THIS COMPOSITE DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of the Offer, this Composite Document and/or the accompanying Form of Acceptance or as to the action to be taken, you should consult a licensed securities dealer or registered institution in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your Shares in UNIVERSE ENTERTAINMENT AND CULTURE GROUP COMPANY LIMITED , you should at once hand this Composite Document and the accompanying Form of Acceptance to the purchaser(s) or transferee(s) or the licensed securities dealer or registered institution in securities or other agent through whom the sale or transfer was effected for transmission to the purchaser(s) or transferee(s). This Composite Document should be read in conjunction with the accompanying Form of Acceptance, the contents of which form part of the terms and conditions of the Offer contained herein.

Hong Kong Exchanges and Clearing Limited, The Stock Exchange of Hong Kong Limited and Hong Kong Securities Cleaning Company Limited take no responsibility for the contents of this Composite Document and the accompanying Form of Acceptance, make no representation as to their 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 Composite Document and the accompanying Form of Acceptance.

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PIONEER ENTERTAINMENT GROUP LIMITED

(Incorporated in the British Virgin Islands with limited liability)

UNIVERSE ENTERTAINMENT AND CULTURE GROUP COMPANY LIMITED 寰宇娛樂文化集團有限公司

(formerly known as Universe International Financial Holdings Limited 寰宇國際金融控股有限公司 )

(Incorporated in Bermuda with limited liability)

(Stock Code: 1046)

COMPOSITE OFFER AND RESPONSE DOCUMENT RELATING TO UNCONDITIONAL MANDATORY CASH OFFER BY

FOR AND ON BEHALF OF PIONEER ENTERTAINMENT GROUP LIMITED TO ACQUIRE ALL THE ISSUED SHARES IN UNIVERSE ENTERTAINMENT AND CULTURE GROUP COMPANY LIMITED (OTHER THAN THOSE ALREADY OWNED OR TO BE ACQUIRED BY PIONEER ENTERTAINMENT GROUP LIMITED AND PARTIES ACTING IN CONCERT WITH IT)

Financial adviser to the Offeror

Independent Financial Adviser to the Independent Board Committee

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Capitalised terms used in this cover page shall have the same meanings as those defined in the section headed “Definitions” to this Composite Document. A letter from Kingston Securities containing, among other things, details of the terms of the Offer is set out on pages 7 to 12 of this Composite Document. A letter from the Board is set out on pages 13 to 19 of this Composite Document. A letter from the Independent Board Committee is set out on pages 20 to 21 of this Composite Document. A letter from the Independent Financial Adviser, containing its advice to the Independent Board Committee, is set out on pages 22 to 36 of this Composite Document.

The procedures for acceptance and settlement of the Offer and other related information are set out in Appendix I to this Composite Document and in the accompanying Form of Acceptance. Acceptance of the Offer should be received by the Registrar as soon as possible and in any event no later than 4:00 p.m. on Friday, 16 November 2018 (or such later time and/or date as the Offeror may decide and announce in accordance with the requirements under the Takeovers Code).

Any persons including, without limitation, custodians, nominees and trustees, who would, or otherwise intend to, forward this Composite Document and/or the accompanying Form of Acceptance to any jurisdiction outside of Hong Kong should read the details in this regard which are contained in the paragraph headed “7. OVERSEAS OFFER SHAREHOLDERS” in Appendix I to this Composite Document before taking any action. It is the responsibility of each Overseas Offer Shareholder wishing to accept the Offer to satisfy himself, herself or itself as to the full observance of the laws of the relevant jurisdiction in connection therewith, including the obtaining of any governmental, exchange control or other consents which may be required and the compliance with other necessary formalities or legal requirements. Overseas Offer Shareholders are advised to seek professional advice on deciding whether to accept the Offer. This Composite Document will remain on the websites of the Stock Exchange at http://www.hkexnews.hk and the Company at http://www.uih.com.hk as long as the Offer remains open.

26 October 2018

	Page
EXPECTED TIMETABLE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	ii
IMPORTANT NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2
LETTER FROM KINGSTON SECURITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
LETTER FROM THE BOARD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
LETTER FROM THE INDEPENDENT BOARD COMMITTEE. . . . . . . . . . . . . . . . . . . .	20
LETTER FROM THE INDEPENDENT FINANCIAL ADVISER. . . . . . . . . . . . . . . . . . . .	22
APPENDIX I – FURTHER TERMS OF THE OFFER AND
PROCEDURES FOR ACCEPTANCE AND SETTLEMENT. . . .	I-1
APPENDIX II – FINANCIAL INFORMATION OF THE GROUP. . . . . . . . . . . . . .	II-1
APPENDIX III – GENERAL INFORMATION OF THE OFFEROR. . . . . . . . . . . . .	III-1
APPENDIX IV – GENERAL INFORMATION OF THE GROUP. . . . . . . . . . . . . . . .	IV-1
ACCOMPANYING DOCUMENT – FORM OF ACCEPTANCE

– i –

EXPECTED TIMETABLE

The expected timetable set out below is indicative only and may be subject to change. Further announcement(s) will be made in the event of any changes to the timetable as and when appropriate.

All times and dates references contained in this Composite Document refer to Hong Kong times and dates.

Events Times & Dates
2018
Despatch date of this Composite Document and
the Form of Acceptance_(Note 1)_. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Friday, 26 October
Offer opens for acceptance_(Note 1)_. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Friday, 26 October
Latest time and date for acceptance of the Offer_(Note 2)_. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4:00 p.m. on
Friday, 16 November
Closing Date (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Friday, 16 November
Announcement of the results of the Offer
(or its extension or revision, if any) on the website
of the Stock Exchange_(Note 2)_. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . no later than 7:00 p.m. on
Friday, 16 November
Latest date for posting of remittances in respect
of valid acceptances received at or before the
latest time for acceptance of the Offer_(Note 3)_. . . . . . . . . . . . . . . . . . . . . . . . . . Tuesday, 27 November

Notes:

The Offer, which is unconditional in all respects, is made on the date of posting of this Composite Document, and is capable of acceptance on and from that date until 4:00 p.m. on the Closing Date. Acceptances of the Offer shall be irrevocable and not capable of being withdrawn, except in the circumstances set out in the subparagraph (b) under paragraph headed “6. RIGHT OF WITHDRAWAL” in Appendix I to this Composite Document.
In accordance with the Takeovers Code, the Offer must initially be open for acceptance for at least 21 days following the date on which this Composite Document is posted. The latest time and date for acceptance of the Offer is 4:00 p.m. on Friday, 16 November 2018 unless the Offeror revises or extends the Offer in accordance with the Takeovers Code. The Offeror has the right under the Takeovers Code to extend the Offer until such date as it may determine in accordance with the Takeovers Code (or as permitted by the Executive in accordance with the Takeovers Code). An announcement will be jointly issued by the Company and the Offeror on the website of the Stock Exchange by 7:00 p.m. on the Closing Date stating the results of the Offer and whether the Offer has been revised or extended. In the event that the Offeror decides to revise the Offer, all Offer Shareholders, whether or not they have already accepted the Offer, will be entitled to accept the revised Offer under the revised terms. The revised Offer must be kept open for at least 14 days following the date on which the revised offer document(s) are posted and shall not close earlier than the Closing Date.

– ii –

EXPECTED TIMETABLE

If there is a tropical cyclone warning signal number 8 or above or a “black rainstorm warning signal” in force on the Closing Date and (i) not cancelled in time for trading on the Stock Exchange to resume in the afternoon, the time and date of the close of the Offer will be postponed to 4:00 p.m. on the next Business Day which does not have either of those warnings in force in Hong Kong or such other day as the Executive may approve; or (ii) cancelled in time for trading on the Stock Exchange to resume in the afternoon, the time and date of the close of the Offer will remain on the same day, i.e. 4:00 p.m. on the Closing Date.

Remittances in respect of the cash consideration (after deducting the seller’s ad valorem stamp duty) payable for the Offer Shares tendered under the Offer will be despatched to the Offer Shareholders accepting the Offer by ordinary post at their own risk as soon as possible, but in any event within seven (7) Business Days following the date of receipt of all relevant documents required to render such acceptance complete and valid in accordance with the Takeovers Code.

Save as mentioned above, if the latest time for acceptance of the Offer and the posting of remittances do not take effect on the date and time as stated above, the other dates mentioned above may be affected. The Offeror and the Company will notify the Shareholders any change to the expected timetable as soon as practicable by way of announcement(s).

– iii –

IMPORTANT NOTICES

NOTICE TO THE OVERSEAS OFFER SHAREHOLDERS

The making of the Offer to persons with a registered address in jurisdictions outside Hong Kong may be prohibited or affected by the laws of the relevant jurisdictions. Overseas Offer Shareholders who are citizens or residents or nationals of jurisdictions outside Hong Kong should inform themselves about and observe any applicable legal requirements. It is the responsibility of any such person who wishes to accept the Offer to satisfy himself/herself/itself as to the full observance of the laws and regulations of the relevant jurisdictions in connection therewith, including the obtaining of any governmental, exchange control or other consents which may be required or compliance with other necessary formalities or legal requirements and the payment of any transfer or other taxes or other required payments due in respect of such jurisdictions. The Offeror and parties acting in concert with it, the Company, Kingston Corporate Finance, Kingston Securities, the Independent Financial Adviser, the Registrar, their respective ultimate beneficial owners, directors, officers, agents and associates and any other person involved in the Offer shall be entitled to be fully indemnified and held harmless by such person for any taxes as such person may be required to pay. Please refer to the paragraph headed “Overseas Offer Shareholders” in the “Letter from Kingston Securities” and Appendix I to this Composite Document for further information.

– 1 –

DEFINITIONS

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

“acting in concert” has the meaning ascribed to it under the Takeovers Code “adjusted closing price” the closing price of Shares adjusted as a result of the declaration of the Special Dividend
“associate(s)” has the meaning ascribed to it under the Listing Rules “Board” the board of Directors “Business Day(s)” a day on which the Stock Exchange is open for the transaction of business
“Bye-laws” the bye-laws of the Company, as amended or revised from time to time
“CCASS” the Central Clearing and Settlement System established and operated by HKSCC
“Closing Date” 16 November 2018, being the closing date of the Offer, which is the 21st day following the date on which this Composite Document is posted, unless the Offeror revises or extends the Offer in accordance with the Takeovers Code
“Company” Universe Entertainment and Culture Group Company Limited (formerly known as Universe International Financial Holdings Limited), a company incorporated in Bermuda with limited liability and the Shares are listed on the Main Board of the Stock Exchange
“Completion” completion of the sale and purchase of the Sale Shares in accordance with the terms and conditions of the Sale and Purchase Agreement
“Completion Date” 22 October 2018, being the date on which Completion took place
“Composite Document” this composite offer and response document jointly issued by the Offeror and the Company to the Shareholders in connection with the Offer in compliance with the Takeovers Code
“Consideration” the consideration of HK$128,389,950 paid by the Offeror to the Vendor pursuant to the Sale and Purchase Agreement
“Director(s)”
the director(s) of the Company
“Distribution”
the distribution of up to HK$271,989,682.80 of the amount standing to the credit of the contributed surplus account of the Company, pro rata to the Qualifying Shareholders, being the Special Dividend referred to in the Joint Announcement

– 2 –

DEFINITIONS

“Dividend Record Date” 11 October 2018, being the record date for determining the Qualifying Shareholders entitled to the Distribution “Executive” the Executive Director of the Corporate Finance Division of the SFC or any delegate of the Executive Director

“Form of Acceptance” the form of acceptance and transfer of the Offer Shares in respect of the Offer accompanying this Composite Document
“Group” the Company and its subsidiaries
“HK$” Hong Kong dollars, the lawful currency of Hong Kong
“Hong Kong” the Hong Kong Special Administrative Region of the People’s Republic of China
“Independent Board Committee” the independent board committee of the Board, comprising Mr. Choi Wing Koon, Mr. Lam Chi Keung, Mr. Tang Yiu Wing, Mr. Chong Ki Ming and Mr. Wong Cheuk Wai, Jason formed for the purpose of advising the Offer Shareholders in respect of the Offer
“Independent Financial Adviser” Red Sun Capital Limited, a corporation licensed to carry on Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities as defined under the SFO, being the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the Offer

“Joint Announcement”

the joint announcement issued by the Offeror and the Company dated 31 July 2018 in relation to, among other things, the Offer
“Kingston Corporate Finance”
Kingston Corporate Finance Limited, the financial adviser of the Offeror in respect of the Offer, and is a licensed corporation under the SFO, licensed to carry on Type 6 (advising on corporate finance) regulated activity
“Kingston Securities” Kingston Securities Limited, a licensed corporation under the SFO, licensed to carry on Type 1 (dealing in securities) regulated activity
“Last Trading Day”
26 July 2018, the last trading day for the Shares prior to the date of the Joint Announcement
“Latest Practicable Date”
23 October 2018, being the latest practicable date prior to the printing of this Composite Document for ascertaining certain information contained in this Composite Document

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

– 3 –

DEFINITIONS

“Loan Facility”

a loan facility of up to HK$340 million granted by Kingston Securities as lender to the Offeror as borrower in accordance with the terms of the Loan Facility Agreement for financing the purchase of Sale Shares and the Offer

“Loan Facility Agreement”

the loan facility agreement entered into between Kingston Securities as lender and the Offeror as borrower dated 26 July 2018 in relation to the Loan Facility

“Main Board”
the main board maintained and operated by the Stock Exchange
“Mr. Alvin Lam”
Mr. Lam Siu Keung, Alvin, being the younger brother of Mr. Lam and is beneficially interested in 8,530,000 Shares as at the Latest Practicable Date

“Mr. Alvin Lam’s Undertaking” the irrevocable and unconditional undertaking given by Mr. Alvin Lam in favour of the Offeror on not to accept the Offer in respect of the 8,530,000 Shares beneficially owned by him

“Mr. Lam” or “Guarantor”
Mr. Lam Shiu Ming, Daneil, being the Chairman and an executive Director and the sole beneficial owner and the sole director of the Offeror
“Offer” the unconditional mandatory cash offer made, subject to Completion, by Kingston Securities, on behalf of the Offeror, to acquire all the issued Shares not already owned or to be acquired by the Offeror and parties acting in concert with it subject to the terms and conditions set out in this Composite Document and the accompanying Form of Acceptance
“Offer Period” has the meaning ascribed to it under the Takeovers Code, being the period commencing from 31 July 2018 (the date of the Joint Announcement) to the Closing Date
“Offer Price” the cash amount of HK$0.51 for each Offer Share payable by the Offeror to the Offer Shareholder(s) accepting the Offer
“Offer Share(s)”
Shares (other than those already owned or to be acquired by the Offeror and parties acting in concert with it) that are subject to the Offer
“Offer Shareholder(s)” or “ the holder(s) of Share(s), other than the Offeror and parties acting Independent Shareholders” in concert with it “Offeror” Pioneer Entertainment Group Limited, a company incorporated in the British Virgin Islands with limited liability and is whollyowned by Mr. Lam

– 4 –

DEFINITIONS

“Overseas Offer Shareholder(s)” Offer Shareholder(s) whose address(es), as shown on the register of members of the Company, is/are outside Hong Kong
“Qualifying Shareholders” Shareholders whose names appear on the Company’s share register or branch share register on the Dividend Record Date
“Registrar” Tricor Abacus Limited, the Hong Kong branch share registrar of the Company
“Relevant Period” the period commencing from 31 January 2018, being the date falling six months preceding the date of commencement of the Offer Period, up to and including the Latest Practicable Date
“Sale and Purchase Agreement” the conditional sale and purchase agreement dated 26 July 2018 (as supplemented by a supplemental sale and purchase agreement dated 4 October 2018) and entered into between the Offeror, the Vendor and Mr. Lam in relation to the sale and purchase of the Sale Shares for the Consideration
“Sale Shares” 251,745,000 Shares, representing approximately 27.77% of the total issued share capital of the Company as at the Latest Practicable Date, sold by the Vendor to the Offeror subject to and conditional upon the terms of the Sale and Purchase Agreement, and each a Sale Share
“SFC” the Securities and Futures Commission of Hong Kong
“SFO” the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)
“Share(s)” the share(s) of HK$0.01 (each) in the capital of the Company

– 5 –

DEFINITIONS

“Share Charge(s)”

collectively, (i) the share charge entered into between Kingston Securities as chargee and the Offeror as chargor dated 26 July 2018 whereby the Offeror has agreed to charge to Kingston Securities as security for the Loan Facility all of the Sale Shares owned by the Offeror upon Completion; (ii) the share charge entered into between Kingston Securities as chargee and the Offeror as chargor dated 26 July 2018 whereby the Offeror has agreed to charge to Kingston Securities as security for the Loan Facility the Shares to be acquired by the Offeror pursuant to the Offer; (iii) the share charge entered into between Kingston Securities as chargee and Mr. Lam as chargor dated 26 July 2018 whereby Mr. Lam has agreed to charge to Kingston Securities as security for the Loan Facility the 200,860,000 Shares beneficially owned by him; and (iv) the share charge entered into between Kingston Securities as chargee and Globalcrest Enterprises Limited as chargor dated 26 July 2018 whereby Globalcrest Enterprises Limited has agreed to charge to Kingston Securities as security for the Loan Facility the 33,546,853 Shares beneficially owned by it

“Share Premium Reduction and Transfer”
the reduction and cancellation of a sum of approximately HK$893,345,000 standing to the credit of the share premium account of the Company as at 30 June 2017 and a transfer of such credit arising from the share premium reduction of approximately HK$893,345,000 to the contributed surplus account of the Company
“Shareholder(s)” the holder(s) of Shares
“Special Dividend” a special dividend of HK$0.30 per Share to all the Qualifying Shareholders referred to in the Joint Announcement
“Stock Exchange” The Stock Exchange of Hong Kong Limited
“Takeovers Code” the Code on Takeovers and Mergers published by the SFC, as amended, supplemented or otherwise modified from time to time
“US$” United States dollars, the lawful currency of the United States of America
“Vendor” Mr. Chan Wai Sing Vincent, who directly held 251,745,000 Shares before Completion
“%” per cent.

– 6 –

LETTER FROM KINGSTON SECURITIES

Kingston Securities Limited Suite 2801 One International Finance Centre 1 Harbour View Street Central Hong Kong

26 October 2018

To the Offer Shareholders

Dear Sir/Madam,

UNCONDITIONAL MANDATORY CASH OFFER BY

FOR AND ON BEHALF OF PIONEER ENTERTAINMENT GROUP LIMITED TO ACQUIRE ALL THE ISSUED SHARES IN UNIVERSE ENTERTAINMENT AND CULTURE GROUP COMPANY LIMITED (OTHER THAN THOSE ALREADY OWNED OR TO BE ACQUIRED BY PIONEER ENTERTAINMENT GROUP LIMITED AND PARTIES ACTING IN CONCERT WITH IT)

INTRODUCTION

References are made to the Joint Announcement and the joint announcement dated 22 October 2018, whereby the Offeror and the Company jointly announced that Kingston Securities will, for and on behalf of the Offeror, make an unconditional mandatory cash offer to acquire all the Offer Shares. As at the Latest Practicable Date, the Offeror and the parties acting in concert with it are interested in an aggregate of 494,681,853 Shares, representing approximately 54.56% of the entire issued share capital of the Company.

This letter forms part of this Composite Document which set out, among other things, the details of the Offer, information on the Offeror and the intention of the Offeror regarding the Group. Further terms and procedures of acceptance of the Offer are set out in Appendix I to this Composite Document and the accompanying Form of Acceptance. The Offer Shareholders are strongly advised to consider carefully the information contained in the “Letter from the Board”, “Letter from the Independent Board Committee”, “Letter from the Independent Financial Adviser” and the appendices as set out in this Composite Document and the accompanying Form of Acceptance and to consult their professional advisers if in doubt before reaching a decision as to whether or not to accept the Offer.

– 7 –

LETTER FROM KINGSTON SECURITIES

THE OFFER

Kingston Securities is, for and on behalf of the Offeror, making the Offer in compliance with the Takeovers Code on the terms set out on the following basis:

Principal terms of the Offer

For each Offer Share. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . HK$0.51 in cash

The Offer Price of HK$0.51 per Offer Share under the Offer is the same as the purchase price per Sale Share paid by the Offeror under the Sale and Purchase Agreement.

As at the Latest Practicable Date, the Company had 906,632,276 Shares in issue. Save as aforesaid, the Company did not have any relevant securities (as defined in Note 4 to Rule 22 of the Takeovers Code) as at the Latest Practicable Date.

The Offer is unconditional in all aspects when it is made and is not conditional upon acceptances being received in respect of a minimum number of Shares.

Comparison of value

The Offer Price of HK$0.51 per Offer Share represents:

(i) a premium of 2% over the closing price of HK$0.50 per Share as quoted on the Stock Exchange on the Latest Practicable Date;
(ii) a discount of 32.00% to the closing price of HK$0.75 per Share as quoted on the Stock Exchange on the Last Trading Day;
(iii) a premium of approximately 8.74% over the adjusted closing price of HK$0.469 per Share as quoted on the Stock Exchange on the Last Trading Day;
(iv) a discount of approximately 25.87% to the closing price of HK$0.688 per Share as quoted on the Stock Exchange for the last 5 trading days up to and including the Last Trading Day;
(v) a premium of approximately 18.55% over the adjusted closing price of HK$0.4302 per Share as quoted on the Stock Exchange for the last 5 trading days up to and including the Last Trading Day;
(vi) a discount of approximately 55.26% to the unaudited consolidated net asset value of the Company of approximately HK$1.14 per Share (based on a total of 906,632,276 Shares in issue as at the Latest Practicable Date and the consolidated net asset value of the Group of approximately HK$1,033.86 million as at 31 December 2017, being the date to which the latest unaudited financial statements of the Company were made up); and

– 8 –

LETTER FROM KINGSTON SECURITIES

(vii) a discount of approximately 49.50% to the audited consolidated net asset value of the Company of approximately HK$1.01 per Share (based on a total of 906,632,276 Shares in issue as at the Latest Practicable Date and the consolidated net asset value of the Group of approximately HK$916.97 million as at 30 June 2018, being the date to which the latest audited financial statements of the Company were made up).

The highest closing price of the Shares as quoted on the Stock Exchange during the Relevant Period was HK$0.51 per Share (on 15 October 2018, 16 October 2018 and 19 October 2018) and the lowest adjusted closing price was HK$0.331 per Share (on 5 March 2018) (Note) .

Note: The closing price of the Shares as quoted on the Stock Exchange on 5 March 2018 was HK$0.53 per Share before adjusted for the effect of the Special Dividend.

Total consideration of the Offer

As at the Latest Practicable Date, there are 906,632,276 Shares in issue. There are no outstanding warrants, options, derivatives or securities convertible into Shares and the Company has not entered into any agreement for the issue of such warrants, options, derivatives or securities convertible into Shares as at the Latest Practicable Date. Save as disclosed above, the Company has no other relevant securities (as defined in Note 4 to Rule 22 of the Takeovers Code) as at the Latest Practicable Date.

Assuming that there is no change in the issued share capital of the Company, on the basis of the Offer Price of HK$0.51 per Offer Share and 906,632,276 Shares in issue as at the Latest Practicable Date, of which the Offeror and the parties acting in concert with it hold 494,681,853 Shares as at the Latest Practicable Date, a total of 411,950,423 issued Shares (representing the Shares not already owned or to be acquired by the Offeror and parties acting in concert with it) will be subject to the Offer. The Offer, based on the Offer Price, is therefore valued at approximately HK$210 million (assuming full acceptance of the Offer).

Confirmation of financial resources available for the Offer

The Offeror intends to finance and satisfy the maximum cash consideration payable under the Offer by its internal resources and the Loan Facility provided by Kingston Securities, a third party independent of the Offeror, which is secured by the Share Charges, and deposited into a securities account opened with Kingston Securities. The Offeror confirms that the payment of interest on, repayment of, or security for any liability (contingent or otherwise) in relation to the Loan Facility will not depend to any extent on the business of the Group. The voting rights of the Shares subject to the Share Charges would not be transferred to Kingston Securities unless and until the security under the Share Charges shall have become enforceable, and Kingston Securities has elected to enforce the security thereunder, pursuant to the terms and conditions thereof.

Kingston Corporate Finance, being the financial adviser to the Offeror, is satisfied that there are sufficient financial resources available to the Offeror to satisfy the consideration payable upon full acceptance of the Offer of approximately HK$210 million.

Effects of accepting the Offer

The Offer is unconditional. By accepting the Offer, the Offer Shareholders will sell their Shares free from all encumbrances and with all rights now and in the future attaching to them (including the right to receive all dividends, distributions or any return of capital declared, made or paid on or after the date on which the Offer is made).

– 9 –

LETTER FROM KINGSTON SECURITIES

Acceptance of the Offer will be irrevocable and not capable of being withdrawn, except as permitted under the Takeovers Code as set out in subparagraph (b) under the paragraph headed “6. RIGHT OF WITHDRAWAL” in Appendix I to this Composite Document.

Pursuant to the terms of Mr. Alvin Lam’s Undertaking, Mr. Alvin Lam has given an irrevocable and unconditional undertaking in favour of the Offeror not to accept the Offer in respect of the 8,530,000 Shares beneficially owned by him, representing approximately 0.94% of the issued share capital of the Company as at the Latest Practicable Date.

Hong Kong stamp duty

The seller’s Hong Kong ad valorem stamp duty on acceptance of the Offer at a rate of 0.1% of the consideration payable in respect of the acceptance by the Offer Shareholders or if higher, the market value of the Offer Shares subject to such acceptance, will be deducted from the amount payable to those relevant Offer Shareholders who accept the Offer. The Offeror will arrange for payment of the seller’s ad valorem stamp duty on behalf of the relevant Offer Shareholders who accept the Offer and pay the buyer’s Hong Kong ad valorem stamp duty in connection with the acceptance of the Offer and the transfers of the Offer Shares in accordance with the Stamp Duty Ordinance (Chapter 117 of the Laws of Hong Kong).

Settlement

Payment (after deducting the accepting Offer Shareholders’ payable ad valorem stamp duty) in cash in respect of acceptances of the Offer will be made as soon as possible but in any event within seven (7) business days (as defined under the Takeovers Code) of the receipt of duly completed acceptances. Relevant documents of title must be received to render each acceptance of the Offer complete and valid.

Overseas Offer Shareholders

The availability of the Offer to any Overseas Offer Shareholders may be affected by the applicable laws and regulations of their relevant jurisdictions of residence. Overseas Offer Shareholders should observe any applicable legal and regulatory requirements and, where necessary, consult their own professional advisers in respect of the Offer. It is the responsibilities of the Overseas Offer Shareholders who wish to accept the Offer to satisfy themselves as to the full observance of the laws and regulations of the relevant jurisdictions in connection with the acceptance of the Offer (including the obtaining of any governmental or other consent which may be required or the compliance with other necessary formalities and the payment of any transfer or other taxes due by such Overseas Offer Shareholders in respect of such jurisdictions).

Any acceptance by any Overseas Offer Shareholder will be deemed to constitute a representation and warranty from such Overseas Offer Shareholder to the Offeror that the local laws and requirements have been complied with. The Shareholders should consult their professional advisers if in doubt.

– 10 –

LETTER FROM KINGSTON SECURITIES

Taxation advice

Offer Shareholders are recommended to consult their own professional advisers if they are in any doubt as to the taxation implications of accepting or rejecting the Offer. None of the Offeror, its concert parties, the Company, Kingston Securities, Kingston Corporate Finance and their respective ultimate beneficial owners, directors, officers, agents or associates or any other person involved in the Offer accepts any responsibility for any taxation effects on, or liabilities of, any persons as a result of their acceptance or rejection of the Offer.

INFORMATION OF THE OFFEROR

The Offeror was incorporated in the British Virgin Islands with limited liability on 24 April 2018. The Offeror is an investment holding company and had not carried on any business since its incorporation until the entering into of the Sale and Purchase Agreement. As at the Latest Practicable Date, the Offeror is wholly owned by Mr. Lam, being the chairman of the Company and an executive Director and the sole beneficial owner and the sole director of the Offeror.

Mr. Lam, aged 56, is the founder of the Group. He is involved in marketing, corporate strategy, business planning and development and overall management of the Group. Mr. Lam has over 30 years of experience in the film industry in Hong Kong. He was awarded the “Young Industrialist Awards of Hong Kong” by the Federation of Hong Kong Industries in 2002.

INFORMATION ON THE GROUP

Details of the information on the Group are set out in the paragraph headed “INFORMATION ON THE GROUP” in the “Letter from the Board” to this Composite Document.

INTENTION OF THE OFFEROR IN RELATION TO THE COMPANY

Upon completion of the Sale and Purchase Agreement, Mr. Lam became the controlling Shareholder and Mr. Lam intends to continue with the current businesses of the Company without material acquisition plan on any new business in the near future and has no intention to discontinue the employment of the employees or to dispose of or re-deploy the assets of the Group other than those in its ordinary course of business.

PROPOSED CHANGE TO THE BOARD COMPOSITION OF THE COMPANY

The Board is currently made up of eight Directors, comprising of three executive Directors and five independent non-executive Directors. As at the Latest Practicable Date, the Offeror has no plan to change the composition of the Board.

Any change to the Board composition will be announced by the Company and made in compliance with the Takeovers Code and the Listing Rules.

– 11 –

LETTER FROM KINGSTON SECURITIES

MAINTAINING THE LISTING STATUS OF THE COMPANY

The Stock Exchange has stated that if, at the close of the Offer, less than the minimum prescribed percentage applicable to the Company, being 25% of the issued Shares, are held by the public, or if the Stock Exchange believes that:

(i) a false market exists or may exist in the trading of the Shares; or
(ii) that there are insufficient Shares in public hands to maintain an orderly market,

it will consider exercising its discretion to suspend dealings in the Shares.

The Offeror intends the Company to remain listed on the Stock Exchange. The sole director of the Offeror and the new Directors to be appointed to the Board (if any) will jointly and severally undertake to the Stock Exchange to take appropriate steps to ensure that sufficient public float exists in the Shares.

COMPULSORY ACQUISITION

The Offeror does not intend to avail itself of any powers of compulsory acquisition of any Shares outstanding after the close of the Offer.

GENERAL

To ensure equality of treatment of all Shareholders, those Shareholders who hold Shares as nominee on behalf of more than one beneficial owner should, as far as practicable, treat the holding of such beneficial owner separately. It is essential for the beneficial owners of the Shares whose investments are registered in the names of nominees to provide instructions to their nominees of their intentions with regard to the Offer.

All documents and remittances to be sent to the Offer Shareholders will be sent to them by ordinary post at their own risk. Such documents and remittances will be sent to the Offer Shareholders at their respective addresses as they appear in the register of members of the Company or in the case of joint Shareholders, to such Shareholder whose name appears first in the register of members of the Company. The Company, the Offeror and parties acting in concert with it, Kingston Securities, Kingston Corporate Finance, the Independent Financial Adviser, the Registrar or any of their respective ultimate beneficial owners, directors, officers, agents or associates or any other persons involved in the Offer will not be responsible for any loss or delay in transmission or any other liabilities that may arise as a result thereof or in connection therewith.

ADDITIONAL INFORMATION

Your attention is drawn to the additional information set out in the appendices to this Composite Document which form part of this Composite Document. You are reminded to carefully read the “Letter from the Board”, the “Letter from the Independent Board Committee”, the “Letter from the Independent Financial Adviser” and other information about the Group, which are set out in this Composite Document, before deciding whether or not to accept the Offer.

Yours faithfully, For and on behalf of

Kingston Securities Limited Chu, Nicholas Yuk-yui

Director

– 12 –

LETTER FROM THE BOARD

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UNIVERSE ENTERTAINMENT AND CULTURE GROUP COMPANY LIMITED 寰宇娛樂文化集團有限公司

(formerly known as Universe International Financial Holdings Limited 寰宇國際金融控股有限公司 )

(Incorporated in Bermuda with limited liability)

(Stock Code: 1046)

Executive Directors: Mr. Lam Shiu Ming, Daneil (Chairman) Mr. Hung Cho Sing Mr. Lam Kit Sun

Independent non-executive Directors: Mr. Choi Wing Koon Mr. Lam Chi Keung Mr. Tang Yiu Wing Mr. Chong Ki Ming Mr. Wong Cheuk Wai, Jason

Registered office: Clarendon House 2 Church Street Hamilton HM 11 Bermuda

Principal Place of Business in Hong Kong: 18th Floor, Wyler Centre Phase II 192-200 Tai Lin Pai Road Kwai Chung New Territories Hong Kong

26 October 2018

To the Offer Shareholders

Dear Sir or Madam,

UNCONDITIONAL MANDATORY CASH OFFER BY

FOR AND ON BEHALF OF PIONEER ENTERTAINMENT GROUP LIMITED TO ACQUIRE ALL THE ISSUED SHARES IN UNIVERSE ENTERTAINMENT AND CULTURE GROUP COMPANY LIMITED (OTHER THAN THOSE ALREADY OWNED OR TO BE ACQUIRED BY PIONEER ENTERTAINMENT GROUP LIMITED AND PARTIES ACTING IN CONCERT WITH IT)

INTRODUCTION

Reference is made to the Joint Announcement. The Company was informed by the Vendor that on 26 July 2018 (after trading hours), the Vendor, the Offeror and the Guarantor entered into the Sale and Purchase Agreement, pursuant to which the Vendor conditionally agreed to sell and the Offeror conditionally agreed to purchase the 251,745,000 Sale Shares, representing approximately 27.77% of the entire issued share capital of the Company as at the date of the Sale and Purchase Agreement at a consideration of HK$128,389,950 (equivalent to HK$0.51 per Sale Share).

– 13 –

LETTER FROM THE BOARD

As at the date of the Sale and Purchase Agreement, the Sale Shares comprised a total of 251,745,000 Shares, representing approximately 27.77% of the total issued Shares of the Company as at the date of the Joint Announcement. Pursuant to the terms of the Sale and Purchase Agreement, the Sales Shares shall be acquired by the Offeror free from all encumbrances and with all rights attaching to them on or after the Completion Date (including the right to receive all dividends and distributions declared, made or paid on or after the Completion Date, but excluding the Special Dividend).

Completion took place on 22 October 2018, upon which the Offeror and parties acting in concert with it became interested in an aggregate of 494,681,853 Shares, representing approximately 54.56% of the issued share capital of the Company as at the Latest Practicable Date. Pursuant to Rule 26.1 of the Takeovers Code, immediately following Completion, the Offeror is required to make the Offer to acquire all the Offer Shares.

The purpose of this Composite Document is to provide you with, among other things, (i) the details of the Offer (including the expected timetable and terms of the Offer); (ii) the letter from the Board; (iii) a letter of recommendation from the Independent Board Committee to the Offer Shareholders in relation to the terms of the Offer and as to the acceptance thereof; (iv) a letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Offer Shareholders in respect of the terms of the Offer and as to the acceptance thereof; and (v) information relating to the Group and the Offeror, together with the Form of Acceptance.

UNCONDITIONAL MANDATORY CASH OFFER

Immediately following Completion and as at the Latest Practicable Date, the Offeror and parties acting in concert with it held 494,681,853 Shares, representing approximately 54.56% of the issued share capital of the Company. In accordance with Rule 26.1 of the Takeovers Code, immediately following Completion, the Offeror will be required to make the Offer to acquire all the Offer Shares.

As at the Latest Practicable Date, the Company has 906,632,276 Shares in issue. The Company has no other outstanding convertible securities, warrants, options or derivatives in issue which may confer any rights to subscribe for, convert or exchange into Shares as at the Latest Practicable Date.

According to the “Letter from Kingston Securities” set out on pages 7 to 12 of this Composite Document, Kingston Securities is making the Offer for and on behalf of the Offeror in compliance with the Takeovers Code on the following basis:

The Offer

For each Offer Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . HK$0.51 in cash

The Offer Price of HK$0.51 per Offer Share under the Offer is the same as the purchase price per Sale Share payable by the Offeror under the Sale and Purchase Agreement.

– 14 –

LETTER FROM THE BOARD

The Offeror intends to maintain the listing of the Shares on the Stock Exchange after the close of the

Offer.

The Offer is unconditional in all respects. By accepting the Offer, the Offer Shareholders will sell their Shares free from all encumbrances and with all rights now and in the future attaching to them (including the right to receive all dividends, distributions or any return of capital declared, made or paid on or after the date on which the Offer is made other than the Special Dividend).

Acceptance of the Offer shall be unconditional and irrevocable and shall not be capable of being withdrawn, except as permitted under the Takeovers Code. The procedures for acceptance and further terms of the Offer are set out in Appendix I to this Composite Document.

Further details of the Offer

Further details of the Offer, including the terms and procedures for acceptance of the Offer are contained in the “Letter from Kingston Securities” as set out on pages 7 to 12 and Appendix I to this Composite Document and the accompanying Form of Acceptance.

DISTRIBUTION

Completion took place on 22 October 2018 after the satisfaction of the conditions to Completion as set out under the Sale and Purchase Agreement, one of which was the passing by the Shareholders of all necessary resolutions at the special general meeting held on 17 September 2018 for approving (i) the Share Premium Reduction and Transfer; and (ii) the Distribution which shall be conditional upon the Sale and Purchase Agreement having become unconditional, and the payment of which shall take place contemporaneously with Completion. The Distribution was declared based on the information of the Qualifying Shareholders on the Dividend Record Date and the payment of which took place contemporaneously with Completion.

INFORMATION ON THE GROUP

The Company is an investment holding company. The Group is principally engaged in video distribution, film distribution and exhibition, licensing and sub-licensing of film rights and trading, wholesaling and retailing of optical, watches and jewellery products, money lending, leasing of investment properties and securities investment.

– 15 –

LETTER FROM THE BOARD

Financial information of the Group

Set out below is a summary of the audited consolidated financial results of the Group for the financial years ended 30 June 2016, 30 June 2017 and 30 June 2018, prepared in accordance with the Hong Kong Financial Reporting Standards:

	For the financial year ended	For the financial year ended
	30 June	30 June	30 June
	2016	2017	2018
	(audited)	(audited)	(audited)
	HK$’000	HK$’000	HK$’000
Revenue	151,033	195,717	86,673
Profit/(loss) before tax	(166,453)	(121,332)	(79,700)
(Loss)/profit for the year from
discontinued operation	(1,602)	12,965	(59,260)
Profit/(loss) after tax	(141,876)	(114,521)	(135,374)
Profit/(loss) attributable to Shareholders	(140,790)	(114,328)	(135,284)
	As at	As at	As at
	30 June	30 June	30 June
	2016	2017	2018
	(audited)	(audited)	(audited)
	HK$’000	HK$’000	HK$’000
Net assets	751,921	1,013,527	916,973

– 16 –

LETTER FROM THE BOARD

Shareholding structure of the Company before and after Completion

The following table sets out the shareholding structure of the Company (i) prior to Completion and (ii) immediately after Completion and as at the Latest Practicable Date:

Shareholder The Offeror and parties acting in concert with it The Offeror Mr. Lam_(Note 1) Mr. Alvin Lam(Note 2) Sub-total Director Mr. Lam Kit Sun(Note 3)_ Vendor Public Shareholders Total	Prior to Completion Number of Shares Approximate % – – 234,406,853 25.85 8,530,000 0.94 242,936,853 26.79 5,920,000 0.65 251,745,000 27.77 406,030,423 44.79 906,632,276 100.00	Immediately after Completion and as at the Latest Practicable Date Number of Shares Approximate % 251,745,000 27.77 234,406,853 25.85 8,530,000 0.94 494,681,853 54.56 5,920,000 0.65 – – 406,030,423 44.79 906,632,276 100.00	Immediately after Completion and as at the Latest Practicable Date Number of Shares Approximate % 251,745,000 27.77 234,406,853 25.85 8,530,000 0.94 494,681,853 54.56 5,920,000 0.65 – – 406,030,423 44.79 906,632,276 100.00
			54.56 0.65 – 44.79
			100.00

Notes:

Among the 234,406,853 Shares, as to 200,860,000 Shares are held by Mr. Lam and as to 33,546,853 Shares are held by Globalcrest Enterprises Limited, which in turn is owned by Central Core Resources Limited, being the trustee of a discretionary trust under which Mr. Lam is the discretionary object. As such, Mr. Lam is deemed to be interested in all 33,546,853 Shares held by Globalcrest Enterprises Limited.
Mr. Alvin Lam is the younger brother of Mr. Lam.
Mr. Lam Kit Sun is an executive Director.
Certain percentage figures included in this table have been subject to rounding adjustments.

Your attention is drawn to appendices II and IV to this Composite Document which contain further financial information and general information of the Group.

– 17 –

LETTER FROM THE BOARD

INFORMATION OF THE OFFEROR

Your attention is drawn to the section headed “Information of the Offeror” in the “Letter from Kingston Securities” as set out on page 11 of this Composite Document and Appendix III to this Composite Document which contains general information of the Offeror.

INTENTION OF THE OFFEROR REGARDING THE GROUP

Your attention is drawn to the sections headed “Information of the Offeror” and “Intention of the Offeror in relation to the Company” in the “Letter from Kingston Securities” as set out on page 11 of this Composite Document. The Board is aware of the intention of the Offeror in respect of the Company and is willing to cooperate with the Offeror which is in the interests of the Company and the Shareholders as a whole. The Board is pleased to learn that, upon Completion, Mr. Lam became the controlling Shareholder and Mr. Lam intends to continue with the current businesses of the Company without material acquisition plan on any new business in the near future and has no intention to discontinue the employment of the employees or to dispose of or re-deploy the assets of the Group other than those in its ordinary course of business.

PROPOSED CHANGE OF BOARD COMPOSITION

The Board is currently made up of eight Directors, comprising of three executive Directors and five independent non-executive Directors. As at the Latest Practicable Date, as advised by the Offeror, the Offeror has no plan to change the composition of the Board.

Any change to the Board composition will be announced by the Company and made in compliance with the Takeovers Code and the Listing Rules.

MAINTAINING THE LISTING STATUS OF THE COMPANY

As disclosed in “Letter from Kingston Securities”, the Offeror intends to maintain the listing of the Shares on the Stock Exchange after the close of the Offer and each of the Offeror and the Company will undertake to the Stock Exchange to take appropriate steps as soon as possible following the close of the Offer to ensure that a sufficient public float exists for the Shares.

In the event that after the completion of the Offer, the public float of the Company falls below 25%, the Offeror and the Company will undertake to the Stock Exchange that they will take appropriate steps to restore the minimum public float as required under the Listing Rules as soon as possible following the close of the Offer to ensure that sufficient public float exists for the Shares.

The Stock Exchange has stated that if, upon closing of the Offer, less than the minimum prescribed percentage applicable to the Company, being 25% of the Shares, are held by the public or if the Stock Exchange believes that (i) a false market exists or may exist in the trading of the Shares; or (ii) there are insufficient Shares in public hands to maintain an orderly market, it will consider exercising its discretion to suspend trading in the Shares until the prescribed level of public float is restored.

– 18 –

LETTER FROM THE BOARD

INDEPENDENT BOARD COMMITTEE AND INDEPENDENT FINANCIAL ADVISER OF THE COMPANY

The Company has, pursuant to Rule 2.1 of the Takeovers Code, established the Independent Board Committee comprising Mr. Choi Wing Koon, Mr. Lam Chi Keung, Mr. Tang Yiu Wing, Mr. Chong Ki Ming and Mr. Wong Cheuk Wai, Jason, being all independent non-executive Directors, to advise the Offer Shareholders in respect of the Offer.

Red Sun Capital Limited has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Offer Shareholders in respect of the Offer, in particular, as to whether the terms of the Offer are fair and reasonable and as to acceptance of the Offer. The appointment of Red Sun Capital Limited has been approved by the Independent Board Committee.

You are advised to read the “Letter from the Independent Board Committee” addressed to the Offer Shareholders and the additional information contained in the appendices to this Composite Document before taking any action in respect of the Offer.

CONFLICT OF INTEREST

Mr. Lam, being an executive Director and chairman of the Board, is the sole director and the sole beneficial owner of the Offeror. Accordingly, Mr. Lam did not join with the rest of the Board in giving their views on the Offer, or giving recommendations to the Offer Shareholders as set out in this letter.

RECOMMENDATION

Your attention is drawn to the “Letter from the Independent Board Committee” as set out on pages 20 to 21 of this Composite Document, which sets out its advice and recommendations to the Offer Shareholders as to whether the Offer is fair and reasonable so far as the Offer Shareholders are concerned, and as to acceptance thereof and the “Letter from the Independent Financial Adviser” as set out on pages 22 to 36 of this Composite Document, which sets out its advice and recommendation to the Independent Board Committee and the Offer Shareholders as to whether the Offer is fair and reasonable so far as the Offer Shareholders are concerned and as to acceptance thereof, and the principal factors considered by it before arriving at its advice and recommendation.

ADDITIONAL INFORMATION

You are also advised to read this Composite Document together with the accompanying Form of Acceptance in respect of the acceptance and settlement procedures of the Offer. Your attention is drawn to the additional information contained in the appendices to this Composite Document.

Yours faithfully,

By order of the Board of

Universe Entertainment and Culture Group Company Limited Lam Shiu Ming, Daneil

Chairman and Executive Director

– 19 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Set out below is the full text of the letter of recommendation from the Independent Board Committee in respect of the Offer for inclusion in this Composite Document.

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UNIVERSE ENTERTAINMENT AND CULTURE GROUP COMPANY LIMITED 寰宇娛樂文化集團有限公司

(formerly known as Universe International Financial Holdings Limited 寰宇國際金融控股有限公司 )

(Incorporated in Bermuda with limited liability)

(Stock Code: 1046)

26 October 2018

To the Offer Shareholders

Dear Sir or Madam,

UNCONDITIONAL MANDATORY CASH OFFER BY

FOR AND ON BEHALF OF PIONEER ENTERTAINMENT GROUP LIMITED TO ACQUIRE ALL THE ISSUED SHARES IN UNIVERSE ENTERTAINMENT AND CULTURE GROUP COMPANY LIMITED (OTHER THAN THOSE ALREADY OWNED OR TO BE ACQUIRED BY PIONEER ENTERTAINMENT GROUP LIMITED AND PARTIES ACTING IN CONCERT WITH IT)

INTRODUCTION

We refer to the composite offer and response document dated 26 October 2018 jointly issued by the Company and the Offeror (the “ Composite Document ”), of which this letter forms part. Terms used in this letter shall have the same meanings as defined in the Composite Document unless the context otherwise requires.

We have been appointed by the Board to form the Independent Board Committee to consider the terms of the Offer and to advise you as to whether, in our opinion, the terms of the Offer are fair and reasonable so far as the Offer Shareholders are concerned and as to acceptance thereof, after taking into account the advice from the Independent Financial Adviser.

Red Sun Capital Limited has been appointed as the Independent Financial Adviser with our approval to advise us in respect of the terms of the Offer and as to acceptance thereof. Details of its advice and principal factors taken into consideration in arriving its recommendation are set out in the “Letter from Independent Financial Adviser” on pages 22 to 36 of the Composite Document.

– 20 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

We also wish to draw your attention to the “Letter from the Board” as set out on pages 13 to 19 of the Composite Document, the “Letter from Kingston Securities” as set out on pages 7 to 12 of the Composite Document and the additional information set out in the appendices to the Composite Document.

RECOMMENDATION

Having taken into account the terms of the Offer, the advice and recommendations from the Independent Financial Adviser and the principal factors taken into account in arriving at its opinion, we consider that the terms of the Offer are fair and reasonable so far as the Offer Shareholders are concerned and recommend the Offer Shareholders to accept the Offer.

However, for those Offer Shareholders who are considering to realise all or part of their holdings in the Shares, they should closely monitor the market price and liquidity of the Shares during the period of the Offer. Should the market price of the Shares exceed the Offer Price during the period of the Offer, and the sale proceeds (net of transaction costs) exceed the net proceeds receivable under the Offer, the Offer Shareholders may wish to consider selling their Shares in the open market instead of accepting the Offer.

In any case, the Offer Shareholders are strongly advised that the decision to realise or to hold their investment is subject to individual circumstances and investment objectives. If in doubt, the Offer Shareholders should consult their own professional advisers for advice. Furthermore, the Offer Shareholders who wish to accept the Offer are recommended to read carefully the procedures for accepting the Offer as detailed in the Composite Document and the accompanying Form of Acceptance.

Yours faithfully,

The Independent Board Committee of Universe Entertainment and Culture Group Company Limited

Mr. Choi Wing Koon Mr. Lam Chi Keung Mr. Tang Yiu Wing Independent non-executive Independent non-executive Independent non-executive Director Director Director

Mr. Chong Ki Ming Mr. Wong Cheuk Wai, Jason Independent non-executive Independent non-executive Director Director

– 21 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the full text of the letter from the Independent Financial Adviser which sets out its advice to the Independent Board Committee and Independent Shareholders for inclusion in the Composite Document.

==> picture [55 x 42] intentionally omitted <==

==> picture [181 x 37] intentionally omitted <==

26 October 2018

To: The Independent Board Committee and Independent Shareholders of Universe Entertainment and Culture Group Company Limited (formerly known as Universe International Financial Holdings Limited)

Dear Sir/Madam,

UNCONDITIONAL MANDATORY CASH OFFER BY KINGSTON SECURITIES FOR AND ON BEHALF OF THE OFFEROR TO ACQUIRE ALL THE ISSUED SHARES (OTHER THAN THOSE ALREADY OWNED OR AGREED TO BE ACQUIRED BY THE OFFEROR AND PARTIES ACTING IN CONCERT WITH IT)

INTRODUCTION

We refer to our appointment as the Independent Financial Adviser to advise the Independent Board Committee in respect of the Offer, details of which are set out in the Composite Document dated 26 October 2018, of which this letter forms part. Capitalised terms used in this letter shall have the same meanings as defined in the Composite Document unless the context otherwise requires.

As at the Latest Practicable Date, the Offeror and parties acting in concert with it held 494,681,853 Shares, representing approximately 54.56% of the issued share capital of the Company. As at the Latest Practicable Date, the Company had 906,632,276 Shares in issue. The Company has no other outstanding convertible securities, warrants, options or derivatives in issue which may confer any rights to subscribe for, convert or exchange into Shares as at the Latest Practicable Date.

THE INDEPENDENT BOARD COMMITTEE

In accordance with Rule 2.1 of the Takeovers Code, the Independent Board Committee comprising all independent non-executive Directors, namely Mr. Choi Wing Koon, Mr. Lam Chi Keung, Mr. Tang Yiu Wing, Mr. Chong Ki Ming and Mr. Wong Cheuk Wai, Jason, has been established to advise the Independent Shareholders as to whether the terms of the Offer are fair and reasonable so far as the Independent Shareholders are concerned and whether the Independent Shareholders should accept the Offer.

We, Red Sun Capital Limited, have been appointed by the Company as the independent financial adviser to advise the Independent Board Committee in relation to the Offer. Our appointment has been approved by the Independent Board Committee. Our role as the independent financial adviser is to give our recommendation to the Independent Board Committee as to (i) whether the terms of the Offer are fair and reasonable so far as the Independent Shareholders are concerned; and (ii) whether the Offer should be accepted.

– 22 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

OUR INDEPENDENCE

As at the Latest Practicable Date, we were not connected with the Company, the Vendor or the Offeror, or any of their respective substantial shareholders, directors or chief executives, or any of their respective associates, or any party acting, or presumed to be acting, in concert with any of them and accordingly, are considered suitable to give independent advice to the Independent Board Committee in respect of the Offer. In the last two years, we have not acted as the independent financial adviser to the Independent Board Committee and the Independent Shareholders of the Company. Apart from normal professional fees paid or payable to us in connection with the current appointment as the Independent Financial Adviser, no arrangements exist whereby we had received or will receive any fees or benefits from the Company, the Vendor or the Offeror, their respective controlling shareholders or any other party acting or presumed to be acting, in concert with any of them that could reasonably be regarded as relevant to our independence. Accordingly, we consider that we are independent pursuant to Rule 13.84 of the Listing Rules and Rule 2 of the Takeovers Code to act as the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the Offer.

BASIS OF OUR OPINION AND RECOMMENDATION

In formulating our opinion, we have relied on the statements, information, opinions and representations contained in the Composite Document and the information and representations provide to us by the Directors and the management of the Company. We have reviewed, inter alia, the Composite Document, the annual reports of the Company for the year ended 30 June 2016 and 2017 and the annual result announcement of the Company for the year ended 30 June 2018. We have also (i) conducted verbal discussions with the management of the Company regarding the businesses and future outlook of the Group; and (ii) researched and considered market data which we deemed relevant in arriving at our recommendation. We have assumed that all statements, information and representations provided by the Directors and the management of the Company, for which they are solely responsible, were true and accurate at the time when they were provided and continue to be so as at the Latest Practicable Date and the Shareholders will be notified of any material changes to such information and representations as soon as possible in accordance with Rule 9.1 of the Takeovers Code. We have also assumed that all statements of belief, opinion and expectation made by the Directors in the Composite Document were reasonably made after due enquiry and careful consideration. We have no reason to suspect that any material facts or information have been withheld or to doubt the truth, accuracy and completeness of the information and facts contained in the Composite Document, or the reasonableness of the opinions expressed by the Company, its advisers and/or the Directors. We believe 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, carried out any independent verification of the information provided by the Directors and the management of the Company, nor have we conducted an independent investigation into the business and affairs of the Group.

The sole director of the Offeror accepts full responsibility for the accuracy of the information contained in the Composite Document (other than the information relating to the Group) and confirms, having made all reasonable enquiries, that to the best of his knowledge, opinions expressed in the Composite Document (other than opinions expressed by the Group) have been arrived at after due and careful consideration and there are no other facts not contained in the Composite Document, the omission of which would make any statement in the Composite Document misleading.

– 23 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Directors jointly and severally accept full responsibility for the accuracy of the information contained in the Composite Document (other than information relating to the Offeror and parties acting in concert with it) and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in the Composite Document (other than information relating to the Offeror and parties acting in concert with it) have been arrived at after due and careful consideration and there are no other facts not contained in the Composite Document, the omission of which would make any statement contained in the Composite Document misleading.

We have not considered the tax and regulatory implications on the Independent Shareholders of acceptance or non-acceptance of the Offer since these depend on their individual circumstances. In particular, the Independent Shareholders who are resident overseas or subject to overseas taxes or Hong Kong taxation on securities dealings should consider their own tax positions, and if in any doubt, should consult their own professional adviser.

This letter is issued for the information of the Independent Board Committee and the Independent Shareholders solely in connection with their consideration of the Offer, and except for its inclusion in the Composite Document, 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.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion and recommendation, we have taken into consideration the following principal factors and reasons:

1. Financial information of the Group and outlook

(a) Historical financial information of the Group

The Group is principally engaged in video distribution, film distribution and exhibition, licensing and sub-licensing of film rights, money lending, leasing of investment properties and securities investment, trading, wholesaling and retailing of optical products, watches and jewellery products. The Group ceased the business of China Jianxin Financial Services Limited, an indirect wholly-owned subsidiary of the Company, which was principally engaged in the business of securities brokerage and margin financing (“ Securities Brokerage Business ”) with effect from 30 June 2018.

– 24 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Set out below are financial results of the Group extracted from (i) the consolidated income statement of the Group for the three years ended 30 June 2018; and (ii) statement of financial position of the Group as at 30 June 2016, 30 June 2017 and 30 June 2018.

Table 1: Consolidated income statement of the Group

	For the	year ended 30 June
	2018	2017	2016
	HK$’000	HK$’000	HK$’000
	(audited)	(audited)	(audited)
Revenue	86,673	195,717	151,033
Cost of revenue	(40,850)	(88,014)	(54,904)
Profit/(loss) before tax	(79,700)	(121,332)	(166,453)
Income tax (expense)/credit	3,586	(6,154)	26,179
Profit/(Loss) for the year from
continuing operations	(76,114)	(127,486)	(140,274)
Profit/(Loss) for the year from
discontinued operations	(59,260)	12,965	(1,602)
Profit/(Loss) for the year	(135,374)	(114,521)	(141,876)

Financial year ended 30 June 2018 (“ FY2018 ”) versus financial year ended 30 June 2017 (“ FY2017 ”)

The Group’s audited consolidated revenue for FY2018 was approximately HK$86.7 million, representing a decrease of approximately 55.7% as compared to the revenue of approximately HK$195.7 million for the same period last year. Such decrease in revenue was mainly due to the net effect of (i) the decrease in revenue of approximately HK$18.4 million from trading, wholesale and retail of optical products, watches and jewellery products; (ii) the decrease in income of approximately HK$97.8 million from films distribution and exhibition, licensing and sub-licensing of film rights.

The Group recorded a net loss of approximately HK$135.4 million for FY2018, representing an increase of approximately 18.3% as compared to the net loss of approximately HK$114.5 million for the same period last year, which was mainly due to the net effect of (i) a fair value loss arising from financial assets at fair value through profit or loss of approximately HK$108.6 million for the FY2018 compared to a fair value gain arising from financial assets at fair value through profit or loss of approximately HK$12.7 million for the same period last year; (ii) total impairment losses on the available-for-sale financial assets of approximately HK$23.8 million for the FY2018 compared to total impairment losses on the available-for-sale financial assets of approximately HK$89.6 million for the same period last year; (iii) the increase of the segmental profit from video distribution, film distribution and exhibition, licensing and sub-licensing of film rights from approximately HK$31.3 million for the FY2017 to approximately HK$129.0 million for the FY2018; and (iv) the loss from the discontinued operation of the Securities Brokerage Business of approximately HK$59.3 million for the FY2018 as compared to the profit of approximately HK$8.9 million for the same period last year.

– 25 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Financial year ended 30 June 2017 versus financial year ended 30 June 2016 (“ FY2016 ”)

For the year ended 30 June 2017, the principal source of revenue of the Group was derived from (i) trading, wholesale and retail of optical, watches and jewellery products; and (ii) revenue from film distribution and exhibition, licensing and sub-licensing of film rights which respectively contributed to approximately 23.8% and 70.9% of the total revenue of the Group for FY2017.

As set out in the Table 1 above, the Group’s audited consolidated revenue for FY2017 was approximately HK$195.7 million, representing an increase of approximately 29.6% as compared to the revenue of approximately HK$151.0 million for the same period last year. Such increase in revenue was mainly due to the net effect of (i) the decrease in revenue of approximately HK$15.1 million from trading, wholesale and retail of optical products, watches and jewellery products; and (ii) the increase in revenue of approximately HK$82.6 million from films distribution and exhibition, licensing and sub-licensing of film rights.

The Group recorded a net loss of approximately HK$114.5 million for FY2017, representing a decrease of approximately 19.3% as compared to the net loss of approximately HK$141.9 million for the same period last year, which was mainly due to the net effect of (i) a fair value gain arising from financial assets at fair value through profit or loss of approximately HK$12.7 million compared to a fair value loss arising from financial assets at fair value through profit or loss of approximately HK$143.6 million for the same period last year; (ii) total impairment losses on the available-forsale financial assets of approximately HK$89.6 million (2016: Nil); (iii) impairment losses on the goodwill attributable to the trading, wholesaling and retailing of optical products, watches and jewellery products business of approximately HK$23.0 million (2016: approximately HK$24.4 million); and (iv) the increase of the segmental profit from video distribution, film distribution and exhibition, licensing and sub-licensing of film rights from approximately HK$8.6 million for FY2016 to approximately HK$31.3 million for FY2017.

Table 2: Consolidated statement of financial position of the Group

		As at 30 June
	2018	2017	2016
	HK$’000	HK$’000	HK$’000
	(audited)	(audited)	(audited)
Non-current assets	230,110	406,276	343,368
Current assets	851,333	1,050,658	807,363
Non-current liabilities	447	23,441	2,292
Current liabilities	164,023	419,966	396,518
Net current assets	687,310	630,692	410,845
Equity attributable to the owners
of the Company	916,895	1,013,359	753,151

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Financial position as at 30 June 2018 versus financial position as at 30 June 2017

As set out in the Table 2 above, as at 30 June 2018, the Group recorded net current assets of approximately HK$687.3 million (30 June 2017: approximately HK$630.7 million). The Group’s current assets decreased from approximately HK$1,050.7 million to approximately HK$851.3 million. Such decrease was mainly attributable to the net effect of (i) the decrease in accounts receivable and the decrease in financial assets at fair value through profit or loss of approximately HK$302.9 million and HK$183.3 million respectively; (ii) the increase in deposits paid, prepayments and other receivables and the increase in cash and cash equivalent of approximately HK$69.9 million and HK$294.1 million respectively; whereas the Group’s current liabilities decreased from approximately HK$420.0 million as at 30 June 2017 to approximately HK$164.0 million as at 30 June 2018 which was mainly attributable to the decrease of accounts payable for and the decrease of other payables and accrued charges of approximately HK$83.9 million and HK$122.2 million respectively.

The Group recorded net assets attributable to owners of the Company of approximately HK$916.9 million (30 June 2017: approximately HK$1,013.4 million). Such decrease was mainly attributable to the net loss of the Group of approximately HK$135.4 million for the FY2018.

Financial position as at 30 June 2017 versus financial position as at 30 June 2016

As set out in the Table 2 above, as at 30 June 2017, the Group recorded net current assets of approximately HK$630.7 million (30 June 2016: approximately HK$410.8 million). The Group’s current assets increased from approximately HK$807.4 million to approximately HK$1,050.7 million. Such increase was mainly attributable to the increase of cash and cash equivalents of approximately HK$127.0 million and increase in accounts receivable of approximately HK$109.1 million; whereas there was no significant fluctuation for the Group’s current liabilities.

The Group recorded net assets attributable to owners of the Company of approximately HK$1,013.4 million (30 June 2016: approximately HK$753.2 million). Such increase was mainly attributable to the combined effect of (i) the net loss of the Group of approximately HK$114.5 million for FY2017; (ii) the net proceed from the rights issue of approximately HK$204.9 million during the FY2017; and (iii) the net proceed from the placing of new shares under general mandate and special mandate of approximately HK$53.2 million and HK$106.1 million during the FY2017.

– 27 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(b) Prospect and outlook of the Group

(i) Films distribution and exhibition, licensing and sub-licensing of film rights (“ Film Segment ”)

The business prospects of the Film Segment will remain very challenging in coming years as the competition is very keen in Hong Kong and the PRC as proven by audiences in Hong Kong have been increasingly attracted to imported movies especially the bigbudget Hollywood movies, in line with the viewing preference of audiences elsewhere. The Group will continue to adopt a cautious and prudent approach in producing and licensing new films in the coming years.

According to the research publications “Film & Entertainment Industry in Hong Kong” published on 15 March 2018 by The Hong Kong Trade Development Council:

“Hong Kong acts as the hub of buying and selling Chinese mainland films and TV dramas through FILMART and it is increasingly seen as a remarkable platform to explore co-production in Asia. In 2017, there were over 220 Chinese exhibitors at FILMART. Moreover, Hong Kong’s audio-visual services industry has gained preferential access under the Mainland and Hong Kong Closer Economic Partnership Arrangement (“ CEPA ”) to the huge media entertainment market on the Chinese mainland. The latest CEPA agreement concerning the Mainland’s Specific Commitments on Liberalisation of Trade in Services for Hong Kong was signed in December 2015 for implementation in mid-2016, providing further enhancement in market access for Hong Kong service suppliers to the mainland market.”

Having considered that (i) Hong Kong has the unique advantage in bridging the PRC with the western audiences and opening a window on the world for Chinese audience; and (ii) Hong Kong’s audio-visual services industry has the preferential access under the CEPA, the Directors are cautiously optimistic regarding the development of the film distribution industry in the near future.

(ii) Cessation of Securities brokerage and margin financing, money lending, leasing of investment properties and securities investment (the “ Securities Brokerage Segment ”)

The Group used to engage in the provision of brokerage services and securities margin financing to clients through its indirect wholly-owned subsidiary China Jianxin Financial, a company licensed under the SFO to carry out Type 1 (dealing in securities) and Type 4 (advising on securities) regulated activities. However, the Group ceased its Securities Brokerage Segment on 30 June 2018 due to deterioration of operating results and financial performance during the FY2018 as per the Company’s announcement dated 17 May 2018.

– 28 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Having considered that the cessation of the Securities Brokerage Segment will enable the Group to better utilise its resources to the Group’s current business, potential new business and other usage as the Board may consider as appropriate, the Directors are of the view that the cessation of the Securities Brokerage Segment will not cause any material effect on the operation of the Group.

(iii) Trading, wholesaling, and retailing of optical, watches and jewellery products, leasing of investment properties, securities investments, money lending and entertainment business (“ Other Segments ”)

Apart from the Film Segment, the Group is in the business of carrying out the trading, wholesaling and retailing of optical, watches and jewellery products, leasing of investment properties, securities investments, money lending and entertainment business as part of its continuing operations. During the year ended 30 June 2018, the segmental results from the Group’s Other Segments recorded a segmental loss of approximately HK$106.5 million, being mainly contributed by the loss recorded from the securities investments portion of the segment of approximately HK$108.4 million.

Given that the Group has had to provide for impairment losses for its availablefor-sale financial assets in the past and that the prospect of the business of the Group’s Other Segments remain uncertain, coupled with the fact that the financial and investment markets of Hong Kong are continually affected by the US-China trade war (given that the current Hong Kong stock market comprises significant amount of PRC capital based listed companies which conduct export trade businesses with the U.S.), rising interest rates and less-easy monetary policy, the Directors will take a cautious approach in managing this business segment especially for its securities investments in Hong Kong.

We consider that, even though the Directors remain cautiously optimistic regarding the outlook of the Group’s Film Segment, the Group faces challenges due to the high number of market players within the film industry, as shown by the number of exhibitors at FILMART, and the preference of the audiences in Hong Kong of big-budget Hollywood movies. Thus, the Group’s overall development and profitability after the cessation of its Securities Brokerage remains uncertain given the challenges the Group has to face within the Film Segment and the uncertainty surrounding the Other Segments.

2. Principal terms of the Offer

(a) The Offer

Kingston Securities, for an on behalf of the Offeror, is making the Offer to acquire all the Offer Shares in compliance with the Takeovers Code on the following basis:

For each Offer Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .HK$0.51 in cash

The Offer Price of HK$0.51 per Offer Share under the Offer is the same as the purchase price per Sale Share payable by the Offeror under the Sale and Purchase Agreement.

– 29 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Offeror intends to maintain the listing of the Shares on the Stock Exchange after the close of the Offer.

The Offer Price of HK$0.51 per Offer Share represents:

(a) a discount of approximately 32.0% to the closing price of HK$0.75 per Share as quoted on the Stock Exchange on the Last Trading Day;
(b) a discount of approximately 25.87% to the closing price of HK$0.688 per Share as quoted on the Stock Exchange for the last 5 trading days up to and including the Last Trading Day; and
(c) a discount of approximately 49.5% to the audited consolidated net asset value attributable to owners of the Company of approximately HK$1.01 per Share as at 30 June 2018 calculated based on the audited consolidated net asset value attributable to owners of the Company as at 30 June 2018 of approximately HK$916,895,000 and 906,632,276 Shares in issue as at 30 June 2018.

The Independent Shareholders should note that the above-mentioned historical closing prices of the Shares and the consolidated net assets value attributable to the Shareholders per Share do not take into account the effects of the Special Dividend whereas the Shares will be trading in ex-Special Dividend status during the Offer given the first day of dealing in Shares on ex-entitlement basis in respect of the Special Dividend was 9 October 2018. Accordingly, we consider that it is not appropriate to compare the Offer Price with the historical closing prices of the Shares and the consolidated net assets value attributable to the Shareholders per Share, which reflected the Company’s former value before the payment of the Special Dividend.

In view of the above-mentioned, we considered it is more appropriate to compare the Offer Price to the historical closing prices of the Shares after adjusted by reducing the amount of Special Dividend of HK$0.30 per Share (the “ Adjusted Closing Price ”) in order to compare the Offer Price with the trading prices of the Share on ex-entitlement basis in respect of the Special Dividend.

In addition, we considered it is more appropriate to compare the Offer Price to the Reassessed NAV per Share which has taken into account the impact from the Special Dividend. After taking into account the impact from the Special Dividend, the Re-assessed NAV is amounted to approximately HK$644.9 million based on the audited financial position of the Group as at 30 June 2018, the Re-assessed NAV per Share is amounted to approximately HK$0.71 based on the number of issued Shares as at the Latest Practicable Date.

(d) a premium of approximately 2.0% to the closing price of HK$0.50 per Share as quoted on the Stock Exchange on the first day of dealings in Shares on exentitlement basis (i.e. 9 October 2018) in respect of the Special Dividend;

– 30 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(e) a premium of approximately 8.5% to the Adjusted Closing Price of HK$0.47 per Share as quoted on the Stock Exchange for the last 5 trading days up to and including the Last Trading Day;
(f) a premium of approximately 2.0% to the Adjusted Closing Price of HK$0.50 per Share as quoted on the Stock Exchange on the Latest Practicable Date;
(g) a discount of approximately 28.2% to the re-assessed net asset value per Share of HK$0.71 calculated based on the audited consolidated net asset value attributable to owners of the Company of approximately HK$916,895,000 as at 30 June 2018 and 906,632,276 Shares in issue as at 30 June 2018 adjusted by the Special Dividend of HK$0.30 per Share reflecting the impact of the Special Dividend on the first day of dealings in Shares on an ex-entitlement basis (the “ Re-assessed NAV ”).

3. Historical Share price performance

Set out below is a chart showing the daily closing prices of the Shares as quoted on the Stock Exchange during the period from 26 July 2017, being the date which is 12 months prior to the Last Trading Day, up to and including the Latest Practicable Date which we consider to be reasonably long enough to illustrate the relationship between the historical trend of the closing price of the Share and the Offer (the “ Review Period ”):

Universe Entertainment and Culture Group Company Limited (1046)

==> picture [421 x 251] intentionally omitted <==

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

1.20
1.00
0.80
0.60
0.40
0.20
-
1 August 2018, being
the date of resumption
Closing prices
of trading after the
Joint Announcement
Offer Price = HK$0.51
26 July 2018, being
the Last Trading Day
Closing Date
7/26/2017 8/9/2017 8/24/2017 9/7/2017 9/21/2017 10/9/2017 10/23/2017 11/6/2017 11/20/2017 12/4/2017 12/18/2017 1/4/2018 1/18/2018 2/1/2018 2/15/2018 3/5/2018 3/19/2018 4/4/2018 4/19/2018 5/4/2018 5/18/2018 6/4/2018 6/19/2018 7/4/2018 7/18/2018 8/6/2018 8/20/2018 9/3/2018 9/17/2018 10/3/2018 10/18/2018
Share Price (HK$)
----- End of picture text -----

Source: website of the Stock Exchange (http://www.hkex.com.hk)

– 31 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

During the Review Period, the closing prices of the Shares ranged from HK$0.45 to HK$1.13 per Share, with an average closing Share price of approximately HK$0.71 per Share. The Offer Price of HK$0.51 represented (i) a premium of approximately 13.33% to the lowest closing price per Share and (ii) a discount of approximately 28.17% to the average closing price per Share during the Review Period. The Group recorded closing Share prices higher than the Offer Price in 280 trading days out of 304 trading days during the Review Period.

It is noted from the graph above that the share price of the Group decreased from a high of HK$1.13 per Share on 26 July 2017 to a low of HK$0.45 per Share as at 25 September 2017. However, we are not aware of any reason for such decrease based on our search on the Company’s announcement. The Share price then increased sharply to HK$0.97 per Share as at 11 October 2017 caused by the purchases of the Company’s Shares in the open market on the Stock Exchange on 6 and 10 October 2017 by Mr. Lam Shiu Ming Daneil, the chairman and the executive director of the Company. The Share price then maintained a stable decreasing trend from HK$0.97 per Share as at 11 October 2017 to HK$0.53 as at 5 March 2018. It then maintained at a stable downward trend until 1 August 2018, being the date of resumption of trading after the Joint Announcement, where it reached a price of HK$0.77 per Share from HK$0.61 as at 20 July 2018. As confirmed by the Directors, the Company was not aware of any events which would have led to such surge in Share price save for the announcement of the Offer.

The average closing price of HK$0.71 per Share during the Review Period also represents a discount of approximately 29.7% to the net asset value attributable to owners of the Company per Share of approximately HK$1.01 as at 30 June 2018. We have discussed with the Directors about the reasons for the discounts to the net asset value attributable to owners of the Company per Share as at 30 June 2018 at which the Shares were traded, and the Directors were not aware of any factors that might lead to such discounts.

The assets of the Group mainly comprised of film rights and films in progress, film related deposits, available-for-sale financial assets, deposits paid, prepayments and other receivables and cash and cash equivalents. Among the total assets, film rights and films in progress with book value of approximately HK$80.6 million as at 30 June 2018 were mainly generated from the Group’s own business of film making and it is not practicable for the Group to realise these assets while the film productions are still ongoing. Moreover, available-for-sale financial assets, with book value of approximately HK$65.9 million as at 30 June 2018, are subject to market fluctuations, and the Group may not be able to realise its investments if the financial market continues to fluctuate or experience a significant downturn. In addition, as certain of the film related deposits, film rights and films in progress are specific to the business of the Group, the Group may not be able to realise these assets at prices equal to or above their respective book values in a timely manner due to the lack of marketability. Other assets of the Group, such as deposits paid, prepayments and other receivables are also not readily realisable into cash. As a result, the net asset value attributable to owners of the Company per Share does not represent the cash value attributable to owners of the Company per Share which the Company may actually return to the Shareholders in the event that the Group is put under liquidation, neither does it represent the price per Share which a potential investor may be willing to pay. Thus, we are of the view that it is reasonable to make reference to the market price of the Shares, rather than the net asset value attributable to owners of the Company per Share, in determining the Share Offer Price as the closing prices of the Shares during the Review Period are not reasonably comparable with the net asset value attributable to owners of the Company per Share as at 30 June 2018.

– 32 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Although the Offer Price itself represents a discount of approximately 28.17% to the average closing price of approximately HK$0.71 per Share during the Review Period, the Company declared and distributed, in accordance with its Bye-laws, the Special Dividend of HK$0.30 per Share to the Qualifying Shareholders as provided for in one of the Conditions. Having considered that (i) the closing price of the Shares has indicated an overall downward trend before the publication of the Joint Announcement; (ii) there is no guarantee that the trading price of the Shares will sustain at a level higher than the Offer Price associated with the Special Dividend during and after the Offer Period based on our view on the Group’s profitability in the long run as mentioned in the above section headed “1. Financial information of the Group and outlook”, we consider the Offer Price is fair and reasonable so far as the Independent Shareholders are concerned.

4. Liquidity of the Shares

The table below sets out the trading volume of the Shares during the Review Period:

				Percentage
				of average
	Total			daily trading
	monthly		Average	volume to
	trading	Number	daily trading	total number
	volume of	of trading	volume of	of Shares
	the Shares	days	the Shares	in issue
			(Approximate
	(Shares)		Shares)
2017
July_(Note)_	108,421,300	4	27,105,325	3.18%
August	527,675,738	22	23,985,261	2.81%
September	160,546,000	21	7,645,048	0.90%
October	578,453,197	20	28,922,660	3.38%
November	118,108,047	22	5,368,548	0.59%
December	91,256,228	19	4,802,959	0.53%
2018
January	59,899,598	22	2,722,709	0.30%
February	5,254,524	18	291,918	0.03%
March	15,083,500	21	718,262	0.08%
April	35,735,507	19	1,880,816	0.21%
May	16,096,500	21	766,500	0.08%
June	2,966,181	20	148,309	0.02%
July	4,343,543	18	241,308	0.03%
August	41,096,491	23	1,786,804	0.20%
September	28,061,359	19	1,476,923	0.16%
October (up to and including
the Latest Practicable Date)	125,908,400	15	8,393,893	0.93%

Source: website of the Stock Exchange (http://www.hkex.com.hk)

Note: Only 4 trading days were included in the month of July 2017 as the Review Period started on 26 July 2017.

– 33 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As illustrated in the table above, the average daily trading volume of the Shares during the Review Period ranged from approximately 148,309 Shares to approximately 28,922,660 Shares, representing approximately 0.02% to approximately 3.38% of the total number of the Shares in issue as at the Latest Practicable Date. The average daily trading volume of Shares during the Review Period was generally thin.

Given the thin historical average daily trading volume of the Shares, it is uncertain that the overall liquidity of the Shares could be maintained and that there would be sufficient liquidity in the Shares for the Independent Shareholders to dispose of a significant number of Shares in the open market without exerting a downward pressure on the Share price. We, therefore, consider that the Offer provides the Independent Shareholders with an assured exit if they wish to realise their investments in the Shares.

5. Comparable companies analysis

We have attempted the adoption of price multiples analysis to further assess the fairness and reasonableness of the Offer Price. Given that the video distribution, film distribution and exhibition, licensing and sub-licensing of film rights and trading segment is the major source of revenue of the Group for FY2016, FY2017 and FY2018, it is logical that we should compare the Company with other listed companies in Hong Kong which are also principally engaged in similar businesses. Nevertheless, we noted that the Group recorded loss for each of the years ended 30 June 2016, 2017 and 2018, we considered that price to earning analysis may not be meaningful. Furthermore, given that the video distribution, film distribution and exhibition, licensing and sub-licensing of film rights and trading segment of the Group are asset light in nature and the net assets of the Group consist mainly of film rights and films in progress and financial assets at whose values are highly affected by market fluctuations, we consider that price to book analysis is therefore not meaningful.

6. Information on the Offeror and the intention of the Offeror in relation to the Group

(a) Information of the Offeror

As stated in the “Letter from Kingston Securities” contained in the Composite Document, the Offeror is a company incorporated in the British Virgin Islands, with limited liability. The Offeror is an investment holding company and has not conducted any business since its incorporation. The entire issued share capital of the Offeror is wholly and beneficially owned by Mr. Lam, who is also the sole director of the Offeror.

As at the Latest Practicable Date, the Offeror and parties acting in concert with it hold 494,681,853 Shares, representing approximately 54.56% of the issued share capital of the Company as at the Latest Practicable Date.

– 34 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(b) Intention of the Offeror

Upon completion of the Sale and Purchase Agreement, Mr. Lam has become the controlling Shareholder and Mr. Lam intends to continue with the current businesses of the Company without material acquisition plan on any new business in the near future.

The Offeror intends to maintain the listing of the Shares on the Stock Exchange after the close of the Offer and each of the Offeror and the Company will undertake to the Stock Exchange to take appropriate steps as soon as possible following the close of the Offer to ensure that a sufficient public float exists for the Shares. In the event that after the completion of the Offer, the public float of the Company falls below 25%, the Offeror and the Company will undertake to the Stock Exchange that they will take appropriate steps to restore the minimum public float as required under the Listing Rules as soon as possible following the close of the Offer to ensure that sufficient public float exists for the Shares.

(c) Regarding the Board composition

As at the date of the Composite Document, the Board is made up of eight Directors, comprising of three executive Directors and five independent non-executive Directors. As at the Latest Practicable Date, the Offeror has no plan to change the composition of the Board.

RECOMMENDATION

Having considered the above-mentioned principal factors and reasons for the Offer, in particular that:

(i) the Offer Price of HK$0.51 represents a premium of approximately 2.0% over the closing Share price of approximately HK$0.50 per Share recorded on the first day of dealing in Shares on ex-entitlement basis (i.e. 9 October 2018) in respect of the Special Dividend;
(ii) the Offer Price of HK$0.51 represents a premium of approximately 2.0% to the closing price of HK$0.50 per Share as quoted on the Stock Exchange as at the Latest Practicable Date;
(iii) although the Offer Price of HK$0.51 still represents a discount of approximately 28.2% to the Re-assessed NAV per Share of approximately HK$0.71 per Share calculated based on the audited consolidated net asset value attributable to owners of the Company as at 30 June 2018 of approximately HK$916,895,000 and 906,632,276 Shares in issue as at the Latest Practicable Date, the majority of the Group’s non-current assets comprises of film rights and films in progress, which are mostly intangibles, and available-for-sale financial assets, which are subject to market fluctuations. Other assets of the Group, such as deposits paid, prepayments and other receivables are also not readily realisable into cash;

– 35 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(iv) the unsatisfactory financial results of the Group, in particular, net loss remains over FY2016, FY2017 and FY2018 with the amount of approximately HK$141.9 million, HK$114.5 million and HK$135.4 million, respectively. For details, please refer to the subsection headed “Historical financial information of the Group” above;
(v) the historical trading volume of the Shares was thin during the Review Period (in particular during the period prior to the publication of the Rule 3.5 Announcement) and the sustainability of the recent level of trading volume of the Shares after the Offer Period is uncertain. The Offer provides the Independent Shareholders with an assured exit if they wish to realise their investments in the Shares; and
(vi) even though the Directors remain cautiously optimistic regarding the outlook of the Group’s Film Segment as per discussed in the subsection headed “Prospect and outlook of the Group” above, the Group’s overall development and profitability after the cessation of its Securities Brokerage remains uncertain given the challenges the Group have to face within the Film Segment and the uncertainty surrounding the Other Segments,

we are of the opinion that terms of the Offer are fair and reasonable so far as the Independent Shareholders are concerned. Accordingly, we recommend the Independent Board Committee to advise the Independent Shareholders to accept the Offer. In view of the volatility of market conditions, those Independent Shareholders who intend to accept the Offer are reminded that they should closely monitor the market price and the liquidity of the Shares during the Offer Period and should consider selling their Shares in the open market, rather than accepting the Offer, if the net proceeds from the sale of such Shares in the open market would exceed the net proceeds receivable under the Offer.

In addition, the Independent Shareholders who wish to realise their investments in the Company in the open market should also consider and monitor the trading volume of the Shares during the Offer Period as, having taken into account the thin historical trading volume of the Shares on the Stock Exchange as discussed in the paragraph headed “Liquidity of the Shares” of this letter, they may experience difficulty in disposing of their Shares in the open market without creating downward pressure on the price of the Shares.

As each individual Independent Shareholder would have different investment objectives and/or circumstances, we would recommend the Independent Shareholders who may require advice in relation to any aspect of the Composite Document, or as to the action to be taken, to consult a licensed securities dealer, bank manager, solicitor, professional accountant, tax adviser or other professional adviser. Furthermore, they should carefully read the procedures for accepting the Offer as set out in the Composite Document, its appendices and the accompany Forms of Acceptance.

Yours faithfully, For and on behalf of

Red Sun Capital Limited Robert Siu Managing Director

Note: Mr. Robert Siu is a licensed person registered with the SFC and a responsible officer of Red Sun Capital Limited to carry out type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities under the SFO and has over 20 years of experience in corporate finance industry.

– 36 –

FURTHER TERMS OF THE OFFER AND PROCEDURES FOR ACCEPTANCE AND SETTLEMENT

APPENDIX I

1. PROCEDURES FOR ACCEPTANCE OF THE OFFER

(a) To accept the Offer, you should complete and sign the accompanying Form of Acceptance in accordance with the instructions printed thereon, which instructions form part of the terms of the Offer.
(b) If the Share certificate(s) and/or transfer receipt(s) and/or any other document(s) of title (and/or any satisfactory indemnity or indemnities required in respect thereof) in respect of your Shares is/ are in your name, and you wish to accept the Offer, you must send the duly completed and signed Form of Acceptance together with the relevant Share certificate(s) and/or transfer receipt(s) and/ or any other document(s) of title (and/or any satisfactory indemnity or indemnities required in respect thereof) to the Registrar, being Tricor Abacus Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong, by post or by hand, marked “ Universe Entertainment and Culture Group Company Limited General Offer ” on the envelope, as soon as possible and in any event not later than 4:00 p.m. on the Closing Date or such later time and/or date as the Offeror may determine and announce in accordance with the Takeovers Code.
(c) If the Share certificate(s) and/or transfer receipt(s) and/or any other document(s) of title (and/ or any satisfactory indemnity or indemnities required in respect thereof) in respect of your Shares is/are in the name of a nominee company or a name other than your own, and you wish to accept the Offer whether in full or in part of your Shares, you must either:
- (i) lodge your Share certificate(s) and/or transfer receipt(s) and/or any other document(s) of title (and/or any satisfactory indemnity or indemnities required in respect thereof) with the nominee company, or other nominee, with instructions authorising it to accept the Offer on your behalf and requesting it to deliver in an envelope marked “ Universe Entertainment and Culture Group Company Limited General Offer ” the duly completed and signed Form of Acceptance together with the relevant Share certificate(s) and/or transfer receipt(s) and/or any other document(s) of title (and/or any satisfactory indemnity or indemnities required in respect thereof) to the Registrar; or
- (ii) arrange for the Shares to be registered in your name by the Company through the Registrar, and deliver in an envelope marked “ Universe Entertainment and Culture Group Company Limited General Offer ” the duly completed and signed Form of Acceptance together with the relevant Share certificate(s) and/or transfer receipt(s) and/or any other document(s) of title (and/or any satisfactory indemnity or indemnities required in respect thereof) to the Registrar no later than 4:00 p.m. on the Closing Date or such later time and/or date as the Offeror may determine and announce in accordance with the Takeovers Code; or

– I-1 –

FURTHER TERMS OF THE OFFER AND PROCEDURES FOR ACCEPTANCE AND SETTLEMENT

APPENDIX I

(iii) if your Shares have been lodged with your licensed securities dealer/registered institution in securities/custodian bank through CCASS, instruct your licensed securities dealer/ registered institution in securities/custodian bank to authorize HKSCC Nominees Limited to accept the Offer on your behalf on or before the deadline set by HKSCC Nominees Limited. In order to meet the deadline set by HKSCC Nominees Limited, you should check with your licensed securities dealer/registered institution in securities/custodian bank for the timing on the processing of your instruction, and submit your instruction to your licensed securities dealer/registered institution in securities/custodian bank as required by them; or
(iv) if your Shares have been lodged with your investor participant’s account maintained with CCASS, authorise your instruction via the CCASS Phone System or CCASS Internet System on or before the deadline set out by HKSCC Nominees Limited.
(d) If the Share certificate(s) and/or transfer receipts and/or other document(s) of title (and/or any satisfactory indemnity or indemnities required in respect thereof) in respect of your Shares is/ are not readily available and/or is/are lost, as the case may be, and you wish to accept the Offer in respect of your Shares, the Form of Acceptance should nevertheless be completed, signed and delivered in an envelope marked “ Universe Entertainment and Culture Group Company Limited General Offer ” to the Registrar together with a letter stating that you have lost one or more of your Share certificate(s) and/or transfer receipt(s) and/or any other document(s) of title (and/or any satisfactory indemnity or indemnities required in respect thereof) or that it/they is/are not readily available. If you find such document(s) or if it/they become(s) available, it/ they should be forwarded to the Registrar as soon as possible thereafter. If you have lost your Share certificate(s) and/or transfer receipt(s) and/or any other document(s) of title, you should also write to the Registrar a letter of indemnity which, when completed in accordance with the instructions given, should be returned to the Registrar.
(e) If you have lodged transfer(s) of any of your Shares for registration in your name and have not yet received your Share certificate(s), and you wish to accept the Offer in respect of your Shares, you should nevertheless complete and sign the Form of Acceptance and deliver it in an envelope marked “ Universe Entertainment and Culture Group Company Limited General Offer ” to the Registrar together with the transfer receipt(s) duly signed by yourself. Such action will be deemed to be an irrevocable authority to the Offeror and/or Kingston Securities and/or their respective agent(s) to collect from the Company or the Registrar on your behalf the relevant Share certificate(s) when issued and to deliver such Share certificate(s) to the Registrar on your behalf and to authorize and instruct the Registrar to hold such Share certificate(s), subject to the terms and conditions of the Offer, as if it was/they were delivered to the Registrar with the Form of Acceptance.

– I-2 –

FURTHER TERMS OF THE OFFER AND PROCEDURES FOR ACCEPTANCE AND SETTLEMENT

APPENDIX I

(f) Acceptance of the Offer will be treated as valid only if the completed and signed Form of Acceptance is received by the Registrar by no later than 4:00 p.m. on the Closing Date (or such later time and/or date as the Offeror may determine and announce in accordance with the Takeovers Code) and the Registrar has recorded the Form of Acceptance and any relevant documents required by the Takeovers Code have been so received, and is:
(i) accompanied by the relevant Share certificate(s) and/or transfer receipt(s) and/or other document(s) of title (and/or any satisfactory indemnity or indemnities required in respect thereof) and, if that/those Share certificate(s) and/or transfer receipt(s) and/or other document(s) of title (and/or any satisfactory indemnity or indemnities required in respect thereof) is/are not in your name, such other documents (e.g. a duly stamped transfer of the relevant Share(s) in blank or in your favour executed by the registered holder) in order to establish your right to become the registered holder of the relevant Shares; or
(ii) from a registered Shareholder or his/her/its personal representative (but only up to the amount of the registered holding and only to the extent that the acceptance relates to the Shares which are not taken into account under another subparagraph of this paragraph (f)); or
(iii) certified by the Registrar or the Stock Exchange.

If the Form of Acceptance is executed by a person other than the registered Shareholder, appropriate documentary evidence of authority (e.g. grant of probate or certified copy of a power of attorney) to the satisfaction of the Registrar must be produced.

(g) No acknowledgement of receipt of any Form of Acceptance, Share certificate(s) and/or transfer receipt(s) and/or any other document(s) of title (and/or any satisfactory indemnity or indemnities required in respect thereof) will be given.

2. SETTLEMENT OF THE OFFER

Provided that a valid Form of Acceptance and the relevant certificate(s) and/or transfer receipt(s) and/ or other document(s) of title (and/or any satisfactory indemnity or indemnities required in respect thereof) are complete and in good order in all respects in accordance with the Takeovers Code and have been received by the Registrar no later than 4:00 p.m. on the Closing Date or such later time and/or date as the Offeror may determine and announce in accordance with the Takeovers Code, a cheque for the amount representing the cash consideration due to each of the Offer Shareholders who accepts the Offer less seller’s ad valorem stamp duty in respect of the Shares tendered by it/him/her under the Offer will be despatched to such Offer Shareholder by ordinary post at its/his/her own risk as soon as possible but in any event within seven (7) Business Days after the date on which all the relevant documents which render such acceptance complete and valid are received by the Registrar in accordance with the Takeovers Code.

– I-3 –

FURTHER TERMS OF THE OFFER AND PROCEDURES FOR ACCEPTANCE AND SETTLEMENT

APPENDIX I

Settlement of the consideration to which any accepting Offer Shareholder is entitled under the Offer will be implemented in full in accordance with the terms of the Offer (save with respect to the payment of seller’s ad valorem stamp duty), without regard to any lien, right of set-off, counterclaim or other analogous right to which the Offeror may otherwise be, or claim to be, entitled against such accepting Offer Shareholder.

3. ACCEPTANCE PERIOD AND REVISIONS

(a) In order to be valid for the Offer, the Form of Acceptance must be received by the Registrar in accordance with the instructions printed thereon by 4:00 p.m. on the Closing Date, unless the Offer is extended or revised in accordance with the Takeovers Code. The Offer is unconditional.
(b) The Offeror reserves the right to revise the terms of the Offer in accordance with the Takeovers Code. If the Offeror revises the terms of the Offer, all the Offer Shareholders, whether or not they have already accepted the Offer, will be entitled to accept the revised Offer under the revised terms.
(c) If the Offer is extended or revised, the announcement of such extension or revision will state the next closing date or the Offer will remain open until further notice. In the latter case, at least 14 days’ notice in writing will be given before the Offer is closed to the Offer Shareholders who have not accepted the Offer, and an announcement will be released. The revised Offer will be kept open for at least 14 days thereafter.
(d) If the Closing Date of the Offer is extended, any reference in this Composite Document and in the Form of Acceptance to the Closing Date shall, except where the context otherwise requires, be deemed to refer to the closing date of the Offer as so extended.
(e) Any acceptance of the relevant revised Offer shall be irrevocable unless and until the Offer Shareholders who accept the Offer become entitled to withdraw their acceptance under the paragraph headed “6. RIGHT OF WITHDRAWAL” below and duly do so.

4. NOMINEE REGISTRATION

To ensure equality of treatment of all Offer Shareholders, those registered Offer Shareholders who hold the Shares as nominees for more than one beneficial owner should, as far as practicable, treat the holding of each beneficial owner separately. It is essential for the beneficial owners of the Shares whose investments are registered in the names of nominees to provide instructions to their nominees of their intentions with regard to the Offer.

– I-4 –

FURTHER TERMS OF THE OFFER AND PROCEDURES FOR ACCEPTANCE AND SETTLEMENT

APPENDIX I

5. ANNOUNCEMENTS

(a) By 6:00 p.m. on the Closing Date (or such later time and/or date as the Executive may in exceptional circumstances permit), the Offeror must inform the Executive and the Stock Exchange of its decision in relation to the revision or extension of the Offer. The Offeror must post an announcement on the Stock Exchange’s website by 7:00 p.m. on the Closing Date stating the results of the Offer and whether the Offer has been revised or extended.

The announcement will state the total number of Shares:

(i) for which acceptances of the Offer have been received;
(ii) held, controlled or directed by the Offeror or persons acting in concert with it before the Offer Period; and
(iii) acquired or agreed to be acquired during the Offer Period by the Offeror and persons acting in concert with it.

The announcement must include details of any relevant securities (as defined in Note 4 to Rule 22 under Takeovers Code) in the Company which the Offeror and parties acting in concert with it have borrowed or lent, save for any borrowed shares which have been either on-lent or sold.

The announcement must also specify the percentages of the issued share capital of the Company and the percentages of voting rights of the Company represented by these numbers.

In computing the total number of Shares represented by acceptances, only valid acceptances that are complete, in good order and fulfill the acceptance conditions set out in this Appendix, and which have been received by the Registrar respectively no later than 4:00 p.m. on the Closing Date, unless the Offer is extended or revised in accordance with the Takeovers Code, shall be included.

(b) As required under the Takeovers Code, all announcements in relation to the Offer which the Executive and the Stock Exchange have confirmed that they have no further comments thereon must be made in accordance with the requirements of the Takeovers Code and the Listing Rules.

6. RIGHT OF WITHDRAWAL

(a) Acceptance of the Offer tendered by the Offer Shareholders shall be irrevocable and cannot be withdrawn, except in the circumstances set out in subparagraph (b) below.
(b) If the Offeror is unable to comply with the requirements set out in the paragraph headed “5. ANNOUNCEMENTS” above, the Executive may require that the Offer Shareholders who have tendered acceptances to the Offer be granted a right of withdrawal on terms that are acceptable to the Executive until the requirements set out in that paragraph are met.

– I-5 –

FURTHER TERMS OF THE OFFER AND PROCEDURES FOR ACCEPTANCE AND SETTLEMENT

APPENDIX I

In such case, when the Offer Shareholders withdraw their acceptance(s), the Offeror shall, as soon as possible but in any event within 10 days thereof, return by ordinary post the Share certificate(s) and/ or transfer receipt(s) and/or other document(s) of title (and/or any satisfactory indemnity or indemnities required in respect thereof) in respect of the Shares lodged with the Form of Acceptance to the relevant Offer Shareholder(s).

7. OVERSEAS OFFER SHAREHOLDERS

The availability of the Offer to persons who are not Hong Kong residents or who have registered addresses outside Hong Kong may be affected by the applicable laws and regulations of the relevant jurisdictions. Overseas Offer Shareholders and Offer Shareholders who are citizens, residents or nationals of a jurisdiction outside Hong Kong should fully observe all applicable legal or regulatory requirements and, where necessary, seek their own legal advice. It is the responsibility of the Overseas Offer Shareholders who wish to accept the Offer to satisfy themselves as to the full observance of the laws and regulations of the relevant jurisdictions in connection with the Offer (including the obtaining of any governmental, exchange control or other consents which may be required or compliance with other necessary formalities and the payment of any transfer or other taxes due by such accepting Overseas Offer Shareholders in respect of such jurisdictions).

Acceptance of the Offer by any Overseas Offer Shareholders will be deemed to constitute a representation and warranty from such Overseas Offer Shareholders to the Offeror that all the laws and requirements of the relevant jurisdictions have been complied with. The Offeror and parties acting in concert with it, the Company, Kingston Corporate Finance, Kingston Securities, the Independent Financial Adviser, the Registrar, their respective ultimate beneficial owners, directors, officers, agents and associates and any other person involved in the Offer shall be entitled to be fully indemnified and held harmless by such person for any taxes as such person may be required to pay. The Overseas Offer Shareholders should consult their professional advisers if in any doubt. Shareholders who are in doubt as to the action they should take should consult a licensed securities dealer or registered institution in securities, bank manager, solicitor, professional accountant or other professional advisers.

8. HONG KONG STAMP DUTY

The seller’s Hong Kong ad valorem stamp duty payable by the Offer Shareholders who accept the Offer and calculated at a rate of 0.1% of the higher of (i) the market value of the Offer Shares; or (ii) the consideration payable by the Offeror in respect of the relevant acceptances of the Offer, whichever is higher, will be deducted from the cash amount payable by the Offeror to the relevant Offer Shareholders who accept the Offer.

The Offeror will arrange for payment of the seller’s Hong Kong ad valorem stamp duty on behalf of the relevant Offer Shareholders who accept the Offer and pay the buyer’s Hong Kong ad valorem stamp duty in connection with the acceptances of the Offer and the transfers of the Offer Shares in accordance with the Stamp Duty Ordinance (Chapter 117 of the Laws of Hong Kong).

– I-6 –

FURTHER TERMS OF THE OFFER AND PROCEDURES FOR ACCEPTANCE AND SETTLEMENT

APPENDIX I

9. TAXATION ADVICE

None of the Offeror, parties acting in concert with the Offeror, the Company, Kingston Securities, Kingston Corporate Finance, the Independent Financial Adviser, the Registrar and their respective ultimate beneficial owners, directors, officers, advisers, agents or associates or any other person involved in the Offer is in a position to advise the Offer Shareholders on their individual tax implications. Shareholders are recommended to consult their own professional advisers if they are in any doubt as to the taxation implications of accepting or rejecting the Offer. None of the Offeror, parties acting in concert with the Offeror, the Company, Kingston Securities, Kingston Corporate Finance, the Independent Financial Adviser, the Registrar and their respective ultimate beneficial owners, directors, officers, advisers, agents or associates or any other person involved in the Offer accepts any responsibility for any taxation effects on, or liabilities of, any persons as a result of their acceptance or rejection of the Offer.

10. GENERAL

(a) All communications, notices, Form of Acceptance, Share certificate(s), transfer receipt(s), other document(s) of title (and/or any satisfactory indemnity or indemnities required in respect thereof) and remittances to settle the consideration payable under the Offer to be delivered by or sent to or from the Offer Shareholders will be delivered by or sent to or from them, or their designated agents, by ordinary post at their own risk. None of the Offeror, its beneficial owners, the Company, Kingston Corporate Finance, Kingston Securities, the Independent Financial Adviser, the Registrar, any of their respective directors and professional advisers and any other parties involved in the Offer and any of their respective agents accepts any liability for any loss or delay in postage or any other liabilities that may arise as a result thereof.
(b) The provisions set out in the Form of Acceptance form part of the terms and conditions of the Offer.
(c) The accidental omission to despatch this Composite Document and/or Form of Acceptance or any of them to any person to whom the Offer is made will not invalidate the Offer in any way.
(d) The Offer is, and all acceptances will be, governed by and construed in accordance with the laws of Hong Kong.
(e) Due execution of the Form of Acceptance will constitute an authority to the Offeror, Kingston Securities or such person or persons as the Offeror may direct to complete, amend and execute any document on behalf of the person or persons accepting the Offer and to do any other act that may be necessary or expedient for the purposes of vesting in the Offeror, or such person or persons as they may direct, the Shares in respect of which such person or persons has/have accepted the Offer.

– I-7 –

FURTHER TERMS OF THE OFFER AND PROCEDURES FOR ACCEPTANCE AND SETTLEMENT

APPENDIX I

(f) Acceptance of the Offer by any person or persons will be deemed to constitute a warranty by such person or persons to the Offeror and the Company that the Shares acquired under the Offer are sold by such person or persons free from all encumbrances and together with all rights accruing or attaching thereto including (without limitation) the rights to receive in full any and all dividends and distributions declared, made or paid on or after the date on which the Offer is made.
(g) References to the Offer in this Composite Document and the Form of Acceptance shall include any revision and/or extension thereof.
(h) Acceptance of the Offer by any person who is an Overseas Offer Shareholder will be deemed to constitute a warranty by such person to the Offeror and the Company that he, she or it has observed the laws of all relevant jurisdictions in connection therewith, obtained all requisite governmental, exchange control or other consents, complied with other necessary formalities or legal requirements and paid any transfer or other taxes due from him, her or it in connection with such acceptance in all relevant jurisdictions, that he, she or it has not taken or omitted to take any action which will, or which may result in the Offeror, the Company, Kingston Securities or any other persons acting or being in breach of the legal or regulatory requirements of any jurisdiction in connection with the Offer or his or her or its acceptance, and he, she or it is permitted under all applicable laws to accept the Offer and any revision thereof, and that such acceptance is valid and binding in accordance with all applicable laws.
(i) Acceptances of the Offer by any persons will be deemed to constitute a warranty by such persons that such persons are permitted under all applicable laws and regulations to receive and accept the Offer, and any revision thereof, and such acceptances shall be valid and binding in accordance with all applicable laws and regulations. Any such persons will be responsible for any such issue, transfer and other applicable taxes or other governmental payments payable by such persons.
(j) Subject to the Takeovers Code, the Offeror reserves the right to notify any matter (including the making of the Offer) to all or any Offer Shareholders with registered address(es) outside Hong Kong or whom the Offeror or Kingston Securities knows to be nominees, trustees or custodians for such persons by announcement in which case such notice shall be deemed to have been sufficiently given notwithstanding any failure by any such Offer Shareholders to receive or see such notice, and all references in this Composite Document to notice in writing shall be construed accordingly.
(k) In making their decision, the Offer Shareholders must rely on their own examination of the Offeror, the Group and the terms of the Offer, including the merits and risks involved. The contents of this Composite Document, including any general advice or recommendation contained herein, together with the Form of Acceptance, shall not be construed as any legal or business advice on the part of the Company, the Offeror and parties acting in concert with it, Kingston Securities, Kingston Corporate Finance, the Independent Financial Adviser, the Registrar or any of their respective ultimate beneficial owners, directors, officers, agents, professional advisers or associates or any other persons involved in the Offer. The Offer Shareholders should consult their own professional advisers for professional advice.

– I-8 –

FURTHER TERMS OF THE OFFER AND PROCEDURES FOR ACCEPTANCE AND SETTLEMENT

APPENDIX I

(l) Acceptance of the Offer by any nominee will be deemed to constitute a warranty by such nominee to the Offeror that the number of Offer Shares, in respect of which it is indicated in the Form of Acceptance, is the aggregate number of Offer Shares held by such nominee for such beneficial owners who accept the Offer.
(m) The English text of this Composite Document and the Form of Acceptance shall prevail over their respective Chinese text in the event of any inconsistency, discrepancy or different interpretation between the English text and the Chinese text.

– I-9 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

1. FINANCIAL SUMMARY OF THE GROUP

The following is a summary of the financial information of the Group for each of the three years ended 30 June 2016, 2017 and 2018 as extracted from the annual results announcement of the Company for the year ended 30 June 2018 and the annual reports of the Company for the years ended 30 June 2016 and 2017 respectively. For each of the years ended 30 June 2016, 2017 and 2018, no dividend was declared or paid. The consolidated financial statement of the Group for each of the years ended 30 June 2016, 2017 and 2018 were audited by Crowe (HK) CPA Limited (formerly known as “Crowe Horwath (HK) CPA Limited”) and did not contain any qualifications.

RESULTS

Revenue (Loss)/profit before income tax Income tax (expense)/credit (Loss)/profit for the year from discontinued operation (Loss)/profit attributable to the equity holders of the Company Special cash dividend Proposed final dividend ASSETS AND LIABILITIES Total assets Total liabilities	Year ended 30 June 2018 2017 2016 HK$’000 HK$’000 HK$’000 86,673 195,717 151,033 (79,700) (121,332) (166,453) 3,586 (6,154) 26,179 (59,260) 12,965 (1,602) (135,284) (114,328) (140,790) – – – – – – As at 30 June 2018 2017 2016 HK$’000 HK$’000 HK$’000 1,081,443 1,456,934 1,150,731 (164,470) (443,407) (398,810)

– II-1 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

2. AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE GROUP FOR THE YEAR ENDED 30 JUNE 2017

Set out below is the full text of the audited consolidated financial statements of the Group for the year ended 30 June 2017 as extracted from the annual report of the Company for the year ended 30 June 2017.

CONSOLIDATED BALANCE SHEET

As at 30 June 2017

Note ASSETS Non-current assets Property, plant and equipment 6 Investment properties 7 Goodwill 9 Other intangible assets 8 Film rights and films in progress 10 Interests in associates 12(a) Interests in joint ventures 13(a) Loans receivable 21(a) Loan to an associate 21(b) Loan receivable from a joint venture 13(b) Film related deposits Deposits paid 14 Deferred tax assets 30 Contingent consideration receivable 22 Available-for-sale financial assets 16 Current assets Inventories 19 Accounts receivable 20 Loans receivable 21(a) Loan to an associate 21(b) Amount due from an associate 12(b) Deposits paid, prepayments and other receivables 14 Financial assets at fair value through profit or loss 15 Contingent consideration receivable 22 Tax recoverable Bank balances and cash – trust accounts 23 Cash and cash equivalents 24 Assets associated with disposal group classified as held for sale 42 Total current assets Total assets	As at 30 June 2017 HK$’000 3,702 25,560 28,064 23,583 41,073 19,393 251 45,500 2,940 8,595 45,284 191 6,447 – 155,693 406,276 10,066 333,859 30,400 5,000 964 100,674 232,629 15,737 93 93,014 228,222 1,050,658 – 1,050,658 1,456,934	As at 30 June 2016 HK$’000 6,224 25,560 59,447 14,231 54,278 25,730 482 20,000 – 8,364 31,592 363 365 10,930 85,802
		343,368
		14,304 224,739 23,163 5,000 – 68,492 247,444 – – 116,667 101,173
		800,982 6,381
		807,363
		1,150,731

– II-2 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Note EQUITY Equity attributable to the owners of the Company Share capital 25 Share premium 27(a) Other reserves 27(a) Retained earnings 27(a) Non-controlling interests Total equity LIABILITIES Non-current liabilities Borrowings 28 Obligations under a finance lease 29 Deferred tax liabilities 30 Current liabilities Accounts payable 31 Amount due to an associate 12(b) Other payables and accrued charges 32 Contingent consideration payable 33 Borrowings 28 Deposits received Obligations under a finance lease 29 Taxation payable Bank overdrafts 28 Liabilities associated with disposal group classified as held for sale 42 Total current liabilities Total liabilities Total equity and liabilities Net current assets Total assets less current liabilities	As at 30 June 2017 HK$’000 8,533 893,345 67,867 43,614 1,013,359 168 1,013,527 10,000 28 13,413 23,441 92,447 – 234,560 19,568 43,063 22,645 35 7,648 – 419,966 – 419,966 443,407 1,456,934 630,692 1,036,968	As at 30 June 2016 HK$’000 1,778 532,910 67,301 151,162 753,151 (1,230) 751,921 – 63 2,229 2,292 254,722 1,941 64,121 – 9,200 43,813 35 9,068 4,020 386,920 9,598 396,518 398,810 1,150,731 410,845 754,213

– II-3 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 30 June 2017

Note CONTINUING OPERATIONS: Revenue Sales of goods – video distribution, optical, watches and jewellery products Income on film distribution and exhibition, licensing and sub-licensing of film rights Income from other businesses Total revenue 5 Cost of revenue Cost of inventories sold Related cost on film distribution and exhibition, licensing and sub-licensing of film rights Cost from other businesses Total cost of revenue	2017 HK$’000 52,161 133,725 45,758 231,644 (32,500) (55,052) (3,735) (91,287)	2016 HK$’000 72,320 45,563 33,150 151,033 (38,000) (13,129) (3,775) (54,904)

– II-4 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Note Selling expenses Administrative expenses Other operating income/(expenses) Gain on step acquisition of a subsidiary 46(a) Impairment loss of film rights and films in progress 10 Impairment loss of goodwill 9 Impairment loss of interest in an associate 12(a) Impairment loss of available-for-sale financial assets 16 Impairment loss of other receivables Impairment loss of accounts receivable 20 Amortisation of other intangible assets 8 Other (losses)/gains – net 39 Other income 38 Gains/(losses): Fair value change of financial assets at fair value through profit or loss Fair value change and loss on redemption of convertible bonds Fair value change of contingent consideration receivable 22 Fair value change of contingent consideration payable 33 Finance income 40 Finance costs 34(c) Share of (losses)/profits of associates Share of losses of a joint venture Loss on deregistration of a joint venture Loss before tax 34 Income tax (expense)/credit 41 Loss for the year from continuing operations DISCONTINUED OPERATION: Profit/(loss) for the year from discontinued operation 42 Loss for the year	2017 HK$’000 (13,834) (111,317) 60 – – (22,980) (3,227) (89,643) (1,532) (10,470) (148) (6,048) 4,525 12,679 – 4,807 (8,638) 294 (6,091) (216) (231) (24) (111,677) (6,919) (118,596) 4,075 (114,521)	2016 HK$’000 (18,275) (72,240) (4,429) 1,571 (4,226) (29,923) (18,421) – – – (135) 151 22,872 (143,564) (1,813) 4,080 60 298 (2,263) 3,899 (224) – (166,453) 26,179 (140,274) (1,602) (141,876)

– II-5 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Note Other comprehensive income/(loss): Items that may be reclassified to profit or loss: Net movement in available-for-sale investment reserve in respect of available-for-sale financial assets: Net changes in fair value of available- for-sale financial assets Reclassification adjustments for amounts transferred to profit or loss: Impairment loss Realised loss upon redemption of available-for-sale financial assets Release of translation reserve upon disposal of subsidiary Currency translation differences Other comprehensive income/(loss) for the year, net of tax Total comprehensive loss for the year Loss attributable to owners of the Company: – from continuing operations – from discontinued operation Loss for the year attributable to owners of the Company Loss attributable to non-controlling interests: – from continuing operations – from discontinued operation Loss for the year attributable to non-controlling interests	2017 HK$’000 (88,565) 89,643 6,571 96,214 (29) 41 7,661 (106,860) (118,403) 4,075 (114,328) (193) – (193)	2016 HK$’000 (12,340)
		– –
		– – (708) (13,048) (154,924) (139,973) (817) (140,790) (301) (785) (1,086)

– II-6 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Note Total comprehensive loss for the year attributable to: Owners of the Company Non-controlling interests Total comprehensive loss attributable to owners of the Company arises from: Continuing operations Discontinued operation Loss per share attributable to owners of the Company for the year(expressed in HK$): From continuing and discontinued operation – basic 43(a) – diluted 43(b) From continuing operations – basic 43(a) – diluted 43(b)	2017 HK$’000 (106,667) (193) (106,860) (110,713) 4,046 (106,667) (0.211) (0.211) (0.218) (0.218)	2016 HK$’000 (153,852) (1,072) (154,924) (153,050) (802) (153,852) (Restated) (0.863) (0.863) (0.858) (0.858)

– II-7 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 30 June 2017

	Attributable to the owners of the Company	Attributable to the owners of the Company	Attributable to the owners of the Company	Total equity HK$’000 572,267
Share capital HK$’000 2,984 – – – – – 6,159 – 5,968 – (13,333) – – – – (1,206) 1,778 –	Share premium HK$’000 213,630 – – – – – 216,923 (8,026) 114,578 (4,195) – – – – – 319,280 532,910 –	Other reserves (Note 27(a)) HK$’000 148,463 – (12,340) (722) (13,062) (13,062) – – – – 13,333 (81,961) 3,576 (3,048) – (68,100) 67,301 –	Retained earnings HK$’000 206,943 (140,790) – – – (140,790) – – – – – 81,961 – 3,048 – 85,009 151,162 (114,328)
				(141,876)
				(12,340) (708)
				(13,048)
				(154,924)
				223,082 (8,026) 120,546 (4,195) – – 3,576 – (405)
				334,578
				751,921
				(114,521)

– II-8 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

	Attributable to the owners of the Company	Attributable to the owners of the Company	Attributable to the owners of the Company	Total equity HK$’000 (88,565) 89,643 6,571 41 (29)
Share capital HK$’000 – – – – – – – 3,200 – 3,555 – – – – – 6,755 8,533	Share premium HK$’000 – – – – – – – 162,870 (5,808) 209,773 (6,400) – – – – 360,435 893,345	Other reserves (Note 27(a)) HK$’000 (88,565) 89,643 6,571 41 (29) 7,661 7,661 – – – – (7,095) – – – (7,095) 67,867	Retained earnings HK$’000 – – – – – – (114,328) – – – – 7,095 (315) – – 6,780 43,614
				7,661
				(106,860)
				166,070 (5,808) 213,328 (6,400) – – 100 1,176
				368,466
				1,013,527

– II-9 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 30 June 2017

Note Cash flows from operating activities Net cash used in operating activities 45 Cash flows from investing activities Acquisition of a subsidiary, net of cash acquired 46 Investment in associates Purchase of property, plant and equipment 6 Purchase of other intangible assets 8 Decrease in film related deposits Increase in film related deposits Payments for film rights and films in progress 10 Investment in available-for-sale financial assets Proceeds from redemption of available-for-sale financial asset Proceeds from capital return from available-for- sale financial assets Proceeds from disposal of property, plant and equipment 45(a) Net cash outflow on disposal of subsidiaries 47 Interest received 40 Dividends received from available-for-sale financial assets 38 Dividends received from an associate 12(a) Net cash used in investing activities	2017 HK$’000 (105,458) – (1,859) (1,358) (9,500) 1,640 (15,332) (10,138) (149,246) 5,929 6,199 278 (1,359) 63 – 4,753 (169,930)	2016 HK$’000 (100,904) (81,497) (38,792) (1,632) – 13,230 (7,044) (49,489) (11,330) – – – – 74 20,473 – (156,007)

– II-10 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Note Cash flows from financing activities Proceeds from placing of new ordinary shares Payments for transaction costs attributable to issue of new ordinary shares from placing Proceeds from rights issue of shares Payment for transaction costs attributable to issue of new ordinary shares from rights issue Proceeds from borrowings Repayment of borrowings Payment for redemption of convertible note Capital element of finance leases payments 45(b) Interest paid 34(c) Capital injection from non-controlling interest arising from a subsidiary Net cash generated from financing activities Net increase/(decrease) in cash and cash equivalents Currency translation differences Cash and cash equivalents at beginning of the year Cash and cash equivalents at end of the year Analysis of cash and cash equivalents: Cash and cash equivalents 24 Cash and cash equivalents included in disposal group classified as held for sale 42	2017 HK$’000 166,070 (5,808) 213,328 (6,400) 53,063 (9,200) – (35) (6,091) 100 405,027 129,639 71 98,512 228,222 228,222 – 228,222	2016 HK$’000 223,082 (8,026) 120,546 (4,195) 50,000 (62,000) (64,000) (34) (2,263) – 253,110 (3,801) (521) 102,834 98,512 97,153 1,359 98,512

– II-11 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1 GENERAL INFORMATION

Universe International Financial Holdings Limited (the “ Company ”) and its subsidiaries (together, the “ Group ”) are principally engaged in securities brokerage and margin financing, money lending, leasing of investment properties, securities investment, video distribution, film distribution and exhibition, licensing and sub-licensing of film rights, and trading, wholesaling and retailing of optical, watches and jewellery products in Hong Kong and the People’s Republic of China (“ PRC ”).

The Company is a limited liability company incorporated in Bermuda. The address of its registered office is Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda. The address of the principal place of business of the Company is 18th Floor, Wyler Centre Phase II, 192-200 Tai Lin Pai Road, Kwai Chung, New Territories, Hong Kong.

The Company’s shares are listed on the Main Board of The Stock Exchange of Hong Kong Limited (the “ Stock Exchange ”).

These consolidated financial statements are presented in thousands of units of Hong Kong dollars (“ HK$’000 ”), unless otherwise stated. These consolidated financial statements have been approved for issue by the Board on 29 September 2017.

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

2.1 Basis of preparation

The consolidated financial statements of the Group have been prepared in accordance with all applicable Hong Kong Financial Reporting Standards (“ HKFRSs ”), which collective term includes all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (“ HKASs ”) and Interpretations (“ Ints ”) 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. These financial statements also comply with the applicable disclosure provisions of the Rules Governing the Listing of Securities on the Stock Exchange (the “ Listing Rules ”).

These consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of available-for-sale financial assets, contingent consideration receivable, financial assets at fair value through profit or loss, contingent consideration payable, convertible bonds and investment properties, which are carried at fair value.

Disposal group held for sale are stated at the lower of carrying amount and fair value less costs to sell (Note

2.28).

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

Changes in accounting policy and disclosures

(i) Application of new or revised HKFRSs

The HKICPA has issued a number of amendments to HKFRSs that are first effective for the current accounting period of the Group. None of these developments have had a material effect on how the Group’s results and financial position for the current or prior periods have been prepared or presented.

The Group has not applied any new standard or interpretation that is not yet effective for the current accounting period.

– II-12 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

(ii) New Standards and amendments to standards not yet adopted

The following new standards, amendments to standards and interpretations to existing standards have been issued but are not yet effective for the financial year beginning 1 July 2016 and have not been early adopted:

		Effective for
		annual periods
		beginning on
		or after
Amendments to HKFRS 10	Sale or Contribution of Assets between an	a date to be
and HKAS 28	Investor and its Associate or Joint	determined
	Venture
Amendments to HKFRS 2	Classification and Measurement of	1 January 2018
	Share-based Payment Transactions
Amendments to HKAS 7	Disclosure Initiative	1 January 2017
Amendments to HKAS 12	Recognition of Deferred Tax Assets for	1 January 2017
	Unrealised Losses
Amendments to HKAS 40	Transfers of Investment Property	1 January 2018
Annual Improvements Project	Annual Improvements 2014-2016 Cycle	1 January 2017 or
		1 January 2018,
		as appropriate
HKFRS 9	Financial Instruments	1 January 2018
HKFRS 15	Revenue from Contracts with Customers	1 January 2018
	and the related Amendments
HKFRS 16	Leases	1 January 2019
HK(IFRIC) – Int 22	Foreign Currency Transactions and Advance	1 January 2018
	Consideration
HK(IFRIC) – Int 23	Uncertainty over Income Tax Treatments	1 January 2019

The Group is in the process of making an assessment of what the impact of these amendments and new standards are expected to be in the period of initial application. So far it has concluded that the adoption of them is unlikely to have a significant impact on the consolidated financial statements.

2.2 Subsidiaries and non-controlling interests

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

An investment in a subsidiary is consolidated into the consolidated financial statements from the date that control commences until the date that control ceases. Intra-group balances, transactions and cash flows and any unrealised profits arising from intra-group transactions are eliminated in full in preparing the consolidated financial statements. Unrealised losses resulting from intra-group transactions are eliminated in the same way as unrealised gains but only to the extent that there is no evidence of impairment.

Non-controlling interests represent the equity in a subsidiary not attributable directly or indirectly to the Company, and in respect of which the Group has not agreed any additional terms with the holders of those interests which would result in the Group as a whole having a contractual obligation in respect of those interests that meets the definition of a financial liability.

Non-controlling interests are presented in the consolidated balance sheet within equity, separately from equity attributable to the owners of the Company. Non-controlling interests in the results of the Group are presented on the face of the consolidated statement of comprehensive income as an allocation of the total profit or loss and total comprehensive income for the year between non-controlling interests and the owners of the Company. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. Loans from holders of non-controlling interests and other contractual obligations towards these holders are presented as financial liabilities in the consolidated balance sheet.

– II-13 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Changes in the Group’s ownership interests in existing subsidiaries

Changes in the Group’s interests in a subsidiary that do not result in a loss of control are accounted for as equity transactions, whereby adjustments are made to the amounts of controlling and non-controlling interests within consolidated equity to reflect the change in relative interests, but no adjustments are made to goodwill and no gain or loss is recognised.

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

In the Company’s balance sheet, an investment in a subsidiary is stated at cost less impairment losses (see Note 2.12), unless the investment is classified as held for sale (or included in a disposal group that is classified as held for sale).

2.3 Business combinations

Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Group, liabilities incurred 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. Acquisition-related costs are generally recognised in profit or loss as incurred.

At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value, except that:

deferred tax assets or liabilities, and assets or liabilities related to employee benefit arrangements are recognised and measured in accordance with HKAS 12 Incomes Taxes and HKAS 19 Employee Benefits respectively;
liabilities or equity instruments related to share-based payment arrangements of the acquiree or sharebased payment arrangements of the Group entered into to replace share-based payment arrangements of the acquiree are measured in accordance with HKFRS 2 Share-based Payment at the acquisition date; and
assets (or disposal groups) that are classified as held for sale in accordance with HKFRS 5 Non-current Assets Held for Sale and Discontinued Operations are measured in accordance with that standard.

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any noncontrolling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after re-assessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain.

Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the relevant subsidiary’s net assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests’ proportionate share of the recognised amounts of the acquiree’s identifiable net assets. The choice of measurement basis is made on a transaction-by-transaction basis. Other types of non-controlling interests are measured at their fair value.

Where the consideration transferred by the Group in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a business combination. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with the corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the “measurement period” (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date.

– II-14 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

The subsequent accounting for contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or a liability is remeasured to fair value at subsequent reporting dates, with the corresponding gain or loss being recognised in profit or loss.

When a business combination is achieved in stages, the Group’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date (i.e. the date when the Group obtains control) and the resulting gain or loss, if any, is recognised in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to profit or loss where such treatment would be appropriate if that interest were disposed of.

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see above), and additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed at the acquisition date that, if known, would have affected the amounts recognised at that date.

2.4 Investments in associates and joint ventures

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.

A joint venture is a type of joint arrangement whereby the parties that have a joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.

The Group’s investments in associates and joint ventures are stated in the consolidated balance sheet at the Group’s share of net assets under the equity method of accounting, less any impairment losses.

The Group’s share of the post-acquisition results and other comprehensive income of associates and joint ventures are included in the consolidated statement of comprehensive income. In addition, when there has been a change recognised directly in the equity of the associate or joint venture, 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 or joint ventures are eliminated to the extent of the Group’s investments in the associates or joint ventures, except where unrealised losses provide evidence of an impairment of the assets transferred. Goodwill arising from the acquisition of associates or joint ventures is included as part of the Group’s investments in associates or joint ventures.

If an investment in an associate becomes an investment in a joint venture or vice versa, the retained interest is not remeasured. Instead, the investment continues to be accounted for under the equity method. In all other cases, upon loss of significant influence over the associate or joint control over the joint venture, the Group measures and recognises any retained investment at its fair value. Any difference between the carrying amount of the associate or joint venture upon loss of significant influence or joint control and the fair value of the retained investment and proceeds from disposal is recognised in profit or loss.

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

– II-15 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

2.5 Interests in joint operations

A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement.

The Group recognises in relation to its interest in a joint operation:

its assets, including its share of any assets held jointly;
its liabilities, including its share of any liabilities incurred jointly;
its revenue from the sale of its share of the output arising from the joint operation;
its share of the revenue from the sale of the output by the joint operation; and
its expenses, including its share of any expenses incurred jointly.

The assets, liabilities, revenues and expenses relating to the Group’s interest in a joint operation are accounted for in accordance with the HKFRSs applicable to the particular assets, liabilities, revenue and expenses.

2.6 Segment reporting

Operating segments, and the amounts of each segment item reported in the financial statements, are identified from the financial information provided regularly to the Chairman of the Company (the chief operating decision maker) for the purposes of allocating resources to, and assessing the performance of, the Group’s various lines of business and geographical locations.

Individually material operating segments are not aggregated for financial reporting purposes unless the segments have similar economic characteristics and are similar in respect of the nature of products and services, the nature of production processes, the type or class of customers, the methods used to distribute the products or provide the services, and the nature of the regulatory environment. Operating segments which are not individually material may be aggregated if they share a majority of these criteria.

2.7 Foreign currency translation

(a) Functional and presentation currency

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

(b) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the consolidated statement of comprehensive income within ‘other gains/(losses) – net’.

Changes in the fair value of debt securities denominated in foreign currency classified as availablefor-sale are analysed between translation differences resulting from changes in the amortised cost of the security and other changes in the carrying amount of the security. Translation differences related to changes in amortised cost are recognised in profit or loss, and other changes in carrying amount are recognised in other comprehensive income.

Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit or loss are recognised in profit or loss as part of the fair value gain or loss. Translation differences on non-monetary financial assets, such as equities classified as available-for-sale, are included in other comprehensive income.

– II-16 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

(c) Group companies

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

(a) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;
(b) income and expenses for each statement of comprehensive income are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions); and
(c) all resulting currency translation differences are recognised in other comprehensive income.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. Currency translation differences arising are recognised in other comprehensive income.

(d) Disposal of foreign operation and partial disposal

On the disposal of a foreign operation (that is, a disposal of the Group’s entire interest in a foreign operation, or a disposal involving loss of control over a subsidiary that includes a foreign operation, a disposal involving loss of joint control over a joint venture that includes a foreign operation, or a disposal involving loss of significant influence over an associate that includes a foreign operation), all of the currency translation differences accumulated in equity in respect of that operation attributable to the owners of the company are reclassified to profit or loss.

In the case of a partial disposal that does not result in the Group losing control over a subsidiary that includes a foreign operation, the proportionate share of accumulated currency translation differences are reattributed to non-controlling interests and are not recognised in profit or loss. For all other partial disposals (that is, reductions in the Group’s ownership interest in associates or joint ventures that do not result in the Group losing significant influence or joint control), the proportionate share of the accumulated exchange difference is reclassified to profit or loss.

2.8 Property, plant and equipment

All property, plant and equipment are stated at historical cost less depreciation and any accumulated impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Cost may also include transfers from equity of any gains/losses on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment.

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

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

Leasehold improvements Shorter of useful life or lease term Machinery and equipment 3-5 years Others 5 years

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

– II-17 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (Note 2.12).

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within ‘other gains/(losses) – net’ in the consolidated statement of comprehensive income.

2.9 Investment properties

Investment properties are land and/or buildings which are owned or held under a leasehold interest (see Note 2.10) to earn rental income and/or for capital appreciation. These include land held for a currently undetermined future use and property that is being constructed or developed for future use as investment property.

Investment properties are stated at fair value, unless they are still in the course of construction or development at the end of the reporting period and their fair value cannot be reliably measured at that time. Any gain or loss arising from a change in fair value or from the retirement or disposal of an investment property is recognised in profit or loss. Rental income from investment properties is accounted for as described in Note 2.27(d). When the Group holds a property interest under an operating lease to earn rental income and/or for capital appreciation, the interest is classified and accounted for as an investment property on a property-by-property basis. Any such property interest which has been classified as an investment property is accounted for as if it were held under a finance lease (see Note 2.10), and the same accounting policies are applied to that interest as are applied to other investment properties leased under finance leases. Lease payments are accounted for as described in Note 2.10.

2.10 Leased assets

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

(a) Classification of assets leased to the Group

Assets held by the Group under leases which transfer to the Group substantially all the risks and rewards of ownership are classified as being held under finance leases. Leases which do not transfer substantially all the risks and rewards of ownership to the Group are classified as operating leases, with the following exceptions:

property held under operating leases that would otherwise meet the definition of an investment property is classified as an investment property on a property-by-property basis and, if classified as investment property, is accounted for as if held under a finance lease (see Note 2.9); and
land held for own use under an operating lease, the fair value of which cannot be measured separately from the fair value of a building situated thereon at the inception of the lease, is accounted for as being held under a finance lease, unless the building is also clearly held under an operating lease. For these purposes, the inception of the lease is the time that the lease was first entered into by the Group, or taken over from the previous lessee.

(b) Assets acquired under finance leases

Where the Group acquires the use of assets under finance leases, the amounts representing the fair value of the leased asset, or, if lower, the present value of the minimum lease payments, of such assets are recognised as property, plant and equipment and the corresponding liabilities, net of finance charges, are recorded as obligations under finance leases. Depreciation is provided at rates which write off the cost of the assets over the term of the relevant lease or, where it is likely the Group will obtain ownership of the asset, the life of the asset, as set out in Note 2.8. Impairment losses are accounted for in accordance with the accounting policy as set out in Note 2.12. Finance charges implicit in the lease payments are charged to profit or loss over the period of the leases so as to produce an approximately constant periodic rate of charge on the remaining balance of the obligations for each accounting period.

– II-18 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

(c) Operating lease charges

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

The cost of acquiring land held under an operating lease is amortised on a straight-line basis over the period of the lease term except where the property is classified as an investment property (see Note 2.9).

2.11 Other investments in equity securities

The Group’s and the Company’s policies for investments in equity securities, other than investments in subsidiaries, associates and joint ventures, are as follows:

Investments in equity securities are initially stated at fair value, which is their transaction price unless it is determined that the fair value at initial recognition differs from the transaction price and that fair value is evidenced by a quoted price in an active market for an identical asset or liability or based on a valuation technique that uses only data from observable markets. Cost includes attributable transaction costs, except where indicated otherwise below. These investments are subsequently accounted for as follows, depending on their classification:

Investments in securities held for trading are classified as current assets. Any attributable transaction costs are recognised in profit or loss as incurred. At the end of each reporting period the fair value is remeasured, with any resultant gain or loss being recognised in profit or loss. The net gain or loss recognised in profit or loss does not include any dividends or interest earned on these investments as these are recognised in accordance with the policies set out in Note 2.27(f) and 2.27(e).

Investments in securities which do not fall into the above category are classified as available for sale financial assets. At the end of each reporting period the fair value is remeasured, with any resultant gain or loss being recognised in other comprehensive income and accumulated separately in equity in the available-for-sale investment reserve. As an exception to this, investments in equity securities that do not have a quoted price in an active market for an identical instrument and whose fair value cannot otherwise be reliably measured are recognised in the balance sheet at cost less impairment losses (see Note 2.12). Dividend income from equity securities is recognised in profit or loss in accordance with the policy set out in Note 2.27(f).

When the investments are derecognised or impaired, the cumulative gain or loss recognised in equity is reclassified to profit or loss. Investments are recognised/derecognised on the date the Group commits to purchase/sell the investments or they expire.

2.12 Impairment of assets

(a) Impairment of investments in equity securities and other receivables

Investments in equity securities and other current and non-current receivables that are stated at cost or amortised cost or are classified as available-for-sale securities are reviewed at the end of each reporting period to determine whether there is objective evidence of impairment. Objective evidence of impairment includes observable data that comes to the attention of the Group about one or more of the following loss events:

significant financial difficulty of the debtor;
a breach of contract, such as a default or delinquency in interest or principal payments;
it becoming probable that the debtor will enter bankruptcy or other financial reorganisation;
significant changes in the technological, market, economic or legal environment that have an adverse effect on the debtor; and
a significant or prolonged decline in the fair value of an investment in an equity instrument below its cost.

– II-19 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

If any such evidence exists, any impairment loss is determined and recognised as follows:

For investments in associates and joint ventures accounted for under the equity method in the consolidated financial statements (see Note 2.4), the impairment loss is measured by comparing the recoverable amount of the investment with its carrying amount in accordance with Note 2.12(b). The impairment loss is reversed if there has been a favourable change in the estimates used to determine the recoverable amount in accordance with Note 2.12(b).

– For unquoted equity securities carried at cost, the impairment loss is measured as the difference between the carrying amount of the financial asset and the estimated future cash flows, discounted at the current market rate of return for a similar financial asset where the effect of discounting is material. Impairment losses for equity securities carried at cost are not reversed. – For accounts receivable, loans receivable and other current receivables and other financial assets carried at amortised cost, the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition of these assets), where the effect of discounting is material. This assessment is made collectively where these financial assets share similar risk characteristics, such as similar past due status, and have not been individually assessed as impaired. Future cash flows for financial assets which are assessed for impairment collectively are based on historical loss experience for assets with credit risk characteristics similar to the collective group.

If in a subsequent period the amount of an impairment loss decreases and the decrease can be linked objectively to an event occurring after the impairment loss was recognised, the impairment loss is reversed through profit or loss. A reversal of an impairment loss shall not result in the asset’s carrying amount exceeding that which would have been determined had no impairment loss been recognised in prior years.

– For available-for-sale securities which are stated at fair value, when a decline in the fair value has been recognised in other comprehensive income and there is objective evidence that the asset is impaired, the cumulative loss that had been recognised in other comprehensive income shall be reclassified from equity to profit or loss as a reclassification adjustment even though the financial asset has not been derecognised. The amount of the cumulative loss that is recognised in profit or loss is the difference between the acquisition cost (net of any principal repayment and amortisation) and current fair value, less any impairment loss on that asset previously recognised in profit or loss.

Impairment losses recognised in profit or loss in respect of available-for-sale equity securities are not reversed through profit or loss. Any subsequent increase in the fair value of such assets is recognised in other comprehensive income.

Impairment losses are written off against the corresponding assets directly, except for impairment losses recognised in respect of customers included within accounts receivable, whose recovery is considered doubtful but not remote. In this case, the impairment losses for doubtful debts are recorded using an allowance account. When the Group is satisfied that recovery is remote, the amount considered irrecoverable is written off against customers directly and any amounts held in the allowance account relating to that debt are reversed. Subsequent recoveries of amounts previously charged to the allowance account are reversed against the allowance account. Other changes in the allowance account and subsequent recoveries of amounts previously written off directly are recognised in profit or loss.

– II-20 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

(b) Impairment of other assets

Internal and external sources of information are reviewed at the end of each reporting period to identify indications that the following assets may be impaired or, except in the case of goodwill, an impairment loss previously recognised no longer exists or may have decreased:

property, plant and equipment;
goodwill;
other intangible assets;
film related deposits;
film rights and films in progress; and
investments in subsidiaries, associates and joint ventures in the Company’s balance sheet.

If any such indication exists, the asset’s recoverable amount is estimated. In addition, for goodwill, intangible assets that are not yet available for use and intangible assets that have indefinite useful lives, the recoverable amount is estimated annually whether or not there is any indication of impairment.

Calculation of recoverable amount

The recoverable amount of an asset is the greater of its fair value less costs of disposal and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Where an asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that generates cash-inflows independently (i.e. a cash generating unit).

Recognition of impairment losses

An impairment loss is recognised in profit or loss whenever the carrying amount of an asset, or the cash-generating unit to which it belongs, exceeds its recoverable amount. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit (or group of units) and then, to reduce the carrying amount of the other assets in the unit (or group of units) on a pro rata basis, except that the carrying amount of an asset will not be reduced below its individual fair value less costs of disposal (if measurable) or value in use (if determinable).

Reversals of impairment losses

In respect of assets other than goodwill, an impairment loss is reversed if there has been a favourable change in the estimates used to determine the recoverable amount. An impairment loss in respect of goodwill is not reversed.

A reversal of an impairment loss is limited to the asset’s carrying amount that would have been determined had no impairment loss been recognised in prior years. Reversals of impairment losses are credited to profit or loss in the year in which the reversals are recognised.

(c) Interim financial reporting and impairment

Under the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited, the Group is required to prepare an interim financial report in compliance with HKAS 34, Interim Financial Reporting, in respect of the first six months of the financial year. At the end of the interim period, the Group applies the same impairment testing, recognition, and reversal criteria as it would at the end of the financial year (see Notes 2.12(a) and (b)).

– II-21 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Impairment losses recognised in an interim period in respect of goodwill, available-for-sale equity securities and unquoted equity securities carried at cost are not reversed in a subsequent period. This is the case even if no loss, or a smaller loss, would have been recognised had the impairment been assessed only at the end of the financial year to which the interim period relates. Consequently, if the fair value of an availablefor-sale equity security increases in the remainder of the annual period, or in any other period subsequently, the increase is recognised in other comprehensive income and not profit or loss.

2.13 Intangible assets

(a) Goodwill

Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of the business less accumulated impairment losses, if any.

For the purposes of impairment testing, goodwill is allocated to each of the Group’s cash-generating units (or groups of cash-generating units) that is expected to benefit from the synergies of the combination, which represent the lowest level within the entity at which the goodwill is monitored for internal management purposes and not larger than an operating segment.

A cash-generating unit or group of cash generating units to which goodwill has been allocated is tested for impairment annually, or more frequently whenever there is an indication that the unit may be impaired. If some or all of the goodwill allocated to a cash-generating unit was acquired in a business combination during the current annual period, that unit shall be tested for impairment before the end of the current annual period. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit on a pro-rata basis based on the carrying amount of each asset in the unit or group of cash generating units.

On disposal of the relevant cash generating unit, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

(b) Club membership

Club membership with indefinite useful life is stated at cost less any impairment losses. Impairment is reviewed annually and when there is any indication that the club membership has suffered an impairment loss.

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

(c) Brand name

Brand name acquired in a business combination are recognised at fair value at the acquisition date. Brand name has a finite useful life and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method of 7.5 years over the expected life of the brand name.

(d) Trading rights held in the Stock Exchange

Trading rights held in the Stock Exchange are classified as intangible assets. Trading rights acquired in a business combination are recognised at fair value at the acquisition date. Trading rights have an indefinite useful life and are carried at cost less accumulated impairment losses. The trading rights have no foreseeable limit to the period over which the Group can use to generate net cash flows. As a result, the trading rights are considered by the management of the Group as having an indefinite useful life because they are expected to contribute to net cash inflows indefinitely. The trading rights will not be amortised until their useful lives are determined to be finite. Instead they will be tested for impairment annually and whenever there is an indication that they may be impaired.

The useful life of the trading rights 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.

– II-22 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

(e) Trading rights held in The Chinese Gold & Silver Exchange Society

The trading rights held in The Chinese Gold & Silver Exchange Society have an indefinite useful lives and are recognised as intangible assets in the consolidated balance sheet. The trading rights are carried at cost less impairment losses and are tested for impairment annually and whenever there is an indication that the trading rights may be impaired by comparing their recoverable amounts with their carrying amounts. The trading rights have no foreseeable limit to the period over which the Group can use to generate net cash flows. As a result, the trading rights are considered by the management of the Group as having an indefinite useful life because they are expected to contribute to net cash inflows indefinitely. The trading rights will not be amortised until their useful lives are determined to be finite.

2.14 Offsetting financial instruments

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

2.15 Inventories

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

Cost is calculated using the weighted average cost formula and comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.

Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

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

2.16 Film rights and films in progress

(a) Film rights

Film rights comprise fees paid and payable under agreements and direct expenses incurred during the production of films, for the reproduction and/or distribution of films in various videogram formats, film exhibition, licensing and sub-licensing of film titles.

Film rights are stated at cost less accumulated amortisation and accumulated impairment losses.

The cost of film rights is amortised over the shorter of the underlying license period and their useful lives, with reference to projected revenues.

(b) Films in progress

Films in progress are stated at cost less any provision for impairment losses. Cost includes all direct costs associated with the production of films. The balance of film production costs not yet due at the end of each reporting period are disclosed as commitments. Cost of films is transferred to film rights upon completion.

(c) Impairment

At each balance sheet date, both internal and external market information are considered to assess whether there is any indication that assets included in film rights and films in progress are impaired. If any such indication exists, the carrying amount of such assets is assessed and where relevant, an impairment loss is recognised to reduce the asset to its recoverable amount. Such impairment losses are recognised in the consolidated statement of comprehensive income.

– II-23 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

2.17 Film deposits

Film deposits comprise deposits paid for the acquisition of film rights and deposits paid to production houses, artistes and others prior to the production of films. The balance payable under agreements for acquisition and production of film rights is disclosed as a commitment. Provision for film deposits is made based on future revenue generated for the Group and the carrying value of film deposits.

2.18 Accounts and other receivables

Accounts receivable and other receivables are initially recognised at fair value and thereafter stated at amortised cost using the effective interest method less allowance for impairment of doubtful debts (see Note 2.12), except where the receivables are interest-free loans made to related parties without any fixed repayment terms or the effect of discounting would be immaterial. In such cases, the receivables are stated at cost less allowance for impairment of doubtful debts (see Note 2.12).

2.19 Loans receivable

Loans receivable are loans granted to customers in the ordinary course of business. If collection of loans receivable is expected in one year or less, they are classified as current assets. If not, they are presented as non-current assets.

Loans receivable are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less allowance for impairment of doubtful debts (see Note 2.12).

2.20 Cash and cash equivalents

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

2.21 Accounts and other payables

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

2.22 Interest-bearing borrowings

Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between the amount initially recognised and redemption value being recognised in profit or loss over the period of the borrowings, together with any interest and fees payable, using the effective interest method.

2.23 Borrowing costs

Borrowing costs that are directly attributable to the acquisition, construction or production of an asset which necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of that asset. Other borrowing costs are expensed in the period in which they are incurred.

The capitalisation of borrowing costs as part of the cost of a qualifying asset commences when expenditure for the asset is being incurred, borrowing costs are being incurred and activities that are necessary to prepare the asset for its intended use or sale are in progress. Capitalisation of borrowing costs is suspended or ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are interrupted or complete.

2.24 Income Tax

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

– II-24 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the end of the reporting period, and any adjustment to tax payable in respect of previous years.

Deferred tax assets and liabilities arise from deductible and taxable temporary differences respectively, being the differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases. Deferred tax assets also arise from unused tax loses and unused tax credits.

Apart from certain limited exceptions, all deferred tax liabilities, and all deferred tax assets to the extent that it is probable that future taxable profits will be available against which the asset can be utilised, are recognised. Future taxable profits that may support the recognition of deferred tax assets arising from deductible temporary differences include those that will arise from the reversal of existing taxable temporary differences, provided that those differences relate to the same taxation authority and the same taxable entity, and are expected to reverse either in the same period as the expected reversal of the deductible temporary difference or in periods into which a tax loss arising from the deferred tax asset can be carried back or forward. The same criteria are adopted when determining whether existing taxable temporary differences support the recognition of deferred tax assets arising from unused tax losses and credits, that is, those differences are taken into account if they relate to the same taxation authority and the same taxable entity, and are expected to reverse in a period, or periods, in which the tax loss or credit can be utilised.

The limited exceptions to recognition of deferred tax assets and liabilities are those temporary differences arising from goodwill not deductible for tax purposes, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit (provided they are not part of a business combination), and temporary differences relating to investments in subsidiaries to the extent that, in the case of taxable differences, the Group controls the timing of the reversal and it is probable that the differences will not reverse in the foreseeable future, or in the case of deductible differences, unless it is probable that they will reverse in the future.

Where investment properties are carried at their fair value in accordance with the accounting policy set out in Note 2.9, the amount of deferred tax recognised is measured using the tax rates that would apply on sale of those assets at their carrying value at the end of the reporting period unless the property is depreciable and is held within a business model whose objective is to consume substantially all of the economic benefits embodied in the property over time, rather than through sale. In all other cases, the amount of deferred tax recognised is measured based on the expected manner of realisation or settlement of the carrying amount of the assets and liabilities, using tax rates enacted or substantively enacted at the end of the reporting period. Deferred tax assets and liabilities are not discounted.

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

Additional income taxes that arise from the distribution of dividends are recognised when the liability to pay the related dividends is recognised.

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

in the case of current tax assets and liabilities, the Company or the Group intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously; or
in the case of deferred tax assets and liabilities, if they relate to income taxes levied by the same taxation authority on either:
the same taxable entity; or
different taxable entities, which, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered, intend to realise the current tax assets and settle the current tax liabilities on a net basis or realise and settle simultaneously.

– II-25 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

2.25 Employee benefits

(i) Short term employee benefits and contributions to defined contribution retirement plans

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

(ii) Share-based payments

The fair value of share options granted to employees is recognised as an employee cost with a corresponding increase in share-based compensation reserve within equity. The fair value is measured at grant date using the Binominal Option Pricing Model, taking into account the terms and conditions upon which the options were granted. Where the employees have to meet vesting conditions before becoming unconditionally entitled to the share options, the total estimated fair value of the share options is spread over the vesting period, taking into account the probability that the options will vest.

During the vesting period, the number of share options expected to vest is reviewed. Any resulting adjustment to the cumulative fair value recognised in prior years is charged/credited to the profit or loss for the year of the review, unless the original employee expenses qualify for recognition as an asset, with a corresponding adjustment to the share-based compensation reserve. On vesting date, the amount recognised as an expense is adjusted to reflect the actual number of share options that vest (with a corresponding adjustment to the share-based compensation reserve) except where forfeiture is only due to not achieving vesting conditions that relate to the market price of the Company’s shares. When share options are exercised, the amount previously recognised in share-based compensation reserve will be transferred to share premium. When the share options are forfeited after the vesting date or are still not exercised at the expiry date, the amount previously recognised in share-based compensation reserve will be transferred to retained earnings.

(iii) Termination benefits

Termination benefits are recognised at the earlier of when the Group can no longer withdraw the offer of those benefits and when it recognises restructuring costs involving the payment of termination benefits.

2.26 Provisions and contingent liabilities

(i) Contingent liabilities assumed in business combinations

Contingent liabilities assumed in a business combination which are present obligations at the date of acquisition are initially recognised at fair value, provided the fair value can be reliably measured. After their initial recognition at fair value, such contingent liabilities are recognised at the higher of the amount initially recognised, less accumulated amortisation where appropriate, and the amount that would be determined in accordance with Note 2.26(ii). Contingent liabilities assumed in a business combination that cannot be reliably fair valued or were not present obligations at the date of acquisition are disclosed in accordance with Note 2.26(ii).

(ii) Other provisions and contingent liabilities

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

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

– II-26 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

2.27 Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable.

The Group recognises revenue when the amount of revenue can be reliably measured, when it is probable that future economic benefits will flow to the entity and when specific criteria have been met for each of the Group’s activities as described below.

(a) Revenue from sale of goods

Revenue from the sale of goods is recognised on the transfer of risks and rewards of ownership, which generally coincides with the time when the goods are delivered to customers and the title has passed and collectability of the related receivables is reasonably assured.

(b) Income from licensing and sub-licensing of film rights

Income from the licensing and sub-licensing of film rights is recognised upon the delivery of the prerecorded audio visual products and the materials for video features including the master tapes to the customers, in accordance with the terms of the underlying contracts.

(c) Film exhibition income

Film exhibition income is recognised when the film is shown and the right to receive payment is established.

(d) Rental income from operating lease

Operating lease and other rental income is recognised on a straight-line basis over the lease terms.

(e) Interest income

Interest income is recognised using the effective interest method. When a loan and receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loans and receivables is recognised using the original effective interest rate.

(f) Dividend income

Dividend income from unlisted investments is recognised when the shareholder’s right to receive payment is established. Dividend income from listed investments is recognised when the share price of the investment goes ex-dividend.

(g) Income from provision of training and coaching services

Income from provision of training and coaching services is recognised when training and coaching services are rendered.

(h) Brokerage commission income

Brokerage commission income is recognised on a trade date basis when the relevant transactions are executed.

(i) Underwriting commission income, sub-underwriting income and placing commission

Underwriting commission income, sub-underwriting income and placing commission are recognised as income in accordance with the terms of the underlying agreement or deal mandate when relevant significant act has been completed.

– II-27 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

2.28 Non-current assets held for sale and discontinued operations

(i) Non-current assets held for sale

A non-current asset (or disposal group) is classified as held for sale if it is highly probable that its carrying amount will be recovered through a sale transaction rather than through continuing use and the asset (or disposal group) is available for sale in its present condition. A disposal group is a group of assets to be disposed of together as a group in a single transaction, and liabilities directly associated with those assets that will be transferred in the transaction.

When the Group is committed to a sale plan involving loss of control of a subsidiary, all the assets and liabilities of that subsidiary are classified as held for sale when the above criteria for classification as held for sale are met, regardless of whether the Group will retain a non-controlling interest in the subsidiary after the sale.

Immediately before classification as held for sale, the measurement of the non-current assets (and all individual assets and liabilities in a disposal group) is brought up-to-date in accordance with the accounting policies before the classification. Then, on initial classification as held for sale and until disposal, the noncurrent assets (except for certain assets as explained below), or disposal groups, are recognised at the lower of their carrying amount and fair value less costs to sell. The principal exceptions to this measurement policy so far as the financial statements of the Group and the Company are concerned are deferred tax assets, assets arising from employee benefits, financial assets (other than investments in subsidiaries, associates and joint ventures) and investment properties. These assets, even if held for sale, would continue to be measured in accordance with the policies set out elsewhere in Note 2.

Impairment losses on initial classification as held for sale, and on subsequent remeasurement while held for sale, are recognised in profit or loss. As long as a non-current asset is classified as held for sale, or is included in a disposal group that is classified as held for sale, the non-current asset is not depreciated or amortised.

(ii) Discontinued operations

A discontinued operation is a component of the Group’s business, the operations and cash flows of which can be clearly distinguished from the rest of the Group and which represents a separate major line of business or geographical area of operations, or is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations, or is a subsidiary acquired exclusively with a view to resale.

Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held for sale (see (i) above), if earlier. It also occurs if the operation is abandoned.

Where an operation is classified as discontinued, a single amount is presented on the face of the statement of comprehensive income, which comprises:

the post-tax profit or loss of the discontinued operation; and

– the post-tax gain or loss recognised on the measurement to fair value less costs to sell, or on the disposal, of the assets or disposal group(s) constituting the discontinued operation.

2.29 Convertible bonds

The convertible bonds consist of liability component, conversion option and other embedded derivatives which are not closely related to the host liability contract. Conversion options that will not be settled by the exchange of a fixed amount of cash or another financial asset for a fixed number of the issuer’s own equity instruments are not equity instruments and are considered as embedded derivatives not closely related to the host contract.

The Group has elected to designate its convertible bonds with embedded derivatives as financial liabilities at fair value through profit or loss on initial recognition as the convertible bonds contain one or more embedded derivatives. Subsequent to initial recognition, the convertible bonds are measured at fair value, with changes in fair value recognised directly in profit or loss in the period in which they arise. The change in fair value recognised in profit or loss includes any interest paid for the convertible bonds.

– II-28 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Transaction costs that are directly attributable to the issue of the convertible bonds designated as financial liabilities at fair value through profit or loss are recognised immediately in consolidated statement of comprehensive income.

2.30 Related parties

(a) A person, or a close member of that person’s family, is related to the Group if 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 the Group’s parent.
(b) An entity is related to the Group if any of the following conditions applies:
(i) The entity and the Group are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others).
(ii) One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member).
(iii) Both entities are joint ventures of the same third party.
(iv) One entity is a joint venture of a third entity and the other entity is an associate of the third entity.
(v) The entity is a post-employment benefit plan for the benefit of employees of either the 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).
(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 Group’s parent.

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

3 FINANCIAL RISK MANAGEMENT

3.1 Financial risk factors

The Group’s activities expose it to a variety of financial risks: market risk (including currency risk, interest rate risk and equity price risk), credit risk and liquidity risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance. The policies for managing these risks are summarised below.

(a) Market risk

(i) Currency risk
(i) Exposure to currency risk

The Group is exposed to currency risk primarily through sales and purchases which give rise to receivables, payables and cash balances that are denominated in a foreign currency, i.e. a currency other than the functional currency of the operations to which the transactions relate. The currency giving rise to this risk is primarily Renminbi (“ RMB ”) (2016: RMB).

– II-29 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

The following table details the Group’s exposure at the end of the reporting period to currency risk arising from recognised assets or liabilities denominated in a currency other than the functional currency of the entity to which they relate. For presentation purposes, the amounts of the exposure are shown in Hong Kong dollars, translated using the spot rate at the year end date.

Bank balances and cash – trust accounts Cash and cash equivalents Accounts receivable Financial assets included in “deposits paid, prepayments and other receivables” Accounts payable Other payables and accrued charges	Exposure to foreign currencies *(expressed in Hong Kong dollars)* 2017 2016 Renminbi Renminbi ’000 ’000 10 – 22 17 19,900 3,148 54,522 28,288 (10) (5) (45) (4) 74,399 31,444

(ii) Sensitivity analysis

The following table indicates the instantaneous change in the Group’s loss after tax (and retained earnings) that would arise if foreign exchange rates to which the Group has significant exposure at the end of the reporting period had changed at that date, assuming all other risk variables remained constant.

	2017		2016
		Increase/(decrease)		Increase/(decrease)
	Increase/(decrease)	in loss after tax and	Increase/(decrease)	in loss after tax and
	in foreign	(increase)/decrease	in foreign	(increase)/decrease
	exchange rates	in retained earnings	exchange rates	in retained earnings
		HK’000		HK’000
RMB	5%	(3,720)	5%	(1,313)
	(5%)	3,720	(5%)	1,313

Results of the analysis as presented in the above table represent an aggregation of the instantaneous effects on each of the group entities’ loss/profit after tax and equity measured in the respective functional currencies, translated into Hong Kong Dollars at the exchange rate ruling at the end of the reporting period for presentation purposes.

The sensitivity analysis assumes that the change in foreign exchange rates had been applied to re-measure those financial instruments held by the Group which expose the Group to foreign currency risk at the end of the reporting period. The analysis is performed on the same basis for 2016.

– II-30 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

(ii) Interest rate risk

The Group is exposed to fair value interest rate risk in relation to fixed rate loans receivable (see Note 21) from money lending business and fixed rate borrowings (Note 28). The management considered that the risk is insignificant as the amounts are carried at amortised cost. The Group is also exposed to cash flow interest rate risk in relation to variable-rate accounts receivable from securities brokerage and margin financing business such as cash clients, margin clients and variable rate borrowings (see Note 20 and 28 respectively). Bank balances are excluded from the interest rate sensitivity analysis as they are insignificantly sensitive to the change in market interest rates.

Sensitivity analysis

The sensitivity analysis below has been determined based on the exposure to interest rates for the financial instruments at the end of the reporting period. The analysis is prepared assuming the financial instruments outstanding at the end of the reporting period were outstanding for the whole year and all other variables were held constant throughout the respective year. A 100 basis points (2016: 100 basis points) increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the reasonably possible change in interest rates. If interest rates had been 100 basis points (2016: 100 basis points) higher/lower and all other variables were held constant, the Group’s loss for the year ended 30 June 2017 would decrease/increase by HK$1,537,000 (2016: increase/decrease by HK$1,144,000).

(iii) Equity price risk

The Group is exposed to equity price changes arising from listed securities, unlisted investment funds and unlisted limited partnership. The sensitivity analysis has been determined based on the exposure to equity price risk.

The Group’s financial assets at fair value through profit or loss and certain available-for-sale financial assets are listed on the Stock Exchange of Hong Kong Limited. Decisions to buy or sell trading securities are based on daily monitoring of the performance of individual securities compared to that of the Hang Seng Index and Index of the Growth Enterprise Market on the Stock Exchange of Hong Kong Limited and other industry indicators, as well as the Group’s liquidity needs. Listed investments held in the available-for-sale portfolio have been chosen based on their long term growth potential and are monitored regularly for performance against expectation.

For the unlisted investment funds and unlisted limited partnership classified as available-forsale financial assets, the board of directors manages the exposure to equity price risk by maintaining a portfolio of investments funds with different risk and return profiles.

At 30 June 2017, it is estimated that an increase/decrease of 3% (2016: 3%) in the fair value of the Group’s financial assets at fair value through profit or loss with all other variables held constant would have decreased/increased the Group’s loss after tax (and increased/decreased retained earnings) by HK$5,827,000 (2016: decreased/increased the Group’s loss after tax (and increased/decreased retained earnings) by HK$6,198,000).

At 30 June 2017, it is estimated that an increase/decrease of 3% (2016: 3%) in the fair value of available-for-sale financial assets with all other variables held constant would have increased/decreased in the Group’s available-for-sale investment reserve by HK$3,009,000 (2016: increased/decreased in the Group’s available-for-sale investment reserve by HK$2,574,000) and decreased/increased the Group’s loss after tax (and increased/decreased retained earnings) by HK$1,662,000 (2016: Nil).

– II-31 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

(b) Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligation resulting in financial loss to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties as a means of mitigating the risk of financial loss from default.

In respect of accounts receivable arising from trading, wholesaling and retailing of optical, watches and jewellery products, in order to minimize the credit risk, the management has a credit policy in place and the exposures to these credit risks are monitored on an on-going basis. Credit evaluations of its customers’ financial position and condition are performed on each and every major customer periodically. These evaluations focus on the customer’s past history of making payments when due and current ability to pay, and take into account information specific to the customer as well as pertaining to the economic environment in which the customer operates. Receivables due from customers are due within the settlement period commonly adopted by the relevant market convention, which is usually within 0-90 days from the trade date. Normally, the Group does not obtain collateral from its customers.

In respect of accounts receivable arising from video distribution, film distribution and exhibition, licensing and sub-licensing of film rights business, in order to minimise the credit risk, the management has a credit policy in place and the exposures to these credit risks are monitored on an on-going basis. Credit evaluations of its customers’ financial position and condition are performed on each and every major customer periodically. These evaluations focus on the customer’s past history of making payments when due and current ability to pay, and take into account information specific to the customer as well as pertaining to the economic environment in which the customer operates. Receivables due from customers are due within the settlement period commonly adopted by the relevant market convention, which is usually within 7-60 days from the trade date. Sales from film exhibition, licensing and sub-licensing of film rights are on open account terms. Sales to retail customers are made in cash or via major credit cards. Normally, the Group does not obtain collateral from its customers.

In respect of loan receivables (including loan to an associate) from customers, the objective of the Group’s measures to manage credit risk is to control potential exposure to recoverability problem. The Group manages and analyses the credit risk for each of their new and existing clients before standard payment terms and conditions are offered by assessing the credit quality of the customer, taking into account its financial position, past experience and other factors. Loan receivables balances are monitored on an ongoing basis, management reviews the recoverable amount of loan receivables at each reporting date to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, management considers that the Group’s credit risk is significantly reduced. Interest income are usually billed on quarterly basis.

In order to manage the credit risk in the accounts receivable due from clients arising from securities brokerage and margin financing business, individual credit evaluation are performed on all clients including cash and margin clients. Accounts receivable from cash clients relate to a wide range of customers who generally settle the accounts receivable in two days after trade date and are secured by the portfolio of securities of the cash clients, credit risk arising from the accounts receivable due from cash clients is therefore considered minimal. For margin clients, the Group normally obtains liquid securities as collateral based on the margin requirements. The margin requirement is closely monitored on a daily basis by the designated team. In addition, the Group reviews the recoverable amount of each individual receivable at the end of each reporting period to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the directors of the Company consider that the credit risk is significantly reduced. Market conditions and adequacy of securities collateral and margin deposits of each margin account are monitored by management on a daily basis. Margin calls and forced liquidation are made where necessary.

In respect of accounts receivable from brokers and clearing houses, credit risks are considered to be low as the Group normally enters into transactions with brokers and clearing houses which are registered with regulatory bodies and enjoy sound reputation in the industry.

The Group has no significant concentration of credit risk in respect of the securities brokerage and margin financing business as credits are granted to a large population of clients.

– II-32 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

In respect of businesses other than the securities brokerage and margin financing business, the Group’s exposure to credit risk is influenced mainly by the individual characteristics of each debtor and customer. The default risk of the industry in which debtors or customers operate also has an influence on credit risk but to a lesser extent. At the end of the reporting period, the Group had concentration of credit risk as for 100% (2016: 100%) of the loan receivables are due from the Group’s eight (2016: four) debtors in money lending segment. The Group had no concentration of credit risk in respect of accounts receivable from trading, wholesaling and retailing of optical, watches and jewellery products and video distribution, film distribution and exhibition, licensing and sub-licensing of film rights business, with exposure spread over a number of counterparties.

For other receivables, credit checks are part of the normal operating process and stringent monitoring procedures are in place to deal with overdue debts. In addition, the Group reviews the recoverable amounts of other receivables at the end of each reporting period to ensure that adequate impairment losses are made for irrecoverable amounts.

At the end of the reporting period, the Group has certain concentrations of credit risk of 66% (2016: 59%) of the total other receivables was due from the Group’s largest debtor and 94% (2016: 91%) of the total other receivables due from the Group’s four largest debtors of the total other receivables respectively.

The credit risk on liquid funds is limited because the counterparties are banks with high credit ratings assigned by international credit-rating agencies.

(c) Liquidity risk

Individual operating entities within the Group are responsible for their own cash management, including the short term investment of cash surpluses and the raising of loans to cover expected cash demands, subject to the parent company’s board approval. The Group’s policy is to regularly monitor current and expected liquidity requirements and its compliance with lending covenants to ensure that it maintains sufficient amount of cash and adequate committed lines of funding from major financial institutions to meet its liquidity requirements in the short and longer term.

The following tables set out the remaining contractual maturities at the end of the reporting period of the Group’s non-derivative financial liabilities based on contractual undiscounted cash flows (including interest payments computed using contractual rates or, if floating, based on rates current at the end of the reporting period) and the earliest date the Group can be required to pay.

As at 30 June 2017

Accounts payable Financial liabilities included in “other payables and accrued charges” and “deposits received” Borrowings Obligations under finance lease	Within 1 year or on demand More than 1 year but less than 2 years More than 2 years but less than 5 years Total contractual undiscounted cash flows HK$’000 HK$’000 HK$’000 HK$’000 92,447 – – 92,447 124,593 – – 124,593 44,574 10,016 – 54,590 35 28 – 63 261,649 10,044 – 271,693	Carrying amount HK$’000 92,447 124,593 53,063 63
		270,166

– II-33 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

As at 30 June 2016

Accounts payable Amount due to an associate Financial liabilities included in “other payables and accrued charges” and “deposits received” Borrowings Bank overdrafts Obligations under finance lease	Within 1 year or on demand More than 1 year but less than 2 years More than 2 years but less than 5 years Total contractual undiscounted cash flows HK$’000 HK$’000 HK$’000 HK$’000 254,722 – – 254,722 1,941 – – 1,941 64,121 – – 64,121 9,366 – – 9,366 4,020 – – 4,020 35 35 28 98 334,205 35 28 334,268	Carrying amount HK$’000 254,722 1,941 64,121 9,200 4,020 98
		334,102

3.2 Capital management

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In addition, a subsidiary of the Group licensed by the Securities and Futures Commission (“ SFC ”) is obliged to meet the regulatory liquid capital requirements under the Securities and Futures (Financial Resources) Rules (“ FRR ”) at all times. For the subsidiary of the Group licensed by The Chinese Gold & Silver Exchange Society, the subsidiary is obliged to meet the regulatory liquid capital requirements imposed by The Chinese Gold & Silver Exchange Society at all times. The Group obtained waiver on the liquid capital requirements from The Chinese Gold & Silver Exchange Society since the Group acquired the trading rights on 19 June 2017 and had not commenced the business on trading of gold and silver during the year ended 30 June 2017.

In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets. For the subsidiary licensed by the SFC, the Group ensures this licensed subsidiary maintains a liquid capital level adequate to support the level of activities with sufficient buffer to accommodate for increases in liquidity requirements arising from potential increases in the level of business activities. During the financial year, this licensed subsidiary complied with the liquid capital requirements under the FRR at all times.

Consistent with others in the industry, the Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (include borrowings, obligation under finance lease and bank overdrafts) less cash and cash equivalents. Total capital is calculated as ‘equity’ as shown in the consolidated balance sheet, plus net debt, where applicable.

– II-34 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

For the year ended 30 June 2017, the Group’s strategy, which was unchanged from 2016, was to maintain a low gearing ratio. The gearing ratio as at 30 June 2017 and 30 June 2016 is as follows:

Note Borrowings 28 Obligations under a finance lease 29 Bank overdrafts 28 Less: Cash and cash equivalents 24 Net cash Total equity Total capital Gearing ratio	2017 HK$’000 53,063 63 – (228,222) (175,096) 1,013,527 838,431 N/A	2016 HK$’000 9,200 98 4,020 (101,173) (87,855) 751,921 664,066 N/A

3.3 Fair value measurement

(i) Financial assets and liabilities measured at fair value

Fair value hierarchy

The following table presents the fair value of the Group’s financial instruments measured at the end of the reporting period on a recurring basis, categorised into the three-level fair value hierarchy as defined in HKFRS 13, Fair Value Measurement. The level into which a fair value measurement is classified is determined with reference to the observability and significance of the inputs used in the valuation technique as follows:

Level 1 valuations: Fair value measured using only Level 1 inputs i.e. unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date
Level 2 valuations: Fair value measured using Level 2 inputs i.e. observable inputs which fail to meet Level 1, and not using significant unobservable inputs. Unobservable inputs are inputs for which market data are not available
Level 3 valuations: Fair value measured using significant unobservable inputs

– II-35 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

The Group has a team headed by the finance manager performing valuations for the financial instruments. The team reports directly to the directors of the Company and the audit committee. Valuation reports with analysis of changes in fair value measurement are prepared by the team at each annual reporting date, and is reviewed and approved by the directors of the Company. Discussion of the valuation process and results with the directors and the audit committee is held once a year, to coincide with the reporting date.

		Fair value measurements	Fair value measurements	as at		Fair value measurements	Fair value measurements	as at
		30 June 2017	categorised	into		30 June 2016	categorised	into
				Fair value at				Fair value at
				30 June				30 June
	Level 1	Level 2	Level 3	2017	Level 1	Level 2	Level 3	2016
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Recurring fair value measurements
Assets:
Available for sale financial assets
– Listed equity securities	73,461	–	–	73,461	–	–	–	–
– Unlisted investment funds
(Note a)	–	–	24,898	24,898	–	–	79,467	79,467
– Unlisted limited partnership
(Note a)	–	–	57,334	57,334	–	–	6,335	6,335
Financial assets at fair value through
profit or loss	232,629	–	–	232,629	247,444	–	–	247,444
Contingent consideration receivable
(Note b)	–	–	15,737	15,737	–	–	10,930	10,930
	306,090	–	97,969	404,059	247,444	–	96,732	344,176
Liabilities:
Contingent consideration payable
(Note c)	–	–	(19,568)	(19,568)	–	–	–	–
	–	–	(19,568)	(19,568)	–	–	–	–

During the years ended 30 June 2017 and 2016, there were no transfers between Level 1 and Level 2, or transfers into or out of Level 3. The Group’s policy is to recognise transfers between levels of fair value hierarchy as at the end of the reporting period in which they occur.

Notes:

a) For unlisted investment funds and limited partnership classified under Level 3 of the fair value measurement hierarchy, the fair values are determined based on the net asset values of those investment funds and limited partnership determined with reference to third party valuation of underlying investment portfolio and adjustments of related expenses. When the net asset values of the unlisted investment funds and limited partnership increases/decreases by 3% (2016: 3%), the fair value will increase/ decrease by HK$2,467,000 (2016: HK$2,574,000). The higher the net assets values, the higher the fair value.

– II-36 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

The movement during the year in the balance of these Level 3 fair value measurements are as follows:

Unlisted investment funds included in available-for-sale financial assets: At the beginning of the year Additions Total loss included in other comprehensive income Redemption At the end of the year Unlisted limited partnership included in available-for-sale financial assets: At the beginning of the year Additions Total loss included in other comprehensive income At the end of the year	2017 HK$’000 79,467 7,992 (56,632) (5,929) 24,898 2017 HK$’000 6,335 53,573 (2,574) 57,334	2016 HK$’000 86,812 3,300 (10,645) – 79,467 2016 HK$’000 – 8,030 (1,695) 6,335

The net unrealised losses arising from the remeasurement of the unlisted availablefor-sale financial assets are recognised in available-for-sale investment reserve in other comprehensive income.

b) The valuation techniques and key inputs used for contingent consideration receivable in Level 3 fair value measurement at the end of the reporting period are as follows:

Significant Valuation techniques unobservable input Range HK$ Contingent Discounted cash flow Probability-weighted Loss of HK$401,000 – consideration approach profit Profit of receivable HK$482,000 (2016: Profit of HK$3,286,000 – Profit of HK$10,035,000) Discount factor 22.5% (2016: 8.2%)

The increase in probability-weighted profit used would result in decrease in fair value measurement of contingent consideration receivable while the increase in discount rate used would also result in decrease in fair value measurement of contingent consideration receivable, and vice versa.

A 5% increase or decrease in the probability-weighted profit while holding all other variables constant would decrease or increase the carrying amount of contingent consideration receivable by HK$31,000 or HK$31,000 (2016: HK$390,000 or HK$390,000) respectively.

– II-37 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

A 5% increase or decrease in the discount rate used while holding all other variables constant would decrease or increase the carrying amount of contingent consideration receivable by HK$175,000 or HK$179,000 (2016: HK$40,000 or HK$50,000) respectively.

The movement during the year in the balance of these Level 3 fair value measurements are as follows:

Contingent consideration receivable: At the beginning of the year Additions Total gain included in profit or loss At the end of the year # Total gain included in profit or loss for assets held at the end of the reporting period	2017 HK$’000 10,930 – 4,807 15,737 2017 HK$’000 4,807	2016 HK$’000 – 6,850 4,080
		10,930
		2016 HK$’000 4,080

c) The valuation techniques and key inputs used for contingent consideration payable in Level 3 fair value measurement at the end of the reporting period are as follows:

		Significant
	Valuation techniques	unobservable input	Range
			HK$
Contingent	Discounted cash flow	Probability-weighted	Loss of HK$401,000 –
consideration	approach	profit	Profit of
payable			HK$482,000
			(2016: Nil)
		Discount factor	3.6% (2016: Nil)

The increase in probability-weighted profit used would result in decrease in fair value measurement of contingent consideration payable while the increase in discount rate used would also result in decrease in fair value measurement of contingent consideration payable, and vice versa.

A 5% increase or decrease in the probability-weighted profit while holding all other variables constant would decrease or increase the carrying amount of contingent consideration payable by HK$38,000 or HK$38,000 (2016: Nil) respectively.

A 5% increase or decrease in the discount rate used while holding all other variables constant would decrease or increase the carrying amount of contingent consideration payable by HK$35,000 or HK$35,000 (2016: Nil) respectively.

– II-38 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

The movement during the year in the balance of these Level 3 fair value measurements are as follows:

Contingent consideration payable: At the beginning of the year Additions Total loss included in profit or loss At the end of the year # Total loss included in profit or loss for liabilities held at the end of the reporting period	2017 HK$’000 – (10,930) (8,638) (19,568) 2017 HK$’000 (8,638)	2016 HK$’000 – – –
		–
		2016 HK$’000 –

(ii) Financial assets and liabilities at other than fair value

The carrying amounts of the Group’s financial instruments carried at cost or amortised cost are not materially different from their fair values as at 30 June 2017 and 2016.

3.4 Offsetting financial assets and financial liabilities

The disclosures set out in the tables below include financial assets and financial liabilities that are subject to an enforceable master netting arrangement or similar agreement that covers similar financial instruments that are either:

offset in the Group’s consolidated balance sheet; or
not offset in the consolidated balance sheet as the offsetting criteria are not met.

Under the agreement of continuous net settlement made between the Group and the clearing house, the Group has a legally enforceable right to set off the money obligations receivable and payable with clearing house on the same settlement date and the Group intends to settle on a net basis.

In addition, the Group has a legally enforceable right to set off the accounts receivable from and payables to cash clients and margin clients that are due to be settled on the same date and the Group intends to settle these balances on a net basis.

Except for balances which are due to be settled on the same date which are being offset, amounts due from/ to the clearing house and accounts receivable from and payables to cash clients and margin clients that are not to be settled on the same date, financial collateral including cash and securities received by the Group and deposit placed with clearing house do not meet the criteria for offsetting in the consolidated balance sheet since the right of set-off of the recognised amounts is only enforceable following an event of default.

– II-39 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

(a) Financial assets subject to offsetting, enforceable master netting arrangements or similar agreements

As at 30 June 2017

Gross amount
of recognised
financial assets
Gross amounts
of recognised
financial
liabilities
set off in the
consolidated
balance sheet
Net amount of
financial
assets
presented
in the
consolidated
balance sheet
HK$’000
HK$’000
HK$’000
Financial assets
Accounts receivable arising
from securities brokerage
and margin financing
business
411,503
(144,659)
266,844
As at 30 June 2016
Gross amount
of recognised
financial assets
Gross amounts
of recognised
financial
liabilities
set off in the
consolidated
balance sheet
Net amount of
financial assets
presented in the
consolidated
balance sheet
HK$’000
HK$’000
HK$’000
Financial assets
Accounts receivable arising
from securities brokerage
and margin financing
business
1,599,165
(1,394,758)
204,407

Related amounts not offset in
consolidated balance sheet
Financial
instruments
Collateral
received
Net amount
HK$’000
HK$’000
HK$’000
–
(165,264)
101,580
Related amounts not offset in
consolidated balance sheet
Financial
instruments
Collateral
received
Net amount
HK$’000
HK$’000
HK$’000
–
(15,580)
188,827

The item “collateral received” represents the securities pledged in the client’s account which are not recognised in the consolidated balance sheet. The amounts are capped at the lower of the market value of securities and the net receivable amounts on a client by client basis.

– II-40 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

(b) Financial liabilities subject to offsetting, enforceable master netting arrangements or similar agreements

As at 30 June 2017

		Gross amounts	Net amount
		of recognised	of financial
	Gross amount	financial assets	liabilities	Related	amounts not offset in
	of recognised	set off in the	presented in the	consolidated balance sheet
	financial	consolidated	consolidated	Financial	Collateral
	liabilities	balance sheet	balance sheet	instruments	pledged	Net amount
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Financial liabilities
Accounts payable arising
from securities brokerage
and margin financing
business	226,279	(144,659)	81,620	–	–	81,620

As at 30 June 2016

		Gross amounts	Net amount
		of recognised	of financial
	Gross amount	financial assets	liabilities	Related	amounts not offset in
	of recognised	set off in the	presented in the	consolidated balance sheet
	financial	consolidated	consolidated	Financial	Collateral
	liabilities	balance sheet	balance sheet	instruments	pledged	Net amount
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Financial liabilities
Accounts payable arising
from securities brokerage
and margin financing
business	1,645,078	(1,394,758)	250,320	–	–	250,320

(c) The tables below reconcile the “net amount of financial assets and financial liabilities presented in the consolidated balance sheet”, as set out above, to the accounts receivable and accounts payable presented in the consolidated balance sheet:

Net amount of financial assets after offsetting as stated above Financial assets not in scope of offsetting disclosure Impairment losses Net amount of financial liabilities after offsetting as stated above Financial liabilities not in scope of offsetting disclosure	2017 HK$’000 266,844 77,627 (10,612) 333,859 2017 HK$’000 81,620 10,827 92,447	2016 HK$’000 204,407 20,474 (142)
		224,739
		2016 HK$’000 250,320 4,402
		254,722

– II-41 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

4 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

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

(a) Critical accounting estimates and assumptions

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

(i) Impairment of film rights, films in progress and film deposits

The Group assesses annually whether there is any indication for impairment on the film rights, films in progress and film deposits and further assess if they have suffered any impairment, in accordance with the accounting policy stated in Note 2. Such annual assessment is performed specifically for each film and film deposit at each balance date with reference to the cast or scale of each film, current market conditions and each film deposit recipient’s reputation, trade history and current financial position. According to the management’s cash inflow forecast in respect of each film title and realisation of each film deposit, no impairment loss of film rights (2016: HK$4,226,000), no write-off of film deposits (2016: HK$417,000) and no impairment loss of films in progress (2016: nil) were recognised respectively in the consolidated statement of comprehensive income to reduce the carrying amounts of certain film rights, films in progress and film deposits to their recoverable amounts. If projected cash inflow from these films were to deteriorate, additional provision for impairment may be required.

As at 30 June 2017, the carrying amount of film rights, films in progress and film deposits amounted to approximately HK$90,957,000 (2016: HK$85,870,000).

(ii) Provision for impairment of accounts receivable

The provision policy for accounts receivable of the Group is based on the evaluation of recoverability of those receivables and management’s judgement. A considerable judgement is required in assessing the ultimate realisation of these receivables, including the collaterals amount, the current creditworthiness and the past collection history and repayment pattern of each customer. During the year, impairment loss of HK$10,470,000 was recognised in the consolidated statement of comprehensive income (2016: nil). If the financial conditions of these customers were to deteriorate, additional provision for impairment may be required. As at 30 June 2017, the carrying amount of accounts receivable amounted to approximately HK$333,859,000 (2016: HK$224,739,000).

(iii) Estimated valuation of investment properties

In determining the fair value, the valuer has based on property valuation techniques which involve, inter alia, certain estimates including comparable sales in the relevant market, appropriate discount rates and expected future market rents. In relying on the valuation report, management has exercised their judgement and is satisfied that the method of valuation is reflective of the current market condition. As as 30 June 2017, the carrying amount of investment properties amounted to approximately HK$25,560,000 (2016: HK$25,560,000).

(iv) Estimation of fair value and impairment assessment of equity investments classified as availablefor-sale financial assets

The fair value of available-for-sale financial assets that are not traded in an active market is determined by using valuation techniques. The Group uses its judgement to select a variety of methods and make assumptions that are mainly based on market conditions existing at the end of each reporting period. Changes in these estimates and assumptions could have a material effect on the fair value of the available-for-sale financial assets.

The Group follows the guidance of HKAS 39 to determine when an available-for-sale equity investment is impaired. This determination requires significant judgement. In making this judgement, the Group evaluates, among other factors, the duration and extent to which the fair value of an investment is less than its cost.

– II-42 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

A significant or prolonged decline in the fair value of equity investments classified as available-for-sale financial assets below its cost is an objective evidence of impairment. In assessing whether it is significant, the decline in the fair value is evaluated against the original cost of the asset at initial recognition. In assessing whether it is prolonged, the decline is evaluated against the continuous period in which the fair value of the asset has been below its original cost at initial recognition.

During the year ended 30 June 2017, the management determined the investment in available-for-sale financial assets is impaired and an impairment loss of HK$89,643,000 (2016: Nil) was reclassified from equity to consolidated profit or loss. During the year, a decrease in fair value of HK$88,565,000 (2016: HK$12,340,000) was recognised in the consolidated other comprehensive income. As at 30 June 2017, the carrying amount of available-for-sale financial assets amounted to approximately HK$155,693,000 (2016: HK$85,802,000).

(v) Recognition of deferred tax assets

Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences and tax losses can be utilised, and it is measured at the tax rates that are expected to apply when the related deferred income tax assets are realised. In determining the deferred tax assets to be recognised, management is required to estimate the future applicable tax rate for each subsidiary of the Company at each tax jurisdiction and the profitability of each subsidiary, so as to estimate the future utilisation of tax losses. Any difference between these estimates and the actual outcome will impact the Group’s result in the period in which the actual outcome is determined. As at 30 June 2017, the carrying amount of deferred tax assets and deferred tax liabilities amounted to approximately HK$6,447,000 (2016: HK$365,000) and HK$13,413,000 (2016: HK$2,229,000) respectively.

(vi) Impairment of loans receivables and other receivables

The Group assesses provision for impairment of loans and other receivables based on the estimate of the recoverability of these receivables. Provisions are applied to loans and other receivables where events or changes in circumstances indicate that the balances may not be collectible. The identification of impairment of loans and other receivables requires the use of estimates. Where the expectation is different from the original estimate, such difference will impact carrying value of receivables and provision for impairment losses in the period in which such estimate has been changed. As at 30 June 2017, the carrying amount of loans receivable, loan to an associate and financial assets included in deposits paid, prepayments and other receivables amounted to approximately HK$75,900,000 (2016: HK$43,163,000), HK$7,940,000 (2016: HK$5,000,000) and HK$97,138,000 (2016: HK$52,179,000).

(vii) 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. At 30 June 2017, the carrying amount of goodwill at 30 June 2017 amounted to approximately HK$28,064,000 (2016: HK$59,447,000).

(viii) Useful lives of other intangible assets

The Group amortises its other intangible assets with a finite useful life on a straight-line basis over their estimated useful lives. The estimated useful lives reflect management’s estimate of the period that the Group intends to derive future economic benefits from the use of the other intangible assets. At 30 June 2017, the carrying amount of other intangible assets at 30 June 2017 amounted to approximately HK$23,583,000 (2016: HK$14,231,000).

– II-43 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

(ix) Net realisable value of inventories

The Group’s management reviews the inventory ageing analysis periodically, and makes allowance on an annual basis for obsolete and slow-moving inventory items identified that are no longer suitable for sale. The Group carries out an inventory review on a product-by-product basis at the end of each reporting period and makes allowance for obsolete and slow-moving items through management’s estimation of the net realisable value for such obsolete and slow-moving items based primarily on the latest invoice prices and current market conditions. At 30 June 2017, the carrying amount of inventories amounted to approximately HK$10,066,000 (2016: HK$14,304,000).

(x) Estimation of impairment of trading rights held in the Stock Exchange

Determining whether the trading rights held in the Stock Exchange, which are intangible assets with indefinite useful lives are impaired requires an estimation of the recoverable amount of the cash-generating unit (“ CGU ”) to which intangible assets with indefinite useful lives have been allocated, which is the higher of the value in use or fair value less costs of disposal. The value in use calculation requires the Group to estimate the future cash flows expected to arise from the CGU and a suitable discount rate in order to calculate the present value. Where the actual future cash flows are less than expected, or changes in facts and circumstances result in a downward revision of future cash, a material impairment loss may arise. As at 30 June 2017, the carrying amount of the trading rights held in the Stock Exchange is HK$11,400,000. Details of the recoverable amount calculation are disclosed in Note 9.

(xi) Fair value of contingent consideration receivable and payable

The fair value of contingent consideration receivable and payable was determined by using valuation techniques. The Group uses its judgement to select a variety of methods and make assumptions, including the discount rates and estimation of future performance. Changes in assumption used could materially affect the fair value of the balances and as a result affect the Group’s financial condition and results of operation. At 30 June 2017, the carrying amount of contingent consideration receivable and contingent consideration payable amounted to approximately HK$15,737,000 (2016: HK$10,930,000) and HK$19,568,000 (2016: Nil) respectively.

(xii) Impairment of interests in associates

Determining whether interests in associates are impaired requires an estimation of the recoverable amount of the associates and joint ventures. Recoverable amount is the greater of fair value less costs of disposal and value in use. Management has evaluated the recovery of the investments based on such estimates and is confident that the allowance for impairment, where necessary, is adequate. During the year ended 30 June 2017, impairment losses of HK$3,227,000 (2016: HK$18,421,000) were recognised in respect of interests in associates. As at 30 June 2017, the carrying amount of the interests in associates amounted to approximately HK$19,393,000 (2016: HK$25,730,000).

(b) Critical accounting judgement in applying the Group’s accounting policies

In the process of applying the Group’s accounting policies, management has made the following accounting judgements:

Classification of joint arrangements

The Group has entered into joint arrangements to produce and distribute television series and films. The Group has participating interests ranging from 5% to 90% (2016: from 5% to 90%) in these joint arrangements. The Group has joint control over these arrangements as under the contractual agreements, unanimous consent is required from all parties to the agreements for all relevant activities. The Group’s joint arrangements involve the joint control by the venturers of the assets contributed to the joint arrangement and dedicated to the purposes of the joint arrangement. The assets are used to obtain benefits for the venturers. Each venturer may take a share of the output from the assets and each bears an agreed share of the expenses incurred. These joint arrangements do not involve the establishment of a corporation, partnership or other entity, or a financial structure that is separate from the venturers themselves. Therefore, these arrangements are classified as joint operations of the Group. The determination of the relevant activities under joint operations requires management’s significant judgement.

– II-44 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

5 SEGMENT INFORMATION

The Group manages its businesses by divisions, which are organised by business lines (products and services). In a manner consistent with the way in which information is reported internally to the Chairman of the Company, being the Group’s chief operating decision maker (“ CODM ”) for the purposes of resources allocation and performance assessment, the Group has presented the following reportable segments.

Video distribution, film distribution and exhibition, licensing and sub-licensing of film rights
Trading, wholesaling and retailing of optical, watches and jewellery products
Leasing of investment properties
Securities investments
Money lending
Securities brokerage and margin financing
Entertainment business

(a) Segment revenue, results, assets and liabilities

Management monitors the results of the Group’s operating segments separately for the purpose of making decisions about resources allocation and performance assessment. Segment performance is evaluated based on reportable segment profit/(loss), which is a measure of profit/(loss) before tax from continuing operations. The profit/(loss) before tax from continuing operations is measured consistently with the Group’s profit/(loss) before tax from continuing operations except that gain on step acquisition of a subsidiary, fair value change and loss on redemption of convertible bonds, fair value change of contingent consideration receivable, fair value change of contingent consideration payable, impairment loss of interest in an associate, impairment loss of available-for-sale financial assets, impairment loss of other receivable, finance income, finance costs, share of profit/loss of associates, share of loss of and loss on deregistration of a joint venture, realised loss upon redemption of available-for-sale financial assets, dividend income from availablefor-sale financial assets and unallocated corporate expenses.

Segment assets exclude unallocated other intangible assets, interests in associates, interests in joint ventures, available-for-sale financial assets, unallocated cash and cash equivalents, deferred tax assets, loan receivable from a joint venture, loan to an associate, amount due from an associate, contingent consideration receivable, tax recoverable and other unallocated corporate assets as these assets are managed on a group basis.

Segment liabilities exclude tax payable, unallocated borrowings, deferred tax liabilities, contingent consideration payable and other unallocated corporate liabilities as these liabilities are managed on a group basis.

– II-45 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Information regarding the Group’s reportable segments as provided to the Group’s CODM for the purposes of resources allocation and assessment of segment performance for the years ended 30 June 2017 and 2016 is set out below:

2017

Segment revenue External revenue Inter-segment sales Segment results Fair value change of contingent consideration receivable Fair value change of contingent consideration payable Impairment loss of interest in an associate Impairment loss of available-for-sale financial assets Impairment loss of other receivables Finance income Finance costs Realised loss upon redemption of available- for-sale financial assets Share of losses of associates Share of losses of a joint venture Loss on deregistration of a joint venture Unallocated corporate expenses Loss before tax from continuing operations	Video distribution, film distribution and exhibition, licensing and sub-licensing of film rights HK$’000 138,805 – 138,805 31,315	Trading, wholesaling, and retailing of optical, watches and jewellery products HK$’000 46,607 – 46,607 (27,768)	Continuing operations Leasing of investment properties Securities investments Money lending HK$’000 HK$’000 HK$’000 1,058 – 5,859 – – 1,890 1,058 – 7,749 877 11,985 322	Securities brokerage and margin financing Entertainment business Elimination HK$’000 HK$’000 HK$’000 35,927 3,388 – 7 – (1,897) 35,934 3,388 (1,897) 11,570 (1,984) –	Total for continuing operations HK$’000 231,644 –
					231,644
					26,317 4,807 (8,638) (3,227) (89,643) (1,532) 294 (6,091) (6,571) (216) (231) (24) (26,922)
					(111,677)

– II-46 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

2017

Video distribution, film distribution and exhibition, licensing and sub-licensing of film rights Trading, wholesaling, and retailing of optical, watches and jewellery products Continuing operations Securities brokerage and margin financing Entertainment business Elimination Leasing of investment properties Securities investments Money lending HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Assets Segment assets 235,633 24,276 25,595 233,064 81,832 482,685 14,263 – Interests in associates Interests in joint ventures Available-for-sale financial assets Contingent consideration receivable Deferred tax assets Tax recoverable Loan receivable from a joint venture Loan to an associate Amount due from an associate Unallocated other intangible assets Unallocated cash and cash equivalents Unallocated corporate assets Total consolidated assets Liabilities Segment liabilities 239,996 7,145 249 15,163 – 83,825 8,295 – Taxation payable Unallocated borrowings Deferred tax liabilities Contingent consideration payable Unallocated corporate liabilities Total consolidated liabilities	Total for continuing operations HK$’000 1,097,348 19,393 251 155,693 15,737 6,447 93 8,595 2,940 964 11,358 129,574 8,541
	1,456,934
	354,673 7,648 37,900 13,413 19,568 10,205
	443,407

– II-47 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

2017

Video distribution, film distribution and exhibition, licensing and sub-licensing of film rights Trading, wholesaling, and retailing of optical, watches and jewellery products Continuing operations Securities brokerage and margin financing Entertainment business Elimination Leasing of investment properties Securities investments Money lending HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Other information Additions of property, plant and equipment – 37 30 – – 106 – – Additions of unallocated property, plant and equipment Total additions of property, plant and equipment Additions of film rights and films in progress 10,138 – – – – – – – Additions of film related deposits 15,332 – – – – – – – Depreciation 786 583 5 – 400 466 25 – Amortisation of film rights 23,343 – – – – – – – Amortisation of brand name – 148 – – – – – – Unallocated depreciation Total depreciation and amortisation from continuing operations Impairment loss of goodwill – 22,980 – – – – – – Impairment loss of accounts receivable 116 1,394 – – – 8,960 – – Fair value change of financial assets at fair value through profit of loss – – – 12,679 – – – –	Total for continuing operations HK$’000 173 1,185
	1,358
	10,138 15,332
	2,265 23,343 148 686
	26,442
	22,980 10,470
	12,679

– II-48 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

2016

Segment revenue External revenue Inter-segment sales Segment results Gain on step acquisition of a subsidiary Fair value change and loss on redemption of convertible bonds Fair value change of contingent consideration receivable Fair value change of contingent consideration payable Impairment loss of interest in an associate Finance income Finance costs Dividend income from available-for-sale financial assets Share of profits of associates Share of losses of a joint venture Unallocated corporate expenses Loss before tax from continuing operations	Video distribution, film distribution and exhibition, licensing and sub-licensing of film rights HK$’000 56,171 – 56,171 8,563	Trading, wholesaling, and retailing of optical, watches and jewellery products HK$’000 61,712 – 61,712 (24,929)	Continuing operations Leasing of investment properties Securities investments Money lending HK$’000 HK$’000 HK$’000 1,026 – 8,450 – – – 1,026 – 8,450 812 (143,586) 745	Securities brokerage and margin financing Entertainment business Elimination HK$’000 HK$’000 HK$’000 16,072 7,602 – 27 – (27) 16,099 7,602 (27) 3,994 834 –	Total for continuing operations HK$’000 151,033 –
					151,033
					(153,567) 1,571 (1,813) 4,080 60 (18,421) 298 (2,263) 20,473 3,899 (224) (20,546)
					(166,453)

– II-49 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

2016

Video distribution, film distribution and exhibition, licensing and sub-licensing of film rights Trading, wholesaling, and retailing of optical, watches and jewellery products Continuing operations Securities brokerage and margin financing Entertainment business Elimination Leasing of investment properties Securities investments Money lending HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Assets Segment assets 151,345 54,118 25,570 252,898 49,317 368,073 9,014 – Interests in associates Interests in joint ventures Available-for-sale financial assets Contingent consideration receivable Deferred tax assets Loan receivable from a joint venture Assets associated with disposal group classified as held for sale Unallocated other intangible assets Unallocated cash and cash equivalents Unallocated corporate assets Total consolidated assets Liabilities Segment liabilities 94,259 3,778 198 – – 256,306 6,815 – Taxation payable Unallocated borrowings Deferred tax liabilities Liabilities associated with disposal group classified as held for sale Unallocated corporate liabilities Total consolidated liabilities Other information Additions of property, plant and equipment 136 816 3 – – 92 15 – Additions of unallocated property, plant and equipment Total additions of property, plant and equipment	Total for continuing operations HK$’000 910,335 25,730 482 85,802 10,930 365 8,364 6,381 1,858 80,108 20,376
	1,150,731
	361,356 9,068 9,200 2,229 9,598 7,359
	398,810
	1,062 570
	1,632

– II-50 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

2016

2016
Video distribution, film distribution and exhibition, licensing and sub-licensing of film rights Trading, wholesaling, and retailing of optical, watches and jewellery products Continuing operations Securities brokerage and margin financing Entertainment business Elimination Leasing of investment properties Securities investments Money lending HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Additions of film rights and films in progress 49,489 – – – – – – – Additions of film related deposits 7,044 – – – – – – – Additions of goodwill through acquisitions of subsidiaries – 46,021 – – – 28,064 – – Additions of property, plant and equipment through acquisitions of subsidiaries – 1,169 – – – 1,554 – – Additions of other intangible assets through acquisitions of subsidiaries – 1,108 – – – 11,400 – – Depreciation 854 880 2 – 400 434 34 – Amortisation of film rights 8,891 – – – – – – – Amortisation of brand name – 135 – – – – – – Unallocated depreciation Total depreciation and amortisation from continuing operations Impairment loss of goodwill – 24,355 – – – – – – Impairment loss of film rights and films in progress 4,226 – – – – – – – Fair value change of financial assets at fair value through profit or loss – – – (143,564) – – – –	Total for continuing operations HK$’000 49,489 7,044 74,085 2,723 12,508
	2,604 8,891 135 500
	12,130
	24,355 4,226
	(143,564)

– II-51 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

(b) Geographical information

The Company is domiciled in Hong Kong. The Group’s operations are mainly located in Hong Kong, PRC and Macau.

The revenue information below is based on the location of the operations.

CONTINUING OPERATIONS Hong Kong (place of domicile) Macau PRC and other Asian countries (other than Hong Kong and Macau) North America Europe Others	2017 Revenue Non-current assets (other than financial instruments and deferred tax assets) HK$’000 HK$’000 85,507 184,106 21 251 144,191 2,744 779 – 982 – 164 – 231,644 187,101	2017 Revenue Non-current assets (other than financial instruments and deferred tax assets) HK$’000 HK$’000 85,507 184,106 21 251 144,191 2,744 779 – 982 – 164 – 231,644 187,101
		187,101

CONTINUING OPERATIONS Hong Kong (place of domicile) Macau PRC and other Asian countries (other than Hong Kong and Macau) North America Europe Others	2016 Revenue Non-current assets (other than financial instruments and deferred tax assets) HK$’000 HK$’000 83,778 214,397 209 482 66,855 2,555 28 – 67 – 96 – 151,033 217,434	2016 Revenue Non-current assets (other than financial instruments and deferred tax assets) HK$’000 HK$’000 83,778 214,397 209 482 66,855 2,555 28 – 67 – 96 – 151,033 217,434
		217,434

(c) Information about major customers

For the years ended 30 June 2017 and 2016, there is no single customer contributed 10% or more of the Group’s revenue.

– II-52 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

6 PROPERTY, PLANT AND EQUIPMENT

Costs At 1 July 2015 Additions Acquisition of subsidiaries (Note 46) Reclassification as held for sale_(Note 42) Disposals Exchange difference At 30 June 2016 and 1 July 2016 Additions Disposals Exchange difference At 30 June 2017 Accumulated depreciation At 1 July 2015 Depreciation charge Reclassification as held for sale(Note 42)_ Disposals Exchange difference At 30 June 2016 and 1 July 2016 Depreciation charge Disposals Exchange difference At 30 June 2017 Net carrying amount At 30 June 2017 At 30 June 2016	Leasehold improvements Machinery and equipment HK$’000 HK$’000 9,592 25,994 43 50 4,636 – (3,750) – (197) (263) (721) – 9,603 25,781 839 – (1,249) (7) (182) – 9,011 25,774 7,354 25,970 2,401 18 (1,992) – (197) (263) (585) – 6,981 25,725 1,296 16 (650) (7) (161) – 7,466 25,734 1,545 40 2,622 56	Furniture and fixtures HK$’000 2,282 81 578 (176) (15) (114) 2,636 214 (87) (32) 2,731 1,936 344 (42) (3) (111) 2,124 298 (82) (30) 2,310 421 512	Motor Vehicles HK$’000 1,039 1,058 97 – – (10) 2,184 – (413) (3) 1,768 784 211 – – (11) 984 401 (118) (3) 1,264 504 1,200	Office equipment HK$’000 9,815 400 444 (344) (1,005) (56) 9,254 305 – (10) 9,549 7,449 1,002 (102) (913) (16) 7,420 940 – (3) 8,357 1,192 1,834	Total HK$’000 48,722 1,632 5,755 (4,270) (1,480) (901)
					49,458 1,358 (1,756) (227)
					48,833
					43,493 3,976 (2,136) (1,376) (723)
					43,234 2,951 (857) (197)
					45,131
					3,702
					6,224

As at 30 June 2017, carrying amount of machinery and equipment held by the Group under finance leases is approximately HK$62,000 (2016: HK$97,000).

Depreciation of approximately HK$10,000 (2016: HK$489,000) has been charged to “cost of revenue” and approximately HK$2,941,000 (2016: HK$2,615,000) has been charged to “administrative expenses” of the consolidated statement of comprehensive income. During the year ended 30 June 2016, depreciation of approximately HK$872,000 had been included in the loss for the year from discontinued operation in the consolidated statement of comprehensive income.

– II-53 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

7 INVESTMENT PROPERTIES

2017 2016 HK$’000 HK$’000 At fair value At the beginning and at the end of the year 25,560 25,560

Fair Value Measurement of Investment Properties

(a) Fair value hierarchy

The following table presents the fair value of the Group’s investment properties measured at the end of the reporting period on a recurring basis, categorised into the three-level fair value hierarchy as defined in HKFRS 13, Fair value measurement. The level into which a fair value measurement is classified is determined with reference to the observability and significance of the inputs used in the valuation technique as follows:

Level 1 valuations: Fair value measured using only Level 1 inputs i.e. unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date

Level 2 valuations: Fair value measured using Level 2 inputs i.e. observable inputs which fail to meet Level 1, and not using significant unobservable inputs. Unobservable inputs are inputs for which market data are not available

Level 3 valuations: Fair value measured using significant unobservable inputs

	Fair value	measurements at 30 June 2017 categorised	measurements at 30 June 2017 categorised	into
	Fair value at
	30 June 2017	Level 1	Level 2	Level 3
	HK$’000	HK$’000	HK$’000	HK$’000
Recurring fair value measurement
Investment properties:
– Residential – Hong Kong	25,560	–	–	25,560
	Fair value	measurements at 30 June 2016 categorised		into
	Fair value at
	30 June 2016	Level 1	Level 2	Level 3
	HK$’000	HK$’000	HK$’000	HK$’000
Recurring fair value measurement
Investment properties:
– Residential – Hong Kong	25,560	–	–	25,560

During the year ended 30 June 2017, there were no transfers between Level 1 and Level 2, or transfer into or out of Level 3 (2016: Nil). The Group’s policy is to recognise transfers between levels of fair value hierarchy as at the end of the reporting period in which they occur.

All investment properties of the Group were revalued as at 30 June 2017. The valuations were carried out by an independent firm of surveyors, Ravia Global Appraisal Advisory Limited, who have among their staff members of the Hong Kong Institute of Surveyors with recent experience in the location and category of properties being valued. The management of the Group has discussions with the surveyors on the valuation assumptions and valuation results when the valuation is performed at each annual reporting date.

(b) Information about Level 3 fair value measurements

			Range of
	Valuation techniques	Unobservable inputs	unobservable inputs
Investment properties in
Hong Kong
– Residential properties	Direct comparison	Discount on quality	1%-15% (2016:
	approach	of properties	12%-27%)

– II-54 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

The fair value of investment properties located in Hong Kong is determined using direct comparison approach by reference to recent sales price of comparable properties on a price per square foot basis, adjusted for a premium or discount specific to the quality of the Group’s properties compared to recent sales on the comparable transaction. Higher discount for lower quality properties will result in a lower fair value measurement.

The movements during the year in the balance of these Level 3 fair value measurements are as follows:

Investment properties – Residential – Hong Kong At the beginning and at the end of the year	2017 HK$’000 25,560	2016 HK$’000 25,560

8 OTHER INTANGIBLE ASSETS

Cost At 1 July 2015 Acquisition of Winston Asia Limited and its subsidiaries (“Winston Group”)(Note 46(a)) Acquisition of China Jianxin Financial Services Limited (“CJFS”) (formerly known as “Win Fung Securities Limited”) (Note 46(b)) At 30 June 2016 and 1 July 2016 Additions during the year_(Note a)_ At 30 June 2017 Accumulated amortisation At 1 July 2015 Amortisation for the year At 30 June 2016 and 1 July 2016 Amortisation for the year At 30 June 2017 Carrying amount At 30 June 2017 At 30 June 2016	Trading rights held in the Stock Exchange Trading rights held in The Chinese Gold & Silver Exchange Society HK$’000 HK$’000 – – – – 11,400 – 11,400 – – 9,500 11,400 9,500 – – – – – – – – – – 11,400 9,500 11,400 –	Brand name Club membership HK$’000 HK$’000 – 1,858 1,108 – – – 1,108 1,858 – – 1,108 1,858 – – 135 – 135 – 148 – 283 – 825 1,858 973 1,858	Total HK$’000 1,858 1,108 11,400
			14,366 9,500
			23,866
			– 135
			135 148
			283
			23,583
			14,231

– II-55 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Note:

(a) During the year ended 30 June 2017, the Group acquired the trading rights that confer eligibility of the Group to trade on The Chinese Gold & Silver Exchange Society from an independent third party at a consideration of HK$9,500,000.

The recoverable amount of the trading rights held in the Chinese Gold & Silver Exchange Society was based on its fair value less costs of disposal and was determined with the assistance of Royson Valuation Advisory Limited, an independent professional qualified valuer not connected with the Group, using market comparison approach by reference to relevant market transactions. The fair value on which the recoverable amount is based on is categorised as a Level 3 measurement.

Particulars of the impairment testing of trading rights held in the Stock Exchange and the brand name are set out in Note 9.

9 GOODWILL

Cost
At 1 July 2015
Acquisition of Winston Group_(Note 46(a))
Acquisition of CJFS(Note 46(b))
Acquisition of AP Group Investment Holdings Limited and
its subsidiaries (“AP Group”)(Note 46(c))
At 30 June 2016 and 1 July 2016
Disposal of AP Group(Note 47)
At 30 June 2017
Accumulated impairment losses
At 1 July 2015
Impairment losses recognised
At 30 June 2016 and 1 July 2016
Disposal of AP Group(Note 47)_
Impairment losses recognised
At 30 June 2017
Carrying amount
At 30 June 2017
At 30 June 2016

HK$’000
1,314
46,021
28,064
13,971
89,370
(13,971)
75,399
–
29,923
29,923
(5,568)
22,980
47,335
28,064
59,447

Goodwill has been allocated for impairment testing purposes to the following CGUs.

Trading, wholesaling and retailing of optical products (“ Division A ”)
Trading, wholesaling and retailing of watches and jewellery products (“ Division B ”)
Securities brokerage and margin financing business (“ Division C ”)
Training and coaching business (“ Division D ”)

– II-56 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

The carrying amounts of goodwill (net of accumulated impairment losses) as at 30 June 2017 and 30 June 2016 allocated to these units are as follows:

Division A Division B Division C Division D	2017 HK$’000 – – 28,064 – 28,064	2016 HK$’000 1,314 21,666 28,064 8,403
		59,447

The basis of the recoverable amounts of the above CGUs and their major underlying assumptions are summarised below.

Division A

The recoverable amount of CGU of trading, wholesaling and retailing of optical products, which is included in the segment of trading, wholesaling, and retailing of optical, watches and jewellery products, of HK$Nil was determined based on value in use calculations. Those calculations used cash flow projections based on financial budgets approved by management covering a period of 5 years, and cash flows beyond 5 years were extrapolated by assuming growth rate of 3% (2016: 3%) and discount rates of approximately 19.8% (2016: approximately 17.7%). The discount rates used are pre-tax and reflect specific risks relating to the relevant CGU. Another key assumption for the value in use calculations was the budgeted gross margin, which was determined based on the CGU’s past performance and management’s expectations for the market development. As at 30 June 2017, the Group recognised an impairment loss of HK$1,314,000 (2016: Nil) on the goodwill due to deterioration of operating results.

Division B

For the impairment testing, goodwill arising from acquisition of Winston and brand name classified as “other intangible assets” are allocated to the Group’s CGU B.

The recoverable amount of the CGU of trading, wholesaling and retailing of watches and jewellery products business, which is included in the segment of trading, wholesaling, and retailing of optical, watches and jewellery products, of HK$1,615,000 (2016: HK$23,855,000) was based on its value in use and was determined with the assistance of Royson Valuation Advisory Limited, an independent professional qualified valuer not connected with the Group. The calculation used cash flow projection based on financial budgets approved by management covering a five-year period, and at a discount rate of approximately 19.9% (2016: approximately 17.7%). The discount rate used is pre-tax and reflect specific risks relating to the relevant CGU. Cash flows after the five-year period were extrapolated using 3% (2016: 3%) growth rate in considering the economic condition of the market. Another key assumption for the value in use calculations was the budgeted gross margin, which was determined based on CGU’s past performance and management’s expectations for the market development. As at 30 June 2017, the Group recognised an impairment loss of HK$21,666,000 (2016: HK$24,355,000) on the goodwill due to the further deterioration of operating results and financial performance, and the unfavourable changes in the market circumstance.

Goodwill arose in the acquisition of Winston Group because the cost of the combination included a control premium. In addition, the consideration paid for the combination effectively included amounts in relation to the benefit of expected synergies, revenue growth and future market development of Winston Group. As at 30 June 2016, the Group recognised an impairment loss of HK$24,355,000 on the goodwill due to the continuing weakening of the retail market in Hong Kong and the PRC since January 2016, which led to a change to the expected growth and market development of the trading, wholesaling and retailing of watches and jewellery products business could not be met.

Division C

For the impairment testing, goodwill arising from acquisition of CJFS and trading rights held in the Stock Exchange classified as “other intangible assets” are allocated to the Group’s CGU C.

– II-57 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

The recoverable amount of the CGU of securities brokerage and margin financing business was based on its value in use and was determined with the assistance of Royson Valuation Advisory Limited, an independent professional qualified valuer not connected with the Group. The calculation used cash flow projection based on financial budgets approved by management covering a five-year period, and at a discount rate of 16.3% (2016: 17.1%). The discount rate used is pre-tax and reflect specific risks relating to the relevant CGU. Cash flows after the fiveyear period were extrapolated using 3% (2016: 3%) growth rate in considering the economic condition of the market. The cash flow projection and the growth rate of the margin financing business has already taken into consideration of the instruction from the SFC to CJFS to refrain from providing further margin lending or other form of financial accommodation to clients until it has fully complied with the applicable Code of Conduct requirements, and CJFS board of director’s assessment of timing of implementing measures required by the SFC to satisfactorily addressing the identified deficiencies and risk concerns and thus not resulting in the SFC taking further action which may include the imposition of conditions on the CJFS’s licence.

Division D

On 1 July 2016, the Group disposed of its 51% equity interest in a subsidiary, AP Group Investment Holdings Limited. Please refer to Note 47 for details.

10 FILM RIGHTS AND FILMS IN PROGRESS

Cost At 1 July 2015 Additions Transfers Write-off of DVD preproduction cost Write-off of expired film rights At 30 June 2016 and 1 July 2016 Additions Transfers Write-off of DVD preproduction cost Write-off of expired film rights At 30 June 2017 Accumulated amortisation and impairment At 1 July 2015 Amortisation for the year_(Note 34) Impairment losses Write-off of DVD preproduction cost Write-off of expired film rights At 30 June 2016 and 1 July 2016 Amortisation for the year(Note 34)_ Write-off of DVD preproduction cost Write-off of expired film rights At 30 June 2017 Carrying amount At 30 June 2017 At 30 June 2016	Film rights HK$’000 897,146 6,710 2,637 (381) (3,718) 902,394 4,951 21,797 (429) (4,049) 924,664 890,578 8,891 4,226 (381) (3,718) 899,596 23,343 (429) (4,049) 918,461 6,203 2,798	Films in progress HK$’000 12,187 42,779 (2,637) – (849) 51,480 5,187 (21,797) – – 34,870 849 – – – (849) – – – – – 34,870 51,480	Total HK$’000 909,333 49,489 – (381) (4,567) 953,874 10,138 – (429) (4,049) 959,534 891,427 8,891 4,226 (381) (4,567) 899,596 23,343 (429) (4,049) 918,461 41,073 54,278

Amortisation of approximately HK$23,343,000 (2016: HK$8,891,000) is included in the cost of revenue in the consolidated statement of comprehensive income.

– II-58 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Impairment test for film rights and films in progress

The Group observes whether the film rights and films in progress for video distribution, film distribution and exhibition, licensing and sub-licensing of film rights segment are subject to any impairment indication, in accordance with the accounting policies set out in Note 2 of these consolidated financial statements.

During the year ended 30 June 2017, management assessed whether there was an impairment indicator in relation to the film rights and films in progress for video distribution, film distribution and exhibition, licensing and sub-licensing of film rights segment by reviewing the cast or scale of each films, current market condition, the trade history, current financial position and popularity of film outline stories. Management has further performed an assessment on the recoverable amount of the film rights and film in progress based on each film sales forecast. No impairment has been made for the year ended 30 June 2017 (2016: HK$4,226,000) on the film rights and no impairment (2016: nil) has been made on films in progress for video distribution, film distribution and exhibition, licensing and sub-licensing of film rights segment in the consolidated statement of comprehensive income.

Disposal of Film Library

On 9 January 2017, Universe Films Distribution Company Limited (“ UFD ”) and an independent third party purchaser entered into a sale and purchase agreement (“ Film Library Disposal Agreement ”) to dispose of 202 feature films (“ Film Library ”) conditionally at a consideration of approximately RMB178,895,000. The cost of the Film Library has been almost fully amortised in previous years and the carrying value of the Film Library is approximately HK$3,708,000 as at 30 June 2017. The management estimates that the disposal, after taking into account of all relevant expenses and exchange differences, allowed the Group to realise an one-off gain of approximately HK$180,472,000 from the disposal and provide the Group with the opportunity to capture the residual value of the old films. This transaction was not completed during the current year and UFD has received part of the consideration of approximately HK$108,806,000, after deducting withholding tax, as at 30 June 2017 which was included in other payables and accrued charges (Note 32). The Film Library Disposal Agreement was completed on 21 September 2017 (“ Completion date ”). Subsequent to the end of the reporting period, UFD has received approximately RMB53,669,000 in September 2017. The remaining portion of the consideration of approximately RMB17,890,000 will be settled no later than 60th day after the Completion date.

11 PRINCIPAL SUBSIDIARIES

The following is a list of the principal subsidiaries as at 30 June 2017.

						Proportion of
				Proportion of	Proportion of	ordinary shares
	Place of incorporation/			ordinary shares	ordinary shares	held by
	establishment and	Particulars of	Principal activities	directly held	held by	non-controlling
Name	kind of legal entity	issued share capital	and place of operation	by parent (%)	the group (%)	interests (%)
Universe Films (Holdings)	The British Virgin	Ordinary US$100	Investment holding in Hong Kong	100%	–	–
Limited*	Islands, limited
	liability company
Universe Laser & Video	Hong Kong, limited	Ordinary HK$1,000,000	Distribution of films	–	100%	–
Co. Limited	liability company		in various videogram
			formats in Hong Kong
Universe Films Distribution	Hong Kong, limited	Ordinary HK$2	Sub-licensing of film rights and	–	100%	–
Company Limited	liability company		television series, film exhibition
			and leasing of investment properties
			in Hong Kong
Unique Model Limited*	Hong Kong, limited	Ordinary HK$100	Model agency in Hong Kong	–	100%	–
	liability company

– II-59 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

						Proportion of
				Proportion of	Proportion of	ordinary shares
	Place of incorporation/			ordinary shares	ordinary shares	held by
	establishment and	Particulars of	Principal activities	directly held	held by	non-controlling
Name	kind of legal entity	issued share capital	and place of operation	by parent (%)	the group (%)	interests (%)
Universe Digital Entertainment	Hong Kong, limited	Ordinary HK$10,000	Distribution of films in various	–	100%	–
Limited	liability company	5% deferred HK$10,000	videogram formats in Hong Kong
Universe Management Services	Hong Kong, limited	Ordinary HK$10,000	Provision of management services for	–	100%	–
Limited	liability company	5% deferred HK$10,000	the Group in Hong Kong
Universe Entertainment Limited	The British Virgin	Ordinary US$2	Investment in films production and	–	100%	–
	Islands, limited		licensing of film rights in
	liability company		Hong Kong
Universe Pictures International	The British Virgin	Ordinary US$2	Film acquisition agent for the Group	–	100%	–
Limited*	Islands, limited		in Hong Kong
	liability company
Universe (China) Development	Hong Kong, limited	Ordinary HK$2	Investment holding in Hong Kong	–	100%	–
Limited	liability company		and investment in television series
			production in the People’s Republic
			of China (“PRC”)
Globalink Advertising Limited*	Hong Kong, limited	Ordinary HK$2	Advertising agent for the Group	–	100%	–
	liability company		in Hong Kong
Century Creator Company	Hong Kong, limited	Ordinary HK$2	Investment in films production	–	100%	–
Limited	liability company		in Hong Kong
Matrix Productions Company	Hong Kong, limited	Ordinary HK$2	Investment in films production	–	100%	–
Limited	liability company		in Hong Kong
Digital Programme Production	Hong Kong, limited	Ordinary HK$2	Production of infotainment programme	–	100%	–
Limited	liability company		in Hong Kong
Universe International	Hong Kong, limited	Ordinary HK$2	Purchasing agent for the Group	–	100%	–
Technology Limited	liability company		in Hong Kong
Universe Artiste Management	Hong Kong, limited	Ordinary HK$10	Management of contracted artistes	–	100%	–
Limited	liability company		in Hong Kong
Films Station Production	Hong Kong, limited	Ordinary HK$2	Films production in Hong Kong	–	100%	–
Limited*	liability company
Universe Music Limited	Hong Kong, limited	Ordinary HK$2	Licensing and sub-licensing of music	–	100%	–
	liability company		programme and investment in
			concert in Hong Kong
Universe Films Acquisition	Hong Kong, limited	Ordinary HK$2	Sub-licensing of film rights	–	100%	–
Limited*	liability company		in Hong Kong
Grant Talent Limited	Hong Kong, limited	Ordinary HK$1	Films production in Hong Kong	–	100%	–
	liability company
Wide Avenue Holdings Limited*	The British Virgin	Ordinary US$1	Investment holdings in the	100%	–	–
	Islands, limited		British Virgin Islands
	liability company
Universe Martix Films	Hong Kong, limited	Ordinary HK$1	Investment in films production	–	100%	–
Investment Limited	liability company

– II-60 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

						Proportion of
				Proportion of	Proportion of	ordinary shares
	Place of incorporation/			ordinary shares	ordinary shares	held by
	establishment and	Particulars of	Principal activities	directly held	held by	non-controlling
Name	kind of legal entity	issued share capital	and place of operation	by parent (%)	the group (%)	interests (%)
寰宇縱橫世紀電影發行	PRC, limited liability	RMB1,000,000	Distribution of films in the PRC	–	100%	–
（北京）有限公司#	company
Fragrant River Entertainment	The British Virgin	Ordinary US$100	Investment holding in the	100%	–	–
Culture (Holdings) Limited	Islands, limited		British Virgin Islands
	liability company
Weluck Development Limited	The British Virgin	Ordinary US$1	Securities investments	–	100%	–
	Islands, limited
	liability company
Fragrant River Finance Group	The British Virgin	Ordinary US$100	Investment holding in Hong Kong	–	100%	–
Limited	Islands, limited
	liability company
Fragrant River Asia Investment	The British Virgin	Ordinary US$100	Investment holding in Hong Kong	–	100%	–
Limited	Islands, limited
	liability company
Urban King Holdings Limited	The British Virgin	Ordinary US$100	Investment holding in Hong Kong	–	100%	–
	Islands, limited
	liability company
Precise Reach Group Limited	The British Virgin	Ordinary US$100	Investment holding in Hong Kong	–	100%	–
	Islands, limited
	liability company
Valiant Power Holdings Limited	The British Virgin	Ordinary US$100	Investment holding in Hong Kong	–	100%	–
	Islands, limited
	liability company
Great Harbour Enterprises	The British Virgin	Ordinary US$100	Investment holding in Hong Kong	–	100%	–
Limited	Islands, limited
	liability company
Gold Summit International	The British Virgin	Ordinary US$100	Investment holding in Hong Kong	–	100%	–
Limited	Islands, limited
	liability company
Rising Fame International	The British Virgin	Ordinary US$100	Investment holding in Hong Kong	–	100%	–
Limited	Islands, limited
	liability company
Galaxy View Group Limited	The British Virgin	Ordinary US$1	Investment holding in Hong Kong,	–	100%	–
	Islands, limited		British Virgin Islands and the PRC
	liability company
Honest Novel Holdings Limited	The British Virgin	Ordinary US$100	Investment holding in Hong Kong	–	100%	–
	Islands, limited
	liability company

– II-61 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

						Proportion of
				Proportion of	Proportion of	ordinary shares
	Place of incorporation/			ordinary shares	ordinary shares	held by
	establishment and	Particulars of	Principal activities	directly held	held by	non-controlling
Name	kind of legal entity	issued share capital	and place of operation	by parent (%)	the group (%)	interests (%)
Universe International Holdings	Hong Kong, limited	Ordinary HK$100	Investment holding in Hong Kong	–	100%	–
Limited (formerly “Universe	liability company
International Financial
Holdings Limited”)
China Jianxin Credit Services	Hong Kong, limited	Ordinary HK$100	Money lending in Hong Kong	–	100%	–
Limited (formerly “Universe	liability company
Asia Finance Limited”)
Fragrant River Culture	Hong Kong, limited	Ordinary HK$100	Investment holding in the PRC	–	100%	–
Investment Limited	liability company
Fragrant River Entertainment	Hong Kong, limited	Ordinary HK$100	Investment holding in Hong Kong	–	100%	–
Investment Limited	liability company
Rising Fame Investment Limited	Hong Kong, limited	Ordinary HK$3,000,000	Securities investments	–	100%	–
	liability company
Fine Ocean Limited	Hong Kong, limited	Ordinary HK$5,000,001	Optical shops	–	90%	10%
	liability company
Winston Asia Limited*	The British Virgin	Ordinary US$3,319	Investment holding in Hong Kong	–	100%	–
	Islands, limited		and the PRC
	liability company
Universe Watch and Jewellery	Hong Kong, limited	Ordinary HK$73,944,225	Investment holding in Hong Kong	–	100%	–
Group Co Ltd	liability company		and the PRC
深圳市利昌鐘錶有限公司#	PRC, limited liability	Ordinary RMB27,500,000	Wholesale and retail of watches	–	100%	–
	company		in the PRC
當盛貿易(深圳)有限公司#	PRC, limited liability	Ordinary HK$9,000,000	Wholesale and retail of watches	–	100%	–
	company		in the PRC
Garona (HK) Limited*	Hong Kong, limited	Ordinary HK$300,000	Wholesale and retail of watches	–	100%	–
	liability company		in Hong Kong
Garona Worldwide Limited*	Hong Kong, limited	Ordinary HK$10,000	Trademark holding	–	100%	–
	liability company
World Time (Asia) Limited	Hong Kong, limited	Ordinary HK$100,000	Trademark holding	–	100%	–
	liability company
China Jianxin Financial Services	Hong Kong, limited	Ordinary HK$335,300,000	Securities brokerage and margin	–	100%	–
Limited (formerly “Win Fung	liability company		financing
Securities Limited”)
China Jianxin Precious Metal	Hong Kong, limited	Ordinary HK$5,500,000	Holding the trading rights held in	–	100%	–
Company Limited	liability company		The Chinese Gold & Silver
			Exchange Society

No registered Chinese name for the companies

No registered English name for the companies

– II-62 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

12 INTERESTS IN ASSOCIATES/AMOUNT DUE FROM/(TO) AN ASSOCIATE

(a) Interests in associates

Cost of investments in associates, unlisted Share of post-acquisition profits Less: Accumulated impairment loss Less: Dividend received	2017 HK$’000 42,314 3,480 (21,648) (4,753) 19,393	2016 HK$’000 40,455 3,696 (18,421) – 25,730

Details of each of the Group’s associate at the end of the reporting period are as follows:

==> picture [367 x 195] intentionally omitted <==

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

Proportion of
Place of Principal place registered capital
Name of entity incorporation of business held by the Group Principal activity Note
2017 2016
Glory International British Virgin Hong Kong 49% 49% Advertising, promotion, (i)
Entertainment Limited Islands(“ BVI ”) provision of public
(“ Glory International ”) relations services,
holding and
sponsoring stage
performance,
concerts, film
production and other
cultural events
Hong Kong Optical Company Hong Kong Hong Kong 28% 28% Trading, wholesaling (ii), (iii)
Limited (“ HK Optical ”) and retailing of
optical products
----- End of picture text -----

Notes:

i) On 28 August 2015, Fragrant River Entertainment Investment Limited (“ FREI ”), a wholly-owned subsidiary of the Company, entered into a sale and purchase agreement with an independent third party vendor, pursuant to which the Group acquired 49% equity interest in Glory International, a company incorporated in BVI with limited liability, at an initial consideration of HK$36,750,000. The final cash consideration is subject to adjustment and a cap of HK$55,125,000 in accordance with the formula stipulated in the sale and purchase agreement dated 28 August 2015 which detailed as follows:

FC = NP x 7.5 x 49%

Where:

“FC” means the amount of the Final Consideration subject to a cap of HK$55,125,000;

“NP” means the audited consolidated profit after tax of Glory International and its subsidiaries for the period from 1 July 2015 to 30 June 2016

– II-63 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

On 5 May 2016, FREI and the independent third party vendor entered into a supplemental agreement pursuant to which the terms of the consideration as stated in the sale and purchase agreement dated 28 August 2015 has been amended. In accordance with the supplemental agreement, the amended terms include (i) the final consideration will be capped at the amount which is equal to the initial consideration (i.e. HK$36,750,000); (ii) the consideration will only be subject to downward adjustment in accordance with the following revised formula:

FC = NP x (12/15) x 7.5 x 49%

Where:

“FC” means the amount of the Final Consideration subject to a cap of HK$36,750,000;

“NP” means the audited consolidated profit after tax of Glory International and its subsidiaries for the period from 1 July 2015 to 30 September 2016

No downward adjustment is needed in accordance with the audited consolidated financial statements of Glory International and its subsidiary for the period from 1 July 2015 to 30 September 2016, and accordingly, the final consideration is fixed at HK$36,750,000.

Glory International operates in Hong Kong and is a strategic partner for the Group in developing the business of advertising, promotion, provision of public relations services, holding and sponsoring stage performance, concerts, film production and other cultural events.

During the year ended 30 June 2016, in view of the financial performance of Glory International, the Group has performed impairment assessment on investments in Glory International whereby the recoverable amount of HK$22,852,000 of Glory International was determined based on value in use calculation, with reference to the estimated cash flows in the coming five years and cash flows beyond five years were extrapolated by assuming 3% growth rate using pre-tax discount rate of 18.9%. Following the impairment assessment, amount of HK$18,421,000 was recognised as impairment loss in consolidated statement of comprehensive income during the year ended 30 June 2016.

No impairment is made for the year ended 30 June 2017.

ii) On 21 May 2015, Precise Reach Group Limited (“ Precise Reach ”), a wholly-owned subsidiary of the Company, acquired 11% equity interest in HK Optical at a consideration of HK$1,603,000. On 1 February 2016, Precise Reach further acquired 17% equity interest in HK Optical at a consideration of HK$2,042,000 after which the Group is able to exercise significant influence over HK Optical. The 11% equity interest previously held by the Group in HK Optical in the amount of HK$1,603,000 was reclassified from available-for-sale financial assets to investment in associate on 1 February 2016 when the Group is able to exercise significant influence over HK Optical.

During the year ended 30 June 2017, Precise Reach further injected HK$1,859,000 as capital injection to HK Optical.

iii) During the year ended 30 June 2017, in view of the financial performance of HK Optical, the Group has performed impairment assessment on the investment in HK Optical whereby the recoverable amount of Nil of HK Optical was determined based on value in use calculation, with reference to the estimated cash flows in the coming five years and cash flows beyond five years were extrapolated by assuming 3% growth rate using pre-tax discount rate of 16.4%. Following the impairment assessment, amount of HK$3,227,000 was recognised as impairment loss in consolidated statement of comprehensive income during the year ended 30 June 2017 due to the continuous operating loss.

– II-64 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Summarised financial information of material associates

Summarised financial information of the material associate, adjusted for any differences in accounting policies, and reconciled to the carrying amounts in the consolidated financial statements, are disclosed below:

Glory International Gross amounts of the associate’s Non-current assets Current assets Non-current liabilities Current liabilities Dividend received from the associate during the year Revenue Profit for the year/period from acquisition date to 30 June 2016 Other comprehensive income for the year/period from acquisition date to 30 June 2016 Total comprehensive income for the year/period from acquisition date to 30 June 2016	2017 HK$’000 2,443 13,223 – (11,006) 4,753 20,448 2,641 – 2,641	2016 HK$’000 1,628 16,981 (10) (6,880) – 25,856 9,108 – 9,108

Reconciliation of the above summarised financial information to the carrying amount of the interest in the associate recognised in the consolidated financial statements:

Net assets of Glory International Proportion of the Group’s ownership interest in Glory International Goodwill Impairment Loss Carrying amount of the Group’s interest in Glory International	2017 HK$’000 4,660 49% 2,283 35,531 37,814 (18,421) 19,393	2016 HK$’000 11,719 49% 5,742 35,531 41,273 (18,421) 22,852

– II-65 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Aggregate information of associates that are not individually material

The Group’s share of loss and total comprehensive income Aggregate carrying amount of the Group’s interests in these associates	2017 HK$’000 (1,510) –	2016 HK$’000 (564) 2,878

All of the associates are accounted for using the equity method in these consolidated financial statements.

(b) Amount due from/(to) an associate

The amount due from/(to) an associate is unsecured, interest-free and repayable on demand. The balance is denominated in Hong Kong dollars and approximate to their fair value.

13 INTERESTS IN JOINT VENTURES/LOAN RECEIVABLE FROM A JOINT VENTURE

(a) Interests in joint ventures

Cost of investments in joint ventures, unlisted Share of post-acquisition losses	2017 HK$’000 1,147 (896) 251	2016 HK$’000 1,147 (665) 482

Details of each of the Group’s joint ventures at the end of the reporting period are as follows:

	Place of	Principal place	Proportion of registered	Proportion of registered
Name of entity	incorporation	of business	capital held by the Group		Principal activity
			2017	2016
Sun Billion Property Limited	Macau	Macau	40%	40%	Investment of land and
					property in Macau
Topworld Victory Limited	Hong Kong	Hong Kong	–	50%	Deregistered
(Note i)

Note:

(i) On 7 April 2017, Topworld Victory Limited, a former joint venture of the Group, was successfully deregistered. Upon deregistration, the Group recorded a loss on deregistration of joint venture of approximately HK$24,000.

– II-66 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

All of these joint ventures are accounted for using the equity method in these consolidated financial statements.

Aggregate information of joint ventures that are not individually material:

The Group’s share of loss and total comprehensive income Aggregate carrying amount of the Group’s interests in these joint ventures (b) Loan receivable from a joint venture Loan receivable from a joint venture At the beginning of the year Accretion income for the period At the end of the year	2017 HK$’000 (231) 251 2017 HK$’000 8,364 231 8,595	2016 HK$’000 (224)
		482
		2016 HK$’000 8,140 224
		8,364

The loan receivable from a joint venture is unsecured, interest free and repayable in 5 years from the date of agreement.

The loan receivable from a joint venture was neither past due nor impaired as at 30 June 2016 and 2017. The management of the Group believes that no impairment allowance is necessary in respect of this balance as there has not been a significant change in credit quality on the joint venture.

14 DEPOSITS PAID, PREPAYMENTS AND OTHER RECEIVABLES

Non-current portion Rental deposit At 30 June Current portion Prepayments Interest receivable Advance payment to joint operation partners Rental deposits and other deposits Other receivables At 30 June	2017 HK$’000 191 191 4,214 566 4,218 9,469 82,207 100,674	2016 HK$’000 363
		363
		8,059 387 12,149 8,254 39,643
		68,492

The amount of the Group’s deposits paid expected to be recovered or recognised as expense after more than one year is HK$191,000 (2016: HK$363,000). All of the other deposits paid, prepayments and other receivables are expected to be recovered or recognised as expense within one year.

The other receivables mainly relate to a number of independent debtors that have good track record with the Group. Based on past experience, management believes that no impairment allowance is necessary in respect of these balances as there has not been a significant change in credit quality and the balances are still considered fully recoverable.

– II-67 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

15 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

Listed equity securities – held for trading Market value of listed securities	2017 HK$’000 232,629 232,629	2016 HK$’000 247,444
		247,444

The listed equity securities in the amount of HK$59,566,000 (2016: Nil) are pledged to a securities brokerage firm to secure margin loans payable obtained during the year (Note 28).

Financial assets at fair value through profit or loss are presented within ‘operating activities’ as part of changes in working capital in the consolidated statement of cash flows (Note 45).

The fair value of the equity securities is based on their closing prices as at 30 June 2017 in an active market.

16 AVAILABLE-FOR-SALE FINANCIAL ASSETS

Listed equity securities, at fair value Unlisted investment funds, at fair value Unlisted limited partnership, at fair value	2017 HK$’000 73,461 24,898 57,334 155,693	2016 HK$’000 – 79,467 6,335
		85,802

During the year ended 30 June 2017, the net loss in fair value of the available-for-sale financial assets recognised in the consolidated other comprehensive income amounted to HK$88,565,000 (2016: HK$12,340,000). During the year, there was a significant decline in fair value of certain unlisted investment funds and listed equity securities and the directors consider that such decline indicates that these unlisted investment funds and listed equity securities have been impaired and an impairment loss of HK$89,643,000 (2016: Nil) was reclassified from equity to the profit or loss during the year.

The listed equity investment in the amounts of HK$73,461,000 (2016: Nil) are pledged to a securities brokerage firm to secure margin loans payable obtained during the year (Note 28).

– II-68 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

17 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:

As at 30 June 2017

Financial assets

Financial assets at fair value through profit or loss
Available-for-
sale financial
assets
Contingent
consideration
Held for
trading
Loans and
receivables
HK$’000
HK$’000
HK$’000
HK$’000
Available-for-sale financial
assets
155,693
–
–
–
Financial assets at fair value
through profit or loss
–
–
232,629
–
Accounts receivable
–
–
–
333,859
Amount due from an associate
–
–
–
964
Financial assets included in
“deposits paid, prepayments
and other receivables”
–
–
–
97,138
Loans receivable
–
–
–
75,900
Loan to an associate
–
–
–
7,940
Loan receivable from a
joint venture
–
–
–
8,595
Contingent consideration
receivable
–
15,737
–
–
Bank balances and cash – trust
account
–
–
–
93,014
Cash and cash equivalents
–
–
–
228,222
155,693
15,737
232,629
845,632

Total
HK$’000
155,693
232,629
333,859
964
97,138
75,900
7,940
8,595
15,737
93,014
228,222

1,249,691

Financial Liabilities

Accounts payable Financial liabilities included in “other payables and accrued charges” and “deposits received” Borrowings Obligations under finance lease Contingent consideration payable	Financial liabilities at fair value through profit or loss Contingent consideration HK$’000 – – – – 19,568 19,568	Financial liabilities at amortised cost HK$’000 92,447 124,593 53,063 63 – 270,166	Total HK$’000 92,447 124,593 53,063 63 19,568
			289,734

– II-69 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

As at 30 June 2016

Financial assets

Financial assets at fair value through profit or loss
Available-for-
sale financial
assets
Contingent
consideration
Held for
trading
Loans and
receivables
HK$’000
HK$’000
HK$’000
HK$’000
Available-for-sale financial
assets
85,802
–
–
–
Financial assets at fair value
through profit or loss
–
–
247,444
–
Accounts receivable
–
–
–
224,739
Financial assets included in
“deposits paid, prepayments
and other receivables”
–
–
–
52,179
Film related deposits
–
–
–
5,542
Loans receivable
–
–
–
43,163
Loan to an associate
–
–
–
5,000
Loan receivable from a
joint venture
–
–
–
8,364
Contingent consideration
receivable
–
10,930
–
–
Bank balances and cash – trust
account
–
–
–
116,667
Cash and cash equivalents
–
–
–
101,173
85,802
10,930
247,444
556,827

Total
HK$’000
85,802
247,444
224,739
52,179
5,542
43,163
5,000
8,364
10,930
116,667
101,173

901,003

Financial Liabilities

Accounts payable Amount due to an associate Financial liabilities included in “other payables and accrued charges” and “deposits received” Borrowings Bank overdrafts Obligations under finance lease	Financial liabilities at amortised cost HK$’000 254,722 1,941 64,121 9,200 4,020 98 334,102	Total HK$’000 254,722 1,941 64,121 9,200 4,020 98
		334,102

– II-70 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

18 INTERESTS IN JOINT OPERATIONS

The Group has entered into certain joint operation arrangements to produce and distribute four television series (2016: four) and sixteen films (2016: thirteen) respectively. The Group has participating interests ranging from 5% to 90% (2016: from 5% to 90%) in these joint operations. As at 30 June 2017, the aggregate amounts of assets and liabilities recognised in the consolidated financial statements relating to the Group’s interests in these joint operation arrangements are as follows:

Assets Film rights and films in progress Film related deposits Accounts receivable and other receivables Liabilities Accounts payable and other payables Deposits received Revenue Expenses Profit after income tax 19 INVENTORIES Raw materials Finished goods	2017 HK$’000 26,094 10,012 70,181 106,287 566 4,486 5,052 2017 HK$’000 116,418 (60,364) 56,054 2017 HK$’000 202 9,864 10,066	2016 HK$’000 52,780 758 9,774 63,312 640 20,380 21,020 2016 HK$’000 36,115 (9,658) 26,457 2016 HK$’000 1,062 13,242 14,304

The analysis of the amount of inventories recognised as an expense and included in consolidated statement of comprehensive income is as follows:

Carrying amount of inventories sold Write down of inventories Reversal of write-down of inventories_(Note i)_	2017 HK$’000 31,507 1,501 (508) 32,500	2016 HK$’000 36,608 1,709 (317) 38,000

Note i: The amount resulted from the utilisation of obsolete inventories that were written down in prior years.

– II-71 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

20 ACCOUNTS RECEIVABLE

Accounts receivable arising from securities brokerage and margin financing business: – Clearing house and cash clients Less: Impairment loss_(Note c) Net(Note a) – Margin clients Less: Impairment loss(Note c) Net(Note b) Accounts receivable arising from other businesses: Accounts receivable – others Less: Impairment loss(Note e) Net(Note d)_ Accounts receivable – net	2017 HK$’000 69,560 (827) 68,733 197,284 (8,133) 189,151 257,884 77,627 (1,652) 75,975 333,859	2016 HK$’000 188,157 –
		188,157
		16,250 –
		16,250
		204,407
		20,474 (142)
		20,332
		224,739

The carrying amounts of accounts receivable approximate their fair values.

Notes:

(a) Accounts receivable arising from clearing house and cash clients

The ageing analysis of the accounts receivable from clearing house and cash clients which are past due but not impaired as of the end of the reporting period is as follows:

Neither past due nor impaired Less than 1 month past due More than 1 month past due	2017 HK$’000 59,500 411 8,822 68,733	2016 HK$’000 132,375 23,713 32,069
		188,157

The normal settlement terms of accounts receivable from clearing house and cash clients, which arise from the securities brokerage and margin financing business, are two days after trade date. Accounts receivable from cash clients are repayable on demand subsequent to the settlement date.

The Group offsets certain accounts receivable and accounts payable when the Group currently has a legally enforceable right to set off the balances and intends either to settle on a net basis, or to realise the balances simultaneously. Details are set out in Note 3.4.

– II-72 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Accounts receivable from cash clients relate to a wide range of customers for whom there was no recent history of default. These receivables are secured by their portfolio of securities. As at 30 June 2017, the total market value of their portfolios of securities was HK$22,036,000 (2016: HK$163,511,000). Included in the Group’s accounts receivable are cash clients with carrying amount of HK$9,233,000 (2016: HK$55,782,000) which are past due at the end of the reporting period but for which the Group has not provided for impairment as there has not been a significant change in credit quality. The Group believes that the amounts are still considered recoverable given the amount is fully secured by the listed securities of the cash clients or the substantial settlement after the end of the reporting period. Accounts receivable due from past due cash clients of approximately HK$827,000 (2016: Nil) which are not fully secured by the listed securities of the respective cash clients, are considered impaired as at 30 June 2017. Accounts receivable due from cash clients bear interest at commercial rates when it becomes past due.

(b) Accounts receivable arising from margin clients

Accounts receivable from margin clients, which arise from the securities brokerage and margin financing business, are repayable on demand subsequent to the settlement date.

Margin clients are required to pledge securities collateral to the Group in order to obtain credit facilities for securities trading. The amount of credit facilities granted to them is determined by the discounted value of securities accepted by the Group. Additional funds or collateral are required if the outstanding amount exceeds the eligible margin value of securities deposited. The listed securities of the margin clients can be sold at the Group’s discretion to settle any margin call requirements imposed by their respective securities transactions. The pledged securities are substantially listed securities in Hong Kong as at 30 June 2017 and 2016. At 30 June 2017, margin loans were current and repayable on demand (2016: current and repayable on demand except for HK$2,695,000 where the margin loans were past due for less than 1 month). Margin loans that were past due but not impaired relate to a number of independent clients that have a good track record with the Group. Based on past experience, management believes that no impairment allowance is necessary in respect of these balances as there has not been a significant change in credit quality and the balances are still considered fully recoverable. As at 30 June 2017, the total market value of their portfolios of securities was HK$456,052,000 (2016: HK$92,620,000). Accounts receivable from margin clients are repayable on demand and bear interest at commercial rates.

Included in the Group’s accounts receivable are margin clients, with carrying amount of HK$189,151,000 (2016: HK$16,250,000) at the end of the reporting period for which the Group has not provided for impairment as there has not been a significant change in credit quality. The Group believes that the amounts are still considered recoverable given the amount is fully secured by the listed securities of the margin clients or the substantial settlement after the end of the reporting period. Accounts receivable due from margin clients of approximately HK$8,133,000 (2016: Nil) which are not fully secured by the listed securities of the respective margin clients are considered impaired as at 30 June 2017.

No ageing analysis of the accounts receivable from margin clients is disclosed as in the opinion of the directors of the Company, the ageing analysis does not give additional value in view of the nature of this business.

Movements in the allowance for impairment are as follows:

At the beginning of the year Provision of impairment of accounts receivable – Clearing house and cash clients – Margin clients At the end of the year	2017 HK$’000 – 827 8,133 8,960	2016 HK$’000 – – –
		–

The Group has a policy for determining the allowance for impairment based on the evaluation of collectability and ageing analysis of accounts receivable if applicable and on management’s judgement, including the current creditworthiness, collateral and the past collection history of each client.

– II-73 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

(d) Accounts receivable arising from other businesses

The following is an ageing analysis of accounts receivable arising from other businesses, presented based on the invoice dates:

1 to 90 days 91 days to 180 days Over 180 days	2017 HK$’000 65,682 1,926 8,367 75,975	2016 HK$’000 10,963 7,026 2,343
		20,332

The ageing analysis of the accounts receivable from other businesses, which are past due but not impaired, are as follows:

Neither past due nor impaired Past due but not impaired Less than 1 month past due 1 to 3 months past due 3 months to 1 year past due Over 1 year past due	2017 HK$’000 57,541 7,073 419 9,637 1,305 18,434 75,975	2016 HK$’000 10,297 942 943 7,972 178
		10,035
		20,332

In respect of accounts receivable from other businesses, receivables that were neither past due nor impaired relate to a wide range of 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, management believes that no impairment allowance is necessary in respect of these balances as there has not been a significant change in credit quality and the balances are still considered fully recoverable.

Sales of videogram products are with credit terms of 7 days to 60 days. Sales from film exhibition, licensing and sub-licensing of film rights are on open account terms. Sales to retail customers are made in cash or via major credit cards. The Group has policies in place to ensure that sales of products on credit terms are made to customers with an appropriate credit history and the Group performs periodic credit evaluations of its customers.

Further details on the Group’s credit policy are set out in Note 3.1(b).

(e) Impairment of accounts receivable arising from other businesses

Impairment losses in respect of accounts receivable arising from other businesses are recorded using an allowance account unless the Group is satisfied that recovery of the amount is remote, in which case the impairment loss is written off against accounts receivable directly (see Note 2.12).

– II-74 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Movements in the allowance for doubtful debts

At the beginning of the year Impairment of accounts receivable At the end of the year	2017 HK$’000 142 1,510 1,652	2016 HK$’000 142 –
		142

Impairment of accounts receivable arising from other businesses of approximately HK$1,510,000 (2016: Nil) was recognised by the Group due to long outstanding receivable from debtors, and no impairment (2016: Nil) was written off from the allowance account during the year ended 30 June 2017.

21 LOANS RECEIVABLE

(a) Loans receivable from third party customers

Loans to third party customers As at 30 June 2017 and 2016, the maturity profile of the loans receivable, based on the maturity date is as follows: – Non-current – Current The credit quality analysis of the loans receivable is as follows: Neither past due nor impaired – Unsecured loans – Secured loans	2017 HK$’000 75,900 45,500 30,400 75,900 2017 HK$’000 59,400 16,500 75,900	2016 HK$’000 43,163
		20,000 23,163
		43,163
		2016 HK$’000 43,163 –
		43,163

The Group’s loans receivable from third party customers, which arise from the money lending business in Hong Kong, are denominated in Hong Kong dollars.

Except for loans receivable of HK$16,500,000 (2016: Nil), which are secured by unconditional personal guarantees, bear interest and are repayable with fixed terms agreed with the customers, all loans receivable are unsecured, bear interest and are repayable with fixed terms agreed with customers.

– II-75 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

(b) Loans to an associate

The loan to an associate, HK Optical, in the amount of HK$5,000,000 (2016: HK$5,000,000) is unsecured, bearing an interest at 7% per annum and repayable on 23 March 2017. The loan was granted to the associate through the normal procedures of the money lending business of the Group during the year ended 30 June 2016. On 13 March 2017, the Group signed a supplemental loan agreement with HK Optical to extend the repayment date of the loan to 23 March 2018.

Another loan to an associate, HK Optical, in the amount of HK$2,940,000 (2016: Nil) is unsecured, interest free and have no fixed term of repayment.

The loans receivable are neither impaired nor overdue as at 30 June 2017 (2016: same).

The maximum exposure to credit risk at each balance sheet date is the carrying amount of the loans receivable.

All the loans receivable are entered with contractual maturity within 1 to 2 years. The Group seeks to maintain tight control over its loans receivable in order to minimise credit risk by reviewing the borrowers’ or guarantors’ financial positions.

Loans receivable are interest-bearing at rates ranging from 7% to 20% per annum (2016: 7% to 12% per annum).

Interest income of approximately HK$5,859,000 (2016: HK$8,450,000) has been recognised in ‘revenue’ in the consolidated statement of comprehensive income.

22 CONTINGENT CONSIDERATION RECEIVABLE

The fair value of the contingent consideration receivable represented the profit guarantee in relation to the adjustments to the consideration from the acquisition of AP Group during the year ended 30 June 2016 as detailed in Note (i) below. Contingent consideration receivable is measured at fair value at the end of the reporting period. The movement of the fair value of contingent consideration receivable is as follows:

At fair value: At beginning of the year Arising from acquisition of subsidiaries_(Note 46(c))_ Fair value change At end of the year	2017 HK$’000 10,930 – 4,807 15,737	2016 HK$’000 – 6,850 4,080
		10,930

Note:

(i) Adjustment to the consideration

Pursuant to the sale and purchase agreement entered in relation to the acquisition of AP Group, in the event that the audited consolidated profit after tax of AP Group for the period from 1 January 2016 to 31 December 2017 is less than HK$16,000,000, the vendors shall, and the guarantors shall procure the vendors to, pay to the Group the adjustment amount (the “ Adjustment Amount ”) in accordance with the formula set out below:

A = HK$20,400,000 – (NP/2) x 5 x 51%

Where:

“A” means the amount of Adjustment Amount in HK$; and

“NP” means the net profit for the period from 1 January 2016 to 31 December 2017. Where the NP is a negative figure, NP shall be deemed to be zero.

The fair value of the contingent consideration receivable as at 30 June 2017 are based on the valuation performed by Royson Valuation Advisory Limited, an independent professional valuer not connected with the Group. Details of fair value measurement are set out in Note 3.3.

– II-76 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

23 BANK BALANCES AND CASH – TRUST ACCOUNTS

The Group receives and holds monies deposited by clients and other institutions in the course of the conduct of the regulated activities of its securities brokerage and margin financing business. These clients’ monies are maintained in one or more trust bank accounts. The Group has recognised the corresponding accounts payable to respective clients and other institutions (Note 31). However, the Group currently does not have an enforceable right to offset those payables with the deposits placed.

24 CASH AND CASH EQUIVALENTS

Cash at bank Cash held with custodians Cash in hand Cash and cash equivalents in the consolidated balance sheet Less: Bank overdrafts_(Note 28)_ Cash and cash equivalents in the consolidated statement of cash flows	2017 HK$’000 227,536 435 251 228,222 – 228,222	2016 HK$’000 95,599 5,454 120 101,173 (4,020) 97,153

Included in the cash and bank balances at 30 June 2017 were a total sum being the equivalent of HK$29,315,000 (2016: HK$24,876,000) which was maintained in mainland China and is subject to foreign exchange control regulations.

25 SHARE CAPITAL

Authorised: Ordinary shares of HK$0.01 each Issued and fully paid: Ordinary shares of HK$0.01 each	2017 Number of shares Nominal value ’000 HK$’000 10,000,000 100,000 853,302 8,533	2016 Number of shares Nominal value ’000 HK$’000 10,000,000 100,000 177,774 1,778

Movements in the issued share capital of the Company during the years ended 30 June 2017 and 2016 are as follows:

Note At 1 July 2015 Issue of new shares in July 2015 (a) Issue of new shares in August 2015 (b) Capital reorganisation in March 2016 (c) Issue of new shares in April 2016 (d) At 30 June 2016 and 1 July 2016 Issue of new shares in October 2016 (e) Issue of new shares in February 2017 (f) Issue of new shares in March 2017 (g) At 30 June 2017	Number of ordinary shares 298,380,307 586,350,000 596,760,614 (1,333,341,829) 29,625,000 177,774,092 355,548,184 106,660,000 213,320,000 853,302,276	Nominal value HK$’000 2,984 5,863 5,968 (13,333) 296 1,778 3,555 1,067 2,133 8,533

– II-77 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Notes:

(a) Pursuant to the placing agreement entered into between the Company, China Everbright Securities (HK) Limited and Jun Yang Securities Company Limited, independent third parties, on 26 May 2015, the Company issued, on 28 July 2015, an aggregate of 586,350,000 new shares at a price of HK$0.3411 per placing share to not less than six placees who were independent of, and not connected to the Group. The gross proceeds from the said placement amounted to approximately HK$200,004,000 and the related issue expense was approximately HK$7,216,000.
(b) Pursuant to the Company’s announcement dated 26 May 2015, the circular of the Company dated 24 June 2015 and the prospectus of the Company dated 24 July 2015, the Company proposed rights issue on the basis of two rights shares for every one existing share at HK$0.202 per rights share (the “ 2015 Rights Issue ”). A total of 596,760,614 shares were issued under the 2015 Rights Issue on 13 August 2015. The gross proceeds from the 2015 Rights Issue are approximately HK$120,546,000. The net proceeds after deducting the underwriting commission and other related expenses of approximately HK$4,195,000 were approximately HK$116,351,000.
(c) Pursuant to a special resolution passed at a special general meeting held on 17 March 2016, the capital reorganisation (the “ 2016 Capital Reorganisation ”) became effective on 18 March 2016. The 2016 Capital Reorganisation involved:
(i) the consolidation of every 10 issued and unissued shares of HK$0.01 each in the share capital of the Company into 1 consolidated share (the “ Consolidated Share(s) ”) of a par value of HK$0.1 each (the “ 2016 Share Consolidation ”);
(ii) the reduction of issued share capital of the Company of HK$13,333,000 whereby the par value of each Consolidated Share was reduced from HK$0.10 to HK$0.01 by cancelling HK$0.09 of the paid up capital on each Consolidated Share and any fraction of a Consolidated Share in the issued share capital of the Company arising from the 2016 Share Consolidation was eliminated in order to round down the total number of Consolidated Shares to a whole number;
(iii) the capital reduction of HK$13,333,000 was credited to the reorganisation reserve of the Company;
(iv) the sub-division of each of the authorised but unissued Consolidated Shares of HK$0.10 each into 10 shares of HK$0.01 each.

Upon the 2016 Capital Reorganisation became effective on 18 March 2016, the issued share capital of the Company became HK$1,481,491 divided into 148,149,092 ordinary shares of HK$0.01 each. Further details of the 2016 Capital Reorganisation are set out in the Company’s circular dated 23 February 2016.

(d) Pursuant to the placing agreement entered into between the Company, SBI China Capital Financial Services Limited, independent third parties, on 23 March 2016, the Company issued, on 13 April 2016, an aggregate of 29,625,000 new shares at a price of HK$0.779 per placing share to not less than six placees who were independent of, and not connected to the Group. The gross proceeds from the said placement amounted to approximately HK$23,078,000 and the related issue expense was approximately HK$810,000.
(e) Pursuant to the Company’s announcement dated 12 July 2016, the circular of the Company dated 12 August 2016 and the prospectus of the Company dated 9 September 2016, the Company proposed rights issue on the basis of two rights shares for every one existing share at HK$0.60 per rights share (the “ 2016 Rights Issue ”). A total of 355,548,184 shares were issued under the 2016 Rights Issue on 5 October 2016. The gross proceeds from the 2016 Rights Issue are approximately HK$213,329,000. The net proceeds after deducting the underwriting commission and other related expenses of approximately HK$6,400,000 were approximately HK$206,929,000.
(f) Pursuant to the placing agreement entered into between the Company and Gransing Securities Co., Limited, an independent third party, on 18 January 2017, the Company issued, on 7 February 2017, an aggregate of 106,660,000 new shares at a price of HK$0.519 per placing share to not less than six placees who were independent of, and not connected to the Group. The gross proceeds from the said placement amounted to approximately HK$55,356,000 and the related issue expense was approximately HK$1,933,000.

– II-78 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

(g) Pursuant to the placing agreement entered into between the Company and Gransing Securities Co., Limited, an independent third party, on 18 January 2017, the Company issued, on 29 March 2017, an aggregate of 213,320,000 new shares at a price of HK$0.519 per placing share to not less than six placees who were independent of, and not connected to the Group. The gross proceeds from the said placement amounted to approximately HK$110,713,000 and the related issue expense was approximately HK$3,875,000.

26 SHARE OPTIONS

The Company operates a share option scheme adopted on 2 December 2013 (the “ Share Option Scheme ”) for the purpose of providing incentives and rewards to eligible participants who contribute to the success of the Group’s operations. Eligible participants of the share option schemes include the Company’s directors, including non-executive directors, other employees of the Group or any invested entity, suppliers of goods or services to the Group or any invested entity, customers of the Group or any invested entity, shareholders of the Group or any invested entity, holders of securities of the Group or any invested entity and persons or entities provide research, development or other technological support to the Group or any invested entity. According to the provision of the Share Option Scheme, share options granted during the term of the Share Option Scheme and remain unexercised immediately prior to the end thereof shall continue to be exercisable in accordance with their terms of grant notwithstanding the expiry of the Share Option Scheme. Unless otherwise cancelled or amended, the Share Option Scheme will remain in force for 10 years from the date of the Share Option Scheme adopted. Each option gives the holder the right to subscribe for one ordinary share in the Company and is settled in gross shares.

The maximum number of shares which may be issued upon exercise of all options granted and to be granted under the Share Option Scheme is an amount equivalent to 10% of the shares of the Company in issue as at the dates of approval of the Share Option Scheme unless approval for refreshing the 10% limit from the Company’s shareholders has been obtained. The maximum number of shares issued and to be issued upon exercise of the share options granted to each eligible participant in the Share Option Scheme (including exercised, cancelled and outstanding options) within any 12 month period is limited to 1% of the shares of the Company in issue. Any further grant of share options in excess of this limit is subject to shareholders’ approval in a general meeting.

Under the Share Option Scheme, a share option granted to a director, chief executive or substantial shareholder of the Company, or to any of their associates are subject to approval in advance by the independent non-executive directors. In addition, any grant of share options to a substantial shareholder or an independent non-executive director of the Company, or to any of their associates, which would result in the shares issued and to be issued upon exercise of all options already granted and to be granted (including options exercised, cancelled and outstanding) to such person in the 12 month period up to and including the date of such grant in excess of 0.1% of the shares of the Company in issue and with an aggregate value (based on the closing price of the Company’s shares at the date of grant) in excess of HK$5,000,000 is subject to shareholders’ approval in advance in a general meeting.

The offer of a grant of share options under the Share Option Scheme may be accepted within 28 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, save that such period shall not be more than 10 years from the dates of adoption of the Share Option Scheme subject to the provisions for early termination set out in the Share Option Scheme. Unless otherwise determined by the directors at their sole discretion, there is no requirement of a minimum period for which an option must be held before it can be exercised.

The exercise price of share options granted under the Share Option Scheme is determined by the directors, but shall not be less than the highest of (i) The Stock Exchange of Hong Kong Limited (the “ Stock Exchange ”) closing price of the Company’s shares on the date of offer of the share options; (ii) the average Stock Exchange closing price of the Company’s shares for the five trading days immediately preceding the date of offer; and (iii) the nominal value of a share of the Company on the date of offer.

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

– II-79 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Movements in the number of share options outstanding and their weighted average exercise prices for the years ended 30 June 2017 and 2016 are as follows:

At 1 July 2015 Adjustment arising from: – 2015 Rights Issue Granted during the year Lapsed during the year Adjustment arising from: – 2016 Share Consolidation Outstanding and exercisable at 30 June 2016 and 1 July 2016 Lapsed during the year Adjustment arising from: – 2016 Rights Issue Outstanding and exercisable at 30 June 2017	Weighted average exercise price HK$ 1.738 0.106 1.077 2.518 10.773 0.930	No. of shares issuable under options granted 15,088,400 9,260,382 118,513,880 (3,343,673) (125,567,090) 13,951,899 (2,100,511) 1,594,068 13,445,456

No share option was exercised during the years ended 30 June 2016 and 2017.

The weighted average remaining contractual life of the outstanding share options is 0.6 years (2016: 1.37 years).

All share options are immediately vested from the date of grant.

Share options outstanding as at 30 June 2017 and 2016 have the following expiry dates and exercise prices:

As at 30 June 2017

Adjusted
exercise price
per share
HK$
Exercisable period
30 September 2015 to 29 September 2017_(Note iii)
1.489
4 March 2016 to 3 March 2018(Note iii)
0.811
As at 30 June 2016
Adjusted
exercise price
per share
_HK$
Exercisable period
21 July 2014 to 20 July 2016_(Note i)
10.773
30 September 2015 to 29 September 2017(Note ii)
1.690
4 March 2016 to 3 March 2018(Note ii)_
0.920

Outstanding
options as at
30 June 2017
2,351,799
11,093,657
13,445,456
Outstanding
options as at
30 June 2017
2,100,511
2,072,088
9,779,300
13,951,899

– II-80 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Notes:

(i) The exercise price per share as at 30 June 2016 has been adjusted with the effects of 2015 Share Consolidation on 17 March 2015 and 2016 Share Consolidation on 18 March 2016 and 2015 Rights Issue on 13 August 2015. Further details are set out in Note 25 to the consolidated financial statements.
(ii) The exercise price per share as at 30 June 2016 has been adjusted with the effects of 2016 Share Consolidation on 18 March 2016. Further details are set out in Note 25 to the consolidated financial statements.
(iii) The exercise price per share as at 30 June 2017 has been adjusted with effect of 2016 Rights Issue on 5 October 2016 and 2016 Share Consolidation on 18 March 2016. Further details are set out in Note 25 to the consolidated financial statements.

Fair value of share options and assumptions

(i) Share options granted on 30 September 2015

The fair values of the equity-settled share options granted under the Share Option Scheme granted on 30 September 2015 were estimated by Grant Sherman Appraisal Limited, an independent firm of professionally qualified valuers, using the binomial option pricing model, taking into account the terms and conditions upon which the options were granted. The fair value of the equity-settled share options granted on 30 September 2015 in the amount of HK$1,327,000 was recognised as share option expense during the year ended 30 June 2016. The following table lists the inputs to the model used:

Share price on the date of grant*	HK$0.1610
Exercise price*	HK$0.1690
Risk-free interest rate	0.953%
Expected life of the share options	2 years
Expected volatility	78.99%
Dividend yield	N/A
Fair value per share option
– granted to employees	HK$0.0640

Before adjustment of 2016 Share Consolidation and 2016 Rights Issue

The expected volatility is based on the historical volatility (calculated based on the weighted average remaining life of the share options), adjusted for any expected changes to future volatility based on publicly available information. Changes in the subjective input assumptions could materially affect the fair value estimate.

(ii) Share options granted on 4 March 2016

The fair values of the equity-settled share options granted under the Share Option Scheme granted on 4 March 2016 were estimated by Grant Sherman Appraisal Limited, an independent firm of professionally qualified valuers, using the binomial option pricing model, taking into account the terms and conditions upon which the options were granted. The fair value of the equity-settled share options granted on 4 March 2016 in the amount of HK$2,249,000 was recognised as share option expense during the year ended 30 June 2016. The following table lists the inputs to the model used:

Share price on the date of grant*	HK$0.0770
Exercise price*	HK$0.0920
Risk-free interest rate	1.104%
Expected life of the share options	2 years
Expected volatility	68.07%
Dividend yield	N/A
Fair value per share option
– granted to directors	HK$0.0230
– granted to employees	HK$0.0230

Before adjustment of 2016 Share Consolidation and 2016 Rights Issue

Expected volatility was determined by using the annualised standard deviation of historical share price daily movements of selected comparable companies in same industry. Changes in the subjective input assumptions could materially affect the fair value estimate.

– II-81 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

27 SHARE PREMIUM, OTHER RESERVES AND RETAINED EARNINGS/(ACCUMULATED LOSSES)

(a) Group

Other reserves	Other reserves		Total HK$’000 569,036 216,923 (8,026) 114,578 (4,195) 13,333 3,576 – (12,340) – (722) (140,790)
Available -for-sale investment reserve (Note vii) HK$’000 8,312 – – – – – – – (12,340) – – – (4,028) – – – – – (88,565) 89,643 6,571 – – – – 3,621	Translation reserve Share-based compensation reserve (Note iii) (Note iv) HK$’000 HK$’000 (18) 10,143 – – – – – – – – – – – 3,576 – (3,048) – – – – (722) – – – (740) 10,671 – – – – – – – – – (7,095) – – – – – – 41 – – – (29) – – – (728) 3,576	Unlisted warrants reserve (Note v) HK$’000 81,961 – – – – – – – – (81,961) – – – – – – – – – – – – – – – –
			751,373 162,870 (5,808) 209,773 (6,400) – (88,565) 89,643 6,571 41 (315) (29) (114,328)
			1,004,826

– II-82 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

(b) Company

Other reserves		Total HK$’000 308,773 216,923 (8,026) 114,578 (4,195) 13,333 3,576 – – (16,560)
Contributed Surplus Reorganisation reserve Share-based compensation (Note vi) (Note ii) (Note iv) HK$’000 HK$’000 HK$’000 51,852 47,244 10,143 – – – – – – – – – – – – – 13,333 – – – 3,576 – – (3,048) – – – – – – 51,852 60,577 10,671 – – – – – – – – – – – – – – (7,095) – – – 51,852 60,577 3,576	Unlisted warrants reserve (Note v) HK$’000 81,961 – – – – – – – (81,961) – – – – – – – – –
		628,402 162,870 (5,808) 209,773 (6,400) – (16,127)
		972,710

– II-83 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

(c) Nature and purposes of the reserves

(i) Share premium

The application of the share premium account is governed by section 40 of the Bermuda Companies Act 1981. The share premium account of the Company is distributable to the owners of the Company in the form of fully paid bonus shares.

(ii) Reorganisation reserve

The reorganisation reserve of the Group represents the reduction in share capital of the Company pursuant to 2015 Capital Reorganisation and 2016 Capital Reorganisation.

(iii) Translation reserve

The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations. The reserve is dealt with in accordance with the accounting policy set out in Note 2.7.

(iv) Share-based compensation reserve

The share-based compensation reserve represents the fair value of the actual or estimated number of unexercised share options granted to directors of the Company, employees of the Group and all other eligible participants recognised in accordance with the accounting policy adopted for equity-settled share-based payments set out in Note 2.25(ii).

(v) Unlisted warrant reserve

Warrant reserve represents the net proceeds received from the issue of warrants of the Company. The reserve will be transferred to share capital and share premium account upon exercise of the warrants.

On 16 September 2013, the Company issued 342,000,000 non-listed warrants at an issue price of HK$0.0025 per warrant by private placement. Each warrant entitles the holder to subscribe for one ordinary share at a subscription price of HK$0.25 per warrant share. The warrants were expired on 15 September 2015 and the unlisted warrant reserve was credited to retained earnings during the year ended 30 June 2016.

(vi) Contributed surplus

The contributed surplus of the Company represents the difference between the nominal value of the Company’s shares issued in exchange for the issued shares of Universe Films (Holdings) Limited and the value of net assets of the underlying subsidiaries acquired on 28 June 1999. Under the Companies Act of 1981 of Bermuda (as amended), the contributed surplus shall not be distributed to the shareholders if there are reasonable grounds for believing that:

(i) the Company is, or would after the payment be, unable to pay its liabilities as they become due; or
(ii) the realisable value of the Company’s assets would thereby be less than the aggregate of its liabilities and its issued share capital and share premium accounts.

At Group level, the contributed surplus is reclassified into its components of reserves of the underlying subsidiaries.

(vii) Available-for-sale investment reserve

The available-for-sale investment reserve comprises the cumulative net change in fair value of available-for-sale financial assets held at the end of the reporting period.

– II-84 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

28 BORROWINGS

Bank borrowings: Bank overdrafts, secured_(Note a) Other borrowings: Coupon notes, unsecured(Note b) Other borrowing, secured(Note c) Margin loan payable, secured(Note d)_ The bank borrowings and other borrowings are repayable as follows: Bank borrowings: Within 1 year or on demand Other borrowings: Within 1 year or on demand After 1 year but within 2 years Less: Amounts shown under current liabilities Amounts shown under non-current liabilities	2017 HK$’000 – – 25,900 12,000 15,163 53,063 53,063 2017 HK$’000 – – 43,063 – 53,063 53,063 (43,063) 10,000	2016 HK$’000 4,020 4,020 9,200 – – 9,200 13,220 2016 HK$’000 4,020 4,020 9,200 10,000 9,200 13,220 (13,220) –

Notes:

(a) All of the banking facilities are subject to the fulfillment of covenants. If the Group were in breach of the covenants, the drawn down facilities would become repayable on demand. In addition, all of the Group’s banking facility letters contain clauses which give the lender the rights at its sole discretion to demand immediate repayment at any time irrespective of whether the Group has complied with the covenants and met the scheduled repayment obligations.

The Group regularly monitors its compliance with these covenants and does not consider it probable that the bank will exercise its discretion to demand repayment so long as the Group continues to meet these requirements. Further details of the Group’s management of liquidity risk are set out in Note 3.1(c). As at 30 June 2017, none of the covenants relating to drawn down facilities had been breached (2016: Nil).

All of the bank overdrafts, including amounts repayable on demand, are carried at amortised cost.

As at 30 June 2016, the bank overdrafts of the Group are secured by the trading securities held by the former shareholder of a subsidiary of the Company and corporate guarantee of the Company.

– II-85 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

(b) The coupon notes bear fixed interest rate at 6.25% per annum (2016: 6.5% per annum) and are not secured.
(c) On 9 March 2017, the Group entered into an agreement as the borrower for a revolving credit facility up to HK$12,000,000 with a financial institution as the lender. The revolving credit facility is secured by the corporate guarantee executed by the Company and bear a fixed interest rate at 10% per annum.
(d) The margin loans payable is repayable on demand if it is subjected to margin call from the financial institution and carried a variable interest rate. As at 30 June 2017, the margin loans payable are secured by the Group’s listed equity investments recognised in available-for-sale investment and financial assets at fair value through profit or loss in the fair value of HK$73,461,000 as disclosed in Note 16 and HK$59,566,000 as disclosed in Note 15 respectively.

The Group has un-utilised borrowing facilities of HK$63,000,000 as at 30 June 2017 (2016: HK$53,980,000).

The carrying amounts of the Group’s borrowings are denominated in Hong Kong dollars. The fair values of the borrowings approximate their carrying amounts as at 30 June 2017 (2016: same).

29 OBLIGATIONS UNDER FINANCE LEASE

	Total minimum	Total minimum	Present value of minimum	Present value of minimum
	lease payments		lease payment
	2017	2016	2017	2016
	HK$’000	HK$’000	HK$’000	HK$’000
Amounts payable:
Within one year	35	35	35	35
After 1 year but within 2 years	19	35	19	35
After 2 years but within 5 years	9	28	9	28
			63	98

Less: Finance charge Present value of finance lease payable Less: Portion classified as current liabilities Non-current portion	– 63 (35) 28	– 98 (35) 63

The finance lease obligations are interest free and secured by photocopiers of the Group with a carrying amount of HK$62,000 as at 30 June 2017 (2016: HK$97,000). No arrangement has been entered into for contingent rental payment for the year ended 30 June 2017 (2016: same).

– II-86 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

30 DEFERRED TAX ASSETS AND LIABILITIES

(a) The movements in deferred tax liabilities and assets during the year are as follows:

Deferred tax assets

At 1 July 2015 Charged to profit or loss At 30 June 2016 and 1 July 2016 Credited to profit or loss Gross deferred tax assets at 30 June 2017	Tax losses HK$’000 380 (15) 365 9,482 9,847	Total HK$’000 380 (15) 365 9,482 9,847

Deferred tax liabilities

At 1 July 2015 Credited/(charged) to profit or loss At 30 June 2016 and 1 July 2016 Credited/(charged) to profit or loss Gross deferred tax liabilities at 30 June 2017	Accelerated tax depreciation Temporary difference relating to unrealised fair value gains of financial assets at fair value through profit or loss HK$’000 HK$’000 (357) (29,456) 9 29,456 (348) – 156 (14,740) (192) (14,740)	Amortisation of other intangible assets HK$’000 – (1,881) (1,881) – (1,881)	Total HK$’000 (29,813) 27,584 (2,229) (14,584) (16,813)

For presentation purposes, certain deferred tax assets and liabilities have been offset in the consolidated balance sheet. The following is an analysis of the deferred tax balances of the Group for financial reporting purposes:

Net deferred tax assets recognised in the consolidated balance sheet Net deferred tax liabilities recognised in the consolidated balance sheet	2017 HK$’000 6,447 (13,413) (6,966)	2016 HK$’000 365 (2,229) (1,864)

– II-87 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

(b) Deferred tax assets in respect of the unused tax losses carried forward are to be recognised to the extent that it is probable that future taxable profits will be available against which the unused tax losses can be utilised.

The Group has not recognised deferred tax assets in respect of tax losses of HK$113,392,000 (2016: HK$179,704,000) as at 30 June 2017 due to the unpredictability of future profit streams. Included in the above tax losses of approximately HK$16,979,000 (2016: HK$12,775,000) which can only be carried forward for a maximum period of five years. Other losses can be carried forward indefinitely.

31 ACCOUNTS PAYABLE

Accounts payable arising from securities brokerage and margin financing business: – cash clients – margin clients Accounts payable arising from other businesses	2017 HK$’000 61,928 19,692 81,620 10,827 92,447	2016 HK$’000 231,264 19,056
		250,320
		4,402
		254,722

The settlement terms of accounts payable to cash clients, except for margin loans, arising from the securities brokerage and margin financing business are two days after trade date. Accounts payable to cash clients are repayable on demand subsequent to settlement date. Accounts payable to margin clients are repayable on demand. No ageing analysis is disclosed as in the opinion of the directors of the Company, the ageing analysis does not give additional value in view of the nature of this business.

Accounts payable amounting to HK$93,014,000 as at 30 June 2017 (2016: HK$100,147,000) were payable to clients in respect of the trust and segregated bank balances received and held for clients in the course of conducting the regulated activities. However, the Group does not have a currently enforceable right to offset these payables with the deposits placed.

As at 30 June 2017 and 2016, the ageing analysis of the accounts payable arising from other businesses based on invoice date is as follows:

1 to 90 days 91 days to 180 days Over 180 days	2017 HK$’000 513 34 10,280 10,827	2016 HK$’000 1,416 130 2,856
		4,402

All of the accounts payable arising from other business are expected to be settled or recognised as income within one year or are repayable on demand.

– II-88 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

32 OTHER PAYABLES AND ACCRUED CHARGES

Amounts due to joint operators Accruals for employee benefits Other accruals and other payables Temporary receipts_(Note (i))_	2017 HK$’000 72,133 25,787 27,764 108,876 234,560	2016 HK$’000 43,942 1,466 18,713 –
		64,121

Note (i): The amount of approximately HK$108,806,000 represented the partial consideration received from the independent third party purchaser in relation to the Film Library Disposal Agreement as disclosed in Note 10.

33 CONTINGENT CONSIDERATION PAYABLE

The fair value of the contingent consideration payable represented the profit guarantee in relation to the adjustments to the consideration from the disposal of AP Group during the year ended 30 June 2017 as detailed in Note (i) below. Contingent consideration payable is measured at fair value at the end of the reporting period. The movement of the fair value of contingent consideration payable is as follows:

At fair value: At beginning of the year Arising from disposal of AP Group_(Note 47)_ Fair value change At end of the year	2017 HK$’000 – 10,930 8,638 19,568	2016 HK$’000 – – –
		–

Note:

(i) Adjustment to the consideration

Pursuant to the sale and purchase agreement entered in relation to the disposal of AP Group, in the event that the audited consolidated profit after tax of AP Group for the period from 1 January 2016 to 31 December 2017 is less than HK$16,000,000, Fragrant River Entertainment Culture (Holdings) Limited (“ FRECH ”), a subsidiary of the Group shall, and the Company as the guarantor shall procure FRECH to, pay to the purchaser the adjustment amount (the “ Adjustment Amount ”) in accordance with the formula set out below:

A = HK$20,400,000 – (NP/2) x 5 x 51%

Where:

“A” means the amount of Adjustment Amount in HK$; and

“NP” means the net profit for the period from 1 January 2016 to 31 December 2017. Where the NP is a negative figure, NP shall be deemed to be zero.

The fair value of contingent consideration payable as at 30 June 2017 are based on the valuation performed by Royson Valuation Advisory Limited, an independent professional valuer not connected with the Group. Details of fair value measurement are set out in Note 3.3.

– II-89 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

34 LOSS BEFORE TAX

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

Continuing operations:

(a) Staff costs: Salaries, allowances, and other benefits (including directors’ emoluments_(Note 36)) Contributions to defined contribution retirement plans Equity-settled share-based payment expenses (b) Other items: Auditors’ remuneration – audit services – other services Amortisation – film rights(Note 10) – other intangible assets(Note 8) Depreciation for property, plant and equipment(Note 6) Net foreign exchange (gain)/losses Operating lease charges: – minimum lease payments – contingent rent# Cost of inventories(Note 19)_ Available-for-sale financial assets: reclassified from equity – on impairment – on redemption Write-off of film related deposit Gross rental income from investment properties less direct outgoings of HK$186,000 (2016: HK$181,000)	2017 HK$’000 67,468 1,500 – 68,968	2016 HK$’000 36,266 1,249 3,576 41,091
	4,081 350	1,601 650
	4,431 23,343 148 2,951 (756) 6,197 3,277 32,500 89,643 6,571 – 872	2,251 8,891 135 3,104 644 10,070 4,049 38,000 – – 417 845

The contingent rent of HK$3,277,000 (2016: HK$4,049,000) refers to the operating lease rentals based on pre-determined percentages to realised sales less minimum lease payment of the respective leases.

(c) Finance costs Bank overdrafts interest Interest on borrowings Other interest expenses Total interest expense on financial liabilities not at fair value through profit or loss	2017 HK$’000 27 6,061 3 6,091	2016 HK$’000 269 1,593 401
		2,263

– II-90 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

35 EMPLOYEE RETIREMENT BENEFITS

Defined contribution retirement plan

The Group operates a Mandatory Provident Fund Scheme (“ the MPF scheme ”) under the Hong Kong Mandatory Provident Fund Schemes Ordinance for employees employed under the jurisdiction of the Hong Kong Employment Ordinance. The MPF scheme is a defined contribution retirement plan administered by independent trustees. Under the MPF scheme, the employer and its employees are each required to make contributions to the plan at 5% of the employees’ relevant income, subject to a cap of monthly relevant income of HK$30,000. Contributions to the plan vest immediately.

The employees of the Group’s subsidiaries in the PRC are members of a state-managed retirement benefit scheme operated by the government of the PRC. The subsidiaries are required to contribute a specified percentage of payroll costs to the retirement benefit scheme to fund the benefits. The only obligation of the Group with respect to the retirement benefit scheme is to make the specified contributions.

36 DIRECTORS’ EMOLUMENTS

Directors’ emoluments disclosed pursuant to Section 383(1) of the Hong Kong Companies Ordinance and Part 2 of the Companies (Disclosure of Information about Benefits of Directors) Regulation is as follows:

For the year ended 30 June 2017

Name of Directors Chairman and executive director Mr. Lam Shiu Ming, Daneil Executive directors Mr. Hung Cho Sing_(Note v) Mr. Lam Kit Sun Ms. Cheng Hei Yu(Note (i)) _Non-executive director Mr. Chan Shiu Kwong Stephen (Note (ii)) Independent non-executive directors Mr. Lam Chi Keung Mr. Choi Wing Koon Ms. Cheng Lo Yee_(Note (iii)) Mr. Lam Wing Tai(Note (iv))_	Fees HK$’000 – – – – 110 130 130 65 65 500	Salary, allowances, and benefits in kind HK$’000 14,335 130 1,747 1,663 – – – – – 17,875	Retirement scheme contributions HK$’000 18 – 18 8 – – – – – 44	Sub-Total HK$’000 14,353 130 1,765 1,671 110 130 130 65 65 18,419	Share-based payments HK$’000 – – – – – – – – – –	Total HK$’000 14,353 130 1,765 1,671 110 130 130 65 65
						18,419

– II-91 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

For the year ended 30 June 2016

Name of Directors Chairman and executive director Mr. Lam Shiu Ming, Daneil Executive directors Mr. Hung Cho Sing Ms. Cheng Hei Yu_(Note (i)) Mr. Lam Kit Sun Mr. Yeung Kim Piu(Note (vi)) _Non-executive director Mr. Chan Shiu Kwong Stephen Independent non-executive directors Mr. Lam Wing Tai Mr. Lam Chi Keung Mr. Choi Wing Koon	Fees HK$’000 – – – – – 210 130 130 130 600	Salary, allowances, and benefits in kind HK$’000 3,185 130 2,675 1,212 363 – – – – 7,565	Retirement scheme contributions HK$’000 18 – 11 18 8 – – – – 55	Sub-Total HK$’000 3,203 130 2,686 1,230 371 210 130 130 130 8,220	Share-based payments HK$’000 – 341 341 341 – 341 – – – 1,364	Total HK$’000 3,203 471 3,027 1,571 371 551 130 130 130
						9,584

Notes:

(i) Ms. Cheng Hei Yu was appointed as an executive director of the Company on 8 December 2015 and resigned on 7 October 2016. Ms. Cheng Hei Yu is an employee of the Group after her resignation as an executive director of the Company on 7 October 2016. Total remuneration paid to Ms. Cheng Hei Yu for the year ended 30 June 2017 was approximately HK$3,492,000 of which HK$1,671,000 shown in the above table represented the remunerations paid to her before the resignation as an executive director of the Company.
(ii) Mr. Chan Shiu Kwong Stephen retired as a non-executive director of the Company on 30 November 2016.
(iii) Ms. Cheng Lo Yee is appointed as an independent non-executive director of the Company on 30 November 2016.
(iv) Mr. Lam Wing Tai retired as an independent non-executive director of the Company on 30 November 2016.
(v) Mr. Hung Cho Sing resigned as an executive director of the Company on 2 June 2017.
(vi) Mr. Yeung Kim Piu retired as an executive director of the Company on 30 November 2015.

During the year, no director of the Company has waived any emoluments and no emoluments were paid or payable by the Group to any of the directors as an inducement to join or upon joining the Group, or as compensation for loss of office.

– II-92 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

37 INDIVIDUALS WITH HIGHEST EMOLUMENTS

The five individuals whose emoluments were the highest in the Group for the year included three Directors (2016: three) whose emoluments are reflected in the analysis presented in Note 36 above. The emoluments payable to the remaining two (2016: two) individuals during the year are as follows:

Salaries and other emoluments Contributions to retirement scheme	2017 HK$’000 17,068 27 17,095	2016 HK$’000 3,585 36
		3,621

The emoluments fell within the following bands:

The emoluments of the two (2016: two) individuals with the highest emoluments are within the following bands:

Nil to HK$1,000,000 HK$1,000,001 to HK$1,500,000 HK$2,500,001 to HK$3,000,000 HK$3,000,001 to HK$3,500,000 HK$13,500,001 to HK$14,000,000	2017 Number of Individuals – – – 1 1 2	2016 Number of Individuals – 1 1 – –
		2

38 OTHER INCOME

Continuing operations:

Sponsorship income Rental income Screening income Dividend income from available-for-sale financial assets Dividend income from financial assets at fair value through profit or loss Others	2017 HK$’000 2,093 125 153 – 211 1,943 4,525	2016 HK$’000 1,884 – 172 20,473 297 46
		22,872

– II-93 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

39 OTHER (LOSSES)/GAINS – NET

Continuing operations:

Realised loss upon redemption of available-for-sale financial assets Loss on disposal of property, plant and equipment Waiver of accounts payable Waiver of other payable Reversal of bad debt Net foreign exchange gain/(loss) Others	2017 HK$’000 (6,571) (621) 244 80 24 762 34 (6,048)	2016 HK$’000 – (95) 622 – – (644) 268
		151

40 INTEREST INCOME

Continuing operations:

Bank interest income Interest income from a joint venture Finance income in consolidated statement of comprehensive income Loan interest income (included in total revenue in consolidated statement of comprehensive income) Total interest income	2017 HK$’000 63 231 294 5,859 6,153	2016 HK$’000 74 224
		298 8,450
		8,748

41 TAXATION

(a) Income tax in the consolidated statement of comprehensive income

Continuing operations:

Current tax Hong Kong Profits Tax Charge for the year Under provision in prior year PRC Enterprise Income Tax Deferred tax_(Note 30)_ Origination and reversal of temporary differences Total	2017 HK$’000 1,381 336 100 5,102 6,919	2016 HK$’000 1,390 – – (27,569)
		(26,179)

The provision of Hong Kong Profits Tax is calculated at 16.5% (2016: 16.5%) of the estimated assessable profits for the year.

– II-94 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

The provision for PRC Enterprise Income Tax (the “ EIT ”) is calculated at 10% of the capital gains regarding transfer in an indirect equity of a PRC subsidiary following the disposal of AP Group as disclosed in Note 47 in accordance with the relevant tax rules and regulations of the PRC. Except for the EIT arising from the capital gains regarding the disposal of AP Group, no other provision for EIT has been made in the consolidated financial statements as the Group has no assessable profits under EIT for the year ended 30 June 2017 (2016: Nil).

No provision for profits tax in Bermuda and the British Virgin Islands has been made as the Group has no income or profit assessable for tax in these jurisdictions for the years ended 30 June 2017 and 2016.

(b) Reconciliation between tax expenses and accounting profit at the applicable tax rates:

Loss before income tax (from continuing operation) Tax calculated at domestic tax rates applicable to profits or losses in the respective countries Under provision in respect of prior years Income not subject to tax Expenses not deductible for tax purpose Utilisation of previously unrecognised tax losses Tax losses not recognised Tax effect of previously unrecognised tax losses now recognised Others Income tax expense/(credit)	2017 HK$’000 (111,677) (18,904) 336 (1,400) 38,921 (6,226) 3,718 (9,616) 90 6,919	2016 HK$’000 (166,453) (29,248) – (4,964) 8,348 (4,843) 13,429 – (8,901) (26,179)

42 DISCONTINUED OPERATION AND DISPOSAL GROUP CLASSIFIED AS HELD FOR SALE

On 13 June 2016, the Company’s wholly-owned subsidiary, FRECH, and Lucky Famous Limited, an independent purchaser, entered into a sale and purchase agreement pursuant to which FRECH agreed to dispose to Lucky Famous Limited of its 51% equity interest in AP Group Investment Holdings Limited. Pursuant to the sale and purchase agreement, the initial consideration of HK$20,400,000 is subject to downward adjustment. In the event that the audited consolidated profit after tax of AP Group for the period from 1 January 2016 to 31 December 2017 is less than HK$16,000,000, FRECH shall, and the Company as the guarantor shall procure FRECH to, pay to Lucky Famous Limited the adjustment amount in accordance with the formula set out in Note 33.

The disposal of AP Group was completed on 1 July 2016.

The assets and liabilities attributable to the operations in AP Group as at 30 June 2016 have been classified as a disposal group held for sale and are presented separately in the consolidated balance sheet.

– II-95 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

The loss for the period from 14 December 2015 (date of acquisition) to 30 June 2016 and the year ended 30 June 2017 from the discontinued operation is analysed as follows:

Revenue
Cost of revenue
Administrative expenses
Other income
Other losses
Finance income
Loss before tax for the period
Income tax expenses
Loss after tax for the period
Gain on disposal of operation (including HK$29,000 reclassification of
translation reserve from equity to profit or loss on disposal of
the operation_(Note 47))_
Profit/(loss) for the year from discontinued operation
Attributable to:
Owners of the Company
Non-controlling interests

AP Group
2017
2016
HK$’000
HK$’000
–
10,429
–
(3,136)
–
7,293
–
(8,477)
–
11
–
(9)
–
2
–
(1,180)
–
(422)
–
(1,602)
4,075
–
4,075
(1,602)
4,075
(817)
–
(785)
4,075
(1,602)

The major classes of assets and liabilities of the disposal group held for sale classified as held for sales as at 30 June 2016 and 2017 are as follows:

Assets
Property, plant and equipment
Accounts receivables
Amounts due from directors
Deposits paid, prepayments and other receivables
Cash and cash equivalents
Assets associated with disposal group classified as held for sale
Liabilities
Other payables and accrued charges
Deposits received
Taxation payable
Liabilities associated with disposal group classified as held for sale
Net liabilities associated with disposal group classified as held for sale

AP Group
2017
2016
HK$’000
HK$’000
–
2,134
–
103
–
27
–
2,758
–
1,359
–
6,381
–
1,345
–
7,566
–
687
–
9,598
–
(3,217)

– II-96 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

The net cash flows incurred by AP Group for the period from 15 December 2015 (date of acquisition) to 30 June 2016 and the year ended 30 June 2017 are as follows:

	AP Group	AP Group
	2017	2016
	HK$’000	HK$’000
Net cash outflow from operating activities	–	(264)
Net cash outflow	–	(264)
The calculations of basic and diluted earnings/(loss) per share from the discontinued operation are based on:
	2017	2016
		(As previously
		stated)
Profit/(loss) attributable to owners of the Company from the discontinued
operation for the year ended 30 June 2017/the period from the
acquisition date to 30 June 2016_(HK$’000)_	4,075	(817)
Weighted average number of ordinary shares in issue used in the basic
earnings/loss per share calculation_(Note 43 (a))_	543,123,874	143,724,624
Earning/(loss) per share:
– Basic, from the discontinued operation_(HK$)_	0.007	(0.006)
– Diluted, from the discontinued operation_(HK$)_	0.007	(0.006)
		2016
		(Restated)
Loss attributable to owners of the Company from the discontinued operation for the period
from the acquisition date to 30 June 2016_(HK$’000)_		(817)
Weighted average number of ordinary shares in issue		163,086,490
Basic loss per ordinary share from the discontinued operation_(HK$)_		(0.005)

For the years ended 30 June 2016 and 2017, the weighted average number of ordinary shares for the purpose of basic earnings/loss per ordinary share from the discontinued operation has been adjusted with the effect of bonus element of the rights issue in October 2016 on the basis of two rights share for every one existing ordinary share.

The computation of diluted earnings per ordinary share from the discontinued operation for the year ended 30 June 2017 does not assume the exercise of the Company’s outstanding share options during the year ended 30 June 2017 since their exercise prices are higher than the average market prices of the shares during the year. Accordingly, diluted earnings per ordinary share from the discontinued operation is the same as basic earnings per ordinary share from discontinued operation for the year.

Diluted loss per ordinary share from discontinued operation for the year ended 30 June 2016 was the same as the basic loss per ordinary share from the discontinued operation because the exercises of the Company’s share options, warrants and convertible bonds outstanding during the year would have an anti-dilutive effect.

– II-97 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

43 LOSS PER SHARE

(a) Basic

Basic loss per ordinary share is calculated by dividing the loss attributable to owners of the Company by the weighted average number of ordinary shares in issue during the year.

Loss attributable to owners of the Company_(HK$’000) – from continuing operations – from discontinued operation – from continuing and discontinued operation Weighted average number of ordinary shares in issue Basic loss per ordinary share(HK$) – from continuing and discontinued operations – from continuing operations Loss attributable to owners of the Company(HK$’000) – from continuing and discontinued operations – from continuing operations Weighted average number of ordinary shares in issue Basic loss per ordinary share(HK$)_ – from continuing and discontinued operations – from continuing operations	2017 (118,403) 4,075 (114,328) 543,123,874 (0.211) (0.218)	2016 (As previously stated) (139,973) (817) (140,790) 143,724,624 (0.980) (0.974) 2016 (Restated) (140,790) (139,973) 163,086,490 (0.863) (0.858)

For the years ended 30 June 2017 and 2016, the weighted average number of ordinary shares for the purpose of basic loss per ordinary share has been adjusted with the effect of bonus element of the rights issue in October 2016 on the basis of two rights share for every one existing ordinary share.

(b) Diluted

The computation of diluted loss per ordinary share for the year ended 30 June 2017 does not assume the exercises of the Company’s outstanding share options during the year ended 30 June 2017 since their exercise prices are higher than the average market prices of the shares during the year. Accordingly, diluted loss per ordinary share is the same as basic loss per ordinary share for the year.

Diluted loss per ordinary share for the year ended 30 June 2016 was the same as the basic loss per ordinary share because the exercises of the Company’s share options, warrants and convertible bonds outstanding during the year would have an anti-dilutive effect.

44 DIVIDENDS

The Board did not recommend the payment of a final dividend for the year ended 30 June 2017 (2016: Nil).

– II-98 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

45 NET CASH USED IN OPERATING ACTIVITIES

(Loss)/profit before tax for the year From continuing operations From discontinued operation_(Note 42) Adjustments for: – Dividend income from available-for-sale financial assets(Note 38) – Depreciation of property, plant and equipment(Note 6) – Amortisation of film rights(Note 10) – Amortisation of other intangible assets(Note 8) – Fair value change on contingent consideration receivable(Note 22) – Fair value change on contingent consideration payable(Note 33) – Impairment losses of interests in an associate(Note 12) – Impairment losses of film rights and films in progress(Note 10) – Impairment losses of goodwill(Note 9) – Impairment loss of deposits paid, prepayments and other receivable – Impairment loss of available-for-sale financial assets(Note 16) – Impairment loss on accounts receivable(Note 20) – Reversal of bad debts – Write-down of inventories(Note 19) – Write-off of film related deposit – Reversal of write-down of inventories(Note 19) – Share based payment(Note 26) – Net loss on disposal of property, plant and equipment(Note 39) – Gain on step acquisition of a subsidiary(Note 46(a)) – Gain on disposal of subsidiaries(Note 47) – Finance income(Note 40) – Finance costs(Note 34(c)) – Realised loss upon redemption of available-for-sale financial assets (Note 39) – Waiver of accounts payables(Note 39) – Waiver of other payable and accrued charges(Note 39) – Share of losses/(profits) of associates – Share of losses of a joint venture(Note 13(a)) – Loss on deregistration of a joint venture(Note 13(a))_ – Fair value change and loss on redemption of convertible bonds Changes in working capital: – Inventories – Accounts receivable – Amount due from a joint venture – Amount due from an associate – Loans receivable – Loan to an associate – Deposits paid, prepayments and other receivables – Accounts payable – Amount due to an associate – Other payables and accrued charges – Deposits received – Financial assets at fair value through profit or loss – Bank balances and cash – trust accounts Cash used in operations Tax paid Net cash used in operating activities	2017 HK$’000 (111,677) 4,075 – 2,951 23,343 148 (4,807) 8,638 3,227 – 22,980 1,532 89,643 10,470 (24) 1,501 – (508) – 621 – (4,075) (294) 6,091 6,571 (244) (80) 216 231 24 – 3,245 (119,566) – (964) (32,737) (2,940) (33,768) (162,031) (1,941) 170,395 (21,168) 14,815 23,653 (102,454) (3,004) (105,458)	2016 HK$’000 (166,453) (1,180) (20,473) 3,976 8,891 135 (4,080) (60) 18,421 4,226 29,923 – – – – 1,709 417 (317) 3,576 95 (1,571) – (298) 2,263 – (622) – (3,899) 224 – 1,813 11,240 26,684 10 – (6,163) (5,000) 6,991 (107,118) 1,941 (8,363) (5,347) 67,665 51,724 (89,020) (11,884) (100,904)

– II-99 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

a. Disposal of property, plant and equipment Carrying amount_(Note 6) Net loss on disposal of property, plant and equipment(Note 39)_ Proceeds from disposal of property, plant and equipment b. Obligations under finance leases At the end of the year Less: At the beginning of the year Capital element of finance lease payments	2017 HK$’000 899 (621) 278 63 (98) (35)	2016 HK$’000 95 (95)
		–
		98 (132)
		(34)

46 ACQUISITION OF SUBSIDIARIES

For the year ended 30 June 2016

(a) Step acquisition from associate to subsidiary of Winston Asia Limited

Pursuant to the sale and purchase agreement entered into between Fragrant River Entertainment Culture (Holdings) Limited (“ FRECH ”), a wholly-owned subsidiary of the Company, and the other shareholder of Winston (the “ Other Shareholder ”) on 7 May 2015, the remaining 79.99% equity interest of Winston, a then associate of the Group, was acquired by the Group from the Other Shareholder (the “ Step Acquisition ”). Winston and its subsidiaries are principally engaged in trading, wholesaling and retailing of watches and jewellery products. The total consideration would be settled by issuing convertible bonds with an aggregate principal amount of HK$64,000,000. The Step Acquisition was completed on 31 July 2015. The Group considers that the step acquisition provides a good opportunity to diversify the Group’s business and broaden the income source of the Group.

The following summarises the acquisition date fair value of the total consideration transferred:

	HK$’000
Fair value of convertible bonds issued	62,994

The Group has engaged Grant Sherman Appraisal Limited, an independent firm of professional valuers, to assess the fair value of the convertible bonds at initial recognition. The fair value of convertible bonds is determined by using the Binomial Option Pricing Model. The convertible bonds were fully redeemed on 28 June 2016.

– II-100 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

The following summarises the total consideration and the amounts of the assets acquired and liabilities assumed, as well as the amount of intangible assets and goodwill arising from the acquisition recognised at 31 July 2015 (the date of acquisition):

HK$’000

ASSETS Non-current assets Property, plant and equipment Other intangible assets – brand name_(Note 8) Current assets Inventories Accounts receivable Deposits paid, prepayments and other receivables Cash and cash equivalents LIABILITIES Current liabilities Other payables and accrued charges Taxation payables Bank borrowings Total identifiable net assets at fair value Fair value of the equity interest held immediately before the Step Acquisition Goodwill arising on Step Acquisition(Note 9)_ Total consideration	1,169 1,108
	2,277
	21,095 5,243 3,085 1,471
	30,894
	(4,427) (2,975) (2,000)
	(9,402)
	23,769 (6,796) 46,021
	62,994

The fair values and gross contractual amount of accounts receivable and other receivables as at the date of acquisition amounted to HK$5,243,000 and HK$1,061,000 respectively. No accounts receivable and other receivables were expected to be uncollectible.

	HK$’000
Net cash inflow on Step Acquisition:
Net cash acquired from Step Acquisition	1,471

The transaction costs of approximately HK$1,313,000 have been excluded from the consideration transferred and included in ‘administrative expenses’ in the consolidated statement of comprehensive income for the year ended 30 June 2016.

The Group recognised a gain on step acquisition of HK$1,571,000 as a result of remeasurement at fair value of its 20.01% equity interest in Winston held before the Step Acquisition. The gain on step acquisition of a subsidiary is included in the consolidated statement of comprehensive income for the year ended 30 June 2016.

None of the goodwill recognised is expected to be deductible for income tax purposes.

Winston contributed approximately HK$54,333,000 to the Group’s total revenue and approximately HK$614,000 profit to the Group’s loss before tax, for the period between the date of completion of the step acquisition and 30 June 2016.

– II-101 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

If the acquisition of Winston had been completed on 1 July 2015, the Group’s total revenue and loss after tax for the year would have been approximately HK$156,687,000 and approximately HK$136,653,000 respectively. The proforma information is for illustrative purposes only and is not necessarily an indication of the total revenue and results of operations of the Group that actually would have been achieved had the acquisition been completed on 1 July 2015, nor is intended to be a projection of future results.

(b) Acquisition of CJFS

On 21 August 2015, Rising Fame International Limited, a wholly owned subsidiary of the Company, entered into an agreement with two independent third party vendors to acquire the entire interest of CJFS at a cash consideration of HK$73,000,000. CJFS is a licensed corporation under the Securities and Futures Ordinance and authorised to engage in the following regulated activities: (i) Type 1: Dealing in securities; and (ii) Type 4: Advising on securities. The principal activities of CJFS are provision of securities brokerage services and margin financing to clients. The management considers that such acquisition will enable the Group to diversify its business into the financial services industry and broaden revenue sources of the Group. The acquisition was completed on 17 November 2015.

ASSETS
Non-current assets
Property, plant and equipment
Other intangible assets – trading rights_(Note 8)
Current assets
Accounts receivable
Deposits paid, prepayments and other receivables
Cash and cash equivalents
Bank balances – trust accounts
LIABILITIES
Current liabilities
Accounts payable
Other payables and accrued charges
Taxation payables
Borrowings
Total identifiable net assets at fair value
Goodwill arising on acquisition(Note 9)_
Total consideration

HK$’000
1,554
11,400
12,954
231,776
982
8,809
168,391
409,958
(357,631)
(8,536)
(1,809)
(10,000)
(377,976)
44,936
28,064
73,000

– II-102 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

The fair values and gross contractual amount of accounts receivable and other receivables as at the date of acquisition amounted to HK$231,776,000 and Nil respectively. No accounts receivable and other receivables were expected to be uncollectible.

Net cash outflow on acquisition of CJFS: Cash consideration paid Net cash acquired from the subsidiary	HK$’000 (73,000) 8,809 (64,191)

The transaction costs of HK$570,000 have been excluded from the consideration transferred and included in ‘administrative expenses’ in the consolidated statement of comprehensive income.

The goodwill arising from the acquisition of CJFS is attributable to the future growth and profitability in relation to the provision of securities brokerage services and margin financing to clients. None of the goodwill recognised is expected to be deductible for income tax purposes.

CJFS contributed HK$16,072,000 to the Group’s total revenue and approximately HK$2,509,000 profit to the Group’s loss after tax, for the period between the date of acquisition and the end of the reporting period.

If the acquisition of CJFS had been completed on 1 July 2015, the Group’s total revenue and loss after tax for the year would have been HK$161,157,000 and HK$139,614,000 respectively. The proforma information is for illustrative purposes only and is not necessarily an indication of the total revenue and loss after tax of the Group that actually would have been achieved had the acquisition been completed on 1 July 2015, nor is intended to be a projection of future results.

(c) Acquisition of AP Group Investment Holdings Limited

On 12 October 2015, FRECH, a direct wholly owned subsidiary of the Company, entered into an agreement with four independent third party vendors to acquire 51% equity interest of AP Group for consideration of HK$20,400,000 (subject to downward adjustment in respect of the guaranteed profit as described in the sale and purchase agreement). AP Group is principally engaged in provision of education and training programs in relation to self-improvement and self-enhancement in Hong Kong and the PRC. The management considers that such acquisition will enable the Group to tap into the business of education and training program and broaden revenue sources of the Group. The acquisition was completed on 14 December 2015.

The fair value of the contingent consideration receivable of HK$6,850,000 was estimated by applying the discounted cash flow approach. The fair value estimates are based on a discount factor of 10.6% and probability-weighted profit of AP Group of HK$2,882,000 to HK$17,367,000. This is a level 3 fair value measurement.

The potential undiscounted amount of all future payments that the Group could receive under this arrangement is between HK$0 and HK$20,400,000.

As at 30 June 2016, there was fair value increase of HK$4,080,000 (Note 22) recognised in the consolidated statement of comprehensive income for the contingent consideration receivable, as the assumed probability-weighted profit in AP Group was recalculated to be approximately HK$3,286,000 to HK$10,035,000.

The following summarises the acquisition date fair value of the total consideration transferred:

Cash consideration Contingent consideration arrangement_(Note 22)_ Total consideration	HK$’000 20,400 (6,850) 13,550

– II-103 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

The following summarises the total consideration and the amounts of the assets acquired and liabilities assumed, as well as the amount of goodwill arising from the acquisition recognised at the date of acquisition:

ASSETS
Non-current asset
Property, plant and equipment
Current assets
Accounts receivable
Deposits paid, prepayments and other receivables
Cash and cash equivalents
LIABILITIES
Current liabilities
Accounts payable
Other payables and accrued charges
Tax payable
Total identifiable net assets at fair value
Non-controlling interests
Goodwill arising on acquisition_(Note 9)_
Total consideration

HK$’000
3,032
324
2,638
1,623
4,585
(642)
(7,190)
(611)
(8,443)
(826)
405
13,971
13,550

The fair values and gross contractual amount of accounts receivable and other receivables as at the date of acquisition amounted to HK$324,000 and HK$589,000 respectively. No accounts receivable and other receivables were expected to be uncollectible.

Net cash outflow on acquisition of AP Group: Cash consideration paid Net cash acquired from the subsidiary	HK$’000 (20,400) 1,623 (18,777)

The non-controlling interests recognised at the acquisition date were measured by reference to the noncontrolling interests proportionate share of the recognised amounts of acquiree’s identifiable net assets.

The transaction costs of approximately HK$417,000 have been excluded from the consideration transferred and included in ‘administrative expenses’ in the consolidated statement of comprehensive income for the year ended 30 June 2016.

The goodwill arising on the acquisition of AP Group is attributable to the future growth and profitability expected to arise from the business combination. None of the goodwill is expected to be deductible for income tax purposes.

– II-104 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

AP Group contributed approximately HK$10,429,000 to the Group’s total revenue and approximately HK$1,602,000 loss to the Group’s loss after tax, for the period between the date of acquisition and 30 June 2016.

If the acquisition of AP Group had been completed on 1 July 2015, the Group’s revenue and loss after tax for the year would have been approximately HK$171,580,000 and approximately HK$141,205,000 respectively. The proforma information is for illustrative purposes only and is not necessarily an indication of the total revenue and results of operations of the Group that actually would have been achieved had the acquisition been completed on 1 July 2015, nor is intended to be a projection of future results.

47 DISPOSAL OF A SUBSIDIARY

For the year ended 30 June 2017

On 1 July 2016, the Group disposed of its 51% equity interest in a subsidiary, AP Group Investment Holdings Limited by allotment and issue of 40,800,000 Consideration Shares by GET Holdings Limited at a fair value of approximately HK$21,338,000, subject to a downward adjustment in respect of the guarantee profit. The net assets of AP Group at the date of disposal were as follows:

Consideration received:

Fair value of Consideration Shares received
Contingent consideration payable_(Note 33)
Total consideration
Analysis of assets and liabilities over which control was lost:
Goodwill
Property, plant and equipment
Accounts receivables
Amounts due from directors
Deposits paid, prepayments and other receivables
Cash and cash equivalents
Other payables and accrued charges
Deposits received
Taxation payable
Net assets disposed of
Gain on disposal of a subsidiary:
Fair value of Consideration Shares
Contingent consideration payable(Note 33)_
Net assets disposed of
Non-controlling interest
Cumulative exchange differences in respect of the net assets of the subsidiary
reclassified from equity to profit or loss on loss on control of the subsidiary
Gain on disposal
Net cash outflow arising on disposal:
Cash consideration received
Cash and cash equivalents disposed of

HK$’000
21,338
(10,930)
10,408
8,403
2,134
103
27
2,758
1,359
(1,345)
(7,566)
(687)
5,186
21,338
(10,930)
(5,186)
(1,176)
29
4,075
–
(1,359)
(1,359)

– II-105 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

48 BANKING FACILITIES

At 30 June 2016, the banking facilities of the Group are secured by trading securities held by the former shareholder of a subsidiary. Such banking facilities amounted to HK$8,000,000 were utilised to the extent of HK$4,020,000 at 30 June 2016.

49 PENDING LITIGATIONS

(a) A court action was commenced in the Court of First Instance of the Hong Kong Special Administrative Region on 17 April 2002 by The Star Overseas Limited (“ Star ”), an independent third party, against Universe Entertainment Limited (“ UEL ”), an indirect wholly-owned subsidiary of the Company.

By the above action, Star alleges that a sum of US$935,872 (equivalent to HK$7,299,799) was payable by UEL to Star as its share of the revenue of the movie entitled “Shaolin Soccer” (the “ Movie ”).

Pursuant to an Order (the “ Order ”) made by the High Court on 21 February 2003, UEL was ordered and had paid to Star a sum of HK$5,495,700, being part of the licence fee of the Movie received by UEL from Miramax Films (being the licencee of the Movie) and which was also part of the sum claimed by Star. Pursuant to the Order, UEL is also liable to pay Star interest in the sum of HK$350,905 and some of the costs of the application leading to the making of the Order, all of which have been settled. As the Order has not disposed of all the claims of US$935,872 (equivalent to HK$7,299,799) by Star, UEL is entitled to continue to defend the claim by Star for recovering the remaining balance in the sum of approximately HK$1,804,099 (HK$7,299,799 less HK$5,495,700).

On 30 April 2002, UEL issued a Writ of Summons against Star for the latter’s wrongful exploitation of certain rights in the Movie co-owned by both parties. UEL claimed to recover all losses and damages suffered by UEL as a result of the wrongful exploitation.

On 9 September 2002, Universe Laser & Video Co. Limited (“ ULV ”), an indirect wholly-owned subsidiary of the Company, issued a Writ of Summons against Star for the latter’s infringement of the licensed rights in the Movie held by ULV. ULV claimed to recover all losses and damages suffered by ULV as a result of the said infringement.

In the opinion of legal counsel, it is premature to predict the outcome of the claim against UEL. The Board is of the opinion that the outcome of the said claim made against UEL will have no material financial impact to the Group for the year ended 30 June 2017.

(b) On 1 September 2008, Koninklijke Philips Electronics N.V. (“ KPE ”) issued a Writ of Summons against among other persons, the Company, ULV and Mr. Lam Shiu Ming, Daneil (one of the Directors), in respect of damages arising from the alleged infringement of the patent rights regarding Video Compact Disc owned by KPE.

In the opinion of legal counsel, it is premature to predict the outcome of the said claim made against the Company, ULV and Mr. Lam Shiu Ming, Daneil. The Board is of the opinion that the outflow of economic benefits cannot be reliably estimated and accordingly no provision for any liability that may result has been made in the consolidated financial statements.

(c) On 8 January 2010, KPE issued a Writ of Summons against among other persons, the Company, ULV and Mr. Lam Shiu Ming, Daneil (one of the Directors), in respect of damages arising from the alleged infringement of the patent rights regarding Digital Video Disc owned by KPE.

In June 2012, the action was discontinued against the Company and Mr. Lam Shiu Ming, Daneil. The claim made against ULV has been agreed with KPE and settled by ULV and appropriate legal costs provision was recognised accordingly in the consolidated financial statements for the year ended 30 June 2012.

No additional provision has been made in the consolidated financial statements for the year ended 30 June 2017. Based on the consultation with legal counsel, no further material outflow of economic benefits will be incurred for ULV.

– II-106 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

(d) Universe Artiste Management Limited (“ UAM ”) commenced Court of First Instance Action against Kwong Ling and Oriental Prosperous Int’l Entertainments Limited (collectively the “ Defendants ”) on 30 June 2014 claiming inter alia for a declaration that UAM is entitled to extend/renew the term of the Artist Management Contract of the Defendants with UAM (the “ Artist Management Contract ”) for 5 years as from 3 May 2014 to 2 May 2019.

The Defendants filed their defence and counterclaim on 29 September 2014. By such counterclaim, the Defendants claiming against UAM inter alia for a declaration that the Artist Management Contract was void and unenforceable, the Artist Management Contract to be rescinded, damages for breach of the Artist Management Contract and for breach of fiduciary duties, a declaration that UAM is liable to account to the Defendants and an order for payment of all sums found to be due by UAM to the Defendants.

In the opinion of legal counsel, it is premature to predict the outcome of the said claim against UAM. The Board considers that the amounts of counterclaim by the Defendants against UAM is insignificant to the Group as a whole.

Save as disclosed above, as at 30 June 2017, no litigation or claim of material importance is known to the directors to be pending against either the Company or any of its subsidiaries.

50 COMMITMENTS

(a) Operating leases commitments

As at 30 June 2017, the Group had future aggregate minimum lease payments under non-cancellable operating leases as follows:

Certain department store counters and retail stores include payment obligations with rental varied with gross revenue. The additional rental payable (contingent rents) is determined generally by applying pre-determined percentages to future revenue less minimum lease payment of the respective leases.

(b) Other commitments

As at 30 June 2017, the Group had commitments contracted but not provided for in these consolidated financial statements as follows:

Purchase of film rights and production of films_(Note i)_ Licence agreement	2017 HK$’000 73,310 2,586	2016 HK$’000 59,002 786

Note i: Included in the commitment of purchase of film rights and production of films, an amount of HK$690,000 is related to the joint operation arrangements of film production as at 30 June 2017 (2016: HK$13,633,000).

51 FUTURE OPERATING LEASE ARRANGEMENTS

As at 30 June 2017, the Group had future aggregate minimum lease receipts under non-cancellable operating leases as follows:

Not later than one year Later than one year and not later than five years	2017 HK$’000 1,202 774 1,976	2016 HK$’000 743 126
		869

– II-107 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

52 RELATED PARTY TRANSACTIONS

(a) Tenancy Agreements

i) Rental expenses paid to Universe Property Investment Limited which is wholly owned by a director of the Company_(Note a) ii) Rental expenses paid to Sam Fung Global Limited which is wholly owned by the spouse of a director of the Company(Note b)_	2017 HK$’000 2,928 323	2016 HK$’000 2,928 740

Note a:

Universe Digital Entertainment Limited (“ UDE ”), an indirect wholly-owned subsidiary of the Company, entered into a tenancy agreement with Universe Property Investment Limited (“ UPI ”), a company owned by Mr. Lam Shiu Ming, Daneil, the executive Director of the Company, for renting (1) an industrial unit and (2) 5 carparking spaces of an industrial building for warehouse, ancillary office and carparking uses in Kwai Chung from 25 February 2014 to 24 February 2017, with a monthly rental of HK$244,000 (the “ Tenancy Agreement ”) which were arrived at following arm’s length negotiation between the Group and UPI with reference to the rental valuation performed by Roma Appraisals Limited, an independent property valuer, as at 30 November 2013 which reflected the then market rent.

The Tenancy Agreement was renewed for the period from 25 February 2017 to 24 February 2018, with a monthly rental of HK$244,000 being arrived at following arm’s length negotiation between the Group and UPI with reference to the rental valuation performed by Ravia Global Appraisal Advisory Limited, an independent property valuer, as at 29 September 2016 which reflected the then market rent.

As at 30 June 2017 and 30 June 2016, the Group had total future minimum lease payments to UPI under non-cancellable operating lease falling due as follows:

Not later than one year	2017 HK$’000 1,952 1,952	2016 HK$’000 1,952
		1,952

Note b:

CJFS, an indirect wholly-owned subsidiary of the Company, entered into a tenancy agreement with Sam Fung Global Limited, a company owned by the spouse of Ms. Cheng Hei Yu, the former executive director of the Company and an employee of the Group after her resignation for renting an office unit in Sheung Wan, Hong Kong from 1 November 2015 to 31 October 2017, with a monthly rental of HK$100,000 (the “ CJFS Tenancy Agreement ”) which were arrived at the arm’s length negotiation by the relevant parties with reference to the market rent. Ms. Cheng Hei Yu ceased to be a related party of Group following her resignation as an executive director of the Company on 7 October 2017.

As at 30 June 2017 and 30 June 2016, the Group had total future minimum lease payments to Sam Fung Global Limited transactions under non-cancellable operating lease falling due as follows:

Not later than one year Later than one year and not later than five years	2017 HK$’000 – – –	2016 HK$’000 1,200 400
		1,600

– II-108 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

(b) Details of key management compensation

Key management personnel are those management with responsibility for planning, directing and controlling the activities of the Group.

Salaries and other short-term employee benefits Post-employment benefits Share-based compensation	2017 HK$’000 18,375 44 – 18,419	2016 HK$’000 10,195 72 2,993
		13,260

Save as disclosed above and elsewhere in these consolidated financial statements, no other material related party transactions have been entered into by the Group. The transactions were carried out after negotiations between the Group and the related parties in the ordinary course of business.

(c) Transactions with an associate

During the year ended 30 June 2017, the Group purchased optical products from HK Optical at approximately HK$5,103,000, and sold optical products to HK Optical at approximately HK$1,413,000.

53 COMPANY – LEVEL BALANCE SHEET

Notes ASSETS Non-current assets Investments in subsidiaries Property, plant and equipment Current assets Amounts due from subsidiaries Deposits paid Prepayments and other receivables Cash and cash equivalents Total assets EQUITY Equity attributable to the owners of the Company Share capital 25 Share premium 27(b) Other reserves 27(b) Accumulated losses 27(b) Total equity	2017 HK$’000 72,096 843 72,939 936,292 383 1,371 3,044 941,090 1,014,029 8,533 893,345 116,005 (36,640) 981,243	2016 HK$’000 72,096 –
		72,096
		573,043 567 198 656
		574,464
		646,560
		1,778 532,910 123,100 (27,608)
		630,180

– II-109 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Notes LIABILITIES Non-current liabilities Borrowings Deferred tax liabilities Current liabilities Amounts due to subsidiaries Accrued charges Borrowings Total liabilities Total equity and liabilities Net current assets Total assets less current liabilities	2017 HK$’000 10,000 82 10,082 3,136 3,668 15,900 22,704 32,786 1,014,029 918,386 991,325	2016 HK$’000 – –
		–
		5,062 2,118 9,200
		16,380
		16,380
		646,560
		558,084
		630,180

– II-110 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

3. AUDITED CONSOLIDATED FINANCIAL INFORMATION OF THE GROUP FOR THE YEAR ENDED 30 JUNE 2018

Set out below is the full text of the audited consolidated financial statements of the Group for the year ended 30 June 2018 as extracted from the annual results announcement of the Company for the year ended 30 June 2018.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Note CONTINUING OPERATIONS: Revenue Sales of goods – video distribution, optical, watches and jewellery products Income on film distribution and exhibition, licensing and sub-licensing of film rights Income from other businesses Total revenue 4 Cost of revenue Cost of inventories sold Related cost on film distribution and exhibition, licensing and sub-licensing of film rights Cost from other businesses Total cost of revenue	2018 HK$’000 32,857 36,377 17,439 86,673 (21,703) (15,913) (3,234) (40,850)	2017 HK$’000 (restated) 52,161 133,725 9,831 195,717 (32,500) (55,052) (462) (88,014)

– II-111 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Note Selling expenses Administrative expenses Other operating (expenses)/income Gain on disposal of film library Impairment loss of goodwill Impairment loss of interest in an associate Impairment loss of available-for-sale financial assets Impairment loss of other receivables Impairment loss of film related deposits Impairment loss of accounts receivable Impairment loss of film rights Amortisation of other intangible assets Other losses – net Other income Gains/(losses): Fair value change of financial assets at fair value through profit or loss Fair value change of contingent consideration receivable Fair value change of contingent consideration payable Fair value change on investment properties Finance income Finance costs Share of losses of associates Share of losses of a joint venture Loss on deregistration of a joint venture Gain on disposal of a subsidiary Loss on deregistration of a subsidairy Loss before tax Income tax credit/(expense) 5 Loss for the year from continuing operations	2018 HK$’000 (12,747) (111,727) (45) 182,050 – (16,045) (23,849) – (6,949) (4,098) (4,903) (148) (8,999) 2,772 (108,598) (11,941) (832) 3,800 104 (3,078) (473) (31) – 249 (35) (79,700) 3,586 (76,114)	2017 HK$’000 (restated) (13,834) (96,319) 60 – (22,980) (3,227) (89,643) (1,532) – (1,510) – (148) (5,462) 2,956 12,679 4,807 (8,638) – 288 (6,061) (216) (231) (24) – – (121,332) (6,154) (127,486)

– II-112 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Note DISCONTINUED OPERATIONS: Profit for the year from discontinued operation classified as held for sale (Loss)/profit for the year from discontinued operation 11 Loss for the year Other comprehensive income: Items that may be reclassified to profit or loss: Net movement in available-for-sale investment reserve in respect of available-for-sale financial assets: Net changes in fair value of available-for-sale financial assets Reclassification adjustments for amounts transferred to profit or loss: Impairment loss Realised loss upon disposal/redemption of available-for-sale financial assets Release of translation reserve upon disposal of subsidiary Currency translation differences Other comprehensive income for the year, net of tax Total comprehensive loss for the year (Loss)/profit attributable to owners of the Company: – from continuing operations – from discontinued operation Loss for the year attributable to owners of the Company	2018 HK$’000 – (59,260) (135,374) (39,827) 23,849 18,986 42,835 34 182 3,224 (132,150) (76,024) (59,260) (135,284)	2017 HK$’000 (restated) 4,075 8,890 (114,521) (88,565)
		89,643 6,571
		96,214 (29) 41 7,661 (106,860) (127,293) 12,965 (114,328)

– II-113 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Note Loss attributable to non-controlling interests: – from continuing operations – from discontinued operation Loss for the year attributable to non-controlling interests Total comprehensive loss for the year attributable to: Owners of the Company Non-controlling interests Total comprehensive (loss)/income attributable to owners of the Company arises from: Continuing operations Discontinued operation Loss per share attributable to owners of the Company for the year(expressed in HK$): From continuing and discontinued operations – basic 6 – diluted 6 From continuing operations – basic 6 – diluted 6	2018 HK$’000 (90) – (90) (132,060) (90) (132,150) (72,800) (59,260) (132,060) (0.152) (0.152) (0.086) (0.086)	2017 HK$’000 (restated) (193) – (193) (106,667) (193) (106,860) (119,632) 12,965 (106,667) (restated) (0.211) (0.211) (0.234) (0.234)

– II-114 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

CONSOLIDATED BALANCE SHEET

Note ASSETS Non-current assets Property, plant and equipment Investment properties Goodwill Other intangible assets Film rights and films in progress Interests in associates Interests in joint ventures Loans receivable Loan to an associate Loan receivable from a joint venture Film related deposits Deposits paid Deferred tax assets Available-for-sale financial assets Current assets Inventories Accounts receivable 8 Loans receivable Loan to an associate Amount due from an associate Deposits paid, prepayments and other receivables Financial assets at fair value through profit or loss Contingent consideration receivable Tax recoverable Bank balances and cash – trust accounts Cash and cash equivalents Total current assets Total assets	As at 30 June 2018 HK$’000 5,705 29,360 – 2,535 80,603 2,875 – 1,447 4,340 – 35,693 1,396 274 65,882 230,110 8,028 30,935 56,598 2,500 89 170,589 49,356 3,796 – 7,157 522,285 851,333 1,081,443	As at 30 June 2017 HK$’000 3,702 25,560 28,064 23,583 41,073 19,393 251 45,500 2,940 8,595 45,284 191 6,447 155,693
		406,276
		10,066 333,859 30,400 5,000 964 100,674 232,629 15,737 93 93,014 228,222
		1,050,658
		1,456,934

– II-115 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Note EQUITY Equity attributable to the owners of the Company Share capital Share premium Other reserves (Accumulated losses)/retained earnings Non-controlling interests Total equity LIABILITIES Non-current liabilities Borrowings Obligations under a finance lease Deferred tax liabilities Current liabilities Accounts payable 9 Other payables and accrued charges Contingent consideration payable Borrowings Deposits received Obligations under a finance lease Taxation payable Total current liabilities Total liabilities Total equity and liabilities Net current assets Total assets less current liabilities	As at 30 June 2018 HK$’000 9,066 928,358 67,565 (88,094) 916,895 78 916,973 – 7 440 447 8,518 112,388 20,400 – 14,528 18 8,171 164,023 164,470 1,081,443 687,310 917,420	As at 30 June 2017 HK$’000 8,533 893,345 67,867 43,614
		1,013,359 168
		1,013,527
		10,000 28 13,413
		23,441
		92,447 234,560 19,568 43,063 22,645 35 7,648
		419,966
		443,407
		1,456,934
		630,692
		1,036,968

– II-116 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

NOTES:

1. GENERAL INFORMATION

The Company’s shares are listed on the Main Board of The Stock Exchange of Hong Kong Limited (the “ Stock Exchange ”).

These consolidated financial statements are presented in thousands of units of Hong Kong dollars (“ HK$’000 ”), unless otherwise stated.

2. BASIS OF PREPARATION

The consolidated financial statements of the Group have been prepared in accordance with all applicable Hong Kong Financial Reporting Standards (“ HKFRSs ”), which collective term includes all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (“ HKASs ”) and Interpretations (“ Ints ”) 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. These consolidated financial statements also comply with the applicable disclosure provisions of the Rules Governing the Listing of Securities on the Stock Exchange (the “ Listing Rules ”).

These consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of available-for-sale financial assets, contingent consideration receivable, financial assets at fair value through profit or loss, contingent consideration payable and investment properties, which are carried at fair value.

Disposal group held for sale are stated at the lower of carrying amount and fair value less costs to sell.

3. ACCOUNTING POLICY

Application of new or revised HKFRSs

The Group has not applied any new standard or interpretation that is not yet effective for the current accounting

period.

– II-117 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

4. SEGMENT INFORMATION

During the year ended 30 June 2018, the Group ceased the Securities Brokerage Business which is classified as discontinued operation for the year ended 30 June 2018.

The Group has presented the following reportable segments.

Continuing operations

Video distribution, film distribution and exhibition, licensing and sub-licensing of film rights
Trading, wholesaling and retailing of optical, watches and jewellery products
Leasing of investment properties
Securities investments
Money lending
Entertainment business

Discontinued operation

Securities Brokerage Business

a) Segment revenue, results, assets and liabilities

Management monitors the results of the Group’s operating segments separately for the purpose of making decisions about resources allocation and performance assessment. Segment performance is evaluated based on reportable segment profit/(loss), which is a measure of profit/(loss) before tax from continuing operations. The profit/(loss) before tax from continuing operations is measured consistently with the Group’s profit/(loss) before tax from continuing operations except that fair value change of contingent consideration receivable, fair value change of contingent consideration payable, impairment loss of interest in an associate, impairment loss of available-for-sale financial assets, impairment loss of other receivable, finance income, finance costs, share of loss of associates, share of loss of and loss on deregistration of a joint venture, realised loss upon disposal/redemption of available-for-sale financial assets, gain on disposal of trading right in Chinese Gold & Silver Exchange Society, gain/(loss) on disposal or deregistration of subsidiaries and unallocated corporate expenses.

– II-118 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

					2018
			Continuing operations				Total for continuing operations HK$’000 86,673 – 86,673 22,476 (11,941) (832) 6,790 (16,045) (23,849) 249 104 (3,078) (18,987) (473) (31) (35) (34,048) (79,700)	Disco	ntinued operation Elimination Total for discontinued operation HK$’000 HK$’000 – 8,930 (622) – (622) 8,930 – (59,693) – – – – – – – – – – – – – (59,693)	Total HK$’000 95,603 –
Video distribution, film distribution and exhibition, licensing and sub-licensing of film rights HK$’000 41,016 – 41,016 128,972	Trading, wholesaling, and retailing of optical, watches and jewellery products HK$’000 28,218 – 28,218 (12,422)	Leasing of investment properties HK$’000 1,077 – 1,077 4,694	Securities investments HK$’000 – – – (108,353)	Money lending HK$’000 7,271 – 7,271 6,040	Entertainment business HK$’000 9,091 – 9,091 2,923	Elimination HK$’000 – – – 622		Securities brokerage and margin financing HK$’000 8,930 622 9,552 (59,693)	Elimination HK$’000 – (622) (622) –
										95,603
										(37,217) (11,941) (832) 6,790 (16,045) (23,849) 249 104 (3,078) (18,987) (473) (31) (35) (34,048)
										(139,393)

– II-119 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

2018
Continuing operations	Total for continuing operations HK$’000 461,679 2,875 65,882 3,796 274 4,340 89 1,858 947 460,083 6,240 1,008,063 119,556 7,188 440 20,400 9,271 156,855 3,544 2,225 5,769 44,879 7,972 1,836 650 4,002 148 6,636 – – 3,863 4,903 6,949 (182,050) (3,800) 108,598	Discontinued operation Securities brokerage and margin financing HK$’000 73,380 – – – – – – – – – – 73,380 6,632 983 – – – 7,615 – – – – – 140 – – – 140 28,064 11,400 9,040 – – – – –	Total HK$’000 535,059 2,875 65,882 3,796 274 4,340 89 1,858 947 460,083 6,240
Video distribution, film distribution and exhibition, licensing and sub-licensing of film rights Trading, wholesaling, and retailing of optical, watches and jewellery products Leasing of investment properties Securities investments Money lending Entertainment business HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 292,428 18,297 29,439 49,356 60,009 12,150 104,239 1,308 252 – – 13,757 14 2,318 57 – 1,154 1 44,879 – – – – – 7,972 – – – – – 651 751 13 – 404 17 4,002 – – – – – – 148 – – – – – – – – – – – – – – – – – 3,863 – – – – 4,903 – – – – – 6,949 – – – – – (182,050) – – – – – – – (3,800) – – – – – – 108,598 – –
			1,081,443
			126,188 8,171 440 20,400 9,271
			164,470
			3,544 2,225
			5,769
			44,879 7,972
			1,976 650 4,002 148
			6,776
			28,064 11,400 12,903 4,903 6,949
			(182,050)
			(3,800)
			108,598

– II-120 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

					2017 (restated)	2017 (restated)				Total HK$’000 231,644 –
			Continuing operations				Total for continuing operations HK$’000 195,717 – 195,717 14,747 4,807 (8,638) (3,227) (89,643) (1,532) 288 (6,061) (6,571) (216) (231) (24) (25,031) (121,332)	Disco	ntinued operation Elimination Total for discontinued operation HK$’000 HK$’000 – 35,927 (7) – (7) 35,927 9,679 – – – – – 6 (30) – – – – – 9,655
Video distribution, film distribution and exhibition, licensing and sub-licensing of film rights HK$’000 138,805 – 138,805 31,315	Trading, wholesaling, and retailing of optical, watches and jewellery products HK$’000 46,607 – 46,607 (27,768)	Leasing of investment properties HK$’000 1,058 – 1,058 877	Securities investments HK$’000 – – – 11,985	Money lending HK$’000 5,859 1,890 7,749 322	Entertainment business HK$’000 3,388 – 3,388 (1,984)	Elimination HK$’000 – (1,890) (1,890) –		Securities brokerage and margin financing HK$’000 35,927 7 35,934 9,679	Elimination HK$’000 – (7) (7)
										231,644
										24,426 4,807 (8,638) (3,227) (89,643) (1,532) 294 (6,091) (6,571) (216) (231) (24) (25,031)
										(111,677)

– II-121 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

2017(restated)
Continuing operations	Total for continuing operations HK$’000 614,663 19,393 251 155,693 15,737 6,447 93 8,595 2,940 964 11,358 129,574 8,541 974,249 270,848 6,885 37,900 13,413 19,568 10,205 358,819 67 1,185 1,252 10,138 15,332 1,799 686 23,343 148 25,976 22,980 1,510 (12,679)	Discontinued operation Securities brokerage and margin financing HK$’000 482,685 – – – – – – – – – – – – 482,685 83,825 763 – – – – 84,588 106 – 106 – – 466 – – – 466 – 8,960 –	Total HK$’000 1,097,348 19,393 251 155,693 15,737 6,447 93 8,595 2,940 964 11,358 129,574 8,541
Video distribution, film distribution and exhibition, licensing and sub-licensing of film rights Trading, wholesaling, and retailing of optical, watches and jewellery products Leasing of investment properties Securities investments Money lending Entertainment business HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 235,633 24,276 25,595 233,064 81,832 14,263 239,996 7,145 249 15,163 – 8,295 – 37 30 – – – 10,138 – – – – – 15,332 – – – – – 786 583 5 – 400 25 23,343 – – – – – – 148 – – – – – 22,980 – – – – 116 1,394 – – – – – – – (12,679) – –
			1,456,934
			354,673 7,648 37,900 13,413 19,568 10,205
			443,407
			173 1,185
			1,358
			10,138 15,332
			2,265 686 23,343 148
			26,442
			22,980 10,470
			(12,679)

– II-122 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

b) Geographical information

The Company is domiciled in Hong Kong. The Group’s operations are mainly located in Hong Kong and PRC.

The revenue information below is based on the location of the operations.

CONTINUING OPERATIONS Hong Kong (place of domicile) PRC and other Asian countries (other than Hong Kong) North America Europe Others DISCONTINUED OPERATION Hong Kong (place of domicile) Total CONTINUING OPERATIONS Hong Kong (place of domicile) Macau PRC and other Asian countries (other than Hong Kong and Macau) North America Europe Others DISCONTINUED OPERATION Hong Kong (place of domicile) Total	2018	2018
	Revenue Non-current assets (other than financial instruments and deferred tax assets) HK$’000 HK$’000 29,519 154,428 56,520 2,223 335 – 250 – 49 – 86,673 156,651 8,930 120 95,603 156,771 2017(restated)	Non-current assets (other than financial instruments and deferred tax assets) HK$’000 154,428 2,223 – – –
		156,651
		120
		156,771
	Revenue HK$’000 49,580 21 144,191 779 982 164 195,717 35,927 231,644	Non-current assets (other than financial instruments and deferred tax assets) HK$’000 144,382 251 2,744 – – –
		147,377
		39,724
		187,101

– II-123 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

c) Information about major customers

For the years ended 30 June 2018 and 2017, there is no single customer contributed 10% or more of the Group’s revenue.

5. INCOME TAX (CREDIT)/EXPENSES

Current tax Hong Kong Profits Tax Charge for the year Under provision in prior year PRC Enterprise Income Tax Deferred tax Origination and reversal of temporary differences Income tax (credit)/expense		2018	Total HK$’000 963 1,819 – (6,801) (4,019)	2017(Restated)	2017(Restated)
	Continuing operations HK$’000 963 371 – (4,920) (3,586)	Discontinued operation HK$’000 – 1,448 – (1,881) (433)		Continuing operations HK$’000 618 334 100 5,102 6,154	Discontinued operation HK$’000 763 2 – – 765	Total HK$’000 1,381 336 100 5,102
						6,919

The provision of Hong Kong Profits Tax is calculated at 16.5% (2017: 16.5%) of the estimated assessable profits for

the year.

For the year ended 30 June 2017, the provision for PRC Enterprise Income Tax (the “ EIT ”) was calculated at 10% of the capital gains regarding transfer in an indirect equity of a PRC subsidiary following the disposal of AP Group Investment Holdings Limited (“ AP Group ”) in accordance with the relevant tax rules and regulations of the PRC. Except for the EIT arising from the capital gains regarding the disposal of AP Group, no other provision for EIT has been made in the consolidated financial statements as the Group has no assessable profits under EIT for the year ended 30 June 2017.

– II-124 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

6. LOSS PER SHARE

(a) Basic

Basic (loss)/profit per ordinary share is calculated by dividing the (loss)/profit attributable to owners of the Company by the weighted average number of ordinary shares in issue during the year, calculated as follows:

(Loss)/profit attributable to owners of the Company (HK$’000) – from continuing operations – from discontinued operation – from continuing and discontinued operations Weighted average number of ordinary shares in issue Basic (loss)/profit per ordinary share_(HK$)_ – from continuing and discontinued operations – from continuing operations – from discontinued operation Weighted average number of ordinary shares (Basic) Issued ordinary shares at 1 July Effect of share options exercised Effect of rights issue Effect of shares issued for placements of new shares Weighted average number of ordinary shares (Basic)	2018 (76,024) (59,260) (135,284) 887,832,358 (0.152) (0.086) (0.066) 2018 853,302,276 34,530,082 – – 887,832,358	2017 (restated) (127,293) 12,965 (114,328) 543,123,874 (0.211) (0.234) 0.023 2017 177,774,092 – 268,333,015 97,016,767 543,123,874

For the year ended 30 June 2017, the weighted average number of ordinary shares for the purpose of basic loss per ordinary share has been adjusted with the effect of bonus element of the rights issue in October 2016 on the basis of two rights shares for every one existing ordinary share.

(b) Diluted

The computation of diluted loss per share for the year ended 30 June 2018 does not assume the exercises of the Company’s outstanding share options during the year ended 30 June 2018 since the exercises are anti-dilutive at loss from continuing operation level for the year ended 30 June 2018. The computation of diluted loss per ordinary share for the year ended 30 June 2017 does not assume the exercises of the Company’s outstanding share options during the year ended 30 June 2017 since their exercise prices are higher than the average market prices of the shares during the year. Accordingly, diluted loss per ordinary share is the same as basic loss per ordinary share for the year.

7. DIVIDENDS

The Board did not recommend the payment of a final dividend for the year ended 30 June 2018 (2017: Nil).

– II-125 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

8. ACCOUNTS RECEIVABLE

Accounts receivable arising from securities brokerage and margin financing business: – Clearing house, brokers and cash clients Less: Impairment loss Net_(Note a) – Margin clients Less: Impairment loss Net(Note b) Accounts receivable arising from other businesses: Accounts receivable – others Less: Impairment loss Net(Note c)_ Accounts receivable – net	2018 HK$’000 160 – 160 18,000 (18,000) – 160 36,290 (5,515) 30,775 30,935	2017 HK$’000 69,560 (827)
		68,733
		197,284 (8,133)
		189,151
		257,884
		77,627 (1,652)
		75,975
		333,859

The carrying amounts of accounts receivable approximate their fair values.

Note a: Accounts receivable arising from clearing house, brokers and cash clients

The ageing analysis of the accounts receivable from clearing house, brokers and cash clients which are past due but not impaired as of the end of the reporting period is as follows:

Neither past due nor impaired Less than 1 month past due More than 1 month past due	2018 HK$’000 147 1 12 160	2017 HK$’000 59,500 411 8,822
		68,733

The normal settlement terms of accounts receivable from clearing house, brokers and cash clients, which arise from the securities brokerage and margin financing business, are two days after trade date. Accounts receivable from cash clients are repayable on demand subsequent to the settlement date.

– II-126 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Note b: Accounts receivable arising from margin clients

Accounts receivable from margin clients, which arise from the securities brokerage and margin financing business, are repayable on demand subsequent to the settlement date.

Note c: Accounts receivable arising from other businesses

The following is an ageing analysis of accounts receivable arising from other businesses, presented based on the invoice dates:

1 to 90 days 91 days to 180 days Over 180 days ACCOUNTS PAYABLE Accounts payable arising from securities brokerage and margin financing business: – cash clients – margin clients Accounts payable arising from other businesses	2018 HK$’000 3,331 4,372 23,072 30,775 2018 HK$’000 5,171 694 5,865 2,653 8,518	2017 HK$’000 65,682 1,926 8,367
		75,975
		2017 HK$’000 61,928 19,692
		81,620
		10,827
		92,447

9. ACCOUNTS PAYABLE

As at 30 June 2018 and 2017, the ageing analysis of the accounts payable arising from other businesses based on invoice date is as follows:

1 to 90 days 91 days to 180 days Over 180 days	2018 HK$’000 712 27 1,914 2,653	2017 HK$’000 513 34 10,280
		10,827

All of the accounts payable arising from other businesses are expected to be settled or recognised as income within one year or are repayable on demand.

– II-127 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

10. PENDING LITIGATIONS

(a) A court action was commenced in the Court of First Instance of the Hong Kong Special Administrative Region on 17 April 2002 by The Star Overseas Limited (“ Star ”), an independent third party, against Universe Entertainment Limited (“ UEL ”), an indirect wholly-owned subsidiary of the Company.

Pursuant to an Order (the “ Order ”) made by the High Court on 21 February 2003, UEL was ordered and had paid to Star a sum of HK$5,495,700, being part of the license fee of the Movie received by UEL from Miramax Films (being the licensee of the Movie) and which was also part of the sum claimed by Star. Pursuant to the Order, UEL is also liable to pay Star interest in the sum of HK$350,905 and some of the costs of the application leading to the making of the Order, all of which have been settled. As the Order has not disposed of all the claims of US$935,872 (equivalent to HK$7,299,799) by Star, UEL is entitled to continue to defend the claim by Star for recovering the remaining balance in the sum of approximately HK$1,804,099 (HK$7,299,799 less HK$5,495,700).

On 30 April 2002, UEL claimed against Star for the latter’s wrongful exploitation of certain rights in the Movie co-owned by both parties. UEL claimed to recover all losses and damages suffered by UEL as a result of the wrongful exploitation.

On 9 September 2002, Universe Laser & Video Co. Limited (“ ULV ”), an indirect wholly-owned subsidiary of the Company, claimed against Star for the latter’s infringement of the licensed rights in the Movie held by ULV. ULV claimed to recover all losses and damages suffered by ULV as a result of the said infringement.

(b) On 1 September 2008, Koninklijke Philips Electronics N.V. (“ KPE ”) claimed against among other persons, the Company, ULV and Mr. Lam Shiu Ming, Daneil (one of the Directors), being three of the defendants named therein, in respect of damages arising from alleged infringement of the patents regarding Video Compact Disc owned by KPE.

(c) On 8 January 2010, KPE claimed against among other persons, the Company, ULV and Mr. Lam Shiu Ming, Daneil (one of the Directors), being three of the defendants named therein, in respect of damages arising from the alleged infringement of the patents regarding Digital Video Disc owned by KPE.

On 6 June 2012, the action was discontinued against the Company and Mr. Lam Shiu Ming, Daneil. The claim made against ULV has been agreed with KPE and settled by ULV and appropriate legal costs provision was recognised accordingly in the consolidated financial statements for the year ended 30 June 2012.

No additional provision has been made in the consolidated financial statements for the year ended 30 June 2018. Based on the consultation with legal counsel, no further material outflow of economic benefits will be incurred for ULV.

(d) Universe Artiste Management Limited (“ UAM ”), an indirect wholly-owned subsidiary of the Company, commenced Court of First Instance Action against Kwong Ling and Oriental Prosperous Int’l Entertainments Limited (collectively the “ Defendants ”) on 30 June 2014 claiming inter alia for a declaration that UAM is entitled to extend/renew the term of the Artist Management Contract of the Defendants with UAM (the “ Artist Management Contract ”) for 5 years as from 3 May 2014 to 2 May 2019.

– II-128 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

The Defendants filed their defence and counterclaimed on 29 September 2014. By such counterclaim, the Defendants claiming against UAM inter alia for a declaration that the Artist Management Contract was void and unenforceable, the Artist Management Contract to be rescinded, damages for breach of the Artist Management Contract and for breach of fiduciary duties, a declaration that UAM is liable to account to the Defendants and an order for payment of all sums found to be due by UAM to the Defendants.

In the opinion of legal counsel, it is premature to predict the outcome of the said claim made against UAM. The Board considers that the amounts of counterclaim by the Defendants against UAM is insignificant to the Group as a whole.

(e) On 16 July 2018, Lucky Famous Limited (“ Lucky Famous ”) commenced Court of First Instance Action claimed against Fragrant River Entertainment Culture (Holdings) Limited (“ Fragrant River ”), and indirect wholly-owned subsidiary of the Company, and the Company for inter alia the sum of HK$20.4 million as the adjustment to the consideration (the “ Adjustment Amount ”) alleged to be payable under an agreement dated 13 June 2016 (the “ Disposal Agreement ”) pursuant to which Lucky Famous purchased from Fragrant River 51% of the issued share capital of AP Group Investment Holdings Limited.

In the opinion of legal counsel, it is premature to predict the outcome of the said claims made against Fragrant River and the Company. Without admitting any liability to Lucky Famous under the Disposal Agreement, the Adjustment Amount of HK$20.4 million was recognised as at contingent consideration payable in the consolidated financial statements for the year ended 30 June 2018.

Save as disclosed above, as at 30 June 2018, no litigation or claim of material importance is known to the Directors to be pending against either the Company or any of its subsidiaries.

11. DISCONTINUED OPERATION

During the year ended 30 June 2018, the Group ceased its business in the Securities Brokerage Business due to deterioration of operating results and financial performance during the year. The analysis of the results of discontinued operation is as follows:

Revenue Cost of revenue Gross profit Other income Other net losses Administrative expenses Impairment loss of accounts receivable (net) Finance income Finance costs Written off of goodwill Written off of other intangible assets (Loss)/profit before taxation from discontinued operation Income tax credit/(expense) (Loss)/profit for the year from discontinued operation Attributable to: Owners of the Company	2018 HK$’000 8,930 (331) 8,599 333 (29) (20,092) (9,040) – – (28,064) (11,400) (59,693) 433 (59,260) (59,260)	2017 HK$’000 35,927 (3,273) 32,654 1,569 (586) (14,998) (8,960) 6 (30) – – 9,655 (765) 8,890 8,890

– II-129 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

4. INDEBTEDNESS STATEMENT

Borrowings

As at the close of business on 31 July 2018, being the latest practicable date for determining the indebtedness of the Group, the Group had the obligations under non-interest bearing financing leases of approximately HK$24,000.

Litigation and Contingent Liabilities

As at the close of business on 31 July 2018, the Group has the following material litigations and contingent liabilities.

(a) A court action was commenced in the Court of First Instance of Hong Kong on 17 April 2002 by The Star Overseas Limited (“ Star ”), an independent third party, against Universe Entertainment Limited (“ UEL ”), an indirect wholly-owned subsidiary of the Company.

On 9 September 2002, Universe Laser & Video Co. Limited (“ ULV ”), an indirect whollyowned subsidiary of the Company, claimed against Star for the latter’s infringement of the licensed rights in the Movie held by ULV. ULV claimed to recover all losses and damages suffered by ULV as a result of the said infringement.

– II-130 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

(b) On 1 September 2008, Koninklijke Philips Electronics N.V. (“ KPE ”) claimed against among other persons, the Company, ULV and Mr. Lam (one of the Directors), being three of the defendants named therein, in respect of damages arising from alleged infringement of the patents regarding Video Compact Disc owned by KPE.

In the opinion of legal counsel, it is premature to predict the outcome of the said claim made against the Company, ULV and Mr. Lam. The Board is of the opinion that the outflow of economic benefits cannot be reliably estimated and accordingly no provision for any liability that may result has been made in the consolidated financial statements for the year ended 30 June 2018 and up to the Latest Practicable Date.

(c) On 8 January 2010, KPE claimed against among other persons, the Company, ULV and Mr. Lam (one of the Directors), being three of the defendants named therein, in respect of damages arising from the alleged infringement of the patents regarding Digital Video Disc owned by KPE.

On 6 June 2012, the action was discontinued against the Company and Mr. Lam. The claim made against ULV has been agreed with KPE and settled by ULV and appropriate legal costs provision was recognised accordingly in the consolidated financial statements for the year ended 30 June 2012.

No additional provision has been made in the consolidated financial statements for the year ended 30 June 2018 and up to the Latest Practicable Date. Based on the consultation with legal counsel, no further material outflow of economic benefits will be incurred for ULV.

(d) Universe Artiste Management Limited (“ UAM ”), an indirect wholly-owned subsidiary of the Company, commenced Court of First Instance Action against Kwong Ling and Oriental Prosperous Int’l Entertainments Limited (collectively the “ Defendants ”) on 30 June 2014 claiming inter alia for a declaration that UAM is entitled to extend/renew the term of the Artist Management Contract of the Defendants with UAM (the “ Artist Management Contract ”) for 5 years as from 3 May 2014 to 2 May 2019.

– II-131 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

(e) On 16 July 2018, Lucky Famous Limited (“ Lucky Famous ”) commenced Court of First Instance Action claimed against Fragrant River Entertainment Culture (Holdings) Limited (“ Fragrant River ”), and indirect wholly-owned subsidiary of the Company, and the Company for inter alia the sum of HK$20.4 million as the adjustment to the consideration (the “ Adjustment Amount ”) alleged to be payable under an agreement dated 13 June 2016 (the “ Disposal Agreement ”) pursuant to which Lucky Famous purchased from Fragrant River 51% of the issued share capital of AP Group Investment Holdings Limited.

Save as disclosed herein, the Group has no bank overdrafts or loans, or other similar indebtedness, mortgages, charges, or guarantees or other material contingent liabilities of the Company and any of its subsidiaries as at the close of business on 31 July 2018.

5. MATERIAL CHANGE

The Directors confirmed that as at the Latest Practicable Date, there had been no material changes in the financial or trading position or outlook of the Group since 30 June 2018, being the date to which the latest published audited financial statements of the Company were made, up to the Latest Practicable Date.

– II-132 –

GENERAL INFORMATION OF THE OFFEROR

APPENDIX III

RESPONSIBILITY STATEMENT

The sole director of the Offeror accepts full responsibility for the accuracy of the information contained in this Composite Document (other than those relating to the Group and parties acting in concert with it), and confirms, having made all reasonable enquiries, that to the best of his knowledge, opinions expressed in this Composite Document (other than those expressed by the Directors) have been arrived at after due and careful consideration and there are no other facts not contained in this Composite Document, the omission of which would make any statement contained in this Composite Document misleading.

DISCLOSURE OF INTERESTS

Save as disclosed below, as at the Latest Practicable Date, none of the Offeror, the sole director of the Offeror nor any party acting in concert with them owned or controlled any relevant securities (as defined in Note 4 to Rule 22 of the Takeovers Code) in the Company.

Name of Shareholders Capacity Mr. Lam_(Note 1) Beneficial owner Globalcrest Enterprises Limited (Note 1) Nominee for a trustee of a discretionary trust The Offeror(Note 1) Beneficial owner Mr. Alvin Lam(Note 2)_ Beneficial owner Total	Number of Shares held/interested 200,860,000 33,546,853 251,745,000 8,530,000 494,681,853	Approximate percentage of the total number of issued Shares (Note 3) (%) 22.15 3.70 27.77 0.94
		54.56

Notes:

The Offeror, which is wholly-owned by Mr. Lam, is interested in 251,745,000 Shares as at the Latest Practicable Date. 33,546,853 Shares are held by Globalcrest Enterprises Limited, which in turn is owned by Central Core Resources Limited, being the trustee of a discretionary trust under which Mr. Lam is the discretionary object. As such, Mr. Lam is deemed to be interested in all 33,546,853 Shares held by Globalcrest Enterprises Limited.
Mr. Alvin Lam, the younger brother of Mr. Lam, is the beneficial owner of 8,530,000 Shares.
Based on 906,632,276 Shares in issue as at the Latest Practicable Date.

– III-1 –

GENERAL INFORMATION OF THE OFFEROR

APPENDIX III

INTERESTS IN THE COMPANY’S SECURITIES AND OTHER ARRANGEMENTS

The Offeror confirmed that, as at the Latest Practicable Date:

(a) save for Mr. Alvin Lam’s Undertaking, the Offeror, its ultimate beneficial owner, and/or parties acting in concert with any of them have not received any irrevocable commitment to accept or reject the Offer;
(b) there is no outstanding derivative in respect of securities in the Company which has been entered into by the Offeror, its ultimate beneficial owner and/or any person acting in concert with any of them;
(c) save for the Sale and Purchase Agreement, the Loan Facility Agreement and Share Charges, there is no arrangement (whether by way of option, indemnity or otherwise) in relation to the shares of the Offeror or the Company and which may be material to the Offer (as referred to in Note 8 to Rule 22 of the Takeovers Code);
(d) save for the Offeror and parties acting in concert with it which are beneficially interested in 494,681,853 Shares, none of the Offeror, its ultimate beneficial owner and/or parties acting in concert with any of them owns or has control or direction over any voting rights or rights over the Shares or convertible securities, options, warrants or derivatives of the Company;
(e) there is no agreement or arrangement to which the Offeror, its ultimate beneficial owner and/ or parties acting in concert with any of them is a party which relates to circumstances in which it may or may not invoke or seek to invoke a pre-condition or a condition to the Offer;
(f) there is no relevant security (as defined in Note 4 to Rule 22 of the Takeovers Code) in the Company which the Offeror, its ultimate beneficial owner, and/or any person acting in concert with any of them has borrowed or lent;
(g) save for the Sale and Purchase Agreement, the Loan Facility Agreement and Share Charges, there was no agreement, arrangement, or understanding (including any compensation arrangement) between the Offeror or any parties acting in concert with it and any Directors, recent Directors, Shareholders or recent Shareholders having any connection with or dependence upon the Offer;
(h) no benefit (other than statutory compensation) was or will be given to any Directors as compensation for loss of office or otherwise in connection with the Offer;
(i) other than the Consideration, no consideration, compensation or benefits in whatever form has been or will be provided by the Offeror or its concert parties to the Vendor or its concert parties; and
(j) there is no special deal (as defined under Rule 25 of the Takeovers Code) between the Offeror and its concert parties on one hand and the Vendor and its concert parties on the other hand.

– III-2 –

GENERAL INFORMATION OF THE OFFEROR

APPENDIX III

DEALING IN SECURITIES OF THE COMPANY

Save for the Sale and Purchase Agreement to which the Offeror is one of the parties, none of the Offeror, its ultimate beneficial owner, nor parties acting in concert with any of them has dealt in any Shares, options, derivatives, warrants or other securities convertible into Shares during the six-month period prior to and including the date of the Latest Practicable Date.

MARKET PRICES

The table below shows the closing price of the Shares and the adjusted closing price of the Shares (as the case maybe) quoted on the Stock Exchange on (i) the last day on which trading took place in each of the calendar months during the Relevant Period; (ii) the Last Trading Day; and (iii) the Latest Practicable Date.

	Adjusted closing price	Closing price	Closing price
Date	per Share	per Share
	HK$		HK$
2018
31 January	0.394		0.63
28 February	0.375		0.60
29 March	0.431		0.69
30 April	0.438		0.70
31 May	0.438		0.70
29 June	0.406		0.65
26 July (Last Trading Day)	0.469		0.75
31 July		Trading in Shares halted
31 August	0.469		0.75
28 September	0.475		0.76
23 October (Latest Practicable Date)			0.50

Note: The closing price of the Shares as quoted on the Stock Exchange on 5 March 2018 was HK$0.53 per Share before adjusted for the effect of the Special Dividend.

EXPERTS AND CONSENTS

The following is the names and qualifications of the experts whose letter or opinion are contained in this Composite Document:

Name Qualification

Kingston Corporate Finance Kingston Corporate Finance Limited, a corporation licensed to carry on Type 6 (advising on corporate finance) regulated activity under the SFO

Kingston Securities

Kingston Securities Limited, a corporation licensed to carry on Type 1 (dealing in securities) regulated activity under the SFO

– III-3 –

GENERAL INFORMATION OF THE OFFEROR

APPENDIX III

Each of Kingston Securities and Kingston Corporate Finance has given and has not withdrawn its written consents to the issue of this Composite Document with the inclusion of the text of its letter or report and/or references to its name in the form and context in which they are respectively included.

MISCELLANEOUS

As at the Latest Practicable Date:

(a) the principal members of the Offeror’s concert group are the Offeror and Mr. Lam;
(b) the registered office address of the Offeror is 3rd Floor, J&C Building, P.O. Box 933, Road Town, Tortola, British Virgin Islands, VG1110;
(c) the correspondence address of the Offeror and Mr. Lam is 18/F., Wyler Centre Phase II, 192200 Tai Lin Pai Road, Kwai Chung, New Territories, Hong Kong;
(d) the registered address of Kingston Corporate Finance is Suite 2801, 28/F., One International Finance Centre, 1 Harbour View Street, Central, Hong Kong; and
(e) the registered address of Kingston Securities is Suite 2801, 28/F., One International Finance Centre, 1 Harbour View Street, Central, Hong Kong.

DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection (i) at the principal office of the Company at 18/F., Wyler Centre Phase II, 192-200 Tai Lin Pai Road, Kwai Chung, New Territories, Hong Kong during normal business hours from 9:30 a.m. to 5:30 p.m. (on any weekdays, except public holidays); (ii) on the website of the Company (http://www.uih.com.hk); and (iii) on the website of the SFC (http://www.sfc.hk), from the date of this Composite Document up to and including the Closing Date:

(a) the memorandum of association and articles of association of the Offeror;
(b) the letter from Kingston Securities, the text of which is set out on pages 7 to 12 of this Composite Document;
(c) the written consents referred to under the paragraph headed “EXPERTS AND CONSENTS” in this Appendix; and
(d) Mr. Alvin Lam’s Undertaking.

– III-4 –

GENERAL INFORMATION OF THE GROUP

APPENDIX IV

1. RESPONSIBILITY STATEMENT

The Directors jointly and severally accept full responsibility for the accuracy of the information contained in this Composite Document (other than the information relating to the Vendor, the Offeror and parties acting in concert with any of them) and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in this Composite Document (other than those expressed by the sole director of the Offeror, the Vendor and parties acting in concert with any of them) have been arrived at after due and careful consideration and there are no other facts not contained in this Composite Document, the omission of which would make any statement in this Composite Document misleading.

2. SHARE CAPITAL

The authorised and issued share capital of the Company as at the Latest Practicable Date are as follows:

Authorised 10,000,000,000 Shares Issued and fully paid 906,632,276 Shares	HK$ 100,000,000
	9,066,322.76

As at the Latest Practicable Date, the Company had no outstanding options, derivatives, warrants or securities which are convertible or exchangeable into Shares and had not entered into any agreement for the issue of such options, derivatives, warrants or securities of the Company.

All Shares in issue rank pari passu in all respects with each other including rights to dividends, voting and return of capital. The Company has not issued any Shares since 30 June 2018, the date to which the latest audited financial statements of the Company were made up.

3. DISCLOSURE OF INTERESTS

(a) Interests in the Offeror

As at the Latest Practicable Date, the Offeror is wholly-owned by Mr. Lam, the chairman and executive Director. Save as disclosed, none of the Company nor any of its Directors had any interest in the equity share capital or any convertible securities, warrants, options or derivatives of the Offeror, and no such person (including the Company) had dealt in the equity share capital or any convertible securities, warrants, options or derivatives of the Offeror during the Relevant Period.

– IV-1 –

GENERAL INFORMATION OF THE GROUP

APPENDIX IV

(b) Directors’ interests in the Shares

As at the Latest Practicable Date, the following Director(s) or chief executive of the Company had or were deemed to have interests 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) (i) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO); or (ii) which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (iii) which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (“ Model Code ”):

Name of Director Nature of Interest Mr. Lam Shiu Ming, Daneil_(Note 1)_ Beneficial owner Founder of a discretionary trust Interests in controlled corporation Mr. Lam Kit Sun Beneficial owner	Number of Shares interested 200,860,000 33,546,853 251,745,000 486,151,853 5,920,000	Approximate % in the issued share capital of the Company 22.15 3.70 27.77
		53.62
		0.65

Note:

Among the 486,151,853 Shares, as to 200,860,000 Shares are held by Mr. Lam, as to 251,745,000 Shares are held by the Offeror which is wholly-owned by Mr. Lam and as to 33,546,853 Shares are held by Globalcrest Enterprises Limited, which in turn is owned by Central Core Resources Limited, being the trustee of a discretionary trust under which Mr. Lam is the discretionary object. As such Mr. Lam is deemed to be interested in all 33,546,853 Shares held by Globalcrest Enterprises Limited.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or chief executive of the Company had any interests or short positions in the shares, underlying shares and debentures of the Company which were required to be (i) 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 the Directors and chief executive of the Company were taken or deemed to have under such provisions of the SFO); or (ii) entered in the register kept by the Company pursuant to section 352 of the SFO; or (iii) notified to the Company and the Stock Exchange pursuant to the Model Code.

As at the Latest Practicable Date, Mr. Lam Kit Sun did not intend to accept the Offer in respect of his own beneficial shareholding in the Shares but he will continue to monitor the market price of the Shares and consider to realise all or part of his shareholdings in the market should the sale proceeds (net of transaction costs) exceed the net proceeds receivable under the Offer during the Offer Period.

– IV-2 –

GENERAL INFORMATION OF THE GROUP

APPENDIX IV

(c) Substantial Shareholders’ and other persons’ interests and short positions in shares and underlying Shares

As at the Latest Practicable Date, so far as was known to the Directors, the following person (other than the Directors) held interests in the relevant securities (as defined in Note 4 to Rule 22 of the Takeovers Code) of the Company, or interests and short positions in the Shares and/or underlying Shares which are required to be disclosed to the Company under the provisions of Division 2 and 3 of Part XV of the SFO, or were directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at a general meeting of the Company:

		Number of	Approximate
		Shares	percentage of
Name of Shareholder	Nature of Interest	interested	shareholding
The Offeror	Beneficial owner	251,745,000	27.77

Save as disclosed above, as at the Latest Practicable Date, none of the Directors was aware of any person (other than a Director) who, as at the Latest Practicable Date, had any interests in the relevant securities (as defined under Note 4 to Rule 22 of the Takeovers Code) of the Company, or interests and short positions in the Shares and/or underlying Shares which are required to be disclosed to the Company under the provisions of Division 2 and 3 of Part XV of the SFO, or who was directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at a general meeting of the Company.

(d) Other interests

(i) As at the Latest Practicable Date, no securities (as defined in Note 4 to Rule 22 of the Takeovers Code) of the Company were owned or controlled by a subsidiary of the Company, by a pension fund (if any) of any member of the Group or by an adviser to the Company as specified in class (2) of the definition of associate under the Takeovers Code.
(ii) As at the Latest Practicable Date, 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 presumed to be acting in concert with the Company by virtue of classes (1), (2), (3) and (5) of the definition of acting in concert or who is an associate of the Company by virtue of classes (2), (3) and (4) of the definition of associate under the Takeovers Code.
(iii) As at the Latest Practicable Date, no securities (as defined in Note 4 to Rule 22 of the Takeovers Code) of the Company were managed on a discretionary basis by fund managers connected with the Company.

– IV-3 –

GENERAL INFORMATION OF THE GROUP

APPENDIX IV

(iv) As at the Latest Practicable Date, save as disclosed in the section headed “3. Disclosure of Interests” above, none of the Directors had any interests in any Shares, and none of the Directors intended, in respect of their own beneficial shareholdings, to accept or reject the Offer.
(v) As at the Latest Practicable Date, there were no securities (as defined in Note 4 to Rule 22 of the Takeovers Code) of the Company which the Company and any Directors had borrowed or lent.
(vi) During the Relevant Period, save for the Sale and Purchase Agreement and as disclosed below, none of the Directors had dealt in any securities (as defined in Note 4 to Rule 22 of the Takeovers Code) of the Company.

			Approximate
			average	Approximate
		No. of	disposal	% to the total
Date of	Name of	Shares	price per	issued capital	On exchange/
transaction	Director	disposed of	Share	of the Company	off exchange
			HK$
5 March 2018	Lam Kit Sun	625,000	0.542	0.07	On exchange
6 March 2018	Lam Kit Sun	785,000	0.55	0.09	On exchange
7 March 2018	Lam Kit Sun	1,200,000	0.56	0.13	On exchange

(vii) During the Relevant Period, the Company did not deal in any securities (as defined in Note 4 to Rule 22 of the Takeovers Code) of the Offeror.

4. LITIGATION

As at the Latest Practicable Date, and save as disclosed below, none of the Company nor any of its subsidiaries was engaged in any litigation or arbitration of material importance and there was no litigation or claim of material importance known to the Directors to be pending or threatened by or against the Company or any of its subsidiaries.

(a) A court action was commenced in the Court of First Instance of Hong Kong on 17 April 2002 by The Star Overseas Limited (“ Star ”), an independent third party, against Universe Entertainment Limited (“ UEL ”), an indirect wholly-owned subsidiary of the Company.

By the above action, Star alleged that a sum of US$935,872 (equivalent to HK$7,299,799) was payable by UEL to Star as its share of the revenue of the movie entitled “Shaolin Soccer” (the “ Movie ”).

– IV-4 –

GENERAL INFORMATION OF THE GROUP

APPENDIX IV

(b) On 1 September 2008, Koninklijke Philips Electronics N.V. (“ KPE ”) claimed against among other persons, the Company, ULV and Mr. Lam (one of the Directors), being three of the defendants named therein, in respect of damages arising from alleged infringement of the patents regarding Video Compact Disc owned by KPE.

(c) On 8 January 2010, KPE claimed against among other persons, the Company, ULV and Mr. Lam (one of the Directors), being three of the defendants named therein, in respect of damages arising from the alleged infringement of the patents regarding Digital Video Disc owned by KPE.

– IV-5 –

GENERAL INFORMATION OF THE GROUP

APPENDIX IV

(d) Universe Artiste Management Limited (“ UAM ”), an indirect wholly-owned subsidiary of the Company, commenced Court of First Instance Action against Kwong Ling and Oriental Prosperous Int’l Entertainments Limited (collectively the “ Defendants ”) on 30 June 2014 claiming inter alia for a declaration that UAM is entitled to extend/renew the term of the artist management contract of the Defendants with UAM (the “ Artist Management Contract ”) for 5 years as from 3 May 2014 to 2 May 2019.

The Defendants filed their defence and counterclaimed on 29 September 2014. By such counterclaim, the Defendants claimed against UAM inter alia for a declaration that the Artist Management Contract was void and unenforceable, the Artist Management Contract to be rescinded, damages for breach of the Artist Management Contract and for breach of fiduciary duties, a declaration that UAM is liable to account to the Defendants and an order for payment of all sums found to be due by UAM to the Defendants.

(e) On 16 July 2018, Lucky Famous Limited (“ Lucky Famous ”) commenced Court of First Instance Action against Fragrant River Entertainment Culture (Holdings) Limited (“ Fragrant River ”), and indirect wholly-owned subsidiary of the Company, and the Company for inter alia the sum of HK$20.4 million as the adjustment to the consideration (the “ Adjustment Amount ”) alleged to be payable under an agreement dated 13 June 2016 (the “ Disposal Agreement ”) pursuant to which Lucky Famous purchased from Fragrant River 51% of the issued share capital of AP Group Investment Holdings Limited.

5. MATERIAL CONTRACTS

Save as disclosed below, there were no material contracts (not being contracts entered into in the ordinary course of business carried on or intended to be carried on by the Group) which have been entered into by any member of the Group after the date falling two years before commencement of the Offer Period up to and including the Latest Practicable Date:

(i) the placing agreement dated 18 October 2016 entered into between the Company as the issuer and Convoy Asset Management Limited (“ Convoy Asset ”) as the placing agent, pursuant to which the Company has conditionally agreed to procure the placee(s) to subscribe for the 6.25% per annum notes (“ Notes ”) to be issued by the Company in an aggregate principal amount of up to HK$60,000,000 maturing on the second anniversary of the issue date of the Notes, through Convoy Asset, on a best endeavour basis, at the placing price equal to 100% of the principal amount of the Notes;

– IV-6 –

GENERAL INFORMATION OF THE GROUP

APPENDIX IV

(ii) the sale and purchase agreement dated 9 January 2017 entered into between Universe Films Distribution Company Limited, an indirect wholly-owned subsidiary of the Company, as the vendor, and 北京愛奇藝科技有限公司 (for transliteration purpose only, Beijing iQIYI Science & Technology Co., Ltd), as the purchaser to dispose of 202 feature films conditionally at a consideration of approximately RMB178,895,000; and
(iii) the placing agreements dated 18 January 2017 entered into between the Company as the issuer and Gransing Securities Co., Limited (“ Gransing ”) as the placing agent, pursuant to which the Company has conditionally agreed to place, through Gransing, on a best effort basis: (a) up to 106,660,000 new Shares at a placing price of HK$0.519 per placing share under the general mandate; and (b) up to 213,320,000 new Shares at a placing price of HK$0.519 per placing share under the specific mandate.

6. EXPERT AND CONSENT

The following is the qualification of the expert who has given opinion or advice which is contained or referred to in this Composite Document:

Name Qualification Red Sun Capital Limited a corporate licensed to carry on Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities under the SFO

Red Sun Capital Limited has given and has not withdrawn its written consent to the issue of this Composite Document with the inclusion of its letter, advice or report as the case may be and references to its names in the form and context in which it is included.

7. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had a service contract with the Company or any of its subsidiaries or associated companies, which: (i) (including both continuous and fixed term contracts) have been entered into or amended within six months before the commencement of the Offer Period; (ii) are continuous contracts with a notice period of 12 months or more; or (iii) are fixed term contracts with more than 12 months to run irrespective of the notice period.

8. ADDITIONAL DISCLOSURE OF INTERESTS

(a) As at the Latest Practicable Date, no benefit (other than statutory compensation) would be given to any Directors as compensation for loss of office or otherwise in connection with the Offer.
(b) As at the Latest Practicable Date, there was no agreement or arrangement between any of the Directors and any other person which was conditional or dependent on the outcome of the Offer or otherwise connected with the Offer.
(c) As at the Latest Practicable Date, save for the Sale and Purchase Agreement, there was no material contract entered into by the Offeror and parties acting in concert with it in which any Director had a material personal interest.

– IV-7 –

GENERAL INFORMATION OF THE GROUP

APPENDIX IV

9. MISCELLANEOUS

(a) The registered office of the Company is located at Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda.
(b) The principal place of business of the Company in Hong Kong is located at 18th Floor, Wyler Centre Phase II, 192-200 Tai Lin Pai Road, Kwai Chung, New Territories, Hong Kong.
(c) The company secretary of the Company is Mr. Lam Kit Sun who is a fellow and practicing member of the Hong Kong Institute of Certified Public Accountants, a fellow member of the Association of Chartered Certified Accountants, an associate of The Hong Kong Institute of Chartered Secretaries and a non-practicing member of the Chinese Institute of Certified Public Accountants.
(d) The branch share registrar of the Company in Hong Kong is Tricor Abacus Limited situated at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong.
(e) The English text of this Composite Document and the Form of Acceptance shall prevail over their respective Chinese text for the purpose of interpretation.

10. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours (from 10:00 a.m. to 12:30 p.m. and from 2:30 p.m. to 5:30 p.m.) on any weekday (except for public holidays) at the principal place of business of the Company in Hong Kong from the date of this Composite Document until the end of the Offer Period and will be displayed on the website of the SFC (www.sfc.hk) and the website of the Company (www.uih.com.hk):

(a) memorandum of association and bye-laws of the Company;
(b) the letter from the Board as set out on pages 13 to 19 of this Composite Document;
(c) the letter from the Independent Board Committee as set out on pages 20 to 21 of this Composite Document;
(d) the letter from the Independent Financial Adviser as set out on pages 22 to 36 of this Composite Document;
(e) the written consent referred to in the paragraph headed “Expert and consent” in this Appendix;
(f) the material contracts referred to in the paragraph headed “Material contracts” in this Appendix;
(g) the annual reports of the Company for each of the two financial years ended 30 June 2016 and 2017;
(h) the annual results announcement of the Company for the financial year ended 30 June 2018; and
(i) this Composite Document.

– IV-8 –

AI assistant

Sinopec Engineering Group Co Ltd. — M&A Activity 2018

14896_rns_2018-10-25_8514fd91-c942-48b8-a296-b0f5bf01a92a.pdf

PIONEER ENTERTAINMENT GROUP LIMITED

UNIVERSE ENTERTAINMENT AND CULTURE GROUP COMPANY LIMITED 寰宇娛樂文化集團有限公司

COMPOSITE OFFER AND RESPONSE DOCUMENT RELATING TO UNCONDITIONAL MANDATORY CASH OFFER BY

Financial adviser to the Offeror

CONTENTS

EXPECTED TIMETABLE

EXPECTED TIMETABLE

NOTICE TO THE OVERSEAS OFFER SHAREHOLDERS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

UNCONDITIONAL MANDATORY CASH OFFER BY

FOR AND ON BEHALF OF PIONEER ENTERTAINMENT GROUP LIMITED TO ACQUIRE ALL THE ISSUED SHARES IN UNIVERSE ENTERTAINMENT AND CULTURE GROUP COMPANY LIMITED (OTHER THAN THOSE ALREADY OWNED OR TO BE ACQUIRED BY PIONEER ENTERTAINMENT GROUP LIMITED AND PARTIES ACTING IN CONCERT WITH IT)

INTRODUCTION

THE OFFER

Principal terms of the Offer

Comparison of value

Total consideration of the Offer

Confirmation of financial resources available for the Offer

Effects of accepting the Offer

Hong Kong stamp duty

Settlement

Overseas Offer Shareholders

Taxation advice

INFORMATION OF THE OFFEROR

INFORMATION ON THE GROUP

INTENTION OF THE OFFEROR IN RELATION TO THE COMPANY

PROPOSED CHANGE TO THE BOARD COMPOSITION OF THE COMPANY

MAINTAINING THE LISTING STATUS OF THE COMPANY

COMPULSORY ACQUISITION

GENERAL

ADDITIONAL INFORMATION

UNIVERSE ENTERTAINMENT AND CULTURE GROUP COMPANY LIMITED 寰宇娛樂文化集團有限公司

(Stock Code: 1046)

UNCONDITIONAL MANDATORY CASH OFFER BY

FOR AND ON BEHALF OF PIONEER ENTERTAINMENT GROUP LIMITED TO ACQUIRE ALL THE ISSUED SHARES IN UNIVERSE ENTERTAINMENT AND CULTURE GROUP COMPANY LIMITED (OTHER THAN THOSE ALREADY OWNED OR TO BE ACQUIRED BY PIONEER ENTERTAINMENT GROUP LIMITED AND PARTIES ACTING IN CONCERT WITH IT)

INTRODUCTION

LETTER FROM THE BOARD

UNCONDITIONAL MANDATORY CASH OFFER

The Offer

Further details of the Offer

DISTRIBUTION

INFORMATION ON THE GROUP

LETTER FROM THE BOARD

Financial information of the Group

Shareholding structure of the Company before and after Completion

INFORMATION OF THE OFFEROR

INTENTION OF THE OFFEROR REGARDING THE GROUP

PROPOSED CHANGE OF BOARD COMPOSITION

MAINTAINING THE LISTING STATUS OF THE COMPANY

INDEPENDENT BOARD COMMITTEE AND INDEPENDENT FINANCIAL ADVISER OF THE COMPANY

CONFLICT OF INTEREST

RECOMMENDATION

ADDITIONAL INFORMATION

Yours faithfully,

UNIVERSE ENTERTAINMENT AND CULTURE GROUP COMPANY LIMITED 寰宇娛樂文化集團有限公司

UNCONDITIONAL MANDATORY CASH OFFER BY

FOR AND ON BEHALF OF PIONEER ENTERTAINMENT GROUP LIMITED TO ACQUIRE ALL THE ISSUED SHARES IN UNIVERSE ENTERTAINMENT AND CULTURE GROUP COMPANY LIMITED (OTHER THAN THOSE ALREADY OWNED OR TO BE ACQUIRED BY PIONEER ENTERTAINMENT GROUP LIMITED AND PARTIES ACTING IN CONCERT WITH IT)

INTRODUCTION

RECOMMENDATION

Yours faithfully,

The Independent Board Committee of Universe Entertainment and Culture Group Company Limited

UNCONDITIONAL MANDATORY CASH OFFER BY KINGSTON SECURITIES FOR AND ON BEHALF OF THE OFFEROR TO ACQUIRE ALL THE ISSUED SHARES (OTHER THAN THOSE ALREADY OWNED OR AGREED TO BE ACQUIRED BY THE OFFEROR AND PARTIES ACTING IN CONCERT WITH IT)

INTRODUCTION

THE INDEPENDENT BOARD COMMITTEE

OUR INDEPENDENCE

BASIS OF OUR OPINION AND RECOMMENDATION

PRINCIPAL FACTORS AND REASONS CONSIDERED

1. Financial information of the Group and outlook

(a) Historical financial information of the Group

Table 1: Consolidated income statement of the Group

(b) Prospect and outlook of the Group

2. Principal terms of the Offer

(a) The Offer

For each Offer Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .HK$0.51 in cash

Sinopec Engineering Group Co Ltd. M&A Activity 2018