SIM Technology Group Limited - Annual Report 2018

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SIM TECHNOLOGY GROUP LIMITED 晨訊科技集團有限公司[*]

(Incorporated in Bermuda with limited liability)

(Stock code: 2000)

ANNUAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2017

The board (“Board”) of directors (“Directors”) of SIM Technology Group Limited (“Company”) hereby announces the audited consolidated results of the Company and its subsidiaries (“Group”) for the year ended 31 December 2017 (“Year”) together with the comparative figures for the corresponding period in 2016 as follows:

CONSOLIDATED STATEMENT OF PROFIT OR LOSS

Notes
Revenue
3
Cost of sales
Gross profit
Other income
5
Other gains and losses
6
Research and development expenses
Selling and distribution costs
Administrative expenses
Share of results of associates
Finance costs
7
Profit before taxation
Taxation
8
Profit for the year
9
Profit for the year attributable to:
Owners of the Company
Non-controlling interests
Earnings per share (HK cents)
11
Basic
Diluted

Year ended 31 December
2017
2016
HK$’000
HK$’000
Audited
Audited
3,258,517
2,724,390
(2,863,306)
(2,322,609)
395,211
401,781
73,736
71,002
37,678
(1,306)
(90,641)
(102,196)
(144,433)
(135,938)
(122,238)
(125,170)
(1,527)
(1,533)
(8,990)
(10,140)
138,796
96,500
(36,190)
(22,067)
102,606
74,433
111,651
77,278
(9,045)
(2,845)
102,606
74,433
4.36
3.02
4.36
3.02

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

Profit for the year
Other comprehensive (expense) income
Items that may not be subsequently reclassified to
profit or loss during the year:
Fair value change on available-for-sale investment
Deferred tax arising from fair value change
on available-for-sale investment
Item that may not be subsequently reclassified to
profit or loss during the year:
Exchange difference arising on translation
to presentation currency
Other comprehensive income
Total comprehensive income for the year
Total comprehensive income (expense) attributable to:
Owners of the Company
Non-controlling interests

Year ended 31 December
2017
2016
HK$’000
HK$’000
Audited
Audited
102,606
74,433
(107,195)
170,573
26,799
(42,643)
93,628
(80,699)
13,232
47,231
115,838
121,664
118,777
128,063
(2,939)
(6,399)
115,838
121,664

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

At 31 December 2017

Notes Non-current assets Investment properties Property, plant and equipment Land use rights Intangible assets Deferred tax assets Finance lease receivables Interest in associates Available-for-sale investment Consideration receivable Current assets Inventories Finance lease receivables Properties under development for sale Properties held for sale Trade and notes receivables 12 Other receivables, deposits and prepayments Consideration receivable Amount due from an associate Amounts due from non-controlling shareholders of subsidiaries Entrusted loan receivables Pledged bank deposits Bank balances and cash Assets classified as held for sale Current liabilities Trade and notes payables 13 Other payables, deposits received and accruals Other liabilities Amounts due to non-controlling shareholders of subsidiaries Bank borrowings Tax payable Liabilities associated with asset classified as held for sale Net current assets Total assets less current liabilities	2017 *HK$’000* Audited 384,949 399,258 86,793 188,765 47,339 705 2,274 80,253 1,733 1,192,069 758,531 2,097 – 502,998 344,208 331,579 723 3,200 11,633 36,150 30,125 417,092 2,438,336 – 2,438,336 393,750 599,012 141,154 – 84,104 37,992 1,256,012 – 1,256,012 1,182,324 2,374,393	2016 HK$’000 Audited 350,779 376,914 84,185 148,405 43,719 637 3,800 187,448 1,621
		1,197,508
		737,417 6,085 359,130 167,355 258,321 275,090 676 2,000 11,633 112,700 76,636 249,132
		2,256,175 26,117
		2,282,292
		374,218 423,995 – 35,613 299,991 23,138
		1,156,955 24,794
		1,181,749
		1,100,543
		2,298,051

Capital and reserves Share capital Reserves Equity attributable to owners of the Company Non-controlling interests Total equity Non-current liabilities Deferred tax liabilities Deferred income	2017 *HK$’000* Audited 255,955 1,865,855 2,121,810 101,481 2,223,291 99,151 51,951 151,102 2,374,393	2016 HK$’000 Audited 255,790 1,770,956
		2,026,746 105,801
		2,132,547
		111,638 53,866
		165,504
		2,298,051

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. General information and basis of preparation

The Company was incorporated in Bermuda as an exempted company under the Companies Act 1981 of Bermuda (as amended) with limited liability.

The functional currency of the Company is Renminbi (“RMB”). The consolidated financial statements are presented in Hong Kong dollars (“HK$”), as the Directors consider that it is a more appropriate presentation for a company listed on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) and for the convenience of the shareholders.

The Company is an investment holding company. The principal activities of its subsidiaries are the manufacturing, design and development and sale of handsets and internet of things (“IOT”) terminals business, wireless communication modules business, carrying out IOT system and online-to-offline (“O2O”) business, intelligent manufacturing business and property development in the People’s Republic of China (“PRC”).

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRSs”). In addition, the consolidated financial statements include applicable disclosures required by the Rules Governing the Listing of Securities on the Stock Exchange (“Listing Rules”) and by the Hong Kong Companies Ordinance (“CO”).

The consolidated financial statements have been prepared on the historical cost basis except for certain properties and financial instruments that are measured at fair values at the end of each reporting periods. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.

2. Application of new and revised International Financial Reporting Standards (“IFRSs”)

Amendments to IFRSs that are mandatorily effective for the current year

The Group has applied the following amendments to IFRSs for the first time in the current year:

Amendments to IAS 7 Disclosure initiative Amendments to IAS 12 Recognition of deferred tax assets for unrealised loss Amendments to IFRS 12 As part of the annual improvements to IFRSs 2014-2016 cycle

Except as described below, the application of the amendments to IFRSs in the current year has had no material impact on the Group’s financial performance and positions for the current and prior years and/or on the disclosures set out in these consolidated financial statements.

Amendments to IAS 7 Disclosure initiative

The Group has applied these amendments for the first time in the current year. The amendments require an entity to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both cash and non-cash changes. In addition, the amendments also require disclosures on changes in financial assets if cash flows from those financial assets were, or future cash flows will be, included in cash flows from financing activities.

Specifically, the amendments require the following to be disclosed: (i) changes from financing cash flows; (ii) changes arising from obtaining or losing control of subsidiaries or other businesses; (iii) the effect of changes in foreign exchange rates; (iv) changes in fair values; and (v) other changes.

A reconciliation between the opening and closing balances of relevant items is provided. Consistent with the transition provisions of the amendments, the Group has not disclosed comparative information for the prior year. Apart from the additional disclosure, the application of these amendments has had no impact on the Group’s consolidated financial statements.

New and revised IFRSs in issue but not effective

The Group has not early applied the following new and revised IFRSs that have been issued but are not yet effective:

IFRS 9	Financial instruments1
IFRS 15	Revenue from contracts with customers and the related amendments1
IFRS 16	Leases2
IFRS 17	Insurance contracts4
IFRIC 22	Foreign currency transactions and advance consideration1
IFRIC 23	Uncertainty over income tax treatments2
Amendments to IFRS 2	Classification and measurement of share-based payment transactions1
Amendments to IFRS 4	Applying IFRS 9 Financial instruments with IFRS 4 Insurance contracts1
Amendments to IFRS 9	Prepayment features with negative compensation2
Amendments to IFRS 10 and IAS 28	Sale or contribution of assets between an investor and its associate or joint
	venture3
Amendments to IAS 19	Plan amendment, curtailment or settlement2
Amendments to IAS 28	Long-term interests in associates and joint ventures2
Amendments to IAS 28	As part of the annual improvements to IFRS 2014-2016 cycle1
Amendments to IAS 40	Transfers of investment property1
Amendments to IFRSs	Annual improvements to IFRSs 2015-2017 cycle2

1 Effective for annual periods beginning on or after 1 January 2018 2 Effective for annual periods beginning on or after 1 January 2019
3 Effective for annual periods beginning on or after a date to be determined
4 Effective for annual periods beginning on or after 1 January 2021

Except for the new and amendments to IFRSs mentioned below, the Directors of the Company anticipate that the application of all other new and amendments to IFRSs will have no material impact on the consolidated financial statements in the foreseeable future.

IFRS 9 “Financial instruments”

IFRS 9 introduces new requirements for the classification and measurement of financial assets, financial liabilities, general hedge accounting and impairment requirements for financial assets.

Key requirements of IFRS 9 relevant to the Group are described below:

All recognised financial assets that are within the scope of IAS 39 “Financial instruments: Recognition and measurement” are subsequently measured at amortised cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortised cost at the end of subsequent accounting periods. Debt instruments that are held within a business model whose objective is achieved both by collecting contractual cash flows and selling financial assets, and that have contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding, are measured at fair value through other comprehensive

income (“FVTOCI”). All other financial assets are measured at their fair value at subsequent accounting periods. In addition, under IFRS 9, entities may make an irrevocable election to present subsequent changes in the fair value of an equity investment (that is not held for trading) in other comprehensive income, with only dividend income generally recognised in profit or loss.

In relation to the impairment of financial assets, IFRS 9 requires an expected credit loss model, as opposed to an incurred credit loss model under IAS 39. The expected credit loss model requires an entity to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition. In other words, it is no longer necessary for a credit event to have occurred before credit losses are recognised.

Based on the Group’s financial instruments and risk management policies as at 31 December 2017, the Directors of the Company anticipate the following potential impact on initial application of IFRS 9.

Classification and measurement:

Debt instruments classified as loan receivables carried at amortised cost: these are held within a business model whose objective is to collect the contractual cash flows that are solely payments of principal and interest on the principal outstanding. Accordingly, these financial assets will continue to be subsequently measured at amortised cost upon the application of IFRS 9;

Listed equity securities classified as available-for-sale investments carried at fair value: these securities qualified for designation as measured at FVTOCI under IFRS 9 and the Directors have elected to present subsequent changes in fair value in other comprehensive income, however, the fair value gains or losses accumulated in the assets revaluation reserve amounting to HK$47,534,000 as at 1 January 2018 will no longer be subsequently reclassified to profit or loss under IFRS 9, which is different from the current treatment. This will affect the amounts recognised in the Group’s profit or loss and other comprehensive income but will not affect total comprehensive income;

All other financial assets and financial liabilities will continue to be measured on the same bases as are currently measured under IAS 39.

Impairment

In general, the Directors of the Company anticipate that the application of the expected credit loss model of IFRS 9 will result in earlier provision of credit losses which are not yet incurred in relation to the Group’s financial assets measured at amortised costs and other items that subject to the impairment provisions upon application of IFRS 9 by the Group.

Based on the assessment by the Directors of the Company, if the expected credit loss model were to be applied by the Group, the accumulated amount of impairment loss to be recognised by the Group as at 1 January 2018 would be increased as compared to the accumulated amount recognised under IAS 39 mainly attributable to expected credit losses provision on trade receivables. Such further impairment recognised under expected credit loss would reduce the opening accumulated profits at 1 January 2018.

IFRS 15 “Revenue from contracts with customers”

IFRS 15 was issued which establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. IFRS 15 will supersede the current revenue recognition guidance including IAS 18 “Revenue”, IAS 11 “Construction contracts” and the related Interpretations when it becomes effective.

The core principle of IFRS 15 is that an entity should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Specifically, the standard introduces a 5-step approach to revenue recognition:

Step 1: Identify the contract(s) with a customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations in the contract
Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation

Under IFRS 15, an entity recognises revenue when (or as) a performance obligation is satisfied, i.e. when ‘control’ of the goods or services underlying the particular performance obligation is transferred to the customer. Far more prescriptive guidance has been added in IFRS 15 to deal with specific scenarios. Furthermore, extensive disclosures are required by IFRS 15. In 2016, clarifications to IFRS 15 in relation to the identification of performance obligations, principal versus agent considerations, as well as licensing application guidance has been issued.

The Directors anticipate that the application of IFRS 15 in the future may result in more disclosures in the consolidated financial statements, however, the Directors do not anticipate that the application of IFRS 15 will have a material impact on the timing and amounts of revenue recognised in the respective reporting periods.

IFRS 16 “Leases”

IFRS 16 introduces a comprehensive model for the identification of lease arrangements and accounting treatments for both lessors and lessees. IFRS 16 will supersede IAS 17 “Leases” and the related interpretations when it becomes effective.

IFRS 16 distinguishes lease and service contracts on the basis of whether an identified assets is controlled by a customer. Distinctions of operating leases and finance leases are removed for lease accounting, and is replaced a single model where a right-of-use asset and a corresponding liability have to be recognised for all leases by lessees, except for shortterm leases and leases of low value assets.

The right-of-use asset is initially measured at cost and subsequently measured at cost (subject to certain exceptions) less accumulated depreciation and impairment losses, adjusted for any remeasurement of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at that date. Subsequently, the lease liability is adjusted for interest and lease payments, as well as the impact of lease modifications, amongst others. For the classification of cash flows, the Group currently presents upfront prepaid lease payments as investing cash flows in relation to investment properties while other operating lease payments are presented as operating cash flows. Upon application of IFRS 16, lease payments in relation to lease liability will be allocated into a principal and an interest portion which will be presented as financing cash flows by the Group.

Under IAS 17, the Group has already recognised prepaid lease payments for leasehold lands where the group is a lessee. The application of IFRS 16 may result in potential changes in classification of these assets depending on whether the Group presents right-of-use assets separately or within the same line item at which the corresponding underlying assets would be presented if they were owned.

In contrast to lessee accounting, IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17, and continues to require a lessor to classify a lease either as an operating lease or a finance lease.

Furthermore, extensive disclosures are required by IFRS 16.

As at 31 December 2017, the Group has non-cancellable operating lease commitment of HK$13,061,000. A preliminary assessment indicates that these arrangements will meet the definition of a lease. Upon application of IFRS 16, the Group will recognise a right-of-use asset and a corresponding liability in respect of all these leases unless they qualify for low value or short-term leases. In addition, the Group currently considers refundable rental deposits paid and refundable rental deposits received as rights and obligations under leases to which IAS 17 applies. Based on the definition of lease payment under IFRS 16, such deposits are not payments relating to the right to use the underlying assets, accordingly, the carrying amounts of such adjustments are considered as additional lease payments. Adjustments to refundable rental deposits paid would be included in the carrying amount of right-of-use assets. Adjustments to refundable rental deposits received would be considered as advance lease payments.

Furthermore, the application of new requirements may result in changes in measurement, presentation and disclosure as indicated above.

Amendments to IFRS 10 and IAS 28 “Sale or contribution of assets between an investor and its associate or joint venture”

The amendments to IFRS 10 “Consolidated financial statements” and IAS 28 “Investments in associates and joint ventures” deal with situations where there is a sale or contribution of assets between an investor and its associate or joint venture. Specifically, the amendments state that gains or losses resulting from the loss of control of a subsidiary that does not contain a business in a transaction with an associate or a joint venture that is accounted for using the equity method, are recognised in the parent’s profit or loss only to the extent of the unrelated investors’ interests in that associate or joint venture. Similarly, gains and losses resulting from the remeasurement of investments retained in any former subsidiary (that has become an associate or a joint venture that is accounted for using the equity method) to fair value are recognised in the former parent’s profit or loss only to the extent of the unrelated investors’ interests in the new associate or joint venture.

The Directors anticipate that the application of these amendments to IFRS 10 and IAS 28 may have an impact on the Group’s consolidated financial statements in future periods should such transactions arise.

Amendments to IAS 40 “Transfers of investment property”

The amendments clarify that a transfer to, or from, investment property necessitates an assessment of whether a property meets, or has ceased to meet, the definition of investment property, supported by observable evidence that a change in use has occurred. The amendments further clarify that situations other than the ones listed in IAS 40 may evidence a change in use, and that a change in use is possible for properties under construction. For example, change in use for transfer from properties under development for sale in the ordinary course of business to investment properties could be evidenced by inception of an operating lease to another party. Currently, the Group accounts for such transfer only upon commencement of an operating lease.

The Directors of the Company anticipate that the application of these amendments will result in early recognition of such transfers on the Group’s consolidated financial statements in future periods should there be a change in use of any of its properties.

3. Revenue

Revenue represents the amounts received and receivable for goods sold net of discounts and sales related taxes, interest income generated from equipment financial leasing to outsiders and service income generated from service provided to outsiders.

4. Segment information

Information reported to the executive Directors, being the chief operating decision maker, for the purposes of resource allocation and assessment of segment performance focuses on types of goods delivered.

During the Year, the Group has changed its segment names from “sales of handsets, solutions and intelligent terminals” to “handsets and IOT terminals business”; from “sales of wireless communication modules” to “wireless communication modules business”; and from “internet of things business” to “IOT system and O2O business”. However, the underlying businesses of these segments are same as prior year.

During the year ended 31 December 2017 and 2016, the Group was organised into five reportable and operating segments, being handsets and IOT terminals business, wireless communication modules business, IOT system and O2O business, intelligent manufacturing business and property development.

These reportable and operating segments are the basis of the internal reports about components of the Group that are regularly reviewed by the executive Directors in order to allocate resources to segments and to assess their performance.

Segment revenue and results

The following is an analysis of the Group’s revenue and results by reportable and operating segment:

For the year ended 31 December 2017

Revenue External sales Segment profit (loss) Other income and other gains and losses Share of results of associates Corporate expenses Finance costs Profit before taxation	Handsets and IOT terminals business Wireless communication modules business *HK$’000* *HK$’000* 1,076,853 1,454,923 26,394 57,478	IOT system and O2O business *HK$’000* (Note) 318,942 (9,188)	Intelligent manufacturing business *HK$’000* 101,428 (12,453)	Property development *HK$’000* 306,371 34,543	Consolidated *HK$’000* 3,258,517 96,774 78,646 (1,527) (26,107) (8,990) 138,796

For the year ended 31 December 2016

Handsets and IOT terminals business HK$’000 Revenue External sales 1,271,117 Segment profit 22,831 Other income and other gains and losses Share of results of associates Corporate expenses Finance costs Profit before taxation	Wireless communication modules business HK$’000 815,016 63,974	IOT system and O2O business HK$’000 (Note) 302,354 13	Intelligent manufacturing business HK$’000 143,454 6,283	Property development HK$’000 192,449 3,678	Consolidated HK$’000 2,724,390 96,779 39,815 (1,533) (28,421) (10,140) 96,500

Note: The IOT system and O2O business is still in a developing stage. The revenue of this segment represents the income generated from equipment finance lease service, sale of goods to vending machine customers and franchisees and provision of procurement agency service.

The accounting policies of the reportable and operating segments are the same as the Group’s accounting policies. Segment result represents the profit earned or loss incurred by each segment without allocation of gain from changes in fair values of investment properties, rental income, interest income, unallocated exchange gain or loss, loss on disposal of property, plant and equipment, gain on disposal of an associate, fair value change on derivative financial instruments, certain other income, corporate expenses, share of results of associates, finance costs and taxation. This is the measure reported to the executive Directors for the purposes of resource allocation and performance assessment.

Inter-segment sales were charged at mutually agreed terms.

Segment assets and liabilities

The following is an analysis of the Group’s assets and liabilities by reportable and operating segment:

At 31 December 2017

Handsets and IOT terminals business Wireless communication modules business IOT system and O2O business Intelligent manufacturing business Property development *HK$’000* *HK$’000* *HK$’000* *HK$’000* *HK$’000* (Note) Segment assets 891,788 653,297 153,196 214,891 554,350 Investment properties Property, plant and equipment Land use rights Deferred tax assets Entrusted loan receivables Interests in associates Available-for-sale investment Consideration receivable Amounts due from non-controlling shareholders of subsidiaries Amount due from an associate Other receivables, deposits and prepayments Pledged bank deposits Bank balances and cash Consolidated assets Segment liabilities 506,278 174,713 15,699 84,328 397,630 Other payables, deposits received and accruals Bank borrowings Tax payable Deferred tax liabilities Consolidated liabilities	Consolidated *HK$’000* 2,467,522 384,949 102,230 44,543 47,339 36,150 2,274 80,253 2,456 11,633 3,200 639 30,125 417,092
	3,630,405

	1,178,648 7,219 84,104 37,992 99,151
	1,407,114

At 31 December 2016

Handsets and IOT terminals business Wireless communication modules business IOT system and O2O business Intelligent manufacturing business Property development HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Note) Segment assets 859,359 494,816 185,400 232,582 597,743 Investment properties Property, plant and equipment Land use rights Deferred tax assets Entrusted loan receivables Interests in associates Available-for-sale investment Consideration receivable Amounts due from non-controlling shareholders of subsidiaries Amount due from an associate Other receivables, deposits and prepayments Pledged bank deposits Bank balances and cash Asset classified as held for sale Consolidated assets Segment liabilities 384,528 111,910 11,011 67,822 299,548 Other payables, deposits received and accruals Bank borrowings Tax payable Deferred tax liabilities Liability associated with asset classified as held for sale Consolidated liabilities	Consolidated HK$’000 2,369,900 350,779 25,563 15,560 43,719 112,700 3,800 187,448 2,297 11,633 2,000 2,516 76,636 249,132 26,117
	3,479,800

	874,819 12,873 299,991 23,138 111,638 24,794
	1,347,253

For the purposes of monitoring segment performances and allocating resources between segments:

all assets are allocated to reportable and operating segments other than investment properties, certain property, plant and equipment, certain land use rights, pledged bank deposits, bank balances and cash, entrusted loan receivables, interests in associates, available-for-sale investment, consideration receivable, deferred tax assets, certain other receivables, deposits and prepayments, amounts due from non-controlling shareholders of subsidiaries and an associate and asset classified as held for sale. Assets used jointly by operating segments are allocated on the basis of the revenues earned by individual operating segments; and

other than liabilities specifically identified for reportable and operating segments on IOT system and O2O business, intelligent manufacturing business and property development, the remaining liabilities are allocated between payables jointly consumed by reportable and operating segments on handsets and IOT terminals and wireless communication modules business and corporate liabilities. Corporate liabilities include certain other payables, deposits received and accruals, tax payable, bank borrowings, deferred tax liabilities and liability associated with asset classified as held for sale.

Other segment information

For the year ended 31 December 2017

		Wireless
	Handsets and	communication		Intelligent
	IOT terminals	modules	IOT system and	manufacturing	Property
	business	business	O2O business	business	development	Unallocated	Consolidated
	*HK$’000*	*HK$’000*	*HK$’000*	*HK$’000*	*HK$’000*	*HK$’000*	*HK$’000*
Amounts included in the measure
of segment profit or loss or
segment assets:
Additions of property, plant and
equipment	40,437	9,239	1,170	2,142	–	46	53,034
Additions of intangible assets	85,313	78,408	803	41,410	–	–	205,934
Depreciation of property, plant and
equipment	28,938	9,487	3,829	2,391	163	6,900	51,708
Amortisation of intangible assets	90,497	42,034	4,134	39,677	–	–	176,342
Amortisation of land use rights	924	914	152	34	–	1,087	3,111
Net reversal of allowance for bad
and doubtful debts	(854)	–	–	–	–	–	(854)
Reversal of allowance of
inventories	(11,706)	–	–	–	–	–	(11,706)
Loss on disposal of property, plant
and equipment	1,035	32	642	127	–	–	1,836

For the year ended 31 December 2016

	Handsets and	Wireless		Intelligent
	IOT terminals	communication	IOT system	manufacturing	Property
	business	modules business	and O2O business	business	development	Unallocated	Consolidated
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Amounts included in the measure
of segment profit or loss or
segment assets:
Additions of property, plant and
equipment	11,440	10,003	3,161	34,386	7	–	58,997
Additions of intangible assets	118,053	39,411	3,317	33,704	–	–	194,485
Depreciation of property, plant and
equipment	44,511	8,890	4,834	8,091	329	1,740	68,395
Amortisation of intangible assets	95,864	35,007	1,112	24,199	–	–	156,182
Amortisation of land use rights	1,738	454	117	390	–	415	3,114
Net reversal of allowance for bad
and doubtful debts	(3,324)	–	–	–	–	–	(3,324)
Reversal of impairment loss
recognised in respect of
property, plant and equipment	(6,304)	–	–	–	–	–	(6,304)
Reversal of allowance of
inventories	(2,898)	–	–	–	–	–	(2,898)
Loss on disposal of property, plant
and equipment	885	–	–	–	–	–	885

Revenue from major products/services

Sale of handsets and IOT terminals Sale of wireless communication modules Sale of goods to vending machine customers and franchisees Finance lease of equipment Procurement agency service Sale of intelligent manufacturing products Sale of residential properties	2017 *HK$’000* 1,076,853 1,454,923 299,749 1,965 17,228 101,428 306,371 3,258,517	2016 HK$’000 1,271,117 815,016 272,490 3,720 26,144 143,454 192,449
		2,724,390

Geographical information

The Group’s revenue and non-current assets are substantially generated from and located in the PRC, the country of domicile from which the group entities derive revenue and hold assets. Accordingly, no further analysis is presented.

5. Other income

Refund of Value Added Tax (“VAT”) Government grants Interest income earned on bank balances Interest income earned on entrusted loan receivables Rental income (Less: outgoings of HK$2,661,000 (2016: HK$2,967,000)) Dividend income from available-for-sale investment Others Other gains and losses Loss on disposal of property, plant and equipment Net foreign exchange gain (loss) Changes in fair values of investment properties Net reversal of allowance for bad and doubtful debts Reversal of impairment loss recognised in respect of property, plant and equipment Loss from disposal of a subsidiaries Fair value change on derivative financial instruments-forward contracts Gain on disposal of an associate	2017 *HK$’000* 9,652 22,863 4,693 7,021 25,526 171 3,810 73,736 2017 *HK$’000* (1,836) 30,223 9,565 854 – 118 (9,982) 8,736 37,678	2016 HK$’000 10,876 20,034 2,575 8,938 28,464 – 115 71,002 2016 HK$’000 (885) (22,397) 12,348 3,324 6,304 – – – (1,306)

6. Other gains and losses

7. Finance costs

	2017	2016
	*HK$’000*	HK$’000
Interests on bank borrowings	8,990	10,140

8. Taxation

PRC Enterprise Income Tax (“EIT”) Land Appreciation Tax in the PRC Overprovisions on PRC EIT in previous years Deferred tax expense for current year Taxation for the year	2017 *HK$’000* (18,673) (5,797) – (24,470) (11,720) (36,190)	2016 HK$’000 (16,892) (3,801) 7,447 (13,246) (8,821) (22,067)

No provision for Hong Kong Profits Tax has been made for both years as the Group has no assessable profits arising in Hong Kong.

PRC EIT is calculated at the rate prevailing in the relevant districts of the PRC and taking relevant tax incentives into account.

9. Profit for the year

Profit for the year is arrived at after charging (crediting): Auditor’s remuneration Amortisation of intangible assets Less: Amount capitalised in development costs Less: Amount capitalised in inventories Amortisation of land use rights Depreciation of property, plant and equipment Less: Amount capitalised in development costs Less: Amount capitalised in inventories Reversal of allowance of inventories (included in cost of sales) Costs of inventories recognised as an expense (included in cost of sales) Costs of properties sold (included in cost of sales) Staff costs: Directors’ emoluments Other staff costs – Salaries and other benefits – Retirement benefits scheme contributions – Share-based payments Less: Amount capitalised in development costs Less: Amount capitalised in inventories	Profit for the year is arrived at after charging (crediting): Auditor’s remuneration Amortisation of intangible assets Less: Amount capitalised in development costs Less: Amount capitalised in inventories Amortisation of land use rights Depreciation of property, plant and equipment Less: Amount capitalised in development costs Less: Amount capitalised in inventories Reversal of allowance of inventories (included in cost of sales) Costs of inventories recognised as an expense (included in cost of sales) Costs of properties sold (included in cost of sales) Staff costs: Directors’ emoluments Other staff costs – Salaries and other benefits – Retirement benefits scheme contributions – Share-based payments Less: Amount capitalised in development costs Less: Amount capitalised in inventories	2017 *HK$’000* 2,200 176,342 (1,085) (175,257) – 3,111 51,708 (3,279) (29,769) 18,660 (11,706) 2,621,764 241,542 5,354 252,206 49,172 1,282 308,014 (119,998) (29,621) 158,395	2017 *HK$’000* 2,200 176,342 (1,085) (175,257) – 3,111 51,708 (3,279) (29,769) 18,660 (11,706) 2,621,764 241,542 5,354 252,206 49,172 1,282 308,014 (119,998) (29,621) 158,395	2016 HK$’000 2,160
				156,182 (4,307) (151,875) –
				3,114
				68,395 (2,864) (37,528) 28,003
				(2,898) 2,149,914 172,695
		5,354 252,206 49,172 1,282 308,014 (119,998) (29,621) 158,395		5,343 317,352 61,914 2,904 387,513 (146,920) (17,105) 223,488

10. Dividends

The Directors recommend the payment of a final dividend of HK$40,953,000 (HK1.6 cents per share) (2016: HK$25,579,000 (HK1 cent per share)) for the year ended 31 December 2017 which is subject to approval by the shareholders of the Company in the forthcoming annual general meeting.

11. Earnings per share

The calculation of the basic and diluted earnings per share attributable to the owners of the Company is based on the following data:

Earnings Earnings for the purposes of basic and diluted earnings per share (profit for the year attributable to owners of the Company) Number of shares Weighted average number of ordinary shares for the purpose of basic earnings per share Effect of dilutive potential ordinary shares – share option Weighted average number of ordinary shares for the purpose of diluted earnings per share	2017 *HK$’000* 111,651 2017 *’000* 2,558,338 4,756 2,563,094	2016 HK$’000 77,278

		2016 ’000 2,557,896 –
		2,557,896

For the year ended 31 December 2016, the computation of diluted earnings per share did not assume the exercise of the Company’s outstanding share options because the exercise prices of these share options were higher than the average market price for shares for the year.

12. Trade and notes receivables

The normal credit period taken on sales of goods is 0-90 days.

The following is an aged analysis of trade receivables, net of allowance for bad and doubtful debts, as well as notes receivables presented based on the invoice dates at the end of the reporting period, which approximated the revenue recognition dates:

Trade receivables 0 – 30 days 31 – 60 days 61 – 90 days 91 – 180 days Over 180 days Less: Accumulated allowances Trade receivables Notes receivables_(Note)_ 0 – 30 days 61 – 90 days 91 – 180 days	2017 *HK$’000* 181,821 55,644 25,079 14,633 47,859 325,036 (22,455) 302,581 35,172 1,514 4,941 344,208	2016 HK$’000 164,342 31,917 26,616 14,260 19,163 256,298 (21,821) 234,477 23,324 – 520 258,321

Note: Notes receivables represent the promissory notes issued by banks received from the customers.

Before accepting any new customer, the Group assesses the potential customer’s credit quality and defines credit limits by customer. Limits attributed to customers are reviewed twice a year. The Group has policy for allowance of bad and doubtful debts which is based on an evaluation of the collectability and age analysis of accounts on every individual trade debtor basis and on management’s judgment including creditworthiness and the past collection history of each customer.

13. Trade and notes payables

The aged analysis of the Group’s trade and notes payables at the end of the reporting period is presented based on the invoice date for trade payables or date of issuance for notes payables is as follows:

0 – 30 days 31 – 60 days 61 – 90 days Over 90 days Notes payables 0 – 30 days	2017 *HK$’000* 279,846 9,114 2,076 63,551 354,587 39,163 393,750	2016 HK$’000 327,308 21,918 9,316 15,676
		374,218
		–
		374,218

FINAL DIVIDEND

The Board proposed to recommend a final dividend of HK1.6 cents per ordinary share to shareholders of the Company (“Shareholders”) for the Year, subject to the approval of the Shareholders at the forthcoming annual general meeting (“AGM”), the proposed final dividend will be paid on or about Thursday, 28 June 2018 to Shareholders whose names appear on the register of members of the Company on Friday, 15 June 2018. Based on 2,559,546,300 ordinary shares of the Company in issue as at the date of this announcement, the total final dividend will amount to approximately HK$40,953,000.

CLOSURE OF REGISTER OF MEMBERS

For determining Shareholders’ right to attend and vote at the AGM:

Closure dates of register of Shareholders 4 June 2018 (Monday) (both days inclusive) to 7 June 2018 (Thursday) Latest time to lodge transfers 4:30 p.m. on 1 June 2018 (Friday) Record date 7 June 2018 (Thursday) AGM 7 June 2018 (Thursday)

For determining Shareholders’ entitlement to receive the proposed final dividend*:

Closure dates of register of Shareholders 13 June 2018 (Wednesday) (both days inclusive) to 15 June 2018 (Friday) Latest time to lodge transfers 4:30 p.m. on 12 June 2018 (Tuesday) Record date 15 June 2018 (Friday) Proposed final dividend payment date 28 June 2018 (Thursday)

(* subject to the Shareholders’ approval at the AGM)

During the periods of the closure of register of Shareholders, no share transfers will be registered. For registration, all transfer documents accompanied by the relevant share certificates, must be lodged with the Company’s branch share registrar and transfer office in Hong Kong, Computershare Hong Kong Investor Services Limited, Shops 1712-16, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong before the relevant latest time to lodge transfers.

ANNUAL GENERAL MEETING

The AGM will be held at 24th Floor, Tower 1, Admiralty Centre, 18 Harcourt Road, Admiralty, Hong Kong on Thursday, 7 June 2018. The notice of the AGM will be posted on the respective websites of the Company and The Stock Exchange of Hong Kong Limited (“Stock Exchange”) and dispatched to the Shareholders in due course.

MANAGEMENT’S DISCUSSION AND ANALYSIS

BUSINESS REVIEW

The Group’s business transformation has started to bear fruit, thanks to vigorous efforts it has undertaken in the past years. In 2017, affected by unfavorable factors such as the challenging global economic environment, large exchange rate fluctuations and intensifying market competition, nonetheless, the Group achieved revenue of HK$3,258.5 million, representing an increase of 19.6% when compared with last year. Gross profit decreased by 1.6% year-on-year to HK$395.2 million. These results were attributable to the growth of wireless communication modules and the transformation of handsets and internet of things (“IOT”) terminals business. While the new businesses of IOT system and online-tooffline (“O2O”) business and intelligent manufacturing business did not progress satisfactorily and failed to contribute sufficient revenue and a reasonable profit to the Group, the Group’s revenue still achieved a solid rise while gross profit and total profit of the Group basically stayed flat as compared with that of last year.

Handsets and IOT terminals business

The Group started with the provision of mobile handset original design manufacturer (“ODM”) services 15 years ago, and had three stages of development with each stage spanning around five years. During the first stage, the Group operated in the form of an independent design house (“IDH”) providing research and development (“R&D”) services for small and medium customers, turnkey solutions for handsets and full set of raw materials or components of handsets. The IDH operation mode was not involved in the production of fully-completed mobile handsets, thus the Group was able to avoid intellectual property disputes. The second stage was characterised by the operation of its ODM services. During the second stage, the Group served top-tier customers in domestic and overseas markets by providing ODM services as well as the delivery of a full set of products for consumer handsets. During the third stage, the Group gradually transformed itself to venture into the IOT terminals business. In the consumer handsets segment, the Group proactively exited from its low-end to mid-range handsets business, which had high risk yet low gross profit margin, and focus on the high-end handsets business only, particularly the high-end handsets with retail prices from US$1,000 to US$2,000. In 2017, the IOT/ industrial application terminals business contributed a major proportion of the revenue and gross profit in the handsets and IOT terminals business segment.

In 2017, the sales volume of this business segment declined by 46.2% year-on-year and its average selling price escalated by 100% year-on-year. Revenue dropped by 15.3%. Gross profit margin was 12.7% and remained at a similar level as last year. The decline in revenue was due to the great drop in the revenue contribution from consumer handsets, which largely accounted for last year’s revenue. The revenue for this year was mainly derived from the IOT/industrial application terminals and some differentiated high-end handset products, with higher selling prices and gross profit margins but much lower shipment volumes. Moreover, many components from the upstream supply chain were in serious shortage and the price of some components such as memories surged substantially starting from the second half of the year 2016. Fortunately, the IOT/industrial application terminals with a higher gross profit margin offset the effects caused by the above negative factors, so the gross profit margin was similar to that of last year.

The Group has adhered to its development strategies consistently in recent years. It has retained the high-end handsets ODM business and at the same time has vigorously developed the IOT/industrial application terminals business. With the maturity of the 5G and NB-IOT standards, the IOT market has huge growth potential, in particular for product areas such as scan, mobile Point of Sale (“POS”), logistics and Internet of Vehicles (“IOV”) terminals. Furthermore, products such as dedicated enterprise intercom network terminals, outdoor waterproof, dust-proof and shock resistant terminals, vehicle terminals and augmented reality terminals for industrial enterprises have vast room for development. In recent years, the Group has continued to invest in those areas and its products have gained first-mover advantages in terms of shipments. The IOT terminals and industrial application terminals business had fast growth in Europe, America and Japan. In light of this, apart from continuously prospecting for new IOT terminal customers in China, the Group has also targeted mainly the developed regions such as Europe, America and Japan as its main overseas expansion directions through its sales network and agency appointments. As the Group pushes ahead with developing its IOT terminals business, it has

also grasped opportunities to develop quality high-end consumer ODM handsets in order to maintain its economies of scale and boost the competitiveness of its supply chain. With enormous market potential and first-mover advantages, the Group believes that this business segment should continue to expand.

Wireless communication modules business

The wireless communication modules business refers to the R&D and sales of 2G, 3G and 4G wireless communication modules and Global Navigation Satellite System (“GNSS”) modules business operated by the Group’s subsidiary, Shanghai Simcom Wireless Solutions Limited.

In 2017, revenue of this business segment increased by 78.5%. Gross profit margin dropped to 8.8% when compared with that of last year. The growth in revenue was attributable to the continued booming development of the global IOT market and the rising demand for the Group’s wireless communication modules in domestic and overseas markets, particularly the significant growth in 2G modules for bike sharing and smart home applications in People’s Republic of China (“China” or “PRC”) and the 4G modules for intelligent meter, IOV and intelligent POS applications. In the bike sharing market, the Group has captured most of the market share through its strong support to its top three customers in that sector. This business segment experienced a substantial increase in revenue, but the gross profit margin was very low due to intensifying competition among module suppliers in the bike sharing market. As the bike sharing-related business represented more than half of the shipment volume of this business segment, the gross profit margin of the whole business segment showed greater decline. Major reasons for the decline were the serious shortage and higher prices of some core components such as memories, printed circuit boards and capacitors starting from the second half of last year.

IOT system and O2O business

This business sector comprises of two segments: the first segment is the provision of various types of “cloud” system solutions with a back-end software system as the core; and the second segment is the provision of an O2O cloud trading platform to vending machine operators. (This business segment does not include the IOT terminals business.)

In 2017, the revenue of this business segment increased by 5.5% when compared with last year. Gross profit margin of this business segment was 12.6%, which is a significant decline when compared with last year. Overall profit of this business sector has decreased. The Group has developed mature system solutions encompassing intelligent elderly care service systems, health monitoring systems, vending machine operation services and vehicle anti-theft management systems. However, low sales revenues were recorded for these solutions in 2017 due to the absence of marketing and sales strategies.

As for the cloud trading platform, the Group has adjusted the development strategy from the originally asset-heavy operation mode of directly managing and operating vending machines and recruiting businesses for the financing of leasing investments to a one-stop-service asset-light O2O service platform. In 2017, the Group recorded a growth in the revenue derived from the provision of beverage wholesale and delivery services to vending machine operators and upgrade service for outdated vending machines. The increase in revenue was attributable to the establishment of a sub-depot by Shanghai Yunhao Trading Limited, a subsidiary of the Group, in other regions and the addition of business

channels. Meanwhile, the Group eliminated the directly managed and operated vending machine outlets with poor efficiency and reduced the amount of financing leasing, that led to a non-operating loss. The operation of some sub-depots has not reached a break-even point while the necessary wages, warehousing and logistics expenses were still incurred, which dragged down the profitability of this business segment.

Intelligent manufacturing business

The Group’s intelligent manufacturing segment comprises of three business units. The first business unit is engaged in producing automated equipment based on integrated robotic applications, which would be used to replace operations in the production line that are labour intensive. This has served as a starting point for the Group to enter the intelligent manufacturing market and the Group possesses significiant market shares in the global market. The second business unit is committed to developing optical system products, which are focusing on machine vision and artificial intelligence (“AI”) technology intended to replace a large number of visual inspection workers in the production line. However, this unit has been unable to secure major orders and continued investment in R&D resources is still needed. The third business unit aims to tap the industrial internet intellectual system through the development of the back-end software to replace or assist simple and straightforward computer operations for a white-collar worker in manufacturing or supply-chain management, such as a planner and a warehouse manager. This business unit has not generated actual revenue as it is still at the optimisation and marketing stage.

In 2017, turnover in this segment declined by 29.3% compared with that of the previous year, while its gross profit margin was similar and overall profit dropped. As the China government implemented a deleveraging policy in 2017, most manufacturing companies became more prudent in equipment investments, which suppressed the market demand. Many traditional mechanical assembly companies in China rushed to develop intelligent and automated manufacturing, which fueled competition and triggered a price war. As the Group assigns top priority to product quality and customer reputation, it has forfeited some business opportunities that could only be won with low prices. Besides, several automation companies that the Group acquired two years ago recorded losses, because they are currently managed by joint venture partners and operating beyond its effective control. Therefore, the factors above have contributed to segmental turnover and overall profit falling below expectation, and to some extent lower than that of last year. Despite the fierce competition from other players, the Group managed to stabilise the gross profit margin, capitalising on its technology edge and strong reputation in the market.

The Group has continued to develop our intelligent manufacturing business. To better serve its customers, the Group has established two automation business bases, one in Qingpu in Eastern China and one in Songshanhu in Southern China, to form a complete platform for R&D and sales. The Group is using these bases to optimise corporate structure, reform the operational model, and reinforce its leading presence in the 3C products testing sector. It is striving to secure large international EMS providers as customers and extend the applications of its products to other industries including optical AI, intelligent logistics, intelligent storage, etc.

Properties development

As at 31 December 2017, “The Riverside Country” （晨興‧翰林水郡）, in Shenyang City, the PRC, has a total of 1,842 residential units in all its four phases, of which 1,680 units had been sold.

As at 31 December 2017, “Seven River in Sweet” （七里香溪）, in Taizhou City, the PRC, has a total of 757 residential units and 22 commercial units completed in all its two phases, of which 736 units and 22 units had been sold respectively.

The revenue of properties development for 2017 was amounted to HK$306.4 million (2016: HK$192.4 million) with gross profit margin of 16.9% (2016: 12.1%).

Prospects

In executing its transformation strategy and facilitating the development of the wireless communication modules business, the Group has entered into a sale and purchase agreement with 深圳日海通訊技術股份有限公司 (Shenzhen Sunsea Telecommunication Co., Ltd.*), to dispose 100% equity interests in Shanghai Simcom Wireless Solutions Limited (“Simcom Wireless”), a subsidiary of the Group. Further details are disclosed in the section of “Material Acquisition and Disposal of Subsidiaries and Associated Companies” in this announcement.

Prior to this disposal, the Group’s wireless communication modules business had covered the entire business chain of wireless communication modules operations, from product development (including product planning and specifications), procurement of raw materials, production processing (including logistics and delivery of finished products) to sales operations. Upon completion of this disposal, the Group will only be responsible for procurement of raw materials and production processing (including logistics and delivery of finished products). The wireless communication modules business is expected to remain as one of the Group’s business segments subsequent to this disposal. Its turnover should not drop significantly compared with the period before this disposal, however its business nature will change from an original brand manufacturer (“OBM”) to an electronics manufacturing services (“EMS”) provider. By then, the gross profit margin would drop notably but the Group would no longer need to bear the huge R&D expenses and marketing costs of the modules business, nor the inventory risk of raw materials.

This disposal will not affect the Group’s handsets and IOT terminals business. In the future, the Group will continue to focus on the IOT/industrial terminals markets, in order to better understand the demand and weakness of different business segments. The Group will also increase the investments in R&D, and actively plan and develop terminals or specialised modules that suit the markets. Regarding market development, the Group will focus more on securing new customers in overseas markets. The proceeds from the above mentioned disposal will be used to build an operations center in Dongguan and a factory to upgrade handsets. The Directors believe that the Group can stand out amidst the keen competition of the IOT terminals market.

Regarding the IOT system and O2O business, the Group will continue to bolster the R&D and marketing of IOT back-end software and expand the cloud computing and big data service platform. The Group will also further expand the ancillary applications of self-developed IOT terminals for different industries, so as to bring new business opportunities to the IOT system and O2O business segment. At the same time, the Group will retain the service platform model for automatic vending machines, in order to build an integrated service platform to focus on serving small-to-medium automatic vending machine operators and beverage manufacturers. This asset-light operation mode is expected to optimise the Group’s IT technical strengths and control operational risks while facilitating overall business operations.

Intelligent manufacturing business is the Group’s latest business pursuit and has strong potential for development. After years of efforts, out of three production lines, the automated robotic line has carved out market share in the handsets manufacturing industry. The performance of the optical technological products has proven that they can create huge value for customers. Industrial internet products have been increasingly deployed at our factories. After several years’ of hard work, the entire business team has grown into a top unit integrating R&D, manufacturing, sales and after-sales functions. Transformation to intelligent robotic manufacturing has become a major trend in manufacturing within China, thus, there will be a strong demand for intelligent manufacturing and AI in the future. The competition in the industry among homogeneous products or for talent is expected to become more intense. Facing a fiercely competitive market, the Group’s intelligent manufacturing team has made the necessary full preparation and the Group, for its part, will nurture their entrepreneurial “can-do” spirit through more effective solutions. Thus the Group expects the intelligent manufacturing business will develop rapidly in the next few years.

More than ten years ago, the Group has constructed its headquarters in Shanghai, namely SIM Technology Building Block A and Block B which were intended partly for internal use and partly for leasing. The property market in China had not surged at that time, so the leasing area was relatively small and the rent was low. The Group didn’t launch a dedicated leasing business, rather it was considered as other income only. However, the property market in China has become more and more prosperous in recent years with a substantial increase in rent. Thus, the Group has moved part of the staff to the Qingpu factory as the rent there is lower, and subsequently enlarged the leasing area at the Shanghai headquarters. To utilise our resources more effectively, the Group is developing the property leasing business by leasing out the spare space at factories and other buildings. At the same time, the Group plans to invest and build a southern base in Dongguan, and parts of the properties are to be earmarked for the leasing business as well. The Group believes that the property market in China has passed the stage of explosive growth, nonetheless will keep growing steadily, rental income will become a stable growth business of the Group.

Looking ahead, the Group will enhance its business transformation, develop value-added businesses and refine its business model as it tightens control and management of costs and expenses. While transformation can be painful for a fresh start, so every staff should have the ambition to start a new business, embrace the change and bear the responsibilities. We firmly believe that the Group will create greater economies of scale to accommodate the continuous development of its business.

FINANCIAL REVIEW

During the Year, the revenue from handsets and IOT terminals business, wireless communication modules business, IOT system and O2O business and intelligent manufacturing business (“Core Business”) increased by 16.6% to HK$2,952.1 million (2016: HK$2,531.9 million). The revenue from the sale of residential units in PRC amounted to HK$306.4 million (2016: HK$192.4 million). The total revenue of the Group for the Year, included revenue of Core Business and properties development, amounted to HK$3,258.5 million (2016: HK$2,724.4 million).

The gross profit for Core Business of the Group for the Year decreased by 9.2% year-on-year to HK$343.5 million (2016: HK$378.6 million). The gross profit margin for Core Business decreased to 11.6% (2016: 15.0%). The overall gross profit margin of the Group for the Year was 12.1% (2016: 14.7%).

The Group achieved a profit attributable to owners of the Company which increased year-on-year by 44.5% to HK$111.7 million (2016: HK$77.3 million) for the Year. The basic earnings per share for the Year was HK4.36 cents (2016: HK3.02 cents).

Research and development expenses

In 2017, the Group mainly focused on the development of intelligent manufacturing businesses. The number of design and development team members was 840 (2016: 860) in 2017. Total R&D expenses of the Group, which amounted to HK$90.6 million (2016: HK$102.2 million), represented 2.8% (2016: 3.8%) of the Group’s revenue.

Selling and distribution costs

The selling and distribution costs of the Group for the Year increased by 6.3% to HK$144.4 million (2016: HK$135.9 million). The ratio of the selling and distribution costs over revenue in 2017 was 4.4 % (2016: 5.0%).

Administrative expenses

The Group’s administrative expenses for 2017 decreased by 2.4% to HK$122.2 million (2016: HK$125.2 million), representing 3.8% (2016: 4.6%) of the revenue.

Segment results of core business

Handsets and IOT terminals business Wireless communication modules business IOT system and O2O business Intelligent manufacturing business Total	Year ended 31 December 2017 Revenue Gross profit Gross profit margin *HK$’M* *HK$’M* % 1,076.9 136.4 12.7 1,454.9 127.7 8.8 318.9 40.2 12.6 101.4 39.2 38.7 2,952.1 343.5 11.6	Year ended 31 December 2016 Revenue Gross profit Gross profit margin HK$’M HK$’M % 1,271.1 158.2 12.4 815.0 118.4 14.5 302.3 45.9 15.2 143.5 56.1 39.1 2,531.9 378.6 15.0

Handsets and IOT terminals business

During the Year, since more customers have shifted towards using IOT/industrial application terminals and some differentiated high-end handsets products, the Group no longer developed consumer handsets that are homogeneous and single model with bulk shipment, which generates narrow gross profit margins. However, the IOT/industrial application terminals and some differentiated high-end handset products have higher selling prices and gross profit margins but much lower shipment volumes. As a result, the revenue of this segment decreased significantly year-on-year by 15.3% to HK$1,076.9 million (2016: HK$1,271.1 million) in 2017. Nevertheless, as the application terminals having higher average selling price and profit margin, the overall gross profit margin of this business segment increased slightly to 12.7% (2016: 12.4%) for the Year. The revenue of ODM business contributed to approximately 72% of the revenue of this segment in 2017 (2016: 73%).

Wireless communication modules business

Due to the increasing demand for the Group’s wireless communication modules from domestic bike sharing industry, revenue of this segment increased year-to-year by 78.5%. However due to the declining average selling price of 2G and other low-end modules, the gross profit margin decreased to 8.8% (2016: 14.5%).

IOT system and O2O business

During the Year, the revenue of this segment increased 5.5% to HK$318.9 million (2016: HK$302.3 million). That was mainly due to the increase in establishment of a sub-depot by the Group in other regions and the addition of business channels. Meanwhile, the Group eliminated the directly managed and operated vending machine outlets with poor efficiency and reduced the amount of financing leasing, leading to a non-operating loss. The operation of some sub-depots has not reached a break-even point while the necessary wages, warehousing and logistics expenses were still incurred, which dragged down the profitability of this business segment.The gross profit margin for the Year decreased to 12.6% (2016: 15.2%).

Intelligent manufacturing business

As the China government implemented a deleveraging policy in 2017, most manufacturing companies became more prudent in equipment investments, which suppressed the market demand. Besides, several automation companies that the Group acquired two years ago recorded losses, because they are currently managed by joint venture partners and operating beyond its effective control. As a result, the revenue for the Year of this segment decreased by 29.3% to HK$101.4 million (2016: HK$ 143.5 million), while gross profit decreased by 30%. The gross profit margin also decreased to 38.7% (2016: 39.1%).

LIQUIDITY, FINANCIAL RESOURCES AND CAPITAL STRUCTURE

Liquidity

As at 31 December 2017, the Group had bank balances and cash of HK$417.1 million (31 December 2016: HK$249.1 million), among which 88.3% was held in Renminbi, 11.5% was held in US dollars and the remaining balance was held in Hong Kong dollars. As at 31 December 2017, the Group also had pledged bank deposits of HK$30.1 million (31 December 2016: HK$76.6 million) in Renminbi for the purpose of the Group’s Renminbi borrowings. The Group intends to finance its working capital and capital expenditure plans from such bank balances. The Group has pledged certain of its assets (including property, plant and equipment, investment properties, land use rights and notes receivables) to secure the bank borrowings. The total bank borrowings of the Group amounted to HK$84.1 million as at 31 December 2017 (31 December 2016: HK$300.0 million), all of which HK$62.1 million was denominated in Renminbi and HK$22.0 million was denominated in US dollars. All of the bank borrowings were at floating interest rates and repayable within one year.

Operating Efficiency

The turnover period of the inventory, trade and notes receivables, trade and notes payables of the Group for the Core Business are presented below:

	2017	2016
	*Days*	Days
Inventory turnover period	105	119
Trade and notes receivables turnover period	37	40
Trade and notes payables turnover period	48	88

In the Year, due to significant increase in sales volume, the purchase and cost of sales of the Group increased significantly. The inventory turnover period thus decreased as compared to that of year 2016.

The trade and notes receivable turnover period decreased for the Year as compared to that of year 2016 due to the significant increase in sales for the Year.

The trade and notes payables turnover period decreased for the Year as compared to that of year 2016 due to the decrease in average balance of trade and notes payables for the Year.

As at 31 December 2017, the current ratio, calculated as current assets over current liabilities, was 1.9 times (31 December 2016: 1.9 times).

The Group reckons that inventory turnover period, trade and notes receivables turnover period, and trade and notes payables turnover period help the Group to understand its ability to convert inventory into cash and sales and cash conversion cycle. Through reviewing the turnover periods, the Group can improve its operational efficiency. The current ratio can help the Group to understand its ability to pay short-term and long-term obligations.

Treasury Policies

The Group adopts a prudent approach in its treasury policy. The Group’s surplus funds are held under fixed and savings deposits in reputable banks to earn interest income. As at 31 December 2017, the Group has entrusted a total amount of HK$36.2 million under certain asset management agreements for an investment period of one year. During the Year, the Group did not have any other security or capital investments or derivative investments.

Certain sales and purchases of inventories of the Group are denominated in US dollars. Furthermore, certain trade receivables, trade payables, bank balances and bank borrowings are denominated in US dollars, therefore exposing the Group to the currency risk of US dollars. During 2016, the Group entered into a foreign exchange forward contract of US$20.0 million to reduce the foreign exchange exposures in US dollars. The aforementioned foreign exchange forward contract was matured on 16 November 2017 and there was no outstanding foreign exchange forward contract as at 31 December 2017. Save as disclosed, as at 31 December 2017, the Group did not use any financial instrument for hedging purpose.

CAPITAL STRUCTURE

As at 31 December 2017, the Company had 2,559,546,300 ordinary shares of HK$0.10 each in issue.

The Company has issued 1,650,000 ordinary shares of HK$0.1 each upon exercise of share options of the Company during the Year.

Save as disclosed above, no shares of the Company has been issued or repurchased during the Year.

CASH FLOW STATEMENT HIGHLIGHTS

Net cash from operating activities Capital expenditure Development costs Net decrease in bank borrowings Net decrease in entrusted loan receivables Proceeds from disposal of equipment Deposits received for disposal of an associate Bank interest paid Dividend paid Repayment to non-controlling shareholders of subsidiaries Deposits received from disposal of subsidiaries Consideration received from disposal of an associate Increase in other liabilities Others Net increase/(decrease) in cash and cash equivalents (including pledged bank deposits)	2017 *HK$’ million* 380.2 (53.5) (201.1) (236.6) 76.6 2.4 – (9.0) (25.6) (35.6) 62.4 10.1 141.2 9.9 121.4	2016 HK$’ million 211.0 (59.0) (194.5) (18.1) 3.5 5.3 1.2 (10.1) – (9.4) – – – (5.4) (75.5)

GEARING RATIO

As at 31 December 2017, the total assets value of the Group was HK$3,630.4 million (31 December 2016: HK$3,479.8 million) and the bank borrowings was HK$84.1 million (31 December 2016: HK$300.0 million). The gearing ratio of the Group, calculated as total bank borrowings over total assets, was 2.3% (31 December 2016: 8.6%).

The Group reviews its gearing ratio on a regular basis. According to the capital plan for the future, the Group tries to maximise revenue for Shareholders with capital risk awareness in mind. Capital structure is being constantly adjusted according to changes in the operational environment.

MATERIAL ACQUISITION AND DISPOSAL OF SUBSIDIARIES AND ASSOCIATED COMPANIES

On 20 January 2017, SIM Technology Group (BVI) Limited, a wholly-owned subsidiary of the Company and u-blox AG, a wholly-owned subsidiary of u-blox Holding AG (a company listed on the SIX Swiss Exchange), entered into the technology assignment (“Technology Assignment Contract”) and the asset purchase agreement (“Asset Purchase Agreement”), pursuant to which the Group has agreed to sell the Group’s 2G, 3G, 4G wireless communication module and GNSS module business related technology and assets at the aggregate consideration of US$52.5 million.

On 21 May 2017, the Group and u-blox AG have mutually agreed not to proceed with the above mentioned proposed disposal. Both parties have therefore decided to amicably terminate the Technology Assignment Contract and Asset Purchase Agreement and all ancillary agreements.

Further details of the above mentioned proposed disposal are disclosed in the announcements of the Company dated 22 January 2017 and 22 May 2017 and the circular of the Company dated 28 February 2017.

On 22 September 2017, the Company, Simcom International Holdings Limited (“Simcom International”), 上海移為通信技術股份有限公司 (Queclink Wireless Solutions Co., Ltd.*) (“Queclink Wireless”), Richjoy Talent Limited (“Richjoy”), Shanghai Simcom Electronic Limited (“Simcom Electronic”, together with Simcom Wireless as the “Target Companies”) and Simcom Wireless entered into a sale and purchase agreement under which Simcom International has conditionally agreed to sell, and Queclink Wireless and Richjoy have conditionally agreed to purchase the equity interest in the Target Companies at the aggregate consideration of RMB528 million.

On 7 December 2017, the Company, Simcom International, Queclink Wireless, Richjoy, the Target Companies, Shenyang SIM Simcom Technology Limited and Shanghai SIM Technology Limited entered into a termination agreement for the above mentioned sale and purchase agreement.

Further details of the above mentioned proposed disposal are disclosed in the announcements of the Company dated 22 September 2017, 24 November 2017 and 7 December 2017.

On 21 December 2017, the Company, Simcom International (an indirect wholly-owned subsidiary of the Company), 深圳日海通訊技術股份有限公司 (Shenzhen Sunsea Communication Technology Co. Limited*) (“Shenzhen Sunsea”) (a company listed on the Shenzhen Stock Exchange), Simcom Electronic and Simcom Wireless entered into the sale and purchase agreement (“Sale and Purchase Agreement”) under which Simcom International has conditionally agreed to sell, and Shenzhen Sunsea has conditionally agreed to purchase, 100% of the equity interest of Simcom Wireless (“Disposal”). It is expected that approximately 35% of the actual net gain from the disposal will be used for payment of a special interim dividend. Further details of the amount of the special interim dividend and the record date of the entitlements will be announced by the Company after completion. Details of the Disposal are disclosed in the announcements of the Company dated 21 December 2017 and 13 February 2018 and the circular of the Company dated 18 January 2018.

Save as disclosed above, during the Year, the Group did not have any material acquisition or disposal of subsidiaries or associated companies.

FUTURE PLANS FOR MATERIAL INVESTMENT

As stated in the circular of the Company dated 18 January 2018, the Group intends to use part of the net proceeds from the Disposal in the following manner:

as to approximately HK$201.5 million for purchase of the land for the Group’s operations centre in Dongguan, the PRC and the construction of the operation centre; and
as to approximately HK$115.1 million for (a) upgrading the production facilities of the Group in Shanghai and the above operations centre and development of an automated intelligent 3D-warehouse; (b) further implementation of the digitizating, networking and intelligent processes by Industry 4.0; and (c) enhancing the competitiveness of the high-end handsets ODM (original design manufacturing) and EMS businesses.

Save as disclosed above, the Group did not have any plans for material investment or capital assets during the Year.

SIGNIFICANT INVESTMENT

As at 31 December 2017, the available-for-sale investment represented the Group’s investment in 3.41% of the shares in Shanghai Guao Electronic Technology Co., Ltd (“Shanghai Guao”) (“Investment”) and the Investment cost was approximately HK$16.9 million. During 2016, Shanghai Guao became listed on the ChiNext of the Shenzhen Stock Exchange. The fair value, based on the quoted market price, of the Investment at 31 December 2017 is approximately HK$80.3 million (31 December 2016: HK$187.4 million). HK$171,000 dividends was received from Shanghai Guao during the Year. Shanghai Guao specializes in the research and development, manufacturing, marketing and service of innovative financial equipment. The Group noted the development strategy of Shanghai Guao as stated in its annual report for the year 2016 issued on April 2017, that Shanghai Guao will focus on the new financial products based on its existing production system and technology reserve. Shanghai Guao will continue to develop its technology so as to improve its sales and after-sale service. Shanghai Guao will develop projects in relation to automated cash treatment.

CONTINGENT LIABILITIES

As at 31 December 2017, the Group did not have any material contingent liabilities.

EMPLOYEES

As at 31 December 2017, the Group had approximately 2,540 (2016: 2,390) employees. The Group operates a Mandatory Provident Fund retirement benefits scheme for all of its employees in Hong Kong, and provides its PRC employees with welfare schemes as required by the applicable laws and regulations of the PRC. The Group also offers discretionary bonuses and may grant share options under the share option scheme of the Company to its employees by reference to individual performance and the performance of the Group. Total staff costs incurred by the Group amounted to HK$308.0 million (2016: HK$387.5 million) during the Year.

PURCHASE, SALE OR REDEMPTION OF LISTED SECURITIES OF THE COMPANY

During the Year, neither the Company nor any of its subsidiaries has purchased, sold or redeemed any of the Company’s listed securities.

EVENTS AFTER THE REPORTING PERIOD

On 13 February 2018, the Shareholders approved the Sale and Purchase Agreement and the transactions contemplated thereunder. Subsequent to 31 December 2017, the Disposal has been completed and the Group is in the process of assessing the relevant financial impact of the Disposal to the Group.

Details of the Disposal are disclosed in the section of “Material Acquisition and Disposal of Subsidiaries and Associated Companies” in this announcement and the announcements of the Company dated 21 December 2017 and 13 February 2018 and the circular of the Company dated 18 January 2018.

Save as disclosed above, there were no significant events of the Group occurred since the end of the Year.

CORPORATE GOVERNANCE CODE

Save as mentioned below, the Company has complied with the code provisions laid down in the Corporate Governance Code (“Corporate Governance Code”) as set out in Appendix 14 to the Rules (“Listing Rules”) Governing the Listing of Securities on the Stock Exchange for the Year.

Code provision A.2.7 of the Corporate Governance Code requires the chairman of the Board to hold meetings at least annually with the non-executive Directors (including independent non-executive Directors) without the executive Directors present. As Ms Yeung Man Ying, the chairman of the Board, is also an executive Director, the Company has deviated from this code provision as it is not applicable. Currently, the chairman of the Board may communicate with the non-executive Directors on a one-toone or group basis periodically to understand their concerns, to discuss pertinent issues and to ensure that there is access to adequate and complete information.

In respect of code provisions A.5.1 to A.5.4 of the Corporate Governance Code, the Company does not have a nomination committee. At present, the Company does not consider it necessary to have a nomination committee as the full Board is responsible for reviewing the structure, size and composition of the Board and the appointment of new Directors from time to time to ensure that it has a balanced composition of skills and experience appropriate for the requirements of the businesses of the Company, and the Board as a whole is also responsible for assessing the independence of the independent nonexecutive Directors and reviewing the succession plan for the Directors, in particular the chairman of the Board.

According to the code provision E.1.2 of the Corporate Governance Code, the chairman of the Board shall attend the annual general meeting of the Company and arrange for the chairmen of the audit, remuneration and nomination committees (as appropriate) or in the absence of the chairman of such committees, another member of the committee or failing this his duly appointed delegate, to be available to answer questions at the annual general meeting.

At the annual general meeting of the Company held on 8 June 2017 (“2017 AGM”), Ms Yeung Man Ying, the chairman of the Board, was unable to attend due to an unexpected business engagement. Mr Chan Tat Wing, Richard, an executive Director and the chief finance officer of the Group, chaired the 2017 AGM on behalf of the chairman of the Board pursuant to the bye-laws of the Company and was available to answer questions. Mr Liu Hing Hung, an independent non-executive Director and the chairman of the remuneration committee of the Board and the audit committee of the Board (“Audit Committee”), was also available at the 2017 AGM to answer questions from Shareholders.

COMPLIANCE WITH THE MODEL CODE

The Company has adopted the Model Code for Securities Transactions by Directors of Listed Issuers (“Model Code”) as set out in Appendix 10 to the Listing Rules as its own code for securities transactions. All Directors have confirmed, following specific enquiry by the Company with all the Directors, that each of them has fully complied with the required standard as set out in the Model Code for the Year.

AUDIT COMMITTEE

The audit committee of the Board (“Audit Committee”) has reviewed with the management the accounting principles and practice adopted by the Group and discussed auditing, internal control and financial reporting matters. The Audit Committee has also reviewed the consolidated financial statements of the Group for the Year and has recommended their adoption by the Board.

SCOPE OF WORK OF MESSRS. DELOITTE TOUCHE TOHMATSU

The figures in respect of the Group’s consolidated statement of financial position, consolidated statement of profit or loss, consolidated statement of profit or loss and other comprehensive income and the related notes thereto for the Year as set out in the preliminary announcement have been agreed by the Group’s auditor, Messrs. Deloitte Touche Tohmatsu, to the amounts set out in the Group’s audited consolidated financial statements for the year. The work performed by Messrs. Deloitte Touche Tohmatsu in this respect did not constitute an assurance engagement in accordance with Hong Kong Standards on Auditing, Hong Kong Standards on Review Engagements or Hong Kong Standards on Assurance Engagements issued by the Hong Kong Institute of Certified Public Accountants and consequently no assurance has been expressed by Messrs. Deloitte Touche Tohmatsu on the preliminary announcement.

PUBLICATION OF RESULTS ANNOUNCEMENT AND ANNUAL REPORT

This announcement is published on the respective websites of the Company (www.sim.com) and of the Stock Exchange (www.hkexnews.hk). The 2017 annual report will be despatched to the Shareholders and be available on the above websites in due course.

APPRECIATION

The Board would like to thank our Shareholders, customers, suppliers, bankers and professional advisers for their support of the Group and to extend our appreciation to all our staff for their dedication and contributions throughout the Year.

DIRECTORS

As at the date of this announcement, the executive Directors are Ms Yeung Man Ying, Mr Wong Cho Tung, Ms Tang Rongrong, Mr Chan Tat Wing, Richard and Mr Liu Jun, and the independent nonexecutive Directors are Mr Liu Hing Hung, Mr Wang Tianmiao and Mr Wu Zhe.

By Order of the Board SIM Technology Group Limited Wong Cho Tung Director

This announcement contains certain forward-looking statements. The words “intend”, “expect”, “anticipate”, “is confident”, and similar expressions are intended to identify forward-looking statements. These statements are not historical facts or guarantees of future performance. Actual results could differ materially from those expressed, implied or forecasted in such forward-looking statements. Such forward-looking statements are based on the current beliefs, assumptions, expectations, estimates and projections of the Directors and management of the Company about the business, the industry and the market in which the Group operates, and are subject to risks, uncertainties and other factors that could significantly affect expected results.

22 March 2018

For identification purposes only

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SIM Technology Group Limited — Annual Report 2018

50331_rns_2018-03-22_5350b79b-6233-44a0-abe0-ad14491feaec.pdf

SIM TECHNOLOGY GROUP LIMITED 晨訊科技集團有限公司[*]

ANNUAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2017

CONSOLIDATED STATEMENT OF PROFIT OR LOSS

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

1. General information and basis of preparation

2. Application of new and revised International Financial Reporting Standards (“IFRSs”)

Amendments to IFRSs that are mandatorily effective for the current year

Amendments to IAS 7 Disclosure initiative

New and revised IFRSs in issue but not effective

IFRS 9 “Financial instruments”

Classification and measurement:

Impairment

IFRS 15 “Revenue from contracts with customers”

IFRS 16 “Leases”

Amendments to IAS 40 “Transfers of investment property”

3. Revenue

4. Segment information

Segment revenue and results

For the year ended 31 December 2017

Segment assets and liabilities

At 31 December 2017

Other segment information

Revenue from major products/services

Geographical information

5. Other income

6. Other gains and losses

8. Taxation

9. Profit for the year

10. Dividends

11. Earnings per share

12. Trade and notes receivables

13. Trade and notes payables

FINAL DIVIDEND

CLOSURE OF REGISTER OF MEMBERS

ANNUAL GENERAL MEETING

MANAGEMENT’S DISCUSSION AND ANALYSIS

BUSINESS REVIEW

Handsets and IOT terminals business

Wireless communication modules business

IOT system and O2O business

Intelligent manufacturing business

Properties development

Prospects

FINANCIAL REVIEW

Research and development expenses

Selling and distribution costs

Administrative expenses

Segment results of core business

Handsets and IOT terminals business

Wireless communication modules business

IOT system and O2O business

Intelligent manufacturing business

LIQUIDITY, FINANCIAL RESOURCES AND CAPITAL STRUCTURE

Liquidity

Operating Efficiency

Treasury Policies

CAPITAL STRUCTURE

CASH FLOW STATEMENT HIGHLIGHTS

GEARING RATIO

FUTURE PLANS FOR MATERIAL INVESTMENT

SIGNIFICANT INVESTMENT

CONTINGENT LIABILITIES

EMPLOYEES

PURCHASE, SALE OR REDEMPTION OF LISTED SECURITIES OF THE COMPANY

EVENTS AFTER THE REPORTING PERIOD

CORPORATE GOVERNANCE CODE

COMPLIANCE WITH THE MODEL CODE

AUDIT COMMITTEE

SCOPE OF WORK OF MESSRS. DELOITTE TOUCHE TOHMATSU

PUBLICATION OF RESULTS ANNOUNCEMENT AND ANNUAL REPORT

APPRECIATION

DIRECTORS

By Order of the Board SIM Technology Group Limited Wong Cho Tung Director

22 March 2018

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SIM Technology Group Limited Annual Report 2018