loss) for the year attributable to ordinary equity holders of the parent, and the weighted average number of ordinary shares of 1,762,377,017 (2015: 1,604,264,688) in issue during the year.

No adjustment has been made to the basic earnings/loss per share amounts presented for the years ended 31 December 2016 and 2015 in respect of a dilution as the impact of the share options outstanding had an anti-dilutive effect on the basic earnings/loss per share amounts presented.

The calculations of basic and diluted earnings/loss per share are based on:

Earnings/(loss) Profit/(loss) attributable to ordinary equity holders of the parent, used in the basic and diluted earnings/loss per share calculations Shares Weighted average number of ordinary shares in issue during the year used in the basic and diluted earnings/loss per share calculations	2016 2015 HK$’000 HK$’000 43,204 (97,463) Number of shares 2016 2015 1,762,377,017 1,604,264,688

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

13. Property, Plant and Equipment

31 December 2016 At 31 December 2015 and at 1 January 2016: Cost or valuation Accumulated depreciation Net carrying amount At 1 January 2016, net of accumulated depreciation Additions Surplus on revaluation Transfers (note 14) Disposals Depreciation provided during the year Exchange realignment At 31 December 2016, net of accumulated depreciation At 31 December 2016: Cost or valuation Accumulated depreciation Net carrying amount Analysis of cost or valuation: At cost At valuation	Buildings HK$’000 628,909 (99,871) 529,038 529,038 4,881 52,557 (193,117) – (30,442) (29,893) 333,024 433,880 (100,856) 333,024 – 433,880 433,880	Leasehold improvements HK$’000 33,277 (22,887) 10,390 10,390 6,649 – – (344) (7,142) (435) 9,118 35,255 (26,137) 9,118 35,255 – 35,255	Plant and machinery HK$’000 177,258 (132,144) 45,114 45,114 3,430 – 3,003 (80) (12,969) (3,309) 35,189 167,669 (132,480) 35,189 167,669 – 167,669	Furniture, fixtures and office equipment HK$’000 65,538 (42,124) 23,414 23,414 4,312 – – (104) (8,284) (1,073) 18,265 64,334 (46,069) 18,265 64,334 – 64,334	Motor vehicles HK$’000 22,094 (16,144) 5,950 5,950 673 – – (34) (1,509) (222) 4,858 21,402 (16,544) 4,858 21,402 – 21,402	Construction in progress HK$’000 679,759 – 679,759 679,759 18,876 29,091 (77,802) – – (44,286) 605,638 605,638 – 605,638 605,638 – 605,638	Total HK$’000 1,606,835 (313,170)
							1,293,665
							1,293,665 38,821 81,648 (267,916) (562) (60,346) (79,218)
							1,006,092
							1,328,178 (322,086)
							1,006,092
							894,298 433,880
							1,328,178

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

31 December 2015 At 31 December 2014 and at 1 January 2015: Cost or valuation Accumulated depreciation Net carrying amount At 1 January 2015, net of accumulated depreciation Additions Transfer Disposals Depreciation provided during the year Exchange realignment At 31 December 2015, net of accumulated depreciation At 31 December 2015: Cost or valuation Accumulated depreciation Net carrying amount Analysis of cost or valuation: At cost At valuation	Buildings HK$’000 701,691 (68,112) 633,579 633,579 – – (46,402) (34,807) (23,332) 529,038 628,909 (99,871) 529,038 – 628,909 628,909	Leasehold improvements HK$’000 104,607 (76,262) 28,345 28,345 1,030 990 (7,283) (10,205) (2,487) 10,390 33,277 (22,887) 10,390 33,277 – 33,277	Plant and machinery HK$’000 189,018 (138,047) 50,971 50,971 9,163 749 (1,902) (10,927) (2,940) 45,114 177,258 (132,144) 45,114 177,258 – 177,258	Furniture, fixtures and office equipment HK$’000 61,561 (35,123) 26,438 26,438 8,281 – (131) (10,117) (1,057) 23,414 65,538 (42,124) 23,414 65,538 – 65,538	Motor vehicles HK$’000 24,012 (16,008) 8,004 8,004 743 – (461) (2,053) (283) 5,950 22,094 (16,144) 5,950 22,094 – 22,094	Construction in progress HK$’000 659,816 – 659,816 659,816 50,242 (1,739) (27) – (28,533) 679,759 679,759 – 679,759 679,759 – 679,759	Total HK$’000 1,740,705 (333,552)
							1,407,153
							1,407,153 69,459 – (56,206) (68,109) (58,632)
							1,293,665
							1,606,835 (313,170)
							1,293,665
							977,926 628,909
							1,606,835

At 31 December 2016, certain of the Group’s buildings and construction in progress with a net carrying value of approximately HK$224,941,000 (2015: HK$289,546,000) and HK$473,935,000 (2015: HK$500,866,000), respectively, were pledged to banks to obtain bank loans (note 27).

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APPENDIX I

14. Investment Properties

Carrying amount at 1 January Transferred from properties, plant and equipment (note 13) Transferred from prepaid land lease payments (note 15) Carrying amount at 31 December	2016 HK$’000 – 267,916 130,567 398,483	2015 HK$’000 – – –
		–

The Group’s investment properties consist of two industrial properties in Mainland China which were subsequently measured at fair value. The directors of the Company have determined that the investment properties consist of one class of assets, i.e., industrial properties, based on the nature, characteristics and risk of each property. The Group’s investment properties were revalued on 31 December 2016 based on the valuation by independent valuer LCH (Asia-Pacific) Surveyors Limited. Each year, the Group’s property manager and the chief financial officer decide to appoint which external valuer to be responsible for the external valuations of the Group’s properties. Selection criteria include market knowledge, reputation, independence and whether professional standards are maintained. The Group’s property manager and the chief financial officer have discussions with the valuer on the valuation assumptions and valuation results twice a year when the valuation is performed for interim and annual financial reporting.

The investment properties are leased to third parties under operating leases, further summary details of which are included in note 33 to the financial statements.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Fair value hierarchy

The following table illustrates the fair value measurement hierarchy of the Group’s investment properties:

Recurring fair value measurement for: Industrial properties	Fair value Quoted prices in active markets (Level 1) HK$’000 –	measurement as at 31 December 2016 using Significant observable inputs Significant unobservable inputs (Level 2) (Level 3) Total HK$’000 HK$’000 HK$’000 – 398,483 398,483

During the year, there were no transfers of fair value measurements between Level 1 and Level 2 and no transfers into or out of Level 3 (2015: Nil).

Reconciliation of fair value measurements categorised within Level 3 of the fair value hierarchy:

Carrying amount at 1 January 2015 Net gain from a fair value adjustment recognised in other income and gains in profit or loss Carrying amount at 31 December 2015 and 1 January 2016 Additions (from transfer) Carrying amount at 31 December 2016	Industrial properties Total HK$’000 – –
	– 398,483
	398,483

No fair value adjustment was recognised in profit or loss since the properties are transferred from property, plant and equipment and prepaid land lease payments to investment properties in 31 December 2016.

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APPENDIX I

Below is a summary of the valuation techniques used and the key inputs to the valuation of investment properties:

			Significant unobservable
	Valuation	technique	inputs	Range
				2016
Industrial	Discounted	cash flow	Estimated rental value	6.5 – 15.5
properties	method		(per s.q.m. and per month)
			Rent growth (p.a.)	3% – 8%
			Long term vacancy rate	100%
			Discount rate	6% – 7%

Under the discounted cash flow method, fair value is estimated using assumptions regarding the benefits and liabilities of ownership over the asset’s life including an exit or terminal value. This method involves the projection of a series of cash flows on a property interest. A market-derived discount rate is applied to the projected cash flow in order to establish the present value of the income stream associated with the asset. The exit yield is normally separately determined and differs from the discount rate.

The duration of the cash flows and the specific timing of inflows and outflows are determined by events such as rent reviews, lease renewal and related reletting, redevelopment or refurbishment. The appropriate duration is driven by market behaviour that is a characteristic of the class of property. The periodic cash flow is estimated as gross income less vacancy, non-recoverable expenses, collection losses, lease incentives, maintenance costs, agent and commission costs and other operating and management expenses. The series of periodic net operating income, along with an estimate of the terminal value anticipated at the end of the projection period, is then discounted.

A significant increase (decrease) in the estimated rental value and the market rent growth rate per annum in isolation would result in a significant increase (decrease) in the fair value of the investment properties. A significant increase (decrease) in the long term vacancy rate and the discount rate in isolation would result in a significant decrease (increase) in the fair value of the investment properties. Generally, a change in the assumption made for the estimated rental value is accompanied by a directionally similar change in the rent growth per annum and the discount rate and an opposite change in the long term vacancy rate.

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FINANCIAL INFORMATION OF THE GROUP

15. Prepaid Land Lease Payments

Carrying amount at 1 January Recognised during the year Surplus on revaluation Transfer to investment properties (note 14) Exchange realignment Carrying amount at 31 December Current portion included in prepayments, deposits and other receivables Non-current portion	2016 HK$’000 193,966 (4,412) 29,973 (130,567) (12,755) 76,205 (2,169) 74,036	2015 HK$’000 207,840 (4,711) – – (9,163) 193,966 (4,711) 189,255

As at 31 December 2016, certain of the Group’s land with a net carrying value of approximately HK$51,744,000 (2015: HK$61,242,000) were pledged to banks to obtain bank loans (note 27).

16. Goodwill

At 1 January: Cost Accumulated impairment Net carrying amount At 31 December: Cost Accumulated impairment Net carrying amount	2016 HK$’000 307,213 (239,483) 67,730 307,213 (239,483) 67,730	2015 HK$’000 307,213 (239,483) 67,730 307,213 (239,483) 67,730

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Impairment testing of goodwill

Goodwill acquired through business combinations is related to the home furniture cash-generating unit for impairment testing.

The recoverable amount of the home furniture cash-generating unit (the ‘‘CGU’’) was determined based on a value in use calculation using cash flow projections based on financial budgets covering a five-year period approved by senior management. The discount rate applied to the cash flow projections was 17% and cash flows beyond the five-year period were extrapolated using a growth rate of 3%.

Assumptions were used in the value in use calculation of the home furniture cash-generating unit for 31 December 2016 and 31 December 2015. The following describes each key assumption on which management has based its cash flow projections to undertake impairment testing of goodwill:

Budgeted gross margins – The basis used to determine the value assigned to the budgeted gross margins is the average gross margins achieved in the year immediately before the budget year, increased for expected efficiency improvements, and expected market development.

Discount rate – The discount rate used is before tax and reflects specific risks relating to the relevant unit.

The values assigned to the key assumptions are consistent with external information sources.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

17. Intangible Assets

At 1 January: Cost Accumulated amortisation Net carrying amount Cost at 1 January, net of accumulated amortisation Additions Amortisation provided during the year Exchange realignment Cost at 31 December, net of accumulated amortisation At 31 December: Cost Accumulated amortisation Net carrying amount 18. Investments in Associates Unlisted shares, at cost Share of net assets Goodwill on acquisition Loan to associates Provision for impairment	2016 HK$’000 9,921 (8,896) 1,025 1,025 2,059 (540) (66) 2,478 11,341 (8,863) 2,478 2016 HK$’000 – – – – – – –	2015 HK$’000 9,768 (8,871) 897 897 589 (421) (40) 1,025 9,921 (8,896) 1,025 2015 HK$’000 2,054 (1,466) 6,931 7,519 14,764 (15,875) 6,408

During the year, the Group fully disposed of the shares of the associates, resulting in a loss on disposal of HK$6,184,000.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

19. Available-for-sale Investment

Current Unlisted investment, at fair value	2016 HK$’000 3,215	2015 HK$’000 24,285

During the year, no gross gain in respect of the Group’s available-for-sale investment was recognised in other comprehensive income (2015: HK$421,000). An amount of HK$421,000 (2015: HK$173,000) was reclassified from other comprehensive income to the statement of profit or loss for the year upon disposal.

As at 31 December 2015, the unlisted investment had a term of less than one year and was pledged to bank to obtain the bank loan (note 27). As at 31 December 2016 and 2015, the fair value of the unlisted investment was based on the expected rate of return, credit spread and liquidity spread implied by the purchase price at the issue date.

20. Inventories

Raw materials Work in progress Finished goods Trade Receivables Trade receivables Impairment	2016 HK$’000 52,081 39,632 129,386 221,099 2016 HK$’000 45,284 (10,819) 34,465	2015 HK$’000 57,731 40,418 122,890
		221,039
		2015 HK$’000 30,848 (9,095)
		21,753

21. Trade Receivables

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Group’s trading terms with its customers are mainly on credit, except for new customers, where payment in advance is normally required. The credit period is generally 30 to 90 days. Each customer has a maximum credit limit. The Group seeks to maintain strict control over its outstanding receivables. Overdue balances are reviewed regularly by senior management. In view of the aforementioned and the fact that the Group’s trade receivables relate to a large number of diversified customers, there is no significant concentration of credit risk. The Group does not hold any collateral or other credit enhancements over its trade receivable balance. Trade receivables are non-interest-bearing.

An ageing analysis of the trade receivables as at the end of the reporting period, based on the invoice date and net of provision, is as follows:

Within 1 month 1 to 3 months 3 to 6 months over 6 months	2016 HK$’000 28,490 446 5,473 56 34,465	2015 HK$’000 16,533 1,140 3,834 246
		21,753

The movements in the provision for impairment of trade receivables are as follows:

At beginning of year Impairment losses recognised Exchange realignment	2016 HK$’000 9,095 2,311 (587) 10,819	2015 HK$’000 8,831 658 (394)
		9,095

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

An ageing analysis of the trade receivables that are not individually or collectively considered to be impaired is as follows:

Neither past due nor impaired Past due but not impaired	2016 HK$’000 28,936 5,529 34,465	2015 HK$’000 17,673 4,080
		21,753

Receivables that were neither past due nor impaired relate to a large number of diversified customers for whom there was no recent history of default.

Receivables that were past due but not impaired relate to a number of independent customers that have a good track record with the Group. Based on past experience, the directors of the Company are of the opinion that no provision for impairment is necessary in respect of these balances as there has not been a significant change in credit quality and the balances are still considered fully recoverable. The Group does not hold any collateral or other credit enhancements over these balances.

At 31 December 2016, there was no trade receivables (2015: HK$621,000) due from the Group’s associates, which are repayable on credit terms similar to those offered to the major customers of the Group.

22. Prepayments, Deposits and Other Receivables

Prepayments Deposits and other receivables	2016 HK$’000 55,565 30,593 86,158	2015 HK$’000 60,338 32,735
		93,073

None of the above assets is either past due or impaired. The financial assets included in the above balances relate to receivables for which there was no recent history of default.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

23. Cash and Cash Equivalents

Cash and bank balances Time deposits Less: Pledged for interest-bearing bank loans (note 27) Cash and cash equivalents	2016 HK$’000 103,516 39,737 143,253 (39,737) 103,516	2015 HK$’000 89,831 48,444
		138,275 (48,444)
		89,831

At the end of the reporting period, the cash and bank balances of the Group denominated in Renminbi (‘‘RMB’’) amounted to HK$78,267,000 (2015: HK$81,926,000). The RMB is not freely convertible into other currencies, however, under Mainland China’s Foreign Exchange Control Regulations and Administration of Settlement, Sale and Payment of Foreign Exchange Regulations, the Group is permitted to exchange RMB for other currencies through banks authorised to conduct foreign exchange business.

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

24. Trade Payables

An ageing analysis of the trade payables as at the end of the reporting period, based on the invoice date, is as follows:

Within 1 month 1 to 3 months 3 to 6 months 6 to 12 months More than 1 year	2016 HK$’000 60,598 28,336 13,807 2,026 2,683 107,450	2015 HK$’000 43,109 20,682 8,650 953 1,702
		75,096

The trade payables are non-interest-bearing and are normally settled for a period of 3 months and extendable up to 2 years.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

25. Other Payables and Accruals

Advances from customers Other payables Accruals	2016 HK$’000 39,080 88,645 9,777 137,502	2015 HK$’000 40,149 69,612 10,918
		120,679

26. Medium Term Bonds

On 5 February 2016, the Company established a medium term bonds programme with a nominal value of HK$10,000,000 each. As at 31 December 2016, the Company has issued the medium term bonds (the ‘‘Bonds’’) with principal amount in aggregate of HK$420,000,000. The Bonds are non-callable until 5 February 2025 and non-puttable until 5 February 2020. Interest on the outstanding bonds will be payable annually in arrears at the interest rate of 0.1% per annum first payable on 5 February 2018 and last payable on 5 February 2063 and will mature on 5 February 2064. The Bonds were amortised at the effective interest method by applying the effective interest rate ranging from 8.14% to 8.86% per annum.

The fair value of the medium term bonds was estimated at the issuance date by discounting the expected future cash flows using an equivalent market interest rate for a similar bond taking into consideration the Group’s own credit and liquidity risk.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The medium term bonds recognised in the statement of financial position were calculated as follows:

Carrying amount at 1 January Additions Accrued Interest expenses Carrying amount at 31 December	2016 HK$’000 – 15,290 543 15,833	2015 HK$’000 – – –
		–

27. Interest-bearing Bank and Other Borrowings

Current Bank loans – secured Current portion of long term bank loans – secured Non-current Bank loans – secured Other loan – unsecured	Effective interest rate (%) 1.7+HIBOR – 5.66 5.40 5.40 5 – 10	2016 Maturity 2017 2017 2018 – 2019 2018	HK$’000 205,529 22,603 228,132 37,672 54,037 91,709 319,841	Effective interest rate (%) 1.7+HIBOR – 6.15 7.04 7.04 5 – 10	2015 Maturity 2016 2016 2017 – 2019 2017	HK$’000 223,845 26,847
						250,692
						72,486 127,426
						199,912
						450,604

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Analysed into: Bank loans repayable: Within one year In the second year In the third to fifth years, inclusive Analysed into: Other borrowings repayable: In the second year	2016 HK$’000 228,132 30,137 7,535 265,804 54,037 319,841	2015 HK$’000 250,692 26,176 46,310
		323,178
		127,426
		450,604

Notes:

(i) Certain of the Group’s bank loans were secured by:
(a) the pledge of certain of the Group’s buildings and the construction in progress, which had aggregate carrying values at the end of the reporting period of approximately HK$224,941,000 (2015: HK$289,546,000) and HK$473,935,000 (2015: HK$500,866,000), respectively (note 13);
(b) the pledge of certain of the Group’s prepaid land lease payments, which had an aggregate carrying value at the end of the reporting period of approximately HK$51,744,000 (2015: HK$61,242,000) (note 15);
(c) the pledge of the Group’s time deposits amounting to HK$39,737,000 (2015: HK$48,444,000) (note 23); and
(d) as at 31 December 2015, the pledge of the Group’s current available-for-sale investment with a net carrying value of HK$24,285,000 (note 19).
(ii) As at 31 December 2016, bank loans and other loans denominated in Hong Kong dollars and RMB amounted to HK$93,480,000 and HK$226,361,000, respectively.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

28. Deferred Tax Liabilities

The movements in deferred tax liabilities during the year are as follows:

At 1 January 2015 Deferred tax credited to other comprehensive income during the year Deferred tax credited to the statement of profit or loss during the year (note 10) Gross deferred tax liabilities at 31 December 2015 and 1 January 2016 Deferred tax charged to other comprehensive income during the year Deferred tax credited to the statement of profit or loss during the year (note 10) Gross deferred tax liabilities at 31 December 2016	Revaluation of prepaid land lease payments HK$’000 – – – – 7,494 – 7,494	Revaluation of property, plant and equipment HK$’000 36,658 (5,292) (1,821) 29,545 20,412 (1,821) 48,136	Fair value adjustments arising from acquisition of a subsidiary HK$’000 777 – (18) 759 – (18) 741	Total HK$’000 37,435 (5,292) (1,839)
				30,304 27,906 (1,839)
				56,371

At 31 December 2016, no deferred tax has been recognised for withholding taxes that would be payable on the unremitted earnings of HK$4,741,000 (2015: HK$1,765,000) that are subject to withholding taxes of the Group’s subsidiaries established in Mainland China. In the opinion of the directors, it is not probable that these subsidiaries will distribute such earnings in the foreseeable future. The aggregate amount of temporary differences associated with investments in subsidiaries in Mainland China for which deferred tax liabilities have not been recognised totalled approximately HK$474,000 at 31 December 2016 (2015: HK$177,000).

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

29. Share Capital

Authorised: 2,000,000,000 (2015: 2,000,000,000) ordinary shares of HK$0.10 each Issued and fully paid: 1,762,377,017 (2015: 1,762,377,017) ordinary shares of HK$0.10 each	2016 HK$’000 200,000 176,238	2015 HK$’000 200,000
		176,238

A summary of movements in the Company’s share capital is as follows:

Notes At 1 January 2015 Issue of shares (a) Shares issue expenses Share option exercised (b) At 31 December 2015, 1 January 2016, and 31 December 2016	Number of shares in issue 1,393,377,017 278,000,000 – 91,000,000 1,762,377,017	Share capital HK$’000 139,338 27,800 – 9,100 176,238	Share premium account HK$’000 814,404 38,920 (1,322) 37,492 889,494	Total HK$’000 953,742 66,720 (1,322) 46,592
				1,065,732

Notes:

(a) Pursuant to the written resolution passed on 9 May 2015, an aggregate of 278,000,000 shares were allotted and issued at the price of HK$0.24 per share, for a total cash consideration, before expenses, of HK$66,720,000.
(b) The subscription rights attaching to 91,000,000 share options were exercised at the subscription price of HK$0.372 per share, resulting in the issue of 91,000,000 shares for a total cash consideration, before expenses, of HK$33,852,000. An amount of HK$12,740,000 was transferred from the share option reserve to share premium account upon the exercise of the share options.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

30. Share Option Scheme

The Company operates a share option scheme in order to advance the interests of the Company and shareholders by enabling the Company to grant options to attract, retain and reward the eligible participants. The Company adopted the share option scheme (the ‘‘Scheme’’) which became effective on 18 May 2012 to replace the old share option scheme which expired on 25 April 2012. The Scheme, unless otherwise cancelled or amended, will remain in force for 10 years from that date.

The maximum number of shares in respect of which options may be granted under the Scheme and under any other share option schemes of the Company pursuant to which options may be granted to directors, consultants and/or employees of any company in the Group, shall initially not exceed 10% of the relevant class of securities of the Company in issue excluding, for this purpose, shares issued on exercise of options under the Scheme and any other share option schemes of the Company. Upon the grant of options for shares up to 10% of the relevant class of securities of the Company and subject to the approval of the shareholders of the Company in general meetings, the maximum number of shares to be issued under the Scheme when aggregated with securities to be issued under any other share option schemes of the Group may be increased by the board of directors, provided that the shares to be issued upon exercise of all outstanding options do not exceed 30% of the relevant class of securities in issue.

No option may be granted to any one person such that the total number of shares issued and to be issued upon the exercise of options granted and to be granted to such person in any 12-month period up to the date of the latest grant exceeds 1% of the issued share capital of the Company.

The offer of a grant of share options may be accepted within eight days from the date of offer, upon payment of a nominal consideration of HK$1 in total by the grantee. The exercise period of the share options granted is determined by the directors, and commences after a certain vesting period and ends on a date which is not later than 10 years from the date of offer of the share options or the expiry date of the Scheme, if earlier.

An option may be exercised in accordance with the terms of the Scheme at any time during the option period (and not more than 10 years after the date of grant). The option period will be determined by the board of directors and communicated to each grantee. The board of directors may provide restrictions on the time during which the options may be exercised. There are no performance targets which must be achieved before any of the options can be exercised. However, the board of directors retains its discretion to accelerate the vesting of the fixed term options in the event that certain performance targets are met.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The subscription price for the Company’s shares under the Scheme will be a price determined by the board of directors and notified to each grantee. The subscription price will be the highest of: (i) the nominal value of a share; and (ii) the closing price of the shares as stated in the Stock Exchange’s daily quotation sheet on the date of grant, which must be a trading day; and (iii) the average of the closing prices of the shares as stated in the Stock Exchange’s daily quotation sheets for the five trading days immediately preceding the date of grant. An option shall be deemed to have been granted and accepted by an eligible participant (as defined in the Scheme) and to have taken effect when the acceptance form as described in the Scheme is completed, signed and returned by the grantee with a remittance in favour of the Company of HK$1 by way of consideration for the grant.

Share options do not confer rights on the holders to dividends or to vote at shareholders’ meetings.

The following share options were outstanding under the Scheme during the year:

At 1 January Granted during the year Exercised during the year Lapsed during the year At 31 December	2016 Weighted average exercise price Number of options HK$ per share ’000 0.71 53,484 0.32 69,000 – – – – 0.49 122,484	2015 Weighted average exercise price Number of options HK$ per share ’000 0.50 146,748 – – 0.37 (91,000) 0.95 (2,264) 0.71 53,484	2015 Weighted average exercise price Number of options HK$ per share ’000 0.50 146,748 – – 0.37 (91,000) 0.95 (2,264) 0.71 53,484
			53,484

The weighted average share price at the date of exercise for share options exercised during the year was HK$0.49 per share (2015: HK$0.71 per share).

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The exercise prices and exercise periods of the share options outstanding as at the end of the reporting period are as follows:

31 December 2016

Date of grant
20 July 2009
7 September 2012
2 January 2013
2 January 2013
17 April 2014
22 June 2016
31 December 2015
Date of grant
20 July 2009
7 September 2012
2 January 2013
2 January 2013
17 April 2014

Number of
options
Exercise
price
Exercise period
’000
HK$ per
share
7,391
0.41
20 July 2010 to 19 July 2019
4,493
0.73
7 September 2013 to 6 September 2022
19,300
0.79
2 January 2014 to 1 January 2023
19,300
0.79
2 January 2015 to 1 January 2023
3,000
0.372
17 April 2015 to 16 April 2024
69,000
0.32
22 June 2017 to 21 June 2026
122,484
Number of
options
Exercise
price
Exercise period
’000
HK$ per
share
7,391
0.41
20 July 2010 to 19 July 2019
4,493
0.73
7 September 2013 to 6 September 2022
19,300
0.79
2 January 2014 to 1 January 2023
19,300
0.79
2 January 2015 to 1 January 2023
3,000
0.372
17 April 2015 to 16 April 2024
53,484

The fair value of the share options granted during the year was HK$9,110,000 (HK$0.13 each) (2015: Nil), of which the Group recognised a share option expense of HK$4,817,000 (2015: HK$3,899,000) during the year ended 31 December 2016.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The fair value of equity-settled share options granted during the year was estimated as at the date of grant, using a binomial model, taking into account the terms and conditions upon which the options were granted. The following table lists the inputs to the model used:

Dividend yield (%) Expected volatility (%) Historical volatility (%) Risk-free interest rate (%) Expected life of options (year) Weighted average share price (HK$ per share)	2016 – 65 65 0.59 – 0.66 2 0.32

The expected life of the options is based on the historical data over the past three years and is not necessarily indicative of the exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome.

No other feature of the options granted was incorporated into the measurement of fair value.

At the end of the reporting period, the Company had 122,484,360 share options outstanding under the Scheme. The exercise in full of the remaining share options would, under the present capital structure of the Company, result in the issue of 122,484,360 additional ordinary shares of the Company and additional share capital of HK$12,248,000 and share premium of HK$45,974,000 (before issue expenses).

At the date of approval of these financial statements, the Company had 122,484,360 share options outstanding under the Scheme, which represented approximately 6.95% of the Company’s shares in issue as at that date.

According to the scheme limit of the 2012 scheme as refreshed on the annual general meeting of the Company held on 6 June 2014, the Company may further grant 70,337,701 (2015: 139,337,701) share options, representing approximately 3.99% (2015: 7.91%) of the Company’s shares in issue as at 31 December 2016.

31. Reserves

The amounts of the Group’s reserves and the movements therein for the current and prior years are presented in the consolidated statement of changes in equity on page 40 of the financial statements.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Pursuant to the relevant laws and regulations of the PRC, a portion of the profits of the Group’s subsidiaries which are established in the PRC has been transferred to the statutory reserve which is restricted as to use.

32. Loan From Non-controlling Interests

The loan from non-controlling interests is unsecured, bears interest at a rate of 6.15% per annum and will not be repayable in one year. As at the end of the reporting period, included in the outstanding balance with the non-controlling interests was an amount of HK$2,762,000 (2015: HK$2,038,000), which was the accrued interest for the loan.

33. Operating Lease Arrangements

(a) As lessor

The Group leases its investment properties (note 14 to the financial statements) under operating lease arrangements, with leases negotiated for terms mainly ranging from five to ten years. The terms of the leases generally also require the tenants to pay security deposits and provide for periodic rent adjustments according to the then prevailing market conditions.

As at 31 December 2016, the Group had total future minimum lease receivables under non-cancellable operating leases with its tenants falling due as follows:

Within one year In the second to fifth years, inclusive After five years	2016 HK$’000 17,045 73,046 115,033 205,124	2015 HK$’000 – – –
		–

(b) As lessee

The Group leases certain of its office buildings, retail shops and warehouses under operating lease arrangements. Leases for the properties are negotiated for terms ranging from one to ten years.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

At 31 December 2016, the Group had total future minimum lease payments under non-cancellable operating leases falling due as follows:

Within one year In the second to fifth years, inclusive After five years	2016 HK$’000 12,890 12,397 1,581 26,868	2015 HK$’000 15,410 24,087 4,196
		43,693

34. Commitments

In addition to the operating lease commitments detailed in note 33 above, the Group had the following capital commitments at the end of the reporting period:

Authorised, but not contracted for: Land and buildings	2016 HK$’000 10,000	2015 HK$’000 10,000

35. Related party transactions

(a) In addition to the transactions detailed elsewhere in these financial statements, the Group had the following material transactions with related parties during the year:

Associates: Sales of products (i)	2016 HK$’000 –	2015 HK$’000 1,703

(i) The sales to and purchases from associates were made according to the published prices and conditions offered to the major customers of the Group.

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APPENDIX I

(b) Compensation of key management personnel of the Group

Short term employee benefits Equity-settled share option benefits Pension scheme contributions Total compensation paid to key management personnel	2016 HK$’000 8,106 3,978 – 12,084	2015 HK$’000 6,169 164 9
		6,342

Further details of directors’ emoluments are included in note 8 to the financial statements.

(c) Loans from a director

Name Mr. Tse Kam Pang	2016 HK$’000 12,000	2015 HK$’000 –

Mr. Tse Kam Pang is one of the directors and also the Chairman of the Company. As at 31 December 2016, loans with an aggregate amount of HK$12,000,000 are unsecured, interest-free and not repayable within the next twelve months.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

36. Financial Instruments By Category

The carrying amounts of each of the categories of financial instruments as at the end of the reporting period are as follows:

Financial assets

2016 Trade receivables Available-for-sale investment Financial assets included in prepayments, deposits and other receivables (note 22) Pledged deposits Cash and cash equivalents 2015 Trade receivables Available-for-sale investments Financial assets included in prepayments, deposits and other receivables (note 22) Pledged deposits Cash and cash equivalents	Loans and receivables HK$’000 34,465 – 30,593 39,737 103,516 208,311 Loans and receivables HK$’000 21,753 – 32,735 48,444 89,831 192,763	Available- for-sale financial assets HK$’000 – 3,215 – – – 3,215 Available- for-sale financial assets HK$’000 – 24,285 – – – 24,285	Total HK$’000 34,465 3,215 30,593 39,737 103,516
			211,526
			Total HK$’000 21,753 24,285 32,735 48,444 89,831
			217,048

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APPENDIX I

Financial liabilities

Trade payables Financial liabilities included in other payables and accruals Medium term bonds Interest-bearing bank and other borrowings Loan from non-controlling interests Loan from a director	2016 Financial liabilities at amortised cost HK$’000 107,450 79,799 15,833 319,841 37,565 12,000 572,488	2015 Financial liabilities at amortised cost HK$’000 75,096 63,343 – 450,604 38,139 –
		627,182

37. Fair Value and Fair Value Hierarchy of Financial Instruments

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

The fair values of the financial assets and liabilities are included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The following methods and assumptions were used to estimate the fair values:

The fair values of cash and cash equivalents, pledged deposits, trade receivables, financial assets included in prepayments, deposits and other receivables, trade payables, financial liabilities included in other payables and accruals, the current portion of interestbearing bank loans and other borrowings approximate to their carrying amounts largely due to the short term maturities of these instruments.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The fair values of the non-current portion of interest-bearing bank and other borrowings, medium term bonds, loan from non-controlling interests, and loan from a director have been calculated by discounting the expected future cash flows using rates currently available for instruments with similar terms, credit risk and remaining maturities. The Group’s own non-performance risk for the interest-bearing bank and other borrowings as at 31 December 2016 was assessed to be insignificant.

The fair value of the unlisted investment which was designated as current availablefor-sale investment is based on the expected rate of return, credit spread and liquidity spread implied by the purchase price at the issue date (level 3).

The carrying amounts of the Group’s and the Company’s financial assets and financial liabilities approximate to their fair values.

38. Financial Risk Management Objectives and Policies

The main risks arising from the Group’s financial instruments are interest rate risk, foreign currency risk, credit risk and liquidity risk.

The Group does not have written risk management policies and guidelines. However, management meets periodically to analyse and formulate measures to manage the Group’s exposure to financial risks. Generally, the Group employs a conservative strategy regarding its risk management.

(i) Interest rate risk

The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s long term debt obligations with floating interest rates.

The following table demonstrates the sensitivity at the end of the reporting period to a reasonably possible change in interest rate, with all other variables held constant, of the Group’s loss before tax and the Group’s equity.

2016 RMB RMB	Increase/ (decrease) in basis points 25 (25)	Increase/ (decrease) in profit before tax HK$’000 (269) 269	Increase/ (decrease) in equity* HK$’000 – –

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2015 RMB RMB	Increase/ (decrease) in basis points 25 (25)	Increase/ (decrease) in loss before tax HK$’000 (181) 181	Increase/ (decrease) in equity* HK$’000 – –

Excluding retained profits

(ii) Foreign currency risk

The Group has transactional currency exposures. These exposures arise from sales or purchases by operating units in currencies other than the units’ functional currencies. Approximately 4.6% (2015: 4.7%) of the Group’s sales are denominated in currencies other than the functional currencies of the operating units making the sale, whilst almost 100% (2015: 100%) of costs are denominated in the units’ functional currencies. The Group does not use any forward currency contracts to eliminate the foreign currency exposures and the Group does not enter into any hedge derivatives.

(iii) Credit risk

The Group trades only with recognised and creditworthy third parties. It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis and the Group’s exposure to bad debts is not significant. For transactions that are not denominated in the functional currency of the relevant operating unit, the Group does not offer credit terms without the specific approval of the head of credit control.

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

Since the Group trades only with recognised and creditworthy third parties, there is no requirement for collateral. Concentrations of credit risk are managed by customer. There are no significant concentrations of credit risk within the Group as the customer bases of the Group’s trade receivables are widely dispersed across different sectors.

Further quantitative data in respect of the Group’s exposure to credit risk arising from trade receivables are disclosed in note 21 to the financial statements.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(iv) Liquidity risk

The Group monitors its risk to a shortage of funds using a recurring liquidity planning tool. This tool considers the maturity of both its financial instruments and financial assets (e.g., trade receivables) and projected cash flows from operations.

The maturity profile of the Group’s financial liabilities as at the end of the reporting period, based on the contractual undiscounted payments, was as follows:

Trade payables Other payables and accruals Medium term bonds Interest-bearing bank and other borrowings Loan from non-controlling interests Loan from a director Trade payables Other payables and accruals Interest-bearing bank and other borrowings Loan from non-controlling interests	Less than one year HK$’000 107,450 79,799 – 240,713 – – 427,962 Less than one year HK$’000 75,096 63,343 291,100 – 429,539	2016 Over one year HK$’000 – – 439,740 95,655 41,531 12,000 588,926 2015 Over one year HK$’000 – – 215,600 44,395 259,995	Total HK$’000 107,450 79,799 439,740 336,368 41,531 12,000
			1,016,888
			Total HK$’000 75,096 63,343 506,700 44,395
			689,534

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(v) Capital management

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

The Group manages its capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. No changes were made in the objectives, policies or processes for managing capital during the years ended 31 December 2016 and 2015.

The Group monitors capital using a gearing ratio, which is net debt divided by capital plus net debt. Net debt includes medium term bonds, interest-bearing bank and other borrowings, trade payables and other payables and accruals, loan from noncontrolling interests and loan from a director, less cash and cash equivalents. Capital represents equity attributable to owners of the parent. The gearing ratios as at the end of the reporting periods were as follows:

Trade payables Other payables and accruals Medium term bonds Interest-bearing bank and other borrowings Loan from non-controlling interests Loan from a director Less: Cash and cash equivalents Net debt Equity attributable to owners of the parent Capital and net debt Gearing ratio	2016 HK$’000 107,450 137,502 15,833 319,841 37,565 12,000 (103,516) 526,675 1,125,067 1,651,742 32%	2015 HK$’000 75,096 120,679 – 450,604 38,139 – (89,831) 594,687 1,105,811 1,700,498 35%

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

39. Statement of Financial Position of the Company

Information about the statement of financial position of the Company at the end of the reporting period is as follows:

NON-CURRENT ASSETS Investments in subsidiaries CURRENT ASSETS Prepayments Cash and cash equivalents Total current assets CURRENT LIABILITIES Other payables and accruals Total current liabilities NET CURRENT LIABILITIES TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Medium term bonds Interest-bearing other borrowings Total non-current liabilities Net assets EQUITY Share capital Reserves (note) Total equity	2016 HK$’000 1,160,291 284 181 465 5,221 5,221 (4,756) 1,155,535 15,833 40,000 55,833 1,099,702 176,238 923,464 1,099,702	2015 HK$’000 1,152,461 223 27 250 2,100 2,100 (1,850) 1,150,611 – 40,000 40,000 1,110,611 176,238 934,373 1,110,611

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Note:

A summary of the Company’s reserves is as follows:

Balance at 1 January 2015 Loss and total comprehensive loss for the year Equity-settled share option expense Issue of shares Shares issue expenses Share options exercised Lapse of share options At 31 December 2015 Loss and total comprehensive loss for the year Equity-settled share option expense At 31 December 2016	Share premium account HK$’000 814,404 – – 38,920 (1,322) 37,492 – 889,494 – – 889,494	Contributed surplus* HK$’000 45,144 – – – – – – 45,144 – – 45,144	Share option reserve** Accumulated losses HK$’000 HK$’000 23,801 (2,822) – (12,403) 3,899 – – – – – (12,740) – (890) 890 14,070 (14,335) – (10,908) 4,817 – 18,887 (25,243)	Total HK$’000 880,527 (12,403) 3,899 38,920 (1,322) 24,752 –
				934,373 (10,908) 4,817
				928,282

The Company’s contributed surplus represents the excess of the fair value of the shares of the subsidiaries acquired pursuant to the group reorganisation before the listing of the Company on the Main Board of the Stock Exchange of Hong Kong Limited, over the nominal value of the Company’s shares issued in exchange therefor. Under the Companies Law of the Cayman Islands, a company may make distributions to its members out of the contributed surplus under certain circumstances.
** The share option reserve comprises the fair value of share options granted which are yet to be exercised, as further explained in the accounting policy for share-based payments in note 2.4 to the financial statements. The amount will either be transferred to the share premium account when the related options are exercised, or be transferred to retained profits should the related options expire or be forfeited.

40. Approval of the Financial Statements

The financial statements were approved and authorised for issue by the board of directors on 28 March 2017.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3. INDEBTEDNESS

As at the closing business on 30 April 2017, for the purpose of this statement of indebtedness of the Group prior to the printing of this Circular, the Group had outstanding bank and other borrowings of approximately HK$308.5 million (which represented approximately HK$255.4 million guaranteed and secured bank loans that the collaterals were the Group’s land, buildings, construction in progress and time deposits, and approximately HK$53.1 million unsecured other borrowings), loan from non-controlling interests of approximately HK$38.8 million, loan from a director of approximately HK$12.0 million and medium term bonds of approximately HK$26.8 million. As of 30 April 2017, the total amount of the collaterals given for the utilized bank loans of the Group is approximately HK$790.8 million. For the purpose of this statement of indebtedness of the Group, amounts in foreign currencies have been translated into Hong Kong dollars at the applicable rate of exchange as the close of business on 30 April 2017. Save as aforesaid, and apart from intra-group liabilities, the Group did not have any bank loan, bank overdrafts and liabilities under acceptances (other than normal trade bills) or other similar indebtedness, debentures or other loan capital, mortgages, charges, finance leases or hire purchase commitments, guarantees or other material contingent liabilities outstanding at the close of business on 30 April 2017.

4. WORKING CAPITAL

The Directors are of the opinion that after taking into account the present internal financial resources of the Group, the currently available banking facilities and the estimated net proceeds from the Open Offer, the Group has sufficient working capital for its present requirements for at least the next 12 months from the date of this circular.

5. MATERIAL CHANGE

Save as disclosed below, the Directors confirm that there have been no material change in the financial or trading position or outlook of the Group since 31 December 2016, being the date to which the last published audited financial statements of the Company were made up, and up to and including the Latest Practicable Date:

the Open Offer and the Underwriting Agreement.

There is no material difference of opinion between the Directors and Nuada Limited in this regard. The Directors are satisfied that, based on the review and discussion as described above, the statement on this ‘‘Material Change’’ has been made with due care and consideration.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

6. BUSINESS REVIEW AND PROSPECTS

Ms. Lin Chi Ling, a famous model and movie star in Asia, continued to be the Group’s spokesperson and will feature in the Group’s advertisements as well as other marketing activities to promote the Group’s brand name.

The Group implemented a full dimensional advertising strategy by launching the “Royal Furniture Train” for high speed rail in China that runs along the Beijing-Guangzhou route. In addition, commercial advertisements of the Group were constantly played on the LED screens in the carriages that run along the Beijing-Shanghai route, as well as in the “Royal Furniture” exclusive lounges at 16 rail stations of the route, and the Group sponsored the 2016 Chinese Film Festival and the Fourth Shenzhen “Top Ten Chinese Films” commendation ceremony. This series of activities effectively enhanced the Group’s brand awareness and provided consumers with the Group’s product information. The Group will also work closely with both traditional and online media aiming to maintain our exposure to the public and to enhance our image as a household brand.

The turnaround in 2016 has proved that the Group’s restructuring is in the right direction. The Group will continue its business strategies in enhancing its profitability, as well as sharpening its competitive edges to attain larger market share.

Further resources have been committed to enhance the recognition of its brand “Royal Furniture” among domestic consumers. In view of the market trend and the consumer demand for one-stop full-category shopping, the Group has made appropriate arrangements to get ready for its “Complete Household Solutions”, in order to be a pioneer in the new market. Such that the Group may provide a one-stop solution for customers in respect of their overall household furniture, and fully satisfy their consumption needs in personal style in furniture.

While the consumption market in China is expected to remain weak, the Group is cautiously positive that it is on the right track in deepening its market penetration. Along with progressive improvement in quality of the franchise stores in 2017, the Group is expecting fruitful results for shareholders in the coming years.

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

For illustrative purpose only, set out below is the unaudited pro forma adjusted consolidated net tangible assets of the Group (the ‘‘Unaudited Pro Forma Financial Information’’) as if Open Offer had been completed on 31 December 2016. Although reasonable care has been exercised in preparing the Unaudited Pro Forma Financial Information, Shareholders who read the information below should bear in mind that these figures are inherently subject to adjustments and, because of its hypothetical nature, may not give a true picture of the Group’s financial position had the Open Offer been completed as at 31 December 2016 or any future dates.

A. UNAUDITED PRO FORMA STATEMENT OF ADJUSTED CONSOLIDATED NET TANGIBLE ASSETS OF THE GROUP ATTRIBUTABLE TO OWNERS OF THE COMPANY

Introduction

The unaudited pro forma statement of adjusted consolidated net tangible assets of the Group attributable to owners of the Company has been prepared by the directors of the Company in accordance with paragraph 4.29 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited to illustrate the effect of the Open Offer on the audited consolidated net tangible assets of the Group as if the Open Offer had taken place on 31 December 2016.

The unaudited pro forma statement of adjusted consolidated net tangible assets of the Group attributable to owners of the Company is prepared based on the audited net assets of the Group attributable to owners of the Company as at 31 December 2016, as extracted from the published announcement of the final results of the Company for the year ended 31 December 2016 and is adjusted for the effect of the Open Offer.

The unaudited pro forma statement of adjusted consolidated net tangible assets of the Group has been prepared for illustrative purposes only and, because of its hypothetical nature, it may not reflect the true picture of the consolidated net tangible assets of the Group attributable to owners of the Company as at 31 December 2016 had the Open Offer actually completed on 31 December 2016 or any future dates.

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Unaudited Pro Forma Statement of Adjusted Consolidated Net Tangible Assets of the Group

Based on 220,297,127 Offer Shares to be issued at Subscription Price of HK$0.455 per Offer Share (Note 4) (‘‘Scenario I’’) Based on 232,941,547 Offer Shares to be issued at Subscription Price of HK$0.455 per Offer Share (Note 4) (‘‘Scenario II’’) Audited consolidated net tangible assets per Share of the Group attributable to the owners of the Company before the completion of the Open Offer (Note 5) Unaudited pro forma adjusted consolidated net tangible assets per Share of the Group attributable to the owners of the Company after the completion of the Open Offer based on Scenario I (Note 6) Unaudited pro forma adjusted consolidated net tangible assets per Share of the Group attributable to the owners of the Company after the completion of the Open Offer based on Scenario II (Note 6)	Audited consolidated net assets of the Group attributable to owners of the Company as at 31 December 2016 HK$’000 (Note 1) 1,125,067 1,125,067	Less: Intangible assets & Goodwill HK$’000 (Note 2) (70,208) (70,208)	Audited consolidated net tangible assets of the Group attributable to owners of the Company as at 31 December 2016 HK$’000 1,054,859 1,054,859	Estimated net proceeds from the Open Offer HK$’000 (Note 3) 98,835 104,588	Unaudited pro forma adjusted consolidated net tangible assets of the Group attributable to owners of the Company after completion of the Open Offer HK$’000 1,153,694
					1,159,447
					HK$0.599
					HK$0.582
					HK$0.553

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APPENDIX II

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

The audited consolidated net assets of the Group attributable to owners of the Company as at 31 December 2016 was approximately HK$1,125,067,000 as disclosed in the published announcement of the final results of the Company for the year ended 31 December 2016.
Intangible assets of approximately HK$2,478,000 represented software and Goodwill of approximately HK$67,730,000 acquired through business combination, as extracted from the published announcement of the final results of the Company for the year ended 31 December 2016.
The estimated net proceeds from the Open Offer in Scenario I of approximately HK$98,835,000 is calculated based on 220,297,127 Offer Shares assuming to be issued on the completion of the Open Offer (assuming no outstanding Share Options are exercised and no other issue of Share on or before the Record Date) at the Subscription Price of HK$0.455 per Offer Share, after deduction of the estimated related expenses of approximately HK$1,400,000.

The estimated net proceeds from the Open Offer in Scenario II of approximately HK$104,588,000 is calculated based on 232,941,547 Offer Shares assuming to be issued on the completion of the Open Offer (assuming all outstanding Share Options other than those held by the Underwriter are exercised without cash consideration received and no other issue of Shares on or before the Record Date) at the Subscription Price of HK$0.455 per Offer Share, after deduction of the estimated related expenses of approximately HK$1,400,000.

The Open Offer in Scenario I of 220,297,127 Offer Shares is calculated on the basis of one Offer Shares for every eight existing Shares. It is based on 1,762,377,017 Shares in issue as at 31 December 2016, assuming no outstanding Share Options are exercised and no other issue of Share on or before the Record Date.

The Open Offer in Scenario II of 232,941,547 Offer Shares is calculated on the basis of one Offer Shares for every eight existing Shares. It is based on 1,863,532,377 Shares in issue at the date of the Announcement which comprise 1,762,377,017 Share in issue as at 31 December 2016, 101,155,360 Shares to be issued assuming all outstanding Share Options other than those held by the Underwriter are exercised and no other issue of shares on or before the Record Date.

The number of Shares used for the calculation of audited consolidated net tangible assets per Share prior to the completion of the Open Offer is based on 1,762,377,017 Shares in issue as at 31 December 2016.
The unaudited pro forma adjusted consolidated net tangible assets per Share of the Group after the completion of the Open Offer in Scenario I is calculated based on 1,982,674,144 Shares which represents the existing 1,762,377,017 Shares in issue as at 31 December 2016 and 220,297,127 Shares assuming to be issued on the completion of the Open Offer (assuming no outstanding Share Options are exercised and no other issue of Share on or before the Record Date) as if the Open Offer had been completed on 31 December 2016.

The unaudited pro forma adjusted consolidated net tangible assets per Share of the Group after the completion of the Open Offer in Scenario II is calculated based on 2,096,473,924 Shares which represents the existing 1,762,377,017 Shares in issue as at 31 December 2016, 101,155,360 Shares to be issued assuming all outstanding Share Options other than those held by the Underwriter are exercised, 232,941,547 Shares assuming to be issued on the completion of the Open Offer and no other issue of Shares on or before the Record Date as if the Open Offer had been completed on 31 December 2016.

Except for the Open Offer, no adjustment has been made to reflect any trading result or other transactions of the Group entered into subsequent to 31 December 2016.

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APPENDIX II

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

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

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

To the Directors of Royale Furniture Holdings Limited

We have completed our assurance engagement to report on the compilation of unaudited pro forma financial information of Royale Furniture Holdings Limited (the ‘‘Company’’) and its subsidiaries (hereinafter collectively referred to as the ‘‘Group’’) by the directors of the Company (the ‘‘Directors’’) for illustrative purposes only. The unaudited pro forma financial information consists of the unaudited pro forma consolidated net tangible assets as at 31 December 2016, and related notes as set out in Appendix II of the prospectus dated 13 June 2017 (the ‘‘Prospectus’’) issued by the Company (the ‘‘Unaudited Pro Forma Financial Information’’). The applicable criteria on the basis of which the Directors have compiled the Unaudited Pro Forma Financial Information are described in Appendix II of the Prospectus.

The Unaudited Pro Forma Financial Information has been compiled by the Directors to illustrate the impact of the proposed Open Offer (as defined in the Prospectus) of shares of the Company on the Group’s financial position as at 31 December 2016 as if the transaction had taken place at 31 December 2016. As part of this process, information about the Group’s financial position as at 31 December 2016 has been extracted by the Directors from the Group’s financial statements for the period ended 2016, on which an accountants’ report has been published.

Directors’ responsibility for the Unaudited Pro Forma Financial Information

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

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Our independence and quality control

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

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

Reporting accountants’ responsibilities

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

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

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

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

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

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

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

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

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

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

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APPENDIX II

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

Opinion

In our opinion:

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

Yours faithfully,

Ernst & Young

Certified Public Accountants Hong Kong

12 June 2017

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PROPERTY VALUATION REPORT

APPENDIX III

The following is the text of a letter, summary of values and the valuation certificate prepared for the purpose of incorporation in this circular received from LCH (Asia-Pacific) Surveyors Limited, an independent professional surveyor, in connection with its valuations as at 30 April 2017 of the property interests held by the Group.

PROFESSIONAL SURVEYOR PLANT AND MACHINERY VALUER BUSINESS & FINANCIAL ASSETS VALUER

The readers are reminded that the report which follows has been prepared in accordance with the reporting guidelines set by the International Valuation Standard 2013 (the ‘‘IVS’’) published by the International Valuation Standards Council as well as the HKIS Valuation Standards 2012 Edition (the ‘‘HKIS Standards’’) published by the Hong Kong Institute of Surveyors (the ‘‘HKIS’’). Both standards entitle the valuer to make assumptions which may on further investigation, for instance by the readers’ legal representative, prove to be inaccurate. Any exception is clearly stated below. Headings are inserted for convenient reference only and have no effect in limiting or extending the language of the paragraphs to which they refer. Translations of terms in English or in Chinese are for reader’s identification purpose only and have no legal status or implication in this report. This report was prepared and signed off in English format, translation of this report in language other than English shall only be used as a reference and should not be regarded as a substitution to this report. Piecemeal reference to this report is considered to be inappropriate and no responsibility is assumed from our part for such piecemeal reference. It is emphasised that the findings and conclusions presented below are based on the documents and facts known to us at the Latest Practicable Date of this circular. If additional documents and facts are made available, we reserve the right to amend this report and its conclusion.

17th Floor Champion Building Nos. 287-291 Des Voeux Road Central Hong Kong

13 June 2017

The Board of Directors Royale Furniture Holdings Limited Room 607, 6/F Tsim Sha Tsui Centre 66 Mody Road Tsim Sha Tsui East Kowloon, Hong Kong

Dear Sirs,

In accordance with the instructions given by the present management of Royale Furniture Holdings Limited (hereinafter referred to as the ‘‘Instructing Party’’) to us to conduct valuation of certain real properties (same as the word ‘‘properties’’ in this report) in which Royale Furniture

III – 1

APPENDIX III

PROPERTY VALUATION REPORT

Holdings Limited (hereinafter referred to as the ‘‘Company’’) and its subsidiaries (collectively, together with the Company hereinafter referred to as the ‘‘Group’’) have interests in the People’s Republic of China (hereinafter referred to as the ‘‘PRC’’ or ‘‘China’’), we confirm that we have conducted inspections, made relevant enquiries and obtained such further information as we consider necessary to support our findings and our conclusions of value of the property interests as at 30 April 2017 (hereinafter referred to as the ‘‘Valuation Date’’) for the Instructing Party’s internal management reference purpose.

We understand that the use of our work product (regardless of form of presentation) will form part of the Instructing Party’s due diligence but we have not been engaged to make specific sales or purchase recommendations, or to give opinion for financing arrangement. We further understand that the use of our work product will not supplant other due diligence which the Instructing Party should conduct in reaching its business decision regarding the properties valued. Our work is designed solely to provide information that will give the Instructing Party a reference in its due diligence process, and our work should not be the only factor to be referenced by the Instructing Party. Our findings and conclusions of value of the property interests are documented in a valuation report and submitted to the Instructing Party at today’s date (hereinafter referred to as the ‘‘Report Date’’).

At the request of the Instructing Party, we prepared this summary report (including this letter, a summary of values and the valuation certificate) to summarise our findings and conclusions of value as documented in the valuation report for the purpose of inclusion in this circular at the Report Date for the Instructing Party’s reference. Terms herein used without definition shall have the same meanings as in the valuation report, and the assumptions and caveats adopted in the valuation report also apply to this summary report.

BASIS OF VALUE AND ASSUMPTIONS

According to the IVS which the HKIS Standards also follows, there are two valuation bases, namely market value basis and valuation bases other than market value. In this engagement, we have provided our opinion of values of the properties on the market value basis.

The term ‘‘Market Value’’ is defined by the IVS and followed by the HKIS Standards as ‘‘the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion’’.

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Unless otherwise stated, our valuation of the real properties held by the Group have been made on the assumptions that, as at the Valuation Date,

the legally interested party in each of the properties has free and uninterrupted rights to assign its relevant property interests for the whole of the unexpired terms as granted, and any premium payable have already been fully paid;
the legally interested party in each of the properties sells its relevant property interests in the market in its existing state without the benefit of a deferred terms contract, leaseback, joint venture, management agreement or any other similar arrangement which could serve to increase the value of the property interests;
the legally interested party in each of the properties has absolute title to its relevant property interests;
the legally interested party in each of the properties has obtained relevant government’s approvals for the sale of the property in the market; and
the properties can be freely disposed of and transferred free of all encumbrances (including but not limited to the cost of transaction) as at the Valuation Date for its existing use in the market to both local and overseas purchasers without payment of any premium to the government.

Should any of the above not be the case, it will have adverse impact to the values as reported.

APPROACH TO VALUE

There are three generally accepted approaches in arriving at the market value of a property on an absolute title basis, namely the Sales Comparison Approach (or known as the Market Approach), the Cost Approach and the Income Approach.

In valuing the properties in Groups I and III, having considered the general and inherent characteristics of the properties, we have adopted the depreciated replacement cost (‘‘DRC’’) method, which is an application of the Cost Approach, in valuing specialised properties like the properties. The use of this approach requires an estimate of the market value of the land use rights for its existing use, and an estimate of the new replacement cost of the buildings and other site works from which deductions are then made to allow for age, condition, and functional obsolescence taken into account of the site formation cost and those public utilities connection charges to the property. The land use rights of properties have been determined from marketbased evidences by analysing similar sales or offerings of comparable properties.

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PROPERTY VALUATION REPORT

By using this approach, the land should be assumed to have the benefit of planning permission for the replacement of the existing buildings and it is always necessary when valuing the land, to have regard to the manner in which the land is developed by the existing buildings and site works, and the extent to which these realise the full potential value of the land. When considering a notional replacement site, it should normally be regarded as having the same physical and location characteristics as the actual site, other than characteristics of the actual site which are not relevant, or are of no value, to the existing use. In considering the buildings, the gross replacement cost of the buildings should take into consideration everything which is necessary to complete the construction from a new green field site to provide buildings as they are, at the valuation date, fit for and capable of being occupied and used for the current use. These costs to be estimated are not to erect buildings in the future but have the buildings available for occupation at the valuation date, the work having commenced at the appropriate time.

According to the HKIS Standards, the use of DRC method should be expressed as is subject to service potential of the entity from the use of the assets as a whole having due regard to the total assets employed.

In valuing the properties in Group III which were under development as at the Valuation Date, we have taken into account of the cost incurred as at the Valuation Date and the requirements set out at Rule 11.2(d) of The Codes on Takeovers and Mergers and Share Buybacks (‘‘Takeovers Codes’’).

The properties in Group II which are subject to various tenancy agreements as at the Valuation Date, we have adopted the term and reversion method of the Income Approach or sometimes referred to as a method of Market Approach as the reversionary interests and the rate of return are market-derived by taking into account the current rent receivable from the existing tenancies and the reversionary potential of the property interests. According to our understanding, no profit forecast is involved as there are certainty on the rent receivables and this is complied with the requirements set out at Chapter 11.17 of the Rules Governing The Listing of Securities on the Stock Exchange of Hong Kong Limited (the ‘‘Listing Rules’’).

We need to state that our opinion of values of the properties are not necessarily intended to represent the amount that might be realised from disposition of land use rights or various building(s) of the properties on piecemeal basis in the open market.

Unless otherwise stated, we have not carried out any valuation on a redevelopment basis to the properties and the study of possible alternative development options and the related economics do not come within the scope of our work.

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MATTERS THAT MIGHT AFFECT THE VALUES REPORTED

For the sake of valuation, we have adopted the areas as appeared in the copies of the documents as provided and no further verification work has been conducted. Should it be established subsequently that the adopted areas were not the latest approved, we reserve the right to revise our report and the valuations accordingly.

No allowance has been made in our valuation for any charges, mortgages, outstanding premium or amounts owing on the properties valued nor any expenses or taxation which may be incurred in affecting a sale of each of the properties. Unless otherwise stated, it is assumed that the properties are free from all encumbrances, restrictions, and outgoings of an onerous nature which could affect their values.

In valuing the properties, we have assumed all relevant approvals, consents, and licences from the relevant government authorisations could be obtained according to the proposed development proposal. We have also assumed that the design and construction of the development are in accordance with the relevant rule and regulations. Should this not be the case, we reserve the right to revise our report and valuations accordingly.

In our valuation, we have assumed that the properties are able to be sold and purchased in the market without any legal impediment (especially from the regulators). Should this not be the case, it will affect the reported values significantly. The readers are reminded to have their own legal due diligence work on such issue. No responsibility or liability is assumed.

For the purpose of compliance with Rule 11.3 of the Takeovers Codes, we are advised by the appointed personnel of the Company that the potential tax liabilities which may arise from the sale of the properties in the PRC including applicable stamp duties, Business Tax at 5% and related surcharges on Business Tax ranging from 2% to 7%, Enterprise Income Tax on the taxable income from the sale of the properties at 25%, and Land Value Appreciation Tax at progressive tax rates ranging from 30% to 60% on the taxable gains from the sale of the properties. According to the Company’s Annual Report 2016, the estimated deferred tax liability as at 31 December 2016 was HK$56,371,000. We are also advised that the properties in the PRC are held for own uses, such tax liabilities will unlikely be crystalised.

As at the Latest Practicable Date of this circular, we were unable to identify any adverse news against the properties which may affect the reported values in our work product. Thus, we are not in the position to report and comment on its impact (if any) to the properties. However, should it be established subsequently that such news did exist at the Valuation Date, we reserve the right to adjust the values reported herein.

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ESTABLISHMENT OF TITLES

Due to the purpose of this engagement, the Instructing Party or the appointed personnel of the Company provided us the necessary copies of documents to support that the legally interested party in the properties (in this instance, the Group) have free and uninterrupted rights to transfer, to mortgage or to let its relevant property interests (in this instance, an absolute title) for the whole of the unexpired terms as granted, free of all encumbrances and any premiums payable have already been paid in full or outstanding procedures have been completed, and the Group has the right to occupy and use the properties. However, our procedures to value, as agreed with Instructing Party, did not require us to conduct legal due diligence on the legality and formality on the way that the legally interested party obtained the properties from the relevant authorities. We agreed with the Instructing Party that this should be the responsibility of the legal advisor to the Instructing Party. Thus, no responsibility or liability is assumed from our part to the origin and continuity of the titles to the properties.

The land registration system of China forbids us to search the original documents of the properties that are filed in the relevant authorities, and to verify legal titles or to verify any material encumbrances or amendment which may not appear on the copies handed to us. For the purpose of valuation, we have relied solely on a copy of the PRC legal opinions (the ‘‘Legal Opinions’’) provided by the Instructing Party or the appointed personnel of the Company with regard to the legal titles of certain properties. We are given to understand that the Legal Opinions were prepared by a qualified PRC legal advisor Guangdong Yogo Law Firm dated 30 September 2015 and subsequently on 9 June 2017.

We need to state that we are not legal professionals and are not qualified to ascertain the titles and to report any encumbrances that may be registered against the properties. However, we have complied with the requirements as stated in Chapter 5 and Practice Note No. 12 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (‘‘Listing Rules’’) as well as Rule 11 of the Takeovers Codes, and relied solely on the copies of documents and the Legal Opinions in our valuation. No responsibility or liability from our part is assumed in relation to the Legal Opinions.

By referencing to the Legal Opinions, the Group has obtained all the approval and/or endorsement from the relevant authorities to own or to use the properties, and that there would be no legal impediment (especially from the regulators) for the Group to continue the legal titles to the properties. The readers are reminded to have their own legal due diligence work on such issues. No responsibility or liability is assumed.

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APPENDIX III

INSPECTIONS AND INVESTIGATIONS OF THE PROPERTIES

We have conducted inspections to the exterior, and where possible, the interior of the properties in respect of which we have been provided with such information as we have requested for the purpose of engagement. The properties were inspected by Sr Elsa Ng and graduate surveyors Ms Summer Yu and Mr Kenneth Ching between December 2016 and June 2017. We have not inspected those parts of the properties which were covered, unexposed or inaccessible and such parts have been assumed to be in a reasonable condition. We cannot express an opinion about or advice upon the condition of the properties and our work product should not be taken as making any implied representation or statement about the condition of the properties. No building survey, structural survey, investigation or examination has been made, but in the course of our inspections, we did not note any serious defects in the properties inspected. We are not, however, able to report that the properties are free from rot, infestation or any other structural defects. No tests were carried out to the utilities (if any) and we are unable to identify those utilities covered, unexposed or inaccessible.

We have not carried out on-site measurements to verify the correctness of the areas of the properties, but have assumed that the areas shown on the documents and official layout plans handed to us are correct. All dimensions, measurements and areas are approximations.

Our engagement and the agreed procedures to value the properties did not include an independent land survey to verify the legal boundaries of the properties. We need to state that we are not in the land survey profession, therefore, we are not in the position to verify or ascertain the correctness of the legal boundaries of such properties that appeared on the documents handed to us. No responsibility from our part is assumed. The Instructing Party or interested party in the properties should conduct their own legal boundaries due diligence work.

We have not arranged for any investigation to be carried out to determine whether or not any deleterious or hazardous material has been used in the construction of the properties, or has since been incorporated, and we are therefore unable to report that the properties are free from risk in this respect, and therefore we have not considered such factors in our valuation.

We are not aware of the content of any environmental audit or other environmental investigation or soil survey which may have been carried out on the properties and which may draw attention to any contamination or the possibility of any such contamination. In undertaking our work, we have been instructed to assume that no contaminative or potentially contaminative uses have ever been carried out in the properties. We have not carried out any investigation into past or present uses, either of the properties or of any neighbouring land, to establish whether there is any contamination or potential for contamination to the properties from these uses or sites, and have therefore assumed that none exists. However, should it be established subsequently that contamination, seepage or pollution exists at the properties or on any neighbouring land, or that the premises have been or are being put to a contaminative use, this might reduce the values now reported or affect our findings.

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SOURCES OF INFORMATION AND ITS VERIFICATION

In the course of our work, we have been provided with copies of the documents regarding the properties, and these copies have been referenced without further verifying with the relevant bodies and/or authorities. Our procedures did not require us to conduct any searches or to inspect the original documents to verify ownership or to verify any amendment which may not appear on the copies handed to us. We need to state that we are not legal professionals, therefore, we are not in the position to advise and comment on the legality and effectiveness of the documents provided by the Instructing Party or the appointed personnel of the Company.

We have relied solely on the information provided by the Instructing Party or the appointed personnel of the Company without further verification and have fully accepted advice given to us on such matters as planning approvals or statutory notices, locations, titles, easements, tenure, occupation, lettings, rentals, site and floor areas and all other relevant matters.

The scope of our work has been determined by reference to the property list provided by the Instructing Party. All properties on the list have been included in our report. The Instructing Party has confirmed to us that the Group has no property interest other than those specified on the list supplied to us.

Our valuation has been made only based on the advice and information made available to us. While a limited scope of general inquiries had been made to the local real property market practitioners, we are not in a position to verify and ascertain the correctness of the advice given by the relevant personnel. No responsibility or liability is assumed.

Information furnished by others, upon which all or portions of our report are based, is believed to be reliable but has not been verified in all cases. Our procedures to work do not constitute an audit, review, or compilation of the information provided. Thus, no warranty is made nor liability assumed for the accuracy of any data, advice, opinions, or estimates identified as being furnished by others which have been used in formulating our work product.

When we adopted the work products from other professions, external data providers and the Instructing Party or its appointed personnel of the Company in our works, the assumptions and caveats that adopted by them in arriving at their figures also applied to this report. The procedures we have taken do not provide all the evidence that would be required in an audit and, as we have not performed an audit, accordingly, we do not express an audit opinion. The procedures we have taken do not provide all the evidence that would be required in an audit and, as we have not performed an audit, accordingly, we do not express an audit opinion.

We are unable to accept any responsibility for the information that has not been supplied to us by the Instructing Party or the appointed personnel of the Company. Also, we have sought and received confirmation from the Instructing Party or the appointed personnel of the Company that no material factors have been omitted from the information supplied. Our analysis and valuation are based upon full disclosure between us and the Instructing Party of material and latent facts that may affect the works.

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We have had no reason to doubt the truth and accuracy of the information provided to us by the Instructing Party or the appointed personnel of the Company. We consider that we have been provided with sufficient information to reach an informed view, and have had no reason to suspect that any material information has been withheld.

Unless otherwise stated, all monetary amounts are in Renminbi Yuan (‘‘RMB’’).

LIMITING CONDITIONS IN THIS SUMMARY REPORT

Our findings or conclusions of value of the properties in this summary report are valid only for the stated purpose and only for the Valuation Date, and for the sole use of the Instructing Party. We or our personnel shall not be required to give testimony or attendance in court or to any government agency by reason of this summary report, and we accept no responsibility whatsoever to any other person.

Our valuation has been made on the assumption that no unauthorised alteration, extension or addition has been made in the properties, and that the inspections and the use of this report do not purport to be a building survey of the properties. We have assumed that the properties are free of rot and inherent danger or unsuitable materials and techniques.

No responsibility is taken for changes in market conditions and local government policy and no obligation is assumed to revise this summary report to reflect events or conditions, which occur or make known to us subsequent to the date hereof.

Neither the whole nor any part of this summary report or any reference made hereto may be included in any published documents, prospectus or statement, or published in any way, without our written approval of the form and context in which it may appear. Nonetheless, we consent to the publication of this summary report in this circular to the Company’s shareholders’ reference.

Our maximum liability relating to services rendered under this engagement (regardless of form of action, whether in contract, negligence or otherwise) shall be limited to the charges paid to us for the portion of its services or work products giving rise to liability. In no event shall we be liable for consequential, special, incidental or punitive loss, damage or expense (including without limitation, lost profits, opportunity costs, etc.), even if it has been advised of their possible existence.

The Company and the Instructing Party are required to indemnify and hold us and our personnel harmless from any claims, liabilities, costs and expenses (including, without limitation, attorney’s fees and the time of our personnel involved) brought against, paid or incurred by us at a time and in any way based on the information made available in connection with our work product except to the extent that any such loses, expenses, damages or liabilities are ultimately determined to be the result of gross negligence of our engagement team in conducting its work. This provision shall survive even after the termination of this engagement for any reason.

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APPENDIX III

STATEMENTS

The attached valuation certificate is prepared in line with the requirements contained in the Listing Rules, Rule 11 of The Takeovers Code as well as the reporting guidelines contained in the IVS and the HKIS Standards. The valuation has been undertaken by us, acting as external valuer, qualified for the purpose of this valuation.

We retain a copy of this summary report and the detailed valuation report together with the data from which it was prepared, and these data and documents will, according to the Laws of Hong Kong, be kept for a period of 6 years from the date it provide to us and to be destroyed thereafter. We considered these records confidential, and we do not permit access to them by anyone, with the exception for law enforcement authorities or court order, without the Instructing Party’s authorisation and prior arrangement made with us. Moreover, we will add the Company’s information into our client list for our future reference.

The analysis or valuation of the properties depend solely on the assumptions made in this report and not all of which can be easily quantified or ascertained exactly. Should some or all of the assumptions prove to be inaccurate at a later date, it will affect the reported findings or conclusions of value significantly.

We hereby certify that the fee for this service is not contingent upon our conclusions and we have no significant interest in the properties, the Group or the values reported.

A summary of values and the valuation certificate are attached.

Yours faithfully,

For and on behalf of

LCH (Asia-Pacific) Surveyors Limited

Elsa Ng Hung Mui B.Sc. M.Sc. RPS(GP)

Executive Director

Contributing valuer:

Summer Yu Mei Yao M.Sc.

Sr Elsa Ng Hung Mui has been conducting valuation of real properties in Hong Kong, Macau and mainland China since 1994. She is a Fellow of The HKIS and a valuer on the List of Property Valuers for Undertaking Valuation for Incorporation or Reference in Listing Particulars and Circulars and Valuation in Connection with Takeovers and Mergers published by The HKIS.

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APPENDIX III

SUMMARY OF VALUES

Group I – Properties held and/or occupied by the Group under long-term title certificates in the PRC and valued on market value basis

Property
1.
A factory complex erected on two parcels of land and
supporting facilities
located at Shijinglong
Jigang Village
Xiancun Town
Zengcheng District
Guangzhou City
Guangdong Province
The PRC
511335
2.
A factory complex erected on two parcels of land and
located at Baishigang Jigang Union
Hengling Village
Shitan Town
Zengcheng District, Guangzhou City
Guangdong Province
The PRC
511330
Sub-total

Amount of
valuations in
existing state
attributed to the
Group at 100%
interest as at
30 April 2017
RMB
71,900,000
408,800,000

RMB480,700,000

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APPENDIX III

Group II – Properties held by the Group for investment purpose in the PRC and valued on market value basis

Property 3. A factory complex located at Xiangtang Village Nanchang County Nanchang City Jiangxi Province The PRC 330201 4. A factory complex located at Wuchin Automotive Components Parks No. 5 Tianfu Road Wuchin District Tianjin The PRC 301701 Sub-total	Amount of valuations in existing state attributed to the Group at 100% interest as at 30 April 2017 RMB 98,000,000 259,000,000
	RMB357,000,000

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APPENDIX III

Group III – Properties held by the Group under development in the PRC and valued on market value basis

Property 5. A developing hotel project known as Guangzhou Royal Palace Hotel and located at Shijinglong Jigang Village Xiancun Town Zhencheng District Guangzhou City Guangdong Province The PRC 511335 6. A developing commercial development located at Wuwei Road Qunlixin District Daoli District Harbin City Heilongjiang Province The PRC 150070 Sub-total: Grand Total*:	Amount of valuations in its existing state attributed to the Group at 100% interest as at 30 April 2017 RMB 522,000,000 130,800,000
	RMB652,800,000
	RMB1,490,500,000

(*In word, RENMINBI ONE THOUSAND FOUR HUNDRED NINETY MILLION AND FIVE HUNDRED THOUSAND YUAN ONLY)

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APPENDIX III

VALUATION CERTIFICATE

Group I – Properties held and/or occupied by the Group under long-term title certificates in the PRC and valued on market value basis

	Property	Description and tenure
1.	A factory complex erected	The property comprises
	on two parcels of land and	two parcels of land having
	supporting facilities	a total site area of 25,224.5
	located at	sq.m. with 6 various major
	Shijinglong	buildings and other
	Jigang Village	associated structures.
	Xiancun Town	(See Notes 1 to 3 below)
	Zengcheng District
	Guangzhou City	The property is located at a
	Guangdong Province	suburban area in Xiancun
	The PRC	Town and surrounded by
	511335	farmland and village
		houses.
		The major buildings and
		structures include office,
		showroom, warehouses and
		staff quarters of height
		ranging from 2 to 5 storeys
		and were completed in
		between 2000 and 2003.
		According to the
		information provided by
		the appointed personnel of
		the Company, they have a
		total gross floor area of
		34,579 sq.m. (See Note 4
		below)
		The property is subject to a
		right to use the land for
		various terms till December
		2048 for industrial purpose.
		(See Note 1 below)

Amount of valuation in its existing state as at Particulars of occupancy 30 April 2017 As inspected and confirmed RMB71,900,000 by the Instructing Party and the appointed personnel of (100% interest) the Company, the property was occupied by the Group for office, showroom, staff quarters, warehouse and other supporting purposes as at the Valuation Date.

Particulars of occupancy

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Notes:

The right to possess the land is held by the State and the right to use the land has been granted by the State to 萬利寳（廣州）家具有限公司 (Wanlibao (Guangzhou) Furniture Limited and hereinafter referred to as ‘‘Wanlibao’’), a wholly-owned subsidiary of the Company, via the following ways:
(i) A parcel of land having a site area of 60,004 sq.m.

Pursuant to a State-owned Land Use Rights Certificate known as Zeng Guo Yong (2000) Zi Di C0300013 Hao（增國用(2000)字第C0300013號）issued by the Land Bureau of Zengcheng City（增城市國土局）and dated 28 September 2000, the legally interested party in the land is Wanlibao till 24 December 2048 for industrial purpose.

(ii) A parcel of land having a site area of 15,204 sq.m.

Pursuant to a State-owned Land Use Rights Certificate known as Zeng Guo Yong (2000) Zi Di C0300019 Hao（增國用(2000)字第C0300019號）issued by the Land Bureau of Zengcheng City（增城市國土局）and dated 7 July 2000, the legally interested party in the land is Wanlibao till 29 December 2048 for industrial purpose.

According to an agreement for resumption of State-owned land use rights dated 31 May 2007, a portion of land having a total site area of 74.975 Chinese mu (approximately 49,983.5 sq.m) which comprised a portion of land having an area of 55.787 Chinese mu from land mentioned in Note 1(i) above and a portion of land having an area of 19.188 Chinese mu from land mentioned in Note 1(ii) above was resumed by the Land Bureau of Zengcheng City（增城市國土局）at a compensation amount of RMB180,000 per Chinese mu.
According to the information provided by the appointed personnel of the Company, the resumed land mentioned in Note 2 above has been granted to the Group for commercial purpose for a term until 10 October 2047 (Please refer to Property No. 5 of this Valuation Certificate). The remaining portion of the land having a site area of approximately 25,224.5 sq.m. shall be used for industrial usage.

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According to the information provided by the appointed personnel of the Company, there are 6 buildings and facilities, without Building Ownership Certificate, in the property. The area breakdowns for each of the buildings are as follows:

Buildings Year of Completion (i) A showroom 2003 (ii) An office 2003 (iii) Two blocks of houses 2000 (iv) A warehouse and a staff quarters 2003 Total:	Gross Floor Area sq.m. 11,484 4,575 1,120 17,400
	34,579

The warehouse and staff quarters are erecting on an adjacent long leased land for a term till 8 June 2062. In our valuation, we have reported a value to the owner of such buildings and have taken into account of these buildings on the assumption that the buildings could be transferred together with the complex as an unique interest in the market without any further encumbrances/premium. Should this not be the case, it will have adverse impact to the value as reported.

According to the Legal Opinions dated 30 September 2015 and prepared by the Company’s PRC legal adviser, the following opinions are noted. And, the PRC legal adviser confirmed on 9 June 2017 that the following opinions are still valid.
(i) Wanlibao is the legally interested party in the land as mentioned in Note 1 above; and
(ii) Wanlibao has the rights to occupy, assign or lease the property as mentioned in Notes 1 and 2 above.

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APPENDIX III

Description and tenure

Property

A factory complex The property comprises erected on two two parcels of adjoining parcels of land land having a total site area and located at of 187,575.8 sq.m. with 15 Baishigang various major buildings Jigang Union and other 15 associated Hengling Village structures erected thereon. Shitan Town Zengcheng District The property is located at a Guangzhou City rural area in Shitan Town Guangdong Province and surrounding by The PRC industrial complexes and 511330 farmland. The major buildings and other associated structures include office, workshops, warehouses of height ranging from 2 to 3 storeys and were completed in around 2009. According to the information provided by the management of the Company, they have a total gross floor area of approximately 202,572.98 sq.m. (See Notes 2 to 4 below) The property is subject to a right to use the land till 23 April 2058 for industrial purpose. (See Note 1 below)

Amount of valuation in its existing state as at Particulars of occupancy 30 April 2017 As inspected and confirmed RMB408,800,000 by the Instructing Party and the appointed personnel of (100% interest) the Company, the property was occupied by the Group for office, manufacturing, warehouse and other supporting purposes as at the Valuation Date.

Particulars of occupancy

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APPENDIX III

Notes:

The right to possess the land is held by the State and the right to use the land has been granted by the State to 廣州富利家具有限公司 (Guangzhou Fuli Furniture Company Limited and hereinafter referred to as ‘‘Fuli’’) and 廣州裕發家具有限公司 (Guangzhou Yufa Furniture Company Limited and hereinafter referred to as ‘‘Yufa’’), both are wholly-owned subsidiary of the Company, via the following ways:
(i) A parcel of land having a site area of 110,097.1 sq.m. (Land 1)

Pursuant to a State-owned Land Use Rights Certificate known as Zeng Guo Yong (2009) Zi Di B0500215 Hao（增國用(2009)字第B0500215號）issued by the People’s Government of Zengcheng City（增城市人民政府）and dated 20 January 2009, the legally interested party in the land is Fuli till 23 April 2058 for industrial purpose.

(ii) A parcel of land having a site area of 77,478.7 sq.m. (Land 2)
- Pursuant to a State-owned Land Use Rights Certificate known as Zeng Guo Yong (2009) Zi Di B0500216 Hao（增國用(2009)字第B0500216號）issued by the People’s Government of Zengcheng City（增城市人民政府）and dated 20 January 2009, the legally interested party in the land is Yufa till 23 April 2058 for industrial purpose.
Pursuant to 4 various Realty Title Certificates known as Yue Fang Di Quan Zheng Zi Zi Di 661923 to 661926 Hao（粵房地權證自字第661923至661926號）all dated 5 March 2010 and issued by Zengcheng Land Resources and Housing Administration Bureau（增城市國土資源和房屋管理局）. The legally interested party in various buildings erected on the land as mentioned in Note 1(i) above having a total gross floor area of 92,609.20 sq.m. is Fuli. The area breakdowns for each of the buildings covered in the certificates are as follows:

Buildings Year of Completion (i) Workshop A3 2009 (ii) Warehouse A2 2009 (iii) Warehouse A1 2009 (iv) Workshop B1 2009 Total:	Gross Floor Area sq.m. 36,754.25 24,790.22 24,808.64 6,256.09
	92,609.20

III – 18

PROPERTY VALUATION REPORT

APPENDIX III

Pursuant to 4 various Realty Title Certificates known as Yue Fang Di Quan Zheng Zi Zi Di 661919 to 661922 Hao（粵房地權證自字第661919至661922號）all dated 5 March 2010 and issued by Zengcheng Land Resources and Housing Administration Bureau（增城市國土資源和房屋管理局）. The legally interested party in various buildings erected on the land as mentioned in Note 1(ii) above having a total gross floor area of 76,943.19 sq.m. is Yufa. The area breakdowns for each of the buildings covered in the certificates are as follows:

Buildings Year of Completion (i) An office complex and a warehouse A2 2009 (ii) Warehouse B1 2009 (iii) Warehouse B2 2009 (iv) Workshop A1 2009 Total:	Gross Floor Area sq.m. 13,170.45 21,613.23 21,929.46 20,230.05
	76,943.19

According to the information provided by the appointed personnel of the Company, there are 7 major buildings and 15 associated buildings and structures having a total gross floor area of approximately 33,020.59 sq.m., without Building Ownership Certificate, erected on the land as mentioned in Note 1 above. In our valuation, we have taken into account of these buildings and structures on the assumption that they could be transferred together with the land and other buildings as an unique interest in the market without any further encumbrances/premium. Should this is not the case, it will have adverse impact to the value as reported.
According to the Legal Opinions dated 30 September 2015 and prepared by the Company’s PRC legal adviser, the following opinions are noted. And, the PRC legal adviser confirmed on 9 June 2017 that the following opinions are still valid.
(i) Fuli is the legally interested party in the land as mentioned in Note 1(i) above;
(ii) Fuli has the rights to occupy, assign or lease the property as mentioned in Notes 1(i) and 2 above;
(iii) Yufa is the legally interested party in the land mentioned in Note 1(ii) above; and
(iv) Yufa has the rights to occupy, assign or lease the property as mentioned in Notes 1(ii) and 3 above.

III – 19

APPENDIX III

PROPERTY VALUATION REPORT

Group II – Properties held by the Group for investment purpose in the PRC and valued on market value basis

				Amount of
				valuation in its
				existing state as at
	Property	Description and tenure	Particulars of occupancy	30 April 2017
3.	A factory complex located	The property comprises a	As inspected and confirmed	RMB98,000,000
	at Xiangtang Village	parcel of land having a site	by the Instructing Party and
	Nanchang County	area of 200,001 sq.m. with	the appointed personnel of	(100% interest)
	Nanchang City	6 various major buildings	the Company, portion of
	Jiangxi Province	and structures erected	the property was subject to
	The PRC	thereon.	a tenancy for a term till
	330201		18 November 2020 at
		The property is located at a	an annual rental of
		rural area with farmland	RMB2,106,000 for
		and village houses.	industrial purpose.
		The major buildings and	The property was also
		structures include	subject to 2 various rental
		workshops, warehouses and	agreements with
		supporting facilities of	the latest term till
		single storey in height and	30 September 2021 at
		were completed in around	an annual rental of
		2016. According to the	RMB5 per sq.m. on
		information provided by	occupied gross
		the appointed personnel of	floor area.
		the Company, the buildings
		have a total gross floor
		area of 82,900 sq.m.
		(See Note 3 below)
		The property is subject to a
		right to use the land for a
		term till 25 June 2062 for
		industrial usage.
		(See Note 1 below)

Notes:

The right to possess the land is held by the State and the rights to use the land has been granted by the State to 江西富潤家具有限公司 (translated as Jiangxi Furun Furniture Company Limited and herein after referred to as ‘‘Jiangxi Furun’’）, an indirect wholly-owned subsidiary of the Company, via a State-owned Land Use Rights Certificate known as Nan Guo Yong (2012) Di 00172 Hao（南國用(2012)第00172號）dated 27 July 2012 and issued by the People’s Government of Nanchang County（南昌縣人民政府）, Jiangxi Furun has the rights to use the land having a site area of 200,001 sq.m. for a term till 25 June 2062 for industrial usage.

III – 20

APPENDIX III

PROPERTY VALUATION REPORT

Pursuant to a Planning Permit for Using Construction Usage Land（建設用地規劃許可證）Di Zi Di 360121201300029 Hao（地字第360121201300029號）dated 15 October 2013 and issued by the Nanchang County Urban and Rural Planning Bureau（南昌縣城鄉規劃局）, Jiangxi Furun was permitted to develop a parcel of land which having approximately 300 Chinese mu for industrial usage with the following development parameters:

Plot ratio: ≥0.8 Building Density: ≥39% Greenery ratio: ≤20%

Pursuant to the information provided by the appointed personnel of the Company, the buildings erected on the land mentioned in Note 1 above has a total gross floor area of approximately 82,900 sq.m. The breakdowns for each of the buildings are as follows:

Buildings Year of Completion (i) Workshop (Chair and Table) 2016 (ii) Workshop (Mattress) 2016 (iii) Workshop (Sticker Furniture) 2016 (iv) Raw Material Warehouse 2016 (v) Product Warehouse 2016 (vi) Fire Pump Room/Electricity Substation 2016 Total	Gross Floor Area (sq.m.) 10,757 10,350 22,508 11,985 27,000 300
	82,900

According to the Legal Opinions dated 30 September 2015 and prepared by the Company’s PRC legal adviser, the following opinions are noted. And, the PRC legal adviser confirmed on 9 June 2017 that the following opinions are still valid.
(i) Jiangxi Furun is the legally interested party in the land as mentioned in Note 1 above; and
(ii) Jiangxi Furun has rights to occupy, assign or lease the property.

III – 21

APPENDIX III

PROPERTY VALUATION REPORT

Amount of valuation in its existing state as at Property Description and tenure Particulars of occupancy 30 April 2017 4. A factory complex located The property comprises a As inspected and confirmed RMB259,000,000 at Wuchin Automotive parcel of land having a by the Instructing Party and Components Parks total site area of 265,536.8 the appointed personnel of (100% interest) No. 5 Tianfu Road sq.m. with 10 various the Company, as at Wuchin District major buildings and the Valuation Date, Tianjin structures erected thereon. the property was subject to The PRC a tenancy for a term till 301701 The property is located at 30 September 2026 at an industrial area and an annual rental of surrounded by various RMB14,939,346 for industrial complexes. industrial purpose. The major buildings and structures include office, workshops, warehouses of height ranging from single to 5 storeys and were completed in around 2014. They have a total gross floor area of 84,628.48 sq.m. (See Note 2 below) The property is subject to a right to use the land till 28 February 2062 for industrial purpose. (See Note 1 below)

Notes:

The right to possess the land is held by the State and the rights to use the land has been granted by the State to 天津皇朝傢俬有限公司 (Tianjin Royal Furniture Company Limited and hereinafter referred to as ‘‘Tianjin Royal’’）, a wholly-owned subsidiary of the Company, via a Realty Title Certificate known as Fang Di Jiang Jin Zi Di 122011502796 Hao（房地証津字第122011502796號）issued by the People’s Government of Tianjin

（天津市人民政府）and dated 2 February 2015, the legally interested party in the land is Tianjin Royal for a term of use till 28 February 2062 for industrial purpose.

III – 22

PROPERTY VALUATION REPORT

APPENDIX III

Pursuant to a Realty Title Certificate as mentioned in Note 1 above, the legally interested party in various buildings erected on the land having a total gross floor area of 84,628.48 sq.m. is Tianjin Royal. The area breakdowns for each of the buildings covered in the certificate are as follows:

Buildings Year of Completion (i) 2 Warehouses 2014 (ii) Office 2014 (iii) 2 Workshop 2014 (iv) Warehouse 2014 (v) Canteen 2014 (vi) Dormitory 2014 (vii) Dormitory 2014 (viii) Guard House 2014 Total	Gross Floor Area sq.m. 12,712.56 3,719.75 41,960.64 11,210.63 2,769.05 5,842.28 5,842.28 571.29
	84,628.48

According to the Legal Opinions dated 30 September 2015 and prepared by the Company’s PRC legal adviser, the following opinions are noted. And, the PRC legal adviser confirmed on 9 June 2017 that the following opinions are still valid.
(i) Tianjin Royal is the legally interested party in the land as mentioned in Note 1 above; and
(ii) Tianjin Royal has rights to occupy, assign or lease the property.

III – 23

APPENDIX III

PROPERTY VALUATION REPORT

Group III – Properties held by the Group under development in the PRC and valued on market value basis

				Amount of
				valuation in its
				existing state as at
	Property	Description and tenure	Particulars of occupancy	30 April 2017
5.	A developing hotel project	The property comprises a	As inspected and confirmed	RMB522,000,000
	known as	12-storey hotel with a	by the Instructing Party and
	Guangzhou Royal	basement erected on a	the appointed personnel of	(100% interest)
	Palace Hotel and	parcel of land having a site	the Company, as at the
	located at	area of 49,983.50 sq.m.	Valuation Date, the
	Shijinglong	(See Note 1, 2 and 9	basement and
	Jigang Village	below).	superstructure of the
	Xiancun Town		property were completed.
	Zhencheng District	The property is located at a	The interior of the
	Guangzhou City	suburban area in Xiancun	basement to Level 1 and
	Guangdong Province	Town and surrounded by	Level 6 to Level 8 were
	The PRC	farmland and village	decorated, Level 4 to Level
	511335	houses.	5 were under decoration
			and the remaining portion
		The property will have a	of the property was in bare
		total gross floor area of	shell condition.
		approximately 46,310.10
		sq.m. upon completion.
		Structure of the property
		was completed in 2015.
		(See Note 10 below).
		The property is subject to a
		right to use the land for a
		term till 10 October 2047
		for commercial purpose.

Notes:

Pursuant to a Contract for the Grant of State-owned Land Use Right No. 440183-2007-000090 dated 11 October 2007, the land use right of a parcel of land having a site area of 49,983.50 sq.m. was granted to 廣州美都酒店有限公司 (translated as Guangzhou Meidu Hotel Company Limited and hereinafter referred to as ‘‘Guangzhou Meidu’’), a wholly-owned subsidiary of the Company, by Zengcheng Land Resources and Housing Administration Bureau（增城市國土資源和房屋管理局）for a term of 40 years at a consideration of RMB22,500,000.
Pursuant to a State-owned Land Use Rights Certificate known as Zeng Guo Yong (2009) Di B0401662 Hao 增國用(2009)第B0401662號 and dated 20 January 2009, Guangzhou Meidu is the legally interested party in the land having a site area of 49,983.50 sq.m. for a term till 10 October 2047.

III – 24

APPENDIX III

PROPERTY VALUATION REPORT

The property should be used for commercial purpose and subject to the following development covenants:

Usage	Commercial
Plot ratio:	≤1.5
Site coverage:	≤30%
Building height:	≤28m
Greenery area:	≥40%
Other development parameters:	According to the relevant planning requirements

Pursuant to a Planning Permit for Using Construction Usage Land 建設用地規劃許可證 Di Zi Di 4401832008000127 Hao（地字第4401832008000127號）dated 28 November 2008, Guangzhou Meidu was permitted to develop a parcel of land having a site area of approximately 49,983.50 sq.m..
Pursuant to a Construction Project Planning Permit 建設工程規劃許可證 Jian Zi Di 440183200900487 Hao （建字第440183200900487號）dated 28 September 2009, Guangzhou Meidu was permitted to develop a building having a total gross floor area of approximately 37,499 sq.m. (above ground level) and 8,811 sq.m. (below ground level) upon completion.
Pursuant to a Permit to Commence Construction Project 建築工程施工許可證 No. 440125201103010101 dated 1 March 2011, Guangzhou Meidu was permitted to commence construction work for a total development scale of approximately 46,310 sq.m. The commencement date of the respective construction contract is on 17 November 2009 and the completion date is on 30 December 2011.
Pursuant to a Loan Agreement of Fixed Assets（固定資產借款合同）No. Xin Tang Zhi Fen 2014 Nian Gu Zi Di 0109 Hao（新塘支分2014年固字第0109號）made between Guangzhou Meidu and Industrial and Commercial Bank of China Xintang Branch dated 9 January 2014, a loan amounting RMB 100,000,000 has been granted to Guangzhou Meidu for the development cost of the property.
According to the information provided by the appointed personnel of the Company, the company name Guangzhou Meidu has changed to 廣州皇朝御苑酒店有限公司 (translated as Guangzhou Royal Palace Hotel Company Limited and hereinafter referred to as ‘‘Royal Palace’’).
Pursuant to a State-owned Land Use Rights Certificate known as Yue (2015) Guangzhou City Bu Dong Chan Quan Di 10200112 Hao 粵(2015)廣州市不動產權第10200112號, Royal Palace is the legally interested party in the land having a site area of 49,983.50 sq.m. for a term till 10 October 2047 for commercial usage. The certificate mentioned in Note 2 was therefore replaced.
Pursuant to a Construction Project Quality Surveillance Report（建設工程質量監督報告）No. Zeng Jian Zhi Jian Bao Zi 201705-003（增建質監報字201705-003）dated 22 May 2017, the structure of the property satisfied the relevant completion standards on 27 March 2015.
According to the information provided by the appointed personnel of the Company, the development cost incurred for the property was approximately RMB426,000,000; and the estimated cost to complete the interior decoration of the development was approximately RMB25,000,000 as at the Valuation Date. It is anticipated that the work will be completed by the end of 2018. It is estimated that upon completion of interior decoration, the capital value of the property will be in the region of RMB525,000,000.

III – 25

PROPERTY VALUATION REPORT

APPENDIX III

According to the Legal Opinions dated 30 September 2015 and 9 June 2017 and prepared by the Company’s PRC legal adviser, the following opinions are noted:
(i) Guangzhou Meidu renamed to Royal Palace which remains the same legal entity;
(ii) Royal Palace is the legally interested party in the land as mentioned in Notes 1 and 2 above;
(iii) Royal Palace has rights to develop commercial property, to occupy, assign or lease the property within the unexpired term without paying additional premium;
(iv) the property has obtained the relevant construction permits as mentioned in Notes 4 to 6 above, and the Construction Project Quality Surveillance Report as mentioned in Note 10 above shown the structure of the development met the completion standards in 2015; and
(v) subject to complying with the relevant procedures, Royal Palace can apply to obtain the relevant Realty Title Certificate.

III – 26

APPENDIX III

PROPERTY VALUATION REPORT

Property

Description and tenure

Particulars of occupancy

Amount of valuation in its existing state as at 30 April 2017

A developing commercial The property comprises a development located at parcel of land having a site Wuwei Road area of 4,900.27 sq.m. Qunlixin District Daoli District The property is located at Harbin City an urban area. Heilongjiang Province The PRC The property will have a 150070 total gross floor area of approximately 7,412 sq.m. upon completion. As advised by the appointed personnel of the Company, the structure of the property was completed in 2017. (See Note 2 below)

As inspected and confirmed RMB130,800,000 by the Instructing Party and the appointed personnel of (100% interest) the Company, as at the Valuation Date, the superstructure of the property was completed and the interior of the property was mostly in bare shell condition.

The property is subject to a right to use the land for a term till July 2049 for commercial usage. (See Note 1 below)

Notes:

Pursuant to a State-owned Land Use Rights Certificate known as Ha Gou Yong 2010 Di 2000138 Hao（哈國用(2010)第2000138號 date 8 January 2010, 哈爾濱皇朝傢俬有限公司 (translated as Harbin Royal Furniture Company Limited and hereinafter referred to as ‘‘Harbin Royal’’), an indirect wholly-owned subsidiary of the Company, is the legally interested party in the land having a site area of 4,900.27 sq.m. for a term till July 2049 for commercial usage.
Pursuant to a Construction Project Planning Permit 建設工程規劃許可證 Ha Gui Cheng (Qun Li) Jian Zi Di [2010] 21 Hao（哈規城（群力）建字第[2010]21號） dated 5 August 2010, Harbin Royal was permitted to develop a building having a total gross floor area of approximately 7,412.14 sq.m. upon completion.
Pursuant to a Permit to Commence Construction Project 建築工程施工許可證 No. 2301022010111119-01 （編號2301022010111119-01）dated 15 November 2010, Harbin Royal was permitted to commence construction work for a total development scale of approximately 7,412.14 sq.m. The commencement date of the respective construction contract is in November 2010.

III – 27

PROPERTY VALUATION REPORT

APPENDIX III

According to the information provided by the appointed personnel of the Company, the development cost incurred for the property was approximately RMB117,000,000; and the estimated cost to complete the interior decoration of the development was approximately RMB2,000,000 as at the Valuation Date. It is anticipated that the work will be completed by the end of 2018. It is estimated that upon completion of interior decoration, the capital value of the property will be in the region of RMB134,100,000.
According to the Legal Opinions dated 30 September 2015 and 9 June 2017 and prepared by the Company’s PRC legal adviser, the following opinions are noted:
(i) Harbin Royal is the legally interested party in the land as mentioned in Note 1 above;
(ii) Harbin Royal has rights to develop commercial property, to occupy, assign and lease the property within the unexpired term without paying additional premium;
(iii) the property has obtained the relevant construction permits as mentioned in Notes 2 and 3 above, and the structure of the property was legally completed; and
(iv) Harbin Royal is applying for the relevant completion certificate and subject to complying with the relevant procedures, Harbin Royal can apply to obtain the relevant Realty Title Certificate.

III – 28

GENERAL INFORMATION

APPENDIX IV

RESPONSIBILITY STATEMENT

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

The Directors jointly and severally accept full responsibility for the accuracy of information contained in this circular and confirm, having made all reasonable inquiries, that to the best of their knowledge, opinions expressed in this circular have been arrived at after due and careful consideration and there are no other facts not contained in this circular, the omission of which would make any statement in this circular misleading.

SHARE CAPITAL

Authorised and issued capital

The issued share capital of the Company (i) as at the Latest Practicable Date; (ii) immediately after completion of the Open Offer (assuming no Options have been exercised); and (iii) immediately after completion of the Open Offer (assuming all Options (other than those held by the Underwriter) have been exercised) is illustrated below:

(a) as at the Latest Practicable Date

Authorised: HK$ 2,000,000,000 Shares 200,000,000.0 Issued and fully paid: 1,762,377,017 Shares 176,237,701.7

IV – 1

GENERAL INFORMATION

APPENDIX IV

(b)	immediately after completion of the Open Offer (assuming the increase of authorised share capital has been approved at the EGM and no Options have been exercised) Authorised: HK$ 4,000,000,000 Shares 400,000,000.0 Issued and fully paid: 1,762,377,017 Shares at the Latest Practicable Date 176,237,701.7 220,297,127 Offer Shares to be issued pursuant to the Open Offer (assuming no Options have been exercised) 22,029,712.7 1,982,674,144 Shares upon completion of the Open Offer 198,267,414.4	immediately after completion of the Open Offer (assuming the increase of authorised share capital has been approved at the EGM and no Options have been exercised) Authorised: HK$ 4,000,000,000 Shares 400,000,000.0 Issued and fully paid: 1,762,377,017 Shares at the Latest Practicable Date 176,237,701.7 220,297,127 Offer Shares to be issued pursuant to the Open Offer (assuming no Options have been exercised) 22,029,712.7 1,982,674,144 Shares upon completion of the Open Offer 198,267,414.4
		176,237,701.7 22,029,712.7
		198,267,414.4

(c) immediately after completion of the Open Offer (assuming the increase of authorised share capital has been approved at the EGM and all Options (other than those held by the Underwriter) have been exercised)

Authorised:
4,000,000,000
Shares
Issued and fully paid:
1,762,377,017
Shares at the Latest Practicable Date
101,155,360
Shares to be issued upon exercise in full of all
Options (other than those held by the
Underwriter)
232,941,547
Offer Shares to be issued pursuant to the Open
Offer (assuming all Options (other than those
held by the Underwriter) have been exercised)
2,096,473,924
Shares upon completion of the Open Offer

HK$ 400,000,000.0

176,237,701.7
10,115,536.0
23,294,154.7

209,647,392.4

IV – 2

GENERAL INFORMATION

APPENDIX IV

Since 31 December 2016, the date to which the latest audited consolidated financial statements of the Company were made up, and up to the Latest Practicable Date, there had not been any issue of new Shares.

All the issued Shares rank pari passu with each other in all respects including the rights as to voting, dividends and return of capital. The Offer Shares to be allotted and issued will, when issued and fully paid, rank pari passu in all respects with the then existing Shares. Holders of the Offer Shares will be entitled to receive all future dividends and distributions which are declared, made or paid on or after the date of allotment and issue of the Offer Shares.

Share Options

As at the Latest Practicable Date, the Company had the following outstanding Options:

				No. of Shares
				which may fall to
				be issued upon
	Exercise price	Exercisable	period	exercise of the
Date of grant	per Share	From	To	Options
	HK$
20 July 2009	0.41	20 July 2010	19 July 2019	7,391,749
7 September 2012	0.73	7 September 2013	6 September 2022	4,492,611
2 January 2013	0.79	2 January 2014	1 January 2023	19,300,000
2 January 2013	0.79	2 January 2015	1 January 2023	19,300,000
14 April 2014	0.372	17 April 2015	16 April 2024	3,000,000
22 June 2016	0.32	22 June 2017	21 June 2026	69,000,000

Notes:

As at the Latest Practicable Date, certain Options to subscribe for 21,329,000 new Shares were held by the Underwriter.
Upon the Open Offer becoming unconditional, the exercise price and number of the outstanding Share Options will be subject to adjustments. Further announcement will be made in this regard.

IV – 3

GENERAL INFORMATION

APPENDIX IV

Save as disclosed above, the Company had no outstanding convertible securities, options, warrants or derivatives in issue which confer any right to subscribe for, convert or exchange into Shares as at the Latest Practicable Date. Save as set out above, no share or loan capital of the Group had been put under option or agreed conditionally or unconditionally to be put under option as at the Latest Practicable Date.

MARKET PRICES

The table below shows the closing prices of the Shares on the Stock Exchange on (i) the last trading day of each of the calendar months during the period commencing six months preceding the date of the Announcement and ending on the Latest Practicable Date; (ii) the Last Trading Day; and (iii) the Latest Practicable Date:

	Closing price
Date	per Share
	HK$
30 November 2016	0.46
30 December 2016	0.47
27 January 2017	0.495
28 February 2017	0.5
31 March 2017	0.55
28 April 2017	0.495
9 May 2017 (the Last Trading Day)	0.5
31 May 2017	0.465
9 June 2017 (the Latest Practicable Date)	0.45

The highest and lowest closing prices of the Shares as quoted on the Stock Exchange during the period commencing six months prior to 12 May 2017 (being the date of the Announcement) up to and including the Latest Practicable Date were HK$0.42 on 23 December 2016 and HK$0.59 on 20 March 2017 respectively.

IV – 4

GENERAL INFORMATION

APPENDIX IV

DISCLOSURE OF INTERESTS

Directors and chief executive of the Company

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

	Name of company
	in which interests				Approximate %
	or short positions		Class of Shares	Number of	of issued share
Name of Director	were held	Nature of interests	were held	shares	capital
The Underwriter (L)	The Company	Beneficial owner	ordinary shares	126,512,769	7.18%
(Note 1)
	The Company	Interest of wholly	ordinary shares	395,609,042	22.45%
		owned corporations
Mr. Chen Hao (L)	The Company	Beneficial owner	ordinary shares	20,119,317	1.14%
(Note 2)
Mr. Chan Wing Kit (L)	The Company	Beneficial owner	ordinary shares	15,001,579	0.85%
(Note 3)
	The Company	Interest of wholly	ordinary shares	34,959	0.00%
		owned corporation
	The Company	Interest of spouse	ordinary shares	1,510,000	0.09%
Dr. Donald H.	The Company	Beneficial owner	ordinary shares	5,263,547	0.30%
Straszheim (L)
(Note 4)
Mr. Lau Chi Kit (L)	The Company	Beneficial owner	ordinary shares	5,260,000	0.30%
(Note 5)
Mr. Yue Man Yiu	The Company	Beneficial owner	ordinary shares	5,260,000	0.30%
Matthew (L)
(Note 6)

(L) denotes long position

IV – 5

GENERAL INFORMATION

APPENDIX IV

Notes:

105,183,769 Shares and 21,329,000 Options are directly beneficially owned by the Underwriter. Among 21,329,000 Options, 15,000,000 Options’ exercise price is HK$0.32 per Share with exercise period from 22 June 2017 to 21 June 2026, 3,164,500 Options’ exercise price is HK$0.79 per Share with exercise period from 2 January 2015 to 2 January 2023, and 3,164,500 Options’ exercise price is HK$0.79 per Share with exercise period from 2 January 2014 to 2 January 2023. 185,840,120 Shares are held by Crisana International Inc. and 209,768,922 Shares are held by Charming Future Holdings Limited, both are companies wholly and beneficially owned by the Underwriter, who is deemed to be interested in the aggregate of 395,609,042 Shares held by these companies.
The 2,119,317 Shares and 18,000,000 Options are directly beneficially owned by Mr. Chen Hao. Among 18,000,000 Options, 15,000,000 Options’ exercise price is HK$0.32 per Share with exercise period from 22 June 2017 to 21 June 2026, and 3,000,000 Options’ exercise price is HK$0.372 per Share with exercise period from 17 April 2015 to 16 April 2024.
Mr. Chan Wing Kit was interested in 36,538 Shares of the Company of which 1,579 Shares were held by him personally and 34,959 Shares were held by World Partner Development Limited, a company whose entire issued share capital is owned by Mr. Chan Wing Kit. He was also deemed to be interested in 1,510,000 Shares of the Company held by his spouse. Also, 15,000,000 Options are directly beneficially owned by Mr. Chan Wing Kit, which exercise price is HK$0.32 per Share with exercise period from 22 June 2017 to 21 June 2026.
5,263,547 Options are directly beneficially owned by Dr. Donald H. Strazheim, among which, 4,000,000 Options’ exercise price is HK$0.32 per Share with exercise period from 22 June 2017 to 21 June 2026, and 1,263,547 Options’ exercise price is HK$0.41 per Share with exercise period from 20 July 2010 to 19 July 2019.
5,260,000 Options are directly beneficially owned by Mr. Lau Chi Kit, among which, 4,000,000 Options’ exercise price is HK$0.32 per Share with exercise period from 22 June 2017 to 21 June 2026, 630,000 Options’ exercise price is HK$0.79 per Share with exercise period from 2 January 2015 to 2 January 2023, and 630,000 Options’ exercise price is HK$0.79 per Share with exercise period from 2 January 2014 to 2 January 2023.
5,260,000 Options are directly beneficially owned by Mr. Yue Man Yiu Matthew, among which, 4,000,000 Options’ exercise price is HK$0.32 per Share with exercise period from 22 June 2017 to 21 June 2026, 630,000 Options’ exercise price is HK$0.79 per Share with exercise period from 2 January 2015 to 2 January 2023, and 630,000 Options’ exercise price is HK$0.79 per Share with exercise period from 2 January 2014 to 2 January 2023.

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

IV – 6

GENERAL INFORMATION

APPENDIX IV

Persons holding 5% or more shareholding

As at the Latest Practicable Date, so far as was known to the Directors and chief executive of the Company, the following persons (other than a Director and chief executive of the Company) had an interest or short position in the Shares or underlying Shares which would fall to be disclosed under the provisions of Divisions 2 and 3 of Part XV of the SFO or were directly or indirectly interested in 10% or more of the issued voting shares of any other member of the Group or any options in respect of such capital as follows:

	Name of company
	in which interests			Approximate
	or short positions		Number of	% of issued
Name of Shareholders	were held	Nature of interests	shares	share capital
Crisana International Inc.	The Company	Beneficial owner	185,840,120	10.54%
(Note 1)
Charming Future Holdings	The Company	Beneficial owner	209,768,922	11.90%
Limited (Note 2)
Great Diamond	The Company	Beneficial owner	229,340,000	13.01%
Developments
Limited (Note 3)

Notes:

Crisana International Inc. is wholly owned by the Underwriter, a Director of the Company.
Charming Future Holdings Limited is wholly owned by the Underwriter, a Director of the Company.
Great Diamond Developments Limited is owned by Mr. Wong Shu Yui (as to 35%), Ms. Chan Siu Ying (as to 25%), Mr. Wong Kai Kei (as to 20%) and Mr. Wong Yim (as to 20%).

Save as disclosed, as at the Latest Practicable Date, so far as was known to the Directors and chief executive of the Company, no other persons (other than a Director and chief executive of the Company) had an interest or short positions in the Shares and underlying Shares which would fall to be disclosed under the provisions of Divisions 2 and 3 of Part XV of the SFO or were directly or indirectly interested in 10% or more of the issued voting shares of any other member of the Group or any options in respect of such capital.

IV – 7

GENERAL INFORMATION

APPENDIX IV

ADDITIONAL DISCLOSURE OF INTERESTS AND DEALINGS IN SECURITIES

(a) save for the 500,792,811 Shares and Options to subscribe for 21,329,000 Shares beneficially owned by the Underwriter and his controlled corporations, none of the Underwriter and parties acting in concert with him owns, controls or has direction over any Shares and right over Shares, outstanding options, warrants, or any securities that are convertible into Shares or any derivatives in respect of securities in the Company as at the Latest Practicable Date.
(b) Save for entering into the Underwriting Agreement, none of the Underwriter and parties acting in concert with him had acquired or disposed of any voting rights in the Company or had dealt in any relevant securities (as defined in Note 4 to Rule 22 of the Takeovers Code) in the Company in the six months prior to 12 May 2017 (being the date of the Announcement) and ending on the Latest Practicable Date.
(c) As at the Latest Practicable Date, there was no agreement, arrangement or understanding (including any compensation arrangement) between the Underwriter or any of the parties acting in concert with him and other persons in relation to the transfer, charge or pledge of the Shares that may be allotted and issued to the Underwriter or parties acting in concert with him under the Open Offer or as a result of the obligation under the Underwriting.
(d) As at the Latest Practicable Date, no person with whom the Underwriter or parties acting in concert with him had any arrangement of the kind referred to in Note 8 to Rule 22 of the Takeovers Code owned or controlled any relevant securities (as defined in Note 4 to Rule 22 of the Takeovers Code) in the Company.
(e) No person with whom the Underwriter or parties acting in concert with him had an arrangement of the kind referred to in Note 8 to Rule 22 of the Takeovers Code with the Company had dealt for value in the relevant securities (as defined in Note 4 to Rule 22 of the Takeovers Code) in the Company in the six months prior to 12 May 2017 (being the date of the Announcement) and ending on the Latest Practicable Date.
(f) As at the Latest Practicable Date, save for the Underwriting Agreement and save for the Underwriter, no person had any arrangement of the kind referred to in Note 8 to Rule 22 of the Takeovers Code with the Company or with any person who is an associate of the Company by virtue of classes (1), (2), (3) and (4) of the definition of ‘‘associate’’ in the Takeovers Code and none of them had dealt for value in any securities of the Company for the period commencing six months prior to 12 May 2017 (being the date of the Announcement) and ending on the Latest Practicable Date.

IV – 8

GENERAL INFORMATION

APPENDIX IV

(g) As at the Latest Practicable Date, none of (i) the subsidiaries of the Company; (ii) the pension fund of the Company or of a subsidiary of the Company; and (iii) the advisers to the Company (as specified in class (2) of the definition of ‘‘associate’’ under the Takeovers Code) had any interest in the Shares, convertible securities, warrants, options or derivatives of the Company and none of them had dealt for value in any securities of the Company for the period commencing six months prior to 12 May 2017 (being the date of the Announcement) and ending on the Latest Practicable Date.
(h) As at the Latest Practicable Date, no Shares, convertible securities, warrants, options or derivatives of the Company were managed on a discretionary basis by fund managers connected with the Company.
(i) No fund managers (other than exempt fund managers) (if any) connected with the Company had dealt for value in the relevant securities (as defined in Note 4 to Rule 22 of the Takeovers Code) in the Company from 12 May 2017 (being the date of the Announcement) and ending on the Latest Practicable Date.
(j) As at the Latest Practicable Date, no person had irrevocably committed themselves to vote for or against the resolutions to be proposed at the EGM to approve the Open Offer, the Underwriting Agreement and the transactions contemplated thereunder, the Whitewash Waiver and the increased share capital.
(k) No benefit will be given to any Director as compensation for loss of office in any member of the Group or otherwise in connection with the Open Offer and/or the Whitewash Waiver.
(l) As at the Latest Practicable Date, save for the Underwriting Agreement, there was no agreement, arrangement or understanding (including any compensation arrangement) existed between (i) the Company, the Directors, recent Directors, Shareholders or recent Shareholders; and (ii) the Underwriter or parties acting in concert with him which is conditional on or dependence upon the outcome of the Open Offer and/or the Whitewash Waiver or otherwise connected with the Open Offer and/or the Whitewash Waiver.

IV – 9

GENERAL INFORMATION

APPENDIX IV

(m) As at the Latest Practicable Date, (i) the Underwriter (an executive Director, the Chairman and the Chief Executive Officer of the Company and a substantial Shareholder) was beneficially interested in 522,121,811 Shares (including Options to subscribe 21,329,000 Shares), had undertaken to accept 13,147,971 Offer Shares to be allotted to him on an assured allotment basis in his capacity as a Shareholder, and had agreed to underwrite not less than 207,149,156 and not more than 219,793,576 Offer Shares pursuant to the Underwriting Agreement; and (ii) Mr Chan Wing Kit, an executive Director, was beneficially interested in 1,546,538 Shares and Options to subscribe for 15,000,000 Shares and who was involved in negotiations of the Underwriting Agreement on behalf of the Company. Accordingly, the Underwriter and his controlled corporations, and Mr. Chan Wing Kit are prohibited to vote at the EGM pursuant to the Takeovers Code. As at the Latest Practicable Date, Mr. Chen Hao, being an executive Director, owned 2,119,317 Shares and 18,000,000 Options. Dr. Donald H. Straszheim, being an independent nonexecutive Director, owned 5,263,547 Options; Mr. Lau Chi Kit, being an independent non-executive Director, owned 5,260,000 Options; and Mr. Yue Man Yiu Matthew, being an independent nonexecutive Director, owned 5,260,000 Options. (A) Mr. Chen Hao had intention to vote for the resolutions to be proposed at the EGM and to accept the assured entitlements under the Open Offer. (B) each of Dr. Donald H. Straszheim and Mr. Lau Chi Kit (should they become Shareholders) indicated that they had intention to vote for the resolutions to be proposed at the EGM and to accept the assured entitlements under the Open Offer. (C) Mr. Yue Man Yiu Matthew (should he become a Shareholder) indicated that he had intention to vote for the resolutions to be proposed at the EGM and not to accept the assured entitlements under the Open Offer. The Directors consider the terms of the Open Offer are fair and reasonable and in the interests of the Company and the Shareholders as a whole. Nevertheless, it is each of the relevant Director (excluding the Underwriter)’s personal investment decision not to accept the assured entitlements under the Open Offer. Save as disclosed in this paragraph (m), there were no other Directors who held, owned or controlled any relevant securities (as defined in Note 4 to Rule 22 of the Takeovers Code) of the Company as at the Latest Practicable Date.
(n) As at the Latest Practicable Date, there were no relevant securities (as defined in Note 4 to Rule 22 of the Takeovers Code) of the Company which the Company or the Directors had borrowed or lent.
(o) As at the Latest Practicable Date, save for the Underwriting Agreement, there was no material contract entered into by the Underwriter in which any Director had a material personal interest.
(p) As at the Latest Practicable Date, save as set out in the Underwriting Agreement and save as mentioned in paragraph (m) above, the Board had not received any information from any substantial Shareholders of their intention to take up the Offer Shares.

IV – 10

GENERAL INFORMATION

APPENDIX IV

DIRECTORS’ INTERESTS IN COMPETING BUSINESS

As at the Latest Practicable Date, none of the Directors or their respective associates had any direct or indirect interest in a business which competes or may compete with the business of the Group.

SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had service contract with the Company or any or its subsidiaries or associated companies (i) which (including both continuous and fixed term contract) had been entered into or amended within 6 months prior to 12 May 2017 (being the date of the Announcement); (ii) which were continuous contracts with a notice period of 12 months or more; (iii) which were fixed term contacts with more than 12 months to run irrespective of the notice period; or (iv) which were not expiring or determinable by the Group within one year without payment of compensation (other than statutory compensation).

INTERESTS IN THE GROUP’S ASSETS OR CONTRACTS OR ARRANGEMENT SIGNIFICANT TO THE GROUP

As at the Latest Practicable Date, none of the Directors had any interest in any assets which had been since 31 December 2016, acquired or disposed of by or leased to, any member of the Group, or were proposed to be acquired or disposed of by or leased to, any member of the Group.

As at the Latest Practicable Date, save for the Underwriting Agreement, none of the Directors was materially interested in any contract or arrangement entered into by any member of the Group which was subsisting as at the Latest Practicable Date and which was significant in relation to the business of the Group.

MATERIAL CONTRACTS

Save for the Underwriting Agreement, none of the Directors was materially interested in any contract or arrangement entered into by any member of the Group which was subsisting after the date two years immediately preceding the date of the Announcement and up to the Latest Practicable Date and which was significant in relation to the business of the Group.

IV – 11

GENERAL INFORMATION

APPENDIX IV

LITIGATION

So far as the Company is aware, as at the Latest Practicable Date, no member of the Group was engaged in any litigation or claim of material importance and no litigation or claim of material importance is known to the Directors to be pending or threatened by or against any member of the Group.

EXPERTS AND CONSENTS

(a) The following are the qualifications of the experts who have given their opinions and advice which are included in this circular:

Name Qualifications

Ernst & Young Certified public accountants

LCH (Asia-Pacific) an independent professional surveyor Surveyors Limited
Nuada Limited
a corporation licensed to carry out Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities under the SFO
(b) None of Nuada Limited, Ernst & Young and LCH (Asia-Pacific) Surveyors Limited has any shareholding, directly or indirectly, in any member of the Group or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.
(c) Each of Nuada Limited, LCH (Asia-Pacific) Surveyors Limited and Ernst & Young has given and has not withdrawn its written consent to the issue of this circular with the inclusion of the references to its name and/or its opinion in the form and context in which they are included.
(d) None of Nuada Limited, Ernst & Young and LCH (Asia-Pacific) Surveyors Limited had any direct or indirect interest in any asset which had been acquired, or disposed of by, or leased to any member of the Group, or was proposed to be acquired, or disposed of by, or leased to any member of the Group since 31 December 2016, the date to which the latest published audited financial statements of the Group were made up.

EXPENSES

The expenses in connection with the Open Offer, including financial advisory fees, printing, registration, legal and accounting fees, are estimated to be approximately HK$1,400,000 and will be payable by the Company.

IV – 12

GENERAL INFORMATION

APPENDIX IV

PARTICULARS OF DIRECTORS AND SENIOR MANAGEMENT OF THE COMPANY

Biography of Directors and senior management of the Company

Set out below are the brief biographical details of the Directors of the Company:

Executive Directors

(a) Mr. Tse Kam Pang, aged 62, is the Chairman and the Chief Executive Officer of the Company. Prior to the founding of the Group, He previously held the position of the Deputy Managing Director in a public listed company in Hong Kong. He has over 27 years of experience in the international trade and China trade business.
(b) Mr. Chen Hao, aged 46, joined the main subsidiary of the Company in China in 2000 and is responsible for the marketing and manufacturing operation of the Company’s major subsidiaries in China. He has extensive experience in enterprise management mainly focusing in marketing and manufacturing.
(c) Mr. Tse Hok Kan, aged 33, holds a Master of Science in Accounting from The Hong Kong Polytechnic University and a Bachelor of Business Administration – joint major in accounting and finance from Simon Fraser University. He is a director of Hong Kong Furniture Association. He had worked for an international accounting firm before joining the Company in 2010. He has worked in the production department and is now taking a leading role in the development and marketing department of the Company.
(d) Mr. Chan Wing Kit, aged 45, holds a bachelor of commerce degree from Monash University in Australia. He has over fifteen years of business experience in overseas and in China. He also has experience in financial work. He is an associate member of the Hong Kong Institute of Certified Public Accountants and a certified practising accountant of CPA Australia. He was the financial controller and company secretary of Chitaly Furniture Limited, a subsidiary of the Company engaging in investment holding and trading from October 2001 to May 2011. He was the export manager of the Company from May 2011 to September 2013. He was the company secretary and financial controller of the Company from October 2001 to May 2011. He served as an executive director and chief executive officer of Jia Meng Holdings Limited (stock code: 8101), a company which shares are listed on the Growth Enterprise Market of The Hong Kong Stock Exchange Limited, since its listing on 15 October 2013 until 26 January 2016. He joined the Group again in 2016.

IV – 13

GENERAL INFORMATION

APPENDIX IV

Independent non-executive Directors

(e) Dr. Donald H. Straszheim, aged 75, has been an independent non-executive Director of the Company since September 2004. He is the Senior Managing Director and Head of China Research for Evercore ISI, a boutique broker dealer headquartered in New York City, with a specialized research, sales and trading capability primarily serving large global institutional money managers. He holds a B.S., M.S. and Ph.D. from Purdue University, was a visiting Scholar at UCLA’s Anderson Graduate School of Management, and a regular writer and commentator on economic, business and financial issues in the global media, and is a recognized China specialist. He has testified before the U.S. Congress on various economic issues. For many years he was Managing Principal of Straszheim Global Advisors, Inc., an economics, business, financial markets and public policy consultancy founded in 2001 with a focus on China, with offices in America and China. From 1985 to 1997, Dr. Straszheim was Chief Economist of Merrill Lynch and Co. (‘‘Merrill Lynch’’), in New York, guiding its worldwide economic research effort and serving as its primary economic spokesperson. He has also been the Vice Chairman of Roth Capital Partners, Chief Economist at Wharton Econometrics at the University of Pennsylvania, and Chief Economist of Weyerhaeuser Company.
(f) Mr. Lau Chi Kit, aged 72, has been an independent non-executive Director of the Company since September 2011. He retired from The Hong Kong and Shanghai Banking Corporation Limited (‘‘HSBC’’) in December 2000 after more than 35 years of service. Among the major positions in HSBC, he was the assistant general manager and head of Personal Banking Hong Kong and assistant general manager and head of Strategic Implementation, Asia-Pacific Region. He is a fellow of the Hong Kong Institute of Bankers (‘‘Institute’’). He was the chairman of the Institute’s Executive Committee (from January 1999 to December 2000) and is currently the honorary advisor of the Institute’s Executive Committee. He served as a member on a number of committees appointed by the Government of the Hong Kong Special Administration Region, including the Advisory Council on the Environment (from October 1998 to December 2001), the Advisory Committee on Human Resources Development in the Financial Services Sector (from June 2000 to May 2001), the Corruption Prevention Advisory Committee of the Independent Commission Against Corruption (from January 2000 to December 2003), the Environment and Conservation Fund Committee (from August 2000 to October 2006), the Innovation and Technology Fund (Environment) Projects Vetting Committee (from January 2000 to December 2004) and the Law Reform Commission’s Privacy Sub-committee (from February 1990 to March 2006). He also served as chairman of the Business Environment Council Limited (from September 1998 to December 2001). Currently, he is an executive director of Chinlink International Holdings Limited (stock code: 997), an independent non-executive director of Highlight China IoT International Limited (stock code: 1682), Century Sunshine Group Holdings Limited (stock code: 509), Leoch International Technology Limited (stock code: 842) and Janco Holdings Limited (stock code: 8035).

IV – 14

GENERAL INFORMATION

APPENDIX IV

(g) Mr. YUE Man Yiu Matthew, aged 55, has been an independent non-executive Director of the Company since November 2011. He has been the chief financial officer of Ko Shi Wai Holdings Limited since September 2009. He has been a director of ChinaLink Capital Management Limited since September 2009 and was the chief financial officer of the same firm from August 2005 to August 2009. He is currently an independent non-executive director of two Hong Kong listed companies, namely, Asia Cassava Resources Holdings Limited (Stock Code: 841) and China Suntien Green Energy Corporation Limited (Stock Code: 956). He graduated from the Chinese University of Hong Kong with a bachelor degree in business administration in 1984. He is a fellow of the Association of Chartered Certified Accountants, a fellow of the Hong Kong Institute of Certified Public Accountants and a member of the Hong Kong Securities Institute. He has extensive experience in financial control, project analysis and management functions and has the related financial expertise.

Chief Financial Officer

(a) Mr. So Alan Wai Shing, aged 50, was appointed as Chief Financial Officer on 17 August 2016. He holds a bachelor’s degree in business majoring accounting from the Edith Cowan University, Western Australia, Australia, in February 1993, and a master’s degree in business administration from Open University of Hong Kong in December 2003 and is a practicing member of the Hong Kong Institute of Certified Public Accountants. He has over 24 years of experience in audit and accountancy work. Prior to joining the Group, he was also the Chief Financial Officer and Company Secretary of Huazhang Technology Holding Limited (stock code: 8276), a company which was listed on GEM, (a company now listed on the main board of the Stock Exchange with stock code of 1673) for the period from May 2012 to February 2014.

Company secretary

(a) Mr. Tse Sing Chau, aged 45, is the financial controller and Company Secretary of the Company. He is responsible for the financial management, accounting and company secretarial duties of the Group. He is a member of the Hong Kong Institute of Certified Public Accountants and holds a bachelor degree in commence. He has over 18 years financial management, accounting and auditing experience in Hong Kong listed companies and international accounting firms. He joined the Group in 2015.

IV – 15

GENERAL INFORMATION

APPENDIX IV

CORPORATE INFORMATION

Registered office Century Yard Cricket Square Hutchins Drive P.O. Box 2681GT Grand Cayman Cayman Islands British West Indies Head office and principal Rooms 607, 6/F place of business Tsim Sha Tsui Centre 66 Mody Road Tsim Sha Tsui East Kowloon, Hong Kong Auditors Ernst & Young Certified Public Accountants 22/F Citic Tower 1 Tim Mei Avenue Central Hong Kong Principal bankers The Hongkong and Shanghai Banking Corporation Limited 1 Queen’s Road Central, Hong Kong Bank of Communications Co., Ltd 20 Pedder Street, Central, Hong Kong Principal share registrar and SMP Partners (Cayman) Limited transfer agent Royal Bank House 3rd Floor, 24 Shedden Road P.O. Box 1586, Grand Cayman KY1-1110, Cayman Islands Hong Kong branch share Tricor Tengis Limited registrar and transfer office Level 22 Hopewell Centre 183 Queen’s Road East Hong Kong Authorised representatives Tse Kam Pang / Tse Sing Chau Website of the Company www.hkroyal.com

IV – 16

GENERAL INFORMATION

APPENDIX IV

PARTIES INVOLVED IN THE OPEN OFFER

Underwriter Mr. Tse Kam Pang House 93, Royal Castle 23 Pik Sha Road Pik Sha Wan Sai Kung, New Territories Hong Kong Principal member of parties Crisana International Inc. acting in concert with Level 1, Palm Grove House the Underwriter Wickham’s Cay 1, Road Town Tortola, British Virgin Islands Charming Future Holdings Limited Portcullis TrustNet Chambers P.O. Box 3444, Road Town, Tortola British Virgin Islands

Legal advisers to As to Hong Kong Law the Company Jeffrey Mak Law Firm 1309, Prince’s Building 10 Chater Road, Central Hong Kong

As to Cayman Law Conyers Dill & Pearman 29th Floor One Exchange Square 8 Connaught Place Central, Hong Kong Independent Financial Adviser Unit 1805-08 18/F, New Victory House 93-103 Wing Lok Street Sheung Wan Hong Kong

DOCUMENTS AVAILABLE FOR INSPECTION AND DOCUMENTS ON DISPLAY

Copies of the following documents are available for inspection (i) during normal business hours on any week day, except Saturdays, Sundays and public holidays at the principal place of business of the Company in Hong Kong at Room 607, 6/F Tsim Sha Tsui Centre, 66 Mody Road,

IV – 17

GENERAL INFORMATION

APPENDIX IV

Tsim Sha Tsui East, Kowloon, Hong Kong; (ii) on the website of the SFC at www.sfc.hk; and (iii) on the Company’s website at http://royale.todayir.com/en/index.php from the date of this circular up to and including the close of the Open Offer:

(a) the memorandum of association and articles of association of the Company;
(b) the annual reports of the Company containing audited consolidated financial statements of the Company for the year ended 31 December 2015 and 2016;
(c) the letter from the Board, the text of which is set out in the section headed ‘‘Letter from the Board’’ in this circular;
(d) the letter from the Independent Financial Adviser containing its advice to the Independent Board Committee and the Independent Shareholders, the text of which is set out in the section headed ‘‘Letter from the Independent Financial Adviser’’ in this circular;
(e) the letter of recommendation from the Independent Board Committee to the Independent Shareholders, the text of which is set out in the section headed ‘‘Letter from the Independent Board Committee’’ in this circular;
(f) the letter from Ernst & Young in respect of the unaudited pro forma financial information following completion of the Open Offer, the text of which is set out in appendix II to this circular;
(g) the property valuation report from LCH (Asia-Pacific) Surveyors Limited, the text of which is set out in appendix III to this circular;
(h) the written consents referred to in the paragraph headed ‘‘Experts and consents’’ in this appendix;
(i) the material contracts referred to in the paragraph headed ‘‘Material contracts’’ in this appendix;
(j) Underwriting Agreement;
(k) this circular.

MISCELLANEOUS

In the event of inconsistency, the English text of this circular and the accompanying form of proxy shall prevail over the Chinese text.

IV – 18

NOTICE OF EGM

==> picture [103 x 53] intentionally omitted <==

ROYALE FURNITURE HOLDINGS LIMITED 皇朝傢俬控股有限公司[*]

(Incorporated in the Cayman Islands with limited liability)

(Stock code: 1198)

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that the extraordinary general meeting of Royale Furniture Holdings Limited (the ‘‘Company’’) will be held at the Room 607, 6/F, Tsim Sha Tsui Centre, 66 Mody Road, Tsim Sha Tsui East, Kowloon, Hong Kong on Friday, 30 June 2017 at 10:00 a.m. to consider and, if thought fit, approve, with or without modifications, the following resolutions:

ORDINARY RESOLUTIONS

‘‘THAT,
(a) the underwriting agreement dated 9 May 2017 and entered into between Royale Furniture Holdings Limited (the ‘‘Company’’) and Mr. Tse Kam Pang (the ‘‘Underwriter’’) (the ‘‘Underwriting Agreement’’, a copy of which has been produced to this meeting marked ‘‘A’’ and signed by the chairman of this meeting for the purpose of identification) and any transaction contemplated thereunder be and are hereby approved, confirmed and ratified;
(b) any director of the Company (the ‘‘Directors’’) be and is hereby authorised to take such actions and execute such documents and do all such acts and things incidental to the Underwriting Agreement as he may consider necessary, expedient and appropriate to amend the Underwriting Agreement and to give effect to and implement the terms of the Underwriting Agreement and any transactions as may be contemplated under the Underwriting Agreement.’’
For identification purposes only

EGM – 1

NOTICE OF EGM

‘‘THAT subject to the passing of the resolution numbered 1 above and conditional upon the fulfilment of the conditions set out in the Underwriting Agreement and the Underwriting Agreement not being terminated in accordance with the terms thereof:
(a) the allotment and issue by way of open offer (the ‘‘Open Offer’’) of not less than 220,297,127offer shares of HK$ 0.10 each in the share capital (the ‘‘Shares’’) of the Company (the ‘‘Offer Shares’’) and not more than 232,941,547 Offer Shares at the subscription price of HK$0.455 per Offer Share to the qualifying shareholders (the ‘‘Qualifying Shareholders’’) of the Company whose names appear on the register of members of the Company on 12 July 2017 (or such other date as may be agreed between the Company and the Underwriter in writing for the determination of the entitlements under the Open Offer) (the ‘‘Record Date’’) (excluding those Oversea shareholders whom the directors, after making relevant enquires pursuant to Rule 13.36(2)(a) of the Rules Governing the Listing of Securities on Main Board of the Stock Exchange (the ‘‘Listing Rules’’), consider it necessary or expedient to exclude from the Open Offer on account either of the legal restrictions under the laws of the relevant place or the requirements of any relevant regulatory body or stock exchange in that place (the ‘‘Excluded Shareholders’’)) on the basis of one (1) Offer Share for every eight (8) Shares held on the Record Date and otherwise pursuant to and subject to the terms and conditions set out in the Underwriting Agreement be and is hereby approved;
(b) the absence of arrangements for application for the Offer Shares by the Qualifying Shareholders in excess of their entitlements under the Open Offer be and is hereby approved, confirmed and ratified; and
(c) any one Director be and is hereby authorised to sign and execute such documents and do all such acts and things incidental to the Open Offer or as he considers necessary, desirable or otherwise expedient in connection with the implementation of or giving effect to the Open Offer and the transactions contemplated thereunder.’’

EGM – 2

NOTICE OF EGM

‘‘THAT the waiver (the ‘‘Whitewash Waiver’’) granted or to be granted by the Executive Director (including his delegates) of the Corporate Finance Division of the Securities and Futures Commission of Hong Kong pursuant to Note 1 on dispensations from Rule 26 of the Hong Kong Code on Takeovers and Mergers (the ‘‘Takeovers Code’’) in respect of the obligations of the Underwriter and parties acting in concert with him to make a mandatory cash offer for all issued securities of the Company not already owned or agreed to be acquired by the Underwriter and parties acting in concert with him pursuant to Rule 26 of the Takeovers Code and to make appropriate offer for the Options pursuant to Rule 13 of the Takeovers Code, which would otherwise arise as a result of the Underwriter being required to perform his underwriting commitment under the Underwriting Agreement be and is hereby approved, confirmed and ratified, and that any Director be and is hereby authorised to do all things and acts and sign all documents which he considers desirable or expedient to implement and/or give effect to any matters relating to or in connection with the Whitewash Waiver.’’
‘‘THAT the authorised share capital of the Company be and is hereby increased from HK$200,000,000 divided into 2,000,000,000 Shares of HK$0.10 each to HK$400,000,000 divided into 4,000,000,000 Shares by the creation of additional 2,000,000,000 Shares of HK$0.10 each in the Company ranking pari passu in all respects with the Shares of the Company then in issue.’’

By order of the Board

Royale Furniture Holdings Limited Tse Kam Pang

Chairman and Chief Executive Officer

Hong Kong, 13 June 2017

EGM – 3

NOTICE OF EGM

Registered office: Head office and principal place of SMP Partners (Cayman) Limited business in Hong Kong: Royal Bank House – 3rd Floor Room 607, 6/F. 24 Shedden Road, P.O. Box 1586 Tsim Sha Tsui Centre Grand Cayman, KY1-1110 66 Mody Road Cayman Islands Tsimshatsui East Kowloon Hong Kong

Notes:

A member entitled to attend and vote at the meeting convened by the above notice is entitled to appoint one or more proxy to attend and, subject to the provisions of the articles of association of the Company, vote in his stead. A proxy need not be a member of the Company.
In order to be valid, the form of proxy must be deposited together with a power of attorney or other authority, if any, under which it is signed or a notarially certified copy of that power or authority, at the offices of the Company’s branch share registrar and transfer office in Hong Kong, Tricor Tengis Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong not less than 48 hours before the time for holding the meeting or adjourned meeting.
The Register of Members of the Company will be closed from Tuesday, 27 June 2017 to Friday, 30 June 2017, both days inclusive, for the purpose of ascertaining shareholders’ entitlement to attend and vote at extraordinary general meeting. In order to be eligible to attend and vote at the forthcoming extraordinary general meeting to be held on Friday, 30 June 2017, all transfers documents accompanied by the relevant share certificates must be lodged with the Company’s Share Registrar in Hong Kong, Tricor Tengis Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong not later than 4:30 p.m. on Monday, 26 June 2017.
Where there are joint holders of any share of the Company, any one of such joint holder may vote at the extraordinary general meeting, either personally or by proxy, in respect of such share as if he/she/it was solely entitled thereto, but if more than one of such joint holders be present at the extraordinary general meeting personally or by proxy, that one of the said persons so present whose name stands first on the register of members of the Company in respect of such share shall alone be entitled to vote in respect thereof.
Completion and return of the form of proxy will not preclude a member from attending the extraordinary general meeting and voting in person at the extraordinary general meeting or any adjournment thereof if he/she/it so desires. If a member attends the extraordinary general meeting after having deposited the form of proxy, his/her/its form of proxy will be deemed to have been revoked.
The votes of members at the above meeting to approve the ordinary resolutions will be taken on a poll.

As at the date of this notice, the Board comprises four Executive Directors, namely, Mr. Tse Kam Pang, Mr. Chen Hao, Mr. Tse Hok Kan and Mr. Chan Wing Kit; and three Independent Non-Executive Directors, namely, Dr. Donald H. Straszheim, Mr. Lau Chi Kit and Mr. Yue Man Yiu Matthew.

EGM – 4

AI assistant

Royale Home Holdings Limited — Proxy Solicitation & Information Statement 2017

49759_rns_2017-06-12_54c58016-16d4-4944-b7f4-17072b44256f.pdf

ROYALE FURNITURE HOLDINGS LIMITED 皇朝傢俬控股有限公司[*]

(1) PROPOSED OPEN OFFER ON THE BASIS OF ONE (1) OFFER SHARE FOR EVERY EIGHT (8) SHARES HELD ON THE RECORD DATE;

(2) CONNECTED TRANSACTION;

(3) APPLICATION FOR WHITEWASH WAIVER;

(4) PROPOSED INCREASE IN AUTHORISED SHARE CAPITAL; AND

(5) NOTICE OF EXTRAORDINARY GENERAL MEETING

CONTENT

EXPECTED TIMETABLE

EXPECTED TIMETABLE

EXPECTED TIMETABLE

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

TERMS OF TERMINATION OF THE UNDERWRITING AGREEMENT

TERMS OF TERMINATION OF THE UNDERWRITING AGREEMENT

ROYALE FURNITURE HOLDINGS LIMITED 皇朝傢俬控股有限公司[*]

(1) PROPOSED OPEN OFFER ON THE BASIS OF ONE (1) OFFER SHARE FOR EVERY EIGHT (8) SHARES HELD ON THE RECORD DATE; (2) CONNECTED TRANSACTION;

(3) APPLICATION FOR WHITEWASH WAIVER;

(4) PROPOSED INCREASE IN AUTHORISED SHARE CAPITAL AND

(5) NOTICE OF EXTRAORDINARY GENERAL MEETING

INTRODUCTION

LETTER FROM THE BOARD

THE OPEN OFFER

Issue statistics

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Qualifying Shareholders

Closure of Register of Members

Rights of the Overseas Shareholders

LETTER FROM THE BOARD

Fractional entitlements

LETTER FROM THE BOARD

TERMS OF THE PROPOSED OPEN OFFER

Subscription Price

Basis of the assured allotment of the Offer Shares

Status of the Offer Shares

Share certificates and refund cheques

No application for excess Offer Shares

LETTER FROM THE BOARD

Application for listing

Stamp duty

Confirming no disqualifying transaction

LETTER FROM THE BOARD

THE UNDERWRITING AGREEMENT

Principal terms of Underwriting Agreement

Undertaking from the Underwriter (in his capacity as a Shareholder)

LETTER FROM THE BOARD

Termination of the Underwriting Agreement

LETTER FROM THE BOARD

Conditions precedent

WARNING OF THE RISKS OF DEALING IN THE SHARES

SHAREHOLDING STRUCTURE OF THE COMPANY

LETTER FROM THE BOARD

EQUITY FUND RAISING ACTIVITIES OF THE COMPANY IN THE PAST TWELVEMONTH PERIOD IMMEDIATELY BEFORE THE LATEST PRACTICABLE DATE

REASONS FOR THE OPEN OFFER AND USE OF PROCEEDS

LETTER FROM THE BOARD

LETTER FROM THE BOARD

IMPLICATION UNDER THE LISTING RULES

THE WHITEWASH WAIVER

LETTER FROM THE BOARD

IMPLICATIONS UNDER THE TAKEOVERS CODE AND THE WHITEWASH WAIVER

LETTER FROM THE BOARD

DEALINGS AND INTEREST OF THE UNDERWRITER AND PARTIES ACTING IN CONCERT WITH HIM IN THE SECURITIES OF THE COMPANY

LETTER FROM THE BOARD

ADJUSTMENTS IN RELATION TO THE OPTIONS

PROPOSED INCREASE IN AUTHORISED SHARE CAPITAL

GENERAL

LETTER FROM THE BOARD

INTENTION OF THE UNDERWRITER

ESTABLISHMENT OF INDEPENDENT BOARD COMMITTEE AND APPOINTMENT OF INDEPENDENT FINANCIAL ADVISER

LETTER FROM THE BOARD

EGM

LETTER FROM THE BOARD

RECOMMENDATION

Royale Home Holdings Limited Proxy Solicitation & Information Statement 2017