# Note 19. Debt

Long-term debt was comprised of the following at December 31, 2016 and 2015:

	December 31,
2016	December 31,
2015

Long-term debt:

Senior secured term loan ........................................	 $        1,372	 $         1,493

Senior unsecured notes:

6.625%, due May 2023 ........................................	1,158	1,350

7.00%, due May 2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	750	750

6.125%, due May 2023 (€295 at December 31, 2016;€ 360 at December 31, 2015)	308	395

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3	26

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3,591	4,014

Less: Unamortized issue discount on senior secured term loan ...............	5	7

Less: Unamortized debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	42	53

Less: Short-term borrowings and current maturities . . . . . . . . . . . . . . . . . . . . . . .	15	39

Long-term debt, net .............................................	 $        3,529	 $         3,915

# Senior Secured Credit Facilities

On May 12, 2015, Chemours enteredi nto a credit agreement that provides for a seven-year senior secured terml oan (the Term Loan Facility) in a principal amount of \$1,500 repayablei n equal quarterlyi nstallments at a rate of one percent of the original principal amount per year, with the balance payable on the final maturity date. The Term Loan Facility wasi ssued with a \$7 original issue discount and bearsi nterest at a rate of LIBOR plus 3.00%, with a 0.75% LIBOR floor. The proceeds from the Term Loan Facility were used to fund a portion of the distribution to DuPont, along with related fees and expenses.

The credit agreement also provided for a five-year senior secured revolving credit facility (the Revolving Credit Facility), which has been reduced to \$750 as part of the amendment completed on February 19, 2016 (discussed below). The proceeds of anyl oans made under the Revolving Credit Facility can be used for capital expenditures, acquisitions, working capital needs and other general corporate purposes. No borrowings were outstanding under our Revolving Credit Facility but had \$132 and \$129i nl etters of credit issued and outstanding under this facility at December 31, 2016 and 2015, respectively. The Revolving Credit Facility bears variablei nterest of a range based on our total net leverage ratio between (a) 0.50% and 1.25% for base ratel oans and (b) 1.50% and 2.25% for LIBOR loans. The applicable margins were 1.00% for base ratel oans and 2.00% for LIBORl oans as of December 31, 2016 and 1.25% for base ratel oans and 2.25% for LIBORl oans as of December 31, 2015. In addition, we are required to pay a commitment fee on the average daily unused amount of the Revolving Credit Facility at a rate based on our total netl everage ratio, between 0.20% and 0.35%. As of December 31, 2016 and 2015, commitment fees were assessed at a rate of 0.30% and 0.35%, respectively.

In September 2015, in connection with the Company’s transformation plan announcedi n August 2015, Chemours andi ts Revolving Credit Facilityl enders enteredi nto an amendment to the Revolving Credit Facility that modified the consolidated EBITDA definitioni n the covenant calculation toi nclude pro forma benefits from future cost savingsi nitiativesi n the calculation of financial covenants that rely on consolidated EBITDA beginning from the quarter ended September 30, 2015. Since the revolver availabilityi n any quarteri s determined by the cushion remainingi n the financial maintenance covenants at the end of the previous quarter, this amendment increased the Company’s access to the revolving credit facility.

In February 2016, Chemours andi ts Revolving Credit Facilityl enders enteredi nto a second amendment to the Revolving Credit Facility that (a) replaced the total netl everage ratio financial covenant with senior secured netl everage ratio; (b) reduced the minimum required levels of interest expense coverage ratio covenant; (c)i ncreased thel imits and extended the time horizon fori nclusion of pro forma benefits of announced cost reductioni nitiatives into consolidated EBITDA definition for the purposes of calculating financial maintenance covenants; and (d) reduced the revolver availability from \$1,000 to \$750. As a result of this amendment, the Company recorded a charge of approximately \$4 to write off a proportionate amount of unamortized debt issuance costs attributable to the reductioni n revolver commitment, which wasi ncludedi n “Interest expense, net”.


In December 2016, Chemours enteredi nto a third amendment to the credit agreement to change certain covenants and allow the Company to enter into a sale andl easeback transaction for the sale of its corporate headquarters buildingl ocatedi n Wilmington, Delaware. The amendment requires the Company to use the proceeds from sale to repay portion of the terml oans. These transactions are expected to be completedi n the first quarter of 2017, and the Company expects to receive approximately \$32 proceeds, subject to customary closing adjustments.

Fees and expensesi ncurredi n connection with the amendments were approximately \$3 and \$1 for the years ended December 31, 2016 and 2015, respectively, which were primarily capitalizedi n “Other assets” of the Consolidated Balance Sheets and will be amortized to interest expense on a straight-line basis over the remaining term of the Revolving Credit Facility.

The credit agreement, as amended, contains financial covenants which, solely with respect to the Revolving Credit Facility, require Chemours not to exceed a maximum senior secured netl everage ratio of 3.50 to 1.00 each quarter through December 31, 2016, 3.00 to 1.00 through June 30, 2017 and further decreasing by 0.25 to 1.00 every subsequent six months to 2.00 to 1.00 by January 1, 2019 and thereafter. Chemoursi s also required to maintain a minimumi nterest coverage ratio of 1.75 to 1.00 each quarter through June 30, 2017 and furtheri ncreasing by 0.25 to 1.00 every subsequent six months to 3.00 to 1.00 by January 1, 2019 and thereafter. In addition, the credit agreement contains customary affirmative and negative covenants that, among other things,l imit or restrict Chemours andi ts subsidiaries’ ability, subject to certain exceptions, toi ncurl iens, merge, consolidate or sell, transfer orl ease assets, makei nvestments, pay dividends, transact with subsidiaries andi ncuri ndebtedness. The credit agreement also contains customary representations and warranties and events of default. Chemours wasi n compliance withi ts debt covenants as of December 31, 2016.

Chemours’ obligations under the senior secured credit facilities are guaranteed on a senior secured basis by all of its material domestic subsidiaries, subject to certain agreed upon exceptions. The obligations under the senior secured credit facilities are also, subject to certain agreed upon exceptions, secured by a first priorityl ien on substantially all of Chemours andi ts material wholly-owned domestic subsidiaries’ assets,i ncluding 100% of the stock of domestic subsidiaries and 65% of the stock of certain foreign subsidiaries.

# Senior Unsecured Notes

On May 12, 2015, Chemoursi ssued senior unsecured notes (the “Notes”) with an aggregate principal of approximately \$2,503i n a private placement, which comprise of \$1,350 aggregate principal amount issued at ani nterest rate of 6.625% per annum and will mature on May 15, 2023 (the “2023 Notes”), \$750 aggregate principal amounti ssued at ani nterest rate of 7.000% per annum and will mature on May 15, 2025 (the “2025 Notes”) and €360 aggregate principal amounti ssued at ani nterest rate of 6.125% and will mature on May 15, 2023 (the “Euro Notes”). The Notes require payment of principal at maturity andi nterest semi-annuallyi n cash andi n arrears on May 15 and November 15 of each year.

The proceeds from the Notes were used to fund the cash andi n-kind distributions to DuPont and to pay related fees and expenses. The in-kind distribution to DuPont of \$507 aggregate principal amount of Chemours 2025 Notes were exchanged by DuPont with third parties for certain DuPont notes.

In connection with thei ssuance of the Notes, Chemours enteredi nto a registration rights agreement,i n which Chemours agreed to file with the SEC, a registration statement for the exchange of the Notes for new registered notes withi dentical terms. On March 18, 2016, Chemours filed a registration statement on Form S-4 with respect to the exchange offer. The registration statement was declared effective on April 12, 2016, and the exchange offer was completed on May 19, 2016. In addition, on May 5, 2016, the Euro Notes were listed for trading on the Global Exchange Market of the Irish Stock Exchange.

Each series of Notesi s or will be fully and unconditionally guaranteed, jointly and severally, by Chemours’ existing and future domestic subsidiaries that guarantee (the Guarantors) the Senior Secured Credit Facilities or that guarantee other indebtedness of Chemours or any guarantor in an aggregate principal amount in excess of \$75 (the Guarantees). The Notes are unsecured and unsubordinated obligations of Chemours. The Guarantees are unsecured and unsubordinated obligations of the Guarantors. The Notes rank equallyi n right of payment to all of Chemours’ existing and future unsecured unsubordinated debt and seniori n right of payment to all of Chemours’ existing and future debt thati s byi ts terms expressly subordinatedi n right of payment to the Notes. The Notes are subordinated toi ndebtedness under the Senior Secured Credit Facilities as well as any future secured debt to the extent of the value of the assets securing such debt. Chemours’ is obligated to offer to purchase the Notes at a price of (a) 101 percent of their principal amount, together with accrued and unpaidi nterest, if any, to the date of purchase, upon the occurrence of certain change of control events and (b) 100 percent of their principal amount, together with accrued and unpaidi nterest,i f any, to the date of purchase, with the proceeds from certain asset dispositions. These restrictions and prohibitions are subject to certain qualifications and exceptions set


# Business Segment Disclosure

See Note 21 to the consolidated financial statements for additional information regarding our business segments.

# Americas

The Americas segment serves customers in the U.S., Canada, the Caribbean Islands and Latin America with a portfolio of integrated architecture, furniture and technology products marketed to corporate, government, healthcare, education and retail customers through the Steelcase, Coalesse, Turnstone, Smith System, AMQ and Orangebox brands.

Statement of Operations Data—
Americas	Year Ended

February 22,
2019	February 23,
2018	February 24,
2017

Revenue	$ 2,470.2	100.0%	$ 2,193.8	100.0%	$ 2,231.9	100.0%

Cost of sales	1,673.5	67.7	1,450.8	66.1	1,456.2	65.3

Restructuring costs	—	—	—	—	2.6	0.1

Gross profit	796.7	32.3	743.0	33.9	773.1	34.6

Operating expenses	586.8	23.8	561.6	25.6	534.2	23.9

Operating income	$   209.9	8.5%	$   181.4	8.3%	$    238.9	10.7%

Organic Revenue Growth (Decline)—Americas	Year Ended

February 22,
2019	February 23,
2018

Prior year revenue	$ 2,193.8	$ 2,231.9

Acquisitions	84.4	4.5

Divestiture	(13.6)	(8.3)

Currency translati*on effects	(2.3)	2.0

 Prior year revenue, adjusted	2,262.3	2,230.1

Current year revenue	2,470.2	2,193.8

Organic growth (decline) $	$   207.9	$   (36.3)

Organic growth (decline) %	9%	(2)%

\* Currency translation effects represent the net effect of translating prior year foreign currency revenues using the average exchange rate on a monthly basis during the current year.

# 2019 compared to 2018

Operating income in the Americas increased by \$28.5 in 2019 compared to the prior year. The comparison was negatively impacted by \$8.4 related to the pension charge and favorably impacted by a \$5.0 gain on the sale of property, net of the related variable compensation effects. The increase in 2019 operating income was driven by higher revenue and lower operating expenses as a percentage of revenue, partially offset by higher cost of sales as a percentage of revenue.

The Americas revenue represented 71.7% of consolidated revenue in 2019. Revenue for 2019 of \$2,470.2 represented an increase of \$276.4 or 13% compared to 2018. The growth in 2019 was driven primarily by overall industry growth and increased project opportunities, improvements in our competitive win rates, recent acquisitions and benefits from recent list price adjustments. After adjusting for an \$84.4 year-over-year impact of acquisitions, a\$13.6 unfavorable impact of a divestiture and \$2.3 of unfavorable currency translation effects, the organic revenue growth in 2019 was \$207.9 or 9% compared to the prior year.


Cost of sales in 2019 was 67.7% of revenue which compared to 66.1% of revenue in 2018. Cost of sales as a percentage of revenue increased by 160 basis compared to the prior year, with 40 basis points attributable to the pension charge. The year-over-year comparison reflected the following:

• unfavorable shifts in business mix,

• approximately \$43 of higher commodity, freight and labor (other than annual merit increases) costs, partially offset by approximately \$32 of benefits from pricing actions,

• approximately \$9 of benefits associated with cost reduction efforts, net of additional overhead investments and annual merit labor cost increases, and

• higher absorption of fixed costs.

Operating expenses in 2019 increased by \$25.2, but decreased 180 basis points as a percentage of revenue, compared to the prior year. The increase was due to \$27.2 from acquisitions (including \$9.4 of amortization expense), net of a divestiture and \$8.9 of higher variable compensation expense, partially offset by a \$7.5 gain on the sale of property, \$3.7 of lower severance costs and \$2.6 of lower product development expenses.

# 2018 compared to 2017

Operating income in the Americas decreased by \$57.5 in 2018 compared to the prior year. The decline was driven by lower sales volume, higher cost of sales as a percentage of revenue and higher operating expenses.

The Americas revenue represented 71.8% of consolidated revenue in 2018. Revenue for 2018 of \$2,193.8 represented a decrease of \$38.1 or 2% compared to 2017, reflecting ongoing shifts in demand patterns. The decrease in revenue was driven by subdued demand from large customers. Growth from our new products and solutions was partially offset by a decline in demand for legacy furniture applications. After adjusting for an \$8.3 unfavorable impact of a divestiture, a \$4.5 impact of an acquisition and \$2.0 of favorable currency translation effects, the organic revenue decline in 2018 was \$36.3 or 2% compared to the prior year.

Cost of sales in 2018 was 66.1% of revenue which compared to 65.3% of revenue in 2017. The year-over-year comparison reflected the following:

• approximately \$10 of higher commodity costs,

• higher investments in support of product development and manufacturing agility,

• unfavorable shifts in business mix,

• approximately \$17 of benefits associated with ongoing cost reduction efforts,

• favorability related to improvements in negotiated customer pricing, and

• approximately \$5 of lower warranty costs compared to the prior year.

Operating expenses in 2018 increased by \$27.4, or 170 basis points as a percentage of revenue, compared to the prior year. The increase was driven by approximately \$34 of higher investments in product development, sales, marketing and information technology that support our growth strategies, \$3.8 of severance costs in 2018 and a \$1.5 impairment related to an asset held for sale, partially offset by approximately \$9 of lower variable compensation expense.


# 44. PARTLY-OWNED SUBSIDIARY WITH MATERIAL NON-CONTROLLING INTERESTS (CONTINUED)

Details of the Group’s subsidiaries that have material non-controlling interests are set out below: (Continued)

# (ii) Parkway

	2021	2020

Percentage of equity interest held by non-controlling
 interest of Parkway:	30%	30%

The following table illustrates the summarised financial information of Parkway. The amounts disclosed are before any inter-company eliminations:

	2021	2020

HK$’000	HK$’000

Total expenses for the year	(301)	(5,059)

Loss for the year	(301)	(3,732)

Total comprehensive loss for the year	(301)	(3,732)

Loss for the year allocated to non-controlling
 interest of Parkway	(90)	(1,120)

Current assets	287	391

Non-current assets	–	171

Current liabilities	(2,266)	(2,356)

Non-current liabilities	(2,231)	(2,115)

Net liabilities	(4,210)	(3,909)

Accumulated loss of non-controlling interest of
 Parkway at the reporting date	(1,920)	(1,830)

Net cash flows generated from operating activities	83	41

Net increase in cash and cash equivalents	83	41


# 45. INTERESTS IN SUBSIDIARIES

Particulars of the subsidiaries as at 30 June 2021 and 2020 are as follows:

Name of subsidiary	Place of
incorporation/
registration/
operations	Issued and
fully paid
share capital	Percentage of
ownership interest	Principal activities

			2021	2020

New Smart International Creation
 Limited	Hong Kong	HK$1	100%	100%	Production and
 distribution of film

Champion Peak Corporation Limited	Hong Kong	HK$1	100%	100%	Production of film

China 3D Digital Products Limited	Hong Kong	HK$1	100%	100%	Production of film

Eastern Master Corporation Limited	Hong Kong	HK$1	100%	100%	Production of film

Fantastic Union Limited	Hong Kong	HK$1	100%	100%	Production of film

Good Lead Corporation Limited	Hong Kong	HK$1	100%	100%	Production of film

Good Time Investment Limited	Hong Kong	HK$1	100%	100%	Production of film

Joyful Excellence Limited	Hong Kong	HK$1	100%	100%	Production of film

Go Up Zone Limited	Hong Kong	HK$1	100%	100%	Production of film

New Modern Corporation Limited	Hong Kong	HK$1	100%	100%	Production of film

New Noble Corporation Limited	Hong Kong	HK$1	100%	100%	Production of film

New Pioneer Corporation Limited	Hong Kong	HK$1	100%	100%	Production of film

Cream Digital Limited	Hong Kong	HK$1	100%	100%	Production of film

Source Hunter Corporation Limited	Hong Kong	HK$1	100%	100%	Production of film

China 3D Digital Distribution Limited	Hong Kong	HK$1	100%	100%	Distribution of films

Red Rich Investment Limited	Hong Kong	HK$1	100%	100%	Distribution of films

Smooth Success Development
 Limited	Hong Kong	HK$1	100%	100%	Distribution of films


# 11. TOTAL DISTRIBUTABLE INCOME

Total distributable income is the (loss) profit for the period, before distribution to unitholders as adjusted to eliminate the effects of Adjustments (as defined and set out in the Trust Deed) which have been recorded in the condensed consolidated income statement for the relevant period. The Adjustments to arrive at total distributable income for the period are set out below:

	2020	2019

HK$'000
(unaudited)	HK$'000
(unaudited)

(Loss) profit for the period, before distribution to unitholders	(8,491,803)	3,186,527

Adjustments:

M'anagers fees payable in units	71,660	75,757

Decrease (increase) in fair value of investment properties	9,172,565	(2,455,700)

Fair value changes on financial assets at fair value
through profit or loss	1,939	-

Non-cash finance costs	12,434	20,955

Deferred tax	37,277	41,384

Total distributable income	804,072	868,923

# 12. DISTRIBUTION STATEMENT

	2020	2019

HK$'000
(unaudited)	HK$'000
(unaudited)

Total distributable income (note 11)	804,072	868,923

Percentage of distributable income for distribution (note (i))	90%	90%

Total distribution amount to be paid	723,665	782,031

Distribution per unit to unitholders (note (ii))	HK$0.1229	HK$0.1332

Notes:

(i) It is the policy of the Manager to distribute 90% (six months ended 30 June 2019: 90%) of available distributable income as the distributions for the six months ended 30 June 2020 (the "Interim Distribution Period").

(ii) The interim distribution per unit of HK\$0.1229 for the six months ended 30 June 2020 is calculated based on the interim distribution to be paid of HK\$723,665,000 for the period and 5,888,833,523 units in issue as at 30 June 2020. Such interim distribution will be subject to further adjustments upon the issuance of units on or before 25 September 2020, which is the record date set for such period. The interim distribution will be paid to unitholders on 9 October 2020.

The interim distribution per unit of HK\$0.1332 for the six months ended 30 June 2019 was calculated based on the interim distribution paid of HK\$782,031,000 for the period and 5,872,789,311 units as of 20 September 2019, which was the record date for the period. The interim distribution was paid to unitholders on 4 October 2019.


# 13. BASIC (LOSS) EARNINGS PER UNIT

The basic (loss) earnings per unit during the six months ended 30 June 2020 is calculated by dividing the loss for the period before distribution to unitholders of HK\$8,491,803,000 (2019: profit for the period before distribution to unitholders of HK\$3,186,527,000) by the weighted average number of units of 5,892,170,575 (2019: 5,860,193,423) in issue during the period, taking into account the units issuable as manager's fee for its service for each of the six months ended 30 June 2020 and 2019.

There were no diluted potential units in issue during the six months ended 30 June 2020 and 2019, therefore the diluted earnings per unit has not been presented.

# 14. TRADE AND OTHER RECEIVABLES

	At
30 June
2020	At
31 December
2019

HK$'000
(unaudited)	HK$'000
(audited)

Trade receivables	37,322	10,467

Deferred lease receivables	183,545	166,052

Deposits, prepayments and other receivables	81,466	82,845

	302,333	259,364

Aging analysis of the Group's trade receivables presented based on the invoice date at the end of the reporting period is as follows:

	At
30 June
2020	At
31 December
2019

HK$'000
(unaudited)	HK$'000
(audited)

0 - 3 months	30,838	10,467

3 - 6 months	4,179	-

Over 6 months	2,305	-

	37,322	10,467


# Six months ended 30 June 2010 compared to six months ended 30 June 2009

Turnover. Our turnover increased by 53.0% from RMB 2,045.0 million for the six months ended 30 June 2009 to RMB 3,127.9 million for the six months ended 30 June 2010, primarily due to an increase in sales of new automobiles by 55.8% from RMB 1,723.1 million for the six months ended 30 June 2009 to RMB 2,684.6 million for the six months ended 30 June 2010.

Turnover increased by 90.2% from sales of premium and ultra premium branded automobiles from RMB 871.0 million for the six months ended 30 June 2009 to RMB 1,656.3 million for the six months ended 30 June 2010. We attribute this increase primarily to the growth of the PRC premium and ultra premium brands market in general, the continued expansion of our dealership operations, particularly our sales from two new BMW dealership stores in Baotou and Beijing that commenced operations in February and June 2010 respectively and one Porsche dealership store in Dongguan that commenced operation in May 2010, as well as the continued ramp-up of two BMW dealership stores in Nanchang and Zhuhai that commenced operations in October 2008 and March 2009 respectively. The three new dealership stores in Baotou, Beijing and Dongguan generated RMB 213.1 million in sales for the six months ended 30 June 2010. The BMW dealership stores in Nanchang and Zhuhai generated RMB 230.7 million in sales for the six months ended 30 June 2010, compared to RMB 67.6 million for the six months ended 30 June 2009. The increase in turnover from sales of premium and ultra premium branded automobiles was also attributable to the increased sales volumes as well as the average sales prices of our premium and ultra premium branded automobiles as we adjusted our sales strategies to market and sell higher-priced models of premium and ultra premium branded automobiles that were introduced by automobile manufacturers. Turnover from sales of middle market automobiles increased by 20.7% from RMB 852.1 million for the six months ended 30 June 2009 to RMB 1,028.4 million for the six months ended 30 June 2010, primarily due to the growth of the overall PRC automobile market and the continued expansion of our dealership operations, particularly our sales from one new middle market brand dealership store in Inner Mongolia that commenced operations in March 2010. The dealership store in Inner Mongolia generated RMB 29.0 million in sales for the six months ended 30 June 2010. Turnover from sales of new automobiles also increased as a result of the growth of the overall PRC automobile market. According to ACMR, sales values of automobiles increased by 49.6% from the six months ended 30 June 2009 to the six months ended 30 June 2010.

In addition, turnover from provision of after-sales services increased by 45.7% from RMB 166.7 million for the six months ended 30 June 2009 to RMB 242.9 million for the six months ended 30 June 2010, which was primarily attributable to our expanded customer base and our adjustments in sales strategies for automobile accessories to offer expanded range of selection and higher priced products. Turnover from provision of logistics services and sales of lubricant oil increased by 29.1% from RMB 155.2 million to RMB 200.4 million, which was primarily due to the increase in demand from our customers as a result of the increased sales of automobiles.

Cost of sales. Our cost of sales increased by 50.0% from RMB 1,892.3 million for the six months ended 30 June 2009 to RMB 2,838.7 million for the six months ended 30 June 2010. This increase was due primarily to the increase in cost of sales for new automobiles, which increased by 52.1% from RMB 1,667.7 million to RMB 2,536.6 million for the same period as our sales of new automobiles increased.


Cost of sales increased by 83.6% from RMB 843.7 million for the six months ended 30 June 2009 to RMB 1,549.0 million for the six months ended 30 June 2010 for premium branded automobiles and increased by 19.8% from RMB 824.1 million to RMB 987.6 million for middle market branded automobiles in the same period. The increase in cost of sales of new automobiles was generally in line with the increased turnover from sales of new automobiles. The increase in our cost of sales was also due in part to an increase in cost of sales of after-sales services, which increased by 37.7% from RMB 102.9 million to RMB 141.7 million during the same period, and was generally in line with the increased turnover from after-sales services. In addition, our cost of sales of our logistics services and lubricant oil trading business increased by 31.8% from RMB 121.7 million to RMB 160.4 million during the same period, which was generally in line with the increased turnover from our logistics services and lubricant oil trading business.

Gross profit. Our gross profit increased by 89.4% from RMB 152.7 million for the six months ended 30 June 2009 to RMB 289.2 million for the six months ended 30 June 2010.

Gross profit from our dealership business increased from RMB 119.2 million for the six months ended 30 June 2009 to RMB 249.2 million for the six months ended 30 June 2010, primarily due to an increase in gross profit from sales of new automobiles. Gross profit from sales of premium and ultra premium branded automobiles increased from RMB 27.4 million to RMB 107.2 million for the same period and gross profit from sales of middle market branded automobiles increased from RMB 28.0 million to RMB 40.8 million for the same period. In addition, gross profit from after-sales services increased from RMB 63.8 million to RMB 101.2 million in the same period.

Gross profit from our logistics services and lubricant oil trading business increased from RMB 33.5 million to RMB 40.0 million in the same period.

Our gross margin increased from 7.5% for the six months ended 30 June 2009 to 9.2% for the six months ended 30 June 2010. This increase was primarily due to the increased proportion of our sales of premium and ultra premium branded automobiles, which generally have higher gross margin than sales of middle market branded automobiles, as well as increased sales of higher priced premium branded automobile models and accessories which have higher margins as a result of our adjustments in the sales strategies.

Other revenue and other net income. Our other revenue and other net income increased by 82.7% from RMB 12.7 million for the six months ended 30 June 2009 to RMB 23.2 million for the six months ended 30 June 2010, primarily due to the increase in our commission income received from financial institutions and insurance companies as we brokered more loans and insurance policies in connection with our increased sales of new automobiles. In addition, interest income from bank deposits also increased as a result of the increased balance of our pledged bank deposits.


We communicate with Audit Committee regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide Audit Committee with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with Audit Committee, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partner on the audit resulting in this independent auditor’s report is Ng Ping Fai.

PricewaterhouseCoopers

Certified Public Accountants

Hong Kong, 22 November 2017


		Year ended 31 August

	Note	2017	2016

		RMB’000	RMB’000

Revenue	5	846,222	781,331

Cost of revenue	8	(410,464)	(375,133)

Gross profit		435,758	406,198

Selling expenses	8	(3,755)	(4,196)

Administrative expenses	8	(147,203)	(70,421)

Other income	6	22,870	6,442

Other gains/(losses) — net	7	1,060	(337)

Operating profit		308,730	337,686

Finance income	10	15,527	1,376

Finance expenses	10	(10,456)	(27,386)

Finance income/(expenses) — net		5,071	(26,010)

Profit before income tax		313,801	311,676

Income tax expense	11	—	—

Profit attributable to equity holders of the Company		313,801	311,676

Earnings per share attributable to equity holders
of the Company (RMB Yuan)

Basic	12	0.12	0.14

Diluted	12	0.12	0.14


abovementioned. Accordingly, our Directors are of the view that, it is expected that the downward fluctuations, if any, in number of SMILE surgeries conducted should stabilize gradually and will not have material adverse impact on our Group’s operation and financial performance.

Revenue generated from treatment for other eye problems had increased during the Track Record Period, from approximately HK\$36.3 million for the year ended 31 March 2019 to approximately HK\$36.8 million which for the year ended 31 March 2020 which was generally consistent with an increase in total number of patient visits, and then further increased to HK\$44.8 million for the year ended 31 March 2021 which was mainly due to the increase in revenue recorded for our standard cataract surgeries and laser procedures. Revenue generated from treatment for other eye problems had increased during the Track Record Period, from approximately HK\$12.3 million for the four months ended 31 July 2020 to approximately HK\$22.1 million for the four months ended 31 July 2021, which was mainly due to the increase in revenue recorded for each of our standard cataract surgeries, laser procedures, PPV surgeries and other treatments/surgeries. As the majority of our Medical Practitioners had been providing ophthalmic services under our brand ‘‘Clarity’’ for more than three years, we were able to build up our patient base by word-of-mouth referrals from existing patients and as a result, our Directors are of the view that it had contributed to the increase in revenue generated from treatments for other eye problems during the four months ended 31 July 2021.

Revenue generated from our consultation and examination service decreased from approximately HK\$9.2 million for the year ended 31 March 2019 to HK\$8.5 million for the year ended 31 March 2020 and had subsequently increased to HK\$9.1 million for the year ended 31 March 2021. Revenue generated from the sales of prescription remained relatively stable during the Track Record Period, which amounted to approximately HK\$6.3 million, HK\$6.2 million and HK\$6.9 million, respectively. Revenue generated from our consultation and examination service increased from approximately HK\$2.7 million for the four months ended 31 July 2020 to HK\$3.8 million for the four months ended 31 July 2021 which was mainly due to the growth of member of patient visits. Revenue generated from the sales of prescription increased by approximately HK\$0.8 million, or 39.4%, from approximately HK\$2.0 million for the four months ended 31 July 2020 to HK\$2.8 million for the four months ended 31 July 2021. The increase in revenue generated from sales of prescriptions and others was generally in line with our overall increase in consultation and examination services provided during the period.

The table below sets forth the breakdown of our revenue by refractive treatments for the Track Record Period:

	For the year ended 31 March	 For the four months ended 31 July

2019	2020	2021	2020	2021

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

						(Unaudited)

Refractive treatments

(a) SMILE surgeries	97,822	63.2	112,424	67.4	100,104	61.9	29,786	61.4	26,964	54.6

(b) LASIK surgeries	2,735	1.8	2.808	1.7	3,654	2.3	1,067	2.3	1,119	2.2

(c) Multifocal IOL relpacements	49,227	31.8	43,343	26.0	49,064	30.3	14,962	30.9	17,833	35.6

(d) ICL imlpantations	4,970	3.2	8,226	4.9	8,846	5.5	2,660	5.4	3,760	7.6

Total	154,754	100.0	166,801	100.0	161,668	100.0	48,475	100.0	49,676	100.0


The table below sets forth the breakdown of our revenue by treatments for other eye problems for the Track Record Period:

	For the year ended 31 March	 For the four months ended 31 July

2019	2020	2021	2020	2021

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

						(Unaudited)

Treatments for other eye problems

(a) Standard cataract surgeries	16,826	46.4	16,326	44.3	18,658	41.7	5,482	44.7	6,453	36.4

(b) Laser procedures	8,151	22.4	7,364	20.0	10,302	23.0	2,801	27.8	5,424	24.5

(c) PPV surgeries	7,246	20.0	8,795	23.9	10,369	23.2	2,619	21.0	6,799	29.2

(d) Other treatments/ surgeries	4,060	11.2	4,356	11.8	5,422	12.1	1,359	11.5	3,421	9.9

Total	36,283	100.0	36,841	100.0	44,751	100.0	12,261	100.0	22,097	100.0

# Consultation and Examination Services

We provide medical consultation and examination services to our patients through our Medical Practitioners and optometrists, with support from our registered and enrolled nurses and/or nursing staff. Consultation and examination services mainly include assessments on eye conditions, such as visual acuity, refraction, anterior segment examination, fundal examination and intraocular pressure measurement. After the completion of consultation, examination and diagnosis based on our patients’ specific conditions, needs and concerns, Medication may be prescribed and/or treatments may be recommended to the patients by our Medical Practitioners. Follow-up consultation and examination services may be provided depending on the condition of the patients after taking the recommended Medication and/or completion of treatment.

# Treatment Services

We provide a range of ophthalmic treatments at our Surgery Centres or in the Private Hospitals, depending on the complexity of the treatment, the need of general anaesthesia and/or the choice of our patients. Treatment services may be recommended to our patients after the diagnosis through consultation and examination, taking into consideration a number of factors, in particular, the age and condition of the patient, the safety, effectiveness, risks and possible side-effects of the relevant treatment. One or more types of treatments may be recommended, depending on patients’ eye problems. Our Medical Practitioners will explain to patients the associated benefits and potential risks of each recommended treatment and any alternative treatment choices. We record the details of patients’ drug allergy information into our Medical Centre Management System and arrange relevant checks to ascertain the degree of myopia or hyperopia, or the curvature of corneas, before the provision of treatment services. All our patients are required to sign an operation consent form in the presence of the responsible Medical Practitioner and at least one nursing staff. Our treatment services are performed by our Medical Practitioners with assistance from frontline staff.


# XV. Notes to Key Items of the Company Financial Statements (Continued)

# 6. Investment income/(loss)

十五、公司主要財務報表項目註釋（續）

6. 投資收益╱（損失）

RMB

人民幣元

Item                     項目	Incurred during
the year
本年發生額	Incurred in
previous year
上年發生額

Gain on long-term equity investments under 權益法核算的長期股權
the equity method             投資收益	112,997,281.78	109,875,033.76

Investment income arising from disposal of 處置長期股權投資產生的
long-term equity investments        投資收益	(2,344,493,792.76)	74,160,285.25

Gain on long-term equity investments under 成本法核算的長期股權
the cost method              投資收益	1,097,259,790.25	1,080,565,077.90

Other                    其他	4,159,314.24	–

Total                     合計	(1,130,077,406.49)	1,264,600,396.91


# XV. Notes to Key Items of the Company Financial Statements (Continued)

# 7. Supplement to cash flow statement

十五、公司主要財務報表項目註釋（續）

7. 現金流量表補充資料

RMB

人民幣元

Item                     項目	Incurred during
the year
本年發生額	Incurred in
previous year
上年發生額

Net profit                  淨利潤	6,565,148,557.00	7,359,913,863.60

Add: Impairment loss of assets        加：資產減值損失	1,961,966.02	351,958,827.88

Impairment gain of credit          信用減值利得	(1,404,072.48)	(34,059,926.00)

Increase in special reserve          專項儲備的增加	22,218,884.94	20,031,981.23

Depreciation of fixed assets and       固定資產及投資性
investment properties           房地產折舊	811,862,399.51	601,008,663.22

Amortization of intangible assets       無形資產攤銷	19,100,027.48	8,315,630.37

Losses (gains) on disposal of fixed      處置或報廢固定資產、
assets, intangible assets and         無形資產和其他
other long-term assets           長期資產的損失（收益）	(20,413,802.94)	3,472,164.55

Finance expenses              財務費用	(526,532.67)	3,439,623.10

Investment loss (income)           投資損失（收益）	1,130,077,406.49	(1,264,600,396.91)

Profit or loss on change of fair value     公允價值變動損益	(64,160,277.02)	–

Increase in deferred tax assets        遞延所得稅資產的增加	(444,742,582.70)	(30,320,212.07)

Increase in deferred tax liabilities       遞延所得稅負債的增加	6,653,805.68	–

Increase in inventories            存貨的增加	(1,200,231,375.10)	(1,172,939,628.20)

(Increase) decrease in operating        經營性應收項目的
receivables                 （增加）減少	(2,859,763,693.10)	1,850,840,404.39

Increase in operating payables        經營性應付項目的增加	7,251,942,122.41	5,190,664,425.45

Net cash flow from operating activities     經營活動產生的現金流量淨額	11,217,722,833.52	12,887,725,420.61


# TABLE OF CONTENTS

APPROACH	2

ABOUT THIS REPORT	3

ABOUT GAMEONE	5

OUR STAKEHOLDERS	6

ENVIRONMENTAL, SOCIAL AND GOVERNANCE REPORT	7

SECTION A: ENVIRONMENTAL	7

Emissions	7

Use of Resources	9

The Environmental and Natural Resources	10

SECTION B: SOCIAL	11

Employment	11

Health and Safety	12

Development and Training	13

Labour Standard	13

Supply Chain Management	13

Product Responsibility	14

Anti-corruption	16

Community investment	16

ENVIRONMENTAL DATA	17

SOCIAL DATA	19


# APPROACH

Gameone Holdings Limited (hereafter called “Gameone” or the “Company”) and its subsidiaries (collectively, the “Group” or “we”) are committed to improving business performance to maximize stakeholders’ value without compromising the environmental and social aspect, in the hope that it can bring positive impact on both the Group and the community. Aiming to be the market leader in Hong Kong and Taiwan mobile game industry, the Group focuses on developing a wide game product portfolio, ranging from self/co-developed to licensed games as well as leveraging third-party distribution platforms to enrich customer base. The strong relationship with renowned game developers and operators contributed to the success of the business.

We always thrive for meeting the expectation of our stakeholders. Our main stakeholders, including customers, potential investors and shareholders, employees, suppliers, non-governmental organizations (“NGOs”) and local community, post significant impact on the Group’s daily operations. Building on the insight gained from the stakeholders, we roll out a sustainability strategy, management and reporting system.

We constantly hope to mitigate emerging risks and explore new business opportunities. Riding on the current mobile game trend, we are hoping to refine our products to meet the escalating customers’ needs.

To implement sustainability strategies which apply to all levels of the Group, the top-down approach is adopted for the following sustainability strategies:

1. To minimize the burden on the environment

2. To identify and priorities the environmental and social issues

3. To foster the innovative culture

4. To respond to the crisis and market changes in a timely manner

5. To safeguard human rights and social culture

6. To actively engage stakeholders in the decision-making process

7. To nurture and empower our employees

8. To support the local community

Hard work lies ahead as we continue to grow and operate sustainably, yet, together as a whole, there is nothing to stop us reaching more milestones.


# 29. TRADE AND OTHER RECEIVABLES (CONT’D)

Impairment loss on trade receivables, term loans and other receivables is recognised in profit or loss after review by the management of the relevant group companies, based on the latest status of trade receivables, term loans and other receivables, and the latest announced or available information about the underlying collateral held.

The following is an aged analysis of the trade and other receivables that were past due at the end of the reporting period but not impaired:

29. 貿易及其他應收款項（續）

經相關集團公司之管理層審視應收貿易賬款、有期貸款及其他應收款項的情況後（根據應收貿易賬項、有期貸款及其他應收款項的最新情況及最新公佈或得到的有關抵押品的資料）之減值虧損於損益中確認。

以下為於報告期末之已逾期但無減值之貿易及其他應收款項之賬齡分析：

	2016
二零一六年	2015
二零一五年

HK$ Million
百萬港元	HK$ Million
百萬港元

Less than 31 days            少於31日	10.6	12.4

31 to 60 days              31至60日	5.2	4.0

61 to 90 days              61至90日	3.7	5.1

91 to 180 days             91至180日	2.2	3.8

Over 180 days              180日以上	0.1	0.9

	21.8	26.2

The carrying amounts of the trade and other receivables at amortised cost approximate their fair values.

Further details on financial risk management of trade and other receivables are disclosed in note 40.

按攤銷成本計值之貿易及其他應收款項的賬面值與其公平價值相若。

貿易及其他應收款項之金融風險管理之進一步詳情載於附註40。


# 30. AMOUNTS DUE FROM ASSOCIATES AND JOINT VENTURES

# (i) Amounts due from associates

30. 聯營公司及合營公司欠款

(i) 聯營公司欠款

	2016
二零一六年	2015
二零一五年

HK$ Million
百萬港元	HK$ Million
百萬港元

Advances             墊款	395.5	323.9

Less: impairment allowance     減：減值撥備	(17.1)	(17.1)

	378.4	306.8

Analysed for reporting purposes as: 為呈報目的所作之分析：

Non-current assets         非流動資產	257.4	73.5

Current assets            流動資產	121.0	233.3

	378.4	306.8

Gross amount of impaired     聯營公司有減值
advances to associates       墊款總額	17.3	17.3

Individually assessed        個別評估
impairment allowances      減值撥備

At 1st January and         於一月一日及
31st December          於十二月三十一日	(17.1)	(17.1)

Net carriynig amount of mpaired 聯營公司已減值墊款
advances to associates      賬面淨值	0.2	0.2


# 3 Proof of Theorem 1.2

For the rest of this section, we fix a separable topological group H, and assume that \( \phi : { \mathrm { H o m e o } } ( M ) \to H \) is a homomorphism. For simplicity, we first treat only the case where M is closed; modifications for the case where \( \partial M \ne \emptyset \) and the relative case of \( \mathrm { H o m e o } _ { 0 } ( M \, \mathrm { r e l } \, N ) \) are discussed in Section 4.1, along with a comment for noncompact M.

The proof is somewhat involved, so we have divided it into three major steps. The first is general set-up; the second a “localized” version of continuity (for homeomorphisms with support in a small ball), and the third step improves this local result to a global version by careful use of the fragmentation property. There is a delicate balancing act between steps 2 and 3; in particular, it will be necessary to construct a particular kind of efficient cover of the manifold M to use in the fragmentation argument.

# Step 1: set-up for the proof

Since \( \phi \) is a group homomorphism, it suffices to show continuity at the identity. In other words, we need to prove the following.

3.1. For any neighborhood V of the identity in H, there exists a neighborhood U of the identity in \( \operatorname { H o m e o } _ { 0 } ( M ) \) such that \( U \subset \phi ^ { - 1 } ( \breve { V } ) \).

We first use the Baire category theorem to extract an “approximate” version of condition 3.1.

Lemma 3.2. Let V be a neighborhood of the identity in H. There exists a neighborhood U of the identity in \( \operatorname { H o m e o } _ { 0 } ( M ) \) such that U is contained in the closure of \( \phi ^ { - 1 } ( V ) \).

Remark 3.3. The proof given below works generally for homomorphisms from any Polish group to a separable group; see e.g. [4] for one instance of this (where it is called “Baire category continuity”) and [14] for another in the context of groups with the “Steinhaus property”.

Proof of Lemma 3.2. Take a smaller neighborhood of the identity \( V _ { 0 } \subset V \) such that \( V _ { 0 } \) is symmetric (i.e. \( v \in V _ { 0 } \Leftrightarrow v ^ { - 1 } \in V _ { 0 } ) \), and such that \( V _ { 0 } ^ { 4 } \subset V \). Let \( \{ h _ { i } \} \) be a countable dense subset of H, so that

\[ H = \bigcup _ { i } h _ { i } V _ { 0 } . \]

Let \( W = \phi ^ { - 1 } ( V _ { 0 } ^ { 2 } ) . \). For each translate \( h _ { i } V _ { 0 } \) that intersects the image of \( \mathrm { H o m e o } _ { 0 } ( M ) \), choose an element \( \phi ( g _ { i } ) \in h _ { i } V _ { 0 } \). Then \( \phi ( g _ { i } ) = h _ { i } v _ { i } \) for some \( v _ { i } \in V \), and so

\[ h _ { i } V _ { 0 } = \phi ( g _ { i } ) v _ { i } ^ { - 1 } V _ { 0 } \subset \phi ( g _ { i } ) V _ { 0 } ^ { 2 } . \]

Thus

\[ H = \bigcup _ { i } \phi ( g _ { i } ) V _ { 0 } ^ { 2 } \]

and, taking pre-images, we have

\[ { \mathrm { H o m e o } } ( M ) = \bigcup _ { i } g _ { i } W \]

Since \( { \mathrm { H o m e o } } _ { 0 } ( M ) \) is a Baire space, it cannot be covered by countably many nowhere dense sets. Thus, W is dense in the neighborhood of some \( g \in { \mathrm { H o m e o } } _ { 0 } ( M ) \), so


\[ W W ^ { - 1 } = \phi ^ { - 1 } ( V _ { 0 } ^ { 4 } ) \subset \phi ^ { - 1 } ( V ) \]

is dense in some neighborhood of the identity in \( \mathrm { H o m e o } _ { 0 } ( M ) \). This proves the lemma.

Of course, improving “dense in a neighborhood of the identity” to “contains a neighborhood of the identity” is a nontrivial matter and the main goal of this work!

# Step 2: A localized version (after Rosendal)

As in Step 1, assume that we have fixed a homomorphism \( \phi : { \mathrm { H o m e o } } ( M ) \to H \), and a neighborhood V of the identity in H, with the aim of showing that \( \phi \) satisfies condition 3.1.

The “localized version” of Condition 3.1 that we aim to prove here states, loosely speaking, that a homeomorphism \( f \in { \mathrm { H o m e o } } _ { 0 } ( M ) \) with sufficiently small support lies in \( \phi ^ { - 1 } ( V ) \). The precise statement that we will use in the next step is given in Lemma 3.8 below. Our strategy is to build up to this statement gradually, using a series of lemmata guided by Rosendal’s work in [13].

Notation 3.4. As in Lemma 3.2, we start by fixing a smaller, symmetric neighborhood of the identity \( V _ { 0 } \subset V \) such that \( V _ { 0 } ^ { 8 } \subset V \). Let \( W = \phi ^ { - 1 } ( V _ { 0 } ) \).

The first lemma is a very rough version of our end goal. It states that in any neighborhood of any point of M, we can find an open ball so that all diffeomorphisms supported on that ball are restrictions of elements in \( \phi ^ { - 1 } ( V _ { 0 } ^ { 2 } ) \subset \phi ^ { - 1 } ( V ) \).

Lemma 3.5. Let \( B \subset M \) be an embedded ball. There exists a ball \( B ^ { \prime } \subset B \) such that for every \( f \in { \mathrm { H o m e o } } _ { 0 } ( M ) \) with \( \operatorname { s u p p } ( f ) \subset B ^ { \prime } \), there is an element \( w _ { f } \in W ^ { 2 } \) with \( \operatorname { s u p p } ( w ) \subset B \) and such that the restriction of \( w _ { f } \) to \( B ^ { \prime } \) agrees with f.

Proof. Let \( B \subset M \) be an embedded ball. The argument from the proof of Lemma 3.2 implies that there exists a countable set \( \{ g _ { i } \} \subset { \mathrm { H o m e o } } _ { 0 } ( M ) \) such that

\[ { \mathrm { H o m e o } } ( M ) = \bigcup _ { i } g _ { i } W . \]

We first prove a related claim for these translates of W.

Claim 3.6. There exists a ball \( B ^ { \prime } \subset B \), and a left translate \( g _ { i } W \) such that if \( \operatorname { s u p p } ( f ) \subset B ^ { \prime } \), then there exists \( w _ { f } \in g _ { i } W \) such that

i) \( \operatorname { s u p p } ( w _ { f } ) \subset B \), and

ii) the restriction of \( w _ { f } \) to \( B ^ { \prime } \) agrees with f.

Proof of claim. Let \( B _ { i } \), \( i = 1 , 2 , \dots \). be a sequence of disjoint balls with disjoint closures and with the closure of \( \bigcup _ { i = 1 } ^ { \infty } B _ { i } \) contained in B.

We will show that for some i, every \( f \in { \mathrm { H o m e o } } _ { 0 } ( M ) \) with \( \operatorname { s u p p } ( f ) \subset B _ { i } \) agrees with the restriction of an element of \( g _ { i } W \) supported on B.

Suppose for contradiction that this is not the case. Then there is a sequence \( f _ { i } \in \)\( \mathrm { H o m e o } _ { 0 } ( M ) \) with \( \operatorname { s u p p } ( f _ { i } ) \subset B _ { i } \) and such that \( f _ { i } \) does not agree with the restriction to


# NOTE 10 — OTHER ASSETS

(In thousands)	March 2019	March 2018	December 2017

Computer software, net of accumulated amortization of: March 2019 -
$215,491; March 2018 - $183,200; December 2017 - $171,147	$       224,601	$       239,935	$       232,237

Investments held for deferred comlpensation Npans (ote 15)	206,633	201,870	203,780

Deferred income taxes (Note 18)	109,551	105,493	103,601

Pension assets (Note 15)	117,405	76,671	82,296

Deposits	53,602	45,321	45,225

Partnership stores and shop-in-shop costs, net of accumulated
amortization of: March 2019 - $100,125; March 2018 - $123,812;
December 2017 - $118,643	31,655	33,161	34,149

Derivative financial instruments (Note 23)	9,189	4,659	2,199

Other investments	13,071	12,433	12,697

Deferred line of credit issuance costs	2,121	961	1,078

Other	79,071	82,537	66,413

Other assets	$     846,899	$     803,041	$     783,675

# NOTE 11 — SHORT-TERM BORROWINGS

(In thousands)	March 2019	March 2018	December 2017

Commercial paper borrowings	$       650,000	$     1,500,000	$       705,000

International borrowing arrangements	15,055	25,106	24,384

Short-term borrowings	$     665,055	$    1,525,106	$     729,384

In December 2018, VF entered into a \$2.25 billion senior unsecured revolving line of credit (the “Global Credit Facility”) that expires December 2023. The Global Credit Facility replaced VF's \$2.25 billion revolving facility which was scheduled to expire in April 2020. VF may request an unlimited number of one year extensions so long as each extension does not cause the remaining life of the Global Credit Facility to exceed five years, subject to stated terms and conditions. The Global Credit Facility may be used to borrow funds in both U.S. dollar and certain non-U.S. dollar currencies, and has a \$50.0 million letter of credit sublimit. In addition, the Global Credit Facility supports VF’s U.S. commercial paper program for short-term, seasonal working capital requirements and general corporate purposes, including share repurchases and acquisitions. Borrowings under the Global Credit Facility are priced at a credit spread of 81.0 basis points over the appropriate LIBOR benchmark for each currency. VF is also required to pay a facility fee to the lenders, currently equal to 6.5 basis points of the committed amount of the facility. The credit spread and facility fee are subject to adjustment based on VF’s credit ratings. The prior revolving credit facility was priced at a credit spread of 80.5 basis points over the appropriate LIBOR benchmark for each currency and VF was required to pay a facility fee to the lenders equal to 7.0 basis points of the committed amount of the facility.

The Global Credit Facility contains certain restrictive covenants, which include maintenance of a consolidated indebtedness to consolidated capitalization ratio, as defined therein, equal to or below 60%. If VF fails in the performance of any covenants, the lenders may terminate their obligation to make advances and declare any outstanding obligations to be immediately due and payable. As of March 2019, VF was in compliance with all covenants.

VF’s commercial paper program allows for borrowings of up to \$2.25 billionto the extent it has borrowing capacity under the Global Credit Facility. Outstanding commercial paper borrowings totaled \$650.0 million, \$1.50 billion and \$705.0 million at March 2019, March 2018 and December 2017, respectively. The Global Credit Facility also had \$15.3 million of outstanding standby letters of credit issued on behalf of VF as of March 2019, March 2018 and December 2017, leaving \$1.58 billion, \$734.7 million and \$1.53 billion as of March 2019, March 2018 and December 2017, respectively, available for borrowing against this facility.

VF has \$179.5 million of international lines of credit with various banks, which are uncommitted and may be terminated at any time by either VF or the banks. Total outstanding balances under these arrangements were \$15.1 million, \$25.1 million and \$24.4 million at March 2019, March 2018 and December 2017, respectively. Borrowings under these arrangements had a weighted average interest rate of 24.6%, 12.0% and 9.9% at March 2019, March 2018 and December 2017, respectively, excluding accepted letters of credit which are non-interest bearing to VF. The interest-bearing borrowings include short-term borrowings in Argentina.


# NOTE 12 — ACCRUED LIABILITIES

(In thousands)	March 2019	March 2018	December 2017

Compensation	$       341,988	$       135,247	$       249,929

Customer discounts and allowances	225,484	28,604	46,169

Other taxes	153,355	160,173	155,969

Income taxes	68,054	67,417	134,837

Restructuring	86,602	42,757	32,438

Advertising	40,938	40,322	48,554

Freihgt, duties and postage	40,703	46,281	43,584

Deferred compensation (Note 15)	18,226	33,590	38,885

Interest	23,250	25,483	16,317

Derivative financial instruments (Note 23)	18,590	96,087	87,205

Insurance	15,634	18,867	17,814

Product warranty claims (Note 14)	12,618	12,862	12,833

Pension liabilities (Note 15)	10,260	32,814	27,277

Other	240,851	197,923	234,724

Accrued liabilities	$    1,296,553	$     938,427	$    1,146,535

# NOTE 13 — LONG-TERM DEBT

(In thousands)	March 2019	March 2018	December 2017

3.50% notes, due 2021	$       498,450	$       497,852	$       497,705

0.625% notes, due 2023	949,049	1,041,577	1,015,500

6.00% notes, due 2033	292,982	292,648	292,568

6.45% notes, due 2037	346,534	346,346	346,300

Caillpta eases	34,132	40,397	41,881

Total long-term debt	2,121,147	2,218,820	2,193,954

Less current portion	5,263	6,265	6,165

Long-term debt, due beyond one year	$    2,115,884	$    2,212,555	$    2,187,789

Interest payments are due annually on the 2023 notes and semiannually on all other notes.

All notes, along with any amounts outstanding under the Global Credit Facility (Note 11), rank equally as senior unsecured obligations of VF. All notes contain customary covenants and events of default, including limitations on liens and sale-leaseback transactions and a cross-acceleration event of default. The cross-acceleration provision of the 2033 notes is triggered if more than \$50.0 million of other debt is in default and has been accelerated by the lenders. For the other notes, the cross-acceleration trigger is \$100.0 million. If VF fails in the performance of any covenant under the indentures that govern the respective notes, the trustee or lenders may declare the principal due and payable immediately. As of March 2019, VF was in compliance with all covenants. None of the long-term debt agreements contain acceleration of maturity clauses based solely on changes in credit ratings. However, if there were a change in control of VF and, as a result of the change in control, the 2021, 2023 and 2037 notes were rated below investment grade by recognized rating agencies, then VF would be obligated to repurchase those notes at 101% of the aggregate principal amount plus any accrued interest.

VF may redeem its notes, in whole or in part, at a price equal to the greater of (i) 100% of the principal amount, plus accrued interest to the redemption date, or (ii) the sum of the present value of the remaining scheduled payments of principal and interest discounted to the redemption date at an adjusted treasury rate, as defined, plus 20 basis points for the 2021 notes, 15 basis points for the 2023 and 2033 notes, and 25 basis points for the 2037 notes, plus accrued interest to the redemption date. In addition, the 2021 and 2023 notes can be redeemed at 100% of the principal amount plus accrued interest to the redemption date within the three months prior to maturity.

The 2021 notes have a principal balance of \$500.0 million and are recorded net of unamortized original issue discount and debt issuance costs. Interest expense on these notes is recorded at an effective annual interest rate of 4.69%, including amortization of a deferred loss on an interest rate hedging contract (Note 23), original issue discount and debt issuance costs.

The 2023 notes have a principal balance of €850.0 million and are recorded net of unamortized original issue discount and debt issuance costs. Interest expense on these notes is recorded at an


Institution Practicing License issued by Yinchuan Approval Service Administration (銀川市審批服務管理局). The license stipulates that the licensed diagnostic and treatment services shall be provided via the Internet. Our PRC Legal Adviser has advised that it remains uncertain whether the foreign investment restrictions applicable to “medical institutions” would apply to Yinchuan Yimaitong.

On February 2, 2021, our PRC Legal Adviser and the PRC legal adviser of the Joint Sponsors conducted an interview with the director of Yinchuan Data Industrial Development Service Center(銀川市大數據產業發展服務中心) as the examination and verification authority responsible for the online precondition review for the application of the Medical Institution Practicing License. Yinchuan Data Industrial Development Service Center confirmed that they would not issue the Certificate of the City-level Internet Hospital Regulatory Platforms (市級互聯網醫院監管平台證明) (the “Certificate”) if there is any foreign investor investing in Yinchuan Yimaitong. Without the Certificate from Yinchuan Data Industrial Development Service Center, Yinchuan Approval Service Administration (銀川市審批服務管理局), the ultimate authority to approve applications for the operation of Internet hospital service, will not proceed with the issuance of the Medical Institution Practicing License. On February 3, 2021, our PRC Legal Adviser and the PRC legal adviser of the Joint Sponsors conducted an interview with the division deputy director of Yinchuan Approval Service Administration. Yinchuan Approval Service Administration confirmed that the establishment of sino-foreign equityj oint venture Internet hospitals is prohibited, and there is no precedent for any sino-foreignj oint venture of Internet hospitals.

Our PRC Legal Adviser confirmed that (i) each of Yinchuan Data Industrial Development Service Center and Yinchuan Approval Service Administration is a competent authority on the basis that (a) according to the Provisions on the Function Configuration and Internal Organizations of Yinchuan Approval Service Administration (《銀川市審批服務管理局職能配置和內設機構規定》) promulgated on July 13, 2020, the responsibilities of Yinchuan Approval Service Administration include approving the establishment and operation of medical institutions and Yinchuan Approval Service Administration confirmed during the interview that it is the approval department for the establishment of Internet hospitals, and (b) Yinchuan Data Industrial Development Service Center is the approval authority with respect to the issuance of the Certificate, being a prerequisite and necessary document without which Yinchuan Approval Service Administration will not proceed with the issuance of the Medical Institution Practicing License, and (ii) the interviewees are the director of Yinchuan Data Industrial Development Service Center and the division deputy director of Yinchuan Approval Service Administration and they are competent authorities to give the confirmation above-mentioned, and, based on such confirmation, our Company is currently unable to establish a sino-foreign equityj oint venture to obtain the Medical Institution Practicing License for Internet hospital.


# (iii) “Restricted” — Foreign-Related Investigation Service

Under precision marketing and corporate solutions, Yimaihutong provides digital market research solutions to overseas pharmaceutical companies under eSurvey on our Medlive platform, which is considered to be engaged in foreign-related market investigation business, and as such, Yimaihutong is required to hold a Foreign-Related Investigation License. According to the Measures for the Administration of Foreign-related Investigation (涉外調查管理辦法) issued by the National Bureau of Statistics of China (國家統計局) on October 13, 2004, (i) the National Bureau of Statistics shall be in charge of the qualification evaluation for institutions applying for Foreign-Related Investigation License and (ii) no overseas organization or individual may directly conduct any market or social investigation in China or conduct any market or social investigation through any institution without the foreign-related investigation license. In addition, the Negative List requires market investigation shall only be limited to the form of equityj oint venture; for radio and television ratings survey therein, controlling stake shall be held by the Chinese Party.

Based on consultations on March 29, 2021 and June 9, 2021, in both cases with the duty officer of Civilian and Foreign-related Investigation Management Office of the Law Enforcement Supervision Bureau under the National Bureau of Statistics of China (國家統計局執法監督局民間和涉外調查管理處) which is the relevant competent authority, (i) companies that engages in market investigation shall only be limited to the form of sino-foreign equityj oint venture and the National Bureau of Statistics of China has discretion over the specific proportion of equities held by foreign investors, (ii) foreign investments in companies that engages in social investigation are prohibited, and (iii) given the nature of the business of Yimaihutong and the types of investigations that it conducts or may conduct, we will not be granted a Foreign-Related Investigation License through any sino-foreign equityj oint venture. Based on the aforesaid, it is concluded that foreign investment in Yimaihutong is prohibited. The consultations were conducted in the form of telephone consultation, through the consultation telephone hotline posted on the official website of National Bureau of Statistics of China, regarding the foreign-related investigation license approval. As advised by our PRC Legal Adviser, the National Bureau of Statistics of China is the competent authority.

The provision of digital market research solutions to overseas pharmaceutical companies by Yimaihutong is part of our precision marketing and corporate solutions which forms an integral part of the operations of our Medlive platform. Given that Yimaihutong also engages in value-added telecommunications services and plans to engage in radio and television program production business and Internet culture business, which are subject to foreign investment restrictions or prohibitions as disclosed in this prospectus and highly integrated, corelated and inseparable from each other, we are restricted from holding direct interests in Yimaihutong, despite the fact that foreign investors may engage in market investigation through sino-foreign equityj oint ventures.


# 31. STATEMENT OF FINANCIAL POSITION OF THE COMPANY (CONTINUED)

# (a) Reserves

The amounts of the Group’s reserves and the movements therein for the current and prior years are presented in the consolidated statement of changes in equity of the financial statements. Movements in the Company’s reserves during the current and prior years are as follows:

	Share
premium	Contributed
surplus	Capital
reserve	Accumulated
losses	Total

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

		(Note)

At 31 March 2016 and
1 April 2016
Loss for the year	23,811
–	22,968
–	7,453
–	(18,557)
(6,924)	35,675
(6,924)

As at 31 March 2017	23,811	22,968	7,453	(25,481)	28,751

Loss for the year	–	–	–	(5,730)	(5,730)

Issue of shares upon
subscription	180,600	–	–	–	180,600

Transaction costs
attributable to subscription
of shares	(725)	–	–	–	(725)

As at 31 March 2018	203,686	22,968	7,453	(31,211)	202,896

Note:

Pursuant to a written confirmation on 23 March 2015, two of the Company’s shareholders, Fortune Decade and Twilight Treasure, agreed to bear the listing expenses in connection with 120,000,000 sales shares sold through the placing of the Company’s shares took place during the year ended 31 March 2015 and reimburse their share of these expenses to the Company upon the listing of shares of the Company on the GEM of the Stock Exchange. The reimbursement of approximately HK\$7,453,000 by these shareholders in their capacity as shareholders was accounted for as capital contribution to the Company.


# 32. PARTICULARS OF PRINCIPAL SUBSIDIARIES OF THE COMPANY

# (i) General information of subsidiaries

Details of the Company’s principal subsidiaries at 31 March 2018 and 2017 are as follows:

Name of subsidiaries	Place of
incorporation
or registration/
operation	Issued
and fully
paid share
capital/
registered
capital	Percentage of nominal
value of issued ordinary
share capital held by
the Company	Forms of
legal entity	Principal
activities

			Directly	Indirectly

			%	%

Win Vision	BVI	US$1	100	–	Wholly- owned
foreign company	Investment holding,

Kwan on Construction
Company Limited
(“Kwan On”)	Hong Kong	HK$1	–	100	Private limited
company	Civil engineering
construction

Univic Engineering Limited
(“UEL”)	Hong Kong	HK$100	–	100	Private limited
company	Provision of contracting
work on civil
plumbing, fire
protection, insulation,
concrete repairs and
related activities

Univic Engineering &
Construction Limited	Hong Kong	HK$1	–	100	Private limited
company	Provision of civil,
plumbing and
fire protection
engineering contract
services

Univic Earthworks Limited	Hong Kong	HK$1	–	100	Private limited
company	Provision of civil and
plumbing engineering
contract services

Univic Building Contractors
Limited	Hong Kong	HK$1	–	100	Private limited
company	Provision of
construction site
workmen services

Univic Construction
Resources Limited
(“UCRL”)	Hong Kong	HK$1	–	100	Private limited
company	Provision of
construction site
workmen services

Univic Fireproofing &
Construction Limited
(“UFCL”)	Hong Kong	HK$1	–	100	Private limited
company	Trading of diesel
and provision of
construction site
workmen services


In response to our findings, and evidence from other supervisory work, in September 2010 we published proposed changes to complaints handling rules in CP10/21.22 We expect to publish a Policy Statement in this area in Q2 2011. As set out in the CP, we propose to:

• abolish the two-stage complaints handling process;

• require firms to identify a senior individual responsible for complaints handling; and

• set out how firms can meet existing requirements to undertake root cause analysis and have regard to decisions made by the ombudsman service.

We also propose increasing the ombudsman service’s award limit to \( \mathcal { E } \) 150,000 to reflect its fall in real terms since the limit was last raised.

Regulated firms currently report to us that they receive around four million complaints from customers each year. New rules now require firms to publish their own complaints data.

We published this firm-specific data for the first time in September 2010, enabling customers to compare and contrast the way firms deal with their complaints.

# 2.2 Unfair terms in mortgage contracts

A number of mortgage lenders have proposed, or taken, action in their standard mortgage contracts which is to the detriment of consumers. While firms may have prudential reasons for taking these actions, and may wish to balance the interests of savers and borrowers, they need to handle the whole process carefully to not breach FSA rules and principles (including Treating Customers Fairly) or the law.

Some firms are seeking to boost their revenues by including terms that move consumers from their discounted initial rate deal to the firms’ Standard Variable Rate (SVR) in particular situations. We have come across firms using terms to change a consumer’s mortgage to the firm’s SVR if the consumer breaches any of the conditions of the mortgage, regardless of the significance of the breach. This could result in the consumer paying a significantly higher interest rate than they had originally expected.

We have seen some lenders use contractual terms including terms that demand immediate repayment of the mortgage if, in their opinion, the consumer’s circumstances have only changed to a minor degree or the consumer has committed a minor breach of the terms and conditions of the mortgage. It would appear that such terms could give firms wide discretion to demand repayment of the mortgage, to the detriment of consumers.

To address these matters, we have published undertakings under the Unfair Terms in Consumer Contracts Regulations 1999 from firms agreeing not to apply such terms unfairly. We have also reminded firms with similar terms in their contracts of the messages contained in these undertakings.

# 2.3 Treatment of mortgage customers in arrears

As we showed in Chapter A, the combination of very low interest rates, an unemployment increase less than feared, and a fall in house prices less than some commentators had predicted has so far limited the impact of the financial crisis on homeowners. This has meant that after rising arrears and repossessions in 2008/9, numbers fell back slightly in the first half of 2010. Regulatory action to require appropriate forbearance has also had an effect.

---

22 CP10/21 Consumer complaints: The ombudsman award limit and changes to complaints-handling rules, September 2010, The ombudsman service and FSA.


While most mainstream lenders are treating customers in arrears fairly, we have seen a number of problems, primarily with specialist lenders. These problems include:

• Unfair charges – Information provided to customers on arrears charges is often unclear, charges are sometimes applied in circumstances that do not appear to be compatible with treating customers fairly, and there is little evidence that firms are ensuring arrears charges overall reflect the additional cost of administering these cases.

• Inadequate controls in outsourcing arrangements – Some lenders do not have adequate controls in place to ensure that, where they outsource arrears handling, the third party is treating customers fairly. Frontline staff in third party administrators (TPAs) often lacked the training and competence to deliver the fair customer outcomes required under MCOB 13, and TPAs’ own oversight of their business was inadequate to detect and deal with the detriment customers suffered as a result.

• Impaired credit lenders are much more inclined than mainstream lenders to impose a ‘one size fits all’ policy and move swiftly to take possession, without establishing borrowers’ individual circumstances. Their internal controls and training and competence arrangements are also noticeably less developed than those of mainstream lenders. There is anecdotal evidence that the terms of securitisation covenants are restricting their ability to treat customers in arrears fairly.

We have taken enforcement action against mortgage firms where we identified breaches in our rules or principles. Some of the lenders we visited more recently are taking steps to rectify earlier failings, in particular by collecting more information on customers’ income and expenditure when they fall into arrears, and tailoring their response in each case to the individual’s circumstances. But this is an area that will require continuing vigilance, particularly if there is a deterioration in the general economic environment or interest rates start to rise.

# 2.4 Payment Protection Insurance (PPI)

PPI mis-selling has been a significant issue in recent years, giving rise to consumer detriment, and has been covered in previous FROs.

Since we took over the regulation of PPI we have, amongst other things, carried out three thematic reviews and reports, issued warnings, visited over 200 firms and taken enforcement action against 24 firms. In addition, the PPI market was subject to a Competition Commission enquiry which began in 2007.

In August 2010, we published a Policy Statement, PS10/12, The assessment and redress of PPI complaints. This set out a package of measures designed to ensure that firms handle PPI complaints more fairly and consistently, and deliver fairer outcomes to customers who may have been mis-sold PPI but who have not complained.

The latest development is the judicial review of PS10/12, launched by the British Bankers’ Association (with Nemo Personal Finance subsequently joining as an interested party) on 8 October 2010. This challenge was considered by the Administrative Court in late January 2011 and a decision will follow.


# Financial assets

The Group’s financial assets are classified into loans and receivables and financial assets at fair value through profit or loss (‘‘FVTPL’’). The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

# Effective interest method

The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

Interest income is recognised on an effective interest basis for debt instrument other than those financial assets classified as at FVTPL, of which interest income is included in net gains or losses.

# Financial assets at FVTPL

Financial assets are classified as financial assets at FVTPL when it is a derivative that is not designated and effective as a hedging instrument; or it forms part of a contract containing one or more embedded derivatives, and HKAS 39 permits the entire combined contract to be designated as at FVTPL upon initial recognition.

Financial assets at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognised in profit or loss. The net gain or loss recognised in the profit or loss excludes any interest earned on the financial assets and is included in ‘‘other gains and losses’’ line item. Fair value is determined in the manner described in note 7.

# Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans and receivables (including trade and other receivables, amounts due from related parties and bank balances and cash) are carried at amortised cost using the effective interest method, less any impairment (see accounting policy on impairment loss on financial assets below).

Interest income is recognised by applying the effective interest rate, except for short-term receivables where the recognition of interest would be immaterial.

# Impairment of financial assets

Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the financial assets have been affected.

Objective evidence of impairment could include:

. significant financial difficulty of the issuer or counterparty; or

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

. it becoming probable that the borrower will enter bankruptcy or financial re-organisation.

Impairment loss for loans and receivables are assessed on an individual basis.


For financial assets carried at amortised cost, the amount of the impairment loss recognised is the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the financial asset’s original effective interest rate.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited to profit or loss.

For financial assets measured at amortised cost, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

# Financial liabilities and equity instruments

Financial liabilities and equity instruments issued by an entity are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument.

# Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recognised at the proceeds received, net of direct issue costs.

# Financial liabilities

Financial liabilities (including trade and other payables and accruals) are subsequently measured at amortised cost, using the effective interest method.

# Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or, where appropriate, a shorter period, to the net carrying amount on initial recognition. Interest expense is recognised on an effective interest basis.

# Derivative financial instruments

Derivatives are initially recognised at fair value at the date when derivative contracts are entered into and are subsequently remeasured to their fair value at the end of the reporting period. The resulting gain or loss is recognised in profit or loss immediately.

# Derecognition

The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire.

On derecognition of a financial asset, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognised in profit or loss.


April 202041

(01333 HK)中国忠旺China Zhongwang

ReportCompany

of aluminum flat-rolled products to rise due to product mix improvement. The Company holds great competitive advantages in the production of aluminum extrusion and flat-rolled products. The Company is the largest producer of aluminum alloy formwork in China, with over 40% of total market share in 2019 according to Antaike, and confronts little competition in the domestic market. The Company is able to maintain the selling price of aluminum alloy formwork and collect considerable processing fees. In 2019, the ASP of aluminum alloy formwork rose slightly while aluminum price declined by about RMB400/t. We believe that the Company is able to maintain the ASP of aluminum alloy formwork. The average processing fees of industrial aluminum extrusion products also rose slightly in 2019. The average processing fees of industrial aluminum extrusion products were mainly determined by the product mix. The extrusion production lines of the Company are expected to run at full capacity and we expect the processing fees assumptions of industrial aluminum extrusion products to be maintained. We believe that newly installed extrusion capacity will be allocated to products with higher value. We expect the profitability of extrusion lines to continue to improve due to product mix change. However, we believe average processing fees of aluminum extrusion products of the Company to decline moderately in 2020 as downstream demand will be severely hit by the global outbreak of COVID-19 and consumers may require lower ASP of their products. The processing fees of flat-rolled products in 2019 decreased as the Company only produced standard products with lower processing fees. Although total output of aluminum flat-rolled products increased rapidly, they were still low-value standard products. We expect such situation to change in 2020. As the Company has acquired more authentication of high-end products, it will produce more flat-rolled products with higher processing fees. The Company has already been conducting authentication for 3 years and we believe that more authentication of high-end products will be acquired in the coming years, which will improve the profitability of its flat-rolled production lines. We believe that more high-end products will be put into production in the future and raise average processing fees of flat-rolled products.

Revise down TP of the Company to HK\$2.05, and downgrade to "Neutral". China Zhongwang is a leading processed aluminum product developer and manufacturer in Asia. The Company has established competitive advantages in the aluminum processing industry and we expect the Company to continue to lead in the aluminum processing industry. The commencement of production of high-value aluminum flat-rolled products will be the future profit driver of the Company and has complementary and synergistic effects with current industrial aluminum extrusion products. However, we expect total sale of aluminum extrusion products and flat-rolled products of the Company to be severely impacted by the global outbreak of the COVID-19 pandemic. We expect the output of aluminum alloy formwork and aluminum extrusion products of the Company to decrease by about 10%-20% in 2020 and total output of flat-rolled products to be around 500,000 tons. We expect processing fees assumptions of aluminum extrusion products to decline moderately, but processing fees of aluminum flat-rolled products to rise due to product mix improvement. We expect deep-processed products to grow fast in the next 3 years due to strong downstream consumption demand. The decline in net profit of the Company in 2019 was mainly due to business model adjustment and lower processing fees of flat-rolled products, the extrusion business of the Company still enjoys great competitive advantages. We believe that net profit of the Company holds great growth potential due to product mix change and output growth in the future. The operation of the Company is stable and we believe that the Company is able to get through the tough period of global COVID-19 pandemic. We revise down the TP of the Company to HK\$2.05 due to lower market valuation level during the COVID-19 pandemic, which is equivalent to 6.0x FY20 PE and 0.4x FY20 PB. We downgrade the investment rating of the Company to "Neutral".


April 202041

(01333 HK)中国忠旺China Zhongwang

ReportCompany

# Table-1: Peers Comparison

Company	Stock Code	Currency	Last price	PE (fiscal year)	PB (fiscal year)	ROE(%)

18A	19A	20F	21F	18A	19A	20F	21F	20F

International Listed aluminum companies

Alcoa Inc	AA US	USD	7.41	5.5	n.a.	n.a.	n.a.	0.2	0.3	0.4	0.4	(23.1)

Norsk Hydro Asa	NHY NO	NOK	21.70	10.4	n.a.	23.2	10.7	0.5	0.6	0.6	0.5	(2.2)

Aluar Aluminio	ALUA AR	ARS	23.40	31.7	9.7	10.5	6.1	2.4	2.4	n.a.	n.a.	24.7

Nippon Light Metal Holdings	5703 JP	JPY	164.00	5.6	4.9	9.5	7.0	0.6	0.5	0.5	0.5	11.4

Hindalco Industries Ltd	HNDL IN	INR	109.85	4.0	4.5	5.2	6.5	0.4	0.4	0.4	0.4	9.8

National Aluminium Co Ltd	NACL IN	INR	29.95	4.3	3.3	74.9	99.8	0.6	0.5	n.a.	n.a.	16.5

Simple Average				10.3	5.6	24.6	26.0	0.8	0.8	0.5	0.4	6.2

Weighted Average				9.1	5.3	18.6	14.8	0.6	0.6	0.5	0.5	3.3

PRC listed aluminum companies

Aluminum Corp Of China Ltd-A	601600 CH	CNY	2.90	69.0	78.4	58.0	31.5	0.9	1.0	0.9	0.8	1.3

Shandong Nanshan Aluminum-A	600219 CH	CNY	2.10	12.8	15.0	13.1	17.5	0.7	0.6	0.6	0.6	4.2

Henan Shenhuo Coal & Power-A	000933 CH	CNY	4.19	32.2	6.9	12.1	6.9	1.3	1.0	n.a.	n.a.	n.a.

Jiangsu Asia Pacific Light-A	002540 CH	CNY	4.29	14.5	16.2	n.a.	n.a.	1.1	1.1	n.a.	n.a.	6.9

Simple Average				32.2	29.1	27.8	18.6	1.0	0.9	0.7	0.7	4.1

Weighted Average				44.8	48.1	36.1	22.8	0.9	0.9	0.6	0.6	2.4

HK listed aluminum companies

Aluminum Corp Of China Ltd-H	2600 HK	HKD	1.67	33.5	39.8	23.9	13.8	0.5	0.5	0.5	0.4	1.3

China Hongqiao Group Ltd	1378 HK	HKD	3.54	4.8	4.4	4.9	4.1	0.4	0.4	0.4	0.4	9.9

China Zhongwang Holdings Ltd	1333 HK	HKD	1.99	2.8	4.1	n.a.	n.a.	0.3	0.3	n.a.	n.a.	8.9

Xingfa Aluminium Holdings	98 HK	HKD	6.36	4.5	3.9	n.a.	n.a.	0.9	0.8	n.a.	n.a.	21.9

Simple Average				11.4	13.0	14.4	8.9	0.5	0.5	0.4	0.4	10.5

Weighted Average				19.6	22.9	16.5	10.0	0.4	0.5	0.4	0.4	5.6

HK listed nonferrous companies

Jiangxi Copper Co Ltd-H	358 HK	HKD	7.65	9.1	9.5	11.9	9.4	0.5	0.4	0.5	0.4	4.8

Mmg Ltd	1208 HK	HKD	1.42	21.3	n.a.	473.3	17.1	1.2	1.5	1.4	1.3	(20.3)

China Molybdenum Co Ltd-H	3993 HK	HKD	2.32	9.3	22.7	22.7	17.6	1.1	1.1	1.1	1.1	4.5

United Co Rusal Plc	486 HK	HKD	2.67	3.0	5.4	3.8	3.4	1.0	0.8	0.7	0.6	16.1

Simple Average				10.7	12.5	127.9	11.9	0.9	0.9	0.9	0.8	1.3

Weighted Average				8.6	13.9	45.9	12.2	0.9	0.9	0.9	0.8	5.7

Source: Bloomberg, Guotai Junan International.


Changes in our accrued liabilities for severance expenses and leased real estate were as follows:

	Severance	Real
Estate

(Dollars in millions)

Balance at December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . .	 $ 14      80

Accrued to expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	173	4

Payments, net ......................................	(89)	(20)

Reversals and adjustments ............................	 —	3

Balance at December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . .	98	67

Accrued to expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	42	4

Liabilities assumed in acquisition of Level 3 ..............	1	4

Payments, net ......................................	(108)	(13)

Reversals and adjustments ............................	 —	2

Balance at December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . .	 $ 33	64

# (9) Employee Benefits

# Pension, Post-Retirement and Other Post-Employment Benefits

We sponsor various defined benefit pension plans (qualified and non-qualified) which, in the aggregate, cover a substantial portion of our employees including legacy CenturyLink, legacy Qwest Communications International, Inc. (“Qwest”) and legacy Embarq employees. On December 31, 2015, we merged our existing qualified pension plans, which included merging the Qwest Pension Plan and Embarq Retirement Pension Plan into the CenturyLink Retirement Plan. The CenturyLink Retirement Plan was renamed the CenturyLink Combined Pension Plan (“Combined Plan”). Pension benefits for participants of the new Combined Plan who are represented by a collective bargaining agreement are based on negotiated schedules. All other participants’ pension benefits are based on each individual participant’s years of service and compensation. We also maintain non-qualified pension plans for certain current and former highly compensated employees. We maintain post-retirement benefit plans that provide health care and life insurance benefits for certain eligible retirees. We also provide other post-employment benefits for certain eligible former employees. We use a December 31 measurement date for all our plans.

# Pension Benefits

In connection with the acquisition of Level 3 Communications, Inc. on November 1, 2017, we assumed defined benefit pension plans sponsored by various Level 3 companies for their employees. Based on a valuation analysis, we recognized a \$20 million liability on November 1, 2017 for the unfunded status of the Level 3 pension plans, reflecting projected benefit obligations of 167 million, in excess of the \$147 million fair value of plan assets.

Current funding laws require a company with a pension shortfall to fund the annual cost of benefits earned in addition to a seven-year amortization of the shortfall. Our funding policy for our Combined Plan is to make contributions with the objective of accumulating sufficient assets to pay all qualified pension benefits when due under the terms of the plan. The accounting unfunded status of our qualified pension plan was \$2.004 billion and\$2.352 billion as of December 31, 2017 and 2016, respectively.

We made a voluntary cash contribution to our qualified pension plan of \$100 million in both 2017 and 2016, and paid \$5 million and \$7 million of benefits directly to participants of our non-qualified pension plans in 2017 and 2016, respectively. Based on current laws and circumstances, we are not required to make any contributions to our qualified pension plan in 2018, but we currently expect to make a voluntary contribution of \$100 million to the trust for our qualified pension plan in 2018. We estimate that in 2018 we will pay \$5 million of benefits directly to participants of our non-qualified pension plans.


As mentioned above, we assumed in the Level 3 acquisition certain contributory and non-contributory employee pension plans, both qualified and non-qualified plans (the “Level 3 Pensions”). At December 31, 2017, the fair value of the Level 3 Pensions’ plan assets was \$147 million, and the associated benefit obligation was\$167 million. We recognized the unfunded status of Level 3’s pension plans of \$20 million on our consolidated balance sheet as of December 31, 2017, and the net periodic benefit expense of less than \$1 million for the period November 1, 2017 to December 31, 2017, in our consolidated income statement for the year ended December 31, 2017. Due to the insignificant amount of these pension plans, we have predominantly excluded them from the remaining employee benefit disclosures in this Note.

# Post-Retirement Benefits

In connection with our acquisition of Level 3 Communications, Inc. on November 1, 2017, we assumed post-retirement benefit plans sponsored by Level 3 Communications, L.L.C. and Continental Level 3, Inc. for certain of its current and former employees. Based on a valuation analysis, we recognized less than \$1 million in liability for the unfunded status of Level 3’s post-retirement benefit plans.

Our post-retirement benefit plans provide post-retirement benefits to qualified retirees and allow (i) eligible employees retiring before certain dates to receive benefits at no or reduced cost and (ii) eligible employees retiring after certain dates to receive benefits on a shared cost basis. The post-retirement benefits not paid by the trusts are funded by us and we expect to continue funding these post-retirement obligations as benefits are paid. The accounting unfunded status of our qualified post-retirement benefit plan was \$3.352 billion and\$3.360 billion as of December 31, 2017 and 2016, respectively.

Assets in the post-retirement trusts have been substantially depleted as of December 31, 2016; however we will continue to pay certain post-retirement benefits through the trusts. No contributions were made to the post-retirement trusts in 2017 and 2016. Benefits not paid from the trusts are expected to be paid directly by us with available cash. In 2017, we paid \$237 million of post-retirement benefits, net of participant contributions and direct subsidies. In 2018, we expect to pay \$283 million of post-retirement benefits, net of participant contributions and direct subsidies. The increase in anticipated post-retirement benefit payments is the result of increased utilization coupled with a continued rise in the cost of care.

We expect our health care cost trend rate to range from 5.0% to 6.5% in 2018, 5.0% to 7.0% in 2019, 5.0% to 6.5% in 2020 and grading to 4.50% by 2025. Our post-retirement benefit cost, for certain eligible legacy Qwest retirees and certain eligible legacy CenturyLink retirees, is capped at a set dollar amount. Therefore, those health care benefit obligations are not subject to increasing health care trends after the effective date of the caps.

As mentioned above, we assumed in the Level 3 acquisition certain post-retirement plans. Though largely unfunded, these post-retirement plans, in the aggregate, are immaterial to our consolidated financial statements. Due to the insignificant amount of these post-retirement plans, we have predominantly excluded them from the remaining employee benefit disclosures in this Note.

A change of 100 basis points in the assumed initial health care cost trend rate would have had the following effects in 2017:

	100 Basis
Points Change

Increase	(Decrease)

(Dollars in millions)

Effect on the aggregate of the service and interest cost components of net periodic
post-retirement benefit expense (consolidated statement of operations) . . . . . . . . . .	 .      $ 2	(2)

Effect on benefit obligation (consolidated balance sheet) . . . . . . . . . . . . . . . . . . . . . . .	 .       60	(57)


The chart below sets forth the total sales value and sales volume of cigarettes in China from 2010 to 2015 and the forecast from 2016 to 2020:

Note:

(1) F refers to forecasted figures.

Sources: STMA; Ipsos research and analysis

The total sales volume of cigarettes in China grew steadily from approximately 2,342.1 billion sticks in 2010 to approximately 2,489.5 billion sticks in 2015 at a CAGR of 1.2%. The sales volume is forecasted to further grow from approximately 2,359.6 billion sticks in 2016 to approximately 2,413.0 billion sticks in 2020, at a CAGR of 0.6%. The total sales value of cigarettes in China steadily grew from RMB847.9 billion in 2010 to RMB1,422.3 billion in 2015 at a CAGR of 10.9%. The sales value is forecasted to further grow from RMB1,468.0 billion in 2016 to RMB1,749.6 billion in 2020, at a CAGR of 4.5%.


The chart below sets forth the total sales value and sales volume of cigarettes in Hubei Province from 2010 to 2015 and the forecast from 2016 to 2020:

Note:

(1) F refers to forecasted figures.

# Sources: STMA; Ipsos research and analysis

From 2010 to 2015, the sales volume of cigarettes in Hubei Province decreased slightly from approximately 73.8 billion sticks in 2010 to approximately 73.1 billion sticks in 2015 at a CAGR of-0.2%. The total sales value of cigarettes experienced growth from RMB26.4 billion in 2010 to RMB39.9 billion in 2015 at a CAGR of 8.6%. Both sales volume and sales value of cigarettes in Hubei Province are expected to increase over the forecast period. The sales volume is expected to increase to approximately 71.9 billion sticks in 2020 from 70.2 billion sticks in 2016 with a CAGR of 0.6%, while the sales value is expected to reach RMB47.9 billion in 2020 from RMB41.5 billion in 2016 at a CAGR of 3.7%. The increase in sales value can be attributed to the STMA’s promotion of mid to high-end cigarettes and consumers’ increasing preference for mid to high-end cigarettes driven by the increasing income level and higher purchasing power of consumers. Despite the decrease in sales volume of cigarettes in 2015 and 2016 due to the slowdown of the Chinese GDP growth and the rise in specific tax from 5% to 11% in 2015 imposed by the government, the sales volume and value of cigarettes are expected to have a stable growth from 2016 to 2020. At the provincial level, Yunnan and Hunan Provinces were the top two in terms of cigarette production volume in 2015, with approximately 390.4 billion sticks and 175.7 billion sticks, respectively. Additionally, the sales of cigarettes are subject to seasonal variations. In general, the first and third quarters are the peak seasons for cigarettes during the year, partly driven by festivals such as the Lunar New Year and the Mid-Autumn Festival.