this circular is important and requires … - dchh - project...acquisition of li & fung’s asia...

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you shouldconsult your licensed securities dealer or registered institution in securities, bank manager,solicitor, professional accountant or other professional adviser for independent advice.

If you have sold or transferred all your shares in Dah Chong Hong Holdings Limited, youshould at once hand this circular to the purchaser(s) or the transferee(s) or to the bank manager,licensed securities dealer or registered institution in securities or other agent through whom thesale or transfer was effected for transmission to the purchaser(s) or the transferee(s).

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

(Incorporated in Hong Kong with limited liability)

(Stock Code: 01828)

MAJOR TRANSACTION

ACQUISITION OF LI & FUNG’SASIA CONSUMER AND

HEALTHCARE DISTRIBUTION BUSINESS

Financial Adviser to the Company

A letter from the Board is set out on pages 4 to 11 of this circular.

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

24 May 2016

Page

Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Letter From the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Appendix I – Financial Information of the Group . . . . . . . . . . . . . . . . . . . . . . 12

Appendix II – Financial Information of the Target Group . . . . . . . . . . . . . . . . . 14

Appendix III – Unaudited Pro Forma Financial Information

of the Enlarged Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72

Appendix IV – General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

CONTENTS

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In this circular, unless the context otherwise requires, the following expressions shall have the

following meanings:

“Acquisition” the acquisition of the Target Shares and thetransactions contemplated under the Sale andPurchase Agreement;

“Announcement” the announcement of the Company dated 3 May 2016in relation to, among other things, the Acquisition;

“Board” the board of Directors;

“Business” the business carried on by the Target Group as at thedate of the Sale and Purchase Agreement includingthe distribution of fast moving consumer productsand healthcare products and the contractmanufacturing of food and beverage products;

“Business Day” a day other than a Saturday, Sunday or public holidayin Hong Kong when banks in Hong Kong are open forbusiness;

“Buyer” Neosota Corp., a company incorporated in the BritishVirgin Islands with limited liability and is whollyowned by the Company;

“close associate(s)”,“connected person(s)”,“percentage ratio(s)”,“subsidiary(ies)”

each has the meaning ascribed to it under the ListingRules;

“Company” Dah Chong Hong Holdings Limited, a companyincorporated in Hong Kong with limited liability, theshares of which are listed on the Stock Exchange(Stock Code: 01828);

“Completion” completion of the sale and purchase of the TargetShares in accordance with the terms of the Sale andPurchase Agreement;

“Completion Accounts” combined financial statements of the Target Group asat the Completion Date which shall be prepared inaccordance with the terms of the Sale and PurchaseAgreement;

DEFINITIONS

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“Completion Date” 30 June 2016 or (if the Conditions have not beensatisfied (or waived) on or before such date) the fifthBusiness Day after all the Conditions having beensatisfied (or waived) or any other date agreed inwriting by the parties to the Sale and PurchaseAgreement;

“Conditions” the Conditions to Completion, as more particularlydescribed under the paragraph “Conditions” in the“Letter from the Board” of this circular;

“Consideration” the consideration payable by the Buyer to the Sellerpursuant to the Sale and Purchase Agreement, asmore particularly described under the paragraph“Consideration” in the “Letter from the Board” of thiscircular;

“Director(s)” the director(s) of the Company;

“Enlarged Group” the Group as enlarged by the Acquisition;

“EUR” Euro, the lawful currency of the Eurozone;

“Group” the Company and its subsidiaries;

“HK$” Hong Kong Dollars, the lawful currency of HongKong;

“Hong Kong” the Hong Kong Special Administrative Region of thePeople’s Republic of China;

“Latest Practicable Date” 19 May 2016, being the latest practicable date for priorto the printing of this circular for the purpose ofascertaining certain information for inclusion in thiscircular;

“LF” Li & Fung Limited, a company incorporated inBermuda with limited liability, the shares of which arelisted on the Stock Exchange (Stock Code: 00494);

“LF Group” LF and its subsidiaries;

“Listing Rules” The Rules Governing the Listing of Securities on theStock Exchange;

DEFINITIONS

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“Longstop Date” 31 December 2016 or such later date agreed in writingby the Buyer and the Seller;

“Restructuring” the pre-Completion restructuring of the Business asmore particularly described under the paragraph“Restructuring” in the “Letter from the Board” of thiscircular;

“Sale and Purchase Agreement” the sale and purchase agreement dated 3 May 2016entered into between the Company, the Buyer, LF andthe Seller in relation to the sale and purchase of theTarget Shares;

“Seller” LF Distribution Limited, a company incorporated inBermuda with limited liability and is wholly ownedby LF;

“SFO” Securities and Futures Ordinance, Chapter 571 of theLaws of Hong Kong;

“Share(s)” the share(s) of the Company;

“Shareholder(s)” the shareholder(s) of the Company;

“Stock Exchange” The Stock Exchange of Hong Kong Limited;

“Target Company” LF Distribution Holding Limited, a companyincorporated in the British Virgin Islands with limitedliability and is wholly owned by the Seller prior toCompletion;

“Target Group” the Target Company and its subsidiaries after thecompletion of the Restructuring and as atCompletion;

“Target Shares” such number of shares which represent the entireissued share capital of the Target Company;

“US$” United States Dollar, the lawful currency of theUnited States of America; and

“%” per cent.

DEFINITIONS

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(Incorporated in Hong Kong with limited liability)

(Stock Code: 01828)

Directors:Zhang Jijing* (Chairman)Yip Moon Tong (Chief Executive Officer)Lau Sei Keung (Executive Director)Glenn Robert Sturrock Smith (Executive Director)Kwok Man Leung*Fei Yiping*Cheung Kin Piu, Valiant**Hsu Hsung, Adolf**Yeung Yue Man**Chan Kay Cheung**Chan Hui Dor Lam, Doreen**

* Non-executive Director** Independent non-executive Director

Registered office:8th FloorDCH Building20 Kai Cheung RoadKowloon BayHong Kong

24 May 2016

To the Shareholders

Dear Sir or Madam,

MAJOR TRANSACTIONACQUISITION OF LI & FUNG’S

ASIA CONSUMER ANDHEALTHCARE DISTRIBUTION BUSINESS

1. INTRODUCTION

Reference is made to the Announcement in relation to the Acquisition. On 3 May 2016, theCompany, the Buyer (a wholly owned subsidiary of the Company), LF and the Seller (a whollyowned subsidiary of LF) entered into the Sale and Purchase Agreement, pursuant to which theBuyer conditionally agreed to purchase and the Seller conditionally agreed to sell LF’s Asiaconsumer and healthcare distribution business (i.e. the Target Group) for a cash consideration ofUS$350 million (subject to customary closing adjustments on a cash-free, debt-free basis) asmore particularly described below.

LETTER FROM THE BOARD

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The main purpose of this circular is to provide you with, among other things, furtherinformation relating to the Sale and Purchase Agreement and the Acquisition and otherinformation required under the Listing Rules.

2. THE SALE AND PURCHASE AGREEMENT

Date

3 May 2016

Parties

(a) the Company, as guarantor of the Buyer;

(b) the Buyer, as buyer of the Target Shares;

(c) LF, as guarantor of the Seller; and

(d) the Seller, as seller of the Target Shares.

To the best of the Directors’ knowledge, information and belief having made allreasonable enquiries, LF, the Seller and their respective ultimate beneficial owners arethird parties independent of and not connected with the Company and its connectedpersons.

Subject matter

The Target Shares, representing the entire issued share capital of the TargetCompany.

Upon Completion, the Target Company will become a wholly owned subsidiary ofthe Buyer.

Consideration

The Consideration under the Sale and Purchase Agreement shall be US$350 million,subject to customary closing adjustments by (a) adding the amount of cash of the TargetGroup as at the Completion Date, (b) deducting the amount of indebtedness of the TargetGroup as at the Completion Date, and (c) adjusting for the difference between the amountsof the actual working capital and the target working capital of the Target Group as at theCompletion Date.

The Consideration was determined after arm’s length negotiations between theBuyer and the Seller with reference to the Target Group’s historical financial performanceas set out in the paragraph “3. Information on Target Group” below and future businessprospect taking into consideration the higher growth in Greater China and Southeast Asiamarkets as well as comparable trading and transaction multiples.


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The Directors consider that the Consideration is fair and reasonable and in theinterests of the Company and the Shareholders as a whole.

Payment

The Consideration shall be payable in cash according to the following schedule:

(a) Initial Payment: at Completion, the Buyer shall pay to the Seller an amountequal to the sum of (i) US$350 million and (ii) an amount representing thecash-free, debt-free and working capital adjustments as estimated inaccordance with the provisions of the Sale and Purchase Agreement (the“Initial Payment”); and

(b) Adjustment Payment: within five Business Days after agreement ordetermination of the Completion Accounts, the Buyer shall pay to the Sellerany amount by which the Consideration (as determined according to theCompletion Accounts) exceeds the Initial Payment, or the Seller shall pay tothe Buyer any amount by which the Consideration (as determined accordingto the Completion Accounts) is less than the Initial Payment.

Conditions

Completion is subject to the following Conditions being satisfied (or waived) on orbefore the Longstop Date:

(a) the completion of the Restructuring; and

(b) the Sale and Purchase Agreement and other transaction documents to beentered into pursuant to or in connection with the Sale and PurchaseAgreement and the transactions contemplated thereunder shall have beenapproved by the Shareholders in accordance with the requirements of theListing Rules.

Condition (a) above may be waived by the Buyer as it thinks fit. As at the LatestPracticable Date, Condition (b) above has been satisfied.

Completion

Completion shall take place on the Completion Date.

Guarantee

The Company has agreed to guarantee the performance of the Buyer ’s obligationsunder the Sale and Purchase Agreement and LF has agreed to guarantee the performanceof the Seller ’s obligations under the Sale and Purchase Agreement.


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Non-compete

The Seller has undertaken with the Buyer (for itself as agent for the Target Group)that it will not, and will procure no other member of LF Group (excluding the TargetGroup) will, without the written consent of the Buyer, for a period of three yearsimmediately following the Completion Date, engage in the distribution of fast movingconsumer products and healthcare products in Brunei, China, Hong Kong, Indonesia,Japan, Macao, Malaysia, Myanmar, Philippines, Singapore, Taiwan and Thailand, oremploy or solicit or endeavour to entice away from the Target Group any of its materialemployees.

Restructuring

Prior to the entering into of the Sale and Purchase Agreement, the Business has beenconducted by certain subsidiaries of LF. Pursuant to the Sale and Purchase Agreement, theSeller has agreed to procure a pre-Completion Restructuring of the Business, which shallinvolve an internal transfer of assets, liabilities and shares of such subsidiaries to createthe Target Group. The Restructuring is expected to complete by Completion. To the extentlegal transfers of certain subsidiaries or businesses to the Target Group are not perfectedand pending such perfection (which are immaterial in the context of the Acquisition takenas a whole), Completion will still proceed on the basis that the economics of thesesubsidiaries or businesses will be retained by Target Group as from Completion.

3. INFORMATION ON TARGET GROUP

The Target Group is principally engaged in distribution of consumer and healthcareproducts across Asia. The Target Group has been operating in geographical areas includingChina, Hong Kong, Macao, Taiwan, Thailand, Malaysia, Singapore, Philippines, Indonesia andBrunei.

The combined net assets of the Target Group as at 31 December 2015 and as at 31 December2014 were approximately US$321.4 million and US$287.4 million respectively. The coreoperating profit of the Target Group for the years ended 31 December 2015 and 31 December2014 were approximately US$16.1 million and US$24.8 million respectively. The combined netprofits (before and after taxation) of the Target Group for the year ended 31 December 2015 wereapproximately US$13.0 million and US$11.2 million respectively, and the combined net profits(before and after taxation) of the Target Group for the year ended 31 December 2014 wereapproximately US$23.3 million and US$20.3 million respectively.

4. INFORMATION ON LF GROUP

LF Group is recognised as the world’s leader in consumer goods design, development,sourcing and logistics. It specialises in responsibly managing supply chains of high-volume,time-sensitive goods for leading retailers and brands worldwide. The Seller is an investmentholding company and a wholly owned subsidiary of LF.


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5. INFORMATION ON THE GROUP

The Group is an integrated trading and distribution company operating in Asia with afocus on Greater China, supported by an extensive logistics network. The Company is a leadingdistributor and dealer of motor vehicles in Greater China, and it also provides a full range ofmotor related services. The Company’s consumer business distributes food, personal care andlifestyle products. Established in 1949 and listed on the Stock Exchange, the Company hasbusiness operations in Hong Kong, mainland China, Taiwan, Macao, Singapore, Japan andMyanmar. The Buyer is an investment holding company and a wholly owned subsidiary of theCompany.

6. THE GROUP’S FINANCING

The Group intends to finance the Acquisition with a combination of its internal resourcesand external financing, and has, for this purpose, secured commitment for bank term loanfacilities.

7. REASONS FOR AND BENEFITS OF THE ACQUISITION

Better balances the Company’s motor and consumer businesses

The Company believes that the Acquisition will expand the Company’s consumerbusiness, creating a better balance between motor and consumer products. TheCompany’s enlarged consumer products portfolio will boast a broad range of leadingfood, personal care and healthcare brands.

Extends the Company’s geographic reach

Geographically, the Company believes that the Acquisition will enhance theCompany’s position in high-growth markets in Southeast Asia. This, together with theCompany’s leading position in Greater China will immediately create a Pan-Asianbusiness that will be able to leverage its increased distribution and logistics channels tofurther enhance the services provided to brand owners.

Gains strong foothold in the high-growth Asian healthcare market

The Target Company’s healthcare portfolio includes a wide range of leading brands.The Company believes that this will provide the Company with an immediate position inAsia’s rapidly growing healthcare market on a strong and stable platform.

Enhances the Company’s earnings profile

The Company believes that the Acquisition will give the Company economies ofscale as it continues to build on well-established relationships to capture growthopportunities. The Company believes that the Acquisition will diversify the Company’sincome streams and is expected to be earnings accretive.

The Directors are of the view that the terms of the Acquisition are fair andreasonable and in the interests of the Company and the Shareholders as a whole.


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8. FINANCIAL EFFECTS OF THE ACQUISITION

Upon Completion, the Target Company would become a wholly owned subsidiary of theGroup and thus the assets, liabilities and financial results of the Target Company and itssubsidiaries will be consolidated into those of the Group.

Assets and liabilities

As illustrated in the unaudited pro forma financial information as set out inAppendix III to this circular, had the Completion taken place on 31 December 2015, thetotal assets of the Enlarged Group would increase from HK$21,158 million toapproximately HK$27,782 million on a pro forma basis, and the total liabilities of theEnlarged Group would increase from HK$11,670 million to approximately HK$18,285million on a pro forma basis.

Earnings

As set out in the Accountant’s Report on the Target Group included as Part A ofAppendix II to this circular, the turnover and net profit attributable to shareholders of theTarget Company were approximately US$1,171 million and US$12 million for the year 31December 2015, respectively.

The attention of the Shareholders is drawn to the unaudited pro forma financialinformation of the Enlarged Group set out in Appendix III to this circular.

9. FINANCIAL AND TRADING PROSPECTS OF THE GROUP

On the whole, prevailing condition remains weak as reported in the “Chairman’s Letter toShareholders” of the Company’s 2015 annual report published on 23 March 2016.

A number of trade and market factors worth noting are:

(a) mainland China’s gross domestic product growth slowed to 6.7% in the first quarterof 2016, the weakest since 2009;

(b) mainland China’s motor market shows some signs of improvement in early 2016, asa result of (i) major motor makers becoming more in tune with the market whensetting their sales targets for 2016, and (ii) the consolidation of dealership networkgradually easing off the unhealthy competitions in the market;

(c) Japanese currency has strengthened considerably since the beginning of 2016 whichwill impact the margin of the Group’s motor business in Hong Kong and othermarkets;


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(d) Hong Kong retail sales recorded negative growth for 13 months in a row since March2015; and

(e) more stable commodity prices in recent months will benefit the Group’s foodtrading business.

The Acquisition marks the achievement of the Company’s major milestone to enlarge itsfood and consumer products businesses as set out in the “Chairman’s Letter to Shareholders” ofthe Company’s 2015 annual report. The Acquisition represents a rare opportunity to create amajor platform of leading consumer and healthcare business in the fast growing Greater Chinaand Southeast Asia market. The Company believes that the Group’s turnover in the non-motorbusiness will increase substantially in the first year after Completion, resulting in a balancedportfolio with two delineated business lines managed by dedicated management teams whichthe Group could leverage on to optimise the values of both businesses in the future.

The Company believes that the Acquisition will not dilute the Company’s investment inthe motor and motor related businesses. Looking ahead, the Company will continue to focus onimproving the profitability of its motor business in mainland China, while actively exploringacquisition opportunities to expand its 4S network and investigating new businessopportunities, such as the distribution of electric vehicles in the region.

10. LISTING RULES IMPLICATION

As the highest applicable percentage ratio for the Company in respect of the Acquisition is25% or more but is less than 100%, the Acquisition constitutes a major transaction for theCompany and is subject to the reporting, announcement and shareholders’ approvalrequirements under Chapter 14 of the Listing Rules.

The Company would like to note for completeness that Mr. Wai King Fai, Francis (“Mr. Wai”), adirector of the Company at the date of Announcement and a shareholder of the Company haddeclared a personal shareholding in 16,000 shares in LF, which had a market value of a mereHK$76,000 based on the closing price of the shares of LF of HK$4.75 as at the date of theAnnouncement.

Mr. Wai, whose retirement from the Company was announced in February 2016, was nolonger a director of the Company as at the Latest Practicable Date. Having considered themonetary value involved in Mr. Wai’s shares in LF and the role of Mr. Wai in the Acquisition andall the relevant circumstances, the Company does not consider Mr. Wai has a material interest inthe Acquisition.

To the best of the knowledge, information and belief of the Directors having made allreasonable enquiries, no Shareholders or any of their respective close associates have anymaterial interest in the Acquisition. As such, no Shareholders would be required to abstain fromvoting under the Listing Rules if the Company were to convene a general meeting for theapproval of the Acquisition.


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As at the Latest Practicable Date, a closely allied group of Shareholders together held1,027,307,000 Shares, representing approximately 56.072% of the total number of issued Shares.Such closely allied group of Shareholders comprises 10 investment holding companies, all ofwhich are wholly owned subsidiaries of CITIC Pacific Limited (“CITIC Pacific”, a whollyowned subsidiary of CITIC Limited (“CITIC”)). These 10 investment holding companies areSilver Ray Enterprises Inc. (“Silver Ray”) which held 55,877,800 Shares, Grogan Inc. (“Grogan”)which held 81,000,000 Shares, Greenlane International Holdings Inc. (“Greenlane”) which held81,000,000 Shares, Chadacre Developments Limited (“Chadacre”) which held 245,102,000Shares, Cornaldi Enterprises Limited (“Cornaldi”) which held 95,317,400 Shares, CortonEnterprises Limited (“Corton”) which held 54,467,000 Shares, Dashing Investments Limited(“Dashing”) which held 13,616,800 Shares, Karaganda Limited (“Karaganda”) which held13,616,800 Shares, Colton Pacific Limited (“Colton”) which held 378,802,200 Shares andHainsworth Limited (“Hainsworth”) which held 8,507,000 Shares.

Pursuant to Rule 14.44 of the Listing Rules, the Company has obtained a written approvalof the Acquisition from such closely allied group of Shareholders. As such, the Company is notrequired to convene a general meeting to consider and approve the Sale and PurchaseAgreement and the Acquisition.

11. RECOMMENDATION

The Directors consider that the Acquisition is on normal commercial terms and in theusual course of business of the Group, and that the terms and conditions of the Sale andPurchase Agreement are fair and reasonable and in the interests of the Group and theShareholders as a whole and would have recommended the Shareholders to vote in favour of theresolutions to approve the Acquisition if it had been necessary to hold a general meeting forsuch purpose.

12. ADDITIONAL INFORMATION

Your attention is drawn to the additional information set out in the appendices to thiscircular.

By Order of the BoardDah Chong Hong Holdings Limited

Zhang JijingChairman


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1. FINANCIAL INFORMATION OF THE GROUP

The financial information of the Group (i) for the year ended 31 December 2015 isdisclosed in the 2015 annual report of the Company published on the website of Hong KongExchanges and Clearing Limited (http://www.hkexnews.hk/listedco/listconews/SEHK/2016/0323/LTN20160323280.pdf) and the website of the Company(http://www.dch.com.hk/upload/invs_news_rpt/28/en/fulldoc/E01828_AR_0319_0628.pdf)on 23 March 2016, from pages 76 to 151; (ii) for the year ended 31 December 2014 is disclosed inthe 2014 annual report of the Company published on the website of Hong Kong Exchanges andClearing Limited (http://www.hkexnews.hk/listedco/listconews/SEHK/2015/0327/LTN20150327322.pdf) and the website of the Company (http://www.dch.com.hk/upload/invs_news_rpt/26/en/fulldoc/e01828_DCHH_AR2014.pdf) on 27 March 2015, frompages 79 to 154; and (iii) for the year ended 31 December 2013 is disclosed in the 2013 annualreport of the Company published on the website of Hong Kong Exchanges and Clearing Limited(http://www.hkexnews.hk/listedco/listconews/SEHK/2014/0325/LTN20140325307.pdf)and the website of the Company (http://www.dch.com.hk/upload/invs_news_rpt/24/en/fulldoc/E01828-AR_0318-0606.pdf) on 25 March 2014 from pages 80 to 158.

2. STATEMENT OF INDEBTEDNESS

As at the close of business on 31 March 2016, being the latest practicable date for thepurpose of determining this indebtedness of the Group and the Target Group prior to theprinting of this circular, the indebtedness of the Group and the Target Group was as follows:

(i) Bank and other borrowings

The Group had bank and other borrowings of approximately HK$5,791 million, ofwhich HK$251 million were secured, HK$1,025 million were guaranteed and HK$4,515million were unsecured and unguaranteed.

The Target Group had bank borrowings of approximately US$21 million, of whichUS$3 million were secured and guaranteed, US$18 million were unsecured andguaranteed.

(ii) Other indebtedness

The Group had amounts due to holders of non-controlling interests and jointventures of approximately HK$312 million and HK$9 million respectively, which wereunsecured, non-interest bearing and repayable on demand, except for the amounts due toholders of non-controlling interests of HK$23 million which were interest bearing at 2%per annum and of HK$42 million which were repayable after one year.

The Target Group had amount due to related companies of approximately US$49million, which was unsecured, non-interest bearing and not repayable within one year.

APPENDIX I FINANCIAL INFORMATION OF THE GROUP

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(iii) Pledge of assets

As at 31 March 2016, the Group’s inventories of HK$170 million, bank deposits ofHK$125 million, trade debtors and other receivables of HK$83 million and property,plant and equipments of HK$3 million were pledged to secure certain bank and otherborrowings.

As at 31 March 2016, the Target Group’s land and buildings of US$3 million werepledged as security for the Target Group’s short-term bank loan.

Contingent liabilities

In addition, as at 31 March 2016, the Group had the following contingent liabilities:

(a) the Group has issued guarantees to bank in respect of banking facilities ofHK$75 million granted to and utilised by an associate of HK$46 million.

(b) the Group has issued a guarantee of EUR1.2 million to a trade creditor of anassociate.

Save as aforementioned and apart from intra-group liabilities within the Group orthe Target Group and normal trade business, at the close of business on 31 March 2016,the Group and the Target Group did not have any other outstanding borrowings, loancapital issued and outstanding or agreed to be issued, bank overdrafts, loans or othersimilar indebtedness, liabilities under acceptances (other than normal trade bills),acceptance credits, debentures, mortgages, charges, finance leases, hire purchasecommitments, guarantees or other material contingent liabilities.

3. WORKING CAPITAL

Taking into account the financial resources available to the Enlarged Group, includingthe internally generated funds, cash and cash equivalents on hand, and the existing availablecommitted and uncommitted borrowing facilities, the Directors are of the opinion that in theabsence of unforeseeable circumstances, the Enlarged Group has sufficient working capitalavailable for its requirements, that is for at least the next 12 months from the date of thiscircular.

APPENDIX I FINANCIAL INFORMATION OF THE GROUP

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A. ACCOUNTANT’S REPORT ON THE TARGET GROUP

The following is the text of a report received from the Company’s reporting accountant,PricewaterhouseCoopers, Certified Public Accountants, Hong Kong, for the purpose of incorporation inthis Circular.

24 May 2016

The DirectorsDah Chong Hong Holdings Limited

Dear Sirs,

We report on the financial information of the Business (as defined in Note 1.1 of Section IIheaded “General Information” below). The financial information comprises the combinedstatements of financial position of the Target Group as at 31 December 2013, 2014 and 2015, andthe combined profit and loss accounts, the combined statements of comprehensive income, thecombined statements of changes in equity and the combined cash flow statements of the TargetGroup for each of the years ended 31 December 2013, 2014 and 2015 (the “Relevant Periods”)and a summary of significant accounting policies and other explanatory information. Thisfinancial information has been prepared by the directors of Dah Chong Hong Holdings Limited(the “Company”) and is set out in Sections I to IV below for inclusion in Appendix II to thecircular of the Company dated 24 May 2016 (the “Circular”) in connection with the proposedacquisition of LF Distribution Holding Limited (the “Target Company”) by the Company.

The Target Company was incorporated in the British Virgin Islands on 16 December 2013as an exempted company with limited liability under the BVI Business Company Act 2004.Pursuant to a group reorganisation as described in Note 1.2 of Section II headed“Reorganisation” below, the Target Company will become the holding company of thesubsidiaries comprising the Target Group (the “Reorganisation”).

As at the date of this report, the Target Group has direct and indirect interests in thesubsidiaries after completion of Reorganisation as set out in Note 32 of Section II below.

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

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No statutory audited financial statements have been prepared by the Target Company asit has not involved in any significant business transactions since its date of incorporation, otherthan the Reorganisation. The statutory audited financial statements of other companiescomprising the Target Group as at the date of this report for which there are statutory auditrequirements have been prepared in accordance with the relevant accounting principlesgenerally accepted in their place of incorporation. Details of the statutory auditors of thesecompanies are set out in Note 32 of Section II.

The directors of the Target Company are solely responsible for the preparation of thecombined financial statements of the Target Company and its subsidiaries comprising theTarget Group for the Relevant Periods that give a true and fair view in accordance with HongKong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute ofCertified Public Accountants (the “HKICPA”) (the “Underlying Financial Statements”), andfor such internal control as the directors determine is necessary to enable the preparation of theUnderlying Financial Statements that are free from material misstatement, whether due tofraud or error. We have audited the Underlying Financial Statements in accordance with HongKong Standards on Auditing (the “HKSAs”) issued by the HKICPA pursuant to separate termsof engagement.

The financial information has been prepared based on the Underlying FinancialStatements, with no adjustment made thereon, and on the basis set out in Note 1.3 of Section IIbelow.

Directors’ Responsibility for the Financial Information

The directors of the Company are responsible for the preparation of the financialinformation that gives a true and fair view in accordance with the basis of presentation set outin Note 1.3 of Section II below and in accordance with HKFRSs and accounting policies adoptedby the Company and its subsidiaries (together, the “Group”) as set out in Note 2 of Section IIbelow. The financial information has been prepared based on the Underlying FinancialStatements, for which the directors of the Target Company are solely responsible.

Reporting Accountant’s Responsibility

Our responsibility is to express an opinion on the financial information and to report ouropinion to you. We carried out our procedures in accordance with Auditing Guideline 3.340“Prospectuses and the Reporting Accountant” issued by the HKICPA.

Opinion

In our opinion, the financial information gives, for the purpose of this report andpresented on the basis set out in Note 2.1 of Section II below, a true and fair view of thecombined financial position of the Target Group as at 31 December 2013, 2014 and 2015 and ofthe Target Group’s combined financial performance and cash flows for the Relevant Periods.


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I FINANCIAL STATEMENTS OF THE TARGET GROUP

The following is the financial information of the Target Group prepared by the directorsof the Company as at 31 December 2013, 2014 and 2015 and for each of the years ended 31December 2013, 2014 and 2015 (the “Financial Information”), presented on the basis setout in Note 1.3 below:

Combined Profit and Loss Accounts

Year ended 31 December

2013 2014 2015Note US$’000 US$’000 US$’000

Turnover 4 1,311,502 1,232,083 1,171,241Cost of sales (1,122,164) (1,047,874) (971,688)

Gross profit 189,338 184,209 199,553Other income 1,536 426 –

Total margin 190,874 184,635 199,553Selling and distribution expenses (58,372) (62,298) (88,171)Administrative expenses (91,922) (97,518) (95,301)

Core operating profit 40,580 24,819 16,081

Amortisation of other intangibleassets 5 (501) (525) (525)

One-off restructuring costs 5 – – (700)

Operating profit 5 40,079 24,294 14,856Interest expenses 6

Non-cash interest expenses (247) (154) (78)Cash interest expenses (254) (872) (1,749)

(501) (1,026) (1,827)

Profit before taxation 39,578 23,268 13,029Taxation 7 (5,444) (2,945) (1,839)

Net profit for the year 34,134 20,323 11,190

Attributable to:Shareholders of the Target

Company 34,291 22,003 12,336Non-controlling interests (157) (1,680) (1,146)

34,134 20,323 11,190

Earnings per share– Basic and diluted 9 N/A N/A N/A

Details of dividends to Shareholders of the Target Company are set in Note 10.


– 16 –

Combined Statements of Comprehensive Income


2013 2014 2015US$’000 US$’000 US$’000

Profit for the year 34,134 20,323 11,190

Other comprehensive income/(expense):Item that will not be reclassified to profit or loss

Movement of other reserves, net of tax 2,654 (133) (116)

Item that may be reclassified subsequently toprofit or lossCurrency translation differences (2,315) (3,571) (7,747)

Total other comprehensive income/(expense)for the year, net of tax 339 (3,704) (7,863)

Total comprehensive income for the year,net of tax 34,473 16,619 3,327

Attributable to:Shareholders of the Target Company 35,244 18,120 4,743Non-controlling interests (771) (1,501) (1,416)

34,473 16,619 3,327


– 17 –

Combined Statements of Financial Position

As at 31 December

2013 2014 2015Note US$’000 US$’000 US$’000

Non-current assetsIntangible assets 11 230,871 230,736 230,020Property, plant and equipment 12 34,139 30,573 27,679Prepaid premium for land leases 13 2,627 2,328 1,795Deferred tax assets 22 11,595 15,910 20,209

279,232 279,547 279,703

Current assetsInventories 14 180,234 216,739 252,421Trade receivables 16 195,373 180,620 175,143Due from related companies 15 4,979 6,286 3,459Other receivables, prepayments

and deposits 16 44,138 50,205 62,778Cash and bank balances 17 77,211 56,667 43,165

501,935 510,517 536,966

Current liabilitiesTrade payables 18 253,304 288,610 335,945Due to related companies 15 9,164 6,440 2,863Accrued charges and sundry

payables 18 121,585 113,633 100,659Purchase consideration payable for

acquisitions 21 2,448 3,236 3,271Taxation 2,099 843 1,329Short-term bank loans 19 74,119 40,660 6,704Bank overdrafts 17, 19 16,982 19,535 18,113

479,701 472,957 468,884

Net current assets 22,234 37,560 68,082

Total assets less current liabilities 301,466 317,107 347,785


– 18 –

Combined Statements of Financial Position (Continued)

As at 31 December

2013 2014 2015Note US$’000 US$’000 US$’000

Financed by:Combined capital 20 187,876 192,016 225,578Reserves 69,792 87,912 89,775

Shareholders’ fund attributable tothe Target Company’sShareholders 257,668 279,928 315,353

Non-controlling interests 9,001 7,500 6,084

Total equity 266,669 287,428 321,437

Non-current liabilitiesPurchase consideration payable for

acquisitions 21 6,404 3,241 –Due to related companies 15 21,938 21,924 22,118Post-employment benefit

obligations 23 2,028 1,082 1,130Deferred tax liabilities 22 4,427 3,432 3,100

34,797 29,679 26,348

301,466 317,107 347,785


– 19 –

Combined Statements of Changes in Equity

Attributable to Shareholders of the Target Company

Combinedcapital

Otherreserves

Exchangereserves

Retainedearnings Total

Non-controlling

interestsTotal

EquityUS$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000Note 20 Note

Balance at 1 January 2013 201,154 1,542 10,048 25,779 238,523 9,772 248,295

Comprehensive income/(expense)Profit or loss – – – 34,291 34,291 (157) 34,134

Other comprehensive(expense)/income

Currency translation differences – – (1,701) – (1,701) (614) (2,315)Movement of other reserves,

net of tax – 2,654 – – 2,654 – 2,654

Total other comprehensiveincome/(expense) – 2,654 (1,701) – 953 (614) 339

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Total comprehensiveincome/(expense) – 2,654 (1,701) 34,291 35,244 (771) 34,473

Transactions with ownersCapital distribution (13,278) – – – (13,278) – (13,278)Dividends paid – – – (2,821) (2,821) – (2,821)

Total transactions with owners (13,278) – – (2,821) (16,099) – (16,099)- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Balance at 31 December 2013 187,876 4,196 8,347 57,249 257,668 9,001 266,669

Note: Other reserves include defined benefit obligation reserve and legal reserve.


– 20 –

Combined Statements of Changes in Equity (Continued)


Combinedcapital

Otherreserves

Exchangereserves


Non-controlling

interestsTotal



Comprehensive income/(expense)Profit or loss – – – 22,003 22,003 (1,680) 20,323

Other comprehensive(expense)/income

Currency translation differences – – (3,750) – (3,750) 179 (3,571)Movement of other reserves,

net of tax – (133) – – (133) – (133)

Total other comprehensive(expense)/income – (133) (3,750) – (3,883) 179 (3,704)

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Total comprehensive(expense)/income – (133) (3,750) 22,003 18,120 (1,501) 16,619

Transactions with ownersCapital injection 4,140 – – – 4,140 – 4,140

Total transactions with owners 4,140 – – – 4,140 – 4,140- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Balance at 31 December 2014 192,016 4,063 4,597 79,252 279,928 7,500 287,428



– 21 –

Combined Statements of Changes in Equity (Continued)


Combinedcapital

Otherreserves

Exchangereserves


Non-controlling

interestsTotal



Comprehensive income/(expense)Profit or loss – – – 12,336 12,336 (1,146) 11,190

Other comprehensive expenseCurrency translation differences – – (7,477) – (7,477) (270) (7,747)Movements of other reserves,

net of tax – (116) – – (116) – (116)

Total other comprehensiveexpense – (116) (7,477) – (7,593) (270) (7,863)

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Total comprehensive(expense)/income – (116) (7,477) 12,336 4,743 (1,416) 3,327

Transactions with ownersCapital injection 33,562 – – – 33,562 – 33,562Dividends paid – – – (2,880) (2,880) – (2,880)

Total transactions with owners 33,562 – – (2,880) 30,682 – 30,682- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Balance at 31 December 2015 225,578 3,947 (2,880) 88,708 315,353 6,084 321,437



– 22 –

Combined Cash Flow Statements


2013 2014 2015Note US$’000 US$’000 US$’000

Operating activitiesNet cash inflow generated from

operations 24 (a) 18,662 26,132 11,702Profits tax paid (7,710) (7,697) (6,756)

Net cash inflow from operatingactivities 10,952 18,435 4,946

Investing activitiesSettlement of consideration payable

for prior years acquisition ofbusinesses 31 – (2,448) (3,236)

Acquisition of businesses 25 (13,646) – –Purchases of property, plant and

equipment 12 (7,272) (5,031) (7,458)Payments for system development,

software and other intangibleassets 11 (178) (586) (39)

Net cash outflow from investingactivities (21,096) (8,065) (10,733)

Net cash (outflow)/inflow beforefinancing activities (10,144) 10,370 (5,787)

Financing activitiesIncrease/(decrease) in due to related

companies 2,020 (1,949) 572Net drawdown/(repayment) of

bank loans 24(b) 37,850 (33,459) (33,956)Capital (distribution)/injection 24(b) (13,278) 4,140 33,562Interest paid (254) (872) (1,749)Dividends (2,821) – (2,880)

Net cash inflow/(outflow) fromfinancing activities 23,517 (32,140) (4,451)

Increase/(decrease) in cash andcash equivalents 13,373 (21,770) (10,238)

Cash and cash equivalents at1 January 46,937 60,229 37,132

Effect of foreign exchange ratechanges (81) (1,327) (1,842)

Cash and cash equivalents at31 December 60,229 37,132 25,052

Analysis of the balances of cash andcash equivalents:Cash and bank balances 17 77,211 56,667 43,165Bank overdrafts 17 (16,982) (19,535) (18,113)

60,229 37,132 25,052


– 23 –

II NOTES TO THE FINANCIAL INFORMATION

1 GENERAL INFORMATION, REORGANISATION AND BASIS OF PREPARATION

1.1 General information

The Target Company was incorporated in the British Virgin Islands on 16 December 2013 as an exemptedcompany with limited liability under the BVI Business Company Act 2004. The address of the Target Company’sregistered office is P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands.

The Target Company is an investment holding company. The Target Company and other group companies areprincipally engaged in the business focuses on distribution of consumer healthcare products and providingcontract manufacturing services for consumer products in China and South East Asia (the “Business” andcollectively with the Target Company, the “Target Group”).

LF Distribution Limited, a company incorporated in Bermuda, is the immediate holding company of the TargetCompany.

The ultimate holding company of the Target Company is Li & Fung Limited (“Li & Fung”), a company whoseshares are listed on the Main Board of The Stock Exchange of Hong Kong Limited.

1.2 Reorganisation

In the preparation for the acquisition of the Target Company by the Company, the Target Company and othercompanies comprising the Target Group will undergo a reorganisation (the “Reorganisation”) pursuant towhich group companies engaged in the Business will be transferred to the Target Company. The TargetCompany’s principal subsidiaries comprising the Target Group after the completion of the Reorganisation are setout in Note 32 below.

1.3 Basis of presentation

Immediately prior to and after the Reorganisation, the Business is controlled and managed by Li & Fung. TheReorganisation is merely a reorganisation of the Business with no change in the ultimate holding company andmanagement of the Business. Accordingly, the Financial Information of the Business is presented on a combinedbasis, using the carrying values of the Business for all years presented or since their respective dates ofincorporation/establishment, or since the date when the combining companies first came under the control of Li& Fung, whichever is the shorter period.

For companies acquired from a third party during the years presented, they are included in the combinedfinancial statements of the Business from the date of the acquisition.

Inter-company transactions, balances and unrealised gains/losses on transactions between companies in theBusiness are eliminated on combination.

The combined statements of financial position as at 31 December 2013, 2014 and 2015 include the assets andliabilities of the Business that are directly related and clearly identified to the Business and the combined profitand loss accounts include all revenues, related costs, expenses and charges directly generated or incurred by theBusiness. The financial information do not include certain assets, liabilities, income and expenses that areunrelated to the Business.

Certain cash and bank balances and the entire bank overdrafts of the Target Group were used by relatedcompanies and the corresponding interest income and interest expenses were not incurred and recognised by theTarget Group and the bank borrowings of the Target Group were used by related companies and thecorresponding interest expenses were not incurred and borne by the Target Group. For details, please refer to theNote 17, Note 19 and Note 28 of this Financial Information.


– 24 –

The directors consider that the above method of allocation and presentation provides the fairest approximationof the amounts attributable to the Financial Information of the Business for the years ended 31 December 2013,2014 and 2015.

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these combined financial statements is set outbelow. These policies have been consistently applied to all the years presented, unless otherwise stated.

2.1 Basis of preparation

The Financial Information have been prepared in accordance with Hong Kong Financial Reporting Standards(“HKFRSs”). They have been prepared under the historical cost convention, as modified by the inclusion offinancial assets and financial liabilities at fair value through profit or loss.

The preparation of the Financial Information in conformity with HKFRSs requires the use of certain criticalaccounting estimates. It also requires management to exercise its judgement in the process of applying the TargetGroup’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas whereassumptions and estimates are significant to the Financial Information, are disclosed in Note 3.

The following new standards and amendments to existing standards have been issued and are mandatory for theTarget Group’s accounting periods beginning on or after 1 January 2016 or later periods, but the Target Grouphas not early adopted them:

HKAS 1 Amendment Disclosure Initiative1

HKAS 16 and HKAS 38 Amendment Clarification of Acceptable Methods of Depreciation andAmortisation1

HKAS 16 and HKAS 41 Amendment Agriculture: Bearer Plants1

HKAS 27 Amendment Equity Method in Separate Financial Statements1

HKFRS 9 Financial Instruments2

HKFRS 10 and HKAS 28 Amendment Sale or Contribution of Assets between an Investor and itsAssociate or Joint Venture3

HKFRS 10, HKFRS 12 and HKAS 28Amendment

Investment Entities: Applying the Consolidation Exception1

HKFRS 11 Amendment Accounting for Acquisitions of Interests in Joint Operations1

HKFRS 14 Regulatory Deferral Accounts1

HKFRS 15 Revenue from Contracts with Customers2

Annual Improvements Project Annual Improvements 2012-2014 Cycle1

Notes:

1. Effective for annual periods beginning on or after 1 January 20162. Effective for annual periods beginning on or after 1 January 20183. Effective date to be determined

The Target Group is in the process of making an assessment of the impact of these new standards andamendments to existing standards upon initial application.

2.2 Basis of combination

(a) Subsidiaries

Subsidiaries are all entities over which the Target Group has control. The Target Group controls an entitywhen the Target Group is exposed to, or has rights to, variable returns from its involvement with theentity and has the ability to affect those returns through its power over the entity.

Subsidiaries are fully consolidated from the date on which control is transferred to the Target Group.They are de-consolidated from the date that control ceases.


– 25 –

Except for the Reorganisation, the Target Group uses the acquisition method of accounting to account forbusiness combinations. The consideration transferred for the acquisition of a subsidiary is the fair valuesof the assets transferred, the liabilities incurred and the equity interests issued by the Target Group. Theconsideration transferred includes the fair value of any asset or liability resulting from a contingentconsideration arrangement. Acquisition-related costs are expensed as incurred. Identifiable assetsacquired and liabilities and contingent liabilities assumed in a business combination are measuredinitially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the TargetGroup recognises any non-controlling interest in the acquiree either at fair value or at the non-controllinginterest’s proportionate share of the acquiree’s net assets.

Any contingent consideration to be transferred by the Target Group is recognised at fair value at theacquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed tobe an asset or liability is recognised in accordance with HKAS 39 in profit or loss.

The excess of the consideration transferred, the amount of any non-controlling interest in the acquireeand the acquisition-date fair value of any previous equity interest in the acquiree over the fair value ofthe identifiable net assets acquired is recorded as goodwill (Note 2.5). If this is less than the fair value ofthe net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recogniseddirectly in the statement of comprehensive income.

Inter-company transactions, balances and unrealised gains on transactions between Target Groupcompanies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidenceof an impairment of the asset transferred. Accounting policies and financial information of subsidiarieshave been changed where necessary to ensure consistency with the policies adopted by the Target Group.

(b) Transactions with non-controlling interests

The Target Group treats transactions with non-controlling interests that do not result in loss of control astransactions with equity owners of the Target Group. For purchases from non-controlling interests, thedifference between any consideration paid and the relevant share acquired of the carrying value of netassets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests arealso recorded in equity.

2.3 Foreign currency translation

(a) Functional and presentation currency

Items included in the financial statements of each of the Target Group’s entities are measured using thecurrency of the primary economic environment in which the entity operates (the “functional currency”).The Financial Information are presented in United States dollar (US$), which is the Target Company’sfunctional and presentation currency.

(b) Transactions and balances

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

Translation differences related to changes in the amortised cost are recognised in profit or loss, and otherchanges in the carrying amount are recognised in other comprehensive income.

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


– 26 –

(c) Target Group companies

The results and financial position of all the Target Group entities (none of which has the currency of ahyperinflationary economy) that have a functional currency different from the presentation currency aretranslated into the presentation currency as follows:

(i) assets and liabilities for each statement of financial position presented are translated at theclosing rate at the date of that statement of financial position;

(ii) income and expenses for each profit and loss account are translated at average exchange rates(unless this average is not a reasonable approximation of the cumulative effect of the ratesprevailing on the transaction dates, in which case income and expenses are translated at the datesof the transactions); and

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

On combination, exchange differences arising from the translation of the net investment in foreignoperations are taken to other comprehensive income.

On the disposal of a foreign operation (that is, a disposal of the Target Group’s entire interest in a foreignoperation, or a disposal involving loss of control over a subsidiary that includes a foreign operation, adisposal involving loss of joint control over a jointly controlled entity that includes a foreign operation,or a disposal involving loss of significant influence over an associate that includes a foreign operation),all of the exchange differences accumulated in equity in respect of that operation attributable to theequity holders of the Target Company are reclassified to profit or loss.

In the case of a partial disposal that does not result in the Target Group losing control over a subsidiarythat includes a foreign operation, the proportionate share of accumulated exchange differences arere-attributed to non-controlling interests and are not recognised in profit or loss. For all other partialdisposals (that is, reductions in the Target Group’s ownership interest in associates or jointly controlledentities that do not result in the Target Group losing significant influence or joint control) theproportionate share of the accumulated exchange difference is reclassified to profit or loss.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets andliabilities of the foreign entity and translated at the closing rate. Exchange differences arising arerecognised in equity.

2.4 Property, plant and equipment

(a) Land and buildings

Freehold land is stated at cost less impairment.

Buildings are stated at cost less accumulated depreciation and accumulated impairment losses.

(b) Other property, plant and equipment

Other property, plant and equipment comprising leasehold improvements, furniture, fixtures andequipment, plant and machinery and motor vehicles, are stated at cost less accumulated depreciation andaccumulated impairment losses.


– 27 –

(c) Depreciation and impairment

Property, plant and equipment are depreciated at rates sufficient to allocate their costs less accumulatedimpairment losses to their residual values over their estimated useful lives on a straight-line basis. Theprincipal annual rates are as follows:

Building and leasehold improvements 2%–20%Leasehold land Shorter of lease term and useful lifeFurniture, fixtures and equipment 10%–50%Plant and machinery 5%–33%Motor vehicles 15%

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of eachreporting period. An asset’s carrying amount is written down immediately to its recoverable amount ifthe asset’s carrying amount is greater than its estimated recoverable amount (Note 2.6). Subsequent costsare included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only whenit is probable that future economic benefits associated with the item will flow to the Target Group and thecost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. Allother repair and maintenance costs are expensed in the combined profit and loss account during thefinancial period in which they are incurred.

(d) Gain or loss on disposal

The gain or loss on disposal of property, plant and equipment is the difference between the net salesproceeds and the carrying amount of the relevant item, and is recognised in the combined profit and lossaccounts.

2.5 Intangible assets

(a) Goodwill

Goodwill represents the excess of the considerations transferred over the net fair value of the TargetGroup’s share of the net identifiable assets/liabilities and contingent liabilities of the acquiredbusiness/subsidiary at the date of acquisition. Goodwill on acquisitions of subsidiaries is included inintangible assets. Separately recognised goodwill is tested annually for impairment and carried at costless accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losseson the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

Goodwill is allocated to cash-generating units for the purpose of impairment testing. Goodwillimpairment reviews are undertaken annually or more frequently if events or changes in circumstancesindicate a potential impairment. The carrying value of goodwill is compared to the recoverable amount,which is the higher of value in use and the fair value less costs to sell. Any impairment is recognisedimmediately as an expense and is not subsequently reversed.

(b) System development and software costs

Acquired computer software licences are capitalised on the basis of the costs incurred to acquire andbring to use the specific software. These costs are amortised over the estimated useful lives of 3 to 10years.

Costs associated with developing or maintaining computer software programmes are recognised as anexpense as incurred. Costs that are directly associated with the development of identifiable and uniquesoftware products controlled by the Target Group, and that will probably generate economic benefitsexceeding costs beyond one year, are recognised as intangible assets. Costs include the employee costsincurred as a result of developing software and an appropriate portion of relevant overheads.

System development costs recognised as assets are amortised over their estimated useful lives of 3 to 10years.


– 28 –

(c) Other intangible assets arising from business combinations

Intangible assets, other than goodwill, identified on business combinations are capitalised at their fairvalues. They represent mainly trademarks, relationships with customers. Intangible assets arising frombusiness combinations with definite useful lives are amortised on a straight-line basis from the date ofacquisition over their estimated useful lives of which not more than 5 to 20 years.

2.6 Impairment

Assets that have an indefinite useful life, for example goodwill, are not subject to amortisation and are testedannually for impairment. Assets are reviewed for impairment whenever events or changes in circumstancesindicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount bywhich the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of anasset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are groupedat the lowest levels for which there are separately identifiable cash flows (cash-generating unit). Non-financialassets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment ateach reporting date.

2.7 Financial assets

Classification

The Target Group classifies its financial assets as loans and receivables. The classification depends on thepurpose for which the financial assets were acquired. Management determines the classification of its financialassets at initial recognition.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are notquoted in an active market. They are included in current assets, except for maturities greater than 12 monthsafter the end of the reporting period. These are classified as non-current assets. The Target Group’s loans andreceivables comprise “trade receivables”, “other receivables, prepayments and deposits”, “cash and bankbalances” and “due from related companies” in the combined statement of financial position (Note 2.10).

Recognition and measurement

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

Changes in the fair value of monetary securities denominated in a foreign currency and classified asavailable-for-sale are analysed between translation differences resulting from changes in amortised cost of thesecurity and other changes in the carrying amount of the security. The translation differences on monetarysecurities are recognised in profit or loss; translation differences on non-monetary securities are recognised inother comprehensive income. Changes in the fair values of monetary and non-monetary securities classified asavailable-for-sale are recognised in other comprehensive income.

2.8 Impairment of financial assets

Assets carried at amortised cost

The Target Group assesses at the end of each reporting period whether there is objective evidence that a financialasset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired andimpairment losses are incurred only if there is objective evidence of impairment as a result of one or more events


– 29 –

that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impacton the estimated future cash flows of the financial asset or group of financial assets that can be reliablyestimated.

The criteria that the Target Group uses to determine that there is objective evidence of an impairment lossinclude:

• Significant financial difficulty of the issuer or obligor;

• A breach of contract, such as a default or delinquency in interest or principal payments;

• The Target Group, for economic or legal reasons relating to the borrower’s financial difficulty, granting tothe borrower a concession that the lender would not otherwise consider;

• It becomes probable that the borrower will enter bankruptcy or other financial reorganisation;

• The disappearance of an active market for that financial asset because of financial difficulties; or

• Observable data indicating that there is a measurable decrease in the estimated future cash flows from aportfolio of financial assets since the initial recognition of those assets, although the decrease cannot yetbe identified with the individual financial assets in the portfolio, including:

(i) adverse changes in the payment status of borrowers in the portfolio;

(ii) national or local economic conditions that correlate with defaults on the assets in the portfolio.

The Target Group first assesses whether objective evidence of impairment exists.

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

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be relatedobjectively to an event occurring after the impairment was recognised (such as an improvement in the debtor ’scredit rating), the reversal of the previously recognised impairment loss is recognised in the combined profit andloss accounts.

2.9 Inventories

Inventories comprise raw materials and finished goods and are stated at the lower of cost and net realisablevalue. Cost, calculated on a first-in, first-out (FIFO) basis, comprises purchase prices of inventories and directcosts (based on normal operating capacity). It excludes borrowing costs. Net realisable value is the estimatedselling price in the ordinary course of business less applicable variable selling expenses.

2.10 Trade and other receivables

Trade and other receivables are recognised initially at fair value and subsequently measured at amortised costusing the effective interest method, less provision for impairment. If collection of trade and other receivables isexpected in one year or less (or in the normal operating cycle of the business if longer), they are classified ascurrent asset. If not, they are presented as non-current assets. A provision for impairment of trade and otherreceivables is established when there is objective evidence that the Target Group will not be able to collect allamounts due according to the original terms of the receivables. Significant financial difficulties of the debtor,probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency inpayments are considered indicators that the trade receivable is impaired. The amount of the provision is thedifference between the asset’s carrying amount and the present value of estimated future cash flows, discounted


– 30 –

at the original effective interest rate. The carrying amount of the assets is reduced through the use of anallowance account, and the amount of the loss is recognised in the combined profit and loss accounts withinselling expenses. When a trade receivable is uncollectible, it is written off against the allowance account for tradereceivables. Subsequent recoveries of amounts previously written off are credited against selling expenses in thecombined profit and loss accounts.

2.11 Combined Capital

Combined capital represents the combined share capital, share premium and capital reserves of the companiescomprising the Target Group, after eliminating inter-company investments.

2.12 Cash and cash equivalents

Cash and cash equivalents include cash in hand, deposits held at call with banks and bank overdrafts. Bankoverdrafts are shown within borrowings in current liabilities on the combined statement of financial position.

2.13 Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequentlystated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption valueis recognised in the combined profit and loss accounts over the period of the borrowings using the effectiveinterest method.

Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent thatit is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until thedraw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will bedrawn down, the fee is capitalised as a prepayment for liquidity services and amortised over the period of thefacility to which it relates.

Borrowings are classified as current liabilities unless the Target Group has an unconditional right to defersettlement of the liability for at least 12 months after the end of the reporting period.

2.14 Current and deferred tax

The tax expense for the period comprises current and deferred tax. Tax is recognised in the combined profit andloss accounts, except to the extent that it relates to items recognised in other comprehensive income or directly inequity. In this case the tax is also recognised in other comprehensive income or directly in equity, respectively.

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

Deferred tax is provided, using the liability method, on temporary differences arising between the tax bases ofassets and liabilities and their carrying amounts in the Financial Information. However, the deferred tax is notaccounted for if it arises from initial recognition of an asset or liability in a transaction other than a businesscombination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred taxis determined using tax rates (and laws) that have been enacted or substantively enacted by the end of thereporting period and are expected to apply when the related deferred tax asset is realised or the deferred taxliability is settled.

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

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

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


– 31 –

2.15 Employee benefits

(a) Employee leave entitlements

Employee entitlements to annual leave are recognised when they accrue to employees. A provision ismade for the estimated liability for annual leave entitlements as a result of services rendered byemployees up to the end of the reporting period.

Employee entitlements to sick leave and maternity leave are not recognised until the time of leave.

(b) Discretionary bonus

The expected costs of discretionary bonus payments are recognised as a liability when the Target Grouphas a present legal or constructive obligation as a result of services rendered by employees and a reliableestimate of the obligation can be made.

Liabilities for discretionary bonus are expected to be settled within 12 months and are measured at theamounts expected to be paid when they are settled.

(c) Post employment benefit obligations

The Target Group participates in a number of defined contribution plans throughout the world, the assetsof which are generally held in separate trustee - administrated funds.

The Target Group’s contributions to the defined contribution plans are charged to the combined profitand loss accounts in the year to which the contributions relate.

For defined benefit plans, pension costs are assessed using the projected unit credit method. Under thismethod, the cost of providing pensions is charged to the combined profit and loss account so as to spreadthe regular cost over the service lives of employees in accordance with the advice of the actuaries whocarry out a full valuation of the plans on an annual basis. The pension obligation is measured as thepresent value of the estimated future cash outflows, discounted by reference to market yields onhigh-quality corporate bonds which have terms to maturity approximating the terms of the relatedliabilities. In countries where there is no deep market in such bonds, the market yields on governmentbonds are used. Actuarial gains and losses arising from experience adjustments and changes in actuarialassumptions are charged or credited to equity in other comprehensive income in the period in which theyarise. Past-service costs are recognised immediately in the combined profit and loss account.

The Target Group’s net obligation in respect of long-service payments on cessation of employment incertain circumstances under the Hong Kong Employment Ordinance is the amount of future benefit thatemployees have earned in return for their service in the current and prior periods; that benefit isdiscounted to determine the present value and reduced by entitlements accrued under the Target Group’sretirement plans that are attributable to contributions made by the Target Group. The obligation iscalculated using the projected unit credit method by a qualified actuary. The discount rate is determinedby reference to market yields on high-quality corporate bonds which have terms to maturityapproximating the terms of the related liabilities. In countries where there is no deep market in suchbonds, the market yields on government bonds are used.

(d) Share-based compensation

The Target Group’s ultimate holding company operates an equity-settled, share-based compensationplan. The fair value of the employee services received in exchange for the grant of the options isrecognised as an expense. The total amount to be expensed over the vesting period is determined byreference to the fair value of the options granted:

• including any market performance conditions;


– 32 –

• excluding the impact of any service and non-market performance vesting conditions (forexample, profitability, sale, growth targets and remaining an employee of the entity over aspecified time period); and

• including the impact of any non-vesting conditions (for example, the requirement for employeesto save).

Non-market performance vesting conditions are included in assumptions about the number of optionsthat are expected to vest. The total expense is recognised over the vesting period, which is the period overwhich all of the specified vesting conditions are to be satisfied. At the end of each reporting period, theTarget Group revises its estimates on the number of options that are expected to vest. It recognises theimpact of the revision of original estimates, if any, in the combined profit and loss accounts, with acorresponding adjustment to employee share-based compensation reserve.

2.16 Provisions

Provisions are recognised when: the Target Group has a present legal or constructive obligation as a result of pastevents; it is probable that an outflow of resources will be required to settle the obligation; and the amount hasbeen reliably estimated. Provisions are not recognised for future operating losses.

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement isdetermined by considering the class of obligations as a whole. A provision is recognised even if the likelihood ofan outflow with respect to any one item included in the same class of obligations may be small.

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

2.17 Contingent liabilities and contingent assets

A contingent liability is a possible obligation that arises from past events and whose existence will only beconfirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within thecontrol of the Target Group. It can also be a present obligation arising from past events that is not recognisedbecause it is not probable that outflow of economic resources will be required or the amount of obligation cannotbe measured reliably.

A contingent liability is not recognised but is disclosed in the notes to the Financial Information. When a changein the probability of an outflow occurs so that outflow is probable, it will then be recognised as a provision.

A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only bythe occurrence or non-occurrence of one or more uncertain events not wholly within the control of the TargetGroup.

Contingent assets are not recognised but are disclosed in the notes to the Financial Information when an inflowof economic benefits is probable. When inflow is virtually certain, an asset is recognised.

2.18 Total margin

Total margin includes gross profit and other income relating to the Business.

2.19 Core operating profit

Core operating profit is the profit before taxation generated from the Target Group’s distribution and contractmanufacturing businesses excluding, interest expenses, tax, costs, material gains or losses which are of capitalnature or non-operational related. This also excludes the amortisation of other intangible assets which isnon-cash items.


– 33 –

2.20 Revenue recognition

Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services inthe ordinary course of the Target Group’s activities. Revenue is shown net of value-added tax, returns, rebatesand discounts and after eliminating sales within the Target Group.

The Target Group recognises revenue when the amount of revenue can be reliably measured, it is probable thatfuture economic benefits will flow to the entity and specific criteria have been met for each of the Target Group’sactivities as described below. The amount of revenue is not considered to be reliably measurable until allcontingencies relating to the sale have been resolved. The Target Group bases its estimates on historical results,taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.

Revenue from the sale of goods is recognised on the transfer of risks and rewards of ownership, which generallycoincides with the time when the goods are delivered to customers and title has been passed.

Service income is recognised in the accounting period in which the services are rendered, by reference tocompletion of the specific transaction assessed on the basis of the actual service provided as a proportion of thetotal services to be provided.

Other income incidental to normal operating activities is recognised when the services are rendered or the rightto receive payment is established.

2.21 Borrowing costs

Borrowing costs are charged to the combined profit and loss accounts in the year in which they are incurred.

2.22 Operating leases

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor areclassified as operating leases. Payments made under operating leases (net of any incentives received from thelessor) are charged to the combined profit and loss accounts on a straight-line basis over the period of the lease.The upfront prepayments made for leasehold land and land use rights are amortised on a straight-line basis overthe period of the lease or where there is impairment, the impairment is expensed in the combined profit and lossaccounts.

2.23 Trade payables

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course ofbusiness from suppliers. Accounts payable are classified as current liabilities if payment is due within one yearor less (or in the normal operating cycle of the business if longer). If not, they are presented as non-currentliabilities.

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

2.24 Dividend distribution

Dividend distribution to the shareholders of the companies now comprising the Target Group is recognised as aliability in the Financial Information in the period in which the dividends are approved by the shareholders ordirectors, where appropriate, of the respective companies.


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2.25 Contingent consideration of acquisition

The Target Group’s business acquisition have involved post-acquisition performance-based contingentconsiderations. HKFRS 3 (Revised) is effective prospectively to business combinations for which acquisition dateis on or after the beginning of the first annual reporting period beginning on or after 1 July 2009. The TargetGroup follows the requirement of HKFRS 3 (Revised) to recognise the fair value of those contingentconsiderations for acquisitions, as of their respective acquisition dates as part of the consideration transferred inexchange for the acquired businesses/subsidiaries. These fair value measurements require, among other things,significant estimation of post-acquisition performance of the acquired subsidiaries/business and significantjudgement on time value of money. Contingent consideration shall be re-measured at their fair value resultingfrom events or factors emerging after the acquisition date, with any resulting gain or loss recognised in thecombined profit and loss accounts in accordance with HKFRS 3 (Revised).

The basis of the contingent consideration differs for each acquisition; generally however the contingentconsideration reflects a specified multiple of the post-acquisition financial profitability of the acquired business.Consequently, the actual additional consideration payable will vary according to the future performance of eachindividual acquired business, and the liabilities provided reflect estimates of such future performances.

3 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

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

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

(a) Estimated impairment of intangible assets including goodwill

The Target Group tests annually whether goodwill has suffered any impairment, in accordance with theaccounting policy stated in Note 2.6. The recoverable amount of cash-generating units has beendetermined based on value-in-use calculations. These calculations require the use of estimates (Note 11).

(b) Income taxes

The Target Group is subject to income taxes in numerous jurisdictions. Significant judgement is requiredin determining the worldwide provision for income taxes. There are many transactions and calculationsfor which the ultimate tax determination is uncertain during the ordinary course of business. The TargetGroup recognises liabilities for anticipated tax audit issues based on estimates of whether additionaltaxes will be due. Where the final tax outcome of these matters is different from the amounts that wereinitially recorded, such differences will impact the income tax and deferred tax provisions in the periodin which such determination is made.

4 TURNOVER

Turnover of the Target Group consists of sales of goods and commission as follows:


2013 2014 2015US$’000 US$’000 US$’000

Sales of goods 1,291,200 1,207,859 1,143,344Service income 20,302 24,224 27,897

1,311,502 1,232,083 1,171,241


– 35 –

5 OPERATING PROFIT

Operating profit is stated after charging/(crediting) the following:


2013 2014 2015US$’000 US$’000 US$’000

Charging/(crediting)Cost of inventories sold 1,119,798 1,045,348 969,370Amortisation of system development and software costs

(Note 11) 218 176 164Amortisation of prepaid premium for land leases (Note 13) 138 133 112Amortisation of other intangible assets (Note 11)* 501 525 525Depreciation of property, plant and equipment (Note 12) 5,779 6,160 5,273Loss on disposal of property, plant and equipment 46 411 –Operating leases rental in respect of land and building 8,300 9,482 10,417Provision for impaired receivables, net (Note 16) (1,173) 1,358 539Staff costs (Note 8) 71,403 72,844 74,363One-off restructuring costs* – – 700Net exchange (gains)/losses (895) 45 (382)

* Excluded from the core operating profit

The remuneration to the auditors for audit and non-audit services is as follows:


2013 2014 2015US$’000 US$’000 US$’000

Audit services 560 592 553Non-audit services

– taxation services 18 18 27– others 1 2 7

Total remuneration to auditors charged to combined profitand loss account 579 612 587

6 INTEREST EXPENSES


2013 2014 2015US$’000 US$’000 US$’000

Non-cash interest expenses on purchase considerationpayable for acquisition 247 154 78

Cash interest (Note) 254 872 1,749

501 1,026 1,827

Note: The cash interest expense of the Target Group is primarily arisen from trade financing activities.


– 36 –

7 TAXATION

Hong Kong profits tax has been provided for at the rate of 16.5% for each of the years ended 31 December 2013,2014 and 2015 on the estimated assessable profit for the year. Taxation on overseas profits has been calculated onthe estimated assessable profits for the year at the rates of taxation prevailing in the countries in which the TargetGroup operates.

The amount of taxation charged/(credited) to the combined profit and loss accounts represents:


2013 2014 2015US$’000 US$’000 US$’000

Current taxation– Hong Kong 4,351 2,636 3,999– Overseas 1,403 3,595 2,957

Under/(over) provision in prior years 162 104 (98)Deferred taxation (Note 22) (472) (3,390) (5,019)

5,444 2,945 1,839

The taxation on the Target Group’s profit before taxation differs from the theoretical amount that would ariseusing the taxation rate of the home country of the Target Company as follows:


2013 2014 2015% % %

Calculated at a taxation rate of 16.5 16.5 16.5Effect of different taxation rates in other countries 1.6 (3.4) (12.4)Under/(over) provision in prior years 0.4 0.5 (0.8)(Income net of expenses)/expenses net of income

not subject to taxation (5.2) (2.7) 3.6Unrecognised tax loss 0.5 1.8 7.2

Effective tax rate 13.8 12.7 14.1

8 STAFF COSTS


2013 2014 2015US$’000 US$’000 US$’000

Salaries and bonuses 63,629 66,154 66,606Staff benefits 4,020 4,881 4,641Pension costs of defined contribution plans 3,298 2,643 2,921Pension costs of defined benefit plans (Note 23) 325 (1,006) –Long-service payments 131 172 195

71,403 72,844 74,363


– 37 –

(a) Senior management’s compensation


2013 2014 2015US$’000 US$’000 US$’000

Salaries and bonuses 1,825 1,782 1,610Share-based payments – – 98Pension costs of defined contribution plans and

defined benefit plans 27 28 27Other benefits 174 169 167

2,026 1,979 1,902

9 EARNINGS PER SHARE

No earnings per share information is presented as its inclusion, for the purpose of this Financial Information, isnot considered meaningful due to the Reorganisation and the presentation of the results for each of the yearsended 31 December 2013, 2014 and 2015 on a combined basis as disclosed in Note 1.3 above.

10 DIVIDENDS

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

Dividends of US$2,821,000 and US$2,880,000 during the years ended 31 December 2013 and 2015 respectivelyrepresented dividends declared by the companies now comprising the Target Group to the then equity holders ofthe companies for the years ended 31 December 2013 and 2015, after elimination of intra-group dividends. Therates for dividend and the number of shares ranking for dividends are not presented as such information is notconsidered meaningful for the purpose of this report.


– 38 –

11 INTANGIBLE ASSETS

Otherintangible

assets

Goodwill

Systemdevelopmentand software

costsCustomer

relationships TotalUS$’000 US$’000 US$’000 US$’000

At 1 January 2013Cost 210,441 2,748 3,593 216,782Accumulated amortisation – (1,976) (520) (2,496)

Net book amount 210,441 772 3,073 214,286

Year ended 31 December 2013Opening net book amount 210,441 772 3,073 214,286Exchange differences – (28) – (28)Acquisition of businesses (Note 25) 12,759 23 4,372 17,154Additions – 178 – 178Amortisation – (218) (501) (719)

Closing net book amount 223,200 727 6,944 230,871

At 31 December 2013Cost 223,200 3,602 7,965 234,767Accumulated amortisation – (2,875) (1,021) (3,896)

Net book amount 223,200 727 6,944 230,871


– 39 –

Other intangible assets

Goodwill

Systemdevelopment

andsoftware

costsCustomer

relationships Trademarks TotalUS$’000 US$’000 US’000 US$’000 US$’000

At 1 January 2014Cost 223,200 3,602 7,965 – 234,767Accumulated amortisation – (2,875) (1,021) – (3,896)

Net book amount 223,200 727 6,944 – 230,871

Year ended 31 December 2014Opening net book amount 223,200 727 6,944 – 230,871Exchange differences – (20) (30) 30 (20)Additions – 130 – 456 586Amortisation – (176) (495) (30) (701)

Closing net book amount 223,200 661 6,419 456 230,736

At 31 December 2014Cost 223,200 3,540 7,950 471 235,161Accumulated amortisation – (2,879) (1,531) (15) (4,425)

Net book amount 223,200 661 6,419 456 230,736

At 1 January 2015Cost 223,200 3,540 7,950 471 235,161Accumulated amortisation – (2,879) (1,531) (15) (4,425)

Net book amount 223,200 661 6,419 456 230,736

Year ended 31 December 2015Opening net book amount 223,200 661 6,419 456 230,736Exchange differences – (81) (17) 32 (66)Additions – 39 – – 39Amortisation – (164) (495) (30) (689)

Closing net book amount 223,200 455 5,907 458 230,020

At 31 December 2015Cost 223,200 3,216 7,935 488 234,839Accumulated amortisation – (2,761) (2,028) (30) (4,819)

Net book amount 223,200 455 5,907 458 230,020

As at 31 December 2013, 2014 and 2015, amortisation of system development and software costs has beenexpensed in administrative expenses and amortisation of other intangible assets has been expensed under coreoperating profit.


– 40 –

Impairment test for goodwill

In accordance with HKAS 36 “Impairment of Assets” the Target Group completed its annual impairment test forgoodwill by comparing the recoverable amount to the carrying amount as at the end of the reporting period. Therecoverable amount is determined based on value-in-use calculation. The calculation use cash flow projectionsprepared by the management, extrapolated perpetually with an estimated general long-term continuous annualgrowth of not more than 5%. The discount rate used of approximately 11% is pre-tax and reflect specific risksrelated to the business. The projected gross margin and net profit margin is determined by management based onpast performance and its expectations for market development. Management believes that any reasonablyforeseeable changes in any of the above key assumptions would not cause the carrying amount of goodwill toexceed the recoverable amount.

12 PROPERTY, PLANT AND EQUIPMENT

Land andbuildings

Leaseholdimprovements

Furniture,fixtures and

equipmentPlant and

machineryMotor

vehicles TotalUS$’000 US$’000 US$’000 US$’000 US$’000 US$’000

At 1st January 2013Cost 8,254 4,862 16,451 36,953 4,213 70,733Accumulated depreciation (4,143) (2,671) (12,422) (13,320) (3,868) (36,424)

Net book amount 4,111 2,191 4,029 23,633 345 34,309

Year ended 31 December 2013Opening net book amount 4,111 2,191 4,029 23,633 345 34,309Exchange differences (269) (139) (137) (1,481) (8) (2,034)Acquisition of businesses (Note 25) – 169 196 – 52 417Additions – 2,974 1,239 2,811 248 7,272Disposals – (24) (22) – – (46)Depreciation (191) (878) (1,508) (3,035) (167) (5,779)

Closing net book amount 3,651 4,293 3,797 21,928 470 34,139

At 31 December 2013Cost 7,693 8,086 16,901 37,315 4,026 74,021Accumulated depreciation (4,042) (3,793) (13,104) (15,387) (3,556) (39,882)

Net book amount 3,651 4,293 3,797 21,928 470 34,139


– 41 –

Land andbuildings

Leaseholdimprovements

Furniture,fixtures and

equipmentPlant and

machineryMotor

vehicles TotalUS$’000 US$’000 US$’000 US$’000 US$’000 US$’000


Net book amount 3,651 4,293 3,797 21,928 470 34,139

Year ended 31 December 2014Opening net book amount 3,651 4,293 3,797 21,928 470 34,139Exchange differences (212) (48) (36) (1,735) 5 (2,026)Additions 119 863 723 3,098 228 5,031Disposals – (198) (213) – – (411)Depreciation (188) (1,150) (1,398) (3,256) (168) (6,160)

Closing net book amount 3,370 3,760 2,873 20,035 535 30,573


Net book amount 3,370 3,760 2,873 20,035 535 30,573


Net book amount 3,370 3,760 2,873 20,035 535 30,573

Year ended 31 December 2015Opening net book amount 3,370 3,760 2,873 20,035 535 30,573Exchange differences (605) (439) (347) (3,663) (25) (5,079)Additions – 544 822 5,024 1,068 7,458Depreciation (157) (905) (1,077) (2,906) (228) (5,273)

Closing net book amount 2,608 2,960 2,271 18,490 1,350 27,679


Net book amount 2,608 2,960 2,271 18,490 1,350 27,679


– 42 –

As at 31 December 2013, 2014 and 2015, depreciation of US$2,366,000, US$2,526,000 and US$2,318,000 has beenexpensed in cost of sales and US$3,413,000, US$3,634,000 and US$2,955,000 has been expensed in administrativeexpenses.

As at 31 December 2013, 2014 and 2015, land and buildings of US$3,589,000, US$3,248,000 and US$2,545,000 werepledged as security for the Target Group’s short-term bank loan (Note 19).

13 PREPAID PREMIUM FOR LAND LEASES

The Target Group’s interests in leasehold land and land use rights represent prepaid operating lease paymentsand their net book value is analysed as follows:


2013 2014 2015US$’000 US$’000 US$’000

Beginning of the year 2,954 2,627 2,328Amortisation (138) (133) (112)Exchange differences (189) (166) (421)

End of the year 2,627 2,328 1,795

14 INVENTORIES


2013 2014 2015US$’000 US$’000 US$’000

Raw materials 7,354 8,957 4,573Finished goods 172,880 207,782 247,848

180,234 216,739 252,421

The cost of inventories recognised as expense and included in cost of sales for the years ended 31 December 2013,2014 and 2015 amounted to US$1,119,798,000, US$1,045,348,000 and US$969,370,000 respectively, which includedinventory provision of US$907,000, US$687,000 and US$722,000.

A provision of US$6,613,000 US$6,179,000 and US$6,012,000 was made as at 31 December 2013, 2014 and 2015.

15 DUE FROM/(TO) RELATED COMPANIES


2013 2014 2015US$’000 US$’000 US$’000

Due from:Related companies – trade related (Note a) 4,979 6,286 3,459

Due to:Related companies

– trade related (Note a) 9,164 6,440 2,863– non-trade related (Note b) 21,938 21,924 22,118


– 43 –

Notes:

(a) These amounts are unsecured, interest free and repayable on demand or repayable according to relevanttrade terms which do not exceed twelve months. The fair values of these amounts are approximately thesame as the carrying values. Balances due from related companies included amounts arising from sales ofgoods of US$605,000, US$602,000 and US$626,000 as of 31 December 2013, 2014 and 2015 respectively.Among which, US$376,000, US$367,000 and US$344,000 were current and US$219,000, US$210,000 andUS$214,000 were less than 90 days past due as of 31 December 2013, 2014 and 2015 respectively. Allbalances are not considered impaired.

(b) These amounts are unsecured, interest free and not repayable within twelve months.

16 TRADE AND OTHER RECEIVABLES


2013 2014 2015US$’000 US$’000 US$’000

Trade receivables – net 195,373 180,620 175,143Other receivables, prepayments and deposits 44,138 50,205 62,778

239,511 230,825 237,921

The fair values of the Target Group’s trade and other receivables were approximately the same as their carryingvalues as at 31 December 2013, 2014 and 2015. The ageing of trade receivables based on the invoice date is asfollow:


2013 2014 2015US$’000 US$’000 US$’000

Current to 90 days 180,933 159,005 160,74691 to 180 days 13,080 16,244 11,232181 to 360 days 1,360 5,137 2,579Over 360 days – 234 586

195,373 180,620 175,143

There is no concentration of credit risk with respect to trade receivables, as the Target Group has a large numberof customers internationally dispersed.

As of 31 December 2013, 2014 and 2015, trade receivables of US$191,584,000, US$170,103,000 and US$168,711,000that are current or less than 90 days past due are not considered impaired. Trade receivables of US$3,789,000,US$10,517,000 and US$6,432,000 were past due over 90 days but not considered to be impaired. These relate to anumber of independent customers for whom there is no recent history of default. The past due ageing of thesetrade receivables is as follows:


2013 2014 2015US$’000 US$’000 US$’000

91 to 180 days 3,402 7,417 4,195Over 180 days 387 3,100 2,237

3,789 10,517 6,432


– 44 –

As of 31 December 2013, 2014 and 2015, outstanding trade receivables of US$3,067,000, US$3,298,000 andUS$3,604,000 were considered impaired and were fully provided. The individually impaired receivables mainlyrelate to transactions in dispute.

Movements in the Target Group’s provision for impairment of trade and other receivables are as follows:


2013 2014 2015US$’000 US$’000 US$’000

At 1 January 4,035 3,067 3,298Provision for receivable impairment (Note 5) 639 2,793 1,231Receivables written off during the year as uncollectible (243) (1,103) (41)Acquisition of business (Note 25) 548 – –Unused amounts reversed (Note 5) (1,812) (1,435) (692)Exchange difference (100) (24) (192)

At 31 December 3,067 3,298 3,604

The creation and release of provision for impaired receivables have been included in selling and distributionexpenses in the combined profit and loss accounts (Note 5). Amounts charged to the allowance account aregenerally written off, when there is no expectation of recovering additional cash.

Save as disclosed as above, the other classes within trade and other receivables do not contain impaired assets.

The maximum exposure to credit risk at the reporting date is the fair value of each class of receivable mentionedabove.

The carrying amounts of the Target Group’s trade and other receivables are denominated in the followingcurrencies:


2013 2014 2015US$’000 US$’000 US$’000

HK dollar 45,279 43,738 62,741US dollar 13,798 12,309 4,146Thai baht 26,461 30,840 31,232Philippines peso 3,836 7,974 6,468Renminbi 90,103 80,533 83,028Malaysia ringgit 39,711 34,046 24,370Others 20,323 21,385 25,936

239,511 230,825 237,921


– 45 –

17 CASH AND CASH EQUIVALENTS


2013 2014 2015US$’000 US$’000 US$’000

Cash and bank balances 77,211 56,667 43,165Bank overdrafts – Unsecured (Note 19) (16,982) (19,535) (18,113)

60,229 37,132 25,052

The effective interest rate at 31 December 2013, 2014 and 2015 on bank balances was 0.4%, 0.5% and 0.4% perannum, respectively; these deposits have an average maturity period of 3 days, 2 days and 2 days, respectively.

Certain cash and bank balances and the entire bank overdrafts were used by related companies and thecorresponding interest income and interest expenses were not incurred and recognised by the Target Group (Note

28).

18 TRADE AND OTHER PAYABLES


2013 2014 2015US$’000 US$’000 US$’000

Trade payables 253,304 288,610 335,945

Other accrued charges and sundry payables 121,585 113,633 100,659

374,889 402,243 436,604

The fair values of the Target Group’s trade and other payables were approximately the same as their carryingvalues as at 31 December 2013, 2014 and 2015.

At 31 December 2013, 2014 and 2015, the ageing of trade payables based on invoice date is as follows:


2013 2014 2015US$’000 US$’000 US$’000

Current to 90 days 239,925 276,911 297,85691 to 180 days 9,159 10,239 32,903181 to 360 days 1,846 1,279 2,577Over 360 days 2,374 181 2,609

253,304 288,610 335,945


– 46 –

19 BANK BORROWINGS


2013 2014 2015US$’000 US$’000 US$’000

Short-term bank loans– Secured 4,845 4,106 3,260– Unsecured 69,274 36,554 3,444

- - - - - - - - - - - - - - - - - - - - - - - -

74,119 40,660 6,704Bank overdrafts (Note 17)

– Unsecured 16,982 19,535 18,113

Total bank borrowings 91,101 60,195 24,817

As at 31 December 2013, 2014 and 2015 the carrying amounts of the Target Group’s borrowings approximatedtheir fair values. The bank borrowings were used by related companies and the corresponding interest expenseswere not incurred and borne by the Target Group (Note 28).

The effective interest rates at the end of the reporting period were as follows:

2013 2014 2015

MYR HKD RMB MYR HKD RMB MYR HKD

Short-term bank loans 3.9% 3.7% 5.7% 5.4% – 4.8% 4.5% –Bank overdrafts – 5.0% – 0.4% 5.0% – 0.4% 5.3%

The Target Group’s contractual repricing dates for borrowings are all three months or less. The carrying amountsof the borrowings are denominated in the following currencies:


2013 2014 2015US$’000 US$’000 US$’000

HK dollar 19,752 19,518 18,029Renminbi 64,926 36,554 –Malaysia ringgit 6,004 4,123 6,788Others 419 – –

91,101 60,195 24,817

20 COMBINED CAPITAL

Combined capital as at the end of each reporting period represents the combined share capital, share premiumand capital reserves of the companies now comprising the Target Group after elimination of inter-companyinvestments.


– 47 –

21 PURCHASE CONSIDERATION PAYABLE FOR ACQUISITIONS


2013 2014 2015US$’000 US$’000 US$’000

Purchase consideration payable for acquisitions 8,852 6,477 3,271Less: Current portion of purchase consideration payable for

acquisitions (2,448) (3,236) (3,271)

6,404 3,241 –

Purchase consideration payable for acquisitions are unsecured and interest-free.

The maturity of the purchase consideration payable for acquisitions is as follows:


2013 2014 2015US$’000 US$’000 US$’000

Within 1 year 2,448 3,236 3,271Between 1 and 2 years 3,241 3,241 –Between 2 and 5 years 3,163 – –

Wholly repayable within 5 years 8,852 6,477 3,271

The carrying value of the non-current portion of the purchase consideration payable for acquisitionsapproximates its fair values as of 31 December 2013, 2014 and 2015. All purchase consideration payable foracquisitions are denominated in Macanese pantaca.

22 DEFERRED TAXATION

Deferred taxation is calculated in full on temporary differences under the liability method using the rates oftransaction prevailing in the countries in which the Target Group operates for the years ended 31 December 2013,2014 and 2015.

The movements in the net deferred tax assets are as follows:


2013 2014 2015US$’000 US$’000 US$’000

At 1 January 5,775 7,168 12,478Credited to combined profit and loss accounts (Note 7) 472 3,390 5,019Acquisition of businesses (Note 25) (525) – –Tax benefits transferred from/(utilised by) related

companies 1,250 1,913 (7)Exchange differences 196 7 (381)

At 31 December 7,168 12,478 17,109


– 48 –

Deferred tax assets are recognised for tax losses carried forward to the extent that realisation of the related taxbenefit through future taxable profits is probable. As of 31 December 2013, 2014 and 2015, the Target Group hasunrecognised tax losses of US$3,181,000, US$3,662,000 and US$8,266,000, respectively, to carry forward againstfuture taxable income, out of which US$733,000, US$822,000, US$1,076,000 will expire during 2014 – 2024.Deferred tax assets for these tax losses have not been recognised as it is not probable that related tax assets willbe utilised in the foreseeable future.

The movements in deferred tax assets and liabilities during the years, without taking into consideration theoffsetting of balances within the same tax jurisdiction, are as follows:


Deferred tax assets ProvisionsDecelerated tax

depreciation allowances Tax losses Others Total

2013 2014 2015 2013 2014 2015 2013 2014 2015 2013 2014 2015 2013 2014 2015US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000

As at 1 January 9,227 9,780 9,132 824 291 142 – 1,570 7,229 459 511 535 10,510 12,152 17,038Tax benefits (utilised by)/

transferred from relatedcompanies – – – (115) (120) (7) 1,365 2,033 – – – – 1,250 1,913 (7)

Credited/(charged) tocombined profit and lossaccounts 605 (464) (1,066) (411) (29) (4) 185 3,686 5,454 83 23 297 462 3,216 4,681

Exchange differences (52) (184) (567) (7) – (7) 20 (60) (473) (31) 1 (29) (70) (243) (1,076)

As at 31 December 9,780 9,132 7,499 291 142 124 1,570 7,229 12,210 511 535 803 12,152 17,038 20,636


Deferred tax liabilitiesAccelerated tax depreciation

allowancesIntangible assets arising from

business combinations Total

2013 2014 2015 2013 2014 2015 2013 2014 2015US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000

As at 1 January 4,735 4,567 4,073 – 417 487 4,735 4,984 4,560Charged/(credited) to combined

profit and loss account 97 (241) (265) (107) 67 (73) (10) (174) (338)Acquisition of businesses (Note 25) – – – 525 – – 525 – –Exchange differences (265) (253) (689) (1) 3 (6) (266) (250) (695)

As at 31 December 4,567 4,073 3,119 417 487 408 4,984 4,560 3,527

After offsetting balances within the same tax jurisdiction, the balances as disclosed in the combined statement offinancial position are as follows:


2013 2014 2015US$’000 US$’000 US$’000

Deferred tax assets 11,595 15,910 20,209Deferred tax liabilities (4,427) (3,432) (3,100)

7,168 12,478 17,109


– 49 –


2013 2014 2015US$’000 US$’000 US$’000

The amounts shown in the combined statement of financialposition include the following:

Deferred tax assets to be recovered after more than12 months 9,022 13,964 17,881

Deferred tax assets to be recovered within 12 months 2,573 1,946 2,328Deferred tax liabilities to be settled after more than

12 months 3,958 3,322 2,629Deferred tax liabilities to be settled within 12 months 469 110 471

23 POST-EMPLOYMENT BENEFIT OBLIGATIONS


2013 2014 2015US$’000 US$’000 US$’000

Pension obligations (Note) 1,137 – –Long-service payment liabilities 891 1,082 1,130

2,028 1,082 1,130

Note: The Target Group participates in a defined benefit plans in Hong Kong. The pension plan is final salarydefined benefit plans. The assets of the funded plans are held independently of the Target Group’s assetsin separate trustee-administered funds. The Target Group’s defined benefit plans are valued by qualifiedactuaries annually using the projected unit credit method.

The defined benefit plan is terminated during the year ended 31 December 2014 and there is no definedbenefit plan for the year ended 31 December 2015.

(i) The amount recognised in the combined statement of financial position is determined as follows:


2013 2014US$’000 US$’000

Present value of funded obligations 5,678 –Fair value of plan assets (4,541) –

Net liabilities in the combined statement of financial position 1,137 –

(ii) The amount recognised in the combined profit and loss accounts is as follows:


2013 2014US$’000 US$’000

Current service cost 288 123Gains on settlement – (1,155)Administrative expenses paid 22 13Net interest expense 15 13

Total, included in staff costs (Note 8) 325 (1,006)


– 50 –

(iii) The movements in the fair value of plan assets during the year are as follows:


2013 2014US$’000 US$’000

At 1 January 4,342 4,541Interest income 26 50Administrative expenses paid (22) (13)Contributions 228 134Benefits paid (358) (4,712)Actuarial gain on plan assets 325 –

At 31 December 4,541 –

(iv) The movements in the defined benefit obligation are as follows:


2013 2014US$’000 US$’000

At 1 January 6,872 5,678Current service cost 288 123Interest cost 41 63Gains on settlement – (1,155)Actuarial gain from changes in experiences (542) –Actuarial gain from changes in financial assumptions (630) –Benefits paid (351) (4,709)


(v) The movements in net defined benefit liabilities recognised in the combined statement of financialposition are as follows:


2013 2014US$’000 US$’000

At 1 January 2,530 1,137Total expense charged/(credited) in the combined profit and loss

accounts 325 (1,006)Remeasurements gains recognised in the combined statements of

comprehensive income (1,497) –Contributions (228) (134)Benefits paid 7 3


(vi) The principal actuarial assumptions used for accounting purposes are as follows:


2013 2014% %

Discount rate 1.9 1.9Salary growth rate 4.5 4.5


– 51 –

The sensitivity of the defined benefit obligation to changes in the principal assumptions are as follows:

Impact on defined benefit obligation

Change inassumption

Increase inassumption

Decrease inassumption

Discount rate (2013) ±0.25% –1.96% +2.01%

The above sensitivity analyses are based on a change in an assumption while holding all otherassumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions maybe correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarialassumptions, the same method has been applied as when calculating the pension liability recognisedwithin the combined statement of financial position.

No sensitivity analysis has been performed for the years ended 31 December 2014 and 2015 as there wereno defined benefit obligation as at 31 December 2014 and 2015.

(vii) Plan assets comprised:

2013%

Equity instruments 61Debt instruments 10Others 29

100

The weighted average duration of the defined benefit obligation is 8.0 years as at 31 December 2013.There is no planned assets as at 31 December 2014 and 2015.

(viii) Expected maturity analysis of benefit payments:

Within10 years

Between10-20 years

Beyond20 years

US$’000 US$’000 US$’000

Expected benefit payments:– At 31 December 2013 4,152 4,659 –

There is no expected benefits payments as at 31 December 2014 and 2015.

The Target Group is exposed to a number of risks in relation to the defined benefit obligation, the mostsignificant of which are detailed below:

Investment risk The defined benefit pension holds investments in asset classes, such asequities, which have volatile market values and while these assets areexpected to provide real returns over the long term, the short-termvolatility can cause additional funding to be required if a deficit emerges.

Interest rate risk The defined benefit pension’s liabilities are assessed using market yieldson government. As the defined benefit pension holds assets such asequities, the value of the assets and liabilities may not move in the sameway.


– 52 –

Inflation risk A significant proportion of the benefits under the defined benefit pensionare linked to inflation. Although the defined benefit pension’s assets areexpected to provide a good hedge against inflation over the long term,movements over the short term could lead to deficits emerging.

Mortality risk In the event that members live longer than assumed, a deficit will emergein the defined benefit pension.

In case of the funded plans, the Target Group ensures that the investment positions are managed withinan asset-liability matching (ALM) framework that has been developed to achieve long-term investmentsthat are in line with the obligations under the pension schemes. Within this framework, the TargetGroup’s ALM objective is to match assets to the pension obligations by investing in long-term fixedinterest securities with maturities that match the benefit payments as they fall due and in the appropriatecurrency. The Target Group actively monitors how the duration and the expected yield of the investmentsare matching the expected cash outflows arising from the pension obligations. The Target Group has notchanged the processes used to manage its risks from previous periods. The Target Group does not usederivatives to manage its risk. Investments are well diversified, such that the failure of any singleinvestment would not have a material impact on the overall level of assets.

24 NOTES TO THE COMBINED CASH FLOW STATEMENT

(a) Reconciliation of profit before taxation to net cash inflow generated from operations

2013 2014 2015US$’000 US$’000 US$’000

Profit before taxation 39,578 23,268 13,029Interest expenses 501 1,026 1,827Depreciation 5,779 6,160 5,273Amortisation of system development and software costs 218 176 164Amortisation of prepaid premium for land leases 138 133 112Amortisation of other intangible assets 501 525 525Loss on disposal of property, plant and equipment 46 411 –

Operating profit before working capital changes 46,761 31,699 20,930Increase in inventories (25,576) (36,505) (35,682)Decrease/(increase) in trade receivables, other receivables,

prepayments and deposits and due from relatedcompanies 14,377 7,387 (4,262)

(Decrease)/increase in trade payables, accrued chargesand sundry payables and due to related companies (16,900) 23,551 30,716

Net cash inflow generated from operations 18,662 26,132 11,702

(b) Analysis of changes in financing activities during the year

2013 2014 2015

Combinedcapital

Bankloans

Combinedcapital

Bankloans

Combinedcapital

Bankloans

US$’000 US$’000 US$’000 US$’000 US$’000 US$’000

At 1 January 201,154 36,269 187,876 74,119 192,016 40,660Capital (distribution)/injection (13,278) – 4,140 – 33,562 –Net drawdown/(repayment) of

bank loans – 37,850 – (33,459) – (33,956)

At 31 December 187,876 74,119 192,016 40,660 225,578 6,704


– 53 –

25 BUSINESS COMBINATIONS

During 2013, the Target Group completed certain acquisitions to expand the Target Group’s existing scale ofoperation and enlarge the Target Group’s market presence. The ultimate holding company of the Target Groupwas not required to make any announcement in accordance with Chapter 14 of the Listing Rules for anyindividual acquisition completed during 2013 since none of the acquisitions on a standalone basis, would be ofsufficient material to be recognised as a notifiable transaction, and accordingly, no disclosure is provided for thedetails and impact of any individual acquisition. The discounted aggregate estimated fair value of considerationpayable for the acquired businesses in 2013 amounted to US$24 million, which included initial considerationpaid of US$14 million and performance-based contingent considerations of US$9 million respectively. These fairvalue were determined based on applying agreed multiples to the estimated post-acquisition performance of theacquired businesses and time value of money. The estimated aggregate undiscounted total consideration foracquisition completed in 2013 amounted to approximately US$24 million with undiscounted initialconsiderations paid of approximately US$14 million and aggregate undiscounted performance-based contingentconsideration payable of US$9 million.

For the acquisitions completed in 2013, their contributions to the Target Group in 2013, the contributions and theresults of these acquisitions and the Target Group as if these acquisitions had occurred on 1 January 2013 are asfollows:

Contributionof the

acquiredbusinesses/

subsidiariesfor the year

ended31 December

2013

Contributionof the

acquiredbusinesses/

subsidiariesas if the

acquisitionshad

occurred on1 January

2013

TargetGroupresults

as if theacquisitions

hadoccurred on

1 January2013

US$’000 US$’000 US$’000

Turnover 77,854 80,900 1,314,548

Core operating profit 3,648 3,650 40,582

Profit after tax 2,901 2,878 34,080

Details of net assets acquired, goodwill and acquisition-related costs are as follows:

2013US$’000

Purchase consideration 23,791Less: Fair value of net assets acquired* (11,032)

Goodwill (Note 11) 12,759

The goodwill is attributable to the acquired workforces, profitability and synergies expected to arise from theacquired businesses.


– 54 –

The carrying amounts of the assets and liabilities, other than intangible assets arising from businesscombinations, of the acquired businesses approximate their fair values at respective acquisition dates and are asfollows:

2013US$’000

Net assets acquired:Intangible assets (Note 11)

– Customer relationshipsi 4,372– System development and software costs 23

Property, plant and equipment (Note 12) 417Inventories 5,548Trade receivablesii 9,657Other receivables, prepayments and deposits 5,097Cash and bank balances 1,540Tax payables (249)Trade and bills payables (8,519)Accrued charges and sundry payables (6,329)Deferred tax liabilities (Note 22) (525)

Fair value of net assets acquired 11,032

i Intangible assets arising from business combinations represent customer relationships. The Target Grouphas engaged external valuers to perform fair value assessments on these intangible assets in accordancewith HKAS 38 “Intangible Assets” and HKFRS 3 “Business Combination”.

ii The trade receivables net of provision of US$548,000 (Note 16) with a fair value of US$9,657,000 areexpected to be collectible in full.

Analysis of the net outflow of cash and cash equivalents in respect of the acquisitions:

2013US$’000

Purchase consideration 23,791Purchase consideration payable for acquisitions* (8,605)Cash and cash equivalents acquired (1,540)

Net outflow of cash and cash equivalents in respect of the acquisitions 13,646

* Balance is the discounted aggregate estimated fair value of deferred considerations payable for theacquired businesses as at respective acquisition dates. The balance included performance-basedcontingent considerations of US$9 million.

Note: No business acquisition occurred for the years ended 31 December 2014 and 2015.


– 55 –

26 COMMITMENTS

(a) Operating lease commitments

The Target Group leases various offices and warehouses under non-cancellable operating leaseagreements. The lease terms are between 1 and 11 years. At 31 December 2013, 2014 and 2015, the TargetGroup had total future aggregate minimum lease payments under non-cancellable operating leases asfollows:


2013 2014 2015US$’000 US$’000 US$’000

Within one year 6,536 8,818 8,144In the second to fifth year inclusive 12,926 14,205 9,259After the fifth year 14,270 11,147 7,436

33,732 34,170 24,839

(b) Capital commitments


2013 2014 2015US$’000 US$’000 US$’000

Contracted but not provided for:Property, plant and equipment 1,585 1,335 100

27 CHARGES ON ASSETS

Save as disclosed in Note 12, there were no charges on the assets and undertakings of the Target Group as at 31December 2013, 2014 and 2015.

28 RELATED PARTY TRANSACTIONS

In addition to the transactions and balances disclosed elsewhere in the Financial Information, the Target Grouphad the following material transactions with its related parties during the years ended 31 December 2013, 2014and 2015:

2013 2014 2015Notes US$’000 US$’000 US$’000

The ultimate holding company and its subsidiaries:Purchase of inventories (i) 34 340 1,098Logistics service fee charged (ii) 12,117 12,527 7,765Operating leases rental income (iii) 42 40 34Operating leases rental expenses (iii) 3,143 3,153 3,029

Related companies of the ultimate holding company:Purchase of inventories (i) 95 175 –Operating leases rental income (iii) 142 93 5Operating leases rental expenses (iii) 519 511 450Distribution and sales of goods (iv) 2,777 3,684 3,761


– 56 –

Notes:

(i) The gross purchase amount stated, which was made on normal commercial terms and conditionsmutually agreed between the Target Group and the subsidiaries and the related companies of theultimate holding company.

(ii) The invoiced value represents the logistics related services charged by subsidiaries of the ultimateholding company.

(iii) The operating leases rental expenses and income between the Target Group and the subsidiaries andrelated companies of the ultimate holding company of the Target Group, are on mutually agreed terms.

(iv) The distribution and sales of goods was made on normal commercial terms and conditions mutuallyagreed between the Target Group and the related companies of the ultimate holding company.

(v) Certain cash and bank balances, the entire bank overdrafts and bank borrowings were used by thesubsidiaries of the ultimate holding companies. The corresponding interest income for the years ended 31December 2013, 2014 and 2015 of US$469,000, US$323,000 and US$253,000, respectively and thecorresponding interest expenses for the years ended 31 December 2013, 2014 and 2015 of US$4,073,000,US$4,217,000 and US$1,181,000, respectively were not incurred and borne by the Target Group.

29 FINANCIAL RISK MANAGEMENT

The Target Group’s activities expose it to a variety of financial risks: market risk (including foreign exchangerisk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk, and liquidity risk. Theoverall risk management program of the Target Group focuses on the unpredictability of financial markets andseeks to minimise potential adverse effects on the Target Group’s financial performance.

(a) Market risk

(i) Foreign exchange risk

Most of the Target Group’s cash balances were deposits in HK dollar, US dollar, Renminbi andASEAN currencies with major global financial institutions, and the Target Group’s revenues andpayments were transacted predominantly in respective local currency. The Target Group willsubject to certain extent of risk exposure in relation to foreign exchange rate fluctuations.

For the years ended 31 December 2013, 2014 and 2015, the major foreign exchange ratefluctuations were arisen from ASEAN currencies. At 31 December 2013, 2014 and 2015, if themajor ASEAN currencies, such as Malaysia ringgit, Thai baht, Philippines peso and Singaporeandollars, to which the Target Group had exposure had strengthened/weakened by 10%, 10% and10% respectively against US dollar with all other variables held constant, profit for the year andequity would have been approximately 5%, 4%, 4% and 1%, 2%, 1% respectively higher/lower,mainly as a result of foreign exchange gains/losses on translation of foreign currenciesdenominated cash and bank balances, trade receivables, borrowings and intangible assets.

(ii) Price risk

At 31 December 2013, 2014 and 2015 and up to the report date of the accounts, the Target Groupheld no material financial derivative instruments.


– 57 –

(iii) Cash flow and fair value interest rate risk

The Target Group has no significant fair value interest rate risk as it has no material fixed interestbearing assets and liabilities. Interest expenses borne by the Target Group were mostly at variablerates, which expose the Target Group to cash flow interest rate risk. For the years ended 31December 2013, 2014 and 2015, if the variable interest rates had been 0.1% higher/lower with allother variables held constant, profit for the years and equity would have been approximatelyUS$12,000, US$28,000 and US$52,000 lower/higher respectively, mainly as a result ofhigher/lower interest expenses.

(b) Credit risk

Credit risk mainly arises from trade and other receivables as well as cash and bank balances of the TargetGroup.

Most of the Target Group’s cash and bank balances are held in major global financial institutions.

The Target Group has stringent policies in place to manage its credit risk with trade and otherreceivables, which include but are not limited to the measures set out below:

(i) The Target Group selects customers in a cautious manner. Its credit control team has implementeda risk assessment system to evaluate its customers’ financial strengths prior to agreeing at thetrade terms with individual customers.

(ii) It has in place a close monitoring system with a dedicated team to ensure on-time recoveries fromits trade debtors;

(iii) Internally it has set up rigid policies on provision made for both inventories and receivables tomotivate its business managers to step up efforts in these two areas so as to avoid any significantimpact on their financial performance.

At 31 December 2013, 2014 and 2015, except for trade receivables of US$3,067,000, US$3,298,000 andUS$3,604,000, respectively, were considered impaired and fully provided, none of the other financialassets including due from related companies (Note 15) and other receivables, prepayments and deposits(Note 16) impaired as there is no recent history of default of the counterparties. The maximum exposureof these other financial assets to credit risk at the reporting date is their carrying amounts.

(c) Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash on hand and the availability offunding through an adequate amount of committed credit facilities from the Target Group’s bankers.

Management monitors rolling forecasts of the Target Group’s liquidity and working capitalrequirements.

The table below analyses the liquidity impact of the Target Group’s long-term liabilities into relevantmaturity groupings based on the remaining period at the end of the reporting period to the contractualmaturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. Theseamounts will not reconcile to the amounts disclosed on the combined statement of financial position andin Note 21 purchase consideration payable for acquisitions.


– 58 –

Less than1 year

Between1 and

2 years

Between2 and

5 yearsOver

5 yearsUS$’000 US$’000 US$’000 US$’000

At 31 December 2013Bank loans 74,119 – – –Bank overdraft 16,982 – – –Purchase consideration payable for

acquisitions 2,448 3,280 3,271 –Trade payable 253,304 – – –Accrued charges and sundry payables 121,585 – – –Due to related companies 9,164 – – –


acquisitions 3,236 3,271 – –Trade payable 288,610 – – –Accrued charges and sundry payables 113,633 – – –Due to related companies 6,440 – – –


acquisitions 3,271 – – –Trade payable 335,945 – – –Accrued charges and sundry payables 100,659 – – –Due to related companies 2,863 – – –

Note: The amounts due to related companies (non-trade related) of US$21,938,000, US$21,924,000 andUS$22,118,000 as at 31 December 2013, 2014 and 2015 respectively are not repayable within twelvemonths.

30 CAPITAL RISK MANAGEMENT

The Target Group’s objectives for managing capital are to safeguard its ability to continue as a going concern inorder to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capitalstructure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Target Group may adjust the amount of dividends paid toshareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

Consistent with others in the industry, management of the Target Group monitors capital on the basis of the netgearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as totalborrowings including short-term bank loans (Note 19) less cash and cash equivalents (Note 17). Total capital iscalculated as total equity, as shown in the combined statement of financial position, plus net debt.


– 59 –

The Target Group’s net gearing ratios at 31 December 2013, 2014 and 2015 were as follows:

2013 2014 2015US$’000 US$’000 US$’000

Short-term bank loans (Note 19) 74,119 40,660 6,704Bank overdrafts (Note 19) 16,982 19,535 18,113

91,101 60,195 24,817Less: Cash and bank balances (Note 17) (77,211) (56,667) (43,165)

Net debt/(cash) 13,890 3,528 (18,348)

Total equity 266,669 287,428 321,437

Total capital 280,559 290,956 303,089

Net gearing ratio 5.0% 1.2% N/A

31 FAIR VALUE ESTIMATION

The Target Group adopted the amendment to HKFRS 7 for financial instruments that are measured in thecombined statement of financial position at fair value which requires disclosure of fair value measurements bylevel of the following fair value measurement hierarchy:

• Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).

• Inputs other than quoted prices included within level 1 that are observable for the asset or liability, eitherdirectly (that is, as prices) or indirectly (that is, derived from prices) (level 2).

• Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs)(level 3).

The following table presents the Target Group’s assets and liabilities that are measured at fair value at 31December 2013.

Level 1 Level 2 Level 3 TotalUS$’000 US$’000 US$’000 US$’000

LiabilitiesPurchase consideration payable for acquisitions

(Note 21) – – 8,852 8,852




(Note 21) – – 6,477 6,477


– 60 –




(Note 21) – – 3,271 3,271

The fair values of financial instruments traded in active markets are based on quoted market prices at the end ofthe reporting period. A market is regarded as active if quoted prices are readily and regularly available from anexchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actualand regularly occurring market transactions on an arm’s length basis. The quoted market price used for financialassets held by the Target Group is the current bid price. These instruments are included in level 1.

The fair values of financial instruments that are not traded in an active market (for example, over-the-counterderivatives) are determined by using valuation techniques. These valuation techniques maximise the use ofobservable market data where it is available and rely as little as possible on entity specific estimates. If allsignificant inputs required to fair value an instrument are observable, the instrument is included in level 2.

If one or more of the significant inputs is not based on observable market data, the instrument is included inlevel 3.

Specific valuation techniques used to value financial instruments include:

• Quoted market prices or dealer quotes for similar instruments.

• The fair value of forward foreign exchange contracts is determined using forward exchange rates at theend of the reporting period, with the resulting value discounted back to present value.

• Other techniques, such as discounted cash flow analysis, are used to determine fair value for theremaining financial instruments.

There were no transfer of assets between level 1, level 2 and level 3 fair value hierarchy classifications duringeach of the 3 years.

The following table presents the changes in level 3 instruments for the year ended 31 December 2013.

Purchaseconsideration

payable foracquisitions

US$’000

Opening balance –Acquisitions of businesses 8,605Others 247

Closing balance 8,852


– 61 –




US$’000

Opening balance 8,852Settlement (2,448)Others 73





US$’000

Opening balance 6,477Settlement (3,236)Others 30


The discount rate used to compute the fair value is based on the then prevailing incremental cost of borrowingsof the Target Group is approximately 2.5%.


– 62 –

32 PRINCIPAL SUBSIDIARIES

Note Principal subsidiaries

Place ofincorporationand operation

Issued and fullypaid share capital Percentage of equity held Principal activities

2013 2014 2015

(1) Bond Medical CompanyLimited

Macau MOP$100,000 100 100 100 Distribution of medicaland pharmaceuticalproducts and medicalequipment

Butler & Webster (Thailand)Limited

Thailand OrdinaryBaht 10,000,000

100 100 100 Investment Holdings

(1) Fleet Company Limited Macau MOP$100,000 100 100 100 Distribution of medicaland pharmaceuticalproducts and medicalequipment

Four Star Company Limited Macau MOP$100,000 100 100 100 Distribution of medicaland pharmaceuticalproducts and medicalequipment

(1) Four Star Construction andEngineering CompanyLimited


(1) Icare Health Care CompanyLtd.


IDS Corporate Services (S) Pte.Ltd.

Singapore Ordinary S$24,700 100 100 100 Investment holding.Distribution andprovision of servicesincludingManagement Services

IDS Manufacturing Sdn Bhd Malaysia OrdinaryMYR23,000,000

100 100 100 Manufacturing ofpharmaceutical, foodsand toiletriesproducts

IDS Services (Thailand)Limited

Thailand OrdinaryBaht 49,100

PreferenceBaht 4,951,000,25% paid up


JDH Marketing (Thailand)Limited

Thailand OrdinaryBaht 210,000,000

100 100 100 Marketing anddistribution ofhealthcare products


– 63 –




2013 2014 2015

JDH Services Limited Thailand OrdinaryBaht 38,000,000

PreferenceBaht 40,000,000


(1) LF Asia (Borneo) Sdn Bhd BruneiDarussalam

OrdinaryB$3,000,000

70 70 70 General merchandising,shipping andinsurance agency

LF Asia (Hong Kong) Limited Hong Kong OrdinaryHK$146,000,000

100 100 100 Distribution ofconsumer andpharmaceuticalproducts

LF Asia Management Limited Hong Kong OrdinaryHK$10,000

100 100 100 Provision ofmanagement andconsultancy services

LF Asia (Malaysia) Sdn. Bhd. Malaysia OrdinaryMYR14,231,002

100 100 100 Distribution ofconsumer andpharmaceuticalproducts

(1) LF Asia (Philippines), Inc. Philippines Common sharesPeso 11,983,140

100 100 100 Distribution andlogistics

LF Asia (Singapore) Pte. Ltd. Singapore Ordinary S$300,000Preference S$68,000

100 100 100 Distribution ofhealthcare products

(1) LF Asia Distribution(Guangzhou) CompanyLimited

The People’sRepublic ofChina

Registered capitalRMB10,000,000

100 100 100 Inactive

(1) LF Asia Fashion & Home(Guangzhou) CompanyLimited


Registered capitalRMB10,000,000

100 100 100 Inactive

LF Asia Distribution (Taiwan)Limited

Hong Kong Ordinary HK$1 100 100 100 Distribution ofconsumer products

(1) LF Asia Marketing (Malaysia)Sdn. Bhd.

Malaysia OrdinaryMYR1,000,000

100 100 100 Distribution ofconsumer products

LF Asia Sebor (Sabah)Holdings Sdn. Bhd.


60 60 60 Investment holding,provision ofmanagement andwarehousing services

(1) LF Asia Sebor (Sabah) Sdn.Bhd.


60 60 60 Distribution ofconsumer products


– 64 –




2013 2014 2015

(1) LF Asia Sebor (Sarawak)Holdings Sdn. Bhd.


67.09 67.09 67.09 Investment holding,provision ofmanagement andwarehousing services

(1) LF Asia Sebor (Sarawak) Sdn.Bhd.


67.09 67.09 67.09 Distribution ofconsumer products

(1) Midway Enterprises(Guangzhou) Ltd.


Registered capitalUS$8,570,000

100 100 100 Design, manufactureand distribution

Nanjing LF Asia CompanyLimited


US$5,000,000 100foreign-

ownedenterprise

100foreign-

ownedenterprise

100foreign-

ownedenterprise

Importer, export tradingand distribution ofgeneral merchandise

(1) New Star Instruments Limited Macau MOP$100,000 100 100 100 Distribution of medicaland pharmaceuticalproducts and medicalequipment

(1) PT. LF Asia DistributionIndonesia

Indonesia Ordinary US$1,000 100 100 100 Import and distributionof milk and milkproducts

(1) PT. LF Asia MarketingIndonesia

Indonesia OrdinaryUS$300,000

100 100 100 Import and distributionof cosmetics andpersonal careproducts

(1) PT. Singa Jaya Kapita Indonesia OrdinaryRp10,000,000,000

85 85 85 Investment holding

Shanghai LF Asia HealthcareCo., Ltd.


RMB6,000,000 100foreign-

ownedenterprise

100foreign-

ownedenterprise

100foreign-

ownedenterprise

Distribution ofpharmaceuticalproducts

(1) Welmed (Macau) CompanyLimited


Note (1): Subsidiaries are not audited by PricewaterhouseCoopers.

33 CONTINGENT LIABILITIES

As at 31 December 2013, 2014 and 2015, the Target Group did not have any material contingent liabilities.

34 SUBSEQUENT EVENTS

Save as those disclosed elsewhere in this report, there are no other material subsequent events taken by theTarget Group after 31 December 2015.


– 65 –

III SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the Target Company or any of thecompanies comprising the Target Group in respect of any period subsequent to 31 December2015 up to the date of this report. No dividend or distribution has been declared or made by theTarget Company or any of the companies comprising the Target Group in respect of any periodsubsequent to 31 December 2015.

IV FINANCIAL INFORMATION OF THE TARGET COMPANY

The Target Company was incorporated on 16 December 2013 in the British Virgin Islandwith an authorised capital of 1 ordinary shares of US$1.00 each and has not entered into anysignificant business transaction other than the Reorganisation. As at 31 December 2013, 2014and 2015, the Target Company had an investment in a subsidiary of US$1.00, US$1.00 andUS$1.00, an amount due to the holding company of Nil, US$1,020.00 and US$1,020.00, retainedearnings of Nil, US$1,020.00 and US$1,020.00 and an issued capital of US$1.00, US$1.00 andUS$1.00.

Yours faithfully,PricewaterhouseCoopers

Certified Public AccountantsHong Kong


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B. MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET GROUP

The following management discussion and analysis is based on the financial informationincluded in the accountant’s report on the Business as set out in Appendix II to this circular forthe three years ended 31 December 2013, 2014 and 2015.

1. REVIEW OF FINANCIAL RESULTS OF THE BUSINESS

Turnover

The Business recorded turnover of US$1,311.5 million, US$1,232.1 million andUS$1,171.2 million for each of the years ended 31 December 2013, 2014 and 2015,respectively. Turnover decreased by 6.1% for the year ended 31 December 2014 ascompared to the year ended 31 December 2013 and by 4.9% for the year ended 31December 2015 as compared to the year ended 31 December 2014.

The turnover decline was due to a change in the scope of services offered to a majorprincipal in China and the termination of two key contracts in Malaysia. The downturn ofthe Malaysian economy also had an adverse impact on consumer confidence andspending, which affected the distribution and contract manufacturing services in thecountry. Furthermore, the depreciation of the Malaysia Ringgit against the U.S. dollar hada negative translation impact as the Business reports on a U.S. dollar basis. This trend waspartly offset by the steady growth of the healthcare principals across the region,particularly in China, Hong Kong, Macao and Thailand.

Cost of sales

The Business incurred costs of sales of US$1,122.2 million, US$1,047.9 million andUS$971.7 million for each of the years ended 31 December 2013, 2014 and 2015,respectively. Cost of sales comprised of raw materials, labour and factory overheads forcontract manufacturing and goods purchased from the principals. The decrease in cost ofsales was mainly as a result of decline in turnover.

Gross profit

As a result of the above, the Business recorded a gross profit of US$189.3 million,US$184.2 million and US$199.6 million for each of the years ended 31 December 2013, 2014and 2015, respectively. The gross profit margin was 14.4%, 15.0% and 17.0% for each of theyears ended 31 December 2013, 2014 and 2015, respectively. The increase in gross profitmargin was mainly driven by a more favourable sales mix, particularly with an increasedproportion of full marketing service principals which provided higher gross profitmargins, and principal portfolio optimisation to focus on higher margin principals.


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Selling, administrative and other operating expenses

Selling, administrative and other operating expenses of the Business compriseselling expenses, administrative costs and distribution costs which were US$150.3 million,US$159.8 million and US$183.5 million for each of the years ended 31 December 2013, 2014and 2015, respectively.

Selling, administrative and other operating expenses increased by 6.3% for the yearended 31 December 2014 as compared to the year ended 31 December 2013. This wasmainly due to increase in distribution activities.

Selling, administrative and other operating expenses increased by 14.8% for the yearended 31 December 2015 as compared to the year ended 31 December 2014 was due to theincreased scope of the full marketing service business which required higher advertisingand promotion spend.

EBITDA

The Business’s EBITDA were US$46.7 million, US$31.3 million and US$20.9 millionfor each of the years ended 31 December 2013, 2014 and 2015, respectively.

The Business’s EBITDA decreased by 33.0% for the year ended 31 December 2014 ascompared to the year ended 31 December 2013, which was mainly attributable to a changein the scope of services offered to a major principal in China.

The Business’s EBITDA decreased by 33.2% for the year ended 31 December 2015 ascompared to the year ended 31 December 2014, which was mainly attributable tochallenging market conditions in China and the termination of two key contracts inMalaysia.

Income tax expense

Hong Kong profit tax and overseas income taxes have been provided based onestimated assessable profits at the rates of taxation prevailing in the countries where thebusiness operates. Taxation charged to the years ended 31 December 2013, 2014 and 2015amounted to US$5.4 million, US$2.9 million and US$1.8 million respectively. As of 31December 2013, 2014 and 2015, deferred tax assets amounting to US$11.6 million, US$15.9million and US$20.2 million were recognised, respectively. Unrecognised tax losses at 31December 2013, 2014 and 2015 amounted to US$3.2 million, US$3.7 million and US$8.3million, out of which US$0.7 million, US$0.8 million and US$1.1 million will expirebetween 2014 and 2024.

Profit attributable to shareholders of the Business

Profit attributable to shareholders of the Business for the years ended 31 December2013, 2014 and 2015 were US$34.3 million, US$22.0 million and US$12.3 million,respectively.


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Financial position

Total assets less current liabilities of the Business were US$301.5 million, US$317.1million and US$347.8 million as at 31 December 2013, 2014 and 2015, respectively.

Non-current assets

Non-current assets of the Business were US$279.2 million, US$279.5 million andUS$279.7 million as at 31 December 2013, 2014 and 2015, respectively.

Non-current assets of the Business comprise goodwill and other intangible assets,property, plant and equipment, prepaid premium for land leases and deferred tax assets.

Current assets

Current assets of the Business were US$501.9 million, US$510.5 million andUS$537.0 million as at 31 December 2013, 2014 and 2015, respectively. It comprised mainlyof inventories, trade and other receivables, prepayments and deposits and cash and bankbalances.

Current assets increased by 1.7% for the year ended 31 December 2014 as comparedto the year ended 31 December 2013 mainly due to increase in inventories and a decreasein cash and bank balances. Current assets increased by 5.2% for the year ended 31December 2015 as compared to the year ended 31 December 2014 mainly due to increase ininventories and a decrease in cash and bank balances.

Liabilities

Total liabilities of the Business were US$514.5 million, US$502.6 million andUS$495.2 million as at 31 December 2013, 2014 and 2015, respectively.

Total liabilities decreased by 2.3% for the year ended 31 December 2014 as comparedto the year ended 31 December 2013 due to a decrease on short-term bank loans.

Total liabilities decreased by 1.5% for the year ended 31 December 2015 as comparedto the year ended 31 December 2014 due to a decrease on short-term bank loans.

2. CAPITAL STRUCTURE, LIQUIDITY AND FINANCIAL RESOURCES

Capital structure

As at 31 December 2013, 2014 and 2015, the Business had total debts ofapproximately US$91.1 million, US$60.2 million and US$24.8 million and total cash andbank balance of approximately US$77.2 million, US$56.7 million and US$43.2 million,respectively. The Business obtained its funding via intercompany accounts from its parentand affiliated companies. The non-current portion of balance due to inter companies at theend of 2013, 2014 and 2015 amounted to US$21.9 million, US$21.9 million and US$22.1


– 69 –

million, respectively. Total shareholders’ equity at 31 December 2013, 2014 and 2015 wereUS$266.7 million, US$287.4 million and US$321.4 million, respectively.

Cash resources

The Business’s cash and cash equivalents (including bank overdraft) were US$60.2million, US$37.1 million and US$25.1 million as at 31 December 2013, 2014 and 2015,respectively.

The Business’s net increase/(decrease) in cash and cash equivalents for the yearsended 31 December 2013, 2014 and 2015, were US$13.4 million, (US$21.8) million and(US$10.2) million, respectively. The Business’s major outflows of funds during therelevant period were payments for the Macao healthcare acquisition and the purchase ofproperty, plant and equipment, primarily for the factory and distribution operations. Thecapital expenditures of the Business for the years ended 31 December 2013, 2014 and 2015were US$7.3 million, US$5.0 million and US$7.5 million, respectively.

The Business had net cash generated from operating activities in the amount ofUS$11.0 million, US$18.4 million and US$4.9 million, respectively for the years ended 31December 2013, 2014 and 2015.

The Business paid dividends for the years ended 31 December 2013, 2014 and 2015were US$2.8 million, nil and US$2.9 million respectively.

Bank borrowings and facilities

During the relevant periods, the Business primarily obtained its financing from itsparent and affiliated companies on an interest free basis. During the relevant periods,bank borrowings and facilities were managed and arranged by the parent for the benefit ofthe entire group. The Business’ bank borrowings are mainly denominated in Hong Kongdollars and Malaysian Ringgit (MYR). The bank borrowings are short term in nature andcontractual re-pricing dates are three months or shorter. The Business’ cash and cashequivalents are primarily held in Hong Kong dollars, US dollars and Thai Baht.

3. RATIOS

The net gearing ratio of Business is calculated as net debt divided by total capital. Net debtis calculated as total bank borrowings less cash and bank balances. Total capital is the totalequity as shown in the combined statements of financial position, plus net debt. The Businesshas historically been funded through shareholders’ fund, funding from the Target Group’sparent and subsidiary companies and bank borrowings.


– 70 –

4. EMPLOYEE AND REMUNERATION POLICIES

The Business employed a total of 3,175, 3,109 and 3,146 full-time employees as at 31December 2013, 2014 and 2015, respectively. Staff costs for the years ended 31 December 2013,2014 and 2015 were US$71.4 million, US$72.8 million and US$74.4 million, respectively. TheBusiness operates a bonus plan, shares grant and option scheme to reward the staff on the basisof performance, and such remuneration policy is in line with prevailing market practice. TheBusiness also provides training and development programs for its employees.

5. FOREIGN EXCHANGE EXPOSURE

The Business operates in ten countries in Asia and is therefore exposed to foreignexchange risk. The Business’ policy is to enter into foreign currency contracts to hedge againstpurchase transactions denominated in foreign currencies and restrict from engaging inspeculative foreign exchange transactions.

6. CONTINGENT ASSETS AND LIABILITIES

The Business did not have any contingent liabilities as at 31 December 2013, 2014 and2015.

7. ACQUISITION AND DISPOSAL AND SIGNIFICANT INVESTMENTS

In February 2013, the Business acquired certain subsidiaries which included a leadingdistributor of healthcare products in Macao, for a total consideration of US$24 million. Duringthe years ended 31 December 2013, 2014, 2015, there were no other material acquisitions anddisposals of any subsidiaries, joint ventures and associated companies held by the Business.

During the years ended 31 December 2013, 2014, 2015, there were no significantinvestments held by the Business.

8. CHARGES ON ASSETS

There are charges in place on the Business’ properties in Malaysia with net book value ofUS$2.5 million to secure bank loans of US$3.3 million as at 31 December 2015.

9. PROSPECTS AND OUTLOOK

There are currently no significant future plans for the material investments or capitalassets of the Business. The Business is on track in repositioning its business in the Chinaconsumer business. The planned restructuring and focus on high margin blue-chip customersare showing early signs of success. The Business will continue to focus on growing the businessby expanding volume and services with existing principals and converting new principals fromthe pipeline.


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A. UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED

GROUP

The following is the unaudited pro forma financial information of the Enlarged Group,being the Group together with the Target Company and its subsidiaries (collectively the “Target

Group”), as if the Acquisition had been completed on 31 December 2015 for the unaudited proforma consolidated statement of assets and liabilities. Details of the Acquisition are set out inthe section headed “Letter from the Board” contained in this circular.

The unaudited pro forma financial information of the Enlarged Group has been preparedin accordance with paragraph 4.29 of the Listing Rules and has been prepared by the Directors ofthe Company for the purpose of illustrating the effect of the Acquisition pursuant to the terms ofthe Sale and Purchase Agreement. The unaudited pro forma financial information was preparedbased on a number of assumptions, estimates and uncertainties. Because of its hypotheticalnature, the unaudited pro forma financial information may not give a true picture of thefinancial position of the Enlarged Group had the Acquisition been completed as of the specifieddates or any future date. Further, the unaudited pro forma consolidated statement of assets andliabilities of the Enlarged Group does not purport to predict the Enlarged Group’s futurefinancial position after Completion.

The unaudited pro forma financial information of the Enlarged Group is based upon: (i)the audited consolidated statement of financial position of the Group as at 31 December 2015,which has been extracted from the Company’s annual report for the year ended 31 December2015; (ii) the audited combined statement of financial position of the Target Group as at 31December 2015 as set out in the accountant’s report of the Target Group in Appendix II to thiscircular, and adjusted on a pro forma basis to reflect the effect of the Acquisition. These proforma adjustments are (i) directly attributable to the Acquisition and not relating to other futureevents or decisions and (ii) factually supportable.

The unaudited pro forma financial information should be read in conjunction with thehistorical financial information of the Group set out in the Company’s annual report for the yearended 31 December 2015, the accountant’s report on the financial information of the TargetGroup as set out in Appendix II to this circular and other financial information contained in thiscircular.

APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATIONOF THE ENLARGED GROUP

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B. UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF ASSETS ANDLIABILITIES

Pro forma adjustments

The GroupThe Target

GroupThe Target

Group

TheEnlarged

GroupHK$ million US$’000 HK$ million HK$ million HK$ million HK$ million HK$ million

(Note 1) (Note 2) (Note 2) (Note 3) (Note 4) (Note 5)

Non-current assetsProperty, plant and equipment 3,485 28,134 218 27 – – 3,730Investment properties 384 – – – – – 384Lease prepayments 568 1,795 14 52 – – 634Intangible assets 861 6,365 49 425 – – 1,335Goodwill 636 223,200 1,732 (83) – – 2,285Interests in associates 350 – – – – – 350Interests in joint ventures 411 – – – – – 411Available-for-sale investments 7 – – – – – 7Finance lease receivables 48 – – – – – 48Deferred tax assets 115 20,209 157 (95) – – 177

6,865 279,703 2,170 326 – – 9,361

Current assetsInventories 6,811 252,421 1,958 – – – 8,769Trade and other receivables 6,348 241,380 1,873 – – – 8,221Current tax recoverable 24 – – – – – 24Cash and bank deposits 1,110 43,165 335 – (38) – 1,407

14,293 536,966 4,166 – (38) – 18,421

Current liabilitiesBorrowings 2,455 24,817 193 – – – 2,648Trade and other payables 4,575 442,738 3,435 2,675 – 172 10,857Current tax payable 127 1,329 10 – – – 137

7,157 468,884 3,638 2,675 – 172 13,642

Net current assets/(liabilities) 7,136 68,082 528 (2,675) (38) (172) 4,779

Total assets less current liabilities 14,001 347,785 2,698 (2,349) (38) (172) 14,140

Non-current liabilitiesBorrowings 4,095 – – – – – 4,095Put option written on

non-controlling interest 158 – – – – – 158Deferred tax liabilities 260 3,100 24 97 – – 381Due to related companies – 22,118 172 – – (172) –Other non-current liabilities – 1,130 9 – – – 9

4,513 26,348 205 97 – (172) 4,643

Net assets/(liabilities) 9,488 321,437 2,493 (2,446) (38) – 9,497


– 73 –

C. NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OFASSETS AND LIABILITIES

1. The pro forma consolidated statement of assets and liabilities at 31 December 2015set out in this circular does not constitute the Company’s statutory annualconsolidated financial statements for that year but is derived from those financialstatements. The Company has delivered the financial statements for the year ended31 December 2015 to the Registrar of Companies as required by the Hong KongCompanies Ordinance. The Company’s auditor has reported on those financialstatements. The auditor ’s report was unqualified and did not include a reference toany matters to which the auditor drew attention by way of emphasis withoutqualifying its report.

2. The assets and liabilities of the Target Group in United States Dollars are extractedfrom the combined statement of financial position of the Target Group as at 31December 2015 as set out in the Accountant’s Report set forth in Appendix II to thiscircular. For the purpose of the unaudited pro forma financial information, US$1 istranslated to HK$7.758 (the exchange rate prevailing on 31 December 2015) andcertain reclassifications have been made to conform with the Group’s presentation.

3. Upon the Completion of the Acquisition, the identifiable assets and liabilities of theTarget Group will be accounted for in the consolidated financial statements of theEnlarged Group at their fair values as required by the acquisition method inaccordance with Hong Kong Financial Reporting Standard (“HKFRS”) 3 (Revised)“Business Combinations”.

For the purpose of the unaudited pro forma financial information of the EnlargedGroup and for illustrative purpose only, the allocation of the purchase price isdetermined based on the carrying amount of the Target Group’s identifiable assetsand liabilities as at 31 December 2015 and an estimated increase in fair value ofintangible assets, lease prepayments and properties of HK$425 million, HK$52million and HK$27 million respectively. The effect on deferred tax liabilities arisingfrom the fair value adjustments was HK$97 million in aggregate.

The fair value of intangible assets, lease prepayments and properties are appraisedby independent valuers with recognised professional qualifications and relevantexperience. The fair value of the intangible assets is appraised using the incomeapproach. The fair values of certain lease prepayments and properties owned by theTarget Group are using direct comparison approach and cost approach respectively.

The carrying amount of the deferred tax assets at 31 December 2015 is reviewed.Based on the expected manner of realisation following the Acquisition, the carryingamount of the deferred tax assets at 31 December 2015 is reduced by HK$95 million.


– 74 –

Goodwill is estimated as follows:

HK$’ million

Consideration– Cash 2,715– Cash-free, debt-free and working capital adjustments (40)

Adjusted consideration (Note a) 2,675Net assets acquired (after non-controlling interest and

excluded goodwill of the Target Group) 714Fair value adjustments on the Target Group 312

Goodwill (Note b) 1,649

Notes:

(a) As described in the “Letter from the Board” of this circular, the adjusted consideration equals tothe sum of US$350 million and an amount representing the cash-free, debt-free and workingcapital adjustments as estimated in accordance with the provisions of the Sale and PurchaseAgreement. The Group intends to finance the Acquisition with a combination of its internalresources and external financing from banks.

(b) The amounts of goodwill and fair value of the identifiable assets and liabilities of the TargetGroup on the Completion Date are subject to (i) the completion of the valuation of the fair value ofthe identifiable assets and liabilities of the Target Group on the Completion Date and (ii) thefinancial position of the Target Group on the Completion Date. Accordingly, the amounts ofgoodwill and fair value of the identifiable assets and liabilities of the Target Group may bematerially different from the estimated amounts used in the preparation of the unaudited proforma financial information presented above.

For the purpose of the unaudited pro forma financial information, the Directors have assessedwhether there is any impairment in respect of the goodwill expected to arise from the Acquisitionfollowing the principles set out in Hong Kong Accounting Standard 36 “Impairment of Assets”.Based on the Directors’ assessment, the Directors consider that there is no impairment indicatoron the goodwill with assumed values set out above.

4. This adjustment represents the settlement of the estimated transaction costs for theAcquisition of approximately HK$38 million.

5. This non-trade related amount due to related companies of the Target Group is notrepayable within twelve months as set out in the accountant’s report of the TargetGroup in Appendix II to this circular. The Group has reclassified it as a currentliability as this amount shall be settled as soon as practicable after Completion.

6. No other adjustments have been made to reflect any trading results or othertransactions of the Group and the Target Group entered into subsequent to 31December 2015.


– 75 –

The following is the text of a report received from the reporting accountants, KPMG, Certified

Public Accountants, Hong Kong, in respect of the Group’s pro forma financial information for the

purpose in this circular.

8th FloorPrince’s Building10 Chater RoadCentralHong Kong

24 May 2016

INDEPENDENT REPORTING ACCOUNTANTS’ ASSURANCE REPORT ON THE

COMPILATION OF PRO FORMA FINANCIAL INFORMATION

TO THE DIRECTORS OF DAH CHONG HONG HOLDINGS LIMITED

We have completed our assurance engagement to report on the compilation of pro formafinancial information of Dah Chong Hong Holdings Limited (the “Company”) and itssubsidiaries (collectively the “Group”) by the directors of the Company (the “Directors”) forillustrative purposes only. The pro forma financial information consists of the unaudited proforma consolidated statement of assets and liabilities as at 31 December 2015 and related notesas set out in Part A to C of Appendix III to the circular dated 24 May 2016 (the “Circular”) issuedby the Company. The applicable criteria on the basis of which the Directors have compiled thepro forma financial information are described in Part A to C of Appendix III to the Circular.

The pro forma financial information has been compiled by the Directors to illustrate theimpact of the proposed acquisition of Li & Fung’s Asia consumer and healthcare distributionbusiness (the “Proposed Acquisition”) on the Group’s financial position as at 31 December 2015as if the Proposed Acquisition had taken place at 31 December 2015. As part of this process,information about the Group’s financial position as at 31 December 2015 has been extracted bythe Directors from the consolidated financial statements of the Company for the year thenended, on which an audit report has been published.

Directors’ Responsibilities for the Pro Forma Financial Information

The Directors are responsible for compiling the pro forma financial information inaccordance with paragraph 4.29 of the Rules Governing the Listing of Securities on The StockExchange of Hong Kong Limited (the “Listing Rules”) and with reference to AccountingGuideline 7 “Preparation of Pro Forma Financial Information for Inclusion in InvestmentCirculars” (“AG 7”) issued by the Hong Kong Institute of Certified Public Accountants(“HKICPA”).


– 76 –

Our Independence and Quality Control

We have complied with the independence and other ethical requirements of the Code ofEthics for Professional Accountants issued by the HKICPA, which is founded on fundamentalprinciples of integrity, objectivity, professional competence and due care, confidentiality andprofessional behavior.

The firm applies Hong Kong Standard on Quality Control 1 and accordingly maintains acomprehensive system of quality control including documented policies and proceduresregarding compliance with ethical requirements, professional standards and applicable legaland regulatory requirements.

Reporting Accountants’ Responsibilities

Our responsibility is to express an opinion, as required by paragraph 4.29(7) of the ListingRules, on the pro forma financial information and to report our opinion to you. We do not acceptany responsibility for any reports previously given by us on any financial information used inthe compilation of the pro forma financial information beyond that owed to those to whom thosereports were addressed by us at the dates of their issue.

We conducted our engagement in accordance with Hong Kong Standard on AssuranceEngagements (“HKSAE”) 3420 “Assurance Engagements to Report on the Compilation of ProForma Financial Information Included in a Prospectus” issued by the HKICPA. This standardrequires that the reporting accountants plan and perform procedures to obtain reasonableassurance about whether the Directors have compiled the pro forma financial information inaccordance with paragraph 4.29 of the Listing Rules, and with reference to AG 7 issued by theHKICPA.

For purpose of this engagement, we are not responsible for updating or reissuing anyreports or opinions on any historical financial information used in compiling the pro formafinancial information, nor have we, in the course of this engagement, performed an audit orreview of the financial information used in compiling the pro forma financial information.

The purpose of pro forma financial information included in an investment circular issolely to illustrate the impact of a significant event or transaction on the unadjusted financialinformation of the Group as if the event had occurred or the transaction had been undertaken atan earlier date selected for purposes of the illustration. Accordingly, we do not provide anyassurance that the actual outcome of the events or transactions at 31 December 2015 would havebeen as presented.


– 77 –

A reasonable assurance engagement to report on whether the pro forma financialinformation has been properly compiled on the basis of the applicable criteria involvesperforming procedures to assess whether the applicable criteria used by the Directors in thecompilation of the pro forma financial information provide a reasonable basis for presenting thesignificant effects directly attributable to the event or transaction, and to obtain sufficientappropriate evidence about whether:

• the related pro forma adjustments give appropriate effect to those criteria; and

• the pro forma financial information reflects the proper application of thoseadjustments to the unadjusted financial information.

The procedures selected depend on the reporting accountants’ judgement, having regardto the reporting accountants’ understanding of the nature of the Group, the event or transactionin respect of which the pro forma financial information has been compiled, and other relevantengagement circumstances.

The engagement also involves evaluating the overall presentation of the pro formafinancial information.

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

Opinion

In our opinion:

a) the pro forma financial information has been properly compiled on the basis stated;

b) such basis is consistent with the accounting policies of the Group, and

c) the adjustments are appropriate for the purposes of the pro forma financialinformation as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

KPMG

Certified Public Accountants

Hong Kong


– 78 –

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept fullresponsibility, includes particulars given in compliance with the Listing Rules for the purpose ofgiving information with regard to the Company. The Directors having made all reasonableenquiries, confirm that to the best of their knowledge and belief the information contained inthis circular 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 thiscircular misleading.

2. DISCLOSURE OF INTERESTS

Interests of Directors of the Company

At the Latest Practicable Date, the interests and short positions of the Directors inthe Shares, underlying Shares and debentures of the Company or any of its associatedcorporations (within the meaning of Part XV of the SFO) which were required to benotified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XVof the SFO (including interests and short positions which were taken or deemed to havebeen taken under such provisions of the SFO); or were required, pursuant to section 352 ofthe SFO, to be entered in the register of the Company referred to therein; or were requiredpursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the“Model Code”) to be notified to the Company and the Stock Exchange were as follows:

(a) Long position in the Shares

Name of DirectorPersonalinterests Total

Approximatepercentage

to the numberof issued Shares

Yip Moon Tong 1,000,000 1,300,000(Note) 0.071%Lau Sei Keung 180,000 180,000 0.010%Glenn Robert Sturrock Smith 50,000 50,000 0.003%

Note: Interests jointly held with his spouse, Ms. Sham Wai King, Eva, in respect of 300,000 Shares.

APPENDIX IV GENERAL INFORMATION

– 79 –

(b) Underlying Shares of the Company

Name of DirectorDate of

grantExercise

period(Note)

Exerciseprice

per share

Number ofshare options

outstandingHK$

Yip Moon Tong 8.6.2012 8.6.2013–7.6.2017 7.40 1,800,00030.4.2014 30.4.2015–29.4.2019 4.93 1,800,000

Lau Sei Keung 8.6.2012 8.6.2013–7.6.2017 7.40 1,450,00030.4.2014 30.4.2015–29.4.2019 4.93 1,450,000

Glenn Robert Sturrock Smith 8.6.2012 8.6.2013–7.6.2017 7.40 1,100,00030.4.2014 30.4.2015–29.4.2019 4.93 1,100,000

Note: The share options granted are subject to a vesting scale. 25% of the share options granted will veston the first anniversary of the date of grant. A further 25% will vest on the second anniversary ofthe date of grant and the remaining 50% of the share options granted will vest on the thirdanniversary of the date of grant. The vested options are exercisable in whole or in part within 5years from the date of grant.

(c) Interests in the shares of the associated corporations of the Company

Name of DirectorName ofassociated corporation

Number ofshares


to the numberof issued shares

Lau Sei Keung CITIC Limited 1,000 0.000003%Kwok Man Leung CITIC Telecom

InternationalHoldings Limited

150,000 0.004%

Cheung Kin Piu, Valiant China CITIC BankCorporation Limited

1,094,400 0.007%

Save as disclosed herein, at the Latest Practicable Date, none of the Directors hadany interests or short position in any Shares, underlying Shares or debentures of theCompany or any of its associated corporations (within the meaning of Part XV of the SFO)which were required to be notified to the Company and the Stock Exchange pursuant toDivisions 7 and 8 of Part XV of the SFO (including interests and short positions whichwere taken or deemed to have been taken under such provisions of the SFO); or wererequired, pursuant to Section 352 of the SFO, to be entered in the register of the Companyreferred to therein; or were required, pursuant to the Model Code to be notified to theCompany and the Stock Exchange.


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(d) Substantial Shareholders

As at the Latest Practicable Date, so far as was known to the Directors, the interestsof the substantial Shareholders, other than the Directors or their respective associate(s), inthe Shares as recorded in the register of interests in Shares and short positions required tobe kept under section 336 of the SFO were as follows:

NameNumber of

Shares


to the numberof issued Shares

CITIC Group Corporation 1,027,307,000 56.07%CITIC Limited 1,027,307,000 56.07%CITIC Pacific Limited 1,027,307,000 56.07%Davenmore Limited 1,018,800,000 55.61%Colton Pacific Limited 800,922,200 43.72%Chadacre Developments Limited 245,102,000 13.38%Ascari Holdings Ltd. 217,877,800 11.89%Cornaldi Enterprises Limited 95,317,400 5.20%

Ascari Holdings Ltd. (“Ascari”) was deemed to be interested in 217,877,800 Sharesthrough Silver Ray as to 55,877,800 Shares, Grogan as to 81,000,000 Shares and Greenlaneas to 81,000,000 Shares.

Colton beneficially held 378,802,200 Shares and was deemed to be interested in422,120,000 additional Shares held by Chadacre as to 245,102,000 Shares, Cornaldi as to95,317,400 Shares, Corton as to 54,467,000 Shares, Dashing as to 13,616,800 Shares andKaraganda as to 13,616,800 Shares.

Davenmore Limited (“Davenmore”) was deemed to be interested in 1,018,800,000Shares as Colton and Ascari were its wholly-owned subsidiaries.

CITIC Pacific was deemed to be interested in 1,027,307,000 Shares through its directwholly-owned subsidiary, Davenmore as to 1,018,800,000 Shares and its indirectwholly-owned subsidiary, Hainsworth as to 8,507,000 Shares.

CITIC was deemed to be interested in 1,027,307,000 Shares through its directwholly-owned subsidiary, CITIC Pacific.

CITIC Group Corporation was deemed to be interested in 1,027,307,000 Sharesthrough its wholly-owned subsidiaries, with CITIC Polaris Limited (“CITIC Polaris”) andCITIC Glory Limited (“CITIC Glory”) respectively interested in 32.53% and 25.60% of theissued shares of CITIC.


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Save as disclosed above, the Company has not been notified of any other relevantinterests or short positions in the Shares as at the Latest Practicable Date which would fallto be disclosed to the Company under the provisions of Divisions 2 and 3 of part XV of theSFO, or which were recorded in the register required to be kept by the Company undersection 336 of the SFO.

At the Latest Practicable Date, none of the Directors was interested, directly orindirectly, in any assets which have been acquired or disposed of by or leased to anymember of the Enlarged Group, or which are proposed to be acquired or disposed of by orleased to any member of the Enlarged Group since 31 December 2015 (being the date towhich the latest published audited financial statements of the Group were made up).

At the Latest Practicable Date, none of the Directors was materially interested in anycontract or arrangement, which was subsisting and was significant in relation to thebusiness of the Enlarged Group.

Save as disclosed below, as at the Latest Practicable Date, none of the Directors wasa director or employee of a company which had an interest or short position in the Shares,underlying Shares or debentures of the Company which would fall to be disclosed to theCompany under the provisions of Divisions 2 and 3 of Part XV of the SFO.

Name of DirectorName of companies of which the Director is a directoror employee (as the case may be)

Zhang Jijing CITIC Polaris, CITIC Glory, CITIC Pacific, Greenlane,Grogan, Silver Ray, Colton, Chadacre, Cornaldi, Corton,Karaganda, Dashing, CITIC Hong Kong (Holdings)Limited (“CITIC Hong Kong”) and Hainsworth

Kwok Man Leung CITIC Pacific, Wealth Ease Limited, Davenmore and Ascari

Fei Yiping CITIC Pacific, Davenmore, Ascari, Greenlane, Grogan,Silver Ray, Colton, Chadacre, Cornaldi, Corton,Karaganda, Dashing, CITIC Hong Kong and Hainsworth

3. EXPERTS AND CONSENTS

The following is the qualification of the experts who have provided advice referred to orcontained in this circular:

Name Qualification

PricewaterhouseCoopers Certified Public Accountants

KPMG Certified Public Accountants


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Each of PricewaterhouseCoopers and KPMG has given and has not withdrawn its writtenconsent to the issue of this circular with the inclusion of its letter and/or report and/orreferences to its name in the form and context in which they respectively appear.

4. EXPERTS’ INTEREST

Each of PricewaterhouseCoopers and KPMG has confirmed that as at the LatestPracticable Date:

(a) it did not have any shareholding interest in any member of the Group or the right(whether legally enforceable or not) to subscribe for or to nominate persons tosubscribe for any securities in any member of the Group; and

(b) it was not interested, directly or indirectly, in any assets which have been acquiredor disposed of by or leased to any member of the Enlarged Group, or which areproposed to be acquired or disposed of by or leased to any member of the Groupsince 31 December 2015 (being the date to which the latest published auditedfinancial statements of the Group were made up).

5. SERVICE CONTRACTS

At the Latest Practicable Date, none of the Directors had entered into, with any member ofthe Group, a service contract which is not expiring or determinable by the employer within oneyear without payment of compensation (other than statutory compensation).

6. MATERIAL LITIGATION

At the Latest Practicable Date, there was no litigation or claim of material importance thatis known to the Directors to be pending or threatened against any member of the EnlargedGroup.

7. COMPETING INTERESTS OF DIRECTORS

As at the Latest Practicable Date, so far as the Directors were aware, none of the Directorsor their respective close associates (as defined in the Listing Rules) had any interest in a businesswhich competes or may compete with the business of the Group, or has or may have any otherconflicts of interest with the Group pursuant to Rule 8.10 of the Listing Rules.

8. NO MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material adversechanges in the financial or trading position of the Group since 31 December 2015 (being the dateto which the latest published audited financial statements of the Group were made up).


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9. MATERIAL CONTRACTS

The following contracts have been entered into by the Enlarged Group (not being contractentered into in the ordinary course of business) within two years immediately preceding thedate of this circular:

(a) the Sale and Purchase Agreement;

(b) a sale and purchase agreement dated 21 January 2015 entered into among Mr. SzeKwok Yiu, Larry (“Mr Sze”) as the seller, Ultra Vision Investments Limited (“Ultra

Vision”) as the purchaser and Dah Chong Hong, Limited (“DCHL”) as thepurchaser ’s guarantor relating to the sale and purchase of sale shares representing70% of the issued shares of Gilman Group Limited (“GGL”) and Leader SynergyLimited (“LSL”); and grant of put option;

(c) a shareholders’ agreement relating to GGL dated 31 January 2015 entered intoamong GGL, Mr. Sze, Ultra Vision and DCHL setting out the terms and conditionsfor the management and control of GGL and upon which each of them is investingGGL;

(d) a shareholders’ agreement relating to LSL dated 31 January 2015 entered into amongLSL, Mr. Sze, Ultra Vision and DCHL setting out the terms and conditions for themanagement and control of LSL and upon which each of them is investing LSL; and

(e) a shareholders’ agreement and ancillary matters relating to establishment of PacificLeisure Boat Limited (“PLBL”) dated 2 July 2014 entered into among DCH MarineLimited, Gondwana Capital Management Limited, Princess Yachts Southern ChinaLimited, Mr. Law Siu Wah, Eddie and PLBL to set up a joint venture company PLBLto carry on the business of distribution and sale of motor yachts and provision ofafter-sales service of motor yachts in the People’s Republic of China, Hong Kongand Macao.

10. GENERAL

(a) The registered office of the Company is at 8th Floor, DCH Building, 20 Kai CheungRoad, Kowloon Bay, Hong Kong.

(b) The share registrar of the Company is Tricor Investor Services Limited, Level 22,Hopewell Centre, 183 Queen’s Road East, Hong Kong.


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(c) The company secretary of the Company is Ms. Kam Yiu Sai, Florence, who is amember of Hong Kong Institute of Chartered Secretaries and The Institute ofChartered Secretaries and Administrators in the United Kingdom.

(d) This circular is in both English and Chinese. In the event of inconsistency, theEnglish text shall prevail over the Chinese text.

11. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal businesshours at 8th Floor, DCH Building, 20 Kai Cheung Road, Kowloon Bay, Hong Kong from the dateof this circular and up to and including the date which is 14 days from the date of this circular:

(a) the articles of association of the Company;

(b) the accountant’s report on the Target Group issued by PricewaterhouseCoopers asset out in Appendix II to this circular;

(c) the report on the unaudited pro forma financial information of the Enlarged Groupissued by KPMG as set out in Appendix III to this circular;

(d) the written consent(s) referred to in the section headed “Experts and Consents” inthis appendix;

(e) each of the material contracts referred to in the section headed “Material Contracts”in this appendix;

(f) the annual reports of the Company for the years ended 31 December 2015,31 December 2014 and 31 December 2013; and

(g) this circular.


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this circular is important and requires … - dchh - project...acquisition of li & fung’s asia...

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