Web3 Meta Limited — Annual Report 2015

Sep 29, 2015

Annual 2015 Report

ODELLA LEATHER HOLDINGS LIMITED 愛特麗皮革控股有限公司

(Incorporated in the Cayman Islands with limited liability)

Stock code: 8093

CHARACTERISTICS OF THE GROWTH ENTERPRISE MARKET (“GEM”) OF THE STOCK EXCHANGE OF HONG KONG LIMITED (THE “STOCK EXCHANGE”)

GEM has been positioned as a market designed to accommodate companies to which a higher investment risk may be attached than other companies listed on the Stock Exchange. Prospective investors should be aware of the potential risks of investing in such companies and should make the decision to invest only after due and careful consideration. The greater risk profile and other characteristics of GEM mean that it is a market more suited to professional and other sophisticated investors.

Given the emerging nature of companies listed on GEM, there is a risk that securities traded on GEM may be more susceptible to high market volatility than securities traded on the Main Board and no assurance is given that there will be a liquid market in the securities traded on GEM.

Hong Kong Exchanges and Clearing Limited and the Stock Exchange take no responsibility for the contents of this report, 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 report.

This report, for which the directors (the “Directors”) of Odella Leather Holdings Limited (the “Company”) collectively and individually accept full responsibility, includes particulars given in compliance with the Rules Governing the Listing of Securities on GEM of the Stock Exchange (the “GEM Listing Rules”) for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this report 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 report misleading.

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CONTENTS

Corporate Information	2
Management Discussion and Analysis	3
Directors and Senior Management	10
Report of the Directors	14
Corporate Governance Report	21
Independent Auditors’ Report	32
Consolidated Statement of Profit or Loss and	34
Other Comprehensive Income
Consolidated Statement of Financial Position	35
Consolidated Statement of Changes in Equity	37
Statement of Financial Position	39
Consolidated Statement of Cash Flows	40
Notes to the Financial Statements	42
Financial Summary	84

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CORPORATE INFORMATION

Board of Directors

Company Secretary

Executive Directors

Mr. CHAN Hing Yik (CPA)

Ms. CHEUNG Woon Yiu — Chairman (appointed on 3 September 2014)

Compliance Officer

Ms. LAM Wai Si Grace — Chief Executive Officer (appointed on 3 September 2014) Mr. CHING Wai Man (appointed on 3 September 2014)

Ms. CHEUNG Woon Yiu (CPA)

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Registered Office

Non-Executive Director

Cricket Square, Hutchins Drive PO Box 2681, Grand Cayman KY1-1111, Cayman Islands

Ms. NG Lai Hung (appointed on 3 September 2014)

Headquarters and Principal Place of

Independent Non-Executive Directors

Business

Mr. WONG Wai Kong

(appointed on 28 January 2015)

Unit 1701 Treasure Centre 42 Hung To Road Kwun Tong, Kowloon, Hong Kong

Mr. HOW Sze Ming (appointed on 28 January 2015)

Mr. Philip David THACKER (appointed on 28 January 2015)

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Principal Share Registrar

Audit Committee

Codan Trust Company (Cayman) Limited

Mr. WONG Wai Kong — Chairman Mr. HOW Sze Ming Mr. Philip David THACKER

Hong Kong Branch Share Registrar

Tricor Investor Services Limited

Remuneration Committee

Principal Banker

Mr. HOW Sze Ming — Chairman Ms. LAM Wai Si Grace Mr. WONG Wai Kong

Chong Hing Bank Limited

Auditors

HLB Hodgson Impey Cheng Limited Certified Public Accountants

Nomination Committee

Ms. CHEUNG Woon Yiu — Chairman Mr. WONG Wai Kong Mr. HOW Sze Ming

Legal Advisers

Chiu & Partners (as to Hong Kong law) Guangdong Haoyi Law Firm (as to PRC law)

Corporate Governance Committee

Compliance Adviser

Ms. NG Lai Hung — Chairman Mr. WONG Wai Kong Mr. HOW Sze Ming Mr. Philip David THACKER

Halcyon Capital Limited

Website

Authorised Representatives

www.odella.com

Ms. CHEUNG Woon Yiu Mr. CHAN Hing Yik

2 ODELLA LEATHER HOLDINGS LIMITED

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MANAGEMENT DISCUSSION AND ANALYSIS

Reorganisation and Listing of the Company’s Shares

The Company was incorporated in the Cayman Islands on 3 September 2014 as an exempted company with limited liability. In preparation for the listing (the “Listing”) of the ordinary shares of HK$0.01 each of the Company (the “Shares”) on GEM of the Stock Exchange by way of placing (“Placing”) of 100,000,000 Shares at a placing price of HK$0.55 per Share, the Company and its subsidiaries (the “Group”) underwent a corporate reorganisation (the “Reorganisation”) which was completed on 4 December 2014. Details of the Reorganisation are set out in the section headed “ History, Development and Reorganisation ” of the prospectus of the Company dated 5 February 2015 (the “Prospectus”) and note 1 to the financial statements. Since then, the Company became the holding company of the subsidiaries now comprising the Group.

On 12 February 2015, the Shares first became listed on GEM. The total net proceeds from the Placing after deducting all related expenses was approximately HK$25.3 million. Up to 30 June 2015, the Group has applied the proceeds as follows:

• (a) approximately HK$0.3 million for strengthening the Group’s business development capability by expanding its marketing function;

• (b) approximately HK$0.1 million for enhancing the Group’s manufacturing facilities through purchasing new production equipment and machineries;

• (c) approximately HK$0.1 million for expansion of the Group’s pre-production product development function; and

• (d) approximately HK$0.1 million for expansion of the Group’s sourcing capability.

The business objectives, future plans and planned use of proceeds as stated in the Prospectus were based on the best estimation and assumption of future market conditions made by the Group at the time of preparing the Prospectus while the proceeds were applied based on the actual development of the Group’s business and the industry.

Business objectives for the period since the date of Listing up Actual business progress Business strategy to 30 June 2015 (“Review Period”) during the Review Period Strengthening Increase marketing team with about one to Two additional marketing staff were recruited business two additional staff to visit, make to visit, make presentations to, and development presentations to, and develop relationship develop relationship with existing and capability with existing and potential customers potential customers Participate in more trade fairs and fashion During the period, marketing plan was shows to increase the market presence developed and extra visits were made to customers in North America and Australia Develop marketing plan for further expansion of North America market

ANNUAL REPORT 2015 3

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MANAGEMENT DISCUSSION AND ANALYSIS

Reorganisation and Listing of the Company’s Shares (continued)

Business objectives for Actual business progress Business strategy the Review Period during the Review Period

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• An automatic flat press machine was purchased during the period. The Group will identify and further invest in production machineries which will enhance the Group’s production technology and efficiency

Enhancing Making payment for the purchase of automatic manufacturing flat press machine, sewing machines with facilities special functions, computerised pattern cutting machine and automated buttonattaching machines

• Examine the state and condition of the existing production facilities to ascertain and develop time schedule for replacement of old equipment and machineries

• Expansion of Recruit about one to two staff to strengthen A n e x p e r i e n c e d l e a t h e r g a r m e n t pre-production the design and development team development specialist was recruited to development s t r e n g t h e n t h e G r o u p ’s p r o d u c t function development capability

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• Expansion of Recruit about one to two staff/agents to Two additional staff were recruited to sourcing capability expand the Group’s geographical coverage support and enhance the Group’s sourcing of suppliers and make more frequent function. Physical visits were also made to supplier visits to strengthen the Group’s leather suppliers to strengthen the quality control Group’s quality control

To the extent that the net proceeds are not immediately applied to the above purposes and to the extent permitted by applicable law and regulations, the Group intends to deposit the net proceeds in short-term demand deposits. The Group will continue to review and evaluate the business plan critically and will make an appropriate announcement if there is any change to the above proposed use of proceeds or if any amount of the proceeds will be used for general corporate purpose.

Business Review

The Group produces leather garment products according to its customers’ specifications and under their brands or labels. It is considered that the customers’ orders, including the types, specification and design of the products, were made based on consumer preference, market trend, seasonality and their fashion style for a particular season, and the Group discusses the price of each order with the customers with reference to the cost of sales such as the cost of raw materials, labour costs, the size of the order, the complexity of the product design and the manufacturing process, the packaging and transportation costs, the customer’s relationship with the Group, the customer’s approximate retail price of the products and mark-up.

4 ODELLA LEATHER HOLDINGS LIMITED

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MANAGEMENT DISCUSSION AND ANALYSIS

Business Review (continued)

The management believes that the Group has earned its reputation and enjoyed a competitive advantage over its competitors as it has in its employ skilled and experienced workers, especially sewing workers and cutter workers who can produce products which conform to its customers’ stringent product design specifications and aesthetic requirements. Unlike other manufacturers who purely produce garments on original equipment manufacturer basis, the Group also offers a range of ancillary pre-production product development services to certain of its international and regional fashion brand customers at the early stage of their pre-production product development. It is considered that these international and regional fashion brands customers highly appreciate the Group’s craftsmanship, dedication in the value-added pre-production product development services and experience in the leather garment manufacturing industry and they are willing to pay higher prices for the Group’s products.

The Group has recorded similar level of revenue while much higher gross profit for the year ended 30 June 2015 (“FY 2015”) compared to the year ended 30 June 2014 (“FY 2014”). As an observation of fashion trend, customers are more interested in shearlings, calf skin and double faced leather, which are of generally higher value in costs and require more complex and sophisticated craftsmanship. The Group has also further strengthened its marketing efforts to boost up sales to customers in markets of Australia, South Africa, Hong Kong and the People’s Republic of China (“PRC”).

Outlook

Upon Listing of the Company, the Group has stronger financial and liquidity position. The Group has recruited additional technical expertise to strengthen the design and development capability of the Group. This will help the Group to better support its high-end fashion brand customers and will allow the Group to attain a reputation and ability to win the trust and orders from other high-end fashion brands.

The Group sees gradual recovery from the economic downturn, especially the United States market, which is one of the Group’s major markets. The management believes that the demand for leather garments is expected to improve gradually. All these bring positive impact to the growth of the Group’s garment sales in the foreseeable future.

In August 2015, subsequent to FY 2015, the Group saw a mild drop in the exchange rate of Renminbi against the Hong Kong dollar. The Group may enjoy slightly lower production cost as its production base is in the PRC. Nevertheless, as most of the Group’s purchase of raw materials are denominated in United States dollar and EURO, the mild devaluation of Renminbi will not result in significant cost saving in the overall costs of goods sold.

Financial Review

Overview

Principal activities of the Group are manufacturing and sales of leather garment products to renowned customers based in the United States of America, Australia, Hong Kong and the PRC markets.

During the year, the revenue of the Group has recorded a mild growth of approximately 2% from approximately HK$80.6 million for FY 2014 to approximately HK$81.9 million for FY 2015.

The Group has recorded growth in operating profit after tax (excluding listing expenses) of approximately 43% from approximately HK$12.9 million for FY 2014 to approximately HK$18.5 million for FY 2015, primarily attributable to the improvement in gross profit.

However, the Group reported profit after tax of approximately HK$0.1 million for FY 2015 mainly as a result of the listing expenses incurred during the year of approximately HK$18.4 million, which is non-recurring and non-operating in nature.

ANNUAL REPORT 2015 5

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MANAGEMENT DISCUSSION AND ANALYSIS

Financial Review (continued)

Revenue

The Group recorded revenue of approximately HK$81.9 million for FY 2015, which represents an increase of approximately 2% from approximately HK$80.6 million for FY 2014.

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The increase was mainly due to additional products being delivered in the second and third quarters of FY 2015 to customers.

Cost of Sales and Gross Profit

Cost of sales mainly represent cost of raw materials, cost of accessories, labour costs and other manufacturing overheads. Cost of sales for FY 2015 amounted to approximately HK$45.4 million (2014: HK$53.2 million), representing a decrease of approximately HK$7.8 million. Gross profit for FY 2015 was approximately HK$36.6 million, representing an increase of approximately HK$9.2 million from approximately HK$27.4 million for FY 2014.

Gross profit margin for FY 2015 was approximately 45% which represented an increase of approximately 11% from that of FY 2014. Although the quantity of leather garments shipped during FY 2015 only grew mildly comparing to the previous year, orders received in FY 2015 consisted of a substantial amount of leather garments involving more sophisticated designs or made of high value materials (such as shearling and calf skin) which needed exceptional extent of experienced craftsmanship. Accordingly, the Group was able to charge prices with higher gross margins.

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On average, the Group enjoyed higher margins from old and new customers in FY 2015, as compared with those in the previous year.

Other Revenue and Other Income

Other revenue and other income mainly represented sundry income that are incidental to the Group’s business principally including interest income and sales of scrap materials.

Other revenue and other income for FY 2015 amounted to approximately HK$0.2 million (2014: HK$0.1 million), representing an increase of approximately HK$0.1 million as a result of increase in bank interest income from deposits of unutilised Listing proceeds.

Selling and Distribution Expenses

Selling and distribution expenses comprise mainly logistic expenses and marketing expenses. Selling and distribution expenses have increased from approximately HK$2.5 million for FY 2014 to approximately HK$2.7 million for FY 2015, representing an increase of approximately HK$0.2 million.

The higher selling and distribution expenses in FY 2015 was mainly attributable to higher marketing expenses as a result of more intensive marketing activities in the year.

Administrative Expenses

Administrative expenses (excluding Listing expenses as separately set out below) comprise mainly payroll expenses, rent and rates and other office administrative expenses. Administrative expenses have increased from approximately HK$9.3 million in FY 2014 to approximately HK$11.9 million in FY 2015, representing an increase of approximately 28%.

The higher administrative expenses in FY 2015 was mainly attributable to higher rental and payroll expenses and additional legal and professional expenses such as annual listing fee and other corporate services and advisory services fee.

6 ODELLA LEATHER HOLDINGS LIMITED

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MANAGEMENT DISCUSSION AND ANALYSIS

Financial Review (continued)

Listing Expenses

During FY 2015, the Group recorded listing expenses of approximately HK$18.4 million in connection with the Listing. Total expenditures for Listing was approximately HK$29.7 million. According to Hong Kong Financial Reporting Standards, part of these expenditures of approximately HK$11.3 million was available for offsetting against the Company’s equity reserves.

Finance Costs

Finance costs represent interests for bank loan and trust receipt loans. For both FY 2015 and FY 2014, there were insignificant amount of interests as there were no major outstanding bank loans nor heavy reliance on trade finance facilities.

Income Tax Expenses

Income tax represents Hong Kong Profits Tax at 16.5% for the Company’s subsidiary in Hong Kong and PRC Corporate Income Tax at 25% for the Company’s subsidiary in Foshan, the PRC.

Higher effective tax rate for FY 2015 as compared to FY 2014 was recorded because the listing expenses which were only incurred in FY 2015 mainly consisted of certain expenditures which may not be tax deductible.

Profit for the Year

For FY 2014, the Group recorded profit for the year of approximately HK$12.9 million. For FY 2015, the Group recorded profit for the year of approximately HK$0.1 million, which is the net effect of recurring operational profit after tax for the year of approximately HK$18.5 million and non-recurring listing expenses of approximately HK$18.4 million incurred for the preparation of the Listing during FY 2015.

Financial Position, Liquidity and Financial Resources

The Group adopts a prudent cash and financial management policy. In order to achieve better cost control and minimise the costs of funds, the Group’s treasury activities are centralised and cash is generally deposited with banks in Hong Kong and the PRC.

The Group has remained at a sound and healthy financial resource level during the year under review. In previous years before the Company’s Shares became listed on the Stock Exchange, the Group’s operations were mainly financed by funds injected by the then shareholders (who are also Directors) of Perline Company Limited (“Perline”), a subsidiary of the Company which was the then holding company before the Reorganisation, bank borrowings and internal resources. As at 30 June 2014, the amounts due to Directors amounted to approximately HK$4.8 million. The amounts due to Directors were fully settled before the Placing. As at both 30 June 2015 and 2014, the Group did not have any outstanding bank borrowings. There was no seasonality as to the Group’s borrowing requirements and no committed borrowing facilities.

Following the Placing, the Group’s liquidity position became stronger and this enables the Group to expand in accordance with its business directions. As at 30 June 2015, included in net current assets were cash and bank balances (including pledged deposits) totalling approximately HK$39.7 million (2014: HK$15.1 million).

No gearing ratio (which is calculated by dividing the net debt by total equity where net debt comprise bank borrowings and amounts due to Directors less cash and bank balances) was presented as the Group did not have net debt as at both 30 June 2015 and 2014.

ANNUAL REPORT 2015 7

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MANAGEMENT DISCUSSION AND ANALYSIS

Financial Review (continued)

Charge Over Assets of the Group

As at 30 June 2014, the Group’s banking facilities were supported by the Special Loan Guarantee Scheme of the Government of Hong Kong. The facility in respect of trust receipt loans was not less than 80% guaranteed by the Government of Hong Kong and 100% personally guaranteed by an executive Director. During FY 2015 and prior to the Listing, new banking facilities were arranged to replace the then existing banking facilities. The aforesaid personal guarantee by an executive Director has been released following the termination of the aforesaid banking facilities. As at 30 June 2015, the Group’s banking facilities were supported by pledged deposits of the Group of approximately HK$3.3 million.

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Financial Management Policies

The Group in its ordinary course of business is exposed to market risks such as foreign currency risk and interest rate risk. The Group’s risk management strategy aims to minimise the adverse effects of these risks on its financial performance.

Cash is generally deposited at banks in Hong Kong and the PRC and denominated mostly in Hong Kong dollar, United States dollar and Renminbi. As at 30 June 2015, no related hedges were made by the Group (2014: nil).

As most of the Group’s trading transactions, monetary assets and liabilities are denominated in United States dollar, Renminbi and Hong Kong dollar, the impact of foreign exchange exposure to the Group during FY 2015 was minimal and there was no significant adverse effect on normal operations.

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The Group noted that Renminbi has been devalued as compared with Hong Kong dollar recently. Though the production base of the Group is located in the PRC, the Group’s cost of sales mainly comprised raw materials costs which are mainly denominated in United States Dollar and EURO. Thus, the management believes that such devaluation of Renminbi will not cause significant impact to the financial performance of the Group. However, the management will closely monitor the foreign currency changes on a continuous basis and may adjust the Group’s treasury policies accordingly.

With the current interest rates staying at relatively low levels, the Group has not entered into any interest rate hedging contracts or any other interest rate related derivative financial instrument. However, the Group continues to monitor its related interest rate exposure closely.

Capital Commitments and Contingent Liabilities

As at 30 June 2015, the Group did not have any significant capital commitment (2014: nil) and contingent liability (2014: nil).

Material Acquisitions and Disposals

Save for the Reorganisation, during FY 2015, the Group did not have any material acquisition and disposal (2014: nil).

Looking forward, the Group does not have any concrete plan for material investments or capital assets for the coming year. Nonetheless, if potential investment opportunity arises which fit the Group’s development strategy, the Group will consider such opportunity for the overall benefits to the Group and the Company’s shareholders (the “Shareholders”) as a whole.

8 ODELLA LEATHER HOLDINGS LIMITED

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MANAGEMENT DISCUSSION AND ANALYSIS

Employees and Remuneration Policy

As at 30 June 2015, the Group had a workforce of 158 employees (2014: 114). The increase in number of employees was mainly due to increase in production and administrative workforce. Total staff costs for FY 2015 was approximately HK$14.7 million, representing an increase of approximately HK$1.1 million as compared to the staff costs for FY 2014.

The emolument policy of the employees of the Group is formulated by the remuneration committee of the board of Directors (“Board”) (“Remuneration Committee”) with reference to the duties, responsibilities, experience and competence of individual employees and Directors. In addition to salaries and discretionary bonuses relating to the performance of the Group, employee benefits included pension scheme contributions. The emoluments of the Directors are reviewed annually by the Remuneration Committee.

As incentives and rewards for their contributions to the Group, the employees of the Group and all the Directors (including the independent non-executive Directors and non-executive Director) may also be granted share options by the Company from time to time pursuant to the share option scheme adopted on 28 January 2015, details of which are set out in note 31 to the financial statements.

The Group provides various training to its employees to enhance their technical skills and knowledge relevant to the employees’ responsibilities. The Group also provides its employees with quality control standards and work safety standards training to enhance their safety awareness.

During the year under review, the Group did not experience any strikes, work stoppages or significant labour disputes which affected its operations in the past and it did not experience any significant difficulties in recruiting and retaining qualified staff.

ANNUAL REPORT 2015 9

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DIRECTORS AND SENIOR MANAGEMENT

Executive Directors

Ms. CHEUNG Woon Yiu (張煥瑤, alias Idy Cheung), aged 51, is the chairman of the board of Directors (the “Board”) and an executive Director. She joined the Group in March 2010 when she was appointed as a director of Perline. She was appointed as a director of Foshan Nanhai Shengli Leather Garment Co., Ltd. (佛山市南海盛麗皮衣有限公司) (“Foshan Shengli”) in April 2010. In September 2014, she was appointed as a director of the Company and also of Odella International Limited (“Odella BVI”). She is also the compliance officer of the Group. She is responsible for the Group’s corporate strategic formulation and goal setting and overseeing the finance and secretarial functions.

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Ms. Cheung was awarded a Bachelor of Economics degree by the University of Sydney, Australia in June 1993. She is a practising member of the Hong Kong Institute of Certified Public Accountants (“HKICPA”) and a member of the Australian Society of Certified Practising Accountants.

Prior to joining the Group, Ms. Cheung is a practising certified public accountant as a sole proprietor of Idy Cheung & Co. since April 1998. She worked in the audit department of an international accounting firm for about four years from January 1993 to July 1997. She has extensive experience in accounting, auditing and corporate finance.

Ms. Cheung is the sole shareholder and director of Quality Century Limited (“QCL”) which is a controlling Shareholder. QCL holds 51% of the issued share capital in the Company. Ms. Cheung and Ms. Lam Wai Si Grace, the Group’s chief executive officer and an executive Director, are family relatives, namely, Ms. Cheung’s husband is a cousin of Ms. Lam.

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Ms. LAM Wai Si Grace (林慧思) , aged 43, is the Group’s chief executive officer and an executive Director. She is primarily responsible for sales and marketing of the Group and also overseeing and directing the daily operations.

Ms. Lam was awarded a Bachelor of Mathematics degree (with honours) from the University of Waterloo, Ontario, Canada in May 1995. In September 1996 and August 1996, she became qualified to be a certified management accountant of The Society of Management Accountants of Ontario and was awarded the certificate of certified public accountant in the state of Illinois, the United States, respectively. She started her career in a manufacturer and trader of garment as a merchandiser. She joined the Group in November 1999. She was appointed as a director of Perline and Foshan Shengli in March 2010 and April 2010, respectively. In September 2014, she was also appointed as a director of the Company and Odella BVI. She has accumulated about 15 years’ experience in the marketing and management function in fine leather garment industry.

Ms. Lam is the sole shareholder and director of Design Vanguard Limited (“DVL”) which is a substantial Shareholder. DVL holds 12.75% of the issued share capital in the Company. Ms. Lam is a cousin of Ms. Cheung Woon Yiu’s husband (Ms. Cheung is the Chairman of the Board and an executive Director).

10 ODELLA LEATHER HOLDINGS LIMITED

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DIRECTORS AND SENIOR MANAGEMENT

Executive Directors (continued)

Mr. CHING Wai Man (程偉文, alias Ramond Ching) , aged 52, is an executive Director. He is primarily responsible for the production and operating functions of the Group.

Mr. Ching obtained a diploma in knitting technology from The Hong Kong Polytechnic (now known as The Hong Kong Polytechnic University) in November 1983. He worked in a United States luxury brand apparel trading and export company in Hong Kong from May 1987 to May 1989. In July 1989, he started his career in the fine leather garment industry by joining a then related company of Perline, a company which was principally engaged in trading of luxury leather garments. He joined the Group in March 2010 and he was appointed as a director of Perline and then he was appointed as a director of Foshan Shengli in April 2010. In September 2014, he was appointed as a director of the Company and also of Odella BVI. Mr. Ching has accumulated more than 27 years’ working experience in the luxury and fine leather garment trading and manufacturing industry.

Mr. Ching is the sole shareholder and director of Olson Global Limited (“OGL”) which is a substantial Shareholder. OGL holds 11.25% of the issued share capital in the Company.

Non-executive Director

Ms. NG Lai Hung (吳麗虹) , aged 47, is a non-executive Director. She joined the Group as a director of Perline in March 2010. In September 2014, she was appointed as a director of the Company and also of Odella BVI. She is primarily responsible for providing advice in corporate governance and internal control matters.

Ms. Ng was awarded a Bachelor Degree of Arts in Accountancy (with honours) from The City Polytechnic of Hong Kong (now known as The City University of Hong Kong) in November 1991. She is a practicing member of HKICPA and an associate member of The Institute of Chartered Accountants in England and Wales.

Ms. Ng has accumulated over 20 years of experience in professional accounting service, internal control review, corporate finance and merger and acquisitions in Hong Kong, PRC and North America and she is currently a director of an accounting firm. Prior to that, Ms. Ng served in one of the international accounting firms before joining the private sector.

Independent Non-executive Directors

Mr. WONG Wai Kong, (黃偉桄, formerly known as 黃偉光) , aged 49, was appointed as an independent nonexecutive Director (“INED”) in January 2015.

Mr. Wong obtained a Bachelor of Business Administration degree from the Hong Kong Baptist University in Hong Kong in November 1990, a Master of Business Administration degree from the University of Sheffield in the United Kingdom in May 1995, a Master of Science degree majoring in Business Information Technology from the Middlesex University in the United Kingdom in January 2003. He is a certified public accountant (practising) in Hong Kong, a fellow member of the HKICPA and a fellow member of the Association of Chartered Certified Accountants in the United Kingdom. He has extensive experience in corporate finance, financial advisory and management, professional accounting and auditing.

Mr. Wong has accumulated his experience from working in two international accounting firms for five years. Thereafter, from December 2002 to September 2008 he worked as the chief financial officer of, and has since October 2008 been an executive director of Kam Hing International Holdings Limited (stock code: 2307), a company listed on the Stock Exchange. He has also been an independent non-executive director of Koradior Holdings Limited (stock code: 3709), a company listed on the Stock Exchange since 6 June 2014.

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DIRECTORS AND SENIOR MANAGEMENT

Independent Non-executive Directors (continued)

Mr. HOW Sze Ming (侯思明) , aged 38, was appointed as an INED in January 2015. He graduated from The Chinese University of Hong Kong with a first class honours bachelor’s degree in Business Administration (majoring in professional accountancy). By profession, he is a fellow member of the Association of Chartered Certified Accountants and an associate member of HKICPA.

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Mr. How has over 15 years of experience in investment banking and business assurance industries. He started his career by working in one of the international accounting firms. Thereafter, he has accumulated extensive experience in corporate finance advisory by working in several renowned investment banks with China background in Hong Kong. At present, Mr. How is the managing director of Zhaobangji International Capital Limited and an independent non-executive director of QPL International Holdings Limited (stock code: 243) since September 2013, the shares of which are listed on the Stock Exchange.

Mr. Philip David THACKER , aged 53, was appointed as an INED in January 2015. He was awarded a Bachelor of Arts degree in classical studies from the University of Leicester in the United Kingdom in July 1984 and obtained a Master of Business Administration degree from The Open University in the United Kingdom through long distance learning in December 1992. He completed a course organised by the European Commission named “The 15th Executive Training Programme in Japan (ETP15)” in November 1996.

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Mr. Thacker served as a director of On-Line plc (London Stock Exchange stock code: ONL) from 1999 to 2002 and ADVFN.com plc (London Stock Exchange stock code: AFN) from 2000 to 2001. Since January 2002, he has been a senior adviser to Pentland Brands plc, a corporation principally engaged in brand management and retail of footwear, clothing and related accessories in the sports, outdoor and fashion sectors. Mr. Thacker is also an executive director of Berghaus Japan Co., Ltd, a corporation principally engaged in brand management, during July to October 2009 and since August 2012.

General

Save as disclosed above, none of the above Directors:

• (i) held any other positions in any members of the Group as at 30 June 2015;

• (ii) had any other relationship with any Directors, senior management or substantial Shareholders or controlling Shareholders of the Company as at 30 June 2015;

• (iii) held any other directorships in listed public companies in the three years prior to 30 June 2015; and

• (iv) had any interest in the Shares within the meaning of Part XV of the Securities and Futures Ordinance (Chapter 571, Laws of Hong Kong) (“SFO”).

Remuneration of the Directors is set out in note 11 to the financial statements.

Save as disclosed above, there is no information in relation to the above Directors that needs to be disclosed pursuant to any of the requirements under Rules 17.50(2)(h) to 17.50(2)(v) of the GEM Listing Rules, and there are no other matters that need to be brought to the attention of the Shareholders pursuant to Rule 17.50(2)(w) of GEM Listing Rules.

12 ODELLA LEATHER HOLDINGS LIMITED

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DIRECTORS AND SENIOR MANAGEMENT

Senior Management

Ms. FA Pik Hoi (花碧海) , aged 56, is the merchandising manager of the Group. She joined the marketing department of the Group in December 2004, left in February 2010 and re-joined in January 2011. She is responsible for monitoring the Group’s marketing programs, product design and development, maintaining relationships with customers and preparing client presentations.

Ms. Fa completed a training course in quality control in Clothing Industry Training Authority in Hong Kong in May 1980 and obtained a certificate on flat pattern stylist from Hong Kong Institute of Fashion Design in September 1984. She has about 23 years of experience in the marketing of garments. Prior to joining the Group, Ms. Fa gained experience of merchandising for apparels through her previous working experience as merchandisers of various companies.

Mr. NG Lai Wing (吳麗榮) , aged 60, joined the Group in August 2012 as a quality assurance and factory operation manager and is responsible for quality control and overseeing the operations of Foshan Shengli by formulating, implementing, managing and evaluating various processes to enhance the production effectiveness and efficiency and quality control.

Mr. Ng has over 20 years of experience in local garment industry and has extensive experience in factory management. Prior to joining the Group, Mr. Ng worked in a local fashion wear company as quality assurance manager for over 18 years and has gained solid experience in quality assurance of garments and factory management.

Mr. LEUNG Hoi Keung (梁海強) , aged 46, joined the sourcing department of the Group in April 2014 and is the Group’s sourcing manager, responsible for strategic sourcing management and collaborating with suppliers to develop effective solutions in sourcing. He is also responsible for vendor sourcing and evaluation, overseeing order placement process and negotiation with vendors.

Mr. Leung completed his secondary education in 1986. He has over 17 years of experience in material sourcing. Prior to joining the Group, he has worked in the merchandising department in Li & Fung (Trading) Ltd., a subsidiary of Li & Fung Limited, the principal activities of which included export trading, for nine years.

Ms. HO Fung Yee (何鳳儀) , aged 47, is the Group’s administrative and credit management manager. She is responsible for credit management, administrative and treasury function and she also assists the Board in monitoring the Group’s financial position. She obtained a Bachelor of Arts in Business Administration degree from the University of Portsmouth in the United Kingdom through long distance learning in February 2007.

Ms. Ho joined the Group in June 1988 as a merchandiser and has about 27 years of experience in the leather garment manufacturing industry.

Mr. CHAN Hing Yik (陳慶益) , aged 31, was appointed as the Company’s company secretary on 22 September 2014. He joined the Group in July 2014 as an accounting manager. He is responsible for the accounting and company secretarial matters of the Group.

Mr. Chan was awarded a Bachelor of Business Administration degree (majoring in accountancy) from The Hong Kong Polytechnic University in October 2008. By profession, he is a certified public accountant (practicing) in Hong Kong and a member of HKICPA. He has also been working in the assurance services department of Idy Cheung & Co. (a local accounting firm solely owned by Ms. Cheung Woon Yiu, who is an executive Director and Chairman of the Board) since June 2008.

ANNUAL REPORT 2015 13

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REPORT OF THE DIRECTORS

The Directors of the Company are pleased to present their report and the audited financial statements of the Company and of the Group for the year ended 30 June 2015.

Principal Activities

The principal activity of the Company is investment holdings. Details of the principal activities of the principal subsidiaries are set out in note 24 to the financial statements. There were no significant changes in the nature of the principal activities of the Company and of the Group during the year.

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Results and Dividends

The Group’s profit for the year ended 30 June 2015 and the state of affairs of the Company and of the Group at that date are set out in the financial statements on pages 34 to 84.

The Board does not recommend the payment of any dividend for the year ended 30 June 2015.

Property, Plant and Equipment

Details of movements in the property, plant and equipment of the Group during the year are set out in note 15 to the financial statements.

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Share Capital

Details of movements in the Company’s share capital during the year are set out in note 25 to the financial statements.

Pre-emptive Rights

There are no provisions for pre-emptive rights under the Company’s articles of association (“Articles of Association”) or the laws of the Cayman Islands, being the jurisdiction in which the Company was incorporated, which would oblige the Company to offer new Shares on a pro rata basis to existing Shareholders.

Purchase, Redemption or Sale of Listed Securities of the Company

Save for those in connection with the Reorganisation and the Placing, details of which are set out in the Prospectus, neither the Company, nor any of its subsidiaries has purchased, redeemed or sold any of the Company’s listed securities during the year ended 30 June 2015.

Reserves

Details of movements in the reserves of the Company and of the Group during the year are set out in note 26 to the financial statements and in the consolidated statement of changes in equity, respectively.

Distributable Reserves

As at 30 June 2015, the Company had reserves amounted to HK$44,299,000 available for distribution as calculated in accordance with the Companies Law, Chapter 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands. Under the laws of the Cayman Islands, the share premium account is distributable to the Shareholders provided that immediately following the date on which the dividend is proposed to be distributed, the Company will be in a position to pay off its debts as and when they fall due in the ordinary course of business. The share premium account may also be distributed in the form of fully paid bonus shares.

14 ODELLA LEATHER HOLDINGS LIMITED

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REPORT OF THE DIRECTORS

Major Customers and Suppliers

During the year ended 30 June 2015, sales to the Group’s five largest customers accounted for approximately 55.2% of the Group’s total sales for the year and sales to the Group’s largest customer included therein accounted for approximately 27.2% of the Group’s total sales.

During the year ended 30 June 2015, purchases from the Group’s five largest suppliers accounted for approximately 48.6% of the Group’s total purchases and purchases from the Group’s largest supplier included therein accounted for approximately 17.3% of the Group’s total purchases.

To the best knowledge of the Directors, as at 30 June 2015, none of the Directors or any of their close associates or any Shareholders which, to the best knowledge of the Directors, own more than 5% of the Company’s issued share capital had any interest in the Group’s five largest customers and/or five largest suppliers during the year.

Directors

The Directors of the Company who held office during the year and up to the date of this report were:

Executive Directors:
Ms. CHEUNG Woon Yiu —Chairman	(appointed on 3 September 2014)
Ms. LAM Wai Si Grace —Chief Executive Officer	(appointed on 3 September 2014)
Mr. CHING Wai Man	(appointed on 3 September 2014)
Non-Executive Director:
Ms. NG Lai Hung	(appointed on 3 September 2014)
Independent Non-Executive Directors:
Mr. WONG Wai Kong	(appointed on 28 January 2015)
Mr. HOW Sze Ming	(appointed on 28 January 2015)
Mr. Philip David THACKER	(appointed on 28 January 2015)

In accordance with article 105(A) of the Articles of Association, Mr. Wong Wai Kong will retire as a Director by rotation and, being eligible, will offer himself for re-election as a Director at the forthcoming annual general meeting of the Company.

Pursuant to article 109 of the Articles of Association, Ms. Cheung Woon Yiu, Ms. Lam Wai Si Grace, Mr. Ching Wai Man and Ms. Ng Lai Hung who were appointed by the Board shall hold office as Directors until the forthcoming annual general meeting of the Company and all of them, being eligible, will offer themselves for re-election at the annual general meeting.

Independent Non-Executive Directors’ Confirmations of Independence

The Company has received from each of the INEDs an annual confirmation of his independence pursuant to Rule 5.09 of the GEM Listing Rules. The Company considers all of its INEDs to be independent.

ANNUAL REPORT 2015 15

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REPORT OF THE DIRECTORS

Directors’ Service Contract and Letter of Appointment

Each of the executive Directors has entered into a Director’s service contract with the Company for an initial term of three years commencing from 1 January 2015 and each of the non-executive Directors (including INEDs) has entered into a letter of appointment with the Company for an initial term of three years commencing from 28 January 2015. All of them are subject to retirement by rotation and re-election in accordance with the Articles of Association.

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No Director proposed for re-election at the forthcoming annual general meeting has a service contract with the Company which is not determinable by the Company within one year without payment of compensation other than statutory compensation.

Directors’ Interests in Contracts

Save as those related to the Reorganisation and the Placing, none of the Directors had a material interest, either directly or indirectly, in any contract of significance subsisting during or at the end of the year ended 30 June 2015 to which the Company or any of its subsidiaries was a party.

Management Contracts

No contracts concerning the management and administration of the whole or any substantial part of the business of the Group were entered into or existed during the year.

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Related Party Transactions

Details of the related party transactions of the Group are set out in notes 11 and 33 to the financial statements.

The Directors consider that those material related party transactions disclosed in note 33 to the financial statements did not fall under the definition of “connected transactions” or “continuing connected transactions” (as the case may be) in Chapter 20 of the GEM Listing Rules which are required to comply with any of the reporting, announcement or independent Shareholders’ approval requirements under the Chapter 20 of GEM Listing Rules.

Share Option Scheme

The Company adopts and administers a share option scheme (the “Share Option Scheme”) on 28 January 2015 by a Shareholders’ written resolution.

During the period from the effective date of the Share Option Scheme to 30 June 2015, no share option has been granted, expired, lapsed, exercised or cancelled. A summary of the major terms of Share Option Scheme is set out in note 31 to the financial statements.

16 ODELLA LEATHER HOLDINGS LIMITED

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REPORT OF THE DIRECTORS

Directors’ and Chief Executive’s Interests and Short Positions in Shares, Underlying Shares and Debentures

As at 30 June 2015, the interests and short positions of the Directors and chief executive 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 were notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they were taken or deemed to have under such provisions of the SFO), or which were recorded in the register required to be kept by the Company under Section 352 of the SFO, or which were, pursuant to Rules 5.46 to 5.67 of the GEM Listing Rules, required to be notified to the Company and the Stock Exchange, were as follows:

Long Positions in Shares

				Approximate
				percentage
				of total
			Number of	number of
Name of Director	Capacity	Notes	Shares	Shares
				(note 1)
Ms. Cheung Woon Yiu	Interest in controlled corporation	2	204,000,000	51.00%
Ms. Lam Wai Si Grace	Interest in controlled corporation	3	51,000,000	12.75%
Mr. Ching Wai Man	Interest in controlled corporation	4	45,000,000	11.25%

Notes:

1. As at 30 June 2015, the Company had 400,000,000 Shares in issue.

2. QCL, a company incorporated in the British Virgin Islands, held 204,000,000 Shares, representing 51.00% of the total number of issued Shares. QCL is wholly owned by Ms. Cheung Woon Yiu.

3. DVL, a company incorporated in the British Virgin Islands, held 51,000,000 Shares, representing 12.75% of the total number of issued Shares. DVL is wholly owned by Ms. Lam Wai Si Grace.

4. OGL, a company incorporated in the British Virgin Islands, held 45,000,000 Shares, representing 11.25% of the total number of issued Shares. OGL is wholly owned by Mr. Ching Wai Man.

Save as disclosed above, as at 30 June 2015, none of the Directors and chief executive of the Company had an interest or short position in the shares, underlying shares and debentures of the Company or any of its associated corporations that was notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO, or was recorded in the register required to be kept by the Company pursuant to Section 352 of the SFO, or as otherwise required to be notified to the Company and the Stock Exchange pursuant to Rules 5.46 to 5.67 of the GEM Listing Rules.

ANNUAL REPORT 2015 17

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REPORT OF THE DIRECTORS
Directors’ Rights to Acquire Shares or Debentures
Save as disclosed in the sections headed “Share Option Scheme” and “Directors’ and Chief Executive’s Interests and
Short Positions in Shares, Underlying Shares and Debentures” above, at no time during the year were rights to
acquire benefits by means of the acquisition of shares in or debentures of the Company granted to any of the
Directors or their respective spouses or minor children, or were any such rights exercised by them; nor was the
Company or any of its subsidiaries a party to any arrangement to enable the Directors to acquire such rights in any
other body corporate.
Interests and Short Positions of Substantial Shareholders
As at 30 June 2015, so far as is known to any Director or chief executive of the Company, persons (other than the
Directors or chief executive of the Company) who had interests or short positions in the Shares or underlying Shares
of the Company which would fall to be disclosed to the Company and the Stock Exchange under the provisions of
Divisions 2 and 3 of Part XV of the SFO, or which were recorded in the register required to be kept by the Company
under Section 336 of the SFO were as follows:
Long Positions in Shares
		Approximate
		percentage
		of total
	Number of	number of
Name of Shareholders Capacity Notes	Shares	Shares
		(note 1)
Mr. Lam Andrew Hung Yun Interest of spouse 2	204,000,000	51.00%
QCL Beneficial owner 2	204,000,000	51.00%
Mr. Lee Ben Interest of spouse 3	51,000,000	12.75%
DVL Beneficial owner 3	51,000,000	12.75%
OGL Beneficial owner 4	45,000,000	11.25%
Notes:

1. As at 30 June 2015, the Company had 400,000,000 Shares in issue.

2. QCL held 204,000,000 Shares, representing 51.00% of the total number of issued Shares. QCL is wholly owned by Ms. Cheung Woon Yiu. Mr. Lam Andrew Hung Yun is the spouse of Ms. Cheung Woon Yiu and he is deemed to be interested in such Shares held by QCL by virtue of the SFO.

3. DVL held 51,000,000 Shares, representing 12.75% of the total number of issued Shares. DVL is wholly owned by Ms. Lam Wai Si Grace. Mr. Lee Ben is the spouse of Ms. Lam Wai Si Grace and he is deemed to be interested in such Shares held by DVL by virtue of the SFO.

4. OGL held 45,000,000 Shares, representing 11.25% of the issued Shares. OGL is wholly owned by Mr. Ching Wai Man.

Save as disclosed above, as at 30 June 2015, so far as is known to any Director or chief executive of the Company, no persons (other than the Directors or chief executive of the Company) had interests or short positions in the Shares or underlying shares of the Company which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO, or which were recorded in the register required to be kept by the Company under Section 336 of the SFO.

18 ODELLA LEATHER HOLDINGS LIMITED

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REPORT OF THE DIRECTORS

Corporate Governance Code

The Company has complied with all the code provisions set out in “Corporate Governance Code and Corporate Governance Report (“CG Code”) as contained in Appendix 15 to the GEM Listing Rules from the date of Listing to 30 June 2015.

Compliance with the Requirement of Timely Lodgment of Trade Declarations under the IAE Registration Regulations

As disclosed in the Prospectus, the Company will, for the first two years after Listing, report its compliance with the requirement of timely lodgement of trade declarations under the Import and Export (Registration) Regulations (“IAE Registration Regulation”, Chapter 60E of the Law of Hong Kong) in its annual and interim reports. Since 1 October 2014 and up to 30 June 2015, all trade declarations lodged by the Group were lodged within the prescribed 14-day period under the IAE Registration Regulation. For compliance status during the period between 1 July 2012 and 30 September 2014, please refer to the Prospectus for details.

Directors’ and Controlling Shareholders’ Interest in Competing Business

For the year ended 30 June 2015, the Directors are not aware of any business or interest of the Directors, the Controlling Shareholders and their respective associates (as defined under the GEM Listing Rules) that compete or may compete with the business of the Group and any other conflicts of interests which any such person has or may have with the Group.

Compliance Adviser’s Interests

In accordance with Rule 6A.19 of the GEM Listing Rules, the Company has appointed Halcyon Capital Limited (“Halcyon”) to be the compliance adviser. Halcyon, being the sponsor to the Listing, had declared its independence pursuant to Rule 6A.07 of the GEM Listing Rules in connection with the Listing. Save as provided for under the underwriting agreement relating to the placing of the Shares during the Listing, during the Review Period, neither Halcyon nor any of its directors, employees or close associate who have been involved in providing advice to the Company, has or may have any interest in any securities of the Company or any other companies of the Group (including options or rights to subscribe for such securities) and/or any material benefit accrued to Halcyon or its close associates.

The compliance adviser’s appointment entered into between Halcyon and this Company is for a period commencing on 12 February 2015 (i.e. date of Listing) and ending on the date on which the Company complies with Rule 18.03 of the GEM Listing Rules in respect of the dispatch of its annual report of the financial results for the second full financial year commencing after that date, i.e. for the year ending 30 June 2017, or until the compliance adviser agreement is terminated in accordance with its terms and conditions, whichever is earlier. Pursuant to the compliance adviser agreement entered into between Halcyon and the Company, Halcyon will receive fees for acting as the Company’s compliance adviser.

Sufficiency of Public Float

Based on information that is publicly available to the Company and within the knowledge of the Directors, at least 25% of the Company’s total issued share capital was held by the public as at the latest practicable date prior to the date of this report.

ANNUAL REPORT 2015 19

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REPORT OF THE DIRECTORS

Auditors

The Company was incorporated on 3 September 2014 and HLB Hodgson Impey Cheng Limited (“HLB”) was appointed as the first auditors.

The financial statements for the year were audited by HLB whose term of office will expire upon the forthcoming annual general meeting. A resolution will be proposed to the forthcoming annual general meeting to re-appoint HLB as auditors of the Company.

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On behalf of the Board

Cheung Woon Yiu Chairman

Hong Kong 23 September 2015

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20 ODELLA LEATHER HOLDINGS LIMITED

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CORPORATE GOVERNANCE REPORT

Corporate Governance Practices

The Group’s corporate governance framework bases on two main beliefs:

• the Group is well-committed to maintain good corporate governance practices and procedures; and

• the Group recognises the need to adopt practices that improve itself continuously for a quality management.

Accordingly, the Group is committed to maintaining high standards of corporate governance with a view to assuring the conduct of management of the Group as well as protecting the interests of all Shareholders. The corporate governance principles adopted by the Group emphasises a quality Board for leadership, effective internal controls, transparency and accountability to all Shareholders.

The Group has applied the principles and adopted all code provisions, where applicable, of the CG Codes its own code of corporate governance. The Directors consider that since the Listing of the Shares on GEM on 12 February 2015 and up to 30 June 2015 (i.e. the Review Period), the Group has complied with all the code provisions as set out in the CG Code.

The Group has further adopted a code of conduct regarding securities transactions by the Directors on terms no less exacting than the required standard of dealings as set out in Rules 5.48 to 5.67 of the GEM Listing Rules. In response to specific enquiry made by the Company, each of the Directors gave confirmation that he/she has complied with the required standard of dealings and the code of conduct regarding securities transactions by the Directors throughout the Review Period.

The Group believes through the operation of an effective Board, sound internal controls, and accountability to Shareholders, the Group is able to maximise the value of all Shareholders. The following summarises the corporate governance practices adopted and observed by the Group during the Review Period.

Board of Directors

Board Composition

The Company was incorporated on 3 September 2014. On 3 September 2014, four Directors namely Ms. Cheung Woon Yiu, Ms. Lam Wai Si Grace, Mr. Ching Wai Man and Ms. Ng Lai Hung were appointed. To prepare for the Listing of its Shares on the Stock Exchange, improving corporate governance and to add further skills and experience that are appropriate for the requirements of the Group’s business, changes in the Board composition took place on 28 January 2015 by appointing three additional INEDs, namely Mr. Wong Wai Kong, Mr. How Sze Ming and Mr. Philip David Thacker.

On 28 January 2015, Ms. Cheung Woon Yiu, Ms. Lam Wai Si Grace and Mr. Ching Wai Man were re-designated as executive Directors and Ms. Cheung Woon Yiu and Ms. Lam Wai Si Grace were re-designated as Chairman of the Board and Chief Executive Officer, respectively. Ms. Ng Lai Hung was re-designated as a non-executive Director. On the same date, Mr. Wong Wai Kong, Mr. How Sze Ming and Mr. Philip David Thacker were re-designated as INEDs in compliance with Rules 5.05(1) and (2) of the GEM Listing Rules, in which at least one of them has appropriate professional qualifications or accounting or related financial management expertise.

Each Director has sufficient experience to hold the position so as to carry out his/her duties effectively and efficiently. The Board provides the Group with diversified industry expertise, advised the management on strategic development and the Board maintains high standard of compliance with financial and other mandatory reporting requirements as well as provides adequate checks and balances to safeguard the interests of Shareholders and the Company as a whole.

ANNUAL REPORT 2015 21

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CORPORATE GOVERNANCE REPORT

Board of Directors (continued)

Board Composition (continued)

As at 30 June 2015 and as at the date on which this annual report is approved, the Board comprises three executive Directors, one non-executive Director and three INEDs as named below. An updated list of the Directors identifying their roles and functions is posted on GEM’s website and the Company’s website from time to time.

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Executive Directors:

Ms. CHEUNG Woon Yiu — Chairman (appointed on 3 September 2014) Ms. LAM Wai Si Grace — Chief Executive Officer (appointed on 3 September 2014) Mr. CHING Wai Man (appointed on 3 September 2014)

Non-Executive Director:

Ms. NG Lai Hung (appointed on 3 September 2014) Independent Non-Executive Directors: Mr. WONG Wai Kong (appointed on 28 January 2015) Mr. HOW Sze Ming (appointed on 28 January 2015) Mr. Philip David THACKER (appointed on 28 January 2015)

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The names, biographical details of the Directors and the relationships among them are set out in the “Directors and Senior Management” section of this annual report.

Term of Appointment and Re-election

Each of the executive Directors has entered into a Director’s service contract with the Company and each of the nonexecutive Directors including INEDs has entered into a letter of appointment with specific terms with the Company. All Directors are subject to retirement by rotation and re-election at the general meeting in accordance with the Articles of Association. Details of the terms of appointment of the Directors are disclosed in the section “Directors’ Service Contracts and Letter of Appointment” of the Report of the Directors in this annual report.

Pursuant to the Articles of Association, at each annual general meeting, one-third of the Directors for the time being (or, if their number is not three (3) or a multiple of three (3), then the number nearest to but not less than one-third) shall retire from office by rotation, provided that every Director (including those appointed for a specific term) shall be subject to retirement by rotation at least once every three years. Any Director appointed by the Board to fill a casual vacancy or as an additional Director shall hold office only until the next following general meeting of the Company and shall then be eligible for re-election at the meeting but shall not be taken into account in determining the Directors or the number of Directors who are to retire by rotation at such meeting.

Every newly appointed Director is provided with a package of materials detailing the duties and responsibilities of Directors under the GEM Listing Rules, the Articles of Association, related ordinances and relevant regulatory requirements of Hong Kong. Every Director is aware that, before accepting appointment as a Director, he/she must be able to give sufficient time and attention to the affairs of the Company.

22 ODELLA LEATHER HOLDINGS LIMITED

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CORPORATE GOVERNANCE REPORT

Board of Directors (continued)

Board Meetings

The Group adopted the practice of holding Board meetings that included both executive Directors and non-executive Directors in person or through electronic means of communication regularly at least four times every year. During regular meetings of the Board, the Directors discussed and formulated the overall strategies of the Group, monitored financial performances and reviewed the financial results, as well as discussed and decided on other significant matters. The Board will also meet on other occasions when a board-level decision on a particular matter is required.

Generally, at least 14-days’ notice for the Company’s regular Board meeting, and reasonable time for all other meetings, would be given prior to such meetings. The Directors will receive the agenda and accompanying documents tabled in the meeting at least three days before regular Board meetings and will be given an opportunity to include matters in the agenda for discussion.

In order to ensure that Board procedures, applicable rules and code provisions are followed, all Directors are able to access the Company’s company secretary for advice. Upon reasonable request, the Directors will be able to seek independent professional advice in appropriate circumstances at the Company’s expense.

The company secretary of the Company has assisted the chairman of the Board in preparing the agenda for each meeting. Minutes of such meetings are kept by the Company’s company secretary or other duly authorised person during the meeting which included all decisions made during the meetings together with concerns raised and dissenting views expressed (if any). All minutes are open for inspection by any Director on reasonable notice. Such minutes are recorded in sufficient detail of the matters considered and decisions reached. Draft and final versions of minutes are sent to Directors for comment and records, respectively.

The Shares first became listed on GEM on 12 February 2015. Up to 30 June 2015 which ended within about five months from date of Listing, two Board meetings (excluding committee meetings) were held and attendance of each Director is set out below.

Name of Directors	Attendance
Executive Directors
Ms. CHEUNG Woon Yiu	2/2
Ms. LAM Wai Si Grace	2/2
Mr. CHING Wai Man	2/2
Non-Executive Director
Ms. NG Lai Hung	2/2
Independent Non-Executive Directors
Mr. WONG Wai Kong	2/2
Mr. HOW Sze Ming	2/2
Mr. Philip David THACKER	1/2

ANNUAL REPORT 2015 23

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CORPORATE GOVERNANCE REPORT

Board of Directors (continued)

Board Meetings (continued)

Apart from the Board meetings, Board committees met on other occasions during which matter relating to their respective terms of reference was discussed. The Board committee members would receive notice, agenda and documents to be tabled for consideration in advance of each meeting in accordance with the CG Code and respective terms of reference.

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Directors are provided with monthly updates on internal unaudited financial information so as to give them a balanced and understandable assessment of the Group’s performance, position and prospects. All Directors gave sufficient time and attention to the affairs of the Group to ensure a competent Board operation during the Review Period.

Directors’ Training

The Company provides newly appointed Directors with briefings on the businesses of the Group and training materials on corporate governance, directors’ duties and responsibilities and other matters under the GEM Listing Rules and other relevant rules and regulations.

Pursuant to code provision A.6.5 of the CG Code, all Directors should participate in continuous professional development to develop and refresh their knowledge and skills. This is to ensure that their contribution to the Board remains informed and relevant.

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The Shares first became listed on GEM on 12 February 2015. Up to the date on which this annual report is approved, all Directors have participated in continuous professional development by attending seminars and conferences, inhouse briefing and/or studying materials on the topics related to corporate governance and regulations and/or the Group’s business and governance policies.

	Type of
Name of Directors	training
Executive Directors
Ms. CHEUNG Woon Yiu	A, B, C
Ms. LAM Wai Si Grace	A, B, C
Mr. CHING Wai Man	A, B, C
Non-Executive Director
Ms. NG Lai Hung	A, C
Independent Non-Executive Directors
Mr. WONG Wai Kong	A, C
Mr. HOW Sze Ming	A, C
Mr. Philip David THACKER	A, C

A: participating in external seminars or conferences

B: participating in in-house briefing

C: studying materials

24 ODELLA LEATHER HOLDINGS LIMITED

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CORPORATE GOVERNANCE REPORT

Board of Directors (continued)

Other Training Records

In order to equip themselves with requisite and up-to-date knowledge in connection with corporate governance and compliance matters, the executive Directors have undertaken, on an annual basis, to attend, after Listing, at least (i) 18 hours of training for securities-related, corporate governance and companies law-related compliance and (ii) 4 hours of training on business operational matters (e.g. lodgment of trade declarations and the operation of related lodgment system).

During the Review Period, each of the executive Directors has complied with the above undertaking, on a pro-rata basis, as to training for the corporate governance and compliance matters and business operational matters.

Delegation by the Board

The Company has set out the respective functions and responsibilities which can be reserved to the Board and delegated to management or Board committees. The Board delegates day-to-day operations of the Group to executive Directors and senior management while reserving certain key matters, mainly relating to the approval and monitoring of the Group’s overall strategies, policies and business plans; and overseeing and evaluating the performance of the Group. It is also responsible for promoting the success of the Group and its businesses by directing and supervising the Group’s affairs. Board committees for specific functions are also set up to ensure efficient Board operations.

Decisions of the Board are communicated to the management through executive Directors who have attended at Board meetings.

Directors’ Work Commitments Outside the Group

Directors are required to disclose in a timely manner to the Company’s company secretary for any change, the number and nature of offices held in public companies or organisations and other significant commitments, and the identity of such public companies or organisations. Such information is disclosed in the “Directors and Senior Management” section of this annual report.

Directors’ Liability Insurance

The Company has arranged appropriate liability insurance to cover the Directors’ risk exposure arising out of corporate activities. The insurance coverage is reviewed annually.

Board Committees

The Board has established four committees, namely the Remuneration Committee, nomination committee (“Nomination Committee”), audit committee (“Audit Committee”) and corporate governance committee (“CG Committee”) for overseeing various particular aspects of the Group’s affairs. All Board committees of the Company are established with defined written terms of reference. The terms of reference of such Board committees are available on GEM’s website and the Company’s website. The Board committees are provided with sufficient resource to discharge their duties and, upon reasonable request, are able to seek independent professional advice in appropriate circumstances, at the Company’s expense.

The majority of the members of the Remuneration Committee and the Nomination Committee are INEDs and all members of the Audit Committee are INEDs and the list of the chairman and members of each Board committee is set out below.

ANNUAL REPORT 2015 25

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CORPORATE GOVERNANCE REPORT

Board Committees (continued)

Remuneration Committee

The Company established the Remuneration Committee on 28 January 2015 with written terms of reference. The Remuneration Committee comprises two INEDs, namely Mr. How Sze Ming (Chairman of the Remuneration Committee), Mr. Wong Wai Kong and one executive Director, Ms. Lam Wai Si Grace.

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The principal responsibilities of the Remuneration Committee include making recommendations to the Board on the Group’s policy and structure for remuneration of all Directors and senior management; reviewing their remuneration packages, approving the management’s proposal of remuneration packages by reference to corporate goals and objectives.

During the Review Period, no meeting of the Remuneration Committee was held since the Shares first became listed on GEM on 12 February 2015. However, subsequent to the end of the Review Period and up to the date on which this annual report is approved, a meeting of the Remuneration Committee was held to review the performance and remuneration packages of individual Directors and senior management.

Name of Directors	Attendance
Mr. HOW Sze Ming—Chairman of the Remuneration Committee	1/1
Mr. WONG Wai Kong	1/1
Ms. LAM Wai Si Grace	1/1

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Nomination Committee

The Company established the Nomination Committee on 28 January 2015 with written terms of reference. The Nomination Committee comprises one executive Director, namely Ms. Cheung Woon Yiu (Chairman of the Nomination Committee) and two INEDs, Mr. Wong Wai Kong and Mr. How Sze Ming.

The principal responsibilities of the Nomination Committee include reviewing the structure, size and composition of the Board, formulating nomination policy, making recommendations to the Board on nomination, rotation and reappointment of Directors as well as assessing the independence of INEDs.

The composition and diversity of the Board were considered by taking into account the Group’s board diversity policy by reference to a range of diversity measurable perspectives, including but not limited to their age, gender, skills, professional experience, knowledge and length of service. All executive Directors possess extensive and diversified experience in management, finance and broad industrial experience. The non-executive Director and the three INEDs possess professional knowledge in corporate finance and accountancy with broad and extensive experience in business advisory and management, brand building and marketing, respectively. Further details of the Directors are set out in the section headed “Directors and Senior Management” in this report. It is considered that the current Board composition represents an appropriate balance for the requirements of the business development of the Company and for effective leadership.

Where vacancies on the Board arise, the Nomination Committee will carry out the selection process in accordance with the Group’s policy by making reference to the above perspectives of the proposed candidates which suit the Group’s requirements.

26 ODELLA LEATHER HOLDINGS LIMITED

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CORPORATE GOVERNANCE REPORT

Board Committees (continued)

Nomination Committee (continued)

During the Review Period, no meeting of the Nomination Committee was held since the Shares first became listed on GEM on 12 February 2015. However, subsequent to the end of the Review Period and up to the date on which this annual report is approved, a meeting of the Nomination Committee was held to review the structure, size and composition (including the skills, knowledge and experience) of the Board and the board diversity policy, assess the independence of INEDs and make recommendations to the Board on the proposal of re-appointment of Directors at the forthcoming annual general meeting. The individual attendance record of each Nomination Committee member is as follows:

Name of Directors	Attendance
Ms. CHEUNG Woon Yiu —Chairman of the Nomination Committee	1/1
Mr. WONG Wai Kong	1/1
Mr. HOW Sze Ming	1/1

Audit Committee

The Company established the Audit Committee on 28 January 2015 with written terms of reference. The Audit Committee comprises three INEDs, namely Mr. Wong Wai Kong (Chairman of the Audit Committee), Mr. How Sze Ming and Mr. Philip David Thacker.

The principal responsibilities of the Audit Committee include overseeing the Group’s financial reporting system and internal control procedures, reviewing the Group’s financial information and reviewing the Group’s relationship with external auditors.

During the Review Period, two meetings of the Audit Committee were held to review the quarterly and half yearly consolidated financial statements, including the Group’s adopted accounting principles and practices, internal control systems and financial reporting matters (in conjunction with the external auditors for the audited results). The Audit Committee endorsed the accounting treatments adopted by the Company and, to the best of its ability assured itself that the disclosures of the financial information in the Company’s quarterly and interim reports comply with the applicable accounting standards and the GEM Listing Rules. The individual attendance record of each Audit Committee member is as follows:

Name of Directors	Attendance
Mr. WONG Wai Kong —Chairman of the Audit Committee	2/2
Mr. HOW Sze Ming	2/2
Mr. Philip David THACKER	2/2

The Group’s unaudited quarterly and interim results and audited annual results published for the year ended 30 June 2015 have been reviewed by the Audit Committee, which was of the opinion that the preparation of such results complied with the applicable accounting standards and requirements and that adequate disclosure has been made.

Corporate Governance Committee

The Company established the CG Committee on 28 January 2015 with written terms of reference. The CG Committee comprises one non-executive Director, namely Ms. Ng Lai Hung (Chairman of the CG Committee) and three INEDs, namely Mr. Wong Wai Kong, Mr. How Sze Ming and Mr. Philip David Thacker.

The principal responsibilities of the CG Committee include review of the Group’s corporate governance practice and procedures and oversee of the Company’s compliance to the CG Codes.

ANNUAL REPORT 2015 27

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CORPORATE GOVERNANCE REPORT

Board Committees (continued)

Corporate Governance Committee (continued)

During the Review Period, no meeting of the CG Committee was held since the Shares first became listed on GEM on 12 February 2015. However, subsequent to the end of the Review Period and up to the date on which this annual report is approved, a meeting of the CG Committee was held to review the Group’s corporate governance policy, practice and procedures and oversee of the Company’s compliance with the CG codes. The individual attendance record of each CG Committee member is as follows:

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Name of Directors	Attendance
Ms. NG Lai Hung —Chairman of the CG Committee	1/1
Mr. WONG Wai Kong	1/1
Mr. HOW Sze Ming	1/1
Mr. Philip David THACKER	1/1

Chairman and the Chief Executive Officer

During the Review Period, Ms. Cheung Woon Yiu has been acting as the chairman of the Board since 28 January 2015 who is responsible for enabling effective operation of the Board and Ms. Lam Wai Si Grace has been acting as the chief executive officer of the Group since 28 January 2015 who is responsible for the day-to-day management of the Group’s business. Their roles were clearly defined and segregated to ensure balanced power and responsibilities.

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Ms. Cheung Woon Yiu and Ms. Lam Wai Si are family relatives, namely Ms. Cheung’s husband is a cousin of Ms. Lam.

Company Secretary

The Company Secretary is responsible for facilitating the Board’s process and communications among Board members and with the Shareholders and the management, and advising the Board and its committees on all corporate governance matters.

During the year ended 30 June 2015, the Company’s company secretary has undertaken not less than 15 hours of relevant professional training required under Rule 5.15 of the GEM Listing Rules. The Company did not engage an external service provider as its company secretary.

Auditors’ and Auditors’ Remuneration

Appointment of Auditors

The Company was incorporated on 3 September 2014 and the first external auditors appointed is HLB, which is the existing external auditors of the Company.

Directors’ and Auditors’ Responsibilities for the Financial Statements

The Directors acknowledge their responsibilities for the preparation of the financial statements of the Group and ensure that the financial statements are in accordance with statutory requirements and applicable accounting standards. The Directors also ensure the timely publication of the financial statements of the Group.

The statements of the external auditors of the Group, HLB, about their reporting responsibilities on the financial statements of the Group are set out in the section headed “Independent Auditors’ Report” of this annual report.

28 ODELLA LEATHER HOLDINGS LIMITED

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CORPORATE GOVERNANCE REPORT

Auditors’ and Auditors’ Remuneration (continued)

Auditors’ Remuneration

The Audit Committee is responsible for considering and reviewing the appointment of the external auditors and reviewing any non-audit functions performed by the external auditors, including whether such non-audit functions could lead to any potential material adverse effect on the Group.

For the year ended 30 June 2015, the fees paid/payable to the auditors in respect of the audit and non-audit services are as follows:

Services	HK$’000
Audit service (note 1)	550
Non-audit services (note 2)	2,800

Note 1: Including the audit of the Group’s financial statements for the six months ended 31 December 2014 Note 2: The Group has engaged the auditors to provide non-audit services, namely acting as the reporting accountants of the Group, in relation to the application for Listing of the Shares on GEM

Internal Control

The Board is responsible for the maintenance of a sound and effective internal control system of the Group and has established the Group’s internal control policies and procedures for monitoring the internal control system. The internal control system of the Group is designed to achieve business objectives, safeguard assets against unauthorized use or disposition, ensure maintenance of proper books and records for the provision of reliable financial information for internal use or publication, and ensure compliance with relevant legislations and regulations. The management and various departments conduct periodic self-assessment of the effectiveness of the internal control policies and procedures. Besides, the Board reviews at least annually the overall effectiveness of the Group’s internal control system.

During the year ended 30 June 2015, the Group has engaged HLB Hodgson Impey Cheng Risk Advisory Services Limited, an independent internal control adviser (the “Internal Control Adviser”) to review the internal control system of the Group. The Internal Control Adviser’s review focuses on the status of implementation of the recommended remedial actions in areas where deficiencies and weaknesses were identified, the effectiveness of the Group’s procedures, systems and controls, and the standards and effectiveness of the Group’s corporate governance practice to ensure compliance with the GEM Listing Rules and the applicable Hong Kong laws and regulations.

The Group has implemented the recommendations from the Internal Control Adviser and the Internal Control Adviser has performed follow-up review of internal control measures implemented. It also reviewed the implementation status of the internal control measures taken to prevent recurrence of the non-compliance incidents.

Based on the findings, recommendations and follow-up results performed by the Internal Control Adviser, it is considered that such remedial actions have been implemented and are adequate and effective, to achieve the Group’s internal control objectives.

ANNUAL REPORT 2015 29

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CORPORATE GOVERNANCE REPORT

Changes in Constitutional Documents

The Company was incorporated on 3 September 2014 with a memorandum of association and articles of association. Pursuant to a special resolution of all Shareholders passed on 28 January 2015, the Articles of Association of the Company was altered and adopted with effect from 28 January 2015 to prepare for the Listing of the Shares on GEM. Save as disclosed above, during the year ended 30 June 2015, there was no significant change in the constitutional documents.

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Shareholders’ Rights and Investor Relations

Communications with Shareholders

The Group is committed to maintaining a high level of transparency and employs a policy of open and timely disclosure of relevant information to its Shareholders.

The Board strives to encourage and maintain constant dialogue with its Shareholders through various means. The Directors host the annual general meeting each year to meet the Shareholders and answer their enquiries. The Company also updates its Shareholders on its latest business developments and financial performance through its annual, interim and quarterly reports. The website of the Company has provided an effective communication platform to the public and the Shareholders.

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Shareholders may send written enquiries to the Company, for the attention of the Board or Company’s company secretary, by fax: (852) 2341 0331, e-mail at info@odella.com or mail to Unit 1701, Treasure Centre, 42 Hung To Road, Kwun Tong, Kowloon, Hong Kong. Appropriate members of the Board and senior management are ready to respond to enquiries from Shareholders and investors on a timely basis.

Procedures for Shareholders to Convene an Extraordinary General Meeting

The following set out the procedures for Shareholders to convene an extraordinary general meeting (“EGM”) of the Company in accordance with article 64 of the Articles of Association.

One or more Shareholders (“Requisitionist(s)”) holding not less than one tenth of the paid up capital of the Company having the right of voting at general meetings at the date of deposit of the requisition shall have the right, by written notice to the Board or the Company’s company secretary, to require an EGM to be called by the Directors for the transaction of any business specified in such requisition.

Such meeting shall be held within two months after the deposit of such requisition. If within twenty-one day of such deposit the Board fails to proceed to convene such EGM, the Requisitionist(s) himself (themselves) may do so in the same manner, and all reasonable expense incurred by the Requisitionist(s) as a result of the failure of the Board shall be reimbursed to the Requisitionist(s) by the Company.

Procedures for Shareholders to Propose a Person for Election as a Director

The provisions for a Shareholder to propose a person for election as a Director are set out in article 110 of the Articles of Association.

If a Shareholder wishes to propose a person for election as a Director at a general meeting, he/she should deposit (i) a written notice contained the information of the person to be proposed to act as a Director as required by Rule 17.50(2) of the GEM Listing Rules, duly signed by the Shareholder who wishes to make such proposal; and (ii) a consent notice in writing duly signed by the person being proposed to be elected as to his/her willingness to be elected and consent of publication of his/her information pursuant to the GEM Listing Rules, during a period commencing on the day after the dispatch of the notice of the general meeting and ending no later than seven clear days before the date of such general meeting.

30 ODELLA LEATHER HOLDINGS LIMITED

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CORPORATE GOVERNANCE REPORT

Shareholders’ Rights and Investor Relations (continued)

Investor Relations

The Company has disclosed all necessary information to the Shareholders and investors and established a range of communication channels between itself, its Shareholders and investors in accordance with the GEM Listing Rules. The Company also communicates with the public including potential investors through its periodic reports and announcements. The focus of the Company is to ensure information disclosure is timely, fair, accurate,truthful and complete thereby enabling the public as well as the investors to make rational and informed decisions.

Procedures for Shareholders to put forward proposals at Shareholders’ meetings

To put forward proposals at a general meeting of the Company, a Shareholder should lodge a written notice of his/ her/its proposal (“Proposal”) with his/her/its detailed contact information at the Company’s principal place of business at Unit 1701, Treasure Centre, 42 Hung To Road, Kwun Tong, Kowloon, Hong Kong.

The particulars of the Shareholder set out in the request will be verified with the Company’s branch share registrar in Hong Kong and upon their confirmation that the particulars are in order, the Board will be asked to include the Proposal in the agenda for the general meeting.

The notice period to be given to all the Shareholders for consideration of the Proposal raised by the Shareholder concerned at the general meeting varies according to the nature of the Proposal as follows:

• a) Notice of not less than 21 clear days and not less than 20 clear business days in writing if the Proposal requires an ordinary resolution or a special resolution of the Company at an annual general meeting of the Company;

• b) Notice of not less than 21 clear days and not less than 10 clear business days in writing if the Proposal requires approval by way of a special resolution of the Company at an extraordinary general meeting of the Company; and

• c) Notice of not less than 14 clear days and not less than 10 clear business days in writing if the Proposal requires approval by way of an ordinary resolution of the Company at an extraordinary general meeting of the Company.

Non-Competition Undertakings by Controlling Shareholders

Each of the controlling Shareholders has made an annual declaration to the Company that during the Review Period, it has complied with the terms of non-compete undertakings (“Non-Compete Undertakings”) given in favour of the Company which are contained in the share purchase agreement dated 4 December 2014.

Details of the Non-Compete Untakings are set out in the section headed “Relationship with Controlling Shareholders” of the Prospectus.

The INEDs have also reviewed the status of compliance by each of the Controlling Shareholders with the undertakings in the Non-Compete Undertakings and have confirmed that, as far as the INEDs can ascertain, there is no breach of any of the undertakings in the Non-Compete Undertakings.

ANNUAL REPORT 2015 31

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INDEPENDENT AUDITORS’ REPORT

31/F, Gloucester Tower The Landmark 11 Pedder Street Central Hong Kong

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TO THE SHAREHOLDERS OF ODELLA LEATHER HOLDINGS LIMITED

(Incorporated in the Cayman Islands with limited liability)

We have audited the consolidated financial statements of Odella Leather Holdings Limited (the “Company”) and its subsidiaries (collectively referred to as the “Group”) set out on pages 34 to 84, which comprise the consolidated and Company’s statements of financial position as at 30 June 2015, and the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.

Directors’ Responsibility for the Consolidated Financial Statements

The directors (the “Directors”) of the Company are responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants and the disclosure requirements of Hong Kong Companies Ordinance, and for such internal control as the Directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

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Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit and to report our opinion solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgement, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation of the consolidated financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Directors, as well as evaluating the overall presentation of the consolidated financial statements.

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

32 ODELLA LEATHER HOLDINGS LIMITED

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INDEPENDENT AUDITORS’ REPORT

Opinion

In our opinion, the consolidated financial statements give a true and fair view of the state of affairs of the Company and of the Group as at 30 June 2015, and of the Group’s profit and cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards and have been properly prepared in accordance with the disclosure requirements of Hong Kong Companies Ordinance.

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HLB Hodgson Impey Cheng Limited Certified Public Accountants

Yu Chi Fat

Practising Certificate Number: P05467 Hong Kong, 23 September 2015

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ANNUAL REPORT 2015 33

CONSOLIDATED STATEMENT OF PROFIT OR LOSS	CONSOLIDATED STATEMENT OF PROFIT OR LOSS	CONSOLIDATED STATEMENT OF PROFIT OR LOSS
AND OTHER COMPREHENSIVE INCOME
For the year ended 30 June 2015
	Notes	2015	2014
		HK$’000	HK$’000
Revenue	6	81,947	80,586
Cost of sales		(45,357)	(53,217)
Gross profit		36,590	27,369
Other revenue and other income	7	154	110
Selling and distribution expenses		(2,676)	(2,478)
Administrative expenses		(11,875)	(9,295)
Finance costs	9	(12)	(14)
Listing expenses		(18,422)	—
Profit before tax	8	3,759	15,692
Income tax expenses	10	(3,643)	(2,796)
Profit for the year attributable to owners of the Company	13	116	12,896
Other comprehensive income
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign operations		5	8
Other comprehensive income for the year		5	8
Total comprehensive income for the year attributable to
owners of the Company		121	12,904
Earnings per share attributable to owners of the Company	14
Basic and diluted (HK cents)		0.03	4.30

Details of the dividends are disclosed in note 12 to the financial statements.

34 ODELLA LEATHER HOLDINGS LIMITED

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CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 30 June 2015

	Notes	2015	2014
		HK$’000	HK$’000
Non-current assets
Property, plant and equipment	15	303	283
Deferred tax assets	16	—	4
Total non-current assets		303	287
Current assets
Inventories	17	2,243	8,236
Trade receivables	18	26,848	9,806
Deposits, prepayments and other receivables	19	2,778	431
Cash and cash equivalents	20	36,388	15,133
Pledged deposits	20	3,348	—
Total current assets		71,605	33,606
Current liabilities
Trade payables	21	1,328	1,811
Accruals, other payables and trade deposits received	22	7,901	5,918
Amounts due to Directors	23	—	4,824
Tax payable		4,720	3,990
Total current liabilities		13,949	16,543
Net current assets		57,656	17,063
Total assets less current liabilities		57,959	17,350
Non-current liability
Deferred tax liabilities	16	6	—
Net assets		57,953	17,350

ANNUAL REPORT 2015 35

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CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 30 June 2015

	Notes	2015	2014
		HK$’000	HK$’000
Equity
Capital and reserves attributable to owners of the Company
Share capital	25	4,000	200
Reserves	26	53,953	17,150
Total equity		57,953	17,350

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The consolidated financial statements were approved and authorised for issue by the board of directors on 23 September 2015 and are signed on its behalf by:

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Cheung Woon Yiu Director

Lam Wai Si Grace Director

The accompanying notes form an integral part of these consolidated financial statements.

36 ODELLA LEATHER HOLDINGS LIMITED

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CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 30 June 2015

			Attributable to owners of the Company	Attributable to owners of the Company	Attributable to owners of the Company	Attributable to owners of the Company
				Exchange
	Share	Share	Statutory	fluctuation	Other	Retained	Reserves
	capital	premium	reserve	reserve	reserve	earnings	Sub-total	Total
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
			(note i)	(note ii)	(note iii)
As at 1 July 2013	200	—	36	171	—	4,039	4,246	4,446
Profit for the year	—	—	—	—	—	12,896	12,896	12,896
Other comprehensive income for
the year	—	—	—	8	—	—	8	8
Total comprehensive income for
the year	—	—	—	8	—	12,896	12,904	12,904
Appropriation of statutory reserve	—	—	12	—	—	(12)	—	—
As at 30 June 2014 and 1 July 2014	200	—	48	179	—	16,923	17,150	17,350
Profit for the year	—	—	—	—	—	116	116	116
Other comprehensive income for
the year	—	—	—	5	—	—	5	5
Total comprehensive income for
the year	—	—	—	5	—	116	121	121
Effect of shares exchange (note iv)	(200)	—	—	—	200	—	200	—
Issue of shares on Group reorganisation
(note iv)	100	—	—	—	(100)	—	(100)	—
Appropriation of statutory reserve	—	—	160	—	—	(160)	—	—
Dividend paid (note 12)	—	—	—	—	—	(3,200)	(3,200)	(3,200)
Shares issued pursuant to the
capitalisation issue (note v)	2,900	(2,900)	—	—	—	—	(2,900)	—
Transaction cost attributable to
issuance of shares	—	(11,318)	—	—	—	—	(11,318)	(11,318)
Placing of new shares (note vi)	1,000	54,000	—	—	—	—	54,000	55,000
As at 30 June 2015	4,000	39,782	208	184	100	13,679	53,953	57,953

ANNUAL REPORT 2015 37

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CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 30 June 2015

Notes:

(i) Statutory reserve

Pursuant to the relevant laws and regulations for business enterprises in the People’s Republic of China (the “PRC”), a portion of the profits of the entities which are registered in the PRC has been transferred to the statutory reserve which is restricted as to use. When the balance of such reserve reaches 50% of the capital of that entity, any further appropriation is optional. The statutory reserve can be utilised, upon approval of the relevant authority, to offset prior years’ losses or to increase capital. However, the balance of the statutory reserve must be maintained at a minimum 25% of capital after such usage.

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(ii) Exchange fluctuation reserve

Exchange fluctuation reserve represents exchange differences relating to the translation of the net assets of the Group’s foreign operations from their functional currencies to the Group’s presentation currency (i.e. Hong Kong dollars) that are recognised directly in other comprehensive income and accumulated in the exchange fluctuation reserve. Such exchange differences accumulated in the exchange fluctuation reserve are reclassified to profit or loss on the disposal of the foreign operations.

(iii) Other reserve

Other reserve represents the difference between the nominal value of the shares issued by the Company in exchange for the nominal value of the share capital of its subsidiary arising from the Reorganisation (as defined below).

(iv) Reorganisation

The share capital as at 30 June 2014 represented the share capital of Perline Company Limited (“Perline”), the then holding company amounted to HK$200,000, which is the then holding company.

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In preparation for the listing (the “Listing”) of the shares of the Company (“Shares”) on Growth Enterprise Market (“GEM”) of The Stock Exchange of Hong Kong Limited (the “Stock Exchange”), the Group underwent a corporate reorganisation (the “Reorganisation”) as below. Further details of the Reorganisation are set out in note 1 to the financial statements.

On 3 September 2014, the Company was incorporated in the Cayman Islands with one subscriber Share issued at nil paid. On the same date, the subscriber Share was transferred to Quality Century Limited (“QCL”) and 999,999 Shares were further allotted at nil paid to QCL, Design Vanguard Limited (“DVL”) and Olson Global Limited (“OGL”), companies solely owned by each of the then shareholders of Perline.

On 4 December 2014, Odella International Limited (“Odella BVI”), a wholly owned subsidiary of the Company, (as a purchaser) acquired from the then shareholders of Perline (as the vendors) the entire share capital of Perline. In consideration the Company credited as fully paid the 1,000,000 nil-paid Shares which were first issued on 3 September 2014, and issued to QCL, DVL and OGL (as nominated by the vendors) 9,000,000 new Shares, all credited as fully paid. On completion, Odella BVI became the sole shareholder of Perline, and the number of issued shares in the Company was increased to 10,000,000.

(v) Capitalisation issue

On 11 February 2015, the Company issued and allotted a total of 290,000,000 Shares of HK$0.01 each to the Company’s shareholders (“Shareholders”) whose names appeared on the Company’s register of members on 28 January 2015 by capitalising an amount of HK$2,900,000 standing to the credit of the Company’s share premium account which was created pursuant to the Placing (as defined below) (the “Capitalisation Issue”).

(vi) Placing

On 11 February 2015, the Company issued a total of 100,000,000 new Shares of HK$0.01 each at a placing price of HK$0.55 per Share pursuant to the prospectus of the Company dated 5 February 2015 (the “Prospectus”). The gross listing proceeds were HK$55,000,000.

38 ODELLA LEATHER HOLDINGS LIMITED

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STATEMENT OF FINANCIAL POSITION

As at 30 June 2015

	Notes	2015
		HK$’000
Non-current asset
Investment in a subsidiary	24	1
Total non-current asset		1
Current assets
Prepayments	19	50
Amounts due from subsidiaries	24	48,346
Cash and cash equivalents	20	2
Total current assets		48,398
Current liability
Accruals	22	100
Total current liability		100
Net current assets		48,298
Total assets less current liability		48,299
Net assets		48,299
Equity
Share capital	25	4,000
Reserves	26	44,299
Total equity		48,299

ANNUAL REPORT 2015 39

CONSOLIDATED STATEMENT OF CASH FLOWS	CONSOLIDATED STATEMENT OF CASH FLOWS	CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 30 June 2015
	Notes	2015	2014
		HK$’000	HK$’000
Cash flows from operating activities
Profit before tax		3,759	15,692
Adjustments for:
Interest income	7	(127)	(4)
Interest expenses	9	12	14
Depreciation	8, 15	130	122
Inflow from operations before working capital changes		3,774	15,824
Decrease in inventories		5,995	2,497
(Increase)/decrease in trade receivables		(17,051)	424
(Increase)/decrease in deposits, prepayments and other receivables		(2,348)	525
Decrease in trade payables		(482)	(2,166)
Increase in accruals, other payables and trade deposits received		1,998	1,308
Cash (used in)/generated from operations		(8,114)	18,412
Interest received		127	4
Net income tax paid		(2,903)	(615)
Net cash (used in)/generated from operating activities		(10,890)	17,801
Cash flows from investing activity
Purchases of items of property, plant and equipment	15	(151)	(124)
Net cash used in investing activity		(151)	(124)
Cash flows from financing activities
Increase in pledged deposits		(3,348)	—
New bank borrowings		3,389	2,593
Repayment of bank borrowings		(3,389)	(4,659)
Decrease in amounts due to Directors		(4,824)	(154)
Dividend paid to then shareholders of Perline		(3,200)	(6,000)
Proceeds from issuance of Shares		55,000	—
Transaction cost attributable to issuance of Shares		(11,318)	—
Interest paid		(12)	(14)
Net cash generated from/(used in) financing activities		32,298	(8,234)

40 ODELLA LEATHER HOLDINGS LIMITED

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CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 30 June 2015

	2015	2014
	HK$’000	HK$’000
Net increase in cash and cash equivalents	21,257	9,443
Effect of foreign exchange rate changes, net	(2)	(12)
Cash and cash equivalents at the beginning of the year	15,133	5,702
Cash and cash equivalents at the end of the year	36,388	15,133
Cash and cash equivalents as stated in the consolidated statement of
financial position	36,388	15,133

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ANNUAL REPORT 2015 41

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NOTES TO THE FINANCIAL STATEMENTS

30 June 2015

1. Corporate Information of the Group and Reorganisation

General information of the Group

The Company was incorporated in the Cayman Islands on 3 September 2014 as an exempted company with limited liability under the Companies Law, Chapter 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands. The address of its registered office is Cricket Square, Hutchins Drive, PO Box 2681, Grand Cayman KY1-1111, Cayman Islands.

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The Company is an investment holding company and its subsidiaries are principally engaged in the manufacturing and sales of leather products.

The Company’s Shares are listed on GEM on 12 February 2015.

Reorganisation

The principal business of the Group was previously carried out by Perline, a subsidiary of the Company incorporated in Hong Kong with limited liabilities. Perline was then owned by Ms. Cheung Woon Yiu as to 68%, Ms. Lam Wai Si Grace as to 17% and Mr. Ching Wai Man as to 15%. In preparation for the Listing, the Group underwent the Reorganisation in 2014 as set out below.

• (i) On 3 September 2014, the Company was incorporated in the Cayman Islands as an exempted company with limited liability, with an authorised share capital of HK$1,000,000 divided into 100,000,000 Shares of HK$0.01 each. Upon incorporation, one Share of HK$0.01 was allotted and issued at nil paid to the subscriber (being an officer of Codan Trust Company (Cayman) Limited, the provider of registered office of the Company). On the same date, the subscriber Share was transferred to QCL (a company solely owned by Ms. Cheung Woon Yiu) and the Company further allotted and issued 999,999 Shares at nil paid, to QCL, DVL (a company solely owned by Ms. Lam Wai Si Grace) and OGL (a company solely owned by Mr. Ching Wai Man).

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• (ii) On 11 September 2014, Odella BVI was incorporated in the British Virgin Islands (the “BVI”) with an authorised share capital of US$50,000 divided into 50,000 shares of US$1 each. Upon incorporation, 100 shares in Odella BVI of US$1 each were issued to the Company at par value.

• (iii) By an agreement dated 4 December 2014, Odella BVI (as a purchaser) acquired from the then shareholders of Perline (as vendors) the entire issued share capital in Perline. In consideration of and in exchange for such acquisition, the Company credited as fully paid the 1,000,000 nil-paid Shares which were first issued on 3 September 2014, and issued to QCL, DVL OGL (as nominated by the vendors) 9,000,000 new Shares in the proportion of 68%, 17% and 15% respectively, all credited as fully paid. On completion, Odella BVI became the sole shareholder of Perline, and the number of issued shares in the Company was increased to 10,000,000. The shareholding percentage of QCL, DVL and OGL in the Company remained the same immediately before and immediately after the completion of the above agreement .

42 ODELLA LEATHER HOLDINGS LIMITED

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NOTES TO THE FINANCIAL STATEMENTS

30 June 2015

2. Basis of Presentation and Basis of Preparation

Basis of Presentation

Immediately prior to and after the Reorganisation, the principal business of the Group remained under the control of Ms. Cheung Woon Yiu, Ms. Lam Wai Si Grace and Mr. Ching Wai Man. The principal business of the Group is conducted through Perline including its subsidiary, 佛山市南海盛麗皮衣有限公司 (Foshan Nanhai Shengli Leather Garment Co. Ltd., being an English name for identification purpose only). Perline was directly owned by Ms. Cheung Woon Yiu, Ms. Lam Wai Si Grace and Mr. Ching Wai Man immediately prior to the Reorganisation. The Company has not been involved in any business prior to the Reorganisation. Pursuant to the Reorganisation, the Company became the holding company of the companies now comprising the Group on 4 December 2014. The Reorganisation was merely reorganisations of the principal business of the Group with no change in management of such business and the ultimate owners of the business. Accordingly these financial statements have been prepared by applying the principles of merger accounting as if the Company had been the holding company of the Group throughout the years presented.

The consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows of the Group for the years ended 30 June 2015 and 2014 include the results and cash flows of all companies now comprising the Group, or since the date when the subsidiaries first came under the common control, where this is a shorter period. The consolidated statement of financial position of the Group’s subsidiaries as at 30 June 2014 have been prepared to present the assets and liabilities of the subsidiaries using the existing carrying values of the principal business of the Group for the period presented. No adjustments are made to reflect fair values, or recognise any new assets or liabilities as a result of the Reorganisation.

All intra-group transactions and balances have been eliminated on consolidation in full.

Statement of Compliance

The consolidated financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) (which include all individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (“HKASs”) and Interpretations (“Ints”)) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”), accounting principles generally accepted in Hong Kong. In addition, the consolidated financial statements include applicable disclosures required by the Rules Governing the Listing of Securities on GEM of the Stock Exchange (the “GEM Listing Rules”) and the disclosure requirements of the Hong Kong Companies Ordinance.

ANNUAL REPORT 2015 43

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NOTES TO THE FINANCIAL STATEMENTS

30 June 2015

2. Basis of Presentation and Basis of Preparation (continued)

Basis of Preparation

These consolidated financial statements have been prepared under the historical cost convention. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.

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Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group takes into account the characteristic of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in the consolidated financial statements is determined on such a basis, except for share-based payment transactions that are within the scope of HKFRS 2 “Share-based Payment”, leasing transactions that are within the scope of HKAS 17 “Leases”, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in HKAS 2 “Inventories” or value in use in HKAS 36 “Impairment of Assets”.

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

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• Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;

• Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and

• Level 3 inputs are unobservable inputs for the asset or liability.

The financial statements are presented in Hong Kong dollars (“HK$”) and all values are rounded to the nearest thousand (“HK$000”) except when otherwise indicated.

The preparation of the consolidated financial statements in conformity with HKFRSs requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to these financial statements are disclosed in note 5 to the financial statements.

44 ODELLA LEATHER HOLDINGS LIMITED

NOTES TO THE FINANCIAL STATEMENTS

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30 June 2015

3. Application of New and Revised Hong Kong Financial Reporting Standards

The Group has applied the new and revised HKFRSs issued by HKICPA which are relevant to the Group for the first time in the current year as follows:

HKAS 19 (Amendments) Defined Benefit Plans: Employee Contributions HKAS 32 (Amendments) Offsetting Financial Assets and Financial Liabilities HKAS 36 (Amendments) Recoverable Amount Disclosures for Non-Financial Assets HK(IFRIC)-Int 21 Levies Annual Improvements to HKFRSs 2010–2012 Cycle Annual Improvements to HKFRSs 2011–2013 Cycle

Amendments to HKAS 19 Defined Benefit Plans: Employee Contributions

The amendments to HKAS 19 clarify how an entity should account for contributions made by employees or third parties to defined benefit plans, based on whether those contributions are dependent on the number of years of service provided by the employee.

For contributions that are independent of the number of years of service, the entity may either recognise the contributions as a reduction in the service cost in the period in which the related service is rendered, or to attribute them to the employees’ periods of service on a straight-line basis; whereas for contributions that are dependent on the number of years of service, the entity is required to attribute them to the employees’ periods of service.

Amendments to HKAS 32 Offsetting Financial Assets and Financial Liabilities

The amendments to HKAS 32 clarify the requirements relating to the offset of financial assets and financial liabilities. Specifically, the amendments clarify the meaning of “currently has a legally enforceable right of setoff” and “simultaneous realisation and settlement”.

Amendments to HKAS 36 Recoverable Amount Disclosures for Non-Financial Assets

The amendments to HKAS 36 remove the requirement to disclose the recoverable amount of a cash-generating unit (“CGU”) to which goodwill or other intangible assets with indefinite useful lives had been allocated when there has been no impairment or reversal of impairment of the related CGU. Furthermore, the amendments introduce additional disclosure requirements applicable to when the recoverable amount of an asset or a CGU is measured at fair value less costs of disposal. These new disclosures include the fair value hierarchy, key assumptions and valuation techniques used which are in line with the disclosure required by HKFRS 13 “Fair Value Measurements”.

HK(IFRIC)-Int 21 Levies

HK(IFRIC)-Int 21 addresses the issue of when to recognise a liability to pay a levy imposed by a government. The interpretation defines a levy, and specifies that the obligating event that gives rise to the liability is the activity that triggers the payment of the levy, as identified by legislation. The interpretation provides guidance on how different levy arrangements should be accounted for, in particular, it clarifies that neither economic compulsion nor the going concern basis of financial statements preparation implies that an entity has a present obligation to pay a levy that will be triggered by operating in a future period.

ANNUAL REPORT 2015 45

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NOTES TO THE FINANCIAL STATEMENTS

30 June 2015

3. Application of New and Revised Hong Kong Financial Reporting Standards

(continued)

Annual Improvement to HKFRSs 2010–2012 Cycle

The Annual Improvements to HKFRSs 2010–2012 Cycle include a number of amendments to various HKFRSs, and those relevant to the Group are summarised below.

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The amendments to HKFRS 2 (i) change the definitions of “vesting condition” and “market condition”; and (ii) add definitions for “performance condition” and “service condition” which were previously included within the definition of “vesting condition”. The amendments to HKFRS 2 are effective for share-based payment transactions for which the grant date is on or after 1 July 2014.

The amendments to HKFRS 3 clarify that contingent consideration that is classified as an asset or a liability should be measured at fair value at each reporting date, irrespective of whether the contingent consideration is a financial instrument within the scope of HKFRS 9 or HKAS 39 or a non-financial asset or liability. Changes in fair value (other than measurement period adjustments) should be recognised in profit and loss. The amendments to HKFRS 3 are effective for business combinations for which the acquisition date is on or after 1 July 2014.

The amendments to HKFRS 8 (i) require an entity to disclose the judgements made by management in applying the aggregation criteria to operating segments, including a description of the operating segments aggregated and the economic indicators assessed in determining whether the operating segments have “similar economic characteristics”; and (ii) clarify that a reconciliation of the total of the reportable segments’ assets to the entity’s assets should only be provided if the segment assets are regularly provided to the chief operating decisionmaker.

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The amendments to HKAS 16 and HKAS 38 remove perceived inconsistencies in the accounting for accumulated depreciation/amortisation when an item of property, plant and equipment or an intangible asset is revalued. The amended standards clarify that the gross carrying amount is adjusted in a manner consistent with the revaluation of the carrying amount of the asset and that accumulated depreciation/amortisation is the difference between the gross carrying amount and the carrying amount after taking into account accumulated impairment losses.

The amendments to HKAS 24 clarify that a management entity providing key management personnel service to a reporting entity is a related party of the reporting entity. Consequently, the reporting entity should disclose as related party transactions the amounts incurred for the service paid or payable to the management entity for the provision of key management personnel services. However, disclosure of the components of compensation to key management personnel that is paid through another entity is not required.

Annual Improvements to HKFRSs 2011–2013 Cycle

The Annual Improvements to HKFRSs 2011–2013 Cycle include a number of amendments to various HKFRSs, and those relevant to the Group are summarised below.

The amendments to HKFRS 13 clarify that the scope of the portfolio exception for measuring the fair value of a group of financial assets and financial liabilities on a net basis includes all contracts that are within the scope of, and accounted for in accordance with, HKAS 39 or HKFRS 9, even if those contracts do not meet the definitions of financial assets or financial liabilities within HKAS 32.

The adoption of these new and revised HKFRSs have no significant impact on the results and financial position of the Group.

46 ODELLA LEATHER HOLDINGS LIMITED

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NOTES TO THE FINANCIAL STATEMENTS

30 June 2015

3. Application of New and Revised Hong Kong Financial Reporting Standards

(continued)

The Group has not early applied the following new and revised HKFRSs have been issued but are not yet effective which may be relevant to the Group.

HKFRS 9 Financial Instruments[3] HKFRS 15 Revenue from Contracts with Customers[2] HKAS 1 (Amendments) Disclosure Initiative[1] HKAS 16 and HKAS 38 (Amendments) Clarification of Acceptable Methods of Depreciation and Amortisation[1] HKAS 27 (Amendments) Equity Method in Separate Financial Statements[1]

HKAS 27 (Amendments) Annual Improvements to HKFRSs 2012–2014 Cycle[1]

• 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.

HKFRS 9 Financial Instruments

HKFRS 9 will replace HKAS 39 Financial Instruments: Recognition and Measurement and provide new guidance for accounting for financial instruments in three broad areas.

• (a) Classification and measurement of financial assets and financial liabilities Under HKFRS 9, financial assets are classified on the basis of the business model within which they are held and their contractual cash flow characteristics. Embedded derivatives are no longer separated from financial asset hosts, instead, the entire hybrid instrument is assessed for classification and measurement. For the classification and measurement of financial liabilities, the gain or loss on a financial liability designated at fair value through profit or loss that is attributable to changes in its credit risk is usually presented in other comprehensive income; the remaining amount of change in fair value is presented in profit or loss.

(b) Impairment methodology

• HKFRS 9 replaces the “incurred loss” model in HKAS 39 with an “expected credit loss” model, which means that a loss event will no longer need to occur before an impairment allowance is recognised. In fact, all assets within the scope of the impairment model will have at least twelve months expected loss provision. The standard aims to address concerns about ’too little, too late’ provisioning for loan losses, and will accelerate recognition of losses.

• (c) Hedge accounting

HKFRS 9 aims to align hedge accounting with risk management activities, establish a more principal-based approach to hedge accounting, and address inconsistencies and weaknesses in the previous model.

HKFRS 15 Revenue from Contracts with Customers

HKFRS 15 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers.

Under HKFRS 15, a customer of an entity is a party that has contracted with the entity to obtain goods or services that are an output of the entity’s ordinary activities in exchange for consideration.

ANNUAL REPORT 2015 47

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NOTES TO THE FINANCIAL STATEMENTS

30 June 2015

3. Application of New and Revised Hong Kong Financial Reporting Standards

(continued)

Amendments to HKAS 1 Disclosure Initiative

The amendments to HKAS 1 are designed to further encourage companies to apply professional judgement in determining what information to disclose in their financial statements. For example, the amendments make 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.

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

The amendments to HKAS 16 and HKAS 38 clarify that the use of revenue-based methods to calculate the depreciation of an asset is not appropriate because revenue generated by an activity that includes the use of an asset generally reflects factors other than the consumption of the economic benefits embodied in the asset.

The amendments also clarify that revenue is generally presumed to be an inappropriate basis for measuring the consumption of the economic benefits embodied in an intangible asset. This presumption, however, can be rebutted in certain limited circumstances.

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Amendments to HKAS 27 Equity Method in Separate Financial Statements

The amendments to HKAS 27 allow entities to use the equity method to account for investments in subsidiaries, joint ventures and associates in their separate financial statements.

Annual Improvements to HKFRSs 2012–2014 Cycle

The Annual Improvements to HKFRSs 2012–2014 Cycle include a number of amendments to various HKFRSs, and those may be relevant to the Group are summarised below.

The amendments to HKFRS 7 provide additional guidance to clarify whether a servicing contract is continuing involvement in a transferred asset for the purpose of the disclosures required in relation to transferred assets and clarify that the offsetting disclosures (introduced in the amendments to HKFRS 7 “Offsetting Financial Assets and Financial Liabilities”. However, the disclosures may need to be included in condensed interim financial statements to comply with HKAS 34 ”Interim Financial Reporting”.

The amendments to HKAS 34 clarify the requirements relating to information required by HKAS 34 that is presented elsewhere within the interim financial report but outside the interim financial statements. The amendments require that such information be incorporated by way of a cross reference from the interim financial statements to the other part of the interim financial report that is available to users on the same terms and at the same time as the interim financial statements.

The Directors are in the process of assessing the potential impact of the new and revised HKFRSs but are not in a position to determine whether they will have a significant impact on Group’s results of operations and financial position and their presentation and disclosures. It is anticipated that the Group will adopt these new and revised HKFRSs in its accounting policies in the accounting periods when they first become effective.

48 ODELLA LEATHER HOLDINGS LIMITED

NOTES TO THE FINANCIAL STATEMENTS

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30 June 2015

4. Summary of Significant Accounting Policies

The principal accounting policies adopted are as follows:

4.1 Subsidiaries

4.1.1 Consolidation

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These financial statements include the financial statements of the Company and its subsidiaries now comprising the Group for the periods covered.

As explained in note 2 to the financial statements, the acquisition of subsidiaries under common control has been accounted for using the merger accounting.

The merger method of accounting involves incorporating the financial statement items of the combining subsidiaries in which the common control combination occurs as if they had been consolidated from the date when the combining subsidiaries first came under the control of the controlling party.

No amount is recognised in respect of goodwill or the excess of the acquirers’ interest in the net fair value of acquirees’ identifiable assets, liabilities and contingent liabilities over the cost of investment at the time of common control combination.

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The consolidated statement of profit or loss include the results of each of the combining subsidiaries from the earliest date presented or since the date when the combining subsidiaries first came under common control, where this is a shorter period, regardless of the date of the common control combination. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies.

Profit or loss and each component of other comprehensive income are attributed to the owners of the parent of the Group. All significant intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on combination.

For the purpose of these consolidated financial statements, the financial statements of the subsidiaries are prepared for the same reporting period as the Company, using consistent accounting policies.

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

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

ANNUAL REPORT 2015 49

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NOTES TO THE FINANCIAL STATEMENTS

30 June 2015

4. Summary of Significant Accounting Policies (continued)

4.1 Subsidiaries (continued)

4.1.2 Investments in subsidiaries

A subsidiary is an entity, directly or indirectly, controlled by the Company. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee (i.e., existing rights that give the Group the current liabilities to direct the relevant activities of the investee).

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

• (a) the contractual agreement with the other vote holders of the investee;

• (b) rights arising from other contractual agreement; and

• (c) the Group’s voting rights and potential voting rights.

4.2 Segment Reporting

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Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the executive Directors, Ms. Cheung Woon Yiu, Ms. Lam Wai Si Grace and Mr. Ching Wai Man (the “Management”) that make strategic decisions.

4.3 Foreign Currency Translation

4.3.1 Functional and presentation currency

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

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the profit or loss, except when deferred in equity as qualifying cash flow hedges and qualifying net investment hedges.

50 ODELLA LEATHER HOLDINGS LIMITED

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NOTES TO THE FINANCIAL STATEMENTS

30 June 2015

4. Summary of Significant Accounting Policies (continued)

4.3 Foreign Currency Translation (continued)

4.3.2 Group companies

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

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(i)
(ii)
(iii)
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• (i) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;

• (ii) income and expenses for each statement of comprehensive income are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rates on the dates of the transactions); and

• (iii) all resulting exchange differences are recognised in other comprehensive income.

On consolidation, exchange differences arising from the translation of the net investment in foreign operations, are taken to other comprehensive income. When a foreign operation is partially disposed of or sold, corresponding exchange differences that are recorded in other comprehensive income are recognised in the profit or loss as part of the gains or losses on sale.

4.4 Property, Plant and Equipment

Property, plant and equipment are stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the 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 Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the profit or loss during the financial period in which they are incurred.

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

Machinery and equipment 10%–20% Furniture, fixtures and office equipment 20%–50% Motor vehicles 10%–30% Leasehold improvements 50% or over the lease term, whichever is shorter

The assets’ depreciation method, residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each balance sheet date.

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

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised in the profit or loss.

ANNUAL REPORT 2015 51

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NOTES TO THE FINANCIAL STATEMENTS

30 June 2015

4. Summary of Significant Accounting Policies (continued)

4.5 Impairment of Non-Financial Assets

Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs of disposal and its value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of an impairment at each reporting date.

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4.6 Financial Assets and Financial Liabilities

Financial assets and financial liabilities are recognised when a group entity becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value.

Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss (“FVTPL”)) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.

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4.6.1 Financial assets

• (a) Classification

The Group classifies its financial assets under the category of loans and receivables. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition.

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for the amounts that are settled or expected to be settled more than 12 months after the end of the reporting period. These are classified as non-current assets. The Group’s loans and receivables comprise trade receivables, deposits and other receivables, cash and cash equivalents and pledged deposits in the consolidated statement of financial position.

• (b) Recognition and measurement

• Regular way purchases and sales of financial assets are recognised on the trade-date — the date on which the Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. Loans and receivables are subsequently carried at amortised cost using the effective interest method.

52 ODELLA LEATHER HOLDINGS LIMITED

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NOTES TO THE FINANCIAL STATEMENTS

30 June 2015

4. Summary of Significant Accounting Policies (continued)

4.6 Financial Assets and Financial Liabilities (continued)

4.6.1 Financial assets (continued)

• (c) Derecognition of financial assets

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

• the rights to receive cash flows from the asset have expired; or

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

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

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

• (d) Impairment of financial assets

The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ’loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation, and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

ANNUAL REPORT 2015 53

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NOTES TO THE FINANCIAL STATEMENTS

30 June 2015

4. Summary of Significant Accounting Policies (continued)

4.6 Financial Assets and Financial Liabilities (continued)

4.6.1 Financial assets (continued)

• (d) Impairment of financial assets (continued)

The amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in the profit or loss. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Group may measure impairment on the basis of an instrument’s fair value using an observable market price.

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If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the reversal of the previously recognised impairment loss is recognised in the consolidated statement of profit or loss.

4.6.2 Financial liabilities

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(a) Classification

The Group classifies its financial liabilities under the category of loans and borrowing. The classification depends on the substance of the contractual arrangements and the definitions of a financial liability. Management determines the classification of its financial liabilities at initial recognition.

Loans and borrowing are non-derivative financial liabilities. They are included in current liabilities, except for the amounts that are settled or expected to be settled more than 12 months after the end of the reporting period. These are classified as non-current liabilities. The Group’s loans and borrowing comprise trade payables, accruals and other payables, refundable trade deposits received and amounts due to Directors in the consolidated statement of financial position.

(b) Subsequent measurement

Loans and borrowing

After initial recognition, interest-bearing loans and borrowing are subsequently measured at amortised cost, using the effective interest rate method unless the effect of discounting would be immaterial, in which case they are stated at cost. Gains and losses are recognised in the statement of profit or loss when the liabilities are derecognised as well as through the effective interest rate amortisation process.

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

54 ODELLA LEATHER HOLDINGS LIMITED

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NOTES TO THE FINANCIAL STATEMENTS

30 June 2015

4. Summary of Significant Accounting Policies (continued)

4.6 Financial Assets and Financial Liabilities (continued)

4.6.2 Financial liabilities (continued)

• (c) Derecognition of financial liabilities

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

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

• (d) Offsetting of financial instruments

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

4.7 Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined using the first-in first-out method. The cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity). It excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling costs.

4.8 Trade and Other Receivables

Trade receivables are amounts due from customers for merchandise sold in the ordinary course of business. If collection of trade and other receivables is expected in one year or less, they are classified as current assets. If not, they are presented as non-current assets.

Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment.

4.9 Cash and Cash Equivalents

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

For the purpose of the statements of financial position, cash and cash equivalents includes cash on hand and in banks. Restricted bank deposits are excluded from cash and cash equivalents.

ANNUAL REPORT 2015 55

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NOTES TO THE FINANCIAL STATEMENTS

30 June 2015

4. Summary of Significant Accounting Policies (continued)

4.10 Share Capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

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4.11 Trade and Other Payables

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Trade and other payables are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities.

Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

4.12 Borrowing

Borrowing is recognised initially at fair value, net of transaction costs incurred. Borrowing is subsequently carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the profit or loss over the period of the borrowing using the effective interest method.

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Borrowing is classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting period.

4.13 Current and Deferred Income Tax

The income tax expense for the year comprises current and deferred income tax.

4.13.1 Current income tax

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the countries where the Company’s subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

4.13.2 Deferred income tax

Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred income tax liabilities are not recognised if they arise from the initial recognition of goodwill, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business consolidation that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

56 ODELLA LEATHER HOLDINGS LIMITED

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NOTES TO THE FINANCIAL STATEMENTS

30 June 2015

4. Summary of Significant Accounting Policies (continued)

4.13 Current and Deferred Income Tax (continued)

4.13.2 Deferred income tax (continued)

Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

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Deferred income tax is provided on temporary differences arising on investments in subsidiaries, except for deferred income tax liability where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

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

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

4.13.3 Offsetting

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income tax levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

4.14 Employee Benefits

4.14.1 Pension Schemes

The Group operates a defined contribution Mandatory Provident Fund retirement benefit scheme (the “MPF Scheme”) in Hong Kong under the Mandatory Provident Fund Schemes Ordinance for those employees who are eligible to participate in the MPF Scheme. Contributions are made based on a percentage of the employees’ basic salaries and are charged to the statement of profit or loss as they become payable in accordance with the rules of the MPF Scheme. The assets of the MPF Scheme are held separately from those of the Group in an independently administered fund. The Group’s employer contributions vest fully with the employees when contributed into the MPF Scheme.

The Group entity in the Mainland China participates in defined contribution retirement benefit plans (including Housing Provident Fund) organised by relevant government authorities for its employees in the Mainland China and contribute to these plans based on certain percentage of the salaries of the employees on a monthly basis, up to a maximum fixed monetary amount, as stipulated by the relevant government authorities. The government authorities undertake to assume the retirement benefit obligations payable to all existing and future retired employees under these plans.

The Group has no further obligation for post-employment benefits beyond the contributions made. The Group’s contributions to these plans are charged to the consolidated statement of profit or loss as incurred.

ANNUAL REPORT 2015 57

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NOTES TO THE FINANCIAL STATEMENTS

30 June 2015

4. Summary of Significant Accounting Policies (continued)

4.14 Employee Benefits (continued)

4.14.2 Share Option Expenses

The Company operates a share option scheme for the purpose to attract, retain and reward the eligible persons and to provide the eligible persons an incentive or reward for their contribution to the Group.

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For grants of share options that are conditional upon satisfying specified vesting conditions, the fair value of services received is determined by reference to the fair value of share options granted at the grant date and is expensed on a straight-line basis over the vesting period, with a corresponding increase in equity (share options reserve).

At the end of the reporting period, the Company revises its estimates of the number of options that are expected to ultimately vest. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to share options reserve.

For share options that vest immediately at the date of grant, the fair value of the share options granted is expensed immediately to profit or loss. When share options are exercised, the amount previously recognised in share options reserve will be transferred to share premium. When share options are forfeited after the vesting date or are still not exercised at the expiry date, the amount previously recognised in share options reserve will be transferred to retained earnings.

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4.15 Provision

Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount can be reliably estimated.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense.

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliability.

4.16 Revenue Recognition

Revenue is measured at the fair value of the consideration received or receivable, and represents amounts receivable for goods supplied, after allowances for returns. The Group recognises revenue when the amount of revenue can be reliably measured; when it is probable that future economic benefits will flow to the entity; and when specific criteria have been met for each of the Group’s activities, as described below.

4.16.1 Sales of goods

Revenue from the sales of goods is recognised when the risk and reward of the goods has been transferred to the customer, who is usually when the Group has delivered the products to the customer, the collectability of the related receivables is reasonably assured and there is no unfulfilled obligation that could affect the customer’s acceptance of the products.

58 ODELLA LEATHER HOLDINGS LIMITED

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NOTES TO THE FINANCIAL STATEMENTS

30 June 2015

4. Summary of Significant Accounting Policies (continued)

4.16 Revenue Recognition (continued)

4.16.2 Interest income

Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount on initial recognition.

4.17 Leases — Operating leases

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the consolidated statement of profit or loss on a straight-line basis over the period of the lease.

4.18 Dividend Distribution

Dividend distribution to the owners is recognised as a liability in the Group’s consolidated financial statements in the period in which the dividends are approved by the owners.

4.19 Related Parties

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

• (a) the party is a person or a close member of that person’s family and that person:

• (i) has control or joint control over the Group;

• (ii) has significant influence over the Group; or

• (iii) is a member of the key management personnel of the Group or of a parent of the Group;

or

• (b) the party is an entity where any of the following conditions applies:

• (i) the entity and the Group are members of the same group;

• (ii) one entity is an associate or joint venture of the other entity (or of a parent, subsidiary or fellow subsidiary of the other entity);

• (iii) the entity and the Group are joint ventures of the same third party;

• (iv) one entity is a joint venture of a third entity and the other entity is an associate of the third entity;

• (v) the entity is a post-employment benefit plan for the benefit of employees of either the Group or an entity related to the Group;

• (vi) the entity is controlled or jointly controlled by a person identified in (a); and

• (vii) a person identified in (a) (i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).

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

ANNUAL REPORT 2015 59

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NOTES TO THE FINANCIAL STATEMENTS

30 June 2015

5. Critical Accounting Judgements and Estimates Uncertainty

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

Estimation Uncertainty

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

(a) Useful lives of property, plant and equipment

The Group’s management determines the estimated useful lives and related depreciation charges for its property, plant and equipment. This estimate is based on the historical experience of the actual useful lives of property, plant and equipment of similar nature and functions. It could change significantly as a result of technical innovations and competitor actions in response to severe industry cycles. Management will increase the depreciation charge where useful lives are less than previously estimated lives, or it will write-off or write-down technically obsolete or non-strategic assets that have been abandoned or sold.

(b) Impairment of trade and other receivables

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The Group’s management estimates the provision of impairment of trade and other receivables by assessing their recoverability. Provisions are applied to trade and other receivables where events or changes in circumstances indicate that the balances may not be collectible and require the use of estimates. Where the expectation is different from the original estimate, such difference will impact carrying value of trade and other receivables and impairment charge in the period in which such estimate has been changed.

• (c) Net realisable value of inventories

The Group’s management estimates the provision of impairment of inventories by assessing their net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs to completion and estimated costs necessary to make the sale. Provisions are applied to inventories where events or changes in circumstances indicate that the inventory cost may exceed the net realisable value and require the use of estimates. Where the expectation is different from the original estimate, such difference will impact carrying value of inventories and impairment charge in the period in which such estimate has been changed.

(d) Current income tax and deferred income tax

The Group is mainly subject to income tax in Hong Kong and the PRC. Significant judgement is required in determining the provision for income tax. There are some transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for anticipated tax audit issues 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 provisions in the year in which such determination is made.

60 ODELLA LEATHER HOLDINGS LIMITED

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NOTES TO THE FINANCIAL STATEMENTS

30 June 2015

5. Critical Accounting Judgements and Estimates Uncertainty (continued)

(d) Current income tax and deferred income tax (continued)

• Deferred income tax assets and liabilities are determined using income tax rates that are expected to apply when the related deferred income tax assets are realised or the deferred income tax liabilities are settled. The expected applicable income tax rate is determined based on the enacted tax laws and regulations and the actual situation of the Group. The Management will revise the expectation where the final income tax rate is different from the original expectation.

6. Revenue and Operating Segment Information

Revenue, which is also the Group’s turnover, represents the aggregate of the net invoiced value of leather products sold, after allowances for returns.

The Group has only one single operating segment as the Group is principally engaged in the manufacturing and sales of leather products which is the basis to allocate resources and assess performance.

The chief operating decision-maker has been identified as the Management. The Management reviews the Group’s internal reporting in order to assess performance and allocate resources. The Group focuses primarily on manufacturing and sales of leather products during the periods. Information reported to the chief operating decision-marker, for the purpose of resources allocation and performance assessment, focuses on the operating results of the Group as a whole as the Group’s resources are integrated and no discrete operating segment financial information is available. Accordingly, no operating segment information is presented.

(a) Information about major customers

Revenues from customers contributing over 10% of the total revenue of the Group during the years are as follows:

	2015	2014
	HK$’000	HK$’000
Customer A	22,319	10,289
Customer B	*	18,267
Customer C	*	13,099

• The corresponding revenue did not contribute over 10% of the total sales of the Group for the respective year.

ANNUAL REPORT 2015 61

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NOTES TO THE FINANCIAL STATEMENTS

30 June 2015

6. Revenue and Operating Segment Information (continued)

(b) Geographical information

The following tables set out information about geographical location of (i) the Group’s revenue from external customers and (ii) the Group’s non-current assets excluding deferred tax assets. The geographical location of customers is based on the location to which the goods are delivered. The geographical location of non-current assets excluding deferred tax assets is based on the physical location of the assets.

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Revenue from external customers

	2015	2014
	HK$’000	HK$’000
United States of America	33,441	36,670
Hong Kong	14,053	13,424
Australia	13,328	14,713
PRC	7,663	263
Malaysia	5,187	4,420
Japan	3,560	2,627
South Africa	1,648	466
Netherlands	1,150	6,477
Others (note)	1,917	1,526
	81,947	80,586

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Note: Other countries included Canada, France, United Kingdom, Italy, South Korea, Mexico, Singapore, New Zealand, Brazil and Cambodia.

Non-current assets excluding deferred tax assets

		2015	2014
		HK$’000	HK$’000
Hong	Kong	63	54
PRC		240	229
		303	283

62 ODELLA LEATHER HOLDINGS LIMITED

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NOTES TO THE FINANCIAL STATEMENTS

30 June 2015

7. Other Revenue and Other Income

Other Revenue and Other Income
	Group
	2015	2014
	HK$’000	HK$’000
Interest income	127	4
Sales of scrap materials	10	13
Sundry income	17 154	93 110

8. Profit Before Tax

The Group’s profit before tax is arrived at after charging:

	2015	2014 HK$’000	2014 HK$’000
	HK$’000
Auditors’ remuneration Depreciation of property, plant and equipment Cost of inventories recognised as expenses (included in cost of sales) Exchange losses, net Operating lease rentals in respect of properties Listing expenses Staff costs (including directors’ remuneration): — Salaries and bonus — Pension scheme contributions		100 122 45,597 34 993 —
	550
	130
	38,426
	9
	1,153
	18,422
	13,096	12,372 1,212
	1,602
	14,698	13,584

• Included in cost of sales for the years ended 30 June 2015 and 2014 were depreciation charge of approximately HK$43,000 and HK$43,000 respectively and staff costs of approximately HK$6,017,000 and HK$6,679,000 respectively.

9. Finance Costs

Finance Costs
	Group
	2015	2014
	HK$’000	HK$’000
Interests on:
Bank borrowings wholly repayable within a year	12	14

ANNUAL REPORT 2015 63

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NOTES TO THE FINANCIAL STATEMENTS
30 June 2015
10. Income Tax Expenses
Hong Kong Profits Tax is calculated at the rate of 16.5% on the estimated assessable profit for the years. Taxes
on profits assessable elsewhere have been calculated at the rates of tax	prevailing in the countries on
jurisdictions in which the Group operates.
	Group
	2015	2014
	HK$’000	HK$’000
Current income tax:
Hong Kong Profits Tax	3,422	2,734
PRC Corporate Income Tax	211 3,633	61 2,795
Deferred income tax (note 16)	10	1
Total income tax expenses for the year	3,643	2,796

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The rate of the PRC Corporate Income Tax of the Group’s subsidiary operating in the PRC during the year was 25% (2014: 25%) on their assessable profits.

The income tax expenses for the years can be reconciled to the profit before tax per the consolidated statement of profit or loss as follows:

	Group
	2015	2014
	HK$’000	HK$’000
Profit before tax	3,759	15,692
Tax calculated at the rates applicable to profit in
the respective tax jurisdictions	675	2,515
Tax effect of:
Expenses not deductible for tax purpose	2,999	360
Income not taxable for tax purpose	(19)	(80)
Over-provision for prior year	(22)	—
Tax effect of temporary differences	10	1
Income tax expenses for the year	3,643	2,796

64 ODELLA LEATHER HOLDINGS LIMITED

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NOTES TO THE FINANCIAL STATEMENTS

30 June 2015

11. Directors’, Chief Executive Officer’s, Employees’ Remuneration and Senior Management’s Emoluments

Directors

Directors’ remuneration for the years, disclosed pursuant to the GEM Listing Rules are as follows:

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||||||
|---|---|---|---|---|
|Year ended 30 June 2015|
|Salaries,|
|allowances|Pension|
|Director’s|and benefits|scheme|
|Name of Directors|fee|in kind|contributions|Total|
|HK$’000|HK$’000|HK$’000|HK$’000|
|Executive Directors|
|Ms. Cheung Woon Yiu (note i)|—|500|18|518|
|Ms. Lam Wai Si Grace (notes i, ii)|—|679|18|697|
|Mr. Ching Wai Man (note i)|—|679|18|697|
|Non-executive Director|
|Ms. Ng Lai Hung (note iii)|—|125|6|131|
|Independent non-executive Directors|
|Mr. Wong Wai Kong (note iv)|50|—|—|50|
|Mr. How Sze Ming (note iv)|50|—|—|50|
|Mr. Philip David Thacker (note iv)|50|—|—|50|
|150|1,983|60|2,193|

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Year ended 30 June 2014

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||||||
|---|---|---|---|---|
|Salaries,|
|allowances|Pension|
|Director’s|and benefits|scheme|
|Name of Directors|fee|in kind|contributions|Total|
|HK$’000|HK$’000|HK$’000|HK$’000|
|Executive Directors|
|Ms. Cheung Woon Yiu (note i)|—|500|2|502|
|Ms. Lam Wai Si Grace (notes i, ii)|—|679|15|694|
|Mr. Ching Wai Man (note i)|—|679|15|694|
|Non-executive Director|
|—|—|—|—|
|Ms. Ng Lai Hung (note iii)|
|—|1,858|32|1,890|

----- End of picture text -----

ANNUAL REPORT 2015 65

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NOTES TO THE FINANCIAL STATEMENTS

30 June 2015

11. Directors’, Chief Executive Officer’s, Employees’ Remuneration and Senior Management’s Emoluments (continued)

Notes:

(i) Ms. Cheung Woon Yiu, Ms. Lam Wai Si Grace and Mr. Ching Wai Man were appointed as Directors on 3 September 2014.

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(ii) Ms. Lam Wai Si Grace is also the Chief Executive Officer of the Group and her emoluments disclosed above include those for services rendered by her as the Chief Executive Officer for the years.

(iii) Ms. Ng Lai Hung was appointed as a Director on 3 September 2014.

(iv) Mr. Wong Wai Kong, Mr. How Sze Ming and Mr. Philip David Thacker were appointed as independent non-executive directors on 28 January 2015.

During the years, no remuneration was paid by the Group to the Directors as an inducement to join or upon joining the Group or as compensation for loss of office.

Five Highest Paid Employees and Senior Management

The five highest paid employees of the Group for the year ended 30 June 2015 included three (2014: three) Directors, details of whose remuneration are disclosed above. The remuneration of the remaining two (2014: two) non-director, five highest paid employees for the year ended 30 June 2015 and are disclosed as follows:

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	2015	2014
	HK$’000	HK$’000
Salaries, allowances and benefits in kind	895	779
Pension scheme contributions	35	29
	930	808

The remuneration fell within the following band:

	2015	2014
	Number of	Number of
	employees	employees
Nil–HK$1,000,000	2	2

66 ODELLA LEATHER HOLDINGS LIMITED

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NOTES TO THE FINANCIAL STATEMENTS

30 June 2015

11. Directors’, Chief Executive Officer’s, Employees’ Remuneration and Senior Management’s Emoluments (continued)

Senior Management of the Group

The remuneration of the senior management of the Group are within the following band:

	2015	2014
	Number of	Number of
	employees	employees
Nil–HK$1,000,000	5	4

During the years, no remuneration was paid by the Group to any of the five highest paid employees and senior management as an inducement to join or upon joining the Group or as compensation for loss of office.

12. Dividends

The Directors do not recommend any dividend for the year ended 30 June 2015. The Company has not declared any dividends since its incorporation.

Prior to the completion of the Reorganisation in December 2014, Perline, a subsidiary of the Company, declared a dividend of HK$3,200,000 to its then shareholders in October 2014. Such dividend was fully paid by way of cash in December 2014. The dividend declared for the years are as follows:

		2015	2014
Dividend of Perline	to the then shareholders of	HK$’000	HK$’000
Perline of HK$16	per Perline’s share (2014: nil)	3,200	—

13. Profit for the Year Attributable to Owners of the Company

The consolidated profit for the year attributable to owners of the Company for the year ended 30 June 2015 includes a loss of approximately HK$15,053,000 which has been dealt with in the financial statements of the Company (note 26(b)).

14. Earnings Per Share Attributable to Owners Of the Company

The calculation of the basic earnings per Share attributable to owners of the Company was based on (i) the profit attributable to owners of the Company of approximately HK$116,000 (2014: HK$12,896,000) and (ii) the weighted average number of 338,356,164 Shares, assuming 300,000,000 Shares were in issue prior to the completion of the Placing of 100,000,000 Shares on 11 February 2015, as if these 300,000,000 Shares were outstanding throughout the year (2014: 300,000,000 Shares, comprising 10,000,000 Shares in issued and 290,000,000 Shares to be issued under the Capitalisation Issue).

The diluted earnings per Share is equal to the basic earnings per Share as there were no diluted potential ordinary Shares in issue during the years.

ANNUAL REPORT 2015 67

NOTES TO THE FINANCIAL STATEMENTS	NOTES TO THE FINANCIAL STATEMENTS	NOTES TO THE FINANCIAL STATEMENTS	NOTES TO THE FINANCIAL STATEMENTS
30 June 2015
15. Property, Plant and Equipment
Group
		Furniture,
		fixtures	Machinery
	Motor	and office	and	Leasehold
	vehicles	equipment	equipment	improvements	Total
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Cost
As at 1 July 2013	242	920	331	282	1,775
Additions	—	30	67	27	124
Exchange alignments	(1)	(2)	(2)	(1)	(6)
As at 30 June 2014 and
1 July 2014	241	948	396	308	1,893
Additions	—	59	92	—	151
Exchange alignments	—	(2)	—	—	(2)
As at 30 June 2015	241	1,005	488	308	2,042
Accumulated depreciation
As at 1 July 2013	155	857	205	277	1,494
Charge for the year	36	33	43	10	122
Exchange alignments	(1)	(2)	(2)	(1)	(6)
As at 30 June 2014 and
1 July 2014	190	888	246	286	1,610
Charge for the year	36	36	43	15	130
Exchange alignments	—	(1)	—	—	(1)
As at 30 June 2015	226	923	289	301	1,739
Carrying amounts
As at 30 June 2015	15	82	199	7	303
As at 30 June 2014	51	60	150	22	283

68 ODELLA LEATHER HOLDINGS LIMITED

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NOTES TO THE FINANCIAL STATEMENTS

30 June 2015

16. Deferred Tax

The table sets out the major components of deferred tax assets and liabilities recognised in the consolidated statement of financial position and their movements during the years.

		Group
	Decelerated	Accelerated
	depreciation	depreciation
	allowances	allowances	Total
	HK$’000	HK$’000	HK$’000
As at 1 July 2013	23	(18)	5
Recognised in the consolidated statement of profit or loss
(note 10)	(1)	—	(1)
As at 30 June 2014 and 1 July 2014	22	(18)	4
Recognised in the consolidated statement of profit or loss
(note 10)	(10)	—	(10)
As at 30 June 2015	12	(18)	(6)

The above deferred tax assets and liabilities have been offset for presentation purpose in the consolidated statement of financial position.

17. Inventories

	Group
	2015	2014
	HK$’000	HK$’000
Raw materials	1,609	2,941
Work in progress	403	2,977
Finished goods	231 2,243	2,318 8,236

ANNUAL REPORT 2015 69

NOTES TO THE FINANCIAL STATEMENTS
30 June 2015
18. Trade Receivables
	Group
	2015	2014
	HK$’000	HK$’000
Trade receivables	26,848	9,806
Majority of the Group’s sales are based on letters of credit and advances before delivery, and the remaining
sales are made with credit terms ranging from 10 to 45 days (2014: 10 to 45 days). The Group does not hold any
collateral over these balances.
Aging analysis
The following table sets out an aging analysis of trade receivables of the Group, presented based on the invoice
date:
	Group
	2015	2014
	HK$’000	HK$’000
Within 30 days	17,890	8,329
31 to 60 days	884	1,197
61 to 90 days	124	70
Over 90 days	7,950 26,848	210 9,806

70 ODELLA LEATHER HOLDINGS LIMITED

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NOTES TO THE FINANCIAL STATEMENTS

30 June 2015

18. Trade Receivables (continued)

Aging analysis of trade receivables which are past due but not impaired

The following table sets out an aging analysis of trade receivables of the Group which are past due but not impaired. These related to a number of independent customers for whom there is no recent history of default.

	Group
	2015	2014
	HK$’000	HK$’000
Within 30 days	1,836	8,086
31 to 60 days	740	425
61 to 90 days	1,158	44
Over 90 days	885 4,619	179 8,734

19. Deposits, Prepayments and Other Receivables

	Group		Company
	2015	2014	2015
	HK$’000	HK$’000	HK$’000
Deposits	2,376	175	—
Prepayments	389	122	50
Other receivables	13	134	—
	2,778	431	50

Deposits are refundable deposits to independent third parties for whom there are no recent history of default.

Other receivables represented receivables from independent third parties for whom there are no recent history of default.

ANNUAL REPORT 2015 71

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NOTES TO THE FINANCIAL STATEMENTS

30 June 2015

20. Cash and Cash Equivalents and Pledged Deposits

	Group		Company
	2015	2014	2015
	HK$’000	HK$’000	HK$’000
Cash and bank balances	39,736	15,133	2
Less: Pledged deposits for banking facilities	(3,348)	—	—
Cash and cash equivalents	36,388	15,133	2

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Cash and cash equivalents are denominated in the following currencies:

	Group		Company
	2015	2014	2015
	HK$’000	HK$’000	HK$’000
United States dollars (“USD”)	3,582	12,061	—
Hong Kong dollars	30,871	465	2
Renminbi (“RMB”)	1,888	1,438	—
Australian dollars (“AUD”)	46	54	—
Euro (“EUR”)	1	1,115	—
	36,388	15,133	2

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RMB is not a freely convertible currency and the remittance of funds out of the PRC is subject to the rules and regulations of foreign exchange control promulgated by the PRC Government. For the Group’s cash and cash equivalents denominated in RMB located in Hong Kong, they are not subject to the foreign exchange control. Approximately HK$1,213,000 (2014: HK$802,000) of cash and bank balances denominated in RMB and located in the PRC were subject to the foreign exchange control.

Pledged deposits represent deposits pledged to a banks to secure bank facilities granted to the Group. The pledged deposits carry fixed interest rate of 0.35% per annum. Bank balances earn interests at floating rate based on daily bank deposit rates and is placed with creditworthy banks with no recent history of default. As at 30 June 2015, all pledged deposits were denominated in USD.

As at 30 June 2014, the Group’s banking facilities were supported by the Special Loan Guarantee Scheme of the Government of Hong Kong. The facility in respect of trust receipt loans was not less than 80% guaranteed by the Government of Hong Kong and 100% personally guaranteed by an executive Director. During the year ended 30 June 2015, new banking facilities were arranged to replace the then existing banking facilities. The aforesaid personal guarantee by an executive Director has been released following the termination of the aforesaid banking facilities.

72 ODELLA LEATHER HOLDINGS LIMITED

NOTES TO THE FINANCIAL STATEMENTS

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30 June 2015

21. Trade Payables

Trade Payables
	Group
	2015	2014
	HK$’000	HK$’000
Trade payables	1,328	1,811

The following table sets out an aging analysis of the trade payables of the Group, presented based on invoice date:

	Group
	2015	2014
	HK$’000	HK$’000
Within 30 days	672	1,740
31 to 60 days	308	35
61 to 90 days	105	7
Over 90 days	243 1,328	29 1,811

22. Accruals, Other Payables and Trade Deposits Received

	Group		Company
	2015	2014	2015
	HK$’000	HK$’000	HK$’000
Accruals	4,415	2,793	100
Other payables	126	241	—
Trade deposits received	3,360 7,901	2,884 5,918	— 100

As at 30 June 2015, included in trade deposits received was refundable deposit approximately HK$1,798,000. All trade deposits received are non-interest bearing.

23. Amounts Due to Directors

As at 30 June 2014, amounts due to Directors were interest-free, unsecured and had no fixed terms of repayment. The amounts due to Directors have been fully settled during the year ended 30 June 2015.

ANNUAL REPORT 2015 73

NOTES TO THE FINANCIAL	NOTES TO THE FINANCIAL	STATEMENTS
30 June 2015
24. Investments in Subsidiaries
				Company
				2015
				HK$’000
Unlisted shares, at cost					1
Amounts due from subsidiaries				48,346
The amounts due from subsidiaries are unsecured, interest-free and repayable on demand.
As at 30 June 2015, the management assessed the recoverable amount			of the interest in a subsidiary after
considering profitability, cash flow position, financial position, forecast			business development and future
prospect of the subsidiary. Based on this assessment, the Directors consider that the				carrying amount	of
interest in a subsidiary net of impairment losses		recognised approximate to	its recoverable	amount.
As at 30 June 2015, the Company had direct and indirect interests in the following subsidiaries:
			Proportion of
			ownership
			interest and
	Place of		voting rights
	incorporation/	Share capital/	held by the	Principal
Name of company	operation	registered capital	Company(a)	activities
			%
Odella BVI	BVI	USD100	100	Investment
		(Ordinary share		holdings
		capital)
Perline	Hong Kong	HK$200,000	100	Sales, marketing
		(Ordinary share		and
		capital)		development of
				leather products
佛山市南海盛麗皮衣	PRC	HK$1,500,000	100	Manufacture of
有限公司		(Registered capital)		various leather
(Foshan Nanhai Shengli				products,
Leather Garment Co.				domestic and
Ltd.) (Notes b, c)				foreign trading
				(restricted items
				being subject to
				relevant
				approval)

74 ODELLA LEATHER HOLDINGS LIMITED

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NOTES TO THE FINANCIAL STATEMENTS

30 June 2015

24. Investments in Subsidiaries (continued)

Notes:

(a) Other than Odella BVI which is directly held by the Company, all subsidiaries are indirectly held by the Company.

• (b) Wholly foreign-owned enterprise.

(c) The English translation of the name is for identification purpose only.

25. Share Capital

As at 30 June 2014, the share capital of the Group represented the share capital of Perline.

Movements of the Company’s share capital since its date of incorporation on 3 September 2014 are as follows:

Company

	Number of	Share
	shares	capital
	’000	HK$’000
Authorised:
Ordinary Shares of HK$0.01 each as at 3 September 2014 (date of incorporation)
(note i)	100,000	1,000
Increase in authorised share capital (note ii)	3,900,000	39,000
Ordinary Shares of HK$0.01 each as at 30 June 2015	4,000,000	40,000
Issued and fully paid:
Ordinary Shares of HK$0.01 as at 3 September 2014 (date of incorporation) (note i)	1,000	—
Issuance of ordinary shares of HK$0.01 pursuant to the Reorganisation (note iii)	9,000	90
Paid up the nil paid shares previously paid (note iii)	—	10
Capitalisation Issue (note iv)	290,000	2,900
Issuance of Shares upon Placing (note v)	100,000	1,000
Ordinary Shares of HK$0.01 each as at 30 June 2015	400,000	4,000

Notes:

(i) On 3 September 2014, the Company was incorporated in the Cayman Islands with one subscriber Share issued at nil paid. On the same date, the subscriber Share was transferred to QCL and 999,999 Shares were further allotted at nil paid to QCL, DVL and OGL, companies solely owned by each of the then shareholders of Perline.

(ii) On 28 January 2015, the authorised share capital of the Company was increased from HK$1,000,000 to HK$40,000,000 by the creation of additional 3,900,000,000 Shares of HK$0.01 each.

(iii) On 4 December 2014, Odella BVI, a wholly owned subsidiary of the Company, (as a purchaser) acquired from the then shareholders of Perline (as the vendors) the entire share capital of Perline. In consideration the Company credited as fully paid the 1,000,000 nil-paid Shares which were first issued on 3 September 2014, and issued to QCL, DVL and OGL (as nominated by the vendors) 9,000,000 new Shares, all credited as fully paid. On completion, Odella BVI became the sole shareholder of Perline, and the number of issued shares in the Company was increased to 10,000,000.

(iv) On 11 February 2015, the Company issued and allotted a total of 290,000,000 Shares of HK$0.01 each to the Shareholders whose names appeared on the Company’s register of members on 28 January 2015 by capitalising an amount of HK$2,900,000 standing to the credit of the Company’s share premium account which was created pursuant to the Placing.

(v) On 11 February 2015, the Company issued a total of 100,000,000 new Shares of HK$0.01 each at a placing price of HK$0.55 per Share. The gross Listing proceeds were HK$55,000,000.

ANNUAL REPORT 2015 75

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NOTES TO THE FINANCIAL STATEMENTS

30 June 2015

26. Reserves

(a) Group

The amounts of the Group’s reserves and the movements therein for the years are presented in the consolidated statement of changes in equity.

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(b) Company

As at 30 June 2014, the reserves of the Group represented the reserves of Perline.

The following table sets out movements of the Company’s reserves since its date of incorporation on 3 September 2014.

	Share	Other	Accumulated
	premium	reserve	losses	Total
	HK$’000	HK$’000	HK$’000	HK$’000
As at 3 September 2014
(date of incorporation)	—	—	—	—
Issuance of Shares pursuant to the Reorganisation
(note 25 (iii))	—	19,570	—	19,570
Shares issued pursuant
to the Capitalisation Issue	(2,900)	—	—	(2,900)
Placing of Shares	54,000	—	—	54,000
Transaction cost
attributable to issuance of Shares	(11,318)	—	—	(11,318)
Loss for the year	—	—	(15,053)	(15,053)
As at 30 June 2015	39,782	19,570	(15,053)	44,299

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Note: Other reserve represents the difference between the fair value of the shares of Perline acquired pursuant to the Reorganisation over the nominal value of the Company’s Shares issued in exchange therefore.

76 ODELLA LEATHER HOLDINGS LIMITED

NOTES TO THE FINANCIAL STATEMENTS

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30 June 2015

27. Financial Risk Management

Financial Risk Management
	Group		Company
	2015	2014	2015
	HK$’000	HK$’000	HK$’000
Financial assets
Loans and receivables	68,973	25,248	48,346
Financial liabilities
Amortised cost	7,667	9,669	100

The Group’s and the Company's activities expose it to a variety of financial risks: market risk (including foreign currency risk, cash flow and fair value interest rate risk and price risk), credit risk and liquidity risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance.

(a) Market risk

(i) Foreign currency risk

Group

The Group is mainly exposed to foreign exchange risk arising from future commercial transactions, and from recognised assets and liabilities. The Group is mainly exposed to foreign exchange risk in respect of exchange rate fluctuation of HK$ against USD, RMB, AUD and EUR. The Group does not hedge its foreign exchange risk during the year.

As HK$ is pegged to USD, it is assumed that there would be no material foreign exchange risk exposure between USD and HK$ and therefore USD is excluded from the analysis below.

As at 30 June 2015 and 2014, if HK$ had reasonably strengthened/weakened by 5% against RMB, AUD and EUR with all other variables held constant, the profit before tax for each of the periods then ended would have changed mainly as a result of exchange gains/losses on translation to HK$ against the relevant foreign currencies.

Details of the changes are as follows:

Details of the changes are as follows:
	2015	2014
	HK$’000	HK$’000
Profit before tax increase/(decrease):
— HK$ strengthened 5% against RMB	(36)	(32)
— HK$ weakened 5% against RMB	36	32
— HK$ strengthened 5% against AUD	(2)	(3)
— HK$ weakened 5% against AUD	2	3
— HK$ strengthened 5% against EUR	2	(55)
— HK$ weakened 5% against EUR	(2)	55

ANNUAL REPORT 2015 77

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NOTES TO THE FINANCIAL STATEMENTS

30 June 2015

27. Financial Risk Management (continued)

(a) Market risk (continued)

• (i) Foreign currency risk (continued)

Company

The Company has no exposure to significant risk resulting from change in foreign currency rates.

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In the opinion of the Directors, since the Company’s foreign currency risk is minimal, no sensitivity analysis is presented.

(ii) Cash flow and fair value interest rate risk

Group

The Group’s income and operating cash flows are substantially independent of changes in market interest rates. Except for cash and cash equivalents, the Group has no other significant interestbearing assets. Management does not anticipate significant impact on interest-bearing assets resulted from the changes in interest rates because the interest rates of cash and cash equivalents are not expected to change significantly.

Company

The Company’s income and operating cash flows are substantially independent of changes in market interest rates. Except for cash and cash equivalents, the Company has no other significant interest bearing assets. Management does not anticipate significant impact on interest-bearing assets resulted from the changes in interest rates because the interest rates of cash and cash equivalents are not expected to change significantly.

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(b) Credit risk

Credit risk mainly arises from deposits at banks, trade receivables, deposits and other receivables. The carrying amounts of bank balances, trade receivables, deposits and other receivables included in the consolidated statements of financial position represent the Group’s and Company's maximum exposure to credit risk in relation to its financial assets.

As at 30 June 2015, all bank deposits were deposited into highly reputable and sizable banks without significant credit risk. Majority of the Group’s sales are based on letters of credit and advances before delivery, and the remaining sales are made with credit term. Credit will only be granted to selected customers with long-term relationship and good credit history. Deposits and other receivables are made with counterparties with no recent history of default. The Group performs ongoing credit evaluations of its counterparties’ financial conditions and has policies in place to ensure that receivables are followed up on a timely basis. Further quantitative data in respect of the Group’s exposure to credit risk arising from trade receivables are disclosed in note 18 to the financial statements. Save as those disclosed in note 18 to the financial statements, there are no other financial assets that are past due but not impaired. The financial assets included thereof relate to receivables for which there was no recent history of default.

78 ODELLA LEATHER HOLDINGS LIMITED

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NOTES TO THE FINANCIAL STATEMENTS

30 June 2015

27. Financial Risk Management (continued)

(c) Liquidity risk

Cash flow is managed at group and Company level by the Management. The Management monitors the Group’s and Company's liquidity requirements to ensure that it has sufficient cash to meet operational needs at all times and does not breach borrowing limits or covenants on any of its borrowing facilities. The Management usually takes into consideration the Group’s and Company's debt financing plans, covenant compliance and compliance with internal ratio targets.

The tables below analyse the Group’s and the Company’s financial liabilities into relevant maturity groupings based on the remaining period at the end of reporting period according to the contractual maturity date. The amounts disclosed in the tables are the contractual undiscounted cash flows.

		Group
Non-derivative financial liabilities Trade payables Accruals, other payables and trade deposits received	On demand or within one year HK$’000 1,328 6,339 7,667	2015 Total undiscounted cash flows HK$’000 1,328 6,339 7,667	Total carrying amount HK$’000 1,328 6,339 7,667
		2014
	On demand	Total	Total
	or within one	undiscounted	carrying
	year	cash flows	amount
	HK$’000	HK$’000	HK$’000
Non-derivative financial liabilities
Trade payables	1,811	1,811	1,811
Accruals and other payables	3,034	3,034	3,034
Amounts due to Directors	4,824	4,824	4,824
	9,669	9,669	9,669

ANNUAL REPORT 2015 79

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NOTES TO THE FINANCIAL STATEMENTS

30 June 2015

27. Financial Risk Management (continued)

(c) Liquidity risk (continued)

		Company
		2015
	On demand	Total	Total
	or within 1	undiscounted	carrying
	year	cash flows	amount
	HK$’000	HK$’000	HK$’000
Non-derivative financial liability
Accruals	100	100	100

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28. Fair Value Estimation

As at 30 June 2015 and 2014, the Group did not have any financial assets or financial liabilities that are measured at fair value.

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The carrying amount of the Group’s financial assets including trade receivables, deposits and other receivables, cash and cash equivalents and pledged deposits and financial liabilities including trade payables, accruals and other payables, refundable trade deposits received and amounts due to Directors are assumed to approximate their fair values due to their short-term maturities.

29. Capital Risk Management

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for equity holders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to equity holder, return capital to equity holder or sell assets to reduce debt.

Consistent with other companies in the industry, the Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total equity. Net debt is calculated as bank borrowings and amounts due to Directors less cash and bank balances.

80 ODELLA LEATHER HOLDINGS LIMITED

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NOTES TO THE FINANCIAL STATEMENTS

30 June 2015

29. Capital Risk Management (continued)

The gearing ratios as at end of reporting period are as follows:

	Group
	2015	2014
	HK$’000	HK$’000
Amounts due to Directors (note 23)	—	4,824
Cash and bank balances	(39,736)	(15,133)
Net debt (a)	(39,736)	(10,309)
Total equity (b)	57,953	17,350
Gearing ratio (a)/(b)	N/A	N/A
Lease Commitments

30. Lease Commitments

As lessee

At the end of the reporting periods, the Group had commitments for future minimum lease payments under non-cancellable operating leases in respect of rented premises which fall due as follows:

	Group
	2015	2014
	HK$’000	HK$’000
Within one year	1,268	653
In the second to fifth years, inclusive	1,539 2,807	40 693

Operating lease payments represent rentals payable by the Group for certain of its premises. Leases are negotiated at terms which ranged from one to five years. The Group does not have an option to purchase the leased premises at the expiry of the lease period.

31. Share Option Scheme

The Company administers a share option scheme (the “Share Option Scheme”) which was adopted on 28 January 2015 by a Shareholders’ written resolution. The purpose of the Share Option Scheme is to enable the Group to grant options to selected participants as incentives and rewards for their contribution to the Group. It became effective for a period of 10 years commencing on the date on which the Share Option Scheme was adopted. Eligible participants of the Share Option Scheme include employees, directors, suppliers, customers, shareholders, advisers or consultants, research, development or other technological support personnel or entities of the Company, its subsidiaries or any entity (“Invested Entity”) in which any member of the Group holds an equity interest and other selected participants (the “Eligible Participants”).

The total number of shares which may be issued and allotted upon the exercise of all options to be granted under the Share Option Scheme is 40,000,000 shares, representing 10% of the total number of issued shares as at the date of this annual report.

ANNUAL REPORT 2015 81

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NOTES TO THE FINANCIAL STATEMENTS

30 June 2015

31. Share Option Scheme (continued)

The maximum number of shares which may be issued upon the exercise of all outstanding options granted and yet to be exercised under the Share Option Scheme and any other share option scheme adopted by the Group must not in aggregate exceed 30% of the share capital of the Company in issue from time to time. The total number of the shares which may be allotted and issued upon the exercise of all options (excluding, for this purpose, options which have lapsed in accordance with the terms of the Share Option Scheme and any other share option scheme of the Group) to be granted under the Share Option Scheme and any other share option scheme of the Group must not in aggregate exceed 10% of the Shares in issue on the date of Listing, subject to refreshment of such limit as approved by shareholders.

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The total number of Shares issued and which may fall to be issued upon the exercise of the options granted under the Share Option Scheme and any other share option scheme of the Group (including both exercised or outstanding options) to each grantee in any 12-month period shall not exceed 1% of the issued share capital of the Company for the time being. Any further grant of options in excess of such limit must be separately approved by the shareholders in general meeting. Where any grant of options to a substantial shareholder or an independent non-executive director or any of their respective close associates would result in the shares issued and to be issued upon exercise of all options already granted and to be granted (including options exercised, cancelled and outstanding) to such person in the 12-month period up to and including the date of such grant: (i) representing in aggregate over 0.1% of the shares in issue; and (ii) having an aggregate value, based on the closing price of the shares at the date of each offer for the grant, in excess of HK$5 million, such further grant of options must be approved by Shareholders in general meeting.

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Under the Share Option Scheme, the Directors may, at their discretion, grant to any Eligible Participants options to subscribe for shares at an subscription price per share being not less than the highest of (i) the closing price of the shares as stated in the Stock Exchange’s daily quotations sheet for trade in one or more board lots of the shares on the date of the offer for the grant, which must be a business day; (ii) the average closing price of shares as stated in the Stock Exchange’s daily quotations for the five business days immediately preceding the date of the offer for the grant; and (iii) the nominal value of a share. A nominal consideration of HK$1 is payable on acceptance of the grant of an option.

An option may be accepted by a participant within 21 days from the date of the offer for the grant of option. An option may be exercised in accordance with the terms of the Share Option Scheme at any time during a period to be determined and notified by the Directors to each grantee, which period may commence from the date of the offer for the grant of options is made, but shall end in any event not later than 10 years from the date of grant of the option subject to the provisions for early termination thereof. Unless otherwise determined by the Directors and stated in the offer for the grant of options to a grantee, there is no minimum period required under the Share Option Scheme for the holding of an option before it can be exercised.

During the period from the effective date of the Share Option Scheme to 30 June 2015, no share option has been granted, expired, lapsed, exercised or cancelled.

32. Contingent Liabilities

The Group had no significant contingent liabilities as at 30 June 2015 (2014: nil).

82 ODELLA LEATHER HOLDINGS LIMITED

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NOTES TO THE FINANCIAL STATEMENTS

30 June 2015

33. Material Related Party Transactions

Save as disclosed elsewhere in the consolidated financial statements and the steps carried out in the Reorganisation and Placing, the Group has entered into the following transactions with related parties:

• (a) The remuneration of Directors and other member of key management during the years are disclosed as follows:

	2015	2014
	HK$’000	HK$’000
— Salaries, allowances and benefits in kind	2,133	1,858
— Pension scheme contributions	60	32

• (b) Details of the balances with related parties for the years are set out in note 23 to the financial statements.

• (c) Details of the banking facilities which were 100% personally guaranteed by a Director for the year ended 30 June 2014 are set out in note 20 to the financial statements.

34. Events After The Reporting Period

The Group did not have any material subsequent event after the reporting period.

35. Approval of the Consolidated Financial Statements

The consolidated financial statements were approved and authorised for issue by the board of directors on 23 September 2015.

ANNUAL REPORT 2015 83

FINANCIAL SUMMARY
A summary of the results and of the assets and liabilities of the Group for the three years ended 30 June, as extracted
from the audited consolidated financial statements in this annual report and the Prospectus is set out below:
Year ended 30 June
2015 2014	2013
HK$’000 HK$’000	HK$’000
Results Revenue 81,947 80,586	53,607
Net profit for the year (before listing expenses) 18,538 12,896 Listing expenses (18,422) — Net profit for the year attributable to owners of the Company 116 12,896	7,128 — 7,128
As at 30 June
2015 2014	2013
HK$’000 HK$’000	HK$’000
Assets and liabilities Total assets 71,908 33,893	27,911
Total liabilities (13,955) (16,543)	(23,465)
Total equity 57,953 17,350	4,446

84 ODELLA LEATHER HOLDINGS LIMITED