THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

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

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

UNIVERSAL TECHNOLOGIES HOLDINGS LIMITED 環球實業科技控股有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1026)

VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION AND NOTICE OF EXTRAORDINARY GENERAL MEETING

Independent financial adviser to the Independent Board Committee and the Independent Shareholders

==> picture [93 x 33] intentionally omitted <==

A letter from the Board is set out on pages 7 to 42 of this circular. A letter from the Independent Board Committee is set out on pages 43 to 44 of this circular. A letter from the Independent Financial Adviser is set out on pages 45 to 85 of this circular.

A notice convening the extraordinary general meeting (the “ EGM ”) of the Company to be held at Room A&B2, 11th Floor, Guangdong Investment Tower, No.148 Connaught Road Central, Sheung Wan, Hong Kong on Friday, 18 December 2015 at 11:00 a.m. is set out on pages 301 to 302 of this circular. A form of proxy for use at the EGM is enclosed with this circular. Whether or not you are able to attend the EGM, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return the same to the office of the Hong Kong branch share registrar and transfer office of the Company, Hong Kong Registrars Limited at Room 1712-16, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for the holding of the EGM or any adjourned meeting. Completion and delivery of the form of proxy will not preclude you from attending and voting in person at the EGM if you so wish.

3 December 2015

			Page
DEFINITIONS	. . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM	THE BOARD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		7
LETTER FROM	THE INDEPENDENT BOARD COMMITTEE. . . . . . . . . . . . . . . . . .		43
LETTER FROM	THE INDEPENDENT FINANCIAL ADVISER. . . . . . . . . . . . . . . . . .		45
APPENDIX I	–	FINANCIAL INFORMATION OF THE GROUP. . . . . . . . . . . . .	86
APPENDIX II	–	FINANCIAL INFORMATION OF
		THE TARGET COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . .	124
APPENDIX III	–	UNAUDITED PRO FORMA FINANCIAL
		INFORMATION OF THE ENLARGED GROUP. . . . . . . . . . . .	217
APPENDIX IV	–	VALUATION REPORTS OF THE TARGET GROUP. . . . . . . . . .	230
APPENDIX V	–	RISK FACTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	289
APPENDIX VI	–	GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	294
NOTICE OF THE EGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			301

– i –

DEFINITIONS

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

“Acquisition”

the acquisition of the Sale Equity Interest pursuant to the Agreement

“Agreement”

the equity transfer agreement dated 21 June 2015 entered into between the Purchaser and the Vendor in relation to the transfer of the Sale Equity Interest (as supplemented by a supplemental agreement entered into between the Purchaser and the Vendor dated 28 October 2015)

“Announcement”

the announcement issued by the Company dated 22 June 2015

“Board”

the board of Directors

“Bocheng”

清遠市博成市政工程有限公司 (Qingyuan Bocheng Municipal Construction Company Limited*), a company incorporated in the PRC and a subsidiary of Boxin

“Boxin”

廣東博信投資控股股份有限公司 (Guangdong Boxin Investment Holdings Limited*), a company incorporated in the PRC and the shares of which are listed on the Shanghai Stock Exchange (stock code: 600083)

“Business Day(s)”

any day(s) excluding Saturday, Sunday or statutory public holidays in the PRC and Hong Kong

“Central Bank”

the People’s Bank of China

“Company”

Universal Technologies Holdings Limited, a company incorporated in the Cayman Islands with limited liability and the issued shares of which are listed on the Main Board of the Stock Exchange

“Completion”

completion of the Acquisition in accordance with the terms and conditions of the Agreement

“connected person”

has the same meaning ascribed to it under the Listing Rules

– 1 –

DEFINITIONS

“Consideration” consideration for the Sale Equity Interest payable by the Purchaser to the Vendor which amounts to RMB224,420,000 (equivalent to approximately HK$280,525,000) pursuant to the Agreement
“Corporate Governance Code” the Corporate Governance Code as set out in Appendix 14 to the Listing Rules
“Directors” the directors of the Company
“EGM” the extraordinary general meeting of the Company to be held for the Independent Shareholders to consider and, if thought fit, to approve the Agreement and the transactions contemplated thereunder, or any adjournment thereof
“Engineering Co” 清遠市清新區自來水安裝工程有限公司 (Qingyuan Qingxin District Water Engineering Limited*), a limited liability company established under the laws of the PRC and a subsidiary of Huike Properties prior to April 2015, which was disposed as a result of the reorganization of the Target Group
“Enlarged Group” the Group and the Target Group
“GD” 廣東錦龍發展股份有限公司 (Guangdong Golden Dragon Development Inc.), a company incorporated in the PRC whose shares are listed on the Shenzhen Stock Exchange (stock code: 000712)
“GFA” gross floor area “Group” the Company and its subsidiaries

“Guaranteed Profit” audited consolidated net profit after tax of the Target Group, excluding profits and losses not from the ordinary and usual course of business, prepared under the generally accepted accounting principles of the PRC “HK$” Hong Kong dollars, the lawful currency of Hong Kong “Hong Kong” the Hong Kong Special Administrative Region of the PRC

“HK$” “Hong Kong”

– 2 –

DEFINITIONS

“Huike Properties”

清遠市清新區匯科置業有限公司 (Qingyuan Qingxin District Huike Properties Co. Ltd.*), a limited liability company established under the laws of the PRC and a subsidiary of the Target Company

“Independent Board Committee” the independent board committee of the Company formed by all the independent non-executive Directors to advise the Independent Shareholders on the terms of the Agreement and the transactions contemplated thereunder
“Independent Financial Adviser” TC Capital Asia Limited, a corporation licensed to engage in type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities under the SFO and the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the Agreement and the transactions contemplated thereunder.
“Independent Shareholders” Shareholders other than the Yangs, Mr. Chow Cheuk Lap and Ms. Fan Man Yee Alice, their respective associates and all other Shareholders (if any) who are interested or involved in the Agreement and the transactions contemplated thereunder
“Jinlong Building”
錦龍大廈 (Jinlong Building*), a building owned by Jingyu Properties, located at No. 1 Fang Zheng 2nd Street, Xincheng District, Qingyuan City, Guangdong Province, the PRC
“Jingyu Properties”
清遠市旌譽置業有限公司 (Qingyuan Jingyu Properties Co. Ltd.*), a limited liability company established under the laws of the PRC and a subsidiary of the Target Company
“Jinhong Industrial” 清遠市錦弘實業有限公司 (Qingyuan Jinhong Industrial Co. Ltd.*), a limited liability company established under the laws of the PRC and a subsidiary of the Target Company

– 3 –

DEFINITIONS

“Kaipeng Properties”	清遠市凱鵬置業有限公司(Qingyuan Kaipeng Properties
	Co. Ltd.*), a limited liability company established
	under the laws of the PRC and a subsidiary of the Target
	Company
“Latest Practicable Date”	30 November 2015, being the latest practicable date prior to
	the printing of this circular for the purpose of ascertaining
	certain information contained in this circular
“Listing Rules”	the Rules Governing the Listing of Securities on the
	Stock Exchange (as amended, supplemented or otherwise
	modified from time to time)
“Long Stop Date”	31 December 2015 or such other date as may be agreed by
	the Vendor and the Purchaser in writing
“Model Code”	Model Code for Securities Transactions by Directors of
	Listed Issuers issued by the Stock Exchange
“PRC”	the People’s Republic of China
“Purchaser”	深圳市環業環球科技有限公司(Shenzhen Huanye
	Universal Technologies Limited*), a limited liability
	company established under the PRC laws and an indirect
	wholly-owned subsidiary of the Company
“Reporting Accountants”	PKF
“RMB” or “Renminbi”	Renminbi, the lawful currency of the PRC
“Sale Equity Interest”	49% of the entire equity interest in the Target Company
	being held by the Vendor and all rights arising from and in
	relation to such interest
“SFC”	Securities and Futures Commission
“SFO”	the Securities and Futures Ordinance (Chapter 571 of
	the Laws of Hong Kong) as amended, supplemented or
	otherwise modified from time to time

– 4 –

DEFINITIONS

“Shares” ordinary shares of HK$0.01 each in the share capital of the Company
“Shareholder(s)”
holder(s) of the Shares of the Company
“State Administration for State Administration for Industry and Commerce of the Industry and Commerce” PRC
“Stock Exchange” the Stock Exchange of Hong Kong Limited “substantial shareholder(s)” has the same meaning ascribed to it under the Listing Rules
has the same meaning ascribed to it under the Listing Rules 清遠市清新區太和供水有限公司 (Qingyuan Qingxin District Taihe Water Co. Ltd.*), a limited liability company established under the PRC laws and a subsidiary of the Target Company
“Taihe Water”
“Target Company” 東莞市擎琿置業有限公司 (Qinghui Properties Ltd.*), a limited liability company established under the PRC laws and a wholly-owned subsidiary of the Vendor as at the date of this circular
“Target Group”

the Target Company and its subsidiaries

“Valuation Report”
the valuation report in relation to the market value of the 100% equity interest in the Target Company conducted by the Valuer principally based on discounted cash flow method as set out in Appendix IV to this circular
“Valuer”

BMI Appraisals Limited

“Vendor”
東莞市弘舜實業發展有限公司 (Dongguan Hongshun Shiye Development Company Limited*), a limited liability company established under the PRC laws and the vendor under the Acquisition

– 5 –

DEFINITIONS

“Water Co” 清遠市自來水有限責任公司 (Qingyuan Water Co. Ltd.*), a limited liability company established under the PRC laws and a former subsidiary of the Target Company which has been deregistered subsequent to the reorganization of the Target Group as further described in the section headed “Letter from the Board – Information of the Target Group” in this circular

“Water Supply Development” 清遠市供水拓展有限責任公司 (Qingyuan Water Supply Development Co. Ltd.*), a limited liability company established under the PRC laws and a subsidiary of the Target Company

“Water Testing” 清遠市錦誠水質檢測有限公司 (Qingyuan Jincheng Water Testing Co. Ltd.*), a limited liability company established under the PRC laws and a subsidiary of the Target Company

“Xinhongcheng” 東莞市新弘晟企業管理有限公司 (Dongguan Xinhongcheng Enterprise Management Co. Ltd.*), a limited liability company established under the laws of the PRC and a subsidiary of the Target Company
“Yangs” Mr. Yang Zhimao and his spouse Ms. Zhu Fenglian “%” per cent
The English translation of Chinese names is included for information purposes only and should not be regarded as their official English translation.

For the purpose of this circular, unless otherwise indicated, the conversion of RMB into HK$ is based on the exchange rate of RMB1 = HK$1.25. Such rate is for the purpose of illustration only and does not constitute a representation that any amount in question in RMB or HK$ has been or could have been or may be converted at such or another rate or at all.

– 6 –

LETTER FROM THE BOARD

UNIVERSAL TECHNOLOGIES HOLDINGS LIMITED 環球實業科技控股有限公司

(incorporated in the Cayman Islands with limited liability) (Stock Code: 1026)

Executive Directors: Mr. Chen Jinyang (Chairman) Mr. Chau Cheuk Wah (Chief Executive Officer) Mr. Chow Cheuk Lap Mr. Zhou Jianhui

Registered Office: Cricket Square Hutchins Drive, P.O. Box 2681 Grand Cayman KY1-1111 Cayman Islands

Non-Executive Director:

Ms. Fan Man Yee Alice

Independent Non-Executive Directors: Dr. Cheung Wai Bun, Charles, J.P. Mr. David Tsoi Mr. Chan Chun Kau Mr. Chao Pao Shu George

Head office and principal place of business: Room A & B2, 11th Floor, Guangdong Investment Tower, No.148 Connaught Road Central, Sheung Wan, Hong Kong

3 December 2015

To the Shareholders

Dear Sir or Madam,

VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION AND NOTICE OF EXTRAORDINARY GENERAL MEETING

INTRODUCTION

Reference is made to the Announcement in relation to the Acquisition.

– 7 –

LETTER FROM THE BOARD

On 15 May 2015, the Purchaser (an indirect wholly-owned subsidiary of the Company) and the Vendor have principally agreed on the terms of the Agreement and on 21 June 2015, the Purchaser and the Vendor entered into the Agreement pursuant to which the Purchaser has conditionally agreed to acquire, and the Vendor has conditionally agreed to sell, the Sale Equity Interest, being 49% of the entire equity interest in the Target Company, at a total consideration of RMB224,420,000 (equivalent to approximately HK$280,525,000).

The Acquisition constitutes a very substantial acquisition and a connected transaction on the part of the Company under Chapter 14 and Chapter 14A of the Listing Rules. Details of the Acquisition are set out below.

THE AGREEMENT

Date

21 June 2015

Parties:

(1) the Purchaser Shenzhen Huanye Universal Technologies Limited*（深圳市環業環球科技有限公司）, a limited liability company established under the PRC laws and an indirect wholly-owned subsidiary of the Company
(2) the Vendor Dongguan Hongshun Shiye Development Company Limited* （東莞市弘舜實業發展有限公司）, a limited liability company established under the PRC laws

Assets to be acquired

The subject matter to be acquired by the Purchaser shall be the Sale Equity Interest, being 49% of the entire equity interest in the Target Company.

– 8 –

LETTER FROM THE BOARD

Consideration and payment method

The Consideration is RMB224,420,000 (equivalent to approximately HK$280,525,000) which shall be paid by the Purchaser, subject to the fulfillment of conditions precedent, including but not limited to obtaining the Independent Shareholders’ approval and completion of satisfactory due diligence, as set out in the section “Conditions precedent”, within a period of 3 months after the Company obtaining the Independent Shareholders’ approval but in any event not later than 5 Business Days after:–

(i) the issuing by the State Administration of Industry and Commerce or the relevant local counterparts of the new business licenses and other relevant registration documents (including but not limited to the documents certifying the appointment of directors, managing director, authorized representative, general manager of the Target Company nominated by the Purchaser); and
(ii) the completion of the foreign investment filing by the relevant departments regulating foreign investment or their relevant local counterparts.

Basis of determining the Consideration

The Consideration was determined after arm’s length negotiation between the Purchaser and the Vendor with reference to:–

(i) the unaudited net assets of each member of the Target Group as at 31 March 2015;
(ii) the audited consolidated net assets of the Target Group of approximately RMB192,653,556 (prepared under the generally accepted accounting principles of the PRC) as at 30 April 2015;
(iii) preliminary property valuations conducted by the Valuer in relation to the properties then held by Jingyu Properties, Jinhong Industrial and Kaipeng Properties as at 30 April 2015, being approximately RMB28,620,000, RMB12,100,000 and RMB2,040,000, respectively; and
(iv) the market value of the 100% equity interest in the Target Group as at 30 April 2015 of approximately RMB457,000,000 preliminary conducted by the Valuer principally based on the discounted cash flows method.

– 9 –

LETTER FROM THE BOARD

The difference between the preliminary valuation of approximately RMB457,000,000 preliminary conducted by the Valuer and the value of approximately RMB456,000,000 as stated in the Valuation Report for the market value of the entire equity interest in the Target Group as at 30 April 2015 was mainly due to the updated annual results of comparable companies which were subsequently issued and the valuation result has updated accordingly.

Completion

Completion shall take place on the day (in any event not later than the Long Stop Date) on which all conditions precedent under the Agreement are satisfied (or waived by the Purchaser, as the case may be), or such later date as the Purchaser and the Vendor may agree in writing.

The Purchaser may, by way of notice to the Vendor, postpone the Completion or terminate the Agreement in the event that (i) any of the conditions precedent under the Agreement has neither been satisfied nor waived by the Purchaser; or (ii) the completion of the Agreement has not taken place due to the Vendor fails to fulfill any of its obligations under the Agreement (irrespective of whether such failure would constitute a material breach of the terms of Agreement).

Conditions precedent

Completion is conditional upon the following conditions have been fulfilled:–

(i) there being no material breach of any warranties as set out in the Agreement as at the date of the Agreement (and all the warranties being repeated at the date of Completion);
(ii) there being no material breach of any terms of the Agreement by the Vendor;
(iii) there being no material adverse changes on the Target Group since the date of the Agreement;
(iv) shareholders of the Vendor having approved, in accordance with its articles of association and applicable laws, the signing and implementation of the Agreement, the transfer of Sale Equity Interest and the amendment to the articles of association of the Target Company;
(v) shareholders of the Target Company having approved by resolutions, in accordance with its articles of association and applicable laws, the transfer of Sale Equity Interest and the amendment to the articles of association of the Target Company;

– 10 –

LETTER FROM THE BOARD

(vi) the signing of the amended articles of association of the Target Company in a form mutually-agreed by the Purchaser and the Vendor;
(vii) shareholders of the Purchaser having approved, in accordance with its articles of association and applicable laws, the signing and implementation of the Agreement, the transfer of Sale Equity Interest and the amendment to the articles of association of the Target Company;
(viii) the approval of the Independent Shareholders for the Agreement and the transaction contemplated thereunder in accordance with the Listing Rules having been obtained;
(ix) there being no objections in any forms made from the Stock Exchange and/or the SFC to the Company in respect of its procuring the entering into the Agreement and the transactions contemplated thereunder; and
(x) the Purchaser or its consultants having conducted and completed due diligence on the Target Group, and the Purchaser being reasonably satisfied with the result of such due diligence.

As at the Latest Practicable Date, save for conditions precedent (iv), (v), (vi), (vii), (viii) and (x), all of the above conditions precedent has been fulfilled.

Save for conditions precedent (iv), (v), (vi), (vii), (viii), (ix) and (x), the Purchaser may, by way of notice to the Vendor, waive any of the conditions precedent. As at the Latest Practicable Date, the Company does not have any intention to waive any of the conditions precedent.

Amending the articles of association of the Target Company

Upon Completion, the articles of association of the Target Company will be amended so that:–

(i) no resolutions relating to amending the articles of association; increase or decrease of the registered capital; merger, dissolution, winding-up or changing the company form of the Target Company shall be passed unless consents from the shareholders representing two thirds or more of the voting rights have been obtained;
(ii) save for the aforesaid, the board of directors shall be delegated with the authority to deal with all other matters in relation to the Target Company and such delegation shall not be revoked unless the shareholders of the Target Company representing two thirds or more of the voting rights agree;

– 11 –

LETTER FROM THE BOARD

(iii) the Vendor has right to appoint one director to the board of directors of the Target Company and the Company has right to appoint two directors to the board of directors of The Target Company;
(iv) no resolutions relating to management, operational activities, profit distribution or return on investment shall be passed unless more than 50% of directors agree; and
(v) any amendments to the articles of the association of the Target Company will require the approval from the shareholders of the Target Company representing two thirds or more of the voting right.

In light of the above amendments, the Reporting Accountants confirmed that the Company can gain control of the Target Company and accordingly, each member of the Target Group will be treated as a subsidiary of the Company upon Completion.

Repurchase undertaking

Pursuant to the Agreement, the Vendor undertakes that, within a period of one year from the date of Completion (inclusive of the date of Completion), should the Purchaser dissatisfy with any member of the Target Group, the Purchaser shall have the right to request the Vendor to repurchase, and the Vendor shall repurchase, the entire equity interest in such member of the Target Group (except 51% of the equity interest for Taihe Water as only 51% of the equity interest are owned by the Target Group) from the immediate holding company(ies) of such member at its predetermined price in cash which is determined with reference to the adjusted audited net asset value as stipulated in the Agreement. The Vendor shall be responsible for all costs and expenses incurred for the reorganization of the Target Group, if necessary, to facilitate the repurchase of any member of the Target Group by the Vendor. The Vendor undertakes that, following such reorganization and repurchase, the Purchaser shall continue to own 49% equity interest in each of the remaining members of the Target Group (save and except for Taihe Water) and the business of those remaining members of the Target Group shall not be affected.

The pre-determined price of each member of the Target Group and its basis of determination are as follow:

	Pre-determined
	price for
Member of the Target Group	repurchase	Basis of determination
the Target Company	RMB394,793,000	net asset value excluding
		subsidiaries

– 12 –

LETTER FROM THE BOARD

Member of the Target Group
Xinhongcheng(1)(2)
Jingyu Properties
Jinhong Industrial
Kaipeng Properties
Water Supply Development
Water Testing
Huike Properties(1)(3)
Taihe Water
Total

Pre-determined
price for
repurchase
Basis of determination
RMB(386,059,000)
net asset value excluding
subsidiaries
RMB29,991,000
net asset value with reference
to the appraised value of the
properties
RMB29,811,000
net asset value with reference
to the appraised value of the
properties
RMB3,344,000
net asset value with reference
to the appraised value of the
properties
RMB393,146,000
arm’s length negotiation
(see below)
RMB0
immaterial net asset value
RMB(36,209,000)
net asset value excluding
subsidiaries
RMB29,183,000
arm’s length negotiation
(see below)
RMB458,000,000

Note: (1) The repurchase prices in relation to Xinhongcheng and Huike Properties are negative is principally due to the shareholder’s loans that they have borrowed from the Target Company and Water Supply Development, respectively, as the source of their respective capitals.
(2) The purpose of the shareholder’s loan obtained by Xinhongcheng from the Target Company was served as capital contribution for the cash flow necessary for the sale and purchase of equity interests of members of the Target Group under its reorganization of the Target Group into the existing structure.
(3) The purpose of the shareholder’s loan obtained by Huike Properties was principally for the acquisition of approximately 32.07% interest in Taihe Water in December 2010 and step acquisition of approximately 18.93% interest in Taihe Water in October 2014, respectively.

– 13 –

LETTER FROM THE BOARD

Upon Completion, other than Taihe Water which is indirectly held by the Target Company as to 51% interest, the entire equity interest of each member within the Target Group (except the Target Company) is directly or indirectly held by the Target Company. The exercise of the rights pursuant to the repurchase undertaking by the Purchaser would be by way of disposal of the entire equity interest of the respective member by its immediate holding company to the Vendor in cash so that no remaining interest of such member will be kept within the Target Group after repurchase.

After the Completion, the Company will have control over the board of directors of the Target Company. Following the disposal of the entire equity interest of a particular member of the Target Group (and in the case of Taihe Water, 51%) by its immediate holding company to the Vendor upon repurchase, the proceeds received by such immediate holding company (in which the Company directly/indirectly owns 49% equity interest) can, subject to the Purchaser’s discretion, be distributed directly or indirectly in the proportion of 51:49 to the Vendor and the Company, respectively, by way of declaration of dividends.

The repurchase price of Water Supply Development and Taihe Water are determined after arm’s length negotiation between the Purchaser and the Vendor after taking into account of: (i) valuation of the 100% equity interest in the Target Group conducted by the Valuer; (ii) the predetermined price for repurchase of other members of the Target Group as shown above; (iii) the historical profitability of Water Supply Development and Taihe Water; and (iv) the capital commitments of the Target Group. As at 30 September 2015, the capital commitments for the Target Group was approximately RMB156 million and the majority of which would be applied to new plants in Taihe Water and underground pipelines.

The Company will consider whether to exercise the right to request the Vendor to repurchase the respective member of the Target Group based on the following factors/criteria:–

(i) whether the performance of the respective member of the Target Group meet the representations and warranties under the Agreement;
(ii) whether the regulatory framework of the business which the Target Group participate in is favourable for the operations and development of the Target Group’s business;
(iii) the performance of the business operations and financial position; and
(iv) any other relevant factors.

– 14 –

LETTER FROM THE BOARD

Consideration adjustment

The Vendor and the Purchaser agreed that, for the two financial years of the Target Group following Completion (including the financial year in which the Completion occurred), the yearly average Guaranteed Profit shall not be less than RMB31,000,000 (equivalent to approximately HK$38,750,000).

If the yearly average Guaranteed Profit is less than RMB31,000,000 for the two financial years after the Completion (including the financial year in which the Completion occurred), the Vendor shall, within a period of 20 Business Days immediately after the issue of the audited consolidated accounts of the Target Group for the financial year ended 31 December 2016, pay to the Purchaser in cash equivalent to 14.77 times of 49% of such shortfall. Such shortfall will also be capped at RMB31,000,000 if the Target Group records a yearly average net loss after tax. The formula is as follows:

(RMB31,000,000 – the yearly average Guaranteed Profit)[Note] x 14.77 x 49%

Note: If the Target Group records a yearly average net loss, such shortfall will be capped at RMB31,000,000.

The figure of 14.77 is the ratio calculated based on the 100% valuation of the Target Group pursuant to the consolidation and the expected net profit after tax of the Target Group of RMB31,000,000. The Guaranteed Profit will only include profits from the Target Group’s ordinary and usual course of business.

If the Purchaser demands the repurchase of any member of the Target Group by the Vendor and the Vendor repurchase the said member in accordance with the Agreement, the Purchaser will be considered to have given up the right to obtain the relevant consideration adjustment as set out above and in the Agreement.

Furthermore, should the yearly average Guaranteed Profit for the two financial years following the Completion be less than RMB31,000,000 (equivalent to approximately HK$38,750,000), the Company will comply with the relevant disclosure requirements under the Listing Rules and make necessary disclosures.

– 15 –

LETTER FROM THE BOARD

INFORMATION OF THE TARGET GROUP

As at the Latest Practicable Date, the Target Company is a wholly-owned subsidiary of the Vendor. The Target Group consists of the Target Company and its eight subsidiary companies. Upon Completion, the Company will indirectly own 49% equity interest of the Target Company. Set out below are the structure of the Target Group (i) as at the Latest Practicable Date; and (ii) immediately after the Completion:–

i) Shareholding structure of the Target Group as at the Latest Practicable Date

==> picture [358 x 235] intentionally omitted <==

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

the Vendor
100%
Target Company
100%
Xinhongcheng
100% 100% 100% 100%
Water Supply
Jingyu Properties Jinhong Industrial Kaipeng Properties
Development
100% 100%
Water Testing Huike Properties
51%
Taihe Water
----- End of picture text -----

– 16 –

LETTER FROM THE BOARD

ii) Shareholding structure of the Target Group immediately after Completion:–

==> picture [358 x 250] intentionally omitted <==

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

the Vendor the Purchaser
51% 49%
Target Company
100%
Xinhongcheng
100% 100% 100% 100%
Water Supply
Jingyu Properties Jinhong Industrial Kaipeng Properties
Development
100% 100%
Water Testing Huike Properties
51%
Taihe Water
----- End of picture text -----

The Vendor acquired 80% of Water Co in March 2014 from GD and 20% of Water Co from an independent party in October 2014. The total original acquisition cost of Water Co to the Vendor was RMB337,700,000. Prior to May 2015, Water Co was the holding company of Huike Properties, Water Testing and Taihe Water and was the holding company of Engineering Co prior to April 2015.

The structure of the Target Group as at the date of this circular was principally formed after (a) an initial internal reorganization concluded in May 2015 which principally involved (i) the carving out of properties from Water Co, being the principal operating subsidiary of the Target Group prior to the internal reorganization and (ii) the formation of two business groups, namely, the water supply business (comprising Water Co, Water Supply Development, Water Testing, Huike Properties and Taihe Water) and property investment business (comprising Jingyu Properties, Jinhong Industrial and Kaipeng Properties); and (b) a supplemental internal reorganization commenced in June 2015 which principally involved (i) two properties owned by Water Co being transferred to Jingyu Properties and Kaipeng Properties respectively and (ii) the merger of Water Co and Water Supply Development, resulting all remaining assets and liabilities of Water Co being transferred to Water Supply Development and the deregistration of Water Co.

– 17 –

LETTER FROM THE BOARD

In relation to the merger of Water Co and Water Supply Development, pursuant to a confirmation dated 30 June 2015 entered into between Water Co and Water Supply Development, the parties thereto confirmed that the transfer of assets and liabilities from Water Co to Water Supply Development has been completed. Accordingly, the rights and obligations relating to the relevant assets and liabilities would be assigned to or assumed by (as the case may be) Water Supply Development. As at the Latest Practicable Date, principal operating assets (including land, machineries and buildings) have been transferred from Water Co to Water Supply Development. Bocheng, the counter-party to the material contracts for construction works previously entered into by Water Co, has confirmed that its debt liabilities due to and from Water Co had been assigned to or assumed by (as the case may be) Water Supply Development. In addition, the registration process for the transfer of the real estate title certificates and land use rights certificates previously held by Water Co to Water Supply Development has been completed. Bank charges on the relevant assets for bank borrowings have been transferred to Water Supply Development from Water Co.. Currently, the local tax authority is processing the deregistration of Water Co’s tax registration (稅務登記）and is expected to be completed by the end of December 2015.

Such internal reorganization also includes, among other things, making the Target Company as the holding company of the Target Group. The internal reorganization did not involve the acquisition of new assets or companies but Engineering Co was disposed. Engineering Co is principally engaged in the provision of water pipeline construction services which is different from that of other members of the Target Group and does not align with the Company’s purpose of conducting the Acquisition. The business operated by Engineering Co is capable to be delineated from other existing businesses of the Target Group and had been separately managed and financially controlled within the Target Group. Furthermore, Engineering Co has its own financial statements and therefore it is practicable to identify the historical financial information attributable to the carve-out business.

Financial information of Engineering Co was not included in the statement of financial position or income statement of the historical financial information of the Target Group in Appendix II to this circular. Accordingly, there was no gain or loss on disposal reflected in the financial information of the Target Group in Appendix II to this circular, which was prepared based on Hong Kong Financial Reporting Standards. However, based on preceding PRC accounting standards adopted by the Vendor, a gain of approximately RMB0.50 million was recorded as a result of the disposal of Engineering Co to an independent third party as part of the internal reorganization of the Target Group. Such gain was calculated based on the consideration of the disposal of Engineering Co of approximately RMB1.15 million less the carrying value of Engineering Co of approximately RMB0.65 million as at the date of disposal.

Following the internal reorganisation within the Target Group, there will be a clear delineation of the water supply business and the property investment business which can facilitate the integration and management of the water supply business and the property investment business and the future business development of the Group.

– 18 –

LETTER FROM THE BOARD

Business model of the Target Group

The Target Group consists of water supply business and property investment business, where details as follow:

(A) Water supply business

The water supply business of the Target Group is engaged in the supply of tap water to various districts of Qingyuan City, Guangdong Province. The water supply business has commenced its operation in 1989 and currently operates three water processing plants, which source raw water from local river sources, with a total daily production capacity of approximately 310,000 tonnes. All the water processing plants have obtained licenses and approvals from the local government to source raw water from the local river sources.

The water supply business, through its operating entities Water Supply Development and Taihe Water, charges its customers principally based on the tariff set by the local price bureau and the actual volume consumed measured by their respective water meters, and collects the fees directly from their customers. Majority of the customers are the residents of the coverage areas. Other customers include enterprises and government agencies (e.g. fire stations) within the coverage areas.

Pursuant to the service concession arrangements between Taihe Water and the local government, the Target Group was required to construct the water supply plants, and to operate and maintain the water supply plants for a period of 20 years until 2026. In accordance with the accounting policy of the Target Group, the service concession arrangement would be considered under a build-operate-transfer (“ BOT ”) basis, in which capital expenditure sum would be recorded as “cost” and “revenue” would equal to the “cost” multiplied by a predetermined ratio of 19%. The predetermined ratio of 19% was determined by reference to the gross profit to cost of goods sold ratios (the “ Ratios ”) provided by the Valuer. The Ratios were the median of gross profit to cost of goods sold ratio of comparable companies. The comparable companies were determined with reference to publicly listed companies in the PRC that are considered to be comparable to the water supply construction operation of Taihe Water. The predetermined ratio of 19% is adopted in the financial statements of the Target Group. The Directors have reviewed the basis adopted by the Valuer in applying the pre-determined ratio of 19% and considers that the adoption of such ratio in the financial statements of the Target Group aligns with common market practice. Practically Taihe Water is not engaging in the business of construction. In view of the above, Taihe Water does not have its specific customers and suppliers for its construction business. The water supply construction is an integral part of Taihe Water’s operation and is strictly for internal use only. Taihe Water has the same management and senior staff as the Water Supply Business.

– 19 –

LETTER FROM THE BOARD

Pursuant to the service concession arrangement between Taihe Water and the local government, Taihe Water has the right of first refusal to extend the arrangement. It is the current intention of the Vendor to extend the said agreement subject to any change of terms and conditions to be proposed by the local government. If the extension is agreed between Taihe Water and the local government on the service concession arrangement, Taihe Water shall be able to continue its operation of water supply business.

If the service concession arrangement ends in 2026 and no extension has been agreed between Taihe Water and the local government, Taihe Water shall deliver to the local government the property, plant and equipment of the water supply plant, and the local government shall indemnify Taihe Water a sum equivalent to the valuation of the property, plant and equipment of the water supply plant as assessed by a valuer jointly appointed by local government and Taihe Water.

Capital commitments that the Target Group contracted but not provided for amounted to approximately RMB156 million as at 30 September 2015 and will cover a period of several years for the expansion of water treatment capacity and pipeline network, as well as the maintenance capital expenditures in the normal course of business of Water Supply Development and Taihe Water.

The water supply business is expanding its daily production capacity in turn to increase its revenue. There is a new water treatment plant (Taihe Plant #2 Phase 2) under construction with a planned daily production capacity of approximately 100,000 tonnes, which is located next to one of the existing plants (Taihe Plant #2 Phase 1). The new plant will share the existing infrastructures of the existing plant. In addition, the Target Group intends to expend its coverage area by way of expansion of pipeline coverage.

The operating costs incurred in the operation of water supply business mainly consists of staff costs, electricity and fuel, water resources tariff, chemicals for water treatment and depreciation expenses on water treatment facilities and pipeline network.

Production facilities

The water supply business currently holds Qixinggang Water Plant and No. 1 & No. 2 Taihe Water Plants which serve the general public including households, industrial and commercial in urban areas in Qingcheng District and Qingxin District, Qingyuan City, respectively.

– 20 –

LETTER FROM THE BOARD

Qixinggang Water Plant is operated by Water Supply Development (previously by Water Co.) with daily capacity of 200,000 cubic meters. As in December 2012, the supply area is approximately 80 square kilometers.

No. 1 and No. 2 Taihe Water Plants are operated by Taihe Water with daily capacity of 60,000 cubic meters and 50,000 cubic meters, respectively, as in January 2015. Together, the total daily capacity of 110,000 cubic meters covers an area of 95 square kilometers.

An additional daily capacity of 100,000 cubic meters by No. 2 Taihe Water Plants is under construction and is scheduled to be completed by March 2016 where it should commence production in or around April 2016. As at the Latest Practicable Date, the building structure of the water plant has been materially completed but majority of the procurement of water supply related equipment (such as water pumps, electricity transformers, water purifying equipment) have not commenced as the Target Group is still pending the relevant government’s approvals.

Set out below is a summary of water treatment plants and their daily production capacity operated by the Water Supply Business:

Location Status Qixinggang Water Plant Qixinggang Operating Taihe Plant #1 Taihe Dong Operating Taihe Plant #2 Phase 1 Taihe Feishui Operating Taihe Plant #2 Phase 2 Taihe Feishui Under Construction Total capacity in operation	Daily Production Capacity (m3) 200,000 60,000 50,000 100,000
	310,000

The production capacity under the water supply business is approaching full capacity in general.

– 21 –

LETTER FROM THE BOARD

Licenses and approvals

The Target Group holds the following licences/approvals for operating the water supply business:

	Type of licenses/
Identification number	approvals	Validity period	Impediments expected for renewal
Water Souring (Yueqing) Zi	Water Sourcing Permit	10 May 2013 –	Pursuant to the Water Sourcing Permit and Water
(2015) #00005*		9 May 2018	Resources Tariff Collection Management Ordinance*
（取水（粵清）字(2015)	Water sourcing location:		（取水許可和水資源費徵收管理條例）, the validity
第00005號）	Beijiang Qixinggang*		period is generally 5years and in any event not more
	（北江七星崗）		than 10 years.
Water Souring (Yueqingtai) Zi	Water Sourcing Permit	14 May 2013 –	Renewal application of water sourcing permit should
(2013) #94142*		14 May 2018	be made to the original approving authority before
（取水（粵清太）字(2013)	Water sourcing location:		its expiry. Upon receiving renewal application, the
第94142號）	Dongganqu*（東幹渠）		approving authority will conduct a full study on the
			application materials and consider the possible effect
Water Souring (Yueqingtai) Zi	Water Sourcing Permit	14 May 2013 –	to the economy of the district and preservation of water
(2013) #11141*		14 May 2018	source for approving the renewal application.
（取水（粵清太）字(2013)	Water sourcing location:
第11141號）	Beijiang*（北江）
Yueweishuizheng Zi	Hygiene Permit	4 August 2015 –	Pursuant to Drinking Water Hygiene Supervision
(2015) #180000003*		6 April 2019	Management Method*（生活飲用水衛生監督管理辦
（粵衛水證字(2015)			法）, the hygiene permit of water supply entity shall
第180000003號）			be issued by the health department of county level or
			above. The validity period shall be 4 years, subject to
Yueweishuizheng Zi	Hygiene permit	29 October 2014 –	annual review, and application for new permit shall
(2014) #441827H00003*		28 October 2018	be made 6 months prior to expiration of the existing
（粵衛水證字(2014)			permit.
第441827H00003號)
			The relevant health department requires the water supply
Yueweishuizheng Zi	Hygiene permit	18 September 2014 –	enterprise to ensure that (i) the tap water produced
(2014) #441827H00002*		17 September 2018	meets the national hygiene standard of drinking
（粵衛水證字(2014)			water; (ii) water supply infrastructure meets hygiene
第441827H00002號)			requirement; and (iii) having water purifying and
			disinfection facilities and necessary water testing
			equipment in place, failure to fulfill such requirements,
			and any other requirements that may be required by the
			relevant authority, may affect the renewal of hygiene
			permit.

The operations of all plants have been in satisfactory to the relevant authority. Given the previous satisfactory track records of the water supply business, the Company do not expect any impediments upon and has confidence in the renewal of the abovementioned licenses.

– 22 –

LETTER FROM THE BOARD

Financial information

Set out below is a summary of tonnage of water supplied and revenue by customer type of the water supply business in the year ended 31 December 2014:–

Commercial Residential Public service Industry Contract Others Total	Tonnage ’000 % 18,306 26 24,537 36 11,292 16 9,558 14 5,368 8 8 0 69,069 100	Revenue RMB million % 45 40 28 24 17 15 12 11 10 9 1 1 113 100	Revenue RMB million % 45 40 28 24 17 15 12 11 10 9 1 1 113 100
			100

Set out below is a summary of major operating costs of the water supply business in the year ended 31 December 2014:–

Water resources Depreciation Fuel and electricity Staff Maintenance Raw materials Administrative Others Total	RMB million 15 18 15 9 4 1 3 3 68	% 22 26 22 13 6 2 5 4
		100

– 23 –

LETTER FROM THE BOARD

(B) Property investment business

The property investment business of the Target Group is operated through Jingyu Properties, Jinhong Industrial and Kaipeng Properties. As the revenue is mainly derived from rental income, there is no material costs in cash in association with the operations.

The real estates in the property investment business can be classified into two categories, commercial properties and self-use properties. Commercial properties mainly include certain floors of Jinlong Building and some smaller retail properties, and the Target Group intends to lease these spaces and receive rental income.

The remaining properties are for self-use and are occupied by the members of the water supply business for their operation. Self-use properties include certain floors of the Jinlong Building which are used as general office and lands where the 3 water plants are located.

Further details of the properties are disclosed under the section “Properties of the Target Group”.

Management of the Target Group

(A) Water supply business

The principal management of the water supply business are as follow:–

Mr. Chen Shaofei , aged 41, is the general manager of the water supply business. Mr. Chen graduated from Hefei University of Technology in 1997, specialised in waterworks engineering. He is also a senior engineer. Mr. Chen has 18 years of experience in water supply industry.

Mr. Pan Guozhou , aged 45, is a deputy general manager of the water supply business. He is also a waterworks engineer and grade 2 registered constructor (municipal construction). Mr. Pan has 23 years of water supply experience and used to work as the general manager of Engineering Co.

Mr. He Guihong , aged 59, is a deputy general manager of the water supply business and has 17 years of experience in waterworks. Mr. He used to work as the general manager of the Qixinggang Water Plant.

– 24 –

LETTER FROM THE BOARD

Mr. Guo Jianping , aged 42, is the assistant to general manager of the water supply business and a water quality control engineer. Mr. Guo graduated from South China University of Technology in 1996. He used to work as the water quality assurance manager and has 18 years of experience in water supply industry.

(B) Property investment business

The principal management of the property investment business is as follow:

Ms. Yang Tianshu , aged 46, is responsible for the property investment business. She is a member of the supervision committee of Jingyu Properties, Jinhong Industrial and Kaipeng Properties. She is also the chairperson of the supervision committee of GD. Ms. Yang has no less than 4 years of experience in financial management.

Particulars of each member of the Target Group

the Target Company

The Target Company is a limited liability company established under the laws of the PRC with total registered capital of RMB410,000,000. Its entire equity interest is held by the Vendor. Its principal business activity is investment holding and has no material business operation.

Xinhongcheng

Xinhongcheng is a limited liability company established under the laws of the PRC with total registered capital of RMB15,000,000. Its entire equity interest is held by the Target Company. Its principal business activity is investment holding and has no material business operation.

Jingyu Properties

Jingyu Properties is a limited liability company established under the laws of the PRC with total registered capital of RMB1,000,000. Its entire equity interest is held by Xinhongcheng. Its principal business activity is property investment and is a member company of the property investment business group.

– 25 –

LETTER FROM THE BOARD

Jinhong Industrial

Jinhong Industrial is a limited liability company established under the laws of the PRC with total registered capital of RMB1,000,000. Its entire equity interest is held by Xinhongcheng. Its principal business activity is property investment and is a member company of the property investment business group.

Kaipeng Properties

Kaipeng Properties is a limited liability company established under the laws of the PRC with total registered capital of RMB1,000,000. Its entire equity interest is held by Xinhongcheng. Its principal business activity is property investment and is a member company of the property investment business group.

Water Supply Development

Water Supply Development a limited liability company established under the laws of the PRC with total registered capital of RMB98,521,400. Its entire equity interest is held by Xinhongcheng. Its principal business activity is water supply and is a member company of the water supply business group.

Water Testing

Water Testing is a limited liability company established under the laws of the PRC with total registered capital of RMB1,600,000. Its entire equity interest is held by Water Supply Development. Its principal business activity is water quality testing and is engaged in the provision of water testing services to Water Supply Development and Taihe Water. It is a member company of the water supply business group.

Huike Properties

Huike Properties is a limited liability company established under the laws of the PRC with total registered capital of RMB2,000,000. Its entire interest is held by Water Supply Development. It has no material business operation. Its principal business activity is investment holding and is a member company of the water supply business group.

– 26 –

LETTER FROM THE BOARD

Taihe Water

Taihe Water is a limited liability company established under the laws of the PRC with total registered capital of RMB23,254,000. Its entire equity interest is held by Huike Properties as to 51% and Guangdong Qingyuan Water Supply Limited*（廣東清源水業有限公司）, an independent third party of the Company, as to 49%. Its principal business activity is water supply and is a member company of the water supply business group.

Properties of the Target Group

A valuation report has been prepared by the Valuer, BMI Appraisals Limited, and set out in full in Appendix IV to this circular.

Set out below is a summary of basic information of material properties (including leased properties) of the Target Group as at the Latest Practicable Date:–

			Market value as at
Property	Owner	Current use	30 September 2015
			RMB
The whole of “Jinlong Building” located at	Jingyu Properties	The first, second, third, fourth, and the twelfth	28,700,000
No. 1 Fang Zheng 2nd Street, Xincheng District,		floors are used as office of members of the
Qingyuan City, Guangdong Province, the PRC		Target Group, and the rest of the floors are
		for investment purposes and currently leased
		to connected parties of the Vendor (save for
		eleventh floor which is currently vacant and
		available for leasing) at the total rental rate
		of RMB69,800 per month. The sixth floor
		is leased to Water Supply Development on a
		temporary basis
4 land parcels together with various buildings and	Jinhong Industrial	(i) GFA of 1,196 square meters of land and	12,100,000
structures located at No. 16 Beijiang 1st Road		25 square meters of the building are leased to
Xincheng District, Qingyuan City, Guangdong		a connected party of the Vendor at the total
Province, the PRC		rental rate of RMB2,740 per month; (ii) GFA of
		approximately 1,864 square meters of land and
		222 square meters of the building are leased to
		independent third parties of the Vendor and the
		Group at the total rental rate of RMB8,000 per
		month; and (iii) the remaining area of lands and
		the office building are for self-use by the water
		supply business
2 land parcels together with various buildings and	Kaipeng Properties	An idle water utility plant and an office	2,030,000
structures located at No. 108 Song Gang Road,		building are located. Pursuant to the tenancy
Qingcheng District, Qingyuan City, Guangdong		agreement, a portion is currently leased to an
Province, the PRC		independent third party of the Vendor and the
		Group at the total rental rate of RMB3,000 per
		month

– 27 –

LETTER FROM THE BOARD

			Market value as at
Property	Owner	Current use	30 September 2015
			RMB
land parcel together with various buildings and	Kaipeng Properties	For water plant and ancillary facilities use	1,480,000
structures located at No. 55 Zhen Nan Street,
Shijiao Town, Qingcheng District, Qingyuan City,
Guangdong Province, the PRC
A 6-storey building located at No. 3 Xian Feng	Jingyu Properties	A portion of the first floor is currently leased	1,350,000
Road West, Qingcheng District, Qingyuan City,		to an independent third party of the Vendor and
Guangdong Province, the PRC		the Group at the total sum of RMB2,000 per
		month and the rest of floors are for self-use as
		staff quarters and offices
land parcel together with various buildings and	Water Supply	Vacant	1,810,000
structures located at Tian Xin Village along parts	Development
of Bi Jia River, Shatian Community, Feng Cheng
Street Office, Qingcheng District, Qingyuan City,
Guangdong Province, the PRC
2 land parcels together with various buildings and	Water Supply	For water plant and ancillary facilities use	1,460,000
structures located at Feng Men Ao, Chang Chong	Development
Village Committee, Longtang Town, Qingcheng
District, Qingyuan City, Guangdong Province, the
PRC
Unit 101 of Block A & Unit 101 of Block B,	Water Supply	For office and storage uses	142,000
No. 5 Nan An Second Street, Staff Quarters of	Development
the Water Company, Xincheng District, Qingyuan
City, Guangdong Province, the PRC
land parcel together with various structures	Water Supply	For water plant and ancillary facilities use	No Commercial
located at Shiqi Village, Shijiao Town, Qingcheng	Development		Value
District, Qingyuan City, Guangdong Province, the			(Note)
PRC
land parcel together with various structures	Water Supply	For water plant and ancillary facilities use	No Commercial
located at Xinji Village, Shijiao Town, Qingcheng	Development		Value
District, Qingyuan City, Guangdong Province, the			(Note)
PRC
8 land parcels together with various buildings and	Taihe Water	Taihe Water Plant No. 1 and 2 and a 6-storey	17,970,000
structures located at 21st Zone, 27th Zone, 63rd		office building with GFA of approximately
Zone & 90th Zone, Taihe Town, Qingxin County,		590.56 square metres are located. A total
Qingyuan City, Guangdong Province, the PRC		GFA of 152.9 square meters are leased to
		independent third parties of the Vendor and the
		Group at the total rental rate of RMB46,571.50
		per month

Note: There are no commercial value assigned for two of the properties due to the absence of relevant title documents.

– 28 –

LETTER FROM THE BOARD

Jingyu Properties holds a 6-storey composite building which has a total GFA of approximately 1,148.23 square meters and Jinlong Building (a 12-storey office building in Qingyuan) which has a total GFA of approximately 6,438.48 square meters. In respect of the 6-storey building, a portion of the first floor is currently leased to an independent third party of the Vendor and the Group at the total sum of RMB2,000 per month and the rest of floors are for selfuse (as staff quarters and offices). In respect of the Jinlong Building, (i) the first, second, third, fourth and the twelfth floors are for self-use (as office); (ii) the fifth floor is leased to Bocheng, a connected person of the Vendor, as offices from May 2015 to April 2016 at RMB13,900 per month; (iii) the sixth floor is leased to Water Supply Development on a temporary basis; (iv) the seventh floor is leased to Boxin, a connected person of the Vendor, as offices from May 2015 to April 2016 at RMB13,900 per month; and (v) the eighth to tenth floor are leased to GD, a connected person of the Vendor, as offices from May 2015 to March 2016 at the total sum RMB42,000 per month.

Jinhong Industrial holds four pieces of land which have a total GFA of approximately 37,262.15 square meters and an office building which has a total GFA of approximately 1,253.31 square meters. Under the management of the Vendor, the lands and buildings held by Jinhong Industrial were used as water processing plant under Water Supply Development as long as it requires. Pursuant to tenancy agreements, (i) GFA of 1,196 square meters of land and 25 square meters of the building are leased to Bocheng, a connected person of the Vendor, as storage and office from May 2015 to December 2016 at a rental rate of RMB2,740 per month; (ii) GFA of approximately 1,864 square meters of land and 222 square meters of the building are leased to independent third parties of the Vendor and the Group at the total rental rate of RMB8,000 per month; and (iii) the remaining area of lands and office building are for self-use (for water plant use). The Directors intend that the land and buildings held by Jinhong Industrial will continue their usage as partly for tenancy and partly occupied by the Target Group for water processing plant operations.

Kaipeng Properties holds two pieces of land in Qingyuan including (a) a piece of land (under two land-use right certificates) where an idle water utility plant and an office building with a total GFA of approximately 320.59 square meters are located, and a portion of it is currently leased to an independent third party of the Vendor and the Group at the total rental rate of RMB3,000 per month for commercial usage; and (b) a piece of land with site area of approximately 3,288.85 square meters (where buildings with GFA of approximately 645.13 square meters in total are erected thereon) where a backup water plant and ancillary facilities are located which is currently not in production.

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LETTER FROM THE BOARD

Water Supply Development has a piece of vacant land with GFA of approximately 7,500 square meters, two pieces of land with GFA of approximately 6,259.14 square meters in total (for water plant and its ancillary facilities) and a property comprises of two domestic units within two blocks of 7-storey buildings with an aggregate GFA of 145.42 square meters (erected on a site of approximately 21.88 square meters) for office and storage uses.

Taihe Water has eight pieces of land with GFA of approximately 75,836.7 square meters. It is where Taihe Water Plant No. 1 and 2 and a 6-storey office building with GFA of approximately 590.56 are located. Pursuant to the tenancy agreements, a total GFA 152.9 square meters are leased to independent third parties of the Vendor and the Group at the rental rate of RMB46,571.50 per month.

The aggregate attributable market value of the properties attributable to the Target Group as at 30 September 2015 was RMB58,236,700. The market value of the properties of the Target Group in existing state as at 30 September 2015 was RMB67,042,000.

Through personal interest and wholly owned enterprises, the Yangs are beneficially interested in approximately 50.02% of the entire share capital of GD. Therefore, GD is an associate of the Yangs and therefore a connected person of the Company. The tenancy agreement between the Target Group and GD shall be regarded as connected transactions and are subject to connected transactions requirements under Chapter 14A of the Listing Rules.

The Yangs directly hold approximately 27.39% interest in the share capital of Boxin, and in turn Boxin holds approximately 80% of the equity interest in Bocheng. In addition, Mr. Yang Zhimao is the legal representative of GD and his spouse, Ms. Zhu Fenglian is the legal representative of Boxin.

Given the substantial interests held by Yangs in each of Boxin and Bocheng, the Company considers that each of Boxin and Bocheng shall be construed as connected persons of the Company. Therefore, the tenancy agreements between the Target Group and each of Boxin and Bocheng shall be regraded as connected transactions and are subject to connected transactions requirements under Chapter 14A of the Listing Rules.

The Company will comply with Rule 14A.60 of the Listing Rules and make disclosures as and when necessary. Nevertheless, all the existing leases entered into between the Target Group and each of GD, Boxin and Bocheng falls within the de minimus exemption under Rule 14A.76 of the Listing Rules and is fully exempted from shareholders’ approval, annual review and all disclosure requirements under Chapter 14A of the Listing Rules upon Completion.

– 30 –

LETTER FROM THE BOARD

The Company is aware that there is a piece of land, currently held by Kaipeng Properties where an idle water plant is located, which can be converted into commercial usage provided that, inter alia, the payment of a land premium set out by the local government while the Company has no existing plan to do so. Nevertheless, as at the Latest Practicable Date, the Company has no plan to change the use of the properties held by the Target Group after completion of the Acquisition.

The Reporting Accountants confirmed that they have reviewed the accounting policies and calculations for the forecast contained in the Valuation Report.

The financial adviser to the Company has also confirmed that they are satisfied that the discounted cash flow forecast underlying the Valuation Report has been made by the Valuer and the Directors after due and careful enquiry.

Financial information of the Target Group

Set out below is a summary of the audited consolidated financial information of the Target Group for the two years ended 31 December 2014 and for the nine months ended 30 September 2015:–

			For the nine
			months ended/
	For the year ended/		As at
	As at 31	December	30 September
	2013	2014	2015
	Approximate	Approximate	Approximate
	RMB’000	RMB’000	RMB’000
	(equivalent to	(equivalent to	(equivalent to
	approximate	approximate	approximate
	HK$’000)	HK$’000)	HK$’000)
Revenue	108,468	137,068	218,796
	(135,585)	(171,335)	(273,495)
Net profit before taxation	35,237	29,406	51,505
	(44,046)	(36,758)	(64,381)
Net profit after taxation	25,457	20,523	39,448
	(31,821)	(25,654)	(49,310)
Net assets	143,681	180,939	219,448
	(179,601)	(226,174)	(274,310)

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LETTER FROM THE BOARD

The increased in revenue of the Target Group from approximately RMB108,468,000 for the year ended 31 December 2013 to RMB137,068,000 for the year ended 31 December 2014 was primarily due to (i) an increase in equity interests in Taihe Water from approximately 32.07% to 51%, which led to the consolidation of Taihe Water’s revenue into the Target Group’s revenue and (ii) increase in water tariff in Qingxin District set by the local price bureau.

The increase in revenue between the years ended 31 December 2013 and 2014 is mainly set off by a rise in administrative expenses in the same period, principally due to (a) increase in staff cost as a result of the consolidation of the Taihe Water’s accounts; (b) an one-off charge in legal, consultancy and other professional fee related to the Target Group’s internal reorganization; and (c) a loss of approximately RMB5,252,000 recorded as a result of the step acquisition of a subsidiary.

As a result, the net profit before taxation of the Target Group has decreased from approximately RMB35,237,000 for the year ended 31 December 2013 to approximately RMB29,406,000 for the year ended 31 December 2014 notwithstanding an increase in revenue during the same period.

Financial information of the Target Group, including the accountants’ report on the Target Group, is set out in Appendix II to this circular. You should read the above information in conjunction with the consolidated financial statements and accompanying notes set forth in the accountants’ report set out in Appendix II to this circular.

Business valuation in relation to the Target Group conducted based on the discounted cash flow method

The Valuation Report is set out in full in Appendix IV to this circular, below sets forth selected key information extracted from the Valuation Report:–

(i) the market value of the 100% equity interest in the Target Group as at 30 April 2015 is approximately RMB456,000,000;
(ii) the value of the properties held by Jingyu Properties as at 30 September 2015 is approximately RMB30,050,000;
(iii) the value of the property held by Jinhong Industrial as at 30 September 2015 is approximately RMB12,100,000;
(iv) the value of the properties held by Kaipeng Properties as at 30 September 2015 is approximately RMB3,510,000;

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LETTER FROM THE BOARD

(v) the value of the properties held by Water Supply Development as at 30 September 2015 is approximately RMB3,412,000; and
(vi) the value of the property held by Taihe Water as at 30 September 2015 is approximately RMB17,970,000.

You should read the above information in conjunction with Valuation Report set out in Appendix IV to this circular.

The business valuation conducted by the Valuer is based on the assumptions that:–

(i) all licenses issued by any authorized entity that will materially affect the operation of the Target Group have been obtained or can be obtained upon request;
(ii) there will be no material change in the political, legal, fiscal, technological, market and economic conditions in the jurisdictions where the Target Group operates;
(iii) the market return, market risk, interest rates and exchange rates will not differ materially from those of present or expected;
(iv) the core operation of the Target Group will not differ materially from those of present or expected;
(v) the information in respect of the Target Group have been prepared after due and careful consideration by the senior management of the Company; and
(vi) there will be no human disruptions or natural disasters that will materially affect the operation of the Target Group.

The Board confirmed that it has reviewed each of the assumptions applied by the Valuer in the business valuation and agreed with those assumptions as there is nothing unusual noticed from those assumptions, in particular:–

(i) the PRC lawyers to the Company confirmed that the licenses issued for the business of the Target Group are valid;
(ii) the Board is of the view that there will be no material change in the political, legal, fiscal, technological, market and economic conditions in the near future;

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LETTER FROM THE BOARD

(iii) the Board is satisfied that the market return, market risk, interest rates and exchange rates will not differ materially;
(iv) the Board is satisfied that the core operation of the Target Group will not differ materially;
(v) the Board has prepared the information in respect of the Target Group after due and careful consideration; and
(vi) the Board is not aware that there will be human disruptions or natural disasters in the near future.

The Reporting Accountants confirmed that they have reviewed the accounting policies and calculations for the forecast contained in the Valuation Report.

INFORMATION OF THE VENDOR

The Vendor is a holding company established under the laws of the PRC. The scope of business of the Vendor is investment in industrial, science and education related entities/projects. The entire equity interest in the Vendor is beneficially wholly-owned by the Yangs, a substantial shareholders of the Company. The Vendor currently holds the entire equity interest in the Target Company. Accordingly, the Vendor is not a third party independent of the Company and its connected persons.

INFORMATION OF THE PURCHASER

The Purchaser is a company established in the PRC and an investment holding company. It is an indirect wholly-owned subsidiary of the Company.

INFORMATION OF THE GROUP

The Company is a holding company incorporated in the Cayman Islands with limited liability. The principal activity of the Company is investment holding. The Group is principally engaged in investment holding, provision of payment solutions and related services, system integration and technical platform services, timber trading and furniture manufacturing, property investment and building management.

– 34 –

LETTER FROM THE BOARD

FINANCIAL EFFECTS OF THE ACQUISITION

Upon Completion, the articles of association of the Target Company will be amended so

that:–

(i) no resolutions relating to amending the articles of association; increase or decrease of the registered capital; merger, dissolution, winding-up or changing the company form of the Target Company shall be passed unless consents from the shareholders representing two thirds or more of the voting rights have been obtained;
(ii) save for the aforesaid, the board of directors shall be delegated with the authority to deal with all other matters in relation to the Target Company and such delegation shall not be revoked unless the shareholders of the Target Company representing two thirds or more of the voting rights agree;
(iii) the Vendor has right to appoint one director to the board of directors of the Target Company and the Company has right to appoint two directors to the board of directors of the Target Company;
(iv) no resolutions relating to management, operational activities, profit distribution or return on investment shall be passed unless more than 50% of directors agree; and
(v) any amendments to the articles of the association of the Target Company will require the approval from the shareholders of the Target Company representing two thirds or more of the voting right.

According to the unaudited pro forma financial information of the Enlarged Group, assuming that Completion had taken place on 1 January 2014 (in the case of pro forma statement of profit or loss, pro forma consolidated statement of comprehensive income and pro forma statement of cash flows) or on 30 June 2015 (in the case of a pro forma consolidated statement of financial position):–

(i) total assets of the Company would increase from approximately HK$1,370,862,000 by approximately HK$781,059,000 to approximately HK$2,151,921,000;

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LETTER FROM THE BOARD

(ii) total liabilities of the Company would increase from approximately HK$629,241,000 by approximately HK$611,051,000 to approximately HK$1,240,292,000;
(iii) gearing ratio would change from approximately 46% to approximately 55%;
(iv) revenue of the Company would increase from approximately HK$317,148,000 by approximately HK$171,335,000 to approximately HK$488,483,000; and
(v) profit of the Company would increase from approximately HK$37,734,000 by approximately HK$20,675,000 to approximately HK$58,409,000.

Full details of unaudited pro forma financial information of the Enlarged Group are set out in Appendix III to this circular. You should read the above information in conjunction with the information as set forth in Appendix III to this circular.

REASONS FOR AND BENEFIT OF THE ACQUISITION

The principal activity of the Company is investment holding. Its subsidiaries are principally engaged in investment holding, provision of payment solutions and related services, timber trading and furniture manufacturing, system integration and technical platform services, property investment and building management.

Since completion of the major transaction in relation to, among other things, the disposal of certain wholly-owned subsidiaries of the Company and 49% interest of the principal business of Group to its management as disclosed in an announcement of the Company on 29 December 2014, the Board has been actively seeking investment opportunities to utilize the proceeds generated from such disposal.

Nevertheless, upon further evaluation of the Company’s future strategic development with reference to the consolidated statements of the Group for the year ended 31 December 2014, the Board noted that net profits of the Company (including non-controlling interests) was approximately HK$37,734,000 which includes an one time gain on disposal of its subsidiaries of HK$46,224,000. Hence, without such a gain, the Company would have recorded a loss (including non-controlling interests) of approximately HK$8,490,000 for the financial year ended 31 December 2014. The Board then considered that it is necessary to invest in business which can bring in immediate cash-flow to the Company to finance the administrative expenses.

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LETTER FROM THE BOARD

The Directors consider that the property investment business of the Target Group is in line with the existing property investment business of the Group while the water supply business can potentially provide immediate and stable income stream to the Group by providing positive cash flow as it is a utility business that has already had a proven track record.

Furthermore, pursuant to the applicable PRC laws and regulations and as confirmed by the PRC lawyers of the Company, while there is no limitation on foreign ownership in relation to water process plant, a foreign entity is not allowed to hold more than 50% of shareholding interest of a company with operational control over water pipes. Given that Taihe Water and Water Supply Development have operational control over its water pipes, the Directors decided that the Company shall acquire 49% of the Target Group in order to avoid contravening PRC legal rules. Accordingly, as at the Latest Practicable Date, the Company has no intention to acquire the remaining interest in the Target Group.

In addition, the acquisition of 49% equity interest in the Target Group is based on strategic consideration that since water supply business is highly-regulated and the Vendor has been maintain stable and good relationship with the Qingyuan government, the Target Group may be in a better position to liaise or negotiate with the relevant government authorities in relation to business expansion or price increment in the future if 51% equity interest in the Target Company remains in the hands of the Vendor.

The Board has further assessed the sustainability of the Target Group’s business and the expiry of the relevant licences and permits has been taken into consideration by the Board when determining the Consideration for the Acquisition. The Directors are of the view that the Vendor, who will maintain 51% of the equity interest of the Target Company after Completion, has maintained stable and good relationship with the Qingyuan government and may be in a better position to renew relevant licences and permits. The operations of all plants have been satisfactory to the relevant authority. Given the previous satisfactory track records of the water supply business, the Company does not expect any impediments upon the renewal of licenses.

The Board considers that the Target Group has a prominent advantage in the market as the Target Group is currently the only supplier of tap water with its own water pipes network in its area of supply, and the Target Group has the exclusive rights to access the water pipes and the entry barrier for competitors is high as any new entrants will have to develop a network of water pipes. Furthermore, the Company would have sufficient time to tackle the possible competitions from new market players since new entrants will have to develop a network of water pipes. The Board considers that the acquisition of the properties held by the Target Group with no commercial value would not cause a negative impact to the Company. In addition, the Consideration was partly determined by the property valuations and a property with no commercial value would not cause an increment to the Consideration.

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LETTER FROM THE BOARD

Although the management of the Company does not have direct experience in the business of water supplies, the Company intends, upon completion of the Acquisition, to (i) retain majority of the senior management and employees of the Target Group; (ii) appoint directors to the Target Group in accordance with the articles of association of the Target Company; and (iii) consider appointing senior management of the Target Group to be a director of the Company on the basis that the composition of the Board will not be materially changed as a result of such appointment. In order to demonstrate that the Company has management control over the Target Group so that its accounts can be consolidated into the accounts of the Company, the Company will have board control over the Target Company and will be able to assign its nominated persons as the directors of the Target Company upon Completion. The Company intends to nominate Mr. Chen Jinyang, the Chairman and Executive Director of the Company, and Mr. Chau Cheuk Wah, the Chief Executive Officer and Executive Director of the Company, as directors of the Target Company. The Company also proposes to appoint Ms. Zhang Haimei, as a Director upon Completion.

Ms. Zhang Haimei, aged 47, is currently a director of Water Supply Development, a director and the financial controller of GD and a member of the supervision committee of Dongguan Securities Limited* (東莞證券股份有限公司）. She joined GD in 2003 and has served in various positions with GD, inter alia, the assistant to CEO of GD and the former manager in the finance department of GD. Ms. Zhang is experienced in financial management. Ms. Zhang was graduated from Sichuan Normal University 四川師範大學 with a diploma in accounting, and also possesses the qualification of junior level accounting（初級會計）in the PRC.

The Board is also of the view that the adverse effect caused by reparation and maintenance of treatment facilities would be minimal in the future based on previous operation record of the Target Group and given the connected water supply network between water plants which can accommodate temporary reparation and maintenance of one water plant without suspending water supply to users.

The Directors are of the opinion that no allowance for impairment of these trade receivables is necessary as there was no recent history of significant default in respect of these trade debtors. Trade receivables that were past due but not impaired related to a large number of independent customers that had a good track record of credit with the Target Group. Furthermore, there is no indication of impairment in goodwill and intangible assets is required relating to the acquisition of the Target Group. The Consideration is partly determined with reference to the market value of the assets being acquired, which is estimated by an independent professional valuers.

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LETTER FROM THE BOARD

The Directors have considered acquiring other types of business, including timber trading business in PRC, being one of the existing businesses of the Company, but has not approached or negotiated with other independent vendors for acquisition of similar targets before concluding the Acquisition. The Directors are not aware of any readily available target at the time of negotiation which offers both (i) a property investment business which is in line with the Company’s existing business and (ii) a utility business which can generate steadily cash flow. Nevertheless, the Directors consider that it is in the interest of the Company and its shareholders as a whole to participate in water supply business and the property investment business through the Acquisition.

Water Co (currently absorbed by Water Supply Development subsequent to supplemental internal reorganization commenced in June 2015) which was the major entity and the holding company of the entire business prior to the internal reorganization. Vendor acquired the entire equity interest in Water Co from GD and an independent third party Rongli Investment Co Limited（東莞市榮立投資發展有限公司）as to 80% and 20% in March 2014 and October 2014, respectively, at the consideration of RMB316,000,000 and RMB21,700,000, respectively. The Directors consider that the Consideration is fair and reasonable since there were contributions made to the Target Group after the Vendor effectively acquired the Target Group including (i) increasing the equity interest in Taihe Water from 32% to 51%, acquiring the effective control of Taihe Water and (ii) successfully obtaining the government’s approval in expanding No. 2 Taihe Water Plant’s daily production capacity by 100,000m[3] , representing an approximately 32.3% increase in the production capacity of the Water Supply Business, and that there were few similar and comparable businesses in the market available for acquisition. In addition, the Consideration was arrived after arm’s length negotiation between the Vendor and the Purchaser. Furthermore, the Directors consider that the pre-determined price for repurchase undertaking is fair and reasonable as 49% of the total sum of pre-determined price of all members of the Target Group is equal to the Consideration, and that it is reasonable and in normal commercial terms for the Purchaser to given up the right to obtain the relevant consideration adjustment if it demands the repurchase of any member of the Target Group by the Vendor since the Purchaser has already been given a chance to demand the Vendor to repurchase all of the members of the Target Group, should the Company is not satisfy with the performance of the entire Target Group.

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LETTER FROM THE BOARD

The Company is aware of the fact that the obtaining of title documents was incomplete in respect of certain parts of the Target Group’s properties (the “ Relevant Properties ”) and has considered the economic risks associated with the incomplete title of the Relevant Properties. The Company is of the view that the economic risks are justifiable and manageable in light of the following factors: (i) according to the Company’s PRC legal adviser and as confirmed by the Target Group, although the Relevant Properties cannot be disposed freely until the relevant land use permits have been obtained, upon establishment of mutual land-use-right granting agreement between Target Group and the relevant land bureau, and the full payment of the land premium and all the relevant authorization obtained by Target Group, it is expected that there will not be legal obstacle for the Target Group to obtain all necessary title documents for the Relevant Properties; (ii) no commercial value was attributed to the Relevant Properties in the valuation of the Target Group’s properties; (iii) according to the Valuation Report, an additional value of approximately RMB57,310,000 would have been attributed to the Relevant Properties if all title documents have been obtained; (iv) in the worst case scenario, the relevant authorities may make demolition order and impose various types of penalties in the amount of between 1% and 10% of the construction cost of the buildings on the Relevant Properties; and (v) in any event, the Purchaser is entitled to exercise its right to enforce the repurchase undertaking under the Agreement to require the Vendor to repurchase the respective member of the Target Group if the risks and legal issues arising from the incomplete title of the Relevant Properties evolve in an undesirable manner after Completion.

Taking into account of the above reasons, and having considered the risk factors as set out in Appendix V to this circular and the fact that the Purchase has the right to demand the Vendor to repurchase the entire Target Group, the Directors are of the view that the terms of the Agreement and transactions contemplated under the Agreement, including the repurchase undertaking and consideration adjustment, are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

RISK FACTORS

Risk factors in the operation of the Target Group are set out in details in Appendix V to this circular.

– 40 –

LETTER FROM THE BOARD

LISTING RULES IMPLICATIONS

As the applicable percentage ratio(s) are more than 100%, the Acquisition constitutes a very substantial acquisition of the Company under Chapter 14 of the Listing Rules. Since the Vendor is beneficially wholly owned by the Yangs who also own the entire issued share capital of Ever City Industrial Development Limited which is a substantial shareholder of the Company, the Vendor is a connected person of the Company under Rule 14A.07 of the Listing Rules. Accordingly, the Acquisition constitutes a connected transaction for the Company under Chapter 14A of the Listing Rules and is subject to the reporting, announcement and the Independent Shareholders’ approval requirements pursuant to Chapter 14 and Chapter 14A of the Listing Rules.

EGM

The Company will convene the EGM at Room A&B2, 11th Floor, Guangdong Investment Tower, No.148 Connaught Road Central, Sheung Wan, Hong Kong on 18 December 2015 at which ordinary resolution(s) will be proposed for the Independent Shareholders to consider and, if thought fit, approve the Agreement and the transactions contemplated thereunder. Any Shareholders with a material interest in the Agreement and the transactions contemplated thereunder will abstain from voting on such resolution(s).

As at the Latest Practicable Date, the Yangs are deemed to be interested in 520,380,000Shares, representing approximately 24.66% of the total issued share capital of the Company, through their controlled corporations, namely Ever City Industrial Development Limited and Eastcorp International Limited. As a result, the Yangs will be considered having a material interest in the Acquisition, they and their associates will be required under the Listing Rules to abstain from voting at the EGM.

In addition, both Mr. Chow Cheuk Lap and Ms. Fan Man Yee Alice are solicitors and partners of Messrs C.L. Chow & Macksion Chan, which is a firm of solicitors and the legal advisors of Mr. Yang Zhimao and has advised Mr. Yang Zhimao on general legal matters. As at the Latest Practicable Date, (i) Mr. Chow Cheuk Lap is interested in 77,540,000 Shares, representing approximately 3.67% of the total issued share capital of the Company and has options to subscribe for 10,000,000 Shares; and (ii) Ms. Fan Man Yee Alice is interested in 10,000,000 Shares, representing approximately 0.47% of the total issued share capital of the Company and has options to subscribe for 10,000,000 Shares. Although the Board does not consider that Mr. Chow Cheuk Lap and Ms. Fan Man Yee Alice have any material interest in the Acquisition, they have volunteered to undertake (and will procure each of their respective associates, as the case may be) to abstain from voting on all Board decisions and at the EGM relating to matters relating to the Acquisition to avoid any potential conflict of interest.

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LETTER FROM THE BOARD

Save as disclosed above, to the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, no other Shareholder has a material interest in the Acquisition and therefore, no other Shareholder is required to abstain from voting at the EGM in respect of the Agreement and the transactions contemplated thereunder.

A notice convening the EGM is set out on page 301 to page 302 of this circular. A proxy form for use at the EGM is enclosed with this circular. Whether or not you intend to attend and vote at the EGM, please complete and return the enclosed form of proxy in accordance with the instructions printed thereon as soon as possible and in any event not less than 48 hours before the time appointed for holding the EGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjournment thereof should you so wish, and in such event, the instrument appointing the proxy shall be deemed to be revoked.

RECOMMENDATION

Your attention is drawn to the letter from the Independent Board Committee set out on page 43 to page 44 of this circular and the letter of the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders set out on page 45 to page 85 of this circular in connection with the Agreement and the transactions contemplated thereunder and the principal factors and reasons considered by the Independent Financial Adviser in arriving at such advice.

The Independent Board Committee, having taken into account the advice of the Independent Financial Adviser, considers that the Acquisition was on commercial terms, fair and reasonable, and in the interests of the Company and the Shareholders as a whole.

The Directors are of the view that the terms of the Agreement and the transactions contemplated thereunder are on normal commercial terms, fair and reasonable and in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend the Independent Shareholders to vote in favour of the resolution to be proposed at the EGM to approve the Agreement and the transactions contemplated thereunder.

ADDITIONAL INFORMATION

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

Yours faithfully,

for and on behalf of the Board of

Universal Technologies Holdings Limited Chen Jinyang

Chairman

– 42 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

The following is the text of the letter of recommendation, prepared for incorporation in this circular, from the Independent Board Committee to the Independent Shareholders regarding the Agreement and the transactions contemplated thereunder.

UNIVERSAL TECHNOLOGIES HOLDINGS LIMITED 環球實業科技控股有限公司

(incorporated in the Cayman Islands with limited liability) (Stock Code: 1026)

Independent Non-Executive Directors: Dr. Cheung Wai Bun, Charles, J.P. Mr. David Tsoi Mr. Chan Chun Kau Mr. Chao Pao Shu George

Registered Office: Cricket Square Hutchins Drive, P.O. Box 2681 Grand Cayman KY1-1111 Cayman Islands

Head office and principal place of business: Room A & B2, 11th Floor, Guangdong Investment Tower, No.148 Connaught Road Central, Sheung Wan, Hong Kong

3 December 2015

To the Shareholders

Dear Sir or Madam,

VERY SUBSTANTIAL ACQUISITION AND

CONNECTED TRANSACTION AND NOTICE OF EXTRAORDINARY GENERAL MEETING

We refer to the circular of the Company to the Shareholders dated 3 December 2015 (the “ Circular ”), in which this letter forms part. Unless the context requires otherwise, capitalized terms used in this letter will have the same meanings as defined in the Circular.

– 43 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

We have been authorised by the Board to form the Independent Board Committee to advise the Independent Shareholders on whether, in our opinion, entering into the Agreement and the transactions contemplated thereunder are in the interests of the Company and the Shareholders as a whole and the terms of which are fair and reasonable so far as the Independent Shareholders are concerned. None of the members of the Independent Board Committee have any direct or indirect interest in the Agreement and the transactions contemplated thereunder.

We would like to draw your attention to the letter from the board as set out on page 7 to 42 of the Circular which set out the details of the Agreement and the transactions contemplated thereunder.

TC Capital Asia Limited has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders on the Agreement and the transactions contemplated thereunder. We wish to draw your attention to the letter of advice from the Independent Financial Adviser as set out on page 45 to page 85 of the Circular.

Having considered the factors and reasons considered by, and the advice of, the Independent Financial Adviser as set out in its letter of advice and other factors that we consider relevant, we are of the view that the terms of the Agreement and the transactions contemplated under the Agreement are (i) on normal commercial terms, though not in usual and ordinary course of business of the Company; and (ii) fair and reasonable and in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend that the Independent Shareholders vote in favour of the ordinary resolution approving the Agreement and the transactions contemplated thereunder at the EGM.

Yours faithfully,

for and on behalf of

the Independent Board Committee of

Universal Technologies Holding Limited

Dr. Cheung Wai Bun, Charles, J.P. Mr. David Tsoi Mr. Chan Chun Kau Mr. Chao Pao Shu George

Independent Non-executive Directors

– 44 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the text of a letter, prepared on 3 December 2015 for the purpose of incorporation in this circular, received from TC Capital Asia Limited, the Independent Financial Adviser.

==> picture [84 x 29] intentionally omitted <==

3 December 2015

The Independent Board Committee and the Independent Shareholders Universal Technologies Holdings Limited

Dear Sir/Madam,

VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION

INTRODUCTION

We refer to our appointment as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in relation to the Agreement and the transactions contemplated thereunder. Details of the terms of the Agreement are set out in the “Letter from the Board” (the “ Board Letter ”) contained in the circular of the Company dated 3 December 2015 issued to the Shareholders (the “ Circular ”), of which this letter forms part. Capitalised terms used in this letter shall have the same meanings as those defined in the Circular, unless otherwise specified.

– 45 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As the applicable percentage ratio(s) under Rule 14.07 of the Listing Rules is more than 100%, the Acquisition constitutes a very substantial acquisition of the Company under Chapter 14 of the Listing Rules. Further, since the Vendor is beneficially wholly owned by the Yangs who also own the entire issued share capital of Ever City Industrial Development Limited, which is a substantial shareholder of the Company, the Vendor is a connected person of the Company under Rule 14A.07 of the Listing Rules. Accordingly, the Acquisition constitutes a connected transaction for the Company under Chapter 14A of the Listing Rules and is subject to the reporting, announcement and the Independent Shareholders’ approval requirements pursuant to Chapter 14 and Chapter 14A of the Listing Rules.

As at the Latest Practicable Date, the Yangs are deemed to be interested in 520,380,000 Shares, representing approximately 24.66% of the total issued share capital of the Company, through their controlled corporations, namely Ever City Industrial Development Limited and Eastcorp International Limited. As a result, the Yangs will be considered to have a material interest in the Acquisition, they and their associates will be required under the Listing Rules to abstain from voting at the EGM.

In addition to the approval by the Independent Shareholders at the EGM, the Acquisition are also subject to the conditions precedent as set out in sub-section titled “THE AGREEMENT – Conditions precedent” in the Board Letter.

– 46 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Independent Board Committee of the Company has been formed comprising all the independent non-executive Directors to advise the Independent Shareholders as regards to the fairness and reasonableness of the terms of the Agreement and the transactions contemplated thereunder, and to make a recommendation to the Independent Shareholders in respect thereof.

We have been appointed by the Company to advise the Independent Board Committee and the Independent Shareholders on whether (i) the terms of the Agreement and the transactions contemplated thereunder are in the interests of the Company, on normal commercial terms, fair and reasonable insofar as the Independent Shareholders are concerned and in the interests of the Company and the Shareholders as a whole; and (ii) whether the Independent Shareholders should vote in favor of the Agreement and the transactions contemplated thereunder.

As at the Latest Practicable Date, we were independent from and not connected with the Company pursuant to Rule 13.84 of the Listing Rules. We have not acted as the independent financial adviser for the Company’s other transactions in the past two years. We are not aware of the existence of or change in any circumstances that would affect our independence. Accordingly, we consider that we are considered eligible to give independent advice on the terms of Agreement. Apart from the normal advisory fee payable to us in connection with our appointment as the Independent Financial Adviser, no arrangement exists whereby we shall receive any other fees or benefits from the Company or any of its associates.

BASIS OF OUR OPINION AND RECOMMENDATION

In formulating our opinion and recommendation, we have considered, among other things, the Agreement and other information as set out in the Circular and its appendices.

We have also relied on all relevant information, opinions and facts supplied and represented by the Company, the Directors and the management of the Company. We have assumed that all such information, opinions, facts and representations contained or referred to in the Circular, for which the Company is fully responsible, were true and accurate in all respects as at the date hereof and may be relied upon. We have no reason to doubt the truth, accuracy and completeness of the information and representations provided to us by the Company, and the Company has confirmed that no material facts have been withheld or omitted from the information provided and referred to in the Circular, which would make any statement therein misleading.

– 47 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We consider that we have reviewed sufficient information currently available to reach an informed view and to justify our reliance on the accuracy of the information contained in the Circular so as to provide a reasonable basis for our recommendation. We have not, however, carried out independent verification of the information provided by the Directors and the representatives of the Company, nor have we conducted any form of in-depth investigation into the businesses, affairs, operations, financial position or future prospects of the Company, the Target Company, the Purchaser and the Vendor and any of their respective subsidiaries and associates.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In formulating our opinion in respect of the Agreement and the transactions contemplated thereunder, we have taken into consideration the following principal factors and reasons:

I. Background and financial information of the Group and the Target Company

Information on the Purchaser

The Purchaser is a company established in the PRC and an investment holding company. It is an indirect wholly-owned subsidiary of the Company.

Information on the Group

Set out below is a summary of the audited consolidated financial statement of the Company for the two years ended 31 December 2014 as extracted from the Company’s annual report and the unaudited consolidated financial statement of the Company for the six months ended 30 June 2015 as extracted from the Company’s interim report:

	For the year	ended	For the six months	For the six months
	31 December		ended	30 June
	2013	2014	2014	2015
	HK$’000	HK$’000	HK$’000	HK$’000
	(Audited)	(Audited)	(Unaudited)	(Unaudited)
Turnover	189,847	317,148	131,487	142,029
Net profit/(loss) before taxation	(14,346)	48,159	6,193	(18,031)
Net profit/(loss) after taxation	(24,865)	37,734	5,414	(19,751)

– 48 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Based on the audited consolidated financial statement of the Company, the turnover for the years ended 31 December 2013 and 2014 are approximately HK$189.8 million and approximately HK$317.1 million respectively. The increase in turnover is mainly due to an increase in revenue of the Group’s payment solution business. The net loss after taxation for the year ended 31 December 2013 is approximately HK$24.9 million and the net profit after taxation for the year ended 31 December 2014 is approximately HK$37.7 million. The increase in net profit of the Group is mainly due to the gain on disposals of subsidiaries in the major transaction of approximately HK$46.2 million.

Based on the unaudited consolidated financial statement of the Company, the turnover for each of the six months ended 30 June 2014 and 2015 is approximately HK$131.5 million and HK$142.0 million, respectively. The increase in turnover is mainly due to an increase in revenue from the Group’s payment solution business. The net profit after taxation for the six months ended 30 June 2014 is approximately HK$5.4 million and the net loss after taxation for the six months ended 30 June 2015 is approximately HK$19.8 million. The increase in net loss of the Group is mainly due to an increase in operating expenses, mainly related to research expenses and the staff costs of payment solutions business.

According to the 2015 Interim Report, the Group intends to continue to adopt a prudent operation policy and follow the strategic direction of “concentrating on growth, reducing losses, and modifying the structure” to constantly explore more business and investment opportunities, so as to achieve business diversification, financial growth and maximise the value-added investment for shareholders.

Background and financial information of the Target Group

As at the date of the Circular, the Target Company is a wholly-owned subsidiary of the Vendor. The Target Group consists of the Target Company and its eight subsidiary companies. The Target Group is principally engaged in the operation of water utility plant and property investment business in the PRC.

The Vendor acquired 80% of Water Co in March 2014 from GD and 20% of Water Co from an independent party in October 2014. The total original acquisition cost to the Vendor was RMB337,700,000. Prior to May 2015, Water Co was the holding company of Huike Properties, Water Testing and Taihe Water and was the holding company of Engineering Co prior to April 2015.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The structure of the Target Group as at the date of the Circular was principally formed after (a) an initial internal reorganisation concluded in May 2015 which principally involved (i) the carving out of properties from Water Co, being the principal operating subsidiary of the Target Group prior to the reorganisation; and (ii) the formation of two business groups, namely, the water supply business (comprising Water Co, Water Supply Development, Water Testing, Huike Properties and Taihe Water) and the property investment business (comprising Jingyu Properties, Jinhong Industrial and Kaipeng Properties); and (b) a supplemental internal reorganization commenced in June 2015 which principally involved (i) two properties owned by Water Co being transferred to Jingyu Properties and Kaipeng Properties respectively and (ii) the merger of Water Co and Water Supply Development, resulting all remaining assets and liabilities of Water Co being transferred to Water Supply Development and the deregistration of Water Co.

In relation to the merger of Water Co and Water Supply Development, pursuant to a confirmation dated 30 June 2015 entered into between Water Co and Water Supply Development, the parties thereto confirmed that the completion of the transfer of assets and liabilities from Water Co to Water Supply Development had been carried out. Accordingly, the rights and obligations relating to the relevant assets and liabilities would be assigned to Water Supply Development. As at the Latest Practicable Date, principal operating assets (including land, machineries and buildings) have been transferred from Water Co to Water Supply Development. Bocheng, the counter-party to the material contracts for construction works previously entered into by Water Co, has confirmed that its debt liabilities due to and from Water Co had been assigned to or assumed by (as the case may be) Water Supply Development. In addition, the registration process for the transfer of the real estate title certificates and land use rights certificates previously held by Water Co to Water Supply Development has been completed. Bank charges on the relevant assets for bank borrowings would be transferred to Water Supply Development from Water Co. Bank charges on the relevant assets for bank borrowings have been transferred to Water Supply Development from Water Co. Currently, the local tax authority is processing the deregistration of Water Co’s tax registration（稅務登記）and is expected to be completed by the end of December 2015.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Such reorganisation also includes, among other things, making the Target Company the holding company of the Target Group. The reorganisation did not involve the acquisition of new assets or companies but Engineering Co was disposed. Engineering Co is principally engaged in the provision of water pipeline construction services which is different from that of other members of the Target Group and does not align with the Company’s purpose of conducting the Acquisition. The business operated by Engineering Co is capable to be delineated from other existing businesses of the Target Group and had been separately managed and financially controlled within the Target Group. Furthermore, Engineering Co has its own financial statements and therefore it is practicable to identify the historical financial information attributable to the carve-out business.

Financial information of Engineering Co was not included in the statement of financial position or income statement of the historical financial information of the Target Group in Appendix II to this circular. Accordingly, there was no gain or loss on disposal reflected in the financial information of the Target Group in Appendix II to this circular, which was prepared based on Hong Kong Financial Reporting Standards. However, based on preceding PRC accounting standards adopted by the Vendor, a gain of approximately RMB0.56 million was recorded as a result of the disposal of Engineering Co to an independent third party as part of the internal reorganization of the Target Group. Such gain was calculated based on the consideration of Engineering Co of approximately RMB1.15 million less the carrying value of Engineering Co of approximately RMB0.59 million as at the date of disposal.

Following the internal reorganisation within the Target Group, there will be a clear delineation of water supply business and property investment business which can facilitate the integration and management of the water supply business and property investment business and future business development of the Group.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Business model of the Target Group

The Target Group consists of the water supply business and property investment business, where details as follows:

(A) Water supply business

The water supply business of the Target Group is engaged in the supply of tap water to various districts of Qingyuan City, Guangdong Province. The water supply business has commenced its operation in 1989 and currently operates three water processing plants, which source raw water from local river sources, with a total daily production capacity of approximately 310,000 tonnes. All the water processing plants, have obtained licenses and approval by the local government to take raw water from the local river sources.

The water supply business, through its operating entities Water Supply Development and Taihe Water, charges its consumers principally based on the tariff set by the local price bureau and the actual volume measured by their respective water meters, and collects the fees directly from their customers. Majority of the consumers are the residents of the coverage areas. Other customers include enterprises and government agencies (i.e. fire stations) within the coverage areas.

Pursuant to the service concession arrangements between Taihe Water and the local government, the Target Group was required to construct the water supply plants, and to operate and maintain the water supply plants for a period of 20 years until 2026. In accordance with the accounting policy of the Target Group, the service concession arrangement would be considered under a build-operate-transfer (“ BOT ”) basis, in which capital expenditure sum would be recorded as “cost” and “revenue” would equal to the “cost” multiplied by a predetermined ratio of 19%. The predetermined ratio of 19% was determined by reference to the gross profit to cost of goods sold ratios (the “ Ratios ”) provided by the Valuer. The Ratios were the median of gross profit to cost of goods sold ratio of comparable companies. The comparable companies were determined with reference to publicly listed companies in the PRC that are considered to be comparable to the water supply construction operation of Taihe Water. The predetermined ratio of 19% is adopted in the financial statements of the Target Group. The Directors have reviewed the basis adopted by the Valuer in applying the predetermined ratio of 19% and considers that the adoption of such ratio in the financial statements of the Target Group aligns with common market

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

practice. Practically Taihe Water is not engaging in the business of construction. In view of the above, Taihe Water does not have its specific customers and suppliers for its construction business. The water supply construction is an integral part of Taihe Water’s operation and is strictly for internal use only. Taihe Water has the same management and senior staff as the water supply business.

The water supply business is expanding its daily production capacity in turn to increase its revenue. There is a new water treatment plant (Taihe Plant #2 Phrase 2) under construction with a planned daily production capacity of approximately 100,000 tonnes, which is located next to the existing plant (Taihe Plant #2 Phrase 1). The new plant would share the existing infrastructures of the existing plant. In addition, the Target Group intends to expand its coverage area by way of expansion of pipeline coverage.

The operating costs incurred in the operation of water supply business mainly consisted of staff costs, electricity and fuel, water resources tariff chemicals for water treatment and depreciation expenses on water treatment facilities and pipeline network.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Production facilities

The water supply business currently holds Qixinggang Water Plant and No. 1 & No. 2 Tai Wo Water Plants which serve the general public including households, industrial and commercial in urban areas in Qingcheng District and Qingxin District, Qingyuan City, respectively.

Qixinggang Water Plant is operated by Water Supply Development (previously by Water Co) with daily capacity of 200,000 cubic meters. As in December 2012, the supply area is approximately 80 square kilometers.

No. 1 and No. 2 Tai Wo Water Plants are operated by Taihe Water with daily capacity of 60,000 cubic meters and 50,000 cubic meters, respectively, as in January 2015. Together, the total daily capacity of 110,000 cubic meters covers an area of 95 square kilometers.

Set out below is a summary of the water treatment plants and their daily production capacity operated by the Water Supply Business:

Location Status Qixinggang Water Plant Qixinggang Operating Taihe Plant #1 Taihe Dong Operating Taihe Plant #2 Phase 1 Taihe Feishui Operating Taihe Plant #2 Phase 2 Taihe Feishui Under Construction Total capacity in operation	Daily Production Capacity (m3) 200,000 60,000 50,000 100,000
	310,000

The production capacity under the water supply business is approaching full capacity in general.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Licenses and approvals

The Target Group holds the following licences/approvals for operating the water supply business:

Identification number	Type of licenses/approvals	Validity period	Impediments expected for renewal
Water Sourcing (Yueqing) Zi	Water Sourcing Permit	10 May 2013 –	Pursuant to the Water Sourcing Permit
(2015) #00005*		9 May 2018	and Water Resources Tariff Collection
（取水（粵清）字(2015)	Water sourcing location:		Management Ordinance*（取水許
第00005號）	Beijiang Qixinggang*		可和水資源費徵收管理條例）, the
	（北江七星崗）		validity period is generally 5 years and
			in any event not more than 10 years.
Water Sourcing (Yueqingtai)	Water Sourcing Permit	14 May 2013 –	Renewal application of water sourcing
Zi(2013) #94142*		14 May 2018	permit should be made to the original
（取水（粵清太）字	Water sourcing location:		approving authority before its expiry.
（2013）第94142號）	Dongganqu*（東幹渠）		Upon receiving renewal application,
			the approving authority will conduct
Water Sourcing (Yueqingtai) Zi	Water Sourcing Permit	14 May 2013 –	a full study on the application
(2013) #11141*		14 May 2018	materials and consider the possible
（取水（粵清太）字（2013）	Water sourcing location:		effect to the economy of the district
第11141號）	Beijiang*（北江）		and preservation of water source for
			approving the renewal application.
Yueweishuizheng Zi(2015)	Hygiene Permit	4 August 2015 –	Pursuant to Drinking Water Hygiene
#180000003*（粵衛水證字		6 April 2019	Supervision Management Method*
(2015)第180000003號）			（生活飲用水衛生監督管理辦
			法）, the hygiene permit of water
Yueweishuizheng Zi(2014)	Hygiene permit	29 October 2014 –	supply entity shall be issued by the
#441827H00003*		28 October 2018	health department of county level or
（粵衛水證字(2014)			above. The validity period shall be 4
第441827H00003號)			years, subject to annual review, and
			application for new permit shall be
			made 6 months prior to expiration of
			the existing permit.
Yueweishuizheng Zi(2014)	Hygiene permit	18 September 2014 –	The relevant health department
#441827H00002*		17 September 2018	requires the water supply enterprise
（粵衛水證字(2014)			to ensure that (i) the tap water
第441827H00002)號			produced meets the national hygiene
			standard of drinking water; (ii)
			water supply infrastructure meets
			hygiene requirement; and (iii) having
			water purifying and disinfection
			facilities and necessary water testing
			equipment in place, failure to fulfill
			such requirements, and any other
			requirements that may be required by
			the relevant authority, may affect the
			renewal of hygiene permit.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The operations of all plants have been in satisfactory to the relevant authority. Given the previous satisfactory track records of the water supply business, the Company does not expect any impediments upon and has confidence in the renewal of the abovementioned licenses.

Water Sourcing Permit and Hygiene Permit are required in water supply business. In addition, for water testing services, the Qualification – Metrology Accreditation Certificate is required in order to publicly issue the water testing data and results.

All the water processing plants, including the one under construction, and Water Testing, have obtained licenses and approval by the local government to take raw water from the local river sources.

Financial information

Set out below is a summary of tonnage of water supplied and revenue by customer type for the water supply business in the year ended 31 December 2014:–

Commercial Residential Public service Industry Contract Others Total	Tonnage Revenue ’000 % RMB million % 18,306 26 45 40 24,537 36 28 24 11,292 16 17 15 9,558 14 12 11 5,368 8 10 9 8 0 1 1 69,069 100 113 100	Tonnage Revenue ’000 % RMB million % 18,306 26 45 40 24,537 36 28 24 11,292 16 17 15 9,558 14 12 11 5,368 8 10 9 8 0 1 1 69,069 100 113 100
		100

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Set out below is a summary of major operating costs of the water supply business in the year ended 31 December 2014:–

Water resources Depreciation Fuel and electricity Staff Maintenance Raw materials Administrative Others Total	RMB million 15 18 15 9 4 1 3 3 68	% 22 26 22 13 6 2 5 4
		100

(B) Property investment business

Further details of the properties are disclosed under the section “Properties of the Target Group”.

Business license is required in the property investment business. The Company also confirms that they have obtained the required license.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As at the Latest Practicable Date, there is no expansion plan for the water supply business and property investment business.

Set out below are the particulars of each member of the Target Group:–

the Target Company

Xinhongcheng

Xinhongcheng is a limited liability company established under the laws of the PRC with a total registered capital of RMB15,000,000. Its entire equity interest is held by the Target Company. Its principal business activity is investment holding and it has no material business operation.

Jingyu Properties

Jingyu Properties is a limited liability company established under the laws of the PRC with a total registered capital of RMB1,000,000. Its entire equity interest is held by Xinhongcheng. It is a member company of the property investment business group and its principal business activity is property investment.

Jinhong Industrial

Jinhong Industrial is a limited liability company established under the laws of the PRC with a total registered capital of RMB1,000,000. Its entire equity interest is held by Xinhongcheng. It is a member company of the property investment business group and its principal business activity is property investment.

Kaipeng Properties

Kaipeng Properties is a limited liability company established under the laws of the PRC with a total registered capital of RMB1,000,000. Its entire equity interest is held by Xinhongcheng. It is a member company of the property investment business group and its principal business activity is property investment.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Water Supply Development

Water Supply Development is a limited liability company established under the laws of the PRC with a total registered capital of RMB98,521,400. Its entire equity interest is held by Xinhongcheng. It is a member company of the water supply business group and its principal business activities is water supply.

Water Testing

Water Testing is a limited liability company established under the laws of the PRC with a total registered capital of RMB1,600,000. Its entire equity interest is held by Water Supply Development. It is a member company of the water supply business group. Its principal business activity is water quality testing and it is engaged in the provision of water testing services to Water Supply Development and Taihe Water.

Huike Properties

Huike Properties is a limited liability company established under the laws of the PRC with a total registered capital of RMB2,000,000. Its entire interest is held by Water Supply Development. It has no material business operations. It is a member company of the water supply business group and its principal business activity is investment holding.

Taihe Water

Taihe Water is a limited liability company established under the laws of the PRC with a total registered capital of RMB23,254,000. Its entire equity interest is held by Huike Properties as to 51% and Guangdong Qingyuan Water Supply Limited（廣東清源水業有限公司）, an independent third party of the Company, as to 49%. It is a member company of the water supply business group and its principal business activities is water supply.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

For more details on the structure of the Target Group, please refer to the section headed “Information of the Target Group” of the Board Letter. For details on the properties of the Target Group and their existing and future usage, please refer to the section headed “Information of the Target Group – Properties of the Target Group” of the Board Letter.

Set out below is a summary of the consolidated financial information of the Target Group for the two years ended 31 December 2014 and for the nine months ended 30 September 2014 and 2015:–

	For the year ended/	For the year ended/	For the nine months	For the nine months
	As at 31 December		ended 30 September
	2013	2014	2014	2015
	Approximate	Approximate	Approximate	Approximate
	RMB’000	RMB’000	RMB’000	RMB’000
	(HK$’000)	(HK$’000)	(HK$’000)	(HK$’000)
			(Unaudited)
Revenue	108,468	137,068	92,104	218,796
	(135,585)	(171,335)	(115,130)	(273,495)
– From water supply business	106,099	134,313	89,489	215,308
	(132,624)	(167,891)	(111,861)	(269,135)
– From other businesses
including property
investment business	2,369	2,755	2,615	3,488
	(2,961)	(3,444)	(3,269)	(4,360)
Net profit before taxation	35,237	29,406	27,843	51,505
	(44,046)	(36,758)	(34,804)	(64,381)
Net profit after taxation	25,457	20,523	20,266	39,448
	(31,821)	(25,654)	(25,333)	(49,310)
Net assets	143,681	180,939	N/A	219,448
	(179,601)	(226,174)		(274,310)

The increase in revenue of the Target Group from approximately RMB108.5 million (equivalent to approximately HK$135.6 million) in the year ended 31 December 2013 to RMB137.1 million (equivalent to approximately HK$171.3 million) in the year ended 31 December 2014 was primarily due to (i) an increase in equity interests in Taihe Water from approximately 32.07% to 51%, which led to the consolidation of Taihe Water’s revenue into the Target Group’s revenue and (ii) increase in water tariff in Qingxin District set by the local price bureau.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The increase in revenue is mainly set off by a rise in administrative expenses in the same period, principally due to (a) an increase in staff cost as a result of the consolidation of the Taihe Water’s accounts; (b) an one-off charge in legal, consultancy and other professional fee related to the Target Group’s internal reorganization; and (c) a loss of approximately RMB5.3 million recorded as a result of the step acquisition of a subsidiary.

As a result, the net profit (before taxation) of the Target Group has decreased from approximately RMB35.2 million (equivalent to approximately HK$44.0 million) in the year ended 31 December 2013 to approximately RMB29.4 million (equivalent to approximately HK$36.8 million) in the year ended 31 December 2014 notwithstanding an increase in revenue during the same period.

Based on the unaudited consolidated financial statement of the Target Company, the revenue of the Target Group for each of the nine months ended 30 September 2014 and 2015 are approximately RMB92.1 million (equivalent to approximately HK$115.1 million) and RMB218.8 million (equivalent to approximately HK$273.5 million), respectively. The revenue generated from the water supply business for each of the nine months ended 30 September 2014 and 2015 are approximately RMB89.5 million (equivalent to approximately HK$111.9 million) and RMB215.3 million (equivalent to approximately HK$269.1 million) respectively, accounting for approximately 97.2% and 98.4% of the total revenue, respectively. The increase in revenue is mainly due to an increase in the equity interest in Taihe Water held by the Target Company from 32.07% to 51% on October 2014, which resulted in the consolidation of the revenue of Taihe Water to the Target Group. The net profit after taxation of the Target Group for each of the nine months ended 30 September 2014 and 2015 are approximately RMB20.3 million (equivalent to HK$25.3 million) and RMB39.4 million (equivalent to HK$49.3 million), respectively. The increase in net profit of the Target Group is mainly due to the increase in revenue during the year ended 31 December 2014 as a result of the increase in equity interest in Taihe Water held by the Target Company. As at 31 December 2014 and 30 September 2015, the Target Group had a net asset value of approximately RMB180.9 million (equivalent to approximately HK$226.2 million) and RMB219.4 million (equivalent to approximately HK$274.3 million), respectively. The increase in net asset value of the Target Group was mainly due to the consolidation of the net assets of Taihe Water to the Target Company as a result of an increase in equity interest in Taihe Water held by the Target Company from 32.07% to 51%.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

II. Background and reasons for entering into of the Agreement

Diversification and a stable stream of income

As stated in the Board Letter, since completion of the major transaction in relation to, among other things, the disposal of certain wholly-owned subsidiaries of the Company and 49% interest of the principal business of the Group to its management as disclosed in an announcement of the Company on 29 December 2014, the Board has been actively seeking investment opportunities to utilise the proceeds generated from such disposal.

According to the 2014 Annual Report, the payment solution business accounts for approximately 88% of the total revenue of the Company for the year ended 31 December 2014. The participation in water supply business can provide diversification and broaden the income base of the Group, and hence bring a stable stream of income to the Group.

Positive effects on the Group’s operation and cash-flow

Upon further evaluation of the Company’s future strategic development with reference to the consolidated statements of the Group for the year ended 31 December 2014, the Board noted that net profits of the Company (including noncontrolling interests) was approximately HK$37.7 million which includes a one time gain on disposal of its subsidiaries of HK$46.2 million. Hence, without such a gain, the Company would have recorded a loss (including non-controlling interests) of approximately HK$8.5 million for the year ended 31 December 2014. The Board then considered that it is necessary to invest in businesses which can bring in immediate cash-flow to the Company to finance the administrative expenses.

The Directors considered that since the water supply business under the Target Group has already had a proven track record and as a water utility business, it can provide stable and immediate cash flow to the Company, the Acquisition, if proceeded, can not only be able to finance administrative expenses of the Company, but also be in line with the Company’s intention of maintaining the property investment business.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Board has further assessed the sustainability of the Target Group’s business and the expiry of the relevant licenses and permits has been taken into consideration by the Board when determining the Consideration for the Acquisition. The Directors are of the view that the Vendor, who will maintain 51% of the equity interest of the Target Company after Completion, has maintained stable and good relationship with the Qingyuan government and may be in a better position to renew relevant licences and permits. The operations of all plants have been satisfactory to the relevant authority. Given the previous satisfactory track records of the water supply business, the Company does not expect any impediments upon the renewal of licenses.

The Board considers that the Target Group has a prominent advantage in the market as the Target Group is currently the only supplier of tap water in its area of supply with its own water pipes network, and the Target Group has the exclusive rights to access the water pipes and the entry barrier for competitors is high as any new entrants will have to develop a network of water pipes. Furthermore, the Company would have sufficient time to tackle the possible competitions from new market players since new entrants will have to develop a network of water pipes. The Board considers that the acquisition of the properties held by the Target Group with no commercial value would not cause a negative impact to the Company. In addition, the Consideration was partly determined by the property valuations and a property with no commercial value would not cause an increment to the Consideration.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Ms. Zhang Haimei, aged 47, is currently a director of Water Supply Development, a director and the financial controller of GD and a member of the supervision committee of Dongguan Limited（東莞證券股份有限公司）. She joined GD in 2003 and has served in various positions with GD, inter alia, the assistant to CEO of GD and the former manager in the finance department of GD. Ms. Zhang is experienced in financial management. Ms. Zhang was graduated Sichuan Normal University (correspondence course) 四川師範大學（函授）with a diploma in accounting, and she possesses the qualification of junior level accountant（初級會計職稱）in the PRC.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Directors have considered acquiring other types of business, including timber trading business in PRC, being one of the principal business of the Company, but has not approached or negotiated with other independent vendors for acquisition of similar targets before concluding the Acquisition. The Company has not approached and/negotiated with other independent vendors for acquisition of water supply business. The Directors are not aware of any readily available target at the time of negotiation which offers both (i) a property investment business which is in line with the Company’s existing business and (ii) a utility business which can generate steady cash flow. Nevertheless, the Directors consider that it is in the interest of the Company and its shareholders as a whole to participate in water supply business and the property investment business through the Acquisition.

Water Co (currently absorbed by Water Supply Development subsequent to supplemental internal reorganization commenced in June 2015) which was the major entity and the holding company of the entire business prior to the reorganization. Vendor acquired the entire equity interest in Water Co from GD and an independent third party Rongli Investment Co Limited（東莞市榮立投資發展有限公司）as to 80% and 20% in March 2014 and October 2014, respectively, at the consideration of RMB316,000,000 and RMB21,700,000, respectively. The Directors consider that the Consideration is fair and reasonable since there were contributions made to the Target Group after the Vendor effectively acquired the Target Group including (i) increasing the equity interest in Taihe Water from 32% to 51%, acquiring the effective control of Taihe Water and (ii) successfully obtaining the government’s approval in expanding No. 2 Taihe Water Plant’s daily production capacity by 100,000m[3] , representing an approximately 32.3% increase in the production capacity of the water supply business, and that there were few similar and comparable businesses in the market available for acquisition. In addition, the Consideration was arrived after arm’s length negotiation between the Vendor and the Purchaser. Furthermore, the Directors consider that the pre-determined price for repurchase undertaking is fair and reasonable as 49% of the total sum of pre-determined price of all members of the Target Group is equal to the Consideration, and that it is reasonable and in normal commercial terms for the Purchaser to give up the right to obtain the relevant consideration adjustment if it demands the repurchase of any member of the Target Group by the Vendor since the Purchaser has already been given a chance to demand the Vendor to repurchase all of the members of the Target Group, should the Company not be satisfied with the performance of the entire Target Group.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Company is aware of the fact that the obtaining of title documents was incomplete in respect of certain parts of the Target Group’s properties (the “ Relevant Properties ”) and has considered the economic risks associated with the incomplete title of the Relevant Properties. The Company is of the view that the economic risks are justifiable and manageable in the light of the following factors: (i) according to the Company’s PRC legal adviser and as confirmed by the Target Group, although the Relevant Properties cannot be disposed freely until the relevant land use permits have been obtained, upon establishment of mutual land-use right granting agreement between Target Group and the relevant land bureau, and the full payment of the land premium and all the relevant authorization obtained by Target Group, it is expected that there will not be legal obstacle for the Target Group to obtain all necessary title documents for the Relevant Properties; (ii) no commercial value was attributed to the Relevant Properties in the valuation of the Target Group’s properties; (iii) according to the Valuation Report, an additional value of approximately RMB57,310,000 will be attributed to the Relevant Properties if all title documents have been obtained; (iv) in the worst case scenario, the relevant authorities may grant demolition order and impose various types of penalties in the amount of between 1% and 10% of the construction cost of the buildings on the Relevant Properties; and (v) in any event, the Purchaser is entitled to exercise its right to enforce the repurchase undertaking under the Agreement to require the Vendor to repurchase the respective member of the Target Group if the risks and legal issues arising from the incomplete title of the Relevant Properties evolve in an undesirable manner after Completion.

Taking into account of the above reasons, and having considered the risk factors as set out in Appendix V to the Circular and the fact that the Purchase has the right to demand the Vendor to repurchase the entire Target Group, the Directors are of the view that the terms of the Agreement and transactions contemplated under the Agreement, including the repurchase undertaking and consideration adjustment, are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

In addition to the reasons considered by the Directors, we hold the view that the economic development in Qingyuan will be accelerated and will be beneficial to the water supply and water testing industry in Qingyuan given the factors as follows:

(i) Development of Guangzhou-Qingyuan Intercity Railway

Guangzhou-Qingyuan Intercity Railway is a high-speed railway within Guangdong province, the PRC. It will connect the provincial capital Guangzhou with Qingyuan, and a branch of this line will connect to Guangzhou Baiyun International Airport. It is a part of the Pearl River Delta Rapid Transit network, with the Airport branch eventually connecting with the extended Guangzhou–Dongguan–Shenzhen ICR to form the northern and western sections of the Guangzhou Circle ICR. According to the article “Solidating The Defense, Procuratorate and Enterprise Together Build The City Rail Honestly” (《築牢防線, 檢企共建清廉城軌》) published in the website of Qingyuan Qingcheng District People’s Procuratorate on 25 April 2014, the railway is expected to be completed and start operation in 2018. The time of travel between Guangzhou and Qingyuan will be cut down to 25 minutes.

Guangzhou is the capital and largest city of Guangdong Province. Given that there are more transportation methods available to allow people to travel between Guangzhou and Qingyuan quickly and at a lower cost, and the cost of living is lower in Qingyuan, it is expected that more people having their job in Guangzhou will migrate to Qingyuan. We hold the view that the transportation improvement can decentralise Guangzhou’s dense population and Qingyuan would experience a rapid growth in population and the number of visitors after the operation of the railway begins. According to the announcement “Strategic Plan on The Expansion and Quality of Qingyuan City Downtown” (《清遠市中心城區擴容提質戰略規劃》), the population in Qingyuan was 0.82 million in 2012 and it is expected to increase to 1.40 million by 2020, and further expand to 1.70 million by 2030. With the rapid population expansion in Qingyuan, we hold the view that the demand for water in Qingyuan will increase.

In light of the above, we are of the view that there are opportunities for growth in the Target Group and therefore, the Acquisition is favourable to the Company.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(ii) Industrialisation of Qingyuan

According to the article “Motion Put Forward By The Guangqing Representatives Recommending Guangqing Integration As The Provincial Strategy” (《廣清代表團共提議案建議“廣清一體化”定為省級戰略》) published by the Publicity Department of the CPC Guangzhou Municipal Committee on 10 February 2015, the PRC government would facilitate the regional integration development of Guangzhou and Qingyuan in order to share the resources, labor and market. Since the labour cost and rent are lower in Qingyuan than Guangzhou, and there is rapid improvement in transportation and infrastructure in Qingyuan, the integration can encourage the relocation of factories from Guangzhou to Qingyuan, and hence accelerate the industrialisation in Qingyuan. Therefore, it is expected that the industrial water demand will increase and will be beneficial to the water supply business of the Target Group.

(iii) The Group’s financial capacity

As at 30 June 2015, the Group’s net current asset value and cash and bank balances were approximately HK$562.1 million and HK$476.8 million, respectively. We are of the view that the Group has sufficient financial capacity to provide the Target Group additional funding sources to strengthen its working capital and expand and increase its capacity when the opportunities, including those mentioned above, arises.

(iv) High barriers to entry

The Directors confirm that, as at the date of this circular, the Target Company is the sole supplier of water to Qingyuan. Given that the cost of setting up water facilities is extremely high, this poses an entry barrier for newcomers.

In light of the background and reasons above, we hold the view that the Acquisition is in line with the business strategy of the Company and in the interests of the Company and its Shareholders as a whole.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

III. Principal terms of the Agreement

Basis of determining the Consideration

The Consideration for the Acquisition is approximately RMB224.4 million (equivalent to approximately HK$280.5 million), which was determined after arm’s length negotiation between the Purchaser and the Vendor with reference to (i) the unaudited net assets of each member of the Target Group as at 31 March 2015; (ii) the consolidated net assets of the Target Group as at 30 April 2015 of approximately RMB192.7 million (prepared under the generally accepted accounting principles of the PRC) as extracted from the financial report of the Target Group prepared in accordance with PRC GAAP for the four months ended 30 April 2015 as audited by BDO China Shu Lun Pan Certified Public Accountants LLP dated 11 May 2015; (iii) preliminary property valuations conducted by the Valuer in relation to the properties held by Jingyu Properties, Jinhong Industrial and Kaipeng Properties as at 30 April 2015, being approximately RMB28.6 million, RMB12.1 million and RMB2.0 million, respectively; and (iv) the market value of the 100% equity interest in the Target Group as at 30 April 2015 of approximately RMB457.0 million preliminary conducted by the Valuer principally based on the discounted cash flows method.

The difference between the value of approximately RMB457,000,000 as stated in (iv) above and the value of approximately RMB456,000,000 for the market value of the Target Group as at 30 April 2015 as stated in the Valuation Report was mainly due to the updated annual results of comparable companies which were subsequently issued and the valuation has been updated accordingly.

(i) Review of the Valuation Report

To assess the fairness and reasonableness of the Consideration, we have reviewed the Valuation Report on the Target Group as set out in Appendix IV of this circular and discussed with the Valuer, regarding, among other things, the basis and assumptions made and the methodology adopted by the Valuer in conducting the appraisal for the business of the Target Group.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(a) Business Valuation

The business valuation conducted by the Valuer has adopted the following key assumptions:–

(1) all licenses issued by any authorised entity that will materially affect the operation of the Target Group have been obtained or can be obtained upon request;
(2) there will be no material change in the political, legal, fiscal, technological, market and economic conditions in the jurisdictions where the Target Group operates;
(3) the market return, market risk, interest rates and exchange rates will not differ materially from those of present or expected;
(4) the core operation of the Target Group will not differ materially from those of present or expected;
(5) the information in respect of the Target Group have been prepared after due and careful consideration by the senior management of the Company; and
(6) there will be no human disruptions or natural disasters that will materially affect the operation of the Target Group.

Having discussed with the Valuer, we understand that such key assumptions are generally adopted in similar valuation activities and are necessary for the Valuer to arrive at a reasonable estimated valuation of the Target Group. We are therefore satisfied that the abovementioned major assumptions are fair, reasonable and complete in relation to the Valuation Report.

The Reporting Accountants confirmed that they have reviewed the accounting policies and calculations for the forecast contained in the Valuation Report.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The financial adviser of the Company has also confirmed that they are satisfied that the discounted cash flow forecast underlying the Valuation Report has been made by the Valuer and the Directors after due and careful enquiry.

Based on the business valuation, the income approach was considered to be the most appropriate valuation approach as it takes the future potential growth and expansion in production capability into consideration. As (i) the asset-based approach does not take the future economic benefits into consideration; and (ii) the market approach is not appropriate due to the difficulty in identifying sufficient market transactions as comparables. The Valuer has adopted the discounted cash flow method under the income approach to discount future net cash flow to the present value at discount rates of 13.12% and 13.90% for the Water Co business and Taihe Water business respectively. The discount rate is based on the estimated weighted average cost of capital (“ WACC ”), and we note that the Valuer has taken into consideration, among others, (i) risk free rate; (ii) market risk premium; and (iii) unlevered beta of the selected publicly listed companies that are considered to be comparable to the Target Company. Having taken into account these factors, the Valuer considers the discount rate used to arrive at the valuation to be fair and reasonable. We have reviewed the analysis prepared by the Valuer in determining the discount rate, which are determined with reference to the publicly available data adjusted by company specific risk and based on the professional judgement and internal research of the Valuer. Therefore, we have no reason to doubt the fairness and reasonableness of using such rate.

In applying the discounted cash flow method, the free cash flows for each year in the future were determined. The results were then discounted using the abovementioned discount rate to determine the present value of the free cash flows. In determining the free cash flows for each year in the future, the Valuer has assumed that (i) the growth rates in the water price of both Water Co and Taihe Water will drop gradually from the actual growth rate in 2014 to 3% in 2024, which is the long-term growth rate determined with reference to the consumer price index of water, electricity and fuel sector of the PRC as extracted from Bloomberg Terminal; (ii) the growth rates in sales volume of Water Co will drop gradually from the actual growth rate in 2014 to the longterm growth rate in 2024; (iii) the growth rates in sales volume of Taihe Water

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

will increase from actual production in 2014 to maximum capacity in 2020 and remain stable for the years after; (iv) the cost of providing water treatment will remain at 3%, which is more or less the same as the inflation rate; and (v) the Other Business was assumed to maintain stable growth during the Projection Period.

Having discussed with the Valuer, we understand that such assumptions are generally adopted in similar valuation activities and are necessary for the Valuer to arrive at a reasonable estimated valuation of the Target Group. We are therefore satisfied that the abovementioned major assumptions are fair, reasonable and complete in relation to the free cash flow and the profit forecast.

We have reviewed the business valuation report and discussed with the Valuer the methodology used in the preparation of their report and we concur with the Valuer’s view that discounted cash flow approach is the most appropriate valuation approach. The asset-based approach is not appropriated as it could not reflect the earning potential of the Target Company and the market approach is not appropriate as there is insufficient comparable transaction in the market. Accordingly, only the discounted cash flow approach was used to value the Target Group.

(b) Property Valuation

The property valuation conducted by the Valuer has been made on the assumptions that the properties are sold in the market without the benefit of deferred terms contract, leaseback, joint venture, management agreement or any other similar arrangement which would serve to affect the values of the properties. In addition, no account has been taken of any option or right of preemption concerning or affecting the sale of the properties and no forced sale situation in any manner is assumed in the property valuation.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Based on the property valuation, Depreciated Replacement Cost Approach has been adopted in valuing Property Nos. 2 to 10 (except Property No. 5). This basis has been used in valuing production plants due to the lack of an established market upon which to base comparable transactions, which generally furnishes the most reliable indication of value for assets without a known used market.

In addition, the Valuer has valued Property Nos. 1 & 5 on market basis by the Comparison Approach and by making reference to sales evidence or asking prices of comparable properties as available in the relevant market. Investment Approach has also been adopted as a cross checking method as it takes into account of the current passing rents of the properties being held under existing tenancies and the reversionary potential of the tenancies if they have been or would be let to tenants. The Valuer has confirmed that the valuation results under Investment Approach is in line with the results under Comparison Approach.

In valuing Property No. 11, the Valuer has assumed that the property will be developed and completed in accordance with the latest development proposal provided to us. The Valuer has adopted the direct comparison approach by making reference to the comparable sales evidence as available in the relevant market and have also taken into account the accrued construction cost and professional fees relevant to the stage of construction as at the valuation date and the remainder of the cost and fees expected to be incurred for completing the development.

We have reviewed the property valuation report and discussed with the Valuer the methodology used in the preparation of their report. We are of the view that the approaches adopted in valuing different properties are appropriate and are common practice.

The property valuations have been prepared in accordance with the HKIS Valuation Standards on Properties (2012 Edition) published by the Hong Kong Institute of Surveyors and the business valuations have been prepared in accordance with the International Valuation Standards published by the International Valuation Standards Council (IVSC).

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We have interviewed the Valuer regarding its expertise and experience in relation to the performance of the Valuation and understand that valuer-incharge of this valuation assignment has over 16 years’ experience in valuations of properties in the PRC and has extensive experience in valuing businesses of different industries in Hong Kong and the PRC. Furthermore, we have enquired the Valuer as to its independence, and were given to understand that the Valuer is independent to the Company, the Target Group and their respective connected persons. We have also reviewed the Valuer’s terms of engagement and its scope of work. We were not aware of any irregularities during our interview with the Valuer or in our review of the work. Also, during the course of our discussion with the Valuer, we have not identified any major factors which cause us to doubt the fairness and reasonableness of the basis and assumptions adopted for the valuation and that the valuation is a fair assessment of the market value of the Target Group.

We understand from the Valuer that they have relied on certain information made available to them by the Company. We note that such representations made by the Company to the Valuer are consistent with the information contained in the Circular.

Having considered, after due and careful inquiry, (i) the independence, qualification and experience of the Valuer; (ii) the basis for selecting the valuation method and the application of the valuation method; and (iii) there is no reason for us to believe any of the information in the Valuation Report is not true or omits a material fact, we are of the view that the Valuation Report has been reasonably prepared and are normal in nature and that the methodology and assumptions adopted for the valuation are reasonable and we concur with the Valuer’s opinion. As such, we consider the valuation is a fair reference for Independent Shareholders to assess the fairness and reasonableness of the market value of the Target Group.

Save for reviewing the Valuation Report and discussion with the Valuer, we conducted a separate analysis on the valuation of the Target Group, the summary of which has been set out below:

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(ii) Comparison with comparable companies

In order to further assess the fairness and reasonableness of the Consideration for the Acquisition, we have shortlisted an exhaustive list of companies which are (i) engaged in and derived a majority of its revenue from water supply and water testing in the PRC (with segment revenue in water supply business accounting for more than 50% of the total revenue) in their latest financial year; (ii) listed on the Stock Exchange; and (iii) having a market capitalisation below HK$10 billion (the “ Comparable Companies ”). The total value of the Target Group as implied by the Consideration is approximately HK$572.5 million. As there is no company engaged in the water supply business in the PRC listed on the Stock Exchange with a market capitalisation similar to the total value of the Target Company, a greater limit on the market capitalisation has been chosen in selecting the Comparable Companies. To the best of our knowledge and as far as we are aware of, there are two companies that we consider to be Comparable Companies of the Target Group for our comparison analysis. In light of the criteria above for selecting the Comparable Companies, we consider the Comparable Companies to be a fair and representative sample. We have made reference to the price per earnings ratio (“ PER ”) of the Comparable Companies as at the date of the Agreement. PER is defined as the ratio of a company’s closing share price on the date of signing of the Agreement to its per share earnings as reported in the latest annual report of the relevant Comparable Companies. The PER assumes that the Company will be worth some multiple of its future earnings. We are of the view that PER can effectively show what the Company is prepared to pay for every dollar of earnings and how many years the company would have to wait to get back his investment through current earnings.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Details of our findings on the Comparable Companies are summarised in the table below:

		Stock		Market
Name	Exchange	code	Principal business	capitalisation	PER
				(HK$’
				million)	(times)
China Water Affairs	Hong Kong	855	Provision of water	6,186	22.0
Group Ltd.			supply and sewage
			treatment operation and
			construction services;
			development of properties
			for sale and investment;
			manufacture and sale
			of concrete products,
			other infrastructure
			construction and business
			activities.
China Water Industry	Hong Kong	1129	Provision of water supply	3,724	18.3
Group Limited			and sewage treatment
			services; construction of
			water supply and sewage
			treatment infrastructure;
			and exploitation and sale
			of renewable energy in
			the PRC.
			Minimum		18.3
			Maximum		22.0
			Mean		20.2
Target Group	Provision of water				23.4
	supply and water				(Note)
	testing services

(Sources: the Stock Exchange’s website and latest annual reports of each comparable company)

Note: The PER multiple of the Target Group as implied by (i) the Consideration for the Acquisition; and (ii) the audited profit for the year attributable to the owners of the Target Company for the year ended 31 December 2014 as extracted from the financial report of the Target Group prepared in accordance with Hong Kong Accounting Standards as set out in Appendix II to this circular, are used.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The PER of the Target Group is approximately 23.4 times. The PER of the Comparable Companies ranged from 18.3 times to 22.0 times and the average PER of the Comparable Companies is 20.2 times. The PER of the Target Group is approximately 6.4% above the range of the Comparable Companies.

In light of the favourable terms, including but not limited to the repurchase undertaking and the consideration adjustment, we consider the premium of the Target Group to the Comparable Companies in terms of the PER to be fair and reasonable.

(iii) Comparison with historical acquisition cost

We have also compared the Consideration with the historical acquisition cost in order to assess the fairness and reasonableness of the Consideration for the Acquisition. We have made reference to the price-to-book ratio (the “ PBR ”). The PBR is a ratio used to compare a company’s market value to its book value.

The total original acquisition cost of Water Co to the Vendor was RMB337,700,000, of which 80% was acquired in March 2014 and the remaining 20% was acquired in October 2014. The net asset value of the Target Company as at 31 December 2013 is approximately RMB143.7 million. The PBR of the historical acquisition by the Vendor is approximately 2.35 times.

The Consideration for the 49% equity interests in the Target Company is RMB224,420,000, which implies that the value of 100% equity interest in the Target Company is RMB458,000,000. The net asset value of the Target Company as at 30 April 2015 is approximately RMB194.8 million. The PBR of the Acquisition is approximately 2.35 times, which is more or less the same as the PBR of the historical acquisition. Therefore, we consider the PBR for the Acquisition is fair and reasonable.

Therefore, taking the above into consideration, we hold of the view that the Consideration is fair and reasonable, and is in the interests of the Company and the Shareholders as a whole.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Undertaking to repurchase companies of the Target Group and profit guarantee

(i) Repurchase Undertaking

Pursuant to the Agreement, the Vendor undertakes that, within a period of one year from the date of Completion (inclusive of the date of Completion), should the Purchaser be dissatisfied with any member of the Target Group, the Purchaser shall have the right to request the Vendor to repurchase, and the Vendor shall repurchase, the entire equity interest in such member of the Target Group (except 51% of the equity interest for Taihe Water as only 51% of the equity interest are owned by the Target Group) from the immediate holding company(ies) of such member at its predetermined price in cash which is determined with reference to the adjusted audited net asset value as stipulated in the Agreement. The Vendor shall be responsible for all costs and expenses incurred for the reorganization of the Target Group, if necessary, to facilitate the repurchase of any member of the Target Group by the Vendor. The Vendor undertakes that, following such reorganization and repurchase, the Purchaser shall continue to own 49% equity interest in each of the remaining members of the Target Group (save and except for Taihe Water) and the business of those remaining members of the Target Group shall not be affected.

The pre-determined price and the basis of determination of which of each member of the Target Group are:

Member of	Pre-determined price
the Target Group	for repurchase	Basis of determination
the Target Company	RMB394,793,000	net asset value excluding
		subsidiaries
Xinhongcheng	RMB(386,059,000)	net asset value excluding
		subsidiaries
Jingyu Properties	RMB29,991,000	net asset value with reference to the
		appraised value of the properties
Jinhong Industrial	RMB29,811,000	net asset value with reference to the
		appraised value of the properties
Kaipeng Properties	RMB3,344,000	net asset value with reference to the
		appraised value of the properties
Water Supply Development	RMB393,146,000	arm’s length negotiation
		(see below)

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Member of Pre-determined price the Target Group for repurchase Basis of determination Water Testing RMB0 immaterial net asset value Huike Properties RMB(36,209,000) net asset value excluding subsidiaries Taihe Water RMB29,183,000 arm’s length negotiation (see below) Total RMB458,000,000

Note: (1) The repurchase prices in relation to Xinhongcheng and Huike Properties are negative is principally due to the shareholder’s loans that they have borrowed from the Target Company and Water Supply Development, respectively, as the source of their respective capitals.
(2) The purpose of the shareholder’s loan obtained by Xinhongcheng from the Target Company was served as capital contribution for the cash flow requirement under the reorganization of the Target Group into the existing structure.
(3) The purpose of the shareholder’s loan obtained by Huike Properties was principally for the acquisition of approximately 32.07% interest in Taihe Water in December 2010 and step acquisition of approximately 18.93% interest in Taihe Water in October 2014, respectively.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The repurchase price of Water Supply Development and Taihe Water are determined in arm’s length negotiation between the Purchaser and Vendor after taken into account of: (i) valuation of the 100% equity interest in the Target Group conducted by the valuer; (ii) the pre-determined price for repurchase of other members of the Target Group as shown above; (iii) the historical profitability of Water Supply Development and Taihe Water; (iv) the capital commitments of the Target Group. As at 30 September 2015, the capital commitments for the Target Group was approximately RMB156 million and the majority of which would be applied to new plants in Taihe Water and underground pipelines.

The Company will consider whether to exercise the right to request the Vendor to repurchase the respective member of the Target Group based on the following factors/criteria:–

(i) whether the performance of the respective member of the Target Group meet the representations and warranties under the Agreement;
(ii) whether the regulatory framework of the business which the Target Group participate in is favourable for the operations and development of the Target Group’s business;
(iii) the performance of the business operations and financial position; and
(iv) any other relevant factors.

(ii) Consideration Adjustment

The Vendor and the Purchaser agreed that, for the two financial years of the Target Group following Completion (including the financial year in which the Completion occurred), the yearly average Guaranteed Profit shall not be less than RMB31.0 million (equivalent to approximately HK$38.8 million).

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

If the yearly average Guaranteed Profit is less than RMB31.0 million for the two financial years after the Completion (including the financial year in which the Completion occurred), the Vendor shall, within a period of 20 Business Days immediately after the issue of the audited consolidated accounts of the Target Group for the financial year ending 31 December 2016, pay to the Purchaser in cash equivalent to 14.77 times of 49% of such shortfall. Such shortfall will also be capped at RMB31.0 million if the Target Group records a yearly average net loss after tax. The formula is as follows:

(RMB31.0 million – the yearly average Guaranteed Profit)[Note] x 14.77 x 49%

Note: If the Target Group records a yearly average net loss, such shortfall will be capped at RMB31.0 million.

The figure of 14.77 is ratio calculated based on the 100% valuation of the Target Group pursuant to the consolidation and the expected net profit after tax of the Target Group of RMB31.0 million. The Guaranteed Profit will only include profits from the Target Group’s ordinary and usual course of business.

If the Purchaser demands the repurchase of any member of the Target Group by the Vendor and the Vendor repurchases the said member in accordance with the Agreement, the Purchaser will be considered to have given up the right to obtain the relevant consideration adjustment as set out above and in the Agreement.

Furthermore, should the yearly average Guaranteed Profit for the two financial years following the Completion be less than RMB31.0 million (equivalent to approximately HK$38.8 million), the Company will comply with the relevant disclosure requirements under the Listing Rules and make necessary disclosures.

Amending the articles of association of the Target Company

Upon Completion, the articles of association of the Target Company will be amended so that:–

(i) no resolutions relating to amending the articles of association; increase or decrease of the registered capital; merger, dissolution, winding-up or changing the company form of the Target Company shall be passed unless consents from the shareholders representing two thirds or more of the voting rights have been obtained;

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(ii) save for the aforesaid, the board of directors shall be delegated with the authority to deal with all other matters in relation to the Target Company and such delegation shall not be revoked unless the shareholders of the Target Company representing two thirds or more of the voting rights agree;
(iii) the Vendor has right to appoint one director to the board of directors of the Target Company and the Company has right to appoint two directors to the board of directors of the Target Company;
(iv) no resolutions relating to management, operational activities, profit distribution or return on investment shall be passed unless more than 50% of directors agree; and
(v) any amendments to the articles of the association of the Target Company will require the approval from the shareholders of the Target Company representing two thirds or more of the voting right.

IV. Possible financial effects of the Acquisition on the Group

The following analysis is based on (i) the audited consolidated financial statements of the Group for the financial year ended 31 December 2014 as set out in the Company’s published audited financial statements included in the annual report for the year ended 31 December 2014 (the “ 2014 AR ”); (ii) the unaudited consolidated financial statements of the Group for the six months ended 30 June 2015 as set out in the interim results announcement for the six months ended 30 June 2015 of the Company dated 28 August 2015 (the “ 2015 IR ”); (iii) the audited financial statements of the Target Company for the year ended 31 December 2014 as set out in Appendix II to this circular; and (iv) the unaudited pro forma consolidated statements of the Enlarged Group as set out in Appendix III to this circular. Upon Completion of the Acquisition, the Target Company will become a non-wholly-owned subsidiary of the Company and its financial results will be consolidated into the accounts of the Group.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Effects on assets and liabilities

As stated in the 2015 IR, the unaudited consolidated total assets and total liabilities of the Group as at 30 June 2015 were approximately HK$1,370.9 million and approximately HK$629.2 million, respectively. According to the unaudited pro forma financial information of the Enlarged Group as contained in Appendix III to this circular, the unaudited pro forma total assets and total liabilities of the Enlarged Group would be approximately HK$2,151.9 million and approximately HK$1,240.3 million, respectively, upon the Completion of the Acquisition, as calculated based on the applicable assumptions.

Effects on earnings

As stated in the 2014 AR, profit for the year and profit attributable to the Shareholders for the year ended 31 December 2014 were approximately HK$37.7 million and approximately HK$32.7 million, respectively. According to the unaudited pro forma financial information of the Enlarged Group as contained in Appendix III to this circular, the unaudited pro forma profit for the year and profit attributable to the Shareholders of the Enlarged Group would be approximately HK$58.4 million and approximately HK$52.2 million, respectively, upon the Completion of the Acquisition, as calculated based on the applicable assumptions.

Effects on gearing and working capital

As stated in the 2015 IR, total borrowings and the gearing ratio (defined as a percentage of total liabilities (excludes deferred tax liability) over total assets (excludes deferred tax assets)) of the Group as at 30 June 2015 were approximately HK$63.2 million and approximately 45.8%, respectively. According to the unaudited pro forma financial information of the Enlarged Group as contained in Appendix III to this circular, the unaudited pro forma total borrowings and the gearing ratio (defined as above) of the Enlarged Group would be approximately HK$493.7 million and approximately 55.0%, respectively, upon the Completion of the Acquisition, as calculated based on the applicable assumptions.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As stated in the 2015 IR, total cash and working capital of the Group as at 30 June 2015 were approximately HK$476.8 million and approximately HK$562.1 million, respectively. According to the unaudited pro forma financial information of the Enlarged Group as contained in Appendix III to this circular, the unaudited pro forma total cash and working capital of the Enlarged Group would be approximately HK$304.8 million and approximately HK$132.5 million, respectively, upon the Completion of the Acquisition, as calculated based on the applicable assumptions.

The Directors, after due and careful enquiry, are of the opinion that, after taking into consideration the cash generated from operating activities, present financial resources available, credit facilities available to the Enlarged Group the Enlarged Group will have sufficient working capital to meet its present requirements for at least the next 12 months from the date of this circular.

RISK FACTORS

Your attention is also drawn to Appendix V which highlights the risk factors of the Acquisition in the Board Letter. We are of the view that Independent Shareholders should bear in mind their own risk preference and tolerance level, and all the risk factors when considering the Acquisition. We have discussed with the Company and we note that while the risk factors contained in Appendix V is not an exhaustive list of risks factors, the risk factors contained in Appendix V are risks commonly associated with companies which are engaged in the water supply business in the PRC and holds property in the PRC.

RECOMMENDATION

Having considered the principal factors and reasons as discussed above, in particular (i) the Acquisition allows the Group to diversify its business and broaden the income base of the Company; (ii) the Consideration is fair and reasonable on the basis of our analysis of the basis of consideration as set out in the section headed “III. Principal terms of the Agreement – Basis of Consideration” above; (iii) the possible financial effects to the Group upon the consolidation of the financials of the Target Group; (iv) the favourable terms of the Agreement, including the consideration adjustment and the undertaking to repurchase any member of the Target Group; and (v) the increase in the level of risk exposure of the Group as a result of the Acquisition, balanced by the benefits which the Acquisition may contribute to the Group, we consider the Agreement and the transactions contemplated thereunder are, though not in the ordinary course of business of the Company, on normal commercial terms, fair and reasonable insofar as the Independent Shareholders are concerned, and in the interests of the Company and the Shareholders as a whole.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Accordingly, we would recommend that the Independent Shareholders and the Independent Board Committee advise the Independent Shareholders to vote in favour of the ordinary resolution(s) to be proposed at the upcoming EGM to approve the Agreement and the transactions contemplated thereunder.

Yours faithfully, For and on behalf of TC Capital Asia Limited Edward Wu Managing Director

Note:

Mr. Edward Wu of TC Capital Asia Limited is a responsible officer licensed under the SFO to engage in Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities having over 13 years of experience in investment banking and corporate finance.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. FINANCIAL INFORMATION OF THE GROUP

Financial information of the Group for each of the three years ended 31 December 2012, 2013 and 2014 are disclosed in the annual report of the Company for the years ended 31 December 2012, 2013 and 2014 respectively. These annual reports are published on the website of the Stock Exchange (www.hkex.com.hk) and the website of the Company (www.uth.com.hk). The direct links to the annual reports are as follow:–

(i) the annual report of the Company for the year ended 31 December 2012 at http://www. hkexnews.hk/listedco/listconews/SEHK/2013/0424/LTN20130424009.pdf.
(ii) the annual report of the Company for the year ended 31 December 2013 at http://www. hkexnews.hk/listedco/listconews/SEHK/2014/0417/LTN20140417408.pdf
(iii) the annual report of the Company for the year ended 31 December 2014 at http://www. hkexnews.hk/listedco/listconews/SEHK/2015/0429/LTN201504291022.pdf

2. STATEMENT OF INDEBTEDNESS

As at the close of business on 31 October 2015, being the latest practicable date for the purpose of this indebtedness statement, the Group had unsecured and unguaranteed bank loan of RMB49,500,000 (equivalent to approximately HK$61,875,000) and had outstanding bank borrowing of RMB235,420,000 (equivalent to approximately HK$294,275,000) which is secured by time deposit.

As at the close of business on 31 October 2015, being the latest practicable date for the purpose of this indebtedness statement, the Target Group had outstanding bank borrowings of RMB261,875,000 (equivalent to approximately HK$327,344,000) which are guaranteed and secured by intangible assets, prepaid land lease payment and property, plant and equipment and had unsecured government loans of approximately RMB4,318,000 (equivalent to approximately HK$5,398,000).

The Group is subject to legal proceedings and claims arising from the conduct of its business operations, including litigation related to directors and shareholders. It is impossible to ascertain the ultimate legal and financial liability with respect to contingent liabilities including lawsuits.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Save as aforesaid above and apart from intra-group liabilities and normal trade bills payables arising in the ordinary course of business, as at the Latest Practicable Date, the Group did not have any i) debt securities of the Group issued and outstanding, or authorised or otherwise created but unissued; ii) term loans; iii) other borrowings or indebtedness in the nature of borrowing of the Group including bank overdrafts and liabilities under acceptances (other than normal trade bills) or acceptance credits or hire purchase commitments; iv) mortgages and charges of the Group; or v) guarantees or contingent liabilities.

3. STATEMENT OF WORKING CAPITAL

Taking into account that the cash generated from operating activities, our currently available financial resources, credit facilities available, the Directors, after due and careful enquiry, confirmed that the Group will have sufficient working capital for its normal business and for at least the next twelve months from the date of this circular.

4. FINANCING THE TRANSACTION

The Company will finance the Acquisition by the proceeds received from the disposal of certain shareholdings in its subsidiaries in late 2014. The capital expenditure and the operation costs of the Target Group will be financed by either by the retained profits generated by the Target Group itself, bank borrowings or shareholders’ loan in accordance with its shareholding.

5. MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

FOR THE YEAR ENDED 2012

(Note: for the purpose of this “For the year ended 2012” section, “current fiscal year” means the financial year ended 31 December 2012)

Financial overview

Turnover and net profit

During the current fiscal year, the Group recorded a turnover of HK$126,719,000, representing a decrease of 47% as compared to the last fiscal year. The net profit attributable to shareholders of the Company was HK$6,989,000 in the current year, representing a decrease of 88% as compared to the last fiscal year. The decrease in turnover is mainly due to the decrease in revenue of the Group’s payment solutions business. The decrease in net profit is mainly attributable to the modulation of payment solutions services business in response to the global economic downturn and the competition in the same industry.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Cost of sales/services rendered

During the current fiscal year, the Group recorded a cost of sales/services rendered of HK$16,125,000 representing a decrease of 52% as compared to the last fiscal year. The decrease of cost of sales/services rendered is in line with the decrease in turnover.

Other revenue

During the current fiscal year, the Group recorded an other revenue of HK$28,944,000, representing an increase of 304% as compared to the last fiscal year. It is mainly due to an increase in interest on bank deposits, other interest income and government subsidy for payment solutions services business.

Other income

During the current fiscal year, the Group recorded an other income of HK$6,517,000, representing an increase of 133% as compared to the last fiscal year. The increase of other income is due to an increase of gain on disposal of financial assets.

General and administrative expenses

During the current fiscal year, the Group recorded a general and administrative expenses of HK$125,309,000, representing a decrease of 16% as compared to the last fiscal year. It is mainly due to absence of the loss on change in fair value of financial assets and decrease in other general expenditure during the year.

Increase in fair value of investment properties

During the current fiscal year, the Group recorded an increase in fair value of investment properties of HK$8,869,000, representing an increase of 321% as compared to the last fiscal year. The main increase in fair value of investment property is at the commercial development located at No. 1178 Tian Yao Qiao Road, Xuhui District, Shanghai, PRC. Moreover the Group has acquired two investment properties in the PRC during the reporting period. The increase in fair value of investment properties based on a professional valuation of an independent valuer, BMI Appraisals Limited.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Impairment loss on loan receivable

During the current fiscal year, the Group recorded an impairment loss on loan receivable of HK$693,000, representing an increase of 100% as compared to the last fiscal year. It is mainly related to a secured loan receivable due from the borrower who failed to repay the loan in accordance with the repayment schedule in an outstanding principal amount and accrued interest amount and was ordered by the court to repay the amount, as a result full provision of impairment loss was made.

Finance costs

During the current fiscal year, the Group recorded a finance costs of HK$11,528,000, representing an increase of 20% as compared to the last fiscal year. It is mainly due to an increase in bank charges for the need of business operation and bank loan interest incurred by the secured bank loan granted in the second quarter of year 2011.

Income tax expense

During the current fiscal year, the Group recorded an income tax expense of HK$3,022,000, representing an increase of 60% as compared to the last fiscal year. The increase in deferred tax is due to the increase in the percentage change of fair value gain on investment properties compared to last fiscal year.

Investment properties

The Group’s investment properties increased by HK$33,296,000 or 28% from HK$120,730,000 as at 31 December 2011 to HK$154,026,000 as at 31 December 2012. It was mainly attributable to the additions of investment properties and the fair value gain of investment properties during the year. The Group acquired two properties in the PRC which located at Shuang Hu Wan Garden, Suzhou, Jiangsu Province, the PRC and No.7 of 288 Lane of Qingxi Road, Changning District, Shanghai, the PRC. The total fair value of the investment properties acquired during the year as at 31 December 2012 was valued by BMI Appraisals Limited, an independent valuer, on an open market value basis at HK$23,979,000.

Interest in an associate

During the current fiscal year, the Group acquired 28.42% equity interests at a consideration of RMB900,000 (equivalent to HK$1,107,000) in OEC Consultant (Shanghai) Company Limited. The Group recognised the loss of HK$435,000 for the period between the date of acquisition and the end of the fiscal year.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Other investment

The Group’s other investment increased by HK$12,272,000 from HK$Nil as at 31 December 2011 to HK$12,272,000 as at 31 December 2012. The amount represented an investment into the property development company, incorporated in the PRC by a whollyowned subsidiary of the Company and additional capital will be injected into the above company.

Debtors

The Group’s debtors decreased by HK$32,178,000 from HK$119,277,000 as at 31 December 2011 to HK$87,099,000 as at 31 December 2012. The decrease was mainly attributable to the shorten settlement period of online payment solutions services business. However, based on the good track record of the debtor with the Group, management believed that no impairment allowance is necessary on increased amount of past due amount. Debtors that were past due but not impaired included an amount of HK$45,811,000 which was related to a service provider of payment solutions business. As the Group was playing the role as an agent on behalf of the merchants for collection of payments, thus no impairment allowance was necessary in respect of this balance.

Deposits, prepayments and other receivables

The Group’s deposits, prepayments and other receivables decreased by HK$90,920,000 from HK$170,279,000 as at 31 December 2011 to HK$79,359,000 as at 31 December 2012. The decrease in deposits, prepayments and other receivables was because some of the secured and unsecured loans receivables were fully repaid during the fiscal year and the decrease in other receivables incurred in the ordinary course of development of the Group.

Pledged time deposits

The Group’s pledged time deposits increased from HK$114,736,000 as at 31 December 2011 to HK$115,357,000 as at 31 December 2012. It represents time deposits pledged to a bank to secure the general banking facilities granted to the Group.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Cash and bank balances

The Group’s cash and bank balances decreased by HK$23,802,000 from HK$365,337,000 as at 31 December 2011 to HK$341,535,000 as at 31 December 2012. As at 31 December 2012, 88% (31 December 2011: 83%) of cash and bank balances was denominated in Renminbi.

Bank loan, secured

As at 31 December 2011 and 31 December 2012, the Group’s bank loan was both HK$217,765,000, there was no movement during 2012. The secured bank loan is interestbearing at 2.5% plus Hong Kong Interbank Offered Rate per annum, repayable within one year.

Trade payable

The Group’s trade payable decreased by HK$75,000 from HK$75,000 as at 31 December 2011 to HK$Nil as at 31 December 2012. The trade payable was attributable from the timber trading and furniture manufacturing business and it was fully settled during the fiscal year.

Payable to merchants

The Group’s payable to merchants decreased by HK$80,771,000 from HK$328,650,000 as at 31 December 2011 to HK$247,879,000 as at 31 December 2012. The decrease was mainly attributable to the increase in the efficiency of the settlement to merchants related to payment solutions business. The Group was playing the role as an agent on behalf of the merchants for collection of transaction moneys from debtors and then paid such transaction moneys to the merchant after deducting services fee. The Group mainly booked the services fee which is determined based on an agreed percentage of the transaction moneys involved as turnover.

Deposits received, sundry creditors and accruals

The Group’s deposits received, sundry creditors and accruals decreased by HK$61,850,000 from HK$129,018,000 as at 31 December 2011 to HK$67,168,000 as at 31 December 2012. The decrease was mainly attributable to the decrease in sundry creditors incurred in the ordinary course of development of the Group.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Liquidity and financial resources

At 31 December 2012, the Group had net current assets of HK$141,173,000. Current assets comprised inventories of HK$42,033,000, debtors of HK$87,099,000, deposits, prepayments and other receivables of HK$79,359,000, financial assets at fair value through profit or loss of HK$10,057,000, prepaid land lease premium of HK$1,202,000, tax recoverable of HK$816,000, pledged time deposits of HK$115,357,000 and cash and bank balances of HK$341,535,000.

Current liabilities comprised bank loan, secured of HK$217,765,000, payable to merchants of HK$247,879,000, deposits received, sundry creditors and accruals of HK$67,168,000 and tax payable of HK$3,473,000.

The gearing ratio (defined as a percentage of total liabilities (excludes deferred tax liability) over total assets) of the Group at 31 December 2012 was 51% (2011: 60%).

The Board considers that the Group’s existing financial resources are sufficient to fulfill its commitments, current working capital requirements and further development. In the long term, the Board believes that the Group will continue to fund its foreseeable expenditures through cash flows from operations. However, for a more massive scale of expansion and development, debt or equity financing may be required.

Business review and prospects

General review

The operations of Universal Technologies Holdings Limited went through ups and downs in the year of 2012. The upside was internal. With continual success in brand-building and strong brand equity, the Group has not only created fruitful returns for its shareholders, but also developed a new income source for its domestic operation by strategically partnering with Beihai Shiji Information Technology Co., Ltd. who has a wealth of long-term and established customers. Our financial indicators for 2012 showed that our shareholders’ equity increased by over 8% in 2012 as compared with the same period in 2011. Overall revenue and profit from domestic operations has also surged. However, the downside was that, externally speaking, market competition has intensified as the banking industry has extended their business to professional third party payment solutions. The sluggish world economic recovery has also significantly affected the demand of transaction and, in turn, revenue and profit for the year from overseas core business of the Group. Other non-core businesses have also dipped slightly.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

During the year, the Group’s core business grew rapidly in the domestic market with a sharp increase by over 25% in turnover as compared with last year, thereby increasing our shareholders’ equity. In view of the advancements in technologies such as offline payment collection, online payment and mobile payment, the Group has initiated various thorough studies in both domestic and overseas markets in 2012 by leveraging its capital strength. Through focusing on the integrated payment solution business but diversifying in terms of business models and merchant bases, the Group has made a great sail in “Blue Ocean” markets. In respect of payment processing for education organisations and capital management for conventional retail sectors, we have developed and perfected our solutions that combine online and offline functions during the year, which marked the first strategic progress in our development. This product has received recognition from both merchants and users and will be rolled-out soon. More importantly, the Group has carried out its strategy of infiltrating into specialised markets during the year by reaching cooperation intention with various large chain enterprises, which helped the Group to gain a foothold for its core business. We have also launched a brand new integrated operating model for the financial industry. This model is designed to improve long-term cash reserve management, and has enhanced the Group’s market reputation. At the same time, the Group has successfully completed the upgrade of its core operating system from version 3.0 to 6.0, as well as the related risk control system in this fiscal year. Therefore, the overall operating capacity of the Group’s core business has been enhanced. In comparison with last year, total transaction amount and profit both increased by over 30%.

However, our overseas turnover and revenue dwindled during the year. As the Group’s business was hindered by the sluggish overseas economic recovery during the year, it has stepped up its efforts in sales and management, thus increasing its operating costs. These costs mainly included the recruitment of professional and technical staffs and the upgrade of our software systems. In 2012, the Group gathered numerous core members of high caliber for its workforce, such as the research and development team. We have also pooled our manpower and resources to newly launched operations, resulting in a number of core systems being developed within the year.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

For the timber and furniture manufacturing business, the year was also full of challenges. As the Chinese government has promulgated home purchase restrictions and taxes on the second-hand homes transactions, high-end real estate turnover shrank and the sale of rose-wood furniture has dropped slightly. However, due to the long-term value of our semi-finished products, the market value of our stock will rise steadily. Therefore, the timber and furniture manufacturing business maintained stable overall performance. In addition, after years of brand-building, our “Heritage Mode” brand has established a solid position in the market. With the increase in store number during the year, the market share of the brand was also on a steady rise. In terms of production materials, elegant new products made from high quality raw materials have already been launched this year, signifying the elevation of our products to a higher-end rosewood furniture market.

During the year, the headquarters building of the Group generated a constant and stable rental income for the Group, contributing considerable profitability and cash flow to the Company. Furthermore, adhering to our diversifying multi-industry development approach and with the aim of creating industrial conglomerates, the Group has made actual progress on some emerging industries with huge investment potential after long and diligent studies and planning, thus laying the solid foundation for the Group’s profit growth.

Besides, the Group has improved its overall internal management in accordance with the Corporate Governance Code by optimising its corporate governance structure and management regulations and rationalising its production, operation procedures and performance assessment. In particular, we have strengthened our control over external investments and public relations. Fifty management regulations were introduced and modified, thereby perfecting the Group’s governance structure and building up a solid foundation for future centralised management of the Group. With respect to human resources, in view of the intellectual-and-technology-oriented characteristics of the Group’s operations, we have enlisted a new management team for our core business, and recruited various elites for the research and development team. The upgrade of the existing systems has also been completed during the year. We have also made enormous effort in the establishment of the new core business and several core system modules were basically completed during the year. In terms of internal production and system management, our achievements were even greater. For instance, through years of experience, the Group has established comprehensive incentive and restrictive regulations for our staff which effectively incentivise and unify the staff and the Group in an equitable manner. In particular, the Group launched an open internal selection of management staff for our core business, which acted as a fair mechanism for our staff to work their ways up their career ladders. With better management and development of our human resources, the Group has elicited greater support and confidence from our business partners and the staff for future development.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Prospects

The year of 2013 represents challenges and choices, and demand of balance and determination for the Group. With the diligent design and planning of our management team and the dedication and contributions of our staff, we are confident of achieving satisfactory performances.

First of all, capitalising on the talents that we have gathered in 2012, the Group will continue to carry out its innovative, pragmatic and perfectionist approach to develop new industries and execute new projects in order to seize the opportunities brought by the State’s support to various industries, and to take the Group to new heights.

Secondly, after a year of transformation and planning in relation to market adjustment, the Group’s core business will endeavor to maintain our leading position in conventional industries while focusing on the implementation of integrated industry chain with the view to attracting various customers from each industry. We will also enhance the leading position of our products in the market. Leveraging a larger pool of existing customers and cooperation merchants, unique services and improved operations, we will step up our marketing effort in order to sustain our profit and achieve sustainable development.

Thirdly, for our timber and furniture manufacturing business, we will persist in our prudent business model of “One Brand, Dual Platform” by engaging franchised distributors and establishing a refined platform for product design, production, improvement and distribution. We will also enhance our brand-building effort so as to further expand the timber and furniture manufacturing business in 2013. On the other hand, the Group has high hopes for the development of our industrial park. We believe that with our sound financial position and able management team poised for any opportunity, this business will also thrive.

Fourthly, we will strictly enforce and actively improve our governance structure and corporate regulations so as to enhance and perfect the execution of our corporate decisions. We will also foster an equitable mechanism to share our achievements with our shareholders, business partners and the staff.

Last but not least, on the road to success, we shall leave no stone unturned. For the long-term development of the Group, we shall spare no effort and fight tooth and nail. With our highly efficient management and the concerted effort of all the staff, we will prevail in terms of innovation and development, and create higher value for our shareholders and investors.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Employees

At 31 December 2012, the total number of employees of the Group was 596 (2011: 583). The dedication and contribution of the Group’s staff during the year are greatly appreciated and recognised.

Employees (including directors) are remunerated according to their performance and working experience. On top of basic salaries, discretionary bonus and share options may be granted to eligible employee by reference to the Group’s performance as well as the individual’s performance.

In addition, the Group also provides social security benefits to its staff such as Mandatory Provident Fund Scheme in Hong Kong and the central pension scheme in the PRC.

Treasury policies

The Group adopted a conservative approach towards its treasury policies. The Group strives to reduce exposure to credit risk by performing ongoing credit evaluations of the financial conditions of its customers. To manage liquidity risk, the Board closely monitors the Group’s liquidity position to ensure that the liquidity structure of the Group’s assets, liabilities and commitments can meet its funding requirements.

Significant investments, acquisitions and disposals

During the current fiscal year, the Group acquired the entire 100% equity interests in Shanghai Zhuofu Technologies Company Limited, at a cash consideration of RMB758,000 (equivalent to HK$927,000). The fair value of the identifiable assets and liabilities of the subsidiary acquired as at the date of acquisition was HK$1,136,000. The newly acquired business did not contribute any turnover to the Group but contributed a profit of HK$127,000 to the Group for the period between the date of acquisition and the end of the reporting period. The Group recognised a gain on bargain purchase of HK$209,000 because the fair value of net assets acquired exceeded the purchase consideration.

During the current fiscal year, the Group acquired 28.42% equity interests in OEC Consultant (Shanghai) Company Limited at a consideration of RMB900,000 (equivalent to HK$1,104,000). The Group recognised the loss of HK$435,000 for the period between the date of acquisition and the end of the reporting period.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

On 8 June 2012, Universal eCommerce China Limited (“ eCommerce ”), a whollyowned subsidiary of the Company, entered into conditional disposal agreements with Shanghai Chiyi Investment Partnership (“ Chiyi ”) and Beihai Shiji Information Technology Co., Ltd. (“ Beihai Shiji ”) which were connected persons of the Company in respect of the disposal of 17.49% equity interests in Universal ECPAY Limited (“ ECPAY ”), which is an indirect non-wholly owned subsidiary of the Company. Chiyi is owned as to 53.64% by Madam Luan Yumin, a former Executive Director of the Company, and Beihai Shiji owned 15% existing equity interests in ECPAY. Therefore, the agreements entered into between Chiyi and Beihai Shiji respectively were connected transactions for the Company. According to the agreements, eCommerce has conditionally agreed to dispose 9.99% equity interests in ECPAY to Chiyi at a consideration of RMB12,765,500 (equivalent to approximately HK$15,679,000); and eCommerce has conditionally agreed to dispose 7.5% equity interests in ECPAY to Beihai Shiji at a consideration of RMB36,750,000 (equivalent to HK$45,011,000). The disposal was subsequently approved by the independent shareholders of the Company on 27 July 2012. The disposal of 7.5% equity interests in ECPAY to Beihai Shiji was completed on 17 September 2012. The carrying amount of the non-controlling interests in ECPAY on the date of disposal was HK$13,542,000. The Group recognised an increase in non-controlling interests of HK$13,542,000 and an increase in equity attributable to shareholders of the Company of HK$28,270,000.

Charges on group’s assets

At 31 December 2012, properties held under medium-term lease with a net book value of HK$17,409,000 (2011: HK$18,313,000), investment properties with carrying amount of HK$130,046,000 (2011: HK$120,730,000), prepaid land lease premium with a net book value of HK$40,079,000 (2011: HK$44,309,000) and time deposits of HK$115,357,000 (2011:HK$114,736,000) were pledged to a bank to secure a bank loan granted to the Company.

Details of future plans for material investments or Capital assets

The Group had no detailed future plans for material investment or capital assets at 31 December 2012.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Currency risk

Currently, the market anticipates moderate appreciation pressure on Renminbi. The Group has not implemented any formal policy in dealing with this foreign currency risk. However, in view of the fact that the Group’s core business is mainly transacted in Renminbi and significant portion of assets are denominated in Renminbi, the exposure of the Group’s risk from exchange rate fluctuation was minimal. For the year ended 31 December 2012, the Group did not enter into any arrangement to hedge its foreign currency exposure. However, the management monitors the related foreign currency exposure closely and will consider hedging significant currency exposure should the need arise.

Capital commitment

At 31 December 2012, the Group had contracted for but not provided for capital commitment, in respect of acquisition of property, plant and equipment of HK$784,000 (2011: HK$Nil) and in respect of investment of HK$12,272,000 (2011: HK$Nil). On 28 March 2012, a wholly-owned subsidiary of the Company entered into an agreement to acquire 8.63% equity interests of a company incorporated in the PRC at a total consideration of RMB20,000,000 (equivalent to HK$24,544,000). At 31 December 2012, RMB10,000,000 (equivalent to HK$12,272,000) was paid and the remaining RMB10,000,000 (equivalent to HK$12,272,000) was contracted for but not yet paid.

Contingent liabilities

The Directors consider that the Group had no contingent liabilities at 31 December 2012.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

FOR THE YEAR ENDED 2013

(Note: for the purpose of this “For the year ended 2013” section, “current fiscal year” means the financial year ended 31 December 2013)

Financial overview

Turnover and loss for the year

During the current fiscal year, the Group recorded a turnover of HK$189,847,000, representing an increase of 50% as compared to the last fiscal year. The loss attributable to shareholders of the Company was HK$34,085,000 in the current year, representing a decrease of 588% as compared to the last fiscal year. The increase in turnover is mainly due to the increase in revenue of the Group’s payment business, and timber trading and furniture manufacturing business. Loss for the year of the Group is mainly attributable to the increase of operating costs and administrative expenses, the charging of fair value of the share-based payment arising from the newly granted share options under the existing share option scheme of the Company and the recognition of impairment loss on assets.

Cost of sales/services rendered

During the current fiscal year, the Group recorded a cost of sales/services rendered of HK$38,458,000 representing an increase of 138% as compared to the last fiscal year. The increase of cost of sales/services rendered is mainly due to the increase in cost of goods sold for timber trading and furniture manufacturing business.

Other revenue

During the current fiscal year, the Group recorded other revenue of HK$15,728,000, representing a decrease of 46% as compared to the last fiscal year. It is mainly due to a decrease in interest on bank deposits, other interest income and government subsidy for payment business.

Other income

During the current fiscal year, the Group recorded other income of HK$6,560,000, representing an increase of 1% as compared to the last fiscal year. Other income has remained at a similar level as compared to the last fiscal year.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

General and administrative expenses

During the current fiscal year, the Group recorded general and administrative expenses of HK$178,886,000, representing an increase of 43% as compared to the last fiscal year. It is mainly due to increase in staff costs. During the current fiscal year, the Group recorded salaries and other benefits of HK$118,600,000, representing an increase of 54% as compared to the last fiscal year, the increase of salaries and other benefits is due to the charging of fair value of share-based payment and the increase in number of staff from 596 to 695 as at 31 December 2013 by 99 or 17%. As a percentage of revenue, staff costs increased to 62% in 2013, as compared to 61% in the last fiscal year. To conclude, general and administrative expenses as a percentage of revenue, decreased to 94% in the year of 2013, as compared to 99% in the year of 2012.

Increase in fair value of investment properties

During the current fiscal year, the increase in fair value of investment properties decreased from HK$8,869,000 in 2012 to HK$6,996,000 in 2013, representing a decrease of 21% as compared to the last fiscal year. The increase in fair value are mainly at the properties located at No. 1178 Tian Yao Qiao Road, Xuhui District, Shanghai, PRC and No. 7 of 288 Lane of Qingxi Road, Changning District, Shanghai, the PRC. The increase in fair value of investment properties based on a professional valuation of an independent valuer, BMI Appraisals Limited.

Impairment loss on debtors and other receivables

During the current fiscal year, the Group recorded an impairment loss on debtors and other receivables of HK$7,635,000, representing an increase of 1,002% as compared to the last fiscal year. It is mainly related to receivables of payment business, and timber trading and furniture manufacturing business.

Finance costs

During the current fiscal year, the Group recorded a finance costs of HK$4,586,000, representing a decrease of 60% as compared to the last fiscal year. It is mainly due to a decrease in bank charge and bank loan interest incurred as the bank loan of HK$217,765,000 was fully repaid during the current fiscal year.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Income tax expense

During the current fiscal year, the Group recorded an income tax expense of HK$10,519,000, representing an increase of 248% as compared to the last fiscal year. It is mainly due to the fact that the profit of the Group’s subsidiary with payment business in PRC, which was fully exempted from income tax in the PRC in the last fiscal year, is started to be taxed at 50% of the applicable tax rate during the current fiscal year.

Property, plant and equipment

The Group’s property, plant and equipment decreased by HK$9,557,000 from HK$63,445,000 as at 31 December 2012 to HK$53,888,000 as at 31 December 2013. The decrease was due to the written off and disposal of property, plant and equipment.

Goodwill

The Group’s goodwill decreased by HK$3,468,000 from HK$79,870,000 as at 31 December 2012 to HK$76,402,000 as at 31 December 2013.

The impairment loss on the goodwill is mainly due to the recoverable amount on the segment of timber trading and furniture manufacturing business, for which the goodwill is attributable to being lower than its carrying value during the current fiscal year.

Intangible assets

The Group’s intangible assets increased by HK$1,939,000 from HK$16,504,000 as at 31 December 2012 to HK$18,443,000 as at 31 December 2013. The increase was mainly due to the increase in development cost for payment business.

Investment properties

The Group’s investment properties increased by HK$12,248,000 or 8% from HK$154,026,000 as at 31 December 2012 to HK$166,274,000 as at 31 December 2013. It was mainly attributable to the fair value gain of investment properties and exchange adjustments during the current fiscal year.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Interest in an associate

The Group’s interest in an associate decreased by HK$427,000 from HK$697,000 as at 31 December 2012 to HK$270,000 as at 31 December 2013. The decrease was mainly due to the share of loss of an associate during the current fiscal year.

Other investment

The Group’s other investment increased by HK$411,000 from HK$12,272,000 as at 31 December 2012 to HK$12,683,000 as at 31 December 2013. Other investment represented an investment into the property development company, incorporated in the PRC by a whollyowned subsidiary of the Company and additional capital will be injected into the above company. The increase in other investment was due to exchange adjustments during the current fiscal year.

Debtors

The Group’s debtors increased by HK$40,904,000 or 47% from HK$87,099,000 as at 31 December 2012 to HK$128,003,000 as at 31 December 2013. The increase was mainly attributable to the increase in the transaction volume of online payment business in PRC. Debtors that were past due but not impaired included an amount of HK$45,795,000 which was related to a service provider of payment solutions business. As the Group was playing the role as an agent on behalf of the merchants for collection of payments, thus no impairment allowance was necessary in respect of this balance.

Deposits, prepayments and other receivables

The Group’s deposits, prepayments and other receivables decreased by HK$44,381,000 from HK$79,359,000 as at 31 December 2012 to HK$34,978,000 as at 31 December 2013. The decrease in deposits, prepayments and other receivables was because the secured loans receivable were fully repaid during the current fiscal year and the decrease in other receivables incurred in the ordinary course of business of the Group.

Liquidity and financial resources

At 31 December 2013, the Group had net current assets of HK$316,776,000. Current assets comprised inventories of HK$36,713,000, debtors of HK$128,003,000, deposits, prepayments and other receivables of HK$30,412,000, financial assets at fair value through profit or loss of HK$1,794,000, prepaid land lease premium of HK$1,238,000, tax recoverable of HK$1,153,000 and cash and bank balances of HK$592,079,000.

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Current liabilities comprised unsecured bank overdraft of HK$4,241,000, payable to merchants of HK$364,189,000, deposits received, sundry creditors and accruals of HK$100,016,000 and tax payable of HK$6,170,000.

The gearing ratio (defined as a percentage of total liabilities (excludes deferred tax liability) over total assets) of the Group at 31 December 2013 was 41% (2012: 51%).

Business review and prospects

Business review

In 2013, the Group has gone through thick and thin as well as challenges and opportunities. Faced with the global economic slowdown, continuously volatile global financial market, challenges from the complex surrounding economic environment and intensified competition in the industry, the Group adhered to its pragmatic management style and contributed major efforts and resources to the Group’s core business through both internal and external policies with the principles of centralized management, professional operation, market– based mechanisms, flattened organization and standardized process. The Group promoted the reform and innovation for the product lines in order to strengthen and consolidate the competitiveness in enterprise market, thus to lay a solid foundation for the Group’s long term development.

For our core business, we continued to focus on the corporate transform and product innovation, while increase were recorded in both bank card business and the trading volume of POS acquiring products. During the year, the Group strived to build an integrated capital operation and management platform based on the efficient operating system, and develop the business model with the integration of capital settlement and management and the integration of online and offline businesses in order to accelerate the position in new business fields, of which the payment solutions in the field of education and the product of capital management in physical retail industry were well recognized by the market. Even though the market was well expected, such business development was uncertain due to a number of factors. The recent suspension of QR code payment and various initiatives related actions by the Central Bank partly reflects the instability of domestic policies and uncertainties; while the government and related divisions enhanced the supervision on the industry in

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light of the increase of corporate competitors within the industry, the complicated business kinds and the immature of risk management, any change of the regime and the law of the business might cause influence on the business and business model. Therefore, the Group will pay close attention to the risk aversion trade, and actively make efforts to develop and expand overseas business. While the continual business adjustments accompanied with the strategy development, we are confident with the international market and actively studying and seeking for more and better business alliance strategies in order to adjust in place at a fastest pace to boost the turnover and profit capability effectively. For operational security, the Group has upgraded the system so as to consistent with the international standard. It is expected that the upgraded system will bring its features of higher stability, flexibility and efficiency in the coming year and fully support the payment business to enter a new stage. For administration and management, the Group continued to expand and optimize the department functions and structures and pool of talent according to the direction and needs for the international businesses in order to drive the Group’s payment business to a more professional and sound direction.

For the timber and furniture manufacturing business, the Company insisted the core of brand building and set up featured products with Chinese and Western techniques. Its own brand “Heritage Mode” received the Top 10 Most Popular Rosewood Furniture Brand Award from Chinese Rosewood Furniture Industry during the year. By virtue of the brand effect, the brand’s franchise stores and the sales coverage has increased. However, subject to the increasing prices of raw materials in the market and other corporate expenses after the positioning of high-end rosewood market, the profit recorded a significant decrease. Management had made appropriate impairment and provision of related asset for timber business, including inventories, debtors, other receivables and goodwill. It is hoped that the timber business could developed in the future through cost control and brand value.

During the year, the Group’s headquarters continued to contribute stable rental income for the Group.

Furthermore, leveraging on the Group’s stringent compliance with the corporate governance and the management team with extensive experience, the business is currently well-established while the management system is comprehensive and smooth. Also, in addition to the solid financial position, placement of shares was conducted during the year to raise more supporting capital for the development of all businesses of the Group. These laid the solid foundation for the Group’s long-term development.

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Prospects

The year 2014 will be an important year linking the Group’s past and future strategic development. The overall strategy will be “concentrating on growth, reducing losses, and modifying the structure”. In terms of concentrating on growth, the target will be focused on international market with the focal point on the operation of core products and core fields. On top of focusing the operation of existing products, the development of new products will be accelerated by product upgrade and product portfolio. With regard to reducing losses, the brand and influential power of the products will be enhanced with target quality highend clientele. Meanwhile, the channel structure will be continuously optimised and thus the operating cost will be cut down to improve the profit. As to the organisational structure, the organisation, system and process will be optimised and modified constantly. A more professional service team will be established to provide improved world-class services, facilitate the deep ploughing of direct and distribution channels and ultimately increase the gross profit. Concerning corporate management, costs will be effectively improved while the marketing expenses will be stringently controlled, thus to enhance the investment efficiency. We believe that the Group will definitely encounter significant development opportunities as we adhere to the strategic objectives in harmony with the progressive standardisation of the internal management mechanism, investment and update of the software and hardware systems, step-by-step expansion of cooperation channels and innovations and breakthroughs of various products.

The operating strategies will be specifically implemented in the following aspects:–

The Group believes that the pool of talent determines the competitiveness and development capability of an enterprise. The Group will implement the employment mechanism of “Open, fair, competition, selection of merits” and encourage all staff to actively utilise their potentials and wisdom on a platform provided by the Group, thus to maximise the value for the Group.

For the Group’s international payment business, it is expected that the e-commerce transform of the traditional physical enterprises will generate enormous demand for innovation. The Group will continue to strive to provide in-depth industry solutions for this emerging market to strengthen the penetration of the traditional physical retail chain enterprises by means of industry solutions and drive the e-commerce transform of the traditional physical enterprises. This provides a broader space for the development of the Group’s payment business.

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The Group will continue the strategies for innovation and development last year to protect the investment and solid operations of system development and construction as well as product innovation by optimisation and integration of resources in order to ensure the steady and orderly development of the front-end business. The Company dedicates to the enhancement of the quality customers and the breakthrough of applications of industry financial value-add services. At the same time, according to the various data from the market research conducted by the Group, the offline payment business has a tremendous development space in the coming three to five years. It shows that, with the consideration of security, tax control and deduction rate, offline payment as the role of e-payment terminal solution supplier has its irreplaceable advantage. As a result of this particularity, the Group will also pay attention to the market news of this field and make further strategic deployment and respective product planning after integration of existing product resources pursuant to the actual market demand.

For the timber and furniture manufacturing business, confronting the intensified pressure on operating cost as well as raw material cost, the Group will closely monitor the trends in the market prices of raw materials and enhance inventory control and purchasing programmes in the following year. Also, all logistics functions in the plants will be further integrated to reduce indirect costs. In addition, the production efficiency and quality will be enhanced to reduce the delivery duration while to maintain the high quality. According to the prevailing market conditions, we may possibly adjust certain business fields with an aim to control the risks within a reasonable range and strive to create new profit growth on the basis of consolidating the existing market.

For the governance structure and the construction of the corporate system, the Group will stringently comply the corporate governance code and improve the internal corporate management to set up a sound and efficient execution for corporate decision-making. Also, a harmonic mechanism for the shareholders, corporate and staff to share the corporate development results will be set up.

We have reason to believe that, the objectives for the future global market and blue ocean strategy will definitely be realized by the exploration and deep plowing of the key industries at early stage, the achievement of market opportunities, exploration of new profit growth; the retainment of the traditional fields in advantage; and the enhancement of internal strengths such as improvement of the standard of internal operational management.

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Employees

At 31 December 2013, the total number of employees of the Group was 695 (2012: 596). The dedication and contribution of the Group’s staff during the year are greatly appreciated and recognised.

In addition, the Group also provides social security benefits to its staff such as Mandatory Provident Fund Scheme in Hong Kong and the central pension scheme in the PRC.

Treasury policies

Significant investments, acquisitions and disposals

On 17 October 2013, the Group set up a new subsidiary, Shanghai Hong Mu Yin Xiang Art Furniture Limited, a company incorporated in the PRC. The registered capital is RMB1,000,000. The subsidiary has not yet commenced business.

Charges on group’s assets

At 31 December 2013, no assets of the Group have been pledged since the bank loan was fully repaid during the current fiscal year.

At 31 December 2012, properties held under medium-term lease with a net book value of HK$17,409,000, investment properties with a net book value of HK$130,046,000, prepaid land lease premium with a net book value of HK$40,079,000 and time deposits of HK$115,357,000 were pledged to a bank to secure a bank loan granted to the Company.

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Details of future plans for material investments or capital assets

On 18 June 2013, the Company entered into a placing agreement (the “ Placing Agreement ”) with Enlighten Securities Limited (the “ Placing Agent ”) whereby the Company conditionally agreed to place, through the Placing Agent, on a best effort basis, a maximum of 200,000,000 placing shares (the “ Placing Shares ”) to not less than 6 independent placees at a price of HK$0.58 per placing share. The completion of the placing took place on 23 July 2013, whereby a total of 192,000,000 Placing Shares were successfully placed by the Placing Agent to not less than six placees at the placing price pursuant to the terms and conditions of the Placing Agreement. The gross proceeds from the Placing are approximately HK$111.36 million and the net proceeds from the Placing, after deducting the placing commission and other professional fees incurred by the Company in the Placing, are approximately HK$108.58 million. The Group intends to use the Placing proceeds for expansion of business and potential investment opportunities and general working capital of the Group.

Currency risk

Currently, the market anticipates moderate appreciation pressure on Renminbi. The Group has not implemented any formal policy in dealing with this foreign currency risk. However, in view of the fact that the Group’s core business is mainly transacted in Renminbi and significant portion of assets are denominated in Renminbi, the exposure of the Group’s risk from exchange rate fluctuation was minimal. For the year ended 31 December 2013, the Group did not enter into any arrangement to hedge its foreign currency exposure. However, the management monitors the related foreign currency exposure closely and will consider hedging significant currency exposure should the need arise.

Capital commitment

At 31 December 2013, the Group had contracted for but not provided for capital commitment, in respect of acquisition of property, plant and equipment of HK$Nil (2012: HK$784,000) and in respect of investment of HK$12,683,000 (2012: HK$12,272,000). On 28 March 2012, a wholly-owned subsidiary of the Company entered into an agreement to acquire 8.63% equity interests of a company incorporated in the PRC at a total consideration of RMB20,000,000. At 31 December 2013, RMB10,000,000 (equivalent to HK$12,683,000) was paid and the remaining RMB10,000,000 (equivalent to HK$12,683,000) was contracted for but not yet paid.

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Contingent liabilities

The Group is subject to legal proceedings and claims arising from the conduct of its business operations, including litigation related to directors and shareholders.

While it is impossible to ascertain the ultimate legal and financial liability with respect to contingent liabilities including lawsuits, the Directors of the Company believe that the aggregate amount of such liabilities, if any, in excess of amounts accrued, will not have a material adverse effect on the consolidated financial position or results of operations of the Group.

FOR THE YEAR ENDED 2014

(note: for the purpose of this “For the year ended 2014” section, “current fiscal year” means the financial year ended 31 December 2014)

Financial overview

Turnover and profit for the year

During the current fiscal year, the Group recorded a turnover of HK$317,148,000, representing an increase of 67% as compared to the last fiscal year. The profit attributable to shareholders of the Company was HK$32,694,000 in the current year, representing an increase of 196% as compared to the last fiscal year. The increase in turnover was mainly due to the increase in revenue of the Group’s payment solutions business. Profit for the year of the Group was mainly attributable to the gain on disposal of subsidiaries in the major transaction.

Cost of sales/services rendered

During the current fiscal year, the Group recorded a cost of sales/services rendered of HK$30,646,000 representing a decrease of 20% as compared to the last fiscal year. The decrease of cost of sales/services rendered was mainly due to the decrease in cost of goods sold for timber trading and furniture manufacturing business.

Other revenue

During the current fiscal year, the Group recorded other revenue of HK$12,536,000, representing a decrease of 20% as compared to the last fiscal year. It was mainly due to a decrease in government subsidy for payment solutions business.

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Other income

During the current fiscal year, the Group recorded other income of HK$7,999,000, representing an increase of 22% as compared to the last fiscal year. It was mainly due to an increase in gain on disposal of financial assets and exchange gain.

General and administrative expenses

During the current fiscal year, the Group recorded general and administrative expenses of HK$294,021,000, representing an increase of 64% as compared to the last fiscal year. It was mainly due to increase in staff costs, professional fees and other administrative expenses. During the current fiscal year, the Group recorded salaries and other benefits of HK$152,230,000, representing an increase of 28% as compared to the last fiscal year. To conclude, general and administrative expenses as a percentage of revenue, decreased to 93% in the year of 2014, as compared to 94% in the year of 2013.

Increase in fair value of investment properties

During the current fiscal year, the increase in fair value of investment properties decreased from HK$6,996,000 in the year of 2013 to HK$126,000 in the year of 2014, representing a decrease of 98% as compared to the last fiscal year. It was mainly due to the fact that the property located at No. 1178 Tian Yao Qiao Road, Xuhui District, Shanghai, the People’s Republic of China (the “ PRC ”) was disposed during the current fiscal year.

Impairment loss on debtors and other receivables

During the current fiscal year, the Group recorded an impairment loss on debtors and other receivables of HK$1,917,000, representing a decrease of 75% as compared to the last fiscal year. It was mainly related to impairment loss on other receivables of payment solutions business.

Finance costs

During the current fiscal year, the Group recorded a finance costs of HK$760,000, representing a decrease of 83% as compared to the last fiscal year. It was mainly due to a decrease in bank charge and bank loan interest incurred as the bank loan was fully repaid during the last fiscal period.

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Impairment loss on intangible assets

During the current fiscal year, the Group recorded an impairment loss on intangible assets of HK$8,796,000, representing an increase of 100% as compared to the last fiscal year. It is mainly related to impairment loss on development cost of system for payment solutions business.

Gain on disposals of subsidiaries

During the current fiscal year, the Group recorded gain on disposals of the entire issued share capital of Universal Enterprise Investment Holdings Limited, a wholly-owned subsidiary of the Company (“ Property Co ”, together with its subsidiaries and associated companies, the “ Property Co Group ”); and the entire issued share capital of Universal Enterprise Resources Limited, a wholly-owned subsidiary of the Company (“ Timber Co ”, together with its subsidiaries and associated companies, the “ Timber Co Group ”) of HK$46,224,000, representing an increase of 100% as compared to the last fiscal year. It is represented to the gain on disposal of the Property Co Group of HK$44,389,000 and the gain on disposal of Timber Co Group of HK$1,835,000 in the major transaction.

Income tax expense

During the current fiscal year, the Group recorded an income tax expense of HK$10,425,000, representing a decrease of 1% as compared to the last fiscal year. There was no significant difference of income tax expense as compared to last fiscal year.

Property, plant and equipment

The Group’s property, plant and equipment decreased by HK$15,902,000 from HK$53,888,000 as at 31 December 2013 to HK$37,986,000 as at 31 December 2014. The decrease was due to the written off and the disposal of the Property Co Group and the Timber Co Group.

Goodwill

The Group’s goodwill increased by HK$695,000 from HK$76,402,000 as at 31 December 2013 to HK$77,097,000 as at 31 December 2014. The increase in goodwill was mainly attributable from the segment of payment solutions and related services income business.

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Intangible assets

The Group’s intangible assets decreased by HK$14,193,000 from HK$18,443,000 as at 31 December 2013 to HK$4,250,000 as at 31 December 2014. The decrease was mainly due to the impairment loss on development cost of systems for payment solutions business.

Investment properties

The Group’s investment properties decreased by HK$133,735,000 or 80% from HK$166,274,000 as at 31 December 2013 to HK$32,539,000 as at 31 December 2014. It was mainly attributable to the disposals of investment properties in the Property Co Group and the Timber Co group in the major transaction during the current fiscal year.

Interest in an associate

The Group’s interest in an associate decreased by HK$270,000, or 100% from HK$270,000 as at 31 December 2013 to HK$Nil as at 31 December 2014. The decrease was mainly due to the disposal of the Property Co Group during the current fiscal year.

Other investment

The Group’s other investment decreased by HK$12,683,000, or 100% from HK$12,683,000 as at 31 December 2013 to HK$Nil as at 31 December 2014. The decrease in other investment was due to the disposal of the Property Co Group during the current fiscal year.

Loan to an officer

The Group’s loan to an officer increased by HK$12,362,000, or 100% from HK$Nil as at 31 December 2013 to HK$12,362,000 as at 31 December 2014. The Group advanced an amount of HK$12,362,000 to an officer pursuant to an entrusted loan arrangement during the current fiscal year. The Group was entrusted by a related company to advance to an officer.

Debtors

The Group’s debtors decreased by HK$62,347,000 or 49% from HK$128,003,000 as at 31 December 2013 to HK$65,656,000 as at 31 December 2014. The decrease was mainly attributable to the debtors that included an amount of HK$45,795,000 which was related to a service provider of payment solutions business has been settled.

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Deposits, prepayments and other receivables

The Group’s deposits, prepayments and other receivables increased by HK$183,395,000 from HK$34,978,000 as at 31 December 2013 to HK$218,373,000 as at 31 December 2014. The increase in deposits, prepayments and other receivables was due to an increase in secured loans receivables and unsecured loans receivables during the current fiscal year and the increase in other receivables incurred in the payment solutions business of the Group.

Financial assets at fair value through profit or loss

The Group’s financial assets at fair value through profit or loss decreased by HK$1,573,000 from HK$1,794,000 as at 31 December 2013 to HK$221,000 as at 31 December 2014. The decrease in financial assets at fair value through profit or loss was mainly due to the disposal of financial assets during the current fiscal year.

Cash and bank balances

The Group’s cash and bank balances decreased by HK$79,856,000 from HK$592,079,000 as at 31 December 2013 to HK$512,223,000 as at 31 December 2014. As at 31 December 2014, 96% (31 December 2013: 81%) of cash and bank balances was denominated in Renminbi.

Fixed deposits

The Group’s fixed deposits increased by HK$338,087,000 or 100% from HK$Nil as at 31 December 2013 to HK$338,087,000 as at 31 December 2014. The increase was mainly due to the cash consideration received from the major transaction during the current fiscal year.

Payable to merchants

The Group’s payable to merchants increased by HK$58,686,000 or 16% from HK$364,189,000 as at 31 December 2013 to HK$422,875,000 as at 31 December 2014. It was mainly attributable to the increase in transaction volume of online payment business. The Group was playing the role as an agent on behalf of the merchants for collection of transaction money from debtors and then paid such transaction money to the merchants after deducting services fee. The Group mainly booked the services fee which is determined based on an agreed percentage of the transaction moneys involved as turnover.

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APPENDIX I

Deposits received, sundry creditors and accruals

The Group’s deposits received, sundry creditors and accruals increased by HK$4,191,000 from HK$100,016,000 as at 31 December 2013 to HK$104,207,000 as at 31 December 2014. The increase was mainly attributable to increase in accruals and sundry creditors in payment solutions business.

Amount due to a related company

Amount due to a related company increased by HK$14,350,000, or 100% from HK$Nil as at 31 December 2013 to HK$14,350,000 as at 31 December 2014. The amount represents an advance from a related company, of which HK$12,362,000 was entrusted by the related company to advance to an officer during the current fiscal year.

Liquidity and financial resources

At 31 December 2014, the Group had net current assets of HK$552,489,000. Current assets comprised inventories of HK$1,502,000, debtors of HK$65,656,000, deposits, prepayments and other receivables of HK$213,336,000, financial assets at fair value through profit or loss of HK$221,000, prepaid land lease premium of HK$300,000, fixed deposits of HK$338,087,000 and cash and bank balances of HK$512,223,000.

Current liabilities comprised payable to merchants of HK$422,875,000, deposits received, sundry creditors and accruals of HK$104,207,000, amount due to a related company of the HK$14,350,000 and tax payable of HK$11,057,000.

The gearing ratio (defined as a percentage of total liabilities (excludes deferred tax liability) over total assets (excludes deferred tax assets)) of the Group at 31 December 2014 was 42% (2013: 41%).

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APPENDIX I

Business review and prospects

Business review

In 2014, the global economic recovery remained slow with international financial markets experiencing a cyclical fluctuation due to the impact of macroeconomic environment, however, the overall situation was rebounding. For the year, under the vision of “Optimizing corporate structure to lay a good foundation for future development”, the Group actively explored innovative and effective measures to facilitate its business in moving forward. Internally, the Group remained adhering to the philosophy of management centralization and operation professionalization, continued current traditional business, optimized resources deployment, and endeavored to breakthrough a new situation.

With regard to the Group’s core payment business for the year, we adhered to the Group’s strategies in facilitating its works steadily. Our payment policies for the year remained cautious and stringent, with regulatory measures already strengthened in various aspects including business, corporate governance and policy guidance. One after another, our peer competitors received notices and penalty charge notes and were ordered to rectify the situation due to non-compliance in business expansion and inadequate transaction monitoring, thus ringing an alarm bell for the industry. At policy level, peer companies inevitably increased the investments in system construction, risk management and other works, which led to an increase in operation costs, posing significant risks because of policy uncertainty. In facing the intensifying competition in the traditional sectors in recent years, many peer companies looked for differentiation development according to their respective strengths and positioning. For the year, the Company continued to assume the responsibility of improving operation efficiency for the society, operated cautiously, intensified the impact for those sectors with preliminary advantages, and strived to develop and construct its service platform. For the fund management for store retail industry, we helped the industry to improve the overall operation efficiency through the concepts of integrating capital flow, information flow and logistics, and conducted continuously products upgrading based on earlier expansion works, from which the market feedback was well praised. For the fund management for private internet finance, with nearly two years of setting up the layout, it was exceptionally well received by market with good reputation. However, owing to policy uncertainty, the development of related business remains with certain risks. For international market expansion, the result was below expectation and was affected by various factors like the neighboring environment, and it will take time before seeing good outcome in this sector. For operation protection, based on the new business direction and needs, the research and development of a new system is still at a testing stage, the Group’s payment business in high stability, high flexibility and high efficiency characteristics can be expected, and it can greatly meet the needs of new business layout in future.

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With regard to the Group’s timber trading and furniture manufacturing business for the year, China rosewood furniture market dropped in general in terms of overall sales volume. As a result of domestic policies and weak real estate market sentiment, coupled with intensifying competition among peer companies and rising labor costs, by relying on our brand effect and long-term customer support, our performance remained stable as compared with the corresponding period of last year in terms of numbers of store, turnover and results during the year.

With regard to property investment and property management for the year, through the continuous provision of professional property management and services, Universal Enterprises Building in Shanghai had built up intangible values for the Group and secured a stable tenant base. The building continued to generate rental and management fee income for the Group. In addition, the Group owns two investment properties in Shanghai, with their fair values appreciated during the year.

With regard to the Group’s pool of talent for the year, as affected by policy and coupled with the needs of market intensification, it is especially urgent and important to recruit and train a large number of talents with technological background, familiar with policies and competent in risk management, and it is also an important support in human resources for achieving new business growth. Based on its talent introduction strategy of integrating both the shareholders and staff interests, the Company increased the efforts in aggregation, demonstration and bring-in effects. For the operation, the investments in the construction of corporate payment system had brought a significant impact for enhancing the overall comprehensive corporate capacity and subsequent strategic development.

Moreover, to further optimize resources deployment and follow the medium and long term development targets of the Group, on 29 December 2014, the Group completed a major transaction for investors to invest in the payment solutions business of the Group and the acquisition of timber and property related assets. The Group recorded revenue of over HK$300 million for the disposal and the proceeds will be used as general working capital and potential investments in the new businesses of the Group.

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APPENDIX I

Prospects

Vision starts from foresight and will take shape by following the past and be innovative for the future. In 2015, in facing various challenges, the Group is optimistic about its future development. The Group will continue to adopt prudent operation policy and follow the strategic direction of “concentrating on growth, reducing losses, and modifying the structure” to constantly explore more business and investment opportunities, so as to achieve business diversification and financial growth and maximize the value-added investment for shareholders.

In 2015, under the circumstances such as changes in operating environments of payment market, prominent financial disintermediation trend of banking industry, the Group will firmly grasp quality customer group, solid enhancement of operation efficiency of customers through payment link, and continue to develop its payment business in steady operation directions, deeply cultivate preliminary sectors with advantages such as education industry, physical retail industry and personal internet finance industry, expand corporate customers by the key model of industry penetration, deeply search for customers in industry segments and establish advantages and reputation in the industry, so as to comprehensively enhance the speed and width of customer expansion. For overseas expansion strategy, the Company will take a foothold of integrating external policies and systematic perfection of the Company, comprehensively integrate existing resources and advantages and achieve global business development by way of “focusing then expanding, followed by integrating, demonstrating and facilitating comprehensively”.

In addition, owing to the uncertainties and risks brought by the policies, the Company needs to better monitoring internal and external risks to lay a solid foundation for the long term development of the Group. In 2015, the Group will actively explore payment business and new business expansion opportunities to widen the income source for the Group. The Group will assess market conditions and adjust its strategies and make decisions when appropriate to ensure effective implementation of expansion plan. The Group will also regularly review market risk, legal risk, contract risk and credit risk of customers for its domestic and foreign markets and continue to improve the internal control system and risk control system of the business operation of the Group.

In 2015, we will step forward, maintain innovative pace, increase our intensifying business expansion efforts, enhance internal management and consolidate our core team. We have reasons to believe that resources integration and unified platform of the Group shall perform its best and it will be just around the corner for the Group to move forward into a flourishing new milestone.

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APPENDIX I

Employees

At 31 December 2014, the total number of employees of the Group was 602 (2013: 695). The dedication and contribution of the Group’s staff during the year are greatly appreciated and recognised.

In addition, the Group also provides social security benefits to its staff such as Mandatory Provident Fund Scheme in Hong Kong and the central pension scheme in the PRC.

Treasury policies

Significant investments, acquisitions and disposals

During the current fiscal year, the Group acquired the entire 100% equity interests in Shanghai Chixing Property Management Limited, at a cash consideration of RMB2,205,000 (equivalent to HK$2,771,000). The fair value of the identifiable assets and liabilities of the subsidiary acquired as at the date of acquisition was HK$2,076,000. The newly acquired business contribute a turnover of HK$335,000 to the Group and contributed a loss of HK$92,000 to the Group for the period between the date of acquisition and at the end of the current period. The Group recognised a goodwill of HK$695,000 because the purchase consideration exceeded the fair value of net assets acquired.

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FINANCIAL INFORMATION OF THE GROUP

During the current financial year, the Group acquired the entire 100% equity interests in Ease2Pay Limited, a company incorporated in Hong Kong at a cash consideration of HK$1. The fair value of the identifiable assets and liabilities of the subsidiary acquired as at the date of acquisition was HK$10,000. The newly acquired business did not contribute any turnover to the Group and contributed a loss of HK$1,000 to the Group for the period between the date of acquisition and at the end of the current period. The Group recognised gain on a bargain purchase of HK$10,000 because the fair value of net assets acquired exceeded the purchase consideration.

On 29 October 2014, Universal Cyberworks International Ltd (“ UCI ”), a whollyowned subsidiary of the Company, entered into a sale and purchase agreement (“ SPA ”) with H and R Group Limited (“ H and R ”) is an investment holding company incorporated in the British Virgin Islands. According to the agreements, the UCI would conditionally sell, and the H and R would conditionally purchase, interests in certain subsidiaries of the Company (together the “ Sale Shares ”) comprising: (i) 49% interests in International Payment Solutions Holdings Limited, a wholly-owned subsidiary of the Company (“ Payment Co ”, together with its subsidiaries and associated companies, the “ Payment Co Group ”); (ii) the entire issued share capital of Universal Enterprise Investment Holdings Limited, a whollyowned subsidiary of the Company (“ Property Co ”, together with its subsidiaries and associated companies, the “ Property Co Group ”); and (iii) the entire issued share capital of Universal Enterprise Resources Limited, a wholly-owned subsidiary of the Company (“ Timber Co ”, together with its subsidiaries and associated companies, the “ Timber Co Group ”), free from encumbrances, together with the assignments of the Loans due from certain members of the Property Co Group and the Timber Co Group (“ Net Loans ”) to other members of the Group and the Remaining Group Loans that due from certain members of the Remaining Group to certain members of the Property Co Group and the Timber Co Group, at the aggregate consideration (the “ Consideration ”) of HK$315,480,000 in cash and the VIE Tax Indemnity (the “ Disposal ”). The disposal was subsequently approved by the independent shareholders of the Company on 16 December 2014. The disposal was completed on 29 December 2014.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

On 29 December 2014, The Group disposed of 49% equity interests in Payment Co Group and its entire interest in Property Co Group and Timber Co Group at a consideration of HK$62,834,000, HK$44,389,000 and HK$45,014,000 respectively. The carrying amount of the non-controlling interests in Payment Co Group on the date of disposal was HK$141,062,000. The Group recognised an increase in non-controlling interests of HK$141,062,000 and a decrease in equity attributable to shareholders of the Company of HK$86,447,000. Regarding to the Property Co Group, the carrying amount of the net assets value in Property Co Group and the tax effect on the date of disposal was HK$101,048,000 and HK$12,641,000 respectively. The Group recognised a gain of disposal of Property Co Group of HK$44,389,000. Regarding to the Timber Co Group, the carrying amount of the net liabilities in Timber Co Group on the date of disposal was HK$46,849,000. The Group recognised a gain of disposal of Timber Co Group of HK$1,835,000.

Charges on group assets

The Group had no charges on Group’s assets at 31 December 2014.

Details of future plans for material investments or capital assets

During the current fiscal year, the Group disposed 49% equity interests in the Payment Co Group and its entire interest in the Property Co Group and the Timber Co Group and Net Loans at cash consideration of HK$315,480,000, of which HK$262,480,000 is intended for potential investment in new business. As at 31 December 2014, the Group had no plan for any acquisition of business or assets nor was the Company in negotiation for any investment in new business.

Currency risk

Currently, the market anticipates moderate appreciation pressure on Renminbi. The Group has not implemented any formal policy in dealing with this foreign currency risk. However, in view of the fact that the Group’s core business is mainly transacted in Renminbi and significant portion of assets are denominated in Renminbi, the exposure of the Group’s risk from exchange rate fluctuation was minimal. For the year ended 31 December 2014, the Group did not enter into any arrangement to hedge its foreign currency exposure. However, the management monitors the related foreign currency exposure closely and will consider hedging significant currency exposure should the need arise.

Capital commitment

The Group had no capital commitment at 31 December 2014.

– 120 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Contingent liabilities

The Group is subject to legal proceedings and claims arising from the conduct of its business operations, including litigation related to directors and shareholders.

6. TREND OF BUSINESS AND TRADING AND FINANCIAL PROSPECTS OF THE ENLARGED GROUP

The Group’s net profit attributable to shareholders of the Company for the year ended 31 December 2014 was approximately HK$32,694,000, representing an increase of 196% as compared with net loss attributable to shareholders of the Company of approximately HK$34,085,000 for the year ended 31 December 2013. Profit of the Group for the year ended 31 December 2014 was mainly attributable to the gain on disposal of subsidiaries of approximately HK$46,224,000 in a major transaction.

Net loss attributable to shareholders of the Company for the six months ended 30 June 2015 amounted to approximately HK$17.60 million (six months ended 30 June 2014: Net profit attributable to shareholders of the Company amounted to approximately HK$1.59 million), representing a decrease of HK$19.19 million as compared to the last fiscal period. While the revenue for the six months ended 30 June 2015 recorded an increase of 8% as compared to the revenue for the corresponding period in 2014, such decline in net profit attributable to shareholders of the Company is mainly due to increase in operating expenses, mainly related to research expenses and the staff costs of payment solutions business.

Payment solutions business remained the core operation of the group and accounted for the largest percentage of the Group’s turnover for the year ended 31 December 2014 and for the six months ended 30 June 2015.

– 121 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Faced with the slow global economy, policy uncertainty, keen competition and rising costs, performance of the payment solutions business will remain uncertain and difficult going forward. The management anticipates that the operating environment of the business will affect the profitability of the Group and continue to be challenging and difficult. To combat the challenges, the Group will firmly grasp quality customer group, solid enhancement of operation efficiency of customers through payment link, and continue to develop its payment business in steady operation directions, deeply cultivate preliminary sectors with advantages such as education industry, physical retail industry and personal internet finance industry, expand corporate customers by the key model of industry penetration, deeply search for customers in industry segments and establish advantages and reputation in the industry, so as to comprehensively enhance the speed and width of customer expansion.

The revenue from the segments of the timber trading and furniture manufacturing business, system integration and technical platform services business has been decreasing in the past few years and such segments recorded loss for the year ended 31 December 2014 and for the six months ended 30 June 2015. Going forward, the management of the Company would review the existing businesses, operations and directions from time to time and seize the opportunities and adopt appropriate measure and strategies to strive for better returns for the shareholders.

In the major transaction, the Group disposed the Universal Industrial Building in Shanghai on 29 December 2014, realizing its unrealized gains in the investment properties and gains in the self-used properties as a result of the appreciation in their market value. After the disposal, the Group will continue to hold the remaining properties for self-use and for investment purpose. The Board is optimistic about the capital appreciation to be brought by the properties to the Group.

It is the intention of the Company to continue the existing payment solutions and related services, timber trading and furniture manufacturing business, system integration and technical platform services business and property investment and building management business of the Group.

– 122 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Following the Completion, members of the Target Group will become subsidiaries of the Company and the financial results of the Target Group will be consolidated into the financial statements of the Group.

In addition, upon Completion, the Company will be able to expand into the water supply business in the PRC leveraging on the Target Group’s experience and current operations in the water supply business. The revenue and profit from the water supply business of the Target Group for the period ended 30 September 2015 were approximately HK$273,495,000 and HK$49,310,000 respectively. The Directors consider that the water supply businesses of the Target Group will continue to grow in the coming years and contribute satisfactory revenue and profit to the Group. In addition, the Directors believe that the water supply business will generate stable cash flows and income to the Group, which is essential to the further development of the Group. Therefore, the Directors are in the opinion that the acquisition of the Target Group will strengthen the Group’s business and enhance its competitiveness and sustainability in making profits in the long run.

Furthermore, upon Completion, the Group will have interest in the lands and properties of the Target Group. It is currently intended that the Group will continue to hold the lands and properties for self-use and for investment purpose and has no concrete plan for further development. The Board is optimistic about the return to be brought by the land and properties to the Group.

The Company believes that innovation, development and advancement will come only if there are diligence, competition and breakthroughs. The Group will continue to adhere to its overall strategy of “concentrating on growth, reducing losses, and modifying the structure”, so as to maintain a balance in the whole situation, emphasize its focus and drive all aspects in the overall planning.

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FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

1. ACCOUNTANTS’ REPORT ON THE TARGET COMPANY

The following is the full text of a report prepared for the sole purpose of inclusion in this circular, received from the independent reporting accountants, BDO Limited, Certified Public Accountants, Hong Kong. Terms defined herein apply to this report only.

3 December 2015

The Board of Directors Universal Technologies Holdings Limited

Dear Sirs

We set out below our report on the financial information of 東莞市擎琿置業有限公司 (Qinghui Properties Limited*, or the “Target Company”) and its subsidiaries (collectively referred to as the “Target Group”) which comprises the consolidated statements of financial position of the Target Group as at 31 December 2012, 2013 and 2014 and 30 September 2015, the statements of financial position of the Target Company as at 31 December 2013 and 2014 and 30 September 2015, and the consolidated statements of comprehensive income, the consolidated statements of changes in equity and the consolidated statements of cash flows of the Target Group for each of the years ended 31 December 2012, 2013 and 2014 and the nine months ended 30 September 2015 (the “Relevant Periods”) and a summary of significant accounting policies and other explanatory notes (the “Financial Information”), together with the comparative financial information of the Target Group including the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the nine months ended 30 September 2014 (the “Comparative Financial Information”), for inclusion in the circular (the “Circular”) dated 3 December 2015 issued by Universal Technologies Holdings Limited (the “Company”) in connection with its proposed acquisition of 49% of the entire equity interest in the Target Company.

The Target Company was incorporated as a limited company in the People’s Republic of China (the “PRC”) on 11 November 2013. The principal activity of the Target Company is investment holding. Pursuant to a reorganisation (“Reorganisation”) as set out in Note 2 of Section II below which was completed in June 2015, the Target Company has become the holding company of the subsidiaries now comprising the Target Group. Apart from the Reorganisation as mentioned above, the Target Company has not carried out any business or operation since its incorporation.

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FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

At the date of this report, the Target Company has direct or indirect interests in the following subsidiaries, all of which are private companies with limited liability, the particulars of which are set out as follows:

			Proportion of
	Place and		effective equity
	date of		interest held
	incorporation/	Registered	by the Target		Relevant
Name of subsidiaries	establishment	capital	Company	Principal activities	financial periods	Auditors
Held directly
東莞市新弘晟企業管理有限公司	PRC/	RMB	100%	Investment holding	31 December 2012	N/A
(Dongguan Xinhongcheng Enterprise	19 December	15,000,000			31 December 2013	N/A
Management Co. Ltd.*) (“Xinhongcheng”)	2008				31 December 2014	N/A
Held indirectly
清遠市旌譽置業有限公司	PRC/	RMB	100%	Property investment	N/A	N/A
(Qingyuan Jingyu Properties Co. Ltd.*)	9 December	1,000,000
(“Jingyu Properties”)	2014
清遠市錦弘實業有限公司	PRC/	RMB	100%	Property investment	31 December 2014	N/A
(Qingyuan Jinhong Industrial Co. Ltd.*)	28 November	1,000,000
(“Jinhong Industrial”)	2013
清遠市凱鵬置業有限公司	PRC/	RMB	100%	Property investment	31 December 2012	N/A
(Qingyuan Kaipeng Properties Co. Ltd.*)	31 May	1,000,000			31 December 2013	N/A
(“Kaipeng Properties”)	2010				31 December 2014	N/A
清遠市錦誠水質檢測有限公司	PRC/	RMB	100%	Provision of	31 December 2012	BDO China Shu Lun Pan Certified
(Qingyuan Jincheng Water Testing	29 September	1,600,000		water testing services		Public Accountants LLP
Co. Ltd.*) (“Water Testing”)	2003				31 December 2013	BDO China Shu Lun Pan Certified
						Public Accountants LLP
					31 December 2014	BDO China Shu Lun Pan Certified
						Public Accountants LLP
清遠市清新區匯科置業有限公司	PRC/	RMB	100%	Investment holding	31 December 2012	BDO China Shu Lun Pan Certified
(Qingyuan Qingxin District Huike	10 July	2,000,000				Public Accountants LLP
Properties Co. Ltd.*)	2008				31 December 2013	BDO China Shu Lun Pan Certified
(“Huike Properties”)						Public Accountants LLP
					31 December 2014	BDO China Shu Lun Pan Certified
						Public Accountants LLP
清遠市清新區太和供水有限公司	PRC/	RMB	51%	Water supply and	31 December 2012	清遠市德恒會計師事務所
(Qingyuan Qingxin District Taihe Water	26 March	23,254,000		water supply		（普通合夥）
Co. Ltd.*) (“Taihe Water”)	1999			infrastructure	31 December 2013	清遠市德恒會計師事務所
						（普通合夥）
					31 December 2014	BDO China Shu Lun Pan Certified
						Public Accountants LLP
清遠市供水拓展有限責任公司(Qingyuan	PRC/	RMB	100%	Water supply and	31 December 2013	BDO China Shu Lun Pan Certified
Water Supply Development Co. Ltd.*)	24 December	98,521,400		water supply		Public Accountants LLP
(“Water Supply Development”)	2012			infrastructure	31 December 2014	BDO China Shu Lun Pan Certified
						Public Accountants LLP

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APPENDIX II

FINANCIAL INFORMATION OF THE TARGET COMPANY

The Target Company and its subsidiaries have a financial year end date of 31 December. No statutory financial statements have been prepared for the Target Company, Xinhongcheng, Jingyu Properties, Jinhong Industrial and Kaipeng Properties since its incorporation, as they are not subject to statutory audit requirements under the relevant rules and regulations in their jurisdiction of incorporation. The statutory financial statements of other subsidiaries of the Target Group were prepared in accordance with relevant accounting principles and financial regulations applicable to the PRC enterprises.

For the purpose of this report, the directors of the Target Company have prepared the financial statements of the Target Company and its subsidiaries for the Relevant Periods (the “Underlying Financial Statements”) in accordance with the basis of presentation set out in note 2 of section II and the accounting policies set out in note 5 of section II which conform with Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

The Financial Information has been prepared by the directors of the Target Company based on the Underlying Financial Statements with no adjustment made thereon.

DIRECTORS’ RESPONSIBILITY

The directors of the Target Company are responsible for the preparation and true and fair presentation of the Financial Information in accordance with the basis of presentation set out in note 2 of section II, the accounting policies set out in note 5 of section II, the disclosure requirements of the Hong Kong Companies Ordinance and the applicable disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”), and for such internal control as the directors of the Target Company determine is necessary to enable the preparation of the Financial Information that is free from material misstatement, whether due to fraud or error.

The directors of the Target Company are also responsible for the preparation and presentation of the Comparative Financial Information in accordance with the same basis adopted in respect of the Financial Information.

– 126 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

REPORTING ACCOUNTANTS’ RESPONSIBILITY

Our responsibility is to form an opinion on the Financial Information based on our procedures and to report our opinion to you.

For the purpose of this report, we have carried out audit procedures in respect of the Underlying Financial Statements in accordance with Hong Kong Standards on Auditing issued by the HKICPA and have examined the Financial Information of the Target Group, and carried out appropriate procedures as we considered necessary in accordance with the Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” issued by the HKICPA.

For the purpose of this report, we have also reviewed the Comparative Financial Information in accordance with Hong Kong Standard on Review Engagements 2410 “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” issued by the HKICPA. Our responsibility is to express a conclusion on the Comparative Financial Information based on our review. A review consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures to the Comparative Financial Information. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion on the Comparative Financial Information.

OPINION IN RESPECT OF THE FINANCIAL INFORMATION

In our opinion, for the purpose of this report, the Financial Information prepared on the basis of presentation set out in note 2 of section II and in accordance with the accounting policies set out in note 5 of section II gives a true and fair view of the state of affairs of the Target Group as at 31 December 2012, 2013 and 2014 and 30 September 2015 and the Target Company as at 31 December 2013 and 2014 and 30 September 2015, and of the results and cash flows of the Target Group for the Relevant Periods.

REVIEW CONCLUSION IN RESPECT OF THE COMPARATIVE FINANCIAL INFORMATION

Based on our review, nothing has come to our attention that causes us to believe that the Comparative Financial Information, for the purpose of this report, is not prepared, in all material respects, in accordance with the same basis adopted in respect of the Financial Information.

– 127 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

I. FINANCIAL INFORMATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Notes Revenue 9 Cost of services Gross profit Other income 9 Selling and distribution costs Administrative expenses Other operating expenses Fair value gain/(loss) on investment properties Fair value gain on financial assets at fair value through profit or loss Loss on step acquisition of a subsidiary 36 Profit from operation 10 Finance costs 11 Share of results of an associate Profit before income tax Income tax expense 12 Profit for the year/period Item that will not be reclassified to profit or loss Gain on revaluation of properties held for own use, net of tax Total comprehensive income for the year/period Profit for the year/period attributable to: Owners of the Target Company Non-controlling interests Total comprehensive income attributable to: Owners of the Target Company Non-controlling interests	Year 2012 RMB’000 92,261 (49,969) 42,292 3,553 – (5,457) (573) 210 186 – 40,211 (10,385) 2,811 32,637 (7,732) 24,905 – 24,905 24,706 199 24,905 24,706 199 24,905	ended 31 December 2013 2014 RMB’000 RMB’000 108,468 137,068 (56,167) (77,381) 52,301 59,687 3,791 5,464 (526) (2,523) (7,698) (14,815) (809) (1,139) 1,030 (2,195) 1,023 – – (5,252) 49,112 39,227 (14,911) (10,484) 1,036 663 35,237 29,406 (9,780) (8,883) 25,457 20,523 575 3,051 26,032 23,574 25,219 19,553 238 970 25,457 20,523 25,794 22,604 238 970 26,032 23,574	Nine months ended 30 September 2014 2015 RMB’000 RMB’000 (Unaudited) 92,104 218,796 (49,501) (151,005) 42,603 67,791 3,116 4,883 (1,160) (2,211) (5,948) (9,817) (773) (2,589) (2,195) 80 – – – – 35,643 58,137 (8,639) (6,632) 839 – 27,843 51,505 (7,577) (12,057) 20,266 39,448 3,051 233 23,317 39,681 20,057 32,132 209 7,316 20,266 39,448 23,108 32,365 209 7,316 23,317 39,681	Nine months ended 30 September 2014 2015 RMB’000 RMB’000 (Unaudited) 92,104 218,796 (49,501) (151,005) 42,603 67,791 3,116 4,883 (1,160) (2,211) (5,948) (9,817) (773) (2,589) (2,195) 80 – – – – 35,643 58,137 (8,639) (6,632) 839 – 27,843 51,505 (7,577) (12,057) 20,266 39,448 3,051 233 23,317 39,681 20,057 32,132 209 7,316 20,266 39,448 23,108 32,365 209 7,316 23,317 39,681
				67,791 4,883 (2,211) (9,817) (2,589) 80 – –
				58,137 (6,632) –
				51,505 (12,057)
				39,448 233
				39,681

				32,132 7,316
				39,448

				32,365 7,316
				39,681

– 128 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

Notes ASSETS AND LIABILITIES Non-current assets Property, plant and equipment 15 Prepaid land lease payments 16 Investment properties 17 Interest in an associate 18 Goodwill 19 Other intangible asset 20 Deposit paid 24 Current assets Inventories 22 Trade receivables 23 Prepayments, deposits and other receivables 24 Financial asset at fair value through profit or loss 25 Amount due from a related company 26 Cash and bank balances 28 Current liabilities Trade payables 29 Accrued liabilities, other payables and receipts in advance 30 Amounts due to related companies 31 Bank and other borrowings 32 Provision for tax Net current assets/(liabilities) Total assets less current liabilities	As at 31 December 2012 2013 2014 RMB’000 RMB’000 RMB’000 142,687 195,306 237,765 8,792 9,358 8,795 10,460 11,460 17,920 18,564 20,922 – 1,991 1,991 1,991 – – 136,066 – 11,310 11,310 182,494 250,347 413,847 980 1,082 1,428 9,594 13,614 15,288 212 1,282 2,737 5,593 – – – 154,000 – 187,905 11,679 25,450 204,284 181,657 44,903 435 506 576 14,762 32,928 58,134 90,913 27,479 52,576 22,364 57,548 52,364 712 1,506 2,156 129,186 119,967 165,806 75,098 61,690 (120,903) 257,592 312,037 292,944	As at 30 September 2015 RMB’000 288,419 8,421 18,510 – 1,991 226,696 11,310
		555,347
		1,774 19,673 5,001 – – 86,812
		113,260
		1,062 91,707 65,155 53,721 3,716
		215,361
		(102,101)
		453,246

– 129 –

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET COMPANY

Notes Non-current liabilities Bank and other borrowings 32 Deferred tax liabilities 33 Net assets EQUITY Share capital 34 Reserves 35 Equity attributable to owners of the Target Company Non-controlling interests Total equity	As at 31 December 2012 2013 2014 RMB’000 RMB’000 RMB’000 121,230 165,682 93,318 1,829 2,674 18,687 123,059 168,356 112,005 134,533 143,681 180,939 88,521 89,521 102,521 45,396 53,306 33,786 133,917 142,827 136,307 616 854 44,632 134,533 143,681 180,939	As at 30 September 2015 RMB’000 212,472 21,326
		233,798
		219,448
		410,000 (242,500)
		167,500 51,948
		219,448

– 130 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

STATEMENTS OF FINANCIAL POSITION

Notes ASSETS AND LIABILITIES Non-current assets Interests in subsidiaries 21 Current assets Amount due from a subsidiary 27 Cash and bank balances 28 Current liabilities Amount due to a related company 31 Net current (liabilities)/assets Net assets EQUITY Share capital 34 Accumulated losses 35 Total equity	As at 31 December 2013 2014 RMB’000 RMB’000 1,000 – – – 97 997 97 997 100 – (3) 997 997 997 1,000 1,000 (3) (3) 997 997	As at 30 September 2015 RMB’000 15,000 413,000 774 413,774 19,000 394,774 409,774 410,000 (226) 409,774

– 131 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANY

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Balance at 1 January 2012 Dividend declared (note 13) Transactions with owners Profit for the year Other comprehensive income Total comprehensive income for the year Transfer to statutory reserves Distribution from清遠市清新區自來水安裝工程有限公司 (Qingxin District Water *Engineering Limited) (“Engineering Co”)(note 2) Balance at 31 December 2012 and 1 January 2013 Capital contribution upon establishment of the Target Company (note 2) Dividend declared (note 13) Transactions with owners Profit for the year Other comprehensive income Total comprehensive income for the year Transfer to statutory reserves Distribution from Engineering Co (note 2) Balance at 31 December 2013 and 1 January 2014 Arising from Reorganisation (note 2) Arising from acquisition of a subsidiary (note 36) Additional interests in a subsidiary acquired by the Target Group Dividend declared (note 13) Transactions with owners** Profit for the year Other comprehensive income	Share capital RMB’000 88,521 – – – – – – – 88,521 1,000 – 1,000 – – – – – 89,521 13,000 – – – 13,000 – –	Merger reserves RMB’000 (note 35(a)) – – – – – – – – – – – – – – – – – – – – – – – – –	Statutory reserves RMB’000 (note 35(b)) 8,539 – – – – – 1,704 – 10,243 – – – – – – 2,187 – 12,430 – – – – – – –	Other reserves RMB’000 (note 35(c)) 290 – – – – – – 394 684 – – – – – – – 507 1,191 – – (2,698) – (2,698) – –	Properties revaluation reserve RMB’000 (note 35(d)) – – – – – – – – – – – – – 575 575 – – 575 – – – – – – 3,051	Retained profits RMB’000 26,758 (15,291) (15,291) 24,706 – 24,706 (1,704) – 34,469 – (18,391) (18,391) 25,219 – 25,219 (2,187) – 39,110 – – – (39,000) (39,000) 19,553 –	Equity attributable to the owners of the Target Company RMB’000 124,108 (15,291) (15,291) 24,706 – 24,706 – 394 133,917 1,000 (18,391) (17,391) 25,219 575 25,794 – 507 142,827 13,000 – (2,698) (39,000) (28,698) 19,553 3,051	Non- controlling interests RMB’000 417 – – 199 – 199 – – 616 – – – 238 – 238 – – 854 – 43,810 (1,002) – 42,808 970 –	Total RMB’000 124,525 (15,291)
									(15,291) 24,905 –
									24,905 – 394
									134,533 1,000 (18,391)
									(17,391) 25,457 575
									26,032 – 507
									143,681 13,000 43,810 (3,700) (39,000)
									14,110 20,523 3,051

– 132 –

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET COMPANY

Total comprehensive income for the year Transfer to statutory reserves Additional interest in Engineering Co(note 2) Balance at 31 December 2014 and 1 January 2015 Arising from Reorganisation (note 2) Dividend declared (note 13) Transactions with owners Profit for the year Other comprehensive income Total comprehensive income for the period Transfer to statutory reserves Disposal of Engineering Co (note 2) Balance at 30 September 2015 Balance at 1 January 2014 Dividend declared (note 13) Transactions with owners Profit for the year Other comprehensive income Total comprehensive income for the period Transfer to statutory reserves Balance at 30 September 2014 (unaudited)	Share capital RMB’000 – – – 102,521 307,479 – 307,479 – – – – – 410,000 89,521 – – – – – – 89,521	Merger reserves RMB’000 (note 35(a)) – – – – (299,479) – (299,479) – – – – – (299,479) – – – – – – – –	Statutory reserves RMB’000 (note 35(b)) – 5,743 – 18,173 – – – – – – 1,114 – 19,287 12,430 – – – – – 2,454 14,884	Other reserves RMB’000 (note 35(c)) – – (426) (1,933) – – – – – – – 1,101 (832) 1,191 – – – – – – 1,191	Properties revaluation reserve RMB’000 (note 35(d)) 3,051 – – 3,626 – – – – 233 233 – – 3,859 575 – – – 3,051 3,051 – 3,626	Retained profits RMB’000 19,553 (5,743) – 13,920 – (10,273) (10,273) 32,132 – 32,132 (1,114) – 34,665 39,110 (19,815) (19,815) 20,057 – 20,057 (2,454) 36,898	Equity attributable to the owners of the Target Company RMB’000 22,604 – (426) 136,307 8,000 (10,273) (2,273) 32,132 233 32,365 – 1,101 167,500 142,827 (19,815) (19,815) 20,057 3,051 23,108 – 146,120	Non- controlling interests RMB’000 970 – – 44,632 – – – 7,316 – 7,316 – – 51,948 854 – – 209 – 209 – 1,063	Total RMB’000 23,574 – (426)
									180,939 8,000 (10,273)
									(2,273) 39,448 233
									39,681 – 1,101
									219,448

									143,681 (19,815)
									(19,815) 20,266 3,051
									23,317 –
									147,183

– 133 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

CONSOLIDATED STATEMENTS OF CASH FLOWS

Notes Cash flows from operating activities Profit before income tax Adjustments for: Amortisation of prepaid land lease payments 10 Amortisation of other intangible asset 10 Depreciation of property, plant and equipment 10 Interest expenses 11 Interest income 9 (Gain)/loss on disposal of property, plant and equipment 10 Allowance for impairment of trade receivables 10 Fair value (gain)/loss on investment properties Fair value gain on financial assets at fair value through profit or loss Share of results of associate Loss on step acquisition of a subsidiary 36 Operating profit before working capital changes Decrease/(increase) in inventories Decrease/(increase) in trade receivables Decrease/(increase) in prepayments, deposits and other receivables Decrease in financial asset at fair value through profit or loss (Decrease)/increase in trade payables (Decrease)/increase in accrued liabilities, other payables and receipts in advance Cash generated from operating activities Income taxes paid Net cash generated from operating activities	Year 2012 RMB’000 32,637 235 – 17,851 10,385 (466) (15) 93 (210) (186) (2,811) – 57,513 205 564 244 – (440) (2,751) 55,335 (7,045) 48,290	ended 31 December 2013 2014 RMB’000 RMB’000 35,237 29,406 244 271 – 2,198 18,553 22,436 14,911 10,484 (955) (551) 140 54 11 135 (1,030) 2,195 (1,023) – (1,036) (663) – 5,252 65,052 71,217 (102) 35 (4,031) 64 (1,070) (1,010) 6,616 – 71 (96) 18,166 17,260 84,702 87,470 (8,332) (9,072) 76,370 78,398	Nine months ended 30 September 2014 2015 RMB’000 RMB’000 (Unaudited) 27,843 51,505 205 184 – 8,592 17,743 15,147 8,639 6,632 (276) (544) (2) 760 – – 2,195 (80) – – (839) – – – 55,508 82,196 (77) (346) (1,262) (4,385) (16,262) (2,264) – – 230 486 27,549 33,573 65,686 109,260 (5,753) (7,935) 59,933 101,325	Nine months ended 30 September 2014 2015 RMB’000 RMB’000 (Unaudited) 27,843 51,505 205 184 – 8,592 17,743 15,147 8,639 6,632 (276) (544) (2) 760 – – 2,195 (80) – – (839) – – – 55,508 82,196 (77) (346) (1,262) (4,385) (16,262) (2,264) – – 230 486 27,549 33,573 65,686 109,260 (5,753) (7,935) 59,933 101,325
				82,196 (346) (4,385) (2,264) – 486 33,573
				109,260 (7,935)
				101,325

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FINANCIAL INFORMATION OF THE TARGET COMPANY

Notes Cash flows from investing activities Purchases of property, plant and equipment Additions of other intangible assets Sales proceeds of property, plant and equipment Decrease/(increase) in amount due from a related company Capital injection to an associate Dividend received from an associate Interest received Deposit paid Additions of investment properties Acquisition of a subsidiary Net cash generated from/(used in) investing activities Cash flows from financing activities Proceeds from bank and other borrowings Repayment of bank and other borrowings Increase/(decrease) in amounts due to related companies Dividend paid Interest paid Acquisition of non-controlling interests Capital injection from equity owners Arising from Reorganisation Distribution from Engineering Co Additional investment to Engineering Co Disposal of Engineering Co Net cash generated from/(used in) financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year/period Cash and cash equivalents at end of year/period	Year 2012 RMB’000 (8,713) – 80 97,599 – 507 466 – – – 89,939 5,184 (22,363) 90,913 (15,291) (10,624) – – – 394 – – 48,213 186,442 1,463 187,905	ended 31 December 2013 2014 RMB’000 RMB’000 (69,992) (65,276) – (3,454) 26 7 (154,000) 116,609 (1,828) – 506 – 955 551 (11,310) – – (1,905) – (16,359) (235,643) 30,173 119,999 – (40,363) (77,548) (63,434) 25,428 (18,391) (39,000) (16,271) (12,554) – (3,700) 1,000 – – 13,000 507 – – (426) – – (16,953) (94,800) (176,226) 13,771 187,905 11,679 11,679 25,450	Nine months ended 30 September 2014 2015 RMB’000 RMB’000 (Unaudited) (39,600) (64,029) – (99,222) 2 45 90,787 – – – – – 276 544 – – (1,905) – – – 49,560 (162,662) – 180,000 (59,489) (59,489) (7,022) 12,579 (19,815) (10,273) (9,456) (9,219) – – – – – 8,000 – – – – – 1,101 (95,782) 122,699 13,711 61,362 11,679 25,450 25,390 86,812	Nine months ended 30 September 2014 2015 RMB’000 RMB’000 (Unaudited) (39,600) (64,029) – (99,222) 2 45 90,787 – – – – – 276 544 – – (1,905) – – – 49,560 (162,662) – 180,000 (59,489) (59,489) (7,022) 12,579 (19,815) (10,273) (9,456) (9,219) – – – – – 8,000 – – – – – 1,101 (95,782) 122,699 13,711 61,362 11,679 25,450 25,390 86,812
				(162,662)
				180,000 (59,489) 12,579 (10,273) (9,219) – – 8,000 – – 1,101
				122,699
				61,362 25,450
				86,812

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APPENDIX II

II. NOTES TO THE FINANCIAL INFORMATION

1. General information

The Target Company was incorporated as a limited company in the PRC on 11 November 2013. The Target Company’s registered office is located at 東莞市鳳崗鎮雁田村鎮田北路38號.

The principal activity of the Target Company is investment holding. The principal activities of the Target Group are provision of water supply, water supply infrastructure and water testing services and property investment in the PRC.

2. Reorganisation and basis of presentation

Pursuant to a group reorganisation (the “Reorganisation”) completed in June 2015, the group companies engaged in the provision of water supply, water supply infrastructure and water testing services and property investment (the “Core Business”) were transferred to the Target Company. The Target Company has not been involved in any other business prior to the Reorganisation. The Reorganisation did not involve the acquisition of new assets or businesses and is merely a reorganisation of the Core Business with no change in management. Accordingly, the Financial Information and the Comparative Financial Information are presented using the carrying values of the Core Business in the companies now comprising the Target Group for all periods presented.

Engineering Co, which is principally engaged in the provision of water pipeline construction services, is separately managed and financially controlled within the Target Group before it has been disposed of by the Target Group in March 2015 pursuant to the Reorganisation and there is separate and distinct financial information available for Engineering Co. The directors consider that Engineering Co is not part of the Core Business and it is appropriate to exclude Engineering Co from the Financial Information and the Comparative Financial Information for the purpose of this report. Therefore the Target Group’s investments in, dividends from and proceeds from disposal of Engineering Co during the Relevant Periods have been accounted for as transactions with owners within other reserves. All significant transactions and balances with Engineering Co have been disclosed in the notes to the Financial Information and Comparative Financial Information.

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3. Basis of preparation

The Financial Information and Comparative Financial Information have been prepared in accordance with the basis of presentation set out in note 2 and in accordance with the accounting policies in note 5 which comply with HKFRSs, which collective terms include all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (“HKASs”) and Interpretations issued by the HKICPA. The Financial Information and Comparative Financial Information also include the applicable disclosure requirements of the Hong Kong Companies Ordinance and the Listing Rules. All HKFRSs effective for the accounting periods commencing from 1 January 2015 and relevant to the Target Group have been adopted by the Target Group in the preparation of the Financial Information and Comparative Financial Information consistently throughout the Relevant Periods to the extent required or allowed by the transitional provisions in the HKFRSs.

The Financial Information and Comparative Financial Information have been prepared under the historical cost convention, except for certain properties and financial instruments, which are measured at fair values as explained in the accounting policies set out in note 5.

The Financial Information and Comparative Financial Information are presented in Renminbi (“RMB”) which is also the functional currency of the Target Company.

The Target Group had net current liabilities of approximately RMB120,903,000 and RMB102,101,000 as at 31 December 2014 and 30 September 2015 respectively. The Target Group’s current liabilities mainly include trade and other payables, amounts due to related companies, and bank and other borrowings. The directors of the Target Group are of the opinion that, taking into account (i) the undertaking to provide financial support by the related companies, including not to recall the amounts due to them of approximately RMB69,000,000 (of which RMB50,000,000 was advanced to the Target Group subsequent to 30 September 2015) until the Target Group is able to pay its other creditors in the normal course of business and (ii) the presently available banking facilities of the Target Group, the Target Group will have sufficient financial working capital to finance its normal operations and to meet its financial obligations as they fall due for the foreseeable future. Accordingly, the directors of the Target Group are of the opinion that it is appropriate to prepare the Financial Information and Comparative Financial Information on a going concern basis.

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4. Impact of issued but not yet effective HKFRSs

The following new/revised HKFRSs, potentially relevant to the Target Group’s consolidated financial statements, have been issued, but are not yet effective and have not been early adopted by the Target Group.

Amendments to HKAS 1 Disclosure Initiative[1] HKFRSs (Amendments) Annual Improvements 2012-2014 Cycle[1] Amendments to HKAS 16 and Clarification of Acceptable Methods of HKAS 38 Depreciation and Amortisation[1] Amendments to HKAS 27 Equity Method in Separate Financial Statements[1] HKFRS 9 (2014) Financial Instruments[3] HKFRS 15 Revenue from Contracts with Customers[3]

1 Effective for annual periods beginning on or after 1 January 2016

2 Effective for annual periods beginning on or after 1 January 2017

3 Effective for annual periods beginning on or after 1 January 2018

Amendments to HKAS 1 – Disclosure Initiative

The amendments are designed to further encourage companies to apply professional judgement in determining what information to disclose in their financial statements. For example, the amendments makes clear that materiality applies to the whole of financial statements and that the inclusion of immaterial information can inhibit the usefulness of financial disclosures. Furthermore, the amendments clarify that companies should use professional judgement in determining where and in what order information is presented in the financial disclosures.

Amendments to HKAS 16 and HKAS 38 – Clarification of Acceptable Methods of Depreciation and Amortisation

The amendments to HKAS 16 prohibit the use of a revenue-based depreciation method for items of property, plant and equipment. The amendments to HKAS 38 introduce a rebuttable presumption that amortisation based on revenue is not appropriate for intangible assets. This presumption can be rebutted if either the intangible asset is expressed as a measure of revenue or revenue and the consumption of the economic benefits of the intangible asset are highly correlated.

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APPENDIX II

Amendments to HKAS 27 – Equity Method in Separate Financial Statements

The amendments allow an entity to apply the equity method in accounting for its investments in subsidiaries, joint ventures and associates in its separate financial statements.

HKFRS 9 (2014) – Financial Instruments

HKFRS 9 introduces new requirements for the classification and measurement of financial assets. Debt instruments that are held within a business model whose objective is to hold assets in order to collect contractual cash flows (the business model test) and that have contractual terms that give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding (the contractual cash flow characteristics test) are generally measured at amortised cost. Debt instruments that meet the contractual cash flow characteristics test are measured at fair value through other comprehensive income if the objective of the entity’s business model is both to hold and collect the contractual cash flows and to sell the financial assets. Entities may make an irrevocable election at initial recognition to measure equity instruments that are not held for trading at fair value through other comprehensive income. All other debt and equity instruments are measured at fair value through profit or loss.

HKFRS 9 includes a new expected loss impairment model for all financial assets not measured at fair value through profit or loss replacing the incurred loss model in HKAS 39 and new general hedge accounting requirements to allow entities to better reflect their risk management activities in financial statements.

HKFRS 9 carries forward the recognition, classification and measurement requirements for financial liabilities from HKAS 39, except for financial liabilities designated at fair value through profit or loss, where the amount of change in fair value attributable to change in credit risk of the liability is recognised in other comprehensive income unless that would create or enlarge an accounting mismatch. In addition, HKFRS 9 retains the requirements in HKAS 39 for derecognition of financial assets and financial liabilities.

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HKFRS 15 – Revenue from Contracts with Customers

The new standard establishes a single revenue recognition framework. The core principle of the framework is that an entity should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. HKFRS 15 supersedes existing revenue recognition guidance including HKAS 18 Revenue, HKAS 11 Construction Contracts and related interpretations.

HKFRS 15 requires the application of a 5 steps approach to revenue recognition:

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

HKFRS 15 includes specific guidance on particular revenue related topics that may change the current approach taken under HKFRS. The standard also significantly enhances the qualitative and quantitative disclosures related to revenue.

The Target Group is in process of making an assessment of the potential impact of these new or revised HKFRSs.

5. Summary of significant accounting policies

5.1 Business combination and basis of consolidation

The Financial Information and Comparative Financial Information incorporate the financial statements of the Target Company and its subsidiaries for the Relevant Periods. Inter-company transactions and balances between group companies together with unrealised profits are eliminated in full in preparing the Financial Information and Comparative Financial Information. Unrealised losses are also eliminated unless the transaction provides evidence of impairment on the asset transferred, in which case the loss is recognised in profit or loss.

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Reorganisation occurred during the Relevant Periods is accounted for as explained in note 2 above.

Acquisition of subsidiaries or businesses is accounted for using the acquisition method. The cost of an acquisition is measured at the aggregate of the acquisition-date fair value of assets transferred, liabilities incurred and equity interests issued by the Target Group, as the acquirer. The identifiable assets acquired and liabilities assumed are principally measured at acquisition-date fair value. The Target Group’s previously held equity interest in the acquiree is re-measured at acquisition-date fair value and the resulting gains or losses are recognised in profit or loss. The Target Group may elect, on a transaction-by-transaction basis, to measure the non-controlling interests that represent present ownership interests in the subsidiary either at fair value or at the proportionate share of the acquiree’s identifiable net assets. All other non-controlling interests are measured at fair value unless another measurement basis is required by HKFRSs. Acquisition-related costs incurred are expensed unless they are incurred in issuing equity instruments in which case the costs are deducted from equity.

The results of subsidiaries acquired or disposed of are included in the statements of comprehensive income from the dates of acquisition or up to the dates of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with those used by other members of the Target Group.

Changes in the Target Group’s interests in subsidiaries that do not result in a loss of control are accounted for as equity transactions. The carrying amounts of the Target Group’s interest and the non-controlling interest are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interest is adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the Target Company.

Subsequent to acquisition, the carrying amount of non-controlling interests that represent present ownership interests in the subsidiary is the amount of those interests at initial recognition plus such non-controlling interest’s share of subsequent changes in equity. Total comprehensive income is attributed to such non-controlling interests even if this results in those non-controlling interests having a deficit balance.

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5.2 Subsidiaries

A subsidiary is an investee over which the Target Company is able to exercise control. The Target Company controls an investee if all three of the following elements are present: power over the investee, exposure, or rights, to variable returns from the investee, and the ability to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control.

In the Target Company’s statement of financial position, investments in subsidiaries are stated at cost less impairment loss, if any. The results of subsidiaries are accounted for by the Target Company on the basis of dividend received and receivable.

5.3 Associates

An associate is an entity over which the Target Group has significant influence and that is neither a subsidiary nor a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but not control or joint control over those policies. In consolidated financial statements, associates are accounted for using the equity method whereby they are initially recognised at cost and thereafter, their carrying amount are adjusted for the Target Group’s share of the post-acquisition change in the associates’ net assets except that losses in excess of the Target Group’s interest in the associate are not recognised unless there is an obligation to make good those losses.

Profits and losses arising on transactions between the Target Group and its associates are recognised only to the extent of unrelated investors’ interests in the associate. The investor’s share in the associate’s profits and losses resulting from these transactions is eliminated against the carrying value of the associate. Where unrealised losses provide evidence of impairment of the asset transferred they are recognised immediately in profit or loss.

Any premium paid for an associate above the fair value of the Target Group’s share of the identifiable assets, liabilities and contingent liabilities acquired is capitalised and included in the carrying amount of the associate. Where there is objective evidence that the investment in an associate has been impaired, the carrying amount of the investment is tested for impairment in the same way as other nonfinancial assets.

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5.4 Foreign currency

Transactions entered into by the consolidated entities in currencies other than the currency of the primary economic environment in which they operates (the “functional currency”) are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the end of reporting period. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. 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 translation of monetary items are recognised in profit or loss in the period in which they arise. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised in other comprehensive income, in which case, the exchange differences are also recognised in other comprehensive income.

5.5 Property, plant and equipment

Property, plant and equipment, other than construction in progress, are stated at acquisition cost less accumulated depreciation and accumulated impairment losses. The cost of asset comprises its purchase price and the costs directly attributable to the acquisition of items.

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

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

Buildings	15 – 20 years
Leasehold improvements	The shorter of the lease
	terms and 5 years
Plant and machinery	15 – 20 years
Water pipelines	15 – 20 years
Furniture, equipment and motor vehicles	3 – 5 years

The assets’ residual value, depreciation methods and useful lives are reviewed, and adjusted if appropriate, at each reporting date.

Construction in progress represents buildings and water pipelines under construction and is stated at cost less any impairment losses, and is not depreciated. Construction in progress is reclassified to the appropriate category of property, plant and equipment when the construction work is completed and ready for use.

The gain or loss on disposal of an item of property, plant and equipment is the differences between the net sale proceeds and its carrying amounts and is recognised in profit or loss on disposal.

5.6 Prepaid land lease payments

Prepaid land lease payments represent up-front payments to acquire the land use rights/leasehold land. They are stated at cost less accumulated amortisation and any accumulated impairment losses. Amortisation is calculated on a straight-line basis over the term of the lease/right of use except where an alternative basis is more representative of the time pattern of benefits to be derived by the Target Group from use of the land.

The determination if an arrangement is or contains a lease and the lease is an operating lease is detailed in note 5.17.

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5.7 Investment properties

Investment properties are land and/or buildings which are owned or held under a leasehold interest to earn rental income and/or for capital appreciation. These include land held for a currently undetermined future use.

When the Target Group holds a property interest under an operating lease to earn rental income and/or for capital appreciation, the interest is classified and accounted for as an investment property on a property-by-property basis. Any such property interest which has been classified as an investment property is accounted for as if it were held under a finance lease.

On initial recognition, investment property is measured at cost, including any directly attributable expenditure. Subsequent to initial recognition, investment property is stated at fair value, unless it is still in the course of construction or development at the reporting date and its fair value cannot be reliably determined at that time. Fair value is determined by external professional valuers, with sufficient experience with respect to both the location and the nature of the investment property. The carrying amounts recognised at the reporting date reflect the prevailing market conditions at the reporting date.

Gains or losses arising from either changes in the fair value or the sale of an investment property are included in profit or loss in the period in which they arise.

For a transfer from owner-occupied property to investment property, the entity treats any difference at that date between the carrying amount of the property and its fair value in the same way as a revaluation surplus. The excess of the fair value of the property at the date of transfer over the carrying amount of the property is credited to other comprehensive income and accumulated in properties revaluation reserve, except to the extent that it reverses a revaluation decrease of the same asset previously recognised as an expense, in which case the increase is credited to the consolidated statement of profit or loss to the extent of the decrease previously charged to consolidated statement of profit or loss. The excess of the carrying amount of the property at the date of transfer over the fair value of the property is recognised in consolidated statement of profit or loss to the extent it exceeds the balance, if any, on the properties revaluation reserve relating to a previously revaluation of the same asset. On subsequent disposal of the investment property, the revaluation surplus included in equity may be transferred to retained earnings. The transfer from properties revaluation reserve to retained earnings is not made through profit or loss.

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5.8 Goodwill

Set out below are the accounting policies on goodwill arising on acquisition of a subsidiary. Accounting for goodwill arising on acquisition of investment in an associate is set out in note 5.3.

Goodwill represents the excess of the consideration transferred of a business combination and the amount recognised for non-controlling interests over the Target Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities. The consideration transferred of the business combination is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Target Group.

Goodwill is stated at cost less accumulated impairment losses. Goodwill is allocated to cash-generating units and is tested annually for impairment (note 5.19).

Any excess of the Target Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities over the cost of a business combination is recognised immediately in profit or loss.

On subsequent disposal of a subsidiary, the attributable amount of goodwill capitalised is included in the determination of the amount of gain or loss on disposal.

5.9 Intangible assets (other than goodwill)

Acquired intangible assets are recognised initially at cost. The cost of intangible assets acquired in a business combination is fair value at the date of acquisition. After initial recognition, intangible assets with finite useful lives are carried at cost less accumulated amortisation and any accumulated impairment losses.

The Target Group’s intangible assets (other than goodwill) acquired through business combination represent the rights to operate a water supply plant in the PRC under service concession arrangement. Subsequent additions to intangible assets (other than goodwill) are accounted for in accordance with the policy set out for “Service concession arrangements” in note 5.12.

Amortisation for the rights to operate a water supply plant with finite useful lives is provided on straight-line basis over their estimated useful lives of 10 to 20 years. Both period and method of amortisation are reviewed annually.

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5.10 Financial Instruments

(i) Financial assets

The Target Group classifies its financial assets at initial recognition, depending on the purpose for which the asset was acquired. Financial assets at fair value through profit or loss are initially measured at fair value and all other financial assets are initially measured at fair value plus transaction costs that are directly attributable to the acquisition of the financial assets. Regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. A regular way purchase or sale is a purchase or sale of a financial asset under a contract whose terms require delivery of the asset within the time frame established generally by regulation or convention in the marketplace concerned.

Financial assets at fair value through profit or loss

These assets include financial assets held for trading. Financial assets are classified as held for trading if they are acquired for the purpose of sale in the near term. Subsequent to initial recognition, financial assets at fair value through profit or loss are measured at fair value, with changes in fair value recognised in profit or loss in the period in which they arise.

Loans and receivables

These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of goods and services to customers (trade debtors), and also incorporate other types of contractual monetary asset. Subsequent to initial recognition, they are carried at amortised cost using the effective interest method, less any identified impairment losses.

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(ii) Impairment loss on financial assets

The Target Group assesses, at the end of each reporting period, whether there is any objective evidence that financial asset is impaired. Financial asset is impaired if there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset and that event has an impact on the estimated future cash flows of the financial asset that can be reliably estimated. Evidence of impairment may include:

significant financial difficulty of the debtor;
a breach of contract, such as a default or delinquency in interest or principal payments;
granting concession to a debtor because of debtor’s financial difficulty; and
it becoming probable that the debtor will enter bankruptcy or other financial reorganisation.

For loans and receivables

An impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired, and is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. The carrying amount of financial asset is reduced through the use of an allowance account. When any part of financial asset is determined as uncollectible, it is written off against the allowance account for the relevant financial asset.

(iii) Financial liabilities

The Target Group classifies its financial liabilities, depending on the purpose for which the liabilities were incurred.

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Financial liabilities at amortised cost including trade payables, other payables, accruals and amounts due to related companies and borrowings are initially measured at fair value, net of directly attributable costs incurred and subsequently measured at amortised cost, using the effective interest method. The related interest expense is recognised in profit or loss.

Gains or losses are recognised in profit or loss when the liabilities are derecognised as well as through the amortisation process.

(iv) Effective interest method

The effective interest method is a method of calculating the amortised cost of financial asset or financial liability and of allocating interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts or payments through the expected life of the financial asset or liability, or where appropriate, a shorter period.

(v) Equity instruments

Equity instruments issued by the Target Company are recorded at the proceeds received, net of direct issue costs.

(vi) Derecognition

The Target Group derecognises a financial asset when the contractual right to the future cash flows in relation to the financial asset expire or when the financial asset has been transferred and the transfer meets the criteria for derecognition in accordance with HKAS 39.

Financial liabilities are derecognised when the obligation specified in the relevant contract is discharged, cancelled or expires.

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5.11 Inventories

Inventories are initially recognised at cost, and subsequently at the lower of cost and net realisable value. Cost comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Cost is calculated using the weighted average method. Net realisable value represents the estimated selling price in the ordinary course of business less the estimated costs necessary to make the sale.

5.12 Service concession arrangements

Service concession arrangements are accounted for as follows if:

(i) the grantor controls or regulates what services the operator must provide with the infrastructure, to whom it must provide them, and at what price; and
(ii) the grantor controls through ownership, beneficial entitlement or otherwise any significant residual interest in the infrastructure at the end of the term of the arrangement.

The Target Group’s rights over the infrastructure

Infrastructure constructed by the Target Group under service concession arrangements is not recognised as property, plant and equipment of the Target Group because the contractual service arrangement does not convey the right to control the use of the infrastructure to the Target Group. The operator has access to operate the infrastructure to provide the public service on behalf of the grantor in accordance with the terms specified in the contract.

Consideration received or receivable by the Group for the construction services

Consideration received or receivable by the Target Group for the construction services rendered under service concession arrangement are recognised at their fair value as a financial asset or an intangible asset.

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A financial asset (loan and receivable) is recognised to the extent that (a) the Target Group has an unconditional right to receive cash or another financial asset from or at the direction of the grantor for the construction services rendered; and (b) the grantor has little, if any, discretion to avoid payment, usually because the agreement is enforceable by law.

An intangible asset (concession intangible asset) is recognised to the extent that the Target Group receives a right to charge users of the public service, which is not an unconditional right to receive cash because the amounts are contingent on the extent that the public uses the service. The intangible asset (concession intangible asset) is accounted for in accordance with the policy set out for “Intangible assets (other than goodwill)” in note 5.9.

Construction or upgrade services

Revenue and costs relating to construction or upgrade services are accounted for in accordance with the policy set out for “Construction contracts” in note 5.13.

Operating services

Revenue relating to operating services are accounted for in accordance with the policy for “Revenue recognition” in note 5.18.

Contractual obligations to restore the infrastructure to a specified level of serviceability

The Target Group has contractual obligations which it must fulfill as a condition of its licence, that is (a) to maintain the water supply plants that it operates to a specified level of serviceability and/or (b) to restore the plants to a specified condition before they are handed over to the grantor at the end of the service concession arrangement. These contractual obligations to maintain or restore the water supply plants are recognised and measured in accordance with the policy set out for “Provisions and contingent liabilities” in note 5.16.

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5.13 Construction contracts

Contract revenue comprises the agreed contract amount and appropriate amounts for variation orders, claims and incentive payments. Contract costs comprise direct materials, costs of subcontracting, direct labour and an appropriate portion of variable and fixed construction overheads.

When the outcome of a construction contract can be estimated reliably, revenue and contract costs associated with the construction contract are recognised as revenue and expenses respectively by reference to the stage of completion of the contract activity at the end of reporting period.

When the outcome of a construction contract cannot be estimated reliably, revenue is recognised only to the extent of contract costs incurred that will probably be recoverable, and contract costs are recognised as an expense in the period in which they are incurred.

When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately.

Where progress billings exceed contract costs incurred to date plus recognised profits less recognised losses, the surplus is treated as an amount due to contract customers.

Where contract costs incurred to date plus recognised profits less recognised losses exceed progress billings, the surplus is treated as an amount due from contract customers.

5.14 Government grants

Government grant are recognised when there is reasonable assurance that they will be received and that the Target Group will comply with the conditions attaching to them. Grants that compensate the Target Group for expenses incurred are recognised as revenue in profit or loss on a systematic basis in the same periods in which the expenses are incurred. Grants that compensate the Target Group for the cost of an asset are deducted from the carrying amount of the asset and consequently are effectively recognised in profit or loss over the useful life of the asset by way of reduced depreciation expense.

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5.15 Cash and cash equivalents

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

For the purpose of the statement of financial position, bank and cash balances comprise cash on hand and at banks/other financial institutions, including term deposits, which are not restricted as to use.

5.16 Provision and contingent liabilities

Provisions are recognised for liabilities of uncertain timing or amount when the Target Group has a legal or constructive obligation arising as a result of a past event, which it is probable will result in an outflow of economic benefits that can be reliably estimated.

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

5.17 Leases

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to lessee. All other leases are classified as operating leases.

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The Target Group as lessor

Rental income from operating leases is recognised in profit or loss on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised as an expense on the straight-line basis over the lease term.

The Target Group as lessee

The total rentals payable under the operating leases are recognised in profit or loss on straight-line basis over the lease term. Lease incentives received are recognised as an integrated part of the total rental expense, over the term of the lease.

5.18 Revenue recognition

Revenue comprises the fair value of the consideration received or receivable for the sale of goods and rendering of services and the use by others of the Target Group’s assets yielding interests and dividends, net of rebates and discounts. Provided it is probable that the economic benefits will flow to the Target Group and the revenue and costs, if applicable, can be measured reliably, revenue is recognised as follows:

(i) Revenue arising from water supply is recognised based on water supplied as recorded by meters read during the period;
(ii) Water supply related installation, construction and maintenance income is recognised when services are rendered;
(iii) Revenue from long-term construction contracts is recognised by reference to the percentage of completion of the contract at the reporting date (note 5.13);
(iv) Dividend is recognised when the right to receive payment is established;
(v) Interest income is recognised on a time-proportion basis using the effective interest method; and
(vi) Rental income receivable from operating lease is recognised in profit or loss on a straight-line basis over the periods covered by the lease term.

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5.19 Impairment of non-financial assets

Goodwill arising on acquisition of subsidiaries, property, plant and equipment, prepaid land lease payments, other intangible assets and interests in subsidiaries and associates are subject to impairment testing.

Goodwill and other intangible assets with indefinite useful life or those not yet available for use are tested for impairment at least annually, irrespective of whether there is any indication that they are impaired. All other assets are tested for impairment whenever there are indications that the asset’s carrying amount may not be recoverable.

An impairment loss is recognised as an expense immediately for the amount by which the asset’s carrying amount exceeds its recoverable amount. Recoverable amount is the higher of fair value, reflecting market conditions less costs to sell, 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 assessment of time value of money and the risk specific to the asset.

For the purposes of assessing impairment, where an asset does not generate cash inflows largely independent from those from other assets, the recoverable amount is determined for the smallest group of assets that generate cash inflows independently (i.e. a cash-generating unit). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level. Goodwill in particular is allocated to those cash-generating units that are expected to benefit from synergies of the related business combination and represent the lowest level within the Group at which the goodwill is monitored for internal management purpose.

Impairment losses recognised for cash-generating units, to which goodwill has been allocated, are credited initially to the carrying amount of goodwill. Any remaining impairment loss is charged pro rata to the other assets in the cash generating unit, except that the carrying value of an asset will not be reduced below its individual fair value less cost to sell, or value in use, if determinable.

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An impairment loss on goodwill is not reversed in subsequent periods. In respect of other non-financial assets, an impairment loss is reversed if there has been a favourable change in the estimates used to determine the asset’s recoverable amount and only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

Impairment losses recognised in an interim period in respect of goodwill are not reversed in a subsequent period. This is the case even if no loss, or a smaller loss, would have been recognised had the impairment been assessed only at the end of the financial year to which the interim period relates.

5.20 Employee benefits

(i) Defined contribution retirement plan

The employees of the Target Group’s subsidiaries which operate in the PRC are required to participate in a central pension scheme operated by the local municipal government. These subsidiaries are required to contribute certain percentage of their payroll costs to the central pension scheme.

Contributions to defined contribution retirement plans are recognised as an expense in profit or loss when the services are rendered by the employees.

(ii) Short-term employee benefits

Short term employee benefits are employee benefits (other than termination benefits) that are expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related service. Short term employee benefits are recognised in the year when the employees render the related service.

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5.21 Capitalisation of borrowing costs

Borrowing costs attributable directly to the acquisition, construction or production of qualifying assets which require a substantial period of time to be ready for their intended use or sale, are capitalised as part of the cost of those assets. Income earned on temporary investments of specific borrowings pending their expenditure on those assets is deducted from borrowing cost capitalised. All other borrowing cost are recognised in profit or loss in the period in which they are incurred.

5.22 Income tax

Income taxes for the year comprise current tax and deferred tax.

Current tax is based on the profit or loss from ordinary activities adjusted for items that are non-assessable or disallowable for income tax purposes and is calculated using tax rates that have been enacted or substantively enacted at the end of reporting period.

Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the corresponding amounts used for tax purposes. Except for goodwill and recognised assets and liabilities that affect neither accounting nor taxable profits, deferred tax liabilities are recognised for all temporary differences. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which deductible temporary differences can be utilised. Deferred tax is measured at the tax rates expected to apply in the period when the liability is settled or the asset is realised based on tax rates that have been enacted or substantively enacted at the end of reporting period.

An exception to the general requirement on determining the appropriate tax rate used in measuring deferred tax amount is when an investment property is carried at fair value under HKAS 40 “Investment Property”. Unless the presumption is rebutted, the deferred tax amounts on these investment properties are measured using the tax rates that would apply on sale of these investment properties at their carrying amounts at the reporting date. The presumption is rebutted when the investment property is depreciable and is held within a business model whose objective is to consume substantially all the economic benefits embodied in the property over time, rather than through sale.

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Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, except where the Target 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.

Income taxes are recognised in profit or loss except when they relate to items recognised in other comprehensive income in which case the taxes are also recognised in other comprehensive income or when they relate to items recognised directly in equity in which case the taxes are also recognised directly in equity.

5.23 Segment reporting

Operating segments, and the amounts of each segment item reported in the financial statements, are identified from the financial information provided regularly to the Target Group’s chief operating decision maker, i.e. the board of directors, for the purpose of allocating resources to, and assessing the performance of, the Target Group’s various business operation and geographical locations.

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

5.24 Related parties

(a) A person or a close member of that person’s family is related to the Target Group if that person:
(i) has control or joint control over the Target Group;
(ii) has significant influence over the Target Group; or
(iii) is a member of key management personnel of the Target Group or the Target Company’s parent.

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(b) An entity is related to the Target Group if any of the following conditions apply:
(i) The entity and the Target Group are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others).
(ii) One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member).
(iii) Both entities are joint ventures of the same third party.
(iv) One entity is a joint venture of a third entity and the other entity is an associate of the third entity.
(v) The entity is a post-employment benefit plan for the benefit of the employees of the Target Group or an entity related to the Target Group.
(vi) The entity is controlled or jointly controlled by a person identified in (a).
(vii) A person identified in (a)(i) has significant influence over the entity or is a member of key management personnel of the entity (or of a parent of the entity).

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

(i) that person’s children and spouse or domestic partner;
(ii) children of that person’s spouse or domestic partner; and
(iii) dependents of that person or that person’s spouse or domestic partner.

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6. Critical accounting estimates and judgments

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

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

(i) Depreciation and amortisation

The Target Group depreciates the property, plant and equipment and amortises prepaid land lease payments and the intangible assets (other than goodwill) in accordance with the accounting policies stated in notes 5.5, 5.6 and 5.9 respectively. The estimated useful lives reflect the directors’ estimate of the periods that the Target Group intends to derive future economic benefits from the use of these assets.

(ii) Allowance for and written off of irrecoverable receivables

The Target Group’s management determines the allowance for irrecoverable receivables on a regular basis. This estimate is based on the credit history of its customers and current market conditions. When the Target Group’s management determines that there are indicators of significant financial difficulties of the debtors such as default or delinquency in payments, allowance for debtors are estimated. The management of the Target Group reassesses the estimations at the reporting date.

When the Target Group’s management determines the debtors are uncollectible, they are written off against the allowance account for debtors.

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(iii) Impairment of goodwill

The Target Group tests annually whether goodwill has suffered any impairment in accordance with the accounting policy stated in note 5.19. The recoverable amounts of cash-generating units have been determined based on value in use calculations. These calculations require the use of estimates. When value in use calculations are undertaken, management estimates the expected future cash flows from the asset or cash-generating unit and determines a suitable discount rate in order to calculate the present value of those cash flows.

(iv) Impairment of non-financial assets (other than goodwill)

The Target Group assesses whether there are any indicators of impairment for all non-financial assets at each reporting date. Indefinite life intangible assets are tested for impairment annually and at other times when such indicator exists. Other non-financial assets are tested for impairment when there are indicators that the carrying amounts may not be recoverable. When value in use calculations are undertaken, management estimates the expected future cash flows from the asset or cash-generating unit and determines a suitable discount rate in order to calculate the present value of those cash flows.

(v) Construction contracts

As explained in accounting policies stated in notes 5.13 and 5.18, revenue and profit recognition on an uncompleted project is dependent on estimating the total outcome of the construction contract, as well as the work done to date. Based on the Target Group’s recent experience and the nature of the construction activity undertaken by the Target Group, the Target Group makes estimates of the point at which it considers the work is sufficiently advanced such that the costs to complete and revenue can be reliably estimated. However, actual outcomes in terms of total cost or revenue may be higher or lower than estimated at the reporting date, which would affect the revenue and profit recognised in future years as an adjustment to the amounts record to date.

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(vi) Income taxes

The Target Group is subject to income taxes in the PRC. Significant judgment is required in determining the provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Target Group recognises liabilities for anticipated tax based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provision in the period in which such determination is made.

7. Service concession arrangements

The Target Group entered into a service concession arrangement with government authority in Qingyuan, the PRC on a build-operate-transfer (“BOT”) basis under its water supply segment. The service concession arrangement generally involve the Target Group as an operator (i) constructing water supply plants for those arrangements on a BOT basis; and (ii) operating and maintaining the water supply plants at a specified level of serviceability on behalf of the relevant governmental authority for a period of 20 years from 21 November 2006 to 21 November 2026 (the “Service Concession Periods”), and the Target Group will be paid for its services over the relevant Service Concession Periods at prices stipulated through a pricing mechanism.

The Target Group is generally entitled to use all the property, plant and equipment of the water supply plants, however, the relevant governmental authority as grantors will control and regulate the scope of services the Target Group must provide with the water supply plants, and retain the beneficial entitlement to any residual interest in the water supply plants at the end of the term of the Service Concession Periods.

The service concession arrangement is governed by a contract entered into between the Target Group and the relevant governmental authority in the PRC that set out, inter alia, performance standards, mechanisms for adjusting prices for the services rendered by the Target Group, specific obligations levied on the Target Group to restore the water supply plants to a specified level of serviceability at the end of the Service Concession Periods, and arrangements for arbitrating disputes.

In accordance with the Target Group accounting policy in respect of service concession arrangement as set out in note 5.12, the Target Group recognises the consideration received or receivable in exchange for the construction services rendered as an intangible asset (note 20) as the Target Group receives a right to charge users of the water supply service.

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8. Segment information

The Target Group determines its operating segments based on the reports reviewed by the chief operating decision-maker that are used to make strategic decisions. During the Relevant Periods, the Target Group principally operates in one business segment, which is the Core Business.

The Target Group’s revenue from external customers is derived from the PRC and its non-current assets are solely located in the PRC.

Revenue of approximately RMB99,222,000 from water supply construction services under service concession arrangements as set out in note 7 are attributed from a customer that accounted for 10% or more of the Target Group’s total revenue for the period ended 30 September 2015. Except for mentioned above, no other single customer accumulated more than 10% of the Target Group’s revenue during the Relevant Periods.

9. Revenue and other income

Revenue derived from the Target Group’s principal activities, which is also the Target Group’s turnover, recognised during the Relevant Periods is as follows:

Revenue Water supply operation services Water supply construction services – intangible assets Water supply related installation and maintenance Others Other income Interest income – bank balances – loan to an associate Handling service income Rental income Sundry income	Year 2012 RMB’000 83,672 – 6,897 1,692 92,261 466 – 1,545 263 1,279 3,553	ended 31 December 2013 2014 RMB’000 RMB’000 97,668 118,518 – 3,454 8,431 12,341 2,369 2,755 108,468 137,068 955 160 – 391 1,376 3,029 277 516 1,183 1,368 3,791 5,464	Nine months ended 30 September 2014 2015 RMB’000 RMB’000 (Unaudited) 81,559 110,659 – 99,222 7,930 5,427 2,615 3,488 92,104 218,796 64 544 212 – 1,478 1,523 414 1,339 948 1,477 3,116 4,883	Nine months ended 30 September 2014 2015 RMB’000 RMB’000 (Unaudited) 81,559 110,659 – 99,222 7,930 5,427 2,615 3,488 92,104 218,796 64 544 212 – 1,478 1,523 414 1,339 948 1,477 3,116 4,883
				218,796

				544 – 1,523 1,339 1,477
				4,883

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10. Profit from operation

Profit from operation is arrived at after charging/(crediting):

Auditors’ remuneration Cost of services provided Depreciation of property, plant and equipment – Depreciation for the year/period – Less: amortisation of government grant* Amortisation of prepaid land lease payments Amortisation of other intangible assets Allowance for impairment of trade receivables (Gain)/loss on disposal of property, plant and equipment Operating lease charges on rented premises Staff costs (including directors’ remuneration – note 14): – Salaries, wages and other benefits – Contributions to defined contribution pension plan	Year 2012 RMB’000 100 49,969 18,333 (482) 17,851 235 – 93 (15) 22 9,656 1,149 10,805	ended 31 December 2013 2014 RMB’000 RMB’000 100 157 56,167 77,381 19,035 23,105 (482) (669) 18,553 22,436 244 271 – 2,198 11 135 140 54 30 64 11,809 15,210 1,359 1,756 13,168 16,966	Nine months ended 30 September 2014 2015 RMB’000 RMB’000 (Unaudited) 113 97 49,501 151,005 18,251 15,629 (508) (482) 17,743 15,147 205 184 – 8,592 – – (2) 760 45 48 7,913 13,065 1,176 1,424 9,089 14,489	Nine months ended 30 September 2014 2015 RMB’000 RMB’000 (Unaudited) 113 97 49,501 151,005 18,251 15,629 (508) (482) 17,743 15,147 205 184 – 8,592 – – (2) 760 45 48 7,913 13,065 1,176 1,424 9,089 14,489
				15,147

				184 8,592 – 760 48 13,065 1,424
				14,489

Various government grants have been received by the Target Group for subsidising its construction of water supply infrastructure. The grants are deducted from the carrying amount of the asset and consequently are effectively recognised in profit or loss over the useful life of the asset by way of reduced depreciation expenses. There are no unfulfilled conditions relating to these grants.

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FINANCIAL INFORMATION OF THE TARGET COMPANY

11. Finance costs

Interest on bank loans – wholly repayable within five years – not wholly repayable within five years Interest on government loans – wholly repayable within five years – not wholly repayable within five years Total borrowing costs Less: interest capitalised included in property, plant and equipment and other intangible assets (note)	Year 2012 RMB’000 8,803 1,395 160 266 10,624 (239) 10,385	ended 31 December 2013 2014 RMB’000 RMB’000 15,856 12,194 – – 257 232 158 128 16,271 12,554 (1,360) (2,070) 14,911 10,484	Nine months ended 30 September 2014 2015 RMB’000 RMB’000 (Unaudited) 9,256 9,048 – – 72 60 128 111 9,456 9,219 (817) (2,587) (8,639) (6,632)	Nine months ended 30 September 2014 2015 RMB’000 RMB’000 (Unaudited) 9,256 9,048 – – 72 60 128 111 9,456 9,219 (817) (2,587) (8,639) (6,632)
				9,219 (2,587)
				(6,632)

Note:

For the years ended 31 December 2012, 2013 and 2014 and nine months ended 30 September 2015, the capitalisation rates were 6.95%, 6.92%, and ranged from 7.59% to 7.94% and 6.82% to 9.17% respectively (30 September 2014 (unaudited): 7.26%).

12. Income tax expense

Current – PRC Deferred tax (note 33)	Year 2012 RMB’000 7,452 280 7,732	ended 31 December 2013 2014 RMB’000 RMB’000 9,126 8,925 654 (42) 9,780 8,883	Nine months ended 30 September 2014 2015 RMB’000 RMB’000 (Unaudited) 7,495 9,495 82 2,562 7.577 12,057	Nine months ended 30 September 2014 2015 RMB’000 RMB’000 (Unaudited) 7,495 9,495 82 2,562 7.577 12,057
				12,057

The Target Group is subject to income tax on an entity basis on profits arising in or derived from the jurisdictions in which members of the Target Group are domiciled and operated.

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No Hong Kong profits tax has been provided as the Target Group has no assessable profits arising in Hong Kong during the Relevant Periods.

Enterprise income tax arising from subsidiaries operated in the PRC for the Relevant Periods was calculated at 25% of the estimated assessable profits.

The income tax expense for the Relevant Periods can be reconciled to the profit before income tax per the consolidated statements of comprehensive income as follows:

Profit before income tax Tax calculated at the rates applicable to profits in the tax jurisdiction concerned Tax effect of tax losses not recognised Tax effect of non-taxable items Tax effect of non-deductible items Income tax expense	Year 2012 RMB’000 32,637 8,159 4 (431) – 7,732	ended 31 December 2013 2014 RMB’000 RMB’000 35,237 29,406 8,809 7,352 145 305 – – 826 1,226 9,780 8,883	Nine months ended 30 September 2014 2015 RMB’000 RMB’000 (Unaudited) 27,843 51,505 6,961 12,876 99 108 – (927) 517 – 7,577 12,057	Nine months ended 30 September 2014 2015 RMB’000 RMB’000 (Unaudited) 27,843 51,505 6,961 12,876 99 108 – (927) 517 – 7,577 12,057

				12,876 108 (927) –
				12,057

As at 31 December 2012, 2013 and 2014 and 30 September 2015, the Target Group had unused tax losses of RMB17,000, RMB597,000, RMB1,907,000 and RMB2,342,000, respectively, available for offset against future profits. No deferred tax asset has been recognised in respect of such tax losses due to unpredictability of future profits streams. The unused tax losses will be available within five years for offsetting against future taxable profits of the companies in which the losses arose.

13. Dividends

No dividend has been declared by the Target Company since its incorporation.

Dividend declared during the years ended 31 December 2012, 2013 and 2014 and nine months ended 30 September 2015 represents the dividend declared by 清遠市自來水有限責任公司 (Qingyuan Water Co. Ltd.*) (“Water Co”), a subsidiary of the Target Group during the Relevant Periods which was deregistered in June 2015 for the respective years or period.

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14. Directors’ remuneration

No emoluments were paid or payable to the Target Company’s directors during the Relevant Periods.

15. Property, plant and equipment

Target Group

At 1 January 2012 Cost Accumulated depreciation Net carrying amount Year ended 31 December 2012 Opening net carrying amount Additions Transfer Depreciation Disposals Closing net carrying amount At 31 December 2012 and 1 January 2013 Cost Accumulated depreciation Net carrying amount Year ended 31 December 2013 Opening net carrying amount Additions Transfer Transfer to investment properties Depreciation Disposals Closing net carrying amount At 31 December 2013 and 1 January 2014 Cost Accumulated depreciation Net carrying amount	Buildings and structure RMB’000 54,528 (27,925 26,603 26,603 – – (2,376) – 24,227 54,528 (30,301) 24,227 24,227 – – (14) (2,370) – 21,843 54,494 (32,651) 21,843	Water pipeline RMB’000 234,052 (124,357) 109,695 109,695 230 4,735 (12,323) – 102,337 239,017 (136,680) 102,337 102,337 1,404 60,740 – (13,460) (129) 150,892 300,743 (149,851) 150,892	Plant and machinery RMB’000 22,474 (10,792) 11,682 11,682 414 1,038 (1,728) (4) 11,402 23,853 (12,451) 11,402 11,402 467 – – (1,830) (28) 10,011 23,759 (13,748) 10,011	Motor vehicles RMB’000 1,352 (1,047) 305 305 428 – (172) (31) 530 1,052 (522) 530 530 213 – – (175) (3) 565 1,205 (640) 565	Furniture and fixtures RMB’000 3,458 (2,664) 794 794 205 – (296) (30) 673 3,481 (2,808) 673 673 330 – – (66) (6) 931 3,696 (2,765 931	Leasehold improvements RMB’000 6,284 (4,783) 1,501 1,501 310 892 (956) – 1,747 7,295 (5,548) 1,747 1,747 126 603 – (652) – 1,824 8,024 (6,200) 1,824	Construction in progress RMB’000 1,071 – 1,071 1,071 7,365 (6,665) – – 1,771 1,771 – 1,771 1,771 68,812 (61,343) – – – 9,240 9,240 – 9,240	Total RMB’000 323,219 (171,568
								151,651

								151,651 8,952 – (17,851) (65)
								142,687

								330,997 (188,310
								142,687

								142,687 71,352 – (14) (18,553) (166)
								195,306

								401,161 (205,855)
								195,306

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FINANCIAL INFORMATION OF THE TARGET COMPANY

Year ended 31 December 2014 Opening net carrying amount Additions Transfer Transfer to investment properties Depreciation Disposals Closing net carrying amount At 31 December 2014 and 1 January 2015 Cost Accumulated depreciation Net carrying amount Nine months ended 30 September 2015 Opening net carrying amount Additions Transfer Transfer to investment properties Depreciation Disposals Closing net carrying amount At 30 September 2015 Cost Accumulated depreciation Net carrying amount	Buildings and structure RMB’000 21,843 – 111 (1,515) (2,436) – 18,003 50,551 (32,548) 18,003 18,003 – – (10) (1,490) – 16,503 50,517 (34,014) 16,503	Water pipeline RMB’000 150,892 2,116 38,859 – (17,423) – 174,444 341,718 (167,274) 174,444 174,444 – 11,531 – (11,809) (700) 173,466 351,115 (177,649) 173,466	Plant and machinery RMB’000 10,011 429 75 – (1,820) (5) 8,690 24,157 (15,467) 8,690 8,690 131 – – (1,193) (56) 7,572 24,119 (16,547) 7,572	Motor vehicles RMB’000 565 165 – – (159) (3) 568 1,314 (746) 568 568 275 – – (135) – 708 1,589 (881) 708	Furniture and fixtures RMB’000 931 684 – – (420) (53) 1,142 3,314 (2,172) 1,142 1,142 550 – – (221) (49) 1,422 3,633 (2,211) 1,422	Leasehold improvements RMB’000 1,824 330 – (875) (178) – 1,101 5,005 (3,904) 1,101 1,101 191 490 – (299) – 1,483 5,686 (4,203) 1,483	Construction in progress RMB’000 9,240 63,622 (39,045) – – – 33,817 33,817 – 33,817 33,817 65,469 (12,021) – – – 87,265 87,265 – 87,265	Total RMB’000 195,306 67,346 – (2,390) (22,436) (61)
								237,765

								459,876 (222,111)
								237,765

								237,765 66,616 – (10) (15,147) (805)
								288,419

								523,924 (235,505)
								288,419

As at 31 December 2012, 2013 and 2014 and 30 September 2015, the Target Group’s property, plant and equipment with a net carrying amount of approximately RMB62,939,000, RMB54,119,000, RMB45,966,000 and RMB37,368,000 respectively were pledged to secure the Target Group bank and other borrowings (note 32).

– 168 –

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET COMPANY

As at 31 December 2012, 2013 and 2014 and 30 September 2015, the Target Group’s buildings and structure with a net carrying amount of approximately RMB1,355,000, RMB1,277,000, RMB1,306,000 and RMB1,244,000 respectively were in the process of obtaining the construction plan permits, construction commencement permits and construction completion reports. These structures have erected on land for which the relevant land use right certificates have not been obtained by the Target Group (note 16). Based on the legal opinion from the Target Group’s legal advisors, who is a registered law firm in the PRC, the directors of the Target Group consider that the risk for the structure will be demolished is relatively low and there is no legal obstacle for the target group to obtain the relevant certificates and permits mentioned above. In accordance with the relevant regulations, the directors of the Target Group estimated the fine of approximately RMB58,000 and had made a provision accordingly.

As at 30 September 2015, the Target Group’s construction in progress with a net carrying amount of approximately RMB86,776,000 was in the process of obtaining the construction commencement permits. Based on the legal opinion from the Target Group’s legal advisors, who is a registered law firm in the PRC, the directors of the Target Group consider that the risk for the structure will be demolished is relatively low and there is no legal obstacle for the target group to obtain the relevant permits mentioned above. In accordance with the relevant regulations, the directors of the Target Group estimated the fine of approximately RMB1,370,000 and has made a provision during the period ended 30 September 2015.

As at 31 December 2014 and 30 September 2015, the Target Group’s construction in progress with a net carrying amount of approximately RMB8,267,000 and RMB5,839,000 respectively, and its water pipeline with a net carrying amount of approximately nil and RMB9,566,000 respectively, were in the process of obtaining the construction plan permits. Based on the legal opinion from the Target Group’s legal advisors, who is a registered law firm in the PRC, the directors of the Target Group consider that the risks for the structure will be demolished or that the Target Group will be punished for non-compliance are relatively low and there is no legal obstacle for the target group to obtain the relevant permits mentioned above.

– 169 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

16. Prepaid land lease payments

Target Group

At beginning of the year/period Cost Accumulated amortisation Net carrying amount For the year/period ended Opening net carrying amount Amortisation Transfer to investment properties Transfer from investment properties Closing net carrying amount At end of the year/period Cost Accumulated amortisation Net carrying amount	As at 31 December 2012 2013 2014 RMB’000 RMB’000 RMB’000 11,535 11,535 12,296 (2,508) (2,743) (2,938) 9,027 8,792 9,358 9,027 8,792 9,358 (235) (244) (271) – (150) (292) – 960 – 8,792 9,358 8,795 11,535 12,296 11,845 (2,743) (2,938) (3,050) 8,792 9,358 8,795	As at 30 September 2015 RMB’000 11,845 (3,050)
		8,795

		8,795 (184) (190) –
		8,421

		11,575 (3,154)
		8,421

The Target Group’s prepaid land lease payments represent up-front payments to acquire long term interest in usage of land situated in the PRC, which are held under medium term leases.

As at 31 December 2012, 2013, 2014 and 30 September 2015, the Target Group’s prepaid land lease payments with a net carrying amount of approximately RMB4,378,000, RMB4,263,000, nil and nil respectively were pledged to secure the Target Group’s bank and other borrowings (note 32).

As at 31 December 2012, 2013 and 2014 and 30 September 2015, the Target Group’s land with a net carrying amount of approximately RMB245,000, RMB442,000, RMB597,000 and RMB685,000 respectively were in the process of obtaining the land use rights certificates. Based on the legal opinion from the Target Group’s legal advisors, who is a registered law firm in the PRC, the directors of the Target Group consider that the Target Group cannot be free to transfer the land but has already obtained the right to use the land and there is no legal obstacle for the target group to obtain the land use rights certificates.

– 170 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

17. Investment properties

Target Group

Carrying amount at beginning of year/period Additions Transfer from property, plant and equipment (note 15) Transfer from prepaid land lease payments (note 16) Transfer to prepaid land lease payments (note 16) Net fair value change credited/(debited) to profit or loss Net fair value change credited to other comprehensive income upon transfer from property, plant and equipment and prepaid land lease payments Carrying amount at ending of year/period	As at 31 December 2012 2013 2014 RMB’000 RMB’000 RMB’000 10,250 10,460 11,460 – – 1,905 – 14 2,390 – 150 292 – (960) – 210 1,030 (2,195) – 766 4,068 10,460 11,460 17,920	As at 30 September 2015 RMB’000 17,920 – 10 190 – 80 310
		18,510

Investment properties represent various land use rights and buildings located in the PRC held for rental income and long term capital appreciation. The land use rights are held by the Target Group under medium term leases.

As at 31 December 2012, 2013 and 2014 and 30 September 2015, the Group’s investment properties with a net carrying amount of RMB8,080,000, RMB8,840,000, RMB8,760,000 and nil respectively were pledged to secure the Target Group’s bank and other borrowings (note 32).

The fair value of the Group’s investment properties at each reporting date have been arrived at on market value basis carried out by BMI Appraisals Limited, an independent valuer who holds a recognised and relevant professional qualification and has recent experience in the location and category of the investment properties being valued.

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FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

The fair value of investment properties is a level 3 recurring fair value measurement. A reconciliation of the opening and closing fair value balance is provided below.

Opening balance (level 3 recurring fair value) Additions Transfer from property, plant and equipment (note 15) Transfer from prepaid land lease payments (note 16) Transfer to prepaid land lease payments (note 16) Net fair value change credited/(debited) to profit or loss Net fair value change credited to other comprehensive income upon transfer from property, plant and equipment and prepaid land lease payments Closing balance (level 3 recurring fair value)	As at 31 December 2012 2013 2014 RMB’000 RMB’000 RMB’000 10,250 10,460 11,460 – – 1,905 – 14 2,390 – 150 292 – (960) – 210 1,030 (2,195) – 766 4,068 10,460 11,460 17,920	As at 30 September 2015 RMB’000 17,920 – 10 190 – 80 310
		18,510

The fair values are derived using the income capitalisation approach. This approach is based on the capitalisation of net income with due allowance for outgoings and reversionary income potential by adopting appropriate capitalisation rates, which are derived from analysis of sale transactions and valuer’s interpretation of prevailing investor requirements or expectations. The prevailing market rents adopted in the valuation are referenced to valuers’ view of recent lettings, within the subject properties and other comparable properties.

– 172 –

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET COMPANY

Significant unobservable inputs Prevailing market rents Capitalisation rates	Range As at 31 December 2012 2013 2014 RMB2.2 to RMB25.2 per square meter per month RMB2.4 to RMB27.6 per square meter per month RMB2.4 to RMB27.3 per square meter per month 5.7% to 9.0% 5.7% to 9.0% 5.7% to 9.0%	As at 30 September 2015 RMB2.4 to RMB27.4 per square meter per month 5.7% to 9.0%

The higher the capitalisation rates, the lower the fair value. The higher the prevailing market rents, the higher the fair value.

There were no changes to the valuation techniques during the Relevant Periods.

The fair value measurement is based on the above properties’ highest and best use, which does not differ from their actual use.

18. Interest in an associate

Target Group

					As at
		As at	31 December		30 September
	2012		2013	2014	2015
	RMB’000		RMB’000	RMB’000	RMB’000
Share of net assets	18,564		20,922	–	–

As a result of the additional equity interest of the associate acquired by the Target Group during the year ended 31 December 2014, the associate has become a subsidiary of the Target Group (note 36).

– 173 –

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET COMPANY

Particulars of the associate as at 31 December 2012 and 2013 are as follow:

		Place and date of		Group’s effective
		incorporation/		interest held/	Principal
Name		establishment	Registered capital	profit sharing	activities
Taihe	Water	PRC/26 March 1999	31 December 2012: RMB17,554,000	32.07%	Water supply and
			31 December 2013: RMB23,254,000		water supply
					infrastructure

Summarised financial information in relation to the associate of the Target Group was presented below:

As at 31 December Current assets Non-current assets Current liabilities Non-current liabilities Net assets Reconciliation to the Target Group’s interest in the associate: Proportion of the Target Group’s ownership Group’s share of net assets of the associate, excluding goodwill	2012 RMB’000 5,627 112,633 (17,845) (42,529) 57,886 32.07% 18,564	2013 RMB’000 6,370 109,483 (37,202) (13,412) 65,239 32.07% 20,922

– 174 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

			Period from
			1 January
			2014 to
	Year ended 31 December		19 October
	2012	2013	2014
	RMB’000	RMB’000	RMB’000
Revenue	41,893	31,422	37,131
Profit and total comprehensive
income for the year/period	8,766	3,231	2,068
Dividends received from the associate	507	506	–

19. Goodwill

Target Group

Goodwill acquired through business combination has been allocated to the water supply cash-generating units for impairment testing.

As at 31 December 2012, 2013 and 2014, the recoverable amounts for the water supply cash-generating units were determined based on value-in-use calculations, covering a detailed five-year budget plan, followed by an extrapolation of expected cash flows at the average growth rates of 3%, 3% and 3% respectively and discount rate of 13%, 13% and 13% respectively estimated by the management.

The key assumptions for the impairment testing have been determined by the Target Group’s management based on past performance and their expectations for the industry development. The discount rates used are pre-tax and reflect specific risks relating to the relevant cash-generating units.

– 175 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

20. Other intangible asset

Target Group

Pursuant to a concession agreement between a subsidiary acquired in 2014 (note 36) and a relevant authority in the PRC dated 21 November 2006, the subsidiary obtained the right to operate certain water supply plants located at Qingyuan City of Guangdong Province in the PRC for a period of 20 years on a BOT basis. The subsidiary is entitled to use all the property, plant and equipment of the water supply plant.

At beginning of the year/period Cost Accumulated amortisation Net carrying amount For the year/period ended Opening net carrying value Acquisition of a subsidiary (note 36) Additions Amortisation Net carrying amount At end of the year/period Cost Accumulated amortisation Net carrying amount	As at 31 December 2012 2013 2014 RMB’000 RMB’000 RMB’000 – – – – – – – – – – – – – – 134,810 – – 3,454 – – (2,198) – – 136,066 – – 138,264 – – (2,198) – – 136,066	As at 30 September 2015 RMB’000 138,264 (2,198)
		136,066

		136,066 – 99,222 (8,592)
		226,696

		237,486 (10,790)
		226,696

As at 30 September 2015, land use right held by the Target Group under service concession arrangement was pledged to secure the Target Group’s bank and other borrowings (note 32).

– 176 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

21. Interests in subsidiaries

Target Company

			As at
	As at 31	December	30 September
	2013	2014	2015
	RMB’000	RMB’000	RMB’000
Unlisted equity investments,
at cost	1,000	–	15,000

The Target Company’s unlisted investments as at 31 December 2013 and 30 September 2015 represents 100% equity interest in Jinhong Industrial and Xinhongcheng respectively.

Taihe Water, a 51% owned subsidiary of the Target Group since 20 October 2014 (note 36), has material non-controlling interests. The non-controlling interests of another subsidiary that are not 100% owned by the Target Group during the Relevant Periods are considered to be immaterial.

Summarised financial information in relation to the non-controlling interests of Taihe Water, before intra-group eliminations, is presented below:

Revenue Profit and total comprehensive income for the period Profit allocated to non-controlling interests	Period from 20 October 2014 to 31 December 2014 RMB’000 RMB’000 9,226 1,678 822	Nine months ended 30 September 2015 RMB’000 140,615 14,930 7,316

– 177 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Net cash inflows Current assets Non-current assets Current liabilities Non-current liabilities Net assets Carrying amount of non-controlling interests	Period from 20 October 2014 to 31 December 2014 RMB’000 RMB’000 4,171 (3,917) 440 694 As at 31 December 2014 RMB’000 16,813 136,066 (46,879) (14,914) 91,086 44,632	Nine months ended 30 September 2015 RMB’000 66,350 (98,760) 41,906 9,496 As at 30 September 2015 RMB’000 30,485 226,697 (53,888) (97,278) 106,016 51,948

– 178 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

22. Inventories

Target Group

					As at
		As at	31 December		30 September
	2012		2013	2014	2015
	RMB’000		RMB’000	RMB’000	RMB’000
Raw materials and supplies	980		1,082	1,428	1,774

23. Trade receivables

Target Group

Trade receivables, gross Less: Provision for impairment Trade receivables, net	As at 31 December 2012 2013 2014 RMB’000 RMB’000 RMB’000 9,687 13,718 15,527 (93) (104) (239) 9,594 13,614 15,288	As at 30 September 2015 RMB’000 19,912 (239)
		19,673

The movement in the allowance for impairment of trade receivables during the Relevant Periods is as follows:

At beginning of the year/period Impairment loss recognised At end of the year/period	As at 31 December 2012 2013 2014 RMB’000 RMB’000 RMB’000 – 93 104 93 11 135 93 104 239	As at 30 September 2015 RMB’000 239 –
		239

At the end of each of the Relevant Periods, the Target Group reviews receivables for evidence of impairment on both an individual and collective basis. The impaired trade receivables are due from customers experiencing financial difficulties that were in default or delinquency of payments.

– 179 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

The Target Group has a policy of allowing trade customers with credit terms of generally within 60 days. The ageing analysis of trade receivables as at the end of each of the Relevant Periods, net of impairment and based on invoice date, is as follows:

0 to 90 days 91 to 180 days Over 180 days	As at 31 December 2012 2013 2014 RMB’000 RMB’000 RMB’000 9,320 13,278 14,397 100 163 358 174 173 533 9,594 13,614 15,288	As at 30 September 2015 RMB’000 18,650 544 479
		19,673

The ageing analysis of the Target Group’s trade receivables that are past due but not impaired is as follows:

Neither past due nor impaired 1 to 30 days past due Over 30 days past due	As at 31 December 2012 2013 2014 RMB’000 RMB’000 RMB’000 9,183 13,127 14,140 138 151 257 273 336 891 9,594 13,614 15,288	As at 30 September 2015 RMB’000 18,106 544 1,023
		19,673

Trade receivables that were past due but not impaired relate to customers that have good track record with the Target Group. The directors of the Target Company are of the opinion that no allowance for impairment of these trade receivables is necessary as there was no recent history of significant default in respect of these trade debtors. Trade receivables that were neither past due nor impaired related to a large number of independent customers that had a good track record of credit with the Target Group. In general, the Target Group does not hold any collateral or other credit enhancements over these balances.

– 180 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

The directors of the Target Company consider that the fair values of trade receivables which are expected to be recovered within one year are not materially different from their carrying amounts because these balances have short maturity periods on their inception.

24. Prepayments, deposits and other receivables

Target Group

Prepayments Deposits paid for acquisition of land use rights Other deposits Other receivables Less: Portion due within one year included under current assets Non-current portion included under non-current assets	As at 31 December 2012 2013 2014 RMB’000 RMB’000 RMB’000 19 60 263 – 11,310 11,310 – 767 1,374 193 455 1,100 212 12,592 14,047 (212) (1,282) (2,737) – 11,310 11,310	As at 30 September 2015 RMB’000 1,179 11,310 2,453 1,369
		16,311 (5,001)
		11,310

None of the above deposits and other receivables is either past due or impaired. Deposits and other receivables relate to counterparties for which there was no recent history of default.

The directors of the Target Company consider that the fair values of current portion of deposits and other receivables are not materially different from their carrying amounts because these balances have short maturity periods on their inception.

– 181 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

25. Financial asset at fair value through profit or loss

Target Group

				As at
		As at 31 December		30 September
	2012	2013	2014	2015
	RMB’000	RMB’000	RMB’000	RMB’000
Fund in the PRC,
at market value	5,593	–	–	–

Fair value of the fund has been determined by reference to the net assets value of the fund at the reporting date quoted by the fund management company.

26. Amount due from a related company

Target Group

At 31 December 2012 廣東錦龍發展股份有限公司 (Guangdong Golden Dragon Development Inc.) (“GD”) At 31 December 2013 GD At 31 December 2014* GD	Maximum amount outstanding during the year RMB’000 97,599 198,632 160,028	Opening outstanding balance RMB’000 97,599 – 154,000	Closing outstanding balance RMB’000 –

			154,000

			–

The beneficial shareholders of the Target Company, Mr. Yang Zhimao and his spouse, have beneficial interest in GD with significant influence. The amount due is unsecured, interest-free and repayable on demand.

– 182 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

27. Amount due from a subsidiary

Target Company

The amount due is unsecured, interest-free and repayable on demand.

28. Cash and bank balances

Target Group

					As at
		As at	31 December		30 September
	2012		2013	2014	2015
	RMB’000		RMB’000	RMB’000	RMB’000
Cash at banks and in hand	187,905		11,679	25,450	86,812

Target Company

			As at
	As at 31	December	30 September
	2013	2014	2015
	RMB’000	RMB’000	RMB’000
Cash at banks and in hand	97	997	774

Cash at banks earned interest at floating rates based on daily bank deposit rates.

All cash at banks and in hand were denominated in Renminbi (“RMB”) as at 31 December 2012, 2013 and 2014 and 30 September 2015. RMB is not freely convertible into foreign currencies. Under the PRC Foreign Exchange Control Regulations and Administration of Settlement, Sales and Payment of Foreign Exchange Regulations, the Target Group is permitted to exchange RMB for foreign currencies through banks that are authorised to conduct foreign exchange business.

– 183 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

29. Trade payables

Target Group

The credit terms of trade payables vary according to the terms agreed with different suppliers. Based on the invoice dates, the ageing analysis of the Target Group’s trade payables as at the end of each of the Relevant Periods is as follow:

0 to 90 days 91 to 180 days	As at 31 December 2012 2013 2014 RMB’000 RMB’000 RMB’000 435 506 576 – – – 435 506 576	As at 30 September 2015 RMB’000 839 223
		1,062

30. Accrued liabilities, other payables and receipts in advance

Target Group

Accrued liabilities Other payables Receipts in advance	As at 31 December 2012 2013 2014 RMB’000 RMB’000 RMB’000 3,778 5,609 6,587 8,068 22,054 46,961 2,916 5,265 4,586 14,762 32,928 58,134	As at 30 September 2015 RMB’000 2,959 80,787 7,961
		91,707

Included in other payables as at 31 December 2012, 2013 and 2014 and 30 September 2015 are provision for penalty of approximately RMB58,000, RMB58,000, RMB58,000 and RMB1,428,000 respectively imposed by the PRC government for non-compliance in the application of certain certificates and permits related to building and structures construction. Details are set out in note 15 above.

31. Amounts due to related companies

Target Group and Target Company

The amounts due are unsecured, interest-free and repayable on demand.

– 184 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

32. Bank and other borrowings

Target Group

Current Bank loans – secured Government loans – secured Government loans – unsecured Non-current Bank loans – secured Government loans – secured Government loans – unsecured Analysed into: Bank loans repayable: On demand or within one year In the second year In the third to fifth years, inclusive Beyond five years	As at 31 December 2012 2013 2014 RMB’000 RMB’000 RMB’000 21,500 51,500 51,500 – 5,184 – 864 864 864 22,364 57,548 52,364 110,000 160,500 89,000 5,184 – – 6,046 5,182 4,318 121,230 165,682 93,318 143,594 223,230 145,682 21,500 51,500 51,500 27,500 51,500 61,500 82,500 109,000 27,500 – – – 131,500 212,000 140,500	As at 30 September 2015 RMB’000 52,857 – 864
		53,721

		209,017 – 3,455
		212,472

		266,193

		52,857 40,643 22,304 146,070
		261,874

– 185 –

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET COMPANY

Government loans repayable: On demand or within one year In the second year In the third to fifth years, inclusive Beyond five years	As at 31 December 2012 2013 2014 RMB’000 RMB’000 RMB’000 864 6,048 864 6,048 864 864 2,591 2,955 2,590 2,591 1,363 864 12,094 11,230 5,182 143,594 223,230 145,682	As at 30 September 2015 RMB’000 864 864 2,227 364
		4,319

		266,193

The effective interest rates of the Target Group’s bank loans ranged from 7.63% to 7.97%, 7.47% to 7.86%, 7.98% to 9.67% and 5.49% to 8.67% per annum respectively at 31 December 2012, 2013 and 2014 and 30 September 2015.

The effective interest rates of the Target Group’s government loans ranged from 3.08% to 3.94%, 3.08% to 4.43%, 3.77% to 3.96% and 3.85% to 4.59% per annum respectively at 31 December 2012, 2013 and 2014 and 30 September 2015.

The Target Group’s bank and government loans at 31 December 2012, 2013 and 2014 and 30 September 2015 were secured by:

(i) charges over property, plant and equipment with aggregate carrying amounts of approximately RMB62,939,000, RMB54,119,000, RMB45,966,000 and RMB37,368,000 as at 31 December 2012, 2013 and 2014 and 30 September 2015, respectively (note 15);
(ii) charges over prepaid land lease payment with aggregate carrying amounts of approximately RMB4,378,000, RMB4,263,000, nil and nil as at 31 December 2012, 2013 and 2014 and 30 September 2015, respectively (note 16);

– 186 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

(iii) charges over investment properties with aggregate carrying amounts of approximately RMB8,080,000, RMB8,840,000, RMB8,760,000 and nil as at 31 December 2012, 2013 and 2014 and 30 September 2015, respectively (note 17);
(iv) charges over a land use right held by the Target Group under service concession arrangement as at 30 September 2015 (note 20);
(v) pledged of 100% equity interest in Water Co as at 31 December 2012, 2013 and 2014 and pledged of 100% equity interest in Water Supply Development as at 30 September 2015;
(vi) pledged of 51% and 49% equity interest in Taihe Water held by Huike Properties and Taihe Water’s other shareholder respectively as at 30 September 2015;
(vii) pledged of revenue and trade receivable from water supply of certain subsidiaries at 31 December 2012, 2013 and 2014 and 30 September 2015;
(viii) guarantee by Dongguan New Century Science and Education Development Limited（東莞市新世紀科教拓展有限公司）and Mr. Yang Zhimao as at 31 December 2012, 2013 and 2014 and 30 September 2015;
(ix) guarantee by GD as at 31 December 2012 and 2013;
(x) guarantee by the shareholder of the Target Company, Dongguan Hongshun Shiye Development Company Limited（東莞市弘舜實業發展有限公司）as at 31 December 2014; and
(xi) guarantee by Xinhongcheng and Huike Properties as at 30 September 2015.

– 187 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

33. Deferred tax liabilities

Target Group

At 1 January 2012 Charged to profit or loss At 31 December 2012 and 1 January 2013 Charged to profit or loss Charged to other comprehensive income At 31 December 2013 and 1 January 2014 Acquisition of a subsidiary (note 36) (Credited)/charged to profit or loss Charged to other comprehensive income At 31 December 2014 and 1 January 2015 Charged to profit or loss Charged to other comprehensive income At 30 September 2015	Temporary differences on assets recognised under HK(IFRIC)- Int 12 RMB’000 – – – – – – 15,038 (124) – 14,914 2,364 – 17,278	Accelerated tax depreciation RMB’000 17 227 244 396 – 640 – 631 – 1,271 178 – 1,449	Revaluation of properties RMB’000 1,532 53 1,585 258 191 2,034 – (549) 1,017 2,502 20 77 2,599	Total RMB’000 1,549 280
				1,829 654 191
				2,674 15,038 (42) 1,017
				18,687 2,562 77
				21,326

– 188 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANY

34. Share capital

Target Group

The Reorganisation was completed in June 2015, hence, share capital as at 31 December 2012, 2013 and 2014 represents the combined share capital of the companies comprising the Target Group. As at 30 September 2015, share capital represents the Target Company’s issued share capital after elimination of the Company’s investments in subsidiaries.

Target Company

The Target Company was incorporated as a limited company in the PRC on 11 November 2013 with registered capital of RMB1,000,000. In April 2015, the registered capital of the Target Company increased to RMB410,000,000.

35. Reserves

Target Group

Details of the movements on the Target Group’s reserves are as set out in the consolidated statements of changes in equity in section I.

(a) Merger reserves

Merger reserves of the Target Group arose as a result of the Reorganisation and represented the difference between the registered capital of Water Co and the consideration for the acquisition of Water Co’s entire equity interest pursuant to the Reorganisation.

(b) Statutory reserves

Statutory reserves represent appropriation of profits of the PRC subsidiaries to non-distributable reserve fund account as required by the relevant PRC statue.

– 189 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

(c) Other reserves

Other reserves represent (i) the difference between the consideration transferred and the carrying amount of the net assets attributable to the additional interests in a subsidiary being acquired from non-controlling equity holders; and (ii) the effect of carving out of Engineering Co.

(d) Properties revaluation reserve

Where land and buildings are reclassified to investment properties, the cumulative increase in fair value at the date of reclassification is included in the properties revaluation reserve, and will be transferred to retained profits upon the retirement or disposal of the relevant properties.

Target Company

Balance at 11 November 2013 (date of incorporation) Loss for the period Balance at 31 December 2013, 1 January 2014, 31 December 2014 and 1 January 2015 Loss for the period Balance at 30 September 2015	Accumulated losses RMB’000 – (3) (3) (223) (226)

36. Acquisition of a subsidiary

On 20 October 2014, the Target Group acquired additional 18.93% of the equity interest of Taihe Water at a cash consideration of RMB29,264,000. Upon completion of the acquisition, the Target Group’s interest in Taihe Water increased to 51% and Taihe Water became a subsidiary of the Target Group. The acquisition was made with the aim to expand the Target Group’s existing water supply business in the PRC.

– 190 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

The fair values of identifiable assets and liabilities of Taihe Water at the date of acquisition are as follows:

Other intangible asset
Cash and cash equivalents
Trade receivables
Prepayments and other receivables
Inventories
Trade payables
Accrued liabilities, other payables and receipts in advance
Deferred tax liabilities
Provision for tax
Non-controlling interests
Net assets acquired
Total consideration transferred:
Fair value of 32.07% equity interest previously held
by the Target Group
Cash consideration

RMB’000
134,810
12,905
2,204
445
381
(166)
(45,337)
(15,038)
(797)
89,407
(43,810)
45,597
RMB’000
12,178
29,264
41,442

– 191 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

Loss arising from step acquisition: Gain on bargain purchase Fair value of 32.07% equity interest previously held by the Target Group less carrying amount of such equity interest at the acquisition date Net cash outflow arising on acquisition: Cash consideration paid Cash and cash equivalents acquired Notes:	RMB’000 4,155 (9,407) (5,252) RMB’000 (29,264) 12,905 (16,359)

The gain from a bargain purchase of approximately RMB4,155,000 was mainly attributable to the difference between the perceived value of the 32.07% equity interest previously held by the Target Group and the 51% of the fair values of identifiable assets and liabilities at the acquisition date estimated by the vendor and those estimated by the Target Group’s independent professional valuers.

The fair value of trade receivables amounted to approximately RMB2,204,000. The gross amount of these receivables is approximately RMB2,204,000. None of these receivables have been impaired and it is expected that the full contractual amounts can be collected.

Non-controlling interests are measured at the non-controlling interests’ proportionate share of the fair value of net identifiable assets acquired at the acquisition date.

Since the acquisition date, Taihe Water has contributed approximately RMB8,776,000 and RMB1,678,000 to the Target Group’s revenue and profit after tax, respectively, for the year ended 31 December 2014. If the acquisition had occurred on 1 January 2014, the Target Group’s revenue and profit after tax would have been approximately RMB168,781,000 and RMB21,928,000, respectively, for the year ended 31 December 2014. This pro forma information is for illustrative purposes only and is not necessarily an indication of revenue and results of operations of the Target Group that actually would have been achieved had the acquisition been completed on 1 January 2014, nor is it intended to be a projection of future performance.

The acquisition-related costs were not material. They have been expensed and are included in administrative expenses.

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APPENDIX II

37. Related party transactions

(a) In addition to the transactions and balances disclosed elsewhere in the consolidated financial statements, the following transactions were carried out with related parties:

	Nature of				Nine months	ended
Names of related parties	transactions	Year	ended 31 December		30 September
		2012	2013	2014	2014	2015
		RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
					(Unaudited)
GD	Rental income	–	–	162	108	306
廣東博信投資控股股份	Rental income	72	72	72	54	94
有限公司(note (i))
清遠市博成市政工程	Rental income	–	66	102	77	115
有限公司(note (ii))
清遠市博成市政工程	Construction	–	55,967	48,376	33,387	54,598
有限公司(note (ii))	costs
Engineering Co (note (iii))	Purchase of	–	–	101	–	175
	raw material
Taihe Water (note (iv))	Interest income	–	–	391	213	–
Taihe Water (note (iv))	Water supply	–	1,696	5,041	4,393	–
	services fees

Notes:

(i) The beneficial shareholder of the Target Company, Mr. Yang Zhimao, has beneficial interest in 廣東博信投資控股股份有限公司. Rental income was made according to the terms of the rental agreements.
(ii) 清遠市博成市政工程有限公司 was a subsidiary of 廣東博信投資控股股份有限公司 Rental income and construction costs were made according to the terms of the agreements.
(iii) Engineering Co is an associate of the Target Group for the years ended 31 December 2012 and 2013 and ten months ended 30 October 2014. It has become a subsidiary of the Target Group since November 2014 and was disposed of in March 2015. Engineering Co was excluded in the Financial Information and the Comparative Financial Information for the purpose of this report pursuant to the Reorganisation. The purchases of raw material were made with reference to the terms negotiated between both parties.
(iv) Taihe Water is an associate of the Target Group for the years ended 31 December 2012 and 2013 and for the period from 1 January 2014 to 19 October 2014. It has become a subsidiary of the Target Group since 20 October 2014 (note 36). Interest income and water supply services fees were made with reference to the terms negotiated between both parties.

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APPENDIX II

(b) Key management personnel compensation

Key management includes members of the board of directors and other members of key management of the Target Group. The compensation paid or payable to key management personnel is shown below:

Short-term employee benefits Pension costs – defined contribution plan	Year 2012 RMB’000 982 47 1,029	ended 31 December 2013 2014 RMB’000 RMB’000 952 1,076 79 89 1,031 1,165	Nine months ended 30 September 2014 2015 RMB’000 RMB’000 (Unuadited) 448 647 63 73 511 720	Nine months ended 30 September 2014 2015 RMB’000 RMB’000 (Unuadited) 448 647 63 73 511 720
				720

38. Commitment

(i) Capital Commitments

At the reporting dates, the Target Group had the following capital commitments:

Contracted but not provided for in respect of – Construction in progress – Other intangible assets	As at 31 December 2012 2013 2014 RMB’000 RMB’000 RMB’000 32,758 49,286 231,105 – – 300 32,758 49,286 231,405	As at 30 September 2015 RMB’000 107,479 48,568
		156,047

The Target Company did not have any significant capital commitment.

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APPENDIX II

(ii) Operating lease arrangement

As lessee

The Target Group leases certain of its leasehold land and office premises under operating lease arrangements for terms ranging from one to three years. Certain leases contain an option to renew the lease and renegotiate the terms at the expiry date or at dates mutually agreed between the Target Group and the landlords. None of the leases include contingent rentals.

At the reporting date, The Target Group had total future minimum lease payments under non-cancellable operating leases falling due as follows:

Not later than one year Later than one year and not later than five years	As at 31 December 2012 2013 2014 RMB’000 RMB’000 RMB’000 8 11 11 – – – 8 11 11	As at 30 September 2015 RMB’000 38 64
		102

The Target Company does not have any significant minimum lease payments under non-cancellable operating leases.

As lessor

The Target Group leases its investment properties under operating lease arrangements for terms ranging from one to five years. Certain leases contain an option to renew the lease and renegotiate the terms at the expiry date or at dates mutually agreed between the Group and the lessees. None of the leases include contingent rentals.

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FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

At each reporting date, the Target Group had total future minimum lease receivables under non-cancellable operating leases falling due as follows:

Not later than one year Later than one year and not later than five years	As at 31 December 2012 2013 2014 RMB’000 RMB’000 RMB’000 96 105 140 20 60 30 116 165 170	As at 30 September 2015 RMB’000 596 16
		612

The Target Company does not have any significant minimum lease receivables under non-cancellable operating leases.

39. Financial risk management objectives and policies

The Target Group is exposed to a variety of financial risks in its ordinary course of operations. The financial risks include market risk (mainly foreign currency risk, interest rate risk and price risk), credit risk and liquidity risk. Details are disclosed in the notes below. The Target Group’s overall risk management focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Target Group’s financial performance. Risk management is carried out by key management under the policies approved by the directors of the Target Group. The Target Group does not have written risk management policies. However, the directors of the Target Group meet regularly to identify and evaluate risks and to formulate strategies to manage financial risks on timely and effective manner. The risks associated with these financial instruments and the policies applied by the Target Group to mitigate these risks are set out below.

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APPENDIX II

Categories of financial assets and liabilities

The carrying amounts of the Target Group and Target Company’s financial assets and liabilities recognised in the consolidated statements of financial position at the reporting dates may also be categorised as follows:

Target Group

Financial assets Financial assets at fair value through profit or loss Loans and receivables: Trade receivables Deposits and other receivables Amount due from a related company Cash and bank balances Financial liabilities Financial liabilities at amortised costs: Trade payables Accrued liabilities and other payables Amounts due to related companies Bank and other borrowings	As at 31 December 2012 2013 2014 RMB’000 RMB’000 RMB’000 5,593 – – 9,594 13,614 15,288 193 1,222 2,474 – 154,000 – 187,905 11,679 25,450 197,692 180,515 43,212 435 506 576 11,846 27,663 53,548 90,913 27,479 52,576 143,594 223,230 145,682 246,788 278,878 252,382	As at 30 September 2015 RMB’000 –

		19,673 3,822 – 86,812
		110,307

		1,062 83,746 65,155 266,193
		416,156

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FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

Target Company

Financial assets Loans and receivables: Amount due from a subsidiary Cash and bank balances Financial liabilities Financial liabilities at amortised costs: Amount due to a related company	As at 31 December 2013 2014 RMB’000 RMB’000 – – 97 997 97 997 100 – 100 –	As at 30 September 2015 RMB’000 413,000 774
		413,774

		19,000
		19,000

Interest rate risk

The Target Group’s exposure to interest rate risk relates principally to its cash at bank and the bank and other borrowings. The Target Group’s policy is to minimise interest rate risk exposure. To achieve this, the Target Group regularly assesses and monitors its needs for cash with reference to its business plans and day-to-day operations. The Target Group currently does not have an interest rate hedging policy.

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FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

The following table illustrates the sensitivity of the Target Group’s profit for the year/period, and other components of equity due to a possible change in interest rates on its floating rate bank deposits and cash held in a securities account maintained in a securities company with all other variables held constant at the end of each reporting period (in practice, the actual trading results may differ from the sensitivity analysis below and the difference could be material):

				Nine months
				ended
	Year	ended 31 December		30 September
	2012	2013	2014	2015
	RMB’000	RMB’000	RMB’000	RMB’000
Increase/(decrease) in loss/
profit for the year and
retained profits
Increase/decrease in basis
points (“bp”)
+ 50 bp	1,657	1,175	856	1,765
– 50 bp	(1,657)	(1,175)	(856)	(1,765)

The above sensitivity analysis is prepared based on the assumption that the bank deposits and cash held in bank accounts and bank and other borrowings as at reporting dates existed throughout the whole respective financial reporting period.

The assumed changes in interest rates are considered to be reasonably possible based on observation of current market conditions and represents management’s assessment of a reasonably possible change in interest rates over the next twelve month period.

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APPENDIX II

Liquidity risk

The Target Group is exposed to liquidity risk in respect of settlement of trade payables and its financing obligations, and also in respect of its cash flow management. The Target Group’s policy is to regularly monitor current and expected liquidity requirements to ensure that it maintains sufficient reserves of cash to meet its liquidity requirements in the short and longer term.

The following table details the Target Group’s remaining contractual maturities of the Target Group’s financial liabilities which are based on undiscounted cash flows and the earliest date the Target Group can be required to pay are summarised below. The maturity analysis for the bank borrowings is prepared based on the scheduled repayment dates.

At 31 December 2012 Trade payables Accrued liabilities and other payables Amounts due to related companies Bank and other borrowings At 31 December 2013 Trade payables Accrued liabilities and other payables Amounts due to related companies Bank and other borrowings	Carrying amount RMB’000 435 11,846 90,913 143,594 246,788 Carrying amount RMB’000 506 27,663 27,479 223,230 278,878	Total contractual undiscounted cash flow RMB’000 435 11,846 90,913 169,648 272,842 Total contractual undiscounted cash flow RMB’000 506 27,663 27,479 253,274 308,922	On demand RMB’000 435 11,846 90,913 – 103,194 On demand RMB’000 506 27,663 27,479 – 55,648	Less than 3 months RMB’000 – – – 8,615 8,615 Less than 3 months RMB’000 – – – 17,419 17,419	3 to less than 12 months RMB’000 – – – 22,666 22,666 3 to less than 12 months RMB’000 – – – 53,725 53,725	Over 1 year RMB’000 – – – 138,367
						138,367

						Over 1 year RMB’000 – – – 182,130
						182,130

– 200 –

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET COMPANY

At 31 December 2014 Trade payables Accrued liabilities and other payables Amounts due to related companies Bank and other borrowings	Carrying amount RMB’000 576 53,548 52,576 145,682 252,382	Total contractual undiscounted cash flow RMB’000 576 53,548 52,576 158,997 265,697	On demand RMB’000 576 53,548 52,576 – 106,700	Less than 3 months RMB’000 – – – 16,127 16,127	3 to less than 12 months RMB’000 – – – 44,434 44,434	Over 1 year RMB’000 – – – 98,436
						98,436

At 30 September 2015 Trade payables Accrued liabilities and other payables Amounts due to related companies Bank and other borrowings	Carrying amount RMB’000 1,062 83,746 65,155 266,193 416,156	Total contractual undiscounted cash flow RMB’000 1,062 83,746 65,155 268,460 418,423	On demand RMB’000 1,062 83,746 65,155 – 149,963	Less than 3 months RMB’000 – – – 15,380 15,380	3 to less than 12 months RMB’000 – – – 43,605 43,605	Over 1 year RMB’000 – – – 209,475
						209,475

Financial instruments measured at fair value

The following table presents financial assets and liabilities measured at fair value in the consolidated statement of financial position in accordance with the fair value hierarchy. The hierarchy groups financial assets and liabilities into three levels based on the relative reliability of significant inputs used in measuring the fair value of these financial assets and liabilities. The fair value hierarchy has the following levels:

– Level 1: quoted prices (unadjusted) in active markets for identical assets and liabilities;

– Level 2: 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: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET COMPANY

The level in fair value hierarchy within which the financial asset or liability is categorised in its entirety is based on the lowest level of input that is significant to the fair value measurement.

At 31 December 2012, the financial assets measured at fair value in the consolidated statement of financial position are grouped into the fair value hierarchy as follows:

			At 31 December 2012	At 31 December 2012
		Level 1	Level 2	Level	3	Total
		HK$’000	HK$’000	HK$’000		HK$’000
Financial	assets
Financial	assets at fair value
through	profit or loss	–	5,593		–	5,593

There have been no significant transfers between the levels in the reporting period.

40. Capital management policies and procedures

The Target Group manages its capital to ensure that entities in the Target Group will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance. The Target Group’s overall strategy remains unchanged throughout the year.

The Target Group sets the amount of capital in proportion to its overall financing structure. The Target Group manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Target Group may adjust the amount of dividend paid to shareholders, return capital to shareholders, issue new shares, or sell assets to reduce debt.

– 202 –

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET COMPANY

The net debt to equity ratio at the end of each of the reporting dates was as follows:

Trade payables Accrued liabilities, other payables and receipts in advance Amounts due to related parties Bank and other borrowings Less: Cash and cash equivalents Net debt Equity Net debt to equity ratio	As at 31 December 2012 2013 2014 RMB’000 RMB’000 RMB’000 435 506 576 14,762 32,928 58,134 90,913 27,479 52,576 143,594 223,230 145,682 187,905 11,679 25,450 61,799 272,464 231,518 134,533 143,681 180,939 45.9% 189.6% 128.0%	As at 30 September 2015 RMB’000 1,062 91,707 65,155 266,193
		86,812
		337,305 219,448 153.7%

III. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the Target Group in respect of any period subsequent to 30 September 2015.

Yours faithfully,

BDO Limited

Certified Public Accountants

Wong Kwok Wai Practising Certificate Number P06047

Hong Kong

The English names of Chinese entities marked with “*” are translations of their Chinese names and are included in this circular for identification purpose only, and should not be regarded as their official English translation. In the event of any inconsistency, the Chinese name prevails.

– 203 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

2. MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET COMPANY

Set out below is the management discussion and analysis on the Target Company for the three years ended 31 December 2012, 2013 and 2014 and nine months ended 30 September 2015.

Business review

For the three years ended 31 December 2012, 2013 and 2014, and nine months ended 30 September 2015, the Target Group recorded revenues of approximately RMB92,261,000, RMB108,468,000, RMB137,068,000 and RMB218,796,000, respectively. The Target Group derived revenue primarily from provision of tap water to local consumers through the water pipes that owned by the Target Group. The Target Group obtained water sourcing permits to source raw water from local rivers for processing and purification. The Target Group principally charges their customers for the tap water used in accordance to their consumed volume and usage with respect to the water tariff set by local price bureaus .

The Target Group also provides water testing services to other members of the Target Group as required by the local government and to independent third parties.

The Target Group also owns the Jinlong Building, where the 1st, 2nd, 3rd, 4th, and 12th floor are used by members of the water supply business group for administrative purposes and the remaining floors are intended for investment purposes.

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FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

For the three years ended 31 December 2012, 2013 and 2014, and nine months ended 30 September 2015, the Target Group recorded revenue derived from provision of tap water to consumers amounted to approximately RMB83,672,000, RMB97,668,000, RMB118,518,000 and RMB110,659,000, respectively, representing approximately 90.69%, 90.04%, 86.47% and 50.58% of the total revenue of the Target Group for the same period. The Target Group principally derived its revenue from provision of tap water. Following the step acquisition of Taihe Water of which Taihe Water’s financial statements subsequently consolidated into the Target Group’s financial statements in the fourth quarter of 2014, and due to the accounting treatment adopted where Taihe Water was deemed as build-operatetransfer (“ BOT ”), water supply construction sum is booked as revenue of Taihe Water. Such increment caused the drop in the relative percentage of provision of tap water as a whole. The Target Group charged their consumers in accordance to their consumed volume and usage with respect to the water tariff set by local price bureaus. A progressive tariff structure has been adopted on residential household users. Residential household users of water usage of 30 cubic metres or below per month, water usage of 31-37 cubic metres per month and water usage of 38 or above cubic metres per month are charged at RMB 1.12, RMB 1.68 and RMB 2.24, respectively. Non-residential household users are charged at the rate between RMB 1.80 and RMB 3.35 per cubic metres of water used. The water tariff in Qingyuan and Qingxin District are currently the same and has remained at this level since July 2013 and May 2014, respectively. Wastewater treatment charges, also set by local price bureaus, applies to all Qingyuan and Qingxin District users with the exclusion of exempted users i.e. educational institutions and public hospitals, at the rate of RMB 0.80 per ton measured by 90% of water consumed. Other non-water related charges include rubbish collecting fee and sanitation service fee are charged in accordance to the fees as set by local price bureaus. All of the said charges and fees with the exception water tariff are collected by the Target Group on behalf of the corresponding entities. Revenue generated from the provision of water testing services to independent parties for the three years ended 31 December 2012, 2013 and 2014, and nine months ended 30 September 2015 were negligible, respectively.

The increase in revenue from the year ended 31 December 2013 to the year ended 31 December 2014 was primarily attributable to the increase in equity interests in Taihe Water from approximately 32.07% to 51%, which led to the consolidation of Taihe Water’s revenue into the Target Group’s revenue. Another factor that had contributed to the increase in revenue from the year ended 31 December 2013 to the year ended 31 December 2014 was the adjustments in water tariff in Qingxin District set by local price bureau, and the principal factor contributed to the increase in the revenue from the year ended 31 December 2012 to the year ended 31 December 2013 was the adjustments in water tariff in Qingyuan set by local price bureau.

– 205 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

As at the Latest Practicable Date, Taihe Water was holding two water plants with an aggregate daily capacity of approximately 110,000 tones. Engineering Co was disposed in March 2015.

Together the Target Group has 3 water sourcing permits that allow it to source raw water from local rivers at the rate of RMB0.12 per cubic metre. However, in order to supply to local consumers, the Target Group is required to invest in the water supply pipes that extend into the target neighborhood of consumers. The Target Group has been engaging third parities licensed water pipes contractors to construct the relevant water supply pipes since no member in the Target Group has the qualifications to construct water supply pipes. The total investment amount in water supply pipes and related facilities for the 3 years ended 31 December 2012, 2013 and 2014, and nine months ended 30 September 2015 were approximately RMB7,595,000, RMB70,216,000, RMB65,738,000 and RMB65,469,000, respectively.

The Target Group acquired approximately 32.07% attributable interests of Taihe Water and Engineering Co in December 2010 for approximately RMB11,210,000 and RMB160,000, respectively, and a further approximately 18.93% attributable interests of Taihe Water and Engineering Co in October 2014 for approximately RMB29,264,000 and RMB426,000, respectively. Pursuant to the applicable accounting standards, the initially acquired approximately 32.07% attributable interests of Taihe Water would be regarded as deemed disposal based on the valuation of the second acquisition of approximately 18.93% attributable interests of Taihe Water at RMB12,178,000 and to record against its carrying value. As a result, loss of approximately RMB 9,407,000 were recorded from the deemed disposal of approximately 32.07% attributable interests in Taihe Water in October 2014. Together with the gain on bargain purchase of approximately RMB4,155,000 on the step acquisition of Taihe Water, an aggregated of approximately RMB5,252,000 was recorded as loss of the Target Group for the year ended 31 December 2014. Only Taihe Water was consolidated into the financials of the Target Group since October 2014. Engineering Co was sold to an independent third party prior to April 2015.

For the three years ended 31 December 2012, 2013 and 2014, and nine months ended 30 September 2015, the cost of services of the Target Group amounted to approximately RMB49,969,000, RMB56,167,000, RMB77,381,000 and RMB151,005,000, respectively. The sharp increase in cost of services between 2013 and 2014 was principally attributable to the increase in the overall production volume of tap water after the consolidation of the financials of Taihe Water as a result of the further acquisition to an aggregate of 51% interests in Taihe Water.

– 206 –

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET COMPANY

The gross profit margins of the Target Group were relatively stable for the three years ended 31 December 2012, 2013 and 2014 at approximately 45.84%, 48.22% and 43.55%, respectively. For the nine months ended 30 September 2015, the Target Group recorded a decline in the said margin to approximately 30.98% for the reason that under the adopted accounting treatment of Taihe Water, a sum of approximately RMB99,222,000 was recognized as revenue related to construction service of Taihe Water with a markup percentage of approximately 19% as provided by the Valuer, hence diluted the overall gross profit margin during the period.

Due to the nature of the business, the Target Group did not record any material distribution costs for the three years ended 31 December 2012, 2013 and 2014, and nine months ended 30 September 2015.

The Target Group incurred administrative expenses, which primarily included staff cost, in the amounts of approximately RMB5,457,000, RMB7,698,000, RMB14,815,000 and RMB9,817,000, respectively, for the three years ended 31 December 2012, 2013 and 2014 and nine months ended 30 September 2015. The rise in administrative expenses between 2013 and 2014 was principally due to (i) increase in staff cost as a result of the consolidation of the Taihe Water’s financials and (ii) a one-off charge in legal, consultancy and other professional fee related to the Target Group’s internal reorganization.

Primarily as a result of the foregoing, the Target Group recorded a profit before tax of approximately RMB32,637,000, RMB35,237,000, RMB29,406,000 and RMB51,505,000, respectively, for the three years ended 31 December 2012, 2013 and 2014 and nine months ended 30 September 2015.

The Target Group recorded income tax expenses for the three years ended 31 December 2012, 2013 and 2014, and nine months ended 30 September 2015, in the amounts of approximately RMB7,732,000, RMB9,780,000, RMB8,883,000 and RMB12,057,000, respectively. The effective tax rate for the three years ended 31 December 2012, 2013 and 2014, and nine months ended 30 September 2015, were approximately 23.69%, 27.75%, 30.21% and 23.41%, respectively.

As a result of the foregoing, the Target Group recorded an after tax profit of approximately RMB24,905,000, RMB25,457,000, RMB20,523,000 and RMB39,448,000 for the three years ended 31 December 2012, 2013 and 2014, and nine months ended 30 September 2015, respectively.

– 207 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

Capital structure, liquidity, financial resources and gearing ratio

As at 31 December 2012, 2013 and 2014 and 30 September 2015, the Target Group had current assets of approximately RMB204,284,000, RMB181,657,000, RMB44,903,000 and RMB113,260,000, respectively, of which cash and bank balances were approximately RMB187,905,000, RMB11,679,000, RMB25,450,000 and RMB86,812,000, respectively, and trade receivables were approximately RMB9,594,000, RMB13,614,000, RMB15,288,000 and RMB19,673,000, respectively. Majority of the trade receivables are water charges billed to the tap water consumers of the Target Group and are due within one year. The table below sets forth an aging analysis of the trade receivables of the Target Group (net of impairment and based on invoice date):

Trade receivables

0 to 90 days 91 to 180 days Over 180 days	As at 31 December 2012 2013 2014 RMB’000 RMB’000 RMB’000 9,320 13,278 14,397 100 163 358 174 173 533 9,594 13,614 15,288	As at 30 September 2015 RMB’000 18,650 544 479
		19,673

As at 31 December 2012, 2013 and 2014 and 30 September 2015, the Target Group had non-current assets of approximately RMB182,494,000, RMB250,347,000, RMB413,847,000 and RMB555,347,000, respectively, of which property, plant and equipment were approximately RMB142,687,000, RMB195,306,000, RMB237,765,000 and RMB288,419,000, respectively. The increase from 31 December 2013 to 31 December 2014 was principally a result of the consolidation of the non-current assets of Taihe Water into the financial statements of the Target Group.

– 208 –

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET COMPANY

As at 31 December 2012, 2013 and 2014 and 30 September 2015, the Target Group had current liabilities of approximately RMB129,186,000, RMB119,967,000, RMB165,806,000 and RMB215,361,000, respectively, comprising primarily of (i) accrued liabilities, other payables and receipts in advance; (ii) amounts due to related companies and (iii) bank and other borrowings, which were mainly (a) construction fee payables for maintenance and expansion of water pipe network and expansion of water plant capacity; (b) rubbish collecting fee and sanitation service fee payable to independent corresponding entities which were collected from tap water consumers on behalf of such sewage processing entities; (c) amounts due to related companies and (d) the current portion of bank loans and government loans. The amounts due to related companies are unsecured, interest-free and repayable on demand. The table below sets forth the details and composition of current liabilities of the Target Group:

Accrued liabilities, other payables and receipts in advance

Accrued liabilities Other payables Receipts in advance	As at 31 December 2012 2013 2014 RMB’000 RMB’000 RMB’000 3,778 5,609 6,587 8,068 22,054 46,961 2,916 5,265 4,586 14,762 32,928 58,134	As at 30 September 2015 RMB’000 2,959 80,787 7,961
		91,707

Amounts due to related companies

The amounts due are unsecured, interest-free and repayable on demand.

– 209 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

Bank and other borrowings

Current Bank loans – secured Government loans – secured Government loans – unsecured Non-current Bank loans – secured Government loans – secured Government loans – unsecured Analysed into: Bank loans repayable: On demand or within one year In the second year In the third to fifth years, inclusive Beyond five years Government loans repayable: On demand or within one year In the second year In the third to fifth years, inclusive Beyond five years	As at 31 December 2012 2013 2014 RMB’000 RMB’000 RMB’000 21,500 51,500 51,500 – 5,184 – 864 864 864 22,364 57,548 52,364 110,000 160,500 89,000 5,184 – – 6,046 5,182 4,318 121,230 165,682 93,318 143,594 223,230 145,682 21,500 51,500 51,500 27,500 51,500 61,500 82,500 109,000 27,500 – – – 131,500 212,000 140,500 864 6,048 864 6,048 864 864 2,591 2,955 2,590 2,591 1,363 864 12,094 11,230 5,182 143,594 223,230 145,682	As at 30 September 2015 RMB’000 52,857 – 864
		53,721

		209,017 – 3,455
		212,472

		266,193

		52,857 40,643 22,304 146,070
		261,874

		864 864 2,227 364
		4,319

		266,193

– 210 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

As at 31 December 2012, 2013 and 2014 and 30 September 2015, the Target Group had non-current liabilities of approximately RMB123,059,000, RMB168,356,000, RMB112,005,000 and RMB233,798,000, respectively, of which the non-current portion of bank and other borrowings were approximately RMB121,230,000, RMB165,682,000, RMB93,318,000 and RMB212,472,000, respectively.

As at 31 December 2012, 2013 and 2014 and 30 September 2015, the Target Group’s gearing ratios, expressed as a percentage of total liabilities over total equity, were approximately 187.50%, 200.67%, 153.54% and 204.68%, respectively.

During the three years ended 31 December 2012, 2013 and 2014, and nine months ended 30 September 2015, the principal source of cash of the Target Group was cash from operating activities, bank and other borrowings, and amounts due to related companies in the aggregate amounts of approximately RMB129,069,000, RMB100,904,000, RMB35,350,000 and RMB242,350,000, respectively.

As at 31 December 2012, 2013 and 2014 and 30 September 2015, the Target Group had outstanding borrowings which comprises of bank loans and government loans in the amounts of approximately RMB143,594,000, RMB223,230,000, RMB145,682,000 and RMB266,193,000, respectively. As illustrated above, please refer to section headed “Bank and other borrowings” for details.

Capital commitments

As at 31 December 2012, 2013 and 2014 and 30 September 2015, the Target Group had capital commitments that were contracted but not provided for in respect of (i) construction in progress were approximately RMB32,758,000, RMB49,286,000, RMB231,105,000 and RMB107,479,000, respectively; and (ii) other intangible assets (as defined under the adopted accounting standards) were approximately nil, nil, RMB300,000 and RMB48,568,000, respectively. Save as disclosed above, the Target Group had no other material capital commitment as at 31 December 2012, 2013 and 2014 and 30 September 2015. The table below sets forth the capital commitments of the Target Group;

– 211 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

Capital commitments

Contracted but not provided for in respect of – Construction in progress – Other intangible assets	As at 31 December 2012 2013 2014 RMB’000 RMB’000 RMB’000 32,758 49,286 231,105 – – 300 32,758 49,286 231,405	As at 30 September 2015 RMB’000 107,479 48,568
		156,047

Contingent liabilities

The Target Group is potentially subject to legal proceedings and claims arising from the conduct of its business operations, for example water supply service. It is impossible to ascertain the ultimate legal and financial liability with respect to contingent liabilities including lawsuits.

Save as disclosed above, as at 31 December 2012, 2013 and 2014 and 30 September 2015, the Target Group had no material contingent liabilities.

Charge on assets

The Target Group’s bank and government loans at 31 December 2012, 2013 and 2014 and 30 September 2015 were secured by:

(i) charges over property, plant and equipment with aggregate carrying amounts of approximately RMB62,939,000, RMB54,119,000, RMB45,966,000, RMB37,368,000 as at 31 December 2012, 2013 and 2014 and 30 September 2015, respectively;
(ii) charges over prepaid land lease payment with aggregate carrying amounts of approximately RMB4,378,000, RMB4,263,000, nil, nil as at 31 December 2012, 2013 and 2014 and 30 September 2015, respectively;

– 212 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

(iii) charges over investment properties with aggregate carrying amounts of approximately RMB8,080,000, RMB8,840,000 and RMB8,760,000, nil as at 31 December 2012, 2013 and 2014 and 30 September 2015, respectively;
(iv) charges over a land use right held by the Target Group under service concession arrangement as at 30 September 2015;
(v) pledged of 100% equity interest in Water Co as at 31 December 2012, 2013 and 2014 and pledged of 100% equity interest in Water Supply Development as at 30 September 2015;
(vi) pledged of 51% and 49% equity interest in Taihe Water held by Huike Properties and Taihe Water’s other shareholder respectively as at 30 September 2015;
(vii) pledged of revenue and trade receivable from water supply of certain subsidiaries at 31 December 2012, 2013 and 2014 and 30 September 2015;
(viii) guarantee by Dongguan New Century Science and Education Development Limited（東莞市新世紀科教拓展有限公司）and Mr. Yang Zhimao as at 31 December 2012, 2013 and 2014 and 30 September 2015;
(ix) guarantee by GD as at 31 December 2012 and 2013;
(x) guarantee by the shareholder of the Target Company, the Vendor as at 31 December 2014; and
(xi) guarantee by Xinhongcheng and Huike Properties as at 30 September 2015.

Foreign exchange exposures

The Target Group was not exposed to foreign currency risk as all of its business transactions, assets and liabilities are denominated in RMB. Accordingly, the Target Group currently does not have a foreign currency hedging policy.

Interest rate exposures

– 213 –

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET COMPANY

				Nine months
				ended
	Year	ended 31 December		30 September
	2012	2013	2014	2015
	RMB’000	RMB’000	RMB’000	RMB’000
Increase/(decrease) in loss/profit
for the year and retained profits
Increase/decrease in basis
points (“bp”)
+ 50 bp	1,657	1,175	856	1,765
– 50 bp	(1,657)	(1,175)	(856)	(1,765)

Segment information

For the three years ended 31 December 2012, 2013 and 2014 and nine months ended 30 September 2015, the Target Group principally derived its revenue from provision of tap water. The Target Group also record water supply construction sum as revenue under the adopted accounting standards, but no actual construction services provided to third party was performed. As discussed above, the revenue generated from water testing service is negligible as compared to the amount generated from provision of tap water. With the exclusion of water supply construction services, the Company does not expect, in the next financial year, that there will be significant variation to the proportion of revenue derived from the different reportable segments of the Target Group for the three years ended 31 December 2014 given that its property business requires a longer period to materialize any revenue.

– 214 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

Internal reorganization

Acquisition and disposal of subsidiaries and associated companies

As discussed above in the section headed “Internal reorganization”, Engineering Co was disposed, as part of the internal reorganization, to an independent third party at the consideration of approximately RMB1,148,000 with reference to the net assets of Engineering Co as at 28 February 2015. Save as the aforesaid, there was no other disposal of subsidiaries and business of the Target Group for the three years ended 31 December 2012, 2013 and 2014 and from 1 January 2015 up to the Latest Practicable Date.

– 215 –

FINANCIAL INFORMATION OF THE TARGET COMPANY

APPENDIX II

As at 31 December 2012, 2013 and 2014 and 28 February 2015, the net assets of the Engineering Co. (based on preceding accounting standards) are approximately RMB3,645,000, RMB2,689,000, RMB1,035,000 and RMB1,087,000.

Therefore, the disposal of the Engineering Co will have no material impact on the Target Group’s financial performance and position.

Save as disclosed above, the Target Group did not have any significant investments, material acquisition and disposals of subsidiaries and associated companies for the years ended 31 December 2012, 2013 and 2014 and nine months ended 30 September 2015.

Employment, training and development

As at 31 December 2012, 2013 and 2014 and 30 September 2015, there were approximately 171, 222, 340 and 353 employees in the Target Group. The increase in staff headcount between 31 December 2013 and 31 December 2014 was mainly due to the consolidation of the further acquisition to an aggregate of 51% interests in Taihe Water and Engineering Co.

The staff costs (induding directors’ remuneration) of the Target Group for the financial year ended 31 December 2012, 2013 and 2014, and nine months ended 30 September 2015, were approximately RMB10,805,000, RMB13,168,000, RMB16,966,000 and RMB14,489,000, respectively.

Prospects and future plan

The Target Group will continue to focus on its principal activities which are provision of tap water and property investments. It will also explore the possibility of developing the land owned by evaluating the costs, including but not limited to the additional payment of land premium, in association to the development of the land.

After Completion, the Target Group would finance the capital commitments by bank borrowings.

– 216 –

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

A. UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

1. Introduction

The following is the pro forma financial information of the Group as if its acquisition of the 49% equity interests in Qinghui Properties Ltd. (the “Target Company”) and its subsidiaries (collectively the “Target Group”) (the “Acquisition”) had been completed on 30 June 2015 for the pro forma consolidated statement of financial position and at the beginning of the year ended 31 December 2014 for the pro forma consolidated statement of profit or loss and pro forma consolidated statement of cash flows. The pro forma financial information of the Group is based upon the unaudited condensed consolidated financial statements of the Group for the six months ended 30 June 2015 as set out in the Company’s 2015 interim report, the audited consolidated financial statements of the Group for the year ended 31 December 2014 as set out in the Company’s published audited financial statements included in the annual report for the year ended 31 December 2014 and the financial information of the Target Group as set out in the accountants’ report in Appendix II to this Circular, and adjusted on a pro forma basis to reflect the effect of the Acquisition and not relating to future events or decisions, and are factually supportable.

The pro forma financial information of the Group and the Target Group (collectively, the “Enlarged Group”) is based on a number of assumptions, estimates and uncertainties. Among other key assumptions, the directors of the Company have assumed that the Company would be able to raise sufficient funding through internal resources, bank borrowings and/or external financing to finance the Acquisition. As a result of these assumptions, estimates, uncertainties, the accompanying unaudited pro forma financial information of the Enlarged Group does not purport to describe the actual results of operations, financial position or cash flows of the Enlarged Group that would have been attained had the Acquisition been completed on the dates indicated herein.

The pro forma financial information of the Enlarged Group has been prepared by the directors in accordance with Rules 4.29 and 14.69(4)(a)(ii) of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”), for the purpose of illustrating the effect of the Acquisition pursuant to the terms of the sale and purchase agreement and because of its hypothetical nature, it may not give a true picture of the financial position or results of the Enlarged Group had the Acquisition been completed as of the specified dates or any future date.

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

The unaudited pro forma financial information of the Enlarged Group should be read in conjunction with the financial information of the Group as set out in Appendix I to this Circular, the accountants’ report of the Target Group as set out in Appendix II to this Circular and other information included elsewhere in this Circular.

Unaudited pro forma consolidated statement of profit or loss of the Enlarged Group

Revenue Cost of sales/service rendered Gross profit Other revenue Other income Selling and distribution costs General and administrative expenses Other operating expenses Profit from operations Gain on a bargain purchase Increase/(decrease) in fair value of investment properties Impairment loss on debtors Impairment loss on other receivables Impairment loss on intangible assets Gain on disposals of subsidiaries Share of results of associates Loss on step acquisition of a subsidiary Finance costs Profit before income tax Income tax expense Profit for the year Attributable to:– Shareholders of the Company Non-controlling interests	The Group for the year ended 31 December 2014 HK$’000 317,148 (30,646) 286,502 12,536 7,999 – (294,021) – 13,016 10 126 (923) (994) (8,796) 46,224 256 – (760) 48,159 (10,425) 37,734 32,694 5,040 37,734	The Target Group for the year ended 31 December 2014 RMB’000 137,068 (77,381) 59,687 – 5,464 (2,523) (14,815) (1,139) 46,674 – (2,195) – – – – 663 (5,252) (10,484) 29,406 (8,883) 20,523 19,553 970 20,523	The Target Group for the year ended 31 December 2014 HK$’000 171,335 (96,726) 74,609 – 6,830 (3,154) (18,519) (1,424) 58,342 – (2,744) – – – – 829 (6,565) (13,105) 36,757 (11,104) 25,653 24,441 1,212 25,653	Sub-total Pro forma adjustment Note 4 HK$’000 HK$’000 488,483 (127,372) 361,111 12,536 14,829 (3,154) (312,540) (4,978) (1,424) 71,358 10 (2,618) (923) (994) (8,796) 46,224 1,085 (6,565) (13,865) 84,916 (21,529) 63,387 57,135 (4,978) 6,252 63,387	The Enlarged Group HK$’000 488,483 (127,372)
					361,111 12,536 14,829 (3,154) (317,518) (1,424)
					66,380 10 (2,618) (923) (994) (8,796) 46,224 1,085 (6,565) (13,865)
					79,938 (21,529)
					58,409

					52,157 6,252
					58,409

– 218 –

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

Unaudited pro forma consolidated statement of financial position of the Enlarged Group

		The Target	The Target
	The Group	Group	Group
	as at	as at	as at				The
	30 June	30 September	30 September		Pro forma	adjustments	Enlarged
	2015	2015	2015	Sub-total	Note 3	Note 4	Group
	HK$’000	RMB’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
NON-CURRENT ASSETS
Property, plant and equipment	34,792	288,419	360,523	395,315	104,085		499,400
Prepaid land lease premium	9,286	8,421	10,526	19,812	12,264		32,076
Investment properties	32,646	18,510	23,138	55,784			55,784
Intangible assets	4,154	226,696	283,370	287,524	(2,875)		284,649
Goodwill	77,097	1,991	2,489	79,586	112,400		191,986
Deposit paid for acquisition of
property, plant and equipment	20,823	–	–	20,823			20,823
Deferred tax assets	147	–	–	147			147
Deposits paid and other receivable	1,980	11,310	14,138	16,118			16,118
	180,925	555,347	694,184	875,109			1,100,983
CURRENT ASSETS
Inventories	1,000	1,774	2,218	3,218	(49)		3,169
Debtors	60,335	19,673	24,591	84,926			84,926
Deposits, prepayments and
other receivables	326,273	5,001	6,251	332,524			332,524
Financial assets at fair value
through profit or loss	330	–	–	330			330
Prepaid land lease premium	302	–	–	302			302
Fixed deposits	324,885	–	–	324,885			324,885
Cash and bank balances	476,812	86,812	108,515	585,327	(280,525)		304,802
	1,189,937	113,260	141,575	1,331,512			1,050,938
CURRENT LIABILITIES
Payable to merchants	458,355	–	–	458,355			458,355
Trade payables	–	1,062	1,327	1,327			1,327
Deposits received, sundry creditors,
and accruals	99,459	91,707	114,634	214,093		4,978	219,071
Amounts due to related companies	–	65,155	81,444	81,444			81,444
Bank and other borrowings	63,244	53,721	67,151	130,395	16,387		146,782
Tax payable	6,777	3,716	4,645	11,422			11,422
	627,835	215,361	269,201	897,036			918,401

– 219 –

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

NET CURRENT ASSETS/(LIABILITIES) TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Bank and other borrowings Deferred tax liabilities NET ASSETS SHARE CAPITAL RESERVES EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY Non-controlling interests TOTAL EQUITY	562,102 743,027 – 1,406 1,406 741,621 20,805 521,215 542,020 199,601 741,621 The Group as at 30 June 2015 HK$’000	(102,101) 453,246 212,472 21,326 233,798 219,448 410,000 (242,500) 167,500 51,948 219,448 The Target Group as at 30 September 2015 RMB’000	(127,626) 566,558 265,590 26,658 292,248 274,310 512,500 (303,125) 209,375 64,935 274,310 The Target Group as at 30 September 2015 HK$’000	434,476 1,309,585 265,590 (119) 28,064 28,356 293,654 1,015,931 533,305 (512,500) 218,090 303,125 (4,978) 751,395 264,536 110,051 1,015,931 Sub-total Pro forma adjustments Note 3 Note 4 HK$’000 HK$’000 HK$’000	132,537 The Enlarged Group HK$’000
					1,233,520
					265,471 56,420
					321,891
					911,629

					20,805 516,237
					537,042 374,587
					911,629

– 220 –

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

Unaudited pro forma consolidated statement of cash flows of the Enlarged Group

CASH FLOWS FROM OPERATING ACTIVITIES Profit before income tax Adjustments for:– Interest on bank deposits Other interest income Interest expenses Dividend income from investments Depreciation Amortisation of prepaid land lease premium Amortisation of intangible assets Share of results of associates Loss on disposal of property, plant and equipment (Increase)/decrease in fair value of investment properties Gain on change in fair value of financial assets Gain on disposal of financial assets Gain on disposals of subsidiaries Impairment loss on debtors Impairment loss on other receivables Impairment loss on intangible assets Write-down of inventories Reversal of written off of inventories Gain on a bargain purchase Loss on step acquisition of a subsidiary Operating profit before working capital changes (Increase)/decrease in inventories Decrease in debtors Increase in deposits, prepayments and other receivables Increase in payable to merchants Decrease in trade payables Increase in deposits received, sundry creditors and accruals Increase in loan to an officer Increase in amount due to a related company	The Group for the year ended 31 December 2014 HK$’000 48,159 (8,490) (247) 72 (108) 29,976 1,240 4,764 (256) 2,023 (126) (101) (1,377) (46,224) 923 994 8,796 3,470 (496) (10) – 42,982 (21,307) 61,203 (405,078) 58,686 – 398,678 (12,362) 14,350	The Target Group for the year ended 31 December 2014 RMB’000 29,406 (551) – 10,484 – 22,436 271 2,198 (663) 54 2,195 – – – 135 – – – – – 5,252 71,217 35 64 (1,010) – (96) 17,260 – –	The Target Group for the year ended 31 December 2014 HK$’000 36,758 (689) – 13,105 – 28,045 339 2,748 (829) 68 2,744 – – – 169 – – – – – 6,565 89,023 44 80 (1,263) – (120) 21,575 – –	Sub-total Pro forma adjustments Note 1 Note 4 HK$’000 HK$’000 HK$’000 84,917 (4,978) (9,179) (247) 13,177 (108) 58,021 1,579 7,512 (1,085) 2,091 2,618 (101) (1,377) (46,224) 1,092 994 8,796 3,470 (496) (10) 6,565 132,005 (21,263) 61,283 (406,341) 58,686 (120) 420,253 4,978 (12,362) 14,350	The Enlarged Group HK$’000 79,939 (9,179) (247) 13,177 (108) 58,021 1,579 7,512 (1,085) 2,091 2,618 (101) (1,377) (46,224) 1,092 994 8,796 3,470 (496) (10) 6,565
					127,027 (21,263) 61,283 (406,341) 58,686 (120) 425,231 (12,362) 14,350

– 221 –

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

Cash generated from operations Bank interest received Interest paid Tax paid NET CASH FROM OPERATING ACTIVITIES CASH FLOWS FROM INVESTING ACTIVITIES Dividend received from investments Other interest income received Payments to acquire property, plant and equipment Proceeds from disposal of property, plant and equipment Payments to prepaid land lease premium Payments to acquire investment properties Payments to acquire intangible assets Payments to acquire financial assets at fair value through profit or loss Proceeds from disposal of financial assets at fair value through profit or loss Net cash outflow arising on acquisition of a subsidiary Net cash outflow arising on disposals of subsidiaries Decrease in amounts due from related parties Proceeds from disposal of partial interests in a subsidiary NET CASH FROM/(USED IN) INVESTING ACTIVITIES	137,152 8,490 (72) (4,460) 141,110 108 247 (42,293) 2,611 (2,860) – (574) (2,393) 5,434 (2,667) 110,251 – 62,834 130,698 The Group for the year ended 31 December 2014 HK$’000	87,470 551 – (9,072) 78,949 – – (65,276) 7 – (1,905) (3,454) – – (16,359) – 116,609 – 29,622 The Target Group for the year ended 31 December 2014 RMB’000	109,339 689 – (11,340) 98,688 – – (81,595) 9 – (2,381) (4,318) – – (20,449) – 145,761 – 37,027 The Target Group for the year ended 31 December 2014 HK$’000	246,491 9,179 (72) (15,800) 239,798 108 247 (123,888) 2,620 (2,860) (2,381) (4,892) (2,393) 5,434 (23,116) (265,926) 110,251 145,761 62,834 167,725 Sub-total Pro forma adjustments Note 1 Note 4 HK$’000 HK$’000 HK$’000	246,491 9,179 (72) (15,800) The Enlarged Group HK$’000
					239,798
					108 247 (123,888) 2,620 (2,860) (2,381) (4,892) (2,393) 5,434 (289,042) 110,251 145,761 62,834
					(98,201)

– 222 –

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

CASH FLOWS FROM FINANCING ACTIVITIES Interest paid Repayment of bank and other borrowings Advance from related parties Dividend paid Acquisition of non-controlling interests Arising from reorganisation Additional investment to Engineering Co NET CASH USED IN FINANCING ACTIVITIES NET INCREASE IN CASH AND CASH EQUIVALENTS EFFECT OF FOREIGN EXCHANGE RATE CHANGES, NET CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR CASH AND CASH EQUIVALENTS AT END OF THE YEAR	– – – – – – – – 271,808 (9,336) 587,838 850,310 The Group for the year ended 31 December 2014 HK$’000	(12,554) (77,548) 25,428 (39,000) (3,700) 13,000 (426) (94,800) 13,771 – 11,679 25,450 The Target Group for the year ended 31 December 2014 RMB’000	(15,693) (96,935) 31,785 (48,750) (4,625) 16,250 (533) (118,501) 17,214 – 14,599 31,813 The Target Group for the year ended 31 December 2014 HK$’000	(15,693) (96,935) 31,785 (48,750) (4,625) 16,250 (533) (118,501) 289,022 (9,336) 602,437 (14,599) 882,123 Sub-total Pro forma adjustments Note 1 Note 4 HK$’000 HK$’000 HK$’000	(15,693) (96,935) 31,785 (48,750) (4,625) 16,250 (533) The Enlarged Group HK$’000
					(118,501)
					23,096 (9,336) 587,838
					601,598

Notes:

On 21 June 2015, Shenzhen Huanye Universal Technologies Limited (the “Purchaser”, an indirect whollyowned subsidiary of the Company) and Dongguan Hongshun Shiye Development Company Limited (the “Vendor”) entered into a sale and purchase agreement pursuant to which the Purchaser has conditionally agreed to acquire and the Vendor has conditionally agreed to sell 49% equity interest in the Target Company at cash consideration of RMB224,420,000 (equivalent to approximately HK$280,525,000).

The transaction contemplated as mentioned above is referred as the Acquisition.

– 223 –

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

Analysis of the net cash outflow in respect of the Acquisition assuming the completion of the Acquisition as at 1 January 2014:

Cash payment Less: Cash and cash equivalents of the Target Group as at 1 January 2014 Net cash outflow	RMB’000 224,420 11,679 212,741	Equivalent of HK$’000 280,525 14,599
		265,926

For the purpose of the pro forma financial information, the translations of RMB into HK$ is carried out at the rates of RMB1 to HK$1.25. No representation is made that the RMB amounts have been, could have been or may be converted to Hong Kong dollars or vice versa, at that rate.
The identifiable assets and liabilities of the Target Company acquired by the Group will be accounted for in the consolidated financial statements of the Enlarged Group at fair value under the purchase method of accounting in accordance with Hong Kong Financial Reporting Standard (“HKFRS”) 3 (Revised), “Business Combination” issued by the Hong Kong Institute of Certified Public Accountants.

For the purposes of preparing the unaudited pro forma financial information, the fair values of the identifiable assets and liabilities of the Target Group which have been estimated by BMI Appraisals Limited, an independent valuer, are as follows:

Property, plant and equipment Prepaid land lease premium Investment properties Intangible assets Inventories Bank and other borrowings – current portion Bank and other borrowings – non-current portion Other assets and liabilities Deferred tax liabilities Net assets	Carrying amount RMB’000 288,419 8,421 18,510 226,696 1,774 (53,721) (212,472) (36,853) (21,326) 219,448	Fair value adjustment RMB’000 83,268 9,811 – (2,300) (39) (13,109) 95 – (22,685) 55,041	Fair value RMB’000 371,687 18,232 18,510 224,396 1,735 (66,830) (212,377) (36,853) (44,011) 274,489	Fair value HK$’000 464,608 22,790 23,138 280,495 2,169 (83,538) (265,471) (46,066) (55,014)
				343,111

– 224 –

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The following assumptions have been adopted in the valuation:

all licenses issued by any authorized entity that will materially affect the operation of the Target Group have been obtained or can be obtained upon request;
there will be no material change in the political, legal, fiscal, technological, market and economic conditions in the jurisdiction where the Target Group operates;
the market return, market risk, interest rates and exchange rates will not differ materially from those of present or expected;
the core operation of the Target Group will not differ materially from those of present or expected;
the information in respect of the Target Group have been prepared after due and careful consideration by the Target Group’s management; and
there will be no human disruptions or natural disasters that will materially affect the operation of Target Group.

The following methods have been adopted in the valuation of the fair values of the Target Group’s assets and liabilities:

Property, plant and equipment Cost approach and market approach Prepaid land lease premium Market approach Investment properties Market approach Intangible assets Multi period excess earnings method, cost approach and market approach Borrowings Discount cash flow method

The amounts of goodwill and fair values of the identifiable assets and liabilities of the Target Company are subject to change upon the completion of the valuation by an independent valuer of the fair values of the identifiable assets and liabilities of the Target Company on the date of completion of the Acquisition. Consequently, the resulting goodwill, the actual allocation of the purchase price and the resulting noncontrolling interests at the date of completion, and depreciation for subsequent periods, will likely result in different amounts than those stated in this pro forma financial information.

– 225 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

Pro forma adjustments made represent:

(i) The consolidation entry to eliminate the share capital of the Target Company, pre-acquisition reserves and pre-acquisition non-controlling interests on consolidation;
(ii) The recognition of goodwill of HK$112,400,000 being the excess of the purchase consideration over the Group’s share of the fair value of the net identifiable assets of the Target Group.

			Equivalent of
		RMB’000	HK$’000
Consideration for the Acquisition		224,420	280,525
Less:	Fair value of the Target Group’s net identifiable
	assets as at 30 September 2015	274,489	343,111
Add:	Net identifiable assets of the Target Group attributable
	to the non-controlling interests (note)	139,989	174,986
Estimated goodwill		89,920	112,400

Note:	Net identifiable assets of the Target Group attributable to the non-controlling interests
	represents 51% of the fair value of the Target Group’s net identifiable		assets as at 30
	September 2015.

The adjustment reflects the estimated acquisition related costs of approximately HK$4,978,000 expensed in profit or loss and paid in the period incurred. This adjustment is not expected to have a continuing effect on the Enlarged Group.
There is no indication of impairment in goodwill and intangible assets relating to the acquisition of the Target Group.

– 226 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

2. ACCOUNTANTS’ REPORT ON THE UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The following is the full text of a report, prepared for the purpose of inclusion in this circular, received from the Company’s reporting accountants, PKF.

==> picture [84 x 110] intentionally omitted <==

3 December 2015

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

TO THE DIRECTORS OF UNIVERSAL TECHNOLOGIES HOLDINGS LIMITED

We have completed our assurance engagement to report on the compilation of pro forma financial information of Universal Technologies Holdings Limited (the “Company”) and its subsidiaries (collectively the “Group”) by the directors of the Company (the “Directors”) for illustrative purposes only. The pro forma financial information consists of the unaudited pro forma consolidated statement of financial position as at 30 June 2015 and the unaudited pro forma consolidated statement of profit or loss and pro forma consolidated statement of cash flows for the year ended 31 December 2014 and related notes as set out in Part A of Appendix III to the circular dated 3 December 2015 (the “Circular”) issued by the Company. The applicable criteria on the basis of which the Directors have compiled the pro forma financial information are described in Part A of Appendix III to the Circular.

The pro forma financial information has been compiled by the Directors to illustrate the impact of the Company’s proposed acquisition of the 49% equity interest in Qinghui Properties Ltd. (the “Target Company”) and its subsidiaries (collectively the “Target Group”) (the “Proposed Acquisition”) on the Group’s financial position as at 30 June 2015 and the Group’s financial performance and cash flows for the year ended 31 December 2014 as if the Proposed Acquisition had taken place at 30 June 2015 and 1 January 2014, respectively. As part of this process, information about the Group’s financial position as at 30 June 2015 has been extracted by the Directors from the interim report of the Company for the six months ended 30 June 2015, on which a review report has been published. Information about the Group’s financial performance

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APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

and cash flows for the year ended 31 December 2014 has been extracted by the Directors from the consolidated financial statements of the Company for the year then ended, on which an audit report has been published.

Directors’ Responsibilities for the Pro Forma Financial Information

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

Reporting Accountants’ Responsibilities

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

We conducted our engagement in accordance with Hong Kong Standard on Assurance Engagements (“HKSAE”) 3420 “Assurance Engagements to Report on the Compilation of Pro Forma Financial Information Included in a Prospectus” issued by the HKICPA. This standard requires that the reporting accountants comply with ethical requirements and plan and perform procedures to obtain reasonable assurance about whether the Directors have compiled the pro forma financial information in accordance with paragraph 4.29 of the Listing Rules, and with reference to AG 7 issued by the HKICPA.

For purpose of this engagement, we are not responsible for updating or reissuing any reports or opinions on any historical financial information used in compiling the pro forma financial information, nor have we, in the course of this engagement, performed an audit or review of the financial information used in compiling the pro forma financial information.

The purpose of pro forma financial information included in an investment circular is solely to illustrate the impact of a significant event or transaction on the unadjusted financial information of the Group as if the event had occurred or the transaction had been undertaken at an earlier date selected for purposes of the illustration. Accordingly, we do not provide any assurance that the actual outcome of the events or transactions at 30 June 2015 or 1 January 2014 would have been as presented.

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APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

A reasonable assurance engagement to report on whether the pro forma financial information has been properly compiled on the basis of the applicable criteria involves performing procedures to assess whether the applicable criteria used by the Directors in the compilation of the pro forma financial information provide a reasonable basis for presenting the significant effects directly attributable to the event or transaction, and to obtain sufficient appropriate evidence about whether :

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

The procedures selected depend on the reporting accountants’ judgement, having regard to the reporting accountants’ understanding of the nature of the Group, the event or transaction in respect of which the pro forma financial information has been compiled, and other relevant engagement circumstances.

The engagement also involves evaluating the overall presentation of the pro forma financial information.

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

Opinion

In our opinion:

a) the pro forma financial information has been properly compiled on the basis stated;
b) such basis is consistent with the accounting policies of the Group, and
c) the adjustments are appropriate for the purposes of the pro forma financial information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

PKF

Certified Public Accountants 26/F, Citicorp Centre 18 Whitfield Road

Causeway Bay, Hong Kong

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VALUATION REPORTS ON THE TARGET GROUP

APPENDIX IV

1. THE VALUATION REPORT

The following is the full text of the Valuation Report prepared for the purpose of incorporation in this circular received from BMI Appraisals Limited, an independent valuer, in connection with its valuation as at 30 April 2015 of the market value of the 100% equity interest in Qinghui Properties Limited（東莞市擎琿置業有限公司）together with its subsidiaries.

33[rd] Floor, Shui On Centre, Nos. 6-8 Harbour Road, Wanchai, Hong Kong

3 December 2015

The Directors Universal Technologies Holdings Limited

Room A & B2, 11th Floor Guangdong Investment Tower No. 148 Connaught Road Sheung Wan Hong Kong

Dear Sirs,

INSTRUCTIONS

We refer to the instructions from Universal Technologies Holdings Limited (referred to as the “Company”) for us to provide our opinion on the market value of the 100% equity interest in Qinghui Properties Limited（東莞市擎琿置業有限公司）(referred to as the “Target Company”) together with its subsidiaries (collectively referred to as the “Target Group”) as at 30 April 2015.

This report presents the basis of valuation, the background of the Target Group, an industry overview, the source of information, the scope of work and the valuation assumptions. It also explains the valuation methodology utilized and presents our conclusion of value.

BASIS OF VALUATION

Our valuation has been carried out on the basis of market value. Market value is defined as “the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion”.

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APPENDIX IV

BACKGROUND OF THE TARGET GROUP

Qinghui Properties Limited is a holding company of nine subsidiaries incorporated in the People’s Republic of China (referred to as the “PRC”) with limited liability on 11 November 2013. The details of business registration of the Target Company provided by the senior management of the Target Company (referred to as the “Management”) are as follows:

Name	:	Qinghui Properties Limited
		東莞市擎琿置業有限公司
Type of company	:	Limited Liability Company
Registered address	:	東莞市鳳崗鎮雁田村鎮田北路38號
Registered capital	:	RMB410,000,000
Incorporation date	:	11 November 2013
Scope of business	:	Real estate agency service; property management; and
		water quality testing services

The list of subsidiaries of the Target Company is as follows:

Dongguan Xinhongcheng Enterprise Management Company Limited 東莞市新弘晟企業管理有限公司 (referred to as “Xinhongcheng”)
Qingyuan Water Company Limited
清遠市自來水有限責任公司 (referred to as “Water Co.”)
Qingyuan Jingyu Properties Company Limited
清遠市旌譽置業有限公司 (referred to as “Jingyu Properties”)
Qingyuan Jinhong Industrial Company Limited 清遠市錦弘實業有限公司 (referred to as “Jinhong Industrial”)
Qingyuan Kaipeng Properties Company Limited
清遠市凱鵬置業有限公司 (referred to as “Kaipeng Properties”)

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APPENDIX IV

Qingyuan Water Supply Development Company Limited 清遠市供水拓展有限責任公司 (referred to as “Water Supply Development”)
Qingyuan Jincheng Water Testing Company Limited
清遠市錦誠水質檢測有限公司 (referred to as “Water Testing”)
Qingxin Huike Properties Company Limited
清新匯科置業有限公司 (referred to as “Huike Properties”)
Qingyuan Qingxin District Taihe Water Company Limited
清遠市清新區太和供水有限公司 (referred to as “Taihe Water”)

As advised by the Management, the subsidiaries of the Target Company listed above are currently wholly owned except Taihe Water as at 30 April 2015. Taihe Water is a joint venture company incorporated in the PRC with limited liability on 26 March 1999. It is currently held by the Target Company through its subsidiary – Huike Properties and 廣東清源水業有限公司 with 51% and 49% of equity interests respectively through an acquisition on 20 October 2014.

The shareholding and corporate structure of the Target Group provided by the Management is tabulated as below:

==> picture [417 x 208] intentionally omitted <==

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

Qinghui Properties Limited
Dongguan Xinhongcheng Enterprise
Management Company Limited
100%
Qingyuan Jingyu Qingyuan Jinhong Qingyuan Kaipeng Qingyuan Water Qingyuan Water Supply
Properties Company Limited Industrial Company Limited Properties Company Limited Company Limited Development Company Limited
100% 100% 100% 100% 100%
Qingyuan Jincheng Water Qingxin Huike Properties
Testing Company Limited Company Limited
100% 100%
Qingyuan Qingxin District
Taihe Water Company Limited
51%
----- End of picture text -----

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APPENDIX IV

VALUATION REPORTS ON THE TARGET GROUP

The Target Group is principally engaged in investing, building and operating water affairs projects and water treatment service in Qingcheng District and Qingxin District, Qingyuan City including disinfection and supply of tap water, maintenance of water pipeline network, as well as water quality monitoring and testing. Through its subsidiaries, the Target Group currently holds Qixinggang Water Plant and No. 1 & No. 2 Taihe Water Plants which serve the general public including households, industrial and commercial in urban areas in Qingcheng District and Qingxin District, Qingyuan City respectively.

Qixinggang Water Plant is operated by Water Co. with the daily capacity of 200,000 cubic meters. As in December 2012, the supply area was approximately 80 square kilometers with the pipeline network of approximately 1,572 kilometers.

The No. 1 and No. 2 Taihe Water Plants were operated by Taihe Water with the daily capacity of 60,000 cubic meters and 50,000 cubic meters respectively as in January 2015. Together, the total daily capacity of 110,000 cubic meters has the coverage of 95 square kilometers with the pipeline network of approximately 400 kilometers.

As advised by the Management, the additional daily capacity of 100,000 cubic meters for No. 2 Taihe Water Plants was expected to come into operation after its construction work to be completed by December 2015.

INDUSTRY OVERVIEW

The PRC

Economy

In 2014, the domestic development of the PRC was facing the complicated and volatile international environment and maintaining reform and stability in domestic development, result in downward pressure of domestic economic development at the beginning of 2015. According to the statistics from National Bureau of Statistics of China, the gross domestic product (GDP) increased by 7.4% from RMB58.8 trillion in 2013 to approximately RMB63.6 trillion in 2014. Figure 1 illustrates the trend of the PRC’s GDP from 2010 to 2014. Out of the total GDP, the contributions of the primary, secondary and tertiary industries were RMB5.8 trillion, RMB27.1 trillion and RMB30.7 trillion respectively, showing the increases by 4.1%, 7.3% and 8.1% respectively over the year 2013, and the contributions of the primary, secondary and tertiary industries accounted for 9%, 43% and 48% of the GDP. Figures 2 and 3 illustrate the composition of GDP by industries and sectors in 2014.

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APPENDIX IV

Figure 1: Trend of Gross Domestic Product of the PRC, 2010 – 2014

==> picture [291 x 195] intentionally omitted <==

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

80 30%
70
63.6
25%
58.8
60
53.4
48.4 20%
50
40.9
40 15%
10.6%
30 9.5%
7.7% 7.7% 7.4% 10%
20
5%
10
0 0%
2010 2011 2012 2013 2014
GDP (in trillion RMB) Growth Rate
----- End of picture text -----

Source: National Bureau of Statistics of China

Figure 2: GDP composition of the PRC by industries in 2014

==> picture [232 x 92] intentionally omitted <==

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

Primary
Industry
9%
Tertiary Primary Industry
Industry
48% Secondary Secondary Industry
Industry Tertiary Industry
43%
----- End of picture text -----

Source: National Bureau of Statistics of China

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APPENDIX IV

Figure 3: GDP composition of the PRC by sectors in 2014 (in RMB100 million)

==> picture [382 x 227] intentionally omitted <==

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

Farming, Forestry,
Animal Husbandry,
and Fishery,
RMB60,151, 9%
Farming, Forestry, Animal Husbandry, and Fishery
Others,
RMB116,311, 18% Industry
Real Estate,
Construction
RMB38,167, 6%
Wholesale and Retail Trades
Industry, Transport, Storage, and Post
Finance, RMB227,991, 36%
RMB46,954, 7% Accommodation and Restaurants
Finance
Accommodation
and Restaurants, Real Estate
RMB11,199, 2%
Others
Transport, Storage,
and Post,
RMB28,750, 5%
Wholesale and Construction
Retail Trades, RMB44,725, 7%
RMB62,216, 10%
----- End of picture text -----

Source: National Bureau of Statistics of China

The income of urban and rural residents keeps increasing over the recent years. In 2014, the national per capita disposable income was RMB20,167 with an increase of 10.1% or a real growth rate of 8% after removing the price factors. In terms of permanent residence, the per capita disposable income of urban households was RMB28,844, increased by 9%, or a real increase of 6.8% after deducting price factors.

Water Supply

According to the data in National Bureau of Statistics of China, the total amount of water resources was 2,837 billion cubic meters in 2014. The annual average precipitation was 648 millimeters. At the end of 2014, the 609 large reservoirs covered by monitoring program in the PRC stored 366.3 billion cubic meters of water, up by 7.0%.

The water consumption attained 622 billion cubic meters in 2014 with a growth of 0.6% over 2013, of which for residential purposes, industrial purposes, agricultural purposes, and ecological water supplement rose by 2.7%, 1%, 0.1%, and 0.6% respectively. Furthermore, for every RMB10,000 increase in GDP and industrial added value represent the water consumption of 112 cubic meters and 64 cubic meters respectively, with decreases of 6.3% and 5.6% respectively over 2013. Water consumption per capita was 456 cubic meters, increased by 0.1%.

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VALUATION REPORTS ON THE TARGET GROUP

APPENDIX IV

Qingyuan City

Economy

According to the statistics from the Bureau of Statistics of Qingyuan City, Qingyuan City is a prefecture-level city in the northwestern part of the Guangdong Province in the PRC. Its permanent resident population was 3.82 million people in 2014, with an increase of 0.7% over the previous year. Urban population reached 1.84 million people in 2014, with an increase of 24.9 thousand over the previous year.

Qingyuan City is located near the Bei River and is surrounded by mountainous areas. It has jurisdiction over two county-level cities, named Yingde City and Lianzhou City, and also four counties, named Fogang County, Yangshan County, Lianshan Zhuang and Yao Autonomous County and Liannan Yao Autonomous County.

According to the statistics from the Bureau of Statistics of Qingyuan City, the GDP in 2014 was RMB118.8 billion, increased by 7.9% over the preceding year. Out of the total, the value added of the primary, secondary and tertiary industries were RMB17.75 billion, RMB48.395 billion and RMB52.629 billion respectively, showing the growths up by 4.2%, 12.5% and 4.5% respectively over 2013. Moreover, Qingyuan City’s GDP per capita reached RMB31,214, rose by 7.2% from 2013. Figures 4 and 5 show the trend of Qingyuan City’s GDP and GDP per capita from 2010 to 2014. At the same time, the primary, secondary and tertiary industries accounted for 14.9%, 40.8% and 44.3% of the GDP. Figure 6 illustrates the composition of Qingyuan City’s GDP in 2014 by industries.

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APPENDIX IV

Figure 4: Trend of Gross Domestic Product of Qingyuan City, 2010 – 2014

==> picture [295 x 195] intentionally omitted <==

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

200 14%
180
12%
12.9%
160
140 10%
100.3 109.3 118.8
120
102.5 8%
100 87.0 8.3% 8.2% 7.9%
6%
80
60 5.1% 4%
40
2%
20
0 0%
2010 2011 2012 2013 2014
GDP (in trillion RMB) Growth Rate
----- End of picture text -----

Source: Bureau of Statistics of Qingyuan City

Figure 5: Trend of Gross Domestic Product per capita of Qingyuan City, 2010 – 2014

==> picture [305 x 195] intentionally omitted <==

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

40,000 14%
35,000 31,214 12%
12.3% 28,928
30,000 26,957 27,320 10%
23,569
25,000
8%
20,000
7.4% 7.4% 7.2% 6%
15,000
4%
10,000
4.2%
5,000 2%
0 0%
2010 2011 2012 2013 2014
GDP per capita (in RMB) Growth Rate
----- End of picture text -----

Source: Bureau of Statistics of Qingyuan City

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APPENDIX IV

Figure 6: GDP composition of Qingyuan City by industries in 2014

==> picture [235 x 93] intentionally omitted <==

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

Primary
Industry
15%
Tertiary
Industry Primary Industry
44% Secondary Industry
Secondary
Tertiary Industry
Industry
41%
----- End of picture text -----

Source: Bureau of Statistics of Qingyuan City

Water Supply

According to a Feasibility Research Report published by Architectural Design and Research Institute of Guangdong Province (GDADRI), the annual average rainfall of Qingyuan City was 1,897 millimeters, and the annual average rainfall of urban area was 1,951 millimeters. The surface water resource of Qingyuan City was 19.33 billion cubic meters. Specifically the urban area was 943.3 million cubic meters, accounting for 4.9% of the whole city. The groundwater resource of Qingyuan City was 4.67 billion cubic meters, and specifically the urban area was 226 million cubic meters, accounting for 4.8% of the whole city’s water resource.

The statistics by the Bureau of Statistics of Qingyuan City in 2014 showed that the annual total water consumption for Qingyuan City was 1.85 billion cubic meters with the growth by 1%. Among them, the water consumption for the domestic purpose grew by 3.2%, the industrial purpose increased by 5.8%, the agricultural purpose dropped by 0.1%, and ecological recharge purpose increased by 0.2%. Water consumption per capita was 484.9 cubic meters, with an increase of 0.1% over the previous year.

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APPENDIX IV

VALUATION REPORTS ON THE TARGET GROUP

Bei River is one of the three major tributaries of the Pearl River, as the main water resource to Qingyuan City. Currently, the water supply for the urban and rural areas of Qingcheng District and Qingxin District is mainly supported by the 4 water supply companies, including Water Co., 星科自來水有限公司, 龍泉供水有限公司 and Taihe Water, with the total water supply of approximately 390,000 cubic meters per day. Apart from 龍泉供水有限公司 being the state-owned holding company, the rest of water supply companies are privately owned limited companies. Table 1 illustrates the status of major water suppliers in Qingcheng District and Qingxin District.

Table 1: Major Water suppliers in Qingcheng District and Qingxin District

Water Plant
Production scale
(10,000 cubic
meters/day)
七星崗水廠(Qixinggang
Water Plant)
18
龍泉水廠(Longquan Water
Plant)
5
星科水廠(Xingke Water
Plant)
10
太和水廠(Taihe Water
Plants)
6
Total:
39

Proportion
Water source
Population
involved
(10,000 people)
Remarks
46%
北江
50
Up to 180,000 cubic
meters per day after the
transformation
13%
銀盞水庫
11.2
Actual usage 43,000 cubic
meters per day, cannot
expand
26%
迎咀水庫
10
Actual usage 43,000 cubic
meters per day, cannot
expand
15%
太和洞水庫與濱江水渠
15
Actual usage 50,000 cubic
meters per day
100%

Source: Architectural Design and Research Institute of Guangdong Province

The English translation of Chinese names is included for information purposes only.

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APPENDIX IV

VALUATION REPORTS ON THE TARGET GROUP

Table 2 illustrates the current status of water supply in Qingcheng District and Qingxin District. As predicted in the Feasibility Research Report, with the rapid growth in Qingyuan’s economy and population contributed by the urbanization and industrialization, the water consumption demand cannot be satisfied by the water supply from the existing water plants. The short-term and long-term forecasted daily demands are 0.72 million and 1.56 million cubic meters respectively. Therefore, the existing capacity is insufficient to satisfy the daily demand with a shortage of water supply of approximate 0.2 million and 1.04 million cubic meters for the shortterm and long-term respectively.

Table 2: Water supply in Qingyuan City and nearby area

Water Plants
Qingcheng District
七星崗水廠(Qixinggang Water Plant)
龍泉水廠(Longquan Water Plant)
星科水廠(Xingke Water Plant)
飛來峽水廠(Feilaixia Water Plant)
江口水廠(Jiangkou Water Plant)
Qingxin District
太和一廠(No. 1 Taihe Water Plant)
太和二廠(No. 2 Taihe Water Plant)
太平供水站(Taiping Water Supply Station)
山塘水廠(Shantang Water Plant)
三坑水廠(Sankeng Water Plant)
Total:

Water Supply Capacity
(10,000 cubic meters/day)
34.5
18
5
10
1
0.5
17.2
6
5
4.5
1.2
0.5

51.7

Source: Architectural Design and Research Institute of Guangdong Province

The English translation of Chinese names is included for information purposes only.

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VALUATION REPORTS ON THE TARGET GROUP

APPENDIX IV

SOURCE OF INFORMATION

We have been furnished with information provided by the Management. The valuation required the consideration of pertinent factors, including, but not limited to, the following:

The nature of the Target Group including the industry sector and geographical location;
The information provided by the Management; and
Other factors that will materially affect the operation of the Target Group.

SCOPE OF WORK

The following processes have been conducted by us in the course of our valuation:

Interviewed with the Management and obtained information in respect of the Target Group;
Examined the information provided by the Management;
Prepared the valuation based on accepted valuation procedures and practices; and
Presented the basis of valuation, the background of the Target Group, an industry overview, the source of information, the scope of work, the valuation assumptions, the valuation methodology and our conclusion of value in this report.

VALUATION ASSUMPTIONS

The following assumptions have been adopted in the valuation:

All licenses issued by any authorized entity that will materially affect the operation of the Target Group have been obtained or can be obtained upon request;
There will be no material change in the political, legal, fiscal, technological, market and economic conditions in the jurisdiction where the Target Group operates;
The market return, market risk, interest rates and exchange rates will not differ materially from those of present or expected;

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APPENDIX IV

The core operation of the Target Group will not differ materially from those of present or expected;
The information in respect of the Target Group have been prepared after due and careful consideration by the Management; and
There will be no human disruptions or natural disasters that will materially affect the operation of the Target Group.

VALUATION METHODOLOGY

The Valuation Approaches

The following valuation approaches have been considered in the valuation:

The market approach provides an indication of value by comparing the subject asset to similar assets that have been sold in the market, with appropriate adjustments for the differences between the assets;
The income approach provides an indication of value based on the principle that an informed buyer would pay no more than the present value of anticipated future economic benefits generated by the subject asset; and
The cost approach provides an indication of value based on the principle that the sum of each asset and liability component represents the overall value of an entity;

The income approach was considered to be the most appropriate valuation approach as it takes the future potential growth and expansion in producing capability into the consideration. As the cost approach does not take the future economic benefits into consideration, and the market approach is not be appropriate due to the difficulty in identifying sufficient market transactions as comparables.

Under the income approach, the Discounted Cash Flow (DCF) method was adopted. In applying the DCF method, the free cash flows for each year in the future were determined. The results were then discounted using a discount rate to determine the present value of the free cash flows. The free cash flows were computed using the following formula:

FCF = NI + NCE Int (1 – Tint) – NCI – InvFA – InvNWC

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APPENDIX IV

Where:

FCF	=	free cash flow
NI	=	net income after tax
NCE	=	non-cash expenses
Int	=	interest expenses
Tint	=	tax rate applied to interest expense
Int (1 – Tint)	=	after-tax interest expense
NCI	=	non-cash incomes
InvFA	=	investment in capital expenditure
InvNWC	=	investment in net working capital

The results were then discounted using a discount rate, or the cost of capital, to determine the present value of the expected cash flows.

The present value of the expected cash flows was computed using the following formula:

PVFCF = FCF1 / (1 + r)[1] + FCF2 / (1 + r)[2] + … + FCFn / (1 + r)[n]

Where:

PVFCF = present value of free cash flows FCF = free cash flow r = discount rate n = number of year of projections

The Cash Flows

The cash flow projections for Water Co. and Taihe Water were forecasted separately. The timeframe of the free cash flow projections were 10 years from 2015 to 2024 (referred to as the “Projection Period”). After the year of 2024, the growth rate of 3% was adopted as the terminal growth rate. In 2015, there was significant capital investment for the additional daily capacity of 100,000 cubic meters of No. 2 Taihe Water Plants, which cause the negative cash flow of Taihe Water for the year. For the year of 2024, a long term sustainable capital expenditure was adopted for Water Co. and Taihe Water. The sustainable capital expenditure was higher than previous years’ capital expenditures projected by the Management and result in lower free cash flows. The projected free cash flows for each year from 2015 (from 30 April to 31 December) to 2024 were as follows:

	2015
In million RMB	(7 months)	2016	2017	2018	2019	2020	2021	2022	2023	2024
Water Co.	29.92	46.47	53.49	62.82	73.47	80.85	87.73	94.49	100.75	85.65
Taihe Water	(92.48)	10.07	14.29	19.98	27.14	32.35	33.53	34.69	35.70	25.43

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APPENDIX IV

The Operating Income

The operating income of Water Co. and Taihe Water was separated into two components: the sales of drinking water as the major business and the other business including construction service related to water affairs (collectively referred to as the “Other Business”). The operating income mainly consists of sales of drinking water to the urban areas in Qingcheng District and Qingxin District.

According to the Feasibility Research Report provided by the Management, the water consumption demand cannot be satisfied by the water supply from the existing water plants in Qingcheng District and Qingxin District. The rapid growth in Qingyuan’s economy and population contributed by the urbanization and industrialization cause the daily shortage of water supply of approximate 1.04 million cubic meters in long-term.

For the business operation of Water Co., the water demand currently exceeds Water Co.’s maximum capacity in its responsible area and Water Co. purchased the tap water from the nearby water plants to cover the exceeded portion. This situation was expected to sustain during the Projection Period.

The growth rates of water price and sales volume of Water Co. were expected to drop gradually from the actual growth rate in 2014 to the long-term growth rate in 2024. The long-term growth rate was determined with reference to the consumer price index of water, electricity and fuels sector of the PRC as extracted from Bloomberg Terminal. The Other Business was assumed to maintain a stable growth during the Projection Period. The projected growth rates of Water Co. are as follows:

	actual					projected
	2014	2015	2016	2017	2018	2019	2020	2021	2022	2023	2024
Water Price	7.00%	6.60%	6.20%	5.80%	5.40%	5.00%	4.60%	4.20%	3.80%	3.40%	3.00%
Sales Volume	8.36%	7.83%	7.29%	6.75%	6.22%	5.68%	5.15%	4.61%	4.07%	3.54%	3.00%
Other Business		3.00%	3.00%	3.00%	3.00%	3.00%	3.00%	3.00%	3.00%	3.00%	3.00%

For the business operation of Taihe Water, the total operating income was assumed to have a significant growth due to the increasing demand and Taihe Water was undergoing the construction project to expand its capacity. The construction was expected to be completed and put into operation in 2016. The water sales were assumed to remain stable for the rest of the Projection Period after Taihe Water reaches the maximum capacity in 2020.

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APPENDIX IV

VALUATION REPORTS ON THE TARGET GROUP

The growth rates of water price of Taihe Water were expected to drop gradually from the actual growth rate in 2014 to the long-term growth rate in 2024. The long-term growth rate was determined with reference to the consumer price index of water, electricity and fuels sector of the PRC as extracted from Bloomberg Terminal. The construction of the additional 100,000 cubic meters’ daily capacity of No. 2 Taihe Water Plants was expected to complete and put into operation by December 2015. After its completion, the total capacity of Taihe Water will be increased by over 90%, the sales volume was expected to increase from actual production in 2014 to maximum capacity in 2020 when the additional capacity are fully utilized and remain stable for the years after. The significant growth in 2016 was mainly due to the additional daily capacity. The Other Business was assumed to maintain stable growth during the Projection Period. The projected growth rates of Taihe Water are as follows:

	actual					projected	projected
	2014	2015	2016	2017	2018	2019	2020	2021	2022	2023	2024
Water Price	4.55%	4.40%	4.24%	4.09%	3.93%	3.78%	3.62%	3.47%	3.31%	3.16%	3.00%
Sales Volume	22.31%	4.75%	48.41%	12.90%	17.23%	14.73%	12.84%	0.00%	0.00%	0.00%	0.00%
Other Business		3.00%	3.00%	3.00%	3.00%	3.00%	3.00%	3.00%	3.00%	3.00%	3.00%

Gross Profit

Gross profit represents the residual profit after deducting the cost associated with production and sales from revenue. Water production cost contributed over 90% of the operating costs. It mainly consisted of staff costs, depreciation and amortization of tangible and intangible assets, fuels cost, water sources cost, repair and maintenance costs and other miscellaneous costs.

The gross profit margin was expected to drop significantly in 2015 for Taihe Water, which was mainly due to the significant construction cost for capacity expansion. The gross profit margin was expected to improve after the construction to be completed in 2016.

Selling and Operating Expenses

Historical selling and operating expenses to operating income ratio was adopted as the future selling and operating expenses to operating income ratio of relevant businesses, and the ratio was expected to remain stable for the Projection Period.

Corporate Tax

The PRC corporate income tax rate of 25% was adopted during the Projection Period.

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VALUATION REPORTS ON THE TARGET GROUP

APPENDIX IV

Working Capital

The working capital was computed using the following formula:

Working Capital = Trade Receivable + Inventories – Trade Payable

The trade receivable, inventories and trade payable are expected to convert to the industrial level in long run from 2014 to 2024. The trade receivable turnover, inventories turnover and trade payable turnover of the Comparable Companies was computed using the following formula:

Trade Receivable Turnover = Total Operating Income/Trade Receivable

Inventories Turnover = Total Operating Cost/Inventories

Trade Payable Turnover = Total Operating Cost/Trade Payable

The Comparable Companies

The market value of the Target Group was determined with reference to publicly listed companies that are considered to be comparable to Water Co. Business and Taihe Water (referred to as the “Comparable Companies”). The selection of the Comparable Companies was based on the comparability of the overall industry sector and geographic location of operation. The majority of revenues and the principal activities of the Comparable Companies were from the similar industry sector of the Target Group and their business operations were mainly in the PRC. The shares of the Comparable Companies are listed in a major stock exchange and are actively traded in a reasonable period of time. And, the detailed financial and operational information in respect of the Comparable Companies are available at Bloomberg Terminal or other publicly available sources. Since the Comparable Companies are larger companies and have bigger market capitalizations than the Target Group, the size premium was considered in the calculation of discount rate to reflect its smaller size. Apart from the Comparable Companies that were selected, we were not aware of any other listed companies that fulfill the selection criteria, and we considered that the selected Comparable Companies are exhaustive. Details of the Comparable Companies are as follows:

	List of Comparable Companies	Bloomberg Ticker
1.	Jiangsu Jiangnan Water Company Limited	601199 CH
2.	Jiangxi Hongcheng Waterworks Company Limited	600461 CH
3.	Zhongshan Public Utilities Group Company Limited	000685 CH
4.	Qianjiang Water Resources Development Company Limited	600283 CH
5.	Chongqing Water Group Company Limited	601158 CH
6.	China Water Industry Group Limited	1129 HK
7.	China Water Affairs Group Limited	855 HK

– 246 –

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APPENDIX IV

The Discount Rate

The Weighted Average Cost of Capital (WACC) was adopted as the discount rate. The WACC comprises two components: the cost of equity and the cost of debt. The cost of equity was determined using the Capital Asset Pricing Model (CAPM).

Risk-free Rate

The yield rates of bonds issued by a government or agency where the risks of default are so low as to be negligible are commonly applied as the risk-free rate. The yield rate of the 10year Central Government Bond of the PRC of 3.44% as at the valuation date, as extracted from Bloomberg Terminal, was adopted as the risk-free rate in the valuation.

Market Risk Premium

The equity market of the United States is considered to be mature and stable, the market risk premium of the United States represents the return required by a rational investor investing in a mature equity market. The PRC equity market is more risky than that of the United States, which requires a higher return. Therefore, the market risk premium of the PRC of 8.98% as at the valuation date was computed using the market risk premium of the United States and the country risk premium of the PRC.

Market Risk Premium = U.S. market risk premium + the PRC country risk premium

The market risk of the United States of 6.18% was determined with reference to “2014 Valuation Handbook – Guide to Cost of Capital”, published by Duff & Phelps Corp.

The PRC country risk premium of 2.80% was calculated under the combined approach, which was the average of the risk premium calculated under the country bond approach and relative equity market approach.

Beta Coefficient

The beta coefficient was determined by the average of the unlevered betas of the Comparable Companies, then being relevered based on the specific corporate tax rate and the weight of debt applied to the Target Group.

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APPENDIX IV VALUATION REPORTS ON THE TARGET GROUP

The unlevered beta of the Comparable Companies was computed using the following formula:

β unlevered =β levered/1 + (1 – Tc) (D/E)

Where:

βunlevered	=	unlevered beta
βlevered	=	levered beta
Tc	=	corporate tax rate
D	=	value of the firm’s debt
E	=	value of the firm’s equity
D/E	=	debt-to-equity ratio

The adjusted betas, weight of debt and the unlevered betas of the Comparable Companies were as follows:

Comparable Company	Adjusted Beta	Weight of Debt	Unlevered Beta
Jiangsu Jiangnan Water Company
Limited	0.861	1.10%	0.854
Jiangxi Hongcheng Waterworks
Company Limited	0.936	35.20%	0.641
Zhongshan Public Utilities Group
Company Limited	1.021	9.36%	0.931
Qianjiang Water Resources
Development Company Limited	0.965	35.38%	1.035
Chongqing Water Group Company
Limited	1.071	9.90%	0.968
China Water Industry Group
Limited	0.450	11.60%	0.413
China Water Affairs Group Limited	0.793	50.12%	0.467

The average of the unlevered betas of the Comparable Companies was then being relevered based on the specific corporate tax rate and the expected debt-to-equity ratio applied to the Target Group.

The relevered beta was computed using the following formula:

β relevered =β unlevered * 1 + (1 – Tc) (D/E)

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VALUATION REPORTS ON THE TARGET GROUP

APPENDIX IV

Where:

β relevered = relevered beta β unlevered = unlevered beta Tc = corporate tax rate D = value of the firm’s debt E = value of the firm’s equity D/E = debt-to-equity ratio

The weight of debt of 21.81% was used to calculate the debt-to-equity ratio, which was determined by the average of the weights of debt of the Comparable Companies. The beta coefficient of the Target Group was calculated as 0.917.

Size Premium

Size premium is the return in excess of CAPM estimation. By considering the relatively small size of the Target Group, a size premium of 3.87% was adopted with reference to the “2014 Valuation Handbook – Guide to Cost of Capital” published by Duff & Phelps Corp.

Company-specific Risk Premium

Besides the size of Taihe Water, other company specific factors should be considered. As the construction for additional daily capacity of 100,000 cubic meters for Taihe Water had not been completed as at the valuation date, a higher discount rate is needed to reflect this specific risk factor of Taihe Water. This company specific risk, which has not been captured by the beta estimated from the Comparable Companies, should be added to the modified CAPM. By considering the significant growth in revenue due to expansion of capacity after the construction completed for Taihe Water and its associated risk of uncertainty of future business operations, a company-specific risk premium of 1.00% was adopted to reflect the additional risk associated.

Cost of Equity

The cost of equity under the modified CAPM was computed using the following formula:

Re = Rf + β * MRP + RPS + RPU

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VALUATION REPORTS ON THE TARGET GROUP

APPENDIX IV

Where:

Re	=	cost of equity
Rf	=	risk-free rate
β	=	beta coefficient
MRP	=	market risk premium
RPS	=	size premium
RPU	=	company specific risk premium

As a result, the cost of equity under the modified CAPM was calculated as 15.55% and 16.55% for Water Co. and Taihe Water respectively.

Cost of Debt

The cost of debt of 5.90% was determined by the expected lending rate of the Target Group, which was referenced to the current bank lending rate. The after-tax cost of debt of 4.43% was calculated by multiplying one minus the corporate tax rate of the PRC of 25.00% by the cost of debt. The tax rate represents the applicable corporate tax rate of the Target Group.

Weight of Debt and Weight of Equity

The weight of debt of 21.81% was determined by the average of the weights of debt of the Comparable Companies, and the weight of equity of 78.19% was calculated as one minus the weight of debt.

WACC

As a result, the WACC of the Target Group was calculated as 13.12% and 13.90% for the Water Co. and Taihe Water respectively.

The Discount for the Lack of Marketability

Applying the DCF method, the present value of the future cash flows was calculated using a discount rate, which was determined with reference to the Comparable Companies. As the Target Group is not listed, compared to investing in the Comparable Companies, the ownership interest in the Target Group is not readily marketable. The concept of marketability deals with the illiquidity of an ownership interest. To account for the illiquidity, a downward adjustment was made to the value calculated from the DCF method.

When determining the discount, we have made reference to the “Determining Discounts for Lack of Marketability – A Companion Guide to The FMV Restricted Stock Study 2015 Edition”, published by FMV Opinions, Inc. According to the FMV study, 769 transactions of private placement of unregistered common stock issued by publicly traded companies from July 1980 through September 2014 have been examined. The median discount for the 769 transactions is approximately 15%, which has been adopted in the valuation.

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VALUATION REPORTS ON THE TARGET GROUP

APPENDIX IV

SENSITIVITY ANALYSIS

The sensitivity analysis has been applied to determine the impact of changes in the discount rate on the market value of the Target Group. The results of the sensitivity analysis were as follows:

Change in	Discount Rate of	Discount Rate of		Change in Market
Discount Rate	Water Co.	Taihe Water	Market Value	Value
(%)	(%)	(%)	(RMB)	(%)
1.0%	14.12%	14.90%	391,000,000	-14.25%
0.5%	13.62%	14.40%	422,000,000	-7.46%
–	13.12%	13.90%	456,000,000	–
-0.5%	12.62%	13.40%	493,000,000	8.11%
-1.0%	12.12%	12.90%	534,000,000	17.11%

REMARKS

For the purpose of our valuation, we have been furnished with information provided by the Management. We have had no reason to doubt the truth and accuracy of the information provided to us by the Company. We have also sought and received confirmation from the Company that no material facts have been omitted from the information supplied.

To the best of our knowledge, all data set forth in this report are true and accurate. Although gathered from reliable sources, no guarantee is made or liability assumed for the accuracy of any data, opinions or estimates identified as being furnished by others, which have been used in formulating our analysis.

Unless otherwise stated, all money amounts stated herein are in Renminbi (RMB).

CONCLUSION OF VALUE

Our conclusion of value is based on accepted valuation procedures and practices that rely on the use of numerous assumptions and the consideration of a lot of uncertainties, not all of which can be easily ascertained or quantified.

Further, whilst the assumptions and consideration of such matters are considered to be reasonable, they are inherently subject to uncertainties and contingencies that are beyond the control of the Company, the Target Group or us.

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APPENDIX IV VALUATION REPORTS ON THE TARGET GROUP

Based on our investigation and analysis outlined in this report, it is our opinion that the market value of the 100% equity interest in the Target Group as at 30 April 2015 was RMB456,000,000 (RENMINBI FOUR HUNDRED AND FIFTY SIX MILLION ONLY).

We hereby certify that we have neither present nor prospective interest in the Company, the Target Group or the result reported.

Yours faithfully, For and on behalf of BMI APPRAISALS LIMITED

Dr. Tony C. H. Cheng

BSc., MUD, MBA(Finance), MSc.(Eng), PhD(Econ), FSOE, FIPlantE, CEnv, SIFM, FCIM, CPA UK, MCIArb MASCE, MIET, MIEEE, MASME, MIIE

Managing Director

Note:

Dr. Tony C. H. Cheng has various engineering and accounting & finance qualifications. He is currently the Chairman of the Institute of Mechanical Engineers, China. He is also a Fellow member of the Society of Operations Engineers and the Institution of Plant Engineers, and a member of the Institute of Industrial Engineers and the American Society of Mechanical Engineers. Besides, Dr. Cheng is a member of the Institute of Public Accountants. He has extensive experience in valuing similar assets in different industries in Hong Kong and the PRC.

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VALUATION REPORTS ON THE TARGET GROUP

APPENDIX IV

2. PROPERTY VALUATION REPORT ON THE TARGET GROUP

The following is the full text of a letter, summary of values and valuation certificates, prepared for the purpose of incorporation in this circular received from BMI Appraisals Limited, an independent valuer, in connection with its valuations as at 30 September 2015 of the Target Group’s properties located in the PRC.

33[rd] Floor, Shui On Centre, Nos. 6-8 Harbour Road, Wanchai, Hong Kong

3 December 2015

The Directors

Universal Technologies Holdings Limited

Room A & B2, 11th Floor Guangdong Investment Tower No. 148 Connaught Road Central Sheung Wan Hong Kong

Dear Sirs,

INSTRUCTIONS

We refer to the instructions from Universal Technologies Holdings Limited (the “Company”) for us to value the properties held by Qinghui Properties Limited（東莞市擎琿置業有限公司）(the “Target Company”) and/or its subsidiaries (together referred to as the “Target Group”) located in the People’s Republic of China (the “PRC”). We confirm that we have carried out inspections, made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the market values of the properties as at 30 September 2015 (the “valuation date”).

BASIS OF VALUATION

Our valuations of the properties will be based on the Market Value, which is defined as “the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion”.

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APPENDIX IV

VALUATION REPORTS ON THE TARGET GROUP

VALUATION METHODOLOGIES

In valuing Property Nos. 2 to 10 (except Property No. 5), we have adopted the Depreciated Replacement Cost Approach. Depreciated replacement cost is defined as “the aggregate amount of the value of the land for the existing use or a notional replacement site in the same locality and the new replacement cost of the buildings and other site works, from which appropriate deductions may then be made to allow for the age, condition, economic or functional obsolescence and environmental factors, etc.; all of these might result in the existing property being worth less to the undertaking in occupation than would a new replacement”. This basis has been used due to the lack of an established market upon which to base comparable transactions, which generally furnishes the most reliable indication of value for assets without a known used market. This opinion of value does not necessarily represent the amount that might be realized from the disposition of the subject asset in the market and is subject to adequate profitability of the business compared to the value of the total assets employed.

In addition, we have valued Property Nos. 1 & 5 on market basis by the Comparison Approach and by making reference to sales evidence or asking prices of comparable properties as available in the relevant market. Appropriate adjustments have been made to account for the differences between the properties and the comparables in terms of location, time, accessibility and other relevant factors.

Whenever applicable, we have also adopted the Investment Approach where appropriate by taking into account the current passing rents of the properties being held under existing tenancies and the reversionary potential of the tenancies if they have been or would be let to tenants.

In valuing Property No. 11, we have assumed that the property will be developed and completed in accordance with the latest development proposal provided to us. We have adopted the direct comparison approach by making reference to the comparable sales evidence as available in the relevant market and have also taken into account the accrued construction cost and professional fees relevant to the stage of construction as at the valuation date and the remainder of the cost and fees expected to be incurred for completing the development.

TITLE INVESTIGATION

We have been provided with copies of title documents and have been advised by the Target Group that no further relevant documents have been produced. However, we have not examined the original documents to verify ownership or to ascertain the existence of any amendment documents, which may not appear on the copies handed to us. In the course of our valuations, we have relied upon the advice given by the Company’s PRC legal advisor – Jingtian & Gongcheng（北京市競天公誠律師事務所）regarding the title of the properties located in the PRC. All documents have been used for reference only.

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VALUATION REPORTS ON THE TARGET GROUP

APPENDIX IV

VALUATION ASSUMPTIONS

Our valuations have been made on the assumption that the properties are sold in the market without the benefit of deferred terms contract, leaseback, joint venture, management agreement or any other similar arrangement which would serve to affect the values of the properties.

In addition, no account has been taken of any option or right of pre-emption concerning or affecting the sale of the properties and no forced sale situation in any manner is assumed in our valuations.

VALUATION CONSIDERATIONS

Inspections of the properties were conducted by Ms. Ellen Lo (BSc in Valuation & Estate Management) and Mr. Man Lam (MHKIS) in March and June 2015 respectively. We inspected the properties externally and where possible, the interior of the properties during the inspections. During the course of our inspections, we did not note any serious defects. However, no structural surveys have been made nor have any tests been carried out on any of the services provided in the properties. We are, therefore, unable to report that the properties are free from rot, infestation or any other structural defects.

We have relied to a considerable extent on the information provided by the Target Group and have accepted advice on such matters as planning approvals, statutory notices, easements, tenures, particulars of occupancy, site/floor areas, identification of the properties and all other relevant matters.

Except otherwise stated, dimensions, measurements and site/floor areas included in the valuation certificates are based on information contained in the documents provided to us and are therefore only approximations.

We have not carried out detailed on-site measurements to verify the correctness of the site/ floor areas in respect of the properties but have assumed that the site/floor areas shown on the documents handed to us are correct.

We have no reason to doubt the truth and accuracy of the information provided to us by the Target Group and we have relied on your confirmation that no material facts have been omitted from the information provided. We consider that we have been provided with sufficient information for us to reach an informed view.

No allowances have been made in our valuations for any charges, mortgages or amounts owing on the properties or for any expenses or taxation, which may be incurred in effecting a sale or purchase.

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VALUATION REPORTS ON THE TARGET GROUP

APPENDIX IV

Unless otherwise stated, it is assumed that the properties are free from encumbrances, restrictions and outgoings of an onerous nature, which could affect their values.

Our valuations have been prepared in accordance with The HKIS Valuation Standards (2012 Edition) published by The Hong Kong Institute of Surveyors.

Our valuations have been prepared under the generally accepted valuation procedures and are in compliance with the requirements contained in Chapter 5 and Practice Note 12 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

REMARKS

Unless otherwise stated, all money amounts stated herein are in Renminbi (RMB) and no allowances have been made for any exchange transfers.

Our summary of values and the valuation certificates are attached herewith.

Yours faithfully, For and on behalf of BMI APPRAISALS LIMITED

Joannau W.F. Chan

BSc., MSc., MRICS, MHKIS, RPS(GP) Senior Director

Note: Ms. Joannau W.F. Chan is a member of The Hong Kong Institute of Surveyors (General Practice) who has over 22 years’ experience in valuations of properties in Hong Kong and over 16 years’ experience in valuations of properties in the People’s Republic of China.

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VALUATION REPORTS ON THE TARGET GROUP

APPENDIX IV

SUMMARY OF VALUES

				Value
				attributable
		Market Value		to the
		in existing state	Interest	Target Group
		as at	attributable	as at
		30 September	to the	30 September
No.	Property	2015	Target Group	2015
		RMB		RMB
Properties held and occupied by the Target Group in the PRC
1.	The whole of “Jinlong Building”	28,700,000	100%	28,700,000
	located at
	No. 1 Fang Zheng 2nd Street,
	Xincheng District,
	Qingyuan City,
	Guangdong Province,
	the PRC
	位於中國廣東省，
	清遠市新城區，
	方正二街一號，
	錦龍大廈之全棟
2.	4 land parcels together with	12,100,000	100%	12,100,000
	various buildings and structures
	located at
	No. 16 Beijiang 1st Road,
	Xincheng District,
	Qingyuan City,
	Guangdong Province,
	the PRC
	位於中國廣東省,
	清遠市新城區，
	北江一路16號
	四塊土地、若干房屋及構築物

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VALUATION REPORTS ON THE TARGET GROUP

APPENDIX IV

SUMMARY OF VALUES

				Value
				attributable
		Market Value		to the
		in existing state	Interest	Target Group
		as at	attributable	as at
		30 September	to the	30 September
No.	Property	2015	Target Group	2015
		RMB		RMB
3.	2 land parcels together with	2,030,000	100%	2,030,000
	various buildings and structures
	located at
	No. 108 Song Gang Road,
	Qingcheng District,
	Qingyuan City,
	Guangdong Province,
	the PRC
	位於中國廣東省，
	清遠市清城區，
	松崗路108號之
	二塊土地、若干房屋及構築物
4.	Land parcel together with	1,480,000	100%	1,480,000
	various buildings and structures
	located at
	No. 55 Zhen Nan Street
	Shijiao Town,
	Qingcheng District,
	Qingyuan City,
	Guangdong Province,
	the PRC
	位於中國廣東省，
	清遠市清城區，
	石角鎮鎮南街55號之
	土地、若干房屋及構築物

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VALUATION REPORTS ON THE TARGET GROUP

APPENDIX IV

SUMMARY OF VALUES

				Value
				attributable
		Market Value		to the
		in existing state	Interest	Target Group
		as at	attributable	as at
		30 September	to the	30 September
No.	Property	2015	Target Group	2015
		RMB		RMB
5.	No. 3 Xian Feng Road West,	1,350,000	100%	1,350,000
	Qingcheng District,
	Qingyuan City,
	Guangdong Province,
	the PRC
	位於中國廣東省，
	清遠市清城區，
	先鋒西路三號
6.	Land parcel together with	1,810,000	100%	1,810,000
	various structures located at
	Tian Xin Village along parts of
	Bi Jia River,
	Shatian Community,
	Feng Cheng Street Office,
	Qingcheng District,
	Qingyuan City,
	Guangdong Province,
	the PRC
	位於中國廣東省，
	清遠市清城區，
	鳳城街道辦事處，
	沙田社區筆架河田心村河段之
	土地及若干構築物

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VALUATION REPORTS ON THE TARGET GROUP

APPENDIX IV

SUMMARY OF VALUES

				Value
				attributable
		Market Value		to the
		in existing state	Interest	Target Group
		as at	attributable	as at
		30 September	to the	30 September
No.	Property	2015	Target Group	2015
		RMB		RMB
7.	2 land parcels together with	1,460,000	100%	1,460,000
	various structures located at
	Feng Men Ao,
	Chang Chong Village Committee,
	Longtang Town,
	Qingcheng District,
	Qingyuan City,
	Guangdong Province,
	the PRC
	位於中國廣東省，
	清遠市清城區，
	龍塘鎮長沖村民委員會，
	風門坳之二塊土地及構築物
8.	Unit 101 of Block A &	142,000	100%	142,000
	Unit 101 of Block B,
	No. 5 Nan An Second Street,
	Staff Quarters of the Water Company,
	Xincheng District,
	Qingyuan City,
	Guangdong Province,
	the PRC
	位於中國廣東省，
	清遠市新城區，
	南岸二街5號，
	自來水公司宿舍，
	A棟101室及
	B棟101室

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VALUATION REPORTS ON THE TARGET GROUP

APPENDIX IV

SUMMARY OF VALUES

				Value
				attributable
		Market Value		to the
		in existing state	Interest	Target Group
		as at	attributable	as at
		30 September	to the	30 September
No.	Property	2015	Target Group	2015
		RMB		RMB
9.	Land parcel together with	No Commercial	100%	No Commercial
	various structures located at	Value		Value
	Shiqi Village,
	Shijiao Town,
	Qingcheng District,
	Qingyuan City,
	Guangdong Province,
	the PRC
	位於中國廣東省，
	清遠市清城區，
	石角鎮石岐村之
	土地及構築物
10.	Land parcel together with	No Commercial	100%	No Commercial
	various structures located at	Value		Value
	Xinji Village,
	Shijiao Town,
	Qingcheng District,
	Qingyuan City,
	Guangdong Province,
	the PRC
	位於中國廣東省，
	清遠市清城區，
	石角鎮新基村之
	土地及構築物

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VALUATION REPORTS ON THE TARGET GROUP

APPENDIX IV

SUMMARY OF VALUES

No. Property 11. 8 land parcels together with various buildings and structures located at 21st Zone, 27th Zone, 63rd Zone, 90th Zone, No.5 Binjiang Road and Jingkou Power Station, Taihe Town, Qingxin County Qingyuan City, Guangdong Province, the PRC 位於中國廣東省，清遠市清新縣太和鎮二十一號區、二十七號區、六十三號區、九十號區、濱江路5號及逕口電站之八塊土地、若干房屋及構築物 Total:	Market Value in existing state as at 30 September 2015 Interest attributable to the Target Group RMB 17,970,000 51% 67,042,000	Value attributable to the Target Group as at 30 September 2015 RMB 9,164,700
		58,236,700

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VALUATION REPORTS ON THE TARGET GROUP

APPENDIX IV

VALUATION CERTIFICATE

Market Value Particulars of in existing state as at No. Property Description and tenure occupancy 30 September 2015 RMB 1. The whole of “Jinlong The property comprises a As per information 28,700,000 Building” located at 12-storey office building erected provided, portions of No. 1 Fang Zheng on a land parcel with a site area the property with a 2nd Street, of approximately 666.43 sq.m. total leased area of Xincheng District, completed in about 1996. approximately 5,706.65 Qingyuan City, sq.m. are let under Guangdong Province, The total gross floor area various tenancies at the PRC (“GFA”) of the property is a total monthly rent approximately 6,438.48 sq.m. of approximately 位於中國廣東省, RMB171,845, whereas 清遠市新城區, The land use rights of the the remaining portion of 方正二街一號, property have been granted for a the property is vacant/ 錦龍大廈之全棟 term expiring on 4 March 2047 occupied by the Target for composite use. Group for office use.

Notes:

The property is located at Xincheng District which is about 25 minutes’ driving distance to the Qingyuan Railway Station. The immediate locality is a mixture of residential and commercial areas.
Pursuant to a State-owned Land Use Rights Certificate, Qing Shi Fu Guo Yong (2015) Zi Di No. 00273（清市府國用(2015)字第00273號）, issued by the People’s Government of Qingyuan City（清遠市人民政府）dated 26 May 2015, the land use rights of the property with a site area of approximately 666.43 sq.m. have been granted to Qingyuan Jingyu Properties Co. Ltd.（清遠市旌譽置業有限公司）(“Jingyu Properties”) for a term expiring on 4 March 2047 for composite use
Pursuant to 12 Real Estate Title Certificates issued by the People’s Government of Qingyuan City（清遠市人民政府）all dated 13 May 2015, the buildings of the property are owned by Jingyu Properties. Details of which are summarized in the table below:–

Real Estate Title Certificate No. No. （房地產權證號）

No. （房地產權證號） Permitted Use GFA (sq.m.) 1 Yue Fang Di Quan Zheng Zi Di No. 0200187307 Non-domestic 236.21 2 Yue Fang Di Quan Zheng Zi Di No. 0200187309 Non-domestic 846.97 3 Yue Fang Di Quan Zheng Zi Di No. 0200187311 Non-domestic 894.72 4 Yue Fang Di Quan Zheng Zi Di No. 0200187310 Non-domestic 495.62 5 Yue Fang Di Quan Zheng Zi Di No. 0200187312 Non-domestic 495.62 6 Yue Fang Di Quan Zheng Zi Di No. 0200187314 Non-domestic 495.62 7 Yue Fang Di Quan Zheng Zi Di No. 0200187308 Non-domestic 495.62 8 Yue Fang Di Quan Zheng Zi Di No. 0200187316 Non-domestic 495.62 9 Yue Fang Di Quan Zheng Zi Di No. 0200187320 Non-domestic 495.62 10 Yue Fang Di Quan Zheng Zi Di No. 0200187315 Non-domestic 495.62 11 Yue Fang Di Quan Zheng Zi Di No. 0200187317 Non-domestic 495.62 12 Yue Fang Di Quan Zheng Zi Di No. 0200187319 Non-domestic 495.62 Total: 6,438.48

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APPENDIX IV

Pursuant to 5 tenancy agreements, the property is subject to various tenancies to related parties of the Vendor with the following details:–

Level 1, 2, 3 & 6 4 (Zone B) & 12 (Zone B) 5 (Zone B) 7 (Zone B) 8 to 10 (Zone B) Total:	Leased Area Lessee Term sq.m. 2,237.31 Qingyuan Water Supply Development Co. Ltd. （清遠市供水拓展有限責任公司） 1 Apr 2015 – 31 Mar 2016 991.24 Qinguan Jincheng Water Testing Co. Ltd. （清遠市錦誠水質檢測有限公司） 1 May 2015 – 30 Apr 2020 495.62 清遠市博城市政工程有限公司 1 May 2015 – 30 Apr 2016 495.62 廣東博信投資控股股份有限公司 1 May 2015 – 30 Apr 2016 1,486.86 廣東錦龍發展股份有限公司 1 May 2015 – 31 Mar 2016 5,706.65	Monthly Rent RMB 74,345 27,700 13,900 13,900 42,000
		171,845

The opinion of the PRC legal advisor to the Company contains, inter alia, the following:
a. Jingyu Properties is in possession of a proper legal title to the property and is entitled to transfer the property with its residual term of land use rights at no extra land premium or other onerous payment payable to the government;
b. Jingyu Properties is not required to pay the land premium given the reason that the local government has granted the approval for the Water Co.’s to transfer such property without paying land premium;
c. The property is not subject to mortgage or any other material encumbrances;
d. The property can be freely disposed of in the market; and
e. The tenancy agreements are legally valid and binding on the contracting parties.
Jingyu Properties is an indirectly wholly-owned subsidiary of the Target Group.

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APPENDIX IV

VALUATION CERTIFICATE

Market Value Particulars of in existing state as at No. Property Description and tenure occupancy 30 September 2015 RMB 2. 4 land parcels together The property comprises four land As per information 12,100,000 with various buildings parcels with a total site area of provided, portions of and structures located approximately 37,262.15 sq.m. the property with a at No. 16 Beijiang together with various buildings total leased area of 1st Road, Xincheng and structures completed in approximately 37,731.15 between 1990 to 2000 erected sq.m. are let under District, thereon. various tenancies at Qingyuan City, a total monthly rent Guangdong Province, A 5-storey office building of of approximately the PRC the property has a gross floor RMB82,252, whereas area (“GFA”) of approximately the remaining portion of 位於中國廣東省， 1,253.31 sq.m. completed in the property is occupied 清遠市新城區北江一路 about 1990. by the Target Group for 16號之四塊土地、 water plant use. The land use rights of the 若干房屋及構築物 property have been granted for a term expiring on14 April 2052 for municipal public utilities use.

Notes:

The property is located at Xincheng District which is about 25 minutes’ driving distance to the Qingyuan Railway Station. The immediate locality is a mixture of residential and commercial areas.
Pursuant to 4 State-owned Land Use Rights Certificates, issued by the People’s Government of Qingyuan City（清遠市人民政府）all dated 26 May 2015, the land use rights of the property with a total site area of approximately 37,262.15 sq.m. have been granted to Qingyuan Jinhong Industrial Co. Ltd.（清遠市錦弘實業有限公司）(“Jinhong Industrial”) for a term expiring on 14 April 2052. Details of which are summarized in the table below:–

No. State-owned Land Use Rights Certificate No. （國有土地使用證號） Permitted Use 1 Qing Shi Fu Guo Yong (2015) Zi Di No. 00270 Public Utilities 2 Qing Shi Fu Guo Yong (2015) Zi Di No. 00271 Public Utilities 3 Qing Shi Fu Guo Yong (2015) Zi Di No. 00272 Public Utilities 4 Qing Shi Fu Guo Yong (2015) Zi Di No. 00269 Public Utilities Total:	Site Area (sq.m.) 12,317.84 3,666.30 20,259.00 1,019.01
	37,262.15

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APPENDIX IV

Pursuant to a Real Estate Title Certificate, Yue Fang Di Zheng Zi Di No. 0200187318（粵房地證字第 0200187318號）, issued by the People’s Government of Qingyuan City（清遠市人民政府）dated 13 May 2015, the building of the property with a GFA of approximately 1,253.31 sq.m. is owned by Jinhong Industrial.
As advised, no other title documents have been obtained by the Target Group apart from the documents as stated in Notes 2 to 3. However, for your reference purpose, we are of the opinion that the depreciated replacement cost of the remaining buildings of the property without title certificates as at the valuation date would be in the sum of approximately RMB18,390,000, assuming all relevant title certificates have been obtained and the remaining buildings of the property could be freely transferred in the market.
Pursuant to 5 tenancy agreements, the property is subject to various tenancies to related parties of the Vendor with the following details:–

Description Land, office & ancillary facilities Land, office & ancillary facilities Land, office & ancillary facilities Land Land Total:	Leased Area Lessee Term sq.m. 1,196 (Land) 25 (Office) 清遠市博城市政工程有限公司 1 May 2015 – 31 Dec 2016 34,202.15 (Land) 222 (Office) Qingyuan Water Supply Development Co. Ltd. （清遠市供水拓展有限公司） 1 Apr 2015 – 31 Mar 2016 1,794 (Land) 222 (Office) 清遠市自來水工程有限責任公司 1 Oct 2015 – 30 Sep 2016 30 中國電信股份有限公司清遠分公司 1 Jul 2015 – 31 Dec 2015 40 中國移動通信集團廣東有限公司清遠分公司 1 Apr 2015 – 31 Dec 2015 37,262.15 (Land) 469 (Office)	Monthly Rent RMB 2,740 71,512 6,700 900 400
		82,252

The opinion of the PRC legal advisor to the Company contains, inter alia, the following:
a. Jinhong Industrial is in possession of a proper legal title to the property in Notes 2 & 3 and is entitled to transfer the property with its residual term of land use rights at no extra land premium or other onerous payment payable to the government;
b. Jinhong Industrial is not required to pay the land premium given the reason that the local government has granted the approval for the Water Co.’s to transfer such property without paying land premium;
c. The property is not subject to mortgage or any other material encumbrances;
d. The property can be freely disposed of in the market;
e. Title documents of the remaining buildings of the property have not been obtained, thus such remaining buildings cannot be freely disposed of in the market; and
f. The tenancy agreements are legally valid and binding on the contracting parties.
Jinhong Industrial is an indirectly wholly-owned subsidiary of the Target Group.

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APPENDIX IV

VALUATION CERTIFICATE

Market Value Particulars of in existing state as at No. Property Description and tenure occupancy 30 September 2015 RMB 3. 2 land parcels together The property comprises two land As per information 2,030,000 with various buildings parcels with a total site area of provided, portions of the and structures approximately 5,760.20 sq.m. property with a leased together with various buildings area of approximately located at and structures completed in 1,200 sq.m. is subject to No. 108 Song between 1990 to 2000 erected a tenancy at a monthly Gang Road, thereon. rent of RMB3,000 Qingcheng District, expiring on 31 January Qingyuan City, A 6-storey composite building of 2016 and the remaining Guangdong Province, the property has a gross floor area of the property is vacant. the PRC (“GFA”) of approximately 320.59 sq.m. completed in about 1997. 位於中國廣東省清遠市清城區, The land use rights of the 松崗路108號之 property have been granted for 二塊土地、若干房屋 terms expiring on 16 April 2052 及構築物 and 16 April 2072 for public utilities use and residential use respectively.

Notes:

The property is located at Qingcheng District which is about 30 minutes’ driving distance to the Qingyuan Railway Station. The immediate locality is a mixture of residential and commercial areas.
Pursuant to 2 State-owned Land Use Rights Certificates, issued by the People’s Government of Qingyuan City （清遠市人民政府）, the land use rights of the property with a total site area of approximately 5,760.20 sq.m. have been granted to Qinyuan Kaipeng Properties Co. Ltd.（清遠市凱鵬置業有限公司）(“Kaipeng Properties”). Details of which are summarized in the table below:–

No. State-owned Land Use Rights Certificate No. （國有土地使用證號） Issue Date Permitted Use Expiry Date 1 Qingyuan Shi Guo Yong (2015) Zi Di No. 00693 3 Jun 2015 Public Utilities 16 Apr 2052 2 Qingyuan Shi Guo Yong (2015) Zi Di No. 00690 1 Jun 2015 Residential 16 Apr 2072 Total:	Site Area (sq.m.) 5,702.97 57.23
	5,760.20

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APPENDIX IV

Pursuant to a Real Estate Title Certificate, Yue Fang Di Quan Zheng Qing Zi Di No. 0100187313（粵房地權證清字第0100187313號）, issued by the People’s Government of Qingyuan City（清遠市人民政府）dated 13 May 2015, the building of the property with a GFA of approximately 320.59 sq.m. is owned by Kaipeng Properties.
As advised, no other title documents have been obtained by the Target Group apart from the documents as stated in Notes 2 and 3. However, for your reference purpose, we are of the opinion that the depreciated replacement cost of the remaining buildings of the property without title certificates as at the valuation date would be in the sum of approximately RMB430,000, assuming all relevant title certificates have been obtained and the remaining buildings of the property could be freely transferred in the market.
Pursuant to a Tenancy Agreement entered into between Qinyuan Kaipeng Properties Co. Ltd.（清遠市凱鵬置業有限公司）(the “lessor”) and 陳偉玲 (the “lessee”), an independent third party dated 9 June 2015, the property with an area of approximately 1,200 sq.m. is subject to a tenancy for a term commencing on 1 July 2015 and expiring on 31 January 2016 at a monthly rent of RMB3,000.
The opinion of the PRC legal advisor to the Company contains, inter alia, the following:
a. Kaipeng Properties is in possession of a proper legal title to the property in Notes 2 & 3 and is entitled to transfer the property with its residual term of land use rights at no extra land premium or other onerous payment payable to the government;
b. Kaipeng Properties is not required to pay the land premium given the reason that the local government has granted the approval for the Water Co.’s to transfer such property without paying land premium;
c. The property is not subject to mortgage or any other material encumbrances;
d. The property can be freely disposed of in the market;
e. Title documents of the remaining buildings of the property have not been obtained, thus such remaining buildings cannot be freely disposed of in the market; and
f. The tenancy agreement is legally valid and binding on the contracting parties.
Kaipeng Properties is an indirectly wholly-owned subsidiary of the Target Group.

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APPENDIX IV

VALUATION CERTIFICATE

No. Property

Description and tenure

Market Value Particulars of in existing state as at occupancy 30 September 2015 RMB

Land parcel together with The property comprises a various buildings and land parcel with a site area of structures located approximately 3,288.85 sq.m. at No. 55 together with various buildings Zhen Nan Street, and structures completed in Shijiao Town, between 2000 and 2010 erected Qingcheng District, thereon. Qingyuan City, Guangdong Province, The buildings of the property the PRC have a total gross floor area (“GFA”) of approximately

位於中國廣東省, 645.13 sq.m. 清遠市清城區, 石角鎮鎮南街55號之 The land use rights of the 土地、若干房屋及 property have been granted for 構築物 a term expiring on 29 December 2054 for composite use.

The property is occupied 1,480,000 by the Target Group for water plant use and its ancillary facilities.

Notes:

The property is located at Qingcheng District which is about 45 minutes’ driving distance to the Qingyuan Railway Station. The immediate locality is a mixture of residential and commercial areas.
Pursuant to a State-owned Land Use Rights Certificate, Qingyuan Shi Guo Yong (2015) Di No. 01345（清遠市國用(2015)第01345號）, issued by the People’s Government of Qingyuan City（清遠市人民政府）dated 28 September 2015, the land use rights of the property with a site area of approximately 3,288.85 sq.m. have been granted to Qingyuan Kaipeng Properties Co., Ltd.（清遠市凱鵬置業有限公司）(“Kaipeng Properties”) for a term expiring on 29 December 2054 for composite use.

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APPENDIX IV

VALUATION REPORTS ON THE TARGET GROUP

Pursuant to 6 Real Estate Ownership Certificates, issued by the Housing, Urban & Rural Construction Administration Bureau of Qingyuan City（清遠市住房和城鄉建設管理局）registered on 6 August 2015 and 11 August 2015, the buildings of the property are owned by Qinyuan Kaipeng Properties Co. Ltd.（清遠市凱鵬置業有限公司）(“Kaipeng Properties”). Details of which are summarized in the table below:–

Real Estate Ownership Certificate No.

No. （房地產權証號）

No.
（房地產權証號）
Permitted Use
1
Yue Fang Di Zheng Qing Zi Di No. 0200199412
Non-domestic
2
Yue Fang Di Zheng Qing Zi Di No. 0200199546
Non-domestic
3
Yue Fang Di Zheng Qing Zi Di No. 0200199718
Non-domestic
4
Yue Fang Di Zheng Qing Zi Di No. 0200199894
Office
5
Yue Fang Di Zheng Qing Zi Di No. 0200199411
Office
6
Yue Fang Di Zheng Qing Zi Di No. 0200199878
Office
Total:

GFA
(sq.m.)
314.25
43.31
76.20
28.16
166.73
16.48

645.13

As advised, no other title documents have been obtained by the Target Group apart from the documents as stated in Notes 2 and 3. However, for your reference purpose, we are of the opinion that the depreciated replacement cost of the remaining buildings of the property without title certificates as at the valuation date would be in the sum of approximately RMB1,400,000, assuming all relevant title certificates have been obtained and the remaining buildings of the property could be freely transferred in the market.
Pursuant to a Tenancy Agreement entered into between Qinyuan Kaipeng Properties Co. Ltd. (清遠市凱鵬置業有限公司) (the “lessor”) and 清遠市供水拓展有限責任公司 (the “lessee”), a related party to the Target Group dated 1 July 2015, the property with an area of approximately 645.13 sq.m. is subject to a tenancy for a term commencing on 1 July 2015 and expiring on 30 June 2016 at a monthly rent of RMB5,161.
The opinion of the PRC legal advisor to the Company contains, inter alia, the following:
a. Kaipeng Properties is in possession of a proper legal title to the property in Notes 2 & 3 and is entitled to transfer the property with its residual term of land use rights at no extra land premium or other onerous payment payable to the government;
b. Based on the statement from the Water Co., the land premium is not required to be paid given the reason that the land premium had been taken into account and formed part of the consideration for purchasing Shijiao water plant;
c. The property is not subject to mortgage or any other material encumbrances;
d. Title documents of the remaining buildings of the property have not been obtained, thus such remaining buildings cannot be freely disposed of in the market; and
e. The property can be freely disposed of in the market.
Kaipeng Properties is an indirectly wholly-owned subsidiary of the Target Group.

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APPENDIX IV

VALUATION REPORTS ON THE TARGET GROUP

VALUATION CERTIFICATE

Market Value Particulars of in existing state as at No. Property Description and tenure occupancy 30 September 2015 RMB 5. No. 3 Xian Feng The property comprises a 6-storey As per information 1,350,000 Road West, composite building completed in provided, portions Qingcheng District, about 1987 erected on six land of property with a Qingyuan City, parcels with a total site area of total leased area of Guangdong Province, approximately 246.97 sq.m. approximately 570.33 the PRC sq.m. are subject The total gross floor area to 2 tenancies at a 位於中國廣東省, (“GFA”) of the property is total monthly rent of 清遠市清城區, approximately 1,148.23 sq.m. RMB8,020, whereas the 先鋒西路三號 remaining portion of the The land use rights of the property is occupied by property have been granted for the Target Group for staff various terms expiring on 15 quarters and commercial April 2072 (Levels 2 to 6) and uses. 29 December 2042 (Level 1) for residential use and commercial use respectively.

Notes:

The property is located at Qingcheng District which is about 40 minutes’ driving distance to the Qingyuan Railway Station. The immediate locality is a mixture of residential and commercial areas.
Pursuant to 6 State-owned Land Use Rights Certificates, issued by the People’s Government of Qingyuan City（清遠市人民政府）dated 28 September 2015, the land use rights of the property with a total site area of approximately 246.97 sq.m. have been granted to Qingyuan Jingyu Properties Co., Ltd.（清遠市旌譽置業有限公司）(“Jingyu Properties”) for terms expiring on 15 April 2072 (Levels 2 to 6) and 15 April 2042 (Level 1) for residential use and commercial use respectively. Details of which are summarized in the table below:–

No.
State-owned Land Use Rights
Certificate No.
（國有土地使用證號）
Level
Permitted
Use
Expiry Date
1
Qingcheng Qu Guo Yong (2015) Zi Di No. 01344
6
Residential
15 April 2072
2
Qingcheng Qu Guo Yong (2015) Zi Di No. 01343
5
Residential
15 April 2072
3
Qingcheng Qu Guo Yong (2015) Zi Di No. 01342
4
Residential
15 April 2072
4
Qingcheng Qu Guo Yong (2015) Zi Di No. 01341
3
Residential
15 April 2072
5
Qingcheng Qu Guo Yong (2015) Zi Di No. 01340
2
Residential
15 April 2072
6
Qingcheng Qu Guo Yong (2015) Zi Di No. 01339
1
Commercial
15 April 2042
Total:

Site Area
(sq.m.)
26.91
26.91
26.91
24.31
71.36
70.57

246.97

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APPENDIX IV

Pursuant to 3 Real Estate Title Certificates, issued by the Housing, Urban & Rural Construction Administration Bureau of Qingyuan City（清遠市住房和城鄉建設管理局）registered on 11 August 2015, the buildings of the property are owned by Qingyuan Jingyu Properties Co. Ltd.（清遠市旌譽置業有限公司）(“Jingyu Properties”). Details of which are summarized in the table below:–

No. Real Estate Title Certificate No. （房地產權証號） Permitted Use 1 Yue Fang Di Zheng Qing Zi Di No. 0200199839 Non-domestic 2 Yue Fang Di Zheng Qing Zi Di No. 0200199834 Non-domestic 3 Yue Fang Di Zheng Qing Zi Di No. 020019936 Non-domestic Total:	GFA (sq.m.) 615.33 123.32 409.58
	1,148.23

Pursuant to a Tenancy Agreement entered into between Jingyu Properties (the “lessor”) and 清遠市清城西湖藥店 (the “lessee”), an independent third party dated 15 September 2015, the property with an area of approximately 32 sq.m. is subject to a tenancy for a term commencing on 1 July 2015 and expiring on 30 November 2019 at a monthly rent of RMB2,000.
Pursuant to Tenancy Agreement entered into between Jingyu Properties (the “lessor”) and清遠市供水拓展有限責任公司 (the “lessee”), a related party to the Target Group dated 11 September 2015, the property with an area of approximately 538.33 sq.m. is subject to a tenancy for a term commencing on 1 July 2015 and expiring on 30 June 2016 at a monthly rent of RMB6,020.
The opinion of the PRC legal advisor to the Company contains, inter alia, the following:
a. Jingyu Properties is in possession of a proper legal title to the property and is entitled to transfer the property with its residual term of land use rights at no extra land premium or other onerous payment payable to the government;
b. Jingyu Properties is not required to pay the land premium given the reason that the local government has granted the approval for the Water Co.’s to transfer such property without paying land premium;
c. The property is not subject to mortgage or any other material encumbrances;
d. The property can be freely disposed of in the market; and
e. The tenancy agreements are legally valid and binding on the contracting parties.
Jingyu Properties is an indirectly wholly-owned subsidiary of the Target Group.

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APPENDIX IV

VALUATION CERTIFICATE

Market Value in Particulars of existing state as at No. Property Description and tenure occupancy 30 September 2015 RMB 6. Land parcel together with The property comprises a The property is vacant. 1,810,000 various buildings and land parcel with a site area structures of approximately 7,500 sq.m. located at together with various buildings Tian Xin Village along and structures completed in parts of Bi Jia River, 2000’s erected thereon. Shatian Community, Feng Cheng Street The buildings of the property Office, have a total gross floor area Qingcheng District, (“GFA”) of approximately Qingyuan City, 200 sq.m. Guangdong Province, the PRC The land use rights of the property have been granted for a 位於中國廣東省, term expiring on 16 April 2052 清遠市清城區, for public utilities use. 鳳城街道辦事處沙田社區筆架河田心村河段之土地、若干房屋及構築物

Notes:

The property is located at Qingcheng District which is about 40 minutes’ driving distance to the Qingyuan Railway Station. The immediate locality is a residential area.
Pursuant to a State-owned Land Use Rights Certificate, Qingyuan Shi Guo Yong (2015) Di No. 01346（清遠市國用(2015)第01346號）, issued by the People’s Government of Qingyuan City（清遠市人民政府）dated 30 September 2015, the land use rights of the property with a site area of approximately 7,500 sq.m. have been granted to Qingyuan Water Supply Development Co. Ltd.（清遠市供水拓展有限責任公司）(“Water Supply Development”) for a term expiring on 16 April 2052 for public utilities use.
As advised, no other title documents have been obtained by the Target Group apart from the document as stated in Note 2. However, for your reference purpose, we are of the opinion that the depreciated replacement cost of the buildings of the property without title certificates as at the valuation date would be in the sum of approximately RMB80,000, assuming all relevant title certificates have been obtained and the buildings of the property could be freely transferred in the market.

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APPENDIX IV

The opinion of the PRC legal advisor to the Company contains, inter alia, the following:
a. Water Supply Development is in possession of a proper legal title to the property in Note 2 and is entitled to transfer the property with its residual term of land use rights at no extra land premium or other onerous payment payable to the government;
b. Water Supply Development is not required to pay the land premium given the reason that the local government has granted the approval for the Water Supply Co’s to transfer such property without paying land premium;
c. The property is not subject to mortgage or any other material encumbrances;
d. Title documents of the buildings of the property have not been obtained, thus such buildings cannot be freely disposed of in the market; and
e. The property can be freely disposed of in the market.
Water Supply Development is an indirectly wholly-owned subsidiary of the Target Group.

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APPENDIX IV

VALUATION CERTIFICATE

Description and tenure

No. Property

2 land parcels together The property comprises two land with various buildings parcels with a total site area of and structures approximately 6,259.14 sq.m. located at together with various buildings Feng Men Ao, and structures completed in Chang Chong Village around 2008 erected thereon. Committee, Longtang Town, The land use rights of the Qingcheng District, property have been granted for a Qingyuan City, term expiring on 28 April 2059 Guangdong Province, for public utilities use. the PRC

Market Value in Particulars of existing state as at occupancy 30 September 2015 RMB The property is occupied 1,460,000 by the Target Group for water plant and its ancillary facilities.

位於中國廣東省, 清遠市清城區, 龍塘鎮長沖村民委員會風門坳之二塊土地、若干房屋及構築物

Notes:

The property is located at Qingcheng District which is about 40 minutes’ driving distance to the Qingyuan Railway Station. The immediate locality is a rural area.
Pursuant to 2 State-owned Land Use Rights Certificates, issued by the People’s Government of Qingyuan City （清遠市人民政府）dated 28 September 2015 and 16 October 2015, the land use rights of the property with a total site area of approximately 6,259.14 sq.m. have been granted to Qingyuan Water Supply Development Co. Ltd.（清遠市供水拓展有限責任公司）(“Water Supply Development”) for a term expiring on 28 April 2059. Details of which are summarized in the table below:–

No. State-owned Land Use Rights Certificate No. （國有土地使用證號） Permitted Use 1 Qingyuan Shi Guo Yong (2015) Zi Di No. 01338 Public Utilities 2 Qing Shi Fu Guo Yong (2015) Zi Di No. 00491 Public Utilities Total:	Site Area (sq.m.) 3,426.23 2,832.91
	6,259.14

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VALUATION REPORTS ON THE TARGET GROUP

APPENDIX IV

As advised, no other title documents have been obtained by the Target Group apart from the documents as stated in Note 1. However, for your reference purpose, we are of the opinion that the depreciated replacement cost of the buildings of the property without title certificates as at the valuation date would be in the sum of approximately RMB2,290,000, assuming all relevant title certificates have been obtained and the buildings of the property could be freely transferred in the market.
The opinion of the PRC legal advisor to the Company contains, inter alia, the following:
a. Water Supply Development is in possession of a proper legal title to the property in Note 2 and is entitled to transfer the property with its residual term of land use rights at no extra land premium or other onerous payment payable to the government;
b. The prepaid land premium of the property has been settled, however, the remaining amount is not required by the grantor;
c. The property is not subject to mortgage or any other material encumbrances;
d. Title documents of the buildings of the property have not been obtained, thus such buildings cannot be freely disposed of in the market; and
e. The property can be freely disposed of in the market.
Water Supply Development is an indirectly wholly-owned subsidiary of the Target Group.

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VALUATION REPORTS ON THE TARGET GROUP

APPENDIX IV

VALUATION CERTIFICATE

Description and tenure

No. Property

Unit 101 of Block A & The property comprises two nonUnit 101 of Block B, domestic units on level 1 within No. 5 Nan An Second two blocks of 7-storey buildings Street, Staff Quarters erected on two land parcels with of the Water Company, a total site area of approximately Xincheng District, 21.88 sq.m. completed in about Qingyuan City, 1993. Guangdong Province, the PRC The total gross floor area (“GFA”) of the property is 位於中國廣東省, approximately 145.42 sq.m. 清遠市新城區, 南岸二街5號 The land use rights of the 自來水公司宿舍 property have been allocated for A棟101室及B棟101室 domestic use.

Market Value in Particulars of existing state as at occupancy 30 September 2015 RMB The property is occupied 142,000 by the Target Group for office and storage uses.

Notes:

The property is located at Xincheng District which is about 40 minutes’ driving distance to the Qingyuan Railway Station. The immediate locality is a rural area.
Pursuant to 2 State-owned Land Use Rights Certificates, issued by the People’s Government of Qingyuan City（清遠市人民政府）dated 16 September 2015, the land use rights of the property with a total site area of approximately 21.88 sq.m. have been granted to Qingyuan Water Supply Development Co. Ltd.（清遠市供水拓展有限責任公司）(“Water Supply Development”) for domestic use. Details of which are summarized in the table below:–

No. State-owned Land Use Rights Certificate No. （國有土地使用證號） Permitted Use Expiry Date 1 Qing Shi Fu Guo Yong (2015) Zi Di No. 00419 Domestic 19 August 2085 2 Qing Shi Fu Guo Yong (2015) Zi Di No. 00420 Domestic 19 August 2085 Total:	Site Area (sq.m.) 15.7 6.18
	21.88

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VALUATION REPORTS ON THE TARGET GROUP

APPENDIX IV

Pursuant to 2 Real Estate Title Certificates, issued by the Housing, Urban & Rural Construction Administration Bureau of Qingyuan City（清遠市住房和城鄉建設管理局）registered on 11 August 2015, the buildings of the property are owned by Qingyuan Water Supply Development Co. Ltd.（清遠市供水拓展有限責任公司）(“Water Supply Development”). Details of which are summarized in the table below:–

No. Real Estate Title Certificate No. （房地產權証號） Permitted Use 1 Yue Fang Di Zheng Qing Zi Di No. 0200199835 Non-domestic 2 Yue Fang Di Zheng Qing Zi Di No. 0200199836 Non-domestic Total:	GFA (sq.m.) 44.74 100.68
	145.42

The opinion of the PRC legal advisor to the Company contains, inter alia, the following:
a. Water Supply Development is in possession of a proper legal title to the property in Notes 2 & 3 and is entitled to transfer the property with its residual term of land use rights at no extra land premium or other onerous payment payable to the government;
b. The property is not subject to mortgage or any other material encumbrances; and
c. The property can be freely disposed of in the market.
Water Supply Development is an indirectly wholly-owned subsidiary of the Target Group.

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VALUATION REPORTS ON THE TARGET GROUP

APPENDIX IV

VALUATION CERTIFICATE

No. Property

Description and tenure

Market Value in Particulars of existing state as at occupancy 30 September 2015

RMB

Land parcel The property comprises a together with land parcel with a site area various buildings and of approximately 1,974 sq.m. structures located at together with various buildings Shiqi Village, and structures completed in Shijiao Town, around 2007 erected thereon. Qingcheng District, Qingyuan City, The buildings of the property Guangdong Province, have a total gross floor area the PRC (“GFA”) of approximately 200 sq.m.

The property comprises a land parcel with a site area of approximately 1,974 sq.m. together with various buildings and structures completed in around 2007 erected thereon.

The property is occupied No Commercial Value by the Target Group for water plant use and its ancillary facilities.

位於中國廣東省, 清遠市清城區, 石角鎮石岐村之土地、若干房屋及構築物

Notes:

The property is located at Qingcheng District which is about 45 minutes’ driving distance to the Qingyuan Railway Station. The immediate locality is a rural area.
Pursuant to a Construction Land Planning Permit（建設用地規劃許可證）, Di Zi Di No. B20150011（地字第用地B20150011號）, issued by Qingyuan City Urban & Rural Planning Bureau, Qingcheng Branch（清遠市城鄉規劃局清城分局）dated 22 April 2015, Qingyuan Water Co., Ltd.（清遠市自來水有限責任公司）(“Water Co.”) was permitted to develop the property with a site area of 1,974 sq.m. for public utility use.
As advised, no other title documents have been obtained by the Target Group apart from the document as stated in Note 2. However, for your reference purpose, we are of the opinion that the market value of the property without title certificates as at the valuation date would be in the sum of approximately RMB1,110,000, assuming all relevant title certificates have been obtained and the property could be freely transferred in the market.
The opinion of the PRC legal advisor to the Company contains, inter alia, the following:
a. Water Co. has not obtained the proper legal title documents, the property cannot be freely disposed of in the market.
Water Co. is an indirectly wholly-owned subsidiary of the Target Group.

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VALUATION REPORTS ON THE TARGET GROUP

APPENDIX IV

VALUATION CERTIFICATE

No. Property

Description and tenure

Market Value in Particulars of existing state as at occupancy 30 September 2015

RMB

Land parcel The property comprises a together with land parcel with a site area various buildings and of approximately 1,615 sq.m. structures located at together with various buildings Xinji Village, and structures completed in Shijiao Town, between 2007 and 2010 erected Qingcheng District, thereon. Qingyuan City, Guangdong Province, The buildings of the property the PRC have a total gross floor area (“GFA”) of approximately 位於中國廣東省,, 500 sq.m.

位於中國廣東省,, 清遠市清城區, 石角鎮新基村之土地、若干房屋及構築物

The property is occupied No Commercial Value by the Target Group for water plant use and its ancillary facilities.

Notes:

The property is located at Qingcheng District which is about 45 minutes’ driving distance to the Qingyuan Railway Station. The immediate locality is a rural area.
Pursuant to a Construction Land Planning Permit（建設用地規劃許可證）, Di Zi Di No. B20150010（地字第用地B20150010號）, issued by Qingyuan City Urban & Rural Planning Bureau, Qingcheng Branch（清遠市城鄉規劃局清城分局）dated 22 April 2015, Qingyuan Water Co., Ltd.（清遠市自來水有限責任公司）(“Water Co.”) was permitted to develop the property with a site area of 1,615 sq.m. for public utility use.
As advised, no other title documents have been obtained by the Target Group apart from the document as stated in Note 2. However, for your reference purpose, we are of the opinion that the market value of the property as at the valuation date would be in the sum of approximately RMB1,060,000, assuming all relevant title certificates have been obtained and the property could be freely transferred in the market.
The opinion of the PRC legal advisor to the Company contains, inter alia, the following:
a. Water Co. has not obtained the proper legal title documents, the property cannot be freely disposed of in the market.
Water Co. is an indirectly wholly-owned subsidiary of the Target Group.

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VALUATION REPORTS ON THE TARGET GROUP

APPENDIX IV

VALUATION CERTIFICATE

				Market Value in
			Particulars of	existing state as at
No.	Property	Description and tenure	occupancy	30 September 2015
				RMB
11.	8 land parcels together	The property comprises two	As per information	17,970,000
	with various buildings	water plants (i.e. Plant No.1 and	provided, portions of
	and structures located	Plant No. 2) erected on eight land	the property with a	51% interest
	at 21st Zone, 27th Zone	parcels with a total site area of	total leased area of	attributable to
	63rd Zone, 90th Zone,	approximately 75,836.7 sq.m.	approximately 152.9	the Target Group:
	No.5 Binjiang Road and	together with various buildings	sq.m. are let under	RMB9,164,700
	Jingkou Power Station,	and structures completed in	various tenancies at
	Taihe Town,	various stages between 1991 to	a total monthly rent
	Qingxin County	2014 erected thereon.	of approximately
	Qingyuan City,		RMB46,571.50, whereas
	Guangdong Province,	A 6-storey office building of the	the remaining portion of
	the PRC	property has a gross floor area	the property is occupied
		(“GFA”) of approximately 590.56	by the Target Group for
	位於中國廣東省,	sq.m. completed in about 2003.	water plant use.
	清遠市清新縣
	太和鎮二十一號區、	Besides, some site works are
	二十七號區、六十三號	under construction (the “CIP”)
	區、九十號區、	within Plant No. 2.
	濱江路5號及逕口電站之
	八塊土地、若干房屋及	The land use rights of 5 land
	構築物	parcels of the property have been
		granted for various terms with the
		latest one expiring on 2 January
		2045 for public utilities,
		composite and industrial uses and
		3 remaining land parcels have
		been allocated for composite and
		public utilities uses.

Notes:

The property is located at Taihe Town which is about 40 minutes’ driving distance to the Qingyuan Railway Station. The immediate locality is generally a rural area intermingled with some residential developments.
Pursuant to 5 State-owned Land Use Rights Certificates, issued by the People’s Government of Qingyuan City （清遠市人民政府）, the land use rights of the property with a total site area of approximately 71,344.40 sq.m. have been granted to Qingyuan Qingxin District Taihe Water Co., Ltd.（清遠市清新縣太和供水有限公司） (“Taihe Water”). Details of which are summarized in the table below:–

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VALUATION REPORTS ON THE TARGET GROUP

APPENDIX IV

No.
State-owned Land Use Rights
Certificate No.
（國有土地使用證號）
Issued
Date
Permitted
Use
Expiry
Date
1
Qing Xin Guo Yong (2000) Zi Di No. 010041
17-Jan-2000
Public Utilities
02-Jan-2045
2
Qing Xin Guo Yong (2007) Zi Di No. 013913
30-Sep-2007
Composite
25-Jan-2053
3
Qing Xin Guo Yong (2009) Zi Di No. 011044
17-Mar-2009
Industrial
28-Jun-2056
4
Qing Xin Guo Yong (2008) Zi Di No. 010888
07-Apr-2008
Public Utilities
26-Dec-2057
5
Qing Xin Guo Yong (2002) Zi Di No. 013227
28-Nov-2002
Composite
19-Jul-2056
Total:

Site Area
(sq.m.)
15,337
3,782.57
47,155.90
5,000.10
68.83

71,344.40

Pursuant to 3 State-owned Land Use Rights Certificates, issued by the People’s Government of Qingyuan City（清遠市人民政府）dated 28 November 2002, the land use rights of the property with a total site area of approximately 4,492.30 sq.m. have been allocated to Taihe Water. Details of which are summarized in the table below:–

State-owned Land Use Rights Certificate No.

No. （國有土地使用證號） Permitted Use 1 Qing Xin Guo Yong (2002) Zi Di No. 013216 Composite 2 Qing Xin Guo Yong (2002) Zi Di No. 013240 Composite 3 Qing Xin Guo Yong (2002) Zi Di No. 010040 Public Utilities Total:	Site Area (sq.m.) 23.20 551.99 3,917.11
	4,492.30

Pursuant to 2 Real Estate Title Certificates, issued by the People’s Government of Qingyuan City（清遠市人民政府）dated 12 June 2002 and 25 January 2003 respectively, the buildings of the property are owned by Taihe Water. Details of which are summarized in the table below:–

Real Estate Title Certificate No.

No. （房地產權證號） Permitted Use 1 Yue Fang Di Zheng Zi Di No. C0571306 Commercial & Office 2 Yue Fang Di Zheng Zi Di No. C1228150 Office Total:	GFA (sq.m.) 434.26 156.30
	590.56

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APPENDIX IV

VALUATION REPORTS ON THE TARGET GROUP

Pursuant to 2 tenancy agreements, the property is subject to various tenancies with the following details:–

Description Retail Shop Retail Shop Total:	Leased Area Lessee Term sq.m. 137.1 成志强 15 April 2011 – 14 April 2016 15.8 周健龍 1 July 2014 – 30 June 2019 152.9	Monthly Rent RMB 43,526.50 3,045
		46,571.50

As advised, no other title documents have been obtained by the Target Group apart from the documents as stated in Notes 2 to 4. In the valuation of this property, we have attributed no commercial value to the 3 land parcels as the natures of the land use rights are allocated land and they cannot be transferred in the market. For your reference purpose, we are of the opinion that the depreciated replacement cost of the buildings of the property without title certificates as at the valuation date would be in the sum of approximately RMB32,550,000, assuming all relevant title certificates have been obtained and the property could be freely transferred in the market.
In the valuation of this property, we have attributed no commercial value to the CIP as relevant planning and construction permits have not been obtained. However, as per information provided by the Target Group, the cost expended for the CIP up to the valuation date was in the sum of approximately RMB51,600,000.
Pursuant to 6 Certificates of the Other Rights of Land, entered into between Taihe Water and Bank of China, Qingyuan Branch（中國銀行股份有限公司清遠分行）, the property was subject to 6 mortgages. Details of which are summarized in the table below:–

	Real Estate Title	Certificates of the
	Certificate No.	Other Rights of Land No.	Mortgage Term
No.	（房地產權證號）	（他項權利證號）	Expiring on	Collateral Loan
				(RMB)
1	Qing Xin Guo Yong (2007)	Qing Xin Ta Xiang (2015)	31 Mar 2031	18,975,000
	Zi Di No. 013913號	Di No. 00006
2	Qing Xin Guo Yong (2009)	Qing Xin Ta Xiang (2015)	31 Mar 2031	17,447,600
	Zi Di No. 011044號	Di No. 00007
3	Qing Xin Guo Yong (2000)	Qing Xin Ta Xiang (2015)	31 Mar 2031	6,901,600
	Zi Di No. 010041號	Di No. 00008
4	Qing Xin Guo Yong (2008)	Qing Xin Ta Xiang (2015)	31 Mar 2031	1,550,000
	Zi Di No. 010888號	Di No. 00009
5	Qing Xin Guo Yong (2002)	Yue Fang Di Ta Xiang Quan	31 Dec 2030	8,539,267
	Zi Di No. 013216	Zheng Qing Xin Zi Di
		No. 0100021784
6	Qing Xin Guo Yong (2002)	Yue Fang Di Ta Xiang Quan	31 Dec 2030	726,792
	Zi Di No. 013227	Zheng Qing Xin Zi Di
		No. 0100021785

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VALUATION REPORTS ON THE TARGET GROUP

APPENDIX IV

The opinion of the PRC legal advisor to the Company contains, inter alia, the following:
a. Taihe Water is in possession of a proper legal title to the property in Notes 2 & 4 and is entitled to transfer the property with its residual term of land use rights at no extra land premium or other onerous payment payable to the government;
b. The land premium of the property has been settled in full, however, as confirmed by Taihe Water, the land premium for 3 parcels of allocated land is not required by government;
c. The property is subject to a number of mortgages and can be freely disposed of in the market after obtaining the mortgagee’s consents;
d. Title documents of the remaining buildings of the property have not been obtained, thus such buildings cannot be freely disposed of in the market; and
e. The tenancy agreements are legally valid and binding on the contracting parties.
Taihe Water is an indirectly 51%-owned subsidiary of the Target Group.

– 284 –

APPENDIX IV VALUATION REPORTS ON THE TARGET GROUP

3. LETTER FROM AMPLE CAPITAL LIMITED IN RELATION TO THE VALUATION REPORT

The following is the full text of a letter in relation to the Valuation Report, prepared for the purpose of incorporation in this circular received from Ample Capital Limited, the financial adviser to the Company.

==> picture [118 x 46] intentionally omitted <==

3 December 2015

Universal Technologies Holdings Limited Room A & B2, 11th Floor Guangdong Investment Tower 148 Connaught Road Central Sheung Wan Hong Kong

Attn: Board of Directors

Re: Universal Technologies Holdings Limited (the “Company”) – Profit forecast of 東莞市擎琿置業有限公司 (Qinghui Properties Limited) (the “Target Company”)

Dear Sirs,

We refer to (i) the Valuation Report of the Target Company dated 3 December 2015 prepared by BMI Appraisals Limited (the “Valuer”); and (ii) the circular (the “Circular”) of the Company dated 3 December 2015 in relation to a very substantial acquisition and connected transaction involving the acquisition of a 49% interest in the Target Company. Unless otherwise defined, capitalised terms used herein shall have the same meanings as those defined in the Circular.

We note that the Valuation Report was prepared principally using the discounted cash flow method under the income approach. The discounted cash flow forecast (the “Forecast”) underlying the Valuation Report is regarded as a profit forecast under Rule 14.61 of the Listing Rules. This letter constitutes the report on the Forecast from the financial adviser as required under Rule 14.66(2) and paragraph 29(2) of Appendix 1B of the Listing Rules.

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APPENDIX IV

VALUATION REPORTS ON THE TARGET GROUP

We have reviewed the Forecast and have discussed with the Valuer and you regarding the bases and assumptions upon which the Forecast has been prepared and for which the Directors are solely responsible. We have also considered the letter dated 3 December 2015 addressed to you from PKF regarding the accounting policies and the calculations of the Forecast. As the bases and assumptions upon which the Forecast was prepared are about future events which may or may not occur, the Target Company may or may not achieve the financial performance as set out in the Forecast.

On the basis of the foregoing, we are satisfied that the Forecast for which the Directors are solely responsible, have been made by the Valuer and the Directors after due and careful enquiry.

Yours faithfully, For and on behalf of Ample Capital Limited Kevin So Senior Vice President

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APPENDIX IV VALUATION REPORTS ON THE TARGET GROUP

4. LETTER FROM PKF IN RELATION TO THE VALUATION REPORT

The following is the full text of a letter in relation to the Valuation Report, prepared for the purpose of incorporation in this circular received from PKF, the reporting accountant of the Company.

==> picture [84 x 111] intentionally omitted <==

3 December 2015

ACCOUNTANTS’ REPORT ON CALCULATIONS OF THE DISCOUNTED FUTURE ESTIMATED CASH FLOWS IN CONNECTION WITH THE VALUATION OF 100% EQUITY INTEREST IN QINGHUI PROPERTIES LTD.

TO THE DIRECTORS OF UNIVERSAL TECHNOLOGIES HOLDINGS LIMITED (THE “COMPANY”)

We have examined the calculations of the discounted future estimated cash flows on which the valuation prepared by BMI Appraisals Limited dated 3 December 2015, in respect of the valuation of 100% equity interest in Qinghui Properties Ltd. (the “Target Company”) and its subsidiaries (the “Target Group”) as at 30 April 2015 (the “Valuation”) is based. The Target Company is a company incorporated in the People’s Republic of China and is principally engaged in investing, building and operating water affairs project and water treatment service in Qingcheng District and Qingxin District, Qingyuan City including disinfection and supply of tap water, maintenance of water pipeline network, as well as water quality monitoring and testing. The Valuation based on the discounted future estimated cash flows is regarded as a profit forecast under Rule 14.61 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and will be included in a circular dated 3 December 2015 to be issued by the Company in connection with the acquisition of 49% of the entire equity interest in the Target Company (the “Circular”).

Directors’ responsibility for the discounted future estimated cash flows

The directors of Company are responsible for the preparation of the discounted future estimated cash flows in accordance with the bases and assumptions determined by the directors and set out in the “Valuation Assumptions” in Appendix IV of the Circular (the “Assumptions”).

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APPENDIX IV

VALUATION REPORTS ON THE TARGET GROUP

This responsibility includes carrying out appropriate procedures relevant to the preparation of the discounted future estimated cash flows for the Valuation and applying an appropriate basis of preparation; and making estimates that are reasonable in the circumstances.

Reporting accountants’ responsibility

It is our responsibility to form an opinion on the arithmetical accuracy of the calculations of the discounted future estimated cash flows on which the Valuation is based and to report solely to you, as a body, as required by Rule 14.62(2) of the Listing Rules, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

Our engagement was conducted in accordance with the Hong Kong Standard on Assurance Engagements 3000 “Assurance Engagements Other Than Audits or Review of Historical Financial Information” issued by the Hong Kong Institute of Certified Public Accountants. This standard requires that we comply with ethical requirements and plan and perform the assurance engagement to obtain reasonable assurance on whether the discounted future estimated cash flows, so far as the calculations are concerned, have been properly compiled in accordance with the Assumptions. Our work does not constitute any valuation of the Target Group.

Because the Valuation relates to discounted future estimated cash flows, no accounting policies of the Company have been adopted in its preparation. The Assumptions include hypothetical assumptions about future events and management actions which cannot be confirmed and verified in the same way as past results and these may or may not occur. Even if the events and actions anticipated do occur, actual results are still likely to be different from the Valuation and the variation may be material. Accordingly, we have not reviewed, considered or conducted any work on the reasonableness and the validity of the Assumptions and do not express any opinion whatsoever thereon.

Opinion

Based on the foregoing, in our opinion, the discounted future estimated cash flows, so far as the calculations are concerned, have been properly compiled, in all material respects, in accordance with the Assumptions.

PKF

Certified Public Accountants 26/F, Citicorp Centre 18 Whitfield Road Causeway Bay, Hong Kong

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RISK FACTORS

APPENDIX V

RISK FACTORS

The investment in the Target Group is subject to a number of risks which include but not limited to those set out below:-

The Target Group is subject to risks associated with changes in regulations and policies for water supply services in the PRC.

The water supply service is highly regulated and affected by governmental policies. Any changes in legislative, regulatory or industrial requirements may render certain of Target Company’s water supply facilities obsolete.

The Target Group may need to develop new technologies, upgrade existing technologies or upgrade existing facilities to meet any new standards imposed by the relevant regulatory authorities from time to time. There is no guarantee that the Target Group can keep up with such new regulatory standards, and significant capital investment may be required for the Target Group to comply with such requirement and to remain competitive. In the event that the Target Group is unable to keep up with such regulatory standard and/or latest technological changes in a timely manner at reasonable costs, the Target Group may not be able to maintain its competitiveness and its profit may be adversely affected.

Furthermore, if the Target Group fails to obtain or renew the necessary approvals, permits, licences and certificates from various competent government authorities, the Target Group may be subjected to fines and other penalties, including the suspension or shut down of the operations, which could have a material and adverse effect on the business, financial condition, results of operations and prospects of the Target Group.

The Target Group may not be able to renew its water sourcing permit(s) with the government which may affect its operation

The Target Group current holds 3 water sourcing permits to source raw water from local rivers for supply to its customers, after processing and purification. All of the water sourcing permits will expire in 2018 and there is no guarantee that the government will renew or issue a new water sourcing permit. If the Target Group fail to renew or obtain a new water sourcing permit, and thus fail to secure a supply of raw water, its operation, and therefore its result of operation, will be substantially affected.

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RISK FACTORS

APPENDIX V

Change in the economic development, social conditions, government policies in Qingyuan could affect the Target Group.

Any economic slowdown in Qingyuan could reduce the demand of water supply services. If there is any adverse change in the economic development, social conditions or government policies in Qingyuan, the Target Group’s profit may be adversely affected.

Change in the economic development, social conditions, government policies in PRC could affect the Target Group.

The operating businesses of the Target Group are based in the PRC. As such, the business, financial condition, results of operations and prospects can be significantly affected by the economic, political, legal and social conditions and developments in the PRC. The PRC economy differs from the economies of most developed countries in many respects, including the extent of government involvement, the level of development, the growth rate, and government control of foreign exchange. The PRC Government regulates the economy with various policies, including the introduction of measures to control inflation, deflation, or reduce growth, changes in taxation, changes in foreign exchange regulations, import and export restrictions, which may have a material and adverse effect on the business, financial condition, results of operations and prospects of the Target Group.

The Target Group’s inability to maintain its competitiveness could adversely affect its financial performance.

Although the Target Group is currently the only supplier of tap water in its area of supply, however, it still faces competition from indirect competitors, such as bottled water. Furthermore, although the entry barrier is high as any new entries will have to develop a network of water pipes, the Target Group is not granted an exclusive right to operate in its area of supply from the government, thus, the Target Group may face new market entrants in the future. There is no assurance that the Target Group will be able to compete auspiciously with other competitors in the existing market.

Moreover, when the Target Group enters a new market, it may face competition from other operators in the same industry or with similar targets. There is no assurance that it will be able to successfully compete and expand into other parts of the PRC or overseas. Failure to maintain or increase competitiveness may materially and adversely affect Target Group’s business, financial condition, results of operations and prospects.

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RISK FACTORS

APPENDIX V

Failure to appropriately supply tap water due to excessive pollution levels in the raw water, or for any other reason, may adversely affect its earnings and may damage the facilities and reputation, and expose the Target Group to legal liabilities.

The Target Group takes raw water from the local river source and thereafter conducts water treatment and supplies tap water to the local consumers.

The quality of the Target Group’s supplied tap water depends on the normal operation of its facilities. There is no assurance that the Target Group’s staff will always be able to discover and repair defective equipment or other problems with the treatment process, facilities or water pipes. Under such circumstances, it may not be able to keep up with the quality of water supplied.

Furthermore, due to possible excessive discharge of pollutants, oil spills or other uncontrollable event, the raw water may contain pollutants exceeding the types and quantity the Target Group contemplated during the water treatment facilities’ design and construction. Any excessive pollution levels of the raw water coming into the Target Group’s facilities may adversely affect the operating costs and earnings due to the higher costs of treating the waste water or raw water to meet the quality standards specified in the agreements with our customers. There is also possibility that the pollution level of the raw water is so serious that the Target Group may not be able to process and supply tap water to its customers.

Failure to supply tap water that fulfill regulatory standards due to facility failure or polluted source of raw water or any other reasons could result in the Target Group being subject to claims from customers or governmental sanctions, and may eventually lead to the suspension of operations pending rectification and reputational damage. The occurrence of any of the foregoing could have a material and adverse effect on our business, financial condition, results of operations and prospects.

Operation and financial condition may be adversely affected if there is any significant downtime or decrease in utilization of the Target Group’s water supply facilities or if the facilities fail to achieve the expected levels of utilization due to insufficient raw water.

The Target Group’s treatment facilities may require idle time for reparation and maintenance although the connected water supply network between water plants can accommodate temporary reparation and maintenance of one water plant without suspending water supply to users. Nonetheless, if the time and cost of reparation and maintenance exceeds its expectation, it may affect the operation longer than anticipated and the Target Group’s revenue may be less than the original estimation.

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APPENDIX V

RISK FACTORS

Furthermore, any significant or catastrophic event might lead to exceptional or extensive repairs to our facilities or equipment. Under such circumstances the facilities could require significant idle time during which the Target Group would not be able to supply tap water as required. Any significant downtime of the facilities may also have long-term consequences to the communities and industries nearby, which could cause customers to terminate their agreements or subject the Target Group to claims for damages.

The Target Group depends on third parties for the supply of equipment and electricity and the provision of design, construction, installation, testing and other services.

The Target Group currently cooperates with certain local suppliers in the PRC. If any of the key suppliers or contractors is unable to continue providing the products or services at prices and conditions the Target Group considers as acceptable, the Target Group may not be able to obtain the items from other suppliers. The Target Group cannot guarantee it will be able to locate replacements or find new qualified suppliers in a timely manner or find replacements at all. Failure to find suitable replacements may jeopardize or cause a delay in the delivery of the Target Group’s supply of water, which could materially and adversely affect the Target Group’s profit.

Moreover, the operation of water supply facilities is dependent on the supply of electricity. Many cities and provinces in the PRC have suffered serious power shortages in recent years and most of the regional grids do not have sufficient power-generating capacity to fully satisfy the rising demand for electricity. Interruption to the power supply to our facilities could hamper our ability to adequately treat incoming raw water. As a consequence, the business, financial condition, results of operations, prospects and reputation of the Target Group may be materially and adversely affected.

The Target Group may not be able to adjust tariff to fully reflect any increase in the cost.

Because the per unit charge for tap water supplied is principally based on the tariff set by the local price bureau, the Target Group may not be able to adjust the tariff. In the event of increased cost, the Target Group may not be able to adjust the tariff to reflect such an increase. The Target Group may be forced to operate at a loss due to the governmentally restricted tariff. As a consequence, the Target Group’s results of operations may be materially and adversely affected.

– 292 –

RISK FACTORS

APPENDIX V

Performance of PRC real estate market, particularly in Qingyuan, may affect the business of the Target Group.

The majority of the Target Group’s properties are located in Qingyuan, therefore the performance of the PRC real estate market, particularly of Qingyuan, has a significant impact on the Target Group’s business. Over-development, market downturn or fluctuation in property prices in the PRC in general and in Qingyuan, will have a material adverse impact on the business, financial condition and results of operations of the Target Group.

Also, the PRC Government may from time to time revise its fiscal and monetary policies to adjust the PRC economy, and such policy changes may affect the real estate market in the PRC. This may also have a material adverse impact on the business, financial condition and results of operations of the Target Group.

Our results may fluctuate due to increases or decreases in the appraised fair value of our investment properties.

The Target Group is required to reassess the fair value of certain properties at every financial reporting period. Gains or losses arising from changes in the fair value of our investment properties are included in our combined statements of comprehensive income in the period in which they arise. However, fair value gains do not change our overall cash position or our liquidity as long as we continue to hold such properties. The amount arising from the revaluation will nevertheless affect the results of operation.

Investment in real estate is relatively illiquid.

The Target Group currently holds a portfolio of real estate. In general, investment in real estate is relatively illiquid compared with other forms of investment. The Target Group’s ability to sell any of its properties on a timely basis is limited. It may not be able to sell any of its investment properties at prices or on terms satisfactory to the Target Group, or at all. The Target Group cannot predict the length of time needed to find a purchaser and to complete the sale of a property the Target Group currently holds.

The Target Group may not be able to respond to adverse changes in the performance and/or demand of such properties. Such properties may not be readily convertible to alternative uses and the conversion to alternative uses may require substantial capital expenditures. Further expenditures on maintenance or improvements before a property may be sold may also be necessary. The Target Group may not have sufficient funds for the above purposes which will affect the financial position of the Target Group.

– 293 –

GENERAL INFORMATION

APPENDIX VI

1. RESPONSIBILITY STATEMENT

This document, for which the directors of the issuer collectively and individually accept full responsibility, includes particulars given in compliance with the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited for the purpose of giving information with regard to the issuer. The directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this document is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this document misleading.

2. DISCLOSURE OF INTEREST

Interests and short positions of the Directors and Chief Executive in the Shares, underlying shares and debentures of the Company and its associated corporations (within the meaning of Part XV of SFO)

As at the Latest Practicable Date, the interests or short positions of the Directors and chief executives of the Company or their associates in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which (i) were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they have taken or deemed to have under such provisions of the SFO); or (ii) were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (iii) have to be notified to the Company and the Stock Exchange pursuant to the Model Code to be notified to the Company and the Stock Exchange, were as follows:–

Name of Directors
Executive Directors:
Mr. Chen Jinyang (note 1)
Mr. Chau Cheuk Wah (note 1)
Mr. Chow Cheuk Lap (note 1, 2)
Mr. Zhou Jianhui (note 1)
Non-Executive Director:
Ms.Fan Man Yee Alice (note 1)
Independent Non-Executive
Directors:
Dr. Cheung Wai Bun, Charles,J.P.
Dr. David Tsoi
Mr. Chan Chun Kau
Mr. Chao Pao Shu George

Interests in ordinary shares
Personal
interests
Family
interests
Corporate
interests
Total interests in
ordinary
shares
Total interests in
underlying
shares
Aggregate
interests
% of
the Company’s
issued share
(note 1)
－
－
－
－
20,000,000
20,000,000
0.95%
－
－
－
－
20,000,000
20,000,000
0.95%
10,000,000
－
67,540,000
77,540,000
10,000,000
87,540,000
4.15%
6,000,000
－
－
6,000,000
20,000,000
26,000,000
1.23%
10,000,000
－
－
10,000,000
10,000,000
20,000,000
0.95%
－
－
－
－
－
－
－
－
－
－
－
－
－
－
－
－
－
－
－
－
－
－
－
－
－
－
－
－

– 294 –

GENERAL INFORMATION

APPENDIX VI

Notes:

The interests of Mr. Chen Jinyang, Mr. Chau Cheuk Wah, Mr. Chow Cheuk Lap, Mr. Zhou Jianhui and Ms. Fan Man Yee Alice in underlying shares of the Company represent the interests in share options granted to them under the share option schemes of the Company.
Mr. Chow Cheuk Lap is deemed to be interested in 87,540,000 shares, comprising (a) 10,000,000 shares directly held by him; (b) 10,000,000 shares represent the interests in share options granted to him; (c) 67,540,000 shares directly held by his controlled corporation, Top Nation International Limited (“Top Nation”). Mr. Chow Cheuk Lap owns 50% beneficial interests in Top Nation and he is deemed to be interested in these ordinary shares held by Top Nation.
There were no debt securities nor debentures issued by the Group as at the latest practicable date.

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

As at the Latest Practicable Date, no director or proposed director is a director or employee of a company which has an interest or short position in the shares and underlying shares of the issuer which would fall to be disclosed to the issuer under the provisions of Divisions 2 and 3 of Part XV of the SFO.

3. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contracts with any member of the Group (excluding contracts expiring or determinable by the Company or any of its subsidiaries within one year without payment of compensation, other than statutory compensation).

4. INTEREST IN CONTRACT OR ARRANGEMENT

As at the Latest Practicable Date, none of the Directors was materially interested in any subsisting contract or arrangement which was significant in relation to the business of the Group.

– 295 –

GENERAL INFORMATION

APPENDIX VI

5. INTERESTS IN ASSETS

As at the Latest Practicable Date, none of the Directors or Experts had any direct or indirect interest in any assets which have been, since 31 December 2014, the date to which the latest published audited consolidated financial statements of the Group were made up, acquired or disposed of by or leased to any member of the Group, or were proposed to be acquired or disposed of by or leased to any member of the Group.

6. COMPETING INTEREST

As at the Latest Practicable Date, none of the Directors had any business or interest that competes or may compete with the business of the Group and had any other conflict of interest with the Group.

7. MATERIAL LITIGATION

As at the Latest Practicable Date, no member of the Group was engaged in any litigation, claim or arbitration of material importance and there was no litigation, claim or arbitration of material importance known to the Directors to be pending or threatened against any member of the Group.

8. MATERIAL ADVERSE CHANGE

The Group recorded a material net loss attributable to the shareholders of the Company for the six months ended 30 June 2015 amounting to approximately HK$17.60 million as compared to the net profit attributable to shareholders of the Company for the corresponding period in 2014 amounted to approximately HK$1.59 million, representing a decrease by HK$19.19 million or 1,204%.

Such turnaround from profit to loss was mainly due to the increase in operating costs which was primarily attributable to (i) in order to further develop its payment business in China and to facilitate the launch of new products, the Group has increased its resources considerably in the research of its products and solutions; and (ii) since the first half of 2015, the Group has increased its sales efforts in China and the costs involved in this connection were material when compared to the revenue generated from its payment business.

Save as disclosed above and at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Group since 31 December 2014, the date to which the latest published audited consolidated financial statements of the Group were made up.

– 296 –

GENERAL INFORMATION

APPENDIX VI

9. MATERIAL CONTRACTS

The following material contracts (not being contracts in the ordinary course of business) have been entered into by members of the Group within the two years preceding the date of this circular and up to the Latest Practicable Date and are or may be material:–

(i) sales and purchase agreement dated 29 October 2014, pursuant to which, among other things, Universal Cyberworks International Ltd., a wholly-owned subsidiary of the Company, conditionally agreed to sell and H and R Group Limited conditionally agreed to purchase certain shares of subsidiaries of Universal Cyberworks International Ltd. and the assignment of certain loans to H and R Group Limited for a consideration of HK$313,480,000 in cash and an indemnity provided by H and R Group Limited in relation to the PRC income tax payable on the PRC capital gains in relation to the transaction, estimated to be approximately HK$19,859,000 at the maximum, details of which were disclosed in a circular of the Company dated 27 November 2014; and
(ii) the Agreement.

10. QUALIFICATION AND CONSENT OF EXPERTS

The following are the qualifications of the experts who have given opinions or advices contained in this circular:–

Name Qualification

(a) Ample Capital Limited

a corporate licensed to engage in type 4 (advising on securities), type 6 (advising on corporate finance) and type 9 (asset management) regulated activities under the SFO

(b) BDO Limited certified public accountants
(c) BMI Appraisals Limited independent professional valuer
(d) PKF certified public accountants
(e) TC Capital Asia Limited independent financial adviser, a corporation licensed (collectively, the “Experts”) to engage in type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities under the SFO

– 297 –

APPENDIX VI

GENERAL INFORMATION

As at the Latest Practicable Date, each of the Experts (a) had no shareholding in any member of the Group and did not have any right, whether legally enforceable or not, to subscribe for or to nominate persons to subscribe for securities in any member of the Group; (b) had no direct or indirect interest in any assets which had been, since 31 December 2014 (the date to which the latest published audited consolidated financial statements of the Group were made up), acquired, disposed of by, or leased to any member of the Group, or were proposed to be acquired, disposed of by, or leased to any member of the Group; and (c) has given and has not withdrawn his written consent to the issue of this circular with the expert’s statement included in the form and context in which it is included.

11. REMUNERATION OF DIRECTORS OF THE COMPANY

The aggregate of the remuneration payable to and benefits in kind receivable by the Directors will not be varied in consequence of the Acquisition.

12. MISCELLANEOUS

a) The company secretary of the Company is Mr. Tang Chi Wai. Mr. Tang is also a financial controller and authorised representative of the Company. He is a fellow member of the Hong Kong Institute of Certified Public Accountants, the Association of Chartered Certified Accountants, the Hong Kong Institute of Chartered Secretaries and the Institute of Chartered Secretaries and Administrators, and a member of the Chinese Institute of Certified Public Accountants, respectively.
b) The Company’s registered office is at Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111, Cayman Islands.
c) The Company’s principal place of business in Hong Kong is at Room A & B2, 11th Floor, Guangdong Investment Tower, No.148 Connaught Road Central, Sheung Wan, Hong Kong.
d) The principal share registrar of the Company is Royal Bank of Canada Trust Company (Cayman) Limited, whose registered office is at 4th Floor, Royal Bank House, 24 Shedden Road, George Town, Grand Cayman KY1-1110, Cayman Islands, and the Hong Kong branch registrar is Hong Kong Registrars Limited, whose registered office is at Room 1712-16, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.
e) In the event of inconsistency, the English language text of this circular shall prevail over the Chinese language text.

– 298 –

GENERAL INFORMATION

APPENDIX VI

13. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours at the principal place of business of the Company in Hong Kong at Room A & B2, 11th Floor, Guangdong Investment Tower, No.148 Connaught Road Central, Sheung Wan, Hong Kong from the date of this circular up to and including the date of the EGM:

a) the memorandum and articles of association of the Company;
b) the material contracts referred to in the paragraph headed “9. Material Contracts” in this appendix, including the Agreement;
c) the letter received from TC Capital Asia Limited, the Independent Financial Adviser, the text of which is set out in page 45 to page 85 of this circular;
d) the accountants’ report on the Target Company issued by BDO Limited, the text of which is set out in Appendix II to this circular;
e) the assurance report on the compilation of pro forma financial information issued by PKF, the text of which is set out in Appendix III to this circular;
f) the Valuation Report issued by BMI Appraisals Limited, the text of which is set out in Appendix IV to this circular;
g) the valuation report of the properties held by the Target Group as at 30 September 2015 issued by BMI Appraisals Limited, the text of which is set out in Appendix IV to this circular;
h) the letter from Ample Capital Limited in relation to the Valuation Report, the text of which is set out in Appendix IV to this circular;
i) the letter from PKF in relation to the Valuation Report, the text of which is set out in Appendix IV to this circular;
j) the written statement signed by Reporting Accountants setting out the adjustments made by them in arriving at the figures shown in their report and giving the reasons therefor;
k) the written consent referred to in the paragraph headed “10. Qualification and consent of experts” in this appendix;

– 299 –

GENERAL INFORMATION

APPENDIX VI

l) the annual reports for the three years ended 31 December 2012, 2013 and 2014 (which include the consolidated audited accounts of the Company); and
m) this circular.
The English translation of Chinese names is included for information purposes only and should not be regarded as their official English translation.

– 300 –

NOTICE OF THE EGM

UNIVERSAL TECHNOLOGIES HOLDINGS LIMITED 環球實業科技控股有限公司

(incorporated in the Cayman Islands with limited liability)

(Stock Code: 1026)

NOTICE IS HEREBY GIVEN THAT an Extraordinary General Meeting (the “ EGM ”) of Universal Technologies Holdings Limited (the “ Company ”) will be held at 11:00 a.m. on Friday, 18 December 2015 at Room A & B2, 11th Floor, Guangdong Investment Tower, No. 148 Connaught Road Central, Sheung Wan, Hong Kong for the purpose of considering and, if thought fit, passing (with or without amendments) the following resolution as an ordinary resolution of the Company:

ORDINARY RESOLUTION

“ THAT the equity transfer agreement dated 21 June 2015 and its supplemental agreement dated 28 October 2015 both entered into between Shenzhen Huanye Universal Technologies Limited（深圳市環業環球科技有限公司）, an indirect wholly-owned subsidiary of the Company, as the purchaser and Dongguan Hongshun Shiye Development Company Limited （東莞市弘舜實業發展有限公司）as the vendor (collectively, the “ Agreements ”) (a copy of which is marked “A” and tabled before the EGM and initialed by the chairman of the EGM for identification purpose) be and are hereby approved, confirmed and ratified, and that any one director (“ Director ”) of the Company be and is hereby authorized for and on behalf of the Company to execute all such documents, instruments, agreements and deeds and do all such acts, matters and things as he/she may in his/her absolute discretion consider necessary, desirable or expedient for the purposes of or in connection with implementing, completing and giving effect to the Agreements and the transactions contemplated thereunder and to agree to such variations of the terms of the Agreements as he/she may in his/her absolute discretion consider necessary or desirable.”

By Order of the Board

Universal Technologies Holdings Limited Chen Jinyang Chairman

Hong Kong, 3 December 2015

– 301 –

NOTICE OF THE EGM

Notes:

Any member entitled to attend and vote at the EGM is entitled to appoint another person as his/her proxy to attend and vote instead of him/her. A member who is the holder of two or more shares of the Company may appoint one or more proxies to attend and vote instead of him/her.
A proxy form for use at the EGM is enclosed in the circular of the Company of the same date of this notice. The proxy form must be signed by you or your attorney duly authorised in writing or, in the case of a corporation, must be under its seal or the hand of an officer, attorney or the person duly authorised.
To be valid, this completed and signed proxy form and the power of attorney or other authority, if any, under which it is signed or a notarially certified copy thereof, must be lodged at Hong Kong Registrars Limited, the Company’s branch share register and transfer office in Hong Kong, whose address is 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, as soon as possible and in any event not less than 48 hours before the time for holding of the EGM or any adjournment thereof (as the case may be).
Where there are joint holders of any Shares, any one of such persons may vote at the EGM either personally, or by proxy, in respect of such Shares as if he were solely entitled thereto, and if more than one of such joint holders are present at the EGM personally or by proxy, the joint holder whose name stands first at the register of members of the Company in respect of the relevant joint holding shall alone be entitled to vote.
Completion and return of the proxy form will not preclude members from attending and voting in person at the meeting or at any adjourned meeting thereof (as the case may be) should they so wish, and in such event, the proxy form shall be deemed to be revoked.

– 302 –

AI assistant

Universal Technologies Holdings Limited — Proxy Solicitation & Information Statement 2015

49633_rns_2015-12-02_6737d1d0-8478-47bd-a804-e782198e020e.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

UNIVERSAL TECHNOLOGIES HOLDINGS LIMITED 環球實業科技控股有限公司

VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION AND NOTICE OF EXTRAORDINARY GENERAL MEETING

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

LETTER FROM THE BOARD

UNIVERSAL TECHNOLOGIES HOLDINGS LIMITED 環球實業科技控股有限公司

VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION AND NOTICE OF EXTRAORDINARY GENERAL MEETING

INTRODUCTION

LETTER FROM THE BOARD

THE AGREEMENT

Date

Parties:

Assets to be acquired

LETTER FROM THE BOARD

Consideration and payment method

Basis of determining the Consideration

LETTER FROM THE BOARD

Completion

Conditions precedent

LETTER FROM THE BOARD

Amending the articles of association of the Target Company

LETTER FROM THE BOARD

Repurchase undertaking

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Consideration adjustment

LETTER FROM THE BOARD

INFORMATION OF THE TARGET GROUP

i) Shareholding structure of the Target Group as at the Latest Practicable Date

LETTER FROM THE BOARD

ii) Shareholding structure of the Target Group immediately after Completion:–

LETTER FROM THE BOARD

Business model of the Target Group

(A) Water supply business

LETTER FROM THE BOARD

Production facilities

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Licenses and approvals

LETTER FROM THE BOARD

Financial information

LETTER FROM THE BOARD

(B) Property investment business

Management of the Target Group

(A) Water supply business

LETTER FROM THE BOARD

(B) Property investment business

Particulars of each member of the Target Group

the Target Company

Xinhongcheng

Jingyu Properties

LETTER FROM THE BOARD

Jinhong Industrial

Kaipeng Properties

Water Supply Development

Water Testing

Huike Properties

LETTER FROM THE BOARD

Taihe Water

Properties of the Target Group

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Financial information of the Target Group

LETTER FROM THE BOARD

Business valuation in relation to the Target Group conducted based on the discounted cash flow method

LETTER FROM THE BOARD

INFORMATION OF THE VENDOR

INFORMATION OF THE PURCHASER

Universal Technologies Holdings Limited Proxy Solicitation & Information Statement 2015