# IV NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

# 30 DEBT SECURITIES ISSUED (Continued)

# (1) Bonds issued (Continued):

Pursuant to the approval by relevant regulatory authorities, the bonds issued by the Group are set out as below:

(i) The USD green bonds issued in October 2015 have a tenor of 5 years matured in October 2020.

(ii) The subordinated fixed rate bonds issued in June 2011 have a tenor of 15 years, with a fixed coupon rate of 5.30%, payable annually. The Bank has an option to redeem all of the bonds at face value on 6 June 2021. If the Bank did not exercise this option, the coupon rate of the bonds would remain at 5.30% per annum from 7 June 2021 onwards.

(iii) The subordinated fixed rate bonds issued in December 2012 have a tenor of 15 years, with a fixed coupon rate of 4.99%, payable annually. The Bank has an option to redeem all of the bonds at face value on 19 December 2022. If the Bank did not exercise this option, the coupon rate of the bonds would remain at 4.99% per annum from 20 December 2022 onwards.

(iv) The Tier-two capital bonds issued in October 2017 have a tenor of 10 years, with a fixed coupon rate of 4.45% payable annually. The Bank has an option to redeem part or all of the bonds at face value on 16 October 2022 if specified redemption conditions as stipulated in the offering documents were met, subject to regulatory approval. If the Bank did not exercise this option, the coupon rate of the bonds would remain at 4.45% per annum from 17 October 2022 onwards. These Tier-two capital bonds have the write-down feature of a Tier-two capital instrument and they are qualified as Tier-two Capital Instruments in accordance with the CBIRC requirements.

(v) The Tier-two capital bonds issued in April 2018 have a tenor of 10 years, with a fixed coupon rate of 4.45% payable annually. The Bank has an option to redeem part or all of the bonds at face value on 26 April 2023 if specified redemption conditions as stipulated in the offering documents were met, subject to regulatory approval. If the Bank did not exercise this option, the coupon rate of the bonds would remain at 4.45% per annum from 27 April 2023 onwards. These Tier-two capital bonds have the write-down feature of a Tier-two capital instrument and they are qualified as Tier-two Capital Instruments in accordance with the CBIRC requirements.

(vi) The Tier-two capital bonds issued in March 2019 have a tenor of 10 years, with a fixed coupon rate of 4.28% payable annually. The Bank has an option to redeem part or all of the bonds at face value on 18 March 2024 if specified redemption conditions as stipulated in the offering documents were met, subject to regulatory approval. If the Bank did not exercise this option, the coupon rate of the bonds would remain at 4.28% per annum from 19 March 2024 onwards. These Tier-two capital bonds have the write-down feature of a Tier-two capital instrument and they are qualified as Tier-two Capital Instruments in accordance with the CBIRC requirements.

(vii) The Tier-two capital bonds issued in April 2019 have a tenor of 10 years, with a fixed coupon rate of 4.30% payable annually. The Bank has an option to redeem part or all of the bonds at face value on 10 April 2024 if specified redemption conditions as stipulated in the offering documents were met, subject to regulatory approval. If the Bank did not exercise this option, the coupon rate of the bonds would remain at 4.30% per annum from 11 April 2024 onwards. These Tier-two capital bonds have the write-down feature of a Tier-two capital instrument and they are qualified as Tier-two Capital Instruments in accordance with the CBIRC requirements.


# 7. FINANCIAL INSTRUMENTS (Continued)

# (b) Financial risk management objectives and policies (Continued)

# Liquidity risk

Ultimate responsibility for liquidity risk management rests with the Board. In the management of the liquidity risk, the Group monitors and maintains a level of cash and cash equivalents deemed adequate by the management to finance the Group’s operations and mitigate the effects of fluctuations in cash flows.

The Group is exposed to liquidity risk as the Group had net current liabilities of approximately HK\$226,539,000 (2015: HK\$461,585,000). The liquidity of the Group primarily depends on the future funding being available and the ability of the Group to meet its financial obligations as they fall due. Details of which are set out in Note 2 to the consolidated financial statements.

The following table details the Group’s remaining contractual maturity for its non-derivative financial liabilities. The table has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The maturity dates for other non-derivative financial liabilities are based on the agreed repayment dates.

The table includes both interest and principal cash flows. To the extent that interest flows are floating rate, the undiscounted amount is derived from interest rate curve at the end of the reporting period.

In addition, the following table details the Group's liquidity analysis for its derivative financial instruments. The tables have been drawn up based on the undiscounted contractual net cash outflows on derivative instruments that settle on a net basis, and the undiscounted gross outflows on those derivatives that require gross settlement.

7. 金融工具（續）

(b) 財務風險管理目標及政策（續）

流動資金風險

流動資金風險管理由董事會最終負責，於管理流動資金風險時，本集團監控及維持管理層認為足夠之現金及現金等值水平，以向本集團之業務提供資金及減低現金流量波動之影響。

由於本集團錄得淨流動負債約226,539,000 港 元（ 二 零 一 五 年 ；461,585,000港元），故本集團承受流動資金風險。本集團的流動資金主要倚賴可動用未來資金及本集團於財務責任到期時履行財務責任的能力。有關詳情載於綜合財務報表附註2。

下表詳列本集團非衍生金融負債之餘下合約到期情況。下表乃基於金融負債之未折現現金流量而編製，其乃根據本集團可能需付款之最早日期分類。其他非衍生金融負債之到期日是根據協定還款日期而釐定。

下表載列利息及本金現金流量。若利息流量為浮息，則按報告期間結束時之孳息曲線而得出未折現金額。

此外，下表詳列本集團對其衍生金融工具的流動性分析。編製該表時乃基於按淨額基準結算的衍生工具的未貼現合約現金流出淨額，以及須按總額結算的衍生工具的非貼現流出總額計算。


# 7. FINANCIAL INSTRUMENTS (Continue)

# (b) Financial risk management objectives and policies (Continued)

# Liquidity risk (Continued)

# Liquidity tables

7. 金融工具（續）

(b) 財務風險管理目標及政策（續）

流動資金風險（續）

流動資金表

	Weihgted
average
interest rate
加權
平均利率	On demand
or less than
1 year
按要求
或一年內	 1-2 years
一年
至兩年	 2-5 years
兩年
至五年	Total
undiscounted
cash flow
未折現現金
流量總額	Carriyng
amounts
 賬面值

	%
%	HK$’000
千港元	 HK$’000
 千港元	 HK$’000
 千港元	 HK$’000
 千港元	 HK$’000
 千港元

2016                二零一六年

Non-derivative financial liabilities 非衍生金融負債

Trade and other payables      貿易及其他應付款項	–	116,605	–	–	116,605	116,605

Other borrowings          其他借貸

– interest free            －免息	–	25,700	–	–	25,700	25,700

– fixed rate              －定息	10.00	4,948	–	–	4,948	4,800

– variable rate            －浮息	3.82	41,528	–	–	41,528	40,000

Obligations under finance leases 融資租賃承擔	1.45	601	601	289	1,491	1,439

Convertible bonds          可換股債券

– debt component          －債務部分	15.21	112,997	–	–	112,997	97,781

		302,379	601	289	303,269	286,325

2015                  二零一五年

Non-derivative financial liabilities 非衍生金融負債

Trade and other payables      貿易及其他應付款項	–	96,565	–	–	96,565	96,565

Other borrowings          其他借貸

– interest free            －免息	–	25,700	–	–	25,700	25,700

– fixed rate              －定息	10.00	3,620	–	–	3,620	3,500

– variable rate            －浮息	3.20	40,839	–	–	40,839	40,000

Obligations under finance leases 融資租賃承擔	2.59	668	668	980	2,316	2,196

Convertible bonds          可換股債券

– debt component         －債務部分	–	325,307	–	–	325,307	325,307

Promissory notes payable      應付承兌票據	13.70	–	24,000	–	24,000	18,925

		492,699	24,668	980	518,347	512,193

Derivatives – net settlement     衍生工具－以淨額結算
– Derivative financial liability     －衍生金融負債	–	–	–	–	–	17,785

The amounts included above for variable interest rate instruments for non-derivative financial liabilities are subject to change if changes in variable interest rates differ to those estimates of interest rates determined at the end of the reporting period.

上文就非衍生金融負債之浮動利率工具包括之金額，會因浮動利率變動有別於報告期間結算日所釐定估計而有變。


# 29. SIGNIFICANT RELATED PARTY TRANSACTIONS (CONTINUED)

The remuneration of Directors and other members of key management of the Group and of the Company are as follows:

	Group	Company

2019	2018	2019	2018

RM’000	RM’000	RM’000	RM’000

Short-term employee benefits	4,944	5,906	1,485	2,242

Post-employment benefits	245	324	15	41

	5,189	6,230	1,500	2,283

Analysed into:

- Directors of the Company	1,500	2,283	1,500	2,283

- Directors of the subsidiaries	1,286	1,608	-	-

- Other key management personnel	2,403	2,339	-	-

	5,189	6,230	1,500	2,283

# 30. COMMITMENTS

# 30.1 Capital commitments

As at the end of the reporting period, the Group had the following capital commitments:

	Group

30.9.2019	30.9.2018

RM’000	RM’000

Contracted but not provided for:

Construction of a factory	8,536	80,818

Renovation, purchase of plant and equipment	52,811	43,663

	61,347	124,481

# 30.2 Operating lease commitments – as lessee

As at the end of the reporting period, there were operating lease commitments for rental payable in subsequent accounting periods as follows:

	Group

30.9.2019	30.9.2018

RM’000	RM’000

Within one year	25,462	23,218

Two to five years	16,087	23,334

More than five years	-	2,989

	41,549	49,541


# 30. COMMITMENTS (CONTINUED)

# 30.2 Operating lease commitments – as lessee (Continued)

As at the end of the reporting period, the Group leases office premises and other operating facilities under operating leases. Leases are negotiated and rentals are fixed for a period of 1 to 5 years (30 September 2018: 1 to 10 years) with an option to renew at the prevailing market rates. Apart from the above lease commitment, the Group is required to pay contingent rentals based on percentage of sales derived from the operations for certain rented premises.

# 30.3 Operating lease commitments – as lessor

As at the end of the reporting period, there were non-cancellable operating lease commitments for rental receivable for premises in subsequent accounting periods as follows:

	Group

30.9.2019	30.9.2018

RM’000	RM’000

Within one year	1,585	366

Two to three years	366	-

	1,951	366

The above lease agreements expire within 1 to 2 year expiring in 2020 (30 September 2018: within 1 year expiring in 2018). The current rent receivables under the leases are subject to revision after expiry with no provisions for contingent rent.

Upon expiry of the lease term, the lessee is granted an option to renew the tenancy for two years subject to compliance and observation of all the terms and conditions in the tenancy agreements.


\[ \left( v ^ { \alpha _ { n } } ( x ) - v ^ { \alpha _ { n } } ( x _ { 0 } ) \right) \to v ( x ) \]

for all \( x \in \mathcal { X } \), for some \( \lambda \in \mathbb { R } \) and some function \( v : \mathcal { X } \rightarrow \mathbb { R } \). Note that \|λ\|and \|v(·)\| are both bounded by \( C ^ { \prime } \). Finally, we notice that, for any \( x \in \mathcal { X } \),

\[ \alpha _ { n } v ^ { \alpha _ { n } } ( x ) = \alpha _ { n } v ^ { \alpha _ { n } } ( x _ { 0 } ) + \alpha _ { n } \bigl ( v ^ { \alpha _ { n } } ( x ) - v ^ { \alpha _ { n } } ( x _ { 0 } ) \bigr ) \to \lambda , \]

so the convergence of this sequence to \( \lambda \) holds for all x.

We are now in a position to prove existence of solutions to our Ergodic BSDE.

Theorem 4.4. Let v and \( \lambda \) be as constructed in Lemma 4.3. The triple \( ( Y , Z , \lambda ) \), where

\[ Y _ { t } : = v ( X _ { t } ) , \qquad e _ { k } ^ { * } Z _ { t } : = v ( e _ { k } ) . \]

is the unique bounded, stationary (i.e. does not depend on t), Markovian solution, with \( v ( x _ { 0 } ) = 0 \), to the Ergodic BSDE

\[ Y _ { T } = Y _ { t } - \sum _ { t \le u < T } \left( f ( X _ { u } , Z _ { u } ) - \lambda \right) + \sum _ { t \le u < T } Z _ { u } ^ { * } M _ { u + 1 } . \eqno ( 4 . 4 ) \]

Any other bounded solution \( ( Y ^ { \prime } , Z ^ { \prime } , \lambda ^ { \prime } ) \) satisfies \( \lambda \ = \ \lambda ^ { \prime } \), and any other bounded, stationary, Markovian solution \( ( \dot { Y } ^ { \prime } , Z ^ { \prime } , \lambda ^ { \prime } ) \) satisfies \( Y _ { t } \, = \, Y _ { t } ^ { \prime } + c \) for some \( c \in \mathbb { R } \), and \( Z \sim _ { M } Z ^ { \prime } \) 0.

Proof. Let \( \{ \alpha _ { n } \} _ { n > 1 } \) be the sequence constructed in Lemma 4.3. We have that \( Y _ { t } ^ { \alpha _ { n } } = v ^ { \alpha _ { n } } ( X _ { t } ) \) and \( e _ { k } ^ { * } Z _ { t } ^ { \alpha _ { n } } = v ^ { \alpha _ { n } } ( e _ { k } ) \) solve the discounted BSDE

\[ Y _ { T } ^ { \alpha _ { n } } = Y _ { t } ^ { \alpha _ { n } } - \sum _ { t \leq u < T } \left( f ( X _ { u } , Z _ { u } ^ { \alpha _ { n } } ) - \alpha _ { n } Y _ { u } ^ { \alpha _ { n } } \right) + \sum _ { t \leq u < T } \left( Z _ { u } ^ { \alpha _ { n } } \right) ^ { * } M _ { u + 1 } . \]

However, since \( \| \mathbf { 1 } \| _ { M _ { t + 1 } } = 0 \), and f does not distinguish between values of \( Z _ { u } \) up to equivalence \( { \sim } { M } _ { u + 1 } \) , we can equally write \( Z _ { u } ^ { \alpha _ { n } } - v ^ { \alpha _ { n } } ( x _ { 0 } ) \mathbf { 1 } \) in the place of \( Z _ { u } ^ { \alpha _ { n } } \) in the above. Note that \( e _ { k } ^ { * } Z _ { u } ^ { \alpha _ { n } } - v ^ { \alpha _ { n } } ( x _ { 0 } ) \to e _ { k } ^ { * } Z _ { u } \) as \( n \to \infty \) for each \( e _ { k } \in \mathcal { X } \), and that, by the bound established in Lemma 4.3, \|e∗kZuαn   −vαn(x0)\|is uniformly bounded. Since f is Lipschitz in z, we deduce that

\[ f ( X _ { u } , Z _ { u } ^ { \alpha _ { n } } - v ^ { \alpha _ { n } } ( x _ { 0 } ) \mathbf { 1 } ) \to f ( X _ { u } , Z _ { u } ) \quad { \mathrm { a s } } \quad n \to \infty \quad { \mathrm { a . s . } } \]

It follows that


\[ \begin{array} { l } { { \displaystyle Y _ { T } = \operatorname* { l i m } _ { n \to \infty } \left( v ^ { \alpha _ { n } } ( X _ { T } ) - v ^ { \alpha _ { n } } ( x _ { 0 } ) \right) } } \\ { { \displaystyle \quad = \operatorname* { l i m } _ { n \to \infty } \left( v ^ { \alpha _ { n } } ( X _ { t } ) - v ^ { \alpha _ { n } } ( x _ { 0 } ) \right) - \operatorname* { l i m } _ { n \to \infty } \displaystyle \sum _ { t \leq u < T } \left( f ( X _ { u } , Z _ { u } ^ { \alpha _ { n } } ) - \alpha _ { n } v ^ { \alpha _ { n } } ( X _ { u } ) \right) } } \\ { { \displaystyle \qquad + \operatorname* { l i m } _ { n \to \infty } \displaystyle \sum _ { t \leq u < T } \left( Z _ { u } ^ { \alpha _ { n } } \right) ^ { * } M _ { u + 1 } } } \\ { { \displaystyle \qquad = v ( X _ { t } ) - \operatorname* { l i m } _ { n \to \infty } \displaystyle \sum _ { t \leq u < T } \left( f ( X _ { u } , Z _ { u } ^ { \alpha _ { n } } - v ^ { \alpha _ { n } } ( x _ { 0 } ) \mathbf { 1 } ) - \alpha _ { n } v ^ { \alpha _ { n } } ( X _ { u } ) \right) } } \\ { { \displaystyle \qquad + \operatorname* { l i m } _ { n \to \infty } \displaystyle \sum _ { t \leq u < T } \left( Z _ { u } ^ { \alpha _ { n } } - v ^ { \alpha _ { n } } ( x _ { 0 } ) \mathbf { 1 } \right) ^ { * } M _ { u + 1 } } } \\ { { \displaystyle \qquad = Y _ { t } - \displaystyle \sum _ { t \leq u < T } \left( f ( X _ { u } , Z _ { u } ) - \lambda \right) + \displaystyle \sum _ { t \leq u < T } Z _ { u } ^ { * } M _ { u + 1 } , } } \end{array} \]

and we see that \( ( Y , Z , \lambda ) \) is indeed a solution of the EBSDE (4.4).

Suppose that \( ( Y ^ { \prime } , Z ^ { \prime } , \lambda ^ { \prime } ) \) is another bounded solution. Let \( \tilde { Y } \, = \, Y \, - \, Y ^ { \prime } \),\( \tilde { Z } = Z - Z ^ { \prime } \) and \( \tilde { \lambda } = \lambda - \lambda ^ { \prime } \). Then

\[ \tilde { Y } _ { T } = \tilde { Y } _ { 0 } - \sum _ { 0 \leq u < T } \left( f ( X _ { u } , Z _ { u } ) - f ( X _ { u } , Z _ { u } ^ { \prime } ) - \tilde { \lambda } \right) + \sum _ { 0 \leq u < T } \tilde { Z } _ { u } ^ { \ast } M _ { u + 1 } . \qquad ( 4 . 5 ) \]

By Proposition 2.2, there exists a measure Q such that

\[ - \sum _ { 0 \leq u < t } \left( f ( X _ { u } , Z _ { u } ) - f ( X _ { u } , Z _ { u } ^ { \prime } ) \right) + \sum _ { 0 \leq u < t } \tilde { Z } _ { u } ^ { \ast } M _ { u + 1 } \]

is a martingale under Q. Taking an \( \mathbb { E } _ { \mathbb { Q } } \) expectation in (4.5), we obtain

\[ \begin{array} { r } { \tilde { \lambda } = T ^ { - 1 } \mathbb { E } _ { \mathbb { Q } } \big [ \tilde { Y } _ { T } - \tilde { Y } _ { 0 } \big ] . } \end{array} \]

Since \( \tilde { Y } \) is uniformly bounded, taking the limit \( T \to \infty \) gives \( \tilde { \lambda } \) = 0, so that \( \lambda = \lambda ^ { \prime } \). Substituting back into (4.5) and taking an \( \mathbb { E } _ { \mathbb { O } } [ \, \cdot \, | \, \mathcal { F } _ { 0 } ] \)] expectation gives

\[ \mathbb { E } _ { \mathbb { Q } } { \left[ \tilde { Y } _ { T } \mid \mathcal { F } _ { 0 } \right] } = \tilde { Y } _ { 0 } . \eqno ( 4 . 6 ) \]

Suppose further that \( Y ^ { \prime } \) and \( Z ^ { \prime } \) are Markovian and do not depend on t, so that in particular there exists a function \( v ^ { \prime } : \mathcal { X } \rightarrow \mathbb { R } \) such that \( Y _ { t } ^ { \prime } \, = \, v ^ { \prime } ( X _ { t } ) \). Then the measure Q may be taken to be the measure given by Lemma 4.1, so that X is still a uniformly ergodic Markov chain under Q. Writing \( \tilde { \pi } \) for the ergodic measure of X under Q, it follows from (4.6) that, for any \( x \in \mathcal { X } \),

\[ v ( x ) - v ^ { \prime } ( x ) = \operatorname* { l i m } _ { T \to \infty } \mathbb { E } _ { \mathbb { Q } } \big [ \tilde { Y } _ { T } \, \big | \, X _ { 0 } = x \big ] = \int _ { \mathcal { X } } \big ( v ( y ) - v ^ { \prime } ( y ) \big ) d \tilde { \pi } ( y ) . \]

Since the right hand side is independent of x, we see that \( v ( x ) = v ^ { \prime } ( x ) + c \) for all x, and hence that \( Y _ { t } = Y _ { t } ^ { \prime } + c \), for some \( c \in \mathbb { R } \). In particular, if \( v ^ { \prime } ( x _ { 0 } ) = 0 \), then \( c \) = 0, and hence \( Y = Y ^ { \prime } \) up to indistinguishability.

With \( \tilde { \lambda } \) = 0 and \( \tilde { Y } _ { t } = c = \tilde { Y } _ { t + 1 } \), we deduce from the one-step dynamics of \( \tilde { Y } \) that \( \tilde { Z } _ { t } ^ { * } M _ { t + 1 } = 0 , \) and hence that \( Z \sim _ { M } Z ^ { \prime } \).


Summer Universiade (2011年世界大學生夏季運動會) in Shenzhen, the 12th National Games of the PRC (中華人民共和國第十二屆運動會) in Liaoning province in 2013, the 2014 Youth Olympic Games in Nanjing and the 1st National Youth Games of the PRC(第一届全國青年運動會) in Fujian province in 2015. According to the Frost & Sullivan Report, our live sports broadcasting services were ranked second with a 25.0% market share in China in terms of revenue in 2015. In 2013, 2014 and 2015, the revenue we derived from live sports broadcasting service was approximately RMB20.3 million, RMB9.1 million and RMB14.0 million, respectively, representing approximately 4.0%, 2.2% and 2.3%, respectively, of our total revenue for the same periods.

• Graphics template design. We provide standard templates for TV programs, such as score-displaying graphics for sports game shows, as part of our graphics creation system product and our solutions containing this product. Some customers engage us to design or customize graphics templates for their digital video programs when these standard templates are insufficient to meet their needs.

• Digitization and cataloging of media asset. We use our media asset management products and solutions to help TV broadcasters digitize and catalog their analog media content on project-by-project basis. We have also started serving other types of customers such as publishers and archives to digitize their collections of paper-based documents.

• System maintenance. We provide long-term, on-site system maintenance services on project-by-project basis to customers who have installed our solutions. When providing these services, we are able to uncover opportunities to improve our solutions and products and help customers uncover their potential need for system expansion, upgrades and additional solutions and products.

The following illustrates our selected services described above.


# Our Products

Our products combine our proprietary software with third-party hardware configured to our specifications to help our customers process digital video content after its capture and ingestion. Our products focus on providing certain key functionalities of digital video post-production, and primarily include:

• Video editing systems that edit digital video of news, advertisements, channel labels, banners and captions. The video editing system is one of our principal products and a key component in many of our solutions. Our Himalaya-series video editing systems are able to address our customers’ technological needs at various levels, ranging from sophisticated, high-end editing to entry-level, basic editing. Our video editing systems support real-time editing, multi-format video editing, integrated subtitle editing, special video and audio effects management, and have a user-friendly editing interface and numerous other features.

• Graphics creation systems that generate graphics and texts and integrate them into news, sports broadcasting, weather forecasts, TV shows and other TV programs and movies. Our Mariana-series graphics creation systems offer high-performance and real-time text and graphic rendering capability, easy-to-use editing and playback features and tools to allow for independent creations of a wide variety of TV shows that are well-suited to meet the demands of professional broadcasters today. According to the Frost & Sullivan Report, Mariana-series is the first domestically developed graphics creation system in China. We have also recently developed a meteorological graphics system under the brand “Tianmu”(“天目”) that we market to local government meteorological bureaus. To meet the demand of professional meteorology broadcasting, Tianmu offers its users the ability to quickly store and integrate real-time weather data from the source and accurately generate a rich array of texts, images and 3D animations to simulate and present various kinds of climate and weather effects for our customers. According to the Frost & Sullivan Report, our graphics creation systems had an industry-leading market share of 25.2% in China in terms of 2015 revenue. In 2013, 2014 and 2015, the revenue we derived from the sale of our graphics creation systems was approximately RMB35.8 million, RMB26.1 million and RMB38.2 million, respectively, representing approximately 7.1%, 6.4% and 6.3%, respectively, of our total revenue for the same periods.

• Visual effects and video compositing systems that edit and compose video content during post- production to create special visual effects such as motion detection and tracking, color correction and 3D-space compository. In 2010, we launched our Dunhuang-series visual effects and video compositing system, which is the first domestically developed system of its kind in China according to the Frost & Sullivan Report. Compared to traditional video editing systems, the Dunhuang-series has a more comprehensive and advanced set of functions targeting more sophisticated, high-end customers.


# 4. SEGMENT INFORMATION

The Group has three reportable segments. The segments are managed separately as each business offers different products or provides different services and requires different business strategies.

The following summary describes the operations in each of the Group’s reportable segments:

QR code business segment	— Provision of QR code on product packaging and solutions and advertising
display services

Packaging products segment	— Manufacture and sale of watch boxes, jewellery boxes, eyewear cases, bags
and pouches and display units

Treasury investment segment	— Investments and trading in securities and money lending

Management monitors the results of the Group’s operating segments separately for the purpose of making decisions about resources allocation and performance assessment. Segment performance is evaluated based on reportable segment profit or loss, which is a measure of adjusted profit or loss before tax. The adjusted profit or loss before tax is measured consistently with the Group’s profit or loss before tax except that finance costs, share of results of a joint venture and an associate and head office and corporate income and expenses are excluded from such measurement.

There was no inter-segment sale or transfer during the year (2017: Nil). Central revenue and expenses are not allocated to the operating segments as they are not included in the measure of the segments’ results that is used by the chief operating decision makers for assessment of segment performance.


# 4. SEGMENT INFORMATION (Continued)

	QR code business	Packaging products	Treasury investment	Total

2018	2017	2018	2017	2018	2017	2018	2017

HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000

Gr’oups revenue	73,405	78,791	276,225	318,656	447	500	350,077	397,947

Fair value losses on financial
assets at fair value through
profit or loss held for trading,
net	–	–	–	–	(1,307)	(80,248)	(1,307)	(80,248)

Segment revenue	73,405	78,791	276,225	318,656	(860)	(79,748)	348,770	317,699

Segment results	(195,734)	(157,723)	8,423	25,947	(890)	(79,874)	(188,201)	(211,650)

Corporate and unallocated
income, gains and losses							5,696	(5,978)

Corporate and unallocated
expenses							(34,957)	(28,656)

Share of result of a joint venture							19	2,990

Share of result of an associate							7,276	–

Finance costs							(41,807)	(5,693)

Loss before tax							(251,974)	(248,987)

	QR code business	Packaging products	Treasury investment	Total

2018	2017	2018	2017	2018	2017	2018	2017

HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000

Other segment information:

Capital expenditure

– operating segment	44,935	51,379	39	3,662	–	–	44,974	55,041

– unallocated							13	25

							44,987	55,066

Interest income

– operating segment	849	160	28	46	–	–	877	206

– unallocated							10,610	2

							11,487	208

Depreciation

– operating segment	18,941	7,422	1,719	1,518	–	–	20,660	8,940

– unallocated							9	10

							20,669	8,950

Amortisation	7,838	435	–	–	–	–	7,838	435

Loss/(gain) on disposal of
property, plant and equipment	2,385	1,633	–	(190)	–	–	2,385	1,443

Impairment of property,
plant and equipment	40,718	–	–	–	–	–	40,718	–

Impairment loss of
trade receivables, net	2,016	17	–	49	–	–	2,016	66

Impairment loss of goodwill	37,023	104,664	–	–	–	–	37,023	104,664


31.1 Certification by Jeffrey A. Stoops, Chief Executive Officer, pursuant to Section 302 of the SarbanesOxley Act of 2002.\*

31.2 Certification by Brendan T. Cavanagh, Chief Financial Officer, pursuant to Section 302 of the SarbanesOxley Act of 2002.\*

32.1 Certification by Jeffrey A. Stoops, Chief Executive Officer, pursuant to Section 906 of the SarbanesOxley Act of 2002. \*\*

32.2 Certification by Brendan T. Cavanagh, Chief Financial Officer, pursuant to Section 906 of the SarbanesOxley Act of 2002. \*\*

101.INS XBRL Instance Document.\*

101.SCH XBRL Taxonomy Extension Schema Document.\*

101.DEF XBRL Taxonomy Extension Definition Linkbase Document.\*

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document.\*

101.LAB XBRL Taxonomy Extension Label Linkbase Document.\*

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document.\*

† Management contract or compensatory plan or arrangement.

\* Filed herewith.

\*\* Furnished herewith.

# ITEM 16. FORM 10K SUMMARY

None.


# SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SBA COMMUNICATIONS

CORPORATION

By:/s/ Jeffrey A. Stoops

Jeffrey A. Stoops

Chief Executive Of icer and

President

Date: March 1, 2018

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date

/s/ Steven E. Bernstein
Steven E. Bernstein	Chairman of the Board of Directors	March 1, 2018

/s/ Jeffrey A. Stoops
Jeffrey A. Stoops	Chief Executive Officer and President
(Principal Executive Officer)	March 1, 2018

/s/ Brendan T. Cavanahg
Brendan T. Cavanahg	Chief Financial Officer and Executive Vice President
(Principal Financial Officer)	March 1, 2018

/s/ Brian D. Lazarus
Brian D. Lazarus	Chief Accounting Officer and Senior Vice President
(Principal Accounting Officer)	March 1, 2018

/s/ Brian C. Carr
Brian C. Carr	Director	March 1, 2018

/s/ Mary S. Chan
Mary S. Chan	Director	March 1, 2018

/s/ Duncan H. Cocroft
Duncan H. Cocroft	Director	March 1, 2018

/s/ George R. Krouse Jr.
George R. Krouse Jr.	Director	March 1, 2018

/s/ Jack Langer
Jack Langer	Director	March 1, 2018

/s/ Kevin L. Beebe
Kevin L. Beebe	Director	March 1, 2018


# Genuine Parts Company and Subsidiaries

Consolidated Statements of Income and Comprehensive Income

	Year Ended December 31

2017	2016	2015

(In Thousands, Except per Share Amounts)

Net sales	$    16,308,801	$    15,339,713	$    15,280,044

Cost of goods sold	11,402,403	10,740,106	10,724,192

Gross marign	4,906,398	4,599,607	4,555,852

Operating expenses:

Selling, administrative, and other expenses	3,705,136	3,370,833	3,277,390

Depreciation and amortization	167,691	147,487	141,675

Provision for doubtful accounts	13,932	11,515	12,373

Total operating expenses	3,886,759	3,529,835	3,431,438

Nonoperating expenses (income) :

Interest expense	41,486	21,084	21,662

Other	(31,115)	(25,652)	(20,929)

Total nonoperating expenses (income)	10,371	(4,568)	733

Income before income taxes	1,009,268	1,074,340	1,123,681

Income taxes	392,511	387,100	418,009

Net income	$       616,757	$       687,240	$       705,672

Basic net income per common share	$          4.19	$          4.61	$          4.65

Diluted net income per common share	$          4.18	$          4.59	$          4.63

Weihgted average common shares outstanding	147,140	149,051	151,667

Dilutive effect of stock options and nonvested restricted stock awards	561	753	829

Weihgted average common shares outstandinilg — assuming dution	147,701	149,804	152,496

Net income	$       616,757	$       687,240	$       705,672

Other comprehensive income (loss), net of tax:

Foreign currency translation adjustment	137,694	(8,957)	(207,986)

Net investment hedge, net of income taxes of 2017 — $9,711	(17,388)	—	—

Pension and postretirement benefit adjustments, net of income taxes of 2017
— ($20,539); 2016 — $50,144; 2015 — $5,335	40,123	(73,446)	(2,421)

Other comprehensive income (loss), net of tax	160,429	(82,403)	(210,407)

Comprehensive income	$       777,186	$       604,837	$      495,265

See accompanying notes.


# Genuine Parts Company and Subsidiaries

Consolidated Statements of Equity

(In Thousands, Except Share and per Share Amounts)

	Common Stock	Additional
PaidIn
Caiptal	Accumulated
Other
Comprehensive
Loss	Retained
Earnings	Total
Parent
Equity	Non-
controlling
Interests in
Subsidiaries	Total
Equity

	Shares	Amount

Balance at January 1, 2015	153,113,042	$    153,113	$     26,414	$        (720,211)	$ 3,841,932	$ 3,301,248	$     11,116	$ 3,312,364

Net income	—	—	—	—	705,672	705,672	—	705,672

Other comprehensive loss,
net of tax	—	—	—	(210,407)	—	(210,407)	—	(210,407)

Cash dividends declared,
$2.46 per share	—	—	—	—	(372,840)	(372,840)	—	(372,840)

Sharebased awards
exercised, including tax
benefit of $7,024	229,958	230	(2,778)	—	—	(2,548)	—	(2,548)

Sharebased compensation	—	—	17,717	—	—	17,717	—	17,717

Purchase of stock	(3,261,526)	(3,262)	—	—	(289,013)	(292,275)	—	(292,275)

Noncontrolling interest
activities	—	—	—	—	—	—	1,559	1,559

Balance at December 31, 2015	150,081,474	150,081	41,353	(930,618)	3,885,751	3,146,567	12,675	3,159,242

Net income	—	—	—	—	687,240	687,240	—	687,240

Other comprehensive loss,
net of tax	—	—	—	(82,403)	—	(82,403)	—	(82,403)

Cash dividends declared,
$2.63 per share	—	—	—	—	(391,852)	(391,852)	—	(391,852)

Sharebased awards
exercised, including tax
benefit of $12,021	340,703	341	(4,467)	—	—	(4,126)	—	(4,126)

Sharebased compensation	—	—	19,719	—	—	19,719	—	19,719

Purchase of stock	(2,011,755)	(2,012)	—	—	(179,405)	(181,417)	—	(181,417)

Noncontrolling interest
activities	—	—	—	—	—	—	953	953

Balance at December 31, 2016	148,410,422	148,410	56,605	(1,013,021)	4,001,734	3,193,728	13,628	3,207,356

Net income	—	—	—	—	616,757	616,757	—	616,757

Other comprehensive
income, net of tax	—	—	—	160,429	—	160,429	—	160,429

Cash dividends declared,
$2.70 per share	—	—	—	—	(396,891)	(396,891)	—	(396,891)

Sharebased awards
exercised, including tax
benefit of $3,134	131,232	132	(5,371)	—	—	(5,239)	—	(5,239)

Sharebased compensation	—	—	16,892	—	—	16,892	—	16,892

Purchase of stock	(1,889,039)	(1,889)	—	—	(171,635)	(173,524)	—	(173,524)

Noncontrolling interest
activities	—	—	—	—	—	—	38,376	38,376

Balance at December 31, 2017	146,652,615	$    146,653	$     68,126	$        (852,592)	$ 4,049,965	$ 3,412,152	$     52,004	$ 3,464,156

See accompanying notes.


# 18. FILM RIGHTS AND FILMS AND TV PROGRAMMES UNDER PRODUCTION (continued)

	Film and TV
programmes
rights	Films and TV
 programmes
under
production	Total

HK$’000	HK$’000	HK$’000

31 December 2015

Cost:

At 1 January 2015	7,958	—	7,958

Additions	—	41,117	41,117

Disposals	(10,276)	—	(10,276)

Transfer to films and TV programmes rights	38,634	(38,634)	—

At 31 December 2015	36,316	2,483	38,799

Accumulated amortisation:

At 1 January 2015	7,366	—	7,366

Disposals	(7,366)	—	(7,366)

At 31 December 2015	—	—	—

Carrying amount	36,316	2,483	38,799

For the purpose of impairment testing, film rights have been allocated to the cash generating unit of movies, TV programmes and internet contents operation.

In light of the circumstances of film industry, the Group regularly reviewed its library of film rights to assess the marketability of film rights and the corresponding recoverable amounts.

At 31 December 2016 and 2015, the directors of the Company believe that any reasonably possible change in the key assumptions on which the recoverable amounts would not cause the carrying amounts of the films and TV programmes rights exceed the aggregate recoverable amounts.

During the year ended 31 December 2016, there is an impairment loss of approximately HK\$6,004,000 recognised in respect of films and TV programmes under production, based on contractual cash flows less cost to sell which solely related to the Group’s TV programmes under production and distribution activities based in Mainland China.


# 19. INVESTMENT IN FILM

During the year ended 31 December 2016, the Group has one (2015: Nil) film investment agreement at a total contract amount of HK\$16,750,000 (2015: Nil). The investment is governed by the relevant agreement entered into between the Group and the production house whereby the Group is entitled to a fixed rate of return at 15% per annum on the principal amount. Investment income of HK\$1,982,000 was recognised by the Group.

# 20. AMOUNTS DUE FROM RELATED COMPANIES

On 21 December 2015, Young Film Culture Media Company Limited (“Young Film”), a subsidiary of the Company, entered into a master services agreement (the “Master Services Agreement”) with青島年青時候影視文化傳媒有限公司 (Qingdao Young Times Video Cultural Media Company Limited) (“Qingdao Young Times”) which is controlled by Ms. Shang Na, a member of the key management personnel of the Group, pursuant to which Qingdao Young Times shall provide to Young Film services including the production and promotion of movies, TV dramas and programmes as requested by the Group for a term of three years from the date of the Master Services Agreement. The services under the Master Services Agreement shall be charged on a cost basis (as incurred by Qingdao Young Times). For more details of the Master Services Agreement, please refer to the announcement of the Company dated 21 December 2015.

As at 31 December 2016, included in amounts due from related companies was an amount of approximately HK\$45,440,000 (2015: HK\$24,000,000) advanced by the Group to Qingdao Young Times for the services under the Master Services Agreement.

# 21. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES

	2016	2015

HK$’000	HK$’000

Deposits	5,718	2,569

Prepayments	20,793	12,268

Other receivables	19,198	11,373

Impairment	(6,374)	—

	39,335	26,210

As at 31 December 2016, except for fully impaired other receivables of HK\$6,374,000 (2015: Nil), none of the above assets is either past due or impaired. The financial assets included in the above balances relate to receivables for which there was no recent history of default.


(4) to consider any significant or unusual items that are, or may need to be, reflected in the reports and accounts, it should give due consideration to any matters that have been raised by the Company’s staff responsible for the accounting and financial reporting function, compliance officer or auditors;

(5) to review the Company’s financial controls, and unless expressly addressed by a separate Board risk committee, or by the Board itself, to review the Company’s risk management and internal control systems;and

(6) to discuss the risk management and internal control systems with management to ensure that management has performed its duty to have effective systems.

The written terms of reference of the Audit Committee are available on the websites of the Stock Exchange and the Company.

From the Listing Date and up to 31 December 2017, two Audit Committee meetings were held. Save as Mr. Yang Zhongkai who only attended one meeting, all the members of the Audit Committee attended all two meetings. At the meetings, the Audit Committee reviewed the annual report for 2016 with external auditors, the interim results for 2017, the activities of the Group’s internal control functions and also reviewed and approved the arrangement of the annual audit work and then proposed the recommendations to the Board.

# Remuneration Committee

The Remuneration Committee comprises three members, including two independent non-executive Directors namely Mr. Yang Zhongkai (chairman), Mr. Shi Weixing and one executive Director namely Mr. Peng TB.

The principal duties of the Remuneration Committee include but not limited to the following:

1. to make recommendations to the Board on the Company’s policy and structure for all remuneration of the Directors and senior management and on the establishment of a formal and transparent procedure for developing policy on such remuneration;

2. to review and approve management’s remuneration proposals with reference to corporate goals and objectives of the Board;

3. to determine the remuneration packages of individual executive Directors and senior management. These include benefits in kind, pension rights and compensation payments, including any compensation payable for loss or termination of their office or appointment;

4. to make recommendations to the Board on the remuneration of non-executive Directors;


5. to consider salaries paid by comparable companies, time commitment and responsibilities and employment conditions elsewhere in the Group;

6. to review and approve compensation payable to executive Directors and senior management for any loss or termination of office or appointment to ensure that it is consistent with contractual terms and is otherwise fair and not excessive;

7. to review and approve compensation arrangements relating to dismissal or removal of Directors for misconduct to ensure that they are consistent with contractual terms and are otherwise reasonable and appropriate;

8. to ensure that no Director or any of his/her associates (as defined in the Listing Rules) is involved in deciding his/her own remuneration; and

9. to report back to the Board on their decisions or recommendation, unless there are legal or regulatory restrictions on their ability to do so (such as a restriction on disclosure due to regulatory requirements).

The written terms of reference of the Remuneration Committee are available on the websites of the Stock Exchange and the Company.

From the Listing Date and up to the year ended 31 December 2017, one Remuneration Committee meeting was held. Save as Mr. Yang Zhongkai, all the members of the Remuneration Committee attended the meeting. At the meeting, the Remuneration Committee reviewed remuneration of the Directors and senior management, and thought that the remunerations of whom were reasonable and appropriate.

# Nomination Committee

The Nomination Committee currently comprises three members, including two independent non-executive Directors namely Mr. Shi Weixing (chairman), Mr. Yang Zhongkai and one executive Director namely Mr. Peng YH.

The principal duties of the Nomination Committee include the following:

1. 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;

2. 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;

3. to assess the independence of independent non-executive Directors;

4. to make recommendations to the Board on the appointment or reappointment of Directors and the succession planning for Directors, in particular the chairman and the chief executive officer; and

5. to review the Board diversity policy.

The Nomination Committee assesses the candidate or incumbent on criteria such as integrity, experience, skill and ability to commit time and effort to carry out the duties and responsibilities. The recommendations of the Nomination Committee will then be put to the Board for decision. The written terms of reference of the Nomination Committee are available on the websites of the Stock Exchange and the Company.


# EXHIBIT A

# REGISTRATION RIGHTS

1. Applicability of Rights. The Holders (as defined below) shall be entitled to the following rights only with respect to any potential public offering of the Company’s Shares in the United States. The rights provided hereunder shall terminate with respect to any Holder, at the earlier of (a) eight years after the Company’s IPO and (b) if all Registrable Securities held by such Holder may then be sold without registration in any ninety (90) day period pursuant to Rule 144 promulgated under the Securities Act.

2. Definitions. In this Agreement, in addition to those defined in the context, the following expressions shall have the following meanings:

“ADSs” means American Depositary Shares representing the relevant number of the Company’s ordinary shares.

“Form F-3” mean such respective form under the Securities Act as is in effect on the date hereof or any successor registration form under the Securities Act subsequently adopted by the SEC which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC.

“Holder” means any Person owning of record Registrable Securities that have not been sold to the public or pursuant to Rule 144 promulgated under the Securities Act or any permitted assignee of record of such Registrable Securities to whom rights under this Agreement have been duly assigned in accordance with this Agreement.

For purposes of this Section 2, “Holder”, the term “Holder” means any Person owning or having the rights to acquire Registrable Securities or any permitted assignee of record of such Registrable Securities to whom rights under this Section 2 have been duly assigned in accordance with this Agreement.

“register,” “registered,” and “registration” refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of effectiveness of such registration statement.

“Registrable Securities” means (1) any Ordinary Shares of the Company issued or to be issued pursuant to the conversion of any Preference Shares;(2) any Ordinary Shares of the Company issued or issuable upon the conversion or exercise of any warrant, right or other security which is issued as a dividend or other distribution with respect to, or in exchange for or in replacement of, any Preference Shares described in clause (1) of this definition; and (3) any other Ordinary Shares of the Company owned or hereafter acquired by holders of Preference Shares. Notwithstanding the foregoing, “Registrable Securities” shall exclude any Registrable Securities sold by a Person in a transaction in which rights under this Agreement are not assigned in accordance with this Agreement or any Registrable Securities sold in a public offering, whether sold pursuant to Rule 144 promulgated under the Securities Act, or in a registered offering, or otherwise.


“Registrable Securities then outstanding” means the number of Ordinary Shares of the Company that are Registrable Securities and are then issued and outstanding or are issuable upon conversion of Preference Shares then issued and outstanding, or issuable upon conversion or exercise of any warrant, right or other security then outstanding.

“SEC” or “Commission” means the U.S. Securities and Exchange Commission.

# 3. Demand Registration.

(a) Request by Holders. If the Company shall at any time after the earlier of (i) the third (3rd) anniversary of the date of this Agreement and (ii) the expiry of six (6) months after a Qualified IPO receive a written request from the Holders of at least 15% of the Registrable Securities that the Company file a registration statement under the Securities Act covering the registration of Registrable Securities pursuant to this Section 3, then the Company shall, within ten (10) Business Days of the receipt of such written request, give written notice of such request (“Request Notice”) to all Holders, and use all reasonable efforts to effect, as soon as practicable, the registration under the Securities Act of all Registrable Securities that Holders (including other Shareholders who so) request to be registered and included in such registration by written notice given by such Holders to the Company within twenty (20) Business Days after receipt of the Request Notice, subject only to the limitations of this Section 3; provided that the Registrable Securities requested by all Holders to be registered pursuant to such request must have a market value in excess of US\$50,000,000 (or, in the case of an initial public offering, US\$200,000,000); provided, further, that the Company shall not be obligated to effect any such registration if the Company has, within the six (6) month period preceding the date of such request, already effected a registration under the Securities Act pursuant to this Section 3 or Section 5, or in which the Holders had an opportunity to participate pursuant to the provisions of Section 4, other than a registration from which the Registrable Securities of Holders have been excluded (with respect to all or any portion of the Registrable Securities the Holders requested be included in such registration) pursuant to the provisions of Section 4(a).


# PRC GOVERNMENTAL AUSTERITY MEASURES IN THE PROPERTY MARKET

The PRC government has recently introduced certain new policies which are intended to control the substantial increases in property prices in the PRC. These policies can be classified into four categories: (i) restrictions on speculation activities of real estate developers; (ii) limitations on financing land grant consideration payment; (iii) restrictions on speculation activities of residential property buyers; and (iv) encouragement of the PRC government in the purchase of small-size units and construction of affordable housing. For details of the aforesaid regulations, please refer to the section headed “Regulation — Impact of the PRC Governmental Austerity Measures” in this prospectus.

Our Directors are of the view that these policies did not and would not have any material adverse impact on our business operations on the basis that (i) there was no adverse impact on the average contract prices for the pre-sale of our residential properties at Golden Wheel Star City and our commercial properties at Golden Wheel Time Square during the year ended 31 December 2011 and the six months ended 30 June 2012; (ii) we had not encountered any difficulty in obtaining bank loans during the year ended 31 December 2011 and the six months ended 30 June 2012; and (iii) the residential units within our integrated commercial projects are positioned for mass market home buyers in Jiangsu and Hunan provinces. As of 30 September 2012, approximately 29,347 sq.m., or 81%, of the total GFA available for sale of our residential properties (completed and under development) were categorized as small to medium-sized ordinary commodity houses under the relevant PRC laws and regulations, which will remain as our focus for residential property development. We believe this particular residential market segment has more stable and consistent demand, higher affordability attributable to a lower purchase price in our target markets as compared to luxury residential developments which target higher income households and property investors in these markets.

However, it is difficult to ascertain the full extent of the impact of these measures on the performance of our Group or to accurately estimate the sales volume and turnover of our Group as if such measures had not been introduced. Our Directors confirm that we had not experienced any material cancellation of sales during the Track Record Period and up to the Latest Practicable Date. As advised by our PRC legal advisors, Jun He Law Offices, there has been no material changes in the PRC laws and regulations, regardless at state level or in Nanjing, Yangzhou and Zhuzhou, in the recent months to increase regulation over pre-sale activities of property developers, or to tighten measures to limit bank financing including buying-off plan pre-financing.

# HISTORICAL NON-COMPLIANCE INCIDENTS

We failed to fully comply with certain applicable PRC laws and regulations, which had resulted in certain non-compliance incidents during the Track Record Period, including (i) late completion of Nanjing Jade Garden and Golden Wheel Star Plaza, (ii) delivery of certain property units of Golden Wheel Time Square before passing the construction completion examination, (iii) failure to complete lease registration for certain leased properties of Golden Wheel Time Square, (iv) failure to make housing fund contributions for certain employees, and (v) granting loans to Nanjing Golden Wheel Real Estate, our then related company (which became our wholly-owned subsidiary on 18 June 2012). We had rectified all the other non-compliance incidents as of the Latest Practicable Date, except for the late completion of Nanjing Jade Garden and Golden Wheel Star Plaza. As a result, we may be subject to a maximum fine of approximately RMB22.4 million and the relevant authorities may forfeit part of the land on which the constructions has not been completed by their respective deadlines without any payment to us. For details of the reasons for these non-compliance incidents and the corresponding remedial and preventive measures, please refer to the sections headed “Risk Factors — We may not be able to meet our project development schedules and complete our projects on time, or at all” and “Business — Regulatory Compliance” in this prospectus.


# SUMMARY FINANCIAL INFORMATION

We maintained a profitable operation during the Track Record Period. In 2011, our net profit was RMB513.2 million, representing an increase of 74.9% from RMB293.4 million in 2010. We also had a prudent net debt to equity ratio of 15.0% as of 30 June 2012 as a result of our strict financial disciplines over all aspects of our operations from land acquisition to construction. We intend to continue maintaining a disciplined financial strategy.

The fair value gains of investment properties accounted for a substantial portion of our net profit during the Track Record Period, which may, however, fluctuate from time to time. For details, please refer to the section headed “Risk Factors — Fair value gains on our investment properties represented a substantial portion of our net profit during the Track Record Period, and the fair value of our investment properties is likely to fluctuate from time to time and may decrease significantly in the future, which may materially and adversely impact our profitability” in this prospectus.

# Selected Consolidated Statements of Comprehensive Income and Statements of Financial Position Line Items

	Year ended 31 December	 Six months ended 30 June

2009	2010	2011	2011	2012

RMB’000	 RMB’000	 RMB’000	 RMB’000	 RMB’000

			(unaudited)

Revenue	493,800	483,524	524,495	167,230	662,351

Gross profit	206,154	140,992	241,061	70,068	321,781

Changes in fair value of investment properties	250,183	306,900	539,919	229,579	75,000

Profit and total comprehensive income attributable to:

Owners of the Company	263,403	280,744	498,488	187,892	198,767

Non-controlling interests	15,033	12,632	14,705	8,134	7,916

	278,436	293,376	513,193	196,026	206,683

Profit and total comprehensive income (excluding fair value gains
and the relevant deferred taxes) attributable to:

Owners of the Company	83,274	58,894	103,446	22,554	145,443

Non-controlling interests	7,525	4,307	4,808	1,288	4,990

	90,799	63,201	108,254	23,842	150,433

	As of 31 December	 As of 30 June

2009	2010	2011	2012

RMB’000	 RMB’000	 RMB’000	 RMB’000

Current assets	1,058,443	1,421,378	1,175,695	1,125,256

Current liabilities	975,153	1,249,910	1,178,662	756,582

Net current assets (liabilities)	83,290	171,468	(2,967)	368,674

Net assets	1,354,631	1,635,894	2,077,334	2,640,968

Total assets	3,039,726	3,800,116	4,254,543	4,477,322

# Selected Consolidated Statements of Cash Flows Line Items

	Year ended 31 December	 Six months ended 30 June

2009	2010	2011	2011	2012

RMB’000	 RMB’000	 RMB’000	 RMB’000	 RMB’000

			(unaudited)

Net cash from (used in) operating activities	26,684	261,480	134,012	118,520	(75,434)

Net cash (used in) from investing activities	(10,793)	(158,269)	(99,997)	(94,034)	16,586

Net cash from (used in) financing activities	158,503	75,693	(225,540)	(108,518)	(45,404)

Net increase (decrease) in cash and cash equivalents	174,394	178,904	(191,525)	(84,032)	(104,252)

Cash and cash equivalents at beginning of year/period	34,868	209,262	388,166	388,166	196,641

Cash and cash equivalents at end of year/period	209,262	388,166	196,641	304,134	92,389


# I. DISCUSSION AND ANALYSIS ON THE OPERATIONS

In 2018, the macro economy basically maintained a stable and positive development trend, while the coal production and economy were in a good state of operation, industry concentration was further improved. The supply and demand in the domestic coal market were booming and balanced as well in general. The supply-side reform drove a continual rise of coal price and better profitability of the industry. Based on its existing strategic development goals, the Company was effectively responsive to market changes for the purpose of advancing its continuous high-quality development.

As of the end of the reporting period, the Company recorded a total asset of RMB94.551 billion, a revenue of RMB38.017 billion in 2018 and a net profit attributable to owners of the parent company of RMB4.194 billion.

# (I) Coal sector

During the reporting period, the Company has realized production of commodity coal of 47.69 million tonnes and sales of coal of 85.99 million tonnes.

# 1. Coal production

During the reporting period, the Company completed the optimization and promotion of new processes and new technologies, improved the recovery rate and maximized economic benefits. Meanwhile, the Company focused on deliberating on the coal refining plans for all coal mines and coal washing plants, assisted the reform of production system, diversified the type of commodity coal, and increased lump coal rate, thereby achieving coal refining, cost reduction and efficiency enhancement.

# 2. Coal transportation and sales

In 2018, the Company strengthened marketing for coal. On the basis of enhancing the key contracted users, the Company brought its sale pace under control through sub-division of coal type, combination of futures and spot, direct supply of orders, container distribution and other new trade modes, optimizing its client structure and gradually releasing new driving forces.

# (II) Railway sector

In 2018, as driven by the strategy of transportation-sale integration, the Company seized the new opportunities brought by the reform of railway cargo settlement, strengthened the coordination of transportation with sales and storage & shipment management to improve the turnover rate; and established the Gonggou Shipment Station and increased supply. During the reporting period, Zhundong Railway Company and Huzhun Railway Company dispatched 74.20 million tonnes and 32.15 million tonnes of coal, respectively. The traffic volume through the Company’s self-operated railways first exceeded 100 million tonnes with a profit of RMB667 million achieved.


# I. DISCUSSION AND ANALYSIS ON THE OPERATIONS (Continued)

# (III)Coal-to-chemicals sector

The layout of coal-to-chemicals industry is an important strategic move for the Company to extend its industrial chain, achieve transformation and upgrading and enhance its core competitiveness. The “13th Five-Year Plan for Energy Development” clearly states that the pace of development should be rationally controlled, technological innovation and market risk assessment should be strengthened, the conditions for environmental protection accession should be strictly implemented, the deep processing of coal should be developed in order, the upgrading of coal-to-fuel, coal-to-olefin production and other demonstrations should be steadily promoted and the competitiveness and risk-resistance of the project should be enhanced according to the orientation of the National Energy Technology Reserve and Capacity Reserve Demonstration Project. A total of three projects of “Xinjiang Yili”, “Xinjiang Ganquanpu” and “Inner Mongolia Yitai” were selected as key coal liquefaction projects in the “13th Five-Year Plan” for deep processing of coal. The Company has been unswervingly speeding up the approval and construction of coal chemical projects.

# 1. Demonstration project of coal-to-oil production of 0.16 Mtpa

During the reporting period, on ensuring the safe and stable production, Coal-to-oil Company optimized its processes and procedures, and enhanced technical innovation so that a total of 0.1943 million tonnes of various types of oil and chemicals were produced during the year. In the meantime, the Company realized the target of inventory-cutting and cost reduction and efficiency improvement via reasonable allocation of inventory materials and enhancement of cost control, and recorded a revenue of RMB894 million and a net profit of RMB31.84 million.

The 0.05 Mtpa stable light hydrocarbons deep processing project of Coal-to-oil Company achieved a successful trial run, further extending the industry chain and increasing the added value of the products for the Company.

# 2. Project construction

The 1.2 Mtpa of fine chemicals project of Yitai Chemical completed the transfer from CIP to PPE at the end of September 2018. The Company is actively advancing the engineering settlement and budgeting of the project. During the year, Yitai Chemical recorded a production volume of 0.26 million tonnes of chemicals, and a revenue of RMB1.292 billion and net profit of RMB57.78 million.

In 2018, as to the second phase of the 2 Mtpa indirect coal-to-liquids conversion pilot project of Coal-to-oil Company, the Company adjusted the product scheme and some process plan for the second phase of the project by focusing on the design optimization and taking into account of the implementation of the project, upper-stream facilities cooperation and construction, investment and financing, product scheme adjustment and other factors.

During the reporting period, Yili Energy actively carried out project site management, supporting resource integration and product scheme optimization, continued to promote the financing works and introduction of strategic partners.

During the reporting period, Yitai Xinjiang continued to enhance project site management for its energy project, and advanced the approval work for the project in a planned and orderly manner.


# Other Net Realized Investment Gains

Other net realized investment gains in 2017 included \$236 million of net realized investment gains related to equity securities, \$10 million of net realized investment gains from real estate sales,\$4 million of net realized gains related to fixed maturity investments and \$20 million of net realized investment losses related to other investments.

Other net realized investment gains in 2016 included \$59 million of net realized gains related to fixed maturity investments, \$14 million of net realized investment gains related to equity securities,\$7 million of net realized investment gains from real estate sales and \$17 million of net realized investment gains related to other investments.

Other net realized investment gains in 2015 included \$81 million of net realized gains related to fixed maturity investments, \$6 million of net realized investment gains related to equity securities,\$2 million of net realized investment gains from real estate sales and \$34 million of net realized investment losses related to other investments. The net realized investment losses related to other investments included \$26 million of realized foreign exchange translation losses incurred in connection with the Company’s increased ownership of Travelers Participac¸o˜es em Seguros Brasil S.A.

# Other Revenues

Other revenues in all years presented included installment premium charges. Other revenues in 2017 also included revenues from Simply Business, which was acquired in August 2017. Other revenues in 2017 and 2016 also included gains related to the settlement of reinsurance disputes (discussed in more detail in note 16 of notes to the consolidated financial statements). Other revenues in 2016 also included proceeds from the favorable settlement of a claims-related legal matter.

# Claims and Expenses

# Claims and Claim Adjustment Expenses

Claims and claim adjustment expenses in 2017 were \$17.47 billion, \$2.40 billion or 16% higher than in 2016, primarily reflecting the impacts of (i) significantly higher catastrophe losses, (ii) higher volumes of insured exposures, (iii) loss cost trends, (iv) lower net favorable prior year reserve development, (v) higher non-catastrophe fire-related losses in Business Insurance and (vi) higher non-catastrophe weather-related losses in Personal Insurance. Catastrophe losses in 2017 primarily resulted from wildfires in California, Hurricanes Harvey, Irma and Maria, and several winter, wind and hail storms throughout the United States.

Claims and claim adjustment expenses in 2016 were \$15.07 billion, \$1.35 billion or 10% higher than in 2015, primarily reflecting the impacts of (i) higher volumes of insured exposures, (ii) loss cost trends, (iii) higher catastrophe losses, (iv) lower net favorable prior year reserve development and (v) higher loss estimates in the personal automobile product line for bodily injury liability coverages, partially offset by (vi) lower non-catastrophe fire-related losses and other loss activity in Business Insurance. Catastrophe losses in 2016 primarily resulted from Hurricane Matthew, wind and hail storms in several regions of the United States, flooding in the Southeast region of the United States, wildfires in Canada and Tennessee, and winter storms in the eastern United States. Catastrophe losses in 2015 primarily resulted from wildfires in California, and several winter, wind and hail storms throughout the United States.

Factors contributing to net favorable prior year reserve development during the years ended December 31, 2017, 2016 and 2015 are discussed in more detail in note 7 of notes to the consolidated financial statements.


# Significant Catastrophe Losses

The Company defines a ‘‘catastrophe’’ as an event that:

• is designated a catastrophe by internationally recognized organizations that track and report on insured losses resulting from catastrophic events, such as Property Claim Services (PCS) for events in the United States and Canada; and

• the Company’s estimates of its ultimate losses before reinsurance and taxes exceed a pre-established dollar threshold.

The Company’s threshold for disclosing catastrophes is primarily determined at the reportable segment level. If a threshold for one segment or a combination thereof is exceeded and the other segments have losses from the same event, losses from the event are identified as catastrophe losses in the segment results and for the consolidated results of the Company. Additionally, an aggregate threshold is applied for International business across all reportable segments. The threshold for 2017 ranged from approximately \$17 million to \$30 million of losses before reinsurance and taxes.

The following table presents the amount of losses recorded by the Company for significant catastrophes that occurred in 2017, 2016 and 2015, the amount of net unfavorable (favorable) prior year reserve development recognized in 2017 and 2016 for catastrophes that occurred in 2016 and 2015, and the estimate of ultimate losses for those catastrophes at December 31, 2017, 2016 and 2015. For purposes of the table, a significant catastrophe is an event for which the Company estimates its ultimate losses will be \$100 million or more after reinsurance and before taxes.

(in millions, pre-tax and net of reinsurance)	Losses Incurred /
Unfavorable (Favorable)
Prior Year Reserve
Development for the Year
Ended December 31,	 Estimated Ultimate
 Losses at December 31,

2017	2016	2015	2017	2016	2015

2015

PCS Serial Number:

68—Winter storm . . . . . . . . . . . . . . . . . . . . . . . . . .	 $   3	 $(11)	$140	 $132	 $129	 $140

2016

PCS Serial Number:

21—Severe wind and hail storms . . . . . . . . . . . . . . .	(2)	150	 n/a	148	150	 n/a

25—Severe wind and hail storms . . . . . . . . . . . . . . .	10	168	 n/a	178	168	 n/a

2017

PCS Serial Number:

22—Severe wind and hail storms . . . . . . . . . . . . . . .	111	 n/a	 n/a	111	 n/a	 n/a

32—Severe wind and hail storms . . . . . . . . . . . . . . .	210	 n/a	 n/a	210	 n/a	 n/a

43—Hurricane Harvey . . . . . . . . . . . . . . . . . . . . . . .	254	 n/a	 n/a	254	 n/a	 n/a

44—Hurricane Irma . . . . . . . . . . . . . . . . . . . . . . . .	187	 n/a	 n/a	187	 n/a	 n/a

48—California wildfire—Tubbs fire . . . . . . . . . . . . . .	507	 n/a	 n/a	507	 n/a	 n/a

n/a: not applicable.

# Amortization of Deferred Acquisition Costs

Amortization of deferred acquisition costs in 2017 was \$4.17 billion, \$181 million or 5% higher than in 2016. Amortization of deferred acquisition costs in 2016 was \$3.99 billion, \$100 million or 3% higher than in 2015. Amortization of deferred acquisition costs is discussed in more detail in the segment discussions that follow.


(3) Times International is wholly-owned by Honour Family. Honour Family is wholly-owned by UBS Trustees as trustee of the Honour Family Trust. Mr. Huang is the settlor of Honour Family Trust. Times Properties is wholly-owned by Mr. Huang. Mr. Wong is the brother of Mr. Huang and both Mr. Wong and Mr. Huang have agreed to act in concert with each other. Each of Times International, Honour Family, UBS Trustees, Times Properties and Mr. Huang is deemed to be interested in the Shares in which TGI is interested.

(4) Sze Kai Fei is the spouse of Mr. Wong. By virtue of the SFO, Sze Kai Fei is deemed to be interested in the Shares in which Mr. Wong is interested.

(5) Fan Huili is the spouse of Mr. Huang. By virtue of the SFO, Fan Huili is deemed to be interested in the Shares held by Mr. Huang.

If the Over-allotment Option is fully exercised, the beneficial interest of each of TGI, Redco Holdings, Redco Properties, Global Universe, Global Investment, Mr. Wong, Times International, Honour Family, UBS Trustees, Times Properties, Mr. Huang and Ms. Sze Kai Fei will be approximately 72.29%.

Save as disclosed above and in “Appendix IV — Statutory and General Information — C. Further Information about our Directors and Substantial Shareholders”, our Directors are not aware of any person who will, immediately following the completion of the Capitalization Issue and the Global Offering (without taking into account any Shares which may be issued pursuant to the exercise of the Over-allotment Option), have beneficial interests or short positions in any Shares or underlying Shares, which would be required to be disclosed to us 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 member of our Group. Our Directors are not aware of any arrangement which may at a subsequent date result in a change of control of our Company.


The following is a description of the authorized and issued share capital of our Company in issue and to be issued as fully paid or credited as fully paid immediately before and following the completion of the Global Offering and the Capitalization Issue (without taking into account any Shares which may be issued pursuant to the exercise of the Over-allotment Option):

	Nominal value

(HK$)

Authorized share cailpta:

1,000,000,000	 Shares of HK$0.1 each	100,000,000

Issued and to be issued, fully paid or credited as fully paid:

4	 Shares in issue as of the date of this document	0.4

149,999,996	 Shares to be issued lipursuant to the Caiiptazaton Issue	14,999,999.6

50,000,000	 Shares to be issued under the Global Offering	5,000,000

200,000,000	 Total	20,000,000

# ASSUMPTIONS

The above table assumes that the Global Offering becomes unconditional and the Shares are issued pursuant to the Global Offering and Capitalization Issue are made. It takes no account of any Shares which may be allotted and issued pursuant to the exercise of the Over-allotment Option or any Shares which may be issued or repurchased by us pursuant to the general mandates granted to our Directors to issue or repurchase Shares as described below.

# RANKINGS

The Offer Shares will be ordinary shares in the share capital of our Company and will carry the same rights in all respects with all Shares in issue or to be issued as mentioned in this document and, in particular, will rank in full for all dividends or other distributions declared, made or paid on the Shares in respect of a record date which falls after the date of this document save for the entitlement under the Capitalization Issue.

# GENERAL MANDATES TO ALLOT AND ISSUE AND TO REPURCHASE SHARES

Subject to the Global Offering becoming unconditional, general mandates have been granted to our Directors to allot and issue Shares and to repurchase Shares. See “Statutory and General Information — A. Further Information about Our Company — 4. Written Resolutions of Our Shareholder passed on March 14, 2022” in Appendix IV to this document for details of such general mandates.


# IX. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (Continued)

# 1. Objective and policies of risk management (Continued)

# (1) Market risks (Continued)

# 2) Interest rate risk

The risk that changes in interest rate lead to changes in cash flow of the financial instruments of the Company is mainly associated with floating-rate bank borrowings. The Company currently does not have a foreign currency hedging policy to hedge against its exposures. However, the management will closely monitor foreign currency risk and will consider hedging significant foreign currency risk when the risk arises.

# 3) Price risk

The Company other price risk is mainly concentrated on investments held for trading quoted in the stock exchange of the PRC. The management monitors the price risk exposure and will take appropriate measures should the need arise.

# (2) Credit risk

On 31 December 2018, the most significant credit risk exposure that might incur financial losses on the Company was mainly attributable to a contractual counterparty’s failure to perform its obligations resulting losses on financial assets of the Company and financial guarantee undertaken by the Company, specific details are set out as follows:

The carrying amount of financial assets recognised in the consolidated balance sheet: in respect of financial instruments carried at fair value, the carrying amount reflects the risk exposure; however, such amount does not represent the maximum credit exposure which changes in line with future changes in fair value.

In order to mitigate credit risk, the Company established a committee to be responsible for determining credit limits, approving credit applications and carrying out other monitoring procedures to ensure necessary actions are taken to collect overdue debts. Besides, the Company reassesses the collectability of each amount receivable on an individual basis at each balance sheet date, in order to ensure sufficient bad debt provision is allocated for amounts that are not recoverable. As such, the management of the Company believes the credit risk assumed by the Company has been significantly reduced.


# IX. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (Continued)

# 1. Objective and policies of risk management (Continued)

# (2) Credit risk (Continued)

The Company places its liquid funds at banks with relatively higher credit ratings; therefore, the credit risk with respect to liquid funds is low.

Since the Company’s risk exposures are distributed among various contractual parties and various customers, the Group has no significant concentration risk. Top five account receivables in total: RMB341,388,578.27.

# (3) Liquidity risk

The liquidity risk is the Company’s impossibility to perform its financial obligations after the maturity date. In the management of the liquidity risk, the Company monitors and maintains a level of working capital deemed adequate by the management to perform the Company’s obligations, thus will not cause loss or damage to the reputation of the Company. Moreover, the Company analyses its debt structure and deadline regularly and maintain sufficient fund. The management monitors the utilization of bank borrowings and ensures compliance with loan covenants. In the meanwhile, the management conducts negotiation on financing issues with financial institutions to maintain enough credit limits and mitigate liquidity risk.

The Company’s main capital source is from bank borrowing. As at 31 December 2018, the unused credit facilities of bank borrowing of the Company was RMB3.270 billion (31 December 2017: RMB3.689 billion), including unused short-term bank borrowings facilities of the Company of RMB3.100 billion (31 December 2017: RMB3.257 billion), representing a significant change as compared to last year, mainly due to the issuance of bonds for financing in this period which results in more remaining credit of bank borrowings.


guidance at its 2Q21 results to not less than 25% yoy, from not less than 42.3% yoy (Fig 12).

OneConnect maintained its FY21F net margin guidance at a double-digit percentage point improvement yoy. 2Q21 net margin improved 6.7%-pts yoy, with 1H21 net margin improving 18.5%-pts yoy

Revenue growth has been slowing, from FY18’s 143% yoy to FY20’s 42% yoy and 1Q21’s 41% yoy. While OneConnect’s revenue relies heavily on Ping An Group and its associate, Lufax, with both of these comprising 65% of total revenues in 1H21, it had been making an effort to expand revenues from other parties.

Unfortunately, the Covid-19 outbreak has made it more difficult to source new customers.

Consequently, OneConnect announced at its 2Q21 results that it has decided to shift its strategy to focus more on existing premium customers, including the ‘premium plus’ segment. OneConnect defines the ‘premium plus’ segment as customers (excluding Ping An Group and its subsidiaries) with annual revenue contribution of at least Rmb1m, which is in contrast with the ‘premium’ segment, which is defined as customers (excluding Ping An Group and its subsidiaries) with annual revenue contribution of at least Rmb100,000.

Figure 22: Revenue by source

	FY17	FY18	 FY19	 FY20	 1H20	4Q19	1Q20	 2Q20	 3Q20	 4Q20	1Q21	2Q21

Revenue by customer (Rmb m)

Ping An Group	236	528	995	1,727	1,000	317	228	392	491	616	436	564

Lufax	175	387	299	343	165	114	83	95	88	77	75	90

3rd-party customers	171	499	1,034	1,242	623	341	270	287	302	383	309	314

Total	582	1,413	2,328	3,312	1,788	773	581	774	881	1,076	820	968

Mix of revenue by customer

Ping An Group	41%	37%	43%	52%	56%	41%	39%	51%	56%	57%	53%	58%

Lufax	30%	27%	13%	10%	9%	15%	14%	12%	10%	7%	9%	9%

3rd-party customers	29%	35%	44%	38%	35%	44%	46%	37%	34%	36%	38%	32%

Total	100%	100%	100%	100%	100%	100%	100%	100%	100%	100%	100%	100%

Growth yoy

Ping An Group		124%	89%	74%	61%	40%	11%	68%	105%	94%	92%	44%

Lufax		121%	-23%	15%	-8%	3%	30%	44%	61%	-33%	-10%	-6%

3rd-party customers		192%	107%	20%	12%	98%	50%	29%	4%	12%	14%	9%

Total		143%	65%	42%	32%	51%	30%	48%	51%	39%	41%	25%

SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS

Figure 23: Revenue by customer type

(Rmb m)	FY17	FY18	FY19	FY20

Ping An Group	236	528	995	1,727

Premium Customers	345	865	1,306	1,517

Basic Customers	1	21	27	68

Total	582	1,414	2,328	3,312

Growth yoy

Ping An Group		124%	89%	74%

Premium Customers		151%	51%	16%

Basic Customers		1960%	33%	150%

Total		143%	65%	42%

Mix

Ping An Group	41%	37%	43%	52%

Premium Customers	59%	61%	56%	46%

Basic Customers	0%	1%	1%	2%

Total	100%	100%	100%	100%

SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS

OneConnect has two main types of revenue: (i) implementation and (ii) transaction-based and support services.

Implementation revenue primarily consists of revenue from customer-specific software development, or customisation services provided to customers for using OneConnect’s platform either via cloud offerings or on-site.

On the other hand, transaction-based and support services relate to revenue charged to financial institution customers (mainly retail banking) based on the transaction volume generated on OneConnect’s platform. As of FY20, 74% of OneConnect’s revenue was transaction-based, and rose to 79% in 1Q21.

OneConnect has six main sources of transaction-based and support services. Business origination services were previously the most important, comprising 78% of total revenue in FY17. This segment has fallen markedly in importance, contributing only 18% of total revenue in FY20 (and only 12% in 2Q21). Business origination services involved OneConnect assisting financial institutions in acquiring customers for their loans, wealth management products and insurance policies. This is typically via the provision of customer leads, either via their own systems or third-party sources.

The most important revenue segment at the end of FY20 was operation support services, comprising 32% of revenues in FY20. FY20 growth was an impressive 82% yoy. Operation support services primarily include artificial intelligence (AI) customer services and adjuster and roadside assistance management modules.


COVID-19 has also had a negative impact on project implementation and customer usage of OneConnect’s solutions as it has caused delays in project implementation and client interaction.

# Regulatory risk is hurting revenue growth in the near-term

OneConnect operates in an industry where customers face high regulatory risk, with the regulatory environment still evolving. This is especially the case for revenues relating to co-lending or facilitation of loans, which we think a sizeable number of small banks employ to help boost loan growth.

The revenue segment most at risk from stricter regulations is OneConnect’s business origination segment (13% of revenue in 1H21), in particular those relating to Internet marketing-related services. Some element of operation support (27% of revenues in 1H21), in particular those relating to asset monitoring services, are also impacted. Risk management revenues (11% of revenues in 1H21) are also at risk.

Specifically, OneConnect has flagged four regulations in Fig 25 that impact its business in two main areas - namely the use of personal data and limits to the geographical expansion of regional banks (namely city commercial banks and rural commercial banks).

For the use of personal data, the key regulations are Measures for the Administration of Credit Investigation Services (Draft for Comments)（征信业务管理办法 (征求意见稿)）and Measures for Cybersecurity Review (Revision Draft for Comments)（国家互联网信息办公室关于《网络安全审查办法(修订草案征求意见稿)》.

These state that Internet platforms need authorisation from individuals to collect personal data. This means that Internet platforms collecting personal data are now required to obtain explicit approval from users. As a result, banks have to adjust their way of approaching risk management to ensure compliance with the new regulations.

For geographical limitations on regional banks, the regulations are Notice on Regulating Personal Deposit Business by Commercial Banks through the Internet (关于规范商业银行通过互联网开展个人存款业务有关事项的通知) and Interim Measures for the Administration of Internet Loans of Commercial Banks(商业银行互联网贷款管理暂行办法).

Under these two regulations, regional banks are not allowed to carry out any activities beyond branch presence. Also, commercial banks cannot offer deposit products through third-party Internet platforms. This new rule affects new business development through online channels for these regional banks. OneConnect has stopped offering products that are not compliant with the new rules on its platform.

OneConnect quantified the revenue impact of these four regulations, stating at its 2Q21 results that revenue exposure to these regulations was more than Rmb500m in FY20. In 1H21, the actual negative impact to revenues from these regulations was Rmb170m, and stemmed from hits to Internet marketing-related services and asset monitoring services, in particular in 2Q21. OneConnect stated at its 2Q21 analyst briefing that risk management revenues would also be impacted in 2H21F.


its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at the end of each reporting period.

# 2.9 Financial assets

# (i) Classification

The Group classifies its financial assets in the following measurement categories:

• those to be measured subsequently at fair value (either through other comprehensive income, or through profit or loss), and

• those to be measured at amortized cost.

The classification depends on the entity’s business model for managing the financial assets and the contractual terms of the cash flows.

For assets measured at fair value, gains and losses will either be recorded in profit or loss or other comprehensive income. For investments in debt instruments, this will depend on the business model in which the investment is held. For investments in equity instruments that are not held for trading, this will depend on whether the Group has made an irrevocable election at the time of initial recognition to account for the equity investment at fair value through other comprehensive income.

See Note 16 for details about each type of financial asset.

The Group reclassifies debt investments when and only when its business model for managing those assets changes.

# (ii) Measurement

At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at fair value through profit or loss are expensed in profit or loss.

# Debt instruments

Subsequent measurement of debt instruments depends on the Group’s business model for managing the asset and the cash flow characteristics of the asset. There are three measurement categories into which the Group classifies its debt instruments:

• Amortized cost: Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortized cost. A gain or loss on a debt investment that is subsequently measured at amortized cost and is not part of a hedging relationship is recognized in profit or loss when the asset is derecognized or impaired. Interest income from these financial assets is included in finance income using the effective interest rate method.

• Fair value through other comprehensive income (FVOCI): Assets that are held for collection of contractual cash flows and for selling the financial assets, where the assets’ cash flows represent solely payments of principal and interest, are measured at FVOCI. Movements in the carrying amount are taken through OCI, except for the recognition of impairment gains or losses, interest revenue and foreign exchange gains and losses which are recognized in profit or loss. When the financial asset is derecognized, the cumulative gain or loss previously recognized in OCI is reclassified from equity to profit or loss and recognized in other gains/(losses). Interest income from these financial assets is included in finance income using the effective interest rate method. Foreign exchange gains and losses are presented in other gains and losses and impairment expenses in other expenses.


• Fair value through profit or loss: Assets that do not meet the criteria for amortized cost or FVOCI are measured at fair value through profit or loss. A gain or loss on a debt investment that is subsequently measured at fair value through profit or loss and is not part of a hedging relationship is recognized in profit or loss and presented net in profit or loss within other gains/(losses) in the period in which it arises.

# Equity instruments

The Group subsequently measures all equity investments at fair value. Where the Group’s management has elected to present fair value gains and losses on equity investments in other comprehensive income, there is no subsequent reclassification of fair value gains and losses to profit or loss following the derecognition of the investment. Dividends from such investments continue to be recognized in profit or loss as other income when the Group’s right to receive payments is established.

Changes in the fair value of financial assets at fair value through profit or loss are recognized in other gain/(losses) in profit or loss as applicable. Impairment losses (and reversal of impairment losses) on equity investments measured at FVOCI are not reported separately from other changes in fair value.

# (iii) Impairment

The Group assesses on a forward looking basis the expected credit losses associated with its debt instruments carried at amortized cost and FVOCI. The impairment methodology applied depends on whether there has been a significant increase in credit risk. Note 3.1(b) details how the Group determines whether there has been a significant increase in credit risk.

For trade receivables, the Group applies the simplified approach permitted by IFRS 9, that is to measure the loss allowance at the amount equal to lifetime expected credit loss at initial recognition and through its life of the asset. The Group uses practical expedients when estimating life time expected credit losses on trade receivables, which is calculated using a provision matrix where a fixed provision rate applies depending on the number of days that a trade receivable is outstanding.

# 2.10 Trade receivables

Trade receivables are amounts due from third party distribution platforms (“Platforms”) or payment channels for proceeds earned from selling game tokens and other virtual items (Note 21). If collection of trade receivables is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets.

Trade receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment. See Note 21 for further information about the Group’s accounting for trade receivables and Note 2.9 for a description of the Group’s impairment policies.

# 2.11 Cash and cash equivalents

In the combined statements of cash flows, cash and cash equivalents include cash in hand and deposits at call with banks and other short-term liquid investments with original maturities of three months or less.

# 2.12 Share capital

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

# 2.13 Trade payables

Trade payables represent payment received from game players and to be reimbursed to the game developers. The amounts are unsecured and are usually paid within 30 to 90 days of recognition. Trade payables are presented as current liabilities unless payment is not due within 12 months after the reporting period. They are recognized initially at their fair values and subsequently measured at amortized cost using the effective interest method.

# 2.14 Current and deferred income tax

The income tax expense or credit for the period is the tax payable or recoverable on the current period’s taxable income based on the applicable income tax rate for eachj urisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses.


# 21 TRADE RECEIVABLES

	As at 31 December	As at
30 June

2017	2018	2019	2020

RMB’000	 RMB’000	 RMB’000	 RMB’000

Trade receivables (Note (a))

– Related parties (Note 34(b)) 	97,848	254,914	349,303	475,419

– Third parties	115,474	143,819	248,693	618,158

	213,322	398,733	597,996	1,093,577

Less: allowance for impairment of
trade receivables 	(5,220)	(6,130)	(11,740)	(17,440)

	208,102	392,603	586,256	1,076,137

(a) Trade receivables mainly arise from property management services managed under lump sum basis and value-added services.

Property management services income under lump sum basis are received in accordance with the term of the relevant property service agreements. Service income from property management services is due for payment by the property owners upon rendering of services.

As at 31 December 2017, 2018 and 2019 and 30 June 2020, the ageing analysis of the trade receivables based on date of revenue recognition were as follows:

	As at 31 December	As at
30 June

2017	2018	2019	2020

RMB’000	 RMB’000	 RMB’000	 RMB’000

Within 1 year 	178,549	352,931	502,635	958,654

1 to 2 years 	22,646	27,823	43,024	91,581

2 to 3 years 	6,763	13,079	31,418	25,738

3 to 4 years 	2,970	2,409	16,841	12,506

4 to 5 years 	1,051	1,379	3,040	3,863

Over 5 years 	1,343	1,112	1,038	1,235

	213,322	398,733	597,996	1,093,577

As at 31 December 2017, 2018 and 2019 and 30 June 2020, trade receivables were denominated in RMB, and the fair value of trade receivables approximated their carrying amounts due to short credit term.


The Group applies the simplified approach to provide for expected credit losses prescribed by HKFRS 9, which permits the use of the lifetime expected loss provision for all trade receivables. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the days past due. Movements on the provision for impairment of trade receivables are shown in Note 3.1(b). For the years ended 31 December 2017, 2018 and 2019 and the six months ended 30 June 2020, a provision of RMB1,080,000, RMB910,000 and RMB2,199,000 and RMB5,248,000 was made against the gross amounts of trade receivables. For the year ended 31 December 2019, a provision of RMB3,411,000 was derived from the effect of combination of Chengdu Global Century. For the six months ended 30 June 2020, a provision of RMB452,000 was made against the originally impaired trade receivables from NCPM since the date of acquisition. The provision for impairment increased during the Track Record Period due to the increase of trade receivables.

# 22 PREPAYMENTS AND OTHER RECEIVABLES

	As at 31 December	As at 30 June

2017	2018	2019	2020

RMB’000	RMB’000	RMB’000	RMB’000

Current	Non-
current	 Current	Non-
current	 Current	Non-
current	 Current	Non-
current

Prepayments

– Utilities 	4,573	 –	7,637	 –	5,711	 –	9,300	 –

– Short-term rental
fees 	758	 –	2,692	 –	5,323	 –	11,466	 –

– Raw materials for
enigneering and
maintenance
services	–	 –	817	 –	1,992	 –	5,451	 –

– Deferred listing
expenses 	–	–	–	–	–	–	2,486	 –

– Others	1,365	 –	1,120	1,082	5,430	570	13,958	2,380

	6,696	 –	12,266	1,082	18,456	570	42,661	2,380

Other receivables

– Related parties
(Note 34 (b)) (c)  	3,222	 –	69,612	 –	282,262	 –	81,188	56,667

– Loan to a related
party (b)
(Note 34 (b)) 	713,200	614,600	614,600	–	–	–	–	–

– Payments on
behalf of property
owners (a) 	12,547	 –	18,113	 –	36,995	 –	49,606	 –

– Emlpoyees in
advance	7,311	 –	8,982	 –	11,492	 –	11,037	 –

– Deposits 	5,488	 –	6,781	 –	10,148	 –	35,069	5,863

– Others	5,263	 –	3,766	 –	2,185	 –	2,935	 –

	747,031	614,600	721,854	 –	343,082	 –	179,835	62,530

Less: allowance for
impairment of other
receivables 	(803)	 –	(1,428)	 –	(2,095)	 –	(5,756)	 –

	746,228	614,600	720,426	 –	340,987	 –	174,079	62,530

Total prepayments and
other receivables  	752,924	614,600	732,692	1,082	359,443	570	216,740	64,910


The Vascular Solutions acquisition was financed utilizing borrowings under the amended and restated credit agreement, dated January 20, 2017 (the "Credit Agreement"), which is described in Note 8.

The following table presents the purchase price allocation among the assets acquired and liabilities assumed with respect to the Vascular Solutions acquisition:

	(Dollars in thousands)

Assets

Current assets	$                   61,592

Property, plant and equipment	45,533

Intangible assets	539,250

Goodwill	524,872

Other assets	728

Total assets acquired	1,171,975

Less:

Current liabilities	15,079

Deferred tax liabilities	181,372

Liabilities assumed	196,451

Net assets acquired	$                  975,524

The goodwill resulting from the Vascular Solutions acquisition primarily reflects synergies currently expected to be realized from the integration of the acquired business and is not fully tax deductible.

The following table sets forth the components of identifiable intangible assets acquired and the ranges of the useful lives as of the date of the Vascular Solutions acquisition:

	Fair value	Useful life range

	(Dollars in thousands)	(Years)

Intellectual property	$            248,200	10 20

Inprocess research and development ("IPR&D")	15,600	Indefinite

Trade names	16,650	20

Customer relationships	258,800	25

# NeoTract, Inc.

On October 2, 2017, the Company acquired NeoTract, Inc. ("NeoTract"), a medical device company that developed and commercialized the UroLift System, a minimally invasive medical device for treating lower urinary tract symptoms due to benign prostatic hyperplasia, or BPH. The fair value of consideration transferred by the Company was \$975.2 million, which included initial payments of \$725.6 million in cash less a favorable working capital adjustment of \$1.4 million (for which the Company had not yet received payment as of December 31, 2017) and \$251.0 million in estimated fair value of contingent consideration. The contingent consideration liability represents the estimated fair value of the Company's obligations, under the acquisition agreement, to make four milestone payments of up to \$375 million in the aggregate if certain sales goals are met. The milestone payments are based on net sales (as defined in the acquisition agreement) for the periods from January 1, 2018 through April 30, 2018 and the years ended December 31, 2018, 2019 and 2020. The fair value of the contingent consideration was estimated using a Monte Carlo valuation approach. See Note 10 for additional information on the fair value measurement of the contingent consideration. The acquisition was financed using borrowings under the Company's revolving credit facility.

For the year ended December 31, 2017, the Company incurred \$10.1 million in transaction expenses associated with the NeoTract acquisition, which are included in selling, general and administrative expenses in the consolidated statement of income. For the year ended December 31, 2017, the Company recorded post acquisition revenue and operating loss of\$39.0 million and \$13.3 million, respectively, related to NeoTract. Financial information of NeoTract is primarily presented within the newly established Interventional Urology North America operating segment, which is included in the "all other" category in the Company's presentation of segment information.