Smart-Core Holdings Limited — Annual Report 2020

Apr 23, 2021

ANNUAL REPORT

2020

CONTENTS

Corporate Information	2
Five-Year Financial Summary	4
Chairman's Statement	6
Management Discussion and Analysis	10
Directors and Senior Management	20
Directors' Report	23
Environmental, Social and Governance Report	39
Corporate Governance Report	65
Independent Auditor's Report	75
Consolidated Statement of Profit or Loss and	80
Other Comprehensive Income	81
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity	83
Consolidated Statement of Cash Flows	84
Notes to the Consolidated Financial Statements	86

CORPORATE INFORMATION

BOARD OF DIRECTORS

Executive Directors

Mr. TIAN Weidong (Chairman of the Board and Chief Executive Officer) Mr. WONG Tsz Leung (Chief Financial Officer) Mr. LIU Hongbing Mr. YAN Qing

Independent Non-executive Directors

Mr. TANG Ming Je Mr. ZHENG Gang Mr. WONG Hok Leung

BOARD COMMITTEES

Audit Committee

Mr. WONG Hok Leung (Chairman) Mr. TANG Ming Je Mr. ZHENG Gang

Remuneration Committee

Mr. ZHENG Gang (Chairman) Mr. TANG Ming Je Mr. WONG Hok Leung Mr. TIAN Weidong

Nomination Committee

Mr. TIAN Weidong (Chairman) Mr. TANG Ming Je Mr. WONG Hok Leung

COMPANY SECRETARY

Mr. YAU Chak Man (ACCA, HKICPA)

AUTHORISED REPRESENTATIVES

Mr. TIAN Weidong Mr. WONG Tsz Leung

REGISTERED OFFICE

Maples Corporate Services Limited PO Box 309 Ugland House Grand Cayman, KY1-1104 Cayman Islands

PRINCIPAL PLACE OF BUSINESS IN HONG KONG

15/F, Tower B, Regent Centre 70 Ta Chuen Ping Street Kwai Chung New Territories, Hong Kong

AUDITOR

Deloitte Touche Tohmatsu Registered Public Interest Entity Auditors

LEGAL ADVISOR

As to Cayman Islands law

Maples and Calder 53rd Floor, The Center 99 Queen's Road Central Hong Kong

As to Hong Kong law

Jingtian & Gongcheng LLP Suite 3203–3207, 32/F Edinburgh Tower, The Landmark 15 Queen's Road Central Hong Kong

As to PRC law

Commerce & Finance Law Offices 23/F Building A, CASC Plaza, Haide 3rd Road Nanshan District, Shenzhen, PRC

CORPORATE INFORMATION

SHARE REGISTRARS

Hong Kong

Computershare Hong Kong Investor Services Limited Shops 1712–1716, 17th Floor Hopewell Centre 183 Queen's Road East Wanchai, Hong Kong

Cayman Islands

Maples Fund Services (Cayman) Limited PO Box 1093 Boundary Hall Cricket Square Grand Cayman, KY1-1102 Cayman Islands

PRINCIPAL BANKERS

The Hongkong and Shanghai Banking Corporation Limited 1 Queen's Road Central Hong Kong

DBS Bank (Hong Kong) Limited 16/F, The Center 99 Queen's Road Central Hong Kong

Hang Seng Bank Limited 20/F, 83 Des Voeux Road Central Hong Kong

STOCK CODE

2166

COMPANY WEBSITE

www.smart-core.com.hk

FIVE-YEAR FINANCIAL SUMMARY

Revenue

Profit for the year attributable to Owners of the Company

For the year ended 31 December

Total Asset

As at 31 December

Gross Profit

For the year ended 31 December

Net Profit Margin

For the year ended 31 December

Total equity attributable to Owners of the Company

4 SMART-CORE HOLDINGS LIMITED 2020 Annual Report

FIVE-YEAR FINANCIAL SUMMARY

Gearing Ratio

Earnings per share ("EPS")- Basic (HK cents)

Return on equity-%

For the year ended 31 December

Current Ratio

Dividend per share (HK cents)

For the year ended 31 December For the year ended 31 December

Return on assets-%

For the year ended 31 December

REVIEW OF 2020

The Group is a leading all-round distributor of integrated circuit and other electronic components and technology value-added service provider covering multiple market segments such as televisions ("TV"), optoelectronic displays, smart terminals, memory, security monitoring, communication products, Internet of Things ("IoT"), optical communications, etc.. Service networks cover the major regions in Mainland China and Southeast Asia, providing diversified supply chain services of semiconductor chips and various electronic components for customers in the electronics industry, as well as corresponding technical solutions, technical support and software services. The Group maintains stable cooperative relationships with dozens of well-known semiconductor chip manufacturers of the upstream supply chain, and also provides services to more than 10,000 diversified commercial customers.

In 2020, as the COVID-19 pandemic ravaged the world and brought a material impact to the global economic development, the global economic aggregate experienced a significant decline, and the global semiconductor market also experienced disruptions and sales decline in the first half of 2020 due to the pandemic. However, market demand reversed in the second half of 2020. The strong demand for the "home economy" caused by the stay-at-home order made the production capacity in upstream supply chain strained, and the prices of raw materials, packaging and testing, and components all rose, the shortage of goods plagued the entire industry. According to data released by the International Data Corporation, in 2020, the global semiconductor revenue amounted to US\$ 442 billion with an increase of 5.4%.

Confronted with the complex and ever-changing domestic and abroad market environment, the Group worked closely with upstream and downstream partners of the industry chain to jointly cope with various difficulties and challenges and proactively created more possibilities. The Group's accumulated sales for the year amounted to HK\$5,541 million, representing an increase of 16.3% as compared with 2019 and gross profit amounted to HK\$310.5 million, representing a year-on-year increase of 14.6%.

In 2020, the Group's business layout on authorized distribution, independent distribution, overseas markets, technology value-added, software services and semiconductor chips became more stable, and the business layout and main development line of each business unit became clearer.

In 2020, the Group's authorized distribution business dipped at first but climbed towards the end, with steady growth in sales performance throughout the year. In particular, there are nine major business segments, and the four major business segments, namely TV, memory, automotive electronics and IoT, remained basically stable. The smart terminal business was greatly affected by the pandemic, resulting in a significant decline in sales performance. Revenue from four business segments (optoelectronic display, security monitoring, communication product and optical communication) recorded significant growth, driving the overall growth of the Group's business. The independent distribution business and the authorized distribution business were independent from each other in terms of business and complement each other. These segments also performed well in 2020 with relatively faster growth and better gross margin in sales. Authorized distribution, independent distribution and supporting technical support business formed the foundation of the Group's all-round distribution.

The Group's overseas business has begun to take shape, but the overall business scale is still in the stage of cultivation and development with a small scale. Due to the pandemic, the cross-border flow of personnel was restricted, which affected the overall speed of overseas business expansion. However, some branches set up initially began to achieve revenue growth of millions of US dollars. In order to further strengthen the overseas business expansion, the Group established a base in Southeast Asia in 2020 to better provide localized services to local customer groups.

The Group has officially launched in-depth cooperation with local Internet industry giants in terms of value-added technology services in the IoT, SaaS software and cloud services, and has become their comprehensive service provider of consumer IoT. Based on the Group's product line, technical solutions and customer base resources on the IoT, the Group will work jointly to expand the AIoT intelligent IoT market opportunities in the future.

In 2020, the Group also began to further develop the front-end field of semiconductor applications, and was committed to integrating superior resources such as memory technology, product development, and supply chain in Mainland China, Hong Kong and Taiwan. Through flexible supply chain configuration, the Group focused on the development of industrial and automotive grading memory market segments, and provided customers with customized services and professional application solutions. Meanwhile, the Group is proactively communicating with upstream partners to jointly enhance the core competitiveness of the semiconductor chip business.

Shenzhen Smart-Core Technology Co., Ltd., a subsidiary of the Group, passed the annual verification of National High-Tech Enterprise Certificate once again in the year of 2020, obtained the ISO9001–2015 quality system certification and intellectual property management system certification, and was awarded "Reliable and Credible" Enterprise Certificate. At the same time, the Group has continued to win the "Top Ten Best Chinese Brand Distributors" award by AspenCore, the largest media group in global electronics technology field in 2020. Quiksol HK has also won the award of "Top Three International Potential Star Distributors".

In respect of the Group's internal management and organization, we defined the development direction and opportunity points of each business cluster. Therefore, we had made targeted enhancement in team building. In spite of significant impact of pandemic on the economics, the total number of employees worldwide of the Group had a double-digit year-on-year growth in 2020. At the same time, the Group enhanced the expertise and skills training for various management positions and key staff members, formulated a learning-oriented structure to address the fast changing environment, and stepped up its commitment to IT infrastructures and corporate informatization, so as to cope with the new demands of the remote online collaborative office mode during the pandemic, and actively improve the business operation efficiency of the enterprise.

OUTLOOK FOR 2021

Defining Expected Growth in Post-epidemic era

Since the 21st century, people's production and labor patterns as well as economic models have been changed by modern science and technology, represented by microelectronic technology, information engineering, new energy and aerospace technology, which has a significant impact on human social and economic life. The electronic information industry has been developed as the first pillar industry of modern society, and its relevance with global economic development is increasingly enhanced. The electronic information industry not only restricts but also promotes the development of global economy, and its importance is highly valued by countries all over the world. According to a research report released by IC Insights in 2019, as the semiconductor chip market continues to shift from being driven by business applications to the consumer market, the correlation coefficient between global GDP growth and semiconductor chip industry growth will increase to 0.9 during the period from 2019 to 2024, showing an increasingly strong correlation.

According to the latest report released by the Department of Economic and Social Affairs of the United Nations, the global economy will rebound by 4.7% in 2021, and it is estimated that China's economic growth will reach 7.2%. It is a clear trend that the global economy will recover after the pandemic. With the positive progress in strengthening pandemic control and vaccine research and development in various regions, as well as the driving force of the semiconductor industry and its relevance to the global economic development, the prospects for the semiconductor industry in 2021 are promising. Moreover, according to reports from industry research institutions, with the support of emerging industries such as 5G, the IoT, big data, and AI, the current semiconductor industry is in a new super growth cycle, and the sales of the semiconductor industry will maintain a growth trend in the next few years. According to the data from IDC, the global semiconductor market revenue will reach to US\$476 billion with an increase of 7.7%, other industry research institutions even hold more optimistic expectations.

Grasping Development Opportunities, Expanding Distribution Business

The Group's authorized distribution and independent distribution businesses have different business models, but they are complementary to each other, jointly constituting the Group's "all-round" electronic components distribution system. In this large distribution system, the Group will be committed to developing more product business units to seek breakthrough growth.

The high-quality blue-chip customers in the local electronics manufacturing industry in China originally preferred international distribution giants with stronger comprehensive strength to provide services for them in the selection of electronic components supply chain service suppliers. However, as the problems such as hidden safety hazards of supply chain manifested in the trade war in recent years are becoming more and more obvious, the attitude of some blue-chip customer groups has begun to change, and local leading distributors, as long-term and reliable partners, have become their new choices. In response to this change in market trend, we will continue to strengthen the resource allocation of relevant business branches, improve local systematic operation and service capabilities, and form business capabilities for key large customers in the regions covered. We believe these measures will help enhance the distribution business indicators of the Group in 2021 and improve the geographical distribution balance of the Group's distribution business.

2021 will be a rare development opportunity for the independent distribution business. According to the market information, the shortage of chips commencing in the second half of 2020 will continue into 2021. Therefore, the imbalance of market supply and demand will not be improved fundamentally in a short term. Under the turbulent market environment, a large number of new opportunities will be created for independent distribution business. Hence, in 2021, we will continue to develop the independent distribution business strenuously, and the spot distribution business will penetrate into more overseas markets by relying on the Group's overseas business network.

Specializing in Software Services, Creating Value with Technology

Creating value with technology is a development strategy that the Group has been adhering to for a long time, and is also one of the core competitiveness that the Group attaches great importance. In 2021, the Group will continue to commit more resources to technology research and development, and there will be two significant changes in its development strategy. First of all, the Group will pay more attention to software services and cloud service capabilities in the coming year. Therefore, based on the industrial resources and customer bases accumulated by the Group on the IoT, consumer electronics and smart hardware over the years, we will carry out in-depth cooperation with Internet cloud service providers in the IoT, cloud services and SaaS software services, etc. to jointly create a new ecosystem of the IoT which based on cloud collaboration. Secondly, in the differentiated market segments such as smart commercial display, smart projection and smart locks, the Group will develop towards the direction of defining and designing standardized boards/modules in line with market demand and development trend in the future, so as to achieve better utilization efficiency of design resources and create more value for the enterprise through technical services.

Embracing the Semiconductor Industry, Building Core Competitiveness

Semiconductor chip is the core of electronic products and the cornerstone of electronic information industry. The president of the Semiconductor Industry Association (SIA) pointed out in 2020 that each US\$1 invested by the government in semiconductor research and development will create US\$16 of GDP growth, so the importance of semiconductor industry to the development of the national economy is self-evident. Under the background that the state strongly supports the development of semiconductor industry, the Group also attaches great importance to the expansion opportunities in the semiconductor field. In 2021, the Group will continue to provide its customers with customized memory solutions, while working with its upstream business partners to further develop its semiconductor chip business.

Focusing on Industry Changes, Exploring Overseas Markets

Currently, the Group's overseas business is mainly distributed in Japan, Singapore, India and several countries and regions in Southeast Asia. Although the pandemic in 2020 has caused some obstacles to the expansion of our overseas business, we have still made some progress in overseas business of the Group through localized service of the network and cloud collaboration. With the introduction and popularization of the COVID-19 vaccine in 2021, the post-epidemic era is coming and the emerging Southeast Asian market will be revitalized. In China, after the baptism of the trade war, relying on the increasingly large consumer market and the bonus of engineers, China's manufacturing industry is transforming to and developing research and development, design, brand, marketing, service and other aspects in the industrial chain with higher profit margins. Low-end labor-intensive manufacturing will continue to migrate to the emerging countries of Southeast Asia, where labor costs are lower. Therefore, in the near future, along with the continuous development of China's semiconductor chip industry, there will be more Chinese semiconductor chips to be exported to overseas market, during which, influential and responsible local distributors are required so that the original factory resources of local chip, product design, and global supply chain could be integrated to jointly achieve the worldwide industrialization of Chinese core.

Summary

In the past year of 2020, we have withstood the challenges of epidemic and market turmoil, and the Group's business has achieved steady growth. At the same time, the Group's internal management and business layout were clearer and improved, and a series of new plans and layout were smoothly carried out, and a number of important business units have entered the fast track of accelerated development. Looking forward to 2021, we have identified a new leap-forward development target, are confident and well prepared to cope with various challenges, continue to achieve stable operation and healthy development of the Group's business, and bring more returns to our shareholders. Finally, I would like to extend my heartfelt gratitude to each shareholder, business partner, member of the Board of Directors, the management and all staff for their assistance and support that contribute to the development of the Company.

BUSINESS REVIEW

2020 is a year full of uncertainties but also a year of both opportunities and trials amid the dual impact of the coronavirus disease (COVID-19) and the complicated international situation. According to the latest report released by the international authoritative research organization, IDC (International Data Corporation) in February 2021, although global economy was significantly affected by the COVID-19 pandemic in 2020 and showed a relatively large decline, the overall performance of the global semiconductor market was better than expected thanks to the increased demand for cloud computing and remote working and learning equipment. In 2020, revenue of global semiconductor grew by 5.4% to reach USD442 billion. Under the complicated and ever-changing market environment in 2020, the Group adopted to the environment and overcame various difficulties, and achieved aggregated sales of HK\$5,541 million, representing an increase of 16.3% comparing to the corresponding period in 2019 and a gross profit of HK\$310.5 million, representing an increase of 14.6% comparing to the corresponding period last year.

For the specific business segmentation, the business data of the authorized distribution business in TV, memory, automotive electronics, IoT, etc., remained stable in general; the performance of smart terminal business declined to a larger extent under the dual impact of industry development direction and the impact of the pandemic. However, businesses in the fields of optoelectronic displays, security monitoring, communication products and optical communications have achieved substantial growth. Independent distribution achieved remarkable results in 2020, and the business maintained a rapid growth rate. Meanwhile, the sales of the technology value-added businesses also achieved substantial growth. The following is a business review of the main segments of the Group.

Authorized Distribution

Television Products

The impact of the COVID-19 epidemic has caused a large fluctuation in the demand in the TV market in 2020, and the supply chain has become disordered. The outbreak of the epidemic in early 2020 has caused shutdowns in the PRC and unclear downstream demand. The shipment volume of TV SoC chips was low in the first half of the year. Under the new situation of rapid control of the epidemic in China, "home economy" has made smart TVs the major facility for home entertainment, office assistance, and learning assistance, which has spawned a large number of new market demands. The surge in market demand in the second half of the year led to insufficient supply in the front-line supply chain. The shortage of TV SoC chips is obvious, and the needs of small and medium-sized board customers in the market cannot be effectively satisfied. As a result, sales of the TV business unit recorded a slight decrease in 2020. The total sales of this business unit in 2020 amounted to HK\$2,049.3 million, representing a slight decrease of 1.8% comparing to the corresponding period in 2019.

Optoelectronic Displays

The Group's optoelectronic display product line mainly focuses on the sales of related chips in the fields of liquid crystal displays, touch screen, screen driver, CMOS image sensor, projection, power supply and industrial control. The increase in the number of mobile phone cameras has led to the increase in demand for CMOS image sensors. During the epidemic, home office entertainment has boosted the demand for TVs, monitors, notebooks, and projections, which has promoted the rapid growth of chip sales of related product lines. The shortage have particularly driven the growth of Opencell (semi-finished LCD panels) market, bringing new market opportunities to the supporting product lines such as Tcon, Driver and Power. In 2020, the Group's optoelectronic display business unit developed in a fast pace with total sales of HK\$947.3 million, representing a substantial increase of 78.1% comparing to the corresponding period in 2019.

Memory Products

Memory chip is an important branch of the semiconductor industry, accounting for more than a quarter of the global semiconductor market. According to the latest semiconductor market forecast released by WSTS (World Semiconductor Trade Statistics) in December 2020, the scale of global memory chip market is expected to grow by 12.22% to USD119.4 billion in 2020. Although the overall market is growing, most of the Group's memory products are bundled and sold with TV SoC chips and smart terminal chips. Therefore, the sales growth in 2020 is not prominent. In 2020, the business unit achieved total sales of HK\$492.2 million, representing a slight decrease of 0.2% comparing to the corresponding period in 2019.

Smart Terminals

The number of domestic IPTV users peaked coupled with the decline in the willingness of the three major operators in the PRC to subsidize IPTV terminals, which posed direct effect on the purchase of IPTV terminals. As for overseas markets, under the influence of COVID-19, the economies of many countries were stagnant, and demand in the global market has been sluggish. The Group's smart terminal product chip sales business was also affected seriously in 2020, and the business experienced a significant decline. In 2020, the business unit achieved total sales of HK\$396.2 million, representing a decrease of 26.2% comparing to the corresponding period in 2019, and the rate of decline narrowed from the year 2019.

Others

The persistence of the epidemic in 2020 created a worldwide demand for "home economy". Demand for network-based work collaboration and entertainment-related traffic surged. Cloud computing companies have expanded their investment in infrastructure such as large-scale data centers. In addition, many international operators are actively investing in LTE public networks, 5G mobile or 5G FWA home broadband networks, and 5G independent (5G SA) public networks. All of these investments in infrastructure will promote the rapid growth of the optical communication module market in the next few years. LightCounting, an optical communications market research institution advised that China's optical module suppliers will take up more than 50% of the global market share in 2020. Therefore, ancillary optical devices and other products will form a very active market segment. The optical communication devices being sold in the Group's optical communication product line are mainly used in optical module products, helping the sales of the Group's optical communication product lines achieve double growth in 2020.

The Group's security monitoring product line involves video surveillance, driving records, access control management, building talkback and other business segments. With the rapid growth of the local security monitoring market in China, the business unit achieved satisfactory growth in 2020 with a significant increase of 98.4% in sales revenue compared to 2019. The business of the communications product line focuses on the cellular IoT communication module field, providing ancillary MCP memory chips with low-capacity and 4G/5G RF power chips for downstream module manufacturers, and sales revenue in 2020 increased significantly by 57.0% compared with 2019.

The Group's automotive electronics field mainly focuses on automotive electronics, including application scenarios such as driving recorders, automotive DVRs, tire pressure monitoring, etc. Affected by the epidemic, shipment volume of automotive electronics product lines fell sharply in the first half of 2020. The market started to recover in the second half of the year but was hindered by shortages, therefore the performance of this business unit remained basically the same as in 2019.

Independent Distribution

For the Group's independent distribution business, market demand fluctuations caused by the COVID-19 epidemic and geopolitics has resulted in turmoil in the global semiconductor supply chain system in 2020. The shortage issue in the second half of the year has led to a further deterioration in the supply stability of the electronic component distribution market. Such fluctuating and complicated market requires a more sensitive market response and action, creating more business opportunities for independent distribution. As for the overall performance of the independent distribution business in 2020, both turnover and profit have increased to a larger extent.

In response to the COVID-19 pandemic, the Group has been closely monitoring the customer credit risk, level of inventory and cash flow position. The Group's latest financial position showed that the working capital position are sufficient to cope with the impact of the outbreak. Whenever necessary, prompt actions will be undertaken to mitigate potential impacts. The Group was not aware of uncertainties that would cause material adverse effects on the operations, financial performance and the financial position as a result of the COVID-19 pandemic in 2020 and up to the date of this report.

OUTLOOK

The International Monetary Fund (IMF) estimates that the global economy will grow by 5.5% in 2021, which is 0.3 percentage points higher than the forecast in October last year. The outlook is expected to be more optimistic. The Global Manufacturing Purchasing Managers Index published in January 2021 remains at a high level of 54.4%, reflecting that the global manufacturing industry will continue its recovering growth trend since the fourth quarter last year, laying a solid foundation for the continuation of recovering growth trend of the global manufacturing industry this year. The market generally expects that the global economy will show recovering growth in 2021.

Semiconductor chips are the hardware carriers of new technologies such as 5G, AI, big data, new energy, etc. The current market feedback reflects that there are shortages for chips in almost all market segments. Therefore, after the production capacity keep up with demand, the semiconductor industry is expected to experience a new wave of growth. According to the IDC's research report, as the epidemic is gradually under control and the economies of different countries begin to open up and recover gradually, the global semiconductor market will continue to grow by 7.7% in 2021, and the overall market size will reach USD476 billion.

China is the largest consumer of semiconductor chips in the world. Customs data shows that the amount of China's imports of semiconductor chips in 2020 reached USD350 billion. Under the current situation of anti-globalization, independent control of the semiconductor supply chain becomes particularly important. Following the implementation of more policies to support the semiconductor industry, the development will accelerate, and China's huge market demand will also lead the rapid development of the local semiconductor chip industry.

As a leading distributor of all-round electronic components in China, the Group has begun to enjoy results in its business diversification. In 2020, the sales performance of certain new business units began to achieve substantial growth, entering the highway of business development. In 2021, we will have even more development opportunities in various business distribution directions of the Group, and the outlook is as follows:

Authorized Distribution

Television Products

Entering 2021, there are many positive factors upcoming in the TV market: First, the two major international sports events delayed due to the COVID-19 epidemic are scheduled to start this year. According to historical experience, the promotion effect to the TV market by major international events is obvious. Another effect is the improvement in the field of technology applications. The trial broadcast of 8K Ultra HD channel of China Media Group was launched on 1 February this year. According to Deloitte's report, the market share of global 8K TV in the high-end TV field is increasing. It is expected that approximately 3 million units of 8K TV will be sold, while large-scale commercial use of Mini LED TVs may also be starting this year. The sophisticating new technologies and the declining cost may ignite the high-end TV market. Industry research organization TrendForce also estimates that global TV shipments are expected to reach 223 million units in 2021, representing an annual growth of 2.8%. Share of the Group's SoC chips sales in the TV field has been maintained at a relatively high level in the industry. Hence, the main concern is to stabilize the market share in the future. Business growth will mainly come from the expansion of new applications and new markets.

Optoelectronic Displays

Benefited from the substantial increase in current market demand, coupled with the continued shortage of wafers and packaging and testing capacity in 2021, the supply of chips in related fields such as display modules and power supplies continues to be tight. This business unit may continue to grow on displays and screen modules, opencell and other markets. For the industrial control field which is the new development direction of this business unit, domestic MCU manufacturers have the opportunity to increase their market share due to the shortage of supply from major MCU manufacturers in the industry. It is expected that new industrial control-related product lines will have the opportunity to record sales increase of more than USD1.0 million. As the reshuffle and adjustment in the mobile phone market accelerates, it will also bring new growth points to traditional popular product lines such as CMOS image sensors, driver chips, and touch chips. Generally speaking, we are optimistic about the performance of the optoelectronic display business unit in 2021.

Memory Products

Benefited from the increase in investment in new data centers in 2021 and the substantial increase in 5G smartphone shipments, memory chips have experienced a two-year cyclical decline beginning in 2018, and have shown a rebounding trend at the end of 2020. It is expected that the DRAM memory market will enter into a new round of price increases in 2021. According to the prediction made by Foresight Industry Research Institute (前瞻產業研究院), the market sales of NAND flash memory particles in China will maintain a compound annual growth rate of more than 15% in the future. The latest forecast report released by IC Insights, a well-known semiconductor market research institution, shows that global sales of DRAM chips are expected to increase by 18% in 2021, and sales of NAND flash memory will also increase by 17%.

In the fast-growing memory chip market, the Group has completed the adjustment of its business structure in 2020. The original form of business that relied heavily on packaged sales and focused on the South China market has developed into a new pattern in which the three major markets of South China, East China and overseas go hand in hand. By introducing expert to form a new business team, we will fully explore new opportunities hidden in the memory market, including the business expansion in the server memory field that is currently under evaluation. Therefore, it is expected that the performance of our memory business unit will have the opportunity to achieve substantial growth in 2021.

Smart Terminals

There are information showing that at the end of 2020, China Broadcasting Network Corporation (中國廣電股份) officially announced that it has completed the registration of industrial and commercial changes such as the paid-in capital and capital increase of the promoters of various provinces. The integration work of "one network in one country(全國一網)" is progressing smoothly, and the 5G industry chain in the 700MHz frequency band is also maturing gradually. Therefore, during the "14th Five-Year Plan" period, the national cable television network will either enter the stage of in-depth integration, or work in the direction of 5G NR broadcasting, using the existing 5G NR channel, so that all 5G devices will be able to receive the digital TV programs via 5G broadcasts. It may create brand-new product types and market opportunities which are worthy of attention. In addition, as the overseas epidemic is expected to be gradually brought under control in 2021, economic order will be back to normal, and the demand for set-top boxes in overseas emerging markets will also recover gradually. Therefore, in 2021, emphasis of the Group's smart terminal products will be placed on the expansion opportunities of domestic 4K/8K set-top boxes and overseas markets.

Others

With the economic development and the acceleration of urbanization in various countries, the demand for public security in the global society continues to grow rapidly, which plays a positive role in promoting the development of the security monitoring industry. The security monitoring products business unit of the Group has been deeply developing the security monitoring field over the past few years and has achieved satisfactory results. With the inclusion of NB-IoT into the 5G standard in May 2020, cellular IoT communication modules will be widely used in various new application scenarios such as the Internet of Vehicles, Industrial IoT and smart cities and thus have positive market prospects, which will promote the Group's communication product business unit to continue to grow in 2021.

The growth momentum of the optical module market mainly comes from two aspects: the telecommunications market (communication) and the cloud computing market (data), which corresponds to 5G infrastructure and data center construction. According to the latest statistics released by the Ministry of Industry and Information Technology in January this year, the world's largest 5G network has been established in China and investments will continue to be increased in the next few years. It is expected that more than 600,000 5G base will be built in 2021. According to LightCounting's forecast, the domestic telecommunications optical module market will reach USD2.27 billion (approximately RMB 15.8 billion) in 2021. Driven by the 5G infrastructure, it is expected that the global telecommunications optical module industry will record a compound annual growth rate of 11.5% from 2019 to 2023. Not only will the establishments of new large-scale data centers drive the increase in demand for optical modules, but it will also led to the evolution of technologically from the current 100G/200G to higher-end 400G products. Optical chips generally account for 50% of the cost of optical modules, making the future growth of the optical communication device market possible.

In the field of automotive electronics, with the rapid development of the Chinese economy, the market scale of China's automotive industry continues to expand. According to Intelligence Research Group (智研諮詢), an industry research organization, the market size of China's driving recorder is expected to reach RMB55.92 billion in 2020, as increase of 27.44% comparing to the corresponding period in 2019 and is expected to keep up its rapid growth pace in 2021. The Group's automotive electronics business unit mainly provides chips and solutions for the market such as driving recorders, smart central control and tire pressure monitoring. With the introduction of new car-level driving recorders, automotive DVRs solutions and other new products and solutions in 2021, it is expected that the performance of this business unit will achieve substantial growth in 2021.

Independent Distribution

Market feedback reveals that "out of stock" may become the key word of the electronic component distribution industry in 2021. Supply and demand imbalance is the main reason behind the price increase in the semiconductor industry. The industry generally predicts that the unstable condition of supply chain will be continued in 2021. Such imbalance condition will greatly promote the development of the independent distribution business segments of the Group. Leverage on a rapid market sense and a wide range of channels and based on a resources platform offered by global suppliers and an agile demand matching business model, a greater value can be realized in satisfying customers' spot demand under situations such as out of stock, urgent orders, etc. Therefore, it is expected that the independent distribution business segments will have a bright future in 2021.

For the operators in the semiconductor industry, 2021 will be a year full of opportunities. The Group will continue to expand and strengthen the existing distribution system, make full use of the Group's domestic and overseas business network, and increase investment in new business areas that have achieved breakthroughs in order to consolidate and expand our market share and promote the balanced development of our business. The imbalanced supply and demand will be continued in 2021. Under such circumstances, the Group will continue to devote its resources in the development of independent distribution business, actively explore the electronic component e-commerce business integrated with independent distribution elements so as to establish a powerful and comprehensive distribution system. In the field of technical services, we will work with the core strategic partners of the Group to expand the new IoT ecosystem based on software SaaS and cloud services. For product solutions, we will be focusing on the product definition, development and marketing of standard boards/modules for some differentiated market segments, and standardize development processes to enhance business efficiency and improve investment return. For investment in the semiconductor industry, we plan to combine the Group's effort in the field of optical communications and the customer base in the market that we established for years, and cooperate with upstream OEMs so as to grasp this opportunity to enhance the core competitiveness of the Group's semiconductor chip business.

In the future, we will accelerate the development of the Group's business on the foundation of stable operation and innovative development; enhance the Group's business scale and profitability, in order to bring better returns and long-term value to the shareholders of the Company (the "Shareholders").

FINANCIAL REVIEW

Revenue

For the year ended 31 December 2020, the Group's revenue amounted to HK\$5,541.0 million (2019: HK\$4,762.8 million), representing an increase of HK\$778.2 million (16.3%) as compared with the revenue for the year ended 31 December 2019.

The increase in revenue was mainly caused by the increase in the sales from our optoelectronic displays and security monitoring of approximately HK\$585.6 million and the increase in the sales from independent distribution of approximately HK\$143.8 million.

Gross profit

Our gross profit for the year ended 31 December 2020 increased by HK\$39.6 million to HK\$310.5 million as compared with the prior year (2019: HK\$270.9 million). Our gross profit margin decreased by 0.1% to 5.6% for the year ended 31 December 2020 (2019: 5.7%). The decrease in gross profit margin was principally the effect of the lower gross profit margin from the smart terminals.

Research and development expenses

Research and development expenses mainly comprise of staff costs incurred for our research and development department. For the year ended 31 December 2020, research and development expenses amounted to HK\$25.7 million, increased by 7.1% as compared with the year ended 31 December 2019 (2019: HK\$24.0 million). The increase was mainly due to an increase in staff costs.

Administrative, selling and distribution expenses

Administrative, selling and distribution expenses aggregated to HK\$168.5 million for the year ended 31 December 2020 (2019: HK\$153.5 million), which accounted for 3.0% of the revenue for the year ended 31 December 2020 as compared with 3.2% over the corresponding year in 2019. The net increase of HK\$15.0 million was mainly attributable to an increase in staff costs and professional fees.

Finance costs

The Group's interest expense on bank and other borrowings for the year ended 31 December 2020 amounted to HK\$18.2 million, a decrease of HK\$9.1 million as compared with that in 2019 (2019: HK\$27.3 million). Interest expenses mainly represent the borrowings cost from entering into various factoring agreements with some of the principal bankers. The decrease was due to the decrease in the average interest rate during the year.

Profit for the year

For the year ended 31 December 2020, the Group's profits amounted to HK\$85.4 million, representing an increase of HK\$23.6 million as compared to HK\$61.8 million in 2019, an increase of 38.2%. The net profit margin for the year ended 31 December 2020 was 1.5%, compared to 1.3% for the year ended 31 December 2019. The increase in the profit for the year was mainly contributed by the increase in gross profit and the decrease in finance costs.

Net profit attributable to the owners of the Company

The net profit attributable to the owners of the Company for the year ended 31 December 2020 amounted to HK\$71.0 million, representing an increase of 28.9% as compared with the year ended 31 December 2019 (2019: HK\$55.1 million).

Use of proceeds from the global offering

The shares of the Company were listed (the "Listing") on The Stock Exchange of Hong Kong Limited on 7 October 2016. The Company issued 125,000,000 new shares with the nominal value of US\$0.00001 at HK\$1.83 per share. The net proceeds from the Listing received by the Company were approximately HK\$205.8 million after deducting underwriting fees and estimated expenses in connection with the Listing.

The Group has utilised approximately HK\$138.4 million of the net proceeds as at 31 December 2020 according to the intentions set out in the prospectus of the Company dated 27 September 2016 (the "Prospectus"). The unutilised net proceeds in the amount of HK\$67.4 million have been placed as deposits with licensed banks and are expected to be utilised as set out on the Prospectus.

	Use of Proceeds	Net proceeds (in HK\$ million)	Utilised as at 31 December 2020 (in HK\$ million)	Amount remaining (in HK\$ million)	Expected timeline for utilising the remaining net proceeds (Notes 1 and 2) (in HK\$ million)
1.	Hiring additional staff for sales and marketing and business development and improvement of warehouse facilities	20.6	(20.6)	0.0	–
2.	Advertising and organising marketing activities for the promotion of our e-commerce platform Smart Core Planet and our new products	41.2	(41.2)	0.0	–
3.	Enhancing, further developing and maintain our e-commerce platform and improving our technology infrastructure	41.2	(6.9)	34.3	Expected to be fully utilised on or before 31 December 2022
4.	For research and development	20.6	(20.6)	0.0	–
5.	Funding potential acquisition of, or investment in business or companies in the e-commerce industry or electronics industry	61.7	(28.6)	33.1	Expected to be fully utilised on or before 31 December 2022
6.	General working capital	20.5	(20.5)	0.0	–
		205.8	(138.4)	67.4

Notes:

1. The expected timeline for utilising the remaining net proceeds is made based on the best estimation of the Company taking into account, among others, the prevailing and future market conditions and business developments and need, and therefore is subject to change.

2. The unutilised net proceeds from the Listing are expected to be used as intended except that the original timeline for utilising the remaining net proceeds as disclosed in the Prospectus has been delayed due to, among others things, the business environment being affected by the rapid change in technology in the past few years, the Sino-US trade tension since 2018, the social unrest in Hong Kong since June 2019 and the outbreak COVID-19 since January 2020. Additional time is therefore needed for the Group to (i) identify suitable resource, including personnel, suppliers and service providers, for the development of e-commerce platform and technology infrastructure, and to (ii) identify suitable targets for acquisition or investment that meet the Group's selection criteria.

Liquidity and financial resources

The Group's primary source of funding included cash generated from operating activities and the credit facilities provided by banks.

The Group possesses sufficient cash and available banking facilities to meet its commitments and working capital requirements. As at 31 December 2020, the Group maintained aggregate restricted and unrestricted bank balances and cash of HK\$416.7 million (31 December 2019: HK\$347.4 million).

As at 31 December 2020, the outstanding bank and other borrowings of the Group were HK\$727.1 million (31 December 2019: HK\$434.8 million). The Group's gearing ratio, based on the interest-bearing borrowings and total equity, increased from 72.3% as at 31 December 2019 to 108.5% as at 31 December 2020 as a result of the increased level of bank borrowings to finance our expanded working capital needs.

As at 31 December 2020, the total and unutilised amount of the Group's banking facilities (excluding standby letter of credit) were HK\$1,173.5 million and HK\$449.6 million (31 December 2019: HK\$955.8 million and HK\$521.0 million) respectively.

As at 31 December 2020, the Group had current assets of HK\$2,009.2 million (31 December 2019: HK\$1,394.5 million) and current liabilities of HK\$1,481.4 million (31 December 2019: HK\$930.7 million). The current ratio was 1.36 times as at 31 December 2020 (31 December 2019: 1.50 times).

The Group's debtors' turnover period was 62 days for the year ended 31 December 2020 as compared to 48 days for the year ended 31 December 2019. The overall debtors' turnover period was within the credit period. The increase in debtors' turnover period was due to the increase in sales in the second half of the year 2020 and the delay in payments from certain of our small and medium enterprises customers upon the change in the economic environment.

The creditors' turnover period was 34 days for the year ended 31 December 2020 as compared with 31 days for the year ended 31 December 2019. The creditors' turnover period has been maintaining at a stable level.

The inventories' turnover period was 21 days for the year ended 31 December 2020 as compared with 18 days for the year ended 31 December 2019. Inventory control was always one of the primary tasks of the Group's management team to maintain the liquidity and healthy financial position of the Group. Inventories' turnover period remained relatively stable in both years.

Foreign currency exposure

The Group's transactions are principally denominated in US dollars and Renminbi. The Group had not experienced any material difficulties or material adverse impacts on its operation despite the fluctuations in currency exchange rates and the net foreign exchange loss of approximately HK\$0.5 million for the year ended 31 December 2020 (31 December 2019: net foreign exchange loss of HK\$1.5 million). At the date of this report, the Group has not adopted any foreign currency hedging policy. However, the Group will consider the use of foreign exchange forward contracts to reduce the currency exposures in case the exposures become significant.

Pledge of assets

As at 31 December 2020, the financial assets at fair value through profit or loss ("FVTPL") amounted to HK\$130.1 million (31 December 2019: HK\$127.8 million), trade receivable factored amounted to HK\$580.3 million (31 December 2019: HK\$308.9 million) and bank deposits amounted to HK\$178.2 million (31 December 2019: HK\$161.4 million) had been charged as security for the bank borrowings and financing arrangement of the Group.

Capital commitment and contingent liabilities

The Group had no material capital commitment and contingent liabilities during the years ended 31 December 2020 and 2019.

Significant investment held

Save for the financial assets at FVTPL and debt instruments at FVTOCI as disclosed above, the Group did not hold any significant investments during the years ended 31 December 2020 and 2019.

Material acquisition and disposal of subsidiaries and associated companies

The Group has no material acquisitions or disposals of subsidiaries and associated companies during the year ended 31 December 2020.

Employees

As at 31 December 2020, the Group had 444 employees (31 December 2019: 387 employees), with a majority based in Shenzhen, Suzhou and Hong Kong. Total employee cost for the year ended 31 December 2020, excluding the remuneration of the Directors were approximately HK\$108.3 million (31 December 2019: HK\$102.1 million). There have been no material changes to the information disclosed in the prospectus dated 27 September 2016 in respect of the remuneration of employees, remuneration policies, share award scheme, share option scheme and staff development.

On 19 September 2016, the Company adopted a share award scheme ("Share Award Scheme") and conditionally approved and adopted a share option scheme ("Share Option Scheme").

In relation to the Share Award Scheme, the Board may, from time to time, at its absolute discretion, select any of our directors, senior managers and employees of the Group to participate in the Share Award Scheme ("Selected Participants"), subject to the terms and conditions set out in the Share Award Scheme. In determining the Selected Participants, the Board shall take into consideration matters including, but without limitation, the present and expected contribution of the relevant Selected Participants to the Group.

In relation to the Share Option Scheme, the Board (including any committee or delegate of the Board appointed by the Board to perform any of its functions pursuant to the rules of the Share Option Scheme) may, at its absolute discretion, offer to grant an option to subscribe for such number of shares as the Board may determine to an employee (whether full time or part- time) or a director of a member of the Group or associated companies of the Company.

During the year ended and as at 31 December 2020, no share awards were granted to the employees by the Company pursuant to the Share Award Scheme.

PURCHASE, SALE OR REDEMPTION OF LISTED SECURITIES

During the year ended 31 December 2020, the Company bought back a total of 2,564,000 Shares on the Stock Exchange (the "Share Repurchase") and a total of 11,150,000 Shares were cancelled by the Company. Subsequent to the year end, the Company bought back a total of 1,960,000 shares and a total of 4,274,000 shares bought back were cancelled by the Company on 5 March 2021. Details of the purchases of shares are as follows:

	Number of			Aggregate price (excluding
	Shares	Price per Share	Price per Share	commission fee
Month of buy-back	bought back	Highest	Lowest	and etc)
		HK\$	HK\$	HK\$
January	250,000	1.51	1.49	376,580
July	200,000	1.30	1.24	257,220
August	300,000	1.38	1.31	401,140
September	400,000	1.38	1.35	544,200
November	600,000	1.32	1.26	773,920
December	814,000	1.33	1.30	1,064,640

The Board believes that the Share Repurchase may, depending on market conditions and funding arrangements at that time, lead to an enhancement of its earning per Share, and will benefit the Company and Shareholders.

Save as disclosed above, there was no purchase, sale and redemption of any listed securities of the Company by the Company or any of its subsidiaries during the year ended 31 December 2020.

EVENTS AFTER THE FINANCIAL YEAR ENDED 31 DECEMBER 2020

On 8 March 2021, SMC Cloud Limited ("SMC Cloud"), a subsidiary of the Company, GCS Holdings, Inc. ("GCS") and Wisdom Fortune Corporation Limited ("WFCL") established a joint venture company in Shanghai, China with a registered capital of US\$6,250,000, which is held as to 46% by SMC Cloud. The joint venture company is principally engaged in the design and manufacturing of electronic components for optical communications markets. GCS, a company listed on the Taipei Exchange (stock code: 4991), is a manufacturer of semiconductor product. WFCL is a local distributor focusing on trading of electronic components.

DIRECTORS AND SENIOR MANAGEMENT

The biographical details of the Board of directors (the "Directors") and the senior management of the Company who held office during the Reporting Period and up to the date of this report are as follows:

EXECUTIVE DIRECTORS

Mr. Tian Weidong, aged 54, is the chairman of the Board, an executive Director and chief executive officer of our Company. He is the founder of our Group and has been leading our Group for over 15 years. Mr. Tian was appointed as a Director of our Company on 22 October 2015. He is also the chairman of the Company's nomination committee and a member of the Company's remuneration committee. Mr. Tian is responsible for overseeing the overall business strategy, development of projects, management and operations of our Group. Further, Mr. Tian is currently serving as a director of a number of subsidiaries of the Company, namely, Smart-Core International Holdings Limited, Smart-Core International Company Limited, Smart Link Holdings Limited, Smart-Core Cloud Holdings Limited, Smart-Core Cloud Limited, UDStore Solution Holdings Limited, UDStore Solution Limited, Smart-Core Link Holdings Limited, Smart-Core Link Limited, Smart-Core IC Cloud Holdings Limited, IC Cloud Holdings Limited, IC Cloud Limited, Smart IC Cloud Holdings Limited, Quiksol HK, Smart-Core Overseas Holdings Limited, Smart-Core Development Company Limited, Smart-Core DTDS Limited, DTDS Smart-Core Pte Limited and Smart-Core Japan Holdings Ltd.. He is also the sole director and sole shareholder of Smart IC Limited, a controlling shareholder (as defined in the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the "Listing Rules")) of the Company.

Mr. Tian has more than 20 years' experience in the semiconductor industry and its related distribution. He was the sales director of Shenzhen Dadong Electronics Co., Ltd. (which was principally engaged in sales of semiconductors) from October 1993 to June 1997 where he was in charge of the management of the sales team, formulation of sales and marketing strategies and maintenance of business partnerships with clients and suppliers. He was the sales manager of Trident Multimedia Technologies (Shanghai) Co., Ltd. (which was principally engaged in the design of IC products and the development of associated system software and application software) from December 1999 to March 2002 where he was in charge of sales and marketing.

Mr. Tian obtained a degree in Bachelor of Electronic Engineering from Xiamen University in July 1989 and a degree in Master of Business Administration from the National University of Singapore in March 2000 and a degree in Master Business Administration from the National Taiwan University in January 2019.

Mr. Wong Tsz Leung, aged 57, is an executive Director and chief financial officer of our Company. He was appointed as a Director of our Company on 22 October 2015. Mr. Wong joined our Group in March 2007 and subsequently promoted to the vice general manager. Mr. Wong is responsible for overseeing the overall strategy and responsible for the financial operations and management of our Group. Mr. Wong is currently serving as a director of a number of subsidiaries of the Company, namely, Smart-Core DTDS Limited, Quiksol HK and UDStore Solution Limited. Mr. Wong is also the chairman of supervisor committee of Henan Jinma Energy Company Limited (stock code: 6885) since July 2016. He is also the sole director and sole shareholder of Insight Limited, a substantial shareholder (as defined in the Listing Rules) of the Company.

Mr. Wong has more than 20 years of experience in business management. Prior to joining our Group, Mr. Wong was the financial controller of OSSIMA Publishing Group Limited (which was engaged in travel media business) from January 1995 to September 2005. Mr. Wong obtained a degree in Master of Business Administration from University of Wales via its distance learning program in December 2011.

DIRECTORS AND SENIOR MANAGEMENT

Mr. Liu Hongbing, aged 54, is an executive Director of our Company. He was appointed as a Director of our Company on 22 October 2015. Mr. Liu joined Shenzhen Smart-Core Technology Co., Ltd. in February 2007 and acted as the manager of the development department and was subsequently promoted to vice general manager. Mr. Liu is responsible for overseeing the overall strategy and responsible for the research and development matters of our Group. Further, Mr. Liu is currently serving as a director of a number of subsidiaries of the Company, namely, Shenzhen Smart-Core Technology Co., Ltd., Shenzhen Smart-Core Cloud Information Technology Co., Ltd and Shenzhen IC-Cloud Information Technology Co., Ltd.

Mr. Liu has more than 20 years' experience in the electronic engineering industry. Prior to joining our Group, he was the engineer of Hebei Tengfei Electronics Co., Ltd. (which was principally engaged in the design, manufacturing and sales of LCD TVs and other electronic appliances) from October 1993 to May 1999 and was the senior engineer of Shenzhen Zhong Tian Xin Electrical Technologies Co., Ltd. (which was principally engaged in the design, manufacturing and sales of electronic products including LED products, LCD TVs and audio devices) from June 1999 to January 2007. Mr. Liu obtained a degree in Bachelor of Physics from Shandong University in July 1988 and a degree in Executive Master of Business Administration from The Chinese University of Hong Kong in November 2015.

Mr. Yan Qing, aged 51, is an executive Director of our Company. He was appointed as a Director of our Company on 1 April 2019. Mr. Yan is currently servicing as the chief executive officer and director of Quiksol HK, a non-wholly owned subsidiary of our Group. Mr. Yan has more than 20 years of experience in electronics distribution industry. Prior to joining our Group, he served in the Beijing Magnet Health-care Product Co. Ltd as the sales engineer from August 1992 to August 1995. From November 1995 to July 1998, he acted as a sales manager of Nison Industrial & Commercial Pte Ltd-Singapore. From November 1999 to January 2006, he acted as a purchasing director of Converge Singapore. From January 2006 to August 2012, he worked as a director of APAC of Converge China.

Mr. Yan obtained a degree in Bachelor of Engineering in Geophysics Engineer from Jilin University in July 1992 and a degree in Master of Business Administration from the National University of Singapore in March 2000.

INDEPENDENT NON-EXECUTIVE DIRECTORS

Mr. Zheng Gang, aged 53, is an independent non-executive Director of our Company. He was appointed as an independent non-executive Director of our Company on 16 March 2016. Mr. Zheng has been the executive director of Good Fellow Healthcare Holdings Limited (formerly known as Hua Xia Healthcare Holdings Limited), a company listed on the Stock Exchange (stock code: 8143) since August 2007. Mr. Zheng had also been appointed as the independent non-executive director of China Internet Investment Finance Holdings Limited (formerly known as Open Asia Development Limited), a company listed on the Stock Exchange (stock code: 810) from July 2012 to May 2013. Mr. Zheng has extensive experience in management in the finance and investment industry. Mr. Zheng obtained a degree in Bachelor of Electronic Engineering from Xiamen University in July 1989 and a degree of Master of Business Administration from University of Wales in April 1994.

Mr. Tang Ming Je, aged 67, is an independent non-executive Director of our Company. He was appointed as an independent non-executive Director of our Company on 16 March 2016. Mr. Tang was a tenured associate professor of the department of business administration of University of Illinois at Urbana-Champaign from August 1991 to August 1995, a visiting associate professor of Hong Kong University of Science and Technology from January 1994 to January 1995 and a professor of department of industrial administration of Chang Gung University from December 1994 to August 1996. He held various positions in National Taiwan University, including Professor of the department of international business from August 1996 to February 2019, founding executive director of the executive master of business administration program from August 1997 to July 1999, director of the division of professional development from March 1998 to July 2004 and vice president for finance from August 2007 to May 2014. Mr. Tang obtained a degree in Bachelor of Civil Engineering from National Taiwan University in June 1975 and a degree in Doctor of Philosophy from Massachusetts Institute of Technology in September 1985. Mr. Tang has been an independent director of Fubon Financial Holding Co., Ltd., a company listed on the Taiwan Stock Exchange (stock code: 2881) since June 2014. He has also been appointed as an independent director of Mediatek Inc., a company listed on the Taiwan Stock Exchange (stock code: 2454) since June 2017.

DIRECTORS AND SENIOR MANAGEMENT

Mr. Wong Hok Leung, aged 68, is an independent non-executive Director of our Company. He was appointed as an independent nonexecutive Director of our Company on 1 July 2018. He has over 20 years of experience in banking, finance, IT and retail banking, and his last position in banking was in Singapore, as the head of distribution channels for DBS Bank.

Mr. Wong served in the Sun Hung Kai Properties Group as the group head of financial control and business development, and served as the chairman of Sun Hung Kai Logistics Holdings Limited from August 2002 to April 2008. From May 2008 to November 2009, Mr. Wong was a director of China Metal Recycling (Holdings) Limited (stock code: 773), which was delisted from the Main Board of the Stock Exchange in 2016. Mr. Wong was the chief corporate officer of IMC Industrial Pte Ltd. (formerly known as IMC Corp Pte Ltd) from January 2010 to August 2011. From August 2011 to February 2016, Mr. Wong served as the head of Asia Pacific of Scholz AG (now known as Scholz Holding GmbH) and was responsible for its business development in the People's Republic of China and Asian region. Mr. Wong was appointed as the head of capital markets and company secretary of Henan Jinma Energy Company Limited (stock code: 6885) from January 2017.

Mr. Wong is a member of the Hong Kong Institute of Certified Public Accountants and a fellow of The Chartered Association of Certified Accountants and obtained his accounting qualification experience in Price Waterhouse Lowe Bingham & Matthews. Mr. Wong obtained his bachelor's degree in science from the University of Hong Kong in November 1975.

SENIOR MANAGEMENT

Mr. Yau Chak Man, aged 41, joined the Group in February 2019 as the financial controller. Mr. Yau was also appointed as the company secretary of the Company in March 2019. He has extensive experience in auditing and financial management. He obtained the degree in Bachelor of Science in Quantitative Finance from The Chinese University of Hong Kong. He is a member of the Hong Kong Institute of Certified Public Accountants and a fellow member of the Association of Chartered Certified Accountants.

Mr. Mak Hoi Kai, Stanly, aged 60, is the chief marketing officer of the Group, responsible for the overall marketing strategy and marketing of the Group. Mr. Mak has more than 30 years' experience in the sales and marketing of electronic components. Mr. Mak joined the Group in December 2020. Prior to joining our Group, Mr. Mak acted as the group CEO (distribution business) and group executive director in Daiwa Associate Holdings Limited, a company listed on the Stock Exchange (stock code: 1037) from 1988 to 2013. He acted as a senior manager of a number of electronic component companies from 2012 to 2020.

The Directors hereby present the annual report together with the audited consolidated financial statements of the Group for the year ended 31 December 2020.

PRINCIPAL ACTIVITIES

The Company acts as an investment holding company. The activities of the principal subsidiaries are trading of electronic components. The Group has a strong capability to provide engineering support, and operate a distinctive e-commerce platform. Through closely co-operating with IC technology vanguards, the Group uses a comprehensive approach in consolidating industry resources and adopt an OAO (online and offline) business model to provide high quality core IC and value-added services to a broad base of customers. Our products include a wide range of IC and other electronic components used in applications such as TV products, smart terminals, memory products, optoelectronic display, communication, security monitoring, IoT and optical communication, etc..

BUSINESS REVIEW

A review of the business of the Group and a discussion on the Group's future business development is set out in the Chairman's Statement on pages 6 to 9 and in the Management Discussion and Analysis on pages 10 to 19 of this annual report.

Compliance with laws and regulations

As far as the Directors are aware, the Group has complied with all the relevant laws and regulations that have a significant impact on the business and operation of the Group during the year.

The Group and its activities are subject to requirements under various laws. These include, among others, Company Law of the PRC (《中華人 民共和國公司法》), Wholly Foreign-Owned Enterprise Law of the PRC (《中華人民共和國外資企業法》), Detailed Implementing Rules for the "Wholly Foreign-Owned Enterprise Law of the PRC" (《外資企業法實施細則》), Guidance Catalogue for Industrial Structure Adjustment (2011 Version) (《產業結構調整指導目錄》(2011年本)), the State Council promulgated Several Policies on Further Encouraging the Development of the Software and Integrated Circuit Industries (Guo Fa [2011] No. 4) (《國務院關於印發進一步鼓勵軟件產業和集成電路 產業發展的若干政策的通知》(國發[2011]4號)), Announcement of the National Development and Reform Commission of the PRC [2017] No. 1 — Guiding Catalogue of Key Products and Services for strategic Emerging Industries (2016 Edition) (《中華人民共和國國家發展和改 革委員會公告2017年第1號 — 戰略性新興產業重點產品和服務指導目錄》(2016年版)), Companies Ordinance (Chapter 622), Business Registration Ordinance (Chapter 310), Inland Revenue Ordinance (Chapter 112) and Employment Ordinance (Chapter 57) and the applicable regulations, guidelines, policies issued or promulgated under or in connection with our business activities. In addition, the Listing Rules apply to the Company.

The Group seeks to ensure compliance with these requirements through various measures such as internal controls and approval procedures, trainings and oversight of various business units with the designated resources at different levels of the Group. While these measures require considerable internal resources and result in additional operational cost, the Group highly values the importance of ensuring compliance with applicable legal and regulatory requirements.

Environmental policies and performance

Environment protection is critical to the long term development of the Group. The Group considers the importance of environmental affairs and believes business development and environment affairs are highly related. The Group has endeavoured to comply with laws and regulations regarding environment protection. These policies were supported by our staff and were implemented effectively. During the year ended 31 December 2020, we had not been subject to any fines or other penalties due to any non-compliance with health, safety or environmental regulations.

Relationship with employees

We believe our employees are the most valuable resources in achieving our success. We are committed to offering competitive remuneration package to employees and have implemented a self-appraisal program to provide incentive and motivation to the staff to attain periodic goals. The Company has adopted a share award scheme and a share option scheme to reward our senior management and employees for their hard work, contribution and loyalty.

To ensure the quality of our employees at all levels, we have intensive and standardised in-house training programmes to train our new joiners, mainly focusing on skills like company introduction and working procedure. The goal of the training programmes is to train our employees and to identify talent, with the aim of providing upward mobility within the Group, fostering employee loyalty and incorporating customized mentoring, coaching and training.

Relationship with suppliers, customers and other stakeholders

The Company understands the importance of maintaining good relationship with its suppliers and customers to meet its goals and to gain further success. We strive to maintain long-term and stable relationship with our major suppliers, which help to ensure our reliable access to their products. Our customer service team enables us to maintain close business relationships with our customers. Our application engineering support helps us maintain symbiotic relationship with suppliers and customers. We believe that our application engineering support promotes the use of our suppliers' products and streamlines our customers' development process at the same time. Both our suppliers and customers value our capability to provide application engineering support in end-product-development.

Our major suppliers are generally reputable IC and other electronic component companies, and had business relationship with the Group from 8 to 14 years. Our largest supplier is headquartered in Taiwan and has a diverse product portfolio of application specific ICs in various markets such as TV, set-top box and LCD monitor. Our major suppliers include IC companies that supply memory and silicon turner IC as well. The credit period from the major suppliers is 30 to 60 days.

Our major customers include leading brand-name consumer electronic product manufacturing companies, original design manufacturer ("ODMs") and original equipment manufacturer ("OEMs") in the electronic product industry in the PRC region. The years of business relationship with the Group ranged from 5 to 14 years and the credit terms granted to the major customers from 30 to 120 days.

Principal risks and uncertainties

We believe that the following are some of the major risks that may have adverse effect on our business:

• We are dependent on our major suppliers ("Major Suppliers"). If our distributorship rights with these Major Suppliers are terminated, interrupted, or modified in any way adverse to us, our business, financial condition and results of operations could be adversely affected. We are expanding our supplier base by means such as organic growth of our business, expansion into various product segments which the Major Suppliers are not the supplier and through investment in, acquisition of and strategic cooperation with IC companies and distributors. We have been expanding and will continue to expand our supplier base by exploring co-operation opportunities with new suppliers as well as introducing new product segments that we consider to have growth potential. We have implemented guidelines for selecting and introducing new suppliers and/or new products to our offering.

• We generally do not enter into long-term agreements with our customers, and some of them may cancel, change or postpone their orders. Furthermore, more than 50% of our revenue during the year was generated from our largest five customers. The concentration of our customers exposes us to risks, and the performance of our major customers may in turn lead to fluctuation or decline in our revenue. We are investing more resources on our advertising and organizing marketing activities for the promotion of our e-commerce platform, Smart-Core Planet and our new products, with the aim of expanding our customer base. Apart from expanding our customer base through Smart-Core Planet, we keep enriching our product portfolio and expanding our supplier base. We have identified a number of strategic product segments which we consider to be fast developing. We will continue to expand our product portfolio and invest in our value added engineering support services in relation to such strategic segments.

• • Our profit margins are slim and therefore our profitability could be adversely affected if our profit margins cannot be sustained.
• • We are dependent on short-term financing. In the event that our bankers cancel these facilities or the interest rates at which we could obtain such facilities increases, our business operations, revenue and profitability could be adversely affected.
• • As a distributor, we do not directly monitor the quality control procedures of our major suppliers. If a product that we distribute has defects or performance problems, our reputation and operation could be adversely affected.

RESULTS AND APPROPRIATIONS

The results of the Group for the year ended 31 December 2020 and the Group's financial position at that date are set out in the Group's consolidated financial statements on pages 80 to 82.

Subsequent to the end of the Reporting Period, a final dividend of HK4 cents per share (2019: HK2 cents) had been recommended by the directors of the Company and is subject to the approval by the Shareholders in the forthcoming annual general meeting. Interim dividend of HK2 cents per share (2019: HK2 cents) was declared and paid during the year.

FINANCIAL SUMMARY

A summary of the consolidated results and the assets and liabilities of the Group for the last five financial years is set out on pages 4 and 5.

SEGMENT INFORMATION

Details of the segment information of the Group are set out in note 6 to the consolidated financial statements.

NON-COMPETITION UNDERTAKING

In order to ensure that direct competition does not develop between the Group and each of Mr. Tian and Smart IC Limited ("Controlling Shareholders")'s other activities, our Controlling Shareholders have entered into the deed of non-competition dated 19 September 2016 executed by the Controlling Shareholders in favour of the Company ("Deed of Non-competition"). Under the Deed of Non-competition, each of the Controlling Shareholders had undertaken to the Company (for ourselves and for the benefit of our subsidiaries) that, save for the Retained Business (as defined in the Company's prospectus dated 27 September 2016 ("Prospectus")), they will not, and they will use their best endeavours to procure that their respective close associates (except any members of the Group) will not, whether directly or indirectly (including through anybody corporate, partnership, joint venture or other contractual arrangement and for projects or otherwise) or as principal or agent, and whether on their own account or with each other or in conjunction with or on behalf of any person, firm or company or through any entities (except in or through any member of the Group), carry on, engage, participate or hold any right or interest in or render any services to or otherwise be involved in any business (the "Restricted Business") which is in competition with the business of any member of the Group, the details of which are set out in the Prospectus.

Under the Deed of Non-competition, the Controlling Shareholders have, among others, (i) undertaken, in the situation when the Controlling Shareholders or their respective close associates identify any new business opportunity relating to the Restricted Business ("Business Opportunity") to refer such Business Opportunity to the Company; (ii) undertaken not to pursue such Business Opportunity unless our independent non-executive Directors declines the Business Opportunity and do not veto the pursuit of such Business Opportunity by the Controlling Shareholders; and (iii) Mr. Tian granted an option for the Company to purchase all of his shareholding interest in Smart-Core Technology Co., Ltd. (芯智股份有限公司) ("SMC Taiwan"), and/or the assets or other interests of SMC Taiwan and/or any new business similar to our core business which has been developed, operated or owned (whether directly or indirectly) by Mr. Tian, or any companies controlled (whether directly or indirectly) by him. For further details, please refer to the Prospectus — "Relationship with Our Controlling Shareholders".

Mr. Tian and Smart IC Limited have confirmed their compliance with the Non-Competition Undertaking during the year ended 31 December 2020. The independent non-executive Directors have also reviewed the compliance with the Deed of Non-Competition by Mr. Tian and Smart IC Limited and are satisfied that they have complied with the undertakings.

SHARE CAPITAL

Details of movements in the share capital of the Company during the year are set out in note 32 consolidated financial statements.

RESERVES

Details of movements in reserves of the Group and the Company during the year are set out in the consolidated statement of changes in equity and reserves of the Company on page 83 and note 42 to the consolidated financial statements of this annual report respectively.

DISTRIBUTABLE RESERVES OF THE COMPANY

As at 31 December 2020, the Company had distributable reserves amounted to HK\$230.0 million (2019: HK\$255.5 million).

PROPERTY, PLANT AND EQUIPMENT

Details of movements in the property, plant and equipment of the Group during the year are set out in note 16 to the consolidated financial statements.

DONATIONS

During the year, the Group made charitable and other donations in the aggregate amount of approximately HK\$66,000 (2019: HK\$60,000).

BANK AND OTHER BORROWINGS

Particulars of the bank and other borrowings of the Group at 31 December 2020 are set out in note 30 to the consolidated financial statements.

MAJOR SUPPLIERS AND CUSTOMERS

During the year, the aggregate amount of purchase from the Group's five largest suppliers was approximately 78.9% of the Group's total purchases, while the purchases from the Group's largest supplier was approximately 54.7% of the Group's total purchases.

During the year, the aggregate amount of sales to the Group's five largest customers was approximately 51.1% of the Group's total revenue, while the sales to the Group's largest customer was approximately 18.7% of the Group's total revenue.

None of the Directors, their close associates, or any shareholder (which to the best knowledge of the Directors owns more than 5% of the Company's issued share capital) had any interests in the Group's five largest suppliers or customers.

DIRECTORS

The Directors during the year ended 31 December 2020 and up to the date of this Directors' report were:

Executive Directors

Mr. Tian Weidong Mr. Wong Tsz Leung Mr. Liu Hongbing Mr. Yan Qing

Independent non-executive Directors

Mr. Tang Ming Je Mr. Zheng Gang Mr. Wong Hok Leung

In accordance with the articles of association of the Company, one third of the Directors will retire at the forthcoming annual general meeting (the "AGM"), and being eligible, offer themselves for re-election at the AGM. Accordingly, Mr. Tian Weidong, Mr. Yan Qing and Mr. Tang Ming Je will retire by rotation at the forthcoming AGM of the Company and being eligible, will offer themselves for re-election at the AGM.

INDEPENDENCE OF INDEPENDENT NON-EXECUTIVE DIRECTORS

During the year ended 31 December 2020, the Board at all times met the requirements of the Listing Rules relating to the appointment of at least three independent non-executive Directors representing more than one-third of the Board with one of whom possessing appropriate professional qualifications or accounting or related financial management expertise. The Company has received written confirmation from each of the independent non-executive Directors in respect of his independence in accordance with the independence guidelines set out in rule 3.13 of the Listing Rules. The Company considers all independent non-executive Directors to be independent.

DIRECTORS' SERVICE CONTRACTS

Executive Directors

Each of the executive Directors has entered into a service contract with the Company pursuant to which they agreed to act as executive Directors for a term of three years with effect from the date of appointment, which shall be renewed as determined by the Board or the Shareholders of the Company. The appointment of each of the executive Directors may be terminated by either party by giving at least three months' written notice to the other.

Independent non-executive Directors

Each of the independent non-executive Directors has been appointed for a term of three years commencing from the date of appointment, which shall be renewed as determined by the Board or the Shareholders of the Company. The appointment of each of the independent nonexecutive Directors may be terminated by either party giving at least three months' written notice to the other.

None of the Directors who is proposed for re-election at the forthcoming AGM has with the Group an unexpired service contact which is not determined by the Group within one year without payment of compensation (other than statutory compensation).

DIRECTORS' INTERESTS AND SHORT POSITIONS IN SHARES AND UNDERLYING SHARES

As at 31 December 2020, the interests and short positions of our Directors or chief executives of the Company in the shares, underlying shares and debentures of the Company or any associated corporation (within the meaning of Part XV of the Securities and Future Ordinance ("SFO")) as recorded in the register required to be kept under Section 352 of the SFO; or are required, pursuant to the Model Code for Securities Transactions by Directors of Listed Companies (the "Model Code") as set out in Appendix 10 to the Listing Rules, to be notified to the Company and the Stock Exchange are as follows:

		Number of	Approximate shareholding
Nature of Interest	Class of Shares	Shares held	percentage(4)
Interest in a controlled corporation	Ordinary	262,500,000 (L)	53.25%
Interest in a controlled corporation	Ordinary	90,000,000 (L)	18.26%
Beneficial owner	Ordinary	1,231,509 (L)	0.25%

Notes:

(1) Smart IC Limited is wholly owned by Mr. Tian Weidong. Therefore, Mr. Tian is deemed to be interested in all the shares held by Smart IC Limited.

(2) Insight Limited is wholly owned by Mr. Wong Tsz Leung. Therefore, Mr. Wong is deemed to be interested in all the shares held by Insight Limited.

(3) Mr. Yan Qing is interested in 1,755,000 shares of Quiksol HK, representing approximately 22.5% of the total issued shares of Quiksol HK.

(4) Based on 492,955,030 Shares in issue as at 31 December 2020.

(L) represents long positions.

Save as disclosed above, as at 31 December 2020, none of the Directors nor their associates had any interests or short positions in any share, underlying shares or debentures of the Company or any of its associated corporation (within the meaning of Part XV of the SFO) as recorded in the register required to be kept under Section 352 of the SFO or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code.

DIRECTORS' INTERESTS IN TRANSACTION, ARRANGEMENTS AND CONTRACTS

Save as disclosed under the sections headed "Connected Transactions" and "Related Party Transactions" on pages 31 and 32 of this report, no transactions, arrangements or contracts of significance, to which the Company, or its holding companies, subsidiaries or fellow subsidiaries was a party and in which the Director or the Director's connected entity had a material interest, whether directly or indirectly, subsisted at the end or at any time during the year ended 31 December 2020.

DIRECTORS' INTERESTS IN COMPETING BUSINESS

Save as disclosed under the section headed "Non-Competition Undertaking" on page 25 of this report, during the year ended 31 December 2020, none of the Directors has an interest in a business which competes or is likely to compete, either directly or indirectly, with the business of the Group.

PERMITTED INDEMNITY

Pursuant to the articles of association of the Company, every Director, auditor or other officer of the Company shall be entitled to be indemnified out of the assets of the Company against all losses or liabilities incurred or sustained by him as a Director, auditor or other officer of the Company in defending any proceedings, whether civil or criminal, in which judgment is given in his favour, or in which he is acquitted.

The Company has arranged Directors and officer insurance policy to protect the Directors against potential costs and liability arising from claims brought against the Directors.

EVENTS AFTER THE FINANCIAL YEAR ENDED 31 DECEMBER 2020

Details of the events after reporting period of the Group are set out in note 41 to the consolidated financial statements.

PRINCIPAL SUBSIDIARIES

The Group's operations are conducted on a global basis through its direct or indirect subsidiaries. Details of the subsidiaries of the Company as at 31 December 2020 are set out in note 40 to the consolidated financial statements.

PURCHASE, SALE OR REDEMPTION OF LISTED SECURITIES

During the year ended 31 December 2020, the Company bought back a total of 2,564,000 Shares on the Stock Exchange (the "Share Repurchase") and a total of 11,150,000 Shares were cancelled by the Company. Subsequent to the year end, the Company bought back a total of 1,960,000 shares and a total of 4,274,000 Shares bought back were cancelled by the Company on 5 March 2021.

Details of the purchases of shares are as follows:

	Number of			Aggregate price (excluding
	Shares bought	Price per Share		commission fee
Month of buy-back	back	Highest	Lowest	and etc)
		HK\$	HK\$	HK\$
January	250,000	1.51	1.49	376,580
July	200,000	1.30	1.24	257,220
August	300,000	1.38	1.31	401,140
September	400,000	1.38	1.35	544,200
November	600,000	1.32	1.26	773,920
December	814,000	1.33	1.30	1,064,640

The Board believes that the Share Repurchase may, depending on market conditions and funding arrangements at that time, lead to an enhancement of its earning per Share, and will benefit the Company and Shareholders.

Save as disclosed above, there was no purchase, sale and redemption of any listed securities of the Company by the Company or any of its subsidiaries during the year ended 31 December 2020.

SUBSTANTIAL SHAREHOLDERS' INTERESTS AND SHORT POSITIONS IN SHARES AND UNDERLYING SHARE

As at 31 December 2020, so far as the Directors are aware, the following persons (other than a Director or a chief executive of the Company) have interests or short positions in the shares or underlying shares of the Company, as recorded in the register required to be kept by the Company under Section 336 of Part XV of the SFO:

		Number of	Approximate shareholding
Name of Director	Nature of Interest	Shares held	percentage(3)
Mr. Tian Weidong (1)	Interest in a controlled corporation	262,500,000 (L)	53.25%
Mr. Wong Tsz Leung (2)	Interest in a controlled corporation	90,000,000 (L)	18.26%

Notes:

(1) Smart IC Limited is wholly owned by Mr. Tian Weidong. Therefore, Mr. Tian is deemed to be interested in all the shares held by Smart IC Limited.

(2) Insight Limited is wholly owned by Mr. Wong Tsz Leung. Therefore, Mr. Wong is deemed to be interested in all the shares held by Insight Limited.

• (3) Based on 492,955,030 Shares in issue as at 31 December 2020.
• (L) Represents long position.

Saved as disclosed above, as at 31 December 2020, the Company had not been notified by any persons who had any interests or short positions in the shares or underlying shares of the Company which would fall under the provisions of Division 2 and 3 of Part XV of the SFO to be disclosed to the Company, or which were recorded in the register required to be kept by the Company under Section 336 of the SFO.

CONTROLLING SHAREHOLDERS' INTERESTS IN CONTRACTS

There were no contracts of significance (including for the provision of services) with any member of the Group as the contracting party and in which any of the Controlling Shareholders and their respective associates possessed direct or indirect substantial interests, and which was still valid on 31 December 2020 or any time during such year and related to the business of the Group.

CONNECTED TRANSACTIONS

On 8 May 2020, Smart-Core International, a wholly-owned subsidiary of the Company, and Quiksol HK entered in the Loan Agreement ("Loan Agreement"), pursuant to which Smart-Core International agreed to make available to Quiksol HK a US\$ revolving loan facility in an aggregate amount of US\$3,800,000 at an interest rate of 7% per annum, which is determined with reference to the prevailing interest rate in the market. Smart-Core International agrees to make the facility available to Quiksol HK from the date of the Loan Agreement up to and inclusive of 29 April 2021, and the Maturity Date is 30 April 2021. Quiksol HK shall apply all loans solely towards financing purchase orders of electronic components of commodity nature goods arising from orders placed by customers of Quiksol HK with Quiksol HK from time to time.

Smart IC Cloud Holdings Limited, a wholly-owned subsidiary of the Company, holds 25% of the issued share capital of the Quiksol HK. Mr. Yan Qing is an executive Director and therefore a connected person of the Company. He is also a substantial shareholder of Quiksol HK. Quiksol HK is therefore regarded as a commonly held entity within the meaning in rule 14A.27 of the Listing Rules.

Accordingly, the loan made by Smart-Core International to Quiksol HK under the Loan Agreement (the "Loan") and the amended facility made available by Smart-Core International to Quiksol HK as set out in the Supplemental Agreement (the "Amended Facility") constitute a connected transaction of the Company under rule 14A.26 of the Listing Rules.

As Mr. Yan Qing is a connected person of the Company as disclosed above and Mr. Li Hong Sheng is a substantial shareholder of Quiksol HK, each of the personal guarantees made by Mr. Li Hong Sheng and Mr. Yan Qing as guarantors in favour of Smart-Core International constitutes a connected transaction of the Company in the form of financial assistance under the Listing Rules. According to rule 14A.90 of the Listing Rule, such financial assistance received by the Group is fully exempt from the reporting, announcement and independent shareholders' approval requirements under Chapter 14A of the Listing Rules as the Directors consider that it is conducted on normal commercial terms or better and it is not secured by the assets of the Group.

For details of the loan agreement, please refer to the announcement of the company dated 8 May 2020.

During the year ended 31 December 2020, the Group had the following continuing connected transactions with the following companies:

		Year ended	Year ended
		31 December	31 December
Name of the company	Nature of transaction	2020	2019
		HK\$'000	HK\$'000
SMC Taiwan (Note a)	Sales of goods	101	2,823
SMC Taiwan (Note a)	Purchase of goods	(1,408)	–
Quiksol International Components Pte Ltd (Note b)	Sales of goods	228	2,898
Quiksol International Components Pte Ltd (Note b)	Purchase of goods	(13)	(690)

Notes:

(a) A Company owned as to 90% by Mr. Tian Weidong, our executive Director and controlling shareholder.

(b) A non-controlling shareholder of a non-wholly owned subsidiary is a shareholder of Quiksol International Components Pte Ltd.

Our Directors (including the independent non-executive Directors) consider the above transactions have been entered into: (1) in the ordinary and usual course of business of the Group; (2) on normal commercial terms and consideration payable was determined based on arms' length negotiations between the parties and with reference to the price offered to independent similar customers; and (3) in accordance with the respective agreements governing them on the terms that one fair and reasonable and in the interest of the Shareholders as a whole. The Company has followed its pricing policies and guidelines when determining the price and terms of the above transactions conducted during the year, and has complied with the disclosure requirements of Chapter 14A of Listing Rules in respect of the above connected transactions or continuing connected transactions.

RELATED PARTY TRANSACTIONS

Certain related party transactions as disclosed in note 39 to the consolidated financial statements prepared under Hong Kong Financial Reporting Standards also constituted connected transactions under the Listing Rules required to be disclosed in accordance with Chapter 14A of the Listing Rule. The Company has complied with the disclosure requirements of Chapter 14A of Listing Rules in respect of the above connected transactions or continuing connected transactions.

EMPLOYEE INCENTIVE SCHEMES

On 19 September 2016, the Company adopted a Share Award Scheme and conditionally approved and adopted a Share Option Scheme. During the year ended 31 December 2020, no new shares had been subscribed by the Trustee and no shares of the Company were acquired by the Trustee pursuant to the rules and trust deed of the Share Award Scheme. No share-based payment expenses were recognized in the consolidated statement of profit or loss and other comprehensive income for the year ended 31 December 2020 (2019: nil). No share option had been granted or agreed to be granted by the Company pursuant to the Share Option Scheme as at 31 December 2020.

Share Option Scheme

Details of the Share Option Scheme (which became effective on the Listing Date) are set out as follows:

(a) Purpose of the Share Option Scheme

The purpose of the Share Option Scheme is to incentivize and reward the ESOS Eligible Persons (as defined below) for their contribution to the Group and to align their interests with that of the Company so as to encourage them to work towards enhancing the value of the Company.

(b) Participants of the Share Option Scheme

The Board (including any committee or delegate of the Board appointed by the Board to perform any of its functions pursuant to the rules of the Share Option Scheme) may, at its absolute discretion, offer to grant an option to subscribe for such number of Shares as the Board may determine to an employee (whether full time or part-time) or a director of a member of the Group or associated companies of the Company ("ESOS Eligible Persons").

(c) Maximum number of Shares in respect of which options may be granted

The maximum number of Shares which may be issued upon exercise of all options to be granted under the Share Option Scheme and any other share option schemes (the "Other Schemes") of the Company must not in aggregate exceed 50,000,000 shares (representing 10.23% of the issued capital of the Company as at the date of this report) (the "ESOS Mandate Limit"). Options lapsed in accordance with the terms of the Share Option Scheme and any Other Schemes of the Company will not be counted for the purpose of calculating the ESOS Mandate Limit.

The Board may, with the approval of the Shareholders in general meeting, refresh the ESOS Mandate Limit provided that the total number of Shares which may be issued upon the exercise of all options to be granted under the Share Option Scheme and any Other Schemes of the Company under the ESOS Mandate Limit as refreshed must not exceed 10% of the Shares in issue as at the date on which the Shareholders approve the refreshment of the Scheme Mandate Limit. Options previously granted under the Share Option Scheme and any Other Schemes of the Company (including those outstanding, cancelled, lapsed in accordance with the terms of the relevant scheme, or exercised options) will not be counted for the purpose of calculating the ESOS Mandate Limit as "refreshed". The Board may, with the approval of the Shareholders in general meeting, grant options to any ESOS Eligible Person or ESOS Eligible Persons specifically identified by them which would cause the ESOS Mandate Limit to be exceeded. The Company shall send to the Shareholders a circular containing the information required under the Listing Rules for the purpose of seeking the approval of the Shareholders.

At any time, the maximum number of Shares which may be issued upon exercise of all outstanding options granted and not yet exercised under the Share Option Scheme and any Other Schemes of the Company to ESOS Eligible Persons must not exceed 30% of the total number of Shares in issue from time to time.

The maximum number of Shares in respect of which options may be granted shall be adjusted, in such manner as the auditors of the Company or independent financial adviser appointed by the Board shall certify in writing to the Board to be fair and reasonable, in the event of any alteration in the capital structure of the Company whether by way of capitalisation of profits or reserves, rights issue, consolidation or subdivision of shares, or reduction of the share capital of the Company, provided that no such adjustment shall be made in the event of an issue of Shares as consideration in respect of a transaction.

As at the date prior to the issue of this annual report, the maximum number of Shares which may be issued upon exercise of all options to be granted under the Share Option Scheme is 50,000,000 Shares, representing 10% of the total number of Shares as at the Listing Date.

(d) Maximum Entitlement of Each Individual

No options shall be granted to any ESOS Eligible Person under the Share Option Scheme which, if exercised, would result in such ESOS Eligible Person becoming entitled to subscribe for such number of Shares as, when aggregated with the total number of Shares already issued or to be issued to him under all options granted to him (including exercised, cancelled and outstanding Options) in the 12-month period up to and including the date of offer of such options, exceeds 1% of the Shares in issue at such date.

Any further grant of options to an ESOS Eligible Person in excess of this 1% limit shall be subject to the approval of the Shareholders in general meeting with such ESOS Eligible Person and his close associates (or if such ESOS Eligible Person is a connected person, his associates) abstaining from voting. The Company must send a circular to the Shareholders disclosing the identity of the ESOS Eligible Person in question, the number and terms of the options to be granted (and options previously granted to such ESOS Eligible Person) and such other information required under the Listing Rules.

The number and terms (including the exercise price) of the options to be granted to such ESOS Eligible Person must be fixed before the Shareholders' approval and the date of the Board meeting approving such further grant shall be taken as the date of grant for the purpose of determining the exercise price of the options.

(e) Acceptance of an Offer of Options

An offer of options shall be open for acceptance for such period (not exceeding 30 days inclusive of, and from, the date of offer) as the Board may determine and notify to the ESOS Eligible Persons concerned provided that no such offer shall be open for acceptance after the expiry of the duration of the Share Option Scheme. An offer of options not accepted within this period shall lapse. An amount of HK\$1.00 is payable upon acceptance of the grant of an option and such payment shall not be refundable and shall not be deemed to be a part payment of the exercise price.

(f) Exercise Price

Subject to any adjustment made in respect of alteration of share capital, the exercise price shall be such price as determined by the Board and notified to an option-holder and which shall not be less than the higher of:

• (i) the closing price of the Shares as stated in the Stock Exchange's daily quotation sheets on the date of offer of the option;
• (ii) the average of the closing price of the Shares as stated in the Stock Exchange's daily quotation sheets for the five trading days immediately preceding the date of offer of the option; and
• (iii) the nominal value of the Shares.

(g) Duration of the Share Option Scheme

The Share Option Scheme shall be valid and effective for a period of ten years commencing on the Listing Date, after which period no further options will be granted but the provisions of the Share Option Scheme shall remain in full force and effect to the extent necessary to give effect to the exercise of any options granted prior thereto which are at that time or become thereafter capable of exercise under the Share Option Scheme, or otherwise to the extent as may be required in accordance with the provisions of the Share Option Scheme.

(h) Time of Vesting and Exercise of Options

Any option shall be vested on an option-holder immediately upon his acceptance of the offer of options provided that if any vesting schedule and/or conditions are specified in the offer of the option, such option shall only be vested on an option-holder according to such vesting schedule and/or upon the fulfilment of the vesting conditions (as the case may be). Any vested option which has not lapsed and which conditions have been satisfied or waived by the Board in its sole discretion may, unless the Board determines otherwise in its absolute discretion, be exercised at any time from the next business day after the offer of options has been accepted. Any option which remains unexercised shall lapse upon the expiry of the option period, which period shall be determined by the Board and shall not exceed ten years from the offer date of the option (the "Option Period").

An option shall be subject to such terms and conditions (if any) as may be determined by the Board and specified in the offer of the option, including any vesting schedule and/or conditions, any minimum period for which any option must be held before it can be exercised and/or any performance target which needs to be achieved by an option-holder before the option can be exercised. Any terms and conditions determined by the Board must not be contrary to the purpose of the Share Option Scheme and must be consistent with such guidelines (if any) as may be approved from time to time by the Shareholders.

No option may be exercised in circumstances where such exercise would, in the opinion of the Board, be in breach of a statutory or regulatory requirement.

(i) Restriction on the Time of Grant of Options

A grant of options may not be made after inside information has come to our knowledge until such inside information has been announced as required under the Listing Rules. In particular, no option may be granted during the period commencing one month immediately preceding the earlier of:

• (i) the date of the Board meeting (as such date is first notified to the Stock Exchange in accordance with the Listing Rules) for the approval of the Company's results for any year, half-year, quarterly or other interim period (whether or not required under the Listing Rules); and
• (ii) the deadline for the Company to publish an announcement of the results for any year, or half year under the Listing Rules, or quarterly or any other interim period (whether or not required under the Listing Rules), and ending on the date of the results announcement. The period during which no option may be granted will cover any period of delay in the publication of a results announcement.

For further details on the Share Award Scheme, please refer to section headed "Appendix IV — Statutory and General Information — D. Employee Incentive Schemes — 2. Share Option Scheme" of the Prospectus.

Share Award Scheme

Details of the Share Award Scheme (which became effective on 19 September 2016) are set out as follows:

(a) Purpose of the Share Award Scheme

The purpose of the Share Award Scheme is to reward our directors, senior managers and employees of the Group ("Eligible Persons") for their hard work, contribution and loyalty and align their interests with those of the Shareholders.

(b) Duration of the Share Award Scheme

Subject to any early termination as may be determined by the Board pursuant to the rules of the Share Award Scheme, the Share Award Scheme shall be valid and effective for a term of 10 years commencing on 19 September 2016, after which period no further Awards (as defined below) will be granted but the provisions of the Share Award Scheme shall remain in full force and effect to the extent necessary to give effect to the vesting of any Awards granted prior to the expiration of the Share Award Scheme, or otherwise to the extent as may be required in accordance with the provisions of the Share Award Scheme.

(c) Participants of the Share Award Scheme and Basis for Determining the Eligibility of the Selected Participants

The Board may, from time to time, at its absolute discretion, select any Eligible Persons to participate in the Share Award Scheme ("Selected Participants"), subject to the terms and conditions set out in the Share Award Scheme. In determining the Selected Participants, the Board shall take into consideration matters including, but without limitation, the present and expected contribution of the relevant Selected Participants to the Group.

(d) Maximum number of Shares that can be awarded

The Company shall not make any further grant of award under the Share Award Scheme ("Award") which will result in the number of Shares allotted and issued to or acquired by the Trustee (as defined in the prospectus) amounting or exceeding 10% of the total number of issued Shares from time to time.

(e) Maximum entitlement of each awardee

The maximum number of Award which may be granted to an awardee but unvested under the Share Award Scheme shall not exceed 1% of the total number of issued Shares from time to time.

(f) Appointment of Trustee

The Company will appoint a trustee to assist with the administration and vesting of the Awards granted pursuant to the Share Award Scheme ("Trustee") and will enter into a trust deed with the Trustee that constitute a trust to service the Share Award Scheme ("Trust").

(g) Settlement and/or Payment of Award

Upon the satisfaction of conditions including without limitation, the vesting of the Award, the Board may at its absolute discretion to either:

• (i) direct and procure the Trustee to release the Award Shares to the Grantees by transferring the number of Award Shares to the Grantees in such manner as determined by the Board in its absolute discretion from time to time; or
• (ii) to the extent where it is in the reasonable opinion of the Company not practicable for the Grantee to receive the Award Shares, direct and procure the Trustee to sell the number of Award Shares on such dates and in such manner as the Board shall in its absolute discretion determine and pay the Grantee the proceeds arising from such sale based on the Actual Selling Price of the Shares in cash as set out in the vesting notice ("Vesting Notice") to be sent by the Company to the relevant Grantee prior to any Vesting Date, in accordance with the procedure set out in the Share Award Scheme.

For further details on the Share Award Scheme, please refer to section headed "Appendix IV — Statutory and General Information — D. Employee Incentive Schemes — 1. Share Award Scheme" of the Prospectus.

RETIREMENT BENEFIT PLANS

Details of retirement benefit plans of the Group during the year are set out in note 37 to the consolidated financial statements.

REMUNERATION POLICY

The remuneration policy of the employees of the Group is set by the Board of Directors, having regards to the positions, duties and performance of the employees, together with the comparable market practice. The emoluments of the Directors are decided by remuneration committee, having regard to the Company's operating results, individual performance and comparable market statistics.

CHANGE OF INFORMATION IN RESPECT OF DIRECTORS

Save as disclosed in the section headed "Directors and Senior Management" in this annual report, there was no change to any of the information required to be disclosed in relation to any Director pursuant to rule 13.51B(1) of the Listing Rules since the date of the interim report of the Company for the period ended 30 June 2020.

PRE-EMPTIVE RIGHTS

The articles of association of the Company and the relevant law of the Cayman Islands do not entitle any Shareholder to any pre-emptive right or other similar rights to subscribe for the new shares on a pro-rata basis.

EQUITY-LINKED AGREEMENTS

Save for the share-based payment transactions under note 36 to the consolidated financial statements, the Company has not entered into any equity-linked agreements for the year ended 31 December 2020.

SUFFICIENCY IN PUBLIC FLOAT

Based on information that is publicly available to the Company and within the knowledge of the Directors, at least 25% of the Company's total issued share capital, the prescribed minimum percentage of public float approved by the Stock Exchange and permitted under the Listing Rules, were held by the public during the year ended 31 December 2020 and up to the date of this report.

PROFESSIONAL TAX ADVICE RECOMMENDED

If the Shareholders of the Company are unsure about the taxation implications of purchasing, holding, disposing of, dealing in, or the exercise of any rights in relation to the Shares of the Company, they are advised to consult an expert.

AUDIT COMMITTEE

The audited consolidated financial statements for the year ended 31 December 2020 have been reviewed by the audit committee of the Company.

AUDITOR

The Group's consolidated financial statements have been audited by Messrs. Deloitte Touche Tohmatsu, Certified Public Accountants, who will retire and offer itself for re-appointment at the forthcoming AGM. A resolution will be submitted to the AGM to re-appoint Messrs. Deloitte Touche Tohmatsu as auditor of the Company.

On behalf of the Board

Tian Weidong Chairman Hong Kong, 23 March 2021

ABOUT THE REPORT

As a leading distributor of electronic components in China, Smart-Core Holdings Limited (the "Group") has been disclosing its management strategies, actions and achievements in environmental and social aspects annually since 2017 to enhance stakeholders' understanding of the Group's sustainable development strategies. This is the fourth Environmental, Social and Governance ("ESG") report of the Group, which discloses the effectiveness of the Group's communication with stakeholders and its sustainability achievements. The Board has reviewed the report and confirmed its accuracy, truthfulness and completeness.

Reporting Guidelines

The report follows the Environmental, Social and Governance Reporting Guidelines (the "ESG Reporting Guidelines") under Appendix 27 of the Rules Governing the Listing of Securities on the Main Board of The Stock Exchange of Hong Kong Limited ("HKEX") and discloses the actual situation of the Group.

The report is prepared in accordance with disclosure principles recommended by the ESG Reporting Guideline, including:

• • Materiality: ESG issues that have a significant impact on investors and other related stakeholders are covered in the report.
• • Quantitative: If key performance indicators (KPIs) are established, they must be measurable and compared effectively where appropriate, and the objectives and impacts of the indicators must also be stated.
• • Balance: The report must provide an unbiased picture of the Group's ESG performance, and avoid selections, omissions, or presentation formats that may inappropriately influence readers' decisions or judgments.
• • Consistency: Consistent methodologies are used to allow for meaningful comparison of relevant data over time. Any changes to such methodologies used must also be stated in the report.

Reporting Period and Boundary

This Report discloses the Group's sustainability initiatives in its major operating locations, namely Hong Kong and Shenzhen, covering the majority of the Group's environmental and social impacts in the financial year 2020 (1 January to 31 December 2020).

Feedback

The Group's continuous improvement relies on your valuable opinions. We welcome your feedback or suggestions on this Report or the Group's sustainability management. Our contact details are as follows:

Smart-Core Holdings Limited

Address: 15/F, Tower B, Regent Centre, No. 70 Ta Chuen Ping Street, Kwai Chung, New Territories, Hong Kong Telephone: 852-2755 1101 Fax: 852-2755 9866 Email: smg@smart-core.com.hk

SUSTAINABLE DEVELOPMENT MANAGEMENT

Sustainable development of an enterprise has become a key trend, and stakeholders are increasingly concerned about the broader nonfinancial performance while focusing on growth of the business. In view of this, a balance between the development of the business and its sustainability has been one of the topics that the Group has been exploring in recent years. The Group regularly communicates with stakeholders to identify current ESG risks and opportunities, and continuously optimises internal management processes to integrate ESG strategies into daily operations and achieve sustainable development in the long run.

Stakeholder Engagement

The Group believes that timely understanding and responding to stakeholders' feedback is the cornerstone for the Group's positive development. Therefore, the Group maintains close communication with stakeholders including employees, investors, customers, suppliers, distributors and the community through various channels, listens to their feedback, and adjusts and improves internal strategies and processes in a timely manner.

Materiality Assessment

The Group conducted its first materiality assessment during the reporting period, with reference to the HKEX ESG Reporting Guide and the GRI Sustainability Reporting Standards, to identify material issues that are closely related to our operations and are highly concerned by stakeholders.

Figure 1: Materiality Assessment Process

Based on the survey results, the Group ranked 21 issues on importance. After review by the management, the results are shown in the following matrix.

Figure 2: Materiality Matrix

Level I

• Environmental Compliance
• Human Resources and Welfare System
• Occupational Health and Safety
• Training and Development
• Prevention of Child and Forced Labour
• Customer Information and Privacy Management
• Supply Chain Management
• After-sales services
• Intellectual Property
• Anti-corruption
• Management of Improper Competition

Level II

• Waste Management
• Diversity and Equal Opportunity

Level III

• Energy
• Water resources
• Packaging Material Consumption for Finished Products
• Community Engagement

• Provision of local employment and local procurement

• Level IV

• Exhaust gas
• Greenhouse Gas Emissions
• Climate Change

AWARDS AND MEMBERSHIP

The continuous improvement in the Group's ESG governance has been recognised by many industry bodies. During the reporting period, the Group continued to maintain a number of important certifications and won new awards and achievements (see table below for details). In the future, the Group will continue to benchmark itself against industry best practices and make unremitting efforts to achieve sustainable development.

Achievement and membership Issuing organisation Issuing authority

2020 "Top 10 Best Chinese Brand Distributors"	Electronics Supply and Manufacturing-China
National High and New Technology Enterprise	Shenzhen Science and Technology Innovation Committee
	and Shenzhen State Taxation Bureau
Shenzhen High-tech Enterprise	Shenzhen Science and Technology Innovation Committee
	and Shenzhen State Taxation Bureau
Vice-Chairman of the China Electronics Distributor Alliance	China Electronics Distributor Alliance (CEDA)
Member of the Shenzhen Software Industry Association	Shenzhen Software Industry Association
Member of the Hong Kong General Chamber of Commerce	Hong Kong General Chamber of Commerce 1861
Guangdong Province Enterprise of "Observing Contract and Valuing Credit"	Market Supervision Administration of Shenzhen Municipality
ISO 9001-2015 Quality System Certification	Sairui Certification Company Limited

Table 1 — Awards, Achievements and Membership Received by the Group during the reporting period

ENVIRONMENTAL MANAGEMENT

The Group is principally engaged in distribution of integrated circuits and other electronic components and the provision of technology valueadded services, which do not have a significant direct impact on the environment in the course of business operations. However, the Group is committed to integrating sustainable development into its daily operations and shoulders the corporate social responsibility of protecting the environment in strict compliance with all relevant environmental laws and regulations. During the reporting period, the Group was not aware of any non-compliance with laws and regulations1 that have a significant impact on the Group relating to waste and greenhouse gas emissions, discharges into water and land, and generation of non-hazardous waste.

¹ Please refer to the section headed "Laws and Regulations" for Environmental-related laws and regulations

Resources Consumption

Electricity, gasoline, water resources and packaging paper for finished products purchased are the major resources consumed by the Group. To achieve the goal of green operations, the Group implements various energy saving and consumption reduction measures and actively monitors and manages the use of resources. During the reporting period, the Group's electricity and gasoline consumption decreased by 19.87% and 21.92% year-on-year, respectively. In addition, the Group did not record any issue in sourcing water that is fit for the purpose during the reporting period.

				Consumption	Year-on-year
Resource Consumption		Consumption		per employee	(percentage)
	2020	2019	2020	2019
Electricity (kWh)	234,990.69	293,248.59	610.37	1,123.56	–19.87%
Gasoline (tonnes)	8,677.65	11,113.72	22.54	42.58	–21.92%
Water (m3 )	1,331.72	1,254.97	3.46	4.81	6.12%
Paper (tonnes)	0.97	0.48	0.003	0.002	102.08%

Table 2 — Total Resource Consumption during the reporting period

Greenhouse Gas and Air Emissions

The Group is not an energy-intensive enterprise and its GHG and air emissions are, therefore, relatively low. Direct carbon emissions (Scope 1) are mainly generated from consumption of gasoline, indirect carbon emissions (Scope 2) are generated from purchased electricity, and other indirect carbon emissions (Scope 3) are generated from the use of paper. During the reporting period, the total GHG emissions recorded were 221.52 tCO2e, representing a drop of 3.51 tCO2e or 1.56% as compared to the previous financial year.

Greenhouse Gas Emissions	Emissions (tCO2e)			Emission per employee (tCO2e/employee)		Emission Percentage (in percentage)
	2020	2019	2020	2019	2020	2019
Scope 1
Direct emissions	23.08	25.92	0.06	0.10	10.42	11.52
Scope 2
Indirect Emissions	196.62	196.80	0.51	0.75	88.76	87.46
Scope 3
Other Indirect Emissions	1.82	2.31	0.005	0.01	0.82	1.02
Total	221.52	225.03	0.58	0.86	100.00	100.00

Table 3 — Total GHG emissions during the reporting period

During the reporting period, air pollutants generated from combustion of gasoline consumed for transportation products include nitrogen oxides (NOx), sulphur oxides (SOx) and particulate matter. Affected by the COVID-19 pandemic, the Group's shipment volume decreased during the reporting period, and thus fuel consumption decreased year-on-year.

			Emission per employee		Year-on-year
Air Emissions	Emissions (kg)		(kg/employee)		(in percentage)
	2020	2019	2020	2019
Nitrogen oxides (NOx)	4.29	7.86	0.01	0.03	–45.42%
Sulphur oxides (SOx)	0.13	0.16	0.0003	0.0006	–18.75%
Particulate matter	0.32	0.58	0.0008	0.0022	–44.83%

Table 4 — Total Air Emissions during the reporting period

Waste Management

In order to reduce the environmental impact of wastes generated in the course of its operations, the Group insists on proper disposal of wastes and encourages employees to take practical actions to reduce wastes, including classification and recycling of waste paper in the office, reuse of packaging used for transportation and use of original packaging for product packaging to reduce resource consumption. During the reporting period, the Group generated a total of approximately 0.38 tonnes of non-hazardous waste, representing a year-on-year decrease of 20.83%, which was mainly due to recycling of paper. The Group did not generate hazardous waste during the reporting period.

Waste	Production		Generation per employee (tonnes/employee)		Year-on-year (percentage)
	2020	2019	2020	2019
Non-hazardous waste (tonnes)	0.38	0.48	0.001	0.002	–20.83%

Table 5 — Total Waste Produced during the reporting period

The Environment and Natural Resources

Green Operations

In order to reduce the emission of greenhouse gases and other air pollutants, the Group has implemented various environmental protection measures in operating areas and office areas to guide the green operations concept to every aspect of its operations.

Green operation: Environmental protection measures

Work closely with business partners

• Communicate with business partners continuously Promote environmental protection measures collaboratively
• Get an understanding from client regarding packaging material requirement, design the best packages

Promote green oce culture

• Encourage paperless office and store documents in a central server
• Use advanced computer system to realise office automation
• Advocate double-sided printing, strengthen printing behaviour management
• Remind employees to turn off idle electrical appliances and equipment, and conduct insepction in office areas during off hours
• Seasonal control air conditioner temperature and usage

Launch energy and emission reduction measures

• Use LED lighting, reduce lighting in non-working areas
• Give preference to energyefficient products
• Adopt vehicles that meet the National IV Standard for vehicle emissions for transporting employees to and from work
• Give preference to materials that are easy to disassemble, degrade, nontoxic and harmless;
• Recycle packaging cartons and packaging fillers

The Group's business involves only storage and distribution of goods and there are no manufacturing or production activities, so its operations do not directly have a significant impact on the environment and natural resources. Even so, the Group is always concerned about the indirect impact of its operations on the environment. In addition to identifying potential adverse impacts, the Group implements a closed-loop monitoring mechanism for assessment, feedback, management and review to ensure that environmental protection elements are incorporated into the Group's business strategy and long-term planning, striving to strike a balance between business growth and ecological protection.

Climate Change

Since the current financial year, the Group has adopted the recommendations of the Task Force on Climate Related Financial Disclosures ("TCFD") and made reference to industry best practices to identify and assess the risks associated with climate change, with a view to formulating countermeasures accordingly. The following is a summary of the Group's disclosures on climate change-related risks for the reporting period:

Subject Areas	Our Actions
Governance The Group's governance measures on climate-related risks and opportunities	• The Group regularly reviews its climate policies to ensure effective mitigation of physical and transition risks related to climate change
Strategy Actual and potential impact of climate related risks and opportunities on the Group's business, strategy and financial planning	• The Group adheres to the extreme weather guidelines issued by the government and has formulated emergency guidelines and measures to ensure employees are not exposed to extreme weather conditions while minimising the impact • The Group will continue to monitor potential risks and opportunities arising from climate change
Risk management The Group's process of identifying, assessing and managing climate-related risks and opportunities	• The Group has identified and assessed the risks of climate change and disclosed the physical and transition risks faced by the Group under different climate scenarios for the first time in the reporting period as recommended by TCFD
Metrics and Targets Metrics and targets of the Group in identifying and managing climate related risks and opportunities	• The Group regularly collects and calculates greenhouse gas emissions data and covers direct and indirect greenhouse gas emissions from its operations • During the reporting period, the Group's Scope 1 and Scope 2 GHG emissions decreased by 2.84 and 0.18 tCO2e respectively

Table 6 — Summary of the Group's Disclosures on Climate Change-related Risks

The following table sets out the risks with higher potential impact on the Group's business:

Risks	Potential impact
Physical risks:
Frequent extreme weather	Extreme weather disrupts normal operations and causes destruction of goods, leading to a unstable supply chain with higher operation cost
Transition risks:
Market risk	Rising prices of resources, such as energy, lead to increased procurement costs and thus endanger the stability of the supply chain
	Consumers have developed consumption concepts to combat climate change, such as preference for more environment friendly products, including energy-efficient smart monitors or TV products.
	This in turn reduces the sales of existing products and results in a decrease in revenue

Table 7 — Description of the Group's potential climate change-related risks

Talent Management

The Group believes that talents are the foundation required to ensure sustainable and healthy growth of an enterprise. Therefore, we always adhere to the concept of "people-oriented", grow together with employees and share the achievements of development with them.

Employee Profile

As at 31 December 2020, the Group employed 385 employees, with a male-to-female ratio of approximately 2:1. The highest proportions were in the age group 25–34 (49.61%) and 35–44 (32.21%). 93.51% of all employees were based in Mainland China and the rest were based in Hong Kong.

Employment and Labour Practices

The Group strictly complies with all employment regulations, relevant policies and guidelines applicable in jurisdictions where it operates. During the reporting period, there were no cases of non-compliance with relevant employment laws and regulations2 , and no complaints related to recruitment were recorded.

² Please refer to the section headed "Laws and Regulations" for Labour standards-related laws and regulations.

Compensation System

The Group provides competitive remuneration packages to attract, retain and motivate high-calibre talents. In order to ensure robust human resources, the Group regularly reviews the remuneration level in accordance with market information, and formulates appropriate remuneration and benefit plans based on the working ability of employees and the performance of the Group. In addition, the Group has established a talent incentive mechanism to recognise outstanding contributions of employees and ensure that employees' returns are commensurate with their efforts.

Employee benefits

The Group is committed to creating an ideal working environment for its employees, establishing good labour relations and regularly reviewing its staff welfare policy. During the reporting period, employee benefits provided by the Group include:

Sta welfare policy

• Organise Spring Festival dinner
• Annaul free travelling
• Sponsor each department of Hong Kong and Shenzen office to autonomously arrange after-work gatherings and activities
• Organise various ball games and interest groups
• Marriage, maternity and paternity leave, work injury sick leave
• Medical and health check
• Meal allowance

Shares-awarding scheme

• On the conditional approval of the Board, issue shares of the Group to directors, senior management and employees based on overall capability, work performance and length of service
• Aim to remunerate the hard efforts and at the same time foster work productivity

Equal Opportunity Policy

The Group adopts an open and equal recruitment process, and the only selection criteria are whether the job functions are met. During the recruitment process, the Group strictly prohibits any form of discrimination and ensures that every candidate has the same right to apply regardless of gender, age, race and other factors.

The Group provides all employees the opportunity to give full play to their strengths, and adjusts their positions in a timely manner based on their work performance, professional ability and willingness in light of their actual work needs, so as to provide talents with room for training and development.

Occupational Health and Safety

Under the safety management policy of "Safety First, Prevention Foremost and Comprehensive Management", the Group has implemented a series of occupational health and safety measures to ensure that the working environment of employees is free from any physical risks. The Company's safety policies and guidelines set out in detail various work procedures, safety measures and inspection procedures, and cover standard procedures for prevention and handling of safety-related incidents. All employees are required to strictly follow the relevant safety guidelines to minimise the occurrence of OHS risks.

During the reporting period, the Group was inevitably affected by the COVID-19 outbreak and the unprecedented risks associated with it. In order to properly respond to the situation, the Group closely monitors the development of the pandemic and, adjusts its internal management measures in a timely manner, with a view to providing employees with appropriate support and taking care of their physical and mental health.

Scope	Our Actions
Warehouse and Transportation	• Restriction of stacking height of goods in warehouses to below 1.8 m
Health and Safety	• Introduction of electric forklifts to help transport large quantities of goods to reduce muscle
	strain caused by prolonged lifting of heavy loads
	• Develop practices and training sessions for safe operation of electric forklifts, covering
	pre-launch inspections, precautions for carrying goods and charging safety, etc.
	• Promoting the correct manual lifting method to reduce the risk of muscle strain
	• Setting up air-conditioning and adequate lighting in the warehouse
Fire Safety	• Regular publicity and training on fire prevention knowledge
	• Participate in fire knowledge seminars and fire drills organised by the property management
	office
	• Timely improvement of fire safety hazards identified by government departments
	• Monthly inspection and maintenance of fire equipment appliances
Office Safety	• Clean the air-conditioning system twice a year
	• Clean carpets twice a year and carry out pest control
	• Conduct regular spot checks on office equipment such as monitors, keyboards and chairs to
	ensure normal operations
	• Establish a management system for employee feedback and complaint procedures to
	promote employee feedback on occupational health and safety

Table 8 — Details of the Group's Occupational Health and Safety Measures

Safety Training

The Group firmly believes that sufficient safety training is beneficial to ensure that employees are competent to deal with emergencies. During the reporting period, the Group held 10 regular fire safety training sessions covering fire extinguishers operations, use of fire hydrants, gas safety and fire escape and self-rescue knowledge, and recorded 180 person-times of participation, with a total of 72 training hours.

During the reporting period, the Group was not aware of any non-compliance with laws and regulations3 or complaints related to occupational safety and health, and there was no work-related death or work-related injury.

³ Please refer to the section headed "Laws and Regulations" for Health and Safety-related laws and regulations.

Development and Training

Building a professional and competent team is the key to maintain the overall competitiveness of the Group. Therefore, the Group provides employees with continuous learning opportunities to enhance their professional competence. In order to systematically implement the internal training mechanism and monitor the results, the Group has formulated a staff training policy, which specifies the training leaders of each department and their respective responsibilities, and has also prepared diversified training content for employees. Through regular quarterly and annual performance reviews, the Group is able to collect employees' feedback on training content and organisational management, and make necessary adjustments to the training plan for the coming year based on the actual needs of business development.

Team spirit is an important part of cultivating sense of belonging of the employees, and the Group incorporates team cooperation elements into training content for new employees to promote team communication and interaction. Under the leadership of senior mentors, new employees get a deep understanding of skill requirements for new positions and the Group's corporate culture, and are fully prepared for their positions in terms of physical and mental aspects.

During the reporting period, a total of 243 employees of the Group completed training, with a total of 798 training hours. In view of the increase in the employee induction rate, the total training volume of the Group also increased accordingly.

During the reporting period, the employee training rate by gender and function was as follows:

Average training hours

			Year-on-year
	2020	2019	(in percentage)
By gender
Male	2.09	1.47	42.18%
Female	2.05	0.59	247.46%
By function
Senior Management	10.75	27.60	–61.05%
Middle Management	4.33	0.67	546.27%
Supervisor	3.73	0.80	366.25%
General staff	1.60	0.59	171.19%
Total	2.07	1.13	83.19%

Table 9 — Average Training Hours by Gender and Employee Category during the reporting period

Percentage of employees trained

			Year-on-year
	2020	2019	(in percentage)
By gender
Male	64%	77%	–16.88%
Female	62%	64%	–3.13%
By function
Senior Management	75%	80%	–6.25%
Middle Management	79%	83%	–4.82%
Supervisor	84%	96%	–12.50%
General staff	59%	68%	–13.24%
Total	63%	72%	–12.50%

Table 10 — The percentage of employees trained by gender and Employee Category during the reporting period

The book corner namely "any books" set up by the Group in 2019 has become a popular new hub for employees. Through the creation of a comfortable reading space, the staff have spontaneously formed an atmosphere of self learning, which not only enhancing their knowledge, but also fostering communication among peers.

Labour Standards

Prohibition of Child Labour and Forced Labour

The Group firmly resists the illegal employment of child labour and forced labour. During the candidate selection and recruitment interview process, the relevant departments follow stringent internal work procedures to prevent illegal employment. The standard recruitment process of the Group includes checking identification documents to verify the age and ensuring that new employees voluntarily sign employment contracts. The Group has a whistle-blowing mechanism against child labour and forced labour, and employees can make anonymous and honest reports through a designated channel.

The Group respects and adheres to all laws and regulations relating to prevention of child and forced labour in jurisdictions where it operates. During the reporting period, the Group was not aware of any cases of non-compliance with relevant laws and regulations4 .

⁴ Please refer to the section headed "Laws and Regulations" for Labour standards-related laws and regulations.

Operational Excellence

Supply Chain Management

According to a report published by the China Banking Research Institute in March 2020, the investment scale of "new infrastructure" in China, represented by 5G, has been increasing year by year, and it is expected that the total investment scale of "new infrastructure" in seven key areas will reach RMB1.2 trillion in 2020. The increasing maturity of 5G technology will provide room for China's semiconductor industry to grow. Facing the gradual increase in supply of upstream semiconductor chips, the Group will continue to strictly control product quality, right from the procurement process, and continue to manage the quality in the entire supply chain.

The Group adopts a set of proactive and effective management measures for regular assessment, monitoring and supervision of suppliers. During the reporting period, we maintained cooperation and mutual trust with 339 suppliers. The Group selects quality suppliers based on multi-dimensional performance assessment, including site visits to shortlisted suppliers to ensure that they meet the requirements of the Group. The review covers production capacity, technology level, product quality, quality assurance capability, supply capacity, safety and environmental management qualifications, etc., and is subject to final approval by the Group's Chief Executive Officer.

During the entire delivery schedule, the Group regularly evaluates the Order Fill Rate and quality of suppliers. In general, the Group submits the order forecast for the next three to six months to its suppliers on a monthly basis in order to allow sufficient time for them to organise their work schedules. Through the above arrangements, the Group's delivery efficiency and quality to downstream customers have been greatly improved.

In the annual assessment of suppliers, the Group adheres to the principle of "survival of the fittest" and conducts quantitative rating on suppliers based on specific indicators, including soft indicators such as compliance status and industry goodwill. The Group then communicates with the suppliers on the scoring results, provides them with recommendation to make reasonable improvement. Based on the results, we then explore the possibility of a new round of cooperation.

Product Responsibility

The Group is committed to ensuring that the quality of its products meets the needs of its customers, with after-sales services being one of the feedback channels. The Group has specified responsibilities of each department in the "After sales and Repair Management Regulations", with the aim to ensure they perform their respective duties to improve product services and incorporate customers' opinions in the Group's business, quality, production and technology. When dealing with customer complaints, the customer service department answers the customer's concerns first and assigns investigation of the case to the appropriate department. The Quality Department, the Maintenance Department and the Technical Department then analyse the complaint cases and implement corrective measures within one working day and they are required to give feedback to customers through the Customer Service Department. The Group has a systematic system in place to ensure that all departments cooperate together to resolve problems with adequate communication.

Figure 3: After sales and repair process

If there is a need for a product recall, the Group refers to the agency agreement and provides assistance to the customer and the factory. So far, the Group has received a total of 30 complaints related to product quality, all of which have been followed up and handled. The Group complies with the laws and regulations5 in relation to personal data privacy and is not aware of any non-compliance of privacy matters relating to products and services during the reporting period.

The Group makes every effort to respect intellectual property rights of all concerned parties in its daily operations. The Information Management Department regularly monitors the use of software within the Group to ensure that the purchased software is licensed and prevents employees from using unauthorised software, recognising the importance of intellectual property rights. The Group advocates and respects intellectual property rights through actively expanding the ownership to protect the interests of stakeholders. During the reporting period, the Group owned a total of 180 intellectual property rights. The Group also strictly abides by the code of ethics in the supply chain and selects only lawful and compliant manufacturers or suppliers to avoid being a sales channel for pirated goods. The Group takes various measures to uphold business ethics from the inside to the outside and build mutual trust and healthy relationship with customers.

The Group regards high-quality products and services as the foundation of the trust of customers and this also promotes business resilience and drives the long-term development of the Group's business. In view of this, the Group has established a comprehensive internal privacy protection mechanism to allow customers to complete their trades safely. Customers' orders and personal information are processed and kept by designated departments, and unauthorised staff are not allowed to access and gain customer information.

⁵ Please refer to the section headed "Laws and Regulations" for Product Responsibility-related laws and regulations.

Integrity

Fair competition and honest operations are the core values of the Group. We have established a sound risk management and integrity system to ensure that all employees can uphold integrity and honesty internally and externally. All relevant policies are clearly stipulated in the Group's Employee Handbook, which expressly prohibits any form of corruption, including bribery, extortion, fraud and money laundering, and requires all employees to abide by the professional code of conduct.

The Group has set up an independent audit committee, which acts as an independent department to handle misconduct such as bribery, fraud and insider dealing on a regular basis. The Committee provides common information and clear guidance to cultivate employees' ethical conduct of honesty and integrity. The Committee is also responsible for investigation and enforcement of suspicious cases and misconduct. Employees at all levels can report suspicious behaviours anonymously through the channels provided by the committee and all cases are handled confidentially and independent investigation is assured. Once the case is confirmed, the Group takes follow-up actions at various levels against the person involved, including disciplinary actions, termination of contract, and may even report to judicial authorities for followup if necessary.

During the reporting period, the Group was not aware of any non-compliance with laws and regulations6 that have a significant impact on the Group relating to bribery, extortion, fraud and money laundering, and was not involved in any corruption cases.

Community Engagement

The business development of the Group relies on the trust of our stakeholders over time, in particular the support of the communities where we operates. During the reporting period, the Group continued to organise the "Smart-Core Guangxi Charity Tour", where the donation raised were used to purchase materials and books for donation to underprivileged schools. At the same time, the Group focused on promoting rehabilitation services and youth community services. During the reporting period, the Group donated HKD66,000 to social welfare organizations in the area to support community investment.

The Group will continue to optimise the community investment policy and regularly review the investment objectives and directions in order to meet the needs of the community through various charitable and sponsorship activities. We will continue to encourage our employees to participate in charity and public welfare services to give back to the society, following the practice of growing together with the community in a sustainable way.

⁶ Please refer to the section headed "Laws and Regulations" for Anti-corruption-related laws and regulations.

Applicable Laws and Regulations

For each ESG area, the Group has established and implemented standardised management methods such as policies and initiatives to ensure adherence to all relevant laws and regulations, listed below:

Aspects	Applicable Laws and Regulations	Section/Remarks
Emissions	• Environmental Protection Law of the PRC • Law of the PRC on Promotion Clean Production	Environmental Management
Use of Resources	• Energy Conservation Law of the PRC	Environmental Management
Employment and Labour Standards	• Labour Law of the PRC • Labor Contract Law of the PRC • Employment Ordinance in Hong Kong • Employees' Compensation Ordinance in Hong Kong	Talent Management
Health and Safety	• Labour Law of the PRC • Occupational Health and Safety Ordinance in Hong Kong	Talent Management
Product Responsibility	• Intellectual Property Law of the PRC • Cyber Security Law of the PRC • Patent Law of the PRC • Personal Data (Privacy) Ordinance of Hong Kong	Operational Excellence
Anti-corruption	• Supervision Law of the PRC • Prevention of Bribery Ordinance in Hong Kong • Competition Ordinance in Hong Kong	Operational Excellence

Performance Data Summary

		2020	2019
	Resource Consumption
	Electricity (kWh)	234,990.69	293,248.59
	Intensity (kWh/employee)	610.37	1,123.56
	Gasoline (tonnes)	8,677.65	11,113.72
	Intensity (tonnes/employee)	22.54	42.58
	Water (m3 )	1,331.72	1,254.97
	Intensity (m3 /employee)	3.46	4.81
	Paper (tonnes)	0.97	0.487
	Intensity (tonnes/employee)	0.003	0.0027
	Emissions
	Greenhouse Gas7
	Scope 1: Direct carbon emissions (tCO2e)	23.08	25.92
	Emission per capita (tCO2e/employee)	0.06	0.10
	Emission Percentage (Percentage)	10.42	11.52
	Scope 2: Indirect carbon emissions (tCO2e)	196.62	196.80
	Emission per capita (tCO2e/employee)	0.51	0.75
Environment	Emission Percentage (Percentage)	88.76	87.46
	Scope 3: Other indirect carbon emissions (tCO2e)	1.82	2.31
	Emission per capita (tCO2e/employee)	0.005	0.01
	Emission Percentage (Percentage)	0.82	1.02
	Total (tCO2e)	221.52	225.03
	Exhaust gas
	Nitrogen oxides (NOx) (kg)	4.29	7.86
	Emission per capita (kg/employee)	0.01	0.03
	Sulphur oxides (SOx) (kg)	0.13	0.16
	Emission per capita (kg/employee)	0.0003	0.0006
	Particulate matter (kg) Emission per capita (kg/employee)	0.32 0.0008	0.58 0.0022
	Waste
	Hazardous waste (tonnes)	0.00	0.00
	Per capita generation (tonnes/employee)	0.00	0.00
	Non-hazardous waste (tonnes)	0.38	0.48
	Per capita generation (tonnes/employee)	0.001	0.002

⁷ Paper consumption and its intensity in 2019 are restated.

⁸ Computation method of carbon emission adopts

^— "Guidelines to Account for and Report on Greenhouse Gas Emissions and Removals for Buildings (Commercial, Residential or Institutional Purpose) in Hong Kong" published by the Environmental Protection Department (EPD) of Hong Kong Government (all Hong Kong operations).Emission factors are applied to the emission factors listed in Baseline

^— Emission Factors for Regional Power Grids in China, 2019 Edition

		2020	2019
	Total number of full-time employees	385	261
	By gender
	Male	255 (66.23%)	162 (62.10%)
	Female	130 (33.77%)	99 (37.90%)
	By age
	< 25	32 (8.31%)	18 (6.90%)
	25-34	191 (49.61%)	133 (51.00%)
	35-44	124 (32.21%)	88 (33.70%)
	45-54	29 (7.53%)	15 (5.70%)
	55-64	9 (2.34%)	6 (2.30%)
	> 64	0 (0.00%)	1 (0.40%)
	By region
	Hong Kong	25 (6.49%)	– –
Staff Distribution	Mainland China	360 (93.51%)	– –
	By employment category
	Full-time	385 (100.00%)	– –
	Part-time	0 (0.00%)	– –
	By education level
	Doctor	0 (0.00%)	– –
	Master Undergraduate	18 (4.68%) 217 (56.36%)	– – – –
	Non-tertiary qualification	117 (30.39%)	– –
	Non-tertiary qualification and below	33 (8.57%)	– –
	By function
	Senior Management	4 (1.04%)	5 (1.90%)
	Middle Management	24 (6.23%)	18 (6.90%)
	Supervisor	37 (9.61%)	25 (9.60%)
	General staff	320 (83.12%)	213 (81.60%)

	2020	2019
Employee Turnover Rate8	27.27%	29.50%
By gender
Male	28.24%	28.40%
Female	25.38%	31.31%
By age
< 25	40.63%	27.78%
25-34	34.03%	36.87%
35-44	14.52%	22.73%
45-54	24.14%	20.00%
55-64	11.11%	0.00%
> 64	100.00%	0.00%
By region
Hong Kong	28.00%	–
Mainland China	27.22%	–
Staff Distribution
New hire rate	39.74%	–
By gender
Male	43.92%	–
Female	31.54%	–
By age
< 25	103.13%	–
25-34	46.07%	–
35-44	16.94%	–
45-54	34.48%	–
55-64	11.11%	–
> 64	0.00%	–
By region
Hong Kong	40.00%	–
Mainland China	39.72%	–

⁸ Computation method of employee's turnover rate has been revised compared to 2019, relevant data of 2019 has therefore been re-stated accordingly

		2020	2019
	Number of employees trained	243	187
	By gender
	Male	162	124
	Female	81	63
Development	By function
and Training	Senior Management	3	4
	Middle Management	19	15
	Supervisor	31	24
	General staff	190	144
	Total training hours of employees (hours)	798	296
	Occupational Safety and Health Performance
Health and Safety	Number of industrial accidents	0	–
	Lost days due to work injury	0	–
	Number of work-related fatalities	0	–
	Total person-times of occupational safety training	180	–
	Total hours of occupational safety training	72	–

Content Index

KPIs	HKEX ESG Reporting Guide Requirements		Section/Remarks
A. Environmental
Aspect A1: Emissions
General Disclosure	waste: (a) the Policy; and	Information relating to air and greenhouse gas emissions, discharges into water and land, and generation of hazardous and non-hazardous (b) compliance with relevant laws and regulations that have a significant impact on the issuer information.	Environmental Management
	KPI A1.1	The types of emissions and respective emissions data.	Greenhouse Gas and Air Emissions
	KPI A1.2	Greenhouse gas emissions in total and, where appropriate, intensity.	Greenhouse Gas and Air Emissions
	KPI A1.3	Total hazardous waste generated and, where appropriate, intensity.	Waste Management
	KPI A1.4	Total non-hazardous waste produced and, where appropriate, intensity.	Waste Management
	KPI A1.5	Description of measures to mitigate emissions and results achieved.	Waste Management
	KPI A1.6	Description of how hazardous and non hazardous wastes are handled, reduction initiatives and results achieved.	Waste Management
Aspect A2: Use of Resources
General Disclosure	other raw materials.	Policies on the efficient use of resources, including energy, water and	Resources Consumption, The Environment and Natural Resources
	KPI A2.1	Direct and/or indirect energy consumption by type in total and intensity.	Resource Consumption
	KPI A2.2	Water consumption in total and intensity.	Resource Consumption
	KPI A2.3	Description of energy use efficiency initiatives and results achieved.	The Environment and Natural Resources
	KPI A2.4	Description of whether there is any issue in sourcing water that is fit for purpose, water efficiency initiatives and results achieved.	Resource Consumption
	KPI A2.5	Total packaging material used for finished products and, if applicable, with reference to per unit produced.	Resource Consumption

KPIs	HKEX ESG Reporting Guide Requirements		Section/Remarks
Aspect A3: The Environment and Natural Resources
General Disclosure	environment and natural resources.	Policies on minimising the issuers' significant impact on the	The Environment and Natural Resources
	KPI A3.1	Description of the significant impacts of activities on the environment and natural resources and the actions taken to manage them.	The Environment and Natural Resources
B. Social
Aspect B1: Employment
General Disclosure	Informations relating to compensation and dismissal, recruitment and promotion, working hours, rest periods, equal opportunity, diversity, anti-discrimination, and other benefits and welfare: (a) the Policy; and (b) compliance with relevant laws and regulations that have a significant impact on the issuer information.		Talent Management, Employment and Labour Practices
	KPI B1.1	Total workforce by gender, employment type (e.g. full-time or part-time), age group and geographical region.	Employee Profile
	KPI B1.2	Employee turnover rate by gender, age group and geographical region.	Performance Data Summary
Aspect B2: Health and Safety
General Disclosure	Relating to providing a safe working environment and protecting employees from occupational hazards: (a) the Policy; and (b) compliance with relevant laws and regulations that have a significant impact on the issuer information.		Occupational Health and Safety
	KPI B2.2	Lost days due to work injury.	Performance Data Summary
	KPI B2.3	Description of occupational health and safety measures adopted, how they are implemented and monitored.	Occupational Health and Safety
Aspect B3: Development and Training
General Disclosure		Policies on improving employees' knowledge and skills for discharging duties at work. Description of training activities.	Development and Training
	KPI B3.1	The percentage of employees trained by gender and employee category (e.g. senior management, middle management).	Development and Training
	KPI B3.2	The average training hours completed per employee by gender and employee category.	Development and Training

KPIs	HKEX ESG Reporting Guide Requirements		Section/Remarks
Aspect B4: Labour Standards
General Disclosure	For prevention of child or forced labour: (a) the Policy; and	(b) compliance with relevant laws and regulations that have a significant impact on the issuer information.	Labour Standards
	KPI B4.1	Description of measures to review employment practices to avoid child and forced labour.	Labour Standards
	KPI B4.2	Description of steps taken to eliminate such practices when discovered.	Labour Standards
Aspect B5: Supply Chain Management
General Disclosure	chain.	Policies on managing environmental and social risks of the supply	Supply Chain Management
	KPI B5.1	Number of suppliers by geographical region.	Supply Chain Management
	KPI B5.2	Description of practices relating to engaging suppliers, number of suppliers where the practices are being implemented, how they are implemented and monitored.	Supply Chain Management
Aspect B6: Product Responsibility
General Disclosure	Relating to health and safety, advertising, labelling and privacy matters relating to products and services provided and methods of redress: (a) the Policy; and (b) compliance with relevant laws and regulations that have a significant impact on the issuer information.		Product Responsibility
	KPI B6.2	Number of products and service related complaints received and how they are dealt with.	Product Responsibility
	KPI B6.3	Description of practices relating to observing and protecting intellectual property rights.	Product Responsibility
	KPI B6.4	Description of quality assurance process and recall procedures.	Product Responsibility
	KPI B6.5	Description of consumer data protection and privacy policies, how they are implemented and monitored.	Product Responsibility

KPIs	HKEX ESG Reporting Guide Requirements		Section/Remarks
	Aspect B7: Anti-corruption
General Disclosure In relation to prevention of bribery, extortion, fraud and money laundering: (a) the Policy; and (b) compliance with relevant laws and regulations that have a significant impact on the issuer information.		Integrity
	KPI B7.1	Number of concluded legal cases regarding corrupt practices brought against the issuer or its employees during the reporting period and the outcomes of the cases.	Integrity
	KPI B7.2	Description of preventive measures and whistle-blowing procedures, how they are implemented and monitored.	Integrity
Aspect B8: Community Investment
General Disclosure	Policies on community engagement to understand the needs of the communities where the issuer operates and to ensure its activities take into consideration the communities' interests. KPI B8.1 Focus areas of contribution.		Community Engagement
			Community Engagement
	KPI B8.2	Resources contributed to the focus area.	Community Engagement

The Board has committed to maintaining high corporate governance standards. The Board believes that good corporate governance, by adopting an effective management accountability system and high standard of business ethnics, can provide a framework that is essential to the Company's sustainable development and to safeguard the interests of the Shareholders, suppliers, customers, employees and other stakeholders.

The Company has adopted the code provisions set out in the Corporate Governance Code and Corporate Governance Report (the "CG Code") contained in Appendix 14 to the Rules Governing the Listing of Securities on the Stock Exchange (the "Listing Rules") as its own code of corporate governance. Except for code provision A.2.1 as disclosed below in this report, the Company has complied with the applicable code provisions of the CG Code during the year ended 31 December 2020. The Company's corporate governance practices are based on the principles, code provisions and certain recommended best practices as set out in the CG Code.

Pursuant to code provision A.2.1 of the CG Code, the responsibilities between the chairman and the chief executive officer should be segregated and should not be performed by the same individual.

The Company deviates from code provision A.2.1 in that Mr. Tian Weidong currently performs these two roles. The Board believes that vesting the roles of both chairman and chief executive officer in the same person has the benefit of ensuring consistent leadership within the Group and enables more effective and efficient overall strategic planning for the Group. The Board considers that the balance of power and authority for the present arrangement will not be impaired and this structure will enable the Company to make and implement decisions promptly and effectively. The Board will continue to review and consider splitting the roles of chairman of the Board and chief executive officer of the Company at a time when it is appropriate and suitable by taking into account the circumstances of the Group as a whole.

MODEL CODE FOR SECURITIES TRANSACTIONS

The Company has adopted the Model Code for Securities Transactions by Directors of Listed Issuers (the "Model Code") as set out in Appendix 10 to the Listing Rules as its own code of conduct regarding securities transactions by the Directors. The Company has made specific enquiry of the Directors, and all Directors confirmed that they had fully complied with the Model Code during the year ended 31 December 2020.

THE BOARD OF DIRECTORS

Board Composition

As at the date of this report, the Board comprises seven members, of whom four are executive Directors and three are independent nonexecutive Directors. Directors who held office during the year ended 31 December 2020 and up to the date of this report are:

Executive Directors

Mr. TIAN Weidong (Chairman and Chief Executive Officer) Mr. WONG Tsz Leung (Chief Financial Officer) Mr. LIU Hongbing Mr. YAN Qing

Independent non-executive Directors

Mr. TANG Ming Je Mr. ZHENG Gang Mr. WONG Hok Leung

The list of Directors and their roles and functions are posted on the websites of the Company and the Stock Exchange. The biographical information of the Directors are set out in the section headed "Directors and Senior Management" on pages 20 to 22 of this report. None of the Directors has any family, financial or business relations with each other.

During the year ended 31 December 2020 and up to the latest practicable date prior to the issue of this annual report, the Board has complied with rules 3.10(1) and 3.10(2) of the Listing Rules to have not less than three independent non-executive Directors and at least one of the independent non-executive Directors has the requisite professional qualification in accounting or relevant financial management experience. In addition, the Company has complied with rule 3.10A of the Listing Rules which stipulates that the number of independent non-executive Directors appointed by a listed company shall not be less than one third of the Board.

The Board is responsible for the overall strategic plans and key policies of the Group; monitor the financial performance; review the effectiveness of internal control system; risk management and ensures good corporate governance practices and procedures are established and compliance with regulatory requirements. It delegates the daily operations and administration to the senior management with clear directions. The board members are fully committed to their roles and have acted in good faith to maximise the value of the Company and safeguard the interests of the stakeholders.

Board meetings

The Board meets four times regularly each year. Between scheduled regular meetings, Directors may approve various matters by way of passing written resolutions and additional meetings may be arranged if required. Notice of each regular Board meeting will be given to all members at least 14 days before the meeting. Agenda and all the relevant information is normally despatched to the Directors three days in advance of the relevant meetings.

The Company Secretary assists the Chairman in preparing the agenda for the Board meeting and ensures that all applicable rules and regulations regarding Board meetings are complied with. Each director may request the inclusion of items in the agenda. Directors considered having conflict of interests are required to declare their interests and abstain from voting for the relevant resolution.

Minutes of the meetings are recorded in detail and draft minutes are circulated to all Directors for review and comment within a reasonable time after the Board meetings are held. All the minutes of the meeting are properly kept by the Company Secretary after approval and are available to all Directors for inspection.

The attendance records of the Directors at the Board meeting held during the year ended 31 December 2020 are set out below:

Name of Directors	Board Meetings attended	General Meeting attended
Executive Directors
Mr. Tian Weidong	7/7	1/1
Mr. Wong Tsz Leung	7/7	1/1
Mr. Liu Hongbing	7/7	1/1
Mr. Yan Qing	7/7	1/1
Independent non-executive Directors
Mr. Tang Ming Je	7/7	1/1
Mr. Zheng Gang	7/7	1/1
Mr. Wong Hok Leung	7/7	1/1

Chairman and Chief Executive Officer

Pursuant to code provision A.2.1 of the CG Code set out in Appendix 14 to the Listing Rules, the responsibilities between the chairman and the chief executive officer should be segregated and should not be performed by the same individual.

The Company deviates from this provision in that Mr. Tian Weidong currently performs these two roles. The Board believes that vesting the roles of both chairman and chief executive officer in the same person has the benefit of ensuring consistent leadership within the Group and enables more effective and efficient overall strategic planning for the Group. The Board considers that the balance of power and authority for the present arrangement will not be impaired and this structure will enable the Company to make and implement decisions promptly and effectively. The Board will continue to review and consider splitting the roles of chairman of the Board and chief executive officer of the Company at a time when it is appropriate and suitable by taking into account the circumstances of the Group as a whole.

Appointment, Re-election and Removal

The procedures for appointing and re-electing Directors are set out in the articles of association of the Company (the "Articles of Association"). The appointment of a new director must be approved by the Board. The nomination committee of the Company (the "Nomination Committee") is responsible for making recommendations to the Board on the selection of individuals nominated for directorship taking into factors such as appropriate professional knowledge, industry experience, personal ethics, integrity, personal skills, gender, age, cultural and educational background.

Pursuant to article 16.18 of the Articles of Association, at every annual general meeting of the Company one-third of the Directors for the time being (or, if their number is not three or a multiple of three, then the number nearest to, but not less than, one-third) shall retire from office by rotation provided that every Director (including those appointed for a specific term) shall be subject to retirement by rotation at least once every three years.

The Company has entered into service agreements with each executive Director, and appointment letters with independent non-executive Directors. The tenure of all Directors is 3 years.

Independent non-executive Director

Since the Listing Date, the Company at all times met the requirements of the Listing Rules relating to having independent non-executive Directors who represent at least one-third of the Board, and at least one of whom must have appropriate professional qualifications or accounting or related financial management expertise.

The Company has received from all independent non-executive Directors their confirmation of independence in accordance with the independence guidelines as set out in rule 3.13 of the Listing Rules. The Company is of the view that all independent non-executive Directors are independent in accordance with the terms of independence guidelines.

All of the independent non-executive Directors are appointed for a term of three years and are subjected to retirement by rotation once every three years.

Directors' training and development

All Directors should keep abreast of the responsibilities as a director of the Company and of the conduct and business activities of the Company. The Company is responsible for arranging suitable training for its Directors. The Company has arranged for Directors to attend a training session which places emphasis on the roles, functions and duties of a listed company director, as well as the latest development regarding the Listing Rules and other applicable regulatory requirements. All the Directors had also participated in appropriate continuous professional development activities by reading materials regarding regulatory updates and corporate governance matters.

Board diversity policy

The Board has a board diversity policy and the Company believes that the diversity will support the attainment of the Company's objective and enhance the value of the Company. The Company seeks to achieve board diversity through the consideration of a number of factors, including but not limited to gender, age, cultural, educational background, professional experience, skills, knowledge and other qualities. The Nomination Committee of the Company will review the board diversity policy regularly to ensure its continued effectiveness.

Nomination policy

The Company has developed and adopted the board diversity policy to enhance the performance of the Company. When recommending candidates to join the Board, the Nomination Committee will consider the candidates according to objective conditions, and will take due consideration of the benefits of diversity among the Board members. The committee will also conduct discussions each year and agree on all the measurable objectives for board diversity, and will recommend to the Board relevant objectives for adoption.

Moreover, the Company has formulated and adopted the "Nomination Policy of Directors". The Nomination Policy of Directors covers selection criteria, nomination procedures, terms of confidentiality, supervision and reporting, and policy review. Several aspects are considered when nominating Board candidates, including but not limited to the following:

• • reputation;
• • achievements, talents, skills, knowledge and experience in the semi-conductor industry, business and economics area, accounting;
• • views and perspectives that can be brought to the Board;
• • commitment in respect of available time and relevant interest;
• • independence of independent non-executive Directors; and
• • diversity in all its aspects, including but not limited to gender, age (18 years or above), cultural and educational background, ethnicity, professional experience, skills, knowledge and length of service etc.

A summary of the nomination process for Directors is as follows:

• • the chairman of the Nomination Committee shall convene a Nomination Committee meeting and invite the Board members to nominate candidates (if any) for consideration before the meeting. The Nomination Committee may also nominate candidates from other different sources (such as professional societies, professional headhunting companies, recommendations by the Shareholders or management, internal promotion, etc.);
• • the Nomination Committee shall recommend candidates for consideration and approval by the Board, with reasons for consideration and recommendation provided to the Board;
• • the Board recommends candidates to stand for election at a general meeting;
• • the Company will issue a circular to shareholders to provide information on candidates nominated by the Board for election at a general meeting. The names, resumes (including eligibility and related experience), independence, proposed emoluments and other information of the candidates will be set out in the circular to the shareholders in accordance with the applicable laws, rules and regulations; and
• • the election of Board members shall be proposed as ordinary resolutions at a general meeting, and should be passed by more than one-half of the voting rights held by shareholders (including proxies) attending the general meeting.

Dividend policy

The Board had adopted a dividend policy for the Company on 5 July 2017 (the "Dividend Policy"). Under the Dividend Policy, subject to compliance with applicable rules and regulations (including Cayman Islands laws) and the articles of association of the Company, provided the Group is profitable without affecting the normal operations of the Group and the Company will pay dividend to the Shareholders from the year of 2017 and onwards. Based on the Dividend Policy, the Company intends to share its profits with Shareholders in the form of annual dividend in an amount of no less than 15% of the Group's annual consolidated net profit attributable to the owners of the Company, subject to the criteria as set out below. The remaining net profits will be used for the Group's development and operations.

The Company's ability to pay dividends will depend upon, among other things, the general financial condition of the Group, the Group's current and future operations, liquidity position and capital requirement of the Group as well as dividends received from the Company's subsidiaries. The payment of the dividend by the Company is also subject to any restrictions under the Cayman Islands laws and articles of association of the Company.

The Dividend Policy will continue to be reviewed from time to time and there can be no assurance that dividends will be paid in any particular amount for any given period.

CORPORATE GOVERNANCE DUTIES

The Board is responsible for performing the corporate governance duties according to the code provision D.3.1 of the CG Code, which includes:

• (a) developing and reviewing the policies and practices on corporate governance of the Group;
• (b) reviewing and monitoring the training and continuous professional development of Directors and senior management;
• (c) reviewing and monitoring the Group's policies and practices on compliance with legal and regulatory requirements;
• (d) developing, reviewing and monitoring the code of conduct and compliance manual applicable to Directors and employees; and
• (e) reviewing the Company's compliance with the Code and disclosure in the corporate governance report of the Company.

BOARD COMMITTEES

The Company has set up three committees, namely the audit committee (the "Audit Committee"), the remuneration committee (the "Remuneration Committee") and the Nomination Committee, for overseeing particular aspect of the Company. The terms of reference of these committees are available on the websites of the Company and the Stock Exchange.

Audit Committee

The Audit Committee comprises all the independent non-executive Directors of the Company (i.e. Mr. Wong Hok Leung, Mr. Zheng Gang and Mr. Tang Ming Je) and Mr. Wong Hok Leung, who has professional qualification in accounting and financial management expertise, is the chairman of the Audit Committee.

The major roles and functions of the Audit Committee are as follows:

• (a) To review and monitor the external auditor's independence and objectivity and the effectiveness of the audit process in accordance with applicable standards;

• (b) To make recommendations to the Board on the appointment, reappointment and removal of the external auditor;

• (c) To oversee the internal audit system of the Company and its implementation;

• (d) To review the Group's financial controls, risk management, internal control systems, financial and accounting policies and practices;
• (e) To review the external auditor's management letter, any material queries raised by the auditor to management about accounting records, financial accounts or systems of control and management's response;
• (f) To develop and review the Company's policies and practices on corporate governance, and make recommendations to the Board and report to the Board on matters; and
• (g) To review the corporate governance report disclosed in our annual report.

During the year ended 31 December 2020, individual attendance of each member of the Audit Committee is set out below:

Audit Committee member	Attended/Held
Mr. Wong Hok Leung (Chairman)	2/2
Mr. Zheng Gang	2/2
Mr. Tang Ming Je	2/2

Remuneration committee

The Remuneration Committee consists of one executive Director (Mr. Tian Weidong) and three independent non-executive Directors (i.e. Mr. Wong Hok Leung, Mr. Zheng Gang and Mr. Tang Ming Je) and is chaired by Mr. Zheng Gang. The major duties of the Remuneration Committee are as follows:

• (a) To make recommendations to the Board on the Company's policy and structure for all Directors' and Senior Management's remuneration and on the establishment of a formal and transparent procedure for developing remuneration policy;
• (b) To review and approve the management's remuneration proposals with reference to the Board's corporate goals and objectives;
• (c) To make recommendations to the Board on the remuneration packages of individual Directors and Senior Management;
• (d) To consider factors such as salaries paid by comparable companies, time commitment and responsibilities of the Directors and Senior Management and employment conditions elsewhere in the Group;
• (e) To review and approve the compensation for the loss or termination of office or appointment executive directors and senior management;
• (f) To review and approve the compensation arrangements with regard to the dismissal or removal of Directors due to their misconduct; and
• (g) To ensure no Director or their contacts determine by themselves, or be involved in determining, their remuneration.

During the year ended 31 December 2020, individual attendance of each member of the Remuneration Committee is set out below:

Remuneration Committee member	Attended/Held
Mr. Zheng Gang (Chairman)	1/1
Mr. Tian Weidong	1/1
Mr. Wong Hok Leung	1/1
Mr. Tang Ming Je	1/1

Nomination Committee

The Nomination Committee comprises of three members and is chaired by the executive Director, Mr. Tian Weidong. The remaining two members are all independent non-executive Directors (i.e. Mr. Wong Hok Leung and Mr. Tang Ming Je). The major duties of the Nomination Committee are as follows:

• (a) To review the structure, size and composition (including the skills, knowledge and experience) required of the Board at least annually and making recommendations on any proposed changes to the Board to complement the Company's corporate strategy;
• (b) To identify individuals suitably qualified to become Directors and selecting or making recommendations to the Board on the selection of individuals nominated for directorship;
• (c) To make recommendations to the Board on the appointment or re-appointment of Directors and succession planning for Directors, in particular the chairman and the chief executive; and
• (d) To assess the independence of independent non-executive Directors.

During the year ended 31 December 2020, individual attendance of each member of the Nomination Committee is set out below:

Nomination Committee member	Attended/Held
Mr. Tian Weidong (Chairman)	1/1
Mr. Wong Hok Leung	1/1
Mr. Tang Ming Je	1/1

ACCOUNTABILITY AND AUDIT

Financial Reporting

The Directors acknowledge their responsibility for preparing the consolidated financial statements for the year ended 31 December 2020 to ensure that the financial statements give a true and fair view of the Group's financial position and other financial disclosures. The Company provided all members of the Board with monthly updates on the Group's performance, financial positions and prospects to enable the Board to carry out an informed assessment of the Company's financial statements. The statement by the auditors of the Company regarding their responsibilities on the consolidated financial statements of the Company is set out on the Independence Auditor's Report on pages 75 to 79 of this annual report.

Auditor's Remuneration

The audit committee monitors the audit and non-audit services rendered to the Group by the external auditor and ensures that the engagement of external auditor in non-audit services will not impair its audit independence or objectivity.

For the year ended 31 December 2020, the fees in respect of the audit and non-audit services provided to the Group by Messrs. Deloitte Touche Tohmatsu, is set out as follows:

	Fee
	HK\$'000
Audit services	2,050
Non-audit services:
Review of interim results	480
Tax advisory	104
Others	140
	2,774

Risk management and internal control

The main features of the risk management and internal control systems are to provide a clear governance structure, policies and procedures, as well as reporting mechanism to facilitate the Group to manage its risks across business operations.

The Group has established a risk management framework, which consists of the Board of Directors, the Audit Committee and the senior management. The Board of Directors shall be responsible for the determination of the nature and extent of risks that shall be taken in achieving the Group's strategic objectives. The Board of Directors acknowledges its overall responsibility for monitoring the Group's risk management and internal control systems and reviewing their overall effectiveness.

The Group has an internal audit function and has formulated and adopted risk management policy in providing direction in identifying, evaluating and managing significant risks. At least on an annual basis, the Senior Management identifies risks that would adversely affect the achievement of the Group's objectives, and assesses and prioritizes the identified risks according to a set of standard criteria. Risk mitigation plans and risk owners are then established for those risks considered to be significant.

The Board and the Audit Committee continue to evaluate the adequacy of resources, qualifications and experience of staff in the Group's accounting and financial reporting function. The Group will engage independent professional advisor to assist the Board of Directors and the Audit Committee in ongoing monitoring of the internal control systems of the Group from time to time when necessary. Deficiencies in the design and implementation of internal controls identified and recommendations are proposed for improvement. Significant internal control deficiencies are reported to the Audit Committee and the Board of Directors on a timely basis to ensure prompt remediation actions are taken.

Risk management report and internal control report are submitted to the Audit Committee and the Board of Directors at least once a year. The Board of Directors will perform annual review on the effectiveness of the Group's risk management and internal control systems, including but not limited to the Group's ability to cope with its business transformation and changing external environment; the scope and quality of management's review on risk management and internal control systems; result of internal audit work; the extent and frequency of communication with the Board of Directors in relation to result of risk and internal control review; significant failures or weaknesses identified and their related implications; and status of compliance with the Listing Rules. The Board of Directors considers the Group's risk management and internal control systems are effective and adequate.

The risk management and internal control systems are designed to manage rather than eliminate the risk of failure to achieve business objectives, and can only provide reasonable and not absolute assurance against material misstatement or loss.

Procedures and internal controls for the handling and dissemination of inside information

The Group complies with requirements of SFO and the Listing Rules. The Group will disclose inside information to the public as soon as reasonably practicable unless the information falls within any of the "safe harbours" provisions under the SFO and satisfy the conditions. Before the information is fully disclosed to the public, the Group will ensuring that the information is kept strictly confidential. If the Group believes that the necessary degree of confidentiality cannot be maintained or that confidentiality may have been breached, the Group would immediately disclose the information to the public. The Group is committed to ensure that information contained in announcements are not false or misleading as to a material fact, or false or misleading through the omission of a material fact in view of presenting information in a clear and balanced way, which requires equal disclosure of both positive and negative facts.

COMPANY SECRETARY

The Company Secretary supports the Board by ensuring good information flow within the Board and that board policy and procedures are followed. The Company Secretary is also responsible for advising the Board through the Chairman and/or the Chief Executive of the Company on corporate governance matters and also facilitate induction and professional development of directors. All Directors have access to the advice and services of the Company Secretary to ensure that board procedures, and all applicable laws, rules and regulations are followed. The selection, appointment and dismissal of the Company Secretary are subject to the Board approval.

Mr. Yau Chak Man was appointed as the company secretary of the Company on 15 March 2019. The biographical details of Mr. Yau is set out in the paragraph headed "Directors and Senior Management" on page 22 of this annual report.

During the year ended 31 December 2020, Mr. Yau took no less than 15 hours of relevant professional training.

ARTICLES OF ASSOCIATION OF THE COMPANY

The amended and restated Articles of Association was adopted by the Company on 19 September 2016 and effective on the Listing Date. The Articles of Association has no change since the date of Listing to the year ended 31 December 2020.

COMMUNICATION WITH SHAREHOLDERS AND INVESTOR RELATIONS

The Board believes that effective communication with shareholders is essential for enhancing investor relations. The Company also recognises the importance of transparency of information disclosure and timely communication with shareholders by different channels.

The general meetings of the company provide a direct channel for the shareholders to communicate with the Company. The Company shall in each year hold a general meeting as its annual general meeting and the annual general meeting shall be called by not less than 21 days' notice in writing. The notice convening an annual general meeting shall specify the meeting as such, and the notice convening a meeting to pass a special resolution shall specify the intention to propose the resolution as a special resolution.

All general meetings other than annual general meetings shall be called extraordinary general meetings ("EGM"). Any two or more members of the Company, at the date of the deposit of written requisition holding not less than one-tenth of the paid up capital of the Company which carries the rights of voting at general meetings, shall at all times have the right to require an EGM to be called by the Board for the transaction of any business specified in such requisition.

The written requisition must be deposited at the Company's principal office in Hong Kong. If the Board does not within 21 days from the date of deposit of the requisition proceed duly to convene the EGM to be held within a further 21 days, the requisitionists themselves or any of them representing more than one-half of the total voting rights of all of them, may convene the EGM, but any EGM shall not be held after the expiration of three months from the date of deposit of the requisition.

Shareholders may, at any time, direct questions or requests for information to the Directors or management through "Contact Us" section in the Company's website (www.smart-core.com.hk) or in writing and sent by post to the Company's principal place of business in Hong Kong or by email to smg@smart-core.com.hk.

The Company will publish the Company's information in an accurate and timely manner to improve the transparency of information disclosure. The latest development, announcements and press in relation to the Company are available on the Company's website (www.smart-core.com.hk) for investors.

TO THE SHAREHOLDERS OF SMART-CORE HOLDINGS LIMITED

芯智控股有限公司

(incorporated in the Cayman Islands with limited liability)

Opinion

We have audited the consolidated financial statements of Smart-Core Holdings Limited (the "Company") and its subsidiaries (collectively referred to as "the Group") set out on pages 80 to 152, which comprise the consolidated statement of financial position as at 31 December 2020, and the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

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

Basis for Opinion

We conducted our audit in accordance with Hong Kong Standards on Auditing ("HKSAs") issued by the HKICPA. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the HKICPA's Code of Ethics for Professional Accountants ("the Code"), and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

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

Key Audit Matters (Continued)

Impairment assessment of trade receivables

We identified impairment assessment of trade receivables as a key audit matter due to the significance of trade receivables to the Group's consolidated financial position and the involvement of subjective judgement and management estimates in evaluating the expected credit losses ("ECL") of the Group's trade receivables at the end of the reporting period.

As disclosed in note 22 to the consolidated financial statements, the Group's net trade receivables amounting to approximately HK\$1,102,296,000 has been net off with lifetime ECL on trade receivables amounted to approximately HK\$34,394,000 as at 31 December 2020.

As disclosed in note 34 to the consolidated financial statements, the management of the Group estimates the amount of lifetime ECL of trade receivables based on provision matrix through grouping of various debtors that have similar loss patterns, after considering internal credit ratings of trade debtors, ageing, repayment history and/or past due status of respective trade receivables. Estimated loss rates are based on historical observed default rates over the expected life of the debtors and are adjusted for forward-looking information. In addition, trade receivables that are credit-impaired or with significant balances are assessed for ECL individually. The loss allowance amount of the credit-impaired trade receivables is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows with the consideration of expected future credit losses.

Key audit matter How our audit addressed the key audit matter

Our procedures in relation to impairment assessment of trade receivables included:

• • Understanding key controls on how the management estimates the credit loss allowance for trade receivables;
• • Testing the integrity of information used by management to develop the provision matrix, including trade receivables ageing analysis as at 31 December 2020, on a sample basis, by comparing individual items in the analysis with the relevant sales invoices and other supporting documents;
• • Challenging management's basis and judgement in determining credit loss allowance on trade receivables as at 31 December 2020, including their identification of significant balances and credit-impaired receivables and, the reasonableness of management's grouping of the remaining trade debtors into different categories in the provision matrix, and the basis of estimated loss rates applied in each category in the provision matrix (with reference to historical default rates and forward-looking information);
• • Evaluating the disclosures regarding the impairment assessment of trade receivables in note 34 to the consolidated financial statements; and
• • Testing subsequent settlements of credit-impaired trade receivables, on a sample basis, by inspecting supporting documents in relation to cash receipt from trade debtors subsequent to the end of the current reporting period.

Key Audit Matters (Continued)

Key audit matter How our audit addressed the key audit matter

Allowance for inventories

We identified the estimated allowance for inventories as a key audit matter due to its significant balance. The Group makes allowance for inventories based on an assessment of the net realisable value of inventories. Allowances are applied to inventories where events or changes in circumstances indicate that the net realisable value is lower than cost. The management of the Group reviewed the inventory aging report at the end of the reporting period to identify inventories that are obsolete and estimated the net realisable value for those items based on latest selling price. As at 31 December 2020, the carrying amount of the Group's inventories was approximately HK\$416,285,000.

Details relating to the Group's inventories and its accounting policies are set out in notes 21 and 3, respectively, to the consolidated financial statements.

There is also judgement involved in assessing the level of inventory provision required in respect of slow moving inventory. Therefore, there is a risk that slow moving inventory has not been adequately provided for.

Our procedures in relation to the estimated allowance for inventories included:

• • Understanding the key control and evaluating the basis of how slow-moving or obsolete inventories are identified by the management and their assessment of allowance for inventories;
• • Identifying obsolete inventories when attending inventory counts;
• • Testing the accuracy of the inventory ageing and assessing whether allowance is properly provided for aged inventories; and
• • Checking the historical accuracy of inventory provision and the level of inventories write-offs during the year.

Other Information

The directors of the Company are responsible for the other information. The other information comprises the information included in the annual report, but does not include the consolidated financial statements and our auditor's report thereon.

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

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of Directors and Those Charged with Governance for the Consolidated Financial Statements

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

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

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

Auditor's Responsibilities for the Audit of the Consolidated Financial Statements

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

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

• • Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's internal control.
• • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.
• • Conclude on the appropriateness of the directors' use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Group to cease to continue as a going concern.

Auditor's Responsibilities for the Audit of the Consolidated Financial Statements

(Continued)

• • Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
• • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

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

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

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

The engagement partner on the audit resulting in the independent auditor's report is Yau Wing Chi.

Deloitte Touche Tohmatsu Certified Public Accountants

Hong Kong 23 March 2021

Consolidated Statement of Profit or Loss and Other Comprehensive Income

For the year ended 31 December 2020

HK\$'000 Notes HK\$'000 Revenue 5 5,541,009 4,762,816 Cost of sales (5,230,549) (4,491,880) Gross profit 310,460 270,936 Other income 7 11,308 15,359 4,127 Other gains or losses, net 8 5,330 Impairment losses recognised under expected credit loss model, net of reversal 10 (11,582) (15,218) Research and development expenses (25,693) (24,044) Administrative expenses (71,295) (60,481) (97,203) Selling and distribution expenses (92,999) Finance costs 9 (18,171) (27,333) Profit before tax 101,951 71,550 Income tax expenses 11 (16,600) (9,775) Profit for the year 12 85,351 61,775 Other comprehensive income (expense) Items that may be reclassified subsequently to profit or loss: Exchange differences arising on translation of foreign operations 4,078 1,032 Fair value loss on debt instruments at fair value through other comprehensive income – (20) Cumulative loss reclassified to profit or loss on sale of investments in debt instruments measured at fair value through other comprehensive income upon disposal – 105 Total comprehensive income for the year 89,429 62,892 Profit for the year attributable to: Owners of the Company 71,002 55,102 Non-controlling interests 14,349 6,673 85,351 61,775 Total comprehensive income for the year attributable to: Owners of the Company 75,075 56,198 Non-controlling interests 14,354 6,694 89,429 62,892 Earnings per share 15 Basic (HK cents) 14.42 10.96 Diluted (HK cents) N/A 10.96		2020	2019

Consolidated Statement of Financial Position

At 31 December 2020

		2020	2019
	Notes	HK\$'000	HK\$'000
NON-CURRENT ASSETS
Property, plant and equipment	16	4,298	4,621
Right-of-use assets	17	26,197	21,320
Goodwill	18	9,735	9,735
Intangible asset	19	6,776	9,168
Deposits, prepayments and other receivables	23	3,634	7,192
Deferred tax asset	31	5,704	3,792
Financial assets at fair value through profit or loss	20	130,147	127,820
		186,491	183,648
CURRENT ASSETS
Inventories	21	416,285	182,368
Trade receivables	22	1,102,296	792,032
Deposits, prepayments and other receivables	23	73,867	72,672
Pledged bank deposits	24	178,191	161,373
Bank balances and cash	24	238,557	186,068
		2,009,196	1,394,513
CURRENT LIABILITIES
Trade payables	25	590,732	370,989
Other payables and accrued charges	26	90,390	73,453
Lease liabilities	27	9,704	7,973
Contract liabilities	28	51,665	18,112
Amount due to a non-controlling shareholder of a subsidiary	29	–	255
Tax liabilities		11,829	25,097
Bank and other borrowings	30	727,065	434,815
		1,481,385	930,694
NET CURRENT ASSETS		527,811	463,819
TOTAL ASSETS LESS CURRENT LIABILITIES		714,302	647,467
NON-CURRENT LIABILITIES Deferred tax liability	31	1,119	1,513
Lease liabilities	27	17,840	13,958
		18,959	15,471
NET ASSETS		695,343	631,996

Consolidated Statement of Financial Position

At 31 December 2020

	2020	2019
Note	HK\$'000	HK\$'000
CAPITAL AND RESERVES
Share capital 32	38	39
Reserves	630,640	578,935
Equity attributable to owners of the Company	630,678	578,974
Non-controlling interests	64,665	53,022
	695,343	631,996

The consolidated financial statements on pages 80 to 152 were approved and authorised for issue by the Board of Directors on 23 March 2021 and are signed on its behalf by:

Tian Weidong Wong Tsz Leung DIRECTOR DIRECTOR

Consolidated Statement of Changes in Equity

For the year ended 31 December 2020

						Attributable to owners of the Company
	Share capital HK\$'000	Share premium HK\$'000	Other reserve HK\$'000 (note a)	Statutory reserve HK\$'000 (note b)	Exchange reserve HK\$'000	Investment revaluation reserve HK\$'000	Treasury reserve HK\$'000 (note c)	Capital share redemption reserve HK\$'000	Share based payment reserve HK\$'000	Retained profits HK\$'000	Sub-total HK\$'000	Non controlling interest HK\$'000	Total equity HK\$'000
At 1 January 2019 Profit for the year	39 –	322,087 –	14,051 –	2,447 –	(647) –	(85) –	(6,880) –	– –	6,980 –	230,384 55,102	568,376 55,102	45,353 6,673	613,729 61,775
Exchange differences arising on translation
of foreign operations	–	–	–	–	1,011	–	–	–	–	–	1,011	21	1,032
Fair value loss on debt instruments at fair value
through other comprehensive income	–	–	–	–	–	(20)	–	–	–	–	(20)	–	(20)
Cumulative loss reclassified to profit or loss
on sale of investments in debt instruments
measured at fair value through other
comprehensive income upon disposal	–	–	–	–	–	105	–	–	–	–	105	–	105
Profit and total comprehensive income
recognised for the year	–	–	–	–	1,011	85	–	–	–	55,102	56,198	6,694	62,892
Transfer to statutory reserves	–	–	–	1,033	–	–	–	–	–	(1,033)	–	–	–
Shares vested under the share award scheme	–	–	–	–	–	–	6,499	–	(6,980)	481	–	–	–
Share repurchased but not yet cancelled
(note 32)	–	–	–	–	–	–	(15,354)	–	–	–	(15,354)	–	(15,354)
Dividend recognised as distribution (note 14)	–	(30,246)	–	–	–	–	–	–	–	–	(30,246)	–	(30,246)
Contribution from non-controlling interest	–	–	–	–	–	–	–	–	–	–	–	975	975
At 31 December 2019	39	291,841	14,051	3,480	364	–	(15,735)	–	–	284,934	578,974	53,022	631,996
Profit for the year	–	–	–	–	–	–	–	–	–	71,002	71,002	14,349	85,351
Exchange differences arising on translation
of foreign operations	–	–	–	–	4,073	–	–	–	–	–	4,073	5	4,078
Profit and total comprehensive income
recognised for the year	–	–	–	–	4,073	–	–	–	–	71,002	75,075	14,354	89,429
Transfer to statutory reserves	–	–	–	1,978	–	–	–	–	–	(1,978)	–	–	–
Share repurchased but not yet cancelled
(note 32)	–	–	–	–	–	–	(3,052)	–	–	–	(3,052)	–	(3,052)
Shares repurchased and cancelled (note 32)	(1)	(15,731)	–	–	–	–	15,354	1	–	(1)	(378)	–	(378)
Dividend recognised as distribution (note 14)	–	(19,941)	–	–	–	–	–	–	–	–	(19,941)	–	(19,941)
Contribution from non-controlling interest	–	–	–	–	–	–	–	–	–	–	–	975	975
Distribution paid to non-controlling interest	–	–	–	–	–	–	–	–	–	–	–	(3,686)	(3,686)
At 31 December 2020	38	256,169	14,051	5,458	4,437	–	(3,433)	1	–	353,957	630,678	64,665	695,343

Notes:

• (a) Other reserve represents (i) the combined share capital of Smart-Core International Company Limited and Smart-Core Cloud Limited acquired by the Company at the time of the group reorganisation in 2015; and (ii) the difference between the carrying amounts of the non-controlling interest at acquisition date and the consideration paid to acquire the additional interests in subsidiaries.
• (b) Pursuant to the relevant laws in the People's Republic of China (the "PRC"), the Group's subsidiaries established in the PRC is required to transfer 10% of its profit after tax as per statutory financial statements to the reserve funds. The general reserve fund is discretionary when the fund balance reaches 50% of the registered capital of the subsidiary and can be used to make up for previous years' losses or, expand the existing operations or can be converted into additional capital of the subsidiary.
• (c) Treasury share reserve represents (i) Ordinary shares purchased by Computer Share Hong Kong Trustees Limited ("Trustee") from the market pursuant to the share award scheme of the Company for those unlisted awarded shares and ungranted shares; and (ii) shares repurchased but not yet cancelled during the year ended 31 December 2020.

Consolidated Statement of Cash Flows

For the year ended 31 December 2020

	2020	2019
	HK\$'000	HK\$'000
OPERATING ACTIVITIES
Profit before tax	101,951	71,550
Adjustments for:
Depreciation of property, plant and equipment	1,610	1,789
Depreciation of right-of-use assets	8,973	5,084
Finance costs	18,171	27,333
Amortisation of intangible asset	2,392	2,392
Impairment loss trade and other receivables, net	11,582	15,218
(Reversal of) allowance for inventories	(1,493)	2,394
Interest income from loans to third parties	(1,661)	(5,742)
Interest income from debt instruments at fair value through other comprehensive income	–	(108)
Loss on debt instruments at fair value through other comprehensive income
reclassified from equity upon disposal	–	105
Unrealised exchange loss, net	6,385	1,031
Fair value gain on financial assets at fair value through profit or loss	(4,623)	(6,772)
Loss (gain) on disposal of property, plant and equipment	19	(159)
Gain on early termination of lease	(53)	–
Bank interest income	(612)	(1,729)
Written off of other payables	(438)	(429)
Operating cash flows before movements in working capital	142,203	111,957
(Increase) decrease in inventories	(233,057)	71,456
Increase in trade receivables	(341,373)	(336,497)
Decrease (Increase) in deposits, prepayments and other receivables	501	(18,559)
Increase (decrease) in trade payables	220,178	(26,951)
Increase (decrease) in other payables and accrued charges	18,687	(22,127)
Increase in contract liabilities	34,000	4,337
Cash used in operations	(158,861)	(216,384)
Income tax paid	(32,174)	(3,550)
NET CASH USED IN OPERATING ACTIVITIES	(191,035)	(219,934)

Consolidated Statement of Cash Flows

For the year ended 31 December 2020

	2020	2019
	HK\$'000	HK\$'000
INVESTING ACTIVITIES
Interest income received from loans to third parties	3,038	4,346
Interest received from debt instruments at fair value through
other comprehensive income	–	108
Interest received	2,908	3,978
Loans to third parties	(32,760)	(99,060)
Loan repayment from third parties	32,760	90,671
Proceeds from disposal of debt instruments at fair value through
other comprehensive income	–	4,212
Proceeds from disposal of financial assets at fair value through profit or loss	–	4,204
Placement of pledged bank deposits	(69,224)	(450,885)
Withdrawal of pledged bank deposits	52,406	393,176
Purchase of property, plant and equipment	(1,078)	(1,925)
Proceeds from disposal of property, plant and equipment	–	232
NET CASH USED IN INVESTING ACTIVITIES	(11,950)	(50,943)
FINANCING ACTIVITIES
New bank borrowings raised	3,144,834	1,029,068
Repayment of bank borrowings	(2,856,007)	(653,474)
Interest paid	(17,906)	(27,333)
Dividend paid	(19,941)	(30,246)
Distribution paid to non-controlling interests	(3,686)	–
Repayment to a non-controlling shareholder of a subsidiary	(255)	(1,750)
Repayments of lease liabilities	(8,239)	(4,424)
Payment on repurchase of shares	(3,430)	(15,354)
Proceeds from bills discounted	19,775	–
Contribution from non-controlling interests	975	975
NET CASH FROM FINANCING ACTIVITIES	256,120	297,462
NET INCREASE IN CASH AND CASH EQUIVALENTS	53,135	26,585
CASH AND CASH EQUIVALENTS AT 1 JANUARY	186,068	159,568
Effect of foreign exchange rate changes	(646)	(85)
CASH AND CASH EQUIVALENTS AT 31 DECEMBER,
represented by bank balances and cash	238,557	186,068

For the year ended 31 December 2020

1. GENERAL INFORMATION

The Company was incorporated in the Cayman Islands as an exempted company and registered in the Cayman Islands with limited liability under the Companies Law, Cap. 22 (Law 3 of 1961, as combined and revised) of the Cayman Islands. The shares of the Company have been listed on the Main Board of the Stock Exchange of Hong Kong Limited ("Stock Exchange"). Its parent is Smart IC Limited, a private company incorporated in the British Virgin Islands and its ultimate controlling party is Mr. Tian Weidong ("Mr. Tian"). The addresses of registered office and principal place of business of the Company are disclosed in the corporate information section to the annual report.

The Company is an investment holding company. The Company's subsidiaries are principally engaged in the trading of electronics components.

The functional currency of the Company is United States Dollars ("US\$") and the presentation currency of the Group's consolidated financial statements is Hong Kong Dollars ("HK\$").

2. APPLICATION OF AMENDMENTS TO HONG KONG FINANCIAL REPORTING STANDARDS ("HKFRSs")

Amendments to HKFRSs that are mandatorily effective for the current year

In the current year, the Group has applied the Amendments to References to the Conceptual Framework in HKFRS Standards and the following amendments to HKFRSs issued by the Hong Kong Institute of Certified Public Accountants ("HKICPA") for the first time, which are mandatorily effective for the annual period beginning on or after 1 January 2020 for the preparation of the consolidated financial statements:

Amendments to Hong Kong Accounting Standard	Definition of Material
("HKAS") 1 and HKAS 8
Amendments to HKFRS 3	Definition of a Business
Amendments to HKFRS 9, HKAS 39 and HKFRS 7	Interest Rate Benchmark Reform

The application of the Amendments to References to the Conceptual Framework in HKFRS Standards and the amendments to HKFRSs in the current year had no material impact on the Group's financial positions and performance for the current and prior years and/or on the disclosures set out in these consolidated financial statements.

For the year ended 31 December 2020

2. APPLICATION OF AMENDMENTS TO HONG KONG FINANCIAL REPORTING STANDARDS ("HKFRSs") (Continued)

New and amendments to HKFRSs in issue but not yet effective

The Group has not early applied the following new and amendments to HKFRSs that have been issued but are not yet effective:

HKFRS 17	Insurance Contracts and the related Amendments1
Amendment to HKFRS 16	Covid-19-Related Rent Concessions4
Amendments to HKFRS 3	Reference to the Conceptual Framework2
Amendments to HKFRS 9, HKAS 39,	Interest Rate Benchmark Reform — Phase 25
HKFRS 7, HKFRS 4 and HKFRS 16
Amendments to HKFRS 10 and HKAS 28	Sale or Contribution of Assets between an Investor and its Associate or
	Joint Venture3
Amendments to HKAS 1	Classification of Liabilities as Current or Non-current and related
	amendments to Hong Kong Interpretation 5 (2020)1
Amendments to HKAS 16	Property, Plant and Equipment — Proceeds before Intended Use2
Amendments to HKAS 37	Onerous Contracts — Cost of Fulfilling a Contract2
Amendments to HKFRSs	Annual Improvements to HKFRSs 2018–20202

¹ Effective for annual periods beginning on or after 1 January 2023.

• ² Effective for annual periods beginning on or after 1 January 2022.
• ³ Effective for annual periods beginning on or after a date to be determined.
• ⁴ Effective for annual periods beginning on or after 1 June 2020.
• ⁵ Effective for annual periods beginning on or after 1 January 2021.

The directors of the Company anticipate that the application of all other new and amendments to HKFRSs will have no material impact on the consolidated financial statements in the foreseeable future.

3. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES

3.1 Basis of preparation of consolidated financial statements

The consolidated financial statements have been prepared in accordance with HKFRSs issued by the HKICPA. For the purpose of preparation of the consolidated financial statements, information is considered material if such information is reasonably expected to influence decisions made by primary users. In addition, the consolidated financial statements include applicable disclosures required by the Rules Governing the Listing of Securities on the Stock Exchange (the "Listing Rules") and by the Hong Kong Companies Ordinance.

For the year ended 31 December 2020

3. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.1 Basis of preparation of consolidated financial statements (Continued)

The consolidated financial statements have been prepared on the historical cost basis except for certain financial instruments that are measured at fair value at the end of each reporting period, as explained in the accounting policies set out below.

Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in the consolidated financial statements are determined on such a basis, except for share-based payment transactions that are within the scope of HKFRS 2 Share-based Payment leasing transactions that are accounted for in accordance with HKFRS 16 and measurements that have some similarities to fair value but are not fair value, such as net realisable value in HKAS 2 Inventories or value in use in HKAS 36 Impairment of Assets.

For financial instruments which are transacted at fair value and a valuation technique that unobservable inputs is to be used to measure fair value in subsequent periods, the valuation technique is calibrated so that at initial recognition the results of the valuation technique equals the transaction price.

In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:

• • Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Group can access at the measurement date;
• • Level 2 inputs are inputs other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and
• • Level 3 inputs are unobservable inputs for the asset or liability.

For the year ended 31 December 2020

3. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.2 Significant accounting policies

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company and its subsidiaries. Control is achieved when the Company:

• • has power over the investee;
• • is exposed, or has rights, to variable returns from its involvement with the investee; and
• • has the ability to use its power to affect its returns.

The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.

When the Group has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The Group considers all relevant facts and circumstances in assessing whether or not the Group's voting rights in an investee are sufficient to give it power, including:

• • the size of the Group's holding of voting rights relative to the size and dispersion of holdings of the other vote holders;
• • potential voting rights held by the Group, other vote holders or other parties;
• • rights arising from other contractual arrangements; and
• • any additional facts and circumstances that indicate that the Group has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders' meetings.

Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statements of profit or loss and other comprehensive income from the date the Group gains controls until the date when the Group ceases to control the subsidiary.

Profit or loss and each item of other comprehensive income are attributed to the owners of the Company and to the noncontrolling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the noncontrolling interests even if this results in the non-controlling interests has a deficit balance.

When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group's accounting policies.

For the year ended 31 December 2020

3. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.2 Significant accounting policies (Continued)

Basis of consolidation (Continued)

All intra-group assets, liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

Non-controlling interests in subsidiaries are presented separately from the Group's equity therein, which represent present ownership interests entitling their holders to a proportionate share of net assets of the relevant subsidiaries upon liquidation.

Business combinations or asset acquisitions

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.

Except for certain recognition exemptions, the identifiable assets acquired and liabilities assumed must meet the definitions of an asset and a liability in the Framework for the Preparation and Presentation of Financial Statements (replaced by the Conceptual Framework for Financial Reporting issued in October 2010).

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 Income Taxes and HKAS 19 Employee Benefits respectively;
• • liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based 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;
• • 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; and
• • lease liabilities are recognised and measurement at the present value of the remaining lease payments (as defined in HKFRS 16) as if the acquired leases were new leases at the acquisition date, except for leases for which (a) the lease term ends within 12 months of the acquisition date; or (b) the underlying asset is of low value. Right-of-use assets are recognised and measured at the same amount as the relevant lease liabilities, adjusted to reflect favourable or unfavourable terms of the lease when compared with market terms.

For the year ended 31 December 2020

3. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.2 Significant accounting policies (Continued)

Business combinations or asset acquisitions (Continued)

Business combinations (Continued)

Goodwill is measured as the excess of 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 equity interest in the acquiree (if any) over the net amount of the identifiable assets acquired and the liabilities assumed as at acquisition date. If, after re-assessment, the net amount of the identifiable assets acquired and liabilities assumed exceeds 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 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 are initially measured at the non-controlling interests' proportionate share of the recognised amounts of the acquiree's identifiable net assets or at fair value.

When the consideration transferred by the Group in a business combination includes 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. 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.

The subsequent accounting for the 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 or other comprehensive income, as appropriate. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income and measured under HKFRS 9/HKAS 39 would be accounted for on the same basis as would be required if the Group had disposed directly of the previously held equity interest.

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 retrospectively 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.

For the year ended 31 December 2020

3. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.2 Significant accounting policies (Continued)

Goodwill

Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of the business (see the accounting policy above) 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 group of cashgenerating units) that is expected to benefit from the synergies of the combination, which represent the lowest level 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 when there is indication that the unit may be impaired. For goodwill arising on an acquisition in a reporting period, the cash-generating unit (or group of cash-generating units) to which goodwill has been allocated is tested for impairment before the end of that reporting period. If the recoverable amount is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill and then to the other assets 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 or any of the cash-generating unit within the group of cash-generating units, the attributable amount of goodwill is included in the determination of the amount of profit or loss on disposal. When the Group disposes of an operation within the cash-generating unit (or a cash-generating unit within a group of cash-generating units), the amount of goodwill disposed of is measured on the basis of the relative values of the operation (or the cash-generating unit) disposed of and the portion of the cash-generating unit (or the group of cash-generating units) retained.

Revenue from contracts with customers

The Group recognises revenue when (or as) a performance obligation is satisfied, i.e. when "control" of the goods or services underlying the particular performance obligation is transferred to the customer.

A performance obligation represents a good or service (or a bundle of goods or services) that is distinct or a series of distinct goods or services that are substantially the same.

Control is transferred over time and revenue is recognised over time by reference to the progress towards complete satisfaction of the relevant performance obligation if one of the following criteria is met:

• • the customer simultaneously receives and consumes the benefits provided by the Group's performance as the Group performs;
• • the Group's performance creates or enhances an asset that the customer controls as the Group performs; or
• • the Group's performance does not create an asset with an alternative use to the Group and the Group has an enforceable right to payment for performance completed to date.

Otherwise, revenue is recognised at a point in time when the customer obtains control of the distinct good or service.

For the year ended 31 December 2020

3. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.2 Significant accounting policies (Continued)

Revenue from contracts with customers (Continued)

A contract liability represents the Group's obligation to transfer goods or services to a customer for which the Group has received consideration (or an amount of consideration is due) from the customer.

The Group provides technical services to customers. Such services are recognised as a performance obligation satisfied over time as the customer simultaneously receives and consumes the services as the Group continues to provide the services to the customer.

Principal versus agent

When another party is involved in providing goods or services to a customer, the Group determines whether the nature of its promise is a performance obligation to provide the specified goods or services itself (i.e. the Group is a principal) or to arrange for those goods or services to be provided by the other party (i.e. the Group is an agent).

The Group is a principal if it controls the specified good or service before that good or service is transferred to a customer.

The Group is an agent if its performance obligation is to arrange for the provision of the specified good or service by another party. In this case, the Group does not control the specified good or service provided by another party before that good or service is transferred to the customer. When the Group acts as an agent, it recognises revenue in the amount of any fee or commission to which it expects to be entitled in exchange for arranging for the specified goods or services to be provided by the other party.

Leases

Definition of a lease

A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

For contracts entered into or modified on or after the date of initial application or arising from business combinations, the Group assesses whether a contract is or contains a lease based on the definition under HKFRS 16 at inception or modification date. Such contract will not be reassessed unless the terms and conditions of the contract are subsequently changed.

The Group as a lessee

Allocation of consideration to components of a contract

For a contract that contains a lease component and one or more additional lease or non-lease components, the Group allocates the consideration in the contract to each lease component on the basis of the relative stand-alone price of the lease component and the aggregate stand-alone price of the non-lease components.

The Group also applies practical expedient not to separate non-lease components from lease component, and instead account for the lease component and any associated non-lease components as a single lease component.

For the year ended 31 December 2020

3. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.2 Significant accounting policies (Continued)

Leases (Continued)

The Group as a lessee (Continued)

Short-term leases and leases of low-value assets

The Group applies the short-term lease recognition exemption to leases of office premises and staff quarters that have a lease term of 12 months or less from the commencement date and do not contain a purchase option. It also applies the recognition exemption for lease of low-value assets. Lease payments on short-term leases and leases of low-value assets are recognised as expense on a straight-line basis over the lease term.

Right-of-use assets

The cost of right-of-use asset includes:

• • the amount of the initial measurement of the lease liability;
• • any lease payments made at or before the commencement date, less any lease incentives received;
• • any initial direct costs incurred by the Group; and
• • an estimate of costs to be incurred by the Group in dismantling and removing the underlying assets, restoring the site on which it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease.

Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities.

Right-of-use assets in which the Group is reasonably certain to obtain ownership of the underlying leased assets at the end of the lease term is depreciated from commencement date to the end of the useful life. Otherwise, right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term.

The Group presents right-of-use assets as a separate line item on the consolidated statement of financial position.

Refundable rental deposits

Refundable rental deposits paid are accounted under HKFRS 9 Financial Instruments ("HKFRS 9") and initially measured at fair value. Adjustments to fair value at initial recognition are considered as additional lease payments and included in the cost of right-of-use assets.

For the year ended 31 December 2020

3. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.2 Significant accounting policies (Continued)

Leases (Continued)

The Group as a lessee (Continued)

Lease liabilities

At the commencement date of a lease, the Group recognises and measures the lease liability at the present value of lease payments that are unpaid at that date. In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable.

The lease payments include:

• • fixed payments (including in-substance fixed payments) less any lease incentives receivable;
• • variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;
• • amounts expected to be paid under residual value guarantees;
• • the exercise price of a purchase option if the Group is reasonably certain to exercise the option; and
• • payments of penalties for terminating a lease, if the lease term reflects the Group exercising the option to terminate the lease.

After the commencement date, lease liabilities are adjusted by interest accretion and lease payments.

The Group remeasures lease liabilities (and make a corresponding adjustment to the related right-of-use assets) when the lease term has changed or a change in the assessment of exercise of a purchase option, in which case the related lease liability is remeasured by discounting the revised lease payments using a revised discount rate at the date of reassessment.

The Group presents lease liabilities as a separate line item on the consolidated statement of financial position.

For the year ended 31 December 2020

3. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.2 Significant accounting policies (Continued)

Leases (Continued)

The Group as a lessee (Continued)

Lease modifications

The Group accounts for a lease modification as a separate lease if:

• • the modification increases the scope of the lease by adding the right to use one or more underlying assets; and
• • the consideration for the leases increases by an amount commensurate with the stand-alone price for the increase in scope and any appropriate adjustments to that stand-alone price to reflect the circumstances of the particular contract.

For a lease modification that is not accounted for as a separate lease, the Group remeasures the lease liability based on the lease term of the modified lease by discounting the revised lease payments using a revised discount rate at the effective date of the modification.

The Group accounts for the remeasurement of lease liabilities by making corresponding adjustments to the relevant right-of-use asset. When the modified contract contains a lease component and one or more additional lease or non-lease components, the Group allocates the consideration in the modified contract to each lease component on the basis of the relative stand-alone price of the lease component and the aggregate stand-alone price of the non-lease components.

Foreign currencies

In preparing the financial statements of each individual group entity, transactions in currencies other than the functional currency of that entity (foreign currencies) are recognised at the rates of exchanges prevailing on the dates of the transactions. At the end of the reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are recognised in profit or loss in the period in which they arise.

For the purposes of presenting the consolidated financial statements, the assets and liabilities of the Group's foreign operations are translated into the presentation currency of the Group (i.e. HK\$) using exchange rate prevailing at the end of each reporting period. Income and expenses are translated at the average exchange rates for the year, unless exchange rates fluctuate significantly during the period, in which case, the exchange rates prevailing at the dates of transactions are used. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity under exchange reserve (attributed to non-controlling interests as appropriate).

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), all of the exchange differences accumulated in equity in respect of that operation attributable to the owners of the Company are reclassified to profit or loss.

For the year ended 31 December 2020

3. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.2 Significant accounting policies (Continued)

Foreign currencies (Continued)

Exchange differences relating to the retranslation of the Group's net assets in US\$ to the Group's presentation currency (i.e. HK\$) are recognised directly in other comprehensive income and accumulated in exchange reserve. Such exchange differences accumulated in the exchange reserve are not reclassified to profit or loss subsequently.

Goodwill and fair value adjustments on identifiable assets acquired arising on an acquisition of a foreign operation are treated as assets and liabilities of that foreign operation and translated at the rate of exchange prevailing at the end of each reporting period. Exchange differences arising are recognised in other comprehensive income.

Borrowing costs

All borrowing costs are recognised in profit or loss in the period in which they are incurred.

Government grants

Government grants are not recognised until there is reasonable assurance that the Group will comply with the conditions attaching to them and that the grants will be received.

Government grants are recognised in profit or loss on a systematic basis over the periods in which the Group recognises as expenses the related costs for which the grants are intended to compensate.

Government grants related to income that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the Group with no future related costs are recognised in profit or loss in the period in which they become receivable. Such grants are presented under "other income".

Retirement benefits costs

Payments to the defined contribution retirement benefit plan and state-managed retirement benefit schemes are recognised as an expense when employees have rendered service entitling them to the contributions.

Short-term employee benefits

Short-term employee benefits are recognised at the undiscounted amount of the benefits expected to be paid as and when employees rendered the services. All short-term employee benefits are recognised as an expense unless another HKFRS requires or permits the inclusion of the benefit in the cost of an asset.

A liability is recognised for benefits accruing to employees (such as wages and salaries, annual leave and sick leave) after deducting any amount already paid.

For the year ended 31 December 2020

3. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.2 Significant accounting policies (Continued)

Share-based payments

Equity-settled share-based payment transactions

Shares granted to employees

Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date.

The fair value of the equity-settled share-based payments determined at the grant date without taking into consideration all nonmarket vesting conditions is expensed on a straight-line basis over the vesting period, based on the Group's estimate of equity instruments that will eventually vest, with a corresponding increase in equity (share-based payment reserve). At the end of each reporting period, the Group revises its estimate of the number of equity instruments expected to vest based on assessment of all relevant non-market vesting conditions. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the share-based payment reserve.

When the shares are forfeited/lapsed after the vesting date, the amount previously recognised in share-based payments reserve will be transferred to retained profits.

When shares granted are vested, the amount previously recognised in share-based payments reserve will be transferred to treasury share reserve.

Taxation

Income tax expenses represent the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit before tax because of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the consolidated statement of financial position and the corresponding tax base used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary difference to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. In addition, deferred tax liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill.

Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

For the year ended 31 December 2020

3. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.2 Significant accounting policies (Continued)

Taxation (Continued)

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

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

The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of each reporting period, to recover or settle the carrying amount of its assets and liabilities.

For the purposes of measuring deferred tax for leasing transactions in which the Group recognises the right-of-use assets and the related lease liabilities, the Group first determines whether the tax deductions are attributable to the right-of-use assets or the lease liabilities.

For leasing transactions in which the tax deductions are attributable to the lease liabilities, the Group applies HKAS 12 Income Taxes requirements to leasing transaction as a whole. Temporary differences relating to right-of-use assets and lease liabilities are assessed on a net basis. Excess of depreciation on right-of-use assets over the lease payments for the principal portion of lease liabilities resulting in net deductible temporary difference.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied to the same taxable entity by the same taxation authority.

Current and deferred tax are recognised in profit or loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in equity respectively. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination.

In assessing any uncertainty over income tax treatments, the Group considers whether it is probable that the relevant tax authority will accept the uncertain tax treatment used, or proposed to be use by individual group entities in their income tax filings. If it is probable, the current and deferred taxes are determined consistently with the tax treatment in the income tax filings. If it is not probable that the relevant taxation authority will accept an uncertain tax treatment, the effect of each uncertainty is reflected by using either the most likely amount or the expected value.

For the year ended 31 December 2020

3. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.2 Significant accounting policies (Continued)

Property, plant and equipment

Property, plant and equipment are tangible assets that are held for use in the production or supply of goods or services, or for administrative purposes. Property, plant and equipment are stated in the consolidated statement of financial position at cost less subsequent accumulated depreciation and subsequent accumulated impairment losses, if any.

Depreciation is recognised so as to write off the cost of items of property, plant and equipment less their residual values over their estimated useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sale proceeds and the carrying amount of the asset and is recognised in profit or loss.

Intangible assets

Internally generated intangible assets — Research and development expenditure

Expenditure on research activities is recognised as an expense in the period in which it is incurred.

An internally-generated intangible asset arising from development activities (or from the development phase of an internal project) is recognised if, and only if, all of the following have been demonstrated:

• • the technical feasibility of completing the intangible asset so that it will be available for use or sale;
• • the intention to complete the intangible asset and use or sell it;
• • the ability to use or sell the intangible asset;
• • how the intangible asset will generate probable future economic benefits;
• • the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and
• • the ability to measure reliably the expenditure attributable to the intangible asset during its development.

The amount initially recognised for internally-generated intangible asset is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Where no internally-generated intangible asset can be recognised, development expenditure is recognised in profit or loss in the period in which it is incurred.

Subsequent to initial recognition, internally-generated intangible assets are reported at cost less accumulated amortisation and accumulated impairment losses (if any), on the same basis as intangible assets that are acquired separately.

For the year ended 31 December 2020

3. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.2 Significant accounting policies (Continued)

Intangible assets (Continued)

Intangible assets acquired in a business combination

Intangible assets acquired in a business combination are recognised separately from goodwill and are initially recognised at their fair value at the acquisition date (which is regarded as their cost).

Subsequent to initial recognition, intangible assets acquired in a business combination with finite useful lives are reported at cost less accumulated amortisation and any accumulated impairment losses, on the same basis as intangible assets that are acquired separately.

An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gain and loss arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognised in profit or loss when the asset is derecognised.

Impairment on property, plant and equipment, right-of-use assets and intangible assets other than goodwill

At the end of the reporting period, the Group reviews the carrying amounts of its property, plant and equipment, right-of-use assets and intangible assets with finite useful lives to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the relevant asset is estimated in order to determine the extent of the impairment loss, if any.

The recoverable amount of property, plant and equipment, right-of-use assets and intangible assets are estimated individually, when it is not possible to estimate the recoverable amount individually, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.

In testing a cash-generating unit for impairment, corporate assets are allocated to the relevant cash-generating unit when a reasonable and consistent basis of allocation can be established, or otherwise they are allocated to the smallest group of cash generating units for which a reasonable and consistent allocation basis can be established. The recoverable amount is determined for the cash-generating unit or group of cash-generating units to which the corporate asset belongs, and is compared with the carrying amount of the relevant cash-generating unit or group of cash-generating units.

Recoverable amount is the higher of 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 (or a cash-generating unit) for which the estimates of future cash flows have not been adjusted.

For the year ended 31 December 2020

3. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.2 Significant accounting policies (Continued)

Impairment on property, plant and equipment, right-of-use assets and intangible assets other than goodwill (Continued)

If the recoverable amount of an asset (or a cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or a cash-generating unit) is reduced to its recoverable amount. For corporate assets or portion of corporate assets which cannot be allocated on a reasonable and consistent basis to a cash-generating unit, the Group compares the carrying amount of a group of cash-generating units, including the carrying amounts of the corporate assets or portion of corporate assets allocated to that group of cash-generating units, with the recoverable amount of the group of cash-generating units. In allocating the impairment loss, the impairment loss is allocated first to reduce the carrying amount of any goodwill (if applicable) and then to the other assets on a pro-rata basis based on the carrying amount of each asset in the unit or the group of cash-generating units. The carrying amount of an asset is not reduced below the highest of its fair value less costs of disposal (if measurable), its value in use (if determinable) and zero. The amount of the impairment loss that would otherwise have been allocated to the asset is allocated pro rata to the other assets of the unit or the group of cash-generating units. An impairment loss is recognised immediately in profit or loss.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or a cash-generating unit or a group of cashgenerating units) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or a cash-generating unit or a group of cash-generating units) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost of inventories are determined on a weighted average method. Net realisable value represents the estimated selling price for inventories less estimated cost necessary to make the sale.

Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle that obligation, and a reliable estimate can be made of the amount of the obligation.

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (where the effect of the time value of money is material).

For the year ended 31 December 2020

3. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.2 Significant accounting policies (Continued)

Financial instruments

Financial assets and financial liabilities are recognised when a group entity becomes a party to the contractual provisions of the instrument. All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the market place.

Financial assets and financial liabilities are initially measured at fair value except for trade receivables arising from contracts with customers which are initially measured in accordance with HKFRS 15 Revenue From Contracts with Customers. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets or financial liabilities at fair value through profit or loss ("FVTPL")) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at FVTPL are recognised immediately in profit or loss.

The effective interest method is a method of calculating the amortised cost of a financial asset or financial liability and of allocating interest income and interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts and payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset or financial liability, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

Financial assets

Classification and subsequent measurement of financial assets

Financial assets that meet the following conditions are subsequently measured at amortised cost:

• • the financial asset is held within a business model whose objective is to collect contractual cash flows; and
• • the contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

All other financial assets are subsequently measured at FVTPL, except that at initial recognition of a financial asset the Group may irrevocably elect to present subsequent changes in fair value of an equity investment in other comprehensive income if that equity investment is neither held for trading nor contingent consideration recognised by an acquirer in a business combination to which HKFRS 3 Business Combinations applies.

A financial asset is held for trading if:

• • it has been acquired principally for the purpose of selling in the near term; or
• • on initial recognition it is a part of a portfolio of identified financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or
• • it is a derivative that is not designated and effective as a hedging instrument.

For the year ended 31 December 2020

3. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.2 Significant accounting policies (Continued)

Financial instruments (Continued)

Financial assets (Continued)

Classification and subsequent measurement of financial assets (Continued)

In addition, the Group may irrevocably designate a financial asset that are required to be measured at the amortised cost or fair value through other comprehensive income ("FVTOCI") as measured at FVTPL if doing so eliminates or significantly reduces an accounting mismatch.

(i) Amortised cost and interest income

Interest income is recognised using the effective interest method for financial assets measured subsequently at amortised cost and debt instruments subsequently measured at FVTOCI. Interest income is calculated by applying the effective interest rate to the gross carrying amount of a financial asset, except for financial assets that have subsequently become credit-impaired (see below). For financial assets that have subsequently become credit-impaired, interest income is recognised by applying the effective interest rate to the amortised cost of the financial asset from the next reporting period. If the credit risk on the credit-impaired financial instrument improves so that the financial asset is no longer creditimpaired, interest income is recognised by applying the effective interest rate to the gross carrying amount of the financial asset from the beginning of the reporting period following the determination that the asset is no longer credit-impaired.

(ii) Financial assets at FVTPL

Financial assets that do not meet the criteria for being measured at amortised cost or FVTOCI or designated as FVTOCI are measured at FVTPL.

Financial assets at FVTPL are measured at fair value at the end of each reporting period, with any fair value gains or losses recognised in profit or loss. The net gain or loss recognised in profit or loss includes any dividend or interest earned on the financial asset and is included in the "other gains or losses, net" line item.

Impairment of financial assets

The Group performs impairment assessment under expected credit loss ("ECL") model on financial assets (including trade receivables, other receivables, pledged bank deposits and bank balances) which are subject to impairment assessment under HKFRS 9. The amount of ECL is updated at each reporting date to reflect changes in credit risk since initial recognition.

Lifetime ECL represents the ECL that will result from all possible default events over the expected life of the relevant instrument. In contrast, 12-month ECL ("12m ECL") represents the portion of lifetime ECL that is expected to result from default events that are possible within 12 months after the reporting date. Assessment are done based on the Group's historical credit loss experience, adjusted for factors that are specific to the debtors, general economic conditions and an assessment of both the current conditions at the reporting date as well as the forecast of future conditions.

The Group always recognises lifetime ECL for trade receivables.

For all other instruments, the Group measures the loss allowance equal to 12m ECL, unless when there has been a significant increase in credit risk since initial recognition, in which case the Group recognises lifetime ECL. The assessment of whether lifetime ECL should be recognised is based on significant increases in the likelihood or risk of a default occurring since initial recognition.

For the year ended 31 December 2020

3. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.2 Significant accounting policies (Continued)

Financial instruments (Continued)

Financial assets (Continued)

Impairment of financial assets (Continued)

(i) Significant increase in credit risk

In assessing whether the credit risk has increased significantly since initial recognition, the Group compares the risk of a default occurring on the financial instrument as at the reporting date with the risk of a default occurring on the financial instrument as at the date of initial recognition. In making this assessment, the Group considers both quantitative and qualitative information that is reasonable and supportable, including historical experience and forward-looking information that is available without undue cost or effort.

In particular, the following information is taken into account when assessing whether credit risk has increased significantly:

• • an actual or expected significant deterioration in the financial instrument's external (if available) or internal credit rating;
• • significant deterioration in external market indicators of credit risk, e.g. a significant increase in the credit spread, the credit default swap prices for the debtor;
• • existing or forecast adverse changes in business, financial or economic conditions that are expected to cause a significant decrease in the debtor's ability to meet its debt obligations;
• • an actual or expected significant deterioration in the operating results of the debtor; and
• • an actual or expected significant adverse change in the regulatory, economic, or technological environment of the debtor that results in a significant decrease in the debtor's ability to meet its debt obligations.

Irrespective of the outcome of the above assessment, the Group presumes that the credit risk has increased significantly since initial recognition when contractual payments are more than 30 days past due, unless the Group has reasonable and supportable information that demonstrates otherwise.

The Group regularly monitors the effectiveness of the criteria used to identify whether there has been a significant increase in credit risk and revises them as appropriate to ensure that the criteria are capable of identifying significant increase in credit risk before the amount becomes past due.

(ii) Definition of default

For internal credit risk management, the Group considers an event of default occurs when information developed internally or obtained from external sources indicates that the debtor is unlikely to pay its creditors, including the Group, in full without taking into account any collaterals held by the Group.

Irrespective of the above, the Group considers that default has occurred when a financial asset is more than 90 days past due unless the Group has reasonable and supportable information to demonstrate that a more lagging default criterion is more appropriate.

For the year ended 31 December 2020

3. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.2 Significant accounting policies (Continued)

Financial instruments (Continued)

Financial assets (Continued)

Impairment of financial assets (Continued)

(iii) Credit-impaired financial assets

A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of that financial asset have occurred. Evidence that a financial asset is credit-impaired includes observable data about the following events:

• • significant financial difficulty of the issuer or the borrower;
• • a breach of contract, such as a default or past due event;
• • the lender(s) of the borrower, for economic or contractual reasons relating to the borrower's financial difficulty, having granted to the borrower a concession(s) that the lender(s) would not otherwise consider;
• • it is becoming probable that the borrower will enter bankruptcy or other financial reorganisation; or
• • the disappearance of an active market for that financial asset because of financial difficulties.

(iv) Write-off policy

The Group writes off a financial asset when there is information indicating that the counterparty is in severe financial difficulty and there is no realistic prospect of recovery, for example, when the counterparty has been placed under liquidation or has entered into bankruptcy proceedings, or in the case of trade receivables, when the amounts are over three years past due, whichever occurs sooner. Financial assets written off may still be subject to enforcement activities under the Group's recovery procedures, taking into account legal advice where appropriate. A write-off constitutes a derecognition event. Any subsequent recoveries are recognised in profit or loss.

(v) Measurement and recognition of ECL

The measurement of ECL is a function of the probability of default, loss given default (i.e. the magnitude of the loss if there is a default) and the exposure at default. The assessment of the probability of default and loss given default is based on historical data adjusted by forward-looking information. Estimation of ECL reflects an unbiased and probability-weighted amount that is determined with the respective risks of default occurring as the weights. The Group uses a practical expedient in estimating ECL on trade receivables using a provision matrix taking into consideration historical credit loss experience, adjusted for forward looking information that is available without undue cost or effect.

Generally, the ECL is the difference between all contractual cash flows that are due to the Group in accordance with the contract and the cash flows that the Company expects to receive, discounted at the effective interest rate determined at initial recognition.

For the year ended 31 December 2020

3. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.2 Significant accounting policies (Continued)

Financial instruments (Continued)

Financial assets (Continued)

Impairment of financial assets (Continued)

(v) Measurement and recognition of ECL (Continued) Lifetime ECL for trade receivables are considered on a collective basis taking into consideration past due information and relevant credit information such as forward looking macroeconomic information.

For collective assessment, the Group takes into consideration the following characteristics when formulating the grouping:

• • Past-due status;
• • Nature, size and industry of debtors; and
• • External credit ratings where available.

The grouping is regularly reviewed by management to ensure the constituents of each group continue to share similar credit risk characteristics.

Interest income is calculated based on the gross carrying amount of the financial asset unless the financial asset is creditimpaired, in which case interest income is calculated based on amortised cost of the financial asset.

The Group recognises an impairment gain or loss in profit or loss for all financial instruments by adjusting their carrying amount, with the exception of trade and other receivables where the corresponding adjustment is recognised through a loss allowance account.

Derecognition of financial assets

The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.

On derecognition of a financial asset measured at amortised cost, the difference between the asset's carrying amount and the sum of the consideration received and receivable is recognised in profit or loss.

For the year ended 31 December 2020

3. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

3.2 Significant accounting policies (Continued)

Financial instruments (Continued)

Financial liabilities and equity

Classification as debt or equity

Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Company are recognised at the proceeds received, net of direct issue costs.

Repurchase of the Company's own equity instruments, is recognised and deducted directly in equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Company's own equity instruments.

Financial liabilities at amortised cost

Financial liabilities including trade and other payables, amount due to a non-controlling shareholder of a subsidiary and bank and other borrowings are subsequently measured at amortised cost, using the effective interest method.

Derecognition of financial liabilities

The Group derecognises financial liabilities when, and only when, the Group's obligations are discharged, cancelled or have expired. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.

For the year ended 31 December 2020

4. Critical accounting judgements and KEY SOURCES OF ESTIMATION UNCERTAINTY

Critical judgements in applying accounting policies

The following are the critical judgements, apart from those involving estimations (see below), that the directors of the Company have made in the process of applying the Group's accounting policies and that have the most significant effect on the amounts recognised in the consolidated financial statements.

The Group engages in trading of electronic components. The Group concluded that the Group acts as the principal for such transactions as it controls the specified good before it is transferred to the customer after taking into consideration indicators such as the Group is primarily responsible for fulfilling the promise to provide the goods. The Group has inventory. When the Group satisfies the performance obligation, the Group recognises trading revenue in the gross amount of consideration to which the Group expects to be entitled as specified in the contracts.

During the year ended 31 December 2020, the Group recognised revenue relating to trading of electronic components amounted to HK\$5,541,009,000 (2019: HK\$4,762,816,000).

Control over Quiksol International HK Pte Limited and its subsidiary

The Group acquired altogether 25% ownership interest in Quiksol International HK Pte Limited ("Quiksol HK"), which has a whollyowned subsidiary (hereinafter collectively referred to as "Quiksol Group"), from the then four shareholders of Quiksol HK ("Four Shareholders"), who hold in total the remaining 75% equity interest upon the completion of this acquisition.

A shareholders' agreement was entered into among the Group, Quiksol HK and the Four Shareholders upon the acquisition, which, among others, granted the Group the right to appoint a majority representatives on the board of directors of Quiksol HK and veto rights to certain decisions and actions by the board and shareholders relating to the relevant activities of Quiksol HK. The Articles of Association of Quiksol HK ("A&A") was also amended at the same time to reflect the rights given to the Group pursuant to the shareholders' agreement.

The directors of the Company assessed whether or not the Group has control over Quiksol Group as a result of the rights given by the shareholders' agreement and A&A based on whether the Group has the power to direct the relevant activities of Quiksol Group unilaterally. In making their judgement, the directors of the Company took into consideration: (i) the fact that the relevant activities of Quiksol Group are directed by the board of Quiksol HK as a result of the rights of the Group given under the shareholders' agreement as well as the amendments to the A&A upon the acquisition; and (ii) the power of the Group to appoint a majority of the directors of the board of Quiksol HK.

After this assessment, the directors of the Company concluded that although the Group has only 25% ownership interest in Quiksol HK, the Group has rights that give them the unilateral ability to direct the relevant activities of Quiksol HK and therefore the Group has obtained control over Quiksol Group.

In the application of the Group's accounting policies, which are described in note 3, the directors of the Company is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and underlying assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

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

For the year ended 31 December 2020

4. Critical accounting judgements and KEY SOURCES OF ESTIMATION UNCERTAINTY (Continued)

Key sources of estimation uncertainty

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

Provision of ECL for trade receivables

Trade receivables with significant balances and credit-impaired are assessed for ECL individually.

In addition, the Group uses practical expedient in estimating ECL on trade receivables which are not assessed individually using a provision matrix. The provision rates are based on aging of debtors as groupings of various debtors taking into consideration the Group's historical default rates and forward-looking information that is reasonable and supportable available without undue costs or effort. At every reporting date, the historical observed default rates are reassessed and changes in the forward-looking information are considered.

The provision of ECL is sensitive to changes in estimates. The information about the ECL and the Group's trade receivables are disclosed in notes 34b and 22, respectively.

Fair value measurement of financial instruments

Certain of the Group's financial assets as described in note 34c are measured at fair value with fair value being determined based on significant unobserved inputs using valuation techniques. Judgement and estimation are required in establishing the relevant valuation techniques and the relevant inputs thereof. Changes in assumptions relating to these factors could result in material adjustments to the fair values of these instruments.

Net realisable value of inventories

Inventories are stated at the lower of cost and net realisable value. Net realisable value represents the estimated selling price for inventories less all estimated cost necessary to make the sale. These estimates are based on the current market condition and the historical experience in selling goods of similar nature. It could change significantly as a result of changes in market condition. The Group will reassess the estimation at the end of each reporting period.

At 31 December 2020, the carrying amounts of inventories of the Group were approximately HK\$416,285,000 (2019: HK\$182,368,000) which includes allowance of approximately HK\$7,047,000 (2019: HK\$8,661,000). Details are set out in note 21.

For the year ended 31 December 2020

4. Critical accounting judgements and KEY SOURCES OF ESTIMATION UNCERTAINTY (Continued)

Key sources of estimation uncertainty (Continued)

Income tax provision and corresponding penalty

During the year ended 31 December 2015, the directors of the Company have identified certain errors in the statutory financial statements of a group entity incorporated in Hong Kong for the year ended 31 December 2012 and prior periods, and the year ended 31 December 2014, and consequently those statutory financial statements were restated and reissued. The Group then voluntarily submitted the revised tax computations of the relevant group entity to the Inland Revenue Department of Hong Kong ("IRD") for the years of assessment 2012/2013 and 2014/2015 based on the revised assessable profits calculated based on the reissued statutory financial statements. The additional tax provision for the year ended 31 December 2012 and prior periods, and the year ended 31 December 2014 amounted to HK\$6,006,000 and HK\$6,505,000, respectively, was recognised in the consolidated financial statements in the respective years.

As the Group may have understated its assessable profits and/or made an incorrect tax returns or statement to the IRD for the relevant years of assessment, it may be liable for penalty, the amount of which according to the penalty policy of the IRD would be at a maximum of (i) a fine of HK\$10,000 (equivalent to US\$1,290) to HK\$50,000 (equivalent to US\$6,450) for each offense; (ii) trebling the amount of tax undercharged or would have been undercharged; and (iii) imprisonment for 6 months to 3 years. However, the penalty may be less than the maximum level if the Group can prove to the satisfaction of the Commissioner of the IRD that there is reasonable excuse for committing the offense and the Company does not have any willful intention to omit/understate the profit in question.

The directors of the Company have also considered reasonably possible penalty that may be imposed by the IRD on the Group at each of the reporting date, if any, arising from omission or understatement of assessment profits for the years of assessment 2012/2013 and 2014/2015 by the relevant group entity. After seeking professional advice, the directors of the Company understand that the reasonably possible penalty, if any, is likely to be at the level of 30% of the amount of tax undercharged and HK\$10,000 for each offense, that is, HK\$1,802,000 and HK\$1,950,000 for the year ended 31 December 2012 and 31 December 2014, respectively, and relevant provisions on potential penalty were made and included in administrative expenses in the profit or loss for the relevant years. The directors of the Company believe that adequate provision has been made against the potential penalty. However, the ultimate penalty may be different from the amounts provided, such difference will be charged to profit or loss in the period during which such a determination is made.

For the year ended 31 December 2020

5. REVENUE

Disaggregation of revenue from contracts with customers

	2020	2019
	HK\$'000	HK\$'000
Types of goods:
Sale of electronic components	5,541,009	4,762,816
Sales channel/product lines:
Authorised distribution
Television products	2,049,321	2,086,217
Smart terminals	396,171	537,247
Optoelectronic displays	947,287	531,747
Memory products	492,208	493,207
Security monitoring	342,890	172,862
Communication products	268,775	171,196
Others (note)	437,601	307,377
	4,934,253	4,299,853
Independent distribution	606,756	462,963
	5,541,009	4,762,816

Note: Others mainly comprising the sales of optical communication and other products.

In addition, the Group's disaggregation of revenue by geographical markets is disclosed in note 6.

Revenue is recognised at a point of time when control of the goods has transferred, being when the goods have been delivered to port of discharge or the customer's specific location as stipulated in the sales agreement. Following delivery, the customer bears the risks of obsolescence and loss in relation to the goods.

Advance payments may be received based on the terms of sales contract and any transaction price received by the Group is recognised as a contract liability until the goods have been delivered to the customer. The normal credit term is 0 to 120 days upon delivery.

Customers can only return or request refund if the goods delivered do not meet required quality standards. As at 31 December 2020 and 2019, all outstanding sales contracts are expected to be fulfilled within 12 months after the end of the reporting period.

For the year ended 31 December 2020

6. SEGMENT INFORMATION

Information reported to the board of directors, being the chief operating decision maker ("CODM"), for the purpose of resources allocation and assessment of segment performance focuses on types of goods delivered.

The Group's reportable segments under HKFRS 8 Operating Segments are as follows:

• 1. Authorised distribution
• 1. Independent distribution

No operating segments have been aggregated in arriving at the reportable segments of the Group.

Segment revenues and results

The following is an analysis of the Group's revenue and results from continuing operations by reportable segments:

For the year ended 31 December 2020

	Authorised distribution HK\$'000	Independent distribution HK\$'000 (Note)	Segment total HK\$'000	Elimination HK\$'000	Consolidated HK\$'000
SEGMENT REVENUE
Revenue from external customers	4,934,253	606,756	5,541,009	–	5,541,009
Inter-segment sales*	119,093	113,581	232,674	(232,674)	–
	5,053,346	720,337	5,773,683	(232,674)	5,541,009
Segment profit	65,637	22,379	88,016	–	88,016
* Inter-segment sales are charged at cost
Less: Unallocated expenses					(7,288)
Fair value change on financial
assets at FVTPL					4,623
Profit for the year					85,351

For the year ended 31 December 2020

6. SEGMENT INFORMATION (Continued)

Segment revenues and results (Continued)

For the year ended 31 December 2019

	Authorised distribution HK\$'000	Independent distribution HK\$'000 (Note)	Segment total HK\$'000	Elimination HK\$'000	Consolidated HK\$'000
SEGMENT REVENUE
Revenue from external customers	4,299,853	462,963	4,762,816	–	4,762,816
Inter-segment sales*	249	35	284	(284)	–
	4,300,102	462,998	4,763,100	(284)	4,762,816
Segment profit	48,691	10,433	59,124	–	59,124
* Inter-segment sales are charged at cost
Less: Unallocated expenses					(4,229)
Interest income from debt
instruments at FVTOCI					108

Fair value change on financial
assets at FVTPL	6,772
Profit for the year	61,775

Note: The operating results of independent distribution include the effect arising from amortisation and deferred tax on intangible asset identified from business combination over the estimated useful life of the intangible asset.

The accounting policies of the operating segments are the same as the Group's accounting policies described in note 3. Segment profit represents the profit earned by each segment without allocation of unallocated expenses, interest income from debt instruments at FVTOCI and fair value change on financial assets at FVTPL. This is the measure reported to the CODM for the purposes of resource allocation and performance assessment.

The CODM makes decisions according to operating results of each segment. No analysis of segment asset and segment liability is presented as the CODM does not regularly review such information for the purposes of resources allocation and performance assessment. Therefore, only segment revenue and segment results are presented.

For the year ended 31 December 2020

6. SEGMENT INFORMATION (Continued)

Geographical information

The Group principally operates in Hong Kong and the PRC.

The following table provides an analysis of the Group's sales by geographical market based on the jurisdictions where the relevant group entities were set up, which are also their place of operations during the year, irrespective of the origin of goods and the location of customers.

Revenue from external customers based on location of operations of the relevant group entities

	2020	2019
	HK\$'000	HK\$'000
Hong Kong	5,211,342	4,520,079
The PRC	329,667	242,737
	5,541,009	4,762,816

Information about the Group's non-current assets is presented based on the geographical location of the assets as follows:

Non-current assets

	2020	2019
	HK\$'000	HK\$'000
Hong Kong	19,106	24,939
The PRC	27,285	18,962
Others	615	943
	47,006	44,844

Note: Non-current assets excluded those relating to financial assets at FVTPL, deposits, prepayments and other receivables and deferred tax asset.

Information about major customers

Revenue from customers in respect of sales of goods of the year contributing over 10% of the total revenue of the Group is as follows:

	2020	2019
	HK\$'000	HK\$'000
Customer 1	1,037,119	1,011,571
Customer 2	951,153	988,989

There are no other revenue from transaction with a single external customer amounted to 10% or more of the total revenue of the Group during the years ended 31 December 2020 and 2019.

For the year ended 31 December 2020

7. OTHER INCOME

	2020	2019
	HK\$'000	HK\$'000
Interest income from debt instruments at FVTOCI	–	108
Bank interest income	612	1,729
Technical support services income	4,055	5,613
Interest income from loans to third parties	1,661	5,742
Government grant (note)	2,877	1,034
Covid-19-related rent concessions (note 17)	367	–
Written off of other payables	438	429
Others	1,298	704
	11,308	15,359

Note: During the current year, the Group received government grants of HK\$1,678,000 (2019: nil) in respect of the Employment Support Scheme from the Government of Hong Kong Special Administrative Region for subsidising the salary costs incurred from June to August 2020 and September to November 2020, respectively. The remaining represents subsidies received from the relevant PRC government for improvement of working capital and incentive subsidies received in relation to activities carried out by the Group.

8. OTHER GAINS OR LOSSES, NET

	2020	2019
	HK\$'000	HK\$'000
Net foreign exchange loss	(530)	(1,496)
Fair value gain on financial assets at FVTPL	4,623	6,772
(Loss) gain on disposal of property, plant and equipment	(19)	159
Loss on debt instruments at FVTOCI reclassified from equity upon disposal	–	(105)
Gain on early termination of lease	53	–
	4,127	5,330

9. FINANCE COSTS

	2020 HK\$'000	2019 HK\$'000
Interest on:
— Bank and other borrowings	17,253	26,744
— Lease liabilities	918	589
	18,171	27,333

For the year ended 31 December 2020

10. IMPAIRMENT LOSSES RECOGNISED UNDER EXPECTED CREDIT LOSS MODEL, NET OF REVERSAL

	2020	2019
	HK\$'000	HK\$'000
Impairment loss recognised, net in respect of:
Trade receivables	11,582	15,152
Other receivables	–	66
	11,582	15,218

Details of impairment assessment are set out in note 34b.

11. INCOME TAX EXPENSES

	2020	2019
	HK\$'000	HK\$'000
Current tax:
Hong Kong Profits Tax	15,264	11,760
PRC Enterprise Income Tax ("PRC EIT")	3,642	2,201
	18,906	13,961
Deferred tax (note 31)	(2,306)	(4,186)
	16,600	9,775

The Company was incorporated in the Cayman Island and is exempted from income tax.

On 21 March 2018, the Hong Kong Legislative Council passed The Inland Revenue (Amendment) (No. 7) Bill 2017 (the "Bill") which introduces the two-tiered profits tax rates regime. The Bill was signed into law on 28 March 2019 and was gazetted on the following day. Under the two-tiered profits tax rates regime, the first HK\$2 million of profits of the qualifying group entity will be taxed at 8.25%, and profits above HK\$2 million will be taxed at 16.5%. The profits of group entities not qualifying for the two-tiered profits tax rates regime will continue to be taxed at a flat rate of 16.5%.

Accordingly, the Hong Kong profits tax of the qualifying group entity is calculated at 8.25% on the first HK\$2 million of the estimated assessable profits and at 16.5% on the estimated assessable profits above HK\$2 million.

Under the Law of the PRC on Enterprise Income Tax (the "EIT Law") and Implementation Regulation of The EIT Law, the tax rate of entities established in the PRC is 25% for both years. As 深圳市芯智科技有限公司 ("SMC Technology SZ") has been accredited as a "High and New Technology Enterprise" by the relevant authorities in Shenzhen for a term of three years which will be expired in 2023, it is entitled to a reduced tax rate of 15%. Accordingly, the PRC EIT is calculated at 15% on the assessable profit of SMC Technology SZ for both years.

For the year ended 31 December 2020

11. INCOME TAX EXPENSES (Continued)

Withholding tax is imposed on dividends declared in respect of profits earned by the PRC subsidiaries from 1 January 2008 onwards. At 31 December 2020, the aggregate amount of distributable earnings for the Group's PRC subsidiaries in respect of which the Group has not provided for dividend withholding tax amounted to HK\$49,951,000 (2019: HK\$30,974,000). No liability has been recognised in respect of these amounts because the Group is in a position in control of the timing of the reversal of the temporary differences and it is probable that such differences will not reverse in the foreseeable future.

The tax charge for the year can be reconciled to the profit before tax per the consolidated statement of profit or loss and other comprehensive income as follows:

	2020	2019
	HK\$'000	HK\$'000
Profit before tax	101,951	71,550
	101,951
Tax charge at Hong Kong Profits Tax Rate of 16.5% (note)	16,822	11,806
Tax effect of expenses not deductible for tax purpose	215	399
Tax effect of income not taxable for tax purpose	(1,632)	(1,858)
Tax effect of deductible temporary difference previously not recognised	–	(1,282)
Tax effect of tax losses not recognised	1,793	1,767
Utilisation of tax losses previously not recognised	(142)	(479)
Effect of different tax rates of subsidiaries operating in other jurisdictions	62	(186)
Income tax at concessionary rate	(518)	(395)
Others	–	3
Tax charge for the year	16,600	9,775

Note: Hong Kong Profits Tax Rate is used as it is the domestic tax in the jurisdiction where the operation of the Group is substantially based.

12. PROFIT FOR THE YEAR

	2020 HK\$'000	2019 HK\$'000
Profit for the year has been arrived at after charging (crediting):
Directors' emoluments (note 13)	6,912	5,056
Staff costs
Salaries and other allowances	73,133	64,018
Discretionary bonus	28,598	27,621
Retirement benefit scheme contributions	6,542	10,479
Total staff costs	115,185	107,174
(Reversal of) allowance for inventories (included in cost of sales)	(1,493)	2,394
Amortisation of intangible asset (included in selling and distribution expenses)	2,392	2,392
Auditor's remuneration	2,050	2,080
Cost of inventories recognised as an expense	5,232,042	4,489,486
Depreciation of property, plant and equipment	1,610	1,789
Depreciation of right-of-use assets	8,973	5,084

For the year ended 31 December 2020

13. DIRECTORS', CHIEF EXECUTIVE'S AND EMPLOYEES' EMOLUMENTS

Directors

Directors' and chief executive's remuneration for the year, disclosed pursuant to the applicable Listing Rules and the Hong Kong Companies Ordinance, is as follows:

				Retirement
		Salaries		benefit
		and other	Discretionary	scheme
	Fees	allowance	bonus	contributions	Total
	HK\$'000	HK\$'000	HK\$'000	HK\$'000	HK\$'000
			(note a)
Year ended 31 December 2020
Executive directors:
Mr. Tian (note b)	–	1,080	490	18	1,588
Mr. Wong Tsz Leung	–	720	460	18	1,198
Mr. Liu Hongbing	–	780	465	18	1,263
Mr. Yan Qing (note c)	–	651	1,259	53	1,963
Independent non-executive directors:
Mr. Zheng Gang	300	–	–	–	300
Mr. Tang Ming Je	300	–	–	–	300
Mr. Wong Hok Leung	300	–	–	–	300
	900	3,231	2,674	107	6,912

				Retirement
		Salaries		benefit
		and other	Discretionary	scheme
	Fees	allowance	bonus	contributions	Total
	HK\$'000	HK\$'000	HK\$'000	HK\$'000	HK\$'000
			(note a)
Year ended 31 December 2019
Executive directors:
Mr. Tian (note b)	–	1,080	250	18	1,348
Mr. Wong Tsz Leung	–	720	250	18	988
Mr. Liu Hongbing	–	780	250	18	1,048
Mr. Xie Yi (note c)	–	90	–	5	95
Mr. Yan Qing (note c)	–	336	289	52	677
Independent non-executive directors:
Mr. Zheng Gang	300	–	–	–	300
Mr. Tang Ming Je	300	–	–	–	300
Mr. Wong Hok Leung	300	–	–	–	300
	900	3,006	1,039	111	5,056

For the year ended 31 December 2020

13. DIRECTORS', CHIEF EXECUTIVE'S AND EMPLOYEES' EMOLUMENTS (Continued)

Directors (Continued)

Notes:

• (a) The discretionary bonus is determined by reference to the duties and responsibilities of the relevant individual within the Group and the Group's performance.
• (b) Mr. Tian is also the chief executive of the Company and his emoluments disclosed above included those services rendered by him as the chief executive.
• (c) Mr. Xie Yi resigned and Mr. Yan Qing was appointed as executive director on 1 April 2019.

The executive directors' emoluments shown above were mainly for their services as directors and the chief executive in connection with the management of the affairs of the Group.

The independent non-executive directors' emoluments shown above were for their services as directors of the Company.

There was no arrangement under which a director or chief executive waived or agreed to waive any remuneration during the year.

Employees

The five highest paid employees of the Group during the year included four (2019: three) directors, details of their emoluments are set out above. Details of the emoluments for the year of the remaining one (2019: two) highest paid employees who are neither a director nor chief executive of the Company are as follows:

	2020	2019
	HK\$'000	HK\$'000
Salaries and other allowances	543	1,590
Discretionary bonus	1,159	100
Retirement benefit scheme contributions	53	41
	1,755	1,731

The number of the highest paid employees who are not directors of the Company whose emoluments were fell within the following bands is as follows:

	2020	2019
	HK\$'000	HK\$'000
Nil to HK\$1,000,000	–	2
HK\$1,500,001 to HK\$2,000,000	1	–

During the years ended 31 December 2020 and 2019, no emoluments were paid by the Group to the directors of the Company or the five highest paid individuals (including directors and employees) as an inducement to joint or upon joining the Group or as compensation for loss of office.

For the year ended 31 December 2020

14. DIVIDENDS

	2020	2019
	HK\$'000	HK\$'000
Dividends for ordinary shareholders of the Company recognised
as distributions during the year
2020 — Interim — HK2 cents (2019: 2019 interim dividend HK2 cents) per share	10,059	10,082
2019 — Final — HK2 cents (2019: 2018 final dividend HK4 cents) per share	9,882	20,164
	19,941	30,246

Subsequent to the end of the reporting period, a final dividend in respect of the year ended 31 December 2020 of HK4 cents (2019: final dividend in respect of the year ended 31 December 2019 of HK2 cents) per ordinary share, in an aggregate amount of approximately HK\$19,547,000 (2019: HK\$9,882,000), has been proposed by the directors of the Company and is subject to approval by the shareholders in the forthcoming general meeting.

15. EARNINGS PER SHARE

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

	2020	2019
	HK\$'000	HK\$'000
Earnings
Profit for the year attributable to owners of the Company
for the purpose of basic and diluted earnings per share	71,002	55,102
	2020	2019
Number of ordinary shares
Weighted average number of ordinary shares for the purpose of basic earnings per share	492,292,156	502,714,302
Effect of dilutive potential ordinary shares:
Unvested shares under share award scheme	N/A	12,027
Weighted average number of ordinary shares for the purpose of diluted earnings per share	N/A	502,726,329

For the years ended 31 December 2020 and 2019, the weighted average number of ordinary shares for the purpose of calculating basic earnings per share has taken into account the ordinary shares purchased by the Trustee from the market pursuant to the share award scheme of the Company for those unvested awarded shares and ungranted shares.

No diluted earnings per share is presented for the year ended 31 December 2020 as there was no potential ordinary shares in issue during the year.

For the year ended 31 December 2020

16. PROPERTY, PLANT AND EQUIPMENT

		Furniture
	Leasehold	and	Motor
	improvements	fixtures	vehicles	Total
	HK\$'000	HK\$'000	HK\$'000	HK\$'000
COST
At 1 January 2019	1,084	7,505	6,414	15,003
Additions	244	1,681	–	1,925
Disposals	–	(1,004)	(951)	(1,955)
Exchange adjustments	–	(73)	(34)	(107)
At 31 December 2019	1,328	8,109	5,429	14,866
Additions	–	1,078	–	1,078
Disposals	–	(287)	(127)	(414)
Exchange adjustments	17	419	145	581
At 31 December 2020	1,345	9,319	5,447	16,111
DEPRECIATION
At 1 January 2019	670	4,825	4,894	10,389
Provided for the year	443	986	360	1,789
Eliminated on disposals	–	(931)	(951)	(1,882)
Exchange adjustments	5	(53)	(3)	(51)
At 31 December 2019	1,118	4,827	4,300	10,245
Provided for the year	83	1,174	353	1,610
Eliminated on disposals	–	(282)	(113)	(395)
Exchange adjustments	6	285	62	353
At 31 December 2020	1,207	6,004	4,602	11,813
CARRYING VALUES
At 31 December 2020	138	3,315	845	4,298
At 31 December 2019	210	3,282	1,129	4,621

The property, plant and equipment are depreciated on a straight-line basis over their estimated useful lives as follows:

Leasehold improvements Over the lease term Furniture and fixtures 3–5 years Motor vehicles 5 years

For the year ended 31 December 2020

17. RIGHT-OF-USE ASSETS

		Buildings HK\$'000
At 1 January 2019		469
Additions to right-of-use assets		25,874
Depreciation charge		(5,084)
Exchange adjustments		61
At 31 December 2019		21,320
Additions to right-of-use assets		14,029
Adjustments on lease modifications		(6)
Decrease in early termination of lease		(1,704)
Depreciation charge		(8,973)
Exchange adjustments		1,531
At 31 December 2020		26,197
	2020	2019
	HK\$'000	HK\$'000
Expense relating to short-term leases	(951)	(5,076)
Total cash outflow for leases	(10,108)	(10,089)

For both years, the Group leases various offices and warehouse premises for its operations. Lease contracts are entered into for fixed term of 8 months to 5 years. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. In determining the lease term and assessing the length of the non-cancellable period, the Group applies the definition of a contract and determines the period for which the contract is enforceable.

The Group regularly entered into short-term leases for office premises and staff quarters. As at 31 December 2020 and 2019, the portfolio of short-term leases is similar to the portfolio of short-term leases to which the short-term lease expense disclosed in above.

The lease agreements do not impose any covenants other than the security interests in the leased assets that are held by the lessor.

During the year ended 31 December 2020, lessor of various office premises provided rent concessions to the Group through rent conductions ranging from 60% to 100% over one month. These rent concessions occurred as a direct consequence of Covid-19 pandemic and met of all of the conditions in HKFRS 16.46B, and the Group applied the practical expedient not to assess whether the changes constitute lease modifications. During the year ended 31 December 2020, the effects on changes in lease payments due to forgiveness or waiver by the lessors for the relevant leases of HK\$367,000 were recognised as negative variable lease payments included in "other income".

For the year ended 31 December 2020

18. GOODWILL

			HK\$'000
COST

At 1 January 2019, 31 December 2019 and 2020 9,735

For the purpose of impairment testing, goodwill has been allocated to a group of cash-generating units ("CGU"), comprising Quiksol Group. The recoverable amount of Quiksol Group has been determined based on value in use calculation which uses cash flow projections based on financial budgets approved by management covering a 5-year period (2019: 5-year), and discount rate of 15.36% (2019: 15.36%). Cash flows beyond the 5-year period (2019: 5-year) are extrapolated using a steady 2% growth rate (2019: 2%). The cash flows projections, growth rates and discount rate have been reassessed as at 31 December 2020 taking into consideration higher degree of estimation uncertainties in the current year due to how the Covid-19 pandemic may progress and evolve and volatility in financial markets, including potential disruptions of the Group's electronic components business. Other key assumptions for the value in use calculation relate to the estimation of cash inflows/outflows which include budgeted sales and gross margin and such estimation is based on Quiksol Group's past performance and management's expectations for the market development. Based on the result of the assessment, management of the Group determined that the recoverable amount of the CGU is higher than the carrying amount. As at 31 December 2020, the directors of the Company determined that there is no impairment of goodwill.

Management believes that any reasonably possible changes in any of these assumptions would not cause the carrying amount of Quiksol Group to exceed its recoverable amount.

19. INTANGIBLE ASSET

	Customer relationship HK\$'000
COST
At 1 January 2019, 31 December 2019 and 2020	11,959
AMORTISATION
At 1 January 2019	399
Charge for the year	2,392
At 31 December 2019	2,791
Charge for the year	2,392
At 31 December 2020	5,183
CARRYING VALUE
At 31 December 2020	6,776
At 31 December 2019	9,168

Intangible asset represents customer-related intangible asset recognised in a business combination and is amortised on a straight-line basis, over the following rate per annum:

Customer relationship 20%

For the year ended 31 December 2020

20. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

	2020	2019
	HK\$'000	HK\$'000
Financial assets mandatorily measured at FVTPL:
Life insurance policies (note i)	79,143	77,128
Unlisted unit trust funds (note ii)	51,004	50,692
	130,147	127,820

Notes:

(i) As at 31 December 2020, the Group has a total of six (2019: six) life insurance policies with two (2019: two) insurance companies to insure certain directors of the Company. Under these policies, the Group is the beneficiary and policy holder and the total insured sum is US\$29,000,000 (equivalent to approximately HK\$226,200,000) (2019: US\$29,000,000, equivalent to HK\$226,200,000) in aggregate. The Group is required to pay a single premium totalling US\$9,533,000 (equivalent to approximately HK\$74,357,000) (2019: US\$9,533,000, equivalent to HK\$74,357,000) at inception. The Group can, at any time, withdraw cash based on the account value of the policy ("Account Value") at the date of withdrawal, which is determined by the gross premium paid plus accumulated guaranteed interest earned and minus any charges made in accordance with the terms and conditions of the policy. If withdrawal is made between the 1st to 15th policy years for the first, third, fourth, fifth and sixth policies and 1st to 18th policy year for the second policy, there is a specified amount of surrender charge deducted from the Account Value. The insurance company will pay the Group a guaranteed interest for the first year and a variable return per annum afterwards (with minimum guaranteed interest rate ranged from 2% to 3% per annum) during the effective period of the policies.

(ii) Unlisted unit trust funds invest primarily in Asian bonds, United States treasury bonds, United States mortgage-backed securities and other debt securities.

21. INVENTORIES

	2020	2019
	HK\$'000	HK\$'000
Electronic components held for resale	423,332	191,029
Less: Allowance for inventories	(7,047)	(8,661)
	416,285	182,368

The movements in the allowance for inventories are as follows:

	2020	2019
	HK\$'000	HK\$'000
At beginning of year	8,661	7,363
Allowance reversed/recognised in profit or loss, net	(1,493)	2,394
Written off	(121)	(1,096)
At end of year	7,047	8,661

Cost of inventories recognised as an expense includes the above allowance recognised in profit or loss in respect of write-downs of inventories to net realisable value.

For the year ended 31 December 2020

22. TRADE RECEIVABLES

	2020	2019
	HK\$'000	HK\$'000
Trade receivables	1,136,690	814,844
Less: allowance for credit losses	(34,394)	(22,812)
	1,102,296	792,032

As at 1 January 2019, trade receivables from contracts with customers amounted to HK\$471,044,000.

As at 31 December 2020, included in trade receivables are total bills received amounting to HK\$4,756,000 (2019: HK\$69,000) with a maturity period ranging from 30 to 180 days (2019: 30 days) are held by the Group for future settlement of trade receivables. Included in total bills are bills received by the Group amounting HK\$3,185,000 (2019: nil) were transferred to banks by discounting on a full recourse basis. As the Group has not transferred the significant risks and rewards relating to these bills, it continues to recognise trade receivables' full carrying amounts at the end of the reporting period and recognise the cash received on the transfer as secured borrowings. These financial assets are carried at amortised cost in the Group's consolidated statement of financial position.

The Group allows credit period of 0 days to 120 days (2019: 0 to 120 days) to its customers. The following is an aged analysis of the Group's trade receivables (net of allowance for credit losses), at the end of the reporting period, based on the invoice dates which approximated the respective revenue recognition dates:

	2020	2019
	HK\$'000	HK\$'000
0–60 days	871,138	604,735
61–120 days	170,033	133,312
Over 120 days	61,125	53,985
	1,102,296	792,032

As at 31 December 2020, included in the Group's trade receivables balance are debtors with aggregate carrying amount of approximately HK\$146,824,000 (2019: HK\$94,230,000) which are past due as at the reporting date. Out of the past due balances, HK\$60,608,000 (2019: HK\$51,837,000) has been past due 90 days or above, for which the Group's do not consider the balances in default as there has not been a significant change in the credit quality and amounts are still considered recoverable based on historical experience.

As at 31 December 2020, other than bills received amounting to HK\$4,756,000 (2019: HK\$69,000), the Group does not hold any collateral or other credit enhancements over these balances nor does it has a legal right of offset against any amounts owed by the Group to the counterparty.

Details of impairment assessment of trade receivables are set out in note 34b.

For the year ended 31 December 2020

23. DEPOSITS, PREPAYMENTS AND OTHER RECEIVABLES

	2020	2019
	HK\$'000	HK\$'000
Deposits	28,792	35,966
Prepayments	11,082	7,228
Other receivables (Note)	34,075	33,917
Value-added tax recoverable	3,552	2,753
	77,501	79,864
Analysed as:
Non-current	3,634	7,192
Current	73,867	72,672
	77,501	79,864

Note: Other receivables as at 31 December 2020 mainly included a loan granted to a third party amounting to HK\$31,200,000 (2019: HK\$31,200,000). The loan is unsecured, carry interest at 6.5% (2019: 4.5%) per annum and repayable in June 2021 (2019: May 2020).

24. PLEDGED BANK DEPOSITS/BANK BALANCES AND CASH

The bank balances and cash comprise cash held by the Group and short-term bank deposits with an original maturity of three months or less. The pledged bank deposits/bank balances carry interest at market rates as follows:

	2020	2019
Range of interest rate per annum:
Pledged bank deposits	0.01%–3.00%	0.01%–3.00%
Bank balances	0.001%–0.3%	0.001%–0.05%

The carrying amounts of the Group's pledged bank deposits and bank balances and cash denominated in currencies other than functional currencies of the relevant group entities at each of the reporting date are as follows:

	2020	2019
	HK\$'000	HK\$'000
HK\$	3,633	4,753
Renminbi ("RMB")	6,366	5,692

For the year ended 31 December 2020

25. TRADE PAYABLES

	2020	2019
	HK\$'000	HK\$'000
Trade payables	590,732	370,989

The credit period for trade payables ranging from 0 to 60 days (2019: 0 to 60 days).

Ageing analysis of the Group's trade payables based on invoice date at the end of the reporting period is as follows:

	2020	2019
	HK\$'000	HK\$'000
0–30 days	492,322	291,333
31–60 days	71,715	54,207
61–90 days	25,906	25,369
Over 90 days	789	80
	590,732	370,989

As at 31 December 2019, included in the trade payables is HK\$44,811,000 (2020: nil), in which the Group issued bills to relevant creditors for settlement and remained outstanding at the end of the reporting period.

26. OTHER PAYABLES AND ACCRUED CHARGES

	2020	2019
	HK\$'000	HK\$'000
Accrued purchase	36,741	36,369
Accrued expenses	43,388	29,547
Other payables	10,261	7,537
	90,390	73,453

For the year ended 31 December 2020

27. LEASE LIABILITIES

	2020	2019
	HK\$'000	HK\$'000
Lease liabilities payable:
Within one year	9,704	7,973
Within a period of more than one year	7,742	6,034
Within a period of more than two years but not more than five years	10,098	7,924
	27,544	21,931
Less: Amount due for settlement with 12 months shown under current liabilities	(9,704)	(7,973)
Amount due for settlement after 12 months shown under non-current liabilities	17,840	13,958

The weighted average incremental borrowing rates applied to lease liabilities range at 4.43% (2019: 4.43%).

Lease obligations that are denominated in currencies other than the functional currencies of the relevant group entities are set out below:

	HK\$	RMB	TWD
	HK\$'000	HK\$'000	HK\$'000
As at 31 December 2020	2,139	–	–
As at 31 December 2019	5,661	301	711

28. CONTRACT LIABILITIES

The Group receives certain amount of the contract value from customers when they place their purchase order. This give rise to contract liabilities at the start of a contract until the Group transferred the control of goods to the customers.

As at 1 January 2019, contract liabilities amounted to HK\$13,808,000.

During the year ended 31 December 2020, revenue amounting to HK\$18,112,000 (2019: HK\$13,808,000) was recognised in the current year which relates to carried-forward contract liabilities.

29. AMOUNT DUE TO A NON-CONTROLLING SHAREHOLDER OF A SUBSIDIARY

The amount was unsecured, non-interest bearing and repayable on demand.

For the year ended 31 December 2020

30. BANK AND OTHER BORROWINGS

	2020	2019
	HK\$'000	HK\$'000
Bank borrowings (Note i)	587,101	311,304
Import and export loans	139,964	105,360
	727,065	416,664
Other borrowings (Note ii)	–	18,151
	727,065	434,815
Carrying amounts of the above borrowings are repayable*
— within one year	727,065	434,815
Carrying amounts of borrowings that contain a repayable on demand clause
(shown under current liabilities)	727,065	416,664
	2020	2019
	HK\$'000	HK\$'000
Analysed as:
Secured	720,294	414,237
Unsecured	6,771	20,578
	727,065	434,815

* The amounts due are based on scheduled repayment dates set out in the loan agreements.

Certain of the banking facilities contain various covenants which include the maintenance of certain financial ratios and restrictions on the maximum amounts due from a director and related companies and related parties transactions. The directors of the Company have reviewed the covenants compliance and represented that they were not aware of any breach during both years.

For the year ended 31 December 2020

30. BANK AND OTHER BORROWINGS (Continued)

The ranges of effective interest rates (which are also equal to contracted interest rates) on the Group's borrowings are as follows:

	2020	2019
Effective interest rate:
Bank borrowings and import and export loans
— variable rates	1.39%–4.56%	3.63%–4.60%
Other borrowings — fixed rate	N/A	9.00%–10.00%

The variable rates bank borrowings and import and export loans are subject to interest at London Interbank Offered Rate ("LIBOR") plus a spread and Loan Prime Rate ("LPR") plus a spread (2019: LIBOR plus a spread and LPR plus a spread).

Notes:

• (i) During the year ended 31 December 2020, the Group factored trade receivables to banks with recourse in an aggregated amount of HK\$580,328,000 (2019: HK\$308,877,000) and accordingly the cash received on the transfer was recognised as borrowings and included in bank borrowings. The Group also discounted bills arising from future settlement of trade receivables with recourse in aggregated amount of HK\$3,185,000 (2019: nil) for short-term financing. At 31 December 2020, the associated borrowings amounted to approximately HK\$19,775,000 (2019: nil). The related cash flows of these borrowings are presented as financing cash flows in the consolidated statement of cash flows.
• (ii) As at 31 December 2019, the Group had obtained two loans (2020: nil) from individuals and third parties which was unsecured, interest bearing at a fixed rate with a range of 9% to 10% (2020: nil) per annum and repayable by 8 February 2020 through 18 February 2020 (2020: nil). These loans are subsequently settled during the current year.

31. DEFERRED TAXATION

The following is the analysis of the deferred tax balances for financial reporting purposes:

	2020	2019
	HK\$'000	HK\$'000
Deferred tax asset	5,704	3,792
Deferred tax liability	(1,119)	(1,513)
	4,585	2,279

For the year ended 31 December 2020

31. DEFERRED TAXATION (Continued)

The followings are the major deferred tax liability and asset recognised by the Group and movements thereon during the current and prior years:

	ECL	Intangible
	provision	asset
	of trade	identified
	and other	from business
	receivables	combination	Total
	HK\$'000	HK\$'000	HK\$'000
At 1 January 2019	–	1,907	1,907
Credit to profit or loss	(3,792)	(394)	(4,186)
At 31 December 2019	(3,792)	1,513	(2,279)
Credit to profit or loss	(1,912)	(394)	(2,306)
At 31 December 2020	(5,704)	1,119	(4,585)

At the end of the reporting period, the Group has unused tax losses of approximately HK\$39,545,000 (2019: HK\$30,254,000), available for offset against future profits. No deferred tax asset has been recognised in respect of the tax losses due to the unpredictability of future profit streams. Unrecognised tax losses of approximately HK\$27,242,000 (2019: HK\$25,849,000) will expire from 2021 to 2025 (2019: 2020 to 2024) and the remaining tax losses may be carried forward indefinitely.

32. SHARE CAPITAL

	Number
	of shares	Amount
		US\$'000
Ordinary shares of US\$0.00001 each
Authorised:
At 1 January 2019, 31 December 2019 and 2020	5,000,000,000	50
Issued and fully paid
At 1 January 2019 and 31 December 2019	504,105,030	5
Share repurchased and cancelled	(11,150,000)	–*
At 31 December 2020	492,955,030	5
	2020	2019
	HK\$'000	HK\$'000
Shown in the financial statements as	38	39

* Representing US\$112, equivalent to HK\$1,000.

For the year ended 31 December 2020

32. SHARE CAPITAL (Continued)

Note: During the year ended 31 December 2020, the Company repurchased its own ordinary shares on the Stock Exchange as follows:

	Number of shares	Price per share		Aggregate
Month of repurchase	of US\$0.00001 each	Highest	Lowest	consideration
		HK\$	HK\$	HK\$'000
January 2020	250,000	1.51	1.49	378
July 2020	200,000	1.30	1.24	258
August 2020	300,000	1.38	1.31	403
September 2020	400,000	1.38	1.35	546
November 2020	600,000	1.32	1.26	777
December 2020	814,000	1.33	1.30	1,068
	2,564,000			3,430

During the year ended 31 December 2019, the Company repurchased its own ordinary shares on the Stock Exchange as follows:

Number of shares			Aggregate
of US\$0.00001 each	Highest	Lowest	consideration
	HK\$	HK\$	HK\$'000
			127
			3,451
1,280,000	1.4	1.3	1,760
6,860,000	1.51	1.34	10,016
10,900,000			15,354
	100,000 2,660,000	1.27 1.35	Price per share 1.26 1.23

The Company purchased 250,000 shares in January 2020 for an aggregate consideration of HK\$378,000 and during the year ended 31 December 2020, a total of 11,150,000 (2019: nil) shares of the Company repurchased were cancelled and accordingly the issued share capital of the Company was reduced by the nominal value of these shares. The premium payable in repurchase was charged against the share premium. An amount equivalent to the nominal value of the shares cancelled was transferred from retained profits to the capital redemption reserve.

The Company also purchased 2,314,000 shares of its own shares between 17 July 2020 to 31 December 2020 for an aggregate consideration of HK\$3,052,000. As the repurchased shares have not been cancelled during the year ended 31 December 2020, they were recognised as treasury share reserve as at 31 December 2020.

The Company purchased 10,900,000 shares of its own shares between 30 September 2019 to 31 December 2019 for an aggregate consideration of HK\$15,354,000. As the repurchased shares have not been cancelled during the year ended 31 December 2019, they were recognised as treasury share reserve as at 31 December 2019.

33. CAPITAL RISK MANAGEMENT

The Group manages its capital to ensure that the Group will be able to continue as a going concern while maximising the return to stakeholders and maintaining an adequate capital structure. The Group's overall strategy remained unchanged from prior year.

The capital structure of the Group consists of debts, which include bank and other borrowings, amount due to a non-controlling shareholder of a subsidiary, net of bank balances and cash and equity attributable to owners of the Company, comprising share capital and reserves.

The management of the Group regularly reviews the capital structure on a continuous basis taking into account the cost of capital and the risk associated with the capital. The Group will balance its overall capital structure through the payment of dividends and new shares issues and share-by-backs as well as the issue of new debts and redemption of existing debts.

For the year ended 31 December 2020

34. FINANCIAL INSTRUMENTS

34a. Categories of financial instruments

	2020	2019
	HK\$'000	HK\$'000
Financial assets
Amortised cost	1,556,520	1,195,966
Financial assets at FVTPL	130,147	127,820
Financial liabilities
Amortised cost	1,324,303	809,837
Lease liabilities	27,544	21,931

34b. Financial risk management objectives and policies

The Group's major financial instruments include financial assets at FVTPL, trade receivables, deposits and other receivables, pledged bank deposits, bank balances and cash, trade payables, other payables, amount due to a non-controlling shareholder of a subsidiary, bank and other borrowings and lease liabilities. Details of these financial instruments are disclosed in the respective notes. The risks associated with these financial instruments and the policies on how to mitigate these risks are set out below. The directors of the Company manage and monitor these exposures to ensure appropriate measures are implemented on a timely and effective manner.

Market risk

Currency risk

The group entities have foreign currency denominated monetary assets and monetary liabilities which expose the Group to foreign currency risk. The directors of the Company believe the Group does not have significant foreign exchange exposures and will consider the use of foreign exchange forward contracts to reduce the currency exposures in case the foreign exchange exposures become significant.

For the year ended 31 December 2020

34. FINANCIAL INSTRUMENTS (Continued)

34b. Financial risk management objectives and policies (Continued)

Market risk (Continued)

Currency risk (Continued)

The carrying amounts of the foreign currency denominated monetary assets and liabilities at the end of the reporting period are as follows:

The Group

	Assets		Liabilities
	2020	2019	2020	2019
	HK\$'000	HK\$'000	HK\$'000	HK\$'000
HK\$	5,965	7,078	2,139	5,661
RMB	6,469	5,740	–	301
TWD	–	722	–	711

Inter-company balances

	Assets		Liabilities
	2020	2019	2020	2019
	HK\$'000	HK\$'000	HK\$'000	HK\$'000
	48,345	17,769	11,634	4,598

Sensitivity analysis

For the exposure to the fluctuation in US\$ against HK\$, as HK\$ is pegged to US\$ and the net exposure of TWD is immaterial, the directors of the Company are of opinion that the Group's exposure to the fluctuation in US\$ and TWD are insignificant and no sensitivity analysis is presented.

The following table details the Group's sensitivity to a 5% (2019: 5%) increase and decrease in US\$ against RMB. 5% (2019: 5%) is the sensitivity rate used which represents management's assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items including the bank balances and variable-rate pledged bank deposits and inter-company balances and adjusts their translation at the end of the reporting period for a 5% (2019: 5%) change in foreign currency rates. A positive number below indicates an increase in post-tax profit where US\$ weakens 5% (2019: 5%) against RMB. For a 5% (2019: 5%) strengthening of US\$ against the relevant currency, there would be an equal and opposite impact on the profit.

For the year ended 31 December 2020

34. FINANCIAL INSTRUMENTS (Continued)

34b. Financial risk management objectives and policies (Continued)

Market risk (Continued)

Sensitivity analysis (Continued)

The Group

	2020	2019
	HK\$'000	HK\$'000
Profit for the year	270	227

Inter-company balances

	2020 HK\$'000	2019 HK\$'000
Profit for the year	1,532	550

The directors of the Company considered the sensitivity analysis is unrepresentative of the inherent foreign exchange risk as the exposure at the end of the reporting period does not reflect the exposure during the year.

Interest rate risk

The Group is exposed to fair value interest rate risk in relation to its other borrowings.

The Group is also exposed to cash flow interest rate risk in relation to life insurance policies, bank balances, variable-rate pledged bank deposits, unlisted unit trust funds and bank borrowings.

A fundamental reform of major interest rate benchmarks is being undertaken globally, including the replacement of some interbank offered rates ("IBORs") with alternative nearly risk-free rates. As listed in note 30, several of the Group's LIBOR bank borrowings may be subject to the interest rate benchmark reform. The Group is closely monitoring the transition to new benchmark interest rates.

The management has considered the Group's exposure to cash flow interest rate risk in relation to variable-rate pledged bank deposits and bank balances to be limited because the current market interest rates on general deposits are relatively low and stable.

The Group's exposure to interest rates on financial liabilities are detailed in the liquidity risk management section of this note. The Group's cash flow interest rate is mainly concentrated on the fluctuation of HIBOR, LIBOR and LPR arising from the Group's bank borrowings. The Group currently does not have interest rate risk hedging policy. However, the directors of the Company closely monitor the exposure to future cash flow interest rate risk as a result of change on market interest rate and will consider hedging changes in market interest rates should the need arise.

For the year ended 31 December 2020

34. FINANCIAL INSTRUMENTS (Continued)

34b. Financial risk management objectives and policies (Continued)

Market risk (Continued)

Sensitivity analysis

The sensitivity analyses below have been determined based on the exposure to interest rates for investments of life insurance policies, unlisted unit trust funds and bank borrowings for the year ended 31 December 2020 and 2019. The analysis is prepared assuming the financial instruments outstanding at the end of the reporting period were outstanding for the whole year. A 50 basis points (2019: 50 basis points) increase or decrease is used when reporting interest rate risk internally to key management personnel and represents directors' assessment of the reasonably possible change in interest rates. If interest rates had been 50 basis points (2019: 50 basis points) higher and other variables were held constant, profit of the year would be affected as follows. For a 50 basis points (2019: 50 basis points) lower, there would be an equal and opposite impact on the profit.

	2020	2019
	HK\$'000	HK\$'000
Decrease in profit for the year	(2,386)	(1,100)

The directors of the Company considered the sensitivity analysis is unrepresentative of the interest rate risk as the exposure at the end of the reporting period does not reflect the exposure during the year.

Other price risk

The Group is exposed to price risk through its investments in life insurance policies and unlisted unit trust funds. The directors of the Company manage this exposure by maintaining a portfolio of investments with different risks. The Group has appointed a special team to monitor the price risk and will consider hedging the risk exposure should the need arise.

Sensitivity analysis

The sensitivity analyses below have been determined based on the exposure to price risks at the reporting date.

If the prices of the respective investments in life insurance policies and unlisted unit trust funds had been 5% (2019: 5%) higher/ lower, profit for the year ended 31 December 2020 would increase/decrease by HK\$6,507,000 (2019: HK\$6,391,000) as a result of the changes in fair value of investments in life insurance policies and unlisted unit trust funds.

In the opinion of directors of the Company, the sensitivity analysis is not representative of the Group's price risk as it only reflects the impact of price changes to investments in life insurance policies and unlisted unit trust funds at the end of the year but not the exposure during the year.

For the year ended 31 December 2020

34. FINANCIAL INSTRUMENTS (Continued)

34b. Financial risk management objectives and policies (Continued)

Credit risk and impairment assessment

The Group's maximum exposure to credit risk, which will cause a financial loss to the Group due to failure to discharge an obligation by the counterparties, is arising from the carrying amount of the respective recognised financial assets as stated in the consolidated statements of financial position.

Trade receivables arising from contracts with customers

Before accepting any new customer, the Group assess the potential customer's credit quality and defines credit limits by customer. Limits attributed to customers are reviewed regularly. Other monitoring procedures are in place to ensure that followup action is taken to recover overdue debts. In this regard, the directors of the Company consider that the Group's credit risk is significantly reduced.

In addition, the Group performs impairment assessment under ECL model on trade balances individually or based on provision matrix. Except for debtors with significant outstanding balances and credit-impaired, which are assessed for impairment individually, the remaining trade receivables are grouped under a provision matrix based on shared credit-risk characteristics by reference to repayment histories for recurring customers and current past due exposure for the new customers. Net impairment loss of HK\$11,582,000 (2019: net impairment loss of HK\$15,152,000) is recognised during the year. Details of the quantitative disclosures are set out below in this note.

The Group has concentration of credit risk as 49% (2019: 54%) of the total receivables was due from the Group's top five outstanding balances. The major customers of the Group are mainly leading brand-name consumer electronic product manufacturing companies in the PRC and electronic product trading companies in Hong Kong. In order to minimise the credit risk of trade receivables, the management of the Group delegated a team responsible for determination of credit limits and credit approvals.

Other receivables

For other receivables, the directors of the Company make periodic individual assessment on the recoverability of other receivables based on quantitative and qualitative information that is reasonable and supportive forward-looking information. The directors of the Company believe that there are no significant increase in credit risk of these amounts since initial recognition and the Group provided impairment based on 12m ECL. The Group performs impairment assessment under ECL model on outstanding balances individually. In this regard, the directors of the Company consider that the Group's credit risk is significantly reduced.

The following table shows the movements in 12m ECL that has been recognised for other receivables:

	12m ECL HK\$'000
As at 1 January 2019	107
Impairment loss reversed due to financial instruments recognised as at 1 January 2019	(107)
New financial assets originated	173
As at 31 December 2019 and 2020	173

For the year ended 31 December 2020

34. FINANCIAL INSTRUMENTS (Continued)

34b. Financial risk management objectives and policies (Continued)

Credit risk and impairment assessment (Continued)

Pledged bank deposits/bank balances

The credit risks on bank balances and pledged bank deposits are limited because the counterparties are reputable banks and financial institutions with high credit ratings assigned by international credit-rating agencies in the PRC and Hong Kong.

The Group assessed 12m ECL for bank balances and pledged bank deposits by reference to information relating to average loss rate of respective credit rating grades published by external credit rating agencies.

Based on the average loss rates, the ECL on bank balances and pledged bank deposits is considered to be insignificant.

Financial assets at FVTPL

The Group's financial assets at FVTPL mainly comprise, unlisted unit trust funds and life insurance policies that are graded in high credit ratings assigned by international credit-rating agencies and therefore are considered to be low credit risk investments.

The Group assessed 12m ECL for its financial assets at FVTPL in which the amount of ECL is considered insignificant.

Provision matrix — internal credit rating

As part of the Group's credit risk management, the Group applies internal credit rating for its customers in relations to its operation. The following table provides information about the exposure to credit risk for trade receivables which assessed based on provision matrix within lifetime ECL (not credit-impaired). Debtors with significant outstanding balances or credit-impaired with gross carrying amounts of HK\$807,997,000 and HK\$3,900,000 respectively as at 31 December 2020 (31 December 2019: HK\$468,286,000 and HK\$3,900,000) were assessed individually.

Gross carrying amount

		2020			2019
	Average	Trade	Credit loss	Average	Trade	Credit loss
Internal credit rating	loss rate	receivables	allowance	loss rate	receivables	allowance
	%	HK\$'000	HK\$'000	%	HK\$'000	HK\$'000
Low risk (Note a)	0.56	304,993	1,716	0.61	240,630	1,457
Medium risk (Note b)	2.01	19,800	397	1.37	102,028	1,400
		324,793	2,113		342,658	2,857

Notes:

(a) Low risk types customers represent the counterparty has a low risk default and does not have material past-due amounts.

(b) Medium risk types customers represent debtors frequently repays after due dates but usually settle in full.

For the year ended 31 December 2020

34. FINANCIAL INSTRUMENTS (Continued)

34b. Financial risk management objectives and policies (Continued)

Credit risk and impairment assessment (Continued)

Provision matrix — internal credit rating (Continued)

The estimated loss rates are estimated based on historical observed default rates over the expected life of the debtors and are adjusted for forward-looking information that is available without undue cost or effort. The grouping is regularly reviewed by management to ensure relevant information about specific debtors is updated. Due to greater financial uncertainty triggered by the Covid-19 pandemic, the Group has increased the expected loss rates in the current year as there is higher risk that a prolonged pandemic could led to increased credit default rates.

During the year ended 31 December 2020, the Group provided HK\$744,000 (2019: HK\$434,000) net impairment allowance for trade receivables based on provision matrix. Net impairment allowance of HK\$10,838,000 (2019: HK\$14,718,000) were made on debtors with significant balances and credit-impaired debtors respectively.

The following table shows the movement in lifetime ECL that has been recognised for trade receivables under the simplified approach.

ECL (not-credit impaired)	ECL (credit
	impaired)	Total
HK\$'000	HK\$'000	HK\$'000
3,760	3,900	7,660
(3,760)	–	(3,760)
18,912	–	18,912
18,912	3,900	22,812
(18,912)	–	(18,912)
30,494	–	30,494
30,494	3,900	34,394

Changes in the loss allowance for trade receivables are mainly due to:

	(Decrease) Increase in lifetime ECL
	2020	2019
	HK\$'000	HK\$'000
Non-credit impaired:
Settlement in full of trade debtors with gross
carrying amount of HK\$810,944,000 (2019: HK\$342,796,000)	(18,912)	(3,760)
New trade-receivables with gross carrying amount of
HK\$1,132,790,000 (2019: \$810,944,000)	30,494	18,912

For the year ended 31 December 2020

34. FINANCIAL INSTRUMENTS (Continued)

34b. Financial risk management objectives and policies (Continued)

Liquidity risk

In the management of the liquidity risk, the Group monitors and maintains a level of cash and cash equivalents as well as undrawn banking facilities deemed adequate by the directors of the Company to finance the Group's operations and mitigate the effects of fluctuations in cash flows. The directors of the Company monitors the utilisation of bank borrowing and ensure compliance with loan covenants.

The Group relies on bank borrowings as a significant source of liquidity. As at 31 December 2020, the Group has available unutilised short-term bank loan facilities (excluding standby letter of credit) of HK\$449,615,000 (2019: HK\$520,975,000).

The following table details the Group's remaining contractual maturity for its financial liabilities which has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows. To the extent that interest flows are variable rates, the undiscounted amount is derived from weighted average interest rate at the end of the reporting period.

	Weighted average effective interest rate	Repayable on demand or less than 3 months	3 months to 1 year	1 year to 2 years	2 years to 5 years	Total undiscounted cash flows	Carrying amount
	%	HK\$'000	HK\$'000	HK\$'000	HK\$'000	HK\$'000	HK\$'000
At 31 December 2020
Trade payables	–	590,732	–	–	–	590,732	590,732
Other payables	–	6,506	–	–	–	6,506	6,506
Bank borrowings — variable rates	1.43	727,065	–	–	–	727,065	727,065
		1,324,303	–	–	–	1,324,303	1,324,303
Lease liabilities	3.42	3,312	8,715	8,760	10,398	31,185	27,544

For the year ended 31 December 2020

34. FINANCIAL INSTRUMENTS (Continued)

34b. Financial risk management objectives and policies (Continued)

Liquidity risk (Continued)

	Weighted	Repayable on
	average	demand or	3 months	1 year	2 years	Total
	effective	less than	to	to	to	undiscounted	Carrying
	interest rate	3 months	1 year	2 years	5 years	cash flows	amount
	%	HK\$'000	HK\$'000	HK\$'000	HK\$'000	HK\$'000	HK\$'000
At 31 December 2019
Trade payables	–	370,989	–	–	–	370,989	370,989
Other payables	–	3,778	–	–	–	3,778	3,778
Bank borrowings — variable rates	4.48	416,664	–	–	–	416,664	416,664
Other borrowings — fixed rate	9.01	18,560	–	–	–	18,560	18,151
Amount due to a non-controlling shareholder
of a subsidiary	–	255	–	–	–	255	255
		810,246	–	–	–	810,246	809,837
Lease liabilities	3.50	2,246	6,513	6,307	8,487	23,553	21,931

Bank borrowings with a repayment on demand clause is included in the "repayable on demand or less than 3 months" time band in the above maturity analysis. At 31 December 2020, the aggregate carrying amount of these bank borrowings amounted to approximately HK\$727,065,000 (2019: HK\$416,664,000). Taking into account the Group's financial position, the directors of the Company do not believe that it is probable that the bank will exercise their discretionary right to demand immediate repayment. The directors of the Company believe that such bank borrowings of the Group will be repaid after the end of reporting period in accordance with the scheduled repayment dates set out in the bank borrowing agreements.

For the purpose of managing liquidity risk, the directors of the Company reviews the expected cash flows information of the Group's bank borrowings based on the scheduled repayment dates set out in the bank borrowing agreements as set out in the table below:

	Weighted
	average		Total
	effective	Less than	undiscounted	Carrying
	interest rate	3 months	cash flows	amount
	%	HK\$'000	HK\$'000	HK\$'000
Bank borrowings
At 31 December 2020	1.43	729,657	729,657	727,065
At 31 December 2019	4.48	421,331	421,331	416,664

For the year ended 31 December 2020

34. FINANCIAL INSTRUMENTS (Continued)

34c. Fair value measurements of financial instruments

In estimating the fair value of an asset or a liability, the Group uses market-observable data to the extent it is available. Where Level 1 inputs are not available, the Group performed discounted cash flow to derive the present value of its investments. The management of the Group reports the findings to the directors of the Company every half year to explain the cause of fluctuations in the fair value of the assets and liabilities.

The fair values of these financial assets and financial liabilities are determined (in particular, the valuation technique(s) and inputs used), as well as the level of the fair value hierarchy into which the fair value measurements are categorised (Levels 1 to 3) based on the degree to which the inputs to the fair value measurements is observable.

• • Level 1 fair value measurements are based on quoted prices (unadjusted) in active market for identical assets or liabilities;
• • Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
• • Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

Fair value measurement of the Group's financial assets that are measured at fair value on a recurring basis.

Some of the Group's financial assets are measured at fair value at the end of each reporting period. The following table gives information about how the fair values of these financial assets are determined (in particular, the valuation techniques and inputs used):

Financial assets		Fair value as at		Valuation technique(s) and key input(s)
	31.12.2020	31.12.2019
Financial assets at FVTPL (note 20)	Unit trust funds HK\$51,004,000	Unit trust funds HK\$50,692,000	Level 2	Based on the net asset values of the funds, determined with reference to the observable (quoted) prices of underlying investment portfolio and adjustments of related expenses
	Life insurance policies HK\$79,143,000	Life insurance policies HK\$77,128,000	Level 3	Based on account value of the policies which represent the premium paid to the policies adjusted by net yield with reference to the expected return rate (note)

Note: The significant unobservable input is expected return rate and assuming other inputs were held constant, if the expected return rate increases, the fair value of the policies increase and vice versa. In the opinion of the directors of the Company, the change of expected return rate of the policies is insignificant based on historical record.

There were no transfers between Level 1, 2 and 3 for the year.

For the year ended 31 December 2020

34. FINANCIAL INSTRUMENTS (Continued)

34c. Fair value measurements of financial instruments (Continued)

Reconciliation of Level 3 fair value measurements of financial assets

	Life insurance
	policies
	HK\$'000
At 1 January 2019	75,075
Total gains in profit or loss	2,053
At 31 December 2019	77,128
Total gains in profit or loss	2,015
At 31 December 2020	79,143

35. RECONCILIATION OF LIABILITIES ARISING FROM FINANCING ACTIVITIES

The table below details changes in the Group's liabilities arising from financing activities, including both cash and non-cash changes. Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be, classified in the Group's consolidated statement of cash flows as cash flows from financing activities.

	Amount
	due to a non controlling		Bank
	shareholder of	Dividend	and other	Lease
	a subsidiary HK\$'000	payable HK\$'000	borrowings HK\$'000	liabilities HK\$'000	Total HK\$'000
As at 1 January 2019	2,005	–	59,255	469	61,729
Financing cash flows	(1,750)	(30,246)	348,850	(5,013)	311,841
Non-cash changes:
New leases entered/lease modified	–	–	–	25,874	25,874
Dividend declared	–	30,246	–	–	30,246
Interest expenses	–	–	26,744	589	27,333
Exchange adjustments	–	–	(34)	12	(22)
As at 31 December 2019	255	–	434,815	21,931	457,001
Financing cash flows	(255)	(19,941)	291,614	(9,157)	262,261
Non-cash changes:
New leases entered/lease modified	–	–	–	12,266	12,266
Dividend declared	–	19,941	–	–	19,941
Interest expenses	–	–	17,253	918	18,171
Non-cash settlement of discounted bills	–	–	(16,789)	–	(16,789)
Exchange adjustments	–	–	172	1,586	1,758
As at 31 December 2020	–	–	727,065	27,544	754,609

For the year ended 31 December 2020

35. RECONCILIATION OF LIABILITIES ARISING FROM FINANCING ACTIVITIES (Continued)

During the year, the Group entered into new lease agreements for the use of office premises for 1 to 3 years. On the lease commencement, the Group recognised HK\$14,029,000 right-of-use assets and HK\$14,029,000 lease liabilities (2019: HK\$25,874,000 right-of-use assets and HK\$25,874,000 Lease Liabilities).

36. SHARE-BASED PAYMENT TRANSACTIONS

(a) Share Award Scheme

The Company's share award scheme (the "Share Award Scheme") was adopted pursuant to the written resolutions of all shareholders of the Company on 19 September 2016 ("Date of Adoption") for the primary purpose of rewarding the directors, senior managers and employees ("Eligible Persons") of the Group for their hard work, contribution and loyalty and align their interest with those of shareholders of the Company.

An award granted by the board of directors ("the Board") of the Company to the Eligible Persons is a right of the relevant participant to receive the shares of the Company. Each award may be subject to such other conditions as may be imposed by the Board at its absolute discretion, including without limitation, a vesting period. Share award must be taken up within 7 days of the grant upon payment of HK\$1 per award. The total number of shares in respect of which shares may be granted under the Share Award Scheme is not permitted to exceed 10% of the shares of the Company in issue at any point in time. The number of shares award which may be granted to any individual but unvested under the Share Award Scheme shall not exceed 1% of the total number of shares of the Company in issue at any point in time.

Subject to any early termination as may be determined by the Board pursuant to the rules of the Share Award Scheme, the Share Award Scheme shall be valid and effective for a term of 10 years commencing on the Date of Adoption, after which period no further awards will be granted but the provisions of the Share Award Scheme shall remain in full force and effect to the extent necessary to give effect to the vesting of any awards granted prior to the expiration of the Share Award Scheme, or otherwise to the extent as may be required in accordance with the provisions of the Share Award Scheme. No awards have been granted during both years 2020 and 2019.

(b) Share Option Scheme

The Company's share option scheme (the "Share Option Scheme") was adopted pursuant to a written resolutions of all shareholders of the Company passed on 19 September 2016 for the primary purpose of providing incentives and awards to an employee (whether full time or part-time) or a director of a member of the Group or associated companies of the Company for their contribution to the Group and to align their interests with that of the Company ("ESOS Eligible Person(s)") so as to encourage them to work towards enhancing the value of the Company.

The Board may, at its absolute discretion, offer to grant an option (the "Options") to subscribe for such number of shares in the Company at a price determined by the Board, but shall not be less than the highest of (i) the closing price of the shares of the Company as stated in the Stock Exchange's daily quotation sheet on the date of the offer of grant, which must be a trading day; (ii) the average closing price of the shares of the Company as stated in the Stock Exchange's daily quotation sheet for the five trading days immediately preceding the date of the offer of grant; and (iii) the nominal value of the shares of the Company on the date of grant of the option.

The Share Option Scheme shall be valid and effective for a period of ten years commencing on 7 October 2016. Options granted must be taken up not later than 30 days after the date of grant. A consideration of HK\$1 is payable on acceptance of the offer of grant of an option. The total number of shares in respect of which shares may be granted under the Share Option Scheme is not permitted to exceed 10% of the shares of the Company as at 7 October 2016, without prior approval from the shareholders of the Company. No options shall be granted to any participant under the Share Option Scheme in excess of 1% of the total number of shares of the Company in issue at such date, without prior approval from the shareholders of the Company. At any time, the maximum number of shares which may be issued upon exercise of all outstanding options granted and not yet exercised under the Share Option Scheme and any other schemes of the Company to ESOS Eligible Persons must not exceed 30% of the total number of shares of the Company from time to time.

For the year ended 31 December 2020

36. SHARE-BASED PAYMENT TRANSACTIONS (Continued)

(b) Share Option Scheme (Continued)

The exercisable period of an option, which shall not exceed 10 years from 7 October 2016, is determined by the Board at their discretion.

No options have been granted since the adoption of Share Option Scheme.

37. RETIREMENT BENEFIT PLANS

Hong Kong

The Group operates a scheme under Mandatory Provident Fund Schemes ("MPF Scheme") for its qualifying employees in Hong Kong. The assets of the MPF Scheme are held separately from those of the Group, in funds under the control of trustees. The Group contributes at the lower of a specified amount or 5% of the relevant payroll costs monthly to the MPF Scheme, which contribution is matched by employees.

The PRC

The employees of the Group's subsidiaries in the PRC are members of the state-sponsored retirement benefit scheme organised by the relevant local government authority in the PRC. The subsidiaries are required to contribute, based on a certain percentage of the payroll costs of their employees, to the retirement benefit scheme and have no further obligations for the actual payment of pensions or postretirement benefits beyond the annual contributions.

Taiwan

The Company participates in an employee's pension fund for all its employees in Taiwan. Starting from 1 July 2005, employees may choose a scheme where the rate of contribution by an employer should not be less than 6% of the employees' monthly salaries and the employees may also voluntarily contribute up to 6% of the monthly salaries to the provision fund account under the Labor Pension Act of Taiwan.

The scheme is a defined contribution scheme and is established under trust with the assets of the funds held separately from those of the Group by independent trustees.

During the year ended 31 December 2020, total amounts contributed by the Group to the schemes in Hong Kong, the PRC and Taiwan charged to profit or loss, which represent contributions payable to the schemes by the Group at rates specified in the rules of the schemes are approximately HK\$6,649,000 (2019: HK\$10,590,000).

38. PLEDGE OF ASSETS

The Group's bank borrowings and bills issued to relevant creditors had been secured by the pledge of the Group's assets and the carrying amounts of the respective assets are as follows:

	2020	2019
	HK\$'000	HK\$'000
Financial assets at FVTPL	130,147	127,820
Pledged bank deposits	178,191	161,373
	308,338	289,193

For the year ended 31 December 2020

38. PLEDGE OF ASSETS (Continued)

In addition, bank borrowings and bills issued to relevant creditors are also secured by personnel guarantees from a non-controlling shareholder for both years and certain trade receivables factored to banks for both years.

39. RELATED PARTIES DISCLOSURES

(i) Transactions

The Group had the following transactions with related parties during the year:

Name of related parties	Notes	Nature of transactions	2020	2019
			HK\$'000	HK\$'000
芯智股份有限公司 (Smart-Core Technology Co., Ltd	(i)	Sales of goods	101	2,823
"SMC Taiwan")*
		Purchase of goods	(1,408)	–
Quiksol International Components Pte Ltd	(ii)	Sales of goods	228	2,898
("Quiksol International")
		Purchase of goods	(13)	(690)

Notes:

(i) Mr. Tian, one of the directors and the ultimate controlling party of the Company, is a shareholder of SMC Taiwan.

(ii) A non-controlling shareholder of Quiksol HK, a subsidiary of the Company, is the controlling shareholder of Quiksol International.

* English name for identification only.

(ii) Compensation of key management personnel

The remuneration of directors of the Company and other members of key management was as follows:

	2020	2019
	HK\$'000	HK\$'000
Short-term employee benefits	9,628	5,738
Post-employment benefits	179	127
	9,807	5,865

The remuneration of key management personnel is determined by the management of the Company having regard to the performance of individuals and market trends.

For the year ended 31 December 2020

40. PARTICULAR OF PRINCIPAL SUBSIDIARIES

40a. General information of subsidiaries

Particulars of the Company's principal subsidiaries as at 31 December 2020 and 2019 are as follows:

	Place of incorporation/ establishment	Issued and fully paid share capital/ registered	Equity interest and voting power indirectly attributable to the Group
Name of subsidiary	and operations	capital	2020	2019	Principal activities
Smart-Core International Company Limited	Hong Kong	Ordinary shares HK\$10,000,000	100%	100%	Trading of electronic components
Smart-Core Cloud Limited	Hong Kong	Ordinary shares HK\$1,000,000	100%	100%	Trading of electronic components
SMC Technology SZ (note a)	The PRC	Registered capital RMB8,500,000	100%	100%	Trading of electronic components
深圳市芯智雲信息技術 有限公司 (note a)	The PRC	Registered capital RMB1,000,000	100%	100%	Trading of electronic components
芯聯(廈門)科技有限公司 (note b)	The PRC	Registered capital RMB1,000,000	75%	75%	Provision of technical value-added services
Quiksol HK	Hong Kong	Ordinary shares HK\$7,800,000	25%	25%	Trading of electronic components
蘇州酷科電子有限公司 (notes a, c)	The PRC	Registered capital RMB1,000,000	25%	25%	Trading of electronic components
UDStore Solution Limited	Hong Kong/Taiwan	Ordinary shares US\$1,000,000	75%	75%	Trading of electronic components
Smart-Core Kabushiki Kaisha (note d)	Japan	Registered capital JPY8,000,000	100%	–	Trading of electronic components

Notes:

(a) The companies are registered in the form of wholly owned foreign enterprises.

(b) The company is sino-foreign equity joint ventures with limited liability.

(c) No share capital injected to the company as at 31 December 2019 and 2020.

(d) The company is newly established in 2020.

(e) The above table lists the subsidiaries of the Company which, in the opinion of the directors of the Company, principally affected the results or assets of the Group. To give details of other subsidiaries would, in the opinion of the directors of the Company, result in particulars of excessive length.

None of the subsidiaries had issued any debt securities at the end of the reporting period.

For the year ended 31 December 2020

40. PARTICULAR OF PRINCIPAL SUBSIDIARIES (Continued)

40a. General information of subsidiaries (Continued)

The table below shows details of a non-wholly owned subsidiary of the Group that has material non-controlling interests:

Name of subsidiary	Place of incorporation/ principal place of business	Proportion of ownership interests and held by non controlling interests			Profit (loss) allocated to non-controlling interests		Accumulated non-controlling interests
		2020	2019	2020	2019	2020	2019
				HK\$'000	HK\$'000	HK\$'000	HK\$'000
Quiksol Group	Hong Kong/ Hong Kong and the PRC	75%	75%	15,646	7,800	62,992	51,043
Individually immaterial subsidiaries with non-controlling interests				(1,297)	(1,127)	1,673	1,979
				14,349	6,673	64,665	53,022

Summarised financial information in respect of Quiksol Group, which was acquired on 31 October 2018, is set out below. The summarised financial information below represents amounts before intragroup eliminations and fair value adjustments arising from the acquisition:

	2020	2019
	HK\$'000	HK\$'000
Current assets	162,890	135,939
Non-current assets	1,956	1,038
Current liabilities	85,957	76,566
Non-current liabilities	560	92
Equity attributable to owners of the Company	19,582	15,080
Non-controlling interests	58,747	45,239

For the year ended 31 December 2020

40. PARTICULAR OF PRINCIPAL SUBSIDIARIES (Continued)

40b. Details of non-wholly owned subsidiaries that have material non-controlling interests

Revenue 563,499 462,963 Expenses (540,085) (450,566) Profit for the year 23,414 12,397 Profit attributable to owners of the Company 5,854 3,099 Profit attributable to non-controlling interests 17,560 9,298 Profit for the year 23,414 12,397 Other comprehensive (expenses) income attributable to owners of the Company (4) 1 Other comprehensive (expenses) income attributable to non-controlling interests (12) 4 Other comprehensive (expenses) income for the year (16) 5 Total comprehensive income attributable to owners of the Company 5,850 3,100 17,548 Total comprehensive income attributable to non-controlling interests 9,302 23,398 Total comprehensive income for the year 12,402 Net cash from (used in) operating activities 9,734 (48,300) (234) Net cash used in investing activities (133) Net cash (used in) from financing activities (998) 45,500 Effect of foreign exchange rate changes 53 15 Net cash inflow (outflow) 8,555 (2,918)	2020	2019
	HK\$'000	HK\$'000

For the year ended 31 December 2020

41. EVENTS AFTER THE END OF THE REPORTING PERIOD

On 8 March 2021, SMC Cloud Limited ("SMC Cloud", a subsidiary of the Company), GCS Holdings, Inc. ("GCS") and Wisdom Fortune Corporation Limited ("WFCL") established a joint venture company in Shanghai, China with a registered capital of US\$6,250,000, which is held as to 46% by SMC Cloud. The joint venture company is principally engaged in the design and manufacturing of electronic components for optical communications markets. GCS, a company listed on the Taiwan Stock Exchange (stock code: 4991), is a manufacturer of semiconductor equipment focused on the optical communications markets. WFCL is a local distributor focusing on trading of electronic components.

42. STATEMENT OF FINANCIAL POSITION AND RESERVES OF THE COMPANY

Information about the statement of financial position of the Company at the end of the reporting period is set out below:

	2020	2019
	HK\$'000	HK\$'000
NON-CURRENT ASSETS
Investments in subsidiaries	169,068	183,760
Amount due from a subsidiary	69,089	69,730
	238,157	253,490
CURRENT ASSETS
Amounts due from subsidiaries	2,106	2,149
Other receivables	96	449
Bank balances	260	259
	2,462	2,857
CURRENT LIABILITIES
Other payables and accrued charges	1,553	826
Amounts due to subsidiaries	9,059	–
	10,612	826
NET CURRENT (LIABILITIES) ASSETS	(8,150)	2,031
TOTAL ASSETS LESS CURRENT LIABILITIES AND NET ASSETS	230,007	255,521
CAPITAL AND RESERVES
Share capital (note 32)	38	39
Reserves	229,969	255,482
	230,007	255,521

For the year ended 31 December 2020

42. STATEMENT OF FINANCIAL POSITION AND RESERVES OF THE COMPANY (Continued)

Details of movement in reserves of the Company are as below:

		Treasury	Capital	Share-based
	Share	share	redemption	payment	Accumulated
	premium	reserve	reserve	reserve	losses	Total
	HK\$'000	HK\$'000	HK\$'000	HK\$'000	HK\$'000	HK\$'000
At 1 January 2019	322,087	(6,880)	–	6,980	(20,765)	301,422
Loss and total comprehensive
expenses for the year	–	–	–	–	(340)	(340)
Share vested under the share
award scheme	–	6,499	–	(6,980)	481	–
Shares repurchased but
not yet cancelled	–	(15,354)	–	–	–	(15,354)
Dividend recognised as distribution	(30,246)	–	–	–	–	(30,246)
At 31 December 2019	291,841	(15,735)	–	–	(20,624)	255,482
Loss and total comprehensive
expenses for the year	–	–	–	–	(2,143)	(2,143)
Shares repurchased and cancelled	(15,731)	15,354	1	–	(1)	(377)
Shares repurchased but
not yet cancelled	–	(3,052)	–	–	–	(3,052)
Dividend recognised as distribution	(19,941)	–	–	–	–	(19,941)
At 31 December 2020	256,169	(3,433)	1	–	(22,768)	(229,969)