For example, in January 2016, the FASB issued Accounting Standards Update No. (ASU) 2016-01, "Recognition and Measurement of Financial Assets and Financial Liabilities." Amendments under ASU 2016-01, among other items, require that all equity investments in unconsolidated entities (other than those accounted for using the equity method of accounting), such as our investment in Sartorius AG, will be measured at fair value through earnings. The impact of adoption of ASU 2016-01 in the first quarter of 2018 materially impacted our Consolidated Statement of Income due to our investment in Sartorius AG. In future periods, changes in the market value of our investment in Sartorius AG may continue to materially impact our Consolidated Statement of Income.

Also for example, in February 2016, the FASB issued ASU 2016-02, "Leases," which will require, among other items, lease accounting to recognize most leases as assets and liabilities on the balance sheet. We will adopt ASU 2016-02 on a modified retrospective basis effective January 1, 2019 with practical expedients. Where we act as a lessee, the adoption of the standard will result in material additions to the balance sheet for right-of-use assets and the associated liabilities. Where we act as a lessor in reagent rental arrangements, we estimate an insignificant impact to our consolidated financial statements.

# We may incur losses in future periods due to write-downs in the value of financial instruments.

We have positions in a variety of financial instruments including asset backed securities and other similar instruments. Financial markets are volatile and the markets for these securities can be illiquid. The value of these securities will continue to be impacted by external market factors including default rates, changes in the value of the underlying property, such as residential or commercial real estate, rating agency actions, the prices at which observable market transactions occur and the financial strength of various entities, such as financial guarantors who provide insurance for the securities. Should we need to convert these positions to cash, we may not be able to sell these instruments without significant losses due to current debtor financial conditions or other market considerations.

We also have positions in equity securities, including our investment in Sartorius AG. Financial markets are volatile and the markets for these equity securities can be illiquid as well. A decline in the market value of our investment in Sartorius AG or in the market value of the other equity securities that we own could result in significant losses due to write-downs in the value of the equity securities. In addition, if we need to convert these positions to cash, we may not be able to sell these equity securities without significant losses.

# Environmental, health and safety regulations and enforcement proceedings may negatively impact our business, results of operations and financial condition.

Our operations are subject to federal, state, local and foreign environmental laws and regulations that govern such activities as transportation of goods, emissions to air and discharges to water, as well as handling and disposal practices for solid, hazardous and medical wastes. In addition to environmental laws that regulate our operations, we are also subject to environmental laws and regulations that create liability and clean-up responsibility for spills, disposals or other releases of hazardous substances into the environment as a result of our operations or otherwise impacting real property that we own or operate. The environmental laws and regulations also subject us to claims by third parties for damages resulting from any spills, disposals or releases resulting from our operations or at any of our properties. We must also comply with various health and safety regulations in the United States and abroad in connection with our operations.

We may in the future incur capital and operating costs to comply with currently existing laws and regulations, and possible new statutory enactments, and these expenditures may be significant. We have incurred, and may in the future incur, fines related to environmental matters and/or liability for costs or damages related to spills or other releases of hazardous substances into the environment at sites where we have operated, or at off-site locations where we have sent hazardous substances for disposal. We cannot assure you, however, that such matters or any future obligations to comply with environmental or health and safety laws and regulations will not adversely affect our business, results of operations or financial condition.


# Supplemental Materials

Proof of The Maximization of The Mutual Information, \( \operatorname { I } [ x ^ { t } ; y ^ { t } ] : \) In this section, we prove that the maximization of the mutual information,\( \operatorname { I } [ x ^ { t } ; y ^ { t } ] \), and Eq.(8) are equivalent to equality in Eq.(3), under suitable conditions. First, we note that we can replace \( \ensuremath { \dot { \nu } } ( x ^ { t } | x ^ { t + 1 } , y ^ { t } ) \) by \( \nu ( x ^ { t } | x ^ { t + 1 } , y ^ { t } , y ^ { t + 1 } ) \) in Eqs.(3), (4), (5), (6) and (7). In this case, equality in Eq.(3) follows from equality in the Jensen inequality \( ( \exp F ( Z ) = \operatorname { E } [ \exp F ( Z ) ] \) with probability 1):

\[ e ^ { - I _ { t r } ^ { t + 1 } - \widehat { \Theta } _ { \nu } ^ { t } } = \mathrm { E } [ e ^ { - I _ { t r } ^ { t + 1 } - \widehat { \Theta } _ { \nu } ^ { t } } ] = 1 . \eqno ( 1 4 ) \]

This implies −It+1 bttr −Θν = 0 with probability 1. By rearranging terms, we have

\[ \nu ( x ^ { t } | x ^ { t + 1 } , y ^ { t } , y ^ { t + 1 } ) = p _ { s } ( x ^ { t } | y ^ { t + 1 } , y ^ { t } , x ^ { t + 1 } ) . \eqno ( 1 5 ) \]

Hence, by including \( y ^ { t + 1 } \) as a conditioning variable of \( \nu \), we can easily obtain the equality. However, by reducing the number of conditioning variables, we can also obtain the maximization of the mutual information,\( \operatorname { I } [ x ^ { t } ; y ^ { t } ] \), as we noted in the main text. We prove this in the following.

First, we obtain an explicit expression of the optimal \( \nu ( x ^ { t } | x ^ { t + 1 } , y ^ { t } ) \) in Eq.(8) from the following inequality:

\[ \mathbb { E } \left[ \log \frac { \nu ( x ^ { t } | y ^ { t } , x ^ { t + 1 } ) } { p _ { s } ( x ^ { t } | y ^ { t } , x ^ { t + 1 } ) } \right] = \sum _ { u ^ { t } , x ^ { t + 1 } } p _ { s } ( y ^ { t } , x ^ { t + 1 } ) \sum _ { x ^ { t } } p _ { s } ( x ^ { t } | y ^ { t } , x ^ { t + 1 } ) \log \frac { \nu ( x ^ { t } | y ^ { t } , x ^ { t + 1 } ) } { p _ { s } ( x ^ { t } | y ^ { t } , x ^ { t + 1 } ) } \leq 0 . \qquad \qquad \qquad ( 1 6 ) \]

The above inequality is derived from the inequality \( F - 1 \geq \log F \) for positive real F, and thus, the optimality condition in Eq.(8) is obtained from the equality, \( F - 1 = \log F \leftrightarrow F = 1 \) with probability 1:

\[ \nu ( x ^ { t } | x ^ { t + 1 } , y ^ { t } ) = p _ { s } ( x ^ { t } | y ^ { t } , x ^ { t + 1 } ) . \eqno ( 1 7 ) \]

Then, in order to analyze the equality condition of Eq.(3) for \( \nu ( x ^ { t } | x ^ { t + 1 } , y ^ { t } ) \), we calculate the difference \( \Delta \) between the values of −E[Θtν] as calculated with Eqs. (17) and (15), writing

\[ \Delta = \operatorname { E } \left[ \log { \frac { p _ { s } ( x ^ { t } | y ^ { t } , y ^ { t + 1 } , x ^ { t + 1 } ) } { p _ { s } ( x ^ { t } | y ^ { t } , x ^ { t + 1 } ) } } \right] = \operatorname { I } [ y ^ { t + 1 } ; x ^ { t } | x ^ { t + 1 } , y ^ { t } ] . \eqno ( 1 8 ) \]

Because −E[Θtν] = Ix→y in the case with Eq.(15), we obtain

\[ \begin{array} { r } { \mathrm { I } _ { x \to y } + \mathrm { E } [ \Theta _ { \nu } ^ { t } ] = \mathrm { I } [ y ^ { t + 1 } ; x ^ { t } | x ^ { t + 1 } , y ^ { t } ] , \eqno ( 1 9 ) } \end{array} \]

in the case with Eq.(17).

Next, we show that the condition

\[ \begin{array} { r } { \mathrm { I } [ y ^ { t + 1 } ; x ^ { t } | x ^ { t + 1 } , y ^ { t } ] = 0 , \eqno ( 2 0 ) } \end{array} \]

is equivalent to the maximization of the mutual information,

\[ \begin{array} { r } { \mathrm { I } [ x ^ { t } ; y ^ { t } ] = \mathrm { H } [ y ^ { t } ] , \eqno ( 2 1 ) } \end{array} \]

on the assumption that the environmental state space Y is not too finely partitioned in comparison with the precision of neural control over the environment. Precisely, we assume that there is no coarse-grained partition \( y ^ { \prime } \) of Y such that the neural control has the same precision on the two partitions Y and \( \mathcal { V } ^ { \prime } \) of the environmental state space. We also assume that \( p _ { s } ( y ^ { t + 1 } | y ^ { t } ) \neq 1 \) for all \( y ^ { t } \) and \( y ^ { t + 1 } \), which holds for most sets of values of the model parameters in a general model. A coarse-grained partition \( y ^ { \prime } \) is a set of subcollections of Y such that \( y ^ { \prime } \cap y ^ { \prime \prime } = \emptyset \) for any \( y ^ { \prime } \neq y ^ { \prime \prime } \in \mathcal { y } ^ { \prime } \) and \( \cup _ { y ^ { \prime } \in \mathcal { y ^ { \prime } } } y ^ { \prime } = \mathcal { y } \). For any such coarse-grained partition \( \mathcal { V } ^ { \prime } \), we require


\[ \begin{array} { r } { \mathrm { I } [ y ^ { t + 1 , \prime } ; x ^ { t } | y ^ { t } ] \neq \mathrm { I } [ y ^ { t + 1 } ; x ^ { t } | y ^ { t } ] , \; y ^ { t + 1 } \in y ^ { t + 1 , \prime } \in \mathcal { Y } ^ { \prime } , \eqno ( 2 2 ) } \end{array} \]

where we have defined the random variable \( y ^ { t + 1 , \prime } \), which takes values in \( \mathcal { V } ^ { \prime } \) with \( y ^ { t + 1 } \in y ^ { t + 1 , \prime } . \). Under this assump-tion, we first show that the conditional mutual information,

\[ \mathrm { I } [ y ^ { t + 1 } ; x ^ { t + 1 } | y ^ { t } ] = \sum _ { x ^ { t + 1 } , y ^ { t + 1 } , y ^ { t } } p _ { s } ( y ^ { t } , y ^ { t + 1 } , x ^ { t + 1 } ) \log \frac { p _ { s } ( y ^ { t + 1 } | x ^ { t + 1 } , y ^ { t } ) } { p _ { s } ( y ^ { t + 1 } | y ^ { t } ) } , \eqno ( 2 3 ) \]

must be maximal. Note that the conditional mutual information takes its maximal value and hence satisfies

\[ \begin{array} { r } { \mathrm { I } [ x ^ { t + 1 } ; y ^ { t + 1 } | y ^ { t } ] = \mathrm { H } [ y ^ { t + 1 } | y ^ { t } ] \eqno ( 2 4 ) } \end{array} \]

if and only if \( p _ { s } ( y ^ { t + 1 } | x ^ { t + 1 } , y ^ { t } ) \ = \ 1 \) with probability 1. Thus, to obtain the desired result, we show that \( p _ { s } ( y ^ { t + 1 } | x ^ { t + 1 } , y ^ { t } ) > 0 \) for multiple \( y ^ { t + 1 } \) with some \( y ^ { t } = y _ { 0 } \) and \( { \boldsymbol { x } } ^ { t + 1 } = { \boldsymbol { x } } _ { 0 } \) contradicts Eq.(20).

First, we define the set

\[ \overline { { y } } = \{ y ^ { t + 1 } \in \mathcal { Y } | p _ { s } ( y ^ { t + 1 } | x ^ { t + 1 } = x _ { 0 } , y ^ { t } = y _ { 0 } ) > 0 \} , \eqno ( 2 5 ) \]

and a coarse-grained partition of \( _ { 3 } \) as

\[ \mathcal { V } = \{ \{ y \} \} _ { y \in \mathcal { V } \backslash \overline { { y } } } \cup \{ \overline { { y } } \} . \eqno ( 2 6 ) \]

Here, \( y \setminus \overline { y } \) is the relative complement of \( \overline { { y } } \) in \( y \), which consists of all the elements of \( y \) that are not contained in y. The assumption in Eq.(22) requires

\[ \begin{array} { r l r } { \operatorname { I } [ y ^ { t + 1 } ; x ^ { t } | y ^ { t } ] - \operatorname { I } [ y ^ { t + 1 , \prime } ; x ^ { t } | y ^ { t } ] = \operatorname { I } [ y ^ { t + 1 } , y ^ { t + 1 , \prime } ; x ^ { t } | y ^ { t } ] - \operatorname { I } [ y ^ { t + 1 , \prime } ; x ^ { t } | y ^ { t } ] } & { } & \\ { = \operatorname { I } [ y ^ { t + 1 } ; x ^ { t } | y ^ { t + 1 , \prime } , y ^ { t } ] } & { } & { } \\ { > 0 . } & { } & { \qquad \qquad \qquad \qquad \qquad ( 2 7 \times ( 3 \times 3 ) + 1 ) } \end{array} \]

where the first equality holds because \( y ^ { t + 1 } \) uniquely determines \( y ^ { t + 1 , \prime } \) and thus the additional inclusion of \( y ^ { t + 1 , \prime } \) in the first term does not affect the value of the conditional mutual information. Also, Eq.(20) implies

\[ \begin{array} { r l r } { { \mathrm { I } } [ y ^ { t + 1 } ; x ^ { t } | y ^ { t } , x ^ { t + 1 } ] = { \mathrm { I } } [ y ^ { t + 1 } ; x ^ { t } | y ^ { t + 1 , \prime } , y ^ { t } , x ^ { t + 1 } ] = 0 . \eqno ( 2 8 ) } \end{array} \]

Now, recall that the inclusion of additional conditioning variables (in this case, \( y ^ { t + 1 , \prime } ) \) always reduces the value of the conditional mutual information. The right-hand side of the above equation can be written as

\[ \begin{array} { r l } & { \quad \mathrm { E } \left[ \log \frac { p _ { s } ( y ^ { t + 1 } | x ^ { t } , y ^ { t + 1 , \prime } , y ^ { t } , x ^ { t + 1 } ) } { p _ { s } ( y ^ { t + 1 } | y ^ { t + 1 , \prime } , y ^ { t } , x ^ { t + 1 } ) } \right] } \\ & { = \mathrm { E } \left[ \log \left\{ \frac { p _ { s } ( x ^ { t + 1 } | y ^ { t + 1 } ) p _ { s } ( y ^ { t + 1 } | y ^ { t + 1 , \prime } , y ^ { t } , x ^ { t } ) } { \sum _ { \tilde { y } ^ { t + 1 } \in \mathcal { Y } } p _ { s } ( x ^ { t + 1 } | y ^ { t + 1 } ) p _ { s } ( \tilde { y } ^ { t + 1 } | y ^ { t + 1 , \prime } , y ^ { t } ) } \right\} \right] } \\ & { = 0 , } \end{array} \]

with the dummy variables \( \widetilde { \boldsymbol { y } } ^ { t + 1 } \) and \( \widehat { y } ^ { t + 1 } \) having the same (conditional) distributions as \( y ^ { t + 1 } \). The above equality requires that the argument of the logarithm be 1 with probability 1, since \( F - 1 \geq \log F \), \( F - 1 = \log F \leftrightarrow F = 1 \) and

\[ \begin{array} { r l } & { \quad - \mathrm { E } \left[ \log \frac { p _ { s } ( y ^ { t + 1 } | x ^ { t } , y ^ { t + 1 , \prime } , y ^ { t } , x ^ { t + 1 } ) } { p _ { s } ( y ^ { t + 1 } | y ^ { t + 1 , \prime } , y ^ { t } , x ^ { t + 1 } ) } \right] } \\ & { = \underbrace { \sum _ { x ^ { t } , y ^ { t + 1 , \prime } , y ^ { t } , x ^ { t + 1 } , y ^ { t } , x ^ { t + 1 } \} \sum _ { y ^ { t + 1 } } p _ { s } ( y ^ { t + 1 } | x ^ { t } , y ^ { t + 1 , \prime } , y ^ { t } , x ^ { t + 1 } ) \log \frac { p _ { s } ( y ^ { t + 1 } | y ^ { t + 1 , \prime } , y ^ { t } , x ^ { t + 1 } ) } { p _ { s } ( y ^ { t + 1 } | x ^ { t } , y ^ { t + 1 , \prime } , y ^ { t } , x ^ { t + 1 } ) } } \\ & { \leq \underbrace { \sum _ { x ^ { t } , y ^ { t + 1 , \prime } , y ^ { t } , x ^ { t + 1 } } p _ { s } ( x ^ { t } , y ^ { t + 1 , \prime } , y ^ { t } , x ^ { t + 1 } ) \sum _ { y ^ { t + 1 } } p _ { s } ( y ^ { t + 1 } | x ^ { t } , y ^ { t + 1 , \prime } , y ^ { t } , x ^ { t + 1 } ) \left( \frac { p _ { s } ( y ^ { t + 1 } | y ^ { t + 1 , \prime } , y ^ { t } , x ^ { t + 1 } ) } { p _ { s } ( y ^ { t + 1 } | x ^ { t } , y ^ { t + 1 , \prime } , y ^ { t } , x ^ { t + 1 } ) } - 1 \right) } _ { ( 3 0 ) } } \\ & { = 0 . } \end{array} \]


# 13 Investments Accounted for Using Equity Method (Continued)

# (a) Investment in a Joint Venture (Continued)

O-Net WaveTouch was incorporated by the Group for the purpose of development of the wave touch technology, together with an independent third party, pursuant to an investment agreement signed on 4 June 2013. According to the Memorandum and Article of Association of O-Net WaveTouch (“O-Net WaveTouch M&A”), the Group has joint control with the counter party over O-Net WaveTouch as unanimous consent is required from both parties for all significant day-to-day operating activities, future capital fund raising as well as future business development. Despite the Group was granted an option to acquire from the counter party an additional 35% of the shares of O-Net WaveTouch (“Original Call Option”) at fixed purchase price of USD10,000,000 from 4 June 2013 to 4 June 2017, unanimous consent is still required from both parties for all above-mentioned business activities. Accordingly, the investment in O-Net WaveTouch has been accounted for as a joint venture by the Group in 2015.

According to a share swap agreement dated 19 October 2016 (“Share Swap Agreement”), the Group transferred its shareholding interests in O-Net WaveTouch to WaveTouch Group Limited (“WaveTouch Group”), a company located in UK, in return for WaveTouch Group’s 8,000,000 shares. As a result of the share swap, the investment in O-Net WaveTouch and Original Call Option was disposed of. In return, the Group obtained investment in WaveTouch Group (approximately 33% of interests) and a call option to acquire additional 7,000,000 shares in WaveTouch Group (“Revised Call option”). Pursuant to the Share Swap Agreement, the Group has also granted PASINIKA SARL (“PKA”), a third party, a call option (“Call Option”) to buy the Group’s interest in WaveTouch Group (including the interests and Revised Call Option), at a consideration of a cash of USD3,000,000 or certain interests in Windar Photonics PLC (“Windar”), a UK listed company, with the market value not less than USD2,500,000, or a cash payment of USD1,500,000 and 750,000 shares of Windar. The certain interests in Windar will be satisfied by 1,000,001 to 2,000,000 shares of Windar dependent upon the price of Windar’s share. At the same time, PKA granted the Group a put option (“Put Option”) to sell the Group’s interests in WaveTouch Group (including the interest and Call Option), at a consideration of 1,000,000 Windar shares if the market value of such Windar Shares is not less than USD2,500,000, or up to 2,000,000 Windar shares if the market value of 1,000,000 Windar Shares is less than USD2,500,000. The Call Option and Put Option could be exercised any time during the period from 1 October 2016 to 30 June 2018. Given the Group has no significant influence on WaveTouch Group, and it managed the investment in WaveTouch Group on a fair value basis, the Group designated the investment in WaveTouch Group together with other financial assets related to the Share Swap Agreement as financials assets at fair value through profit or loss (Note 17). A disposal gain regarding the investment in O-Net WaveTouch amounting to HKD2,980,000 (including HKD4,205,000 gain on disposal of investments accounted for using equity method and HKD1,225,000 loss on disposal of call option in equity investment) was recognized in 2016.

On 2 August 2017, O-Net Coating and Materials Technologies (HK) Limited (“O-Net Coating”) entered into an Agreement with OB Technologies (Hong Kong) Limited, formerly known as Butterfly Technologies (Hong Kong) Limited (“OB”) in relation to the formation of OB Technologies (Shenzhen) Limited, formerly known as O-Net Butterfly Technologies (Shenzhen) Limited (“the JV Company”). The total registered capital of the JV Company is HKD10,000,000 with each of O-Net Coating and OB investing HKD5,000,000. As stipulated in the joint venture agreement, the financial and operational policies of the JV Company must be decided jointly by O-Net Coating and OB.


# 14 Inventories

	2017	2016

HKD’000	HKD’000

Cost:

Raw materials	234,829	167,579

Work-in-progress	80,846	69,469

Finished goods	82,008	52,101

	397,683	289,149

Less: provision for write-down of inventories to net realizable values	20,212	(19,370)

	377,471	269,779

For the year ended 31 December 2017, the cost of inventories recognized as cost of sales, selling and marketing costs, research and development expenses, administrative expenses and capitalised expenditure of development costs amounted to HKD1,016,100,000 (2016: HKD806,135,000).

For the year ended 31 December 2017, the Group wrote back provision for write-down of inventories of HKD323,000 (2016: the Group made provision for write-down of inventories of HKD11,796,000).

# 15 Trade and Other Receivables

	2017	2016

HKD’000	HKD’000

Trade receivables (a)	708,062	461,778

Less: provision for impairment of receivables (b)	(752)	(1,106)

Trade receivables — net	707,310	460,672

Amounts due from related parties (a) (Note 36(d))	379	393

Bills receivable (c)	193,062	148,873

Prepayments	30,425	12,062

Interest receivables	940	1,675

Other receivables (d)	116,145	49,698

	1,048,261	673,373

Less non-current portion: other receivables (d)	(73,213)	(26,139)

Current portion	975,048	647,234


Operating lease payments are recognised as an expense on a straight-line basis over the lease term. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred.

In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis.

# Leasehold land and building

When a lease includes both land and building elements, the Group assesses the classification of each element as a finance or an operating lease separately based on the assessment as to whether substantially all the risks and rewards incidental to ownership of each element have been transferred to the Group, unless it is clear that both elements are operating leases in which case the entire lease is classified as an operating lease. Specifically, the minimum lease payments (including any lump-sum upfront payments) are allocated between the land and the building elements in proportion to the relative fair values of the leasehold interests in the land element and building element of the lease at the inception of the lease.

When the lease payments cannot be allocated reliably between the land and building elements, the entire lease is generally classified as a finance lease and accounted for as property, plant and equipment.

# Foreign currencies

In preparing the financial statements of each individual group entity, transactions in currencies other than the functional currency of that entity (“foreign currencies”) are recorded in the respective functional currency (i.e. the currency of the primary economic environment in which the entity operates) at the rates of exchange prevailing on the dates of the transactions. At the end of the reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

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

For the purposes of presenting the Financial Information, the assets and liabilities of group entities are translated into the presentation currency of the Group (i.e. HK\$) using exchange rates prevailing at the end of each reporting period. Income and expenses items are translated at the average exchange rates for the year, unless exchange rates fluctuate significantly during the period, in which case, the exchange rates prevailing at the dates of transactions are used. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity under the heading of translation reserve.

# Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets until such time as the assets are substantially ready for their intended use or sale.

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

# Retirement benefits costs

Payments to state-managed retirement benefits schemes and the Mandatory Provident Fund Scheme (“MPF Scheme”) are recognised as expenses when employees have rendered service entitling them to the contributions.


# Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year/period. Taxable profit differs from profit as reported in the consolidated statements of comprehensive income because it excludes items of income or expense that are taxable or deductible in other periods, and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the Financial Information and the corresponding tax base used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary difference to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

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

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

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

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

Current and deferred tax is recognised in profit or loss, except when it relates to items that are recognised in other comprehensive income or directly in equity, in which case the current and deferred tax are also recognised in other comprehensive income or directly in equity respectively.

# Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is calculated using the first-in, first-out method. Net realisable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale.

# Financial instruments

Financial assets and financial liabilities are recognised in the consolidated statements of financial position when a group entity becomes a party to the contractual provisions of the instrument.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities are deducted from the fair value of the financial liabilities, as appropriate, on initial recognition.

# Financial assets

The Group’s financial assets are classified into loans and receivables. The accounting policies adopted in respect of loans and receivables are set out below.


# OVERVIEW

Mr LU Yuanfeng, Mr. HUANG Guozhan and Mr. HUANG Deqiang are the Founders of our Group. On June 27, 2017, each of the Founders and Ms. LUO Simin (who is the spouse of Mr. LU), along with their respective wholly-owned companies holding the Shares, entered into a parties acting in concert deed to confirm that they have acted in concert in the management, operation and all major decisions of our Group. As of the Latest Practicable Date, LYF Digital Holdings Limited (a company wholly-owned by Mr. LU Yuanfeng), Angel Age Limited (a company wholly-owned by Ms. LUO Simin), LXT Digital Holdings Limited (a company wholly-owned by Mr. HUANG Guozhan) and HDQ Digital Holdings Limited (a company wholly-owned by Mr. HUANG Deqiang) are entitled to exercise voting rights of approximately 65.95% of the total issued share capital of our Company. Immediately following the completion of the Global Offering (assuming the Over-allotment Option or any options which may be granted under the Post-IPO Share Option Scheme are not exercised), Mr. LU Yuanfeng, Ms. LUO Simin, Mr. HUANG Guozhan and Mr. HUANG Deqiang through LYF Digital Holdings Limited, Angel Age Limited, LXT Digital Holdings Limited and HDQ Digital Holdings Limited, respectively, will beneficially own approximately 49.46% of the issued share capital of our Company. Accordingly, Mr. LU Yuanfeng, Ms. LUO Simin, Mr. HUANG Guozhan, Mr. HUANG Deqiang, LYF Digital Holdings Limited, Angel Age Limited, LXT Digital Holdings Limited and HDQ Digital Holdings Limited are considered as our Controlling Shareholders.

# DELINEATION OF OUR BUSINESS

Neither of our Controlling Shareholders, our Directors nor their respective close associates has any interest in any business, apart from the business operated by members of our Group, that competes or is likely to compete, directly and indirectly, with the business of our Group and would require disclosure pursuant to Rule 8.10 of the Listing Rules.

# DEED OF NON-COMPETITION

On November 24, 2017, each of the Controlling Shareholders entered into the Deed of Non-competition in favor of our Company, pursuant to which each of the Controlling Shareholders irrevocably undertake to our Company that during the Restricted Period (as defined below) he will not and will procure his close associates (except any member of our Group) not to, directly or indirectly (whether in the capacity of principal or agent, whether for its own benefit orj ointly with or on behalf of any person, firm or company, whether within or outside China), commence, engage in, participate in or acquire any business which competes or may compete directly or indirectly with our core business, namely development and publication of online games (“Restricted Business”) or own any rights or interests in such business.


Each of the Controlling Shareholders has further irrevocably undertaken that during the Restricted Period (as defined below), he should and will procure his close associates (except any member of our Group) (each of the Controlling Shareholders and his close associates together, “Offeror”) to offer new business opportunities to us first in the following manner when any business, investment or other business opportunities (“New Business Opportunities”) related to the Restricted Business become available to the Offeror:

(i) the Offeror will make referral of the New Business Opportunities to us, and will as soon as possible inform us in writing (“Offer Notice”) about all necessary and reasonably required information in respect of any New Business Opportunities (including but not limited to details of the nature and investment or acquisition cost of the New Business Opportunities) for us to consider (a) whether the relevant New Business Opportunities will compete with our business, and (b) whether taking up the New Business Opportunities is in the interest of our Group.

(ii) upon receipt of the Offer Notice, the independent non-executive Directors will consider whether to pursue the New Business Opportunities taking into account whether the relevant New Business Opportunities would be able to achieve a sustainable profitability level, whether they are in line with the prevailing development strategies of our Group, and whether they are in the best interest of the Shareholders. Our Company must inform the Offeror in writing within 20 Business Days after receipt of the Offer Notice about its decision on whether the New Business Opportunities will be pursued.

(iii) only when (a) the Offeror has received our notice to reject the New Business Opportunities and our confirmation that the relevant New Business Opportunities are not considered to be able to compete with our core business, namely development and publication of online games; or (b) the Offeror has not received the relevant notice from our Company within the period as stated above in paragraph (ii) after the Offer Notice has been received by us, then the Offeror is entitled to take up the New Business Opportunities on terms and conditions not more favorable than those specified in the Offer Notice issued to us.

If material changes occur in the terms and conditions of the New Business Opportunities after the referral of which have been made or procured to be made to us by the Offeror, referral of the revised New Business Opportunities shall be made by the Offeror to us again in the manner as stated above.

The undertakings under the Deed of Non-competition are not applicable in the following circumstances:

(i) each of the Controlling Shareholders and/or his close associates engage in the Restricted Business directly or indirectly through the ownership of equity interest in any member of our Group; or


# AUDIT COMMITTEE AND THE SCOPE OF WORK OF ZHONGHUI ANDA CPA LIMITED

The Company has established an audit committee in compliance with the Rules Governing the Listing of Securities (the “Listing Rules”) on the Stock Exchange of Hong Kong Limited (the “Exchange”). The audit committee comprises three independent non-executive Directors, namely, Messrs. Cai Jianmin (Chairman), Wong Kam Fai, William and Liu Xueling, who are responsible for reviewing the accounting principles and practices adopted by the Company as well as significant or unusual items, internal controls, financial reporting, risk management and control matters, which included a review on the audited annual results for the year ended 31 December 2019 and the interim report for 2020. According to the terms of reference of the audit committee adopted and implemented by the Company, the audit committee is responsible for reviewing the accounting principles and practices adopted by the Company as well as significant or unusual items, internal controls, financial reporting matters and duties of risk management and control.

During the year, the audit committee of the Company held meetings on 31 March, 7 May, 5 June and 18 August 2020 to review the annual report, change of auditor and interim financial reports of the Group respectively. All members of the committee namely, Messrs. Cai Jianmin, Wong Kam Fai, William and Liu Xueling, attended the meetings.

The final results of the Company for the year ended 31 December 2020 have been reviewed by the audit committee of the Company. The financial figures in this announcement of the Group’s results for the year ended 31 December 2020 have been agreed by the Group’s auditor, ZHONGHUI ANDA CPA Limited, to the amounts set out in the Group’s audited consolidated financial statements for the year.

# REMUNERATION COMMITTEE

The Company has established a remuneration committee in compliance with the Listing Rules. During the year under review, the remuneration committee comprises three Directors including Messrs. Liu Xueling (Chairman) and Cai Jianmin, being independent non-executive Directors, and Mr. Zhang Yuping, Chairman and executive Director of the Group. The primary duties of the remuneration committee are to review and determine the terms of remuneration packages, bonuses and other compensation payable to the Directors and senior management of the Group.

The remuneration committee held one meeting during the year to review matters related to the remuneration structure of the Directors and senior management of the Company. All members, namely Messrs. Liu Xueling, Cai Jianmin and Zhang Yuping, attended the meeting.

According to the terms of reference of the remuneration committee adopted by the Company, the remuneration committee acts as a consultant regarding the remuneration matters of the Directors and senior management of the Company, while the Board retains the ultimate power to approve the remuneration of the Directors and senior management.


# NOMINATION COMMITTEE

The Company has established a nomination committee in compliance with the Listing Rules. During the year under review, the nomination committee comprises three Directors, including Mr. Zhang Yuping (Chairman), executive Director and Chairman of the Group, and Messrs. Cai Jianmin and Liu Xueling, who are independent non-executive Directors. The Company has adopted and implemented the terms of reference of the nomination committee. The nomination committee is mainly responsible for making recommendations to the Board on the appointment of Directors and succession of the Board.

Two meetings were held by the nomination committee during the year to review matters related to the nomination and selection policies for the Board members as well as matters related to retirement by rotation and re-election of Directors. All members of the nomination committee (namely Messrs. Zhang Yuping, Cai Jianmin, and Liu Xueling) attended the meeting.

# CORPORATE GOVERNANCE

Since its establishment, the Company has been committed to maintaining a high standard of corporate governance practice to ensure transparency of the Group’s management, so that the long term development of our shareholders, customers, employees as well as the Group can be safeguarded. The Company has established the Board, an audit committee, a remuneration committee and a nomination committee that are up to the requirements as being diligent, accountable and professional. ZHONGHUI ANDA CPA Limited has been appointed as the Group’s external auditors.

# Compliance with the Corporate Governance Code

The Company has adopted the Code on Corporate Governance Practices set out in Appendix 14 to the Listing Rules. The Directors are of the opinion that the Company had complied with the Corporate Governance Code except for a deviation from provision A.2.1 during the year under review. Given its existing corporate structure, the roles of Chairman and Chief Executive Officer of the Company have not been separated, but are both performed by Mr. Zhang Yuping. Although the roles and duties of Chairman and Chief Executive Officer have been performed by the same individual, all major decisions have been made after consultation with the Board or, where applicable, directly by the Board. There are three independent non-executive Directors in the Board, all of which possess adequate independence and therefore the Board believes that the Company has achieved adequate balance of power and been able to guarantee scientific decision-making.

# Composition of the Board

To maintain high-level independence and objectivity in decision making, and supervise the management of the Group in a comprehensive and equitable manner, the Board of the Group comprises three executive Directors (Messrs. Zhang Yuping (Chairman of the Group), Huang Yonghua and Lee Shu Chung, Stan), one non-executive Director (Mr. Shi Zhongyang) and three independent non-executive Directors (Messrs. Cai Jianmin, Wong Kam Fai, William and Liu Xueling).


among other things, the ability of the Company’s subsidiaries to incur indebtedness; the ability of the Company and its subsidiaries to grant certain liens, make restricted payments, materially change the nature of its or their business, make investments, guarantees, loans or advances in non-subsidiaries or enter into certain hedging agreements; the ability of the Company’s material subsidiaries to enter into certain restrictive agreements; the ability of the Company and its material subsidiaries to enter into certain affiliate transactions; the ability of the Company and its subsidiaries to redeem any senior notes; and the Company’s ability to merge or consolidate with any person or sell all or substantially all of its assets to any person. The Company and its subsidiaries are also prohibited from using the proceeds under the Credit Facility in violation of Sanctions (as defined in the Credit Facility). In addition, the representations, warranties and covenants contained in the Credit Facility are subject to certain exceptions and/or standards of materiality applicable to the contracting parties.

Events of Default. The Credit Facility includes customary events of default, including events of default relating to:

• non-payment of principal, interest or fees;

• inaccuracy of representations and warranties in any material respect when made or when deemed made;

• violation of covenants;

• cross payment-defaults;

• cross acceleration;

• bankruptcy and insolvency events;

• certain unsatisfied judgments;

• a change of control; and

• during any secured period, the failure of the collateral documents to be in effect or a lien to be valid and perfected.

If an event of default with respect to a borrower occurs under the Credit Facility, the lenders will be able to terminate the commitments and accelerate the maturity of the loans of the defaulting borrower under the Credit Facility and exercise other rights and remedies.

# Senior Notes

The following table summarizes the face values, maturity dates, semi-annual interest payment dates, and optional redemption periods related to the Company’s outstanding unsecured senior note obligations at December 31, 2017.

Senior Note	Face Value
(Millions)	Maturity Date	Interest Payment
Dates	Optional
Redemption
Period(a)

7.500% Senior Notes due 2020 (the “2020 Notes”)	$         350	August 1, 2020	February 1, August
1	July 1, 2020

6.000% Senior Notes due 2022 (the “2022 Notes”)	$       1,100	January 15, 2022	January 15, July
15	October 15, 2021

8.250% Senior Notes due 2023 (the “2023 Notes”)	$         500	August 1, 2023	February 1, August
1	June 1, 2023

5.250% Senior Notes due 2024 (the “2024 Notes”)	$         650	September 15, 2024	March 15,
September 15	June 15, 2024

(a) At any time prior to these dates, we have the option to redeem some or all of the notes at a specified “make whole” premium as described in the indenture(s) governing the notes to be redeemed. On or after these dates, we have the option to redeem the notes, in whole or in part, at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest thereon to the redemption date as more fully described in the indenture.

During third-quarter 2017, we issued an additional \$150 million of our 5.25% senior notes due 2024. The proceeds were used to fund the tender offer of\$150 million of our 7.50% senior notes due 2020.  As a result, we recorded a loss on extinguishment of debt of \$17 million .

The terms of the indentures governing our 2020 Notes, 2022 Notes, 2023 Notes and 2024 Notes are substantially identical.

Change of Control.  If we experience a change of control (as defined in the indentures governing the notes) accompanied by a specified rating decline, we must offer to repurchase the notes of such series at 101% of their principal amount, plus accrued and unpaid interest.


Covenants.  The terms of the indentures governing our notes restrict our ability and the ability of our subsidiaries to incur additional indebtedness secured by liens and to effect a consolidation, merger or sale of substantially all our assets. The indentures also require us to file with the trustee and the SEC certain documents and reports within certain time limits set forth in the indentures. However, these limitations and requirements are subject to a number of important qualifications and exceptions. The indentures do not require the maintenance of any financial ratios or specified levels of net worth or liquidity.

Events of Default.  Each of the following is an “Event of Default” under the indentures with respect to the notes of any series:

(1) a default in the payment of interest on the notes when due that continues for 30 days ;

(2) a default in the payment of the principal of or any premium, if any, on the notes when due at their stated maturity, upon redemption, or otherwise;

(3) failure by us to duly observe or perform any other of the covenants or agreements (other than those described in clause (1) or (2) above) in the indenture, which failure continues for a period of 60 days , or, in the case of the reporting covenant under the indenture, which failure continues for a period of 90 days , after the date on which written notice of such failure has been given to us by the trustee; provided, however, that if such failure is not capable of cure within such 60-day or 90-day period, as the case may be, such 60-day or 90-day period, as the case may be, will be automatically extended by an additional 60 days so long as (i) such failure is subject to cure and (ii) we are using commercially reasonable efforts to cure such failure; and

(4) certain events of bankruptcy, insolvency or reorganization described in the indenture.

# Note 10 . Provision (Benefit) for Income Taxes

The following table includes the provision (benefit) for income taxes from continuing operations.

	Years Ended December 31,

2017	2016	2015

(Millions)

Provision (benefit):

Current:

Federal	$               (18)	$             (26)	$              (4)

State	1	(7)	7

	(17)	(33)	3

Deferred:

Federal	(118)	(301)	12

State	(13)	9	9

	(131)	(292)	21

Total provision (benefit)	$            (148)	$            (325)	$              24

The following table provides reconciliations from the provision (benefit) for income taxes from continuing operations at the federal statutory rate to the realized provision (benefit) for income taxes.

	Years Ended December 31,

2017	2016	2015

(Millions)

Provision (benefit) at statutory rate	$              (56)	$            (328)	$                7

Increases (decreases) in taxes resulting from:

State income taxes (net of federal benefit)	(12)	(40)	3

Valuation allowance on current year state income taxes (net of federal benefit)	17	18	1

Valuation allowance on state income taxes resulting from sale (net of federal benefit)	—	8	—

Effective state income tax rate change (net of federal benefit)	(12)	15	7

Provisional impact of Tax Cuts and Jobs Act	(92)	—	—

Other	7	2	6

Provision (benefit) for income taxes	$            (148)	$            (325)	$              24


# 7. TRANSACTIONS WITH THE TRUSTEE, MANAGER AND CONNECTED PERSONS (Continued)

# (b) Trustee fee and Registrar’s fee

The Trustee is entitled to receive a trustee fee of up to 1% per annum of the net asset value of the Sub-Fund, which accrued daily and calculated as at each dealing day and payable monthly in arrears. For the year ended December 2016 and 2015, the trustee fee is calculated as a percentage per annum of the net asset value of the Sub-Fund at the rate as follows, subject to a monthly minimum of RMB40,000:

	Trustee fee percentage
per annum

For first RMB200 million	0.16%

For next RMB1,000 million	0.14%

For next RMB1,000 million	0.12%

For next RMB1,000 million	0.10%

Thereafter	0.08%

The Trustee’s fee is inclusive of fees payable to The Hongkong and Shanghai Banking Corporation Limited (the “Custodian”) and HSBC Bank (China) Company Limited (the “PRC Custodian”).

The Trustee, acting as the Registrar, is also entitled to a fee of RMB120 (2015: RMB120) per participating dealer per transaction.

# (c) Financial assets

The investments and bank balances of the Sub-Fund held with related parties of the Trustee are:

	2016	2015

RMB	RMB

Investments

HSBC Bank (China) Company Limited	17,177,372,883	18,232,458,944

Bank balances

The HonkShgondkig an anhigai BannCg oridporaton Limte	27,455,761	110,734,726

HSBC Bank (China) Company Limited	12,822,162	100,388,864

	40,277,923	211,123,590

Interest income amounted to RMB439,200 (2015: RMB1,266,203) was earned on these bank balances for the year ended 31 December 2016 and 2015.

# (d) License fee

According to the Trust Deed dated 25 July 2012, as amended, the license fees and expenses payable to the owner of an index for the use of such index shall be payable out of the Sub-Fund. Prior to 1 January 2015, the FTSE index license fees were paid by the Manager of the Sub-Fund. Pursuant to the letter dated 16 November 2015 between the Trustee and the Manager of the Sub-Fund, the Manager has decided that the license fee shall be paid out of the Sub-Fund commencing from 1 January 2015 and the Manager was reimbursed by the Sub-Fund for the license fee of RMB19,918,378 which was paid out by the Manager from 1 January 2015 to 16 November 2015. For the year ended 31 December 2016 and 2015, the amount of RMB19,481,156 represents the license fee (2015: the amount of RMB22,984,953 represents the license fee of the Sub-Fund of which RMB19,918,378 was the reimbursement to the Manager for their payment of the license fee for the Sub-Fund for 1 January 2015 to 16 November 2015).


# 8. FINANCIAL RISK MANAGEMENT

The objective of the Sub-Fund is to provide investment results that, before deduction of fees and expenses, closely correspond to the performance of the FTSE China A50 Index. The Sub-Fund’s activities may expose it to a variety of risks including but not limited to: market risk (including market price risk, interest rate risk and currency risk), credit and counterparty risk and liquidity risk which are associated with the markets in which the Sub-Fund invests.

The following is a summary of the main risks and risk management policies.

# (a) Market risk

# (i) Market price risk

Market price risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market prices (other than those arising from interest rate risk or currency risk), whether those changes are caused by factors specific to the individual instrument or factors affecting all instruments in the market.

The Sub-Fund is designated to track the performance of the FTSE China A50 Index, therefore the exposures to market risk in the Sub-Fund will be substantially the same as the tracked index. The Manager manages the Sub-Fund’s exposures to market risk by ensuring that the key characteristics of the portfolio, such as security weight and industry weight, are closely aligned with the characteristics of the tracked index.

As at 31 December, the Sub-Fund’s investments were concentrated in the following industries:

	2016	2015

Fair value	% of net
asset value	Fair value	% of net
asset value

RMB		RMB

Listed equities in PRC – by
industry

Basic materials	153,662,997	0.89	293,798,572	1.60

Consumer goods	2,045,331,472	11.90	1,353,533,151	7.38

Consumer Services	-	-	252,164,110	1.38

Financials	11,903,756,589	69.24	12,585,400,577	68.64

Health Care	88,029,586	0.51	86,329,057	0.47

Industrials	2,175,816,158	12.65	2,630,961,791	14.36

Oil & gas	402,492,070	2.34	404,247,010	2.21

Technology	35,907,130	0.21	-	-

Telecommunications	-	-	260,833,401	1.42

Utilities	372,376,881	2.17	365,191,275	2.00

	17,177,372,883	99.91	18,232,458,944	99.46

The Sub-Fund held 50 out of 50 (2015: 50 out of 50) constituent securities comprising the FTSE China A50 Index. The Sub-Fund is therefore exposed to substantially the same market price risk as the FTSE China A50 Index.


\[ s _ { m _ { n } n } = \frac { \sum _ { j \ge n + 1 } t _ { m _ { n } j } } { \sum _ { j \ge 1 } j t _ { m _ { n } j } } = \frac { p + 1 } { p n + 1 } \left( \frac { p - 1 } { p } \right) ^ { p } \alpha _ { n } \, , \]

where \( \alpha _ { n } \rightarrow 1 ^ { + } \). The conclusion follows from Theorem 4.1.

For the special choice \( w _ { n } = n ^ { r } \),\( n \geq \) 1, with \( r \ge \) 0 fixed, Corollary 4.6 yields the implication

\[ ( 4 . 5 ) \qquad \qquad \operatorname * { s u p } _ { n \geq 1 } n ^ { - r } \| M _ { n } ^ { ( p ) } ( \lambda T ) \| < \infty \Longrightarrow \| T ^ { n } \| = o ( n ^ { r + 1 } ) , \quad n \to \infty \, , \]

whenever \( p \geq \) 1 and \( \sigma ( T ) \cap \mathbb { T } \) has arclength measure zero. It turns out that such ”regular” growth restrictions for the Ces\`aro means can be reformulated in terms of resolvent estimates. This has been first proved by Strikwerda and Wade [SW] in the case when \( p \) = 2 and \( r \) = 0. The Ces\`aro means of order one are related to the partial sums of the Taylor expansion at infinity of the resolvent function of T. The uniform boundedness of these partial sums in the exterior of the unit disc is called the uniform Kreiss boundedness condition (see [MSZ] and[GH] for the boundedness only on the real line) and is equivalent to the uniform boundedness of \( \{ M _ { n } ( \lambda T ) \} \) on the unit circle. These last two conditions are more restrictive. The result below provides an extension of the theorems wej ust mentioned.

Theorem 4.7. Given \( T \in { \mathcal { B } } ( { \mathcal { X } } ) \) we have:

(i) If \( p \geq \) 2 and \( r \ge \) 0 then

\[ \operatorname* { s u p } _ { \stackrel { n \geq 1 } { \lambda \in \mathbb { T } } } n ^ { - r } \| M _ { n } ^ { ( p ) } ( \lambda T ) \| < \infty \iff \operatorname* { s u p } _ { | \lambda | > 1 } \frac { ( | \lambda | - 1 ) ^ { r + 1 } } { | \lambda | ^ { r } } \| ( T - \lambda I ) ^ { - 1 } \| < \infty \, . \]

(ii) If \( p \) = 1 and \( r \ge \) 0 then

\[ \operatorname* { s u p } _ { \frac { n \geq 1 } { \lambda \in \mathbb { T } } } n ^ { - r } \| M _ { n } ( \lambda T ) \| < \infty \iff \operatorname* { s u p } _ { \frac { n \in \mathbb { N } } { | \lambda | > 1 } } \frac { ( | \lambda | - 1 ) ^ { r + 1 } } { | \lambda | ^ { r } } \left\| \sum _ { k = 0 } ^ { n } \lambda ^ { - k - 1 } T ^ { k } \right\| < \infty . \]

Proof. (=\( \Rightarrow \)) The argument uses the ideas in [SW]. We start with the identity proved in [SW],formula (6.3), for 0 \( < \rho < \) 1 and \( \lambda \in \mathbb { T } \), namely

\[ ( I - \rho \lambda T ) ^ { - 1 } = ( 1 - \rho ) ^ { p } \sum _ { n = 0 } ^ { \infty } \binom { n + p } { p } M _ { n } ^ { ( p ) } ( \lambda T ) \rho ^ { n } \, . \]

For \( p \geq \) 2 the resolvent estimate follows directly from

\[ \sum _ { n = 0 } ^ { \infty } \binom { n + p } { p } n ^ { r } \rho ^ { n } \leq C ( 1 - \rho ) ^ { - p - r - 1 } \, . \]

By a straightforward argument we see that the above equality holds for all \( \rho \in \mathbb { D } \) and by comparing the coefficients of \( \rho ^ { k } \) we obtain for \( p \) = 1,

\[ \sum _ { k = 0 } ^ { n } \rho ^ { k } \lambda ^ { k } T ^ { k } = ( 1 - \rho ) \sum _ { k = 0 } ^ { n - 1 } ( k + 1 ) M _ { k } ( \lambda T ) \rho ^ { k } + ( n + 1 ) M _ { n } ( \lambda T ) \rho ^ { n } \, . \]


In this case the desired estimate follows from the inequalities

\[ \sum _ { n = 0 } ^ { n - 1 } ( k + 1 ) ^ { r + 1 } \rho ^ { k } \leq C ( 1 - \rho ) ^ { - r - 2 } \, , \quad ( 1 - \rho ) ^ { r + 1 } \rho ^ { n } \leq C ^ { \prime } ( n + 1 ) ^ { - r - 1 } \, , \]

for 0 \( < \rho < \) 1.

(\( \Leftarrow \)=) We begin with (i) and assume first that \( p \) = 2. Use (2.6) to write for 0 \( < \rho < \) 1,\( \lambda \in \mathbb { T } \),

\[ \frac { ( n + 1 ) ( n + 2 ) } { 2 } M _ { n } ^ { ( 2 ) } ( \lambda T ) = \int _ { 0 } ^ { 2 \pi } ( I - \rho \lambda e ^ { i t } T ) ^ { - 1 } \sum _ { j = 0 } ^ { n } ( n - j + 1 ) e ^ { - i j t } \rho ^ { - j } \frac { \mathrm { d } t } { 2 \pi } \, . \]

so that

\[ \begin{array} { r l } & { \left\| \frac { ( n + 1 ) ( n + 2 ) } { 2 } M _ { n } ^ { ( 2 ) } ( \lambda T ) \right\| \le \frac { C } { ( 1 - \rho ) ^ { r + 1 } } \rho ^ { - n } \int _ { 0 } ^ { 2 \pi } \frac { 1 } { | 1 - \rho e ^ { - i t } | ^ { 2 } } \frac { \mathrm { d } t } { 2 \pi } } \\ & { \qquad \qquad \qquad \qquad = \frac { C } { ( 1 - \rho ) ^ { r + 1 } ( 1 - \rho ^ { 2 } ) } \rho ^ { - n } } \\ & { \qquad \qquad \qquad \qquad \le \frac { C } { ( 1 - \rho ) ^ { r + 2 } } \rho ^ { - n } \, . } \end{array} \]

If we now choose \( \textstyle \rho = 1 - { \frac { 1 } { n } } \) we obtain the estimate for \( M _ { n } ^ { ( 2 ) } ( T ) \) in (i) for all \( r \ge \) 0. For \( p > \) 2, this follows immediately from the first equality in (2.6).

Let us turn to the case when \( p \) = 1. For \( n \geq \) 1, \( \mu \in \mathbb { T } \) and \( \lambda \in \mathbb { C } \) with \|λ\| > 1 we have by the Abel summation formula

\[ \begin{array} { c } { { \displaystyle M _ { n } ( \mu T ) = \frac { 1 } { n + 1 } \sum _ { k = 0 } ^ { n } ( \mu T ) ^ { k } = \frac { 1 } { n + 1 } \sum _ { k = 0 } ^ { n } \lambda ^ { k + 1 } \lambda ^ { - k - 1 } ( \mu T ) ^ { k } } } \\ { { = \frac { 1 } { n + 1 } \left( \lambda ^ { n + 1 } \sum _ { k = 0 } ^ { n } \lambda ^ { - k - 1 } ( \mu T ) ^ { k } + ( 1 - \lambda ) \sum _ { k = 0 } ^ { n - 1 } \lambda ^ { k + 1 } \sum _ { j = 0 } ^ { k } \lambda ^ { - j - 1 } ( \mu T ) ^ { j } \right) } } \\ { { = \frac { 1 } { n + 1 } \left( \lambda ^ { n + 1 } \overline { { { \mu } } } \sum _ { k = 0 } ^ { n } ( \lambda \overline { { { \mu } } } ) ^ { - k - 1 } T ^ { k } + ( 1 - \lambda ) \sum _ { k = 0 } ^ { n - 1 } \lambda ^ { k + 1 } \overline { { { \mu } } } \sum _ { j = 0 } ^ { k } ( \lambda \overline { { { \mu } } } ) ^ { - j - 1 } T ^ { j } \right) . } } \end{array} \]

From the assumption

\[ \operatorname* { s u p } _ { \stackrel { n \in \mathbb { N } } { | \lambda | > 1 } } \frac { ( | \lambda | - 1 ) ^ { r + 1 } } { | \lambda | ^ { r } } \left\| \sum _ { k = 0 } ^ { n } \lambda ^ { - k - 1 } T ^ { k } \right\| < \infty \, , \]

we obtain

\[ \| M _ { n } ( \mu T ) \| \leq C \frac { | \lambda | ^ { r + 1 } } { ( | \lambda | - 1 ) ^ { r + 1 } ( n + 1 ) } \left( | \lambda | ^ { n } + \frac { | 1 - \lambda | ( | \lambda | ^ { n } - 1 ) } { | \lambda | - 1 } \right) \, , \]

and if \( \textstyle \lambda = 1 + { \frac { 1 } { n } } \),

\[ \| M _ { n } ( \mu T ) \| \le 2 ^ { r } ( 2 e - 1 ) C n ^ { r } \]

for \( n \geq \) 1 and \( \mu \in \mathbb { T } \), which concludes the proof.


Following the Listing, the following transactions between our Group and the relevant connected person(s) (as defined in the GEM Listing Rules) will continue, and will constitute continuing connected transactions under the GEM Listing Rules.

# FULLY EXEMPT CONTINUING CONNECTED TRANSACTIONS

Pursuant to Chapter 20 of the GEM Listing Rules, the continuing connected transactions of our Group as set out below are exempt from compliance with the requirements of reporting, annual review, announcement and approval by the independent Shareholders under Chapter 20 of the GEM Listing Rules.

# Warehouse Tenancy Agreement

Winning Tower (as tenant) entered into a tenancy agreement (the ‘‘Warehouse Tenancy Agreement’’) dated 30 September 2015 with Iao Ip Property Investment Company Limited (‘‘Iao Ip Property’’) (as landlord), pursuant to which Iao Ip Property agreed to lease Unit 1002, 10/F, Riley House, 88 Lei Muk Road, Kwai Chung, New Territories, Hong Kong to Winning Tower for a term of three years commencing from 1 October 2015 and ending on 30 September 2018 (both days inclusive) at the monthly rent of HK\$50,000 (inclusive of property tax but exclusive of management fee, government rent, rates and water, gas and electricity charges), which was agreed after arm’s length negotiations between the parties with regard to the market rent of similar properties in similar locations as the property leased under the Warehouse Tenancy Agreement, and the terms of the Warehouse Tenancy Agreement were no less favourable to Winning Tower than terms available from Independent Third Parties.

The rent (together with the management fee, government rent and rates) paid by us under the Warehouse Tenancy Agreement for each of the two years ended 31 December 2016 amounted to approximately HK\$0.2 million and HK\$0.6 million, respectively. It is expected that the annual rent (together with the management fee, government rent and rates) payable by us under the Warehouse Tenancy Agreement for each of the two years ending 31 December 2018 amounts to approximately HK\$0.7 million and HK\$0.7 million respectively.

By using the above expected annual rent (together with the management fee, government rent and rates) as the numerators for the calculation of percentage ratios, all the relevant percentage ratios calculated for the relevant transactions under the Warehouse Tenancy Agreement pursuant to Chapter 20 of the GEM Listing Rules will be less than 5% and the annual consideration will be less than HK\$3,000,000.

Iao Ip Property is a company incorporated in Hong Kong which is owned as to 20% by Mr. Yu, our non-executive Director and Controlling Shareholder, and as to 80% in aggregate by three associates of Mr. Yu. As such, Iao Ip Property is an associate of Mr. Yu and hence a connected person of our Company for the purposes of the GEM Listing Rules and the transactions under the Warehouse Tenancy Agreement will constitute exempt continuing connected transactions for our Group after the Listing.


# Food Factory Tenancy Agreement

Winning Star (as tenant) entered into a tenancy agreement (the ‘‘Food Factory Tenancy Agreement’’) dated 1 January 2017 with Winning Tower Group (as landlord), pursuant to which Winning Tower Group agreed to lease Unit 1105, 11/F, Riley House, 88 Lei Muk Road, Kwai Chung, New Territories, Hong Kong to Winning Star for a term of three years commencing from 1 January 2017 and ending on 31 December 2019 (both days inclusive) at the monthly rent of HK\$61,000 (inclusive of property tax, management fee, government rent and rates but exclusive of water, gas and electricity charges), which was agreed after arm’s length negotiations between the parties with regard to the market rent of similar properties in similar locations as the property leased under the Food Factory Tenancy Agreement, and the terms of the Food Factory Tenancy Agreement were no less favourable to Winning Tower Group than terms available from Independent Third Parties.

The rent paid by Winning Star for the relevant premises for each of the two years ended 31 December 2016 amounted to approximately HK\$0.3 million and HK\$0.7 million, respectively. It is expected that the annual rent payable by Winning Star under the Food Factory Tenancy Agreement for each of the three years ending 31 December 2019 amounts to approximately HK\$0.7 million, HK\$0.7 million and HK\$0.7 million respectively.

By using the above expected annual rent as the numerators for the calculation of percentage ratios, all the relevant percentage ratios calculated for the relevant transactions under the Food Factory Tenancy Agreement pursuant to Chapter 20 of the GEM Listing Rules will be less than 5% and the annual consideration will be less than HK\$3,000,000.

Winning Star is a limited company incorporated in Hong Kong and is owned and controlled as to 60% by our Company and as to 40% by Grand Gold, which is a fellow subsidiary of Top Ocean, our Controlling Shareholder. As such, Winning Star is a connected subsidiary and hence a connected person of our Company for the purposes of the GEM Listing Rules and the transactions under the Food Factory Tenancy Agreement will constitute exempt continuing connected transaction for the Group after the Listing.

# Master Purchase Agreement of Yau Heng

Winning Tower Group (for itself and as trustee for the benefit of its subsidiaries from time to time) (as purchaser) entered into a master purchase agreement (the ‘‘Master Purchase Agreement of Yau Heng’’) dated 23 May 2017 with Yau Heng (as supplier) for a term of three years commencing from 1 January 2017 and ending on 31 December 2019 (both days inclusive), pursuant to which Yau Heng agreed to supply certain frozen raw and unprocessed meat products to Winning Tower Group and its subsidiaries on the basis of individual purchase order placed by any of them at the price to be determined after arm’s length negotiations between the parties from time to time with reference to the then prevailing market price of similar products in the market (which is ascertained by, among others, obtaining quotations from two other suppliers who are Independent Third Parties).

For each of the two years ended 31 December 2016, our total purchases attributable to the purchase of the aforesaid products from Yau Heng was approximately HK\$2.6 million and HK\$2.5 million, respectively. Our Directors confirm that Yau Heng had transactions with parties other than our Group and our total purchases attributable to the purchase of the aforesaid products from Yau Heng accounted for less than 2% of Yau Heng’s sales for each of the Track Record Period. Based on our


# 9. LOSS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE PARENT

The calculation of the basic loss per share amounts is based on the loss for the year attributable to ordinary equity holders of the parent, and the weighted average number of ordinary shares of 4,439,460,000 (2019: 4,163,227,000) in issue during the year.

The computation of diluted loss per share does not assume the exercise of the Company’s share options because the exercise prices of those options were higher than the average market price of the Company’s shares for the year ended 31 December 2020.

No adjustment has been made to the basic loss per share amounts presented for the years ended 31 December 2020 and 2019 in respect of a dilution as the impact of the share options outstanding had an anti-dilutive effect on the basic loss per share amounts presented.

The calculations of basic and diluted loss per share are based on:

	2020	2019

HK$’000	HK$’000

Loss

Loss attributable to ordinary equity holders of the parent	(242,399)	(441,039)

	Number of shares

2020	2019

’000	’000

Shares

Weihgted averadige number of ornary shares in issue during
the year used in the basic and diluted loss per share calculation	4,439,460	4,163,227


# 10. TRADE AND BILLS RECEIVABLES

	2020	2019

HK$’000	HK$’000

Trade receivables	321,087	210,947

Impairment	(123,465)	(100,740)

Trade receivables, net	197,622	110,207

Bills receivable	223	223

	197,845	110,430

Less: Non-current portion	(139,102)	(57,029)

Current portion	58,743	53,401

The Group enters into an arrangement to sublease a leased asset to a third party while the original lease contract is in effect, the Group is an intermediate lessor, this sublease is classified as a finance lease. The Group derecognised the right-of-use asset on the head lease and recognised trade receivables at the sublease commencement date, continued to account for the original lease liability in accordance with the lessee accounting model. At 31 December 2020, the current portion and non-current portion of the trade receives amounted to RMB8,022,000 (equivalent to approximately HK\$9,532,000) and RMB71,272,000 (equivalent to approximately HK\$84,656,000), respectively.

The Group’s trading terms with its customers are mainly on credit. The credit period is generally three months. The Group seeks to maintain strict control over its outstanding receivables and has a credit control department to minimise credit risk. Overdue balances are reviewed regularly by senior management. In view of the aforementioned and the fact that the Group’s trade receivables relate to a large number of diversified customers, there is no significant concentration of credit risk. The Group does not hold any collateral or other credit enhancements over its trade receivable balances. Trade receivables are non-interest-bearing.

An ageing analysis of the trade and bills receivables as at the end of the reporting period, based on the invoice date and net of loss allowance, is as follows:

	2020	2019

HK$’000	HK$’000

Within 90 days	106,295	27,834

91 to 180 days	3,995	6,304

181 to 365 days	9,625	5,398

Over 365 days	77,930	70,894

	197,845	110,430


So far as our Directors are aware, the following persons will, immediately prior to and following the completion of the Capitalisation Issue, the Distribution and the Global Offering (without taking into account any Shares which may be issued pursuant to the exercise of the Over-allotment Option and assuming there will be no change in the shareholding structure of Sunac China from the Latest Practicable Date up to the Listing), have interests or short positions in our Shares or underlying Shares which would be required to be disclosed to us and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who is, directly or indirectly, interested in 10% or more of the issued voting shares of any other member of our Group:

# INTERESTS IN SHARES OF OUR COMPANY

Name of Shareholder	 Nature of Interest	Shares held immediately
f
prior to the comlpetion othe Caiptalisation Issue the,
Distribution and the Global
(1)Offering	Shares held immediately
following the Caiptalisation
Issue the Ditributio and
,sn(1)the Global Offering

		Number	Approximate
Percentage	 Number	Approximate
Percentage

Sunac Services
(2)Investment 	Beneficial owner	 7,600,000(L)	80%	 1,698,000,000(L)	56.60%

(2)Sunac Shine	Trustee	 1,900,000(L)	20%	 462,000,000(L)	15.40%

(2)Sunac China 	Interest in
controlled
corporation	9,500,000(L)	100%	 2,160,000,000(L)	72.00%

(2)(3)Sunac International 	Interest in
controlled
corporation	9,500,000(L)	100%	 2,160,000,000(L)	72.00%

Beneficial owner	–	–	 65,731,909(L)	2.19%

(M \( \angle \gamma ( - ) \gamma ( + \))r. S  un	Interest in
controlled
corporation	9,500,000(L)	100%	 2,227,299,274(L)	74.24%

Beneficial owner	–	–	 366,531(L)	0.01%

Notes:

(1) The letter “L” denotes a long position in our Shares.


(2) Sunac Services Investment is wholly owned by Sunac China. Sunac Shine, is wholly-owned by Sunac China and acts as the trustee of the Sunac Services Share Award Scheme Trust which is set up for the purpose of a share award scheme to be adopted at least six months after Listing. As at the Latest Practicable Date, the detailed terms of the share award scheme and the relevant grantees had not yet been determined. By virtue of the SFO, Sunac China is deemed to be interested in the Shares held by Sunac Services Investment and Sunac Shine.

(3) As at the Latest Practicable Date, Sunac China was owned as to (i) approximately 43.82% by Sunac International, (ii) approximately 1.05% by Tianjin Biaodi, which was indirectly wholly owned by Mr. Sun, and (iii) approximately 0.24% by Mr. Sun. By virtue of the SFO, Sunac International and Mr. Sun are deemed to be interested in the Shares held by Sunac Services Investment and Sunac Shine, both of which are wholly owned by Sunac China.

(4) Tianjin Biaodi is expected to hold 1,567,365 Shares, representing approximately 0.05% of our Shares in issue immediately following the completion of the Capitalisation Issue, the Distribution and the Global Offering. Tianjin Biaodi is indirectly wholly owned by Mr. Sun. By virtue of the SFO, Mr. Sun is deemed to be interested in the Shares held by Tianjin Biaodi.

# INTEREST IN EQUITY INTEREST OF MEMBERS OF OUR GROUP

Name of Shareholder	Company
concerned	Nature of
Interest	Equity interest held
immediately prior to
the comlifpeton o the
Caiiptalsation Issue,
the Distribution and
the Global Offering	Equity interest held
immediately following
the comlifpeton o the
Caiiptalsation Issue,
the Distribution and
the Global Offering

			Approximate
Percentage	Approximate
Percentage

QindLgao onhPgai roperty
Services Co., Ltd. (青島隆海物
業服務有限公司) 	QindSgao unac	 Beneficial
owner	30%	30%

Deng Hong (鄧鴻) 	Chendgu
Huanrong	Beneficial
owner	29%	29%

Hebei Shuangchuang Pingan
Investment Co., Ltd. (河北雙創
平安投資有限公司) 	Shijiazhuang
Ronhgong	Beneficial
owner	46%	46%

Shoujin Minzhi (Tianjin) Property
Development Co., Ltd. (首金敏
志(天津)置業發展有限公司)	Hubei Rongshou	 Beneficial
owner	50%	50%

Henan Rongshou	 Beneficial
owner	40%	40%


# 4 Critical accounting estimates and judgments

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

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. Save as disclosed in Note 2.1, the estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

# (a) Income taxes

The Group is subject to income taxes in numerous jurisdictions. Significant judgment is required in determining the provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current income tax and deferred tax provision in the period in which such determination is made.

# (b) Provision for impairment of receivables

Management determines the provision for impairment of trade receivables. This amount of impairment is based on the credit history of its customers and the current market condition. Management reassesses the provision at each reporting date.

Significant judgment is exercised on the assessment of the collectability of trade receivables from each customer. In making the judgment, management considers a wide range of factors such as results of follow-up procedures performed by sales personnel, customer payment trends including subsequent payments and customers’ financial positions. If the financial conditions of the customers of the Group were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

The carrying amount and impairment of trade receivables are disclosed in Note 19.

# (c) Identification of functional currencies

The functional currency for each entity in the Group is the currency of the primary economic environment in which it operates. Determination of functional currency involves significant judgment. The Group reconsiders the functional currency of its entities if there is a change in the underlying transactions, events and conditions which determine their primary economic environment.


# 4 Critical accounting estimates and judgments (Continued)

# (d) Estimated useful lives and impairment of property, plant and equipment

Management estimates useful lives of the property, plant and equipment by reference to the Group’s business model, its assets management policy, the industry practice, expected usage of the assets, expected repair and maintenance, the technical or commercial obsolescence arising from changes or improvements in the market. Residual values of the property, plant and equipment are determined based on prevailing market values for equivalent aged assets taking into account the condition of the relevant assets and other economic considerations. Depreciation would be significantly affected by the useful lives and residual values of the property, plant and equipment as estimated by management.

The Group’s major operating assets represent property, plant and equipment. Management performs review for impairment of the property, plant and equipment whenever events or changes in circumstances indicate that the carrying amounts of these assets may not be recoverable.

Management considered there was no impairment indicator of remaining property, plant and equipment and construction in progress as at December 31, 2017 as these assets were used for profitable projects, and there is a strong demand of these property, plant and equipment in the second hand market (December 31, 2016: Same).

# 5 Revenue and Segment information

The chief operating decision-maker has been identified as the Board. The Board reviews the Group’s internal reporting in order to assess performance and allocate resources. The Board has determined the operating segments based on these reports.

The Board considers the business from both product and geographical perspectives. The Board regularly reviews the consolidated financial statements from both product and geographical perspectives to assess performance and make resources allocation decisions. The operating segments are determined to be based on products. Management assesses the performance of the operating segments based on a measure of gross profit.

The Group derives its revenue from three product segments, namely the electronics parts, branded OPLV products, and construction and industrial products which are operating in five geographical areas, namely The PRC (excluding Hong Kong), Australia, North America, Hong Kong and others.

The description of each reportable product segment is as follows:

Reportable product segment	Type of products

Electronics parts	Aluminium parts for consumer electronics products, examples include
heat sinks and chassis for computers

Construction and industrial products	Products sold for construction and industrial use, examples include
window and door frames, curtain walls, guardrails, body parts for
transportation, mechanical and electrical equipment and consumer
durable goods

Branded OPLV products	Door and window frames systems marketed under “OPLV” brand
and sold through distributors


# Remuneration Committee

The Company has established the Remuneration Committee on 6 June 2014 with written terms of reference in compliance with Rule 3.25 of the Listing Rules and paragraph B.1 of the Code on Corporate Governance Practices as set out in Appendix 14 to the Listing Rules. As at the date of this annual report, the Remuneration Committee consists of two independent non-executive Directors, namely Mr. Gong Jinjun (as Chairman) and Mr. Wang Ping, and one executive Director, namely Mr. Liu Daoqi (who replaced Mr. Feng Bin with effect from 17 March 2017). The primary duties of the Remuneration Committee are, inter alia, (1) to determine the remuneration policy of all Directors, to assess the performance of the Directors, to approve the terms of service contracts of the Directors, to review and approve the management’s remuneration proposals with reference to the Board’s corporate goals and objectives, to make recommendations to the Board on the remuneration packages of individual executive Directors and senior management, to make recommendations to the Board on the remuneration of the non-executive Director(s), (2) consider salaries paid by comparable companies, time commitment and responsibilities and employment conditions elsewhere in the group to review and approve compensation arrangements relating to dismissal or removal of Directors for misconduct to ensure they are consistent with relevant contractual terms and are otherwise reasonable and appropriate, (3) to review and approve compensation payable to executive Director and senior management for any loss or termination of office or appointment to ensure that it is consistent with contracted terms and is otherwise fair and not excessive, and (4) to ensure that no Director or any of his associates is involved in deciding his own remuneration.

During the year ended 31 December 2017, one meeting was held by the Remuneration Committee. The attendance record of each member of the Remuneration Committee is set out below:

Name of Director	Attendance
/Number of Remuneration Committee meeting(s)

Mr. Gong Jinjun	1/1

Mr. Wang Ping	1/1

Mr. Liu Daoiq (aidfhpponte as a member o te Remuneration
Committee on 17 March 2017)	1/1

Mr. Feng Bin (resigned on 17 March 2017)	0/0

During the year ended 31 December 2017, the Remuneration Committee mainly performed works including reviewing and making recommendation to the Board regarding of the Directors’ remuneration for the year ending 31 December 2017 and the terms of service contracts for newly appointed directors.

There had been no disagreement between the Board and the Remuneration Committee during the year ended 31 December 2017.


# Nomination Committee

The Company has established the Nomination Committee on 6 June 2014 with written terms of reference in compliance with paragraph A.5 of the Code on Corporate Governance Practices as set out in Appendix 14 to the Listing Rules. As at the date of this annual report, the Nomination Committee consists of two independent non-executive Directors, namely Mr. Zeng Shiquan and Mr. Gong Jinjun, and one executive Director, Mr. Li Tie (as Chairman) (who replace Mr. Yang Yoong An with effect from 17 March 2017). The primary functions of the nomination committee are, inter alia, to review the structure, size and composition (including the skills, knowledge and experience) of the Board at least annually and make recommendations on any proposed changes to the Board to complement the Company’s corporate strategy, to identify individuals suitably qualified to become Board members and select or make recommendations to the Board on the selection of individuals nominated for directorships, to assess the independence of independent non-executive Directors, and to make recommendations to the Board on the appointment or re-appointment of Directors in particular the chairman and the chief executive officer and succession planning for Directors.

During the year ended 31 December 2017, one meeting was held by the Nomination Committee. The attendance record of each member of the Nomination Committee is set out below:

Name of Director	Attendance/
Number of Nomination Committee meeting(s)

Mr. Li Tie (appointed as chairman of the
Nomination Committee on 17 March 2017)	1/1

Mr. Zeng Shiquan	1/1

Mr. Gong Jinjun	1/1

Mr. Yang Yoong An (resigned as chairmen of the
Nomination Committee on 17 March 2017)	0/0

There had been no disagreement between the Board and the Nomination Committee during the year ended 31 December 2017. During the year ended 31 December 2017, the Nomination Committee mainly performed works including:

— identified suitable candidates for directorships and made recommendations to the Board;

— assessed the independence of independent non-executive Directors;

— made recommendations to the Board on the appointment or re-appointment of Directors; and

— reviewed and assessed the implementation of the diversity policy of the Company.

# Board Diversity Policy

The Company recognises and embraces the benefits of having a diverse Board to enhance the quality of its performance and hence the purpose of the Board Diversity Policy aims to build and maintain a Board with a diversity of directors, in terms of skills, experience, knowledge, expertise, culture, independence, age and gender. These differences will be taken into account in determining the optimum composition of the Board. The Nomination Committee will discuss the measurable objectives for implementing diversity on the Board from time to time and recommend them to the Board for adoption. The Nomination Committee will report annually on the composition of the Board under diversified perspectives, and monitor the implementation of this policy to ensure the effectiveness of this policy. It will also discuss any revisions that may be required, and recommend any such revisions to the Board for consideration and approval.


Name of Shareholder	 Class of Share	Number of
Shares	Approximate
Shareholding
Percentage in Our
Company after the
Allotment

Zhong Hang Investment
Management Limited
(Note 11)	Series A Preferred
Shares	2,313,800	2.0199%

BAI (Note 12)	Series B Preferred
Shares	3,055,000	2.6669%

China Merchants Venture
CailFpta und, L.P. (招商
局創新投資基金有限合夥
企業) (Note 13)	Series B Preferred
Shares	4,582,600	4.0005%

Total		114,551,513	100.00%

Notes:

1. Each of Cabnetvic, Cabnetwa and Cabnetsa is a business company incorporated in the BVI and wholly-owned by Mr. Song.

2. Let It Bee Company Limited (“Let it Bee”) is a business company incorporated in the BVI and wholly-owned by Ms. Chau.

3. Xylo Yonder Company Limited (“Xylo Yonder”) is a business company incorporated in the BVI and wholly-owned by Mr. Jiang, a director of certain Consolidated Affiliated Entities of our Group.

4. Shirazvic is a business company incorporated in the BVI and a shareholding platform beneficially owned by Mr. Song, Mr. Ji and Ms. Chau, our executive Directors and Co-founders, Mr. Zhong Songran (鍾松然), our Chief Technology Officer and other 10 employees who have made contributions to the establishment and development of our Group. Except Mr. Song, Mr. Ji, Ms. Chau and Mr. Zhong, all the other ultimate beneficial owners of Shirazvic are not Directors or senior management of our Company. As of the Latest Practicable Date, Shirazvic was owned as to (i) approximately 35.29% by Ms. Chau through Let It Bee; (ii) approximately 15.19% by Mr. Zhong through Soley Raven Company Limited, a business company incorporated in the BVI which is wholly-owned by Mr. Zhong; (iii) approximately 10.40% by Mr. Song; (iv) approximately 0.91% by Mr. Ji through Joy Kalton; and (v) approximately 38.21% by 10 employees of our Group who are not Directors or senior management of our Company.

5. Equity Incentive Holdco is a business company incorporated in the BVI and a special purpose vehicle wholly-owned by Trident Trust Company (HK) Limited, which is the trustee of LLS Trust, established for the purpose of holding Class B Shares pursuant to the Equity Incentive Plan.

6. Tencent Mobility Limited (“Tencent Mobility”) is a limited liability company incorporated under the laws of Hong Kong and a wholly-owned subsidiary of Tencent.

7. CCRE Investment Holdings Ltd. (“CCRE Investment”) is an exempted company with limited liability incorporated in the Cayman Islands and a wholly-owned subsidiary of CITIC Capital.

8. Qian Linklogis Limited (“LVC Qian”) is a business company incorporated in the BVI and wholly-owned by Shanghai Rongmian Information Technology Partnership (Limited Partnership) (上海融勉信息技術合夥企業(有限合夥) (“Shanghai Rongmian”), a limited partnership established in the PRC whose general partner is Shanghai LVC.


9. Le Linklogis Limited (“LVC Le”) is a business company incorporated in the BVI and wholly-owned by Shanghai Rongmian.

10. Tan Linklogis Limited (“LVC Tan”) is a business company incorporated in the BVI and wholly-owned by Shanghai Rongmian.

11. Zhong Hang Investment Management Limited (“Zhong Hang Investment”) is a business company incorporated in the BVI and ultimately beneficially owned by Mr. Wang Jianhua (王建華), an Independent Third Party.

12. BAI is a company incorporated under the laws of Germany, whose beneficial owner is Bertelsmann SE & Co. KGaA (貝塔斯曼) (“Bertelsmann”).

13. China Merchants Venture is a limited partnership established in the Cayman Islands, which is ultimately controlled by China Merchants Group Co., Ltd. (招商局集團有限公司).

# Contractual Arrangements

On October 9, 2018, Linklogis Supply Chain Services entered into the Contractual Arrangements with Linklogis Digital, the Relevant Shareholders and the Other Parties (as defined in the section headed “Contractual Arrangements” of this prospectus), which were subsequently restated and amended on November 9, 2020. Through the Contractual Arrangements, Linklogis Supply Chain Services is able to exercise control over the operations of, and enjoy 100% of the economic benefits of Linklogis Digital and its subsidiaries. See the sections headed “Contractual Arrangements” and “Connected Transactions” of this prospectus for details of the Contractual Arrangements.

# Reclassification, redesignation and Share Subdivision

On March 22, 2021, our shareholders resolved, among other things, that subject to the Global Offering becoming unconditional, (i) all the ordinary shares with a par value of US\$0.0001 each and the Preferred Shares (save and except for 22,764,297 ordinary shares with a par value of US\$0.0001 each held by Cabnetvic, Cabnetwa and Cabnetsa), whether issued and unissued, be re-classified and re-designated as Class B Shares with a par value of US\$0.0001 each on a one-for-one basis, (ii) 22,764,297 ordinary shares with a par value of US\$0.0001 each held by Cabnetvic, Cabnetwa and Cabnetsa be re-classified and re-designated as Class A Shares with a par value of US\$0.0001 each on a one-for-one basis, and (iii) each share in the then authorized share capital of the Company with a par value of US\$0.0001 each (whether issued or unissued) be subdivided into 12 Shares of the corresponding class with a par value of US\$0.00000833 each immediately prior to the completion of the Global Offering.

As a consequence of this, immediately prior to the completion of the Global Offering, the authorized share capital of the Company will be US\$50,000 divided into 273,171,564 Class A Shares with a par value of US\$0.00000833 each and 5,726,828,436 Class B Shares with a par value of US\$0.00000833 each, and the issued share capital of the Company will be US\$15,095.9579 divided into 273,171,564 Class A Shares with a par value of US\$0.00000833 each and 1,538,343,384 Class B Shares with a par value of US\$0.00000833 each.


Members of the liquidation committee are required to discharge their duties honestly and in compliance with relevant laws. A member of the liquidation committee is liable to indemnify the company and its creditors with respect to any loss arising from his willful or material default.

# (xix) Overseas Listing

The shares of a company shall only be listed overseas after obtaining approval from the securities regulatory authority of the State Council and the listing must be arranged in accordance with procedures specified by the State Council.

According to the Special Regulations, a company’s plan to issue overseas listed foreign shares and domestic shares which has been approved by the Securities Commission may be implemented by the board of directors of a company by way of respective issues, within 15 months after approval is obtained from Securities Commission.

# (xx) Loss of H share certificates

A shareholder may apply, in accordance with the relevant provision set out in the PRC Civil Procedure Law, to a people’s court in the event that H share certificates in registered form are either stolen or lost, for a declaration that such certificates will no longer be valid. After such a declaration has been obtained, the shareholder may apply to the company for the issue of replacement certificates.

The Mandatory Provisions provide for a separate procedure regarding loss of H share certificates (which has been incorporated in the Articles of Association, a summary of which is set out in “Appendix VII – Summary of Articles of Association”).

# (xxi) Suspension and Termination of Listing

The new and amended Company Law has deleted provisions governing suspension and termination of listing. The new Securities Law has been amended as follows:

The trading of shares of a company on a stock exchange may be suspended if so decided by the Securities Exchange under one of the following circumstances:

(1) the total amount of shares or the shareholding distribution no longer complies with the necessary requirements for a listed company;

(2) the company failed to make public its financial position in accordance with the requirements or there is false information in the company’s financial report with the possibility of misleading investors;

(3) the company has committed a major breach of the law;

(4) the company has incurred losses for latest three (3) consecutive years; or


(5) other circumstances as required by the listing rules of the relevant stock exchange(s).

Under the Securities Law, in the event that the conditions for listing are not satisfied within the period stipulated by the relevant stock exchange in the case described in (1) above, or the company has refused to rectify the situation in the case described in (2) above, or the company fails to become profitable in the next subsequent year in the case described in (4) above, the relevant stock exchange shall have the right to terminate the listing of the shares of the company.

# (xxii) Merger and demerger

Companies may merge through merger by absorption or through the establishment of a newly merged entity. If it merges by absorption, the company which is absorbed shall be dissolved. If it merges by forming a new corporation, both companies will be dissolved.

# Securities law and other relevant regulations

The PRC has promulgated a number of regulations that relate to the issue and trading of Shares and disclosure of information by the Company. In October 1992, the State Council established the Securities Committee and CSRC. The Securities Committee is responsible for co-coordinating the drafting of securities regulations, formulating securities-related policies, planning the development of securities markets, directing, coordinating and supervising all securities-related institutions in the PRC and administering CSRC. CSRC is the regulatory body of the Securities Committee and is responsible for the drafting of regulatory provisions of securities markets, supervising securities companies, regulating public offers of securities by PRC companies in the PRC or overseas, regulating the trading of securities, compiling securities-related statistics and undertaking research and analysis. In 1998, the State Council dissolved the Securities Committee and assigned its function to CSRC. CSRC is also responsible for the regulation and supervision of the national stocks and futures market according to laws, regulations and authorizations.

The Securities Law took effect on July 1, 1999 and was latest revised on August 31, 2014. This is the first national securities law in the PRC, and it is divided into 12 chapters and 240 articles regulating, among other things, the issue and trading of securities, takeovers by listed companies, securities exchanges, securities companies and the duties and responsibilities of the State Council’s securities regulatory authorities. The Securities Law comprehensively regulates activities in the PRC securities market. Article 238 of the Securities Law provides that a company must obtain prior approval from the State Council’s regulatory authorities to list shares outside the PRC. Article 239 of the Securities Law provides that specific measures with respect to shares of companies in the PRC that are to be subscribed and traded in foreign currencies shall be separately formulated by the State Council. Currently, the issue and trading of foreign issued shares (including H Shares) are still mainly governed by the rules and regulations promulgated by the State Council and CSRC.


# 30. RETIREMENT BENEFITS

As stipulated by the regulations of the PRC, the Group’s subsidiaries in the PRC participate in basic defined contribution retirement schemes organised by the respective municipal governments under which they are governed. Details of the schemes of the subsidiaries are as follows:

Administrator	Beneficiary	Contribution rate

Beijing Municipal Government	Employees of Beijing OLM	19%

Shanghai Municipal Government	Employees of Shanghai OLM	20%

Chengdu Municipal Government,
Sichuan Province	Employees of Chengdu OLM	20.5%

Hangzhou Municipal Government,
Zhejiang Province	Employees of Beijing OLM
Hangzhou Branch	14%

Guangzhou Municipal Government,
Guangdong Province	Employees of Beijing OLM
Guangzhou Branch	14%

All employees are entitled to retirement benefits equal to a fixed proportion of their salaries and benefits in kind prevailing at their normal retirement ages.

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

The Group has no other material obligation for the payment of retirement benefits associated with this scheme beyond the contributions described above.


# 31. RELATED PARTY TRANSACTIONS

# (a) Save as disclosed elsewhere in the consolidated financial statements, details of transactions between the Group and its related parties are disclosed below:

	2016	2015

RMB’000	RMB’000

Non-controlling interests

— Provision for software maintenance and other services	344	767

# (b) Remuneration to key management personnel

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, including directors and supervisors of the Group. The compensation of key management personnel is as follows:

	2016	2015

RMB’000	RMB’000

Short-term employee benefits	6,897	8,175

Post-employment benefits	279	204

	7,176	8,379

# (c) Contribution to defined contribution retirement plans

The Group participates in defined contribution retirement plans organised by municipal government for its employees. The details of the Group’s employee benefits plan are disclosed in note 30. As at 31 December 2016, there was no material outstanding contribution to post-employment benefit plans (2015: Nil).