LUEN WONG GROUP HOLDINGS LIMITED. (Incorporated in the Cayman Islands with limited liability) Stock Code: 8217 PLACING. Sponsor

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1 LUEN WONG GROUP HOLDINGS LIMITED (Incorporated in the Cayman Islands with limited liability) Stock Code: 8217 PLACING Sponsor Joint Bookrunners and Joint Lead Managers

2 IMPORTANT If you are in any doubt about any of the contents of this prospectus, you should obtain independent professional advice. LUEN WONG GROUP HOLDINGS LIMITED (Incorporated in the Cayman Islands with limited liability) LISTING ON THE GROWTH ENTERPRISE MARKET OF THE STOCK EXCHANGE OF HONG KONG LIMITED BY WAY OF PLACING Number of Placing Shares : 312,000,000 Shares (comprising 208,000,000 New Shares to be offered by our Company and 104,000,000 Sale Shares to be offered by the Selling Shareholder) Placing Price : HK$0.26 per Placing Share, plus brokerage of 1%, SFC transaction levy of % and Stock Exchange trading fee of 0.005% (payable in full on application in Hong Kong dollars) Nominal value : HK$0.01 per Share Stock code : 8217 Sponsor TC Capital Asia Limited Joint Bookrunners and Joint Lead Managers Hong Kong Exchanges and Clearing Limited, The Stock Exchange of Hong Kong Limited and Hong Kong Securities Clearing Company Limited take no responsibility for the contents of this prospectus, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this prospectus. A copy of this prospectus, having attached thereto the documents specified in the section headed Documents Delivered to the Registrar of Companies and Available for Inspection in Appendix VI to this prospectus, has been registered with the Registrar of Companies as required by Section 342C of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Chapter 32 of the Laws of Hong Kong). The Registrar of Companies in Hong Kong and the Securities and Futures Commission of Hong Kong take no responsibility as to the contents of this prospectus or any of the other documents referred to above. Prior to making an investment decision, prospective investors should consider carefully all of the information set out in this prospectus, including but not limited to the risk factors set out in the section headed Risk Factors in this prospectus. Prospective investors of the Placing Shares should note that the Sponsor and/or the Joint Bookrunners (for themselves and on behalf of the Underwriters) are entitled to terminate the obligations of the Underwriters under the Underwriting Agreement by means of a notice in writing to our Company (for itself and on behalf of the Selling Shareholder) given by the Sponsor and/or the Joint Bookrunners (for themselves and on behalf of the Underwriters) upon the occurrence of any of the events set out in the section headed Underwriting Underwriting Arrangements and Expenses Grounds for termination in this prospectus, at any time prior to 8:00 a.m. (Hong Kong time) on the Listing Date. Should the Sponsor and/or the Joint Bookrunners (for themselves and on behalf of the Underwriters) terminate the Underwriting Agreement, the Placing will not proceed and will lapse. 31 March 2016

3 CHARACTERISTICS OF GEM GEM has been positioned as a market designed to accommodate companies to which a higher investment risk may be attached than other companies listed on the Stock Exchange. Prospective investors should be aware of the potential risks of investing in such companies and should make the decision to invest only after due and careful consideration. The greater risk profile and other characteristics of GEM mean that it is a market more suited to professional and other sophisticated investors. Given the emerging nature of companies listed on GEM, there is a risk that securities traded on GEM may be more susceptible to high market volatility than securities traded on the Main Board and no assurance is given that there will be a liquid market in the securities traded on GEM. i

4 EXPECTED TIMETABLE 2016 (Note 1) Announcement of the level of indication of interest in the Placing to be published on (i) (ii) the Stock Exchange s website at and our Company s website at on or before... Monday, 11 April Allotment of Placing Shares to placees on or about... Monday, 11 April Deposit of share certificates for the Placing Shares into CCASS on or about (Note 2)... Monday, 11 April Dealings in the Shares on GEM to commence at 9:00 a.m. on (Notes 3&4)... Tuesday, 12 April Notes: 1. All times and dates refer to Hong Kong local times and dates. 2. Share certificates for the Placing Shares allotted and issued to the placees are expected to be deposited directly into CCASS on or about Monday, 11 April 2016 for credit to the respective CCASS participants or the CCASS investor participants stock accounts designated by the Underwriter), the placees or their agents (as the case may be). No temporary documents or evidence of title will be issued by our Company. 3. If there is any change to the above expected timetable, we will make an appropriate announcement on the Stock Exchange s website at and on our Company s website at to inform investors accordingly. 4. All share certificates for the Placing Shares will only become valid certificates of title when the Placing has become unconditional in all respects and the Underwriting Agreement has not been terminated in accordance with its terms at any time prior to 8:00 a.m. on the Listing Date. If the Placing does not become unconditional or the Underwriting Agreement is terminated in accordance with its terms, we will make an announcement on the Stock Exchange s website at and on our Company s website at as soon as possible. ii

5 CONTENTS You should rely only on the information contained in this prospectus to make your investment decision. Our Company has not authorised anyone to provide you with information that is different from what is contained in this prospectus. Any information or representation not contained or made in this prospectus must not be relied on by you as having been authorised by our Company, the Selling Shareholder, the Sponsor, the Joint Bookrunners, the Joint Lead Managers, any of the Underwriters, any of their respective directors, affiliates, employees or representatives or any other person or party involved in the Placing. Page CHARACTERISTICS OF GEM... EXPECTED TIMETABLE... i ii CONTENTS... iii SUMMARY... 1 DEFINITIONS GLOSSARY FORWARD-LOOKING STATEMENTS RISK FACTORS INFORMATION ABOUT THIS PROSPECTUS AND THE PLACING DIRECTORS AND PARTIES INVOLVED IN THE PLACING CORPORATE INFORMATION INDUSTRY OVERVIEW REGULATORY OVERVIEW HISTORY AND DEVELOPMENT BUSINESS DIRECTORS AND SENIOR MANAGEMENT RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS iii

6 CONTENTS Page SUBSTANTIAL SHAREHOLDERS SHARE CAPITAL FINANCIAL INFORMATION STATEMENT OF BUSINESS OBJECTIVE AND USE OF PROCEEDS UNDERWRITING STRUCTURE AND CONDITIONS OF THE PLACING APPENDIX I ACCOUNTANTS REPORT... I-1 APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION.. II-1 APPENDIX III PROPERTY VALUATION... III-1 APPENDIX IV SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANY LAW... IV-1 APPENDIX V STATUTORY AND GENERAL INFORMATION... V-1 APPENDIX VI DOCUMENTS DELIVERED TO THE REGISTRAR OF COMPANIES AND AVAILABLE FOR INSPECTION... VI-1 iv

7 SUMMARY This summary aims to give you an overview of the information contained in this prospectus. As this is a summary, it does not contain all the information that may be important to you. You should read the whole prospectus before you decide to invest in the Placing Shares. There are risks associated with any investment. Some of the particular risks in investing in the Placing Shares are set forth in the section headed Risk factors in this prospectus. You should read that section carefully before you decide to invest in the Placing Shares. Various expressions used in this summary are defined in the sections headed Definitions and Glossary in this prospectus. OUR BUSINESS We are an established subcontractor engaged in civil engineering works. We have over 16 years of experience in providing civil engineering works as a subcontractor and are flexible in deploying resources to meet our customers demand. The civil engineering works undertaken by us are mainly related to (i) roads and drainage works (including construction and improvement of local road, carriageway with junction improvement and the associated footpaths, planting areas, drains, sewers, water mains and utilities diversion); (ii) structural works (including construction of reinforced concrete structures for bridges and retaining walls); and (iii) site formation works (including excavation and/or filling works for forming a new site or achieving designed formation level for later development). During the Track Record Period, the average duration of completed projects (from the date of engagement to the date of completion) was approximately 2.2 years. Depending on the nature and complexity of a project as well as the existence of any unforeseen circumstances (such as bad weather conditions, industrial accidents, variation orders requested by customers, etc., if any), the duration of a contract generally ranges from approximately 2 years to 4 years. Our direct customers are primarily main contractors of various different types of civil engineering projects in Hong Kong. During the Track Record Period, the majority of our revenue was derived from public sector projects, i.e. projects which the main contractors are employed by the Government or statutory bodies, representing approximately 93.3%, 93.9% and 87.8% of our revenue for the two years ended 31 March 2015 and the eight months ended 30 November 2015, respectively. Our civil engineering projects are non-recurring in nature. As a subcontractor, we secure our projects from main contractors after a competitive tendering process whereby we are invited to submit our tender. We possess our own site equipment for carrying out our projects and therefore are not materially reliant on third parties for site equipment rental. We believe that our investment in site equipment has placed us in a position to cater to civil engineering projects of different scales and complexity and to meet the expected growing demand of our customers. For further information regarding our site equipment, please refer to the section headed Business Site equipment in this prospectus. During the Track Record Period and up to the Latest Practicable Date, we had undertaken 51 civil engineering contracts, of which 31 contracts had been completed. As at the Latest Practicable Date, we had 20 contracts on hand with an aggregate contract sum of approximately HK$1,384,140,000, of which (i) approximately HK$234,304,000 of revenue has been recognised as at 30 November 2015 (with approximately HK$6,241,000 of revenue recognised exceeding the original contract sum); and (ii) approximately HK$191,737,000 is expected to be recognised as revenue for the period from 1 December 2015 to 31 March 2016 (with approximately HK$3,547,000 of revenue expected to be recognised exceeding the original contract sum) and HK$824,469,000, HK$109,706,000 and HK$33,713,000 are expected to be recognised as revenue during the three years ending 31 March 2019, respectively. The amount of revenue expected to be recognised is subject to change due to the actual progress and commencement and completion dates of our projects. Further details of our contracts are set out in the section headed Business Our civil engineering contracts Contracts on hand in this prospectus. 1

8 SUMMARY Customers During the Track Record Period, our customers primarily include main contractors of various types of civil engineering projects in Hong Kong. For the two years ended 31 March 2015 and the eight months ended 30 November 2015, the percentage of our total revenue attributable to our largest customer amounted to approximately 63.2%, 53.1% and 36.7%, respectively, while the percentage of our total revenue attributable to our five largest customers combined amounted to approximately 94.1%, 96.0% and 97.5%, respectively. Among our five largest customers (in terms of revenue) during the Track Record Period, we have been providing services to them for a period ranging from 2 to 16 years. Our Directors consider that due to the nature of the civil engineering construction industry in which our Group is engaged in, our customer base is relatively concentrated to reputable main contractors which dominate the civil engineering construction industry in Hong Kong. As a result, the potential customer base of our Group is limited. Please refer to the section headed Business Customers Customer concentration in this prospectus for further details. During the Track Record Period, all of our civil engineering construction contracts were obtained through tendering. The following table sets out the number of contracts tendered, number of successfully tendered contracts and our success rate during the Track Record Period and from 1 December 2015 up to the Latest Practicable Date: For the year ended 31 March For the eight months ended 30 November 2015 From 1 December 2015 to the Latest Practicable Date Number of tenders submitted Number of tenders won Success rate (%) Note: For the eight months ended 30 November 2015, there were 33 tender applications submitted by our Group. Out of the said 33 tender applications, we received 25 rejected tender results and the tender results of the remaining 3 tender applications are yet to be known. For the period from 1 December 2015 to the Latest Practicable Date, there were 18 tender applications submitted by our Group. Out of the said 18 tender applications, we received 8 rejected tender results and the tender results of the remaining 10 tender applications are yet to be known. Suppliers During the Track Record Period, our suppliers primarily include (i) suppliers of construction materials such as concrete, steel, precast concrete units, timbers and diesel fuel; (ii) site equipment rental service providers; and (iii) suppliers of other miscellaneous goods. For the two years ended 31 March 2015 and the eight months ended 30 November 2015, the percentage of our total purchases incurred (excluding subcontracting charges incurred) from our largest supplier amounted to approximately 29.2%, 50.6% and 19.1% of our total purchases incurred (excluding subcontracting charges incurred), respectively, while the percentage of our total purchases incurred (excluding subcontracting charges incurred) from our five largest suppliers combined amounted to approximately 55.7%, 67.5% and 54.0% of our total purchases incurred (excluding subcontracting charges incurred), respectively. We generally order the relevant construction materials and services on a project-by-project basis and do not enter into any long-term supply agreements with our suppliers. Some major customers also supply construction materials on our behalf pursuant to the contra-charge arrangement, details of which are set out in the section headed Business Suppliers Contra-charge arrangement with our customers in this prospectus. Among our five largest suppliers (in terms of total purchased amounts excluding subcontracting charges) during the Track Record Period, we have developed business relationship with them for a period ranging from less than 1 year to 16 years. 2

9 SUMMARY Subcontractors Subject to our capacity, resources level, types of civil engineering works, cost effectiveness, complexity of the projects and customers requirements, we may subcontract our works to other subcontractors in a project. During the Track Record Period, our subcontracted works primarily included steel fixing, formwork erection and drainage works. For each of the two years ended 31 March 2015 and the eight months ended 30 November 2015, the percentage of our Group s total subcontracting charges incurred to our Group s largest subcontractor amounted to approximately 17.3%, 17.7% and 15.0% of our Group s total subcontracting charges incurred, respectively, while the percentage of our Group s total subcontracting charges incurred attributable to our Group s five largest subcontractors combined amounted to approximately 61.8%, 53.3% and 55.7% of our Group s total subcontracting charges incurred, respectively, for the same periods. Among our five largest subcontractors (in terms of subcontracting charges incurred) during the Track Record Period, we have developed business relationship with them for a period ranging from 2 to 10 years. COMPETITIVE LANDSCAPE According to the Ipsos Report, the top five civil engineering contractors act as main contractors in the overall civil engineering construction industry, and they accounted for about 54.6% of the total revenue of the civil engineering construction industry in Meanwhile, the civil engineering subcontracting industry in Hong Kong is fragmented. As at the Latest Practicable Date, there were over 700 structural and civil engineering subcontractors registered under the Construction Industry Council. In 2014, our Group accounted for approximately 1.8% (or HK$254 million) of the total revenue in the civil engineering construction industry generated by civil engineering subcontractors (HK$14.1 billion) in Hong Kong. Our Directors consider that technical expertise, quality of work, relationship with customers, suppliers and subcontractors, site equipment capability, project pricing and safety records are the determinants of competitiveness of a civil engineering subcontractor in Hong Kong, and our Group is well-positioned to capture the growing demand for civil engineering construction services in Hong Kong. COMPETITIVE STRENGTHS We believe the following competitive strengths, details of which are set out in the section headed Business Competitive strengths in this prospectus, contribute to our success and differentiate us from our competitors: Well-established presence in the civil engineering construction industry in Hong Kong Experienced project management team Possession of a variety of site equipment for performing different types of civil engineering works Stable relationship with our major customers, suppliers and subcontractors Our commitment to maintaining safety standard, quality control and environmental protection BUSINESS OBJECTIVES AND STRATEGIES Our principal business objective is to further strengthen our position as an established subcontractor for roads and drainage works, structural works and site formation works in Hong Kong and to create long-term shareholder s value. We intend to achieve our business objective by competing for sizeable and profitable civil engineering projects through expanding our scale of operation through pursuing the following key strategies, details of which are set out in the sections headed Business Business strategies and Statement of business objective and use of proceeds of this prospectus: Acquisition of additional site equipment Further strengthening our manpower Adherence to prudent financial management to ensure sustainable growth and capital efficiency. 3

10 SUMMARY SUMMARY OF FINANCIAL INFORMATION The following tables present a summary of our financial information during the Track Record Period and should be read in conjunction with our financial information included in the Accountant s Report set forth in Appendix I to this prospectus, including the notes thereto. Highlights of combined statements of comprehensive income Eight months ended Year ended 31 March Percentage 30 November Percentage change change HK$ 000 HK$ 000 % HK$ 000 HK$ 000 % (unaudited) Revenue 159, , , ,641 (17.0) Gross profit 15,020 25, ,421 17, Profit for the year/period 9,430 18, ,647 6,392 (45.1) Our Group s revenue decreased for the eight months ended 30 November 2015 as compared to the eight months ended 30 November 2014 due to the completion of 16 projects with an aggregate contract sum of approximately HK$137,700,000 during the year ended 31 March A new project with contract sum of approximately HK$455,319,000 was awarded in late August and had only commenced in September 2015 and is expected to bring an increase in revenue for the year ending 31 March Revenue increased for the year ended 31 March 2015 as compared to the year ended 31 March 2014 due to the increase in construction works to speed up the progress of two projects with an aggregate contract sum of approximately HK$195,541,000 to meet completion deadlines during the year ended 31 March Our Group s gross profit increased for the eight months ended 30 November 2015 as compared to the eight months ended 30 November 2014 despite a decrease in revenue due to an increase in gross profit margin, which is determined on a project-by-project basis, mainly as a result of a variation order received with a relatively higher gross profit margin. Gross profit increased for the year ended 31 March 2015 as compared to the year ended 31 March 2014, in line with our revenue. Our Group s profit for the eight months ended 30 November 2015 decreased as compared to the eight months ended 30 November 2014 primarily due to the Listing expenses incurred of approximately HK$7,883,000 for the eight months ended 30 November Profit for the year ended 31 March 2015 increased as compared to the year ended 31 March 2014 primarily due to the increase in gross profit and scale. Highlights of combined statements of financial position As at 30 As at 31 March Percentage November Percentage change 2015 change HK$ 000 HK$ 000 % HK$ 000 % Current assets 46,250 70, , Current liabilities 82,446 82, ,650 (9.5) Net current (liabilities)/assets (36,196) (12,413) (65.7) 5,240 (142.2) Net (liabilities)/assets (9,775) 8,304 (185.0) 14, Total assets 74,949 93, , We had a net current liabilities position of approximately HK$36,196,000 and HK$12,413,000 as at 31 March 2014 and 2015, respectively, which are primarily attributable to (i) the amounts due to customers for contract work of approximately HK$39,891,000 and HK$39,980,000 as at 31 March 2014 and 2015, respectively. Such amounts represent temporary differences mainly arising from progress billings exceeding costs incurred plus (less) recognised profit (loss), which will cease to exist at completion of the relevant project; and (ii) the mortgage loan, which is a current liability, drawn to fund the acquisition of the investment property, located at Festival City, Tai Wai, a non-current asset as at 31 March 2014 and 2015, which was disposed of in October We recorded a net current assets of approximately HK$5,240,000 as at 30 November The improvement in our net current liabilities/assets position is mainly attributable to (i) an increase in our construction 4

11 SUMMARY activities during the year ended 31 March 2015 which in turn lead to an increase in our trade and other receivables and amounts due from customers for contract work; and (ii) the disposal of the aforesaid investment property in October We had a net liabilities position of approximately HK$9,775,000 as at 31 March 2014 due to the accumulated losses incurred prior to the Track Record Period. The accumulated losses incurred are mainly attributable to the thin gross profit margins recognised and losses incurred on several projects due to unforeseen circumstances and/or errors or inaccurate estimations of project duration and costs. During the construction industry downturn in Hong Kong prior to 2010, such risks were not fully priced into the markups when submitting tenders for several projects in order to remain competitive and increase our revenue stream to pay for our staff costs and fixed overheads and service our debts. Upon the recovery of the construction industry construction industry in Hong Kong and during the Track Record Period, we were able to gradually set higher tender prices to take into consideration the likelihood of uncertainties and material deviations in estimated and actual duration and costs. As it took several years to gradually set higher tender prices and to complete projects that we were awarded during the construction industry downturn, we recorded an accumulated loss as at 31 March In addition, to improve our profitability, we had also established an estimating department since 2013 to review and assess new projects to minimise likelihood of unforeseen circumstances and improve inaccurate estimations on project duration and costs. Furthermore, we focused on tendering for contracts of the same infrastructural projects as our experience with the relevant project and familiarity with the conditions of the relevant site would allow us to make better estimations of project duration and costs and reduce the likelihood of unforeseen circumstances. Highlights of combined statements of cash flows Eight months ended Year ended 31 March 30 November HK$ 000 HK$ 000 HK$ 000 HK$ 000 (unaudited) Operating cash flow before working capital changes 15,394 25,744 16,194 9,497 Net cash generated from/(used in) operating activities 7,402 (3,687) (1,169) 5,228 Net cash (used in)/generated from investing activities (4,478) 209 (383) 11,495 Net cash (used in)/generated from financing activities (894) 477 (1,998) (9,332) Net increase/(decrease) in cash and cash equivalents 2,030 (3,001) (3,550) 7,391 Major financial ratios Period ended Year ended or as at 31 March or as at 30 November 2015 Gross profit margin (%) Net profit margin (%) Return on assets (%) Return on equity (%) N/A Current ratio (times) Quick ratio (times) Debtors turnover days (days) Creditors turnover days (days) Gearing ratio (%) N/A Net debt to equity ratio (%) N/A Interest coverage (times)

12 SUMMARY Our gross profit margin remained at similar levels of approximately 9.4% for each of the years ended 31 March 2014 and 2015 and increased to approximately 11.2% for the eight months ended 30 November Our Directors consider that our gross profit margin is a result of a combination of our pricing of each project and cost control. Our gross profit margin was determined on a project-by-project basis and is generally (i) lower for contracts with a larger contract value due to scale as we set our tender prices based on lower expected profit margins due to the larger absolute amounts of revenue and gross profit expected to be derived from a project with a larger contract value; and (ii) higher for projects which require more project management, greater level of highly skilled construction works and/or a higher standard of quality and safety. Our other profitability ratios generally increased during the year ended 31 March 2015 as compared to the year ended 31 March 2014 due to the increase in revenue and the resulting scale and decreased during the eight months ended 30 November 2015 due to the incurring of Listing expenses. Our current ratio and quick ratio improved during the Track Record Period due to an increase in construction activities and the disposal of an investment property as further discussed in the paragraph headed Financial information Summary of key financial ratios in this prospectus. The changes in our debtors turnover days during the Track Record Period is mainly attributable to the amount and timing of revenue recognised during the year/period. The changes in our creditors turnover days is attributable to the non-recurring and project-by-project basis of our civil engineering works. SHAREHOLDER INFORMATION Immediately following completion of the Placing and the Capitalisation Issue, Blooming Union, which is beneficially owned as to 50% and 50% by Mr. CK Wong and Mr. WW Wong respectively, will hold 75% of the issued Shares of our Company. Mr. CK Wong and Mr. WW Wong have had a mutual understanding all along to actively cooperate with each other to jointly control our Group and thus Mr. CK Wong and Mr. WW Wong are presumed to be acting in concert (within the meaning of the Takeovers Code). Given the aforesaid and for the purpose of the GEM Listing Rules, Mr. CK Wong, Mr. WW Wong and Blooming Union are our Controlling Shareholders. Please refer to the section headed Relationship with our Controlling Shareholders in this prospectus for further details. PLACING STATISTICS Market capitalisation upon Listing (note 1) Offer size Placing Price per Placing Share Number of Placing Shares Board lot Unaudited pro forma net tangible assets per Share (note 2) HK$324,480,000 25% of the enlarged issued share capital of the Company HK$ ,000,000 Shares (comprising 208,000,000 New Shares and 104,000,000 Sale Shares) 10,000 Shares HK$0.06 based on a Placing Price of HK$0.26 per Placing Share Notes: 1. The calculation of the market capitalisation of the Shares is based on 1,248,000,000 Shares in issue and to be issued immediately after completion of the Placing and the Capitalisation Issue and the Placing Price of HK$0.26 per Placing Share. 2. For the calculation of the unaudited pro forma adjusted combined net tangible asset value per Share attributable to the Shareholders, please refer to the section headed Unaudited pro forma financial information in Appendix II to this prospectus. REASONS FOR THE LISTING AND USE OF PROCEEDS Our Directors believe that the listing of the Shares on GEM will facilitate the implementation of our business strategies. As stated in the section headed Business Business strategies in this prospectus, we plan to expand our market share in the civil engineering construction industry in Hong Kong by competing for sizeable civil engineering 6

13 SUMMARY projects in Hong Kong through acquisition of additional site equipment and further strengthening our manpower. The net proceeds of the Placing will provide financial resources to our Group to achieve such business strategies which will further strengthen our market position and expand our market share. A public listing status will also enhance our corporate profile and recognition and assist us in reinforcing our brand awareness and image. We believe that a public listing status on GEM could attract potential customers, suppliers and subcontractors who are more willing to establish business relationship with listed companies. It will also generate reassurance among our Group s existing customers, suppliers and subcontractors and strengthen our competitiveness in the market. The Listing will also enable our Group to have access to capital market for raising funds both at the time of Listing and at later stages, which would in turn assist us in future business development of our Group. A public listing status on GEM may offer our Company a broader shareholder base which could potentially lead to a more liquid market in the trading of the Shares. We also believe that our internal control and corporate governance practices could be further enhanced following the Listing. We will not receive any of the proceeds from the sale of the Sale Shares by the Selling Shareholder in the Placing. We estimate that the aggregate net proceeds to be received by us from the Placing, after deducting related underwriting fees and estimated expenses in connection with the Placing, based on the Placing Price of HK$0.26 per Placing Share will be approximately HK$35.7 million. Our Directors presently intend that the net proceeds will be applied as follows: approximately HK$18.0 million (or approximately 50.4% of the net proceeds) will be used for acquisition of additional site equipment; approximately HK$7.6 million (or approximately 21.2% of the net proceeds), will be used for further strengthening our manpower; approximately HK$6.8 million (or approximately 19.1% of the net proceeds), will be used for the repayment of bank borrowings and a finance lease to reduce our finance cost. Specifically, (i) approximately HK$3.1 million will be used to wholly prepay the bank loan to be drawn in April 2016 for settlement of the outstanding indebtedness under the SME Financing Guarantee Scheme for financing our Group s working capital bearing interest at 1% below the Hong Kong dollar prime rate per annum and an effective interest rate of 3.99% and is repayable on a monthly basis over the loan term of 50 months up to April 2020; (ii) approximately HK$1.6 million will be used to wholly prepay the bank loan drawn in March 2014 for acquisition of a site equipment bearing interest at 3% over the Hong Kong Interbank Offered Rate per annum and an effective interest rate of 3.23% per annum and is repayable on a monthly basis over the loan term of 5 years up to January 2019; (iii) approximately HK$1.0 million will be used to wholly prepay the finance lease incurred since September 2013 which will become mature in 5 years from the date of occurrence bearing interest rate at a fixed rate of 2.50% per annum and an effective interest rate of 6.05% per annum, which were incurred to fund our purchase of motor vehicle; and (iv) approximately HK$1.0 million will be used to wholly prepay the finance lease incurred since September 2015 which will become mature in 4 years from the date of occurrence bearing interest rate at a fixed rate of 2.25% per annum and effective interest rate of 5.5% per annum, which were incurred to fund our purchase of motor vehicle; and (v) approximately HK$0.1 million will be used to wholly prepay the finance lease incurred since January 2015 which will become mature in 3 years from the date of occurrence bearing interest rate at a fixed rate of 2.25% per annum and effective interest rate of 5.58% per annum, which were incurred to fund our purchase of motor vehicle; and approximately HK$3.3 million (or approximately 9.3% of the net proceeds), will be used as general working capital of our Group. The following table sets forth a breakdown of how the net proceeds to be received by us from the Placing are intended to be applied and the timing of application: 7

14 SUMMARY From the Latest Practicable Date to 30 September 2016 HK$ million From 1 October 2016 to 31 March 2017 HK$ million From 1 April 2017 to 30 September 2017 HK$ million From 1 October 2017 to 31 March 2018 HK$ million Total HK$ million Acquisition of additional site equipment Further strengthening our manpower Repayment of bank loans and finance lease General working capital of our Group LISTING EXPENSES Our Directors estimate that the total amount of expenses in relation to the Listing is approximately HK$20.9 million, which will be borne by the Selling Shareholder and our Group as to approximately HK$2.5 million and HK$18.4 million, respectively. The listing expenses are non-recurring in nature and are mainly consisted of professional fees paid to the Sponsor, the legal advisers, the reporting accountants and other professional parties for the provision of their services in connection with the Placing. No significant listing expense was incurred by our Group during the two years ended 31 March Of the aggregate listing expenses of approximately HK$18.4 million, approximately HK$7.9 million was charged to profit or loss for the eight months ended 30 November 2015 and approximately HK1.7 million is expected to be charged to profit or loss for the four months ending 31 March Our Group expects to further charge approximately HK$3.9 million to profit or loss, while approximately HK$4.9 million is expected to be directly attributable to the issue of Shares and accounted for as a deduction from equity upon successful listing under the relevant accounting standards. The amount of listing expenses is a current estimate for reference only and the final amount to be recognised to the consolidated statement of comprehensive income of our Group for the years ending 31 March 2017 is subject to audit and the actual changes in variables and assumptions. DIVIDENDS No member of our Group had declared any dividend during the Track Record Period and up to the Latest Practicable Date. There is no expected dividend payout ratio after the Listing. The payment and the amount of any future dividends will be at the discretion of our Directors and will depend upon our Group s future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors which our Directors deem relevant. Any final dividend for a financial year will be subject to Shareholders approval. Holders of the Shares will be entitled to receive such dividends pro rata according to the amounts paid up or credited as paid up on the Shares. Dividends may be paid only out of our Company s distributable profits as permitted under the relevant laws. There can be no assurance that our Company will be able to declare or distribute in the amount set out in any plan of our Board or at all. The past dividend distribution record may not be used as a reference or basis to determine the level of dividends that may be declared or paid by our Company in the future. PRINCIPAL RISK FACTORS There are certain risks involved in our operations which are beyond our control. They can be broadly categorised into risks relating to our business and risks relating to the industry in which we operate. Potential investors are advised to read the section headed Risk factors in this prospectus carefully before making any investment decision in the Placing. Some of the more particular risk factors include: We rely on the availability of public sector civil engineering projects in Hong Kong and any failure of our Group to secure public sector projects would adversely affect our operations and financial results. We have concentrated customer base and any decrease in the number of projects with our five largest customers would adversely affect our operations and financial results. 8

15 SUMMARY Our business relies on successful tenders and any failure of our Group to secure tender contracts would affect our operations and financial results. Error or inaccurate estimation of project duration and costs when determining the tender price increase in construction costs may adversely affect our profitability or result in substantial loss incurred by us. Our performance depends on market conditions and trends in the civil engineering construction industry and any deterioration in the prevailing market conditions in the civil engineering construction industry may adversely affect our performance and financial conditions. We operate in a relatively competitive environment. RECENT DEVELOPMENTS Subsequent to the Track Record Period and up to the Latest Practicable Date, we have continued to focus on developing our business of undertaking civil engineering works in Hong Kong. As at the Latest Practicable Date, we had a total of 20 contracts on hand. Please refer to the section headed Business Our civil engineering contracts Contracts on hand in this prospectus for a full list of our contracts on hand as at the Latest Practicable Date. The aggregate contract sum of all contracts on hand is approximately HK$1,384,140,000 and approximately HK$234,304,000 of revenue has been recognised for the contracts on hand (with approximately HK$6,241,000 of revenue recognised exceeding the original contract sum), representing approximately 16.9% of the aggregate contract sum, as at 30 November As at the Latest Practicable Date, all existing projects have continued to contribute revenue to our Group and none of them have had any material interruption. We expect to recognise revenue of approximately HK$285,367,000 for the year ending 31 March 2016 based only on our contracts on hand, which is higher than our revenue of approximately HK$159,963,000 and HK$271,949,000 for the years ended 31 March 2014 and 2015, respectively. The amount of revenue expected to be recognised is subject to change due to the actual progress and commencement and completion dates of our projects. Based on the budget costs of each project, our Directors expect that our gross profit margin for the year ending 31 March 2016 to be at similar levels to that recorded during the Track Record Period. Accordingly, our Directors currently expect an increase in our revenue and gross profit for the year ending 31 March Our Directors also expect that our financial performance will be affected by the Listing expenses to be recognised for the year ending 31 March Subsequent to the Track Record Period and up to the Latest Practicable Date, we have been awarded with two additional contracts with an aggregate contract sum of approximately HK$301,317,000. Our Directors consider that our Group is well-positioned to take on new civil engineering projects and believe that the Government s increasing public expenditure on infrastructure would favour the growth of our Group and the demand of our services. To further strengthen our working capital position and enhance our financial resources for our contracts on hand and newly awarded projects, we obtained a credit facility from a bank in March 2016 of up to HK$20,000,000 which consists of: (i) a factoring facility of up to HK$10,000,000 by factoring of certain accounts receivable from our major customer(s) to the bank; and (ii) a banking facility of HK$10,000,000. Our Directors considered that this arrangement can provide a flexible alternative to increase our working capital and finance our liquidity requirement. In addition, we expect that annual premium of approximately HK$1,060,000 for the purposes of obtaining surety bonds for the due performance of our Group s obligations under certain contracts will be recognised as expenses commencing from April 2016 until the expiry of the defects liability period of the relevant contracts. For further details of the guarantees of sureties, please refer to the section headed Relationship with our Controlling Shareholders Independence of our Group (i) Financial Independence in this prospectus. Save and except for the Listing expenses as disclosed above, our Group did not have any significant non-recurrent items in our combined statements of comprehensive income subsequent to the Track Record Period. Our results of operations for the year ending 31 March 2016 are expected to be significantly affected by the non-recurring Listing expenses as discussed in the paragraph headed Listing expenses in this section. 9

16 SUMMARY MATERIAL ADVERSE CHANGE The impact of the Listing expenses on the profit and loss accounts has posted a material adverse change in the financial or trading position or prospect of our Group since 30 November 2015 (being the date of the latest audited combined financial statements were made up). Prospective investors should be aware of the impact of the Listing expenses on the financial performance of our Group for the year ending 31 March Save as disclosed above, our Directors have confirmed that, up to the date of this prospectus, there had been no material adverse change in the financial or trading positions or prospect of our Company or its subsidiaries since 30 November 2015 (being the date of which our Group s latest audited combined financial statements were made up as set out in the Accountants Report in Appendix I to this prospectus) and there had been no event since 30 November 2015 which would materially affect the information shown in the Accountants Report in Appendix I to this prospectus. LITIGATION AND REGULATORY COMPLIANCE During the Track Record Period and up to the Latest Practicable Date, there were on-going litigation cases against our Group including employees compensation claims, personal injury claims and certain immaterial non-compliance incidents with the Predecessor Companies Ordinance, the Companies Ordinance and the Employment Ordinance (Chapter 57 of the Laws of Hong Kong). During the Track Record Period, we recorded one fatal accident at the construction site where a worker employed by a subcontractor of our Group was fatally injured and certified dead in the course of unloading the water pipes. For details of the litigation claims, instances of non-compliance and the fatal accident, please refer to the sections headed Business Litigation and potential claims, Business Non-compliance and Business Occupational health and safety System of recording and handling accidents and our safety compliance record in this prospectus. Air Pollution Control (Non-road Mobile Machinery) (Emission) Regulation (Chapter 311Z of the Laws of Hong Kong) The Air Pollution Control (Non-road Mobile Machinery) (Emission) Regulation (the NRMM Regulation ) came into effect on 1 June 2015 to introduce regulatory control on the emissions of non-road mobile machinery (the NRMMs ), including non-road vehicles and regulated machines such as crawler cranes, excavators and air compressor. Our Directors confirmed that such regulated machines also include site equipment such as generators, hydraulic truck crane, vibrating rollers and aerial working platforms which are subject to the Air Pollution Control (Non-road Mobile Machinery) (Emission) Regulation. For further details of the NRMM requirements, please refer to the section headed Regulatory Overview B. Environmental Protection Air Pollution Control (Non-road Mobile Machinery) (Emission) Regulation (Chapter 311Z of the Laws of Hong Kong) in this prospectus. As at the Latest Practicable Date, our Group has obtained approval or exemption for all of our machines that are subject to the NRMM Regulation. On 8 February 2015, the Works Branch of Development Bureau issued the Technical Circular (Works) No. 1/2015 (the Technical Circular ), pursuant to which the Government has promulgated an implementation plan to phase out progressively the use of exempted NRMM for four types of exempted NRMM, namely generators, air compressors, excavators and crawler cranes in new capital works contracts of public, including design and build contracts, with an estimated contract value exceeding HK$200 million and tenders invited on or after 1 June For further details of the Technical Circular, please refer to the section headed Regulatory Overview B. Environmental Protection Air Pollution Control (Non-road Mobile Machinery) (Emission) Regulation (Chapter 311Z of the Laws of Hong Kong) in this prospectus. Our Directors confirm that none of the public projects which we participate in as at the Latest Practicable Date are subject to the phase out plan detailed in the Technical Circular. In addition, our Directors consider that we will remain able to participate in or tender for public contract with an estimated contract value exceeding HK$200 million by leasing sufficient approved NRMMs and factoring such additional costs in our tender applications. Thus, our Directors are of the view that the implementation of the Air Pollution Control (Non-road Mobile Machinery) (Emission) Regulation and the exempted NRMM phase out plan as detailed in the Technical Circular has no significant impact or adverse effect on our Group s operation and financial results. 10

17 DEFINITIONS In this prospectus, unless the context otherwise requires, the following expressions have the following meanings. Accountants Report Articles or Articles of Association associate(s) Blooming Union Board the accountants report prepared by Grant Thornton Hong Kong Limited, the text of which is set out in Appendix I to this prospectus the amended and restated articles of association of our Company as amended from time to time, a summary of which is set out in Appendix IV to this prospectus has the meaning ascribed to it under the GEM Listing Rules Blooming Union Investments Limited, one of our Controlling Shareholders, the Selling Shareholder and a company incorporated in the BVI with limited liability on 1 July 2015 and owned as to 50% by Mr. CK Wong and as to 50% by Mr. WW Wong the board of Directors business day any day (other than a Saturday, Sunday or public holiday) on which banks in Hong Kong are generally open for normal banking business to the public BVI CAGR Capitalisation Issue CCASS the British Virgin Islands compound annual growth rate the issue of 1,039,990,000 Shares to be made upon capitalisation of certain sums standing to the credit of the share premium account of our Company referred to in the paragraph headed A. Further information about the Company and its subsidiaries 3. Written resolutions of our sole Shareholder passed on 24 March 2016 in Appendix V to this prospectus the Central Clearing and Settlement System established and operated by HKSCC 11

18 DEFINITIONS CCASS Clearing Participant a person permitted to participate in CCASS as a direct clearing participant or general clearing participant CCASS Custodian Participant a person permitted to participate in CCASS as a custodian participant CCASS Investor Participant a person admitted to participate in CCASS as an investor participant who may be an individual or joint individuals or a corporation CCASS Participants a CCASS Clearing Participant, a CCASS Custodian Participant or a CCASS Investor Participant China Harbour China Harbour Engineering Company Limited, a subsidiary of China Communications Construction Company Limited (which has been listed on the Main Board of the Stock Exchange) China State Construction China State Construction Engineering (Hong Kong) Limited, a subsidiary of China State Construction International Holdings Limited (which has been listed on the Main Board of the Stock Exchange) close associate(s) Companies Law Companies Ordinance Companies (Exemption of Companies and Prospectuses from Compliance with Provisions) Notice Companies (Winding Up and Miscellaneous Provisions) Ordinance has the meaning ascribed to it under the GEM Listing Rules the Companies Law (as revised) of the Cayman Islands, as amended, supplemented and/or otherwise modified from time to time the Companies Ordinance (Chapter 622 of the Laws of Hong Kong), which came into effect on 3 March 2014, as amended, modified and supplemented from time to time the Companies (Exemption of Companies and Prospectuses from Compliance with Provisions) Notice (Chapter 32L of the Laws of Hong Kong), as amended, supplemented or otherwise modified from time to time the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Chapter 32 of the Laws of Hong Kong), as amended, supplemented or otherwise modified from time to time 12

19 DEFINITIONS Company, our, our Company, we or us connected person(s) connected transaction Controlling Shareholders core connected person Corporate Governance Code Luen Wong Group Holdings Limited, a company incorporated in the Cayman Islands as an exempted company with limited liability on 16 October 2015 has the meaning ascribed to it under the GEM Listing Rules has the meaning ascribed to it under the GEM Listing Rules has the meaning ascribed to it under the GEM Listing Rules and in the context of this prospectus refers to Blooming Union, Mr. CK Wong and Mr. WW Wong has the meaning ascribed to it under the GEM Listing Rules the Corporate Governance Code as set out in Appendix 15 to the GEM Listing Rules CT Partners CT Partners Consultants Limited, an independent internal control adviser Deed of Indemnity the deed of indemnity dated 24 March 2016 entered into by our Controlling Shareholders in favour of our Group as further detailed in the section headed E. Other information 1. Tax and other indemnities in Appendix V to this prospectus Deed of Non-Competition the deed of non-competition undertaking dated 24 March 2016 entered into by our Controlling Shareholders in favour of our Company (for itself and as trustee for and on behalf of our subsidiaries) as further detailed in the section headed Relationship with our Controlling Shareholders Non-Competition Undertakings in this prospectus Director(s) GEM GEM Listing Rules Government the director(s) of our Company the Growth Enterprise Market of the Stock Exchange the Rules Governing the Listing of Securities on the Growth Enterprise Market of the Stock Exchange, as amended, modified and supplemented from time to time the government of Hong Kong 13

20 DEFINITIONS Gransing Securities Gransing Securities Co., Limited, a corporation licensed under the SFO to engage in Type 1 (dealing in securities), Type 4 (advising on securities), Type 6 (advising on corporate finance) and Type 9 (asset management) regulated activities under the SFO, acting as the joint bookrunner and the joint lead manager for the Placing and an independent third party Group, we, us or our HKSCC HKSCC Nominees HK$ or HKD and cents Hong Kong or HK Hong Kong Branch Share Registrar our Company and its subsidiaries at the relevant time or, where the context otherwise requires, in respect of the period prior to our Company becoming the holding company of its present subsidiaries pursuant to the Reorganisation, its present subsidiaries and the businesses operated by such subsidiaries Hong Kong Securities Clearing Company Limited, a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited HKSCC Nominees Limited Hong Kong dollars and cents respectively, the lawful currency of Hong Kong the Hong Kong Special Administrative Region of the People s Republic of China Union Registrars Limited, the branch share registrar and transfer office of our Company in Hong Kong Hop Fung Hop Fung Construction & Engineering Company Limited, a company incorporated in Hong Kong on 31 July 2002 with limited liability and an indirect wholly-owned subsidiary of our Company upon completion of the Reorganisation independent third party(ies) Inland Revenue Ordinance Ipsos individual(s) or company(ies) who or which, to the best of our Directors knowledge, information and belief, having made all reasonable enquiries, is/are independent of and not connected with (within the meaning of the GEM Listing Rules) our Company or its connected persons the Inland Revenue Ordinance (Chapter 112 of the Laws of Hong Kong) Ipsos Limited, an independent market research agency 14

21 DEFINITIONS Ipsos Report a market research report commissioned by us and prepared by Ipsos on the overview of the civil engineering construction industry in Hong Kong in which our Group operates Joint Bookrunners or Joint Lead Managers Latest Practicable Date Legal Counsel Listing Listing Date Luen Hing Memorandum of Association or Memorandum Gransing Securities and Suncorp Securities 21 March 2016, being the latest practicable date prior to the printing of this prospectus for the purpose of ascertaining certain information in this prospectus prior to its publication Mr. Chan Chung, barrister-at-law of Hong Kong, who is an independent third party listing of the Shares on GEM the date, expected to be on or about Tuesday, 12 April 2016, on which dealings in the Shares first commence on GEM Luen Hing Construction & Eng. Limited, a company incorporated in Hong Kong on 11 November 1998 with limited liability and an indirect wholly-owned subsidiary of our Company upon completion of the Reorganisation the memorandum of association of our Company as amended from time to time Mr. CK Wong Mr. WONG Che Kwo, an executive Director, the chairman of our Board and one of our Controlling Shareholders Mr. WW Wong Mr. WONG Wing Wah, an executive Director, our chief executive officer and one of our Controlling Shareholders New Shares Placing 208,000,000 new Shares to be offered by our Company for subscription at the Placing Price under the Placing the conditional placing of the Placing Shares by the Underwriters on behalf of our Company and the Selling Shareholder for cash at the Placing Price as described in the section headed Structure and conditions of the Placing in this prospectus 15

22 DEFINITIONS Placing Price Placing Shares Predecessor Companies Ordinance Reorganisation the final price of HK$0.26 per Placing Share in HK dollars (exclusive of brokerage of 1%, SFC transaction levy of % and Stock Exchange trading fee of 0.005%) at which the Placing Shares are to be offered under the Placing the 312,000,000 Shares (comprising 208,000,000 New Shares to be offered by our Company and 104,000,000 Sale Shares to be offered by the Selling Shareholder) being offered for subscription or purchase at the Placing Price pursuant to the Placing the predecessor Companies Ordinance (Chapter 32 of the Laws of Hong Kong) as in force before 3 March 2014 the corporate reorganisation arrangements implemented by our Group in preparation for the Listing which is more particularly described in the section headed History and development Reorganisation in this prospectus Sale Shares 104,000,000 existing Shares to be offered by the Selling Shareholder for purchase at the Placing Price under the Placing Selling Shareholder SFC SFO Share(s) Shareholder(s) Share Option Scheme Blooming Union, one of the Controlling Shareholders which is expected to offer to sell the Sale Shares pursuant to the Placing the Securities and Futures Commission of Hong Kong the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong), as amended, modified and supplemented from time to time ordinary share(s) with nominal value of HK$0.01 each in the share capital of our Company, which are to be traded in Hong Kong dollars and listed on GEM holder(s) of the Share(s) the share option scheme conditionally adopted by our Company on 24 March 2016, the principal terms of which are summarised in the section headed D. Share Option Scheme in Appendix V to this prospectus 16

23 DEFINITIONS Sponsor or TC Capital Stock Exchange subsidiary(ies) Substantial Shareholder(s) TC Capital Asia Limited, a licensed corporation for carrying on Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities under the SFO, acting as the sponsor of the Listing and an independent third party The Stock Exchange of Hong Kong Limited has the meaning ascribed thereto in section 15 of the Companies Ordinance has the meaning ascribed thereto in the GEM Listing Rules and details of our Substantial Shareholders are set out in the section headed Substantial Shareholders in this prospectus Suncorp Securities Suncorp Securities Limited, a corporation licensed under the SFO to engage in Type 1 (dealing in securities) regulated activity under the SFO, acting as the joint bookrunner and the joint lead manager for the Placing and an independent third party Super Pioneer Takeovers Code Super Pioneer Trading Limited, a company incorporated in the BVI with limited liability on 1 July 2015 which will become a direct wholly-owned subsidiary of our Company upon completion of the Reorganisation the Codes on Takeovers and Mergers issued by the SFC, as amended, modified and supplemented from time to time Track Record Period comprises the two financial years ended 31 March 2014 and 2015 and the eight months ended 30 November 2015 Underwriters Underwriting Agreement the underwriters of the Placing whose names are set out in the section headed Underwriting Underwriters in this prospectus the conditional underwriting agreement relating to the Placing entered into on 31 March 2016 among our Company, the Selling Shareholder, the executive Directors, our Controlling Shareholders, the Sponsor, the Joint Bookrunners, the Joint Lead Managers and the Underwriters relating to the Placing, particulars of which are summarised in the section headed Underwriting in this prospectus 17

24 DEFINITIONS US$ or U.S. dollars sq.ft. sq.m. United States dollars, the lawful currency of the United States square foot square metre(s) % per cent 18

25 GLOSSARY This glossary contains explanations of certain terms used in this prospectus in connection with the business of our Group. The terms and their meanings may not correspond to the standard industry meanings or usage of these terms. bills of quantities Building Authority Buildings Department Buildings Ordinance Census and Statistics Department Construction Industry Council Employees Compensation Ordinance ISO ISO 9001 a list of items included in the civil engineering contract providing description, quantity and the unit price of the work to be performed to provide a means of valuing the civil engineering work performed has the meaning ascribed to it under the Buildings Ordinance and, as at the Latest Practicable Date, means the Director of Buildings of the Government the Buildings Department of the Government the Buildings Ordinance (Chapter 123 of the Laws of Hong Kong) Census and Statistics Department of the Government the Construction Industry Council in Hong Kong, a statutory body established on 1 February 2007 pursuant to the Construction Industry Council Ordinance (Chapter 587 of the Laws of Hong Kong) the Employees Compensation Ordinance (Chapter 282 of the Laws of Hong Kong) an acronym for a series of quality management and quality assurance standards published by International Organisation for Standardisation, a non-government organisation based in Geneva, Switzerland, for assessing the quality systems of business organisations ISO 9001 is an internationally recognised standard for a quality management system. It aims at the effectiveness of the quality management system in meeting customer requirements. It prescribes requirements for ongoing improvement of quality assurance in design, development, production, installation and servicing 19

26 GLOSSARY ISO Labour Development ISO is an internationally recognised standard for the environmental management of businesses. It aims at recognising the desirable behavior of businesses concerning the environment. It prescribes controls for an encompassing range of corporate activities which include the use of natural resources, handling and treatment of waste and energy consumption the Labour Department of the Government OHSAS OHSAS is an internationally recognised specification for Occupational Health and Safety Management Systems. It specifies requirements for an occupational health and safety management system to enable an organisation to develop and implement a policy and objectives which take into account legal requirements and information about occupational risks and to improve their occupational safety and health performance private sector projects public sector projects works contracts that are not public sector projects works contracts that originate from the Government or statutory bodies quotation the type of contracts with our suppliers and/or subcontractors secured by request for quotation from the relevant suppliers and/or subcontractors roads and drainage works in respect of our business, generally refer to construction of transport interchange, carriageway and walkway, road improvement and widening works, flood prevention or improvement works and sewage improvement works comprising construction of drainage channel, outfall pipe, box culvert and pumping station and drainage related infrastructures schedule of rates a set of general regulations and special conditions governing the execution of work and payment for works performed site formation works in respect of our business, generally refer to excavation and/or filling works for forming a new site or achieving designed formation level for later development structural works in respect of our business, generally refer to the construction of reinforced concrete structures for bridges, retaining walls, etc. 20

27 GLOSSARY subcontractor in respect of a construction project, a contractor who is appointed by the main contractor or by another subcontractor involved in the construction and who generally carries out specific work tasks of the construction tender contract the type of contracts with customers obtained by tendering which usually require construction services for a specific period and details of which are set out in the section headed Business Customers Major terms of engagement in this prospectus 21

28 FORWARD-LOOKING STATEMENTS This prospectus contains forward-looking statements that are, by their nature, subject to significant risks and uncertainties. In some cases the words such as aim, anticipate, believe, could, estimate, expect, going forward, intend, may, plan, potential, predict, propose, seek, should, will, would and other similar expressions or the negative use of such words are used to identify forward-looking statements. These forward-looking statements include, without limitation, statements relating to: our Group s business and operating strategies and plans of operation; the amount and nature of, and potential for, future development of our Group s business; our Company s dividend distribution plans; the regulatory environment as well as the general industry outlook for the industry in which our Group operate; future developments in the industry in which our Group operate; the trend of the economy of Hong Kong in general; and other factors beyond our Group s control. These statements are based on several assumptions, including those regarding our Group s present and future business strategy and the environment in which our Group will operate in the future. Our Group s future results could differ materially from those expressed or implied by such forward-looking statements. In addition, our Group s future performance may be affected by various factors including, without limitation, those discussed in the sections headed Risk factors, Business, Financial information and Statement of business objective and use of proceeds in this prospectus. Subject to the requirements of the applicable laws, rules and regulations, our Company does not have any obligation to update or otherwise revise the forward-looking statements in this prospectus, whether as a result of new information, future events or otherwise. As a result of these and other risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this prospectus might not occur in the way our Company expects, or at all. Should one or more risks or uncertainties stated in the aforesaid sections materialise, or should any underlying assumptions to prove incorrect, actual outcomes may vary materially from those indicated. Prospective investors should therefore not place undue reliance on any of the forward-looking statements. All forward-looking statements contained in this prospectus are qualified by reference to the cautionary statements as set out in this section. 22

29 FORWARD-LOOKING STATEMENTS In this prospectus, statements of, or references to, our Group s intentions or those of any of our Directors are made as at the date of this prospectus. Any such intentions may change in light of future developments. 23

30 RISK FACTORS You should carefully consider all of the information in this prospectus including the risks and uncertainties described below before making an investment in the Placing Shares. You should pay particular attention to the fact that the legal and regulatory environment in Hong Kong may differ in some respects from that which prevails in other countries. The business, financial condition or results of operations of our Group could be materially and adversely affected by any of these risks and uncertainties. The trading price of our Shares could decline due to any of these risks and uncertainties, and you may lose all or part of your investment. We believe that there are certain risks involved in our business and operations. They can be classified into (i) risks relating to our business; (ii) risk relating to the industry in which we operate; (iii) risks relating to Hong Kong; (iv) risks relating to the Placing; and (v) risks relating to this prospectus. You should consider our business and prospectus in light of the challenges we face, including the ones discussed in this section. RISKS RELATING TO OUR BUSINESS We rely on the availability of public sector civil engineering projects in Hong Kong and any failure of our Group to secure public sector projects would adversely affect our operations and financial results We have relied and will continue to focus on public sector civil engineering projects which by their nature are only procured by our customers from a limited number of project employers who are normally Government departments. For the two years ended 31 March 2015 and the eight months ended 30 November 2015, our revenue attributable to public sector projects amounted to approximately HK$149,234,000, HK$255,484,000 and HK$135,834,000 respectively, representing approximately 93.3%, 93.9% and 87.8% of our total revenue respectively. Our results of operations in relation to our civil engineering business will continue to rely on the following: (i) our ability to continue to secure public sector projects from our customers; (ii) the public policy in relation to infrastructure and civil engineering projects; and (iii) other factors that generally affect the Hong Kong construction industry. Any material delay, suspension, termination or reduction of number or contract value of public sector projects may adversely affect our revenue, hence our results of operations. Our civil engineering projects are non-recurrent in nature. There is no guarantee that our existing customers will provide us with new business opportunities or that we will secure new customers. During the Track Record Period, most of our revenue was derived from civil engineering projects with Government departments in Hong Kong, and the main contractors (i.e. our customers) of such projects do not have any long-term business commitment with us. Our relationships with our major customers are non-exclusive and at arm s length. We may not be able to diversify the composition of our customer base due to the nature of civil engineering works which are normally funded by the Government. If the Government substantially reduces its expenditures on civil engineering works, we may not be able to secure projects on similar terms from main contractors. If any such event occurs, there may be a material adverse effect on our business, financial condition and/or results of operations. 24

31 RISK FACTORS We have concentrated customer base and any decrease in the number of projects with our five largest customers would adversely affect our operations and financial results A significant portion of our revenue was derived from a small number of customers during the Track Record Period. Our five largest customers revenue contribution for the two years ended 31 March 2015 and the eight months ended 30 November 2015 accounted for approximately 94.1%, 96.0% and 97.5% of our revenue of the same period, respectively. For the same period, our largest customer accounted for approximately 63.2%, 53.1% and 36.7% of our revenue, respectively. During the Track Record Period and up to the Latest Practicable Date, we did not enter into any long-term service agreement or master service agreement with our customers. Furthermore, our service contracts for all civil engineering construction works are entered into on a project-by-project basis. As such, there is no assurance that we will be able to retain our customers upon expiry of the contract period or that they will maintain their current level of business with us in the future. If there is a significant decrease in the number of projects or size of projects in terms of contract sums awarded by our five largest customers to us for whatever reasons, and if we are unable to obtain suitable projects of a comparable size and quantity as replacement, our financial conditions and operating results will be materially and adversely affected. Besides, if any of our five largest customers experiences any liquidity problem, it may result in delay or default in settling progress payments to us, which in turn will have an adverse impact on our cash-flows and financial conditions. We cannot guarantee that we will be able to diversify our customer base by obtaining significant number of new projects from our existing and potential customers. Our business relies on successful tenders and any failure of our Group to secure tender contracts would affect our operations and financial results Most of our revenue is derived from contracts awarded through competitive tendering and is not recurring in nature. During the two years ended 31 March 2015 and the eight months ended 30 November 2015, all of our revenue were derived from tendered contracts. We generally submit new tenders or to bid for new contracts from time to time upon expiry of existing contracts. The contract period for our civil engineering projects generally ranges from 2 years to 4 years. There is no right of first refusal upon expiry of such contracts and therefore, there is a risk that we may not succeed in tendering for the same customer s projects upon the expiry of our contract. Moreover, there is no assurance that (i) we would be invited to or are made aware of the tendering process; or (ii) the terms and conditions of the new contracts would be comparable to the existing contracts; or (iii) our tenders would be selected by customers. In the competitive tendering process, we may have to lower our service charges or offer more favourable terms to our customers in order to increase the competitiveness of our tenders. If we are unable to reduce our costs accordingly and maintain our competitiveness, our results of operations would be adversely affected. Furthermore, so far as our Directors are aware, most of our customers have maintained an evaluation system to ensure that the service providers meet certain standards of management, industrial expertise, financial capability, reputation and regulatory compliance which may change from time to time. There is no assurance that we will meet our customers tendering requirements in which case we may not be granted the tender and our reputation, business operations, financial condition and results of operations may be adversely affected. 25

32 RISK FACTORS Error or inaccurate estimation of project duration and costs when determining the tender price or increase in construction costs may adversely affect our profitability or result in substantial loss incurred by us Construction contracts and in particular public projects are normally awarded through a competitive tendering process. We determine a tender price by estimating the construction costs under the contract duration as specified in the tender invitation documents. There is no assurance that tenders submitted by us contain no mistake and error. Such mistakes and errors may be in the form of inaccurate estimation, oversight of important tender terms, inadvertent typographical errors, errors in calculations, etc. Further, construction costs may increase due to inflation of raw materials and labour costs. In case of contracts awarded to us with mistakes or errors in the submitted tender or if there is a substantial increase in construction costs, our profitability in a project might be adversely affected or we may be bound by the contract to undertake the project at a substantial loss. Inaccurate estimation on project schedule, project costs and technical difficulties in the tendering process may result in cost overruns when we actually execute the awarded project. Many factors affect the time taken and the costs actually involved in completing construction projects undertaken by us. Examples of such factors include shortage and cost escalation of labour and materials, difficult geological conditions, adverse weather conditions, variations to the construction plans instructed by customers, stringent technical construction requirements, threatened claims and material disputes with main contractors, subcontractors and suppliers, accidents, and changes in the Government s policies. Other unforeseen problems or circumstances may also occur during project implementation. If any of such factors arises and remains unresolved, completion of construction works may be delayed or we may be subject to cost overruns or our customers may even be entitled to unilaterally terminate the contract. Some of our contracts contain specific completion schedule requirements and liquidated damages provisions (i.e. we may be liable to pay the customer liquidated damages if we do not meet the schedules). Any failure to meet the schedule requirements of our contracts could cause us to pay significant liquidated damages, which would reduce or eliminate our profit expected from the relevant contracts. A project may be delayed or its costs may be increased because of delays during the process of obtaining any specific permits, approvals from relevant agencies or authorities of the Government. Failure to complete construction according to specifications and quality standards may result in disputes, contract termination, liabilities and/or lower returns than anticipated on the construction project concerned. Such delays or failure to complete and/or unilateral termination of a contract by customers may cause our revenue or profitability to be lower than we originally expected. We cannot guarantee that we will not encounter cost overruns or delays on our current and future construction projects. If such cost overruns or delays occur, we may experience increases in costs exceeding our budget or be required to pay liquidated damages, hence reduction in or elimination of the profits on our contracts. 26

33 RISK FACTORS Our past revenue and profit margin may not be indicative of our future revenue and profit margin For the two years ended 31 March 2015 and the eight months ended 30 November 2015, our revenue amounted to approximately HK$159,963,000, HK$271,949,000 and HK$154,641,000, respectively; our gross profit amounted to approximately HK$15,020,000, HK$25,600,000 and HK$17,286,000, respectively (representing gross profit margin of approximately 9.4%, 9.4% and 11.2%, respectively); while our net profit amounted to approximately HK$9,430,000, HK$18,079,000 and HK$6,392,000, respectively (representing net profit margin of approximately 5.9%, 6.6% and 4.1%, respectively). However, such trend of historical financial information of our Group is a mere analysis of our past performance only and does not have any positive implication or may not necessarily reflect our financial performance in the future which will depend on our capability to secure new business opportunities and to control our costs. Profit margins for our civil engineering works may fluctuate from project to project due to factors such as the type of construction techniques and site equipment employed and the amount of labour resources required. There is no assurance that our profit margins in the future will remain at a level comparable to those recorded during the Track Record Period. Our financial condition may be adversely affected by any decrease in our profit margins. It is not uncommon in our industry to have numerous construction disputes and litigation. Our performance may be adversely affected by such construction disputes and litigation It is not uncommon in our industry to have construction disputes and litigation. We may be in disputes with our customers, subcontractors, suppliers, workers and other parties in connection with our projects for various reasons. Such disputes may be in connection with late completion of works, delivery of substandard works, personal injuries or labour compensation in relation to the works. Please refer to the section headed Business Litigation and potential claims in this prospectus for further information on material disputes or litigation we encountered during the Track Record Period. The handling of contractual disputes, litigation and other legal proceedings may sometimes involve a high degree of our management s attention and input. Handling of legal proceedings and disputes can be both costly and time-consuming, and may significantly divert the efforts and resources of our management. In addition, the outcomes of legal proceedings or disputes are influenced by, among others, negotiation skills, knowledge and judgment of our management. Our Group, to a large extent, relies on the relevant expertise and qualification of our management (including our executive Directors) in dealing with contractual disputes, litigation and arbitration. Should any claims against us fall outside the scope and/or limit of our insurance coverage or monies retained from subcontractors, our financial position may be adversely affected. 27

34 RISK FACTORS If progress payment or retention money is not paid to us in full as a result of disputes over our work done, our liquidity position may be adversely affected We normally receive progress payment from our customers. Progress payment is generally made monthly by reference to the value of works done in that month. A portion of contract value (which generally is subject to a maximum of 5% of the total contract value) is usually withheld by our customers as retention money. Please refer to the section headed Business Customers Major terms of engagement in this prospectus for further details. As at 31 March 2014 and 2015 and 30 November 2015, retention monies receivables of approximately HK$17,957,000, HK$19,217,000 and HK$23,815,000, respectively, were retained by our customers. There is no assurance that progress payment will always be certified and paid to us in full, or the retention money will be paid by our customers to us in full. Partial payment or failure by our customers to make remittance at all as a result of disputes over our works done may have an adverse effect on our liquidity position. Any failure, damage or loss of our site equipment may adversely affect our operations and financial performance Our civil engineering services rely on site equipment. Market developments in and demand for different construction techniques and different types of site equipment may change continuously. If we fail to remain attentive to and invest in suitable site equipment to cope with any latest development in such market trends or demands and to cater to different needs and requirements of different customers, our overall competitiveness and thus our financial performance and operation results may be adversely affected. In addition, there is no assurance that our site equipment will not be damaged or lost as a result of, among others, improper operation, accidents, fire, adverse weather conditions, theft or robbery. In addition, site equipment may break down or fail to function normally due to wear and tear or mechanical or other issues. If any failed, damaged or lost site equipment cannot be repaired and/or replaced in a timely manner, our operations and financial performance could be adversely affected. Furthermore, we plan to acquire additional site equipment by utilising a portion of the net proceeds from the Placing so as to enhance our technical ability and to strengthen our capability to cater to different needs and requirements of different customers. Please refer to the section headed Statement of business objective and use of proceeds in this prospectus for details of the types of site equipment to be purchased and the intended timing of deployment of the net proceeds in this regard. As a result of the purchase of additional site equipment, it is expected that additional depreciation will be charged to our profit or loss and may therefore affect our financial performance and operating results. 28

35 RISK FACTORS There is no assurance that the Technical Circular (Works) No. 1/2015 issued by the Works Branch of Development Bureau (the Technical Circular ) or other similar administrative promulgations issued by the Government will not have any negative impact on our Group The Air Pollution Control (Non-road Mobile Machinery) (Emission) Regulation was gazetted on 23 January 2015 and came into effect on 1 June 2015 to introduce regulatory control on the emissions of non-road mobile machinery. On 8 February 2015, the Works Branch of Development Bureau issued the Technical Circular, pursuant to which the Government has promulgated an implementation plan to phase out progressively the use of exempted NRMM for four types of exempted NRMM, namely generators, air compressors, excavators and crawler cranes in new capital works contracts of public, including design and build contracts, with an estimated contract value exceeding HK$200 million and tenders invited on or after 1 June For details of the Air Pollution Control (Non-road Mobile Machinery) (Emission) Regulation and the Technical Circular, please refer to the paragraph headed Regulatory overview Air Pollution Control (Non-road Mobile Machinery) (Emission) Regulation (Chapter 311Z of the Laws of Hong Kong) in this prospectus. As at the Latest Practicable Date, our Group has 35 regulated machines and out of which 31 machines were exempted and 4 machines were approved with a proper label in a prescribed format issued by the Hong Kong Environmental Protection Department under the Air Pollution Control (Non-road Mobile Machinery) (Emission) Regulation. Of the 31 exempted machines, there are 20 exempted machines (4 generators, 4 air compressors and 12 excavators) to be phased out under the phase out plan as detailed in the Technical Circular. The Technical Circular aims to require the relevant departments of the Government to include specific terms of limiting the quantity of exempted NRMMs to certain percentage in the contract made with the main contractors in the construction industry. It is neither binding nor regulatory to our Group s business operations and any breach of such terms shall only amount to a breach of contract by the respective main contractor under the contract made with the relevant department of the Government to which our Group is not a party. Nevertheless, we cannot assure that the Government will not extend the scope of the said implementation plan or issue other similar administrative promulgations which may cause any potential negative impact to our Group s business operation and the construction industry as a whole. If there is such extension of the scope and promulgations, our business operation, financial status, results and prospect in the future may be materially and adversely affected. Cash inflows and outflows in connection with construction projects may be irregular, thus may affect our net cash flow position Cash flows from operating activities primarily consisted of our Group s revenues from civil engineering projects undertaken by us. For each of the two years ended 31 March 2015 and the eight months ended 30 November 2014 and 2015, we recorded a net operating cash inflow of approximately HK$7,402,000, a net operating cash outflow of approximately HK$3,687,000, a net operating cash outflow of approximately HK$1,169,000 and a net operating cash inflow of approximately HK$5,228,000, respectively. 29

36 RISK FACTORS In a construction project, net cash outflows to pay certain operating expenditures may not align with progress payments to be received at the relevant periods. Progress payments will be paid after our construction works commence and are certified by our customers (or authorised persons employed by them). Accordingly, the cash inflow and outflow for a particular project may fluctuate as the construction works proceed. If during any particular period of time, there exists too many projects which require substantial cash outflow while we have significantly less cash inflows during that period, our cash flow position may be adversely affected. We recorded net current liabilities as at 31 March 2014 and 2015 and net liabilities as at 31 March 2014 and we may expose ourselves to liquidity risk if we experience net current liabilities in the future We recorded net current liabilities of approximately HK$36,196,000 and HK$12,413,000 as at 31 March 2014 and 2015, respectively. The net current liabilities position was primarily attributable to (i) the amounts due to customers for contract work of approximately HK$39,981,000 and HK$39,980,000 as at 31 March 2014 and 2015, respectively; and (ii) the mortgage loan drawn to fund the acquisition of an investment property, a non-current asset. As at 30 November 2015, we recorded net current assets of approximately HK$5,240,000. We recorded net liabilities of approximately HK$9,775,000 as at 31 March There is no assurance that we will not record net current liabilities and net liabilities in the future. We may not have sufficient working capital to meet our current liabilities or expand our operations as anticipated. In such circumstances, our liquidity, business operations, financial condition and prospects may be materially and adversely affected. Unsatisfactory performance by our subcontractors or unavailability of subcontractors may adversely affect our operations and profitability Depending on the availability of our labour resources and the opportunity cost of performing the work with our own resources, we may subcontract part of our works to other subcontractors. Please refer to the section headed Business Subcontractors in this prospectus for further details. For the two years ended 31 March 2015 and the eight months ended 30 November 2015, subcontracting charges incurred by us amounted to approximately HK$34,422,000, HK$54,817,000 and HK$50,913,000, respectively. There is no assurance that we are able to monitor the performance of these subcontractors as directly and efficiently as with our own staff. In addition, our inability to hire qualified subcontractors could hinder our ability to complete a project within the prescribed deadline. Outsourcing exposes us to risks associated with non-performance, delayed performance or substandard performance by subcontractors or third parties. Accordingly, we may experience deterioration in the quality or delay in completion of our civil engineering projects. We may also incur additional costs due to the delays or a higher price in sourcing the services, equipment or supplies in default. We are usually liable for our subcontractors default. These events may have impact upon our profitability, financial performance and reputation, as well as result in litigation or damages claims. 30

37 RISK FACTORS Our subcontractors may be exposed to charges in relation to violation of safety, environmental and/or employment laws and regulations which may affect their renewal of relevant licences or may even lead to revocation of their licences. If this happens in our projects, we will have to appoint another subcontractor(s) for replacement and thus additional costs may be incurred. If our subcontractors violate any laws, rules or regulations in relation to health and safety matters, we may sometimes be subject to prosecutions as primary defendant by relevant authorities. For instance, under the Immigration Ordinance (Chapter 115 of the Laws of Hong Kong), if a subcontractor employs an illegal immigrant on a construction site, the construction site controller (including but not limited to the principal or main contractor and the subcontractor) may be found to have committed an offence and liable to a fine. In addition, we may be liable to claims for losses and damages, if such violations cause any personal injuries/death or damage to properties. Moreover, pursuant to the Employment Ordinance (Chapter 57 of the Laws of Hong Kong), a principal contractor or a main contractor and every tier of subcontractors shall be jointly and severally liable to pay any wages that become due to an employee who is employed by a subcontractor on any work which the subcontractor has contracted to perform, and such wages are not paid within the period specified in the Employment Ordinance (Chapter 57 of the Laws of Hong Kong). Our operations and hence our financial position may thereby be adversely affected if any of our subcontractors violate their obligations to pay their employees. We may damage various underground services utilities and are exposed to such inherent project risks Services utilities, such as fresh and flush water mains, low or high voltage electric cables, optical fibre telephone lines, cable television fibre and high pressure gas mains, are laid underground in Hong Kong. There is no assurance that damage to those utilities will not occur during our excavation works. Accordingly, we may be liable to the costs for the repair of such damaged services utilities. It is not unusual to find difficult conditions at the underground level which may not have been anticipated at the preliminary stage. Such ground conditions may make our civil engineering works difficult and may incur higher project expenses. In the event that we have committed to a fixed sum or rate contract and that no adjustment to the contract sum could be agreed with our customers, we may have to bear such increased expenses ourselves and our profitability would be adversely affected. Shortage of labour may affect our projects and our performance Generally, our construction works are labour intensive. For any given project, a large number of workers from various trades with different skills may be required. There is no assurance that the supply of labour (especially experienced and skilled labour) will be sufficient during the forthcoming years when the peak load of construction activities is ongoing. All labour intensive projects are more susceptible to labour shortage, and our subcontracting costs including labour costs of our subcontractors may escalate. If there is a significant increase in the costs of labour and demand for experienced and skilled labour and we have to retain our labour (likewise our subcontractors retain their labour) by increasing 31

38 RISK FACTORS their wages, our staff cost and/or subcontracting cost will increase and thus lower our profitability. On the other hand, if we or our subcontractors fail to retain our existing labour and/or recruit sufficient labour (especially experienced and skilled labour) in a timely manner to cope with our existing or future projects, we may not be able to timely complete our projects, resulting in liquidated damages and/or financial losses. For sensitively analyses illustrating the impact of fluctuations in staff costs and subcontracting charges, please refer to the section headed Financial information Description of selected components of our income statement Cost of sales Sensitivity analyses in this prospectus. If we are unable to retain our key management personnel, our business, operational results and financial condition may suffer Our success and growth depends on our ability to identify, hire, train and retain suitable, skilled and qualified employees, including management personnel with the requisite industry expertise. Our Directors and members of senior management, in particular, our executive Directors are important to us. Details of their expertise and experience are set out in the section headed Directors and senior management in this prospectus. If any of our executive Directors ceases to be involved in the management of our Group in the future and our Group is unable to find a suitable replacement in a timely manner, there could be an adverse impact on our business, results of operation and profitability of our Group. We may be affected by possible increases in insurance costs and reduction of insurance coverage by our insurers and certain risks involved in our business operation are generally not insured For the two financial years ended 31 March 2015 and the eight months ended 30 November 2015, the aggregate expenses of our insurances were approximately HK$246,000, HK$262,000 and HK$409,000, respectively. Our insurance policies may not cover all of our risks or payments and our insurers may not fully compensate us for all potential losses, damages or liabilities relating to our properties or our business operations. We cannot control if there is a reduction or limitation of insurance coverage by insurers upon the expiry of our current policies. Any further increase in insurance costs (such as an increase in insurance premiums) or reduction in coverage may materially and adversely affect our business operations and financial results. Further, there are certain types of losses for which insurance coverage is not generally available (such as risks in relation to collectability of our trade and retention receivables and liabilities arising from events such as epidemics, natural disasters, adverse weather conditions, political unrest and terrorist attacks, etc.) on commercial terms acceptable to us, or at all. If we suffer any losses, damages or liabilities in the course of our business operations arising from events for which we do not have any or adequate insurance cover, we have to bear such losses, damages or liabilities by ourselves. In such a case, our business operations, financial condition and results of operations may be adversely affected. 32

39 RISK FACTORS We are exposed to claims arising from latent defects liability We do not maintain any defects liability insurance and we may face claims arising from latent defects that are existing but not yet active, developed or visible, found in the works which are constructed by us. If there is any significant claim against us for defects liability of any default or failure of our services by our customers or other party, our profitability may be adversely affected. We engage third parties for transporting certain of our site equipment which we are not able to transport and may not be able to claim for loss or damage to our site equipment during the transportation process During the Track Record Period, we engaged third parties to transport certain of our site equipment between sites. Our transportation expenses amounted to approximately HK$205,000, HK$541,000 and HK$558,000 for the two years ended 31 March 2015 and the eight months ended 30 November 2015, respectively. We do not purchase any insurance on transportation of the site equipment by third party logistics service providers and we cannot assure that our logistics service providers have sufficient insurance coverage for loss or damage to our site equipment. As such, we may not be able to claim for any loss or damage to our site equipment during the transportation process, which could materially and adversely affect our business, financial conditions and results of operation. We plan to expand our capacity by acquiring site equipment, which may result in an increase in depreciation expenses and cashflow used in investing activities and may adversely affect our operating results and financial position We rely heavily on the use of site equipment, including excavators, vibrating rollers, generators, air compressors, a hydraulic truck crane, hydraulic breakers and aerial working platforms. As at the Latest Practicable Date, we had 56 units of site equipment with an aggregate net book value of approximately HK$6,797,000. For the two years ended 31 March 2015 and the eight months ended 30 November 2015, we acquired new site equipment in the amount of approximately HK$4,310,000, HK$410,000 and HK$812,000 at cost, respectively. To further enhance and optimise our overall efficiency and capacity as well as technical capability in performing civil engineering construction works, we intend to acquire three hydraulic truck cranes, one excavator, three generators and one air compressor as well as three motor vehicles. The expected total capital expenditure for the acquisition of the aforesaid site equipment and motor vehicles will be approximately HK$18.0 million, which will be acquired using the net proceeds from the Placing. As a result of the acquisition of site equipment and motor vehicles using the net proceeds from the Placing, our cash flow used in investing activities is expected to increase by approximately HK$17,324,000 and HK$643,000 during the years ending 31 March 2017 and 2018, respectively. Our Directors further estimate that assuming all other things remain unchanged, our depreciation expenses will increase and our gross profit will decrease by approximately HK$1,814,000 and HK$1,958,000 during the years ending 31 March 2017 and 2018, respectively. Accordingly, our operating results and financial position may be adversely affected. 33

40 RISK FACTORS Changes in existing environmental regulations and guidelines may impose additional cost and burden to us Our business is subject to the environmental regulations and guidelines issued by the Government, which apply to the operation of all construction projects in Hong Kong. Such regulations and guidelines may be amended by the Government from time to time to reflect the latest environmental needs. Any changes to such regulations and guidelines could impose additional cost and burden to us. Industrial actions or strikes may affect our business Typical construction works are divided into various disciplines, and each requires highly specialised labour. Industrial action of any one discipline may disrupt the progress of our construction works. During the Track Record Period, our civil engineering projects did not encounter any strike action. However, there is no assurance that industrial actions or strikes will not be launched in the future. Such industrial actions or strikes may adversely impact our business performance and hence profitability and results of operation. Any delays in completing our civil engineering works caused by such action may affect our business, financial conditions and results of operations. Personal injuries, property damages or fatal accidents may occur if safety measures are not followed at the construction sites In the course of our operations, we require our employees and subcontractors to adhere to and implement all the safety measures and procedures as stipulated in our work and safety policy. We monitor and supervise closely our employees and subcontractors in the implementation of all such safety measures and procedures during execution of works. However, we cannot guarantee that our employees or subcontractors will not violate the applicable laws, rules or regulations. If any such employees or subcontractors fails to comply with our safety measures at the construction sites, personal injuries, property damage or fatal accidents may occur in greater numbers and/or to a serious extent. Please refer to the section headed Business Occupational health and safety System of recording and handling accidents and our safety compliance record in this prospectus for further information on the material accidents we encountered during the Track Record Period. These may adversely affect the financial position of our Group to the extent not fully recoverable from our insurance policies. They may also cause our relevant licence and/or certifications to be suspended or not renewed. Furthermore, public project tenders are generally evaluated by taking into account a number of factors, which include without limitation the subcontractor s compliance records with the relevant laws and regulations. We may also be subject to inspections by the relevant Government departments (e.g. Labour Department) from time to time and these inspections may lead to formal charge(s) against our Group. Non-compliance and conviction records may affect our chance of winning future bids. 34

41 RISK FACTORS Our Group has records of certain immaterial non-compliance of Hong Kong regulatory requirements which could lead to the imposition of fines There have been instances of immaterial non-compliance with certain Hong Kong regulatory requirements by our Group. These include, among others, non-compliance of the Predecessor Companies Ordinance, the Companies Ordinance and the Employment Ordinance (Chapter 57 of the Laws of Hong Kong), details of which are set out in the section headed Business Non-compliance in this prospectus. If the relevant Government authorities take enforcement actions against the relevant subsidiary of our Group and/or our Controlling Shareholders fail to indemnify us to a sufficient extent or at all, we may be required to pay penalty or incur other liabilities, and our reputation, financial condition and results of operations may be adversely affected. We are exposed to interest rate risks which is unhedged and may affect our cash flows As at 30 November 2015, our Group had bank loans and overdrafts and obligations under finance leases amounting to approximately HK$5,688,000 and HK$3,948,000, respectively, which bore interest at 3.23% to 5.50% and 5.44% to 6.21% per annum respectively. Our Group has not hedged against interest rate risks. Should there be an increase in interest rate, our interest expenses may increase and our cash flows and profitability may be adversely affected. Our business plans and strategies may not be successful or achieved within the expected time frame or within the estimated budget We intend to further enhance our site equipment and our manpower in order to cope with the expected increase in demand for our services. However, our plans and strategies may be hindered by risks including but not limited to those mentioned elsewhere in this section. There is no assurance that we will be able to successfully maintain or increase our market share or grow our business successfully after deploying our management and financial resources. Any failure in maintaining our current market position or implementing our plans could materially and adversely affect our business, financial condition and results of operations. Our Group s operations may be affected by inclement weather conditions and are subject to other construction risks Our business operations are mostly conducted outdoors and are affected by weather conditions. If inclement weather conditions persist or a natural disaster occurs, we may be prevented from performing works at our construction sites, and we may fail to meet specified time schedule. If we have to halt operations during inclement weather conditions or a natural disaster, we may continue to incur operating expenses while we experience reduced revenues and profitability. Besides, our business is subject to outbreak of severe communicable diseases (such as swine flu, avian flu, severe respiratory syndrome and Ebola virus disease), natural disasters or other acts of God which are beyond our control. These incidents may also adversely affect the economy, infrastructure, livelihood and society in Hong Kong. Acts of wars and terrorism may also injure our employees, cause loss of lives, damage our facilities, disrupt our operations and destroy our works performed. If any such 35

42 RISK FACTORS incident occurs, our revenue, costs, financial conditions and growth potentials will be adversely affected. It is also difficult to predict the potential effect of these incidents and their materiality to our business as well as those of our customers, suppliers and subcontractors. Our financial performance and results of operations will be affected by our Listing expenses, which are non-recurring in nature Our Directors estimate that the total amount of expenses in relation to the Listing is approximately HK$20.9 million, which will be borne by the Selling Shareholder and our Group as to approximately HK$2.5 million and HK$18.4 million, respectively. Of such amount to be borne by us, approximately HK$4.9 million is directly attributable to the issue of the New Shares and is expected to be accounted for as a deduction from equity upon Listing. The remaining amount of approximately HK$13.5 million, which cannot be so deducted, will be charged to profit or loss. Of the approximately HK$13.5 million which will be charged to profit or loss, approximately HK$Nil, HK$Nil and HK$7.9 million has been charged during the two years ended 31 March 2015 and the eight months ended 30 November 2015, respectively and approximately HK$1.7 million is expected to be charged to profit or loss for the four months ending 31 March Our Group expects to further charge approximately HK$3.9 million to profit or loss for the year ending 31 March Expenses in relation to the Listing are non-recurring in nature. Our Board wishes to inform the Shareholders and potential investors that our Group s financial performance and results of operations for the two years ending 31 March 2017 will be significantly affected by the estimated expenses in relation to the Listing. Our Group s liquidity and financial position may be affected by our debt financing and our Group s gearing ratio and finance costs are expected to increase after Listing We have obtained a credit facility of up to HK$20,000,000 from a bank in Hong Kong in order to provide for a flexible alternative to increase our working capital and finance our liquidity requirement for our contracts on hand and newly awarded projects. Such credit facility consists of: (i) a factoring facility of up to HK$10,000,000 by factoring of certain accounts receivable from our major customer(s) to the bank; and (ii) a banking facility of HK$10,000,000. Hence, our Company s gearing ratio and finance costs are expected to increase after Listing. In the event that we fail to repay the bank loans on time, or we cannot factor our accounts receivables to obtain funds or if we are unable to generate sufficient cash flow for our operations or otherwise unable to obtain sufficient funds to finance our business in the future, our liquidity and financial condition may be materially and adversely affected. 36

43 RISK FACTORS RISKS RELATING TO THE INDUSTRY IN WHICH WE OPERATE Our performance depends on market conditions and trends in the civil engineering construction industry and any deterioration in the prevailing market conditions in the civil engineering construction industry may adversely affect our performance and financial conditions All our businesses and operations have been and will continue to be located in Hong Kong. The future growth and level of profitability of the civil engineering construction industry in Hong Kong depend primarily upon the continued availability of large civil engineering construction projects. The nature, extent and timing of such projects will, however, be determined by the interplay of a variety of factors. These factors include, in particular, the Government s policy and spending patterns on the civil engineering construction industry in Hong Kong such as the on-going plan of the Ten Major Infrastructure Projects, speed of approval of the relevant budgets and/or projects and the general conditions and prospects of the Hong Kong economy. They may affect the availability of civil engineering construction projects from the public sector or private sector. Apart from the public spending of the Government, other factors also affect the civil engineering construction industry. These other factors include cyclical trends in the economy as a whole, fluctuations in interest rates and the availability of new projects in the private sector. If there is any recurrence of a recession in Hong Kong, deflation or any changes in Hong Kong s currency policy, or if the demand for civil engineering works in Hong Kong deteriorates, our operations and profitability could be adversely affected. We operate in a relatively competitive environment The civil engineering construction industry in Hong Kong has many participants and is competitive. As at the Latest Practicable Date, there were over 700 structural and civil engineering subcontractors being registered under the Construction Industry Council in Hong Kong. Some of the major market players have significantly more resources and are better positioned than our Group, including but not limited to having a long operating history, better financing capabilities and well developed, technical expertise. New participants may wish to enter the industry provided that they have the appropriate skills, local experience, necessary site equipment, capital and they are granted the requisite licences or approvals by the relevant regulatory bodies. Increased competition may result in lower operating margins and loss of market share, which may adversely affect our profitability and operating results. 37

44 RISK FACTORS RISKS RELATING TO HONG KONG The state of economy in Hong Kong may adversely affect our performance and financial condition Our performance and financial conditions depend on the state of economy in Hong Kong. Our revenue attributable to the Hong Kong market accounted for all of our Group s total revenue during the Track Record Period. If there is a downturn in the economy of Hong Kong, our results of operations and financial position may be adversely affected. In addition to economic factors, social unrest or civil movements such as occupation activities may also affect the state of economy in Hong Kong and in such case, our Group s operations and financial position may also be adversely affected. The state of political environment in Hong Kong may adversely affect our performance and financial condition Hong Kong is a special administrative region of the PRC. It enjoys a high degree of autonomy under the principle of one country, two systems in accordance with the Basic Law of Hong Kong. However, we are not in any position to guarantee the one country, two systems principle and the level of autonomy would be maintained as currently in place. Since our operations are located in Hong Kong, any change of Hong Kong s existing political environment may affect the stability of the economy in Hong Kong, thereby affecting our results of operations and financial positions. Recently, thousands of residents of Hong Kong engaged in civil disobedience protests. Activists protested outside key government buildings and occupied several major intersections, causing major disruption to traffic and trade in the affected areas. Any political and social instability in Hong Kong, if significant and prolonged, could have a material adverse effect on our business, financial condition, results of operations and prospects. RISKS RELATING TO THE PLACING There has been no prior public market for the Shares and an active trading market may not develop after the Listing Prior to the Listing, there has been no public market for the Shares. There is no guarantee that an active trading market for the Shares will develop or be sustained upon completion of the Listing. A listing on the GEM does not guarantee that an active and liquid trading market for the Shares will develop, or if it does develop, that it will be sustained following the Listing, or that the market price of the Shares will not decline following the Listing. The trading volume and market price of our Shares may be volatile, which could result in substantial losses for Shareholders The market price and trading volume of the Shares may be highly volatile. There are a number of factors which may affect the market price of the Shares, and these factors include without limitation changes in our income or cash flows, new investments and strategic alliances. Any such developments may result in large and sudden changes in the volume and 38

45 RISK FACTORS market price at which the Shares will be trading. There is no guarantee that these developments will or will not occur in the future and it is difficult to quantify the impact on our Group and on the trading volume and market price of the Shares. Further, changes in the market price of the Shares may also be due to factors which may not be directly related to our financial or business performance. Shareholders equity interests may be diluted as a result of additional equity fund-raising In the future, we may need to raise additional funds to finance acquisitions, expansion or new developments of our business. If funds are raised through the issue of new equity and equity-linked securities of our Company other than on a pro-rata basis to the existing Shareholders, the percentage ownership of the Shareholders in our Company may be reduced accordingly as a result of which Shareholders may experience dilution in their percentage shareholdings in our Company. Furthermore, it is also possible that such new securities may have preferred rights, options or pre-emptive rights that render them more valuable than or senior to the Shares. The exercise of options granted under the Share Option Scheme may result in dilution to the Shareholders Our Company has conditionally adopted the Share Option Scheme although no options had been granted thereunder as at the Latest Practicable Date. Any exercise of the options to be granted under the Share Option Scheme in the future and issue of Shares thereunder would result in the reduction in the percentage ownership of the Shareholders and may result in a dilution in the earnings per Share and the net asset value per Share, as a result of the increase in the number of Shares outstanding after such issue. Future sale of a substantial amount of Shares by existing Shareholders may adversely affect the market price of our Shares and our ability to raise equity capital Any future sale of a substantial amount of the Shares by the existing Shareholders, or the possibility of such sale, could negatively impact the market price of the Shares in Hong Kong and our ability to raise equity capital in the future at a time and price that we deem appropriate. There is no guarantee that the Substantial Shareholders or Controlling Shareholders will not dispose of the Shares held by them after the lock-up period, and the effect of which, if any, on the market price of the Shares cannot be predicted. The Shares held by Controlling Shareholders are subject to certain lock-up periods beginning on the Listing Date, details of which are set out in the section headed Underwriting Underwriting arrangements and expenses Undertakings in this prospectus. It is also possible that there may be a sale of a substantial amount of Shares by any of the Substantial Shareholders or Controlling Shareholders or the perception that such sale may occur, which may materially and adversely affect the prevailing market price of the Shares 39

46 RISK FACTORS RISKS RELATING TO THIS PROSPECTUS There can be no guarantee as to the accuracy of facts and other statistics contained in this prospectus with respect to the economies and the industry in which we operate Certain facts and other statistics in this prospectus are derived from various sources including the Ipsos Report and various official government publications that we believe to be reliable and appropriate for such information. However, we cannot guarantee the quality or reliability of such source materials. We have no reason to believe that such information is false or misleading or that any fact has been omitted that would render such information false or misleading. Whilst our Directors have taken all reasonable care in the reproduction of the information, they have not been prepared or independently verified by us, the Selling Shareholder, the Sponsor, the Joint Bookrunners, the Joint Lead Managers, the Underwriters or any of their respective directors, affiliates or advisers. Therefore, we make no representation as to the accuracy of such facts and statistics. Due to possibly flawed or ineffective collection methods or discrepancies between published information, market practice and other problems, the statistics referred to or contained in this prospectus may be inaccurate or may not be comparable to statistics produced for other publications or purposes and should not be unduly relied upon. Furthermore, there is no assurance that they are stated or compiled on the same basis or with the same degree of accuracy as may be the case elsewhere. In all cases, investors should give consideration as to how much weight or importance they should attach to, or place on, such information or statistics. Investors should read this entire prospectus carefully and we strongly caution you not to place any reliance on any information (if any) contained in press articles or other media regarding us and the Placing including, in particular, any financial projections, valuations or other forward-looking statement Prior to the publication of this prospectus, there may be press or other media, which contains certain information referring to us and the Placing that is not set out in this prospectus. We wish to emphasise to potential investors that neither we nor any of the Selling Shareholder, the Sponsor, the Joint Bookrunners, the Joint Lead Managers, the Underwriters, our Directors, officers, employees, advisers, agents or representatives of any of them, or any other parties (collectively, the Professional Parties ) involved in the Placing has authorised the disclosure of such information in any press or media, and neither the press reports, any future press reports nor any repetition, elaboration or derivative work were prepared by, sourced from, or authorised by us or any of the Professional Parties. Neither we, the Selling Shareholder, nor any Professional Parties accept any responsibility for any such press or media coverage or the accuracy or completeness of any such information. We make no representation as to the appropriateness, accuracy, completeness or reliability of any such information or publication. To the extent that any such information is not contained in this prospectus or is inconsistent or conflicts with the information contained in this prospectus, we disclaim any responsibility, liability whatsoever in connection therewith or resulting therefrom. Accordingly, you should rely solely upon the information in this prospectus in making your investment decisions regarding the Shares but note that undue reliance should not be placed on any forward looking statements contained in this prospectus which may not occur in the way we expect or may not materialise at all as set out in the section headed Forward-looking statements in this prospectus. 40

47 INFORMATION ABOUT THIS PROSPECTUS AND THE PLACING DIRECTORS RESPONSIBILITY FOR THE CONTENTS OF THIS PROSPECTUS This prospectus, for which our Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Companies (Winding Up and Miscellaneous Provisions) Ordinance, the Securities and Futures (Stock Market Listing) Rules (Chapter 571V of the Laws of Hong Kong) and the GEM Listing Rules for the purpose of giving information with regard to our Company. Our Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief, the information contained in this prospectus is accurate and complete in all material respects and not misleading or deceptive and there are no other matters the omission of which would make any statement in this prospectus misleading. FULLY UNDERWRITTEN This prospectus is published solely in connection with the Placing and the listing of the Shares on GEM, which is sponsored by the Sponsor and is managed by the Joint Lead Managers. The Placing Shares are fully underwritten by the Underwriters pursuant to the Underwriting Agreement. For further information about the Underwriters and the Placing and underwriting arrangements, please refer to the section headed Underwriting Underwriters in this prospectus. RESTRICTIONS ON OFFER AND SALE OF THE PLACING SHARES Each person acquiring the Placing Shares will be required to confirm, or be deemed by his/her acquisition of Placing Shares to confirm, that he/she is aware of the restrictions on offers and sales of the Placing Shares described in this prospectus. No action has been taken in any jurisdiction other than Hong Kong to permit the offering of the Placing Shares or the distribution of this prospectus. This prospectus is not an offer or invitation in any jurisdiction in which it is not authorised, and is not an offer or invitation to any person to whom it is unlawful to make an unauthorised offer or invitation. The distribution of this prospectus and the offering of the Placing Shares in other jurisdictions are subject to restrictions and may not be made except as permitted under the applicable laws or any applicable rules and regulations of such jurisdictions pursuant to registration with or authorisation by the relevant regulatory authorities as an exemption therefrom. Prospective investors for the Placing Shares should consult their financial advisors and take legal advice, as appropriate, to inform themselves of, and to observe, all applicable laws and regulations of any relevant jurisdiction. Prospective investors for the Placing Shares should inform themselves as to the relevant legal requirements of applying for the Placing Shares and any applicable exchange control regulations and applicable taxes in the countries of their respective citizenship, residence or domicile. The Placing Shares are offered solely on the basis of the information contained and representations made in this prospectus. No person is authorised in connection with the Placing to give any information or to make any representation not contained in this 41

48 INFORMATION ABOUT THIS PROSPECTUS AND THE PLACING prospectus, and any information or representation not contained herein must not be relied upon as having been authorised by our Company, the Selling Shareholder, the Sponsor, the Joint Bookrunners, the Joint Lead Managers, the Underwriters, and any of their respective directors or any other persons involved in the Placing. It is expected that, pursuant to the Placing, the Underwriters will, on behalf of our Company and the Selling Shareholder, conditionally place the Placing Shares with investors. STRUCTURE AND CONDITIONS OF THE PLACING The structure and conditions of the Placing is set forth in the section headed Structure and conditions of the Placing in this prospectus. APPLICATION FOR LISTING ON GEM Our Company satisfies the requirements relating to continuity of ownership and control throughout the full financial year immediately preceding the Latest Practicable Date and up until the Listing Date under Rule 11.12A(2) of the GEM Listing Rules. Our Company has applied to the Stock Exchange for the listing of, and permission to deal in, the Shares in issue and to be issued on GEM as mentioned in this prospectus. No part of the share or loan capital of our Company is listed, traded or dealt in on any other stock exchange. A total of 312,000,000 Shares, representing 25% of the enlarged issued share capital of our Company immediately following completion of the Placing and the Capitalisation Issue (without taking into account any Shares which may be allotted and issued pursuant to the exercise of any options which may be granted under the Share Option Scheme), will be made available under the Placing. Under section 44B(1) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, if the permission for the Shares offered under this prospectus to be listed on GEM has been refused before the expiration of three weeks from the date of the closing of the Placing or such longer period not exceeding six weeks as may, within the said three weeks, be notified to our Company for permission by or on behalf of the Stock Exchange, then any allotment made on an application in pursuance of this prospectus shall, whenever made, be void. Pursuant to Rule 11.23(7) of the GEM Listing Rules, the minimum prescribed percentage of at least 25% of the issued share capital of our Company must at all times be held by the public. A total of 312,000,000 Placing Shares, representing 25% of the enlarged issued share capital of our Company, will be in the hands of the public immediately following completion of the Placing and the Capitalisation Issue and upon Listing. 42

49 INFORMATION ABOUT THIS PROSPECTUS AND THE PLACING PROFESSIONAL TAX ADVICE RECOMMENDED Potential applicants for the Placing Shares are recommended to consult their professional advisers if they are in doubt as to the taxation implications of the subscription for, holding, purchase, disposal of or dealing in the Shares or exercising their rights thereunder. It is emphasised that none of our Company, the Selling Shareholder, our Directors, the Sponsor, the Joint Lead Managers, the Joint Bookrunners, the Underwriters, their respective directors or any other person involved in the Placing accepts responsibility for any tax effects on, or liabilities of, holders of Shares resulting from the subscription for, holding, purchase, disposal of or dealing in the Shares or the exercise of their rights thereunder. SHARE REGISTRAR, REGISTRATION AND STAMP DUTY All the Placing Shares will be registered on the Hong Kong branch register of members of our Company in Hong Kong by the Hong Kong Branch Share Registrar. Dealings in the Shares registered on our Company s branch register of members maintained in Hong Kong will be subject to Hong Kong stamp duty. Dealings in the Shares registered on the principal register of members of our Company maintained in the Cayman Islands will not be subject to Cayman Islands stamp duty. The Shares are freely transferable. Only securities registered on the branch register of members of our Company kept in Hong Kong may be traded on GEM unless the Stock Exchange otherwise agrees. SHARES WILL BE ELIGIBLE FOR ADMISSION INTO CCASS Subject to the approval of the listing of, and permission to deal in, the Shares on GEM and our Company s compliance with the stock admission requirements of HKSCC, the Shares will be accepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with effect from the Listing Date or, under contingent situation, any other date as determined by HKSCC. Settlement of transactions between participants of the Stock Exchange is required to take place in CCASS on the second business day after any trading day. All activities under CCASS are subject to the General Rules of CCASS and CCASS Operational Procedures in effect from time to time. All necessary arrangements have been made for the Shares to be admitted into CCASS. If investors are unsure about the details of CCASS settlement arrangement and how such arrangements will affect their rights and interests, they should seek the advice of their stockbroker or other professional adviser. COMMENCEMENT OF DEALINGS IN THE SHARES Dealings in the Shares on GEM are expected to commence at 9:00 a.m. on Tuesday, 12 April The Shares will be traded in board lots of 10,000 Shares each. The stock code for our Shares is We will not issue temporary documents of title. 43

50 INFORMATION ABOUT THIS PROSPECTUS AND THE PLACING LANGUAGE If there is any inconsistency between this prospectus and the Chinese translation of this prospectus, this prospectus shall prevail. If there is any inconsistency between the Chinese names of the Chinese entities mentioned in this prospectus and their English translation, the Chinese names shall prevail. CURRENCY TRANSLATIONS Unless otherwise specified, translations of US$ into HK$ in this prospectus are based on the exchange rate set out below (for the purpose of illustration only): US$1.00 = HK$7.80 No representation is made that any amounts in US$ and HK$ can be or could have been converted at the relevant dates at the above exchange rate or any other rates or at all. ROUNDING Certain amounts and percentage figures included in this prospectus have been subject to rounding adjustments. Accordingly, totals of rows or columns of numbers in tables may not be equal to the apparent total of individual items. Where information is presented in thousands or millions of units, amounts may have been rounded up or down. Any discrepancies in any table between totals and sums of amounts listed therein are due to rounding. 44

51 DIRECTORS AND PARTIES INVOLVED IN THE PLACING DIRECTORS Name Residential address Nationality Executive Directors Mr. Wong Che Kwo Mr. Wong Wing Wah Mr. Wong Tak Ming Mr. Chiu Chi Wang Room B, 10/F, Block 1 The Great Hill 8 Tung Lo Wan Hill Road Shatin New Territories Hong Kong Flat D, 6/F, Block 3 Vista Paradiso Ma On Shan New Territories Hong Kong 1/F, Block 19 Wai Ha Tsuen No. 100 Tai Po New Territories Hong Kong Flat E, 13/F, Block 4 Harbour Place 8 Oi King Street Hung Hom Kowloon Hong Kong Chinese Chinese Chinese Chinese Independent non-executive Directors Mr. Wong Chi Kan Mr. Liu Yan Chee James Flat F, 12/F, Block 1 Tsuen Wan Plaza Tsuen Wan New Territories Hong Kong Flat E, 42/F, Tower 5 The Long Beach 8 Hoi Fai Road Kowloon Hong Kong Chinese Chinese 45

52 DIRECTORS AND PARTIES INVOLVED IN THE PLACING Name Residential address Nationality Mr. Tai Hin Henry Flat 56D, Block 7 Le Point 8 King Ling Road Tseung Kwan O New Territories Hong Kong Chinese For further information on the profile and background of our Directors, please refer to the section headed Directors and senior management in this prospectus. PARTIES INVOLVED Sponsor Joint Bookrunners, Joint Lead Managers and the Underwriters TC Capital Asia Limited Suites , 19th Floor, Tower 6 The Gateway, Harbour City 9 Canton Road, Tsim Sha Tsui Kowloon, Hong Kong (A licensed corporation carrying on Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities under the SFO) Gransing Securities Co., Limited Rooms Far East Consortium Building 121 Des Voeux Road Central Hong Kong (A licensed corporation carrying on Type 1 (dealing in securities), Type 4 (advising on securities), Type 6 (advising on corporate finance) and Type 9 (asset management) regulated activities under the SFO) Suncorp Securities Limited Room 3616, 36/F., Cosco Tower 183 Queen s Road Central Hong Kong (A licensed corporation carrying on Type 1 (dealing in securities) regulated activity under the SFO) 46

53 DIRECTORS AND PARTIES INVOLVED IN THE PLACING Legal adviser to our Company As to Hong Kong law D. S. Cheung & Co. 29/F., Bank of East Asia Harbour View Centre 56 Gloucester Road Wanchai, Hong Kong (Solicitors of Hong Kong) As to Cayman Islands law Appleby Jardine House 1 Connaught Place Central Hong Kong (Cayman Islands attorneys-at-law) Legal advisers to the Sponsor and the Underwriters Reporting accountants Internal control consultant Property valuer Compliance adviser As to Hong Kong law Li, Wong, Lam & W. I. Cheung 22nd Floor, Infinitus Plaza 199 Des Voeux Road Central Hong Kong (Solicitors of Hong Kong) Grant Thornton Hong Kong Limited Level 12, 28 Hennessy Road Wanchai, Hong Kong (Certified Public Accountants) CT Partners Consultants Limited Unit 1601A, 16th Floor, China Hong Kong City 33 Canton Road Tsim Sha Tsui, Kowloon Hong Kong Ascent Partners Valuation Service Limited Suite 2102, Hong Kong Trade Centre Des Voeux Road Central Hong Kong TC Capital Asia Limited Suites , 19th Floor, Tower 6 The Gateway, Harbour City 9 Canton Road, Tsim Sha Tsui Kowloon, Hong Kong (A licensed corporation carrying on Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities under the SFO) 47

54 DIRECTORS AND PARTIES INVOLVED IN THE PLACING Selling Shareholder Blooming Union Investments Limited NovaSage Chambers P.O. Box 4389 Road Town Tortola British Virgin Islands 48

55 CORPORATE INFORMATION Registered office in the Cayman Islands Headquarter and principal place of business in Hong Kong registered under Part 16 of the Companies Ordinance Company secretary Compliance officer Authorised representatives P.O. Box 1350 Clifton House 75 Fort Street Grand Cayman KY Cayman Islands Unit 1505, 15/F Delta House 3 On Yiu Street Shatin New Territories Hong Kong Mr. Woo Yuen Fai Certified Public Accountant Flat C, 7/F Kwong Wah Centre 36 Fau Tsoi Street Yuen Long New Territories Hong Kong Mr. Wong Wing Wah Flat D, 6/F, Block 3 Vista Paradiso Ma On Shan New Territories Hong Kong Mr. Woo Yuen Fai Certified Public Accountant Flat C, 7/F, Kwong Wah Centre 36 Fau Tsoi Street Yuen Long New Territories Hong Kong Mr. Wong Che Kwo Room B, 10/F, Block 1 The Great Hill 8 Tung Lo Wan Hill Road Shatin New Territories Hong Kong Members of Audit Committee Mr. Liu Yan Chee James (Chairman) Mr. Wong Chi Kan Mr. Tai Hin Henry 49

56 CORPORATE INFORMATION Members of Remuneration Committee Members of Nomination Committee Cayman Islands principal share registrar and transfer office Hong Kong branch share registrar and transfer office Mr. Wong Chi Kan (Chairman) Mr. Wong Wing Wah Mr. Liu Yan Chee James Mr. Wong Che Kwo (Chairman) Mr. Wong Chi Kan Mr. Tai Hin Henry Appleby Trust (Cayman) Ltd. Clifton House 75 Fort Street PO Box 1350 Grand Cayman KY Cayman Islands Union Registrars Limited A18/F., Asia Orient Tower Town Place 33 Lockhart Road Wanchai Hong Kong (which will be relocated to Suites , 33/F., Two Chinachem Exchange Square, 338 King s Road, North Point, Hong Kong with effect from 5 April 2016) Principal banker Company website Bank of China (Hong Kong) Limited 1 Garden Road Hong Kong (information contained in this website does not form part of this prospectus) 50

57 INDUSTRY OVERVIEW The information set forth in this section has been derived from the Ipsos Report. We believe that the sources of the information are appropriate sources for such information, and we have taken reasonable care in extracting and reproducing such information. We have no reason to believe that such information is materially false or misleading, and no fact has been omitted that would render such information materially false or misleading. However, the information has not been independently verified by us, the Selling Shareholder, the Sponsor, the Joint Bookrunners, the Joint Lead Managers, the Underwriters, any of the respective directors, officers, employees, advisers, agents or representatives or any other party involved in the Placing and no representation is given as to its accuracy. Except as otherwise stated, all the data and forecast in this section are derived from the Ipsos Report. SOURCE OF INFORMATION We commissioned an independent professional market research company, Ipsos, to assess the industry development trends, market demand and competitive landscape of civil engineering construction industry in Hong Kong, at a fee of HK$350,000 and our Directors consider that such fee reflects market rates. Ipsos is an independent market research and consulting company which conducts research on market profiles, market size, share and segmentation analyses, distribution and value analyses, competitor tracking and corporate intelligence and which has been engaged in a number of market assessment projects in connection with initial public offerings in Hong Kong. Founded in Paris, France in 1975 and publicly-listed on the NYSE Euronext Paris since 1999, Ipsos SA acquired Synovate Ltd. in October After the acquisition, Ipsos became one of the largest market research and consulting companies in the world which employs approximately 16,000 personnel worldwide across 87 countries. The information contained in the Ipsos Report is derived by means of data and intelligence gathering such as: (i) desk research; (ii) consultation with the Company to understand the background information about the business of our Group; and (iii) primary research by interviewing key stakeholders and industry experts including but not limited to companies engaged in civil engineering works, government officials and related associations. Information gathered by Ipsos has been analysed, assessed and validated using Ipsos in-house analysis models and techniques. According to Ipsos, information gathered can be cross-referenced to ensure accuracy. Nevertheless, we cannot assure you regarding the accuracy or completeness of the factors, forecasts and statistics in this prospectus obtained from sources such as government publications, market data providers and the Ipsos Report. Our Directors confirm that, after taking reasonable care, there is no adverse change in the market information since the date of the Ipsos Report which may qualify, contradict or have an impact on the information in this section. 51

58 INDUSTRY OVERVIEW MACRO-ECONOMIC ENVIRONMENT IN HONG KONG GDP value in Hong Kong increased from approximately HK$1,846.1 billion in 2010 to approximately HK$2,070.8 billion in 2014, at a CAGR of approximately 2.9%. It is expected that GDP in Hong Kong will grow consistently from 2015 onwards, reaching about HK$2,440.1 billion in It can be attributed to the expected increase in export value given the global economic recovery, and the expected increase in investment inflow from China to Hong Kong in the next five years as 60% of Chinese outbound investments was directed to or channeled through Hong Kong. Consumption contributed 50.2% of growth of gross domestic product in 2014 and account for 60% of the GDP in the first half of 2015, even as the country grew at its slowest in 25 years. These factors are likely to stimulate the development of the property market, leading to the growth of construction and civil engineering industries. MARKET OVERVIEW OF THE CONSTRUCTION INDUSTRY IN HONG KONG The total investment value in construction projects in Hong Kong increased from about HK$174.8 billion in 2010 to about HK$330.6 billion in 2014, at a CAGR of about 17.3% as a result of factors such as the Ten Major Infrastructure Projects proposed by the Government in 2007 and the growing cost of raw materials and labour, as well as the increasing contract fees to subcontractors. From 2010 to 2014, the value of construction projects commissioned by the public sector increased from approximately HK$31.2 billion to approximately HK$68.8 billion, at a CAGR of about 21.9%, while that of the private sector increased from approximately HK$30.3 billion to approximately HK$53.9 billion, at a CAGR of about 15.5%. According to the Budget Speech, the Government planned to increase its total public expenditure on infrastructure to about HK$85.8 billion in from about HK$79.3 billion in , representing about 8.2% growth. These infrastructure projects include the construction of a three-runway system for the Hong Kong International Airport, the Guangzhou-Shenzhen-Hong Kong Express Rail Link and the Hong Kong-Zhuhai-Macao Bridge. Meanwhile, land covering approximately 1.3 million sq.m. of floor area is expected to be provided for commercial buildings in stages in the coming years. The construction of the runway, rail link, bridges, roads and buildings will continue to drive the growth of the construction industry, and in particular the civil engineering industry. Major participants in the construction industry in Hong Kong Customers Construction projects originate from the customers, which include the Government departments, land owners and property developers. In the public sector, the Government is the key customer, and infrastructure projects are mainly commissioned by Government departments. In the private sector, land owners or property developers obtain land ownership through winning auctions of public land sites. Construction works on these land sites mainly involve the construction of residential, commercial and industrial buildings. Moreover, it is common for construction companies to rely on a few customers. Their customers can be the Government, public and private utility companies, property developers and main contractors and subcontractors, etc. 52

59 INDUSTRY OVERVIEW Main contractors The main contractors obtain construction projects from the customers. These projects include civil engineering construction, site formation, piling, demolition, erection of architectural superstructure, structural alteration, etc. Subcontractors Given the scope of the project or the skillset required, the main contractors may consider outsourcing part(s) of the construction works to subcontractors depending on their expertise and experience in the field. Suppliers The suppliers, such as steel distributors, concrete suppliers and site equipment rental companies, provide the necessary materials and equipment for the projects. Sometimes the construction cost would be settled by contra-charge arrangement between the main contractors and subcontractors. Gross output value of construction works performed by main contractors and subcontractors in Hong Kong The gross output value of the construction works performed by subcontractors increased from about HK$9.0 billion in 2010 to about HK$32.5 billion in 2014, at a CAGR of about 37.8%. The value is expected to further increase from about HK$43.0 billion to about HK$149.9 billion between 2015 and 2019, at a CAGR of approximately 36.6%. The weight of subcontractors in the overall gross output value of construction works increased significantly from 12.8% in 2010 to 20.9% in With the growing size and complexity of the construction projects, it has been a growing trend to award large and complex works as a single contract package to main contractors who possess multi-disciplinary qualifications, and are on the list of approved contractors of the relevant Government department(s) to carry out both civil engineering works and building works. These main contractors will then subcontract some parts of construction works to different subcontractors. Normally, the subcontractors will then outsource part of their works to some other smaller subcontractors. With such kind of multi-level outsourcing and subcontracting, the gross output value as a percentage of total subcontractors has been increasing from 2010 to Moreover, this is expected to grow from 22.2% in 2015 to 33.4% in 2019 with the Government s initiatives to increase housing supply and the upcoming infrastructure projects. 53

60 INDUSTRY OVERVIEW MARKET OVERVIEW OF THE CIVIL ENGINEERING CONSTRUCTION INDUSTRY IN HONG KONG The chart below shows the gross output value (or revenue) of civil engineering construction industry in Hong Kong and the contribution of the main contractors and subcontractors on the civil engineering construction industry in Hong Kong between 2010 and 2014 and its forecast from 2015 to 2019: HK$ billion E 2016F 2017F 2018F 2019F Main Contractor Subcontractor Source: Ipsos Report The market size of the civil engineering construction industry in Hong Kong is around HK$67.6 billion in terms of revenue, which accounted for around 43.6% of the construction industry in Hong Kong in The revenue of the civil engineering sector in Hong Kong rose at a CAGR of around 35.4%, from around HK$20.1 billion in 2010 to around HK$67.6 billion in The rising number of projects for civil engineering works as well as the increase in the contract value of projects in recent years were the major reasons for the growth. It is expected that the revenue of the civil engineering construction industry in Hong Kong will grow substantially from around HK$86.6 billion in 2015 to around HK$186.5 billion in 2019, equivalent to a CAGR of around 21.1%. The increment is mainly due to the ongoing and upcoming Ten Major Infrastructure Projects which included the construction of new development areas ( NDAs ), urban renewal projects and the Government s plan to increase the public housing. The revenue of civil engineering works performed by subcontractors at construction sites grew from about HK$2.6 billion in 2010 to about HK$14.1 billion in 2014, at a CAGR of about 52.6%. The weight of subcontractors in the overall revenue of civil engineering construction works increased 8.0%, from around 12.9% in 2010 to around 20.9% in With large complex projects and a need for a multitude of specialised skills, many main contractors in Hong Kong rely heavily on subcontractors for the execution of civil engineering works. Therefore the growth of the number of these projects and the increasing reliance on subcontractors for execution resulted in the increment of the weight of subcontractors in the overall revenue of civil engineering construction works in Hong Kong. Sustained growth of the demand for civil engineering subcontracting works is expected with the weight of subcontractors in the overall revenue of civil engineering construction works in Hong Kong expected to grow from about 22.3% in 2015 to about 30.8% in 2019 due to the increase in the number of large and complex construction works, such as the Kai 54

61 INDUSTRY OVERVIEW Tak development reconstruction and upgrading of Kai Tak Nullah, Expansion of Tai Po water treatment works and ancillary raw water and fresh water transfer facilities part 2 works and the ongoing and upcoming Ten Major Infrastructure Projects. Sub-segments of civil engineering works in Hong Kong Based on the licenses in the Development Bureau, the sub-segments of the civil engineering works in Hong Kong are ports works, roads and drainage, site formation and waterworks. Some iconic civil engineering works in Hong Kong include the Tsing Ma Bridge and Hong Kong International Airport. Roads and drainage works Roads and drainage works refer to the construction and widening of roads, construction of footbridge and other drainage related infrastructures such as the sewage pipes, storm drains, water mains and other maintenance works. In line with the trend that the Government s plan to develop the NDAs in North East New Territories and Hung Shui Kiu, it is expected that the demand for residential and commercial buildings in these areas will increase, and infrastructure and facilities such as highways, roads and drainages are necessary for the development. Structural works Civil engineering structural works refer to the construction of major frameworks of the infrastructures which provide them with the supportive structures and allow them to withstand various extreme forces, such as large variations in temperature, dynamic loads such as waves or traffic, or high pressures from water or compressed gases. Some of them are being constructed in corrosive environments, such as at sea, in industrial facilities or below ground. Many types of civil engineering works require structural works including port works, site formation, waterworks as well as road and drainage. Major civil engineering structural works in recent years include the Hong Kong-Zhuhai-Macao bridge and the Tuen Mun Western bypass as well as the Railway Network Extension Five Railway Projects are currently at different stages of implementation and are expected to be completed between 2015 and These projects include the West Island Line, the South Island Line (East), the Kwun Tong Line Extension, the Guangzhou-Shenzhen-Hong Kong Express Rail Link (Hong Kong Section), and the Shatin to Central Link. Apart from these five railway extension projects, several railway projects are planned to commence in 2018 and are expected to be completed between 2023 and These projects include Northern Link and Kwun Tong Station, Hung Shui Kiu Station, Tung Chung West Extension, Tuen Mun South Extension, East Kowloon Line, South Island Line (West), and North Island Line. Therefore, continuous demand for structural works are envisaged. Site formation works Site formation works required at construction sites refer to the demolition of an existing building, excavation to the design formation level and reduction and stabilisation of construction sites. Major site formation projects in recent years included the Liantang/Heung Yuen Wai Boundary Control Point and the Kai Tak Cruise Terminal Development. Site formation works are crucial to every construction projects, including general buildings and civil engineering projects. Whether it is a redevelopment project or a new project, site 55

62 INDUSTRY OVERVIEW formation works are imperative to stabilise the construction site before any construction works take place. With increasing construction activities taking place in Hong Kong, it is expected that site formation works will continue its growth momentum. Wage trend for workers in the civil engineering construction industry in Hong Kong The chart below shows the salary index of civil engineering construction workers in Hong Kong between 2010 and 2015: Salary index for workers in the civil engineering construction industry Notes: Index series with April 2003 as base period (i.e. April 2003 = 100) The salary index for workers in the civil engineering construction industry rose from 95.5 to between 2010 and 2015, which can be translated to an increase of around 52.5% and a CAGR of around 8.8%. The aging and shrinking construction industry workforce has been a long existing challenge for the civil engineering construction industry in Hong Kong. As of 2014, approximately 40.0% of the registered construction workers in Hong Kong are seniors, with an average age of over 50 years old. Given the labour intensive job nature of the civil engineering construction, the aging population together with the limited number of skilled workers have made the situation even worse and as a result, workers salaries have been driven up over the past 5 years. According to the Hong Kong Construction Industry Employees General Union, it is expected that the daily wages for construction workers will increase by about 10.3% from 2014/15 to 2015/16. Amongst different types of construction workers, the daily wage for carpenter (formwork), concretor and bar bender and fixer will experience a significant growth at about 17.1%, 15.0% and 12.9%, respectively from 2014/15 to 2015/16. As the salaries of the workers increase, the costs and hence final fees of civil engineering construction projects are set to increase. 56

63 INDUSTRY OVERVIEW Price trend of key raw materials used in the civil engineering construction industry in Hong Kong The charts below show the wholesale price trend of steel reinforcements, cements and diesel fuel in Hong Kong from January 2010 to November 2015: HK$ HK$ 7, , ,000 4, , ,000 1, Nov Nov 2015 Steel reinforcements high tensile steel bars, 10mm to 40mm, per tonne Diesel fuel for industrial use (light), per 200-litre drum Portland cement (ordinary), per tonne Steel reinforcements The average wholesale price of steel reinforcements decreased from an annual average price of about HK$5,733.8 per tonne in 2010 to about HK$3,767.4 per tonne for the 11 months ended 30 November 2015, which translated to a CAGR of about -8.1%. Monthly average price of steel reinforcements reached its peak at about HK$6,595.0 per tonne in September The rising trend was mainly attributed to the strong construction demand in Hong Kong. However, the price of steel reinforcements experienced a downtrend since September The decreasing price for crude steel, together with the downsizing of the construction industry in China are the major reasons which led to an overproduction of steel in China. As over 90% of structural steel consumed in Hong Kong came from China, monthly average price of steel reinforcements in Hong Kong started to fall continually from HK$6,595.0 per tonne in September 2011 to about HK$3,333.0 per tonne in November 2015, down by about 49.5%. Cement Hong Kong s annual average wholesale price of cement showed a substantial growth from around HK$612.7 per tonne in 2010 to approximately HK$739.3 per tonne for the 11 months ended 30 November 2015, representing a CAGR of about 3.8%. The annual growth rate was most significant in 2011, a change of about 8.2%, this can be attributed to the correction of the oversupply of cement in the market. Other support of the rising price trend came from the appreciation of the RMB which resulted in high commodity prices, as well as the accelerated pace of inflation in Hong Kong. 57

64 INDUSTRY OVERVIEW Diesel fuel The average wholesale price of diesel fuel in Hong Kong dropped slightly at a CAGR of about -0.9%, from an annual average price of about HK$2,187.6 per 200-litre drum in 2010 to an annual average price of about HK$1,882.7 per 200-litre drum for the 11 months ended 30 November The monthly average wholesale price of diesel fuel rose sharply from around HK$2,257.0 per 200-litre drum in November 2010 to about HK$2,916.0 per 200-litre drum in May 2011, up by about 29.2%. Such increase was mainly attributed to the instability in Libya and the appreciation of the US dollar. However, in view of the European debt crisis, the monthly average wholesale price of diesel fuel in Hong Kong slumped to about HK$1,931.0 per 200-litre drum in October 2011 from about HK$2,875.0 per 200-litre drum in September Since Libya has restored its diesel fuel output to pre-war levels, the monthly average wholesale price of diesel fuel in Hong Kong has become more stable since 2012 and the situation is expected to persist in the coming years. COMPETITIVE LANDSCAPE OF THE CIVIL ENGINEERING CONSTRUCTION INDUSTRY IN HONG KONG The top five civil engineering contractors act as main contractors in the overall civil engineering construction industry, and they accounted for about 54.6% of the total revenue of the civil engineering construction industry in Meanwhile, the civil engineering subcontracting industry in Hong Kong is fragmented. As at the Latest Practicable Date, there were over 700 structural and civil engineering subcontractors being registered under the Construction Industry Council. As a significant number of civil engineering projects are originated from the Government and generally, a main contractor is responsible for overseeing the entire project from a broader perspective, in most cases subcontractors are principally responsible for project execution. Thus, during the post tendering process, main contractors tend to work with subcontractors with assured quality and capability in order to reduce the risk of project delay. As such, subcontractors with a solid track record is more welcomed by main contractors when they are considering a partner to cooperate with. The ranking for civil engineering subcontractors is not available due to the scattered information. Civil engineering works can be broadly classified into port works, roads and drainage, site formation, waterworks, and structural works. Amongst these, civil engineering works can be further categorised into finer sub-segments, such as demolition, excavation, land leveling, slope stabilisation etc.. Furthermore, as mentioned above, there is a large number of civil engineering subcontractors (over 700 as at the Latest Practicable Date) specialising in different civil engineering works, and most of these civil engineering subcontractors are private companies with a lack of publicly available information. In 2014, our Group accounted for around 1.8% (or HK$254 million) of the total revenue in the civil engineering construction industry generated by subcontractors (HK$14.1 billion) in Hong Kong. 58

65 INDUSTRY OVERVIEW Future trends and development of the civil engineering industry in Hong Kong Civil engineering companies in Hong Kong have been increasingly exporting civil engineering consulting services overseas. The quality of civil engineering works in Hong Kong enjoy a good reputation around the world. Civil engineering companies in Hong Kong have been exporting project management and engineering consulting services to emerging markets in Asia, especially China. There has been a substantial need for infrastructure development in China, demanding a certain level of civil engineering sub-contractors, as well as professionals. Transportation link construction will be the major projects that sustain the growth of the civil engineering industry in Hong Kong. The transportation sector will remain the largest end-user group of Hong Kong s civil engineering construction industry. Announced in 1997, the Ten Major Infrastructure Projects are mainly transportation projects. In the coming years, the infrastructure projects will still revolve around the transportation sector, such as the ongoing construction of Hong Kong-Zhuhai-Macao Bridge, MTR Shatin-Central Line as well as the Hong Kong-Shenzhen Express Link. The transportation sector is expected to act as one of the key drivers for the civil engineering construction industry in Hong Kong in the near future. Factors of competition Qualifications Civil engineering subcontractors who registered under the Subcontractor Registration Scheme (SRS) launched by the Construction Industry Council will enjoy enhanced recognition and visibility in the civil engineering construction industry in Hong Kong. Subcontractors may apply for registration in one or more of 52 trades covering common structural, civil, finishing, electrical and mechanical works and supporting services. As at the Latest Practicable Date, there are over 700 structural and civil engineering subcontractors registered under the Construction Industry Council. Main contractors may consider qualifications as an important factor when choosing subcontractors. Subcontractors who possess sufficient project experience, high quality construction works with proven track records have higher chance to win project tenders. Technical expertise Civil engineering contractors are expected to possess related expertise to carry out different types of civil engineering works. It is also an important factor to meet project timeline, quality and budget. With good technical understanding of civil engineering works by an experienced project management team, the contractor is able to address different issues that may arise during project execution, and foresee potential problems during the project. Thus, civil engineering contractors with specialised expertise appeared to have a higher chance to get the tender and be involved in high value projects. Quality of works Quality of works is one of the most important factors of competition in civil engineering construction industry in Hong Kong. Lower quality civil engineering works may cause some serious problem, including bursting pipes, difficulties in foundation works, especially for shallow foundations. In general, customers assess civil engineering contractors in different aspects, which include the timeliness of project delivery, the quality of works 59

66 INDUSTRY OVERVIEW and the capability of meeting safety and environmental requirements. In addition, civil engineering contractors who maintain a good safety record are also more competitive than their competitors. Market drivers Ten Major Infrastructure Projects such as the Hong Kong-Zhuhai-Macao Bridge, the Railway Network Extension project and the Tuen Mun Western bypass have driven the growth of the construction industry especially in the civil engineering sector. As most of these Ten Major Infrastructure Projects are mega size and take several years to complete, due to the complexity and scope, it is expected that several subcontractors are needed for any one of these projects, which will then boost up the demand for civil engineering subcontractors in the coming years. Moreover, in the Budget Speech, the Government reiterated its commitment to infrastructure. With the occupational trainings initiated by the Government in recent years which aimed to provide more skilled labor to the construction industry, in order to create enough job opportunities for these trained construction workers, it is expected that the Government will continue their support on the construction industry by executing the remaining major infrastructure projects in the pipeline, such as the Hong Kong-Shenzhen airport cooperation and the Hong Kong-Shenzhen joint development of the Lok Ma Chau Loop. Entry barriers Knowledge of civil engineering, structural, geology and technical expertise is one of the entry barriers for the civil engineering subcontracting industry as a subcontractor is principally responsible for execution and problem solving at the construction site. Industry knowledge and technical expertise can only be accumulated through years of education, on-site practical experience as well as trial and error. Potential players that lack industry knowledge and technical expertise would encounter difficulties when entering the industry. Moreover, subcontracting works usually involve highly specialised site equipment during operation. Therefore sufficient capital is required for site equipment investment when entering the industry. If a subcontractor solely relies on site equipment rental service providers, it is difficult for them to provide enough flexibility for various construction projects. Opportunities Infrastructure development plans Infrastructure development plans, in particular the Ten Major Infrastructure Projects initiated by the Government in 2007, drove the demand in construction industry in recent years with a focus on the civil engineering sector. Given that the Government has announced to spend an estimated HK$85.8 billion on public infrastructure in its Budget Speech, it is expected that existing and new infrastructure projects will continue to provide opportunities to the subcontractors in the civil engineering industry. Government support on labour training Shortage of skilled labour has been a long existing problem in the civil engineering construction industry which is labour intensive. In order to attract new entrants to the construction industry, the Development Bureau has cooperated with the Construction Industry Council to launch the Build Up Training Programme since One of the initiatives is implementing the Enhanced Construction Manpower Training Scheme (ECMTS) 60

67 INDUSTRY OVERVIEW with enhanced training allowance in selected trades. Successful graduate trainees will receive reasonable allowance during the training period and also a stable income from participating employers after graduation. The support and subsidies from the Government is anticipated to increase the supply of labour in the long run and hence further stabilising the civil engineering construction industry. Threats Increasing construction costs will hinder the profitability of the civil engineering subcontractors in Hong Kong Similar to the construction industry in Hong Kong, civil engineering subcontractors also face the problem of increasing construction costs due to the inflation of raw materials and labour costs. The average wage of construction workers in Hong Kong increased by about 57.5% between 2010 and 2015, reaching about HK$91.2 per hour in 2015, while the average wholesale price of cement in Hong Kong increased substantially at a CAGR of about 3.8% between 2010 to 2015, from an average of about HK$612.7 per tonne to an average of about HK$739.3 per tonne. Insufficient experienced and skilled labour may threaten the development of civil engineering industry in Hong Kong According to the Report on manpower research for the construction industry in Hong Kong published in 2014, it was projected that over 30,000 to 40,000 additional construction workers, in which over 15,000 to 20,000 skilled workers would be needed in A large number of civil engineering workers will be in a great demand due to the strong growth of the civil engineering industry in Hong Kong. The problem of insufficient experienced and skilled labour may threaten the development of Hong Kong s civil engineering industry. 61

68 REGULATORY OVERVIEW This section sets forth a summary of the major laws and regulations applicable to our business in Hong Kong. A. LABOUR, HEALTH AND SAFETY Factories and Industrial Undertakings Ordinance (Chapter 59 of the Laws of Hong Kong) The Factories and Industrial Undertakings Ordinance provides for the safety and health protection to workers in an industrial undertaking. Under the Factories and Industrial Undertakings Ordinance, every proprietor shall, as far as is reasonably practicable take care of the safety and health at work of all persons employed by him at the industrial undertaking by: providing and maintaining plant and work systems that are safe and without risks to health; making arrangements for ensuring safety and health in connection with the use, handling, storage and transport of articles and substances; providing all necessary information, instruction, training, and supervision for ensuring safety and health; providing and maintaining safe access to and egress from the workplaces; and providing and maintaining a work environment that is safe and without risks to health. A proprietor who contravenes these duties commits an offence and is liable to a fine of HK$500,000. A proprietor who contravenes these duties wilfully and without reasonable excuse commits an offence and is liable to a fine of HK$500,000 and to imprisonment for 6 months. Section 6BA(5) of the Factories and Industrial Undertakings Ordinance also provides that on and after the appointed day (as defined in the Factories and Industrial Undertakings Ordinance) every proprietor shall not employ at the undertaking a relevant person who has not been issued a relevant safety training certificate or whose relevant certificate has expired. A proprietor who contravenes this section commits an offence and is liable to a fine of HK$50,000 (level 5). Occupational Safety and Health Ordinance (Chapter 509 of the Laws of Hong Kong) The Occupational Safety and Health Ordinance provides for the safety and health protection to employees in workplaces, both industrial and non-industrial. 62

69 REGULATORY OVERVIEW Employers must, as far as reasonably practicable, ensure the safety and health of their employees at work by attending to the following: providing and maintaining plant and work systems that are safe and without risks to health; making arrangement for ensuring safety and absence of risks to health in connection with the use, handling, storage or transport of plant or substances; providing all necessary information, instruction, training, and supervision for ensuring safety and health; maintaining the workspace in a condition that is safe and without risks to health; providing and maintaining safe access to and egress from the workplaces; and providing and maintaining a working environment that is safe and without risks to health. Failure to comply with the above provisions constitutes an offence and the employer is liable on conviction to a fine of HK$200,000. An employer who fails to do so intentionally, knowingly or recklessly commits an offence and is liable on conviction to a fine of HK$200,000 and to imprisonment for 6 months. The Commissioner for Labour may also issue improvement notice against non-compliance of the Occupational Safety and Health Ordinance or the Factories and Industrial Undertakings Ordinance, or suspension notice against activity of workplace which may create imminent hazard to the employees. Failure to comply with such notices constitutes an offence punishable by a fine of HK$200,000 and HK$500,000 respectively and imprisonment of up to 12 months. Employees Compensation Ordinance (Chapter 282 of the Laws of Hong Kong) The Employees Compensation Ordinance establishes a no-fault and non-contributory employee compensation system for work injuries and lays down the rights and obligations of employers and employees in respect of injuries or death caused by accidents arising out of and in the course of employment, or by prescribed occupational diseases. Under the Employees Compensation Ordinance, if an employee sustains an injury or dies as a result of an accident arising out of and in the course of his employment, his employer is in general liable to pay compensation even if the employee might have committed acts of faults or negligence when the accident occurred. Similarly, an 63

70 REGULATORY OVERVIEW employee who suffers incapacity or dies arising from an occupational disease is entitled to receive the same compensation as that payable to employees injured in occupational accidents. According to section 15 of the Employees Compensation Ordinance, an employer must notify the Commissioner for Labour of any work accident by submitting Form 2 (within 14 days for general work accidents and within 7 days for fatal accidents), irrespective of whether the accident gives rise to any liability to pay compensation. If the happening of such accident was not brought to the notice of the employer or did not otherwise come to his knowledge within such periods of 7 or 14 days (as the case may be) then such notice shall be given not later than 7 days or, as may be appropriate, 14 days after the happening of the accident was first brought to the notice of the employer or otherwise came to his knowledge. Pursuant to section 24 of the Employees Compensation Ordinance, a principal contractor shall be liable to pay compensation to subcontractors employees who are injured in the course of their employment to the subcontractor. The principal contractor is, nonetheless, entitled to be indemnified by any person who would have been liable to pay compensation to the injured employee. According to section 40 of the Employees Compensation Ordinance, all employers (including contractors and subcontractors) are required to take out insurance policies to cover their liabilities for injuries at work in respect of all their employees (including full-time and part-time employees). Where a principal contractor has undertaken to perform any construction work, it may take out an insurance policy for an amount not less than HK$200 million per event to cover its liability and that of its subcontractor(s) under the Employees Compensation Ordinance and at common law. An employer who fails to comply with the Employees Compensation Ordinance to secure an insurance cover is liable on conviction to a fine at level 6 (currently at HK$100,000) and imprisonment for 2 years. Employment Ordinance (Chapter 57 of the Laws of Hong Kong) A principal contractor is subject to the provisions on subcontractor s employees wages in the Employment Ordinance. Section 43C of the Employment Ordinance provides that if any wages become due to an employee who is employed by a subcontractor on any work which the subcontractor has contracted to perform, and such wages are not paid within the period specified in the Employment Ordinance, such wages shall be payable by the principal contractor and/or every superior subcontractor jointly and severally. A principal contractor s liability shall be limited (a) to the wages of an employee whose employment relates wholly to the work which the principal contractor has contracted to perform and whose place of employment is wholly on the site of the building work; and (b) to the wages due to such an employee for 2 months without any deductions (such months shall be the first 2 months of the period in respect of which the wages are due). 64

71 REGULATORY OVERVIEW An employee who has outstanding wage payments from a subcontractor must serve a notice in writing on the principal contractor within 60 days after the wage due date or another 90 days if permissible. A principal contractor and superior subcontractor (where applicable) shall not be liable to pay any wages to the employee of the subcontractor if that employee fails to serve a notice on the principal contractor. Upon receipt of such notice from the relevant employee, a principal contractor shall, within 14 days after receipt of the notice, serve a copy of the notice on every superior subcontractor to that subcontractor (where applicable) of whom he is aware. A principal contractor who without reasonable excuse fails to serve notice on the superior subcontractor(s) shall be guilty of an offence and shall be liable on conviction to a fine at level 5 (currently at HK$50,000). Pursuant to section 43F of the Employment Ordinance, if a principal contractor or superior subcontractor pays to an employee any wages under section 43C of the Employment Ordinance, the wages so paid shall be a debt due by the employer of that employee to the principal contractor or superior subcontractor having made such payment, as the case may be. The principal contractor or superior subcontractor may either (1) claim contribution from every superior subcontractor to the employee s employer or from the principal contractor and every other such superior subcontractor as the case may be; or (2) deduct by way of set-off the amount paid by him from any sum due or may become due to the subcontractor in respect of the work that he has subcontracted. Occupiers Liability Ordinance (Chapter 314 of the Laws of Hong Kong) The Occupiers Liability Ordinance regulates the obligations of a person occupying or having control of premises on injury resulting to persons or damage caused to goods or other property lawfully on the land. The Occupiers Liability Ordinance imposes a common duty of care on an occupier of premises to take such care as in all the circumstances of the case is reasonable to see that the visitor will be reasonably safe in using the premises for the purposes for which he is invited or permitted by the occupier to be there. Immigration Ordinance (Chapter 115 of the Laws of Hong Kong) Pursuant to section 38A of the Immigration Ordinance, a construction site controller (i.e. the principal or main contractor, and includes a subcontractor, owner, occupier or other person who has control over or is in charge of a construction site) should take all practicable steps to (i) prevent having illegal immigrants from being on site or (ii) prevent illegal workers who are not lawfully employable from taking employment on site. 65

72 REGULATORY OVERVIEW Where it is proved that (i) an illegal immigrant was on a construction site; or (ii) such illegal worker who is not lawfully employable took employment on a construction site, the construction site controller commits an offence and is liable to a fine of HK$350,000. Minimum Wage Ordinance (Chapter 608 of the Laws of Hong Kong) The Minimum Wage Ordinance provides for a prescribed minimum hourly wage rate (currently set at HK$32.5 per hour) during the wage period for every employee engaged under a contract of employment under the Employment Ordinance. Any provision of the employment contract which purports to extinguish or reduce the right, benefit or protection conferred on the employee by the Minimum Wage Ordinance is void. Construction Workers Registration Ordinance (Chapter 583 of the Laws of Hong Kong) The Construction Workers Registration Ordinance ( CWRO ) was enacted on 2 July 2004 to provide, among others, for registration and regulation of construction workers. The principal object of the CWRO is to establish a system for registration of construction workers and to regulate construction workers who personally carry out construction work on construction sites. Employment of registered construction workers Under sections 3(1) and 5 of the CWRO, the principal contractors/subcontractors/ employers/controllers of construction sites are required to employ only registered construction workers to personally carry out construction work on construction sites. Keeping and submission of site daily attendance report Under the CWRO, a principal contractor/controller of a construction site is required to: 1. establish and maintain a daily record in the specified form that contains information on registered construction workers employed by him and, in the case of a controller being the principal contractor, by a subcontractor of the controller (section 58(7)(a) of the CWRO); and 2. furnish the Registrar of Construction Workers in such manner as directed by the Registrar of Construction Workers with a copy of the record: i. for the period of 7 days after any construction work begins on the site; and ii. for each successive period of 7 days, within 2 working days following the last day of the period concerned (section 58(7)(b) of the CWRO). 66

73 REGULATORY OVERVIEW Mandatory Provident Fund Schemes Ordinance (Chapter 485 of the Laws of Hong Kong) Employers are required to enroll their regular employees (except for certain exempt persons) who are at least 18 but under 65 years of age and employed for 60 days or more in a Mandatory Provident Fund ( MPF ) scheme within the first 60 days of employment. For both employees and employers, it is mandatory to make regular contributions into a MPF scheme. For an employee, subject to the maximum and minimum levels of income (HK$25,000 and HK$7,100 per month, respectively before 1 June 2014 or HK$30,000 and HK$7,100 per month, respectively on or after 1 June 2014), an employer will deduct 5% of the relevant income on behalf of an employee as mandatory contributions to a registered MPF scheme with a ceiling of HK$1,250 before 1 June 2014 or HK$1,500 on or after 1 June Employer will also be required to contribute an amount equivalent to 5% of an employee s relevant income to the MPF scheme, subject only to the maximum level of income (HK$25,000 per month before 1 June 2014 or HK$30,000 on or after 1 June 2014). Industry scheme Industry Schemes were established under the MPF system for employers in the construction and catering industries in view of the high labour mobility in these two industries, and the fact that most employees in these industries are casual employees whose employment is on a day-to-day basis or for a fixed period of less than 60 days. For the purpose of the Industry Schemes, the construction industry covers the following eight major categories: (1) foundation and associated works; (2) civil engineering and associated works; (3) demolition and structural alteration works; (4) refurbishment and maintenance works; (5) general building construction works; (6) fire services, mechanical, electrical and associated works; (7) gas, plumbing, drainage and associated works; and (8) interior fitting-out works. The Mandatory Provident Fund Schemes Ordinance does not stipulate that employers in these two industries must join the Industry Schemes. The Industry Schemes provide convenience to the employers and employees in the construction and 67

74 REGULATORY OVERVIEW catering industries. Casual employees do not have to switch schemes when they change jobs within the same industry, so long as their previous and new employers are registered with the same Industry Scheme. This is convenient for scheme members and saves administrative costs. Dangerous Goods Ordinance (Chapter 295 of the Laws of Hong Kong) Pursuant to the Dangerous Goods Ordinance (Chapter 295 of the Laws of Hong Kong), storage of any dangerous goods in excess of the prescribed exempted quantity shall require a dangerous goods licence. Under the Dangerous Goods Ordinance, dangerous goods include all explosives, compressed gases, petroleum and other substances giving off inflammable vapours, substances giving off poisonous gas or vapour, corrosive substances, substances which become dangerous by interaction with water or air, substances liable to spontaneous combustion or of a readily combustible nature. Under section 6 of the Dangerous Goods Ordinance, no person shall store any dangerous goods in excess of exempted quantity in any premises or places without a licence issued by the director of the Fire Services Department. Pursuant to Regulation 77 of the Dangerous Goods (General) Regulations, every application for any licence to manufacture or store in bulk any permanent gas or liquefied gas shall be made in writing addressed to the director of the Fire Services Department. Under section 14 of the Dangerous Goods Ordinance, any person who contravenes section 6 of the Dangerous Goods Ordinance shall be guilty of an offence and shall be liable to a fine of HK$25,000 and to imprisonment for 6 months. B. ENVIRONMENTAL PROTECTION Air Pollution Control Ordinance (Chapter 311 of the Laws of Hong Kong) The Air Pollution Control Ordinance is the principal legislation in Hong Kong for controlling emission of air pollutants and noxious odour from construction, industrial and commercial activities and other polluting sources. Subsidiary regulations of the Air Pollution Control Ordinance impose control on air pollutant emissions from certain operations through the issue of licences and permits. A contractor shall observe and comply with the Air Pollution Control Ordinance and its subsidiary regulations, particularly the Air Pollution Control (Open Burning) Regulation, the Air Pollution Control (Construction Dust) Regulation and the Air Pollution Control (Smoke) Regulation. The contractor responsible for a construction site shall devise, arrange methods of working and carrying out the works in such a manner so as to minimise dust impacts on the surrounding environment, and shall provide experienced personnel with suitable training to ensure that these methods are implemented. Asbestos control provisions in the Air Pollution Control Ordinance require that building works involving asbestos must be conducted only by registered qualified personnel and under the supervision of a registered consultant. 68

75 REGULATORY OVERVIEW Air Pollution Control (Construction Dust) Regulation (Chapter 311R of the Laws of Hong Kong) Under the Air Pollution Control (Construction Dust) Regulation, construction work includes but not limited to the construction, demolition and reconstruction of the whole or any part of any building or other structure and site formation. Under section 3 of the Air Pollution Control (Construction Dust) Regulation, the contractor responsible for a construction site where any notifiable work is proposed to be carried out shall give notice to the public officer appointed under the Air Pollution Control Ordinance of the proposal to carry out the work. Such notifiable work includes site formation, reclamation, demolition of a building, work carried out in any part of a tunnel that is within 100 metres of any exit to the open air, construction of the foundation of a building, construction of the superstructure of a building or road construction work. Under section 4 of the Air Pollution Control (Construction Dust) Regulation, the contractor responsible for a construction site where a notifiable work is being carried out shall ensure that the work is carried out in accordance with the Schedule of the Air Pollution Control (Construction Dust) Regulation. Air Pollution Control (Non-road Mobile Machinery) (Emission) Regulation (Chapter 311Z of the Laws of Hong Kong) The Air Pollution Control (Non-road Mobile Machinery) (Emission) Regulation came into effect on 1 June 2015 to introduce regulatory control on the emissions of non-road mobile machinery (the NRMMs ), including non-road vehicles and regulated machines such as crawler cranes, excavators and air compressors. Our Directors confirmed that such regulated machines also include site equipment such as generators, hydraulic truck crane, vibrating rollers and aerial working platforms which are subject to the Air Pollution Control (Non-road Mobile Machinery) (Emission) Regulation. Unless exempted, NRMMs which are regulated under this provision are required to comply with the emission standards prescribed under this regulation. From 1 September 2015, all regulated machines sold or leased for use in Hong Kong must be approved or exempted with a proper label in a prescribed format issued by the Environmental Protection Department pursuant to section 4 of the Air Pollution Control (Non-road Mobile Machinery) (Emission) Regulation. Under section 5 of the Air Pollution Control (Non-road Mobile Machinery) (Emission) Regulation, starting from 1 December 2015, only approved or exempted NRMMs with a proper label are allowed to be used in specified activities and locations including construction sites. However, existing NRMMs which are already in Hong Kong on or before 30 November 2015 will be exempted from complying with the emission requirements pursuant to section 11 of the Air Pollution Control (Non-road Mobile Machinery) (Emission) Regulation. A period of six months (from 1 June 2015 to 30 November 2015, both dates inclusive) is allowed for existing NRMMs to apply for exemption. 69

76 REGULATORY OVERVIEW Any person who sells or leases a regulated machine for use in Hong Kong, or uses a regulated machine in specified activities or locations without (i) exemption or the Environmental Protection Department s approval is liable to a fine of up to HK$200,000 and imprisonment for up to six months, and (ii) a proper label is liable to a fine of up to HK$50,000 and imprisonment for up to three months. On 8 February 2015, the Works Branch of Development Bureau issued the Technical Circular (Works) No. 1/2015 (the Technical Circular ), pursuant to which the Government has promulgated an implementation plan to phase out progressively the use of exempted NRMM for four types of exempted NRMM, namely generators, air compressors, excavators and crawler cranes in new capital works contracts of public, including design and build contracts, with an estimated contract value exceeding HK$200 million and tenders invited on or after 1 June Notwithstanding the aforesaid phase out plan, exempted NRMM may still be permitted at the discretion of the architect or engineer of public contracts if there is no feasible alternative. Pursuant to the phase out plan detailed in the Technical Circular, the contractors being invited to tender or to participate in all new capital works contracts of public works (including design and build contracts) with an estimated contract value exceeding HK$200 million on or after 1 June 2015 shall allow no exempted generator and air compressor to be used on site after 1 June 2015 and the quantity of exempted excavators and crawler cranes used on site not to exceed 50%, 20% and 0% of the total number of exempted NRMMs being used on site since 1 June 2015, 1 June 2017 and 1 June 2019, respectively. As at the Latest Practicable Date, our Group has 35 regulated machines, out of which 31 machines were exempted and 4 machines were approved with a proper label in a prescribed format issued by the Hong Kong Environmental Protection Department under the Air Pollution Control (Non-road Mobile Machinery) (Emission) Regulation. Set out below is the table showing the details of the exempted and approved NRMMs owned by our Group as at the Latest Practicable Date: Quantity Approved Exempted Carrying value as at 30 November 2015 HK$ 000 Mobile generator 3 4 (Note 1) 1,094 Air Compressor 1 4 (Note 2) 3 Excavator 12 2,272 Road works machine (Note 3) Lifting platform Mobile crane 2 2, ,111 70

77 REGULATORY OVERVIEW Notes: 1. Carrying value of approved and exempted generators amounted to approximately HK$355,000 and HK$739,000, respectively. 2. Carrying value of approved and exempted air compressors amounted to approximately HK$Nil and HK$3,000, respectively, and one approved air compressor was acquired after the Track Record Period for approximately HK$260, Road works machine consist of vibrating rollers. Of the 31 exempted machines, there are 20 exempted machines (4 generators, 4 air compressors and 12 excavators) to be phased out under the phase out plan detailed in the Technical Circular. Our Directors confirm that none of the public projects which we participate in as at the Latest Practicable Date are subject to the phase out plan detailed in the Technical Circular. In addition, our Directors consider that we will remain able to participate in or tender for public contract with an estimated contract value exceeding HK$200 million by leasing sufficient approved NRMMs and factoring such additional costs in our tender applications. Thus, our Directors are of the view that the implementation of the Air Pollution Control (Non-road Mobile Machinery) (Emission) Regulation and the exempted NRMM phase out plan as detailed in the Technical Circular has no significant impact or adverse effect on our Group s operation and financial results. Noise Control Ordinance (Chapter 400 of the Laws of Hong Kong) The Noise Control Ordinance controls the noise from construction, industrial and commercial activities. A contractor shall comply with the Noise Control Ordinance and its subsidiary regulations in carrying out general construction works. For construction activities that are to be carried out during the restricted hours and for percussive piling at all times, construction noise permits are required from the Environmental Protection Department in advance. Under the Noise Control Ordinance, noisy construction work and the use of powered mechanical equipment in populated areas are not allowed between 7 p.m. and 7 a.m. on normal weekdays and any time on general holidays, unless prior approval has been granted by the Environmental Protection Department through the Construction Noise Permit System. Certain equipment is also subject to restrictions when its use is allowed. Hand-held percussive breakers and air compressors must comply with noise emissions standards and be issued with a noise emission label from the Environmental Protection Department. Percussive pile-driving is allowed on weekdays only with prior approval, in the form of a Construction Noise Permit from the Environmental Protection Department. Any person who is in contravention of the aforesaid provisions, according to the Noise Control Ordinance, shall be liable (a) on first conviction to a fine of HK$100,000; (b) on second or subsequent conviction, to a fine of HK$200,000, and in any case to a fine of HK$20,000 for each day during which the offence continues. 71

78 REGULATORY OVERVIEW Water Pollution Control Ordinance (Chapter 358 of the Laws of Hong Kong) The Water Pollution Control Ordinance controls the effluent discharged from all types of industrial, commercial, institutional and construction activities into public sewers, rainwater drains, river courses or water bodies. For any industry/trade generating wastewater discharge (except domestic sewage that is discharged into communal foul sewers or unpolluted water to storm drains), they are subject to licensing control by the Environmental Protection Department. All discharges, other than domestic sewage to a foul sewer or unpolluted water to a storm drain, must be covered by an effluent discharge licence. The licence specifies the permitted physical, chemical and microbial quality of the effluent and the general guidelines are that the effluent does not damage sewers or pollute inland or inshore marine waters. According to the Water Pollution Control Ordinance, unless being licensed under the Water Pollution Control Ordinance, a person who discharges any waste or polluting matter into the waters or discharges any matter into a communal sewer or communal drain in a water control zone commits an offence and is liable to imprisonment for 6 months and (a) for a first offence, a fine of HK$200,000; (b) for a second or subsequent offence, a fine of HK$400,000, and in addition, if the offence is a continuing offence, to a fine of HK$10,000 for each day during which it is proved to the satisfaction of the court that the offence has continued. Waste Disposal Ordinance (Chapter 354 of the Laws of Hong Kong) The Waste Disposal Ordinance controls the production, storage, collection, treatment, recycling and disposal of wastes. At present, livestock waste and chemical waste are subject to specific controls whilst unlawful deposition of waste is prohibited. Import and export of waste is generally controlled through a permit system. A contractor shall observe and comply with the Waste Disposal Ordinance and its subsidiary regulations, particularly the Waste Disposal (Charges for Disposal of Construction Waste) Regulation and the Waste Disposal (Chemical Waste) (General) Regulation. Under the Waste Disposal (Charges for Disposal of Construction Waste) Regulation, a main contractor who undertakes construction work with a value of HK$1,000,000 or above will be required to establish a billing account with the Environmental Protection Department to pay any disposal charges payable in respect of the construction waste generated from construction work undertaken under that contract, within 21 days after the contract is awarded. Under the Waste Disposal (Chemical Waste) (General) Regulation, anyone who produces chemical waste or causes it to be produced has to register as a chemical waste producer. The waste must be packaged, labelled and stored properly before disposal. Only a licensed collector can transport the waste to a licensed chemical waste 72

79 REGULATORY OVERVIEW disposal site for disposal. Chemical waste producers also need to keep records of their chemical waste disposal for inspection by the staff of the Environmental Protection Department. Under the Waste Disposal Ordinance, a person shall not use, or permit to be used, any land or premises for the disposal of waste unless he has a licence from the Director of Environmental Protection. A person who except under and in accordance with a permit or authorisation, does, causes or allows another person to do anything for which such a permit or authorisation is required commits an offence and is liable to a fine of HK$200,000 and to imprisonment for 6 months for the first offence, HK$500,000 and to imprisonment for 6 months for a second or subsequent offence. Dumping at Sea Ordinance (Chapter 466 of the Laws of Hong Kong) Under the Dumping at Sea Ordinance, any waste producers involved in marine dumping and related loading operations are required to obtain permits from the Director of Environmental Protection. Under the Dumping at Sea Ordinance, a person who except under and in accordance with a permit, does anything or causes or allows another person to do anything for which a permit is needed commits an offence and is liable on conviction to a fine of HK$200,000 and to imprisonment for 6 months on a first conviction; and HK$500,000 and to imprisonment for 2 years on a second or subsequent conviction; and in addition, to a further fine of HK$10,000 for each day that the court is satisfied that the operation has continued. Environmental Impact Assessment Ordinance (Chapter 499 of the Laws of Hong Kong) The Environmental Impact Assessment Ordinance is to avoid, minimise and control the adverse environmental impacts from designated projects as specified in Schedule 2 of the Environmental Impact Assessment Ordinance (for example, public utility facilities, certain large-scale industrial activities, community facilities, etc.) through the application of the environmental impact assessment process and the environmental permit system prior to their construction and operation (and decommissioning, if applicable), unless exempted. According to the Environmental Impact Assessment Ordinance, a person commits an offence if he constructs or operates a designated project listed in Part I of Schedule 2 of the Environmental Impact Assessment Ordinance (which includes roads, railways and depots, residential and other developments, etc.) without an environmental permit for the project; or contrary to the conditions, if any, set out in the permit. The offender is liable (a) on a first conviction on indictment to a fine of HK$2,000,000 and to imprisonment for 6 months; (b) on a second or subsequent conviction on indictment to a fine of HK$5,000,000 and to imprisonment for 2 years; (c) on a first summary conviction to a fine at level 6 (currently at HK$100,000) and to imprisonment for 6 months; (d) on a second or subsequent summary conviction to a fine of HK$1,000,000 73

80 REGULATORY OVERVIEW and to imprisonment for one year, and in any case where the offence is of a continuing nature, the court or magistrate may impose a fine of HK$10,000 for each day on which he is satisfied the offence continued. Public Health and Municipal Services Ordinance (Chapter 132 of the Laws of Hong Kong) Emission of dust from any building under construction or demolition in such manner as to be a nuisance is actionable under the Public Health and Municipal Services Ordinance. Maximum penalty is HK$10,000 (level 3) upon conviction with a daily fine of HK$200. Discharge of muddy water from a construction site is actionable under the Public Health and Municipal Services Ordinance. Maximum fine is HK$50,000 (level 5) upon conviction. Any accumulation of water on any premises found to contain mosquito larvae or pupae is actionable under the Public Health and Municipal Services Ordinance. Maximum penalty is HK$25,000 (level 4) upon conviction and a daily fine of HK$450. Any accumulation of refuse which is a nuisance or injurious to health is actionable under the Public Health and Municipal Services Ordinance. Maximum penalty is HK$10,000 (level 3) upon conviction and a daily fine of HK$200. Any premises in such a state as to be a nuisance or injurious to health is actionable under the Public Health and Municipal Services Ordinance. Maximum penalty is HK$10,000 (level 3) upon conviction and a daily fine of HK$200. C. CONTRACTOR LICENSING REGIME AND OPERATION Contractor Licensing Regime and the Subcontractor Registration Scheme Under the current contractors registration system in Hong Kong, the Building Authority shall keep a register of general building contractors who are qualified to perform the duties of a general building contractor and a register of specialist contractors who are qualified to carry out specialised works (such as foundation works and site formation works ) specified in the category in the sub-register in which they are entered. Registered general building contractors may carry out general building works and street works which do not include any specialised works designated for registered specialist contractors. The main contractors carrying out private sector site formation works and ancillary services are required to register or work together with contractors who are registered on either the list of register of general building contractors or the list of register of specialist contractors (sub-register of site formation works category) with the Buildings Department in Hong Kong. 74

81 REGULATORY OVERVIEW For any site formation works and ancillary services where an entity is involved as a subcontractor, if there is a registered specialist contractor who is registered with the Buildings Department under the appropriate category to supervise the works and liaise with the Building Authority, the entity itself is not required to be such registered specialist contractor or to obtain any requisite licenses, permits and approval for its operation and business except the business registration. Subcontractors in Hong Kong may apply for registration under the Subcontractor Registration Scheme managed by the Construction Industry Council, a body corporate established under the Construction Industry Council Ordinance (Chapter 587 of the Laws of Hong Kong) in February The Subcontractor Registration Scheme was formerly known as the Voluntary Subcontractor Registration Scheme (the VSRS ), which was introduced by the Provisional Construction Industry Co-ordination Board (the PCICB ). The PCICB was formed in September 2001 to spearhead industry reform and to pave way for the early formation of the statutory industry coordinating body. A technical circular issued by the Works Branch of the Development Bureau (then the Environment, Transport and Works Bureau) ( WBDB ) on 14 June 2004 (now subsumed into the Project Administration Handbook for Civil Engineering Works by the CEDD) requires that all public works contractors with tenders to be invited on or after 15 August 2004 to employ all sub-contractors (whether nominated, specialist or domestic) registered from the respective trades available under the VSRS. After the Construction Industry Council took over the work of the PCICB in February 2007 and the VSRS in January 2010, the Construction Industry Council launched stage 2 of the VSRS in January VSRS was also then renamed Subcontractor Registration Scheme. All subcontractors registered under the VSRS have automatically become registered subcontractors under the Subcontractor Registration Scheme. Subcontractors may apply for registration on the Subcontractor Registration Scheme in one or more of 52 trades covering common structural, civil, finishing, electrical and mechanical works and supporting services. The 52 trades further branch into around 94 specialties, including sheet piles, driven piles, earthwork, geotechnical works, and ground investigation etc. Where a contractor is to sub-contract/sub-let part of the public works involving trades available under the Primary Register (a list of companies registered in accordance with the Rules and Procedures for the Primary Register of the Subcontractor Registration Scheme) of the Subcontractor Registration Scheme, he shall engage all subcontractors (whether nominated, specialist or domestic) who are registered under the relevant trades in the Primary Register of the Subcontractor Registration Scheme. Should the sub-contractors further sub-contract (irrespective of any tier) any part of the part of the public works sub-contracted to them involving trades available under the Primary Register of the Subcontractor Registration Scheme, 75

82 REGULATORY OVERVIEW the contractor shall ensure that all sub-contractors (irrespective of any tier) are registered under the relevant trades in the Primary Register of the Subcontractor Registration Scheme. Applications for registration under the Primary Register of the Subcontractor Registration Scheme are subject to the following entry requirements: (a) (b) (c) (d) completion of at least one job within five years as a main contractor/ subcontractor in the areas which it applies or to have acquired comparable experience by itself/its proprietors, partners or directors within the last five years; listings on one or more government registration schemes operated by policy bureaus or departments of the Government relevant to the trades and specialties for which registration is sought; the applicant or its proprietor, partner or director having been employed by a registered subcontractor for at least five years with experience in the trade/ specialty applying for and having completed all the modules of the Project Management Training Series for Sub-contractors (or equivalent) conducted by the Construction Industry Council; or the applicant or its proprietor, partner or director having registered as Registered Skilled Worker under the Construction Workers Registration Ordinance (Chapter 583 of the Laws of Hong Kong) for the relevant trade/ specialty with at least five years experience in the trade/specialty applying for and having completed the Senior Construction Workers Trade Management Course (or equivalent) conducted by the Construction Industry Council. A registered subcontractor shall apply for renewal within three months before the expiry date of its registration by submitting an application to the Construction Industry Council in a specified format providing information and supporting documents as required to show compliance with the entry requirements. An application for renewal shall be subject to approval by the management committee which oversees the Subcontractor Registration Scheme (the Management Committee ). If some of the entry requirements covered in an application can no longer be satisfied, the Management Committee of the Construction Industry Council may give approval for renewal based on those trades and specialties where the requirements are met. An approved renewal shall be valid for two years from the expiry of the current registration. A registered subcontractor shall observe the Codes of Conduct for Registered Subcontractor (Schedule 8 of the Rules and Procedures for the Primary Register of the Subcontractor Registration Scheme) (the Codes of Conduct ). Failing to comply with the Codes of Conduct may result in regulatory actions taken by the Management Committee. 76

83 REGULATORY OVERVIEW The circumstances pertaining to a registered subcontractor that may call for regulatory actions include, but are not limited to: 1. supply of false information when making an application for registration, renewal of registration or inclusion of additional trades; 2. failure to give timely notification of changes to the registration particulars; 3. serious violations of the registration rules and procedures; 4. convictions of senior management staff (including but not limited to proprietors, partners or directors) for bribery or corruption under the Prevention of Bribery Ordinance (Chapter 201 of the Laws of Hong Kong); 5. convictions for failure to pay wages on time to workers in accordance with the relevant provisions contained in the Employment Ordinance; 6. wilful misconducts that may bring the Subcontractor Registration Scheme into serious disrepute; 7. civil awards/judgments in connection with the violation of or convictions under the relevant sections of the Mandatory Provident Fund Schemes Ordinance; 8. convictions under the Factories and Industrial Undertakings Ordinance or Occupational Safety and Health Ordinance in relation to serious construction site safety incidents resulting in one or more of the following consequence: i. loss of life; or ii. serious bodily injury resulting in loss or amputation of a limb or had caused or was likely to cause permanent total disability; 9. conviction of five or more offences under the Factories and Industrial Undertakings Ordinance and/or Occupational Safety and Health Ordinance each arising out of separate incidents in any six months period (according to the date of committing the offence but not the date of conviction), committed by the Registered Subcontractor at each of a construction site under a contract; 10. convictions for employment of illegal worker under the Immigration Ordinance; or 11. late payment of workers wages and/or late payment of contribution under the Mandatory Provident Fund Schemes Ordinance over 10 days with solid proof of such late payment of wages and/or contribution. The Management Committee may instigate regulatory actions by directing that: 77

84 REGULATORY OVERVIEW D. OTHERS A. written strong direction and/or warning be given to a registered subcontractor; B. a registered subcontractor to submit an improvement plan with the contents as specified and within a specified period; C. a registered subcontractor be suspended from registration for a specified duration; or D. the registration of a registered subcontractor be revoked. Competition Ordinance (Chapter 619 of the Laws of Hong Kong) The Competition Ordinance prohibits and deters undertakings in all sectors from adopting anti-competitive conduct which has the object or effect of preventing, restricting or distorting competition in Hong Kong. It provides for general prohibitions in three major areas of anti-competitive conduct described as the first conduct rule, the second conduct rule and the merger rule. The first conduct rule prohibits undertakings from making or giving effect to agreements or decisions or engaging in concerted practices that have as their object or effect the prevention, restriction or distortion of competition in Hong Kong. The second conduct rule prohibits undertakings that have a substantial degree of market power in a market from engaging in conduct that has as its object or effect the prevention, restriction or distortion of competition in Hong Kong. The merger rule prohibits mergers that have or are likely to have the effect of substantially lessening competition in Hong Kong. The scope of application of the merger rule is limited to carrier licences issued under the Telecommunications Ordinance (Chapter 106 of the Laws of Hong Kong). Pursuant to section 82 of the Competition Ordinance, if the Competition Commission has reasonable cause to believe that (a) a contravention of the first conduct rule has occurred; and (b) the contravention does not involve serious anti-competitive conduct, it must, before bringing proceedings in the Competition Tribunal against the undertaking whose conduct is alleged to constitute the contravention, issue a notice (a warning notice ) to the undertaking. However, under section 67 of the Competition Ordinance, where a contravention of the first conduct rule has occurred and the contravention involves serious anti-competitive conduct or a contravention of the second conduct rule has occurred, the Competition Commission may, instead of bringing proceedings in the Tribunal in the first instance, issue a notice (an infringement notice ) to the person against whom it proposes to bring proceedings, offering not to bring those proceedings on condition that the person makes a commitment to comply with requirements of the infringement notice. Serious anti-competitive conduct means any conduct that consists of any of the following or any combination of the following (a) fixing, maintaining, increasing 78

85 REGULATORY OVERVIEW or controlling the price for the supply of goods or services; (b) allocating sales, territories, customers or markets for the production or supply of goods or services; (c) fixing, maintaining, controlling, preventing, limiting or eliminating the production or supply of goods or services; (d) bid-rigging. In the event of the breaches of the Competition Ordinance, the Competition Tribunal may make orders including: imposing a pecuniary penalty if satisfied that an entity has contravened a competition rule; disqualifying a person from acting as a director of a company or taking part in the management of a company; prohibiting an entity from making or giving effect to an agreement; modifying or terminating an agreement; and requiring the payment of damages to a person who has suffered loss or damage. Compliance with the relevant requirements Our Directors confirmed that our Group has obtained all relevant permits/ registrations/licenses for its existing operations during the Track Record Period and up to the Latest Practicable Date. 79

86 HISTORY AND DEVELOPMENT OUR CORPORATE HISTORY Overview The history of our Group can be traced back to 1998 when Mr. CK Wong (an executive Director, the chairman of our Board and a Controlling Shareholder), together with Mr. WW Wong (an executive Director, the chief executive officer and a Controlling Shareholder), incorporated Luen Hing in Hong Kong, one of our principal operating subsidiaries, which is principally engaged in civil engineering works in Hong Kong. Mr. CK Wong has over 30 years of experience in the civil engineering industry in Hong Kong. Mr. CK Wong acquainted Mr. WW Wong, who has over 19 years of experience in civil engineering industry in Hong Kong. In 1998, Mr. CK Wong and Mr. WW Wong, being confident in the prospect of civil engineering construction industry in Hong Kong, decided to explore business opportunities in undertaking civil engineering business in Hong Kong with their own capital accumulated from previous business ventures. Please refer to the section headed Directors and senior management in this prospectus for details relating to the background and industry experience of Mr. CK Wong and Mr. WW Wong. Details of the members of our Group and their respective corporate history are set out below: OUR COMPANY Our Company was incorporated in the Cayman Islands with limited liability on 16 October Our Company completed the Reorganisation on 22 February 2016 in preparation for the Listing pursuant to which our Company became the holding company of our Group. Details of the Reorganisation are set out in the paragraph headed Reorganisation in this section. OUR PRINCIPAL OPERATING SUBSIDIARIES Luen Hing Luen Hing was incorporated in Hong Kong with limited liability on 11 November 1998, and 10,000 shares and 10,000 shares were respectively allotted and issued to Mr. CK Wong and Mr. WW Wong credited as fully paid at the then par value of the shares and at the consideration of HK$10,000 and HK$10,000, respectively. After the allotments, Luen Hing was owned as to 50% and 50% by Mr. CK Wong and Mr. WW Wong, respectively. Following the incorporation of Luen Hing in 1998, and in order to raise working capital, on 25 February 2003, the shareholders resolved to increase the then authorised share capital of Luen Hing from HK$20,000 to HK$5,000,000. On the same date, 1,890,000 and 1,890,000 ordinary shares of HK$1.00 each in Luen Hing were respectively allotted and issued to Mr. CK Wong and Mr. WW Wong credited as fully paid at the then par value and the consideration of HK$3,780,000 was settled via the current account of Luen Hing Civil 80

87 HISTORY AND DEVELOPMENT Eng Co, a sole proprietorship of Mr. CK Wong which has ceased business activities in or around After the allotments, Luen Hing remained owned as to 50% and 50% by Mr. CK Wong and Mr. WW Wong, respectively. As part of the Reorganisation, on 29 October 2015, Mr. CK Wong and Mr. WW Wong, as vendors, and Super Pioneer, as purchaser, entered into a sale and purchase agreement pursuant to which Super Pioneer acquired 1,900,000 shares and 1,900,000 shares of Luen Hing, representing all its issued shares in aggregate, from Mr. CK Wong and Mr. WW Wong, respectively, and in consideration thereof, Super Pioneer in aggregate issued and allotted 2 shares in Super Pioneer, credited as fully paid, to Blooming Union. On 21 March 2016, Luen Hing applied HK$280,000 and HK$5,200,000 owed by Luen Hing to Mr. CK Wong and Mr. WW Wong, respectively, toward the satisfaction of the issue and allotment of 5,480,000 new shares of Luen Hing at a subscription price of HK$1 per share to Super Pioneer (as directed by Mr. CK Wong and Mr. WW Wong, respectively). After the aforesaid loans capitalisation and issue and allotment of shares, Luen Hing remains a wholly owned subsidiary of Super Pioneer. After the aforesaid share transfer and loans capitalisation, Super Pioneer held all the issued shares of Luen Hing, and Luen Hing became a wholly-owned subsidiary of Super Pioneer. Hop Fung Hop Fung was incorporated in Hong Kong with limited liability on 31 July 2002, and 10,000 shares and 10,000 shares were respectively allotted and issued to Mr. CK Wong and Mr. WW Wong at the then par value of the shares and at the consideration of HK$10,000 and HK$10,000, respectively. After the allotments, Hop Fung was owned as to 50% and 50% by Mr. CK Wong and Mr. WW Wong, respectively. As part of the Reorganisation, on 29 October 2015, Mr. CK Wong and Mr. WW Wong, as vendors, and Super Pioneer, as purchaser, entered into a sale and purchase agreement pursuant to which Super Pioneer acquired 10,000 shares and 10,000 shares of Hop Fung, representing all its issued shares in aggregate, from Mr. CK Wong and Mr. WW Wong, respectively, and in consideration thereof, Super Pioneer in aggregate issued and allotted 2 shares in Super Pioneer, credited as fully paid, to Blooming Union. On 21 March 2016, Hop Fung applied HK$4,920,000 owed by Hop Fung to Mr. CK Wong toward the satisfaction of the issue and allotment of 4,920,000 new shares of Hop Fung at a subscription price of HK$1 each to Super Pioneer (as directed by Mr. CK Wong). After the aforesaid loan capitalisation, issue and allotment of shares of Hop Fung remain a wholly owned subsidiary of Super Pioneer. After the aforesaid share transfer and loan capitalisation, Super Pioneer held all the issued shares of Hop Fung, and Hop Fung became a wholly-owned subsidiary of Super Pioneer. 81

88 HISTORY AND DEVELOPMENT BUSINESS DEVELOPMENT AND MILESTONES The following table sets out the major developments and milestones of our Group since establishment: Year Event 1998 Luen Hing was incorporated in Hong Kong on 11 November In order to capture the growing business opportunities for civil engineering works in Hong Kong, we strategically positioned ourselves as a subcontractor in the civil engineering construction industry principally engaged in civil engineering works including roads and drainage works, structural works and site formation works in Hong Kong. In April 1999, we commenced our first civil engineering project with a major customer for roads and drainage works and structural works at Lot No. 55, Haul Road, Tseung Kwan O During the period between 2000 and 2001, we were awarded tender contracts with an aggregate contract value of approximately HK$84 million for roads and drainage works, structural works and site formation works relating to construction of the West Rail Line Viaduct (Tin Shui Wai to Tuen Mun North). We won a subcontractor safety award in a safety award competition organised by our customer in recognition of our occupational health and safety management for our work performance in the Tseung Kwan O Road project During the period between 2001 and 2004, we were awarded tender contracts by a major customer with an aggregate contract value of approximately HK$117 million for roads and drainage works and structural works relating to Castle Peak Road improvement between Tsuen Wan and Ting Kau. 82

89 HISTORY AND DEVELOPMENT 2002 Hop Fung was incorporated in Hong Kong on 31 July 2002 During the period between 2002 and 2005, we were awarded tender contracts by a major customer with an aggregate contract value of approximately HK$153 million for roads and drainage works, structural works and site formation works relating to construction of Route 9 Ngong Shuen Chau Viaduct In January 2005, Luen Hing was registered with the Subcontractor Registration Scheme of the Construction Industry Council. During the period between 2005 and 2011, we were awarded tender contracts with an aggregate contract value of approximately HK$102 million for roads and drainage works and structural works relating to Central Reclamation Phase III. From , we won the bronze award under the Construction Industry Safety Award Scheme organised by the Labour Department in recognition of our effort in occupational health and safety management and compliance During the period between 2008 and 2014, we were awarded tender contracts with an aggregate contract value of approximately HK$306 million for roads and drainage works and structural works relating to reconstruction and improvement of Tuen Mun Road. In 2008 and during the period between 2014 and 2015, we were awarded tender contracts with an aggregate contract value of approximately HK$174 million for structural works and site formation works at Anderson Road We were awarded certificates and recognised as an environmental subcontractor and the safest subcontractor by our customer for our effort in environmental and safety management and compliance in the Central Reclamation Phase III project We won the Excellent Site Safety Award granted by our customer for our excellent safety record and our effort in site safety management and compliance in the Central Reclamation Phase III project. 83

90 HISTORY AND DEVELOPMENT 2013 During the period between 2013 and 2014, we were awarded tender contracts with an aggregate contract value of approximately HK$87 million relating to construction of portal beams for the Hong Kong-Zhuhai-Macao Bridge construction project. We were awarded as the winner of safe sub-contractor by our customer for our effort in safety management and compliance in South Island Line (East) project During the period between 2013 and 2014, we were awarded tender contracts by a major customer with an aggregate contract value of approximately HK$187 million for roads and drainage works and structural works relating to widening of Fanling Highway. We were recognised as the best subcontractor/joint venture working team of June 2014 safety & environmental incentive scheme for our effort in safety and environmental management in the Hong Kong-Zhuhai-Macao Bridge (Hong Kong Link Road section) project We were awarded tender contracts by a major customer with an aggregate contract value of approximately HK$633 million for structural works relating to the Hong Kong-Zhuhai-Macao Bridge construction project and associated infrastructure works. In August 2015, we have received certificates of approval from DW Certification Limited for our integrated management system s current compliance with ISO 9001:2008 (quality management), ISO 14001:2004 (environmental management) and OHSAS 18001:2007 (occupational health and safety management). Our Company was incorporated on 16 October 2015 as part of the Reorganisation for the purpose of the Listing We were further awarded a tender contract by a major customer with a contract value of approximately HK$296.9 million for structural works relating to the Hong Kong-Zhuhai-Macao Bridge construction project. 84

91 HISTORY AND DEVELOPMENT REORGANISATION Our Company completed the Reorganisation on 22 February 2016 in preparation for the Listing, pursuant to which our Company became the ultimate holding company of our Group. Details of the Reorganisation are set out in the section headed A. Further information about the Company 4. Corporate reorganisation in Appendix V to this prospectus. As confirmed by our Directors, the change of shareholdings in Luen Hing and Hop Fung, being the subsidiaries of our Company incorporated in Hong Kong, under the Reorganisation would not require any approval or permit from any relevant Government authorities in Hong Kong. Our Group structure The following chart sets forth the corporate and shareholding structure of our Group immediately prior to the Reorganisation: Luen Hing Mr. CK Wong Mr. WW Wong 50% 50% Luen Hing (Note 1) Hop Fung Mr. CK Wong Mr. WW Wong 50% 50% Hop Fung (Note 2) Notes: 1. Luen Hing is principally engaged in civil engineering works in Hong Kong. 2. Hop Fung was an investment holding company holding an investment property in Tai Wai, Hong Kong prior to the disposal of such property, details of which are set out in the section headed Business Properties in this prospectus. Hop Fung is currently a subcontractor of Luen Hing in respect of one of our existing civil engineering projects. 85

92 HISTORY AND DEVELOPMENT The following chart sets forth our corporate and shareholding structure immediately after completion of the Reorganisation but before completion of the Placing and the Capitalisation Issue: Mr. CK Wong Mr. WW Wong 50% 50% Blooming Union 100% Our Company 100% Super Pioneer (Note 1) 100% 100% Luen Hing (Note 2) Hop Fung (Note 3) Notes: 1. Super Pioneer is an investment holding company incorporated in the BVI. 2. Luen Hing is principally engaged in civil engineering works in Hong Kong. 3. Hop Fung was an investment holding company holding an investment property in Tai Wai, Hong Kong prior to the disposal of such property, details of which are set out in the section headed Business Properties in this prospectus. Hop Fung is currently a subcontractor of Luen Hing in respect of one of our existing civil engineering projects. 86

93 HISTORY AND DEVELOPMENT The following chart sets forth our corporate shareholding structure immediately after completion of the Placing and the Capitalisation Issue: Mr. CK Wong Mr. WW Wong 50% 50% Blooming Union Public 75% 25% Our Company 100% Super Pioneer (Note 1) 100% 100% Luen Hing (Note 2) Hop Fung (Note 3) Notes: 1. Super Pioneer is an investment holding company incorporated in the BVI. 2. Luen Hing is principally engaged in civil engineering works in Hong Kong. 3. Hop Fung was an investment holding company holding an investment property in Tai Wai, Hong Kong prior to the disposal of such property, details of which are set out in the section headed Business Properties in this prospectus. Hop Fung is currently a subcontractor of Luen Hing in respect of one of our existing civil engineering projects. 87

94 BUSINESS OVERVIEW We are an established subcontractor engaged in civil engineering works. We have over 16 years of experience in providing civil engineering works as a subcontractor and are flexible in deploying resources to meet our customers demand. The civil engineering works undertaken by us are mainly related to (i) roads and drainage works (including construction and improvement of local road, carriageway with junction improvement and the associated footpaths, planting areas, drains, sewers, water mains and utilities diversion); (ii) structural works (including construction of reinforced concrete structures for bridges and retaining walls); and (iii) site formation works (including excavation and/or filling works for forming a new site or achieving designed formation level for later development). During the Track Record Period and up to the Latest Practicable Date, we had undertaken 51 civil engineering contracts, of which 31 contracts were completed. As at the Latest Practicable Date, we had 20 contracts on hand with a total estimated outstanding contract sum attributable to our Group in the amount of approximately HK$1,384,140,000, of which approximately HK$234,304,000 of revenue has been recognised as at 30 November 2015 (with approximately HK$6,241,000 of revenue recognised exceeding the original contract sum); and approximately HK$191,737,000 are expected to be recognised as revenue for the period from 1 December 2015 to 31 March 2016 (with approximately HK$3,547,000 of revenue expected to be recognised exceeding the original contract sum) and HK$824,469,000, HK$109,706,000 and HK$33,713,000 are expected to be recognised as revenue during the three years ending 31 March 2019, respectively. The amount of revenue expected to be recognised is subject to change due to the actual progress and commencement and completion dates of our projects. Further details of our contracts are set out in the paragraph headed Our civil engineering contracts Contracts on hand in this section. Our direct customers are primarily main contractors of various different types of civil engineering projects in Hong Kong. Such projects can generally be categorised into public sector projects and private sector projects. Public sector projects refer to projects which the main contractors are employed by the Government or statutory bodies while private sector projects refer to those that are not public sector projects. The majority of our revenue during the Track Record Period was derived from public sector projects. The following table sets out a breakdown of our revenue during the Track Record Period attributable to public and private sector projects: For the eight months ended 30 For the year ended 31 March November HK$ 000 % HK$ 000 % HK$ 000 % HK$ 000 % Public sector projects 149, , , , Private sector projects 10, , , , , , , ,

95 BUSINESS As a subcontractor, we secure our contracts from main contractors after a competitive tendering process whereby we are invited to submit our tender. For the two years ended 31 March 2015 and the eight months ended 30 November 2015, revenue derived from our five largest customers amounted to approximately 94.1%, 96.0% and 97.5%, respectively, of our total revenue. We have maintained a stable relationship with our major customers who award civil engineering contracts to us based on our expertise. Our five largest customers, by revenue, during the Track Record Period have maintained business relationship with us for a period ranging from 2 to 16 years. While we have our own direct labours for carrying out our projects, depending on the availability of our labour resources and the nature of works involved, we may subcontract some of our construction works such as works in relation to steel fixing, formwork erection and drainage works to our subcontractors for purposes of better allocation of our Group s resources. For the two years ended 31 March 2015 and the eight months ended 30 November 2015, subcontracting charges incurred by us attributable to our five largest subcontractors accounted for approximately 61.8%, 53.3% and 55.7%, respectively, of our total subcontracting charges incurred. Our five largest subcontractors, by cost of sales, during the Track Record Period have maintained business relationship with us for a period ranging from 2 to 10 years. Our suppliers primarily provide us with construction materials such as concrete and steel reinforcement bars, precast concrete units, timbers and diesel fuel, and site equipment for rental such as dump trucks, crane lorries, hydraulic truck cranes and excavators. For the two years ended 31 March 2015 and the eight months ended 30 November 2015, our five largest suppliers accounted for approximately 55.7%, 67.5% and 54.0%, respectively, of our total purchases incurred (excluding subcontracting charges incurred). Our five largest suppliers, by cost of sales, during the Track Record Period have maintained business relationship with us for a period ranging from less than 1 year to 16 years. We possess our own site equipment for carrying out our projects and therefore are not materially reliant on our suppliers for site equipment rental. Our owned site equipment include, among others, excavators, vibrating rollers, hydraulic breakers, air compressors, generators, aerial working platforms and a hydraulic truck crane with net book value of approximately HK$6,898,000 in aggregate as at 30 November We believe that our investment in site equipment has placed us in a position to cater to civil engineering projects of different scales and complexity and to meet the expected growing demand of our customers. For the two years ended 31 March 2015 and the eight months ended 30 November 2015, we acquired new site equipment in the amount of approximately HK$4,310,000, HK$410,000 and HK$812,000 at cost, respectively. For further information regarding our site equipment, please refer to the paragraph headed Site equipment in this section. Depending on availability of our site equipment, project schedule and the nature of works involved, we may rent site equipment such as dump trucks, crane lorries, hydraulic truck cranes and excavators from suppliers on our approved list at rental charges determined with reference to duration and rate of usage of the site equipment. For the two years ended 31 March 2015 and the eight months ended 30 November 2015, our site equipment rental cost incurred amounted to approximately HK$21,441,000, HK$31,874,000 and HK$21,988,000, respectively. 89

96 BUSINESS According to the Ipsos Report, there is substantial growth potential in the civil engineering construction industry in Hong Kong. Various infrastructure development plans, notably the Ten Major Infrastructure Projects, such as the construction of the Hong Kong-Zhuhai-Macao Bridge and the increasing public expenditure by the Government on infrastructure will continue to be the growth drivers in the civil engineering construction industry in Hong Kong. Riding on our operational resources and experience, our Directors believe that we are well-positioned to capture the growing demand for civil engineering services in Hong Kong. For details on the market drivers relating to our Group, please refer to the paragraph headed Industry overview Competitive landscape of the civil engineering construction industry in Hong Kong Market drivers in this prospectus. COMPETITIVE STRENGTHS We believe the following competitive strengths contribute to our success and differentiate us from our competitors: Well-established presence in the civil engineering construction industry in Hong Kong We have been operating in the civil engineering construction industry in Hong Kong for 16 years. Since 1999, we have undertaken various civil engineering construction projects in Hong Kong, some of which are related to the major public infrastructures in Hong Kong such as the West Rail Line Viaduct, Route 9 Ngong Shuen Chau Viaduct, Central Reclamation Phase III project, Tuen Mun Road, Fanling Highway, the Liantang/Heung Yuen Wai Boundary Control Point and the Hong Kong-Zhuhai-Macao Bridge. Luen Hing, our principal operating subsidiary, has been registered in the Subcontractor Registration Scheme of the Construction Industry Council since We have established ourselves as a dedicated subcontractor with high service quality in the civil engineering construction industry achieving customer satisfaction, quality of work and cost control which in turn enables our Group to gain confidence from our customers and therefore increase our opportunities of winning new projects from customers. In addition, we are also able to carry out a variety of civil engineering construction projects such as roads and drainage works, structural works and site formation works. We believe that our proven track record, our diverse experience and capabilities and our ability to deliver our jobs on time and to the satisfaction of our customers are the crucial factors to our success in the industry. Furthermore, our Group has also received a number of awards from our customers in recognition of our safety management. For details in relation to the awards granted to our Group, please refer to the paragraph headed Awards and recognitions in this section. As we normally receive tender invitations directly from customers, we consider that our well-established presence in the civil engineering construction industry in Hong Kong and our long-standing business relationship with our customers give us an advantage in terms of securing new business opportunities. Throughout our operating history, we believe we have established good reputation and a well-established presence in the civil engineering construction industry in Hong Kong which are crucial to our business operations and future business development of our Group. 90

97 BUSINESS Experienced project management team Our management team has extensive industry knowledge and project experience in the civil engineering construction industry. Mr. CK Wong and Mr. WW Wong, who are our executive Directors, our Controlling Shareholders and our co-founders, have over 30 years and 19 years of experience, respectively, in providing civil engineering services for both public and private sector projects in Hong Kong. Mr. Lo Shek Kwong, the quantity surveyor manager of our Group, has over 25 years of experience in quantity surveying, contractual administration and construction project management. Furthermore, we have our in-house surveying team comprising 10 land surveyors as at the Latest Practicable Date, which enables us to speed up the setting out process and enhance our efficiency and overall service quality. For details of the qualification and experience of our Directors and senior management, please refer to the section headed Directors and senior management in this prospectus. Their qualifications and experience facilitate the formulation of competitive tenders, which are essential in securing new business opportunities, and in deciding the best suitable construction methodology in order to carry out our project works in an efficient and timely manner. Our Directors believe that the combination of our management and technical teams expertise and knowledge of the industry have been and will continue to be our Group s valuable assets and strive our Group towards greater success. Possession of a variety of site equipment for performing different types of civil engineering works We possess our own site equipment for performing different types of civil engineering works and therefore we are not materially reliant on our suppliers for site equipment rental. We have made substantial investment in purchasing our own site equipment for performing different types of works. For the two years ended 31 March 2015 and the eight months ended 30 November 2015, we acquired new site equipment in the amount of approximately HK$4,310,000, HK$410,000 and HK$812,000 at cost, respectively. As at 30 November 2015, our site equipment had a total net book value of approximately HK$6,898,000. Our owned site equipment include, among others, excavators, vibrating rollers, hydraulic breakers, air compressors, generators, aerial working platforms and a hydraulic truck crane. We believe that our investment in different types of site equipment has placed us in a position to cater to civil engineering projects of different scales and complexity. Our Directors also consider that possession of our own site equipment allows us to devise suitable works schedules and methods tailored to different needs and requirements from different customers and enables us to efficiently and effectively schedule our projects and deploy our manpower. Stable relationship with our major customers, suppliers and subcontractors We have established stable business relationship with our major customers who are mostly reputable main contractors and the longest time with which is approximately 16 years. Among our five largest customers (in terms of revenue) during the Track Record Period, we have been providing services to them for a period ranging from 2 to 16 years. Furthermore, we have also established stable business relationship with our major suppliers and subcontractors and the longest time with which is approximately 16 years and 10 years, 91

98 BUSINESS respectively. Our Directors are of the view that our operating history, together with the long-term relationships with our major customers, suppliers and subcontractors, would increase our recognition and visibility in the market and enable us to attract potential business opportunities. Our commitment to maintaining safety standard, quality control and environmental protection We place considerable emphasis to maintain safety standard and quality control as they can directly affect our reputation, our service quality and our profitability. Our management system was certified to be in accordance with the standard required under ISO 9001:2008 (quality management), ISO 14001:2004 (environmental management) and OHSAS 18001:2007 (occupational health and safety management). In addition, our major customers have recognised our efforts in upkeeping a safe working environment that our Group has been granted performance awards in safety and environmental management in respect of the projects undertaken by us. Our Directors believe that since workplace safety and environmental compliance are some of the key assessment criteria for our customers, our effective occupational health and safety management and environment management systems and good compliance track record would help reduce our exposure to these claims and improve our overall service quality and profitability. BUSINESS STRATEGIES Our principal business objective is to further strengthen our position as an established subcontractor for civil engineering works in Hong Kong and to create long-term Shareholder s value. We intend to achieve our business objective by competing for sizeable and profitable civil engineering projects through expanding our scale of operation by means of (i) acquisition of additional site equipment; (ii) further strengthening our manpower; and (iii) adherence to prudent financial management to ensure sustainable growth and capital sufficiency. According to the Budget Speech, the Government has planned to raise the total public expenditure on various ongoing infrastructure projects to around HK$85.8 billion, representing a growth of about 8.2% compared to the spending on infrastructure. Various ongoing infrastructure projects include the Ten Major Infrastructure Projects such as Hong Kong-Macau-Zhuhai Bridge Project, Guangzhou-Shenzhen-Hong Kong Express Rail Link and North East New Territories New Development Areas and Hung Shui Kiu Project. These infrastructure projects are mega size and characterised by their large contract sum, large scale, high degree of complexity and long duration of projects which may take several years to complete. In view of the increasing spending committed by the Government on infrastructure works, our Directors believe that the gross output value of the civil engineering industry in Hong Kong will continue to rise. Having considered our solid experience in the civil engineering industry, our proven track record and good reputation, we plan to expand our market share in the civil engineering construction industry in Hong Kong by deploying our resources towards competing for sizeable and profitable civil engineering projects in Hong Kong. 92

99 BUSINESS To manage our contracts on hand and newly awarded projects, we plan to expand our scale of operation by the following business strategies: (i) Acquisition of additional site equipment To further enhance and optimise our overall efficiency and capacity as well as technical capability in performing sizeable civil engineering construction works, we intend to acquire additional site equipment with higher efficiency and technical capability. It will also allow us to cope with our business development plan to undertake larger scale projects in the future and minimise site equipment rental costs. During the Track Record Period, in addition to our owned site equipment, we needed to lease additional hydraulic truck cranes and excavators from site equipment providers to cope with our project needs. For the two years ended 31 March 2015 and the eight months ended 30 November 2015, the site equipment rental cost of our Group incurred was approximately HK$21,441,000, HK$31,874,000 and HK$21,988,000, respectively. To cope with our needs for the projects on hand and newly awarded projects, starting from September 2015 and up to the Latest Practicable Date, we have purchased 3 generators, 1 hydraulic breaker, 1 air compressor, 1 welding machine and 11 motor vehicles (consist of 10 vans and 1 crane lorry). Furthermore, to further optimise our construction efficiency and technical capability for newly awarded projects, we plan to acquire 3 hydraulic truck cranes, 1 excavator, 3 generators and 1 air compressor as well as 3 motor vehicles. The expected total capital expenditure for the acquisition of the aforesaid site equipment and motor vehicles will be approximately HK$18.0 million and such acquisition will be financed by the proceeds from the Placing. Our Directors believe that acquisition of additional site equipment will allow us to: (i) increase our tender success rate due to the immediate availability of relevant site equipment according to tender requirements; (ii) enhance our construction efficiency and technical capability; (iii) increase our flexibility to deploy our resources more efficiently; and (iv) reduce our site equipment rental costs. Our Directors believe that our investments in site equipment will enable us to cater to projects of larger scale and higher complexity in the future. Our Group will also continue to evaluate the operating condition, effectiveness and efficiency of our site equipment and assess our need for additional site equipment in view of our business development. (ii) Further strengthening our manpower We consider that a team of strong workforce equipped with diversified knowledge and experience in operating different types of site equipment and performing different types of civil engineering works is crucial to our continuing success. To ensure that we have sufficient manpower for our contracts on hand and newly awarded projects, from August 2015 to the Latest Practicable Date, 1 project manager has been recruited to strengthen our project management capability, 3 engineers, 3 land surveyors, 4 quantity surveyors, 4 safety officers, 1 safety supervisor, 2 foremen and more than 70 site workers were recruited to carry out site works. As at the Latest Practicable Date, we had a total of 238 employees, details of which are set out in the section headed Business Employees in this prospectus. To further enhance our manpower for our projects on hand and newly awarded projects, we plan to utilise approximately HK$7.6 million from the proceeds of the Placing to hire 3 crane operators for operation of our 93

100 BUSINESS hydraulic truck cranes in construction site, 2 engineers for strengthening our engineering team and 1 project manager, 3 foremen, 1 quantity surveyor and 1 administrative staff for strengthening our project implementation capability to cope with our contracts on hand and newly awarded projects. In addition, taking into account the expected completion schedules of our projects on hand, it is envisaged that an aggregate of approximately 50 employees and 3 existing subcontractors involving approximately 40 site workers provided by the aforesaid subcontractors will be re-allocated from 3 contracts, with an aggregate contract value of approximately HK$199,437,000 which will be completed by May 2016, to our other projects, including our newly awarded contracts. Furthermore, apart from our own labour resources, we will continue to identify and collaborate with more competent subcontractors who meet our quality standards and selection criteria to cope with our business needs in view of the augmenting scale and complexity of our projects. Recently, we have expanded our internal approved list of subcontractors and engaged 3 new subcontractors to provide further manpower resources of about 30 site workers for execution of steel fixing works and formwork erection works for our contracts on hand and newly awarded contracts. In addition, we also intend to provide more training to our existing and newly recruited staff on occupational health and safety, site equipment operation and civil engineering works techniques. Such training courses would include internal training as well as courses organised by external parties and training institutions. It is our tendering strategy to focus on submitting tenders for contracts which are related to the same infrastructural project in which we had participated in the past. For instance, for the year ended 31 March 2015 and the eight months ended 30 November 2015, we won 13 tenders of which, 6 of the tenders won were related to infrastructural projects which we were involved in the past. Accordingly, a number of our contracts on hand are related to construction of the same infrastructure which shares the same workforce and the same worksite or worksite in the vicinity. Our experience with the relevant infrastructural project and familiarity with the conditions of the relevant site allow us to deploy our manpower resources and allocate site equipment more flexibly and efficiently. We are therefore able to execute several projects concurrently relating to construction of the same infrastructure in a cost-effective manner. 94

101 BUSINESS (iii) Adherence to prudent financial management to ensure sustainable growth and capital sufficiency We will continue to maintain a prudent financial management strategy in our business operations. Our Directors believe that a prudent financial management in capital commitment could provide reasonable return for shareholders steadily while ensuring our continued growth in the long term. Our Directors consider that taking into account the cash flow expected to be generated from our operations, bank borrowings we currently have in place, unutilised credit facilities currently available to us and proceeds from the Placing, we have sufficient working capital and financial resources to perform our contracts on hand and newly awarded contracts as illustrated below: We have the following financial resources in place: bank balances and cash as at 31 January 2016 amounting to approximately HK$14,367,000; expected cash generated from our operations for the year ending 31 March 2017; estimated net proceeds from the Placing of approximately HK$35.7 million, based on the Placing Price of HK$0.26 per Placing Share; and unrestricted unutilised bank overdraft facilities of approximately HK$6,000,000 as at 31 January To further strengthen our working capital position and enhance our financial resources for our contracts on hand and newly awarded projects, we obtained a credit facility from a bank in March 2016 of up to HK$20,000,000 which consists of: (i) a factoring facility of up to HK$10,000,000 by factoring of certain accounts receivable from our major customer(s) to the bank; and (ii) a banking facility of HK$10,000,000. Our Directors considered that this arrangement can provide a flexible alternative to increase our working capital and finance our liquidity requirement. Pursuant to the terms of the one of the contracts with China Harbour in respect of the Hong Kong-Zhuhai-Macao Bridge Project, the contract sum of this contract is HK$455,319,000, of which HK$50 million is earmarked for payment of our project expenses including site set-up cost, site running cost, cost for design of formwork mould, supply and fabrication of formwork mould and scaffolding and cost for safety and environmental management, etc. to be incurred at the beginning of this project. We are entitled to receive such payment from China Harbour by way of progress payment. Based on the preliminary project expenses incurred as aforesaid, we submit to China Harbour our progress payment application on a monthly basis. Once it is approved, a payment certificate will be issued to us. We generally receive such progress payment from China Harbour within 40 days of our payment application with 1% of such progress payment retained by China Harbour as 95

102 BUSINESS retention money. The said sum of HK$50 million is arrived at after arm s length negotiations between our Group and China Harbour with reference to our preliminary working capital needs for this project. Our Directors consider that such arrangement will relieve our cashflow and financial pressure at the start of the project. On the basis of the foregoing, our Directors consider that the abovementioned arrangement with China Harbour is on normal commercial terms, fair and reasonable and in the interest of our Company and its Shareholders as a whole. We will continue to adopt a prudent treasury management policy to (i) ensure that our funds are properly and efficiently collected and deployed such that there is no material shortfall in cash which may interrupt our Group s daily business obligations; (ii) maintain sufficient level of funds to settle our liabilities when they fall due; (iii) maintain adequate liquidity to cover our operation cash flow, project expenditures and administrative expenses; and (iv) streamline our operational processes to achieve savings in construction-related costs, maintenance and other operating costs. Our Directors believe that by expanding our scale of operation as mentioned above, we will be able to (i) efficiently manage our contracts on hand and newly awarded projects; (ii) participate in larger scale civil engineering projects; and (iii) have additional manpower to further strengthen our workforce and quality of our service which is of utmost importance to our Group s competiveness and ongoing development in the Hong Kong civil engineering construction industry. For further details regarding the proposed use of proceeds from the Placing in pursuit of these business strategies, please refer to the section headed Statement of business objective and use of proceeds Use of proceeds in this prospectus. Leveraging our proven track record, our reputation, solid experience in public sector projects over the Track Record Period and our prudent financial management, our Directors are of the view that we possess the necessary resources and technical ability and are well positioned to capture the emerging business opportunities for sizeable projects in the future. Implementation of business strategies As at the Latest Practicable Date, we have not identified any target for acquisition and do not have any acquisition plan. For further details on the implementation of the above-mentioned business strategies, please refer to the section headed Statement of business objective and use of proceeds in this prospectus. OUR SERVICES Type of works undertaken We are a subcontractor in the civil engineering construction industry principally engaged in undertaking roads and drainage works, structural works and site formation works in Hong Kong. 96

103 BUSINESS Roads and drainage works Roads and drainage works generally refer to construction of transport interchange, carriageway and walkway, road improvement and widening works, while drainage works generally include flood prevention or improvement works and sewage improvement works comprising construction of drainage channel, outfall pipe, box culvert and pumping station and drainage related and infrastructures. Both roads and drainage constructions also include associated building works and landscaping works. During the Track Record Period, the principal types of roads and drainage works performed by us include extension of concrete structure at highways, modification of junction, construction of underground drainage, manholes, cable trenches, supply and installation of fire fighting system and water mains, diversion of sewerage pipes and construction of temporary traffic arrangement. Structural works Structural works generally refer to construction of major frameworks of the infrastructures which provide them with supportive structures and allow them to withstand various extreme forces. During the Track Record Period, the principal types of structural works performed by us include construction of reinforced concrete structures in relation to construction of vehicular bridge, widening of bridge and installation and construction of portal beams for land viaduct, construction of elevator shafts, construction of concrete footing for noise barrier foundation and construction of retaining walls. Site formation works Site formation works generally refer to works performed to prepare a construction site for subsequent works for foundation and superstructure. They generally involve the clearance of construction site, demolition of existing structures, forming the site (including excavation and filing) to the design formation and/or basement level, reduction and stabilisation of existing slopes, and associated infrastructure works. During the Track Record Period, the principal types of site formation works performed by us include slope formation and installation of temporary works structures including sheet piling, shoring, ground treatment, concrete block placing and access deck. 97

104 BUSINESS OUR CIVIL ENGINEERING CONTRACTS The following table sets out the number of contracts that we have been awarded during the Track Record Period and up to the Latest Practicable Date and the corresponding aggregate amount of original contract sum in respect of such contracts: For the year ended 31 March For the eight months ended 30 November 2015 From 1 December 2015 to the Latest Practicable Date Number of contracts awarded (Note 1) Corresponding aggregate amount of original contract sum in respect of such contracts (Note 2) HK$ 000 HK$ 000 HK$ 000 HK$ , , , ,317 Notes: 1. Number of contracts awarded for each financial year includes all contracts with respect to which our engagement was confirmed during the financial year. 2. Such amount excludes any subsequent changes due to variation orders. Please refer to the paragraph headed Operation flow Variation orders of this section for details. 98

105 BUSINESS Set out below is the table showing the number of contracts completed and awarded to us and the aggregate contract sum during the Track Record Period and as at the Latest Practicable Date: Number of contracts Contract sum (Note) HK$ 000 As at 1 April 2013 Existing contracts ,985 During the financial year ended 31 March 2014 Contracts completed ,120 New contracts awarded ,704 As at 31 March 2014 Existing contracts ,569 During the financial year ended 31 March 2015 Contracts completed ,700 New contracts awarded 7 125,214 As at 31 March 2015 Existing contracts ,083 During the eight months ended 30 November 2015 Contracts completed 1 8,400 New contracts awarded 6 644,681 As at 30 November 2015 Existing contracts 20 1,278,364 For the period between 1 December 2015 and before the Latest Practicable Date Contracts completed 2 195,541 New contracts awarded 2 301,317 As at the Latest Practicable Date Existing contracts 20 1,384,140 Note: The contract sum is based on the initial agreement between our customer and us and may not include additions, modifications due to subsequent variation orders, such as final revenue recognised from a contract may differ from the contract sum. 99

106 BUSINESS Subsequent to the Track Record Period, we were awarded with two contracts. As at the Latest Practicable Date, there were 20 contracts on hand, all of which were in progress. The number of contracts awarded for the year ended 31 March 2015 was considerably lower than the number of contracts awarded for the year ended 31 March 2014 because we were occupied with various civil engineering projects close to our full service capacity prior to commencement of the Track Record Period and during the year ended 31 March As such, considering our availability of manpower resources, our servicing capacity, the number of projects we were working on at that time, expected increase in costs of materials, labour costs as well as complexity and length of contracts we tendered for, we had taken a relatively prudent approach in costs estimation by factoring a higher profit margin which may cause our tender price submitted during the year ended 31 March 2014 to be less competitive, which therefore directly affected the number of contracts awarded to our Group for the year ended 31 March For the period starting from 1 April 2015 to the Latest Practicable Date, the number of contracts awarded was slightly higher than the number of contracts awarded during the financial year ended 31 March 2015 but was less than the number of contracts awarded during the financial year ended 31 March Nevertheless, the aggregate contract value of those six contracts awarded during the eight months ended 30 November 2015 were much greater than the aggregate contract value of the contracts awarded for each of the two years ended 31 March It was mainly attributable to the award of the various new mega-sized contracts including the Hong Kong-Zhuhai-Macao Bridge construction project and associated infrastructure works. This is in line with our business strategy to focus on competing for sizeable projects in terms of complexity, duration and contract sum. Please refer to the paragraph headed Business strategies of this section for further details of our business strategies. Depending on the nature and complexity of a project as well as the existence of any unforeseen circumstances (such as bad weather conditions, industrial accidents, variation orders requested by customers, etc., if any), the duration of a contract (from the date of engagement to the date of completion) could generally range from approximately 2 years to 4 years. During the Track Record Period, the average duration of completed projects was approximately 2.2 years. 100

107 BUSINESS Our customers primarily include main contractors of various different types of civil engineering projects in Hong Kong. Such projects can generally be categorised into public sector projects and private sector projects. Public sector projects refer to projects which the main contractors are employed by the Government or statutory bodies while private sector projects refer to those that are not public sector projects. The majority of our revenue during the Track Record Period was derived from public sector projects. The following table sets out a breakdown of the number of contracts with revenue contribution to us during the Track Record Period by public and private sector projects: For the year ended 31 March For the eight months ended 30 November 2015 Number of contracts with revenue contribution to us Public sector projects Private sector projects The following table sets out a breakdown of our revenue during the Track Record Period attributable to public and private sector projects: For the eight months ended 30 For the year ended 31 March November HK$ 000 % HK$ 000 % HK$ 000 % HK$ 000 % Public sector projects 149, , , , Private sector projects 10, , , , , , , , Completed contracts During the Track Record Period and up to the Latest Practicable Date, we completed 31 civil engineering contracts. 101

108 BUSINESS Date: The following table sets out a full list of all of our contracts completed during the Track Record Period and up to the Latest Practicable Civil engineering project involved Contract No. Public or private sector project Customer (Note 1) Type(s) of works involved Principal works done by us Approximate contract period (Note 2) Contract (Note 3) From To sum Accumulated revenue recognised during the Track Record Period (HK$ 000) (HK$ 000) (a) Reconstruction and improvement of Tuen Mun Road Sam Shing Hui section 1. Public China Harbour Roads and drainage and structural works Extension of concrete structure and miscellaneous works 2. Public China Harbour Structural works Concrete structure and miscellaneous works 3. Public China Harbour Structural works Construction of concrete footing for noise barrier foundation January 2010 April ,785 2,195 (Note 4) December 2009 December ,104 3,149 (Note 4) February 2012 October ,127 5,700 (Note 4) 4. Public China Harbour Structural works Construction of retaining walls March 2011 July ,056 6,272 (Note 4) 5. Public China Harbour Structural works Widening of bridge November 2010 December ,401 13,153 (Note 6) 6. Public China Harbour Roads and drainage works Supply and installation of fire fighting system 7. Public China Harbour Roads and drainage and structural works Roads and drainage works for traffic control surveillance system; and installation and construction of portal beams for land viaduct December 2012 January ,338 17,275 (Note 5) June 2010 December , ,022 (Note 6) (b) Road improvements in Tuen Mun Road Town Centre section 8. Public China Harbour Roads and drainage works Roads and drainage works December 2010 August , (Note 4) 9. Public China Harbour Structural works Construction of vehicular bridge (excluding the pile caps and abutment) April 2012 November ,561 13,733 (Note 4) 10. Public China Harbour Roads and drainage works Roads and drainage works June 2012 August ,258 3,297 (Note 4) 11. Public China Harbour Roads and drainage works Reconstruction of carriageway October 2013 May (Note 5) 102

109 BUSINESS Civil engineering project involved (c) Hong Kong-Zhuhai-Macao Bridge project (d) Hong Kong-Zhuhai- Macao Bridge Project (e) Improvement works in Fanling Highway (f) Infrastructure works at Town Centre South and Tiu Keng Leng, Tseung Kwan O Contract No. Public or private sector project Customer (Note 1) Type(s) of works involved Principal works done by us Approximate contract period (Note 2) Contract (Note 3) From To sum Accumulated revenue recognised during the Track Record Period (HK$ 000) (HK$ 000) 12. Public China Harbour Roads and drainage and site formation works Landscaping and site formation for slope works July 2013 January ,790 10,122 (Note 6) 13. Public China Harbour Roads and drainage works Diversion of sewage pipe March 2014 January ,388 1,721 (Note 6) 14. Public Dragages China Harbour VSL J.V. Structural works Construction of portal beams for land viaduct November 2013 March ,744 87,535 (Note 6) 15. Public Dragages China Harbour VSL J.V. Structural works Construction of portal beam December 2014 July ,400 8,714 (Note 6) 16. Public China State Construction 17. Public China State Construction Site formation works Earthworks and sheet piling works Structural works Earthworks and construction of concrete footing for erection of noise barriers May 2010 July , (Note 4) January 2012 June ,500 1,114 (Note 4) 18. Public Chun Wo Construction & Engineering Company Limited ( Chun Wo Construction ) Roads and drainage works Drainage works May 2010 November , (Note 4) 19. Public Chun Wo Construction Roads and drainage works Construction of water mains October 2010 December , (Note 4) 20. Public Chun Wo Construction Roads and drainage works Earthworks and road works October 2010 March ,647 2,788 (Note 4) 21. Public Chun Wo Construction Roads and drainage works Earthworks and road works October 2011 November ,622 1,193 (Note 4) 22. Public Chun Wo Construction Roads and drainage works Roads and drainage works October 2013 December (Note 5) 23. Public Chun Wo Construction Roads and drainage and structural works Construction of reinforced concrete structures September 2013 February ,400 1,829 (Note 6) 103

110 BUSINESS Civil engineering project involved (g) Wan Chai Development Phase II Central Wan Chai Bypass at Wan Chai West (h) Road and drainage works adjacent to railway line (i) Road and drainage works adjacent to railway line Contract No. Public or private sector project Customer (Note 1) Type(s) of works involved Principal works done by us Approximate contract period (Note 2) Contract (Note 3) From To sum Accumulated revenue recognised during the Track Record Period (HK$ 000) (HK$ 000) 24. Public Leighton China State Van Oord Joint Venture 25. Public China State Leader Joint Venture 26. Public China State Leader Joint Venture 27. Public China State Leader Joint Venture 28. Public China State Leader Joint Venture Roads and drainage works Roads and drainage works December 2010 August ,800 8,741 (Note 4) Roads and drainage works Construction of temporary traffic arrangement September 2013 December (Note 5) Roads and drainage works Construction of box culvert July 2014 February ,323 2,701 (Note 6) Site formation works Installation of temporary structures including sheet piling, shoring, ground treatment, concrete block placing, access deck and subsequent removal for the construction of box culvert December 2013 December ,133 3,735 (Note 6) Roads and drainage works Modification of road junction February 2014 April (Note 5) 29. Private Customer D Roads and drainage works Construction of underground drainage, manholes, conduits, cable trenches, paving, kerbs and surface drains February 2013 November ,385 11,040 (Note 6) 30. Private Customer H Roads and drainage works Underground drainage works August 2011 December , (Note 4) 31. Private Customer H Roads and drainage works Roadworks September 2014 October ,839 1,403 (Note 5) Total 483, ,

111 BUSINESS Notes: 1. The above customers are our major customers during the Track Record Period. Details of our five largest customers are set out in the paragraph headed Customers Major customers in this section. 2. Contract period for a particular contract refers to the period from the date of actual commencement of the works to the actual date of completion of our works in such contract. Such period does not include the relevant defects liability period. 3. The contract sum is based on the initial agreement between our customer and us and may not include additions, modifications due to subsequent variation orders, and therefore final revenue recognised from a contract may differ from the contract sum. 4. The contract sum is greater than the amount of revenue recognised during the Track Record Period because a portion of the revenue has been recognised before the Track Record Period. 5. The contract sum is greater than the amount of revenue recognised during the Track Record Period because the actual amount of work done under the contract was lower than initially envisaged under the contract. 6. The contract sum is lower than the amount of revenue recognised during the Track Record Period because of the additional variation orders placed by the our customer, or the actual amount of work done under the contract is higher than initially envisaged under the contract. 105

112 BUSINESS Contracts on hand As at the Latest Practicable Date, we had a total of 20 contracts on hand. The following table sets out a full list of all of our contracts on hand as at the Latest Practicable Date: Civil engineering project involved Contract No. Public or private sector Type(s) of works project Customer (Note 1) involved Principal works done/to be done by us Expected completion Contract date (Note 2) (Note 3) sum Accumulated revenue recognised during the Track Record Period (HK$ 000) (HK$ 000) (a) Provision of barrier-free access facilities for highway structures 1. Public China Harbour Structural and site formation works Demolition works and construction of reinforced concrete structures June ,570 6,072 (b) Development at Anderson Road (c) Widening of Fanling Highway 2. Public China State Construction 3. Public China State Construction 4. Public China State Construction 5. Public China State Construction 6. Public China State Construction Structural works Construction of bridges May ,000 15,217 Roads and drainage and site formation works Site formation works Roads and drainage works Roads and drainage and structural works Earthworks and drainage works Site formation works for slope formation Construction of transition barrier, planter box, concrete slab and associated works Road and drainage and construction of retaining wall August ,077 24,046 August ,731 5,422 August ,500 2,255 December ,770 30,

113 BUSINESS Civil engineering project involved (d) Liantang/Heung Yuen Wai Boundary Control Point site formation and infrastructure works Contract No. Public or private sector Type(s) of works project Customer (Note 1) involved Principal works done/to be done by us 7. Public China State Construction 8. Public China State Construction 9. Public Chun Wo Construction 10. Public Chun Wo Construction Structural works Construction of vehicular bridge Structural works Construction of reinforced concrete structure of foot bridge Structural works Construction of reinforced concrete structure of bridge (including decking) Roads and drainage and structural works Excavation and construction of box culvert Expected completion Contract date (Note 2) (Note 3) sum Accumulated revenue recognised during the Track Record Period (HK$ 000) (HK$ 000) May ,000 24,995 November ,753 April ,693 21,452 December ,011 15,

114 BUSINESS Civil engineering project involved (e) Road and drainage works adjacent to railway lines (f) Road and drainage works adjacent to railway lines (g) Development at Hong Kong Boundary Crossing Facilities Contract No. Public or private sector Type(s) of works project Customer (Note 1) involved Principal works done/to be done by us Expected completion Contract date (Note 2) (Note 3) sum Accumulated revenue recognised during the Track Record Period (HK$ 000) (HK$ 000) 11. Private Customer H Roads and drainage works 12. Private Customer H Roads and drainage works 13. Private Customer H Roads and drainage works External drainage work December ,207 2,954 External drainage work May ,408 Roadworks May ,799 1, Private Customer D Roads and drainage works 15. Private Customer D Roads and drainage works 16. Private Customer D Roads and drainage works Drainage work April ,299 24,021 Drainage work July , Cable draw-pits and cable ducting July , Public China Harbour Structural works Construction of bridge decks 18. Public China Harbour Structural works Construction of reinforced concrete structure for pier January ,268 4,286 January ,064 1,

115 BUSINESS Civil engineering project involved Contract No. Public or private sector Type(s) of works project Customer (Note 1) involved Principal works done/to be done by us Expected completion Contract date (Note 2) (Note 3) sum Accumulated revenue recognised during the Track Record Period (HK$ 000) (HK$ 000) (h) Hong Kong-Zhuhai-Macao Bridge project 19. Public China Harbour Structural works Construction of boundary crossing facilities, vehicle plazas and ancillary buildings and facilities 20. Public China Harbour Structural works Construction of sub-structure for bridge, abutments and retaining walls March ,319 16,005 May ,902 Total 1,384, ,133 Notes: 1. The above customers are our major customers during the Track Record Period. Details of our five largest customers are set out in the paragraph headed Customers Major customers in this section. 2. The expected completion date for a particular contract is provided based on our management s best estimation. In making the estimation, our management takes into account factors including the expected completion date specified in the relevant contract (if any), the extension period granted by our customers (if any) and the actual work schedule. 3. The contract sum is based on the initial agreement between our customer and us and may not include additions, modifications due to subsequent variation orders, and therefore final revenue recognised from a contract may differ from the contract sum. 109

116 BUSINESS OPERATION FLOW The following diagram summarises the principal steps of our operation flow: Securing new business opportunity by invitation Customer acceptance assessment for potential customers Within 2 days On-site inspection Within 2 days Preparation and submission of tender to customer From approximately 7 to 21 days depending on the complexity of the project Review of tender and engagement or tender interview From approximately 1 to 3 months depending on the complexity of the project Actual commencement of work on site Procurement of necessary site equipment and construction materials and/or engagement of subcontractors Execution From approximately 3 to 31 days Generally from approximately 2 to 4 years depending on the complexity of the project In-house quality inspection and supervision Ongoing throughout the execution of the project Inspection and approval by customer Ongoing throughout the execution of the project Issue of invoice/interim payment Invoices of interim payment are issued on a monthly basis in accordance with the contract Practical completion Review and payment by customer Defects liability period (if required) Approximately 4 weeks to 3 months During the defects liability period which typically lasts for 12 months, we may be requested to repair or make good of any defect or imperfection. We will receive the remaining retention money after completion of the defects liability period. 110

117 BUSINESS Note: The time frame may vary for different contracts depending on various factors such as the terms of contract, the nature of works to be performed, presence of variation orders and/or our agreement with the customer on the timeframe for the principal steps to be undertaken as well as other unforeseeable circumstances. Invitation for tendering, preparation and submission We are usually invited by our customer to submit a tender for a potential project as a subcontractor. Our customers are main contractors of different types of civil engineering projects and we are provided with the specifications and drawings along with the invitations. For further information of our marketing activities, please refer to the paragraph headed Marketing activities in this section. Our estimating department, which is led by our estimating manager who has over 20 years of experience in quantity surveying, is responsible for assisting our executive Directors on the preliminary review and assessment of a potential project. In the preliminary review and assessment process, we consider (i) the technical specifications of a potential project; (ii) the commencement date and duration of a potential project; (iii) the location and the conditions of the site; (iv) our resources availability; and (v) our previous experience in relevant projects. Once our executive Directors consider a potential project to be acceptable based on our review and assessment, we will prepare and submit a tender proposal to our customer accordingly. In the course of preparation of a tender, we mainly consider (i) the complexity of a potential project; (ii) the manpower needed; (iii) the availability of site equipment required; and (iv) the tender price (details of our pricing strategy is set out in the paragraph headed Customers Pricing strategy in this section). On-site visit may be conducted to have a better understanding on the conditions of the site, if necessary. We then prepare tender documents including bills of quantities and terms of the contract. Tenders submitted during the Track Record Period During the Track Record Period, all of our civil engineering construction contracts were obtained through tendering. The following table sets out the number of contracts tendered, number of successfully tendered contracts and our success rate during the Track Record Period and from 1 December 2015 up to the Latest Practicable Date: For the year ended 31 March For the eight months ended 30 November 2015 From 1 December 2015 to the Latest Practicable Date Number of tenders submitted Number of tenders won Success rate (%)

118 BUSINESS Note: For the eight months ended 30 November 2015, there were 33 tender applications submitted by our Group. Out of the said 33 tender applications, we received 25 rejected tender results and the tender results of the remaining 3 tender applications are yet to be known. For the period from 1 December 2015 to the Latest Practicable Date, there were 18 tender applications submitted by our Group. Out of the said 18 tender applications, we received 8 rejected tender results and the tender results of the remaining 10 tender applications are yet to be known. Our tender success rate for the year ended 31 March 2014 was lower than the tender success rate for the year ended 31 March 2015 and for the eight months ended 30 November 2015 principally because we were occupied with various civil engineering projects close to our full service capacity prior to commencement of the Track Record Period and during the year ended 31 March Nevertheless, it was our strategy to be responsive to our customers tender invitations and submit tenders to our existing customers in order to maintain business relationship with our existing customers and maintain our presence in the market. Under such circumstances, taking account of our availability of manpower resources, our servicing capacity, the number of projects we were working on at that time, expected increase in costs of materials, labour costs as well as complexity and length of contracts we tendered for, we had taken a relatively prudent approach in costs estimation by factoring a higher profit margin which may cause our tender price to be less competitive than the tenders submitted by our competitors during the year ended 31 March On the other hand, higher tender success rates were achieved for the year ended 31 March 2015 and for the eight months ended 30 November 2015 since most of our large-scale contracts (in terms of complexity, scale, duration and contract value) awarded before the Track Record Period were substantially completed during such periods. As our Group has more capacity to engage in new projects, we focused on submitting tenders for contracts which are related to the same infrastructural project in which we had participated in the past. Our Directors consider that we have a higher chance of winning those contracts in view of our past experience and involvement in the relevant infrastructural project. For instance, for the year ended 31 March 2015 and for the eight months ended 30 November 2015, we won 13 tenders of which, 6 of the tenders won were related to infrastructural projects which we were involved in the past. Therefore, we achieved higher tender success rates for the year ended 31 March 2015 and for the eight months ended 30 November Project acceptance Upon receipt of our tender, our customer may, by way of interview or enquiries, clarify with us the particulars of our submitted tender. Once our customer decides to engage us, we will be informed of its acceptance of our tenders by a letter of award or letter of intent issued to us by our customer. We may then enter into a formal engagement agreement with the customer. For the principal terms of our engagement in a typical contract, please refer to the paragraph headed Customers Major terms of engagement of this section. 112

119 BUSINESS Project execution and customer acceptance Once our engagement is confirmed, we commence the implementation of the project by: (i) forming a project team; (ii) planning and arranging the required site equipment to be delivered to the construction site; (iii) procuring and arranging with suppliers for the required materials for the project; and (iv) negotiating on finalising the subcontracting arrangement if necessary. Forming a project team Depending on the scale and complexity of the project, our project team generally comprises the following key personnel: project manager, construction manager, site agent, engineer, quantity surveyor, land surveyor, safety officer, foreman and other site workers chosen by the project manager and construction manager. Our executive Directors also closely monitor the progress of the project on a continuous basis to ensure that our works meet our customers requirements, within budget and in compliance with all applicable laws and regulations. Our project team will oversee the project on site and report to the executive Directors on project status and identify any issues that need to be resolved from time to time. Set out below are some general duties performed by our key personnel in a project team: Project manager Our project manager is mainly responsible for communicating with our customers, subcontractors and other members of the project team on the project status, allocation of resources in a project, reviewing the progress reports, safety reports and site daily records. Our project manager directly reports to our executive Directors on contract management, project status and issues, and attend progress meetings to report the project progress to our customers. Construction manager Our construction manager is responsible for supervising our overall workforce on site, monitoring work efficiency and performance of site workers and liaising with the representatives of our customers and subcontractors on site with the assistance from the project team. Our construction manager directly reports to our executive Directors on any major issues happening on the construction site. Site agent Our site agent is responsible for inspecting fieldworks, assisting our project manager and construction manager to supervise and monitor work progress on site, supervising workmanship and quality and preparing site daily records setting out the works performed by our workers and subcontractors. 113

120 BUSINESS Engineer Our engineer is responsible for overseeing the engineering and technical aspects of the project such as designing the whole site operation and suitable methodology and procedures for customer s approval. Our engineer is also responsible for assisting the project manager and construction manager in liaising with our customers and their representative consultants on site. Quantity surveyor Our quantity surveyor is responsible for inspecting the work progress on site and preparing payment application. Our quantity surveyor is also required to update our project manager with the latest certified progress from our customers. Land surveyor Our land surveyor is responsible for providing professional and technical support on measurement and calculation of the location, distance, elevation or dimension of land features or structures relevant to project implementation. Our land surveyors enable us to speed up the setting out process and enhance our efficiency and overall service quality. Safety officer Our safety officer is responsible for supervising implementation of site safety measures and monitoring on the day-to-day occupational health and safety compliance. Foreman Our foreman is responsible for assisting our site agent to supervise and provide guidance to site workers, carrying out in-process and final inspection and coordinating day-to-day site operations. Planning and arranging site equipment Most of our works involve usage of site equipment. When site equipment is required for a project, we either make use of our own site equipment or rent from external site equipment rental service providers. Mr. Wong Tak Ming, an executive Director (whose experience and qualifications are disclosed in the section headed Directors and senior management in this prospectus), is responsible for managing the site equipment for all projects and determining the types of site equipment to be used, the time for the usage of site equipment and the transportation logistics of site equipment. For details on our site equipment, please refer to the paragraph headed Site equipment in this section. 114

121 BUSINESS Purchasing of construction materials The key construction materials that we purchase for our civil engineering projects include concrete, steel reinforcement bars, precast concrete units, timbers and diesel fuel. Our purchasing department consults our quantity surveyors and engineering department to determine the quantity, delivery schedule, specifications and type of construction materials to be purchased in order to meet our customers requirements. Our purchasing department will then place orders with our approved suppliers and purchase the required materials on a project basis. In some projects, certain construction materials such as concrete and steel reinforcement bars may be purchased by our customer i.e. the main contractors, on our behalf for use in the relevant projects. Please refer to the paragraph headed Suppliers Contra-charge arrangement with our customers in this section for further details. Our construction materials are purchased and sent to the site directly from our suppliers. As the materials are purchased on a project basis in accordance with the project requirements, we rely on the accurate estimation on the amount of construction materials needed and we normally allow for a small buffer in each batch of order to avoid wastage. As such, we do not retain any construction materials as inventory. For details on our suppliers, please refer to the paragraph headed Suppliers in this section below. Appointment of subcontractors Depending on our capability, resources level, cost effectiveness and the complexity of the project, we may subcontract specific parts of the project, such as steel fixing works, formwork erection works and drainage works, to our subcontractors in Hong Kong on our Group s approved list of subcontractors. Save for such specific parts of the project, we usually carry out other parts of a project by our direct employees. More than one subcontractor may be engaged for a project depending on the scale and complexity of the project. The agreement between our subcontractor and us generally contains key terms and conditions including the scope of works, completion date, defects liability period, etc. that are mirrored to those contained in the agreement between us and our customer. For details on our subcontracting arrangement, please refer to the paragraph headed Subcontractors in this section. Execution The construction works are executed by our direct labours and/or our subcontractors under the supervision of our on-site project teams and representatives of our customers. Throughout the execution phase, our project manager and construction manager will meet our customers to review work progress and to resolve any issues identified during the course of execution. 115

122 BUSINESS Variation orders Our customer may, in the course of project execution, place additional orders concerning variation to part of the works that are necessary for completion of the project. Such orders are commonly referred to as variation orders. Variation orders may include: (i) additions, omissions, substitutions, alterations, changes in quality, form, character, kind, position or dimension; (ii) changes to any sequence, method or timing of construction specified in the original contract; and (iii) changes to the site or entrance to and exit from the site. We will discuss with our customer to mutually agree on the sum of variation orders which may be added to or deducted from the contract sum under the original contract. We are usually notified of a variation order by way of a letter from our customer setting out the detailed works to be carried out as a result of such variation order. We will then prepare and submit the rate for such variation order to our customer for approval. The principal terms and settlement of variation orders are generally in line with the terms of the original contract. Monitoring and quality inspection Our executive Directors, with the assistance of our project team, monitor work progress, project performance, risks in delaying the construction programme, comments from our customer and follow-up matters for the project. In addition, we hold progress meeting with our customer throughout the project to keep our customers informed of our projects status and any major issues identified during project execution. Our construction manager is responsible for overall supervision of overall workforce on site to monitor the quality and ensure the projects are executed in accordance with our quality standards. Our site agent is required to prepare site daily records describing the works performed by our workers or subcontractors (if any). Such site daily records are passed to our project manager and construction manager for review. Our site agent also assists our project manager and construction manager to monitor work progress and coordinate with our foreman to supervise workmanship and quality. Our work progress is also inspected by our quantity surveyor before we prepare payment applications to our customer. Customer inspection and application for payment and certification In addition to our quality inspection as described above, our customers also inspect our works done from time to time in order to confirm and certify completion of the relevant works before our interim payment applications are certified. Upon completion of such inspection, our customer may issue a report specifying defects that need to be rectified by us (if any). We are entitled to receive progress payments from our customers. Our application for progress payments is normally made on a monthly basis. Based on the works performed by us in the preceding month, we submit to our customers interim payment applications which generally include details of completed works, the actual quantities of our work done, variation orders (if any) and the cost of the materials delivered on a monthly basis. The 116

123 BUSINESS amount to be received by us from some customers (who are also our suppliers of certain construction materials and other supplies) is netted off by any contra-charge paid by our customers on our behalf, details of the contra-charge arrangement are set out in the paragraph headed Suppliers Contra-charge arrangement with our customers in this section. Once our customer approves our payment application, a payment certificate will be issued to us. Generally, we receive payment from our customers within 45 days of our payment application. Our customer will usually retain up to 10% of each interim payment and up to a maximum limit of 5% of the contract sum as retention money. 50% of the retention money is released to us upon completion of a project and the remaining 50% will be released to us upon expiration of the defects liability period of a project. We normally pay progress payment to our subcontractors on a monthly basis with reference to the value of the work performed by our subcontractors in the preceding month after our inspection and verification on their works. Generally, we are required to pay our subcontractors within 30 days of payment application submitted by our subcontractors. Project completion Once we have completed the entire project to the satisfaction of our customer, our customer will (i) verbally confirm completion of the project during progress meetings and such customers verbal confirmation is evidenced by subsequent payment certificates issued by our customers in respect of our final payment and/or (ii) issue a practical completion certificate for the project. In some civil engineering projects, certificates of practical completion are issued by our customers which indicate that the contract works have been completed, tested and approved. Furthermore, we will take steps to record customers verbal confirmation on practical completion by exchange of correspondence in writing. During the Track Record Period and up to the Latest Practicable Date, our Group had not encountered any disputes with our customers in ascertaining the status and completion of a project (whether verbal or otherwise). A contract is normally regarded as practically completed when (i) the works under the contract have been duly completed as verified by our customer after inspection; (ii) there is no apparent defect; and (iii) maintenance or defects liability period commences. It generally takes approximately 2 months for us to reach an agreement on the final account with our customers taking into account the value of our work done (including variation orders (if any)) and the retention money. We normally receive final payment and 50% of the retention money from our customers within 45 days after the said final account is agreed. Defects liability period and release of retention money Our customers normally require a defects liability period, during which we are responsible for rectifying defects or imperfections in relation to our works done which are discovered after completion. The defects liability period typically last for 12 months after completion. Upon expiration of the defects liability period, the remaining 50% of the retention money will be released to us by our customers. 117

124 BUSINESS Working capital requirement associated with undertaking contract works When undertaking contract works, there are often time lags between making payments to our subcontractors and receiving payments from our customers, resulting in possible cash flow mismatch. If we choose to pay our subcontractors only after receiving payments from our customers, we will risk our reputation for not being able to make payments in a timely manner, which could harm our ability to engage capable and quality subcontractors for our business in the future. The extent of such cash flow mismatch is illustrated by the differences between our creditors turnover days and our debtors turnover days. For the two years ended 31 March 2015 and the eight months ended 30 November 2015, our creditors turnover days were approximately 33.6 days, 20.4 days and 24.5 days respectively and our debtors turnover days were approximately 39.6 days, 33.2 days and 50.2 days, respectively, which are further discussed in the sections headed Financial information Discussion of certain combined statements of financial position items Trade and other receivables Trade receivables and Financial information Discussion of certain combined statements of financial position items Trade and other payables Trade payables, respectively, in this prospectus. In order to manage our liquidity position in view of such possible cash flow mismatch associated with undertaking contract works, we have adopted the following measures: (i) (ii) Before undertaking each new project, our finance department led by our financial controller, Ms. Chan Yin Wa Cecilia, whose experience and qualifications are disclosed in the section headed Directors and senior management in this prospectus, will prepare an analysis of the forecast amount and timing of cash inflows and outflows in relation to a project as well as our other liquidity requirements associated with our ongoing projects and our overall business operations so as to ensure the sufficiency of our financial resources before undertaking a new project. Our finance department is also responsible for the overall monitoring of our current and expected liquidity requirements on a monthly basis to ensure that we maintain sufficient financial resources to meet our liquidity requirements. (iii) If, based on our regular monitoring by our finance department, there is any expected shortage of internal financial resources, we will refrain from undertaking new projects and/or consider different financing alternatives, including but not limited to obtaining adequate committed lines of funding from banks and other financial institutions. In January 2015, we obtained a banking facility of HK$4,000,000 granted under the SME Financing Guarantee Scheme. We considered that bank borrowing under the SME Financing Guarantee Scheme was an appropriate means of raising capital for our Group at that time because the interest rate of such bank loan was 1% below the Hong Kong dollar prime rate per annum, which allowed us to obtain a more affordable debt financing with lower finance cost. Such bank borrowing allowed us to meet the working capital requirements for our ongoing projects and the projects newly awarded at that time for paying subcontracting charges, employees wages, material costs and site equipment rental charges incurred during execution of our civil engineering 118

125 BUSINESS projects at that time. Such banking facility, which aims to help small and medium-sized enterprises (SMEs) and non-listed enterprises obtain financing for meeting their working capital and business needs, has been repaid before the Listing. After the Listing, we will finance our working capital (including any possible mismatch of cash inflows and outflows of our projects) through, among others, the cash flow to be generated from our contracts on hand, the estimated net proceeds from the Placing of approximately HK$35.7 million and our unutilised banking facilities, details of which are set out in the paragraph headed Business Strategies (iii) Adherence to prudent financial management to ensure sustainable growth and capital sufficiency of this section. Hence, our Directors believe that we have sufficient working capital and financial resources to pay subcontracting charges, direct wages, material costs and site equipment rental charges in order to meet our liquidity requirements and minimise the effect of possible cash flow mismatch associated with the projects undertaken by us after the Listing. Our cash flows and working capital position may also be affected by possible delays in the work progress of our civil engineering projects. During the Track Record Period, we have experienced delays in several projects. Such delays were mainly caused by the postponement of the originally scheduled commencement date of a part or a phase of our works due to the delay in the work progress on the part of our customers or our customers other subcontractors. As a result of such delays, our customers were unable to hand over the site to us to commence the relevant part or phase of our works. During the Track Record Period, our Group did not cause any material delays in completion of our works which led us to pay liquidated damages. Our Directors consider that the major impact of delays caused by our customers is to defer our cash inflows and outflows and our plan to deploy labour and materials but would normally not cause a material impact on our liquidity and profitability unless there is a significant fluctuation in labour costs and material prices. In each of the aforesaid delays during the Track Record Period, we have successfully implemented the following measures in order to manage our working capital resources and minimise our cash outflows during the delay: (i) (ii) We participated in regular meetings with our customers who, upon identifying any expected delays in the originally scheduled commencement date of any part or phase of our works, would promptly notify us in these meetings. Our project management team will also exercise its own judgment based on its observations on site as to whether the next phase of works could be handed over on time by our customers and timely liaise with them to understand if any possible delay could occur. If, prior to the originally scheduled commencement date, we had already performed preparatory works or purchased relevant materials, our customers would make payments to us based on the amount of certified works performed and the cost of the materials purchased. After receiving the aforesaid notification from customers, we would notify our relevant subcontractors as soon as practicable and request for a corresponding delay in their work commencement date. If such subcontractors were already working on the site for other parts or phases of the works undertaken by us, we would request for the temporary suspension of their services after their 119

126 BUSINESS completion of said works and before the commencement of the delayed parts or phases of the works. Staff who are paid on a daily basis may not be called on site for work. By doing so, we would effectively and promptly put further cash outflows and costs on hold. In order to alleviate the impact on the said subcontractors and staff and to maintain good working relationships with them as well as to optimise the deployment of our available resources, we would consider engaging or assigning such subcontractors and staff in our other sites and projects where such opportunities are available. (iii) During the period of delay, we would continue to participate in regular meetings with our customers so as to monitor the status of the relevant project continuously. We would request for a sufficient notice period prior to the re-scheduled commencement date of the delayed works such that we could have sufficient time to arrange for necessary resources for the delayed works. Our Directors confirm that the delays in work progress due to the delays in handover of site to us would not hold us liable to penalty or liquidated damages. Our Directors believe that by implementing the aforesaid measures during the Track Record Period, our Group had successfully minimised cash outflows and avoided unnecessary lock-up of our working capital resources during the aforesaid delays. Going forward, we will implement the aforesaid measures to manage our working capital resources and minimise cash outflows upon the occurrence of delays of a similar nature. CUSTOMERS Characteristics of our customers During the Track Record Period, our customers primarily include main contractors of various different types of civil engineering projects in Hong Kong. For information regarding our customers in respect of each of our projects undertaken during the Track Record Period, please refer to the paragraph headed Our civil engineering contracts in this section. Major customers For the two years ended 31 March 2015 and the eight months ended 30 November 2015, the percentage of our total revenue attributable to our largest customer amounted to approximately 63.2%, 53.1% and 36.7%, respectively, while the percentage of our total revenue attributable to our five largest customers combined amounted to approximately 94.1%, 96.0% and 97.5%, respectively. 120

127 BUSINESS Set out below is a breakdown of our revenue by our five largest customers during the Track Record Period and their respective background information: For the year ended 31 March 2014: Rank Customer Background of customer Type of works undertaken by us for the customer during the Track Record Period Approximate years of business relationship with our Group Credit term Payment term Revenue derived from the customer HK$ 000 % 1 China Harbour A construction contractor which is a subsidiary of a company listed in Hong Kong Roads and drainage, structural and site formation works 12 Within 45 days from the issue of payment application from our Group to the customer Mainly by cheque 101, Chun Wo Construction A construction contractor which is a subsidiary of a company listed in Hong Kong Roads and drainage and structural works 16 Within 45 days from the issue of payment application from our Group to the customer Mainly by cheque 20, China State Construction A construction contractor which is a subsidiary of a company listed in Hong Kong Roads and drainage, structural and site formation works 11 Within 45 days from the issue of payment application from our Group to the customer Mainly by cheque 11, Customer D A construction contractor which is a subsidiary of a company listed in Australia Roads and drainage works 2 Within 45 days from the issue of payment application from our Group to the customer Mainly by cheque 9, Leighton China State Van Oord Joint Venture A joint venture construction contractor established by Customer D, China State Construction and an independent third party Roads and drainage works 10 Within 45 days from the issue of payment application from our Group to the customer Mainly by cheque 8, Five largest customers combined 150, All other customers 9, Total revenue 159,

128 BUSINESS For the year ended 31 March 2015: Rank Customer Background of customer Type of works undertaken by us for the customer during the Track Record Period Approximate years of business relationship with our Group Credit term Payment term Revenue derived from the customer HK$ 000 % 1 China Harbour A construction contractor which is a subsidiary of a company listed in Hong Kong Roads and drainage, structural and site formation works 12 Within 45 days from the issue of payment application from our Group to the customer Mainly by cheque 144, Dragages China Harbour VSL J.V. A joint venture construction contractor established by China Harbour and independent third parties Structural works 2 Within 45 days from the issue of payment application from our Group to the customer Mainly by cheque 61, China State Construction A construction contractor which is a subsidiary of a company listed in Hong Kong Roads and drainage, structural and site formation works 11 Within 45 days from the issue of payment application from our Group to the customer Mainly by cheque 36, Customer D A construction contractor which is a subsidiary of a company listed in Australia Roads and drainage works 2 Within 45 days from the issue of payment application from our Group to the customer Mainly by cheque 11, Chun Wo Construction A construction contractor which is a subsidiary of a company listed in Hong Kong Roads and drainage and structural works 16 Within 45 days from the issue of payment application from our Group to the customer Mainly by cheque 7, Five largest customers combined 261, All other customers 10, Total revenue 271,

129 BUSINESS For the eight months ended 30 November 2015: Rank Customer Background of customer Type of works undertaken by us for the customer during the Track Record Period Approximate years of business relationship with our Group Credit term Payment term Revenue derived from the customer HK$ 000 % 1 China State Construction A construction contractor which is a subsidiary of a company listed in Hong Kong Roads and drainage, structural and site formation works 11 Within 45 days from the issue of payment application from our Group to the customer Mainly by cheque 56, China Harbour A construction contractor which is a subsidiary of a company listed in Hong Kong Roads and drainage, structural and site formation works 12 Within 45 days from the issue of payment application from our Group to the customer Mainly by cheque 33, Dragages China Harbour VSL J.V. A joint venture construction contractor established by China Harbour and independent third parties Structural works 2 Within 45 days from the issue of payment application from our Group to the customer Mainly by cheque 29, Chun Wo Construction A construction contractor which is a subsidiary of a company listed in Hong Kong Roads and drainage and structural works 16 Within 45 days from the issue of payment application from our Group to the customer Mainly by cheque 16, Customer D A construction contractor which is a subsidiary of a company listed in Australia Roads and drainage works 2 Within 45 days from the issue of payment application from our Group to the customer Mainly by cheque 15, Five largest customers combined 150, All other customers 3, Total revenue 154, None of our Directors, their close associates, or any Shareholders who or which, to the knowledge of our Directors, owned more than 5% of the issued Shares of our Company as at the Latest Practicable Date had any interest in any of the five largest customers of our Group during the Track Record Period. 123

130 BUSINESS The following table sets out the aggregate revenue attributable to our major customers and its joint ventures, which our Directors consider them as affiliated entities under the same group, during the Track Record Period: For the eight For the year ended 31 March months ended November 2015 % of total % of total % of total HK$ 000 revenue HK$ 000 revenue HK$ 000 revenue Aggregate revenue attributable to China Harbour and its joint venture 106, , , Aggregate revenue attributable to China State Construction and its joint ventures 22, , , Aggregate revenue attributable to Customer D and its joint ventures 18, , , Customer concentration For the two years ended 31 March 2015 and the eight months ended 30 November 2015, the percentage of our total revenue attributable to our five largest customers combined amounted to approximately 94.1%, 96.0% and 97.5% respectively. The percentage of our total revenue attributable to our largest customer amounted to approximately 63.2%, 53.1% and 36.7% respectively for the same periods. According to the Ipsos Report, it is common for civil engineering contractors to rely on a few customers and such customer concentration is not uncommon for construction companies in Hong Kong. Our Directors consider that despite the customer concentration, our Group s business model is sustainable despite such customer concentration due to the following factors: Due to the nature of the civil engineering construction industry in which our Group is engaged in, our customer base is relatively concentrated to reputable main contractors which dominate more than 50% of the market share in the civil engineering construction industry in Hong Kong. As a result, given the market landscape of the civil engineering construction industry in Hong Kong, the potential customer base of our Group is limited. It is not uncommon for a single project to have a large contract sum such that a small number of projects can contribute to a substantial amount of our revenue. In addition, a project of sizeable scale can have a contract period of several years. 124

131 BUSINESS Therefore, if we decide to undertake a certain project with large contract sum, the relevant customer may easily become our largest customer in terms of revenue contribution to us for more than one financial year. We have been actively tendering for projects among major main contractors for public sector projects. In the event that any of our major customers substantially reduce the number of contracts placed with us or terminates its business relationship with us, our Directors consider that we would have extra capacity to handle other potential projects from other customers in view of the expected growth of demand for civil engineering services in Hong Kong and our competitive strengths as detailed in the paragraph headed Competitive strengths in this section. According to the Ipsos Report, the demand for civil engineering works is expected to surge in the future and the estimated revenue of the civil engineering construction industry in Hong Kong is anticipated to grow at a CAGR of approximately 21.2% from approximately HK$88.6 billion in 2015 to approximately HK$186.5 billion in We experienced a strong demand for our services from a wide range of customers during the Track Record Period as evidenced by the number of tender invitations that we received from customers during the Track Record Period. Please refer to the paragraph headed Operation flow Invitation for tendering, preparation and submission Tenders submitted during the Track Record Period of this section for further details. A majority of our five largest customers have long-standing business relationship with us for over ten years and we will therefore endeavour to accommodate their demands for our services to the extent our resources allow in order to capture more opportunities for larger scale projects in the future. Our Directors consider that we have a complementary business relationship with our major customers. Our experience and our proven track record as a quality subcontractor in handling civil engineering projects also give business advantage to our customers to ensure their projects are executed on time, within budget and in accordance with their quality standards. Our relationship with China Harbour For the two years ended 31 March 2014 and 2015 and the eight months ended 30 November 2015, revenue from China Harbour amounted to approximately HK$101,138,000, HK$144,349,000 and HK$33,643,000, representing approximately 63.2%, 53.1% and 21.7% of our total revenue for the corresponding periods, respectively. The revenue attributable to China Harbour decreased substantially to 21.7% for the eight months ended 30 November Such decrease is mainly attributable to completion of 9 contracts with China Harbour with an aggregate contract sum of approximately HK$70,096,000 during the year ended 31 March

132 BUSINESS Background of China Harbour China Harbour is one of the key main contractors in the civil engineering construction industry in Hong Kong. Founded in 1980 and headquartered in the PRC, China Harbour is a subsidiary of China Communications Construction Company Limited which has been listed on the Main Board of the Stock Exchange. China Harbour is principally engaged in the provision of engineering services in engineering-procurement-construction (EPC), build-operate-transfer (BOT), and public-private-partnership (PPP) formats for both public and private sectors, including marine engineering, dredging and reclamation, road and bridge, railway, airport, equipment assembly. China Harbour s business also covers other industries such as building, municipal works, environmental, hydraulic engineering, power plant and energy, and resource exploration. Business relationship with China Harbour We have 12 years business relationship with China Harbour with revenue contribution. We started to provide civil engineering services to China Harbour as a subcontractor in During the Track Record Period, we had undertaken 17 contracts with China Harbour, of which 11 contracts have a contract sum of over HK$10 million. Subsequent to the Track Record Period, our Group was awarded with one contract with contract sum of approximately HK$297 million from China Harbour in relation to structural works. China Harbour also supplied construction materials such as concrete and steel reinforcement bars to our Group during the Track Record Period. For details, please refer to the paragraph Suppliers Contra-charge arrangement with our customers in this section. Contractual arrangement with China Harbour Consistent with our arrangements with other customers, we entered into construction contracts with China Harbour on a project-by-project basis. Under our agreement with China Harbour, it generally contains material terms including (i) interim payment terms which require China Harbour to pay us on a monthly basis with a credit term of 45 days for the interim and final payments. China Harbour is generally entitled to retain 5% of each interim payment and up to a maximum limit of 5% of the total contract sum as retention money; (ii) supervision and human resources arrangement under which China Harbour would arrange personnel responsible for managing the project as a main contractor, whereas our Group would engage other subcontractors to carry out the works if necessary; (iii) contra-charge arrangement under which China Harbour will procure construction materials, such as concrete and steel reinforcement bars on our behalf, details of which are set out in the paragraph headed Suppliers Contra-charge arrangement with our customers in this section; (iv) maintenance of insurance by China Harbour and our Group; and (v) defects liability period of 12 months. 126

133 BUSINESS Our Directors consider that the substantial revenue contribution from China Harbour to us during the Track Record Period will not affect our business prospects and sustainability of our business based on the following factors: Sound track records We have been providing civil engineering services as a subcontractor in Hong Kong for over 16 years. Our Directors believe that our established operating history with a wide range of project references allows us to consolidate our reputation and secure projects from different main contractors. China Harbour is one of the key players in the civil engineering construction industry in Hong Kong. Our Directors believe that our relationship with China Harbour will enhance our project references and reputation through building a positive reputation in the industry. In addition to China Harbour, we also serve China State Construction, one of the key main contractors in the civil engineering construction industry in Hong Kong and a subsidiary of China State Construction International Holdings Limited (listed on the Main Board of the Stock Exchange). China State Construction was our largest customer for the eight months ended 30 November Revenue attributable to China State Construction amounted to approximately HK$11,350,000, HK$36,300,000 and HK$56,688,000, representing approximately 7.1%, 13.3% and 36.7% of our total revenue for the two financial years ended 31 March 2015 and the eight months ended 30 November 2015, respectively. This demonstrates that our Group also places equal emphasis on other major customers instead of confining ourselves to a single customer. Our flexibility and capability to take up projects of different scales and meet the requirements of different customers Our Group s performance is, to a significant extent, attributable to our possession of a broad range of site equipment. We possess sufficient number of site equipment which enables us to perform civil engineering works of different scales and complexity. To utilise our assets and facilitate our work effectively, we rely on management who has extensive knowledge and experience in the industry. We also have a project team with members possessing relevant qualifications and industry experience, details of which are set out in the section headed Directors and senior management in this prospectus. As such, we are capable of providing recommendations on the projects in order to meet the requirement of different customers. Our future business plan Our business opportunities arose mainly from invitation for tenders by customers. In the civil engineering construction industry in Hong Kong, reputation, relationships with customers, flexibility and price constitute the key factors of competition and we consider that our customers will select 127

134 BUSINESS Marketing activities their subcontractors based on these factors. We experienced a strong demand for our services from a wide range of customers during the Track Record Period as evidenced by the number of tender invitations that we received from customers during the Track Record Period. Please refer to the paragraph headed Operation flow Invitation for tendering, preparation and submission Tenders submitted during the Track Record Period of this section for further details. A majority of our five largest customers has business relationship with us for over 10 years. Although our five largest customers represent over 90% of our revenue during the Track Record Period, the scale of projects from these major customers continues to grow. For instance, from 2013 to 2014, we were awarded 2 tender contracts with an aggregate contract value of approximately HK$87 million relating to construction of portal beams for the Hong Kong-Zhuhai-Macao Bridge project. From 2014 to 2015, we were awarded 3 tender contracts by China State Construction with an aggregate contract value of approximately HK$187 million for roads and drainage works and structural works relating to widening of Fanling Highway. From 2015 to 2016, we were awarded tender contracts by China Harbour with an aggregate contract value of approximately HK$929.6 million for structural works relating to the Hong Kong-Zhuhai-Macao Bridge project and associated infrastructure works. The above demonstrates our business strategy to pursue relatively sizeable civil engineering construction projects. As such, we intend to purchase additional site equipment to cater to a wider range of requirements from our customers. We intend to use approximately HK$18.0 million from the net proceeds from the Placing to purchase site equipment for our projects and approximately HK$7.6 million from the net proceeds to recruit additional staff members to capture these business opportunities. As at the Latest Practicable Date, we had 20 contracts on hand. These contracts are expected to contribute approximately HK$191,737,000 and approximately HK$824,469,000 to our revenue for the period from 1 December 2015 to 31 March 2016 and for the year ending 31 March 2017, respectively. The amount of revenue expected to be recognised is subject to change due to the actual progress and commencement and completion dates of our projects. Out of the 20 contracts on hand, 15 contracts have been entered into between our Group and the customers other than China Harbour and its joint ventures, such contracts are expected to contribute approximately HK$47,695,000 and approximately HK$78,411,000 to our revenue for the period from 1 December 2015 to 31 March 2016 and for the year ending 31 March 2017, respectively. During the Track Record Period, we secured new businesses mainly through direct invitation for tender by customers. Our Directors consider that due to our proven track record and our well-established relationship with our existing customers, we are able to leverage our existing customer base, reputation and our years of experience in civil 128

135 BUSINESS engineering construction projects such that we do not rely heavily on marketing and promotional activities. Our executive Directors are generally responsible for liaising and maintaining our relationship with customers and keeping abreast of market developments and potential business opportunities. Pricing strategy Our pricing is determined based on a cost-plus pricing model in general with markup determined on a project-by-project basis. We estimate our cost of undertaking a project with reference to various factors including but not limited to (i) the nature, scale and complexity of the project, (ii) the estimated number and types of workers and site equipment required; (iii) the construction methods and techniques expected to be applied in a project; (iv) the completion date requested by customers; and (v) the prevailing market conditions in general. When preparing for a tender, we also take into account the estimated material cost with reference to the relevant price indicators on the material and labour prices. When there is price fluctuation on such price indicators in the preceding month which our management considers to be material, we will obtain quotations from our suppliers for preparation of the bills of quantities or schedule of rates which would form part of the tender document and govern the relevant material costs for a project. Furthermore, we determine a certain percentage of markup over our estimated cost on a project-by-project basis. The markup percentage may vary for different projects due to factors such as (i) the size of the project; and (ii) the likelihood of any material deviation of the actual cost from our estimated cost having regard to the types and amount of labours, site equipment, materials and other resources involved in our cost estimations. Major terms of engagement Our customers engage us on a project basis and our customers do not enter into long-term agreements with us. In general, contracts entered into between us and our customers contain major terms and conditions relating to the particulars of a project, contract price, contract period, the type and scope of work, bills of quantities or schedule of rates, payment terms, retention money, liquidated damages, indemnities, insurance and defects liability period. The following summarises the major terms of engagement with our customers: Contract period The period of a project typically starts from the date when we are allowed to commence work at the construction site. The contract period varies depending on the project size and complexity. However, such period may be extended pursuant to the terms of the relevant contract. Types and scope of work The contract also identifies the types and scope of the work in details which we are engaged to perform under the contracts, details of which are set out in the paragraph headed Our services in this section. 129

136 BUSINESS Bills of quantities or schedule of rates Most of our contracts would include the bills of quantities or schedule of rates which generally contain the description of the types of work, specifications, quantities of works to be done and the unit rates for each type of works under the project. In general, there is no specific clauses in relation to price adjustment in our contracts with our customers. Payment terms For interim or progress payment, we generally provide our customers with a written statement of the details of completed works, the estimated fee of our work done along with any variation orders (if any) and the costs of the materials delivered under the contract on a monthly basis. In respect of final payment, we usually issue final account showing the amount we are entitled to for our customers approval. For details, please refer to the paragraphs headed Operation flow Customer inspection and application for payment and certification and Operation flow Project completion in this section. Retention money Our customers may hold up a certain percentage of each interim payment made to us as retention money. In general, our customers may retain up to 10% of each interim payment and up to a maximum limit of 5% of the contract sum as retention money for a project. 50% of the retention money withheld is normally released to us after completion of a project and the remaining retention money is normally released after the expiry of the defects liability period. As at 31 March 2014 and 2015 and 30 November 2015, our retention monies receivables amounted to approximately HK$17,957,000, HK$19,217,000 and HK$23,815,000, respectively. Please refer to the section headed Financial information Discussion of certain combined statements of financial position items Trade and other receivables in this prospectus for a further discussion and analysis regarding our trade and other receivables. Liquidated damages A contract may contain clauses on liquidated damages to protect our customers against any significant delay in completion of works subcontracted to us. However, under certain circumstances such as poor weather conditions or issue of variation orders, our customers may grant us extension of time without a need to pay liquidated damages to the customers. During the Track Record Period and up to the Latest Practicable Date, no liquidated damages of material nature had been claimed by our customers against us by reason of late completion of any of the contracts undertaken by us. Indemnities Pursuant to most of our contracts, we shall indemnify our customers against all liabilities for bodily injury, damage to property, penalties, proceedings, damages, cost, charges and expenses which may arise out of or in connection with execution of our work being in breach of any applicable laws or regulation, unless the aforementioned liabilities or 130

137 BUSINESS claims are caused solely by the wrongful acts or omissions of our customers. For any criminal charges against our Group due to non-compliance of applicable laws and regulations in relation to safety, health and environment by the subcontractors employees, we are generally entitled under the terms of the subcontracting agreement between us and our subcontractors to claim against our Group s subcontractors for any losses, liabilities, costs and expenses resulting from such criminal charges or convictions. Our Directors confirm that we had not experienced any material claims by our customers arising from breach of contracts during the Track Record Period and up to the Latest Practicable Date. Insurance In general, it is the obligation of the main contractor of the civil engineering project to effect proper insurance policies against damages, claims and compensation in respect of the persons who are employed to work at the construction sites. Please refer to the paragraph headed Insurance in this section below for further details. Termination If, in the opinion of our customers, we fail to execute the works in accordance with our customers requirements and our works are unsatisfactory or likely to be so and cause unduly delay to the overall progress of the project, our customer may terminate our contract by giving advance notice of intention to do so. During the Track Record Period and up to the Latest Practicable Date, we did not experience any early termination of contracts by our customers. Performance guarantee As confirmed by our Directors, it is not uncommon for main contractors to require the directors and/or shareholders of subcontractors to provide performance guarantee in the subcontracts as security for our Group s due performance and observance of the subcontract. During the Track Record Period and up to the Latest Practicable Date, there were 9 contracts in an aggregate contract sum of HK$284,175,000 which involved performance guarantees provided by Mr. CK Wong and/or Mr. WW Wong, our executive Directors and Controlling Shareholders, in favour of certain customers. Pursuant to the performance guarantee, Mr. CK Wong and/or Mr. WW Wong have given a personal guarantee as security for the due performance and observance of our Group s obligations under the contracts up to a specified amount ranging from 10% to 25% of the contract sum to an unlimited amount for all losses and damages suffered by the customers as a result of our Group s default under the contract. As at the Latest Practicable Date, among those 9 contracts, 4 contracts were completed and performance guarantee in respect of such contracts were released and 5 contracts are still in progress. Please refer to the section headed Relationship with our Controlling Shareholders (i) Financial independence in this prospectus for details of the performance guarantees given by our Controlling Shareholders. 131

138 BUSINESS Defects liability period After completion of a contract, we are subject to a defects liability period of 12 months during which we are responsible to rectify works defects or imperfections arising from works subcontracted to us. If we have engaged subcontractors for a project, we normally require an identical defects liability period from our subcontractors in respect of the works carried out by the subcontractors. If any defects or imperfections are identified, we will agree on a rectification works programme with our customers so that the defects can be remedied as soon as practicable. We will then arrange our direct labours to execute the rectification works at our own costs or, where applicable, require the relevant subcontractor to rectify the defects and/or bear the rectification costs. During the Track Record Period, we did not experience any material claim by our customers arising from defective works. Collection of our trade receivables and retention monies receivables As at 31 March 2014 and 2015 and 30 November 2015, we recorded trade receivables of approximately HK$15,583,000, HK$33,832,000 and HK$29,786,000, respectively, of which approximately HK$1,447,000, HK$3,514,000 and HK$937,000, respectively had been past due but not impaired. For the two years ended 31 March 2015 and the eight months ended 30 November 2015, our debtors turnover days were approximately 39.6 days, 33.2 days and 50.2 days, respectively. In addition, we had concentration of credit risk of approximately 30.5%, 38.3% and 46.7% of our total trade receivables as at 31 March 2014 and 2015 and 30 November 2015, respectively, were due from our largest debtor, and approximately 90.2%, 97.2% and 93.6% from our five largest debtors. In order to mitigate our risk in relation to the collectability of our trade receivables and retention monies receivables, we have implemented the following measures: Customer acceptance procedures are performed on our customers, including but not limited to (i) checking our internal record regarding the payment history of the existing customer; and (ii) for sizeable projects, depending on the situation and with the assistance of independent consultant if necessary, doing appropriate searches to ascertain the potential customer s credibility. Material overdue payments are monitored continuously and evaluated on a case-by-case basis as to the appropriate follow-up actions having regard to the customer s normal payment processing procedures, our relationship with the customer, its financial position as well as the general economic environment. Follow-up actions generally include but not limited to issuing payment reminders, actively liaising with customers, and, if necessary, taking legal actions. In addition, we review the recoverable amount of each individual receivable balance at the end of each reporting period to ensure adequate impairment losses are provided for irrecoverable amounts. 132

139 BUSINESS Please also refer to the section headed Financial information Discussion of certain combined statements of financial position items Trade and other receivables in this prospectus for a further discussion and analysis on our trade receivables and our trade receivables turnover days during the Track Record Period. Seasonality Our Directors believe that the industry in which we operate does not exhibit any significant seasonality. INVENTORIES We do not maintain any inventories during the Track Record Period as our construction materials are purchased and consumed on a project-by-project basis. SUPPLIERS During the Track Record Period, the principal construction materials used and purchased by our Group include concrete, steel reinforcement bars, precast concrete units, timbers and diesel fuel which are sourced from a number of suppliers on our Group s approved list. Characteristics of our suppliers During the Track Record Period, suppliers of goods and services to our Group mainly include: (i) suppliers of construction materials; (ii) site equipment rental service providers; and (iii) suppliers of other parts and consumables such as nails and screws and other miscellaneous goods including personal protective equipment used by our on-site workers such as reflective vests and safety helmets. We generally order the relevant construction materials and services on a project-by-project basis and therefore do not enter into any long-term supply agreements with our suppliers. Our Directors believe that we have maintained good business relationships with our suppliers. During the Track Record Period, we did not encounter any material difficulty in sourcing supplies based on our needs. We are usually responsible for sourcing construction materials for our projects, and except in the case where we are provided with materials by our customers pursuant to the contra-charge arrangement, details of which are set out in the paragraph headed Suppliers Contra-charge arrangement with our customers in this section below, we are able to choose our own suppliers for our projects. As at the Latest Practicable Date, there were approximately 69 suppliers included in our approved list of suppliers. We select our suppliers from our approved list of suppliers based on their prices, quality, past performances and timeliness of delivery. Our suppliers normally grant us a credit period of not more than 30 days from the invoice date. During the Track Record Period, we did not experience any material difficulties or delays in performing our projects caused by material shortage or delay in the supply of goods and services that we required. Our Directors consider that the possibility of a material shortage or delay is low given the abundance of suppliers of the same kind in the market. 133

140 BUSINESS The following table sets out a breakdown of our total purchases incurred by type during the Track Record Period: For the eight months ended For the year ended 31 March 30 November HK$ 000 % HK$ 000 % HK$ 000 % HK$ 000 % Subcontracting charges 34, , , , Construction materials and supplies 50, , , , Rental of site equipment 21, , , , Parts and consumables Total purchases 106, , , , Please refer to the section headed Financial information Description of selected components of our income statement Costs of sales in this prospectus for a discussion of the trend in our purchases from our suppliers during the Track Record Period as shown in the above table as well as the relevant sensitivity analyses. During the Track Record Period, aside from one supplier in the PRC which provided precast concrete units to us, our suppliers were located in Hong Kong and all our purchases are denominated in HK dollars. Prices of supplies Prices are determined by reference to quotations of suppliers as agreed between us and the suppliers on an order-by-order basis. Our Directors consider various factors, including but not limited to the future price trend of the materials and services when preparing tender proposals and hence we could generally pass on the increase in costs to our customers. During the Track Record Period and up to the Latest Practicable Date, we did not experience any material fluctuations in the costs of materials and services that had a material impact on our business, financial condition or results of operations. Major suppliers For the two years ended 31 March 2015 and the eight months ended 30 November 2015, the percentage of our total purchases incurred (excluding subcontracting charges incurred) from our largest supplier amounted to approximately 29.2%, 50.6% and 19.1% of our total purchases incurred (excluding subcontracting charges incurred), respectively, while the percentage of our total purchases incurred (excluding subcontracting charges incurred) from our five largest suppliers combined amounted to approximately 55.7%, 67.5% and 54.0% of our total purchases incurred (excluding subcontracting charges incurred), respectively. 134

141 BUSINESS Set out below is a breakdown of our total purchases incurred (excluding subcontracting charges incurred) by our five largest suppliers during the Track Record Period and their respective background information: For the year ended 31 March 2014: Rank Supplier Background of supplier Type of purchases/ rental from the supplier Approximate year(s) of business relationship with our Group Credit term Payment term Purchases by us from the supplier HK$ 000 % 1 China Harbour A construction contractor which is a subsidiary of a company listed in Hong Kong Purchase of construction materials such as concrete and steel reinforcement bars (Note) 12 Within 45 days from the issue of payment application from our Group to the customer Set off with trade receivables 21, Chun Wo Construction A construction contractor which is a subsidiary of a company listed in Hong Kong Purchase of construction materials such as concrete and steel reinforcement bars (Note) 16 Within 45 days from the issue of payment application from our Group to the customer Set off with trade receivables 5, Supplier C A company incorporated in Hong Kong which principally provides excavators and dump trucks for rental Rental of dump trucks 4 Monthly progress payment with a credit period of 30 days Mainly by cheque 5, Supplier D A company incorporated in Hong Kong which principally engaged in the provision of precast concrete units Purchase of precast concrete units 8 Monthly progress payment with a credit period of 30 days Mainly by cheque 4, Supplier E A partnership established in the PRC which is principally engaged in the production and sales of precast concrete units and hardware processing Purchase of precast concrete units 3 Monthly progress payment with a credit period of 30 days Mainly by cheque 3, Five largest suppliers combined 40, All other suppliers 32, Total purchases incurred (excluding subcontracting charges incurred) 72, Note: The purchases of the relevant construction materials are made pursuant to the contra-charge arrangement, details of which are set out in the paragraph headed Suppliers Contra-charge arrangement with our customers in this section below. 135

142 BUSINESS For the year ended 31 March 2015: Rank Supplier Background of supplier Type of purchases from the supplier Approximate year(s) of business relationship with our Group Credit term Payment term Purchases by us from the supplier HK$ 000 % 1 China Harbour A construction contractor which is a subsidiary of a company listed in Hong Kong Purchase of construction materials such as concrete and steel reinforcement bars (Note) 12 Within 45 days from the issue of payment application from our Group to the customer Set off with trade receivables 64, Supplier F A provider of construction materials such as scaffoldings parts in Hong Kong and a subsidiary of a company listed in London Purchase of scaffoldings parts 7 Monthly progress payment with a credit period of 30 days Mainly by cheque 5, Supplier C A company incorporated in Hong Kong which principally provides excavators and dump trucks for rental Rental of dump trucks 4 Monthly progress payment with a credit period of 30 days Mainly by cheque 5, China State Construction A construction contractor which is a subsidiary of a company listed in Hong Kong Purchase of construction materials such as concrete and steel reinforcement bars (Note) 11 Within 45 days from the issue of payment application from our Group to the customer Set off with trade receivables 5, Supplier H A company incorporated in Hong Kong which principally provides site equipment such as crane lorries and hydraulic truck cranes for rental Rental of site equipment such as crane lorries and hydraulic truck cranes 8 Monthly progress payment with a credit period of 30 days Mainly by cheque 4, Five largest suppliers combined 85, All other suppliers 41, Total purchases incurred (excluding subcontracting charges incurred) 126, Note: The purchases of the relevant construction materials are made pursuant to the contra-charge arrangement, details of which are set out in the paragraph headed Suppliers Contra-charge arrangement with our customers in this section below. 136

143 BUSINESS For the eight months ended 30 November 2015: Rank Supplier Background of supplier Type of purchases/ rental from the supplier Approximate year(s) of business relationship with our Group Credit term Payment term Purchases by us from the supplier HK$ 000 % 1 China State Construction A construction contractor which is a subsidiary of a company listed in Hong Kong Purchase of construction materials such as concrete and steel reinforcement bars (Note) 11 Within 45 days from the issue of payment application from our Group to the customer Set off with trade receivables 10, China Harbour A construction contractor which is a subsidiary of a company listed in Hong Kong Purchase of construction materials such as concrete and steel reinforcement bars (Note) 12 Within 45 days from the issue of payment application from our Group to the customer Set off with trade receivables 8, Chun Wo Construction A construction contractor which is a subsidiary of a company listed in Hong Kong Purchase of construction materials such as concrete and steel reinforcement bars (Note) 16 Within 45 days from the issue of payment application from our Group to the customer Set off with trade receivables 3, Supplier H A company incorporated in Hong Kong which principally provides site equipment such as crane lorries and hydraulic truck cranes for rental Rental of site equipment such as crane lorries and hydraulic truck cranes 8 Monthly progress payment with a credit period of 30 days Mainly by cheque 3, Supplier J A company incorporated in Hong Kong which principally provides site equipment such as mobile cranes for rental Rental of site equipment such as mobile cranes Less than 1 year Monthly progress payment with a credit period of 30 days Mainly by cheque 3, Five largest suppliers combined 29, All other suppliers 25, Total purchases incurred (excluding subcontracting charges incurred) 55, Note: The purchases of the relevant construction materials are made pursuant to the contra-charge arrangement, details of which are set out in the paragraph headed Suppliers Contra-charge arrangement with our customers in this section below. 137

144 BUSINESS None of our Directors, their close associates, or any Shareholders who to our Directors knowledge owned more than 5% of the issued Shares of our Company as at the Latest Practicable Date had any interest in any of the five largest suppliers of our Group during the Track Record Period. Contra-charge arrangement with our customers According to the Ipsos Report, it is common in the civil engineering construction industry that a main contractor may pay on behalf of its subcontractor for certain expenses for a civil engineering project. Such expenses are typically deducted from its payments to that subcontractor in settling its service fees for the project. Such payment arrangement is referred to as the contra charge arrangement and the amounts involved are referred to as the contra-charge. During the Track Record Period, we had contra-charge arrangement with some of our customers. Such contra-charge consisted of purchase cost of construction materials, rental cost of site equipment, utility cost and other miscellaneous expenses. Pursuant to the contra-charge arrangement set out in the contract with our customers, upon our written request, our customer may purchase construction materials specified in the contract such as concrete materials and steel reinforcement bars and make payments on our behalf. Such purchase cost of construction materials is settled by way of contra-charge to the account with such customer. Our customers may also, upon our request, lease their site equipment to our Group or pay miscellaneous expenses on our behalf on an as-needed basis, where we settled such amounts with our customers through the contra-charge arrangement. Effectively, the payments due to us from our customer will be settled after netting off such contra-charge amounts. For each of the two years ended 31 March 2015 and the eight months ended 30 November 2015, our contra-charge incurred amounted to HK$27,492,000, HK$73,004,000 and HK$23,985,000 respectively, and such contra-charge incurred amounts attributable to our top five customers during the Track Record Period amounted to approximately HK$27,336,000, HK$71,973,000 and HK$23,985,000, respectively, representing approximately 99.4%, 98.6% and 100.0% of our total contra-charge incurred for the same periods, respectively. As we settled such costs by way of contra-charge by netting off with the payments due from our customers, both cash inflows from the project work done and cash outflows from the purchase of construction materials were reduced by the same amount. Therefore, the contra-charge arrangement had no material effect on the Group s cashflow positions during the Track Record Period. 138

145 BUSINESS The following table sets forth the information on our customers from whom we had contra-charge arrangement during the Track Record Period: For the year ended 31 March 2014 HK$ 000 For the year ended 31 March 2015 Approximate % HK$ 000 For the eight months ended 30 November 2015 Approximate % HK$ 000 Approximate % China Harbour Revenue derived and approximate % of total revenue 101, , , Contra-charge charged by China Harbour and approximate % of total purchases incurred (excluding subcontracting charges incurred) 21, , , Weighted average of gross profit margin (Note) China State Construction Revenue derived and approximate % of total revenue 11, , , Contra-charge charged by China State Construction and approximate % of total purchases incurred (excluding subcontracting charges incurred) , , Weighted average of gross profit margin (Note) Chun Wo Construction Revenue derived and approximate % of total revenue 20, , , Contra-charge charged by Chun Wo Construction and approximate % of total purchases incurred (excluding subcontracting charges incurred) 5, , ,

146 BUSINESS For the year ended 31 March 2014 HK$ 000 For the year ended 31 March 2015 Approximate % HK$ 000 For the eight months ended 30 November 2015 Approximate % HK$ 000 Approximate % Weighted average of gross profit margin (Note) Customer D Revenue derived and approximate % of total revenue 9, , , Contra-charge charged by Customer D and approximate % of total purchases incurred (excluding subcontracting incurred charges) Weighted average of gross profit margin (Note) Dragages China Harbour VSL J.V. Revenue derived and approximate % of total revenue 5, , , Contra-charge charged by Dragages China Harbour VSL J.V. and approximate % of total purchases incurred (excluding subcontracting charges incurred) , Weighted average of gross profit margin (Note) China State Leader Joint Venture Revenue derived and approximate % of total revenue 3, ,

147 BUSINESS For the year ended 31 March 2014 HK$ 000 For the year ended 31 March 2015 Approximate % HK$ 000 For the eight months ended 30 November 2015 Approximate % HK$ 000 Approximate % Contra-charge charged by China State Leader Joint Venture and approximate % of total purchases incurred (excluding subcontracting charges incurred) , Weighted average of gross profit margin (Note) Note: The weighted average of gross profit margin equals the simple average of project gross profit margins weighted by project revenues. SUBCONTRACTORS It is a common industry practice for subcontractors to further subcontract part of their works to other subcontractors. Subject to our capacity, resources level, types of civil engineering works, cost effectiveness, complexity of the projects and customers requirements, we may subcontract our works such as steel fixing works, formwork erection works and drainage works to other subcontractors in a project. Our subcontractors include local sole proprietors as well as limited liability companies. During the Track Record Period, all of our subcontractors were located in Hong Kong and all of our service fees were denominated in HK dollars. Hop Fung, one of our operating subsidiaries, is also a subcontractor for one of our civil engineering contracts. We are accountable to our customers for the works performed in a project, including those carried out by our subcontractors. Unless otherwise specified in the contracts with our customers, our customers generally consent to our use of subcontractor for a project and do not limit which subcontractor to be used by us. According to the agreements we entered into with our subcontractors, we are entitled to hold our subcontractors liable for any damages suffered by our Group. For the two years ended 31 March 2015 and the eight months ended 30 November 2015, we incurred subcontracting charges of approximately HK$34,422,000, HK$54,817,000 and HK$50,913,000, respectively. Please refer to the section headed Financial Information Description of selected components of our income statement Costs of sales in this prospectus for the relevant sensitivity analysis. 141

148 BUSINESS Major subcontractors For the two years ended 31 March 2015 and the eight months ended 30 November 2015, the percentage of our Group s subcontracting charges incurred attributable to our Group s largest subcontractor amounted to approximately 17.3%, 17.7% and 15.0% of our Group s total subcontracting charges incurred, respectively, while the percentage of our Group s subcontracting charges incurred attributable to our Group s five largest subcontractors combined amounted to approximately 61.8%, 53.3% and 55.7% of our Group s total subcontracting charges incurred, respectively, for the same period. Set out below is a breakdown of our Group s total subcontracting charges incurred to major subcontractors of our Group and their respective background information: For the year ended 31 March 2014: Rank Subcontractor Type of services provided by the subcontractor Approximate year(s) of business relationship with our Group Credit term Payment term Total subcontracting charges incurred HK$ 000 % 1 Subcontractor A (Note 1) Formwork erection 10 Within 30 days from the issue of payment application from the subcontractor to our Group Mainly by cheque 5, Subcontractor B (Note 2) Drainage works 2 Within 30 days from the issue of payment application from the subcontractor to our Group Mainly by cheque 4, Subcontractor C (Note 1) Steel fixing 2 Within 30 days from the issue of payment application from the subcontractor to our Group Mainly by cheque 4, Subcontractor D (Note 1) Formwork erection 9 Within 30 days from the issue of payment application from the subcontractor to our Group Mainly by cheque 3, Subcontractor E (Note 1) Drainage works 3 Within 30 days from the issue of payment application from the subcontractor to our Group Mainly by cheque 3, Five largest subcontractors combined 21, All other subcontractors 13, Total subcontracting charges incurred 34,

149 BUSINESS Note: 1. Each of these subcontractors is a sole proprietorship established in Hong Kong and a subcontracting service provider for civil engineering construction projects. 2. Subcontractor B is a limited liability company incorporated in Hong Kong and a subcontracting service provider for civil engineering construction projects. For the year ended 31 March 2015: Rank Subcontractor Type of services provided by the subcontractor Approximate year(s) of business relationship with our Group Credit term Payment term Total subcontracting charges incurred HK$ 000 % 1 Subcontractor C (Note) Steel fixing 2 Within 30 days from the issue of payment application from the subcontractor to our Group Mainly by cheque 9, Subcontractor A (Note) Formwork erection 10 Within 30 days from the issue of payment application from the subcontractor to our Group Mainly by cheque 6, Subcontractor D (Note) Formwork erection 9 Within 30 days from the issue of payment application from the subcontractor to our Group Mainly by cheque 4, Subcontractor F (Note) Formwork erection 8 Within 30 days from the issue of payment application from the subcontractor to our Group Mainly by cheque 4, Subcontractor G (Note) Formwork erection 10 Within 30 days from the issue of payment application from the subcontractor to our Group Mainly by cheque 3, Five largest subcontractors combined 29, All other subcontractors 25, Total subcontracting charges incurred 54, Note: Each of these subcontractors is a sole proprietorship established in Hong Kong and a subcontracting service provider for civil engineering construction projects. 143

150 BUSINESS For the eight months ended 30 November 2015: Rank Subcontractor Type of services provided by the subcontractor Approximate year(s) of business relationship with our Group Credit term Payment term Total subcontracting charges incurred HK$ 000 % 1 Subcontractor C (Note) Steel fixing 2 Within 30 days from the issue of payment application from the subcontractor to our Group Mainly by cheque 7, Subcontractor H (Note) Steel fixing 2 Within 30 days from the issue of payment application from the subcontractor to our Group Mainly by cheque 5, Subcontractor J (Note) Drainage works 4 Within 30 days from the issue of payment application from the subcontractor to our Group Mainly by cheque 5, Subcontractor E (Note) Drainage works 3 Within 30 days from the issue of payment application from the subcontractor to our Group Mainly by cheque 4, Subcontractor A (Note) Formwork erection 10 Within 30 days from the issue of payment application from the subcontractor to our Group Mainly by cheque 4, Five largest subcontractors combined 28, All other subcontractors 22, Total subcontracting charges incurred 50, Note: Each of these subcontractors is a sole proprietorship established in Hong Kong and a subcontracting service provider for civil engineering construction projects. None of our Directors, their close associates, or any Shareholders who or which, to the knowledge of our Directors, owned more than 5% of the issued Shares of our Company as at the Latest Practicable Date had any interest in any of the five largest subcontractors of our Group during the Track Record Period. Basis of selection of subcontractors We maintain an internal list of approved subcontractors. We carefully evaluate the performance of our subcontractors and select subcontractors based on a range of factors such as their background, technical capability, experience, fee quotations, service quality, track 144

151 BUSINESS records, labour resources, timeliness of delivery, reputation and safety performance. We will review and update our internal approved list of subcontractors according to our assessment of their performance on a continuous basis. Key terms of subcontracting engagement As our customers engage us on a project basis, we do not enter into any long-term contract with our subcontractors. We enter into written agreement (with a term of engagement mirroring with the terms of the contract with our customer) with our subcontractors governing the general terms of subcontracting arrangement. The following summarises the major terms of engagement with our subcontractors: Scope of works and specification : The scope of services and types of works to be carried out by the subcontractor are specified in the subcontracting agreement. In general, a subcontractor is required to perform its work in accordance with the specifications required by our customer. Subcontracting Fee : The subcontracting fee to be received by the subcontractor is usually represented in a provisional sum, which is subject to remeasurement and valuation according to the bills of quantities included in the subcontract and further subject to any variation orders or additional works to be performed by the subcontractors with our prior consent. In general, we determine the amount of subcontracting charges based on (i) certain percentage of the amount of fees to be received by us from our customers in respect of the portion of works being subcontracted; (ii) the amount of labour resources required from our subcontractors; (iii) the nature of works to be performed by our subcontractors; and (iv) the prevailing market conditions. There is no price adjustment clause in the subcontracts between our Group and our subcontractors. Payment terms : For interim payments, our subcontractors are required to provide us with a payment application setting out the details of the completed work on a monthly basis and we generally pay our subcontractors within 30 days after the payment application is certified and approved by us. In respect of final payment, a final account is submitted by our subcontractor within 60 days after the practical completion of the project and we will first release 50% of the retention money and the final payment to our subcontractor. After the expiry of the defects liability period, we will release the remaining retention money to our subcontractor. 145

152 BUSINESS Defects liability period and retention money Safety and prohibition of illegal workers : Similar to the practices with our customers, we also require a defects liability period of 12 months during which our subcontractors shall be responsible for rectifying works defects arising from works subcontracted to them at their own expenses. Unless otherwise agreed, we usually hold up to 5% of each interim payment to our subcontractor as retention money. 50% of the retention money withheld is usually released to our subcontractors after completion of a project and the remaining retention money is released after the expiry of the defects liability period. : Our subcontractors are required to carry out the works in accordance with all relevant safety, health and environmental laws, rules and regulations as well as the safety rule of the main contractor and these of our Group. Our subcontractors are also prohibited from hiring illegal workers. In the event of any non-compliance, the relevant subcontractor shall indemnify our Group against any expenses, penalties and other losses arising from such non-compliance. Termination : If a subcontractor leaves the work uncompleted, fails to complete the work on the date of completion or, if in the opinion of our project manager or construction manager, the works are unsatisfactory, our Group may terminate the subcontracting agreement by giving advance notice of intention to do so. Indemnity : Subcontractors are required to indemnify our Group against any loss, expense or claim arising from the failure to comply with subcontracting agreement by the subcontractor and/or its employees. We are entitled to hold our subcontractors liable for any loss and damage suffered by our Group if their works are not performed in accordance with the requirements set out in the main contract. Control over subcontractors In order to closely monitor the performance of our subcontractors and to ensure that the subcontractors comply with the contractual requirements and the relevant laws and regulations, we require our subcontractors to follow our internal control measures in relation to quality control, safety and environmental compliance. During project implementation, our project team regularly meets with our subcontractors and closely monitors their work progress and performance as well as their compliance with our safety measures and quality 146

153 BUSINESS standards. For further information regarding our measures in relation to quality control, safety and environmental compliance, please refer to the paragraphs headed Quality control, Occupational health and safety and Environmental compliance in this section. During the Track Record Period and up to the Latest Practicable Date, there were no material disputes between our Group and our customers with respect to the quality of work performed by us and our subcontractors. SITE EQUIPMENT Type of site equipment We rely on the use of site equipment to enable us to carry out civil engineering works and possess a broad range of site equipment to perform different types of projects. Our Directors believe that our investment in site equipment will enable us to cater to projects of larger scale and higher complexity in the future. For the two years ended 31 March 2015 and the eight months ended 30 November 2015, we acquired new site equipment in the amount of approximately HK$4,310,000, HK$410,000 and HK$812,000 at cost, respectively. As at 30 November 2015, our site equipment carried a net book value of approximately HK$6,898,000. Set out below are the major types of site equipment used by our Group: (i) Excavator An excavator is a heavy construction equipment consisting of a boom, arm, bucket and cab on an upperstructure which could rotate. The upperstructure sits atop an undercarriage with tracks or wheels. (ii) Hydraulic breaker A hydraulic breaker is a powerful percussion hammer fitted to an excavator for demolition, construction and quarrying. It is powered by an auxiliary hydraulic system from the excavator which is fitted with a foot-operated valve for this purpose. (iii) Vibrating roller A vibrating roller is a compactor type of engineering vehicle used to compact soil, gravel, asphalt in the construction of roads and foundations. (iv) Air compressor An air compressor is a device that forces air into a chamber and compresses the air to provide high-pressure air to power pneumatic tools, such as jackhammers. 147

154 BUSINESS (v) Generator A generator provides backup electrical power as virtual power plant at the construction sites. (vi) Aerial working platforms An aerial work platform, also known as an aerial device or an elevating work platform is a mechanical device used to provide temporary access for people or equipment to inaccessible areas, usually at height. (vii) Hydraulic truck crane A hydraulic truck crane is a type of machine, generally equipped with a hoist rope, wire ropes or chains, and sheaves, that can be used both to lift and lower materials and to move them horizontally. It is mainly used for lifting heavy things and transporting them to other places. (viii) Others Other site equipment of our Group include hydraulic cranes, hydraulic hammers, welding machines and other commonly used construction site equipment. The following table sets out the useful life and average age of our major types of site equipment as at 30 November 2015: Type of site equipment Expected useful life (years) Average age (years) Excavator Hydraulic breaker Vibrating roller Air compressor Generator Aerial working platform Hydraulic truck crane Others Total We normally purchase our site equipment from authorised dealers in Hong Kong or directly from the overseas manufacturer and do not purchase any parallel-imported site equipment. With the possession of our own site equipment, we do not have to rely completely on our suppliers for site equipment rental services. During the Track Record Period, we rented site equipment from independent third parties, save for the site equipment rental arrangement 148

155 BUSINESS with Hop Fung Crane Company as described below. Such site equipment primarily include dump trucks, crane lorries, hydraulic truck cranes and excavators. For the two years ended 31 March 2015 and the eight months ended 30 November 2015, our site equipment rental cost incurred amounted to approximately HK$21,441,000, HK$31,874,000 and HK$21,988,000, respectively. For the financial year ended 31 March 2015 and up to 31 October 2015, we rented a crane and an excavator from Hop Fung Crane Company on normal commercial terms and in ordinary course of our business. Hop Fung Crane Company is a partnership established in Hong Kong and was principally engaged in leasing of construction site equipment. Hop Fung Crane Company is owned by the spouse of Mr. CK Wong (our executive Director and one of our Controlling Shareholders) and an independent third party. For the two years ended 31 March 2015 and the eight months ended 30 November 2015, the total site equipment rental costs paid to Hop Fung Crane Company amounted to approximately HK$Nil, HK$772,000 and HK$633,000, respectively. Such rental arrangement with Hop Fung Crane Company has been completed and ceased. Our Directors confirm that, during the Track Record Period and up to the Latest Practicable Date, Hop Fung Crane Company did not conduct any business activities which competed or was likely to compete, directly or indirectly, with the business of our Group. We believe that our investment in different types of site equipment has placed us in a position to cater to projects of different scales and complexity. Our Directors also consider that possession of our own site equipment allows us to devise suitable works schedules and methods tailored to the different needs and requirements of different customers and enables us to efficiently and effectively schedule our projects and deploy our manpower. Repair and maintenance We perform on-site routine checks on our site equipment prior to commencement of our projects and during the execution stage of the projects. In addition, routine maintenance procedures, such as injecting lubricants when they run out and cleaning the dust that pile up in the key components of the site equipment to ensure smooth operation, are performed on an on-going basis by our in-house mechanics. We have a team of in-house mechanics who are capable of repairing and maintaining our site equipment. As at the Latest Practicable Date, our team of in-house mechanics consisted of a mechanic with 30 years of experience and the 2 licensed electricians who are qualified to perform electrical maintenance work. Our in-house mechanics are capable of repairing minor defects in the site equipment such as replacing the worn-out or malfunctioning parts and components of a machine when it becomes out of order. As such, we are able to extend the usable life of our site equipment which is more cost-effective than replacing the entire machine with a new one. Routine and minor examination and repairing by our in-house mechanics is less time-consuming and can shorten the idle time during which a malfunctioning or out-of-order machine remains unusable. For malfunctioning site equipment that requires major examination and/or specialised skills, we will send such malfunctioning site equipment to the authorised dealer for repairs if the site equipment is still under warranty, or send to other third party repair companies. 149

156 BUSINESS Age and replacement cycle of site equipment The following table sets out a breakdown of the value of our site equipment by different age groups as at the Latest Practicable Date: Number of units of site equipment Net book value of site equipment HK$ 000 (unaudited) Original cost of acquisition of site equipment HK$ 000 Less than 1 year 6 1,055 1,105 1 year to less than 3 years 8 3,345 4,720 3 years to less than 5 years 15 1,669 3,076 5 years or above , ,797 13,064 Our Directors consider that as at the Latest Practicable Date, our existing site equipment (including those whose useful life has almost reached the end of the expected useful life) were in good operating conditions in general. We do not have a pre-determined or regular replacement cycle for our site equipment. Replacement decisions are made on a case-by-case basis having regard to the operating condition of each unit of site equipment and the cost effectiveness of replacing only the malfunctioning parts. The average age of our site equipment based on the cost of acquisition is approximately 5.8 years. The average remaining useful life of our site equipment based on accounting estimation is approximately 4.7 years. We replace aged site equipment only when it is imperative to do so. Pursuant to our accounting policies, depreciation of site equipment is provided for using straight-line method over a period of 10 years. In particular, as the air compressors owned by our Group are close to full depreciation, it is our Group s plan to utilise proceeds from the Placing of approximately HK$0.1 million to acquire an additional air compressor to further enhance and optimise our overall construction efficiency. Our Directors consider that (i) the existing air compressors were still in good operating conditions in general as at the Latest Practicable Date; (ii) it only takes up to one month to replace an air compressor; and (iii) an air compressor is not costly and can be readily rented and/or purchased from any independent third parties to satisfy our project needs. Our Group will also continue to evaluate the operating condition, effectiveness and efficiency of our site equipment and assess our need for additional site equipment in view of our business development. Safekeeping of site equipment Site equipment that are in use at work sites are kept under the general management of the respective work sites. During the Track Record Period, site equipment that was not in use was stored in our warehouse located in a leased premises located in Yuen Long, which were equipped with locked gates and closed-circuit television security cameras. The tenancy agreement for our warehouse in Yuen Long has been terminated by us in August 2015, details of the said tenancy agreement is set out in the paragraph headed Properties in this 150

157 BUSINESS section. As at the Latest Practicable Date, given the number of projects on hand and the availability of our site equipment for such projects, all of our site equipment are operating at full service capacity in construction sites and no storage of idle site equipment is required. Financing arrangements for the purchase of motor vehicles and site equipment Taking into account our liquidity position and capital need, during the Track Record Period, our Group raised external financing for the purchase of some motor vehicles and site equipment through finance leases and bank borrowings, respectively. In considering whether or not to enter into finance lease arrangements, our Group takes into account several factors including interest cost, availability of funds, repayment schedule and security requirements, among which interest cost is an important factor. As at 31 March 2014 and 2015 and 30 November 2015, the effective interest rates ranged from 3.21% to 7.35% and from 3.25% to 6.21% and from 3.23% to 6.21% per annum, respectively for our banking facilities (including finance leases). During the Track Record Period, our Group acquired certain motor vehicles by way of finance leases, under which our Group had to pay stipulated monthly rents for use of the motor vehicles in a fixed term. Since the terms of these finance leases transfer substantially all the risks and rewards of ownership of the motor vehicles to our Group as the lessee, the relevant motor vehicles were accounted for as our Group s assets under the category of property, plant and equipment. Our Group had motor vehicles under finance leases with net book value amounting to approximately HK$4,103,000, HK$3,223,000 and HK$4,171,000 as at 31 March 2014 and 2015 and 30 November 2015, representing approximately 94.1%, 92.3% and 87.8% of the net book value of motor vehicles as at 31 March 2014 and 2015 and 30 November 2015, respectively. Service capacity and utilisation rate Our Directors consider that due to the nature of our business and operations, it is not feasible and not practicable to quantify and disclose detailed service capacity and utilisation rate of our site equipment for the following reasons: (a) (b) Different types of site equipment have different functions and it is therefore not entirely feasible to quantify the capacity of each piece of site equipment by making reference to an objective and comparable scale or standard of measurement. The utilisation rate of each individual site equipment cannot be clearly defined. A typical civil engineering projects requires the use of different site equipment at different stages, and site equipment may from time to time be left unused in active construction sites pending completion of other stages. Site equipment is also sometimes left unused for repairing or maintenance at work sites. 151

158 BUSINESS (c) As set out in the fixed asset register of our Group as at 30 November 2015, we had more than 50 units of site equipment and over 10 types of site equipment of various sizes and capacity. Given the number of site equipment owned by our Group, it is impracticable for our Group to track in details the usage of each individual site equipment. In view of the above, it would be difficult and impracticable to define accurate utilisation rate of site equipment in general and to make a full account of the daily/hourly usage of each individual site equipment. Nevertheless, we will optimise our operational efficiency and capacity by scheduling the use of suitable site equipment at suitable time with reference to the construction method involved in a project. QUALITY CONTROL To maintain consistent quality services for our customers, we have established formal quality management system which is certified to be in compliance with the requirements of ISO 9001:2008. We have in-house quality assurance requirements specifying, among other things, specific work procedures for performing different types of works, responsibilities of personnel of different levels, quality inspection procedures and standards, subcontracting requirements, accident reporting and complaint and punitive measures for works below our required standards and work procedures for operating different types of site equipment. Compliance of these quality assurance requirements is mandatory for our workers and subcontractors. Mr. CK Wong and Mr. WW Wong, our executive Directors and our Controlling Shareholders, are responsible for our overall quality control. For the background and industry experience of Mr. CK Wong and Mr. WW Wong, please refer to the section headed Directors and senior management in this prospectus. Quality control on our services Our executive Directors closely monitor the progress of each project to ensure that our service (i) meets our customer s requirements; (ii) are completed within the time stipulated in the contract and the budget allocated for the project; and (iii) comply with all relevant and applicable rules and regulations. Our project managers and construction managers assist our executive Directors to monitor overall work quality and project progress. Our site agents coordinate with our foremen to perform on-site inspections and supervise site workers on a daily basis. Our project managers will timely inform our executive Directors of the project status and any quality issues arising from project execution. For our quality control measures over our subcontractors, please refer to the paragraph headed Subcontractors Control over subcontractors of this section. Quality control on our site equipment and materials We closely monitor the quality of purchased materials and site equipment. To ensure the quality of supplies, prior to ordering, our purchasing department will ensure that the materials are sourced from our approved suppliers to ensure overall quality of supplies. 152

159 BUSINESS Upon arrival of the ordered materials, all materials are sent directly to the relevant work sites for inspection by our foremen and engineers before utilisation. During the inspection, we will check (i) whether the quantity is correct; (ii) whether there is any observable defects; and (iii) for site equipment purchased by us, whether it functions normally. In addition, for certain public sector projects, our Group is also required to engage independent professionals or professionals appointed by our customers to perform inspection and quality tests on sample materials such as precast concrete units. Any defective materials or materials that fall short of the product specifications would be returned to the suppliers for replacement. Our Directors confirm that during the Track Record Period and up to the Latest Practicable Date, we had not received any complaint or claim for compensation from our customers due to quality issue in relation to works performed by us or by our subcontractors. OCCUPATIONAL HEALTH AND SAFETY Occupational health and work safety measures We place emphasis on occupational health and work safety during the delivery of our services as it is our concern not to put our employees, the subcontractors and the general public in hazards. We have adopted an occupational health and safety system as required by relevant occupational health and safety laws, rules and regulations and managed by our safety and environmental department under the supervision of Mr. WW Wong, whose background and industry experience are set out in the section headed Directors and senior management in this prospectus. Our occupational health and safety management system is certified to be in compliance with the standard required under OHSAS 18001:2007. Due to the nature of works in construction sites, risks of accidents or injuries to workers are inherent. As such, we have established safety plans and in-house rules to provide our employees and our subcontractors employees with a safe and healthy working environment by specifying various safety measures. Our safety policy sets out the following work safety measures: Effective promotion and communication of safety procedures are maintained through, among others, establishing safety bulletin and detailed record of accident statistics, holding regular internal and external safety meetings, documenting safety measures and issues identified for each project by preparing safety reports and training records. All employees on site, including subcontractors employees, are required to receive site safety induction briefing sessions and trainings before they commence work on-site and during the course of execution of project on-site. Topics of our safety training typically cover safety procedures for performing different types of work, safety procedures for handling chemicals, safety procedures for emergency and duties and procedures for reporting hazards, incidents, accidents and diseases, and good housekeeping of workplaces. 153

160 BUSINESS All employees on site, including subcontractors employees, are required to follow the general safety rules adopted by our Group which are communicated to the workers before they commence work and posted on prominent notice boards on site. Workers who breach any such rules will be subject to internal disciplinary actions. Risk assessments are generally conducted by our engineer and safety & environmental manager to identify the potential hazards and accidents and provide suggestion on proper preventive measures prior to commencement of works. Site inspections are carried out on a daily basis by our safety supervisors on site to ensure strict compliance with the statutory occupational health and safety laws, rules and regulations. Specific safety measures in relation to, among others, emergency, working at height, roadwork or work adjacent to live carriageway, sewerage and drainage works, site transport, construction of temporary access road, safe operation of site equipment and reporting of hazards and accidents are communicated with workers and documented in detail. Our safety & environmental department, which is supervised by Mr. WW Wong, consists of a safety & environmental manager, 2 safety officers and 3 safety supervisors. Our safety & environment department is responsible for preparing safety plans, managing our occupational health and safety management system to ensure smooth implementation of our safety procedures and risk control measures. We also keep our customers informed of the safety issues identified from each project through regular safety meetings and submission of safety reports. Furthermore, a site safety team is formed for different projects at site level which generally consists of, among others, our project manager, site agent, engineer, safety officer or safety supervisor and the authorised representative of subcontractors. The role of our site safety team is to monitor the implementation of on-site safety measures including inspection of site equipment to ensure they are safe for use, regular safety checks to maintain safe working environment and site tidiness, handling safety incidents and keeping safety records. While our on-site staff are required to attend regular safety briefings conducted by our customers, we also provide further safety training to our staff covering topics such as our safety measures and requirements and the use of personal protective equipment. We have received a certificate from DW Certification Limited for our current compliance with OHSAS Our Group was accredited with OHSAS 18001:2007 compliance certification in August The current certificate will expire in August The accreditation body, DW Certification Limited, conducts an external audit to assess whether the relevant management system is in conformity with the standards in place every three years. Such surveillance visit is normally conducted on a yearly basis before the expiry of the relevant certificate. Upon satisfaction in regards to the relevant management system, a renewal certificate will be issued. 154

161 BUSINESS It is also noteworthy that we have received certain awards from our customers in recognition of our good safety performance. For further details, please refer to the paragraph headed Awards and recognitions in this section. System of recording and handling accidents and our safety compliance record If an accident occurs, the injured worker (including our employees and our subcontractors employees) or the person who witnessed the accident is required to report to our site staff or safety officer. Our safety officer will then investigate the accident by taking photos in respect of the accident scene, examine the equipment or material involved (if any) and take statements from the injured worker, witness(es) of the accident (if any) and other personnel in relation to the particular project. If the accident is a reportable accident as assessed by our safety officer, he will prepare an accident report and submit it to our customer (the main contractor) and the Labour Department within the period as specified under the relevant laws and regulations. Reportable accidents means workplace accidents that are required to be reported to the Labour Department. For any accident that results in total or partial incapacity of an employee, the accident should be reported in writing within 14 days after the date of accident. For accidents that involve death or fatal injury to an employee, the accident has to be notified to the Labour Department within 7 days after the accident. Remedial actions will be taken by our project management team to remove imminent danger and to prevent reoccurrence of similar accidents in the future. Our safety officer will carry out follow-up inspection to ensure that remedial works are implemented. The following table sets out a comparison of the industrial accident rate per 1,000 workers and the industrial fatality rate per 1,000 workers in the construction industry in Hong Kong between our Group and the industry average during the periods indicated: Construction Industry in Hong Kong (Note 1) Our Group (Note 2) From 1 January to 31 December 2013 Industrial accident rate per 1,000 workers in construction industry Industrial fatality rate per 1,000 workers in construction industry From 1 January to 31 December 2014 Industrial accident rate per 1,000 workers in construction industry Industrial fatality rate per 1,000 workers in construction industry (Note 3) 3.38 From 1 January to 31 December 2015 Industrial accident rate per 1,000 workers in construction industry not available Industrial fatality rate per 1,000 workers in construction industry not available 0 155

162 BUSINESS Notes: 1. The statistics are extracted from the Occupational Safety and Health Statistics Bulletin Issue No.15 (August 2015) published by Occupational Safety and Health Branch of the Labour Department of the Government. 2. Our Group s accident rate and fatality rate is calculated by dividing the number of reportable accidents and accidents involving fatal injuries (as the case may be) during the calendar year or relevant period (i.e., 1 in 2013; 5 in 2014; and 5 in 2015) by the number of site workers as at the end of the calendar year. The number of site workers includes employees of our Group and our subcontractors. 3. In 2014, there was one fatal accident involving a worker employed by a subcontractor of our Group. Please refer to the paragraph below for further details. As at the Latest Practicable Date, there were 2 ongoing common law personal injury claims, 5 ongoing employees compensation litigations, 2 ongoing criminal litigations, 6 potential employees compensation claims and 13 potential common law personal injury claims arising from 2 accidents and 13 accidents (of which occurrence of 1 accident was alleged by a claimant of an employee s compensation case) occurred before and during the Track Record Period and up to the Latest Practicable Date, respectively, further details of which are disclosed in the paragraphs headed Litigation and potential claims Ongoing litigations in relation to employees compensation claims, common law personal injury claims and criminal litigations against our Group as at the Latest Practicable Date and Litigation and potential claims Potential litigations in relation to employees compensation claims and common law personal injury claims against our Group as at the Latest Practicable Date, respectively, in this section below. As illustrated above, the accident rate at our construction sites was substantially lower than the construction industry average in Hong Kong for the two calendar years ended 31 December 2013 and 31 December A comparison of the industry s average accident rate and that of our Group s for the calendar year ended 31 December 2015 is not available as there is no relevant industrial accident rate for such period as at the Latest Practicable Date. In November 2014, there was one incident involving fatal injury at the construction site whereby a worker employed by a subcontractor of our Group was fatally injured and certified dead in the course of unloading the water pipes. The deceased and the workers involving in the aforesaid unloading operation which caused injuries to the deceased were not our direct employees. It was alleged that on the date of the incident, bundles of water pipes were stacked on the deck of the lorry. Three bundles, namely the first bundle to the third bundle of 4 water pipes, each was stacked on the deck of the lorry counted from bottom, and the last bundle of 3 water pipes, namely the fourth bundle, was placed on the top. During the unloading operation of the the fourth bundle, it struck the deceased who was working by the left side of the lorry. 156

163 BUSINESS After the aforesaid accident, relevant loading and unloading operations at the relevant work site was suspended by the Labour Department. In this connection, a method statement was prepared by the main contractor and submitted to the Labour Department to demonstrate the safety measures for the loading and unloading procedures to be followed at the relevant work site. To further strengthen our safety control and avoid re-occurrence of similar incident in the future, we had reviewed the aforesaid method statement and implemented the following key internal control measures for carrying out loading and unloading operations: Temporary traffic arrangement for the loading and unloading operations were properly implemented. Access at unloading area shall be checked thoroughly before operation. Safety briefings for all workers were conducted at the loading and unloading area. Lifting gear shall be checked and examined thoroughly. Positions of crane lorry shall be checked and examined thoroughly. The area of lifting operations shall be fenced off during the operation and no worker shall be allowed to approach the lifting zone. All material shall be secured with guide rope during the lifting operations. After the implementation of the aforementioned measures, the Labour Department permitted resumption of the relevant loading and unloading operations at the relevant work site in January The fatal accident resulted in criminal charges brought against the relevant main contractor, our Group as a subcontractor and the relevant sub-subcontractor (engaged by us), which was direct employer of the deceased and workers involving in the said incident. For further details of the said incident, please refer to the paragraph headed Litigation and potential claims in this section. Our Directors believe that the accident should have been caused by the own deviation of the relevant safety requirements by the deceased and/or workers, who were not our direct employees, involving in the unloading operation and that the occurrence of the incident was not within our reasonable foreseeability of the hazards. Our Directors also believe that, so far as reasonably practicable, we had maintained our safety management system and have followed all necessary safety requirement as required by the main contractor in the unloading operation. Further, as it is the burden of the prosecution to prove their case beyond reasonable doubt at trial, we are advised that we have merits in our defence. A table showing our Group s lost time injuries frequency rates ( LTIFR(s) ) is set out below: For the year ended 31 December For the year ended 31 December From 1 January 2015 to 31 December Notes: 157

164 BUSINESS 1. LTIFR is a frequency rate that shows how many lost time injuries occurred over a specified time (e.g. per 1,000,000 hours) worked in a period. The LTIFRs shown above are calculated by multiplying the number of lost time injuries in terms of loss days of our Group that occurred during the relevant calendar year or period by 1,000,000 divided by the number of hours worked by site workers over the same calendar year or period. It is assumed that the working hour of each worker is 10 hours per day. The number of working days for the three calendar years ended 31 December 2015 were approximately 295 days, 296 days and 295 days, respectively. 2. Employees of our Group and our subcontractors are included in the LTIFRs shown above. For the two calendar years ended 31 December 2015, we experienced an increase in LTIFRs. Our Directors believe that it was primarily due to the following reasons: (i) (ii) An increase in total number of construction site workers being employed by our Group during the aforesaid period resulted in increasing number of reportable accidents. As a result of the shortage of skilled workers in the construction industry in Hong Kong during the aforesaid period, our Group had to employ more construction workers who are less experienced with weaker safety awareness. Our Directors consider that our Group s LTIFRs during the Track Record Period were comparatively lower than some of the peers in the construction industry. Going forward, we will continue to take sufficient safety measures and provide more safety training to increase the work safety awareness of our workers and our subcontractors in the hope of reducing the number of work accidents in the future. 158

165 BUSINESS The following table sets out the common nature and type of material industrial accidents which occurred during the Track Record Period or may occur in construction site and the corresponding safety measures and requirements to prevent the occurrence of similar accidents: Nature and type of industrial accidents Contusion, laceration and/or fracture injury caused in connection with lifting and disposing of materials Contusion, laceration and/or fracture injury in connection with operating site equipment Contusion, bruise, sprain and/or fracture injury caused in connection with falling from high-altitude Safety measures and requirements undertaken We always seek to minimise the needs for our workers to handle and lift heavy materials where possible. In circumstances where manual handling of heavy materials is inevitable, our Group will provide relevant facilities such as hydraulic truck cranes, loaders or carts to facilitate such manual works. Training to workers in relation to the correct handling techniques will also be conducted in accordance with the relevant rules and regulations. Workers are required to strictly follow relevant safety procedures for operating various types of site equipment such as grinding wheels and lifting machinery. Only qualified and/or trained workers are permitted to operate certain site equipment according to our in-house safety rules. Workers are required to strictly follow our Group s relevant safety rules whilst working at height. For works to be conducted within lift shafts and at a height of 2 metres or above, the relevant working platforms or structures shall be inspected by competent person before commencement of work and regularly during the course of execution of the work. Depending on the height of works, each worker is strictly required to wear safety harness. External safety consultant To further enhance our employees awareness in work safety, in July 2015, we engaged an external safety consultant to advise us on the general safety policy of our Group. The external safety consultant team includes a chartered member of the Institution of Occupational Safety and Health of the United Kingdom. The external safety consultant conducted a review on our occupational health and safety policy with a view to assisting our Group to (i) comply with the statutory obligations, (ii) improve employees occupational health and safety, (iii) enhance the hazard identification and risk control capabilities, and (iv) encourage the identification, sharing and implementation of best practice. Furthermore, the external safety consultant assisted our Group to complete the certification audit of 159

166 BUSINESS OHSAS 18001:2007 in August 2015 which helps our Group to (i) identify and control health and safety risks, (ii) reduce the potential risks for accidents, (iii) aid legal compliance, and (iv) improve overall safety performance. ENVIRONMENTAL COMPLIANCE Our Group s operations on sites are subject to certain environmental requirements pursuant to the laws in Hong Kong such as Air Pollution Control Ordinance, Noise Control Ordinance, Water Pollution Control Ordinance and Waste Disposal Ordinance. For details of the regulatory requirements, please refer to the section headed Regulatory overview in this prospectus. We are committed to the minimisation of any adverse impact on the environment resulting from our business activities. In order to comply with the applicable environmental protection laws, we had implemented an environmental management system which was certified to be in compliance with the standard required under ISO 14001:2004. Apart from following the environmental protection policies formulated and required by our customers, we have also established our environmental management policy to ensure proper management of environmental protection and compliance of environmental laws and regulations by both our employees and workers of the subcontractors on among others, air pollution, noise control and waste disposal. For the two years ended 31 March 2015 and the eight months ended 30 November 2015, we incurred approximately HK$2,472,000, HK$3,033,000 and HK$1,381,000 respectively, which primarily consisted of Government levy on dumping of construction wastes. The Group estimates that its annual cost of compliance going forward will be at a level similar to that during the Track Record Period and consistent with its scale of operation. During the Track Record Period and up to the Latest Practicable Date, we did not record any non-compliance with applicable environmental requirements that resulted in prosecution or penalty being brought against us. It is also noteworthy that we have received certain awards from our customers in recognition of our effort to act as an environmentally responsible subcontractor. For further details, please refer to the paragraph headed Awards and recognitions in this section. INSURANCE Pursuant to section 40 of the Employees Compensation Ordinance, all employers are, subject to section 40(1B) of the Employees Compensation Ordinance, required to take out insurance policies to cover their liabilities both under the Employees Compensation Ordinance and at common law for injuries at work in respect of all their employees. We have obtained insurance cover in accordance with such requirement. Pursuant to section 40(1B) of the Employees Compensation Ordinance, where a main contractor has undertaken to perform any construction work, it may take out an insurance policy for an amount not less than HK$200 million per event to cover its liability and that of its subcontractor(s) under the Employees Compensation Ordinance and at common law. Where a main contractor has taken out a policy of insurance under section 40(1B) of the 160

167 BUSINESS Employees Compensation Ordinance, the main contractor and a subcontractor insured under the policy shall be regarded as having complied with the relevant requirements of the Employees Compensation Ordinance. As a subcontractor, our Group s liability in respect of the claims from employees of our Group and our Group s subcontractors arising out of and in the course of their employment will be covered by the insurance policy taken out by the relevant main contractor. Our Directors confirmed that during the Track Record Period, all our civil engineering projects were covered and protected by the employees compensation insurance and contractor s all risks insurance taken out by the main contractor for the entire construction project. Such insurance policies covered and protected all employees of main contractors and subcontractors of all tiers working in the relevant construction site, and the works performed by them in the relevant construction site. During the Track Record Period, our Group maintained insurance coverage against, among other matters, (i) liability for third party bodily injury occurred in our office premises; (ii) loss or damage of our site equipment; and (iii) third-party liability in relation to the use of our vehicles. Certain types of risks, such as the risk in relation to the collectability of our trade and retention receivables and liabilities arising from events such as epidemics, natural disasters, adverse weather conditions, political unrest and terrorist attacks, are generally not covered by insurance because they are either uninsurable or it is not cost justifiable to insure against such risks. Our Directors believe that our current insurance policies is adequate and consistent with industry norm having regard to our current operations and the prevailing industry practice. For the two years ended 31 March 2015 and the eight months ended 30 November 2015, our insurance expenses were approximately HK$246,000, HK$262,000 and HK$409,000 respectively. During the Track Record Period and up to the Latest Practicable Date, we had not made, and had not been the subject of, any material insurance claim. 161

168 BUSINESS EMPLOYEES As at the Latest Practicable Date, we had 238 full-time employees who were directly employed by our Group in Hong Kong. The following table sets out a breakdown of the number of our employees by functions: As at the Latest Practicable Date Directors and general management 7 Administration, accounting and finance 8 Project management and supervision 17 Safety and environmental compliance 8 Engineering and surveying 22 Site workers Our Directors consider that we have maintained good relationship with our employees. We have not experienced any significant disputes with our employees or any disruption to our operations due to labour disputes, save as disclosed in the paragraph headed Litigation and potential claims in this section. In addition, we have not experienced any difficulties in recruitment and retention of experienced core staff or skilled personnel during the Track Record Period. We generally recruit our employees through placing advertisements in the open market with reference to factors such as their experience, qualifications and expertise required for our business operations. They are normally subject to a probation period ranging from 1 month to 3 months. We endeavour to use our best effort to attract and retain appropriate and suitable personnel to serve our Group. Our Group assesses the available human resources on a continuous basis and will determine whether additional personnel are required to cope with the business development of our Group. We provide various types of trainings to our employees and sponsor our employees to attend various training courses, including those on occupational health and safety in relation to our work. Such training courses include our internal training as well as courses organised by external parties such as the Construction Industry Council and the Occupational Safety and Health Council. The remuneration package our Group offered to our employees includes salary, bonuses and other cash subsidies. In general, our Group determines employee salaries based on each employee s qualifications, position and seniority. Our Group has designed an annual review system to assess the performance of our employees, which forms the basis of our decisions with respect to salary raises, bonuses and promotions. 162

169 BUSINESS Our Group operates MPF scheme for all qualifying employees in Hong Kong. The assets of the schemes are held separately from those of our Group, in funds under the control of trustees. Our Group contributes 5% of relevant monthly payroll costs to the MPF scheme, whose contribution is matched by employees and subject to a cap of HK$1,250 from June 2012 to May 2014 and HK$1,500 thereafter per employee. During the two years ended 31 March 2015 and the eight months ended 30 November 2015, the total expenses recognised in the combined statements of comprehensive income amounted to approximately HK$1,397,000, HK$2,262,000 and HK$1,156,000, respectively, which represents contributions payable to the scheme by our Group at rates specified in the rules of the MPF scheme. RESEARCH AND DEVELOPMENT During the Track Record Period and as at the Latest Practicable Date, we did not engage in any research and development activity. COMPETITIVE LANDSCAPE The top five civil engineering contractors act as main contractors in the overall civil engineering construction industry, and they accounted for about 54.6% of the total revenue of the civil engineering construction industry in Meanwhile, the civil engineering subcontracting industry in Hong Kong is fragmented. As at the Latest Practicable Date, there were over 700 structural and civil engineering subcontractors being registered under the Construction Industry Council. According to the Ipsos Report, in 2014, our Group accounted for around 1.8% (or HK$254 million) of the total revenue in the civil engineering construction industry generated by civil engineering subcontractors (HK$14.1 billion) in Hong Kong. Our Directors consider that technical expertise, quality of work, relationship with customers, suppliers and subcontractors, site equipment capability, project pricing and safety records are the determinants of competitiveness of a civil engineering subcontractors in Hong Kong. Entry barriers to the civil engineering construction industry in Hong Kong mainly include: (i) knowledge of civil engineering, structural, geology and technical expertise; (ii) sufficiency of practical industry experience; (iii) capital requirement; and (iii) significant capital investment in specialised site equipment. For details, please refer to the section headed Industry overview Competitive landscape of the civil engineering construction industry in Hong Kong Entry barriers in this prospectus. According to the Ipsos Report, the demand for civil engineering works is expected to surge in future due to various infrastructure development plans, notably the Ten Major Infrastructure Projects, and the planned increase in the Government s public expenditure on infrastructure. With our own proven track record, experienced project management team, site equipment, specialist knowledge in the civil engineering construction industry and stable relationship with our key customers, suppliers and subcontractors, details of which are set out in the paragraph headed Competitive strengths in this section, our Directors believe that our Group is well-positioned to capture the growing demand for civil engineering construction services in Hong Kong. 163

170 BUSINESS Please refer to the section headed Industry overview Competitive landscape of the civil engineering construction industry in Hong Kong in this prospectus for further details of the competitive landscape of the civil engineering construction industry in Hong Kong. PROPERTIES Owned properties The following table summarises the information regarding our owned property as at the Latest Practicable Date: Address Gross floor area Use of the property (sq.ft.) Workshop 16, 13th Floor, New Commerce Centre, 19 On Sum Street, Siu Lek Yuen, Shatin, New Territories, Hong Kong 660 For storage purpose The above property was purchased by us in June 2007 for a consideration of HK$1,600,000 (excluding relevant transaction costs) and was pledged as security for bank loan with an outstanding principal amount of approximately HK$2,008,000 as at 30 November As at 31 January 2016, the market value of the above property was approximately HK$4,120,000 as assessed by Ascent Partners Valuation Service Limited, an independent property valuer. For further details, please refer to the property valuation set out in Appendix III to this prospectus. For further information regarding our bank loans, please refer to the section headed Financial information Indebtedness in this prospectus. 164

171 BUSINESS Leased properties The following table summarises the information regarding our leased properties during the Track Record Period and up to the Latest Practicable Date: Address Landlord Gross floor area (sq.ft) Use of the property Key terms of the tenancy Unit 05 on 15th Floor of North Wing, Delta House, No. 3 On Yiu Street, Sha Tin, New Territories, Hong Kong An independent third party 625 For office use Monthly rental of HK$16,167 with a term commencing from 17 August 2015 to 16 August 2016 D.D. 121 Lot Nos. 1387RP, 1387ARP, 1388 & 1389RP Yuen Long, New Territories Independent third parties 10,118 Used for storage of site equipment Monthly rental of HK$16,800 for the period commencing from 1 November 2012 to 31 December 2014 and HK$21,000 for the period commencing from 1 January 2015 to 31 August The term of the tenancy has expired. Licensed property During the Track Record Period and up to 31 October 2015, Mr. CK Wong and Mr. WW Wong (as owners of the property) granted a licence to use Workshop 17, 13th Floor, New Commerce Centre, 19 On Sum Street, Siu Lek Yuen, Shatin, New Territories, Hong Kong to Luen Hing and Hop Fung as their office at nil consideration for such licence. For the two years ended 31 March 2015 and the eight months ended 30 November 2015, the management fee and rates of such licensed property amounted to approximately HK$15,000, HK$18,000 and HK$11,000, respectively. Our Directors confirm that the aforesaid licence arrangement in relation to such property had been completed and ceased. Property rental income During the Track Record Period, we also owned an investment property located at Festival City, Tai Wai. Such investment property was purchased by us in June 2010 for a consideration of HK$13,396,000 (excluding relevant transaction costs) with the intention of leasing it for earning rental income. 165

172 BUSINESS During the Track Record Period, we recognised rental income of approximately HK$679,000 from the lease of such investment property to independent third parties. As we intend to focus on our business of undertaking contract works after Listing, we have, on 18 September 2015, entered into a sale and purchase agreement with an independent third party for the disposal of the investment property by us for a consideration of HK$12,700,000. The consideration was determined after arm s length negotiation with the said independent third party and with reference to the market value of the investment property as assessed by Ascent Partners Valuation Service Limited. Completion of the disposal of the investment property took place on 30 October INTELLECTUAL PROPERTY As at the Latest Practicable Date, our Group has registered a trade mark in Hong Kong, which is intended to be used by our Group to foster our corporate image. Our Group has also registered of a domain name. Please refer to the section headed B. Further information about the business 2. Intellectual property rights of our Group in Appendix V to this prospectus for further details of our intellectual property rights. As at the Latest Practicable Date, (i) we were not aware of any dispute or infringements by our Group of any intellectual property rights owned by third parties, and (ii) we were not aware of any dispute or pending or threatened claims against our Group in relation to material infringement of any intellectual property rights of third parties. LICENSES, PERMITS AND REGISTRATION As advised by the Legal Counsel, except for the business registration under the Business Registration Ordinance (Chapter 310 of the Laws of Hong Kong), there are no licenses, permits or approvals required to be obtained for our Group to carry on our business as a subcontractor of the relevant civil engineering projects. Based on our Directors experience, some of our customers, in particular main contractors of major public sector projects, prefer to engage subcontractors who are registered in the Subcontractor Registration Scheme of the Construction Industry Council. In view of this, we have first completed such registration since The following table summarises the details of such registration held by Luen Hing as at the Latest Practicable Date: Type of registration Granted by Granted to Trades Specialties Date of upcoming expiry Registered Subcontractor Construction Industry Council Luen Hing Concreting Formwork, Reinforcement Bar Fixing, Concreting, General Civil Works, Other Structural and Civil Trades, Finishing Wet Trades, Painting, Metal Work, Plumbing Concreting Formwork, Reinforcement Bar Fixing, Concreting, General Civil Works, Other Structural and Civil Trades, Brick/ block work, Painting, Metal Work, Plumbing 13/01/

173 BUSINESS The Subcontractor Registration Scheme was introduced by the Construction Industry Council in order to build up a pool of capable and responsible subcontractors with specialised skills and strong professional ethics. The registration and the renewal of registration for the Subcontractor Registration Scheme are subject to the satisfaction of certain entry requirements which primarily concern the applicant s experience and/or qualification in the relevant works. For further details in relation to the Subcontractor Registration Scheme, please refer to the section headed Regulatory overview Contractor licensing regime and operation Contractor licensing regime and subcontractor registration scheme in this prospectus. Our Directors confirm that during the Track Record Period and up to the Latest Practicable Date, we had satisfied all requirements for the registration and the renewal of registration for the Subcontractor Registration Scheme. Our Directors confirmed that our Group had not experienced any material difficulties in obtaining and/or renewing the aforesaid registration and they were not aware of any circumstances that would significantly hinder or delay the renewal of the registration. Our Directors do not foresee any material impediment in the renewal of the aforesaid registration by us. 167

174 BUSINESS AWARDS AND RECOGNITIONS We have received a number of awards or certificates during our operating history in recognition of our commitment and dedication to safety management and environmental compliance. The following table summarises the awards or certificates obtained by our Group: Certifications for compliance with ISO/OHSAS requirements Date Award or recognition Issuing organisation August 2015 (Note) August 2015 (Note) August 2015 (Note) Certification of approval in relation to our quality management system to be in compliance with the requirements of ISO 9001:2008 in respect of our provision of civil engineering works Certification of approval in relation to our occupational health and safety management system to be in compliance with the requirements of ISO 14001:2004 in respect of our provision of civil engineering works Certificate of approval in relation to our environmental management system to be in compliance with the requirements of OHSAS 18001:2007 in respect of our provision of civil engineering works DW Certification Limited DW Certification Limited DW Certification Limited Note: The certification will be renewed every three years and the current certificate will expire on 16 August

175 BUSINESS Awards in recognition of our Group s safety and environmental compliance Date July 2000 Award or recognition Distinction Safety Performance Subcontractor Tseung Kwan O Road Project (TKOTL55) granted by an affiliate of our major customer Construction Industry Safety Award Scheme Bronze Award granted by the Labour Department March 2009 April 2009 August 2009 January 2010 May 2013 June 2014 The Environmental Subcontractor Award granted by our major customer The Safest Subcontractor Award granted by our major customer The Environmental Subcontractor Award granted by our major customer Excellent Site Safety Award granted by our major customer Winner of Safe Sub-contractor Award granted by our major customer The Best Subcontractor/ Joint Venture Working Team Award granted by our major customer under the Safety & Environmental Incentive Scheme LITIGATION AND POTENTIAL CLAIMS During the Track Record Period and as at the Latest Practicable Date, our Group had been or is involved in a number of claims, litigations and potential claims against our Group. Set out below are the details of (i) the ongoing litigations in relation to employees compensation claims, common law personal injury claims and criminal litigations against our Group as at the Latest Practicable Date; (ii) potential litigations in relation to employees compensation claims and common law personal injury claims against our Group as at the Latest Practicable Date; (iii) the litigation in relation to employees compensation claims and common law personal injury claims against our Group settled or withdrawn during the Track Record Period and up to the Latest Practicable Date; and (iv) our criminal convictions during the Track Record Period and up to the Latest Practicable Date. Our Group s liabilities in a case of personal injuries to our employees by accidents arising out of and in the course of their employment include those under (i) the Employees Compensation Ordinance; and (ii) common law personal injury claim. The Employees Compensation Ordinance establishes a no-fault, non-contributory employee compensation system which gives employees the right to compensation in respect of (i) injuries or death caused by accidents arising out of and in the course of employment, or (ii) prescribed occupational diseases under the Employees Compensation Ordinance. On the other hand, unlike an employee compensation claim under the Employees Compensation Ordinance 169

176 BUSINESS which no proof of our fault is required, if the injury is caused to an employee by our negligence, breach of statutory duty, or other wrongful act or omission, an injured employee may also bring a common law personal injury claim against us. For some of the potential claims, even if the relevant employees compensation had been settled under our employees compensation insurance, the injured employees may still pursue litigation claims through personal injury claims against us under common law. The damages awarded under common law claims are normally reduced by the value of the compensation paid or payable under the Employees Compensation Ordinance in any event. Our Directors are of the view that occurrence of personal injury claims and employees compensation claims is not uncommon in the industry. Ongoing litigations in relation to employees compensation claims, common law personal injury claims and criminal litigations against our Group as at the Latest Practicable Date Luen Hing has joined as a defendant in respect of the following nine outstanding claims and litigations: Name(s) of our Group company(ies) Particulars of the charges Total amount involved for the ongoing claims Status Insurance coverage Potential consequence and maximum penalties Personal injury claims 1. Luen Hing In June 2012, it was purported that the plaintiff sustained injuries to his left foot whilst erecting formwork in the course of work. To be assessed by the court. (Note 1) Ongoing. Checklist review hearingtobeheld on 8 April To be covered by insurance policy. N/A 2. Luen Hing In September 2012, it was purported that the plaintiff suffered fracture of his right shoulder whilst transferring metal plates in the course of work. Approximately HK$1,399,000 plus interest and costs as shown in the claimant s without prejudice pre-action letter, however, the final amount is to be assessed by the court. Ongoing. Checklist review hearingtobeheld on 26 August To be covered by insurance policy. N/A Employees compensation claims 3. Luen Hing In January 2015, it was purported that the plaintiff sustained injury to his right foot whilst the operator of the crane lorry operated the crane lorry to lift up iron chain without awaiting the plaintiff to unfasten a bundle of iron bars from the iron chain To be assessed by the court. Ongoing. First hearingtobeheld on 27 May To be covered by insurance policy. N/A 4. Luen Hing In August 2014, it was purported that the plaintiff crushed his left middle finger whilst positioning the loading or unloading manhole cover and frame. To be assessed by the court. Ongoing. First hearingtobeheld on 5 August To be covered by insurance policy. N/A 170

177 BUSINESS Name(s) of our Group company(ies) Particulars of the charges Total amount involved for the ongoing claims Status Insurance coverage Potential consequence and maximum penalties 5. Luen Hing In August 2014, it was purported that the plaintiff sustained injury on his right shoulder whilst prying the base of a concrete barrier with a crowbar. To be assessed by the court. Ongoing. First hearingtobeheld on 2 September To be covered by insurance policy. N/A 6. Luen Hing In March 2015, it was purported that the plaintiff sustained injuries over his head, neck and back whilst performing bar bending work. To be assessed by the court. (Note 2) Ongoing. First hearingtobeheld on 2 September To be covered by insurance policy. N/A 7. Luen Hing In February 2014, it was purported that the plaintiff sustained injuries to his right elbow and left hand whilst using a drilling machine. To be assessed by the court. (Notes 2 and 3) Ongoing. First hearingtobeheld on 9 September To be covered by insurance policy. N/A Criminal litigations 8. Luen Hing In October 2014, Luen Hing was charged by the Labour Department that it failed: (i) to provide and maintain safe plant and system of work, (ii) to provide necessary information, instruction, training and supervision for safety at work of person(s) employed at industrial undertaking as required under the Factories and Industrial Undertakings Ordinance, and (iii) to ensure workman wearing suitable safety helmet as required under the Construction Sites (Safety) Regulation. To be assessed by the court. Ongoing. Trial hearingtobeheld on 29 April As confirmed by our Directors, penalties arising from criminal claims are usually not covered by insurance. Under the Factories and Industrial Undertakings Ordinance, in relation to charges (i) and (ii), the maximum penalty for each of them is a fine of HK$500,000 and imprisonment for 6 months. Under the Construction Sites (Safety) Regulation, in relation to charge (iii), the maximum penalty is a fine of HK$50,000. As advised by our Legal Counsel, since the directors, officers and employees of Luen Hing are not the defendant, they will not have any liability under charges and the likelihood of the Court to impose maximum penalty is not particularly high and a fair estimate of the likely penalty would be fine of HK$120,000, HK$120,000 and HK$15,000 for the charges (i), (ii) and (iii), respectively, if Luen Hing is found liable. Our Legal Counsel also opined that if Luen Hing is so convicted, the conviction will not have any significant impact creating impediment on the application for renewal of registration of Luen Hing under the Subcontractor Registration Scheme. In view of the amount of the likely penalty, our Directors consider that no provision is necessary to be made. 171

178 BUSINESS Name(s) of our Group company(ies) Particulars of the charges Total amount involved for the ongoing claims Status Insurance coverage Potential consequence and maximum penalties 9. Luen Hing In November 2014, Luen Hing was charged by the Labour Department that it failed: (i) to provide and maintain a system of work for unloading water pipes, so far as reasonably practicable, safe and without risks to health and (ii) to provide such information, instruction, training and supervision for the health and safety at work of all employees which resulted in the death of a worker. To be assessed by the court. Ongoing. Trial hearingtobeheld on and 24 May 2016 (with 25 May 2016 be reserved). As confirmed by our Directors, penalties arising from criminal claims are usually not covered by insurance. Under the Factories and Industrial Undertakings Ordinance, a fine of HK$500,000 and to imprisonment for 6 months. As advised by our Legal Counsel, since the directors, officers and employees of Luen Hing are not the defendant, they will not have any liability under these charges and the likelihood of the Court to impose maximum penalty is not particularly high and a fair estimate of the likely penalty would be a fine of HK$150,000 for each of the charges (i) and (ii) if Luen Hing is found liable. As further advised by our Legal Counsel that according to the cases presented by the prosecution, Luen Hing was not the one accused for failure to provide and maintain a system of work and proper information, training and supervision for the health and safety of workers at the industrial undertaking, however, under section 13(1) of the Factories and Industrial Undertakings Ordinance, even if the offence is committed by other proprietor(s), Luen Hing (as one of the proprietors of the same industrial undertaking) will still be liable for the same offence. Our Legal Counsel, therefore, opined that even if Luen Hing was so convicted, its role and culpability in this case would be minor and the conviction would not have any significant impact creating impediment on the application for renewal of registration of Luen Hing under the Subcontractor Registration Scheme. In view of the amount of the likely penalty, our Directors consider that no provision is necessary to be made. Notes: 1. As at the Latest Practicable Date, no statement of damages was received by our Group. As such, we are not in a position to assess the likely amount of compensation and/or damages to be claimed by the claimant in relation to such claim. Our Directors take the view that the amount to be borne by our Group in the proceeding shall be covered by the relevant insurance policy and our Group s entire conduct of its defence against such claim in the proceeding has been taken up by the relevant insurer. 2. As at the Latest Practicable Date, the Labour Department had not yet assessed the amount of such claim. Our Directors take the view that the amount to be borne by our Group for this claim shall be covered by the relevant insurance policy. 3. The occurrence of the accident was being alleged by the claimant of the employee s compensation case. 172

179 BUSINESS Potential litigations in relation to employees compensation claims and common law personal injury claims against our Group as at the Latest Practicable Date As confirmed by our Directors, as at the Latest Practicable Date, there were 13 workplace accidents (of which occurrence of 1 accident was alleged by a claimant of an employees compensation claim) occurred during the Track Record Period and up to the Latest Practicable Date, which gave rise to ongoing employees compensation claims and may give rise to potential employees compensation and/or common law personal injury claims. Potential claims refer to those claims that have not commenced against our Group but are within the limitation period of two years (for employees compensation claims) or three years (for personal injury claims) from the date of the relevant incidents pursuant to the Limitation Ordinance (Chapter 347 of the Laws of Hong Kong). As such court proceedings have not commenced, we are not in a position to assess the likely quantum of such potential claims and outstanding claims. Our Directors take the view that the amount of such potential claims and outstanding claims to be borne by our Group in the proceedings shall be covered by relevant insurance policy. These accidents (save for 1 accident as alleged by a claimant of an employees compensation claim) were caused during usual and ordinary course of our business and have neither caused disruption to our Group s business nor have an adverse impact on our Group to obtain any licences or permits for our operation. Please see below a summary of the expiry of limitation period of the aforesaid work injury cases: Year Number of employees compensation claims which limitation period will expire Number of personal injury claims which limitation period will expire Total:

180 BUSINESS The number of accidents that we recorded during the Track Record Period and up to the Latest Practicable Date is summarised in the following table: For the year ended 31 March From 1 April 2015 to the Latest Practicable Date Number of accidents resulting in injuries of: our employees 1 (Note) 7 3 our subcontractors employees Note: The occurrence of the accident was being alleged by the claimant of an employees compensation case. Litigations against our Group settled or withdrawn during the Track Record Period and up to the Latest Practicable Date During the Track Record Period and up to the Latest Practicable Date, the following employees compensation claims and/or personal injury claims, being covered by insurance policies, were settled or withdrawn against our Group. Name(s) of our Group company(ies) Nature of the claims Particulars of the claims Approximate settlement amount Date of settlement/ withdrawal of claims 1. Luen Hing Employees compensation claim On 20 September 2012, the applicant suffered fracture of his right shoulder while moving a metal plate. HK$110,000 (exclusive of (Note 1) costs) 19 January Luen Hing Employees compensation claim On 14 June 2012, the applicant sustained injuries to his left foot whilst erecting formwork. HK$591,000 (exclusive of (Note 1) costs) 17 December Luen Hing (i) (ii) Employees compensation claim Personal injury claim On 5 July 2012, the applicant s right thigh was lacerated whilst using a steel bending machine. HK$1,054,000 (exclusive of (Note 1) costs) (Note 2) 4 February

181 BUSINESS Name(s) of our Group company(ies) Nature of the claims Particulars of the claims Approximate settlement amount Date of settlement/ withdrawal of claims 4. Luen Hing (i) (ii) Employees compensation claim Personal injury claim On 18 September 2010, the plaintiff fell down a manhole or pit for a distance of about 3 to 4 meters and sustained injuries to his left sided lumbar spine and left knee. HK$1,837,040 (exclusive of (Note 1) costs) (Note 2) 11 March Luen Hing (i) (ii) Employees compensation claim Personal injury claim On 26 July 2011, the plaintiff sustained injuries to his lower back, left shoulder and left chest whilst lifting rebars. HK$878,200 (exclusive of (Note 1) costs) (Note 2) 30 June Luen Hing Personal injury claim On 10 September 2010, the plaintiff s right foot was contused and crashed by a dislodged segment of the concrete pipe whilst installing a concrete pipe. HK$1,050,000 (exclusive of (Note 1) costs) 17 January Luen Hing Personal injury claim On 1 September 2011, the plaintiff sustained injuries to his left back and right lower limb whilst transporting building materials. HK$250,000 (exclusive of (Note 1) costs) 2 October 2013 Notes: 1. Our Directors confirm our Group s entire conduct of its defence against such claims and settlement negotiation in the proceeding have been taken up by the relevant insurer and the amount of settlement and litigation costs shall be totally covered by the relevant insurance policy. 2. The settlement amount settled both personal injury and employee s compensation claims raised by the claimant. There are insurance policies in place to cover our potential liabilities in relation to the above. For details, please refer to the paragraph headed Insurance in this section. 175

182 BUSINESS No provision for litigation claims Having considered, among other things, (i) the nature and the degree of injuries of the incidents; (ii) any payments made so far for settlement for the incidents; (iii) the status of the injured employees; (iv) the difficulty and uncertainty in estimating total costs of treatment and potential claims against our Group; (v) the coverage of insurance policy; and (vi) our Group s historical litigation records, our Directors consider that no provision for contingent liabilities in respect of current, pending and potential litigations is necessary. Indemnity given by our Controlling Shareholders Our Controlling Shareholders have entered into a Deed of Indemnity whereby our Controlling Shareholders have agreed to indemnify our Group, subject to the terms and conditions of the Deed of Indemnity, in respect of any liabilities and penalties which may arise as a result of any outstanding and potential litigations (including criminal litigations), claims of our Group on or before the date on which the Placing becomes unconditional. Further details of the Deed of Indemnity are set out in the paragraph headed E. Other information Tax and other indemnities in Appendix V to this prospectus. Save as disclosed above, our Directors, to the best of their knowledge, information and belief having made all reasonable enquiries, are not aware of any litigation proceedings (current, pending or threatened) against us which could have a material adverse effect on our financial condition or results of operations. 176

183 BUSINESS Criminal convictions During the Track Record Period and up to the Latest Practicable Date, our Group was convicted for the following criminal litigations: Name(s) of our Group company(ies) Particulars of the convictions Consequence and penalties 1. Luen Hing In October 2013, it was purported that Luen Hing failed to take adequate steps to prevent a person from falling from a height of 2 metres or more, which contravenes Regulations 38B(1A), 68(1)(a) and 68(2)(g) of the Construction Sites (Safety) Regulations (Chapter 59I of the laws of Hong Kong). 2. Luen Hing In November 2014, it was purported that Luen Hing failed to ensure that each chain, rope and lifting gear in use shall be thoroughly examined by a competent examiner in the preceding six months before it is used, which contravenes Regulation 18(1)(e) and 19 of the Factories and Industrial Undertakings (Lifting Appliances and Lifting Gear) Regulations (Chapter 59J of the laws of Hong Kong). Luen Hing was convicted and fined HK$20,000. Luen Hing paid the fine of HK$20,000 on 5 June Our Legal Counsel opined that this conviction will not have any significant impact creating impediment on the application for renewal of registration of Luen Hing under the Subcontractor Registration Scheme. Luen Hing was convicted and was fined HK$4,000. Luen Hing paid the fine of HK$4,000 on 6 August Our Legal Counsel opined that this conviction will not have any significant impact creating impediment on the application for renewal of registration of Luen Hing under the Subcontractor Registration Scheme. The criminal convictions were all monetary penalty and such convictions were made against our Group but not against our Directors or the senior management of our Group personally. Save as disclosed above and to best of our Directors knowledge and belief, during the Track Record Period and up to the Latest Practicable Date, our Group did not experience any significant incidents or accidents in relation to workers safety and we were not convicted for any material breach of workplace safety laws and regulations. 177

184 BUSINESS NON-COMPLIANCE Our Directors confirm that they were aware of the occurrence of certain non-compliances of our Group with (1) the Predecessor Companies Ordinance and the Companies Ordinance in respect of matters including among others, timely adoption of audited accounts, failure to convene annual general meetings within the prescribed time, and late filing of or missing reportable information in statutory forms to the Companies Registry; and (2) the Employment Ordinance (Chapter 57 of the Laws of Hong Kong) in respect of late payment of wages to the Group employees. As advised by the Legal Counsel, those non-compliance incidents not disclosed in this prospectus are either time barred by the time limit for prosecution of three years under both Predecessor Companies Ordinance and Companies Ordinance or immaterial in nature under the relevant ordinances. Taking into account the above and the fact that any loss, fee, expense and penalty of our Group in relation to non-compliance matters will be fully indemnified by our Controlling Shareholders, our Directors consider, and the Sponsor concurs, that the impact of them would be immaterial upon our Group s operation and financial positions. As confirmed by our Directors, as at the Latest Practicable Date, save as disclosed above, our Group did not receive any notices for any fines or penalties for any non-compliance that is material and systemic. Indemnity given by our Controlling Shareholders Our Controlling Shareholders, collectively as the indemnifiers, entered into the Deed of Indemnity whereby our Controlling Shareholders have agreed to indemnify our Group, subject to the terms and conditions of the Deed of Indemnity, in respect of any liabilities and penalties which may arise as a result of any non-compliances of our Group on or before the date on which the Placing becomes unconditional. Further details of the Deed of Indemnity are set out in the paragraph headed E. Other information Tax and other indemnities in Appendix V to this prospectus. No provision No provision was made in the financial statements of our Group in respect of the aforementioned non-compliances as our Directors have taken into consideration the following: (i) up to the Latest Practicable Date, our Directors were not aware of any prosecution instituted against us or any notices for any fine or penalties in relation to the above non-compliances; (ii) even if there is any prosecution, the actual amount of penalty cannot be estimated with reasonable accuracy and the potential maximum penalties of the abovementioned non-compliance incidents to be immaterial; (iii) legal opinion on chance of prosecution and legal liability; and (iv) our Controlling Shareholders shall indemnify our Group pursuant to the Deed of Indemnity. Having taken into account (i) the nature of the abovementioned non-compliances; and (ii) after adopting the preventative measures as set out in the paragraph headed Non-compliance Internal control measures to prevent the recurrence of non-compliance incidents of this section below, there has not been any recurrence of similar types of non-compliances and there was no indication that our Directors lack the ability to operate 178

185 BUSINESS the business in a fully compliant manner after adopting the preventative measures, our Directors are of the view, and the Sponsor concurs, that our Group s internal control measures are adequate and effective. Furthermore, taking into account (i) the non-compliances mentioned above did not involve intentional misconduct, fraud, dishonesty or corruption on the part of our Directors; and (ii) our Directors have adopted the preventative measures as set out in the paragraph headed Non-compliance Internal control measures to prevent the recurrence of non-compliance incidents of this section below, our Directors are of the view, and the Sponsor concurs, that these non-compliances do not reflect a material defect in the character, integrity or experience of our Directors. Furthermore, our Directors have been given training on the new Companies Ordinance. Our Directors are therefore of the view, and the Sponsor concurs, that our Directors are suitable to act as our Company s Directors under Rules 5.01 and 5.02 of the GEM Listing Rules. Furthermore, given the rectification status of the non-compliances identified as well as the Deed of Indemnity given in favour of us by our Controlling Shareholders, our Directors are of the view, and the Sponsor concurs, that the abovementioned non-compliances do not affect our suitability of Listing under Rule of the GEM Listing Rules. Internal control measures to prevent the recurrence of non-compliance incidents In relation to the non-compliance incidents mentioned above, our Group has engaged CT Partners, an independent internal control adviser, to review and provide recommendations to our internal control designs for preventing the recurrence of the above-mentioned non-compliance incidents. After taking into account the recommendations made by CT Partners, our Group has adopted or will adopt the following key measures: 1. with regard to the non-compliance in relation to the Predecessor Companies Ordinance and the Companies Ordinance, our company secretary, Mr. Woo Yuen Fai, has been responsible for keeping the filing register up to date on a monthly basis in respect of, among other things, the status of all relevant documents required under the Companies Ordinance (including the preparation status of financial statements that are required to be laid in the following annual general meeting of each company in our Group) starting from November 2015 and we will seek legal advice from external legal adviser to ensure ongoing compliance; and 2. with regard to the non-compliance in relation to the Employment Ordinance (Chapter 57 of the Laws of Hong Kong), written procedures have been put in place to ensure on-going compliance on payroll. Our financial controller, Ms. Chan Yin Wa Cecilia, has been responsible for checking and approval of the payroll record with the assistance from the designated personnel from the human resources and administrative department. 179

186 BUSINESS REVIEW BY CT PARTNERS We endeavour to uphold the integrity of our business by maintaining an internal control system into our organisational structure. In preparation for the Listing and to further improve our internal control system, in August 2015, we engaged CT Partners, an independent internal control adviser, to perform an evaluation under the Committee of Sponsoring Organisations of the Treadway Commission s 2013 framework of the adequacy and effectiveness of our Group s internal control system including the areas of financial, operation, compliance and risk management. CT Partners is a company rendering internal control review services, which has been previously engaged in internal control review projects for a number of companies listed on the Stock Exchange. Besides, the engagement team of CT Partners includes members of the Hong Kong Institute of Certified Public Accountants, a Certified Internal Auditor, a member of the Society of Chinese Accountants & Auditors, a fellow member of the Associations of Chartered Certified Accountants, an associate member of the Association of International Accountants, a member of Certified General Accountants Association of British Columbia, and an associate of the Taxation Institute of Hong Kong and a Certified Tax Adviser (HK). In August 2015, CT Partners completed the first review of our internal control system on, among others, our control environment, risk assessment, control activities, information and communication, monitoring activities, financial reporting and disclosure, human resources and payroll, cash management and treasury, sales and receipts cycle, project management and compliance procedures with Appendix 15 Corporate Governance Code of the GEM Listing Rules. In order to strengthen our internal control system and aside from the key measures taken to prevent the recurrence of the non-compliance incidents, albeit immaterial in nature, stated in the paragraph headed Non-compliance of this section, our Group has also adopted or will adopt the following key measures: we agree to establish system and manuals in relation to, among others, distribution of annual, interim or quarterly reports and publication, handling and monitoring of inside information prior to public announcement and other requirements under the GEM Listing Rules; we have established an authorisation and written approval matrix for handling cheque payment and the daily operation of the Group; in November 2015, our Directors attended training sessions conducted by our legal advisers as to Hong Kong law on the on-going obligations and duties of a director of a company whose shares are listed on the Stock Exchange; we will engage CT Partners to have an annual review on the adequacy and effectiveness of our internal control system for the financial year ending 31 March 2016, including areas of financial, operational, compliance and risk management; 180

187 BUSINESS we have engaged TC Capital as our compliance adviser and will, upon Listing, engage a legal adviser as to Hong Kong laws, which will advise and assist our Board on compliance matters in relation to the GEM Listing Rules and/or other relevant laws and regulations applicable to our Company; we have established an audit committee which comprises all independent non-executive Directors, namely Mr. Liu Yan Chee James, Mr. Wong Chi Kan and Mr. Tai Hin Henry. The audit committee has adopted its terms of reference which sets out clearly its duties and obligations to, among other things, overseeing the internal control procedures and accounting and financial reporting matter of our Group, and ensuring compliance with the relevant laws and regulations. For the biographical details of the independent non-executive Directors, please refer to the section headed Directors and senior management in this prospectus; and when considered necessary and appropriate, we will seek professional advice and assistance form independent internal control consultants, external legal advisers and/or other appropriate independent professional advisers with respect to matters related to our internal controls and legal compliance. In October 2015, CT Partners performed a follow-up review on our internal control system and we did not note any findings of material weakness or insufficiency in our Group s internal control system. View of our Directors and the Sponsor Having considered that: (i) (ii) the employees compensation and personal injury claims against our Group during the Track Record Period were fully covered by the insurance policies maintained by the relevant main contractors; enhanced safety measures were put in place and remedial actions were effectively carried out by us to prevent the occurrence of fatal and significant industrial accidents; and (iii) the total amount of fine paid by us during the Track Record Period and up to the Latest Practicable Date in relation to our safety and health related convictions was only HK$24,000 and that the said convictions did not adversely affect our registration under the Subcontractor Registration Scheme, our Directors are of the view, and the Sponsor concurs, the fatal accident, the convictions in relation to the breach of safety and health-related laws and regulations, and the accidents which resulted in personal injury claims and/or employees compensation claims disclosed in this section would not have material adverse impact on our Group s operation and financial position. 181

188 BUSINESS As set out in the paragraphs headed Occupational health and safety, Non-compliance and Litigation and potential claims in this section, our Group has laid down and implemented additional safety measures to enhance internal control measures in order to monitor ongoing compliance with the relevant laws and regulations to prevent the recurrence of the litigations, prosecutions and non-compliance incidents in the future. On the basis that (i) our accident rates were lower than the industry average during the Track Record Period; and (ii) we have been accredited with OHSAS qualification in respect of our occupational safety and health management system, our Directors believe, and the Sponsor concurs that, these measures are adequate and effective to promote a safer and healthier environment for the workers at our construction sites and to prevent recurrence of the said incidents. Furthermore, our Directors and Legal Counsel both take the view, and the Sponsor concurs, that the above mentioned litigations, prosecutions and immaterial non-compliance incidents would not affect (i) the suitability of our executive Directors under Rules 5.01 and 5.02 of the GEM Listing Rules; and (ii) or our Company s suitability of Listing under Rule of the GEM Listing Rules on the following grounds: (i) (ii) The litigations, prosecutions and past immaterial non-compliance would not have material adverse impact on our Group s operation and financial position as disclosed above. The litigations, prosecutions and past immaterial non-compliance incidents were unintentional, did not involve any dishonesty of fraudulent act on the part of our Directors or cast any doubt on their integrity or competence. (iii) Our Group has implemented and will continue to implement appropriate measures to avoid recurrence of the litigations, prosecutions and non-compliance incidents and will engage an external professional adviser for ensuring strict compliance with the relevant laws and regulations. (iv) Our Group has carried out remedial actions and fully rectified all of the immaterial non-compliance incidents, if applicable. (v) Our Directors confirm, and the Sponsor concurs that, the internal control measures implemented by our Group are sufficient and could effectively ensure a proper internal control system of our Group and prevent the recurrence of non-compliance incident of same nature. 182

189 DIRECTORS AND SENIOR MANAGEMENT OVERVIEW Our Board currently consists of seven Directors, comprising four executive Directors and three independent non-executive Directors. Our Directors are supported by our senior management in the day-to-day management of our business. The following table sets out the information in respect of our Directors and senior management: Directors Name Age Position Date of joining our Group Date of appointment as Director of our Company Principal responsibilities Relationship with other Director(s) and/or senior management Mr. WONG Che Kwo 57 Executive Director and Chairman of our Board November October 2015 Joint responsibility of formulation of overall business development strategy and overall management and major business decisions of our Group and the chairman of the nomination committee Father-in-law of Mr. CHIU Chi Wang Mr. WONG Wing Wah 58 Executive Director, Chief Executive Officer November October 2015 Joint responsibility of formulation of overall business development strategy and execution of daily management and administration of our business and operations and monitoring occupational health, safety and environmental compliance and a member of the remuneration committee N/A Mr. WONG Tak Ming 55 Executive Director June November 2015 Overseeing execution of daily management of site operations of our Group N/A Mr. CHIU Chi Wang 31 Executive Director November November 2015 Overseeing the engineering and technical aspects of various projects of our Group Son-in-law of Mr. WONG Che Kwo Mr. WONG Chi Kan 30 Independent non-executive Director 24 March March 2016 Chairman of the remuneration committee and a member of the audit committee and a member of the nomination committee N/A Mr. LIU Yan Chee James 45 Independent non-executive Director 24 March March 2016 Chairman of the audit committee and a member of the remuneration committee N/A Mr. TAI Hin Henry 30 Independent non-executive Director 24 March March 2016 A member of the audit committee and a member of the nomination committee N/A 183

190 DIRECTORS AND SENIOR MANAGEMENT Senior Management Relationship with other Name Age Position Date of joining our Group Date of appointment of current position Principal responsibilities Director(s) and/or senior management Ms. CHAN Yin Wa Cecilia 27 Financial Controller August 2015 August 2015 Overseeing the financial operations of our Group N/A Mr. LO Shek Kwong 64 Quantity Surveyor Manager June 2005 and rejoined in May 2009 June 2005 and reappointed in May 2009 Overseeing all quantity surveying functions of our projects N/A Mr. WONG Ka Chun Jeffery 39 Site Agent June 2004 September 2009 Monitoring work progress of our projects and supervising workmanship and quality N/A Executive Directors Mr. WONG Che Kwo, aged 57, is the co-founder of our Group, an executive Director and our Chairman. Mr. CK Wong is one of our Controlling Shareholders and also a director of Hop Fung, Luen Hing and Super Pioneer. He has over 30 years of experience in civil engineering construction industry in Hong Kong. Mr. CK Wong is primarily responsible for formulation of overall business development strategy and overall management and major business decisions of our Group. Prior to establishing our Group, from May 1982 to June 1983, Mr. CK Wong worked as a construction worker in a civil engineering construction contractor in Hong Kong where he started to gain exposure to project execution of civil engineering construction. In 1983, he started the business of civil engineering works as a sole proprietorship where he continued to extend his expertise and experience in civil engineering works as a subcontractor focusing on road and drainage works. In November 1998, he co-founded Luen Hing with Mr. WW Wong, our executive Director and our Chief Executive Officer, in order to capture the growing business opportunities for civil engineering construction works in Hong Kong. Mr. CK Wong is the father-in-law of Mr. Chiu Chi Wang who is an executive Director. Mr. WONG Wing Wah, aged 58, is the co-founder of our Group, an executive Director and our Chief Executive Officer. Mr. WW Wong is one of our Controlling Shareholders and also a director of Hop Fung, Luen Hing and Super Pioneer. He has over 19 years of experience in civil engineering construction industry in Hong Kong. Mr. WW Wong is primarily responsible for formulation of overall business development strategy, execution of daily management and administration of our business and operations and monitoring 184

191 DIRECTORS AND SENIOR MANAGEMENT occupational health, safety and environmental compliance. Prior to joining our Group, in February 1996, Mr. WW Wong worked for Luen Hing Civil Eng Co., a sole proprietorship established by Mr. CK Wong, and commenced his career in the civil engineering construction industry. In November 1998, Mr. WW Wong co-founded Luen Hing with Mr. CK Wong in order to capture the growing business opportunities for civil engineering construction works in Hong Kong. Mr. WONG Tak Ming, aged 55, is an executive Director. Mr. Wong has over 25 years of experience in civil engineering construction industry in Hong Kong. He is primarily responsible for overseeing execution of daily management of site operations of our Group. He joined our Group as a site superintendent in June 1999 and was promoted to site agent in May He was further promoted to construction manager in January Prior to joining our Group, Mr. Wong s working experience includes: Name of companies Shun Yip Construction Co., Ltd Principal business activity Position Period of service Construction Site foreman May 1992 May 1993 Tobishima Corporation Construction Foreman June 1993 October 1994 Yiu Kee Engineering Co. Construction Site supervisor November 1994 May 1995 Tobishima Corporation Construction General foreman September 1996 March 1998 Kin Lee Ko Construction Co. Ltd Chun Wo Construction & Engineering Co., Ltd Construction Site agent March 1998 June 1998 Construction General foreman July 1998 June 1999 Mr. Wong has completed the training courses conducted by the Occupational Safety & Health Council on Basic Safety Management, Construction Safety and Basic Occupational Health in October He was also awarded a certificate for Safety & Health Supervisor (Construction) in January Mr. CHIU Chi Wang, aged 31, is an executive Director. Mr. Chiu joined our Group as a trainee engineer in November He was promoted to engineer in March 2015 and he is responsible for overseeing the engineering and technical aspects of various projects of our Group. Prior to joining our Group, he worked as a police constable from January 2007 to November Mr. Chiu graduated from Rosaryhill School in July Mr. Chiu completed the Standard Criminal Investigation Course in September He 185

192 DIRECTORS AND SENIOR MANAGEMENT completed a Diploma in Civil Engineering in February 2016 which is a part-time course offered by the Hong Kong Institute of Vocational Education. Mr. Chiu is the son-in-law of Mr. CK Wong who is an executive Director and the Chairman of our Board. Independent non-executive Directors Mr. WONG Chi Kan, aged 30, is an independent non-executive Director. He has over 5 years of experience in auditing and accounting. Mr. Wong has served as an assistant financial controller in irregular Consulting Limited, a company principally engaged in provision of financial public relations services, since March He worked as an accounting manager in Hao Wen Holdings Limited (a company listed on GEM of the Stock Exchange (stock code: 8019) and principally engaged in sale of biodegradable food containers and disposable industrial packaging for consumer products) between March 2015 and March From January 2014 to February 2015, he was a senior associate and further promoted to an assistant manager in BDO Limited. From November 2010 to January 2014, he served as an accountant and later promoted to senior accountant in HLB Hodgson Impey Cheng Limited. Mr. Wong obtained a Bachelor of Commerce degree and a master s degree in Professional Accounting from the University of New South Wales in May 2009 and August 2010 respectively. He is also a fellow member of the Certified Practising Accountants Australia since March Mr. Wong is a certified public accountant of the Hong Kong Institute of Certified Public Accountants. Mr. LIU Yan Chee James, aged 45, is an independent non-executive Director. He has more than 20 years of experience in finance and accounting. He has been a director of Special Fine Investment and Management Limited, a company principally engaged in fund management business, since January Mr. Liu s previous working experience primarily includes: Name of companies Principal business activity Position Period of service Tung Shing (Brokers) Group Investment banking Sales Director and Head of Institutional Sales September 2011 October 2015 KGI Asia Limited Investment banking Sales Director October 2007 September 2011 Enlighten Securities Limited Investment banking Sales Director November 2003 October 2007 Sun Hung Kai Investment Services Limited Vickers Ballas, Hong Kong Limited Investment banking Sales Director Mid-2001 October 2003 Investment banking Sales Director March 1997 mid

193 DIRECTORS AND SENIOR MANAGEMENT Name of companies Sun Hung Kai Investment Services Limited Principal business activity Position Period of service Investment banking Account Manager July 1995 March 1997 Mr. Liu graduated from Dalhousie University in Canada with a Bachelor of Commerce in February Mr. TAI Hin Henry, aged 30, is an independent non-executive Director. Mr. Tai has over 6 years of experience in auditing and accounting. He has been an accounting manager of Rich Gain Construction Development Company Limited, a construction company in Hong Kong, since August From May 2009 to July 2014, Mr. Tai worked as an audit senior in Louis Leung and Partners CPA Limited. He also worked at New Time Trading Company, a company principally engaged in the trading of jewellery and jade, as a sales executive during the period from September 2007 to April Mr. Tai graduated from the London School of Economics and Political Science, University of London with a Bachelor of Science majoring in Accounting and Finance in June He has completed the CPA Qualification Programme of the Hong Kong Institute of Certified Public Accountants in August Disclosure required under Rule 17.50(2) of the GEM Listing Rules Save as disclosed above, each of our Directors confirms with respect to himself that: (i) he has not held directorships in the last three years in other public companies the securities of which are listed on any securities market in Hong Kong or overseas; (ii) he does not hold any other position in our Company or any of its subsidiaries; (iii) save as disclosed in the section C. Further information about Substantial Shareholders, Directors and Experts 1. Disclosure of interests in Appendix V to this prospectus, he does not have any interests in the Shares within the meaning of Part XV of the SFO; (iv) had no other relationship with any Directors, Substantial Shareholders, Controlling Shareholders, or senior management of our Company as at the Latest Practicable Date; (v) there is no other information that needs to be disclosed pursuant to Rule 17.50(2) of the GEM Listing Rules; and (vi) to the best of the knowledge, information and belief of our Directors having made all reasonable enquiries, there are no other matters with respect to the appointment of our Directors that need to be brought to the attention of our Shareholders. SENIOR MANAGEMENT Ms. CHAN Yin Wa Cecilia, aged 27, is the financial controller of our Group. Ms. Chan joined our Group in August 2015 and is responsible for overseeing the financial operations of our Group. Ms. Chan graduated from the University of Queensland in Australia in December 2009 with a Bachelor of Commerce majoring in Accounting and Finance. She is a fellow member of the Certified Practising Accountants Australia. Prior to joining our Group, from December 2010 to March 2015, she worked at Wong Brothers & Co where she was promoted from a trainee accountant to an accountant. 187

194 DIRECTORS AND SENIOR MANAGEMENT During the three years immediately preceding the Latest Practicable Date, Ms. Chan has not been a director of a public company the securities of which are listed on any securities market in Hong Kong or overseas. Mr. LO Shek Kwong, aged 64, is the quantity surveyor manager of our Group. He has over 25 years of experience in quantity surveying, contractual administration and construction project management. He is responsible for overseeing all quantity surveying function of our projects. Mr. Lo first joined our Group as a quantity surveyor manager in June In January 2007, he left our Group and joined Leighton-China State-John Holland Joint Venture as a quantity surveyor manager until he re-joined our Group in May 2009 as a quantity surveyor manager. Prior to joining our Group, from December 1982 to October 2002, Mr. Lo worked in the quantity surveying department of various construction companies such as Sang Lee Construction Co., Ltd, Leighton Contractors (Asia) Ltd., Shui On-China Harbour Joint Venture, K.E.C. Joint Venture headed by Kumagai Gumi Co., Ltd (Hong Kong) and China Overseas (Hong Kong) Limited which he was responsible for the quantity surveying functions of various major construction projects. Mr. Lo obtained an Ordinary Certificate in Building Technology in July 1974 and a Higher Certificate in Building Technology in November 1976 from the Hong Kong Polytechnic (now known as the Hong Kong Polytechnic University). He also obtained a Certificate in Quality Assurance in June 2004 from Seneca College, Canada. During the three years immediately preceding the Latest Practicable Date, Mr. Lo has not been a director of a public company the securities of which are listed on any securities market in Hong Kong or overseas. Mr. WONG Ka Chun Jeffery, aged 39, is the site agent of our Group. He has over 14 years of experience in civil engineering construction industry in Hong Kong. Mr. Wong joined our Group as an engineer in June 2004 and was promoted to site agent in September He is responsible for monitoring work progress of our projects and supervising workmanship and quality. Prior to joining our Group, from September 2003 to May 2004, he worked as an assistant engineer at China Overseas (Hong Kong) Limited, a company principally engaged in property and construction businesses. He worked as an assistant engineer at HK Construction AMEC China Railway China Everbright Joint Venture from March 2001 to September Mr. Wong graduated from the McMaster University in Canada in June 2001 with a Bachelor of Engineering. During the three years immediately preceding the Latest Practicable Date, Mr. Wong has not been a director of a public company the securities of which are listed on any securities market in Hong Kong or overseas. 188

195 DIRECTORS AND SENIOR MANAGEMENT COMPANY SECRETARY Mr. Woo Yuen Fai, aged 32, was appointed as the company secretary of our Company on 24 March Mr. Woo has more than 9 years of experience in auditing and finance. He is the financial controller and the company secretary of Chun Sing Engineering Holdings Limited, a company listed on the Main Board of the Stock Exchange (stock code: 2277) and is principally engaged in the foundation and substructure construction business. From September 2006 to August 2014, Mr. Woo worked in the assurance and business advisory department of SHINEWING (HK) CPA Limited, a certified public accounting firm. Mr. Woo obtained his bachelor s degree of business administration (honors) in accountancy and law from the City University of Hong Kong in November 2006 and is a member of the Hong Kong Institute of Certified Public Accountants. During the three years immediately preceding the Latest Practicable Date, Mr. Woo has not been a director of a public company the securities of which are listed on any securities market in Hong Kong or overseas. COMPLIANCE OFFICER Mr. WW Wong, an executive Director, our Chief Executive Officer and one of the Controlling Shareholders of our Company, was appointed as the compliance officer of our Company on 24 March Please refer to the paragraph headed Directors above in this section for the biographical details of Mr. WW Wong. REMUNERATION POLICY Our executive Director, independent non-executive Directors and senior management receive compensation in the form of director fees, salaries, benefits in kind and/or discretionary bonuses with reference to those paid by comparable companies, time commitment and the performance of our Group. Our Group also reimburses our Directors and senior management for expenses which are necessarily and reasonably incurred for the provision of services to our Group or executing their functions in relation to the operations of our Group. Our Group regularly reviews and determines the remuneration and compensation packages of our Directors and senior management by reference to, among other things, market level of remuneration and compensation paid by comparable companies, the respective responsibilities of our Directors and the performance of our Group. After Listing, the remuneration committee of our Company will review and determine the remuneration and compensation packages of our Directors with reference to their responsibilities, workload, the time devoted to our Group and the performance of our Group. Our Directors may also receive options to be granted under the Share Option Scheme details of which are set out in the paragraph headed D. Share Option Scheme in Appendix V to this prospectus. 189

196 DIRECTORS AND SENIOR MANAGEMENT REMUNERATIONS OF DIRECTORS AND SENIOR MANAGEMENT Our Directors receive compensation in the form of Directors fees, salaries, allowances, discretionary bonuses and other benefits as well as contributions to retirement benefit schemes. The total compensation accrued to our Directors for the two years ended 31 March 2015 and the eight months ended 30 November 2015 was HK$3,946,000, HK$3,934,000 and HK$2,160,000, respectively. The aggregate compensation (including Directors fees, salaries, discretionary bonus, contributions to retirement benefit schemes, pension, allowances and other benefits) paid to our five highest paid individuals during the two years ended 31 March 2015 and the eight months ended 30 November 2015 were HK$4,747,000, HK$4,783,000 and HK$2,641,000, respectively. Under the arrangement currently in force, we estimate the total compensation (including Directors fees, salaries, discretionary bonus, contributions to retirement benefit schemes, pension) to be paid or accrued to our Directors for the year ending 31 March 2016 to be HK$4.4 million. We did not pay to our Directors or the five highest paid individuals any inducement fees to join us or as compensation for loss of office for each of the two years ended 31 March 2015 and the eight months ended 30 November Furthermore, none of our Directors waived any compensation for the same period. Save as disclosed above, no other payments has been paid or is payable, in respect of the two years ended 31 March 2015 and the eight months ended 30 November 2015 by us or any of our subsidiaries to our Directors. BOARD COMMITTEES Audit committee Our Company established an audit committee on 24 March 2016 with its written terms of reference in compliance with the GEM Listing Rules. The primary duties of the audit committee are to review and supervise our financial reporting process and internal control system, nominate and monitor external auditors and to provide advice and comments to the Board on matters related to corporate governance. The audit committee of our Company comprises the three independent non-executive Directors, namely Mr. Liu Yan Chee James, Mr. Wong Chi Kan and Mr. Tai Hin Henry. Mr. Liu Yan Chee James currently serves as the chairman of the audit committee. Remuneration committee Our Company established a remuneration committee on 24 March 2016 with its written terms of reference in compliance with the GEM Listing Rules. The primary duty of the remuneration committee is to make recommendations to the Board on the remuneration of our Directors and our senior management. 190

197 DIRECTORS AND SENIOR MANAGEMENT The remuneration committee of our Company comprises Mr. Wong Wing Wah, our executive Director and Chief Executive Officer, Mr. Liu Yan Chee James and Mr. Wong Chi Kan, our independent non-executive Directors. Mr. Wong Chi Kan currently serves as the chairman of the remuneration committee. Nomination committee Our Company established a nomination committee on 24 March 2016 with its written terms of reference by reference to the code provisions of the Corporate Governance Code and Corporate Governance Report set out in Appendix 15 to the GEM Listing Rules. The primary duties of the nomination committee are to make recommendations to the Board regarding candidates to fill vacancies on the Board and/or in senior management. The nomination committee of our Company comprises Mr. Wong Che Kwo, our executive Director and Chairman, Mr. Wong Chi Kan and Mr. Tai Hin Henry, our independent non-executive Directors. Mr. Wong Che Kwo currently serves as the chairman of the nomination committee. CORPORATE GOVERNANCE Our Company will comply with the Corporate Governance Code in Appendix 15 to the GEM Listing Rules. Our Directors will review our corporate governance policies and compliance with the Corporate Governance Code each financial year and comply with the comply or explain principle in our corporate governance report which will be included in our annual reports upon the Listing. COMPLIANCE ADVISER In accordance with Rule 6A.19 of the GEM Listing Rules, our Company has appointed TC Capital as its compliance adviser. Pursuant to Rule 6A.23 of the GEM Listing Rules, our Company will consult with and seek advice from the compliance adviser on a timely basis in the following circumstances: (1) before the publication of any regulatory announcement, circular or financial report; (2) where a transaction, which might be a notifiable or connected transaction, is contemplated including share issues and share repurchases; (3) where our Company proposes to use the proceeds of the Placing in a manner different from that detailed in this prospectus or where the business activities, developments or results of our Company deviate from any forecast, estimate, or other information in this prospectus; and (4) where the Stock Exchange makes an inquiry of the listed issuer under Rule of the GEM Listing Rules. 191

198 DIRECTORS AND SENIOR MANAGEMENT The term of appointment of the compliance adviser of our Company shall commence on the Listing Date and end on the date on which our Company complies with Rule of the GEM Listing Rules in respect of the financial results for the second full financial year commencing after the Listing Date and such appointment shall be subject to extension by mutual agreement. The compliance adviser of our Company shall provide us with services, including guidance and advice as to compliance with the requirements under the GEM Listing Rules and applicable laws, rules, codes and guidelines, and to act as one of our principal channels of communication with the Stock Exchange. 192

199 RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS OUR CONTROLLING SHAREHOLDERS Immediately following completion of the Capitalisation Issue and the Placing, each of Mr. CK Wong, Mr. WW Wong and Blooming Union will control more than 30% of the issued share capital of our Company. Mr. CK Wong and Mr. WW Wong have had a mutual understanding all along to actively cooperate with each other to jointly control our Group and thus Mr. CK Wong and Mr. WW Wong are presumed to be acting in concert (within the meaning of the Takeovers Code). Given the aforesaid and for the purpose of the GEM Listing Rules, Mr. CK Wong, Mr. WW Wong and Blooming Union are our Controlling Shareholders. Blooming Union is an investment holding company and has not commenced any substantive business activities as at the Latest Practicable Date. Each of Mr. CK Wong, Mr. WW Wong and Blooming Union confirms that he/it does not hold or conduct any business which competes, or is likely to compete, either directly or indirectly, with the business of our Group, and would require disclosure pursuant to Rule of the GEM Listing Rules. INDEPENDENCE OF OUR GROUP In the opinion of our Directors, our Group is capable of carrying on our businesses independently of, and does not place undue reliance on, our Controlling Shareholders, their respective close associates or any other parties, taking into account the following factors: (i) Financial independence Our Group has an independent financial system and makes financial decisions according to our own business needs. Our Group has sufficient capital to operate its business independently, and has adequate internal resources and a strong credit profile to support its daily operations. During the Track Record Period, our Controlling Shareholders had provided personal guarantees in respect of certain credit facilities provided by financial institutions. Please refer to notes 21 and 22 of Section II in the Accountants Report in Appendix I to this prospectus for details of the balances of the credit facilities taken by our Group during the Track Record Period. Our Directors confirm that all personal guarantees provided by our Controlling Shareholders in respect of the aforesaid credit facilities will be released or replaced by our Company s corporate guarantee upon the Listing. During the Track Record Period and up to the Latest Practicable Date, our Group has entered into 9 contracts (the Guaranteed Contracts ) in an aggregate contract sum of approximately HK$284,175,000 which involved performance guarantee with certain customers. Pursuant to the performance guarantee, Mr. CK Wong and/or Mr. WW Wong, our Controlling Shareholders and executive Directors, have given performance guarantee in favour of our customers as security for the due performance and observance of our Group s obligations under the Guaranteed Contracts between our Group and the relevant customers. If our Group fails to perform our obligations leading to a breach of the Guaranteed Contracts, Mr. CK Wong and/or Mr. WW Wong will be required to indemnify the relevant customers up to (i) a specified amount ranging from 193

200 RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS 10% to 25% of the contract sum or (ii) an unlimited amount for all losses, claims, damages, costs and expenses suffered by the relevant customers as a result of our Group s default under the Guaranteed Contracts. As at the Latest Practicable Date, among the 9 contracts, 4 contracts were completed and the respective performance guarantees given have been released and 5 contracts were still in progress. The following table sets out the details of the Guaranteed Contracts involving the performance guarantees given by our Controlling Shareholders which have not yet been released: Contract Type of works no. Customer (Note 1) involved Public or private sector project Contract sum (Note 2) (HK$ 000) Actual or expected completion (Note 3) date Project status Extent of liability of contract sum 1 Chun Wo Construction (Note 4) 2. China State Construction (Note 5) 3. China State Construction (Note 6) 4. China State Construction (Note 5) 5. Chun Wo Construction (Note 4) Roads and drainage and structural works Roads and drainage and site formation works Roads and drainage and structural works Public 11,011 December 2016 In progress 25% Public 17,077 May 2016 In progress Unlimited Public 122,770 December 2018 In progress 10% Structural works Public 59,000 May 2017 In progress Unlimited Structural works Public 22,693 April 2016 In progress 25% Notes: 1. The above customers are among our five largest customers during the Track Record Period, details of which are set out in the section headed Business Customers Major customers in this prospectus. 2. The contract sum is based on the initial agreement between our customers and us and may not include additions, modifications due to subsequent variation orders and therefore, final revenue recognised from a contract may differ from the contract sum. 3. The expected completion date for a particular contract is provided based on our management s best estimation. In making the estimation, our management takes into account factors including the expected completion date specified in the relevant contract (if any), the extension period granted by our customers (if any) and the actual work schedule. 4. The personal guarantees given by Mr. CK Wong and Mr. WW Wong will be replaced by our Company s corporate guarantee upon the Listing. 5. Our Company was informed that save for occurrence of any event which renders the contract to be inevitably amended, it is the internal policy of the customer not to amend the terms of the existing contracts. Therefore, the customer has declined our request to release the personal guarantee provided by Mr. CK Wong and/or Mr. WW Wong. Our Group will take out a surety bond before Listing from 194

201 RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS an authorised insurer, which is a wholly-owned subsidiary of a Hong Kong licensed bank, in favour of the customer in the value of the contract sum for the due performance of our Group s obligations under the contract on normal commercial terms. Such surety bond will be granted without any guarantees or other financial support from our Controlling Shareholders. 6. Our Company was informed that save for occurrence of any event which renders the contract to be inevitably amended, it is the internal policy of the customer not to amend the terms of the existing contracts. Therefore, the customer has declined our request to release the personal guarantee provided by Mr. CK Wong and/or Mr. WW Wong. Our Group will take out a surety bond before Listing from an insurer in favour of the customer in the value representing 10% of the contract sum for the due performance of our Group s obligations under the contract on normal commercial terms. Such surety bond will be granted without any guarantees or other financial support from our Controlling Shareholders. Our Directors confirm that it is not uncommon for main contractors to require directors and/or shareholders of subcontractors to provide performance guarantee in the subcontracts to ensure our Group s due performance and observance of a subcontract. In addition, our Directors are of the view that release of all of the personal guarantees without consent of the respective counterparty will give rise to early termination liabilities and practical and commercial difficulties against our Group, and renegotiation of the release of all personal guarantees to be replaced by our Company s corporate guarantee will also not be feasible and cost-effective. For the Guaranteed Contracts which the performance guarantees given by our Controlling Shareholders have not yet been released, (i) our Group has obtained consent from the relevant customer to have such personal guarantee to be replaced by our Company s corporate guarantee upon Listing; or (ii) our Group will take out a surety bond before Listing, on a stand-alone basis, from an independent authorised insurer, which is a wholly-owned subsidiary of a Hong Kong licensed bank, in the contract sum or predetermined percentage of the contract sum of the relevant contract, as the case may be, in favour of the relevant customer to secure the due performance of our Group s obligations under the respective contract. With regard to the aforesaid surety bonds arrangement, we expect that annual premium of approximately HK$1,060,000 for the issue of the surety bond will be recognised as expenses commencing from April 2016, and the surety bonds will be valid until the release of personal guarantees given by our Controlling Shareholders under the relevant Guaranteed Contracts. In addition, our Directors decide that, going forward, our Group will not enter into any contract involving similar performance guarantee to be given by our Controlling Shareholders. As at 21 March 2016, Mr. CK Wong and Mr. WW Wong had advanced loans of HK$284, and HK$5,267,065.80, respectively, to Luen Hing. On 21 March 2016, by way of loans capitalisation, Luen Hing applied HK$280,000 owed to Mr. CK Wong and HK$5,200,000 owed to Mr. WW Wong toward the satisfaction of the issue and allotment of 5,480,000 new shares of Luen Hing at a subscription price of HK$1 per share to Super Pioneer (as directed by Mr. CK Wong and Mr. WW Wong). The remaining uncapitalised balance of HK$4, and HK$67, will be repaid by Luen Hing to Mr. CK Wong and Mr. WW Wong, respectively, upon Listing. As at 21 March 2016, Mr. CK Wong had advanced a loan of HK$4,924, to Hop Fung. On 21 March 2016, by way of loan capitalisation, Hop Fung applied HK$4,920,000 owed to Mr. CK Wong toward the satisfaction of the issue and allotment of 4,920,000 new 195

202 RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS shares of Hop Fung at a subscription price of HK$1 per share to Super Pioneer (as directed by Mr. CK Wong). The remaining uncapitalised balance of HK$4, will be repaid by Hop Fung to Mr. CK Wong upon Listing. In view of the above, our Directors are of the view that our Group will be financially independent from the Controlling Shareholders after the Listing. (ii) Operational independence Our Group has established our own organisational structure comprising individual departments, each with specific areas of responsibilities. Our Group has not shared our operational resources, such as suppliers, customers, marketing, sales and general administration resources with the Controlling Shareholders and/or their close associates. For the financial year ended 31 March 2015 and up to 31 October 2015, we rented site equipment from Hop Fung Crane Company on normal commercial terms and in the ordinary course of our business. Hop Fung Crane Company is a partnership established in Hong Kong and was principally engaged in leasing of construction site equipment. Hop Fung Crane Company is owned by the spouse of Mr. CK Wong (our executive Director and one of our Controlling Shareholders) and an independent third party. For the two years ended 31 March 2015 and the eight months ended 30 November 2015, the total site equipment rental costs paid to Hop Fung Crane Company amounted to approximately HK$Nil, HK$772,000 and HK$633,000, respectively. Such rental arrangement with Hop Fung Crane Company has been completed and ceased. Our Directors confirm that, during the Track Record Period and up to the Latest Practicable Date, Hop Fung Crane Company did not conduct any business activities which competed or was likely to compete, directly or indirectly, with the business of our Group. Pursuant to an agreement entered into among Mr. CK Wong, Mr. WW Wong, Luen Hing and Hop Fung, Mr. CK Wong and Mr. WW Wong (as owners of the Property) granted a licence to use Workshop 17, 13th Floor, New Commerce Centre, 19 On Sum Street, Siu Lek Yuen, Shatin, New Territories, Hong Kong (the Property ) to Luen Hing and Hop Fung for office use during the Track Record Period and up to 31 October Although the consideration for such licence was nil, Luen Hing and Hop Fung were jointly required to pay the management fee and rates of the Property on behalf of Mr. CK Wong and Mr. WW Wong during the term of the licence. For the two years ended 31 March 2015 and the eight months ended 30 November 2015, the aggregate amount of management fee and rates paid by our Group for the Property amounted to approximately HK$15,000, HK$18,000 and HK$11,000, respectively. Our Directors confirm that the aforesaid licence arrangement in relation to the Property had been completed and ceased. On 9 September 2015, our Group entered into a tenancy agreement with an independent third party to lease a property located at Unit 5, 15th Floor, North Wing, Delta House, No. 3 On Yiu Street, Shatin, New Territories for a term of one year since 17 August 2015 with monthly rent of HK$16,167. Our Group started occupying such property the aforesaid premises since 1 November Our Directors are of the view that the additional monthly rent of HK$16,167 has no material impact on our profitability. 196

203 RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS Our Directors are of the view that our Group has no operational dependence on the Controlling Shareholders. (iii) Independence of management Our Company aims at establishing and maintaining a strong and independent Board to oversee our Group s business. Our Board s main function includes the approval of the overall business plans and strategies of our Group, monitoring the implementation of these policies and strategies and the management of our Company. Our Group has an independent management team, which is led by a team of senior management with substantial experience and expertise in our business, to implement our Group s policies and strategies. Our Board consists of seven Directors, comprising four executive Directors and three independent non-executive Directors. Mr. CK Wong and Mr. WW Wong are also the directors of Blooming Union. No other Directors or senior management serves any executive or management role in Blooming Union. Each of our Directors is aware of his or her fiduciary duties as a Director which require, among other things, that he or she acts for the benefit and in the best interests of our Company and does not allow any conflict between his or her duties as a Director and his or her personal interest to exist. In the event that there is a potential conflict of interest arising out of any transaction to be entered into between our Group and our Directors or their respective close associates, the interested Director(s) shall abstain from voting at the relevant meeting of our Board in respect of such transactions and shall not be counted in the quorum. In addition, the senior management team of our Group is independent from the Controlling Shareholders. Our Directors are of the view that the Board and senior management are capable of managing our Group s business independently from the Controlling Shareholders. (iv) Independence of major suppliers and major subcontractors Our Directors confirm that none of the Controlling Shareholders, our Directors and their respective close associates, have any relationship with the major suppliers and major subcontractors of our Group (other than the business contacts in the ordinary and usual course of business of our Group) during the Track Record Period. (v) Independence of major customers Our Directors confirm that none of the Controlling Shareholders, our Directors and their respective close associates, have any relationship with the major customers of our Group (other than the business contacts in the ordinary and usual course of business of our Group) during the Track Record Period. 197

204 RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS RULE OF THE GEM LISTING RULES The Controlling Shareholders, our Directors and their respective close associates do not have any interest in a business (apart from our Group s business) which competes or is likely to compete, directly or indirectly, with our Group s business, and would require disclosure pursuant to Rule of the GEM Listing Rules. NON-COMPETITION UNDERTAKINGS In order to maintain a clear delineation of the businesses between us and our Controlling Shareholders, our Controlling Shareholders (together the Covenantors ) have entered into the Deed of Non-Competition in favour of our Company (for itself and as trustee for each of our subsidiaries from time to time). Under the Deed of Non-Competition: (a) each of the Covenantors hereby jointly and severally, and irrevocably and unconditionally undertakes to our Company that each of the Covenantors shall not and shall procure (other than members of our Group) that neither the Covenantors nor their close associates and/or companies controlled by the Covenantors (other than members of our Group) will: (i) directly or indirectly be interested in or engaged in any form of business, including but not limited to joint venture, alliance, cooperation, partnership, which competes or is likely to compete directly or indirectly with our Group s business (being in the provision of civil engineering works as a subcontractor, including but not limited to, (i) roads and drainage works (including construction and improvement of local road, carriageway with junction improvement and the associated footpaths, planting areas, drains, sewers, water mains and utilities diversion); (ii) structural works (including construction of reinforced concrete structures for bridges and retaining walls); and (iii) site formation works (including excavation and/or filling works for forming a new site or achieving designed formation level for later development) (the Restricted Activity ) in territories in which any member of our Group carries on or is engaged or invests in the Restricted Activity from time to time (the Restricted Territories ), nor provide support in any form to persons other than members of our Group to engage in business that constitute or may constitute direct or indirect competition with the businesses that our Group is currently and from time to time carrying on unless the prior written consent of our Company has been obtained (based on an affirmative vote of a majority of the independent non-executive Directors, who do not have, and are not deemed to have, a material interest in the relevant matter); (ii) solicit or procure any of the suppliers, the subcontractors and/or the customers of our Group from time to time to terminate their business relationships or otherwise reduce the amount of business with our Group; and 198

205 RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS (iii) solicit or procure any of the Directors, senior management or other employees of our Group from time to time to resign or otherwise cease providing services to our Group; (b) (c) (d) each of the Covenantors undertakes to our Company that in the event the Covenantors or any of their close associates (other than members of our Group) are given any business opportunity that is or may involve direct or indirect competition with the businesses of our Group (the Business Opportunity ), the Covenantors shall refer the Business Opportunity on our Group and shall assist our Group to obtain such Business Opportunity in the terms no less favourable than those offered to any of the Covenantors or their close associates (the First Right of Refusal ). In addition, each of the Covenantors hereby jointly and severally, irrevocably and unconditionally, undertakes with our Company that none of the Covenantors and their respective close associates (other than member of our Group) will pursue the Restricted Activity and/or the Business Opportunity until our Company decides not to pursue the Restricted Business and/or the Business Opportunity because of commercial reasons and provides such decision in writing to the Covenantors. Any decision of our Company will have to be approved by the independent non-executive Directors taking into consideration our Group s prevailing business and financial resources, the financial resources required for the Business Opportunity and any expert opinion on the commercial viability of the Business Opportunity; each of the Covenantors undertakes to our Company that the Covenantors shall, during the term of the Deed of Non-Competition, indemnify and keep indemnified our Company and our Group against any loss suffered by our Company or our Group (as relevant) arising out of any breach of any of the Covenantors undertakings under the Deed of Non-Competition; each of the Covenantors acknowledges that: (i) the independent non-executive Directors will review, at least on an annual basis, the compliance with the Deed of Non-Competition by the Covenantors and the First Right of Refusal provided by the Covenantors on the Covenantors existing or future competing businesses; and (ii) our Company will disclose the decisions on matters reviewed by the independent non-executive Directors relating to the compliance and enforcement of the Deed of Non-Competition (e.g. the exercise of the First Right of Refusal) either through the annual report of our Company or by way of announcements published by our Company to the public; (e) each of the Covenantors further undertakes as follows: (i) the Covenantors shall, upon demand, promptly provide all information necessary for the annual review by the independent non-executive Directors and the enforcement of the Deed of Non-Competition; and 199

206 RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS (ii) the Covenantors shall make an annual declaration on compliance with the Deed of Non-Competition in the annual report of our Company and/or as required by the relevant requirements under the GEM Listing Rules; (f) (g) (h) the aforesaid undertakings are conditional upon our Shares being listed and quoted on GEM; each of the Covenantors represents and warrants that neither the Covenantors nor their close associates and/or companies controlled by the Covenantors (other than members of our Group) are currently directly or indirectly interested in or engaged in any business, apart from the business operated by members of our Group, which competes or is likely to compete, directly or indirectly, with our Group s business as at the date of the Deed of Non-Competition; the Covenantors obligations under the Deed of Non-Competition shall remain in effect until: (i) (ii) the date upon which our Shares cease to be listed on the Stock Exchange; or the date upon which the Covenantors and their close associates, individually or collectively, cease to own 30% or more of the then issued share capital of our Company directly or indirectly, or are otherwise ceased to be regarded as controlling shareholders under the GEM Listing Rules, whichever occurs first; and (i) The aforesaid undertakings do not apply to the following situations: (i) (ii) the holding by the Covenantors and their close associates of interests in shares or other securities that represents (or upon conversion will represent) not more than 5% voting rights in any company the shares of which are listed on a recognised stock exchange and which conducts or is engaged in any Restricted Activity; the holding by the Covenantors and their close associates of interests in shares or other securities that represents (or upon conversion will represent) not more than 5% voting rights in any non-listed company which conducts or is engaged in any Restricted Activity, provided that the Covenantors and/ or their close associates are not entitled to appoint a majority of the directors or management of that company; As confirmed by our Directors, as at the Latest Practicable Date, our Controlling Shareholders and their respective close associates and/or companies controlled by them do not have any interests in any form of business apart from the business operated by members of our Group that competes or is likely to compete, directly or indirectly with the business of our Group. 200

207 RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS CORPORATE GOVERNANCE MEASURES Each of the Controlling Shareholders has confirmed that he/it fully comprehends his/its obligations to act in the best interests of our Company and the Shareholders as a whole. To avoid potential conflicts of interest, our Group will implement the following measures: (a) (b) (c) (d) (e) the Covenantors will make an annual confirmation as to compliance with his/its undertaking under the Deed of Non-competition for inclusion in the annual report of our Company; our Board is committed to the view that our Board should include a balanced composition of executive and non-executive Directors (including independent non-executive Directors) so that there is a strong independent element on our Board which can effectively exercise independent judgment. Our Company has appointed three independent non-executive Directors. Our Directors believe that our independent non-executive Directors are of sufficient calibre, are free of any business or other relationship which could interfere in any material manner with the exercise of their independent judgment and will be able to provide impartial and professional advice to protect the interests of the minority Shareholders. Details of our independent non-executive Directors are set out in the section headed Directors and senior management in this prospectus; our Company has appointed TC Capital as our compliance adviser, which will provide advice and guidance to our Company in respect of compliance with the applicable laws and the GEM Listing Rules including various requirements relating to directors duties and internal controls. Please refer to the section headed Directors and senior management Compliance adviser in this prospectus for further details in relation to the appointment of compliance adviser; the Controlling Shareholders undertake to provide all information requested by our Group which is necessary for the annual review by the independent non-executive Directors and the enforcement of the Deed of Non-competition; and our independent non-executive Directors will, based on the information available to them, review on an annual basis (a) the compliance with the Deed of Non-competition; and (b) all the decisions taken in relation to whether to pursue the new opportunity under the Deed of Non-competition. 201

208 SUBSTANTIAL SHAREHOLDERS So far as our Directors are aware, immediately following completion of the Capitalisation Issue and the Placing (without taking into account any Shares which may be issued pursuant to the exercise of any options which may be granted under the Share Option Scheme), the following persons will have interests or short positions in our Shares or underlying Shares which would fall to be disclosed to us and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who will be directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of our Group: Long position in the Shares Name Capacity/Nature of interest Number of Shares held/ interested in immediately following completion of the Capitalisation Issue and the Placing Percentage of Shareholding immediately following completion of the Capitalisation Issue and the Placing Blooming Union Beneficial owner 936,000,000 75% Mr. CK Wong Mr. WW Wong Ms. Law Oi Ling Ms. Lai Siu Kuen Interest of a controlled 936,000,000 75% corporation (Note 1) Interest of a controlled 936,000,000 75% corporation (Note 2) Interest of spouse (Note 3) 936,000,000 75% Interest of spouse (Note 4) 936,000,000 75% Notes: 1. Mr. CK Wong beneficially owns 50% of the entire issued shares of Blooming Union. Therefore, Mr. CK Wong is deemed, or taken to be, interested in 936,000,000 Shares held by Blooming Union for the purpose of the SFO. 2. Mr. WW Wong beneficially owns 50% of the entire issued shares of Blooming Union. Therefore, Mr. WW Wong is deemed, or taken to be, interested in 936,000,000 Shares held by Blooming Union for the purpose of the SFO. 3. Ms. Law Oi Ling, the spouse of Mr. CK Wong, is deemed, or taken to be, interested in 936,000,000 shares in which Mr. CK Wong is interested for the purpose of the SFO. 4. Ms. Lai Siu Kuen, the spouse of Mr. WW Wong, is deemed, or taken to be, interested in 936,000,000 Shares in which Mr. WW Wong is interested for the purpose of the SFO. 202

209 SUBSTANTIAL SHAREHOLDERS Save as disclosed above, our Directors are not aware of any other persons who will, immediately following completion of the Capitalisation Issue and the Placing (without taking into account any Shares which may be issued pursuant to the exercise of any options which may be granted under the Share Option Scheme), have interests or short positions in the Shares or underlying Shares which would be required to be disclosed to our Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who will be directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of our Company or any of its subsidiaries. 203

210 SHARE CAPITAL SHARE CAPITAL Without taking into account any Shares to be issued upon exercise of any options which may be granted under the Share Option Scheme, the share capital of our Company immediately following the Capitalisation Issue and the Placing will be as follows: Authorised share capital HK$ 2,000,000,000 Shares 20,000,000 Issued and to be issued, fully paid or credited as fully paid upon completion of the Capitalisation Issue and the Placing: HK$ 10,000 Shares in issue at the date of this prospectus 100 1,039,990,000 Shares to be issued pursuant to the Capitalisation 10,399,900 Issue 208,000,000 Shares to be issued pursuant to the Placing 2,080,000 1,248,000,000 Total 12,480,000 MINIMUM PUBLIC FLOAT According to Rule 11.23(7) of the GEM Listing Rules, at the time of the Listing and at all times thereafter, our Company must maintain the minimum prescribed percentage of 25% of our Company s issued share capital in the hands of the public. The table is prepared on the basis of the Placing becoming unconditional and the Capitalisation Issue and the issue of the Placing Shares being completed. It takes no account of any Shares to be issued upon exercise of any options which may be granted under the Share Option Scheme or of any Shares which may be allotted and issued or repurchased by our Company under the general mandate as referred to below or otherwise. RANKING The Placing Shares will rank pari passu in all respects with all our Shares now in issue or to be issued as mentioned in this prospectus, and, in particular, will qualify in full for all dividends or other distributions declared, made or paid on our Shares in respect of a record date which falls after the date of Listing other than participation in the Capitalisation Issue. 204

211 SHARE CAPITAL CAPITALISATION ISSUE Pursuant to the resolutions of our sole Shareholder passed on 24 March 2016, subject to the share premium account of our Company being credited as a result of the Placing, our Directors are authorised to allot and issue a total of 1,039,990,000 Shares credited as fully paid at par to Blooming Union by way of capitalisation of the sum of HK$10,399,900 standing to the credit of the share premium account of our Company, and our Shares to be allotted and issued pursuant to this resolution shall rank pari passu in all respects with the existing issued Shares. GENERAL MANDATE TO ISSUE SHARES Subject to the Placing becoming unconditional, our Directors have been granted a general unconditional mandate to allot, issue and deal with the Shares or securities convertible into Shares or options, warrants or similar rights to subscribe for Shares or such securities convertible into Shares, and to make or grant offers, agreements or options which might require such Shares to be allotted and issued or dealt with subject to the requirement that the aggregate nominal value of the Shares so allotted and issued or agreed conditionally or unconditionally to be allotted and issued (otherwise than pursuant to a rights issue, or scrip dividend scheme or similar arrangements, or a specific authority granted by the Shareholders) shall not exceed: (a) (b) 20% of the aggregate nominal value of the share capital of our Company in issue immediately following the completion of the Capitalisation Issue and the Placing (not including Shares to be issued upon exercise of any options which may be granted under the Share Option Scheme); and the aggregate nominal value of the share capital of our Company repurchased by the Company (if any) pursuant to the general mandate to repurchase Shares referred to in the paragraph headed General mandate to repurchase Shares below. This mandate does not cover Shares to be allotted, issued, or dealt with under a rights issue or pursuant to the exercise of the options which may be granted under the Share Option Scheme. This general mandate to issue Shares will remain in effect until the earliest of: (a) (b) (c) the conclusion of the next annual general meeting of our Company; the expiration of the period within which the next annual general meeting of our Company is required by the Memorandum and the Articles or the Companies Law or any other applicable laws of the Cayman Islands to be held; or the time when such mandate is revoked or varied by an ordinary resolution of the Shareholders in general meeting. 205

212 SHARE CAPITAL For further details of this general mandate, please refer to the sub-paragraph headed 3. Written resolutions of our sole Shareholder passed on 24 March 2016 under the paragraph A. Further information about the Company in Appendix V to this prospectus. GENERAL MANDATE TO REPURCHASE SHARES Subject to the Placing becoming unconditional, our Directors have been granted a general unconditional mandate to exercise all the powers of our Company to repurchase Shares with an aggregate nominal value of not more than 10% of the aggregate nominal value of the share capital of our Company in issue following the completion of the Capitalisation Issue and the Placing (without taking into account any Shares to be issued upon exercise of any options which may be granted under the Share Option Scheme). This mandate only relates to repurchases made on GEM, or on any other stock exchange on which the securities of our Company may be listed and which is recognised by the SFC and the Stock Exchange for this purpose, and such repurchases are made in accordance with all applicable laws and the requirements of the GEM Listing Rules. A summary of the relevant GEM Listing Rules is set out in the paragraph headed A. Further information about the Company 6. Repurchase of shares by our Company in Appendix V to this prospectus. The general mandates to issue and repurchase Shares will remain in effect until the earliest of: (a) (b) (c) the conclusion of the next annual general meeting of our Company; the expiration of the period within which the next annual general meeting of our Company is required by the Memorandum and the Articles or the Companies Law or any other applicable law of the Cayman Islands to be held; or the time when such mandate is revoked or varied by an ordinary resolution of the Shareholders in general meeting, For further details of this general mandate, please refer to the paragraph headed A. Further information about the Company 6. Repurchase of shares by our Company in Appendix V to this prospectus. SHARE OPTION SCHEME Our Company has conditionally adopted the Share Option Scheme. Details of the principal terms of the Share Option Scheme are summarised in the paragraph headed D. Share Option Scheme in Appendix V to this prospectus. Our Group did not have any outstanding share options, warrants, convertible instruments, or similar rights convertible into the Shares as at the Latest Practicable Date. 206

213 SHARE CAPITAL CIRCUMSTANCES UNDER WHICH GENERAL MEETING AND CLASS MEETING ARE REQUIRED As a matter of the Companies Law, an exempted company is not required by law to hold any general meetings or class meetings. The holding of general meeting or class meeting is prescribed for under the articles of association of a company. Accordingly, our Company will hold general meetings as prescribed for under the Articles, a summary of which is set out in Summary of the constitution of our Company and Cayman Islands Company Law set out in Appendix IV to this prospectus. 207

214 FINANCIAL INFORMATION You should read this section in conjunction with our audited combined financial information, including the notes thereto, as set out in the Accountants Report in Appendix I to this prospectus. Our combined financial information have been prepared in accordance with the Hong Kong Financial Reporting Standards (including Hong Kong Accounting Standards, amendments and interpretations) issued by the Hong Kong Institute of Certified Public Accountants ( HKFRSs ). You should read the entire Accountants Report and not merely rely on the information contained in this section. The following discussion and analysis contains certain forward-looking statements that reflect the current views with respect to future events and financial performance. These statements are based on assumptions and analyses made by us in light of our experience and perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate under the circumstances. However, whether actual outcomes and developments will meet our expectations and projections depends on a number of risks and uncertainties over which we do not have control. For further information, please refer to the sections headed Risk factors and Forward-looking statements in this prospectus. OVERVIEW We are principally engaged in the provision of civil engineering works in Hong Kong During the Track Record Period, the civil engineering works provided by our Group mainly included (i) roads and drainage works (including construction and improvement of local road, carriageway with junction improvement and the associated footpaths, planting areas, drains, sewers, water mains and utilities diversion); (ii) structural works (including construction of reinforced concrete structures for bridges and retaining walls); and (iii) site formation works (including excavation and/or filling works for forming a new site or achieving designed formation level for later development). We primarily undertook construction projects in the public sector in Hong Kong and were generally engaged as a subcontractor. During the Track Record Period, our revenue was approximately HK$159,963,000, HK$271,949,000 and HK$154,641,000 for each of the two years ended 31 March 2015 and the eight months ended 30 November 2015, respectively. BASIS OF PRESENTATION The combined financial information incorporates the financial information of our Company and all our subsidiaries during the Track Record Period. The financial statements of our subsidiaries are prepared for the same reporting period as our Company, using consistent accounting policies. Subsidiaries are entities controlled by our Group. Our Group controls an entity when our Group is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. When assessing whether our Group has power over the entity, only substantive rights relating to the entity (held by our Group and others) are considered. 208

215 FINANCIAL INFORMATION Our Group includes the income and expenses of a subsidiary in the combined financial statements from the date we gain control until the date when our Group ceases to control the subsidiary. Intra-group transactions, balances and unrealised gains and losses on transactions between group companies are eliminated in preparing the combined financial statements. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by our Group. Changes in our Group s interests in subsidiaries that do not result in a loss of control are accounted for as equity transactions, whereby adjustments are made to the amounts of controlling interests within combined equity to reflect the change in relative interests, but no adjustments are made to goodwill and no gain or loss is recognised. When our Group loses control of a subsidiary, the profit or loss on disposal is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest; and (ii) the previous carrying amount of the assets (including goodwill) and liabilities of the subsidiary and any non-controlling interests. Where certain assets of the subsidiary are measured at revalued amounts or fair values and the related cumulative gain or loss has been recognised in other comprehensive income and accumulated in equity, the amounts previously recognised in other comprehensive income and accumulated in equity are accounted for as if our Company had directly disposed of the related assets (i.e., reclassified to profit or loss or transferred directly to retained earnings). The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under HKAS 39 Financial Instruments: Recognition and Measurement or, when applicable, the cost on initial recognition of an investment in an associate or a joint venture. FACTORS AFFECTING OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION Our results of operations and financial condition have been and will continue to be affected by a number of factors, many of which may be beyond our control, including those factors set out in the section headed Risk factors of this prospectus and those set out below. Market demand for construction activities We derive our revenue mainly from civil engineering works, whose demand relates to the number of infrastructure projects, which may vary according to a combination of factors including the amount of Government spending, investment prospects of Hong Kong, the demand of infrastructure, supply of land, population growth, etc. Our revenue was affected by the number and size of civil engineering projects we undertook during the Track Record Period. The construction industry in Hong Kong has been benefited from the Government s efforts to supply land for residential buildings and the ongoing Ten Major Infrastructure Projects and other large scale infrastructure projects. 209

216 FINANCIAL INFORMATION The increase or decrease in the demand for construction activities would therefore affect the demand of our services. There is no assurance that the number of construction projects will not decrease in the future and any reduction in the number of construction projects in Hong Kong would adversely and materially affect our business in general and our results of operation. Cost control and management Costs of construction materials and supplies, staff costs, subcontracting charges and site equipment rental are the main components of our costs of sales. During the Track Record Period, these four components of cost in aggregate amounted to approximately HK$137,620,000, HK$233,075,000 and HK$131,586,000 representing approximately 94.9%, 94.6% and 95.8% of our costs of sales for each of the two years ended 31 March 2015 and the eight months ended 30 November 2015, respectively. Although we determine our project prices based on a cost-plus method with reference to the time and costs estimated to be involved in a project, the actual time and costs involved in completing our civil engineering projects may be adversely affected by a number of uncontrollable or unforeseen factors, including shortage and cost escalation in materials and labour, unexpected difficult geological conditions, adverse weather conditions and changes in rules, regulations and policies set out by the Government. Most of our construction contracts are remeasurement contracts which contain, among other things, bills of quantities or schedule of rates that are based on the agreed unit rates and the estimated quantities of each item to be consumed in the project. We will be paid based on actual quantities of works done by us in the project, which normally will be measured by our customer upon completion of the project. The price of each construction contract is determined with reference to our bids and substantially agreed to at the time a project is awarded. In order to determine the bids, we need to estimate the time and costs involved in a project. However, we may fail to accurately estimate completion costs. The actual amount of total costs incurred in completing a project may be adversely affected by many factors, such as adverse weather conditions, accidents, unforeseen site conditions and fluctuations in the price of raw materials. If the costs for a project exceed the contracted price in the relevant contract, we may achieve lower-than-expected profits or even incur losses, which could materially and adversely affect our financial performance and results of operations. Collectability and timing of collection of our trade debtors and retention monies receivables We normally receive progress payments from our customers on a monthly basis with reference to the value of works done, and a portion of such payment, ranging from 1% to 10% and subject to a ceiling, is usually withheld by our customers as retention money and half of which will be remitted to us after completion of the construction project works and the remaining half of which will be remitted to us after the defects liability period. Accordingly, there can be no assurance that the retention money or any future retention money will be remitted by our customers to us on a timely basis and in full. Any late payment, whether arising from payment practice of our customers or delay in completion of the construction project, may adversely affect our future liquidity position. 210

217 FINANCIAL INFORMATION CRITICAL ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS Our combined financial information has been prepared in accordance with HKFRSs. We have identified certain accounting policies that are critical to the preparation of our financial information. These accounting policies are important for an understanding of our results of operations and financial position and are set forth in Note 2 of Section II of the Accountants Report in Appendix I to this prospectus. In addition, the preparation of the financial information requires our management to make significant and subjective estimates, assumptions and judgments that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the end of each of the two years ended 31 March 2014 and 2015 and the eight months ended 30 November However, uncertainties about these assumptions, estimates and judgments could result in outcomes that require a material adjustment to the carrying amounts of the assets and liabilities affect in the future. These key assumptions and estimates are set forth in Note 3 of Section II of the Accountants Report in Appendix I to this prospectus. We believe the following critical accounting policies and accounting estimates involve the most significant or subjective judgments and estimates used in the preparation of the financial information. Accounting policies Revenue recognition Please refer to Note 2.14 of Section II of the Accountants Report in Appendix I to this prospectus. Construction contracts Please refer to Note 2.7 of Section II of the Accountants Report in Appendix I to this prospectus. Property, plant and equipment Please refer to Note 2.5 of Section II of the Accountants Report in Appendix I to this prospectus. Accounting estimates Construction contracts Please refer to Note 3.1 of Section II of the Accountants Report in Appendix I to this prospectus. 211

218 FINANCIAL INFORMATION RESULTS OF OPERATIONS OF OUR GROUP The following table sets out the combined results of our Group for each of the two years ended 31 March 2014 and 2015 and the eight months ended 30 November 2014 and 2015, which are derived from, and should be read in conjunction with, the combined financial information set out in the Accountants Report in Appendix I to this prospectus: Eight months ended Year ended 31 March 30 November HK$ 000 HK$ 000 HK$ 000 HK$ 000 (unaudited) Revenue 159, , , ,641 Costs of sales (144,943) (246,349) (170,904) (137,355) Gross profit 15,020 25,600 15,421 17,286 Other income ,236 Administrative and other operating expenses (3,607) (3,772) (1,493) (10,122) Profit from operations 11,838 22,174 14,275 9,400 Finance costs (452) (471) (291) (338) Profit before income tax 11,386 21,703 13,984 9,062 Income tax expense (1,956) (3,624) (2,337) (2,670) Profit and total comprehensive income for the year/period attributable to equity holders of the Company 9,430 18,079 11,647 6,

219 FINANCIAL INFORMATION DESCRIPTION OF SELECTED COMPONENTS OF OUR INCOME STATEMENT Revenue Our revenue was principally generated from the provision of civil engineering works. During the Track Record Period, we were involved in a total of 48 contracts, of which 29 contracts were completed and 19 contracts were still ongoing as at 30 November The following table sets out our revenue during the Track Record Period and the percentage of completion by reference to the stage of completion of the contract, which is established according to the progress certificates (by reference to the amount of completed works confirmed by customers) issued by the customers, as at 30 November 2015: Civil engineering project involved Contract Principal works No. Customer (Note) done by us Revenue for the year ended 31 March Revenue for the eight months ended 30 November 2015 Accumulated revenue recognised during the Track Record Period Percentage of completion as at 30 November (HK$ 000) (HK$ 000) (HK$ 000) (HK$ 000) % (a) Reconstruction and improvement of Tuen Mun Road Sam Shing Hui section 1. China Harbour Extension of concrete structure and miscellaneous works 2. China Harbour Concrete structure and miscellaneous works 3. China Harbour Construction of concrete footing for noise barrier foundation 967 1,228 2, ,149 3, ,700 5, China Harbour Construction of retaining 5,120 1,152 6, walls 5. China Harbour Widening of bridge 13,153 13,

220 FINANCIAL INFORMATION Civil engineering project involved (b) Road improvements in Tuen Mun Road Town Centre section Contract Principal works No. Customer (Note) done by us 6. China Harbour Roads and drainage works for traffic control surveillance system; and installation and construction of portal beams for land viaduct 7. China Harbour Supply and installation of fire fighting system 8. China Harbour Roads and drainage works 9. China Harbour Construction of vehicular bridge (excluding the pile caps and abutment) 10. China Harbour Roads and drainage works 11. China Harbour Reconstruction of carriageway 12. China Harbour Landscaping and site formation for slope works 13. China Harbour Diversion of sewerage pipe Revenue for the year ended 31 March Revenue for the eight months ended 30 November 2015 Accumulated revenue recognised during the Track Record Period Percentage of completion as at 30 November (HK$ 000) (HK$ 000) (HK$ 000) (HK$ 000) % 60, ,183 7, , ,017 14,258 17, ,733 13, , , ,975 4,147 10, ,721 1,

221 FINANCIAL INFORMATION Civil engineering project involved (c) Hong Kong-Zhuhai-Macao Bridge Project (d) Provision of barrier-free access facilities for highway structures (e) Development at Anderson Road Contract Principal works No. Customer (Note) done by us Revenue for the year ended 31 March Revenue for the eight months ended 30 November 2015 Accumulated revenue recognised during the Track Record Period Percentage of completion as at 30 November (HK$ 000) (HK$ 000) (HK$ 000) (HK$ 000) % 14. Dragages China Harbour VSL J.V. 15. Dragages China Harbour VSL J.V. Construction of portal beams for land viaduct Construction of portal beam 16. China Harbour Demolition works and construction of reinforced concrete structures 17. China State Construction 18. China State Construction 19. China State Construction 20. China State Construction 5,431 56,980 25,124 87, ,702 4,012 8, ,744 4,328 6, Construction of bridges 10,098 4, , Earthworks and drainage works Site formation works for slope formation Construction of transit barrier, planter box, concrete slab and associated works 10,501 13,545 24, ,422 5, ,255 2,

222 FINANCIAL INFORMATION Civil engineering project involved (f) Widening of Fanling Highway (g) Improvement works in Fanling Highway (h) Liantang/Heung Yuen Wai Boundary Control Point site formation and infrastructure works Contract Principal works No. Customer (Note) done by us 21. China State Construction 22. China State Construction 23. China State Construction 24. China State Construction 25. Chun Wo Construction Road and drainage and construction of retaining wall Construction of vehicular bridge Earthworks and sheet piling works Earthworks and construction of concrete footing for erection of noise barriers Excavation and construction of box culvert 26. Chun Wo Construction Construction of reinforced concrete structure of bridge (including decking) Revenue for the year ended 31 March Revenue for the eight months ended 30 November 2015 Accumulated revenue recognised during the Track Record Period Percentage of completion as at 30 November (HK$ 000) (HK$ 000) (HK$ 000) (HK$ 000) % ,086 10,656 30, ,470 24, ,114 1, ,285 2,880 15, ,085 16,367 21,

223 FINANCIAL INFORMATION Civil engineering project involved (i) Infrastructure works at Town Centre South and Tiu Keng Leng, Tseung Kwan O Contract Principal works No. Customer (Note) done by us Revenue for the year ended 31 March Revenue for the eight months ended 30 November 2015 Accumulated revenue recognised during the Track Record Period Percentage of completion as at 30 November (HK$ 000) (HK$ 000) (HK$ 000) (HK$ 000) % 27. Chun Wo Construction 28. Chun Wo Construction 29. Chun Wo Construction 30. Chun Wo Construction 31. Chun Wo Construction 32. Chun Wo Construction Drainage works Construction of water mains Earthworks and road works Earthworks and road works Roads and drainage works Construction of reinforced concrete structures works ,788 2, ,193 1, ,829 1,

224 FINANCIAL INFORMATION Civil engineering project involved (j) Wan Chai Development Phase II Central Wan Chai Bypass at Wan Chai West (k) Roads and drainage works adjacent to railway line Contract Principal works No. Customer (Note) done by us 33. Leighton China State Van Oord Joint Venture 34. China State Leader Joint Venture 35. China State Leader Joint Venture 36. China State Leader Joint Venture 37. China State Leader Joint Venture Roads and drainage works Construction of temporary traffic arrangement Construction of box culvert Installation of temporary structures including sheet piling, shoring, ground treatment, concrete block placing, access deck and subsequent removal for the construction of box culvert Modification of road junction 38. Customer D Construction of underground drainage, manholes, conduits, cable trenches, paving, kerbs and surface drains Revenue for the year ended 31 March Revenue for the eight months ended 30 November 2015 Accumulated revenue recognised during the Track Record Period Percentage of completion as at 30 November (HK$ 000) (HK$ 000) (HK$ 000) (HK$ 000) % 8, , ,701 2, ,013 1,722 3, ,688 1,352 11,

225 FINANCIAL INFORMATION Civil engineering project involved Contract Principal works No. Customer (Note) done by us Revenue for the year ended 31 March Revenue for the eight months ended 30 November 2015 Accumulated revenue recognised during the Track Record Period Percentage of completion as at 30 November (HK$ 000) (HK$ 000) (HK$ 000) (HK$ 000) % (l) Roads and drainage works adjacent to railway line (m) Roads and drainage works adjacent to railway lines (n) Development at Hong Kong Boundary Crossing Facilities (o) Hong Kong Zhuhai Macao Bridge project 39. Customer H Underground drainage works Customer H External drainage work 375 1, , Customer H External drainage works 2,180 1,228 3, Customer H Roadworks 1,403 1, Customer H Roadworks 1,860 1, Customer D Drainage work 9,661 14,360 24, Customer D Drainage work China Harbour Construction of reinforced concrete structure for pier 47. China Harbour Construction of bridge decks 48. China Harbour Construction of boundary crossing facilities, vehicle plazas and ancillary buildings and facilities 1,446 1, ,286 4, ,005 16, , , , ,553 Note: The above customers are our major customers during the Track Record Period. Details of our five largest customers are set out in the section headed Business Customers Major customers in this prospectus. 219

226 FINANCIAL INFORMATION The following table sets out our revenue for our public and private sector projects during the Track Record Period: Year ended 31 March Eight months ended 30 November HK$ 000 % HK$ 000 % HK$ 000 % HK$ 000 % Public sector projects 149, , , , Private sector projects 10, , , , , , , , During the Track Record Period, the majority of our revenue was derived from public sector projects. Costs of sales Our Group s costs of sales consist primarily of construction materials and supplies, direct staff costs, subcontracting charges and an appropriate portion of variable and fixed construction overheads, which included depreciation and miscellaneous direct costs. The following table sets out the breakdown of our Group s costs of sales during the Track Record Period: Eight months ended Year ended 31 March 30 November HK$ 000 HK$ 000 HK$ 000 HK$ 000 (unaudited) Construction materials and supplies 51,678 79,074 59,693 49,083 Staff costs 37,004 60,219 42,090 27,576 Subcontracting charges 31,617 59,971 37,866 35,512 Rental of site equipment 17,321 33,811 21,904 19,415 Repair and maintenance 909 1,746 1, Depreciation 2,923 2,560 1,561 1,641 Parts and consumables 898 1,710 1,182 1,051 Professional fees Others 2,515 7,099 5,210 2, , , , ,355 Construction materials and supplies Construction materials and supplies mainly represent the expenses for the purchase of concrete, steel reinforcement bars, structural steel and diesel fuel and these costs are directly charged to our construction project works. For each of the two years ended 31 March

227 FINANCIAL INFORMATION and the eight months ended 30 November 2015, construction materials and supplies expenses amounted to approximately HK$51,678,000, HK$79,074,000 and HK$49,083,000, representing approximately 35.7%, 32.1% and 35.7% of our total costs of sales, respectively. Staff costs Staff costs represent the labour costs for the provision of our construction project works. For each of the two years ended 31 March 2015 and the eight months ended 30 November 2015, staff costs amounted to approximately HK$37,004,000, HK$60,219,000 and HK$27,576,000, representing approximately 25.5%, 24.4% and 20.1% of our total costs of sales, respectively. Subcontracting charges Subcontracting charges represent charges and fees paid to our subcontractors which mainly provide labour and services necessary for the completion of the civil engineering works undertaken by us. For each of the two years ended 31 March 2015 and the eight months ended 30 November 2015, subcontracting charges amounted to approximately HK$31,617,000, HK$59,971,000 and HK$35,512,000, representing approximately 21.8%, 24.3% and 25.9% of our total costs of sales, respectively. Rental of site equipment Rental of site equipment represents the expenses for the rental of site equipment and motor vehicles for carrying out the civil engineering works undertaken by us. For each of the two years ended 31 March 2015 and the eight months ended 30 November 2015, rental of site equipment expenses amounted to approximately HK$17,321,000, HK$33,811,000 and HK$19,415,000, representing approximately 12.0%, 13.7% and 14.1% of our total costs of sales, respectively. Other costs of sales expenses Other costs of sales expenses include less significant and/or miscellaneous direct costs for carrying out the civil engineering works undertaken by us, which mainly include entertainment expenses, depreciation of our site equipment and motor vehicles, repair and maintenance of our site equipment, parts and consumables purchased for replacement of wearable parts of our site equipment and professional fees for the testing of construction material and supplies. Sensitivity analyses The following sensitivity analyses illustrates the impact of hypothetical changes, based on historical fluctuations in construction materials and supplies, staff costs and subcontracting charges under costs of sales during the Track Record Period: 221

228 FINANCIAL INFORMATION Costs of construction materials and supplies Percentage change in price of construction materials and supplies Corresponding change in costs of sales for the eight months ended for the year ended 31 March 30 November HK$ 000 HK$ 000 HK$ % 5,168 7,907 4,908 +5% 2,584 3,954 2,454 +2% 1,034 1, % (1,034) (1,581) (982) -5% (2,584) (3,954) (2,454) -10% (5,168) (7,907) (4,908) Staff costs Percentage change in staff costs Corresponding change in costs of sales for the eight months ended for the year ended 31 March 30 November HK$ 000 HK$ 000 HK$ % 3,700 6,022 2,758 +5% 1,850 3,011 1,379 +2% 740 1, % (740) (1,204) (552) -5% (1,850) (3,011) (1,379) -10% (3,700) (6,022) (2,758) Subcontracting charges Percentage change in subcontracting charges Corresponding change in costs of sales for the eight months ended for the year ended 31 March 30 November HK$ 000 HK$ 000 HK$ % 3,162 5,997 3,551 +5% 1,581 2,999 1,776 +2% 632 1, % (632) (1,199) (710) -5% (1,581) (2,999) (1,776) -10% (3,162) (5,997) (3,551) 222

229 FINANCIAL INFORMATION Gross profit margin The following table sets out our gross profit and gross profit margin during the Track Record Period: Eight months ended Year ended 31 March 30 November Gross profit (HK$ 000) 15,020 25,600 15,421 17,286 Gross profit margin 9.4% 9.4% 8.3% 11.2% During the Track Record Period, our gross profit margin varied substantially from project to project and is mainly attributable to our pricing, which is determined based on a cost-plus pricing model in general with mark-up determined on a project-by-project basis and such mark-up is determined based on the following factors: Contract value of the project We would normally set a tender price based on a relatively lower mark-up for projects with a larger contract value due to the larger absolute amounts of revenue and gross profit (being the contract sum less the expected costs of sales) expected to be derived from a project with a larger contract value. Nature and complexity of civil engineering works When preparing our tender price, we consider, among other factors, (i) the amount of project management; (ii) the level of difficulty; (iii) the amount of uncertainties; (iv) the types and amount of works to be performed using different techniques; (v) the types and amount of resources such as labour skills, construction materials and supplies and site equipment; and (vi) the quality, safety and environmental standards. We would also take into account the likelihood of any material deviation of actual costs from our estimated costs having regard to the estimated subcontracting charges, staff costs, construction materials and supplies costs, rental of site equipment costs and other costs of sales. Competition The level of competition for each construction project is subject to factors beyond our control, including, among others, the number of contractors invited to bid for the construction project, our competitors capacity and the nature and complexity of the works involved. If the level of competition of a particular construction project is low or if our competitors tender prices are relatively high, which is due to their own commercial decisions, we may be able awarded the construction project even if our tender price is not particularly competitive. 223

230 FINANCIAL INFORMATION Cost control While we may obtain preliminary quotations from our subcontractors when preparing our tender prices, the final agreed prices with our subcontractors are subject to further negotiations after we are successfully awarded with a tender and after we obtain more specific information regarding the works and the site conditions. Such further negotiations with our subcontractors may result in higher or lower gross profit margins. We enter into contra charge arrangements with some of our customers for, among others, the purchase of construction materials and supplies and site equipment rental and hence any increase in these costs are borne by our customers. The prices of construction materials and supplies and site equipment rental and other costs of sales that are not covered by contra charge arrangements are determined by reference to quotations of suppliers as agreed by us and our suppliers on an order-by-order basis. While we price in the estimated future price trend of these costs of sales when preparing our tender proposals, material deviation of the actual costs from our estimated costs may arise, which would result in higher or lower gross profit margins. Due to, among others, the factors stated above, our gross profit margin varied substantially from project to project during the Track Record Period. The following table sets out our gross profit and gross profit margins for our public and private sector projects during the Track Record Period: Year ended 31 March Eight months ended 30 November % % % % Gross profit (HK$ 000) Public sector projects 12, , , , Private sector projects 2, , , , Overall gross profit 15, , , , Gross profit margin Public sector projects 8.6% 9.0% 7.8% 11.6% Private sector projects 21.1% 15.4% 22.6% 8.2% Overall gross profit margin 9.4% 9.4% 8.3% 11.2% As discussed above, we would normally set a tender price based on a relatively lower gross profit margin for projects with a larger contract value due to the larger absolute amounts of revenue and gross profit (being the contract sum less the expected costs of sales) expected to be derived from a project with a larger contract value. As the contract values of our public sector projects were generally larger than the contract values of our private sector projects. During the two years ended 31 March 2015 we recorded lower gross profit margins for our public sector projects than for our private sector projects. Gross profit margin for our public sector projects increased during the eight months ended 30 November 2015 mainly due to a variation order received for the Reconstruction and improvement of Tuen Mun Road Sam Shing Hui section project, which generated a gross profit margin of 224

231 FINANCIAL INFORMATION approximately 27.5%. Gross profit margin for our private sector projects decreased during the Track Record Period. This is mainly attributable to the commencement of a project with a larger contract value during the year ended 31 March The increase in overall gross profit margin during the eight months ended 30 November 2015 is mainly attributable to the higher gross profit margin generated by the variation order under the public sector project. During the Track Record Period, we recorded gross loss in one project of approximately HK$464,000, which was mainly due to the additional manpower and time required to complete the earthworks as a result of unexpected difficult geological conditions. The loss-making project was completed in March 2014 and the Directors expect that all of the costs for the project have been incurred and recognised by the Group before and during the Track Record Period and there would not be any further losses to be recognised for the project subsequent to the Track Record Period. Other income Our other income consist primarily of gain on disposal of investment property, rental income and gain on disposal of property, plant and equipment. Administrative and other operating expenses Our administrative and other operating expenses consist primarily of staff costs and directors remuneration, depreciation, rental fees, building management fees and rates, Listing expenses and other administrative expenses. The following table sets out our administrative expenses by nature during the Track Record Period: Eight months ended Year ended 31 March 30 November HK$ 000 HK$ 000 HK$ 000 HK$ 000 (unaudited) Staff costs, including directors emoluments 2,072 1, Depreciation Rental fees, building management fees and rates Utility expenses Entertainment Audit fee Professional fees Listing expenses 7,883 Others ,607 3,772 1,493 10,

232 FINANCIAL INFORMATION Income tax Income tax expenses primarily consist of deferred tax and provision for current income tax expenses incurred in Hong Kong. During the Track Record Period, all of our Group s revenue was derived in Hong Kong and our Group was subject to profits tax in Hong Kong. During each of the two years ended 31 March 2014 and 2015 and the eight months ended 30 November 2015, the effective tax rate of our Group was approximately 17.2%, 16.7% and 29.5%, respectively. Our Company and its subsidiaries are incorporated in different jurisdictions, with different taxation requirements illustrated below: The Cayman Islands and the BVI Pursuant to the applicable laws, rules and regulations of the Cayman Islands and the BVI, our Group is not subject to any profits tax in the Cayman Islands and the BVI. Hong Kong All of our Company s Hong Kong incorporated subsidiaries were subject to Hong Kong profits tax at a rate of 16.5% during the Track Record Period. Our Directors confirm that they were not aware of any disputes/unresolved tax issues with any tax authorities as at the Latest Practicable Date. PERIOD TO PERIOD COMPARISON OF RESULTS OF OPERATIONS Eight months ended 30 November 2015 compared with eight months ended 30 November 2014 Revenue Our Group s revenue decreased by approximately HK$31,684,000, or 17.0%, from approximately HK$186,325,000 for the eight months ended 30 November 2014 to HK$154,641,000 for the eight months ended 30 November Such decrease is mainly attributable to the completion of 16 projects with an aggregate contract sum of approximately HK$137,700,000 during the year ended 31 March 2015, while a major project with contract sum of approximately HK$455,319,000 was awarded in late August, which had only commenced in September Costs of sales Our Group s costs of sales decreased by approximately HK$34,549,000, or 19.6%, from approximately HK$170,904,000 for the eight months ended 30 November 2014 to HK$137,355,000 for the eight months ended 30 November Staff costs decreased by approximately 34.5% and subcontracting charges decreased by a smaller percentage of approximately 6.2% due to the commercial decision to subcontract more of our project works to our subcontractors during the eight months ended 30 November

233 FINANCIAL INFORMATION Gross profit and gross profit margin Our Group s gross profit increased by approximately HK$1,865,000, or 12.1%, from approximately HK$15,421,000 for the eight months ended 30 November 2014 to approximately HK$17,286,000 for the eight months ended 30 November Gross profit margin increased from 8.3% for the eight months ended 30 November 2014 to 11.2% for the eight months ended 30 November 2015 mainly due to a variation order received for the Reconstruction and improvement of Tuen Mun Road Sam Shing Hui section project, which generated a gross profit margin of approximately 27.5%. Our Directors consider that our resulting gross profit margin is a combination of our pricing of each project, competition for the project and cost control. Our gross profit margin was determined on a project-by-project basis and is generally (i) lower for projects with a larger contract value as we set our tender prices based on lower expected profit margins due to the larger absolute amounts of revenue and gross profit expected to be derived from a project with a larger contract value; and (ii) higher for projects which require more project management, greater level of techniques in construction works and/or a higher standard of quality and safety. Other income Our Group s other income increased by approximately HK$1,889,000, from approximately HK$347,000 for the eight months ended 30 November 2014 to approximately HK$2,236,000 for the eight months ended 30 November Other income increased mainly due to an increase of gain on disposal of investment property of approximately HK$1,792,000 during the eight months ended 30 November 2015, which mainly arose from the gain on disposal of an investment property located at Festival City, Tai Wai. Administrative and other operating expenses Our Group s administrative and other operating expenses increased by approximately HK$8,629,000 from approximately HK$1,493,000 for the eight months ended 30 November 2014 to approximately HK$10,122,000 for the eight months ended 30 November Such increase is mainly attributable to the Listing expenses of approximately HK$7,883,000 for the eight months ended 30 November 2015 and the increase in staff costs mainly due to the addition of administrative staff. Finance costs Our Group s finance costs increased by approximately HK$47,000, or 16.2%, from approximately HK$291,000 for the eight months ended 30 November 2014 to approximately HK$338,000 for the eight months ended 30 November The increase is mainly attributable to a drawdown of a bank loan in the principal amount of HK$4,000,000 in March 2015 for the acquisition of site equipment and general working capital to facilitate our business operations. 227

234 FINANCIAL INFORMATION Income tax expense During each of the eight months ended 30 November 2014 and 2015, the effective tax rate of our Group was approximately 16.7% and 29.5%, respectively. The effective tax rate of our Group for the eight months ended 30 November 2015 was higher than the statutory tax rate of 16.5% because Listing expenses were non-deductible. Profit for the period and net profit margin As a result of the foregoing, our Group s profit for the period decreased by approximately HK$5,255,000, or 45.1%, from approximately HK$11,647,000 for the eight months ended 30 November 2014 to approximately HK$6,392,000 for the eight months ended 30 November Our net profit margin decreased from 6.3% for the eight months ended 30 November 2014 to 4.1% for the eight months ended 30 November The decrease in net profit margin is mainly attributable to the increase in administrative and other operating expenses due to the Listing expenses of approximately HK$7,883,000, partially offset by a higher gross profit margin for the eight months ended 30 November Year ended 31 March 2015 compared with year ended 31 March 2014 Revenue Our Group s revenue increased by approximately HK$111,986,000, or 70.0%, from approximately HK$159,963,000 for the year ended 31 March 2014 to HK$271,949,000 for the year ended 31 March Such increase is mainly attributable to the increase in construction works to speed up the progress of two projects with an aggregate contract sum of approximately HK$195,541,000 to meet completion deadlines during the year ended 31 March Costs of sales Our Group s costs of sales increased by approximately HK$101,406,000, or 70.0%, from approximately HK$144,943,000 for the year ended 31 March 2014 to HK$246,349,000 for the year ended 31 March While costs of sales increased in line with our revenue as a result of the increase in construction activities, subcontracting charges increased by approximately 89.7% whereas staff costs increased by approximately 62.7% for the year ended 31 March 2015 compared with the year ended 31 March For the year ended 31 March 2015, our Directors considered that it was more appropriate to subcontract more construction works to subcontractors having considered our capacity, resources level, types of construction works, cost effectiveness and complexity of our projects. Gross profit and gross profit margin Our Group s gross profit increased by approximately HK$10,580,000, or 70.4%, from approximately HK$15,020,000 for the year ended 31 March 2014 to approximately HK$25,600,000 for the year ended 31 March Gross profit increased in line with our revenue. Gross profit margin was stable at approximately 9.4% for each of the years ended 31 March 2014 and

235 FINANCIAL INFORMATION Other income Our Group s other income decreased by approximately HK$79,000, or 18.6%, from approximately HK$425,000 for the year ended 31 March 2014 to approximately HK$346,000 for the year ended 31 March Other income decreased due to a gain on disposal of property, plant and equipment of approximately HK$120,000 during the year ended 31 March Administrative and other operating expenses Our Group s administrative and other operating expenses increased by approximately HK$165,000, or 4.6%, from approximately HK$3,607,000 for the year ended 31 March 2014 to approximately HK$3,772,000 for the year ended 31 March Our staff costs, representing the largest item within our administrative and other operating expenses, had decreased by approximately HK$149,000, from approximately HK$2,072,000 for the year ended 31 March 2014 to approximately HK$1,923,000 for the year ended 31 March 2015 mainly due to a decrease in bonus paid to Directors by approximately HK$200,000. Depreciation decreased slightly due to the disposal and the writing off of fixed assets during the year ended 31 March Other expenses increased by approximately HK$379,000, from approximately HK$303,000 for the year ended 31 March 2014 to approximately HK$682,000 for the year ended 31 March 2015 mainly due to a loss recognised on disposal of property plant and equipment of approximately HK$306,000. The remaining items in our administrative and other operating expenses were at similar levels or had increased/ decreased slightly in terms of dollar amounts. Finance costs Our Group s finance costs increased by approximately HK$19,000, or 4.2%, from approximately HK$452,000 for the year ended 31 March 2014 to approximately HK$471,000 for the year ended 31 March The increase is mainly attributable to an increase in bank loans for the acquisition of site equipment and general working capital to facilitate our business operations and bank overdrafts for the financing of our working capital, although there was a decrease in finance leases. Income tax expense During each of the two years ended 31 March 2014 and 2015, the effective tax rate of our Group was approximately 17.2% and 16.7%, respectively, which were slightly higher than the statutory tax rate of 16.5% due to an effect arising from non-deductible expenses. No income tax was paid during each of the two years ended 31 March 2014 and 2015 due to the offset of assessable profits by tax losses brought forward. Profit for the year and net profit margin As a result of the foregoing, our Group s profit for the year increased by approximately HK$8,649,000, or 91.7%, from approximately HK$9,430,000 for the year ended 31 March 2014 to approximately HK$18,079,000 for the year ended 31 March Our net profit 229

236 FINANCIAL INFORMATION margin increased from 5.9% for the year ended 31 March 2014 to 6.6% for the year ended 31 March The improvement in net profit margin is mainly attributable to the decrease in administrative and other operating expenses as a proportion of revenue as a result of scale. LIQUIDITY, FINANCIAL RESOURCES AND CAPITAL STRUCTURE We have historically met our liquidity requirements principally through a combination of cash flow from operations and bank borrowings. Our uses of cash are mainly for the financing of our operations and working capital requirements and capital expenditures on property, plant and equipment. Going forward, we do not expect any material changes to the underlying drivers of our sources of cash and uses of cash, except for the net proceeds from the Placing which will be used according to our use of proceeds plan as detailed in the section headed Statement of business objective and use of proceeds in this prospectus. As at the Latest Practicable Date, we had not experienced any liquidity problems in settling our payables in the normal course of business. Cash flows The following table sets forth our Group s cash flows for the years/periods indicated: Eight months ended Year ended 31 March 30 November HK$ 000 HK$ 000 HK$ 000 HK$ 000 (unaudited) Operating cash flow before working capital changes 15,394 25,744 16,194 9,497 Net cash generated from/(used in) operating activities 7,402 (3,687) (1,169) 5,228 Net cash (used in)/generated from investing activities (4,478) 209 (383) 11,495 Net cash (used in)/generated from financing activities (894) 477 (1,998) (9,332) Net increase/(decrease) in cash and cash equivalents 2,030 (3,001) (3,550) 7,391 Cash and cash equivalents at the beginning of the year/period 1,389 3,419 3, Cash and cash equivalents at the end of the year/period 3, (131) 7,

237 FINANCIAL INFORMATION Cash flows from operating activities Cash flows from operating activities primarily consisted of our Group s revenues from civil engineering projects undertaken by us. Our Group mainly derives its cash inflow from operating activities from the receipt of payments from customers and the primary sources of cash outflow from operations include payrolls, payment to subcontractors and suppliers. Our cash from operating activities reflects profit before tax for the year, mainly adjusted for depreciation, gain or loss on disposal of property, plant and equipment and finance costs. During the eight months ended 30 November 2015, our cash generated from operations consisted of operating profit of approximately HK$9,497,000 before working capital changes. Working capital changes primarily included (i) a decrease in amounts due to customers for contract work of approximately HK$11,654,000 in line with the decrease in revenue of approximately HK$31,684,000 due to a decrease in construction activities undertaken by us and is driven by progress billings and the settlement thereof; (ii) an increase in amounts due from customers for contract work of approximately HK$8,119,000 which is also driven by progress billings and the settlement thereof. During the eight months ended 30 November 2014, our cash generated from operations consisted of operating profit of approximately HK$16,194,000 before working capital changes. Working capital changes primarily included (i) an increase in trade and other receivables of approximately HK$19,061,000; and (ii) an increase in trade and other payables of approximately HK$4,908,000. During the year ended 31 March 2015, our cash generated from operations consisted of operating profit of approximately HK$25,744,000 before working capital changes. Working capital changes primarily included (i) an increase in trade and other receivables of approximately HK$18,939,000 in line with the increase in revenue of approximately HK$111,986,000 due to an increase in construction activities undertaken by us; (ii) a decrease in trade and other payables of approximately HK$4,224,000; and (iii) a decrease in amounts due to Directors of approximately HK$3,915,000, which were unsecured, interest-free and have no fixed terms of repayment. During the year ended 31 March 2014, our cash generated from operations consisted of operating profit of approximately HK$15,394,000 before working capital changes. Working capital changes primarily included (i) a decrease in amounts due to customers for contract work of approximately HK$13,855,000; (ii) an increase in trade and other payables of approximately HK$8,749,000; and (iii) an increase in amounts due from customers for contract work of approximately HK$7,149,000, all of which were driven by progress billings and the settlement thereof. Cash flows from investing activities Cash inflows from investing activities were primarily utilised to purchase property, plant and equipment and cash inflows from investing activities were primarily from the disposal of investment property and property, plant and equipment. 231

238 FINANCIAL INFORMATION During the eight months ended 30 November 2015, we recorded net cash generated from investing activities amounting to approximately HK$11,495,000, which was mainly derived from proceeds generated from the disposal of investment property of approximately HK$12,700,000 and partly offset by the purchases of property, plant and equipment of approximately HK$1,643,000. During the eight months ended 30 November 2014, we recorded net cash used in investing activities amounting to approximately HK$383,000, which was mainly due to the purchase of property, plant and equipment. During the year ended 31 March 2015, we recorded net cash generated from investing activities amounting to approximately HK$209,000, which was mainly derived from proceeds generated from the disposal of property, plant and equipment of approximately HK$719,000 and partly offset by the purchases of property, plant and equipment of approximately HK$510,000. During the year ended 31 March 2014, we recorded net cash used in investing activities amounting to approximately HK$4,478,000, which was mainly due to purchases of property, plant and equipment of approximately HK4,625,000 and partly offset by the proceeds generated from the disposal of property, plant and equipment of approximately HK$147,000. Cash flows from financing activities Cash inflows from financing activities were primarily from drawdown of bank borrowings and cash outflows for financing activities were primarily from repayment of bank loans and finance leases and the payment of interests accrued thereon. During the eight months ended 30 November 2015, we recorded net cash used in financing activities amounting to approximately HK$9,332,000. Cash outflows for financing activities included (i) repayment of bank loans of approximately HK$7,938,000; (ii) repayment of capital element of finance leases of approximately HK$1,056,000; (iii) interest paid of approximately HK$214,000; and (iv) interest element of finance leases of approximately HK$124,000. During the eight months ended 30 November 2014, we recorded net cash used in financing activities amounting to approximately HK$1,998,000. Cash outflows for financing activities included (i) repayment of capital element of finance leases of approximately HK$991,000; (ii) repayment of bank loans of approximately HK$716,000; (iii) interest paid of approximately HK$181,000; and (iv) payment of interest element of finance leases of approximately HK$110,000. During the year ended 31 March 2015, we recorded net cash generated from financing activities amounting to approximately HK$477,000. Cash inflows from financing activities was due to the drawdown of bank borrowings of approximately HK$4,000,000. Cash outflows for financing activities included (i) repayment of capital element of finance leases 232

239 FINANCIAL INFORMATION of approximately HK$1,974,000; (ii) repayment of bank loans of approximately HK$1,078,000; (iii) interest paid of approximately HK$302,000; and (iv) payment of interest element of finance leases of approximately HK$169,000. During the year ended 31 March 2014, we recorded net cash used in financing activities amounting to approximately HK$894,000. Cash inflows from financing activities was due to the drawdown of bank borrowings of approximately HK$3,000,000. Cash outflows for financing activities included (i) repayment of bank loans of approximately HK$1,876,000; (ii) repayment of capital element of finance leases of approximately HK$1,566,000; (iii) interest paid of approximately HK$238,000; and (iv) payment of interest element of finance leases of approximately HK$214,000. Current assets and liabilities The following table sets forth details of our Group s current assets and liabilities as at the respective dates indicated: As at 31 March As at 30 November As at 31 January HK$ 000 HK$ 000 HK$ 000 HK$ 000 (unaudited) Current assets Amount due from a director 523 Amounts due from customers for contract work 7,555 9,474 17,593 16,795 Trade and other receivables 35,276 54,215 54,320 54,872 Cash and bank balances 3,419 5,900 7,977 14,367 46,250 70,112 79,890 86,034 Current liabilities Trade and other payables 23,941 19,717 27,436 40,101 Amounts due to customers for contract work 39,891 39,980 28,326 23,316 Amounts due to directors 6,604 2,689 10,056 9,874 Obligations under finance leases 1,474 1,199 1,537 1,660 Bank loans and overdrafts 10,536 18,940 5,688 5,295 Tax payable 1,607 1,607 82,446 82,525 74,650 81,853 Net current (liabilities)/assets (36,196) (12,413) 5,240 4,181 As at 31 January 2016, we recognised net current assets of approximately HK$4,181,000. Our current assets of approximately HK$86,034,000 comprised of (i) trade and other receivables of approximately HK$54,872,000; (ii) cash and bank balances of approximately HK$14,367,000; and (iii) amounts due from customers for contract work of approximately HK$16,795,000. Our current liabilities of approximately HK$81,853,000 is 233

240 FINANCIAL INFORMATION comprised of (i) trade and other payables of approximately HK$40,101,000; (ii) amounts due to customers for contract work of approximately HK$23,316,000; (iii) amounts due to directors of approximately HK$9,874,000; (iv) bank loans and overdrafts of approximately HK$5,295,000; (v) obligations under finance lease of approximately HK$1,660,000; and (vi) tax payable of approximately HK$1,607,000. As at 30 November 2015, we recognised net current assets of approximately HK$5,240,000. Our current assets of approximately HK$79,890,000 comprised of (i) trade and other receivables of approximately HK$54,320,000; (ii) amounts due from customers for contract work of approximately HK$17,593,000; and (iii) cash and bank balances of approximately HK$7,977,000. Our current liabilities of approximately HK$74,650,000 is comprised of (i) amounts due to customers for contract work of approximately HK$28,326,000; (ii) trade and other payables of approximately HK$27,436,000; (iii) amounts due to directors of approximately HK$10,056,000; (iv) bank loans and overdrafts of approximately HK$5,688,000; (v) tax payable of approximately HK$1,607,000; and (vi) obligations under finance leases of approximately HK$1,537,000. During the year ended 31 March 2015, our net current liabilities decreased by approximately HK$23,783,000, or 65.7%, from approximately HK$36,196,000 as at 31 March 2014 to approximately HK$12,413,000 as at 31 March Such decrease is driven by an increase in our construction activities during the year ended 31 March 2015 which in turn lead to an increase in our trade and other receivables and amounts due from customers for contract work. Our current liabilities remained at similar levels as an increase in bank loans and overdrafts was offset by decreases in trade and other payables and amounts due to directors. The net current liabilities positions of approximately HK$36,196,000 and HK$12,413,000 as at 31 March 2014 and 2015, respectively, were primarily attributable to (i) the amounts due to customers for contract work of approximately HK$39,891,000 and HK$39,980,000 as at 31 March 2014 and 2015, respectively. Such amounts are temporary differences mainly arising from progress billings exceeding costs incurred plus(less) recognised profit(loss), which will cease to exist at completion of the relevant project; and (ii) the mortgage loan, which is a current liability, drawn to fund the acquisition of the investment property, a non-current asset as at 31 March 2014 and 2015, which was subsequently reclassified as held for sale in current assets and disposed of in October

241 FINANCIAL INFORMATION DISCUSSION OF CERTAIN COMBINED STATEMENTS OF FINANCIAL POSITION ITEMS Property, plant and equipment The following table sets out the respective carrying values of our Group s property, plant and equipment as at the respective dates indicated: Land and buildings Furniture and equipment Site equipment Motor vehicles Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 As at 31 March , ,899 4,358 13, March ,128 3,491 11, November ,898 4,752 13,274 As shown in the table above, our Group s property, plant and equipment consists primarily of site equipment and motor vehicles. We purchased our site equipment and motor vehicles mainly with our internally generated resources, bank loans and/or through finance lease arrangements. Site equipment are primarily the various types of machinery for our civil engineering construction works, which include excavators, vibrating rollers, generators, air compressors, a hydraulic truck crane, hydraulic breakers and aerial working platforms. The site equipment had a carrying amount of approximately HK$7,899,000 as at 31 March 2014, which decreased slightly to approximately HK$7,128,000 as at 31 March 2015 due to depreciation of site equipment, offset by the purchase of a number of site equipment during the year. The carrying amount of site equipment then decreased slightly to approximately HK$6,898,000 as at 30 November 2015 as a result of disposals and depreciation of site equipment. For further details of the site equipment for our Group s operations, please refer to the section headed Business Site equipment of this prospectus. Motor vehicles are mainly vans and crane lorries used for transportation of employees among sites and construction works, respectively. Our Group also owned some motor vehicles to facilitate our project management staff to travel between different construction sites and offices. The carrying amount of our motor vehicles was approximately HK$4,358,000 as at 31 March 2014 which decreased to approximately HK$3,491,000 as at 31 March 2015 due to disposals and depreciation of motor vehicles, although partly offset by purchases of a few new motor vehicles. The carrying amount of motor vehicles then increased to approximately HK$4,752,000 as at 30 November 2015 due to the addition of certain motor vehicles. 235

242 FINANCIAL INFORMATION Our Group owns a property for operational use and leases a property for general office use. For details of our properties, please also refer to the section headed Business Properties of this prospectus. Some of our motor vehicles were purchased by entering into finance lease arrangements during the Track Record Period. As at 31 March 2014 and 2015 and 30 November 2015, our motor vehicles with net book amount of approximately HK$4,103,000, HK$3,223,000 and HK$4,171,000, respectively, were held under finance leases. Amounts due to/from customers for contract work Our construction contracts in progress are recorded as the amount of costs incurred plus(less) recognised profit(losses) less progress billings and are presented as (i) amounts due from customers for contract work as an asset when costs incurred plus(less) recognised profit(losses) exceeds progress billings; or (ii) amounts due to customers for contract work as a liability when progress billings exceeds costs incurred plus(less) recognised profit(losses). Unlike trade receivables, amounts due from customers for contract work represent work performed by us, for which the payment certificates have not yet been obtained from our customers as at the end of a financial year/period. The following table sets out our Group s amounts due from/to customers for contract work as at the respective dates indicated: As at 30 As at 31 March November HK$ 000 HK$ 000 HK$ 000 Amounts due from customers for contract work 7,555 9,474 17,593 Amounts due to customers for contract work (39,891) (39,980) (28,326) (32,336) (30,506) (10,733) The amounts due from/to customers for contract work vary from period to period due to the difference in volume and value of construction works we performed close to the end of each reporting period and duration between our submission of progress payment applications and receipt of progress certificates from our customers. It normally takes approximately 45 days for our customers to certify our progress payment applications. Notwithstanding the above, payment certification for final payment would normally take longer as they are usually subject to a process of negotiation. As at 31 March 2014 and 2015 and 30 November 2015, amounts due from customers for contract work included a balance of HK$Nil, HK$Nil and approximately HK$1,900,000 not yet certified by customers, respectively, relating to projects which we recognised revenue for the works done submitted in the account application by reference to the amount of completed works estimated by our in-house surveyor to the customers. Our Directors are of the view that the revenue recognised during the Track Record Period by reference to our 236

243 FINANCIAL INFORMATION in-house surveyor s estimation of works done thus represents an insignificant portion. Referring to the impairment of trade receivables described in the paragraph headed Trade and other receivables Trade receivables below, based on the fact that (i) we have on-going business relationships with these customers and we have not received any notice of disagreement on our final payment application from these customers as at the Latest Practicable Date; (ii) we have received all interim payments timely on the same project and we are not aware of the deterioration of the credit quality of these customers; and (iii) it is the industry norm to allow a defects liability period of 12 months from date of completion of the project before final accounts are to be approved by our customers and settled, our Directors consider that no impairment of trade receivables is necessary. Trade and other receivables Our trade and other receivables consisted of (i) trade receivables; (ii) retention monies receivables; and (iii) other receivables, deposits and prepayments. The following table sets out the breakdown of trade and other receivables as at the respective dates indicated: As at 30 As at 31 March November HK$ 000 HK$ 000 HK$ 000 Trade receivables 15,583 33,832 29,786 Retention monies receivables 17,957 19,217 23,815 Other receivables, deposits and prepayments 1,736 1, ,276 54,215 54,320 Trade receivables Trade receivables were mainly derived from our provision of construction works. Our customers are generally required to make payments to us within 45 days after the submission of payment application by our Group, which is usually made on a monthly basis for each ongoing project. Our trade receivables increased from approximately HK$15,583,000 as at 31 March 2014 to approximately HK$33,832,000 as at 31 March 2015 due to the increase in construction works to speed up the progress of two projects to meet completion deadlines imposed by the customers during the year ended 31 March 2015, which led to an increase in our revenue, combined with fluctuations in the actual works progress of our ongoing projects, the amount certified by the relevant customers and the amount settled by the relevant customers as at the respective reporting dates. 237

244 FINANCIAL INFORMATION Our trade receivables decreased from approximately HK$33,832,000 as at 31 March 2015 to approximately HK$29,786,000 as at 30 November This was primarily due to fluctuations in the actual works progress of our ongoing projects, the amount certified by the relevant customers and the amount settled by the relevant customers as at the respective reporting dates. To a certain extent, our trade receivables (including retention monies receivables) were concentrated to our largest debtor and the five largest debtors as illustrated in the table below for the respective dates indicated: As at 30 As at 31 March November HK$ 000 HK$ 000 HK$ 000 Largest debtor 8,506 17,309 20,763 Five largest debtors 29,331 51,517 50,931 We seek to maintain strict control over our outstanding trade receivables as well as retention monies receivables to minimise credit risk. Our management reviews overdue balances regularly and sends out payment reminders for such balances. We do not hold any collateral or other credit enhancements over our trade receivables balances. Trade receivables are non-interest bearing. The following table sets out our ageing analysis of trade receivables from clients, presented based on date of invoice as at the respective dates indicated: As at 30 As at 31 March November HK$ 000 HK$ 000 HK$ days 7,511 14,383 25, days 7,833 19,449 3, days Over 90 days ,583 33,832 29,786 Trade receivables which were past due but not impaired related to a number of independent customers that had a good track record of credit with us. Based on past credit history, our Directors believe that no provision for impairment is necessary in respect of these balances as there has not been a significant change in credit quality and the balances are still considered to be fully recoverable. 238

245 FINANCIAL INFORMATION As at the Latest Practicable Date, approximately HK$15,583,000 or 100%, HK$33,832,000 or 100% and HK$29,108,000 or 97.7% of trade receivables as at 31 March 2014 and 2015 and 30 November 2015, respectively, were settled. The following table sets out our debtors turnover days during the year/period indicated: For the eight months For the year ended 31 March ended 30 November days days days Debtors turnover days Note: Debtors turnover days is calculated by the average trade receivables as at the respective period end divided by the total revenue for the period and multiplied by the number of days in the period. The debtors turnover days decreased from approximately 39.6 days for the year ended 31 March 2014 to approximately 33.2 days for the year ended 31 March The decrease is mainly attributable to a substantial increase in revenue during the year ended 31 March This is slightly offset by an increase in trade receivables due to the fluctuations in the actual works progress of our ongoing projects, the amount certified by the relevant customers and the amount settled by the relevant customers as at the respective reporting dates. The debtors turnover days increased from approximately 33.2 days for the year ended 31 March 2015 to approximately 50.2 days for the eight months ended 30 November The increase is mainly attributable to the progress of several major projects being concentrated towards the end of the period, thereby accumulating trade receivables which had not been settled as at 30 November This is slightly offset by a decrease in trade receivables due to the fluctuations in the actual works progress of our ongoing projects, the amount certified by the relevant customers and the amount settled by the relevant customers as at the respective reporting dates. Retention monies receivables When undertaking contract works, some of our customers may, depending on the contract terms, hold up a certain percentage of each payment made to us as retention money. In general, our customers will retain up to 10% of each interim payment and up to a maximum limit of 5% of the contract sum as retention money for the project. 50% of the retention money withheld is normally released to us after the completion of a project and the remaining retention money is normally released after the expiry of the defects liability period. 239

246 FINANCIAL INFORMATION Our retention monies receivables increased from approximately HK$17,957,000 as at 31 March 2014 to approximately HK$19,217,000 as at 31 March 2015 due to the increase in construction works to speed up the progress of two projects with an aggregate contract sum of HK$195,541,000 to meet completion deadlines during the year ended 31 March 2015, and hence retention monies receivables grew in line with the increase in our revenue. Our retention monies receivables increased from approximately HK$19,217,000 as at 31 March 2015 to HK$23,815,000 as at 30 November 2015, such increase is due to the retaining of retention money by our customers for our construction works without any significant release of retention monies during the eight months ended 30 November Other receivables, deposits and prepayments Prepayments and deposits mainly represented amounts paid for rental and utility deposits for warehouse, deposits for material purchase and advance payments to injured workers. Prepayments and deposits were amounted to approximately HK$1,736,000, HK$1,166,000 and HK$719,000 as at 31 March 2014 and 2015 and 30 November 2015, respectively. Trade and other payables Our trade and other payables consisted of (i) trade payables; (ii) retention monies payables; and (iii) accruals and other payables. The following table sets out the breakdown of trade and other payables as at the respective dates indicated: As at 30 As at 31 March November HK$ 000 HK$ 000 HK$ 000 Trade payables 17,489 10,114 17,416 Retention monies payables 2,045 3,278 3,647 Accruals and other payables 4,407 6,325 6,373 23,941 19,717 27,436 Trade payables Our trade payables mainly represented amounts payable to our suppliers, from whom we purchased construction materials, and subcontracting charges. As our business is project-based and our construction projects may not be recurring, our costs of sales during the Track Record Period fluctuated subject to the size and the progress of our construction works and as such our trade payables balance and creditors turnover days as at a reporting date or during a reporting period may be affected. 240

247 FINANCIAL INFORMATION Our trade payables decreased from approximately HK$17,489,000 as at 31 March 2014 to approximately HK$10,114,000 as at 31 March Our trade payables increased from approximately HK$10,114,000 as at 31 March 2015 to approximately HK$17,416,000 as at 30 November The following table sets out our ageing analysis of trade payables presented based on the invoice dates as at the respective dates indicated: As at 30 As at 31 March November HK$ 000 HK$ 000 HK$ days 10,411 6,894 17, days 5,556 2, days Over 90 days 1, ,489 10,114 17,416 The credit period on trade payables is generally 0 to 30 days. As at the Latest Practicable Date, all of our trade payables as at 31 March 2014 and 2015 were settled and approximately HK$16,571,000 or 95.2% of trade payables as at 30 November 2015 were settled. The following table sets out our creditors turnover days during the year/period indicated: For the eight months For the year ended 31 March ended 30 November days days days Creditors turnover days Note: Creditors turnover days is calculated by the average trade payables as at the respective period end divided by costs of sales for the period and multiplied by the number of days in the period. The creditors turnover days were 33.6 days, 20.4 days and 24.5 days for each of the years ended 31 March 2014 and 2015 and for the eight months ended 30 November 2015, respectively. As discussed above, our creditors turnover days may fluctuate due to the non-recurring and project-by-project basis of our civil engineering works. 241

248 FINANCIAL INFORMATION Amounts due to directors The amounts due to directors was approximately HK$6,604,000, HK$2,689,000 and HK$10,056,000 as at 31 March 2014 and 2015 and 30 November 2015, respectively, which mainly represented advances for financing the daily operations of our Group and for the settlement of Listing expenses during the eight months ended 30 November Such amounts were unsecured, interest free and have no fixed terms of repayment. On 21 March 2016, Luen Hing applied HK$280,000 and HK$5,200,000 owed by Luen Hing to Mr. CK Wong and Mr. WW Wong, respectively, toward the satisfaction of the issue and allotment of 5,480,000 new shares of Luen Hing at a subscription price of HK$1 per share to Super Pioneer (as directed by Mr. CK Wong and Mr. WW Wong, respectively) and the remaining uncapitalised balance of amounts due to directors of HK$4, and HK$67, will be repaid by Luen Hing to Mr. CK Wong and Mr. WW Wong, respectively, upon Listing; and Hop Fung applied HK$4,920,000 owed by Hop Fung to Mr. CK Wong toward the satisfaction of the issue and allotment of 4,920,000 new shares of Hop Fung at a subscription price of HK$1 per share to Super Pioneer (as directed by Mr. CK Wong) and the remaining uncapitalised balance of amounts due to directors of HK$4, will be repaid by Hop Fung to Mr. CK Wong upon Listing. Capital deficiency/equity attributable to equity holders of our Company During the Track Record Period, we recognised a capital deficiency attributable to equity holders of our Company of approximately HK$9,775,000 as at 31 March 2014 and equity attributable to equity holders of our Company of approximately HK$8,304,000 and HK$14,696,000 as at 31 March 2015 and 30 November 2015, respectively. The capital deficiency as at 31 March 2014 is attributable to accumulated losses incurred prior to the Track Record Period. The accumulated losses incurred are mainly attributable to the thin gross profit margins recognised and losses incurred on several projects due to unforeseen circumstances and/or errors or inaccurate estimations of project duration and costs. Unforeseen circumstances and errors or inaccurate estimations of project duration and costs arose due to the inherent risks involved in determining tender prices by estimating the construction costs under the contract duration as specified in the tender invitation documents which may differ substantially upon project implementation. Many factors affect the time taken and the costs actually involved in completing construction projects undertaken. Examples of such factors include shortage and cost escalation of labour and materials, difficult geological conditions, adverse weather conditions, variations to the construction plans instructed by customers, stringent technical construction requirements, accidents, and changes in the Government s policies. Other unforeseen problems or circumstances may also occur during project implementation. During the construction industry downturn in Hong Kong prior to 2010, such risks were not fully priced into the markups when submitting bids for several projects in order to remain competitive and increase our revenue stream to pay for our staff costs and fixed overheads and service our debts. Upon the recovery of the construction industry in Hong Kong and during the Track Record Period, we were able to gradually set higher tender prices, whilst remaining competitive, to take into consideration the likelihood of uncertainties and material deviations in estimated and actual project duration and costs. As it took several years to gradually set higher tender prices and to complete projects that we 242

249 FINANCIAL INFORMATION were awarded during the construction industry downturn, we recorded an accumulated loss as at 31 March In addition, to improve our profitability, we also established an estimating department in 2013 to review and assess new projects to minimise the likelihood of unforeseen circumstances and improve project duration and costs estimations. Furthermore, we focused on bidding for contracts of the same infrastructural projects as our experience with the relevant project and familiarity with the conditions of the relevant site would allow us to reduce the likelihood of unforeseen circumstances and make better estimations of project duration and costs. RELATED PARTY TRANSACTIONS AND BALANCES Please refer to notes 16, 21, 22 and 29 of Section II in the Accountants Report in Appendix I to this prospectus for details of the related parties transactions and balances with related parties. Our Directors are of the view that these transactions were conducted on an arm s length basis, and would not distort our results of operation during the Track Record Period or make our historical results during the Track Record Period not reflective of our expectations of our future performance. Our Directors confirm that all other personal guarantees provided for our Group will be released or replaced by corporate guarantees or guaranteed by surety bonds and all amounts due to/from related parties will be settled before Listing. INDEBTEDNESS The following table sets out our Group s indebtedness as at the respective dates indicated: As at 31 March As at 30 November As at 31 January HK$ 000 HK$ 000 HK$ 000 HK$ 000 (unaudited) Current liabilities Amounts due to directors 6,604 2,689 10,056 9,874 Obligations under finance leases 1,474 1,199 1,537 1,660 Bank loans and overdrafts 10,536 18,940 5,688 5,295 18,614 22,828 17,281 16,829 Non-current liabilities Obligations under finance leases 2,278 1,912 2,411 2,471 20,892 24,740 19,692 19,300 The amounts due to directors were unsecured, interest free and have no fixed terms of repayment. 243

250 FINANCIAL INFORMATION Bank overdrafts and bank loans The following table sets out the breakdown of bank loans and overdrafts as at the respective dates indicated: As at 31 March As at 30 November As at 31 January HK$ 000 HK$ 000 HK$ 000 HK$ 000 (unaudited) Secured term loans 2,984 6,404 5,520 5,295 Secured bank overdrafts 5, Secured mortgage loan 7,552 7,054 10,536 18,940 5,688 5,295 As at 31 January 2016, we had total bank overdraft facilities of HK$6,000,000, of which the unutilised and unrestricted bank overdraft facilities amounted to approximately HK$6,000,000. Our bank loans are classified as current liabilities according to the HK Interpretation 5, Presentation of Financial Statements Classification by the Borrower of a Term Loan that Contains a Repayment on Demand Clause issued by the Hong Kong Institute of Certified Public Accountants. According to the repayment schedule, the bank overdrafts and bank loans are repayable as follows: As at 30 As at 31 March November HK$ 000 HK$ 000 HK$ 000 Within 1 year or on demand 10,536 18,940 5,688 The carrying amount of bank overdrafts and bank loans are denominated in HK dollars. The bank overdrafts and bank loans bear interests on a floating basis at effective interest rates ranging from 0.91% to 5.50%, 0.92% to 5.50% and 3.23% to 5.50% per annum as at 31 March 2014 and 2015 and 30 November 2015, respectively. 244

251 FINANCIAL INFORMATION The bank term loans and overdrafts were secured by the land and building of our Group, a property owned by the Controlling Shareholders and their unlimited personal guarantees. In addition, as at 31 March 2014 and 2015 and 30 November 2015, bank term loan (the HKMC Loan ) of HK$Nil, HK$4,000,000 and HK$3,512,000 were secured by the guarantee given by the Hong Kong Mortgage Corporation Limited and unlimited personal guarantees given by the Controlling Shareholders. Pursuant to terms as set out in the loan agreement, Luen Hing shall not have its shares listed on the Main Board or the GEM of the Stock Exchange or any similar exchanges in or outside Hong Kong. The funds from a new bank term loan to be drawn in April 2016, that does not have a covenant forbidding Luen Hing from having its shares listed on the Main Board or the GEM of the Stock Exchange, will be been used to fully repay the HKMC Loan before the Listing. The mortgage loan was secured by the investment property of our Group. As at the Latest Practicable Date, the investment property of our Group was sold and the mortgage loan has been fully repaid. In March 2016, we obtained a credit facility from a bank of up to HK$20,000,000 which consists of: (i) a factoring facility of up to HK$10,000,000 by factoring of certain accounts receivable from our major customer(s) to the bank; and (ii) a banking facility of HK$10,000,000. Such credit facility was secured by unlimited personal guarantees given by the Controlling Shareholders. The personal guarantees provided by the Controlling Shareholders in respect of the bank term loans and overdrafts will be released and replaced by a corporate guarantee provided by our Company upon Listing. 245

252 FINANCIAL INFORMATION Finance lease liabilities During the Track Record Period, we acquired certain motor vehicles by way of finance lease arrangements mainly through banks and finance lease companies. The carrying amounts of all finance lease liabilities are denominated in HK dollars. The following table sets out our obligations under finance leases repayable as at the respective dates indicated: As at 30 November As at 31 January As at 31 March HK$ 000 HK$ 000 HK$ 000 HK$ 000 (unaudited) Total minimum lease payments Within one year 1,619 1,314 1,677 1,805 After one year but within two years 1,254 1,001 1,398 1,549 After two years but within five years 1,149 1,008 1,121 1,022 4,022 3,323 4,196 4,376 Future finance charges on finance leases (270) (212) (248) (245) Present value of finance lease liabilities 3,752 3,111 3,948 4,131 Present value of finance lease payments Within one year 1,474 1,199 1,537 1,660 After one year but within two years 1, ,319 1,474 After two years but within five years 1, , ,752 3,111 3,948 4,131 The underlying interest rates of these obligations under finance leases ranged from 6.05% to 7.35%, 5.44% to 6.21% and 5.44% to 6.21% per annum as at 31 March 2014 and 2015 and 30 November 2015, respectively. The finance leases liabilities are secured by our motor vehicles as at 31 March 2014 and 2015 and 30 November 2015, respectively. Finance leases liabilities with carrying amounts of approximately HK$3,752,000 and HK$3,111,000 as at 31 March 2014 and 2015, respectively, are guaranteed by personal guarantees given by Mr. CK Wong and Mr. WW Wong. Finance lease liabilities with carrying amounts of approximately HK$3,948,000 as at 30 November 2015 are guaranteed by personal guarantees given by Mr. CK Wong. Our Directors confirm that the said personal guarantees given by Mr. CK Wong will be released upon the Listing. 246

253 FINANCIAL INFORMATION Save for the continual use of the financial lease arrangements subsequent to the Listing for the acquisition of motor vehicles for our daily operation uses and the credit facility obtained from the bank in March 2016 of up to HK$20,000,000 for strengthening our working capital position and enhancing our financial resources for our contracts on hand and newly awarded projects, our Directors confirm that our Company did not have any other external financing plans as at the Latest Practicable Date. Contingent liabilities We had no significant contingent liabilities as at 31 March 2014 and 2015 and 30 November Commitments We have the following capital commitments as at the respective dates indicated: As at 30 As at 31 March November HK$ 000 HK$ 000 HK$ 000 Contracted but not provided for Acquisition of property, plant and equipment 490 Our Group had outstanding commitments in respect of future minimum lease payments under non-cancellable operating leases as at the respective dates indicated: As at 30 As at 31 March November HK$ 000 HK$ 000 HK$ 000 As lessee in respect of our warehouse and office equipment Within one year In the second to fifth years As lessor in respect of our investment property Within one year

254 FINANCIAL INFORMATION Our Directors confirm that (i) our Group has not experienced any difficulty in obtaining bank borrowings, has not defaulted in payments on bank borrowings or breached any finance covenants during the Track Record Period and up to the Latest Practicable Date; (ii) there has not been any material change in our indebtedness and contingent liabilities since 30 November 2015 and up to the Latest Practicable Date; (iii) our Directors are not aware of any material defaults in the payment of our trade and non-trade payables and bank borrowings during the Track Record Period and up to the Latest Practicable Date; (iv) our bank borrowings are subject to standard banking conditions; and (v) our Group has not received any notices from banks indicating that they might withdraw or downsize our banking facilities and none of our Group s banking facilities is subject to the fulfillment of covenants relating to financial ratio requirements or any other material covenants which would adversely affect our Group s ability to undertake additional debt or equity financing. Save as disclosed above in the paragraph headed Indebtedness in this section, we did not have, at the close of business on 30 November 2015, any loan capital issued and outstanding or agreed to be issued, bank overdrafts, loans or other similar indebtedness, liabilities under acceptances or acceptance credits, debentures, mortgages, charges, hire purchase commitments, guarantees or other material contingent liabilities. OFF-BALANCE SHEET ARRANGEMENTS Our Group did not enter into any material off-balance sheet transactions or arrangements as at the Latest Practicable Date. CAPITAL EXPENDITURES Our capital expenditures during the Track Record Period primarily comprised of additions to property, plant and equipment in line with our business expansion. The following table sets forth details of our capital expenditures during the Track Record Period: Eight months ended 30 Year ended 31 March November HK$ 000 HK$ 000 HK$ 000 Land and buildings Furniture and equipment Site equipment 4, Motor vehicles 2,784 1,349 2,210 7,290 1,843 3,536 Our capital expenditures were funded out of internally generated resources, bank term loans and finance lease arrangements. 248

255 FINANCIAL INFORMATION Our Group plans to finance future capital expenditures primarily through the net proceeds of the Placing, hire-purchase arrangements and cash generated from operations. To cope with expansion needs, our Group expects to further incur additional capital expenditures which are expected to be generally on site equipment and motor vehicles. It is expected that approximately 50.4% of the net proceeds, or approximately HK$18.0 million will be used to acquire site equipment and motor vehicles. SUMMARY OF KEY FINANCIAL RATIOS The table below sets out a summary of key financial ratios respect of our Group s results of operation for the years/period ended or as at 31 March 2014 and 2015 and 30 November 2015: As at or for the eight months As at or for the year ended 31 March ended 30 November Notes Profitability ratios Return on assets % 19.4% 6.9% Return on equity 2 N/A 217.7% 43.5% Liquidity ratios Current ratio Quick ratio Capital adequacy ratios Gearing ratio 5 N/A 265.5% 65.6% Net debt to equity ratio 6 N/A 194.5% 11.3% Interest coverage Notes: 1. Return on assets is calculated by dividing net profit for the year/period divided by the total assets at the end of the respective year/period and expressed as a percentage. 2. Return on equity is calculated by dividing net profit attributable to the owners of our Company for the year/period divided by the total equity attributable to the owners of our Company at the end of the respective year/period and expressed as a percentage. 3. Current ratio is calculated by dividing the total current assets by the total current liabilities. 4. Quick ratio is calculated by dividing total current assets net of inventories by current liabilities. 5. Gearing ratio is calculated by dividing all interest-bearing borrowings and obligations under finance leases by total equity and expressed as a percentage. 249

256 FINANCIAL INFORMATION 6. Net debt to equity ratio is calculated by dividing all interest-bearing borrowings and obligations under finance leases net of cash and cash equivalents by total equity and expressed as a percentage. 7. Interest coverage is calculated by the profit before interest and tax divided by the interest expenses. 8. We had deficiency in our total equity as at 31 March As such, return on equity, gearing ratio and net debt to equity ratio as at 31 March 2014 are not applicable. Profitability ratios Return on assets During the year ended 31 March 2015, our Group carried out a substantial amount of construction works of two projects with an aggregate contract sum of approximately HK$195,541,000, which resulted in an increase in revenue, profit for the year and trade and other receivables. Accordingly, our return on assets increased from 12.6% for the year ended 31 March 2014 to 19.4% for the year ended 31 March 2015 due to the increase in profit for the year at a rate greater than the increase in our total assets. We recorded a decrease in return on total assets to approximately 6.9% for the eight months ended 30 November 2015 and such decrease was mainly due to profit for only eight months recorded and a decrease in profit for the period due to the completion of 16 projects with an aggregate contract sum of approximately HK$137,700,000 during the year ended 31 March 2015 and incurring of Listing expenses during the eight months ended 30 November Return on equity We have deficiency in our total equity as at 31 March As such, return on equity for the year ended 31 March 2014 is not applicable. We recorded a decrease in return on equity from approximately 217.7% for the year ended 31 March 2015 to approximately 43.5% for the eight months ended 30 November 2015 primarily due to profit for only eight months being recorded and the incurring of Listing expenses during the eight months ended 30 November Liquidity ratios Current ratio Our current ratio increased from approximately 0.6 as at 31 March 2014 to approximately 0.8 as at 31 March This was primarily due to the increase in our trade receivables as a result of the growth in our revenue as discussed above. Our current ratio increased from approximately 0.8 as at 31 March 2015 to approximately 1.1 as at 30 November This was primarily due to the repayment of bank overdrafts with the cash generated from operations. 250

257 FINANCIAL INFORMATION Quick ratio During the Track Record Period, we did not hold any inventory, accordingly, our quick ratio was the same as our current ratio. Capital adequacy ratios Gearing ratio We have deficiency in our total equity as at 31 March As such, gearing ratio for the year ended 31 March 2014 is not applicable. Our gearing ratio decreased from approximately 265.5% as at 31 March 2015 to approximately 65.6% as at 30 November This is mainly due to bank overdrafts being substantially repaid during the eight months ended 30 November 2015 with cash generated from operations while our Group continued to accumulate retained earnings. Net debt to equity ratio We have deficiency in our total equity as at 31 March As such, net debt to equity ratio for the year ended 31 March 2014 is not applicable. Our net debt to equity ratio decreased from approximately 194.5% as at 31 March 2015 to approximately 11.3% as at 30 November This is mainly due to an increase in retained earnings as a result of the net profit growth during the eight months ended 30 November 2015 as discussed above, while cash overdrafts were substantially repaid during the eight months ended 30 November 2015 with cash generated from operations. Interest coverage Our interest coverage was approximately 26.2, 47.1 and 27.8 times for the years ended 31 March 2014 and 2015 and the eight months ended 30 November 2015, respectively. During the year ended 31 March 2015, our interest coverage increased substantially to 47.1 times as a result of the carrying out of a substantial amount of construction works of two projects with an aggregate contract sum of approximately HK$195,541,000 which gave rise to a growth of profit before interest and tax. Our interest coverage decreased to 27.8 times during the eight months ended 30 November 2015 due to a decrease in profit for the period as a result of the Listing expense incurred of HK$7,883,000 during the eight months ended 30 November 2015 and the completion of 16 projects with an aggregate contract sum of approximately HK$137,700,000 during the year ended 31 March Our finance costs remained relatively stable during the Track Record Period. WORKING CAPITAL Set out below is the details of our financial obligations, totaling approximately HK$19,300,000, expected to be fulfilled after 31 January 2016, which is the latest practicable date for our indebtedness statement, and before 31 March 2016: Repayment of bank borrowings, which were primarily for the acquisition of site equipment, of approximately HK$5,295,000 for the year ending 31 March 2016; 251

258 FINANCIAL INFORMATION Repayment of amount due to directors of approximately HK$9,874,000; and Repayment of obligations under finance leases of approximately HK$4,131,000. Our plans to meet our financial obligations as mentioned above using the following expected financial resources: Bank balances and cash as at 31 January 2016 amounting to approximately HK$14,367,000; Expected cash generated from our operations for the year ending 31 March 2016; Estimated net proceeds from the Placing of approximately HK$35.7 million, assuming a Placing Price of HK$0.26 per Placing Share; and Unrestricted unutilised bank overdraft facilities of approximately HK$6,000,000 as of 31 January To further strengthen our working capital position and enhance our financial resources for our contracts on hand and newly awarded projects, we obtained a credit facility from a bank in March 2016 of up to HK$20,000,000 which consists of: (i) a factoring facility of up to HK$10,000,000 by factoring of certain accounts receivable from our major customer(s) to the bank; and (ii) a banking facility of HK$10,000,000. Our Directors considered that this arrangement can provide a flexible alternative to increase our working capital and finance our liquidity requirement. As advised by our Directors, our Group has not experienced any difficulty in obtaining credit facilities, and any withdrawal of facilities, defaults in payment of bank borrowings or breach of covenants, and cancellation of customer orders during the Track Record Period and up to the Latest Practicable Date. Our Directors are of the opinion, after due and careful enquiry, that after taking into consideration the financial resources available to our Group including banking facilities and internal resources, and the estimated net proceeds from the Placing, our Group has sufficient working capital for our present requirements, for at least the next 12 months from the date of this prospectus. Based on the above factors and after taking into account that (i) our Directors confirmation that our Group has not had any material default with regard to our trade or other payables or any bank borrowings, and has not breached any financial covenants in our bank borrowings during the Track Record Period; and (ii) our Directors confirmation that during the Track Record Period and up to the Latest Practicable Date, our Group had not experienced any difficulty in obtaining credit facilities or withdrawal of facilities, request for early repayment, default in payments or breach of financial covenants of bank borrowings, the Sponsor also concurs with our Directors view that our Group has sufficient working capital for at least the next 12 months from the date of this prospectus. 252

259 FINANCIAL INFORMATION QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS Foreign exchange risk Our Group currently is not exposed to foreign exchange risk as all of our monetary assets and liabilities are denominated in Hong Kong dollars. Interest rate risk Our Group is exposed to cash flow interest rate risk due to the fluctuation of the prevailing market interest rate on bank balances. Our bank loans and overdrafts charge interest at floating interest rates. Having balanced the costs and benefits, our Directors do not consider a policy on cash flow hedges of interest rate risk necessary. Nevertheless, the management of our Group keeps monitor any change of interest exposure and will consider implementing measures from time to time to mitigate the adverse change of interest rate should the need arise. Credit risk Our Group is exposed to credit risk primarily due to the collectability risk of the trade receivables due from our customers. Our Directors consider that our customers are reputable corporations and hence the credit risk attached to our customers is relatively low. Our Group performs on-going credit evaluation on the financial condition of our debtors, past history of making payments and tightly monitors the ageing of the trade receivables. Our Group would take necessary follow up action in case of overdue balances or when the above credit evaluation results draw the attention of our Directors. In addition, our management reviews the recoverable amount of the trade receivables individually and collectively at each reporting date to ensure that adequate impairment losses are made for irrecoverable amounts. The credit policies have been followed by our Group during the Track Record Period and are considered to be effective in limiting our exposure to credit risk. Liquidity risk Our Group has a policy in place to regularly monitor our Group s liquidity requirements, both current and expected, in order to maintain sufficient reserves of cash and adequate lines of funding from banks and other financial institutions to meet their liquidity requirements in the short and long term. Our Directors are of the view that our liquidity risk management policy enables our Group to have sufficient resources to meet our debt obligations and working capital needs. Capital risk Our Group s objectives for managing capital are to ensure our ability to continue as a going concern and to maintain an optimal capital structure in order to minimise our costs of capital, support our business and maximise shareholders value. 253

260 FINANCIAL INFORMATION To maintain or adjust capital structure, we may adjust our dividend payout ratio, make return of capital to Shareholders in the form of dividend or share buyback, issue new Shares or raise new debt. No changes in the objectives, policies or processes were made during the Track Record Period. Neither our Company nor any of our subsidiaries are subject to any externally imposed capital requirements. DIVIDENDS No member of our Group had declared any dividend during the Track Record Period and up to the Latest Practicable Date. There is no expected dividend payout ratio after the Listing. The payment and the amount of any future dividends will be at the discretion of our Directors and will depend upon our Group s future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors which our Directors deem relevant. Any final dividend for a financial year will be subject to Shareholders approval. Holders of the Shares will be entitled to receive such dividends pro rata according to the amounts paid up or credited as paid up on the Shares. Dividends may be paid only out of our Company s distributable profits as permitted under the relevant laws. There can be no assurance that our Company will be able to declare or distribute in the amount set out in any plan of our Board or at all. The past dividend distribution record may not be used as a reference or basis to determine the level of dividends that may be declared or paid by our Company in the future. LISTING EXPENSES Our Directors estimate that the total amount of expenses in relation to the Listing is approximately HK$20.9 million, which will be borne by the Selling Shareholder and our Group as to approximately HK$2.5 million and HK$18.4 million, respectively. The listing expenses are non-recurring in nature and are mainly consisted of professional fees paid to the Sponsor, the legal advisers, the reporting accountants and other professional parties for the provision of their services in connection with the Placing. No significant listing expense was incurred by our Group during the two years ended 31 March Of the aggregate listing expenses of approximately HK$18.4 million, approximately HK$7.9 million was charged to profit or loss for the eight months ended 30 November 2015 and approximately HK$1.7 million is expected to be charged to profit or loss for the four months ending 31 March Our Group expects to further charge approximately HK$3.9 million to profit or loss, while approximately HK$4.9 million is expected to be directly attributable to the issue of Shares and accounted for as a deduction from equity upon successful listing under the relevant accounting standards. The amount of Listing expenses is a current estimate for reference only and the final amount to be recognised to the consolidated statement of comprehensive income of our Group for the year ending 31 March 2017 is subject to audit and the actual changes in variables and assumptions. 254

261 FINANCIAL INFORMATION SUBSEQUENT EVENTS AFTER THE REPORTING PERIOD Please refer to Section III of the Accountants Report in Appendix I to this prospectus for events of our Group which took place subsequent to 30 November RECENT DEVELOPMENTS Subsequent to the Track Record Period and up to the Latest Practicable Date, we have continued to focus on developing our business of undertaking civil engineering works in Hong Kong. As at the Latest Practicable Date, we had a total of 20 contracts on hand. Please refer to the section headed Business Our civil engineering contracts Contracts on hand in this prospectus for a full list of our contracts on hand as at the Latest Practicable Date. The aggregate contract sum of all contracts on hand is approximately HK$1,384,140,000 and approximately HK$234,304,000 of revenue has been recognised for the contracts on hand (with approximately HK$6,241,000 of revenue recognised exceeding the original contract sum), representing approximately 16.9% of the aggregate contract sum of all contracts on hand. As at the Latest Practicable Date, all existing projects have continued to contribute revenue to our Group and none of them have had any material interruption. We expect to recognise revenue of approximately HK$285,367,000 for the year ending 31 March 2016 based only on our contracts on hand, which is higher than our revenue of approximately HK$159,963,000 and HK$271,949,000 for the years ended 31 March 2014 and 2015, respectively. The amount of revenue expected to be recognised is subject to change due to the actual progress and commencement and completion dates of our projects. Based on the budget costs of each project, our Directors expect that our gross profit margin for the year ending 31 March 2016 to be at similar levels to that recorded during the Track Record Period. Accordingly, our Directors currently expect an increase in our revenue and gross profit for the year ending 31 March Our Directors also expect that our financial performance will be affected by the Listing expenses to be recognised for the year ending 31 March

262 FINANCIAL INFORMATION Subsequent to the Track Record Period and up to the Latest Practicable Date, our Group have been awarded with two additional contracts with an aggregate contract sum of approximately HK$301,317,000, the details of which are as follows: Civil engineering project involved Customer Type(s) of works involved Principal works done/to be done by us Expected completion date Contract sum (HK$ 000) Road and drainage works adjacent to railway lines Customer D Roads and drainage works Construction of cable draw-pits and cable ducting July ,415 Hong Kong- Zhuhai-Macao Bridge project China Harbour Structural works Construction of sub-structure for bridge, abutments and retaining walls May ,902 To further strengthen our working capital position and enhance our financial resources for our contracts on hand and newly awarded projects, we obtained a credit facility from a bank in March 2016 of up to HK$20,000,000 which consists of: (i) a factoring facility of up to HK$10,000,000 by factoring of certain accounts receivable from our major customer(s) to the bank; and (ii) a banking facility of HK$10,000,000. Our Directors considered that this arrangement can provide a flexible alternative to increase our working capital and finance our liquidity requirement. Our Directors consider that our Group is well-positioned to take on new civil engineering projects and believe that the Government s increasing public expenditure on infrastructure would favour the growth of our Group and the demand of our services. In addition, we expect that annual premium of approximately HK$1,060,000 for the purposes of obtaining surety bonds for the due performance of our Group s obligations under certain contracts will be recognised as expenses commencing from April 2016 until the expiry of the defects liability period of the relevant contracts. For further details of the guarantees of sureties, please refer to the section headed Relationship with our Controlling Shareholders Independence of our Group (i) Financial Independence of this prospectus. Save and except for the Listing expenses as disclosed above, our Group did not have any significant non-recurrent items in our combined statements of comprehensive income subsequent to the Track Record Period. Our results of operation for the year ending 31 March 2016 are expected to be significantly affected by the non-recurring Listing expenses as discussed in the paragraph headed Listing expenses in this section. 256

263 FINANCIAL INFORMATION DISTRIBUTABLE RESERVES As at 30 November 2015, our Company had no distributable reserves available for distribution to its equity holders. UNAUDITED PRO FORMA ADJUSTED NET TANGIBLE ASSETS The following is an illustrative statement of our unaudited pro forma adjusted net assets attributable to owners of our Company as at 30 November 2015 as shown in the Accountants Report, the text of which is set out in Appendix I to this prospectus, and adjusted as described below: Adjusted combined net tangible assets attributable to owners of our Company as at 30 November 2015 Capitalisation of amounts due to directors by way of issuance of shares by Luen Hing and Hop Fung Estimated net proceeds from the Placing Unaudited pro forma adjusted combined net tangible assets attributable to owners of our Company Unaudited pro forma adjusted net tangible assets per Share HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Note 1) (Note 3) (Note 4) (Note 5) Based on Placing Price of HK$0.26 per Share 14,696 10,400 43,562 68, Notes: 1. The unadjusted audited combined net tangible assets attributable to the owners of our Company as of 30 November 2015 is extracted from the Accountants Report in Appendix I to this prospectus, which is based on the audited combined net assets of our Group attributable to the owners of our Company of approximately HK$14,696, Our Group s land and buildings was revalued as at 31 January 2016 by Ascent Partners Valuation Service Limited, an independent property valuer, and relevant property valuation report is set out in Appendix III Property Valuation. The net surplus over their carrying value amounting to HK$3,222,000 has not been included in the combined net tangible assets of our Group attributable to equity holders of our Company as at 30 November The above adjustment does not take into account the above valuation surplus. Had the land and buildings been stated as such valuation, an additional depreciation of HK$289,000 per annum in respect of revaluation surplus, before income taxes, would be charged against the combined statement of profit or loss and other comprehensive income. 3. The increase in combined net tangible assets of the Group attributable to equity holders of the Company upon completion of share issuance of Luen Hing and Hop Fung are based on (i) 5,480,000 new shares of Luen Hing issued at a subscription price of HK$1 per share to Super Pioneer; and (ii) 4,920,000 new shares of Hop Fung issued at a subscription price of HK$1 per share to Super Pioneer on 21 March 2016 by the way of capitalisation of amounts due to the directors. Any remaining balances will be settled by cash. 257

264 FINANCIAL INFORMATION 4. The estimated net proceeds from the Placing are based on 208,000,000 Shares at the Placing Price of HK$0.26 per Placing Share, after deduction of relevant estimated underwriting commissions and fees and other related fees. 5. The unaudited pro forma combined adjusted net tangible assets per Share are determined after the adjustments as described in Notes 1 and 2 above and on the basis that 1,248,000,000 Shares are issued and outstanding as set out in the section headed Share Capital of this prospectus (assuming that the Placing Shares and the Capitalisation Issue had been issued on 30 November 2015). 6. The unaudited pro forma financial information presented above does not take into account of any trading or other transactions subsequent to the date of the financial statements included in the unaudited pro forma financial information (i.e. 30 November 2015). PROPERTY INTERESTS AND PROPERTY VALUATION Ascent Partners Valuation Service Limited, an independent property valuer, has valued the property interest of our Group at HK$4,120,000 as at 31 January The table below sets forth the reconciliation of the aggregate amount of net book value of our property interests from our combined financial information as at 30 November 2015 and the valuation of such property interests as at 31 January 2016 as set out in Appendix III to this prospectus: HK$ 000 HK$ 000 Valuation of property interest owned, occupied and held under development by our Group as at 31 January 2016 as set out in the property valuation report in Appendix III to this prospectus 4,120 Net book value of the following properties as at 30 November 2015 as set out in Appendix I to this prospectus: 911 Add: Additions during the period from 1 December 2015 to 31 January 2016 Less: Depreciation and amortisation during the period from 1 December 2015 to 31 January 2016 (13) Net book value as at 31 January 2016 (898) Net valuation surplus 3,

265 FINANCIAL INFORMATION DISCLOSURE REQUIRED UNDER CHAPTER 17 OF THE GEM LISTING RULES Our Directors have confirmed that as of the Latest Practicable Date, there were no circumstances which would have given rise to a disclosure requirement under Rules to of the GEM Listing Rules upon the listing of the Shares on the GEM. MATERIAL ADVERSE CHANGE The impact of the Listing expenses on the profit and loss accounts has posted a material adverse change in the financial or trading position or prospect of our Group since 30 November 2015 (being the date of the latest audited consolidated financial statements were made up). Prospective investors should be aware of the impact of the Listing expenses on the financial performance of our Group for the year ending 31 March Save as disclosed above, our Directors have confirmed that, up to the date of this prospectus, there had been no material adverse change in the financial or trading positions or prospect of our Company or its subsidiaries since 30 November 2015 (being the date of which our Group s latest audited consolidated financial statements were made up as set out in the Accountants Report in Appendix I to this prospectus) and there had been no event since 30 November 2015 which would materially affect the information shown in the Accountants Report in Appendix I to this prospectus. 259

266 STATEMENT OF BUSINESS OBJECTIVE AND USE OF PROCEEDS BUSINESS OBJECTIVES AND STRATEGIES Please refer to the section headed Business Business strategies in this prospectus for our Group s business objectives and strategies. IMPLEMENTATION PLAN Our Group s implementation plans are set forth below for each of the six-month periods until 31 March Investors should note that the implementation plans and their scheduled times for attainment are formulated on the bases and assumptions referred to in the paragraph headed Bases and assumptions below. These bases and assumptions are inherently subject to many uncertainties, variables and unpredictable factors, in particular the risk factors set out in the section headed Risk Factors in this prospectus. Our Group s actual course of business may vary from the business objective set out in this prospectus. There can be no assurance that the plans of our Group will materialise in accordance with the expected time frame or that the objective of our Group will be accomplished at all. Based on our Group s business objectives, our Directors intend to carry out the following implementation plans: From the Latest Practicable Date to 30 September 2016 Business strategy Implementation activities Sources of funding Acquisition of additional site equipment Purchase three hydraulic truck cranes to improve our efficiency and technical capability in structural works for larger scale civil engineering projects Listing proceeds of approximately HK$17.3 million Purchase three motor vehicles for use in our projects Purchase three generators for use in our projects Evaluate the effectiveness and efficiency of site equipment and assess our need for additional site equipment in view of our business development and obtain quotation for new site equipment 260

267 STATEMENT OF BUSINESS OBJECTIVE AND USE OF PROCEEDS Business strategy Implementation activities Sources of funding Further strengthening our manpower Recruit three crane operators to operate our hydraulic truck cranes in construction site Listing proceeds of approximately HK$6.8 million Recruit two engineers to strengthen our engineering team Recruit one project manager, one foreman and one administrative staff to cope with our business development and our plan to participate in larger scale civil engineering projects Provide training to our existing and newly recruited staff and/or sponsor our staff to attend training courses on occupational health and safety, site equipment operation and civil engineering works techniques From 1 October 2016 to 31 March 2017 Business strategy Implementation activities Sources of funding Acquisition of additional site equipment Continue to evaluate the effectiveness and efficiency of new site equipment and assess our need for additional site equipment in view of our business development Not applicable Obtain and review quotations and detailed functional specifications of the new site equipment that could enhance our efficiency and technical capability 261

268 STATEMENT OF BUSINESS OBJECTIVE AND USE OF PROCEEDS Business strategy Implementation activities Sources of funding Further strengthening our manpower Continue to assess the sufficiency of our labour resources having regard to our business development Our internal resources Continue to provide training to our existing and newly recruited staff and/or sponsor our staff to attend training courses on occupational health and safety, site equipment operation and civil engineering works techniques From 1 April 2017 to 30 September 2017 Business strategy Implementation activities Sources of funding Acquisition of additional site equipment Purchase additional new site equipment including an air compressor and an excavator to improve our efficiency and technical capability Listing proceeds of approximately HK$0.7 million Continue to evaluate the effectiveness and efficiency of new site equipment and assess our need for additional site equipment in view of our business development 262

269 STATEMENT OF BUSINESS OBJECTIVE AND USE OF PROCEEDS Business strategy Implementation activities Sources of funding Further strengthening our manpower Recruit two foremen and one quantity surveyor to strengthen our site manpower to cope with our plan to undertake more projects Listing proceeds of approximately HK$0.8 million Continue to assess the sufficiency of our labour resources having regard to our business development Continue to provide training to our existing and newly recruited staff and/or sponsor our staff to attend training courses on occupational health and safety, site equipment operation and civil engineering works techniques From 1 October 2017 to 31 March 2018 Business strategy Implementation activities Sources of funding Acquisition of additional site equipment Continue to evaluate the effectiveness and efficiency of new site equipment and assess our need for additional site equipment in view of our business development Not applicable Further strengthening our manpower Continue to assess the sufficiency of our labour resources having regard to our business development Not applicable Continue to provide training to our existing and newly recruited staff and/or sponsor our staff to attend training courses on occupational health and safety, site equipment operation and civil engineering works techniques 263

270 STATEMENT OF BUSINESS OBJECTIVE AND USE OF PROCEEDS BASES AND ASSUMPTIONS The business objectives set out by our Directors are based on the following bases and assumptions: Our Group will have sufficient financial resources to meet the planned capital expenditure and business development requirements during the period to which our future plans relate. There will be no material change in the funding requirement for each of our Group s future plans described in this prospectus from the amount as estimated by our Directors. There will be no material change in existing laws and regulations, or other governmental policies relating to our Group, or in the political, economic or market conditions in which our Group operates. There will be no change in the effectiveness of the licences, permits and qualifications obtained by our Group. There will be no material changes in the bases or rates of taxation applicable to the activities of our Group. There will be no disasters, natural, political or otherwise, which would materially disrupt the businesses or operations of our Group. Our Group will not be materially affected by the risk factors as set out under the section headed Risk factors in this prospectus. REASONS FOR THE LISTING Our Directors believe that the listing of the Shares on GEM will facilitate the implementation of our business strategies. As stated in the section headed Business Business strategies in this prospectus, we plan to expand our market share in the civil engineering construction industry in Hong Kong by competing for sizeable civil engineering projects in Hong Kong through acquisition of additional site equipment and further strengthening our manpower. The net proceeds of the Placing will provide financial resources to our Group to achieve such business strategies which will further strengthen our market position and expand our market share. A public listing status will also enhance our corporate profile and recognition and assist us in reinforcing our brand awareness and image. We believe that a public listing status on GEM could attract potential customers, suppliers and subcontractors who are more willing to establish business relationship with listed companies. It will also generate reassurance among our Group s existing customers, suppliers and subcontractors and strengthen our competitiveness in the market. The Listing will also enable our Group to have access to capital market for raising funds both at the time of Listing and at later stages, which would in turn assist us in future business development of our Group. A public listing status on GEM may offer our Company a 264

271 STATEMENT OF BUSINESS OBJECTIVE AND USE OF PROCEEDS broader shareholder base which could potentially lead to a more liquid market in the trading of the Shares. We also believe that our internal control and corporate governance practices could be further enhanced following the Listing. USE OF PROCEEDS We will not receive any of the proceeds from the sale of the Sale Shares by the Selling Shareholder in the Placing. The net proceeds to be received by us from the Placing based on the Placing Price of HK$0.26 per Placing Share, after deducting related underwriting fees and estimated expenses in connection with the Placing, are estimated to be approximately HK$35.7 million. Our Directors presently intend that the net proceeds will be applied as follows: approximately HK$18.0 million (or approximately 50.4% of the net proceeds) will be used for acquisition of additional site equipment; approximately HK$7.6 million (or approximately 21.2% of the net proceeds) will be used for further strengthening our manpower; approximately HK$6.8 million (or approximately 19.1% of the net proceeds) will be used for the repayment of bank borrowings and finance lease to reduce our finance cost. Specifically, (i) approximately HK$3.1 million will be used to wholly prepay the bank loan to be drawn in April 2016 for settlement of the outstanding indebtedness under the SME Financing Guarantee Scheme for financing our Group s working capital bearing interest at 1% below the Hong Kong dollar prime rate per annum and an effective interest rate of 3.99% per annum and is repayable on a monthly basis over the loan term of 50 months up to April 2020; (ii) approximately HK$1.6 million will be used to wholly prepay the bank loan drawn in March 2014 for acquisition of a site equipment bearing interest at 3% over the Hong Kong Interbank Offered Rate per annum and an effective interest rate of 3.23% per annum and is repayable on a monthly basis over the loan term of 5 years up to January 2019; (iii) approximately HK$1.0 million will be used to wholly prepay the finance lease incurred since September 2013 which will mature in 5 years from the date of occurrence bearing interest rate at a fixed rate of 2.50% per annum and an effective interest rate of 6.05% per annum, which were incurred to fund our purchase of motor vehicle; and (iv) approximately HK$1.0 million will be used to wholly prepay the finance lease incurred since September 2015 which will become mature in 4 years from the date of occurrence bearing interest rate at a fixed rate of 2.25% per annum and effective interest rate of 5.5% per annum, which were incurred to fund our purchase of motor vehicle; and (v) approximately HK$0.1 million will be used to wholly prepay the finance lease incurred since January 2015 which will become mature in 3 years from the date of occurrence bearing interest rate at a fixed rate of 2.25% per annum and effective interest rate of 5.58% per annum, which were incurred to fund our purchase of motor vehicle; and 265

272 STATEMENT OF BUSINESS OBJECTIVE AND USE OF PROCEEDS approximately HK$3.3 million (or approximately 9.3% of the net proceeds) will be used as general working capital of our Group. The following table sets forth a breakdown of how the net proceeds to be received by us from the Placing are intended to be applied and the timing of application: From the Latest Practicable Date to 30 September 2016 From 1 October 2016 to 31 March 2017 From 1 April 2017 to 30 September 2017 From 1 October 2017 to 31 March 2018 Total HK$ million HK$ million HK$ million HK$ million HK$ million Acquisition of additional site equipment Further strengthening our manpower Repayment of bank loans and finance lease General working capital of our Group Our Directors consider that the net proceeds to be received by us from the Placing of about HK$35.7 million, together with our Group s internal resources, cash generated from our operation and our available banking facilities, will be sufficient to finance the business plans of our Group as scheduled up to 31 March To the extent that the net proceeds from the issue of the Placing Shares are not immediately required for the above purpose, it is the present intention of our Directors that such proceeds will be placed on short-term interest bearing deposits or treasury products with authorised financial institutions. We estimate that the Selling Shareholder will receive net proceeds of approximately HK$24.6 million after deduction of underwriting fees and commissions and estimated expenses payable by the Selling Shareholder in relation to the Placing. We will not receive any of the net proceeds of the Placing from the sale of the Sale Shares by the Selling Shareholder. 266

273 UNDERWRITING UNDERWRITERS Gransing Securities Co., Limited Suncorp Securities Limited UNDERWRITING ARRANGEMENTS AND EXPENSES Underwriting Agreement Pursuant to the Underwriting Agreement, our Company and the Selling Shareholder will conditionally place the Placing Shares with institutional, professional and other investors in Hong Kong at the Placing Price subject to the terms and conditions in the Underwriting Agreement and this prospectus. Subject to, among other conditions, the Listing Department granting the listing of, and permission to deal in, the Shares in issue and to be issued as mentioned in this prospectus and to certain other conditions as set out in the Underwriting Agreement being satisfied or waived on or before the dates and times as specified therein or such other dates as the Joint Bookrunners (for themselves and on behalf of the Underwriters) may agree but in any event not later than the 30th day after the date of this prospectus, the Underwriters have agreed to subscribe for or to procure subscribers for their respective applicable proportions of the Placing Shares on the terms and conditions under the Underwriting Agreement and in this prospectus. Grounds for termination The Sponsor and/or the Joint Bookrunners (for themselves and on behalf of the Underwriters) shall have the absolute right which is exercisable by the Sponsor and/or the Joint Bookrunners (for themselves and on behalf of the Underwriters), upon giving notice in writing to our Company (for itself and on behalf of the Selling Shareholder, our executive Directors and our Controlling Shareholders), to terminate the arrangements set out in the Underwriting Agreement with immediate effect if any of the following events occur at any time prior to 8:00 a.m. (Hong Kong time) on the Listing Date (which is expected to be on Tuesday, 12 April 2016): (a) it has come to the notice of the Sponsor and/or the Joint Bookrunners that: (i) any statement contained in the Prospectus or other documents issued or used by or on behalf of our Company or information provided to the Sponsor and the Joint Bookrunners in connection with the Placing (the Relevant Documents ), considered by the Sponsor and/or the Joint Bookrunners in its/ their absolute opinion was, when it was issued, or has become, or been discovered to be untrue, inaccurate, incorrect or misleading in any material respect; 267

274 UNDERWRITING (ii) any matter has arisen or has been discovered which would, had it arisen or been discovered immediately before the date of this prospectus, constitute an omission therefrom considered by the Sponsor and/or the Joint Bookrunners in its/their absolute opinion to be material in the context of the Placing; (iii) any breach of any of the obligations imposed upon any party to the Underwriting Agreement considered by the Sponsor and/or the Joint Bookrunners in its/their absolute opinion to be material in the context of the Placing (other than upon any of the Underwriters); (iv) (v) (vi) either (1) there has been a breach of any of the warranties or provisions of the Underwriting Agreement by any of our Company, our executive Directors or our Controlling Shareholders (collectively, the Warrantors ) or (2) any matter or event showing or rendering any of the warranties contained in the Underwriting Agreement, as applicable, in the absolute opinion of the Sponsor and/or the Joint Bookrunners, to be untrue, incorrect or misleading in any material respect when given or repeated; any event, act or omission which gives or is likely to give rise to any liability of a material nature of any of the Warrantors pursuant to the indemnity provisions under the Underwriting Agreement; or any event, series of events, matter or circumstance occurs or arises on or after the date of this prospectus and prior to 8:00 a.m. on the Listing Date, would have rendered any warranties, in the absolute opinion of the Sponsor and/or the Joint Bookrunners, untrue, incorrect, inaccurate or misleading in any respect; (b) there shall develop, occur, happen, exist or come into effect: (i) (ii) any event, or series of events in the nature of force majeure, including, without limitation, acts of government, fire, explosion, flooding, civil commotion, acts of war, acts of God, acts of terrorism (whether or not responsibility has been claimed), declaration of a national or international emergency, riots, public disorder, economic sanctions, outbreaks of diseases or epidemics in Hong Kong; any change or development involving a change or development, or any event or series of events, matters or circumstances likely to result in or represent any change or development, in the local, national, regional, international financial, economic, political, military, industrial, fiscal, regulatory, currency, credit, market or exchange control conditions or any monetary or trading settlement system or matters and/or disaster (including without limitation a change in the system under which the value of the Hong Kong currency is linked to that of the currency of the United States, or a material fluctuation in the exchange rate of the Hong Kong dollar); 268

275 UNDERWRITING (iii) any new law or regulation or any change or development involving a prospective change in existing laws or regulations or any change or development involving a prospective change in the interpretation or application thereof by any court or other competent authority in or affecting Hong Kong, the Cayman Islands or BVI (the Relevant Jurisdictions ); (iv) (v) (vi) the imposition of economic sanctions on any of the Relevant Jurisdictions; a change or development involving a prospective change in any taxation or exchange control (or the implementation of any exchange control) in any of the Relevant Jurisdictions; any litigation or claim of importance instigated against any member of our Group or any Director; (vii) a Director being charged with an indictable offence or prohibited by operation of law or regulation or otherwise disqualified from taking part in the management of a company; (viii) a valid demand by any creditor for repayment or payment of any material indebtedness of any member of our Group or in respect of which any member of our Group is liable prior to its stated maturity; (ix) any material loss or damage sustained by any member of our Group (howsoever caused and whether or not the subject of any insurance or claim against any person); (x) (xi) any contravention by any member of our Group or any Director of the GEM Listing Rules or any applicable laws; a prohibition on our Company and the Selling Shareholder for whatever reason from allotting the New Shares and/or transferring the Sale Shares (as the case may be) pursuant to the terms of the Placing; (xii) non-compliance of this prospectus (and/or any other documents used in connection with the subscription and purchase of the Placing Shares) or any aspect of the Placing with the GEM Listing Rules or any other applicable laws by any of the Directors or the Warrantors; (xiii) the issue or requirement to issue by our Company of a supplement or amendment to any of the Relevant Documents (and/or any other documents used in connection with the subscription of the Placing Shares); (xiv) any change in the business, business prospects, financial or trading position, conditions or prospects (financial or otherwise) of our Group taken as a whole; 269

276 UNDERWRITING (xv) a petition or an order is presented for the winding-up or liquidation of any member of our Group or any member of our Group makes any composition or arrangement with its creditors or enters into a scheme of arrangement or any resolution is passed for the winding-up of any member of our Group or a provisional liquidator, receiver or manager is appointed over all or part of the assets or undertaking of any member of our Group or any analogous matter thereto occurs in respect of any member of our Group; (xvi) a disruption in or any general moratorium on commercial banking activities or foreign exchange trading or securities settlement, or payment or clearance services or procedures in or affecting any of the Relevant Jurisdictions; (xvii) any change or development in the conditions of local, national or international equity securities or other financial markets; or (xviii)the imposition of any moratorium, suspension or restriction on trading in shares or securities generally on or by the Stock Exchange or by any of the other exchanges or by such system or by order of any regulatory or governmental authority, which in each case or in aggregate in the sole and absolute opinion of the Sponsor and/or the Joint Bookrunners (for themselves and on behalf of the Underwriters): (i) (ii) is or will be materially adverse to or may prejudicially affect the business, financial, trading or other condition or prospects of our Group (as a whole) or any member of our Group; has or will have a material adverse effect on the success of the Placing or the level of interest under the Placing; (iii) makes or may make it inadvisable, inexpedient or impracticable to proceed with the Placing or the delivery of the Placing Shares on the terms and in the manner contemplated by any of the Relevant Documents; or (iv) has or would have the effect of making any part of the Underwriting Agreement (including undertaking) incapable of implementation or performance in accordance with its terms and in the manner contemplated by any of the Relevant Documents and the Underwriting Agreement or which prevents the processing of applications and/or payments pursuant to the Placing or pursuant to the underwriting thereof. Without prejudice to the above, if, at any time prior to 8:00 a.m. (Hong Kong time) on the Listing Date, it comes to the notice of the Sponsor and/or the Joint Bookrunners: (a) any matter or event showing any of the warranties contained in the Underwriting Agreement to be untrue, inaccurate or misleading in any material respect when given or repeated or any breach of any of the warranties contained in the 270

277 UNDERWRITING Underwriting Agreement or any other provision of the Underwriting Agreement by any party hereto (other than the Sponsor, the Joint Bookrunners and the Joint Lead Managers), which is considered, in the sole and absolute opinion of the Sponsor and/or the Joint Bookrunners (for themselves and on behalf of the Underwriters), to be material in the context of the Placing; or (b) (c) (d) any matter which, had it arisen immediately before the date of this prospectus and not having been disclosed in this prospectus, would have constituted a material omission in the sole and absolute opinion of the Sponsor and/or the Joint Bookrunners (for themselves and on behalf of the Underwriters) in the context of the Placing; or any statement contained in the this prospectus and the placing letter reasonably considered to be material by the Sponsor and/or the Joint Bookrunners which is discovered to be or becomes untrue, incorrect or misleading in any respect and in the sole and absolute opinion of the Sponsor and/or the Joint Bookrunners (for themselves and on behalf of the Underwriters) to be material in the context of the Placing; or any event, act or omission which gives rise or is likely to give rise to any material liability of any of the Warrantors pursuant to the indemnities contained in the Underwriting Agreement, the Sponsor and/or the Joint Bookrunners (for themselves and on behalf of the Underwriters) shall be entitled (but not bound) by notice in writing to our Company (for itself and on behalf of the Selling Shareholder, the executive Directors and our Controlling Shareholders) on or prior to such time to terminate the Underwriting Agreement. Commission and expenses In connection with the Placing, the Underwriters will receive an underwriting commission of 3.5% of the aggregate Placing Price of all the Placing Shares, out of which they will pay any sub-underwriting commissions. In connection with the Listing, the Sponsor will receive a sponsorship fee of HK$4,800,000 and will be reimbursed for its expenses. In connection with the Listing and the Placing, the total expenses are estimated to be approximately HK$20.9 million based on the Placing Price of HK$0.26 per Placing Share and including underwriting commission, brokerage fee, the Stock Exchange trading fee, the SFC transaction levy, the sponsorship and documentation fee, the listing fee, legal and other professional fees, printing cost and other expenses relating to the Placing of which approximately HK$18.4 million and approximately HK$2.5 million shall be borne by our Company and the Selling Shareholder, respectively. 271

278 UNDERWRITING Our Company, our Controlling Shareholders and our executive Directors have agreed to indemnify the Underwriters for certain losses which they may suffer, including losses arising from their performance of their obligations under the Underwriting Agreement and any breach by our Company, the Selling Shareholder, our Controlling Shareholders and our executive Directors pursuant to the terms of the Underwriting Agreement. Sponsor s and Underwriters interests in our Company The Sponsor has been appointed as the compliance adviser of the Company with effect from the Listing Date until the despatch of the audited consolidated financial results for the second full financial year after the Listing Date, and our Company will pay to the Sponsor an agreed fee for its provision of services as required under the GEM Listing Rules. Save for the interests and obligations under the Underwriting Agreement and the advisory fee payable to the Sponsor in respect of the Placing, none of the Sponsor, the Joint Bookrunners, the Joint Lead Managers or the Underwriters is interested beneficially or non-beneficially in any shares in any member of our Group or has any right (whether legally enforceable or not) or option to subscribe for or to nominate persons to subscribe for any shares in any member of our Group. Undertakings Undertakings to the Stock Exchange pursuant to the GEM Listing Rules Pursuant to Rule 13.16A of the GEM Listing Rules, each of the Controlling Shareholders has jointly and severally undertaken to our Company and the Stock Exchange that save as contemplated under the Placing or as provided under Rule of the GEM Listing Rules, he or it shall not and shall procure that the relevant registered shareholder(s) shall not, without the prior consent of the Stock Exchange: (a) (b) in the period commencing on the date by reference to which disclosure of our interests in our Company is made in this prospectus and ending on the date which is six months from the Listing Date, dispose of, nor enter into any agreement to dispose of or otherwise create any mortgage, charge, pledge, lien, option, restriction, right of first refusal, right of pre-emption, third-party right or interest, other right, interest or encumbrance or security of any kind or another type of preferential arrangement (including without limitation, a title transfer or retention arrangement) having similar effect (the Encumbrances ) in respect of, any of the Shares (or any securities of our Company) in respect of which he or it is shown by this prospectus to be the beneficial owner; or in the period of six months commencing on the date on which the period referred to in (a) above expires, dispose of, nor enter into any agreement to dispose of or otherwise create any Encumbrances in respect of, any of the Shares (or any securities of our Company) referred to in (a) above if, immediately following such disposal or upon the exercise or enforcement of such options, rights, interests or Encumbrances, the Controlling Shareholders would, either individually or taken together with any of them, cease to be a Controlling Shareholder. 272

279 UNDERWRITING Further, each of the Controlling Shareholders has jointly and severally undertaken to the Stock Exchange that he/it shall comply with the following requirements: (i) (ii) in the event that he or it pledges or charges any direct or indirect interest in any Shares or other securities of our Company under Rule 13.18(1) of the GEM Listing Rules or pursuant to any right or waiver granted by the Stock Exchange pursuant to Rule 13.18(4) of the GEM Listing Rules at any time during the relevant periods specified in sub-paragraphs (a) and (b) above, he or it must inform our Company immediately in writing disclosing the details specified in Rule 17.43(1) to (4) of the GEM Listing Rules; and having pledged or charged any interest in the Shares or other securities of our Company under sub-paragraph (i) above, he or it must inform our Company immediately in writing, in the event that he or it becomes aware that the pledgee or chargee has disposed of or intends to dispose of such interest and of the number of Shares (or other securities of our Company) affected. Undertakings pursuant to the Underwriting Agreement Under the Underwriting Agreement: (a) (i) each of our Controlling Shareholders has jointly and severally undertakes to and covenants with our Company, the Sponsor, the Joint Bookrunners and the Joint Lead Managers (for themselves and on behalf of the Underwriters) that: (a) he or it shall comply with all the applicable restrictions and requirements under the GEM Listing Rules on the disposal by him or it or by any registered holder on his or its behalf, of any Shares or other securities of our Company in respect of which he or it is shown in this prospectus to be the beneficial owner (directly or indirectly); (b) during the period commencing on the date by reference to which disclosure of the shareholding of our Controlling Shareholder is made in this prospectus and ending on the date which is 6 months from the Listing Date (the First Six-Month Period ), he/it shall not, and shall procure that the relevant registered holder(s) and his/its associates and companies controlled by him/it and any nominee or trustee holding on trust for himself/itself shall not, without the prior written consent of the Sponsor and the Joint Bookrunners or otherwise in compliance with the requirements of the GEM Listing Rules, (i) offer, pledge, charge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant or agree to grant any option, right or warrant to purchase or subscribe for, lend or otherwise transfer or dispose of, either directly or indirectly, any of the Shares or any securities convertible into or exercisable or exchangeable for, or that represent the right to receive any such Shares or such securities; or (ii) enter into any swap or other arrangement that transfers to another, in 273

280 UNDERWRITING whole or in part, any of the economic consequences of ownership of such Shares, whether any of the foregoing transactions is to be settled by delivery of Shares or such other securities, in cash or otherwise; (iii) agree (conditionally or unconditionally) to enter into or effect any transaction with the same economic effect as any of the transactions referred to in (i) or (ii) above; or (iv) announce any intention to enter into or effect any of the transactions referred to in (i), (ii) or (iii) above; (c) (d) during the period of 6 months commencing on the date immediately following the date on which the First Six-Month Period expires (the Second Six-Month Period ), he/it shall not, and shall procure that the relevant registered holder(s) and his/its associates or companies controlled by him/it and any nominee or trustee holding in trust for himself/itself shall not, without the prior written consent of the Sponsor, the Joint Bookrunners and the Stock Exchange (if required under the GEM Listing Rules), dispose of, nor enter into any agreement to dispose of or otherwise create any options, rights, interests or encumbrances in respect of, any Shares held by him/it or any of his/its associates or companies controlled by him/it or any nominee or trustee holding on trust for himself/itself if, immediately following such disposal or upon the exercise or enforcement of such options, rights, interests or encumbrances, he/it would together cease to be our Controlling Shareholder; and in the event of a disposal of any Shares or securities of our Company or any interest therein within the Second Six-Month Period, he/it shall take all reasonable steps to ensure that such a disposal shall not create a disorderly or false market for any Shares or other securities of the Company, provided that the restrictions in this paragraph (i)(b) and (c) shall not apply to any Shares which our Controlling Shareholders or any of his/its respective associates may acquire or become interested in following the Listing Date; (ii) each of our Controlling Shareholders undertakes to and covenants with our Company, the Sponsor, the Joint Bookrunners, the Joint Lead Managers and the Stock Exchange that: (A) in the event that he/it pledges or charges any of his/its direct or indirect interest in the Shares under Rule 13.18(1) of the GEM Listing Rules or pursuant to any right or waiver granted by the Stock Exchange pursuant to Rule 13.18(4) of the GEM Listing Rules at any time during the relevant periods as specified in paragraph (i) above, he/it must inform our Company, the Sponsor, the Joint Bookrunners and the Joint Lead Managers immediately thereafter, disclosing the details as specified in Rule 17.43(1) to (4) of the GEM Listing Rules; and 274

281 UNDERWRITING (B) having pledged or charged any of his/its interests in the Shares under sub-paragraph (A) above, he/it must inform our Company, the Sponsor, the Joint Bookrunners and the Joint Lead Managers immediately in the event that he/it becomes aware that the pledgee or chargee has disposed of or intends to dispose of such interest and of the number of the Shares affected; and (b) our Company undertakes to and covenants with the Sponsor, the Joint Bookrunners and the Joint Lead Managers (for themselves and on behalf of the Underwriters), and each of our executive Directors and our Controlling Shareholders jointly and severally undertakes to and covenants with the Sponsor, the Joint Bookrunners and the Joint Lead Managers (for themselves and on behalf of the Underwriters) to procure that, save with the prior written consent of the Sponsor and the Joint Bookrunners (for themselves and on behalf of the Underwriters), or save pursuant to the Placing, our Company shall not, within the period of six months from the Listing Date: (i) save as permitted under the GEM Listing Rules (including but not limited to Rule of the GEM Listing Rules) and the applicable laws or pursuant to an issue of Shares under the Share Option Scheme, either directly or indirectly, conditionally or unconditionally, allot or issue or agree to allot or issue any Shares or any other securities of our Company (including warrants or other convertible securities (and whether or not a class already listed)); (ii) grant or agree to grant either directly or indirectly, conditionally or unconditionally, any options, warrants or other rights carrying any rights to subscribe for or otherwise convert into, or exchange for any Shares or any other securities of our Company; (iii) purchase any securities of our Company; (iv) (v) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of subscription or ownership of Shares or such securities, whether any of the foregoing transactions is to be settled by delivery of Shares or such securities, in cash or otherwise; or offer to or agree to do any of the foregoing or announce any intention to do so. Our Company will inform the Stock Exchange as soon as it has been informed of the above matters (if any) by the Controlling Shareholders and disclose such matters by way of publishing an announcement in accordance with Rule of the GEM Listing Rules. 275

282 STRUCTURE AND CONDITIONS OF THE PLACING PRICE PAYABLE ON SUBSCRIPTION The Placing Price plus a 1% brokerage fee, a % SFC transaction levy and a 0.005% Stock Exchange trading fee make up the total price payable in cash on subscription. CONDITIONS OF THE PLACING The Placing will be conditional upon, among others: (a) (b) the Stock Exchange granting the listing of, and permission to deal in, the Shares in issue and the Shares to be issued as mentioned herein on GEM; and the obligations of the Underwriters under the Underwriting Agreement becoming unconditional (including the waiver of any condition(s) by the Joint Bookrunners (for themselves and on behalf of the Underwriters) and the Underwriting Agreement not being terminated in accordance with the terms of that agreement or otherwise), in each case, on or before the dates and times specified in the Underwriting Agreement (unless and to the extent such conditions are validly waived on or before such dates and times) or such other dates as the Joint Bookrunners (for themselves and on behalf of the Underwriters) may agree but in any event not later than the 30th day after the date of this prospectus. If such conditions are not fulfilled or waived by the Joint Bookrunners (for themselves and on behalf of the Underwriters) prior to the times and dates specified, the Placing will lapse and the Stock Exchange will be notified immediately. Notice of the lapse of the Placing will be published by our Company on the website of the Stock Exchange at and the website of our Company at immediately following such lapse. THE PLACING 312,000,000 Placing Shares (comprising 208,000,000 New Shares to be offered by our Company and 104,000,000 Sale Shares to be offered by the Selling Shareholder) are being offered pursuant to the Placing, representing in aggregate 25% of the enlarged issued share capital of our Company immediately after completion of the Placing and the Capitalisation Issue. The Placing is fully underwritten by the Underwriters (subject to the terms and conditions of the Underwriting Agreement). Pursuant to the Placing, 208,000,000 New Shares are being conditionally offered by our Company for subscription and 104,000,000 Sale Shares conditionally offered by the Selling Shareholder for purchase. It is expected that the Underwriters or selling agents nominated by them, on behalf of our Company and the Selling Shareholder, will conditionally place 312,000,000 Placing Shares (comprising 208,000,000 New Shares to be offered by our Company and 104,000,000 Sale Shares to be offered by the Selling Shareholder) at the Placing Price to selected professional, institutional and other investors in Hong Kong. Professional and institutional investors generally include 276

283 STRUCTURE AND CONDITIONS OF THE PLACING brokers, dealers, companies, high net worth individuals and companies (including fund managers) whose ordinary business involves dealings in shares and other securities and corporate entities which regularly invest in shares and other securities. BASIS OF ALLOCATION Allocation of the Placing Shares to selected professional, institutional and other investors will be based on a number of factors, including the level and timing of demand and whether or not it is expected that the relevant investors are likely to purchase further Shares or hold or sell their Shares after the Listing. Such allocation is intended to result in a distribution of the Placing Shares which would lead to the establishment of a solid professional and institutional shareholder base to the benefit of our Company and the Shareholders as a whole. In particular, the Placing Shares will be allocated pursuant to Rule 11.23(8) of the GEM Listing Rules, that not more than 50% of the Shares in public hands at the time of Listing will be owned by the three largest public Shareholders. There will not be any preferential treatment in the allocation of the Placing Shares to any persons. No allocations will be permitted to nominee companies unless the name of the ultimate beneficiary is disclosed, without the prior written consent of the Stock Exchange. Details of the Placing will be announced in accordance with Rules 10.12(4), and of the GEM Listing Rules. COMMENCEMENT OF DEALINGS Dealings in the Shares on GEM are expected to commence at 9:00 a.m. on Tuesday, 12 April The Shares will be traded in board lots of 10,000 Shares each. The stock code of the Shares is SHARES WILL BE ELIGIBLE FOR ADMISSION INTO CCASS If the Stock Exchange grants the listing of and permission to deal in the Shares in issue and to be issued as mentioned in this prospectus on GEM and the Company complies with the stock admission requirements of HKSCC, the Shares will be accepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with effect from the date of commencement of dealings in the Shares on GEM or any other date as determined by HKSCC. Settlement of transactions between participants of the Stock Exchange is required to take place in CCASS on the second business day after any trading day. All necessary arrangements have been made for the Shares to be admitted into CCASS. All activities under CCASS are subject to the General Rules of CCASS and CCASS Operational Procedures in effect from time to time. In respect of the dealings in the Shares which may be settled through CCASS, investors should seek the advice of their stockbroker or other professional adviser for details of those settlement arrangements and how such arrangements will affect their rights and interests. 277

284 STRUCTURE AND CONDITIONS OF THE PLACING PLACING PRICE Based on the Placing Price of HK$0.26 per Placing Share plus 1% brokerage fee, % SFC transaction levy and 0.005% Stock Exchange trading fee, one board lot of 10,000 Shares will amount to a total of HK$2, Our Company experts to announce the level of indication of interests in the Placing on or before Monday, 11 April 2016 on the website of the Stock Exchange at and our Company s website at 278

285 APPENDIX I ACCOUNTANT S REPORT The following is the text of a report received from the Company s reporting accountants, Grant Thornton Hong Kong Limited, Certified Public Accountants, Hong Kong, for the purpose of incorporation in this prospectus. It is prepared and addressed to the directors of the Company and to the Sponsor pursuant to the requirements of Auditing Guideline Prospectuses and the Reporting Accountant issued by the Hong Kong Institute of Certified Public Accountants. The directors Luen Wong Group Holdings Limited TC Capital Asia Limited Dear Sirs, 31 March 2016 We report on the financial information of Luen Wong Group Holdings Limited (the Company ) and its subsidiaries (collectively referred to as the Group ), which comprises the combined statements of financial position as at 31 March 2014 and 2015, and 30 November 2015, and the statement of financial position of the Company as at 30 November 2015, the combined statements of comprehensive income, the combined statements of changes in equity and the combined statements of cash flows for each of the years ended 31 March 2014 and 2015 and the eight months ended 30 November 2015 (the Track Record Period ), and a summary of significant accounting policies and other explanatory information (the Financial Information ) and the comparative combined statement of comprehensive income, combined statement of changes in equity and combined statement of cash flows of the Group for the eight months ended 30 November 2014 (the Interim Comparative Information ), prepared on the basis of presentation set out in Note 1.3 of Section II below, for inclusion in Appendix I to the prospectus of the Company dated 31 March 2016 (the Prospectus ) in connection with the initial listing of the shares of the Company on the Growth Enterprise Market ( GEM ) of The Stock Exchange of Hong Kong Limited (the Stock Exchange ). The Company was incorporated as an exempted company with limited liability in the Cayman Islands under the Companies Law (as revised) of the Cayman Islands on 16 October Pursuant to a group reorganisation (the Reorganisation ) as detailed in the section headed History and Development in the Prospectus, which was completed on 22 February 2016, the Company became the holding company of the companies now comprising the Group. Apart from the Reorganisation, the Company has not commenced any business or operation since its incorporation. I-1

286 APPENDIX I ACCOUNTANT S REPORT As at the date of this report, the Company has direct and indirect interests in the subsidiaries as set out in Note 1.2 of Section II below. All of these companies are private companies or, if incorporated or established outside Hong Kong, have substantially the same characteristics as a Hong Kong incorporated private company. No audited financial statements have been prepared by the Company as it is not required to issue any audited financial statements under the statutory requirement in the Cayman Islands. The audited financial statements of the other companies now comprising the Group as at the date of this report for which there are statutory audit requirements have been prepared in accordance with the relevant accounting principles generally accepted in their place of incorporation. The details of the statutory auditors of these companies are set out in Note 1.2 of Section II below. For the purpose of this report, the directors of the Company have prepared the combined financial statements of the Group (the Underlying Financial Statements ) in accordance with Hong Kong Financial Reporting Standards ( HKFRSs ), which include all applicable Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards ( HKASs ) and Interpretations issued by the Hong Kong Institute of Certified Public Accountants (the HKICPA ). The Underlying Financial Statements for each of the years ended 31 March 2014 and 2015 and the eight months ended 30 November 2015 were audited by us in accordance with Hong Kong Standards on Auditing issued by the HKICPA pursuant to separate terms of engagement with the Company. The Financial Information has been prepared based on the Underlying Financial Statements, with no adjustment made thereon. Directors responsibility The directors of the Company are responsible for the preparation of the Underlying Financial Statements and the Financial Information that give a true and fair view in accordance with HKFRSs, and for such internal control as the directors determine is necessary to enable the preparation of the Underlying Financial Statements and the Financial Information that are free from material misstatement, whether due to fraud or error. The directors of the Company are responsible for the preparation of the Interim Comparative Financial Information in accordance with the same basis adopted in respect of the Financial Information. Reporting accountants responsibility It is our responsibility to form an independent opinion and a review conclusion on the Financial Information and the Interim Comparative Information, respectively, and to report our opinion and review conclusion thereon to you. For the purpose of this report, we have carried out procedures on the Financial Information in accordance with Auditing Guideline Prospectuses and the Reporting Accountant issued by the HKICPA. I-2

287 APPENDIX I ACCOUNTANT S REPORT We have also performed a review of the Interim Comparative Information in accordance with Hong Kong Standard on Review Engagements 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the HKICPA. A review consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion on the Interim Comparative Information. Opinion in respect of the Financial Information In our opinion, for the purpose of this report and on the basis of presentation set out in Note 1.3 of Section II below, the Financial Information gives a true and fair view of the state of affairs of the Group as at 31 March 2014 and 2015 and 30 November 2015 and of the Company as at 30 November 2015, and of the combined results and cash flows of the Group for each financial year/period during the Track Record Period. Review conclusion in respect of the Interim Comparative Information Based on our review, for the purpose of this report, nothing has come to our attention that causes us to believe that the Interim Comparative Information is not prepared, in all material respects, in accordance with the same basis adopted in respect of the Financial Information. I-3

288 APPENDIX I ACCOUNTANT S REPORT I FINANCIAL INFORMATION COMBINED STATEMENTS OF COMPREHENSIVE INCOME Eight months ended Year ended 31 March 30 November Note HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Unaudited) Revenue 4 159, , , ,641 Costs of sales (144,943) (246,349) (170,904) (137,355) Gross profit 15,020 25,600 15,421 17,286 Other income ,236 Administrative and other operating expenses (3,607) (3,772) (1,493) (10,122) Profit from operations 11,838 22,174 14,275 9,400 Finance costs 7 (452) (471) (291) (338) Profit before income tax 8 11,386 21,703 13,984 9,062 Income tax expense 9 (1,956) (3,624) (2,337) (2,670) Profit and total comprehensive income for the year/period attributable to equity holders of the Company 9,430 18,079 11,647 6,392 Earnings per share attributable to equity holders of the Company Basic and diluted 13 N/A N/A N/A N/A I-4

289 APPENDIX I ACCOUNTANT S REPORT COMBINED STATEMENTS OF FINANCIAL POSITION As at 30 As at 31 March November Note HK$ 000 HK$ 000 HK$ 000 ASSETS AND LIABILITIES Non-current assets Investment property 14 11,697 11,140 Property, plant and equipment 15 13,722 11,833 13,274 Deferred tax assets 23 3,280 28,699 22,973 13,274 Current assets Amount due from a director 16(a) 523 Amounts due from customers for contract work 17 7,555 9,474 17,593 Trade and other receivables 18 35,276 54,215 54,320 Cash and bank balances 19 3,419 5,900 7,977 46,250 70,112 79,890 Current liabilities Trade and other payables 20 23,941 19,717 27,436 Amounts due to customers for contract work 17 39,891 39,980 28,326 Amounts due to directors 16(b) 6,604 2,689 10,056 Obligations under finance leases 21 1,474 1,199 1,537 Bank loans and overdrafts 22 10,536 18,940 5,688 Tax payable 1,607 82,446 82,525 74,650 Net current (liabilities)/assets (36,196) (12,413) 5,240 Total assets less current liabilities (7,497) 10,560 18,514 I-5

290 APPENDIX I ACCOUNTANT S REPORT As at 30 As at 31 March November Note HK$ 000 HK$ 000 HK$ 000 Non-current liabilities Obligations under finance leases 21 2,278 1,912 2,411 Deferred tax liabilities ,407 2,278 2,256 3,818 Net (liabilities)/assets (9,775) 8,304 14,696 Capital and reserves Share capital 24 Reserves (9,775) 8,304 14,696 (Capital deficiency)/equity attributable to equity holders of the Company (9,775) 8,304 14,696 I-6

291 APPENDIX I ACCOUNTANT S REPORT STATEMENT OF FINANCIAL POSITION OF THE COMPANY Note As at 30 November 2015 HK$ 000 ASSETS AND LIABILITIES Current asset Amount due from ultimate holding company Net assets EQUITY Share capital 24 Accumulated losses Total equity I-7

292 APPENDIX I ACCOUNTANT S REPORT COMBINED STATEMENTS OF CHANGES IN EQUITY (Capital deficiency)/equity attributable to equity holders of the Company (Accumulated Share capital Capital reserve losses)/ Retained earnings (Capital deficiency)/ Total equity HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Note 24) (Note 25) Balance as at 1 April ,820 (23,025) (19,205) Profit and total comprehensive income for the year 9,430 9,430 Balance as at 31 March 2014 and 1 April ,820 (13,595) (9,775) Profit and total comprehensive income for the year 18,079 18,079 Balance as at 31 March 2015 and 1 April ,820 4,484 8,304 Profit and total comprehensive income for the period 6,392 6,392 Balance as at 30 November ,820 10,876 14,696 Balance as at 1 April 2014 (audited) 3,820 (13,595) (9,775) Profit and total comprehensive income for the period (unaudited) 11,647 11,647 Balance as at 30 November 2014 (unaudited) 3,820 (1,948) 1,872 I-8

293 APPENDIX I ACCOUNTANT S REPORT COMBINED STATEMENTS OF CASH FLOWS Eight months ended Year ended 31 March 30 November Note HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Unaudited) Cash flows from operating activities Profit before income tax 11,386 21,703 13,984 9,062 Adjustments for: Depreciation 3,676 3,264 2,030 2,009 (Gain)/Loss on disposal of property, plant and equipment (120) 306 (111) (120) Gain on disposal of investment property (1,792) Finance costs Operating profit before working capital changes 15,394 25,744 16,194 9,497 Decrease/(Increase) in trade and other receivables 3,695 (18,939) (19,061) (105) Increase in amounts due from customers for contract work (7,149) (1,919) (4,841) (8,119) Decrease/(Increase) in amount due from a director 23 (523) 523 Increase/(Decrease) in trade and other payables 8,749 (4,224) 4,908 7,719 (Decrease)/Increase in amounts due to customers for contract work (13,855) (11,654) Increase/(Decrease) in amounts due to directors 545 (3,915) 1,403 7,367 Net cash generated from/(used in) operating activities 7,402 (3,687) (1,169) 5,228 I-9

294 APPENDIX I ACCOUNTANT S REPORT Eight months ended Year ended 31 March 30 November Note HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Unaudited) Cash flows from investing activities Proceeds from disposal of property, plant and equipment Proceeds from disposal of investment property 12,700 Purchases of property, plant and equipment (4,625) (510) (494) (1,643) Net cash (used in)/generated from investing activities (4,478) 209 (383) 11,495 Cash flows from financing activities Proceeds from new bank loans 3,000 4,000 Interest paid (238) (302) (181) (214) Interest element of finance leases (214) (169) (110) (124) Repayments of bank loans (1,876) (1,078) (716) (7,938) Repayment of capital element of finance leases (1,566) (1,974) (991) (1,056) Net cash (used in)/generated from financing activities (894) 477 (1,998) (9,332) Net increase/(decrease) in cash and cash equivalents 2,030 (3,001) (3,550) 7,391 Cash and cash equivalents at the beginning of the year/period 1,389 3,419 3, Cash and cash equivalents at the end of the year/ period 19 3, (131) 7,809 I-10

295 APPENDIX I ACCOUNTANT S REPORT II NOTES TO THE FINANCIAL INFORMATION 1. GENERAL INFORMATION, REORGANISATION AND BASIS OF PRESENTATION 1.1 General information The Company was incorporated as an exempted company with limited liability in the Cayman Islands under the Companies Law (as revised) of the Cayman Islands on 16 October The addresses of the Company s registered office and principal place of business are set out in the section headed Corporate Information of the Prospectus. The Company is an investment holding company. The Group is principally engaged in the provision of civil engineering works. The Company s immediate and ultimate holding company is Blooming Union Investments Limited, a company incorporated in the British Virgin Islands ( BVI ). Blooming Union Investments Limited is controlled by Mr. Wong Che Kwo and Mr. Wong Wing Wah. Blooming Union Investments Limited, Mr. Wong Che Kwo and Mr. Wong Wing Wah are referred to as the Controlling Shareholders. 1.2 Reorganisation Pursuant to a group reorganisation (the Reorganisation ) as detailed in the section headed History and Development in the Prospectus, which was completed on 22 February 2016, the Company became the holding company of the companies now comprising the Group. Upon the completion of the Reorganisation and as at the date of this report, the Company had direct or indirect interest in the following subsidiaries: Name of company Place and date of incorporation Issued and paid up capital Equity interest held Principal activities Note Super Pioneer Trading Limited ( Super Pioneer ) BVI, 1 July 2015 US$1 100% (Direct) Investment holding (a) Luen Hing Construction & Eng. Limited ( Luen Hing ) Hong Kong, 11 November 1998 HK$3,800, % (Indirect) Provision of civil engineering works (b) Hop Fung Construction & Engineering Company Limited ( Hop Fung ) Hong Kong, 31 July 2002 HK$20, % (Indirect) Provision of civil engineering works (b) Notes: (a) (b) No audited financial statements have been prepared as it is not required to issue any audited financial statements under the statutory requirement in its place of incorporation. The statutory financial statements for the year ended 31 March 2014 were prepared in accordance with the Small and Medium-sized Entity Financial Reporting Standard issued by the HKICPA and were audited by Francis S.L. Yan & Co., Certified Public Accountants. The statutory financial statements for the year ended 31 March 2015 were prepared in accordance with Hong Kong Financial Reporting Standards issued by the HKICPA and were audited by Lai Yiu Hong Certified Public Accountants (Practising). All companies comprising the Group have adopted 31 March as their financial year end date. I-11

296 APPENDIX I ACCOUNTANT S REPORT 1.3 Basis of presentation Pursuant to the Reorganisation as more fully explained in the paragraphs headed Reorganisation in the section headed History and Development to the Prospectus, the Company became the holding company of the companies now comprising the Group on 22 February During the Track Record Period, both of Luen Hing and Hop Fung were controlled by the Controlling Shareholders. Pursuant to the Reorganisation, which was completed by interspersing the Company and Super Pioneer between Luen Hing and Hop Fung and the Controlling Shareholders, the Company became the holding company of the companies now comprising the Group on 22 February The Group is under the common control of the Controlling Shareholders prior to and after the Reorganisation. The Group comprising the Company and its subsidiaries resulting from the Reorganisation is regarded as a continuing entity. The combined statements of comprehensive income, combined statements of changes in equity and combined statements of cash flows for the Track Record Period which include the results, changes in equity and cash flows of the companies comprising the Group have been prepared using the principles of merger accounting under Hong Kong Accounting Guideline 5 Merger Accounting for Common Control Combinations as if the Company had always been the holding company of the Group and the current group structure had been in existence throughout the Track Record Period, or since their respective dates of incorporation/establishment, where it is a shorter period. The combined statements of financial position as at 31 March 2014 and 2015 and 30 November 2015 have been prepared to present the assets and liabilities of the companies comprising the Group as if the current group structure had been in existence at those dates. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies applied in the preparation of the Financial Information are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated. 2.1 Basis of preparation The Financial Information has been prepared in accordance with Hong Kong Financial Reporting Standards ( HKFRSs ) issued by the HKICPA which are effective for the accounting period beginning on 1 April 2015 throughout the Track Record Period. The Financial Information also complies with the applicable disclosure provisions of the Rules Governing the Listing of Securities on the Growth Enterprise Market ( GEM ) of the Stock Exchange. The significant accounting policies that have been used in the preparation of this Financial Information are summarised below. These policies have been consistently applied to all the periods presented in the Financial Information. The Financial Information has been prepared on the historical cost convention. The Financial Information is presented in Hong Kong Dollars ( HK$ ), which is the functional currency of the Company and its major subsidiaries, and all values are rounded to the nearest thousands ( HK$ 000 ), except when otherwise indicated. The preparation of the Financial Information in conformity with HKFRSs requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the accounting policies of the Group. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the Financial Information are disclosed in Note 3 below. The following new and amended HKFRSs that are relevant to the Group have been issued but are not yet effective for the financial year beginning 1 April 2015, and have not been early adopted by the Group: Annual Improvements Project Annual Improvements Cycle 1 HKAS 1 Amendment Disclosure Initiative 1 HKFRS 9 Financial Instruments 2 I-12

297 APPENDIX I ACCOUNTANT S REPORT HKFRS 15 Revenue from Contracts with Customers Effective for annual periods beginning on or after 1 January 2016 Effective for annual periods beginning on or after 1 January 2018 The Group is in the process of making an assessment of the impact of these new and revised HKFRSs upon initial application and not yet in a position to state whether they would have a significant impact on the Group s results of operations and financial position. 2.2 Basis of consolidation and combination The Financial Information incorporates the financial statements of the Company and its subsidiaries (collectively referred to as the Group ) for the Track Record Period. The financial statements of the subsidiaries are prepared for the same reporting period as the Company, using consistent accounting policies. Subsidiaries are entities controlled by the Group. The Group controls an entity when the Group is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. When assessing whether the Group has power over the entity, only substantive rights relating to the entity (held by the Group and others) are considered. The Group includes the income and expenses of a subsidiary in the combined financial statements from the date it gains control until the date when the Group ceases to control the subsidiary. Intra-group transactions, balances and unrealised gains and losses on transactions between group companies are eliminated in preparing the combined financial statements. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group. Changes in the Group s interests in subsidiaries that do not result in a loss of control are accounted for as equity transactions, whereby adjustments are made to the amounts of controlling interests within combined equity to reflect the change in relative interests, but no adjustments are made to goodwill and no gain or loss is recognised. When the Group loses control of a subsidiary, the profit or loss on disposal is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. Where certain assets of the subsidiary are measured at revalued amounts or fair values and the related cumulative gain or loss has been recognised in other comprehensive income and accumulated in equity, the amounts previously recognised in other comprehensive income and accumulated in equity are accounted for as if the Company had directly disposed of the related assets (i.e., reclassified to profit or loss or transferred directly to retained earnings). The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under HKAS 39 Financial Instruments: Recognition and Measurement or, when applicable, the cost on initial recognition of an investment in an associate or a joint venture. 2.3 Foreign currency translation In the individual financial statements of the combined entities, foreign currency transactions are translated into the functional currency of the individual entity using the exchange rates prevailing at the dates of the transactions. At the reporting date, monetary assets and liabilities denominated in foreign currencies are translated at the foreign exchange rates ruling at that date. Foreign exchange gains and losses resulting from the settlement of such transactions and from the reporting date retranslation of monetary assets and liabilities are recognised in profit or loss. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. I-13

298 APPENDIX I ACCOUNTANT S REPORT 2.4 Investment property Investment property is land and/or buildings which are owned or held under a leasehold interest to earn rental income and/or for capital appreciation. These include land held for a currently undetermined future use and property that is being constructed or developed for future use as investment property. When the Group holds a property interest under an operating lease to earn rental income and/or for capital appreciation, the interest is classified and accounted for as an investment property on a property-by-property basis. Any such property interest which has been classified as an investment property is accounted for as if it was held under a finance lease. On initial recognition, investment property is measured at cost, including any directly attributable expenditure. Subsequent to initial recognition, investment property is stated at cost less subsequent accumulated depreciation and impairment losses. Depreciation is provided to write-off the cost of investment property using the straight line method over their estimated useful life of 25 years or over the lease term, if shorter. Gains or losses arising from the sale of an investment property are included in profit or loss in the period in which they arise. 2.5 Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. Depreciation is provided to write-off the cost less their residual values over their estimated useful lives, using the straight-line method, at the rates per annum as follows: Land and buildings 5% Furniture and equipment 10% Site equipment 10% Motor vehicles 20% Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the term of the relevant lease. The assets residual values, depreciation methods and useful lives are reviewed, and adjusted if appropriate, at each reporting date. The gain or loss arising on retirement or disposal is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss. Subsequent costs are included in the asset s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other costs, such as repairs and maintenance are charged to profit or loss during the financial period in which they are incurred. 2.6 Financial assets The Group s accounting policies for financial assets other than investments in subsidiaries are set out below. I-14

299 APPENDIX I ACCOUNTANT S REPORT Financial assets of the Group are classified into loans and receivables. Management determines the classification of its financial assets at initial recognition depending on the purpose for which the financial assets were acquired and where allowed and appropriate, re-evaluates this designation at every reporting date. All financial assets are recognised when, and only when, the Group becomes a party to the contractual provisions of the instrument. Regular way purchases of financial assets are recognised on trade date. When financial assets are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. Derecognition of financial assets occurs when the rights to receive cash flows from the investments expire or are transferred and substantially all of the risks and rewards of ownership have been transferred. At each reporting date, financial assets are reviewed to assess whether there is objective evidence of impairment. If any such evidence exists, an impairment loss is determined and recognised based on the classification of the financial asset. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables are subsequently measured at amortised cost using the effective interest method, less any impairment losses. Amortised cost is calculated taking into account any discount or premium on acquisition and includes fees that are an integral part of the effective interest rate and transaction cost. Impairment of financial assets At each reporting date, financial assets are reviewed to determine whether there is any objective evidence of impairment. Objective evidence of impairment of individual financial assets includes observable data that comes to the attention of the Group about one or more of the following loss events: significant financial difficulty of the debtor; a breach of contract, such as a default or delinquency in interest or principal payments; it becoming probable that the debtor will enter bankruptcy or other financial reorganisation; significant changes in the technological, market, economic or legal environment that have an adverse effect on the debtor; the disappearance of an active market for that financial asset because of financial difficulties; and a significant or prolonged decline in the fair value of an investment in an equity instrument below its cost. Loss events in respect of a group of financial assets include observable data indicating that there is a measurable decrease in the estimated future cash flows from the group of financial assets. Such observable data includes but not limited to adverse changes in the payment status of debtors in the Group and, national or local economic conditions that correlate with defaults on the assets in the Group. If there is objective evidence that an impairment loss on loans and receivables carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset s original effective interest rate (i.e. the effective interest rate computed at initial recognition). The amount of the loss is recognised in profit or loss of the period in which the impairment occurs. I-15

300 APPENDIX I ACCOUNTANT S REPORT 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 to the extent that it does not result in a carrying amount of the financial asset exceeding what the amortised cost would have been had the impairment not been recognised at the date the impairment is reversed. The amount of the reversal is recognised in profit or loss of the period in which the reversal occurs. Impairment losses on financial assets other than trade and retention monies receivables that are stated at amortised cost, are written-off against the corresponding assets directly. Where the recovery of trade and retention monies receivables is considered doubtful but not remote, the impairment losses for doubtful receivables are recorded using an allowance account. When the Group is satisfied that recovery of trade and retention monies receivables is remote, the amount considered irrecoverable is written-off against trade and retention monies receivables directly and any amounts held in the allowance account in respect of that receivable are reversed. Subsequent recoveries of amounts previously charged to the allowance account are reversed against the allowance account. Other changes in the allowance account and subsequent recoveries of amounts previously written-off directly are recognised in profit or loss. 2.7 Construction contracts Construction contracts are contracts specifically negotiated for the construction of an asset or a combination of assets where the customer is able to specify the major structural elements of the design. The accounting policy for contract revenue is set out in Note When the outcome of a construction contract can be estimated reliably, contract costs are recognised as an expense by reference to the stage of completion of the contract at the reporting date. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately. When the outcome of a construction contract cannot be estimated reliably, contract costs are recognised as an expense in the period in which they are incurred. Construction contracts in progress at the reporting date are recorded in the combined statements of financial position at the net amount of costs incurred plus recognised profit less recognised losses and progress billings, and are presented as Amounts due from customers for contract work (as an asset) or Amounts due to customers for contract work (as a liability). Progress billings not yet paid by customers are included in the combined statements of financial position under Trade and other receivables. Amounts received before the related work is performed are included under Trade and other payables. 2.8 Cash and cash equivalents Cash and cash equivalents include cash at bank and in hand, demand deposits with banks and short term highly liquid investments with original maturities of three months or less that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value. For the purpose of the combined statements of cash flows presentation, cash and cash equivalents include bank overdrafts which are repayable on demand and form an integral part of the Group s cash management. 2.9 Financial liabilities The Group s financial liabilities include trade and other payables, bank loans, overdrafts, amounts due to directors and finance lease liabilities. Financial liabilities are recognised when the Group becomes a party to the contractual provisions of the instrument. All interest related charges are expensed when incurred. A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amount is recognised in profit or loss. I-16

301 APPENDIX I ACCOUNTANT S REPORT Trade and other payables and amounts due to directors They are recognised initially at their fair value and subsequently measured at amortised cost, using the effective interest method. Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in profit or loss over the period of the borrowings using the effective interest method. Finance lease liabilities Finance lease liabilities are measured at initial value less the capital element of lease repayments (see Note 2.11) Impairment of non-financial assets Investment property and property, plant and equipment are subject to impairment testing. They are tested for impairment whenever there are indications that the asset s carrying amount may not be recoverable. An impairment loss is recognised as an expense immediately for the amount by which the asset s carrying amount exceeds its recoverable amount. Recoverable amount is the higher of fair value, reflecting market conditions less costs of disposal, and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessment of time value of money and the risk specific to the asset. For the purposes of assessing impairment, where an asset does not generate cash inflows largely independent from those from other assets, the recoverable amount is determined for the smallest group of assets that generate cash inflows independently (i.e. a cash-generating unit). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level. Impairment losses recognised is charged pro rata to the assets in the cash generating unit, except that the carrying value of an asset will not be reduced below its individual fair value less costs of disposal, or value in use, if determinable. An impairment loss is reversed if there has been a favourable change in the estimates used to determine the asset s recoverable amount and only to the extent that the asset s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised Leases An arrangement, comprising a transaction or a series of transactions, is or contains a lease if the Group determines that the arrangement conveys a right to use a specific asset or assets for an agreed period of time in return for a payment or a series of payments. Such a determination is made based on an evaluation of the substance of the arrangement and is regardless of whether the arrangement takes the legal form of a lease. Classification of assets leased to the Group Assets that are held by the Group under leases which transfer to the Group substantially all the risks and rewards of ownership are classified as being held under finance leases. Leases which do not transfer substantially all the risks and rewards of ownership to the Group are classified as operating leases. I-17

302 APPENDIX I ACCOUNTANT S REPORT Assets acquired under finance leases Where the Group acquires the use of assets under finance leases, the amounts representing the fair value of the leased asset, or, if lower, the present value of the minimum lease payments of such assets, are included in property, plant and equipment and the corresponding liabilities, net of finance charges, are recorded as obligation under finance leases. Subsequent accounting for assets held under finance lease agreements corresponds to those applied to comparable acquired assets. The corresponding finance lease liability is reduced by lease payments less finance charges. Finance charges implicit in the lease payments are charged to profit or loss over the period of the leases so as to produce an approximately constant periodic rate of charge on the remaining balance of the obligations for each accounting period. Operating lease charges as the lessee Where the Group has the right to use of assets held under operating leases, payments made under the leases are charged to the profit or loss on a straight-line basis over the lease terms except where an alternative basis is more representative of the time pattern of benefits to be derived from the leased assets. Lease incentives received are recognised in profit or loss as an integral part of the aggregate net lease payments made. Contingent rental are charged to profit or loss in the accounting period in which they are incurred. Assets leased out under operating leases as the lessor Assets leased out under operating leases are measured and presented according to the nature of the assets. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised as an expense over the lease term on the same basis as the rental income. Rental income receivable from operating leases is recognised in profit or loss on a straight-line basis over the periods covered by the lease term, except where an alternative basis is more representative of the time pattern of benefits to be derived from the use of the leased asset. Lease incentives granted are recognised in profit or loss as an integral part of the aggregate net lease payments receivable. Contingent rentals are recognised as income in the accounting period in which they are earned Provisions and contingent liabilities Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made. Where the time value of money is material, provisions are stated at the present value of the expenditure expected to settle the obligation. All provisions are reviewed at each reporting date and adjusted to reflect the current best estimate. Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future uncertain events not wholly within the control of the Group, are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote Share capital Ordinary shares are classified as equity. Share capital is determined using the nominal value of shares that have been issued. I-18

303 APPENDIX I ACCOUNTANT S REPORT Any transaction costs associated with the issuing of shares are deducted from share premium (net of any related income tax benefit) to the extent they are incremental costs directly attributable to the equity transaction Revenue recognition Revenue comprises the fair value of the consideration received or receivable. Provided it is probable that the economic benefits will flow to the Group and the revenue and costs, if applicable, can be measured reliably, revenue is recognised as follows: Contract revenue When the outcome of a construction contract can be estimated reliably, revenue from a fixed price contract work is recognised based on the stage of completion of the contracts, provided that the stage of contract completion and the gross billing value of contracting work can be measured reliably. The stage of completion of a contract is established according to the progress certificate (by reference to the amount of completed works confirmed by customers) issued by the customers. Variations in contract work, claims and incentive payments are included in contract revenue to the extent that they have been agreed with the customers or the outcome of which can be estimated reliably by management and are capable of being reliably measured. When the outcome of a construction contract cannot be estimated reliably, revenue is recognised only to the extent of contract costs incurred that it is probable will be recoverable. Rental income Rental income is recognised in profit or loss in equal instalments over the periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the use of the leased asset. Lease incentives granted are recognised in profit or loss as an integral part of the aggregate net lease payments receivable Employee benefits Retirement benefits Retirement benefits to employees are provided through defined contribution plans. The Group operates defined contribution retirement benefit plans for its employees, the assets of which are held separately from those of the Group in independently administered funds. The Group s contributions are made based on specified percentages of the employees basic salaries. The Group s contributions under the plans are recognised as an expense in profit or loss as employees render services during the year. The Group s obligations under these plans are limited to the fixed percentage contributions payable. Short-term employee benefits Employee entitlements to annual leave are recognised when they accrue to employees. A provision is made for the estimated liability for annual leave as a result of services rendered by employees up to the reporting date. Non-accumulating compensated absences such as sick leave and maternity leave are not recognised until the time of leave. I-19

304 APPENDIX I ACCOUNTANT S REPORT 2.16 Borrowing costs Borrowing costs incurred for the acquisition, construction or production of any qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use. A qualifying asset is an asset which necessarily takes a substantial period of time to get ready for its intended use or sale. Other borrowing costs are expensed when incurred. Borrowing costs are capitalised as part of the cost of a qualifying asset when expenditure for the asset is being incurred, borrowing costs are being incurred and activities that are necessary to prepare the asset for its intended use or sale are being undertaken. Capitalisation of borrowing costs ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are complete Accounting for income taxes Income tax comprises current tax and deferred tax. Current income tax assets and/or liabilities comprise those obligations to, or claims from, fiscal authorities relating to the current or prior reporting period, that are unpaid at the reporting date. They are calculated according to the tax rates and tax laws applicable to the fiscal periods to which they relate, based on the taxable profit for the year. All changes to current tax assets or liabilities are recognised as a component of tax expense in the profit or loss. Deferred tax is calculated using the liability method on temporary differences at the reporting date between the carrying amounts of assets and liabilities in the financial statements and their respective tax bases. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are recognised for all deductible temporary differences, tax losses available to be carried forward as well as other unused tax credits, to the extent that it is probable that taxable profit, including existing taxable temporary differences, will be available against which the deductible temporary differences, unused tax losses and unused tax credits can be utilised. Deferred tax assets and liabilities are not recognised if the temporary difference arises from goodwill or from initial recognition (other than in a business combination) of assets and liabilities in a transaction that affects neither taxable nor accounting profit or loss. Deferred tax is calculated, without discounting, at tax rates that are expected to apply in the period the liability is settled or the asset realised, provided they are enacted or substantively enacted at the reporting date. Changes in deferred tax assets or liabilities are recognised in the profit or loss, or in other comprehensive income or directly in equity if they relate to items that are charged or credited to other comprehensive income or directly in equity. Current tax assets and current tax liabilities are presented in net if, and only if, (a) the Group has the legally enforceable right to set off the recognised amounts; and (b) intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. The Group presents deferred tax assets and deferred tax liabilities in net if, and only if, (a) (b) the entity has a legally enforceable right to set off current tax assets against current tax liabilities; and the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority on either: (i) the same taxable entity; or I-20

305 APPENDIX I ACCOUNTANT S REPORT (ii) different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered Fair value measurements For financial reporting, fair value measurement is categorised into Level 1, 2 and 3 of the three level fair value hierarchy as defined under the HKFRS 13. The level into which a fair value measurement is classified is determined with reference to the observability and significance of the inputs used in the valuation technique as follows: Level 1 valuations: Level 2 valuations: Level 3 valuations: Fair value measured using only Level 1 inputs i.e. unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date; Fair value measured using Level 2 inputs i.e. observable inputs which fail to meet Level 1, and not using significant unobservable inputs. Unobservable inputs are inputs for which market data are not available; Fair value measured using significant unobservable inputs Segment reporting The Group identifies operating segments and prepares segment information based on the regular internal financial information reported to the chief operating decision maker ( CODM ) for their decisions about resources allocation to the Group s business components and for their review of the performance of those components Related parties For the purposes of the Financial Information, a party is considered to be related to the Group if: (a) the party is a person or a close member of that person s family and if that person: (i) (ii) (iii) has control or joint control over of the Group; has significant influence over the Group; or is a member of the key management personnel of the Group or of a parent of the Group. I-21

306 APPENDIX I ACCOUNTANT S REPORT (b) the party is an entity and if any of the following conditions applies: (i) (ii) (iii) (iv) (v) (vi) (vii) the entity and the Group are members of the same group. one entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member). the entity and the Group are joint ventures of the same third party. one entity is a joint venture of a third entity and the other entity is an associate of the third entity. the entity is a post-employment benefit plan for the benefit of employees of either the Group or an entity related to the Group. the entity is controlled or jointly controlled by a person identified in (a). a person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity). Close family members of an individual are those family members who may be expected to influence, or be influenced by, that individual in their dealings with the entity. 3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. 3.1 Sources of estimation uncertainty The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below: Construction contracts As explained in Note 2.7 and 2.14, revenue recognition on a project is dependent on management s estimation of the total outcome of the construction contracts, with reference to the progress certificate issued by the customer. The Group reviews and revises the estimates of contract revenue, contract costs and variation orders, prepared for each construction contract as the contract progresses. Budgeted construction costs are prepared by management based on the quotations from time to time provided by the major contractors, suppliers or vendors involved and other direct costs to be incurred with reference to their past experience. In order to keep the budget accurate and up-to-date, management conducts periodic reviews of the budgeted construction costs by comparing the budgeted amounts to the actual costs incurred. Significant judgement is required in estimating the contract revenue, contract costs and variation work which may have an impact on percentage of completion of the construction contracts and the corresponding profit taken. Management exercised their judgements and estimations based on contract costs and revenues with reference to the latest available information, which includes detailed contract sum. In many cases the results reflect the expected outcome of long-term contractual obligations which span more than one reporting period. Contract costs and revenues are affected by a variety of uncertainties that depends on the outcome of future events and often need to be revised as events unfold and uncertainties are resolved. The estimates of contract costs and revenues are updated regularly and significant changes are highlighted through established internal review procedures. I-22

307 APPENDIX I ACCOUNTANT S REPORT 3.2 Critical judgements in applying the Group s accounting policies Depreciation Investment property (Note 14) and property, plant and equipment (Note 15) are depreciated on a straight-line basis over their estimated useful lives, after taking into account the estimated residual value. The Group reviews the estimated useful lives of the investment property and property, plant and equipment regularly in order to determine the amount of depreciation to be recorded during any reporting period. The useful lives are based on the Group s historical experience with similar assets taking into account anticipated technological changes. The depreciation for future periods is adjusted if there are significant changes from previous estimates. Impairment of trade receivables The Group evaluates whether there is any objective evidence that trade receivables (Note 2.6) are impaired, and estimates allowances for doubtful debts as a result of the inability of the debtors to make the required payments. The Group based on the estimates on the ageing of the trade receivables balance, credit-worthiness of the customer and historical write-off experience to assess the financial conditions of the debtors. If the financial condition of the debtors were to deteriorate, actual impairment would be higher than the amount estimated. 4. REVENUE Revenue represents receipts from the provision of civil engineering works. Revenue recognised during the Track Record Period are as follows: Eight months ended Year ended 31 March 30 November HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Unaudited) Revenue from the provision of civil engineering works 159, , , , SEGMENT INFORMATION The Group s operating activities are attributable to a single reportable and operating segment focusing primarily on the provision of civil engineering works. This operating segment has been identified on the basis of internal management reports reviewed by the CODM, being the executive directors of the Company. The CODM mainly reviews revenue derived from the provision of civil engineering works. The CODM reviews the overall results of the Group as a whole to make decisions about resources allocation. Accordingly other than the entity-wide disclosure, no segment analysis is presented. (a) Geographical information The Group s operations are located in Hong Kong and all the revenue of the Group were derived from Hong Kong customers. The Group s non-current assets are located in Hong Kong. I-23

308 APPENDIX I ACCOUNTANT S REPORT (b) Major customers Revenue from customers which individually contributed over 10% of the Group s revenue is as follows: Eight months ended Year ended 31 March 30 November HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Unaudited) Customer 1 101, , ,357 33,643 Customer 2 20,145 N/A (Note) N/A (Note) 16,367 Customer 3 N/A (Note) 61,682 32,999 29,136 Customer 4 N/A (Note) 36,300 18,478 56,688 Note: The corresponding revenue did not individually contribute over 10% of the Group s revenue during the corresponding period of the Track Record Period. 6. OTHER INCOME Eight months ended Year ended 31 March 30 November HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Unaudited) Gain on disposal of property, plant and equipment Gain on disposal of investment property 1,792 Rental income Sundry income , FINANCE COSTS Eight months ended Year ended 31 March 30 November HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Unaudited) Finance charges on obligations under finance leases Interests on bank loans and overdrafts wholly repayable within five years I-24

309 APPENDIX I ACCOUNTANT S REPORT 8. PROFIT BEFORE INCOME TAX Profit before income tax is arrived at after charging/(crediting): Eight months ended Year ended 31 March 30 November HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Unaudited) Auditors remuneration Depreciation: own assets 1,494 1,628 1,084 1,058 leased assets 1,625 1, Depreciation of investment property (Gain)/Loss on disposal of property, plant and equipment, net (120) 306 (111) (120) Gain on disposal of investment property (1,792) Site equipment rental costs (included in cost of sales) 17,321 33,811 21,904 19,415 Operating lease charges in respect of premises and office equipment Subcontracting charges (included in cost of sales) 31,617 59,971 37,866 35,512 Rental income less direct outgoings (229) (248) (175) (85) 9. INCOME TAX EXPENSE Hong Kong profits tax has been provided at the rate of 16.5% based on the estimated assessable profits for the respective year/period during the Track Record Period. Eight months ended Year ended 31 March 30 November HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Unaudited) Current Hong Kong Profits Tax 1,607 Deferred tax (Note 23) 1,956 3,624 2,337 1,063 Income tax expense 1,956 3,624 2,337 2,670 I-25

310 APPENDIX I ACCOUNTANT S REPORT Reconciliation between income tax expense and accounting profit at applicable tax rates: Eight months ended Year ended 31 March 30 November HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Unaudited) Profit before income tax 11,386 21,703 13,984 9,062 Tax on profit before taxation at 16.5% 1,878 3,580 2,307 1,495 Tax effects on: Non-deductible expenses ,326 Non-taxable income (132) Unrecognised tax losses Unrecognised temporary differences (26) (4) Utilisation of previously unrecognised tax losses (32) (15) Income tax expense 1,956 3,624 2,337 2, EMPLOYEE BENEFIT EXPENSES (INCLUDING DIRECTORS EMOLUMENTS) Eight months ended Year ended 31 March 30 November HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Unaudited) Salaries, wages and other benefits 37,679 59,880 41,090 27,342 Contributions to defined contribution retirement plans 1,397 2,262 1,567 1,156 39,076 62,142 42,657 28,498 I-26

311 APPENDIX I ACCOUNTANT S REPORT 11. DIRECTORS EMOLUMENTS AND FIVE HIGHEST PAID INDIVIDUALS (a) Directors emoluments The directors emoluments paid/payable by the Group during the Track Record Period are as follows: Year ended 31 March 2014 Salaries, Fees allowances and benefits in kind Discretionary bonuses Retirement scheme contributions Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Executive directors Mr. Wong Che Kwo ,447 Mr. Wong Wing Wah ,447 Mr. Chiu Chi Wang Mr. Wong Tak Ming ,579 1, ,946 Year ended 31 March 2015 Executive directors Mr. Wong Che Kwo ,418 Mr. Wong Wing Wah ,418 Mr. Chiu Chi Wang Mr. Wong Tak Ming ,753 1, ,934 Eight months ended 30 November 2015 Executive directors Mr. Wong Che Kwo Mr. Wong Wing Wah Mr. Chiu Chi Wang Mr. Wong Tak Ming , ,160 Eight months ended 30 November 2014 (unaudited) Executive directors Mr. Wong Che Kwo Mr. Wong Wing Wah Mr. Chiu Chi Wang Mr. Wong Tak Ming , ,800 I-27

312 APPENDIX I ACCOUNTANT S REPORT Mr. Wong Che Kwo and Mr. Wong Wing Wah were appointed as directors of the Company on 16 October Mr. Chiu Chi Wang and Mr. Wong Tak Ming were appointed as directors of the Company on 16 November The independent non-executive directors, Mr. Wong Chi Kan, Mr. Liu Yan Chee James and Mr. Tai Hin Henry were appointed as directors of the Company on 24 March During the Track Record Period, the independent non-executive directors have not yet been appointed and have not received any directors remuneration in the capacity of independent non-executive directors. The emoluments above represented remuneration received by the directors in the capacity of employees and/or directors of the companies comprising the Group. (b) Five highest paid individuals The five highest paid individuals of the Group during the Track Record Period include three directors whose emoluments are disclosed above. Details of the emoluments of the remaining two highest paid individuals are as follows: Eight months ended Year ended 31 March 30 November HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Unaudited) Salaries, wages and other benefits 1,036 1, Discretionary bonuses Contributions to defined contribution retirement plans ,218 1, The emoluments of the remaining two highest paid individuals are within the following bands: Eight months ended Year ended 31 March 30 November (Unaudited) Number of individuals HK$Nil to HK$1,000, During the Track Record Period, no emoluments were paid by the Group to the directors or the five highest paid individuals as an inducement to join or upon joining the Group or as compensation for loss of office. No directors or five highest paid individuals has waived or agreed to waive any emoluments during the Track Record Period. 12. DIVIDENDS No dividend was declared or paid by the Group during the Track Record Period to its equity holders. 13. EARNINGS PER SHARE Information of earnings per share is not presented as its inclusion, for the purpose of this Financial Information is not considered meaningful due to the Reorganisation and the presentation of the results of the Group for the Track Record Period on a combined basis as disclosed in Note 1.3 of Section II above. I-28

313 APPENDIX I ACCOUNTANT S REPORT 14. INVESTMENT PROPERTY HK$ 000 Costs As at 1 April 2013, 31 March 2014 and 2015 and 1 April ,925 Disposal (13,925) As at 30 November 2015 Accumulated depreciation As at 1 April ,671 Charge for the year 557 As at 31 March 2014 and 1 April ,228 Charge for the year 557 As at 31 March 2015 and 1 April ,785 Charge for the period 232 Written back on disposal (3,017) As at 30 November 2015 Net book amount As at 1 April ,254 As at 31 March ,697 As at 31 March ,140 As at 30 November 2015 As at 31 March 2014 and 2015, the Group s investment property was located in Hong Kong, held under medium lease and were pledged to the bank as security for bank mortgage loan granted to the Group (Note 22). As at 31 March 2014 and 2015, the fair value of the investment property was approximately HK$11,000,000 and HK$12,450,000 respectively which was determined by Ascent Partners Valuation Service Limited, an independent professional qualified valuer who has recent relevant experience in the location and category of the Group s investment property being valued, where comparison based on prices realised on actual sales of comparable properties is made. Comparable properties of similar size, character and location are analysed and carefully weighted against all the respective advantages and disadvantages of each property in order to arrive at a fair comparison of values. I-29

314 APPENDIX I ACCOUNTANT S REPORT Set out below are information about the fair values of investment property categorised under Level 3 of the three-level fair value hierarchy as defined under HKFRS 13. Valuation technique Significant unobservable input Range of unobservable inputs 31 March Relationship of significant inputs to fair value Direct comparison method Discount on quality of the investment property HK$ 10,293 to HK$12,019 per square feet HK$12,537 to HK$14,057 per square feet An increase in percentage of market unit sale per square feet would results in an increase in fair value of the investment property by the same percentage, and vice versa. 15. PROPERTY, PLANT AND EQUIPMENT Land and buildings Furniture and equipment Site equipment Motor vehicles Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 As at 1 April 2013 Cost 1, ,827 11,023 22,232 Accumulated depreciation (482) (440) (4,062) (7,670) (12,654) Net book amount 1, ,765 3,353 9,578 Year ended 31 March 2014 Opening net book amount 1, ,765 3,353 9,578 Additions 196 4,310 2,784 7,290 Disposals (18) (9) (27) Charge for the year (81) (92) (1,167) (1,779) (3,119) Closing net book amount 1, ,899 4,358 13,722 As at 31 March 2014 and 1 April 2014 Cost 1, ,903 13,614 29,068 Accumulated depreciation (563) (523) (5,004) (9,256) (15,346) Net book amount 1, ,899 4,358 13,722 I-30

315 APPENDIX I ACCOUNTANT S REPORT Land and buildings Furniture and equipment Site equipment Motor vehicles Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 Year ended 31 March 2015 Opening net book amount 1, ,899 4,358 13,722 Additions ,349 1,843 Disposals (188) (837) (1,025) Charge for the year (81) (66) (1,181) (1,379) (2,707) Closing net book amount ,128 3,491 11,833 As at 31 March 2015 and 1 April 2015 Cost 1, ,078 12,088 27,452 Accumulated depreciation (644) (428) (5,950) (8,597) (15,619) Net book amount ,128 3,491 11,833 Period ended 30 November 2015 Opening net book amount ,128 3,491 11,833 Additions ,210 3,536 Disposals (307) (11) (318) Charge for the period (53) (51) (735) (938) (1,777) Closing net book amount ,898 4,752 13,274 As at 30 November 2015 Cost 1,608 1,182 12,771 14,077 29,638 Accumulated depreciation (697) (469) (5,873) (9,325) (16,364) Net book amount ,898 4,752 13,274 As at 31 March 2014 and 2015 and 30 November 2015, the Group s land and buildings were located in Hong Kong, held under long term lease and were pledged to the bank as security of bank term loans and overdrafts granted to the Group (Note 22). As at 31 March 2014 and 2015 and 30 November 2015, the Group s motor vehicles with net book amount of HK$4,103,000, HK$3,223,000 and HK$4,171,000 respectively were held under finance lease (Note 21). I-31

316 APPENDIX I ACCOUNTANT S REPORT 16. AMOUNTS DUE FROM/TO A DIRECTOR/DIRECTORS The amounts are unsecured, interest free and have no fixed terms of repayment. (a) Amount due from a director Name of director Maximum outstanding during the year ended 31 March 2014 As at 1 April 2013 As at 31 March 2014 HK$ 000 HK$ 000 HK$ 000 Mr. Wong Wing Wah Name of director Maximum outstanding during the year ended 31 March 2015 As at 1 April 2014 As at 31 March 2015 HK$ 000 HK$ 000 HK$ 000 Mr. Wong Wing Wah Name of director Maximum outstanding during the eight months ended 30 November 2015 As at 1 April 2015 As at 30 November 2015 HK$ 000 HK$ 000 HK$ 000 Mr. Wong Wing Wah (b) Amounts due to directors As at 30 As at 31 March November Name of directors HK$ 000 HK$ 000 HK$ 000 Mr. Wong Che Kwo 6,027 2,689 6,589 Mr. Wong Wing Wah 577 3,467 6,604 2,689 10,056 I-32

317 APPENDIX I ACCOUNTANT S REPORT 17. AMOUNTS DUE FROM/TO CUSTOMERS FOR CONTRACT WORK As at 30 As at 31 March November HK$ 000 HK$ 000 HK$ 000 Contract costs incurred plus recognised profits less recognised losses 649, , ,420 Less: Progress billings (681,339) (852,804) (414,153) (32,336) (30,506) (10,733) Recognised and included in the combined statements of financial position as: Amounts due from customers for contract work 7,555 9,474 17,593 Amounts due to customers for contract work (39,891) (39,980) (28,326) (32,336) (30,506) (10,733) All amounts due from/to customers for contract work are expected to be recovered/settled within one year. 18. TRADE AND OTHER RECEIVABLES As at 30 As at 31 March November HK$ 000 HK$ 000 HK$ 000 Trade receivables 15,583 33,832 29,786 Retention monies receivables 17,957 19,217 23,815 Other receivables, deposits and prepayments 1,736 1, ,276 54,215 54,320 The ageing analysis of trade receivables based on invoice date is as follows: As at 30 As at 31 March November HK$ 000 HK$ 000 HK$ days 7,511 14,383 25, days 7,833 19,449 3, days Over 90 days ,583 33,832 29,786 The Group usually grants customers a credit period of 45 days. At each reporting date, the Group reviewed trade receivables for evidence of impairment on both an individual and collective basis. Based on this assessment, no impairment has been recognised during the Track Record Period and as at 31 March 2014 and 2015 and 30 November I-33

318 APPENDIX I ACCOUNTANT S REPORT The Group did not hold any collateral as security or other credit enhancements over the trade receivables. The ageing analysis of trade receivables that were past due but not impaired is as follows: As at 30 As at 31 March November HK$ 000 HK$ 000 HK$ 000 Neither past due nor impaired 14,136 30,318 28,849 Less than 30 days past due 1,208 3, days past due days past due Over 90 days past due 52 15,583 33,832 29,786 Trade receivables which were neither past due nor impaired related to a range of customers for whom there was no recent history of default. Trade receivables which were past due but not impaired related to a number of independent customers that had a good track record of credit with the Group. Based on past credit history, management believe that no provision for impairment is necessary in respect of these balances as there has not been a significant change in credit quality and the balances are still considered to be fully recoverable. As at 31 March 2014 and 2015 and 30 November 2015, the retentions held by customers for contract works included in retention monies receivables under current assets of the Group was HK$17,957,000, HK$19,217,000 and HK$23,815,000, of which HK$11,056,000, HK$11,757,000 and HK$18,482,000 are expected to be recovered after more than one year respectively. 19. CASH AND CASH EQUIVALENTS As at 30 As at 31 March November HK$ 000 HK$ 000 HK$ 000 Cash and bank balances presented in the combined statements of financial position 3,419 5,900 7,977 Less: bank overdrafts (Note 22) (5,482) (168) Cash and cash equivalents presented in the combined statements of cash flows 3, ,809 Cash in banks earns interest at floating rates based on daily bank deposit rates. I-34

319 APPENDIX I ACCOUNTANT S REPORT 20. TRADE AND OTHER PAYABLES As at 30 As at 31 March November HK$ 000 HK$ 000 HK$ 000 Trade payables 17,489 10,114 17,416 Retention monies payables 2,045 3,278 3,647 Accruals and other payables 4,407 6,325 6,373 23,941 19,717 27,436 The ageing analysis of trade payables based on invoice date is as follows: As at 30 As at 31 March November HK$ 000 HK$ 000 HK$ days 10,411 6,894 17, days 5,556 2, days Over 90 days 1, ,489 10,114 17,416 The Group is granted by its suppliers a credit period ranging from 0 to 30 days. As at 31 March 2014 and 2015 and 30 November 2015, the retentions held by the Group for contract works included in retention monies payables under current liabilities of the Group was HK$2,045,000, HK$3,278,000 and HK$3,647,000, of which HK$425,000, HK$1,719,000 and HK$2,217,000 are expected to be payable after more than one year respectively. I-35

320 APPENDIX I ACCOUNTANT S REPORT 21. OBLIGATIONS UNDER FINANCE LEASES As at 31 March 2014 and 2015 and 30 November 2015, the Group had obligations under finance leases repayable as follows: As at 30 As at 31 March November HK$ 000 HK$ 000 HK$ 000 Total minimum lease payments Within one year 1,619 1,314 1,677 After one year but within two years 1,254 1,001 1,398 After two years but within five years 1,149 1,008 1,121 4,022 3,323 4,196 Future finance charges on finance lease (270) (212) (248) Present value of finance lease liabilities 3,752 3,111 3,948 Present value of minimum lease payments Within one year 1,474 1,199 1,537 After one year but within two years 1, ,319 After two years but within five years 1, ,092 3,752 3,111 3,948 As at 31 March 2014 and 2015, the finance lease liabilities were secured by the personal guarantee given by the Controlling Shareholders. As at 30 November 2015, the finance lease liabilities were secured by the personal guarantee given by one of the Controlling Shareholders. 22. BANK LOANS AND OVERDRAFTS As at 31 March 2014 and 2015 and 30 November 2015, the secured bank loans and overdrafts were repayable as follows: As at 30 As at 31 March November HK$ 000 HK$ 000 HK$ 000 Within 1 year or on demand 10,536 18,940 5,688 I-36

321 APPENDIX I ACCOUNTANT S REPORT As at 31 March 2014 and 2015 and 30 November 2015, the bank loans and overdraft were secured as follow: As at 30 As at 31 March November HK$ 000 HK$ 000 HK$ 000 Secured term loans (Note i) 2,984 6,404 5,520 Secured bank overdrafts (Note i) 5, Secured mortgage loan (Note ii) 7,552 7,054 10,536 18,940 5,688 Notes: (i) As at 31 March 2014 and 2015 and 30 November 2015, the bank term loans bear interest on floating basis. The effective interest rates of bank term loans were 3.21%, 3.25% to 4.00%, and 3.23% to 3.99% per annum respectively. As at 31 March 2014 and 2015 and 30 November 2015, the bank overdraft bears interest on floating basis. The effective interest rates of bank overdrafts were 5.5%, 5.5% and 5.5% per annum respectively. The bank term loans and overdrafts were secured by the land and buildings of the Group, a property owned by the Controlling Shareholders and their unlimited personal guarantees. In addition, as at 31 March 2014 and 2015 and 30 November 2015, bank term loans of HK$Nil, HK$4,000,000 and HK$3,512,000 were secured by the guarantee given by the Hong Kong Mortgage Corporation Limited and unlimited personal guarantees given by the Controlling Shareholders. Pursuant to terms as set out in the loan agreement, Luen Hing, as the borrower, should not have its shares listed on the Main Board or the GEM of The Stock Exchange or any similar exchanges in or outside Hong Kong. (ii) As at 31 March 2014 and 2015, the mortgage loan bears interest on floating basis. The effective interest rate was 0.91% and 0.92% per annum respectively and was secured by the investment property of the Group. As at 31 March 2014 and 2015 and 30 November 2015, the bank term loans and mortgage loan were classified as current liabilities because the corresponding loan agreements include a clause that the banks have the overriding right to call the loan at any time regardless any other terms and maturity as set out in the loan agreements. 23. DEFERRED TAXATION Deferred taxation is calculated in full on temporary differences under the liability method using taxation rate of 16.5% in Hong Kong. I-37

322 APPENDIX I ACCOUNTANT S REPORT The movements in deferred tax assets/(liabilities) during the Track Record Period are as follows: Eight months ended 30 Year ended 31 March November HK$ 000 HK$ 000 HK$ 000 At the beginning of the year/period 5,236 3,280 (344) Charged to profit or loss (1,956) (3,624) (1,063) At the end of the year/period 3,280 (344) (1,407) The components of deferred tax assets/(liabilities) recognised in the combined statements of financial position and the movements during the Track Record Period are as follows: Accelerated tax depreciation Tax losses Total HK$ 000 HK$ 000 HK$ 000 As at 1 April 2013 (818) 6,054 5,236 Charged to profit or loss (Note 9) (413) (1,543) (1,956) As at 31 March 2014 and 1 April 2014 (1,231) 4,511 3,280 Credited/(Charged) to profit or loss (Note 9) 144 (3,768) (3,624) As at 31 March 2015 and 1 April 2015 (1,087) 743 (344) Charged to profit or loss (Note 9) (320) (743) (1,063) As at 30 November 2015 (1,407) (1,407) Represented by: As at 30 As at 31 March November HK$ 000 HK$ 000 HK$ 000 Deferred tax assets 3,280 Deferred tax liabilities (344) (1,407) 3,280 (344) (1,407) Deferred tax assets are recognised for tax losses carried forward to the extent that realisation of the related tax benefit through the future taxable profits is probable. As at 31 March 2014 and 2015 and 30 November 2015, the Group did not have any material unrecognised deferred tax assets/liabilities. I-38

323 APPENDIX I ACCOUNTANT S REPORT 24. SHARE CAPITAL The Company No. of shares HK$ 000 Authorised: 38,000,000 ordinary shares of HK$0.01 each 38,000, Issued and fully paid: 1 ordinary share of HK$0.01, upon incorporation and as at 30 November The Company was incorporated on 16 October 2015 with authorised share capital of HK$380,000 divided into 38,000,000 shares of HK$0.01 each and has not carried on any business since the date of incorporation except for the Reorganisation. On the date of incorporation, one nil-paid share was allotted and issued. On 22 February 2016, 9,999 shares were allotted and issued at par. On 24 March 2016, pursuant to the written resolution of the shareholder, the authorised share capital of the Company was increased from HK$380,000 to HK$20,000,000 by creation of an additional of 1,962,000,000 shares of HK$0.01 each, each ranking pari passu with the shares then in issue in all respects. There was no authorised and issued capital as at 31 March 2014 and 2015 since the Company has not yet been incorporated. 25. RESERVES The Group The amounts of the Group s reserves and the movements during the Track Record Period are presented in the combined statements of changes in equity of the Financial Information. The capital reserve of the Group as at 31 March 2014 and 2015 and 30 November 2015 represents the share capital of entities comprising the Group throughout the Track Record Period. The Company The Company has not commenced any business or operation since its incorporation and therefore does not have any profit or loss or movements in reserves since its incorporation and up to 30 November MAJOR NON-CASH TRANSACTIONS During the years ended 31 March 2014 and 2015 and the eight months ended 30 November 2015, additions to property, plant and equipment of approximately HK$2,665,000, HK$1,333,000 and HK$1,893,000 respectively were financed by finance lease arrangements. I-39

324 APPENDIX I ACCOUNTANT S REPORT 27. OPERATING LEASE COMMITMENTS As lessee The total future minimum lease payments under non-cancellable operating leases in respect of warehouse and office equipment were as follows: As at 30 As at 31 March November HK$ 000 HK$ 000 HK$ 000 Within one year In the second to fifth years As lessor As at 31 March 2014 and 2015 and 30 November 2015, the Group s future aggregate minimum lease receipts under non-cancellable operating lease in respect of its investment property were as follows: As at 30 As at 31 March November HK$ 000 HK$ 000 HK$ 000 Within one year CAPITAL COMMITMENTS As at 31 March 2014 and 2015 and 30 November 2015, capital commitments of the Group were as follows: As at 30 As at 31 March November HK$ 000 HK$ 000 HK$ 000 Contracted but not provided for Acquisition of property, plant and equipment 490 I-40

325 APPENDIX I ACCOUNTANT S REPORT 29. RELATED PARTY TRANSACTIONS (a) Material related party transactions Other than as disclosed in Note 16, Note 21 and Note 22 above, the Group entered into the following material related party transactions during the Track Record Period: Name of related parties Hop Fung Crane Company (Note i) The Controlling Shareholders (Note ii) Notes Nature Equipment rental expenses Licence to use office premise Eight months ended Year ended 31 March 30 November HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Unaudited) (i) Hop Fung Crane Company is an unincorporated company owned by the spouse of one of the Controlling Shareholders. In the opinion of the directors, these transactions were entered into in the normal course of business at mutually agreed prices and terms. (ii) (iii) During the Track Record Period, the Group was licensed to use an office premise owned by the Controlling Shareholders without any consideration. As at 31 March 2014 and 2015 and 30 November 2015, certain contracts for the performance works of provision of civil engineering works amounted to HK$62,635,000, HK$232,551,000 and HK$232,551,000 respectively were secured by the personal guarantees given by the Controlling Shareholders. (b) Key management personnel compensation The emoluments of the key management personnel during the Track Record Period are as follows: Eight months ended Year ended 31 March 30 November HK$ 000 HK$ 000 HK$ 000 HK$ 000 (Unaudited) Short-term employee benefits 4,938 4,971 2,390 2,886 Post-employment benefits ,028 5,076 2,459 2, CONTINGENT LIABILITIES The Group is the defendant of certain outstanding litigation cases in respect of alleged violations of certain safety and health regulations and accidents and the court has not yet made the judgement up to the date of this report. After consulting the Group s lawyer, the directors are of the opinion that it is not possible to determine the outcome and hence no provision has been made to the Financial Information. I-41

326 APPENDIX I ACCOUNTANT S REPORT 31. FINANCIAL RISK MANAGEMENT AND FAIR VALUE MEASUREMENT (a) Categories of financial instruments As at 30 As at 31 March November HK$ 000 HK$ 000 HK$ 000 Financial assets Loans and receivables Trade and other receivables 33,777 53,195 53,770 Amount due from a director 523 Cash and bank balances 3,419 5,900 7,977 37,196 59,618 61,747 Financial liabilities Financial liabilities at amortised cost Trade and other payables 23,941 19,717 27,436 Amounts due to directors 6,604 2,689 10,056 Bank loans and overdrafts 10,536 18,940 5,688 Obligations under finance leases 3,752 3,111 3,948 44,833 44,457 47,128 (b) Financial risk factors The Group s activities exposed it to a variety of financial risks including interest rate risk, credit risk and liquidity risk. The Group s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group s financial performance. (i) Interest rate risk Interest rate risk relates to the risk that the fair value or cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group s interest rate risk arises primarily from its bank loans and overdrafts. As at 31 March 2014 and 2015 and 30 November 2015, the Group s bank loans and overdrafts were committed on floating rate basis and were denominated in Hong Kong Dollars. As at 31 March 2014 and 2015 and 30 November 2015, it is estimated that if there was a decrease of 50 basis points in interest rate, with all other variables remaining constant, the Group s combined equity and net profit would have increased by approximately HK$44,000, HK$79,000 and HK$24,000 respectively. The same percentage increase in interest rate would have the same magnitude on the Group s combined equity and net profit but of opposite effect. The 50 basis points represents the reasonable possible change in interest rates over the periods until the next reporting date. The Group currently does not have an interest rate hedging policy. However, the management monitors the Group s interest rate exposure and will consider hedging significant interest exposure should the need arise. I-42

327 APPENDIX I ACCOUNTANT S REPORT (ii) Credit risk Credit risk arises mainly from trade and other receivables, amount due from a director and cash and bank balances. The Group s maximum exposure to credit risk in the event of the counterparties failure to perform their obligations as at the reporting dates in relation to each class of recognised financial assets is the carrying amount of those assets as stated in the combined statements of financial position. The credit risk of cash and bank balances is limited because the counterparties are banks with sound credit ratings assigned by international credit-rating agencies. In respect of trade and other receivables, individual credit evaluations are performed on all customers and counterparties. These evaluations focus on the counterparty s financial position, past history of making payments and take into account information specific to the counterparty as well as pertaining to the economic environment in which the counterparty operates. Monitoring procedures have been implemented to ensure that follow-up action is taken to recover overdue debts. In addition, the Group reviews the recoverable amount of each individual trade and other receivable balance at the end of each reporting period to ensure adequate impairment losses are made for irrecoverable amounts. As at 31 March 2014 and 2015 and 30 November 2015, trade and retention monies receivables from an individual customer accounted for 25%, 33% and 39% of the total trade and retention monies receivables respectively. (iii) Liquidity risk The Group s policy is to regularly monitor current and expected liquidity requirements and its compliance with debt covenants, to ensure that it maintains sufficient reserves of cash and adequate committed lines of funding from banks and other financial institutions to meet their liquidity requirements in the short and long term. Management believes there is no significant liquidity risk as the Group has sufficient committed facilities to fund their operations. The following table details the remaining contractual maturities of financial liabilities at the reporting dates, which are based on contractual undiscounted cash flows (including interest payments computed using contractual rates or, if floating, based on rates current at the reporting dates) and the earliest date the Group can be required to pay: On demand or within one year Between one and two years Between two and five years Carrying Total amount HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 As at 31 March 2014 Trade and other payables 23,941 23,941 23,941 Amounts due to directors 6,604 6,604 6,604 Term loans and mortgage loan 10,536 10,536 10,536 Obligations under finance leases 1,619 1,254 1,149 4,022 3,752 42,700 1,254 1,149 45,103 44,833 I-43

328 APPENDIX I ACCOUNTANT S REPORT On demand or within one year Between one and two years Between two and five years Carrying Total amount HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 As at 31 March 2015 Trade and other payables 19,717 19,717 19,717 Amount due to a director 2,689 2,689 2,689 Bank overdrafts 5,482 5,482 5,482 Term loans and mortgage loan 13,458 13,458 13,458 Obligations under finance leases 1,314 1,001 1,008 3,323 3,111 42,660 1,001 1,008 44,669 44,457 As at 30 November 2015 Trade and other payables 27,436 27,436 27,436 Amounts due to directors 10,056 10,056 10,056 Bank overdrafts Term loans 5,520 5,520 5,520 Obligations under finance leases 1,677 1,398 1,121 4,196 3,948 44,857 1,398 1,121 47,376 47,128 Bank loans with a repayment on demand clause are included in the On demand or within one year time band in the above maturity analysis. As at 31 March 2014 and 2015 and 30 November 2015 the aggregate undiscounted principal and interest of these bank loans payable in accordance with the scheduled payment terms were as follows: On demand or within one year Between one and two years Between two and five years Over five years Total HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ 000 As at 31 March 2014 Term loans and mortgage loan 1,233 1,235 3,594 5,245 11,307 As at 31 March 2015 Term loans and mortgage loan 2,119 2,119 5,578 4,678 14,494 As at 30 November 2015 Term loans 1,552 1,552 2,843 5,947 I-44

329 APPENDIX I ACCOUNTANT S REPORT As at 31 March 2014 and 2015 and 30 November 2015, taking into account of the Group s financial position, the directors do not believe that it is probable that the banks will exercise their discretionary rights to demand immediate repayment. Included in the above balances, the directors believe that such bank loans will be repaid in accordance with the scheduled repayment dates as set out in the loan agreements. (c) Fair value measurement The carrying amounts of the Group s financial assets and liabilities are not materially different from their fair values as at 31 March 2014 and 2015 and 30 November CAPITAL MANAGEMENT The Group s capital management objectives are to ensure the Group s ability to continue as a going concern and to maintain optimal capital structure in order to minimise the costs of capital, support its business and maximise shareholders value. The Group actively and regularly reviews its capital structure and makes adjustments in light of changes in economic conditions. The Group monitors its capital structure on the basis of the debt to equity ratio. For this purpose, debt is defined as borrowings net of cash and bank balance. In order to maintain or adjust the ratio, the Group may adjust the amount of dividends paid to shareholders, share buyback, issue new shares and raise new debts. The debt to equity ratio at each reporting date was: As at 30 As at 31 March November HK$ 000 HK$ 000 HK$ 000 Bank loans and overdrafts 10,536 18,940 5,688 Obligation under finance lease 3,752 3,111 3,948 Total borrowings 14,288 22,051 9,636 Less: cash and bank balances (3,419) (5,900) (7,977) Net debts 10,869 16,151 1,659 (Capital deficiency)/total equity (9,775) 8,304 14,696 Debt to equity ratio N/A 194% 11% I-45

330 APPENDIX I ACCOUNTANT S REPORT III SUBSEQUENT EVENTS The following significant events took place subsequent to 30 November 2015: (a) Group reorganisation The companies comprising the Group underwent and completed the Reorganisation in preparation for the listing of the Company s shares on the Stock Exchange. Further details of the Reorganisation are set out in the section headed History and Development in the Prospectus. Upon completion of the Reorganisation on 22 February 2016, the Company became the holding company of the Group. (b) Settlements of the amounts due to directors On 21 March 2016, Luen Hing allotted and issued 5,480,000 new shares at a subscription price of HK$1 each to Super Pioneer by the way of capitalisation of amounts due to the directors. On 21 March 2016, Hop Fung allotted and issued 4,920,000 new shares at a subscription price of HK$1 each to Super Pioneer by the way of capitalisation of amounts due to the directors. Upon completion of the share issuance, the remaining outstanding balances with directors will be settled by cash. (c) Taking out of surety bonds Subsequent to the reporting date, the Group has accepted a quotation to take out surety bonds before Listing from an authorised insurer, which is a wholly-owned subsidiary of a Hong Kong licensed bank, in favour of a customer, who declined the Group s request to release personal guarantees given by the Controlling Shareholders, in the value of the contract sum or predetermined percentage of the contract sum, as the case may be, for due performance of the Group s obligations under the contracts. I-46

331 APPENDIX I ACCOUNTANT S REPORT IV SUBSEQUENT FINANCIAL STATEMENTS AND DIVIDENDS No audited financial statements have been prepared by the Company, or its subsidiaries in respect of any period subsequent to 30 November No dividend has been declared or made by the Company or any of the companies now comprising the Group in respect of any period subsequent to 30 November Yours faithfully, Grant Thornton Hong Kong Limited Certified Public Accountants Level Hennessy Road Wanchai Hong Kong Shaw Chi Kit Practising Certificate No.: P04834 I-47

332 APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION The information set forth in this appendix does not form part of the Accountants Report on the financial information of the Group for the two years ended 31 March 2015 and the eight months ended 30 November 2015 prepared by Grant Thornton Hong Kong Limited, Certified Public Accountants, Hong Kong, the reporting accountants of our Company, as set forth in Appendix I of this prospectus (the Accountants Report ), and is included herein for illustrative purposes only. The unaudited pro forma financial information should be read in conjunction with the section headed Financial Information in this prospectus and the Accountants Report set forth in Appendix I of this prospectus. A. UNAUDITED PRO FORMA STATEMENT OF ADJUSTED COMBINED NET TANGIBLE ASSETS The following is an illustrative unaudited pro forma statement of adjusted combined net tangible assets of the Group which has been prepared in accordance with paragraph 31 of Chapter 7 of the GEM Listing Rules for the purpose of illustrating the effect of the Placing on the audited combined net tangible assets of the Group attributable to equity holders of the Company as at 30 November 2015, as if the Placing had taken place on 30 November The unaudited pro forma statement of adjusted combined net tangible assets of the Group has been prepared for illustrative purposes only and because of its hypothetical nature, it may not give a true picture of the combined net tangible assets of the Group attributable to equity holders of the Company had the Placing been completed as at 30 November 2015 or at any future dates. It is prepared based on the audited combined net tangible assets of the Group attributable to equity holders of the Company as at 30 November 2015 as set out in the Accountants Report in Appendix I to this Prospectus, and adjusted as described below. Audited combined net tangible assets of the Group attributable to equity holders of the Company as at 30 November 2015 Capitalisation of amounts due to directors by way of issuance of shares by Luen Hing and Hop Fung Estimated net proceeds from the Placing Unaudited pro forma adjusted combined net tangible assets of the Group attributable to equity holders of the Company Unaudited pro forma adjusted combined net tangible assets of the Group attributable to equity holders of the Company per Share HK$ 000 HK$ 000 HK$ 000 HK$ 000 HK$ (Note 1) (Note 3) (Note 4) (Note 5) Based on the Placing Price of HK$0.26 per Share 14,696 10,400 43,562 68, II-1

333 APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION Notes: (1) The unadjusted combined net tangible assets attributable to the equity holders of the Company as at 30 November 2015 is extracted from the Accountants Report in Appendix I to this prospectus, which is based on the audited combined net assets of the Group attributable to the equity holders of the Company of approximately HK$14,696,000. (2) The Group s land and buildings was revalued at 31 January 2016 by Ascent Partners Valuation Service Limited, an independent property valuer, and relevant property valuation report is set out in Appendix III Property Valuation. The net surplus over their carrying value amounting to HK$3,222,000 has not been included in the combined net tangible assets of the Group attributable to equity holders of the Company as at 30 November The above adjustment does not take into account the above valuation surplus. Had the land and buildings been stated as such valuation, an additional depreciation of HK$289,000 per annum in respect of revaluation surplus, before income taxes, would be charged against the combined statement of profit or loss and other comprehensive income. (3) The increase in combined net tangible assets of the Group attributable to equity holders of the Company upon completion of share issuance of Luen Hing and Hop Fung are based on (i) 5,480,000 new shares of Luen Hing issued at a subscription price of HK$1 per share to Super Pioneer; and (ii) 4,920,000 new shares of Hop Fung issued at a subscription price of HK$1 per share to Super Pioneer on 21 March 2016 by the way of capitalisation of amounts due to the directors. Any remaining balances will be settled by cash. (4) The estimated net proceeds from the Placing are based on 208,000,000 Shares to be offered by the Company at the Placing Price of HK$0.26 per Share, after deduction of relevant estimated underwriting commissions and fees and other related fees expected to be incurred by the Group subsequent to 30 November (5) The unaudited pro forma adjusted net tangible assets per Share are determined after the adjustments as described in Note 3 above and on the basis that 1,248,000,000 Shares are issued and outstanding as set out in the section headed Share Capital of this prospectus (assuming that the Placing Shares and the Capitalisation Issue had been issued on 30 November 2015). (6) The unaudited pro forma combined financial information presented above does not take into account of any trading or other transactions subsequent to the date of the financial statements included in the unaudited pro forma financial information (i.e. 30 November 2015). II-2

334 APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION B. INDEPENDENT REPORTING ACCOUNTANTS ASSURANCE REPORT ON THE COMPILATION OF UNAUDITED PRO FORMA FINANCIAL INFORMATION The following is the text of the assurance report received from, Grant Thornton Hong Kong Limited, Certified Public Accountants, Hong Kong, the reporting accountants of the Company, in respect of the Group s unaudited pro forma financial information prepared for the purpose of incorporation in this prospectus. TO THE DIRECTORS OF LUEN WONG GROUP HOLDINGS LIMITED 31 March 2016 We have completed our assurance engagement to report on the compilation of pro forma financial information of Luen Wong Group Holdings Limited (the Company ) and its subsidiaries (collectively referred to as the Group ) by the directors of the Company (the Directors ) for illustrative purposes only. The unaudited pro forma financial information consists of the unaudited pro forma statement of adjusted combined net tangible assets as at 30 November 2015 and related notes as set out on pages II-1 to II-2 of Appendix II to the prospectus issued by the Company dated 31 March 2016 (the Prospectus ). The applicable criteria on the basis of which the Directors have compiled the unaudited pro forma financial information are described on pages II-1 to II-2 of Appendix II to the Prospectus. The unaudited pro forma financial information has been compiled by the Directors to illustrate the impact of the proposed listing of the Company s shares on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited by way of placing on the Group s financial position as at 30 November 2015 as if the event had taken place at 30 November As part of this process, information about the Group s financial position has been extracted by the Directors from the Group s financial information for the two years ended 31 March 2015 and the eight months ended 30 November 2015, on which an accountants report set out in Appendix I to the Prospectus has been published. Directors Responsibilities for the Unaudited Pro Forma Financial Information The Directors are responsible for compiling the unaudited pro forma financial information in accordance with paragraph 7.31 of the Rules Governing the Listing of Securities on Growth Enterprise Market of The Stock Exchange of Hong Kong Limited (the GEM Listing Rules ) and with reference to Accounting Guideline 7 Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars ( AG7 ) issued by the Hong Kong Institute of Certified Public Accountants ( HKICPA ). II-3

335 APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION Our Independence and Quality Control We have complied with the independence and other ethical requirements of the Code of Ethics for Professional Accountants issued by the HKICPA, which is founded on fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behavior. The firm applies Hong Kong Standard on Quality Control 1 and accordingly maintains a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements. Reporting Accountant s Responsibilities Our responsibility is to express an opinion, as required by paragraph 7.31(7) of the GEM Listing Rules, on the unaudited pro forma financial information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the unaudited pro forma financial information beyond that owed to those to whom those reports were addressed by us at the dates of their issue. We conducted our engagement in accordance with Hong Kong Standard on Assurance Engagements 3420 Assurance Engagements to Report on the Compilation of Pro Forma Financial Information Included in a Prospectus issued by the HKICPA. This standard requires that the reporting accountant plan and perform procedures to obtain reasonable assurance about whether the Directors have compiled the unaudited pro forma financial information in accordance with paragraph 7.31 of the GEM Listing Rules and with reference to AG 7 issued by the HKICPA. For purposes of this engagement, we are not responsible for updating or reissuing any reports or opinions on any historical financial information used in compiling the pro forma financial information, nor have we, in the course of this engagement, performed an audit or review of the financial information used in compiling the unaudited pro forma financial information. The purpose of unaudited pro forma financial information included in the Prospectus is solely to illustrate the impact of a significant event or transaction on unadjusted financial information of the Group as if the event had occurred or the transaction had been undertaken at an earlier date selected for purposes of the illustration. Accordingly, we do not provide any assurance that the actual outcome of the event or transaction at 30 November 2015 would have been as presented. II-4

336 APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION A reasonable assurance engagement to report on whether the unaudited pro forma financial information has been properly compiled on the basis of the applicable criteria involves performing procedures to assess whether the applicable criteria used by the Directors in the compilation of the unaudited pro forma financial information provide a reasonable basis for presenting the significant effects directly attributable to the event or transaction, and to obtain sufficient appropriate evidence about whether: The related unaudited pro forma adjustments give appropriate effect to those criteria; and The unaudited pro forma financial information reflects the proper application of those adjustments to the unadjusted financial information. The procedures selected depend on the reporting accountants judgment, having regard to the reporting accountants understanding of the nature of the Group, the event or transaction in respect of which the unaudited pro forma financial information has been compiled, and other relevant engagement circumstances. The engagement also involves evaluating the overall presentation of the unaudited pro forma financial information. We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Opinion In our opinion: (a) (b) (c) the unaudited pro forma financial information has been properly compiled on the basis stated; such basis is consistent with the accounting policies of the Group; and the adjustments are appropriate for the purposes of the unaudited pro forma financial information as disclosed pursuant to paragraph 7.31(1) of the GEM Listing Rules. Grant Thornton Hong Kong Limited Certified Public Accountants Level Hennessy Road Wanchai Hong Kong Shaw Chi Kit Practising Certificate No.: P04834 II-5

337 APPENDIX III PROPERTY VALUATION The following is the text of a letter and a valuation certificate prepared for the purpose of incorporation in this prospectus received from Ascent Partners Valuation Service Limited, an independent valuer, in connection with its valuation of the property interests of the Group. Luen Wong Group Holdings Limited Unit 05 on 15th Floor North Wing, Delta House No. 3 On Yiu Street Sha Tin, New Territories, Hong Kong Dear Sir/Madam, INSTRUCTIONS Suite 2102, Hong Kong Trade Centre Des Voeux Road Central Hong Kong Tel: (852) Fax: (852) March 2016 In accordance with the instructions for us to value the property in which Luen Wong Group Holdings Limited (the Company ) and its subsidiaries (hereinafter together referred to as the Group ) have interests in Hong Kong, we confirm that we have carried out property inspections, made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the market value of the property interests as at 31 January 2016 (referred to as the Valuation Date ) for the purpose of incorporation in the prospectus of the Company dated 31 March This letter which forms part of our valuation report explains the basis and methodology of valuation, clarifying assumptions, valuation considerations, title investigation and limiting conditions of this valuation. BASIS OF VALUATION Our valuation of the property interests represents the market value which we would define to mean the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm s length transaction after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion. Market Value is understood as the value of an asset or liability estimated without regard to costs of sale or purchase (or transaction) and without offset for any associated taxes or potential taxes. III-1

338 APPENDIX III PROPERTY VALUATION VALUATION METHODOLOGY We have valued the property interests which is held and occupied by the Group in Hong Kong on market basis and the direct comparison method is adopted where comparison based on prices realised on actual sales price of comparable property is made. Comparable properties of similar size, character, and location are analysed and carefully weighted against all the respective advantages and disadvantages of each property in order to arrive at a fair comparison of values. TITLE INVESTIGATION We have carried out land searches at the Land Registry for the property located in Hong Kong. We have been, in some instances, provided with the extracts of the documents relating to the property. However, we have not verified ownership of the property to verify the existence of any amendments which do not appear on the copies handed to us. All documents have been used for reference only. VALUATION ASSUMPTIONS Our valuations have been made on the assumption that the seller sells the property interests on the open market in their existing states without the benefit of a deferred term contracts, leasebacks, joint ventures, management agreements or any similar arrangements, which could serve to affect the values of the property interests. Unless stated as otherwise, we have assumed that the property have been constructed, occupied and used in full compliance with, and without contravention of all laws, except only where otherwise stated. We have further assumed that, for any use of the property upon which this report is based, all required licenses, permit, certificate and authorisations have been obtained. We have assumed that the owners of the property have free and uninterrupted rights to use and dispose of the property for the whole of the unexpired term of Land Grant. Other special assumptions of the property interests, if any, have been stated out in the footnotes of the valuation certificate attached herewith. SOURCE OF INFORMATION We have relied to a considerable extent on information provided by the Group and have accepted advice given to us on such matters, in particular, but not limited to, the sales records, tenure, planning approvals, statutory notices, easements, particulars of occupancy, site and floor areas and all other relevant matters in the identification of the property interests. III-2

339 APPENDIX III PROPERTY VALUATION We have had no reason to doubt the truth and accuracy of the information provided to us by the Group. We have also been advised by the Group that no material factors have been omitted from the information supplied. We consider that we have been provided with sufficient information to reach an informed view, and we have no reason to suspect that any material information has been withheld. VALUATION CONSIDERATIONS In valuing the property interests, we have complied with all the requirements contained in Chapter 8 of the Rules Governing the Listing of Securities on the Growth Enterprise Market issued by The Stock Exchange of Hong Kong Limited and the HKIS Valuation Standards (2012 Edition) published by The Hong Kong Institute of Surveyors. LIMITING CONDITIONS We have inspected the exterior, and wherever possible, the interior of the property but no structural survey had been made. In the course of our inspection, we did not note any serious defects. We are not, however, able to report that the property is free from rot, infestation or any other structural defects. Further, no test has been carried out on any of the building services. All dimensions, measurements and areas are only approximates. We have not been able to carry out detailed on-site measurements to verify the site and floor areas of the property and we have assumed that the areas shown on the copies of documents handed to us are correct. We have not carried out any soil investigations to determine the suitability of the soil conditions and the services etc. for any future development. Our valuations are prepared on the assumption that these aspects are satisfactory and that no extraordinary expenses or delays will be incurred during the construction period. We do not make any allowance for contamination or pollution of the land, if any, which may have been caused by past usage. No allowance has been made in our valuation for any charges, mortgages or amount owing on any property interests nor for any expense or taxation which may be incurred in effecting a sale. We have assumed that the property is free from encumbrances, restrictions and outgoings of an onerous nature which could affect their values. Liability in connection with this valuation report is limited to the client to whom this report is addressed and for the purpose for which it is carried out only. We will accept no liability to any other parties or any other purposes. III-3

340 APPENDIX III PROPERTY VALUATION REMARKS Unless otherwise stated, all monetary amounts stated in this report are in Hong Kong Dollars (HKD). Our valuation certificate in respect of the property interests is herewith attached. Yours faithfully, For and on behalf of Ascent Partners Valuation Service Limited Stephen Y. W. Yeung MFin BSc(Hons) Land Adm. MHKIS MCIREA RPS(GP) Principal Mr. Stephen Y. W. Yeung is a Registered Professional Surveyor (General Practice Division) and a Professional Member of The Hong Kong Institute of Surveyors with over 10 years experience in valuation of properties in HKSAR and mainland China. Mr. Yeung is also a valuer on the List of Property Valuers for Undertaking Valuations for Incorporation or Reference in Listing Particulars and Circulars and Valuations in Connection with Takeovers and Mergers published by HKIS. III-4

341 APPENDIX III PROPERTY VALUATION VALUATION CERTIFICATE Property interests held and occupied by the Group in Hong Kong Property Description and Tenure Particular of Occupancy Market value in existing state as at 31 January 2016 Workshop 16 on 13/F, New Commerce Centre, No. 19 On Sum Street, Sha Tin, New Territories, Hong Kong 9/3100th equal and undivided shares of and in Sha Tin Town Lot No. 389 The property comprises an industrial unit on 13th Floor of an 18-storey industrial building (with 4th and 14th Floors omitted) completed in As shown on and scaled off from the building plan, the saleable area of the property is about 660 sq.ft. The property is occupied by the Group for storage purpose. HKD4,120,000 (Hong Kong Dollar Four Million One Hundred Twenty Thousand) 100% interest Attributable to the Group: HKD4,120,000 The lot is held under New Grant No for a term commencing from 18 September 1991 and expiring on 30 June The government rent payable for Sha Tin Town Lot No. 389 is at 3% of the rateable value of the time being per annum. Notes: (1) The registered owner of the property is Luen Hing Construction & Eng. Limited vide Memorial No dated 5 June (2) The property is subject to encumbrances as follows: (i) An Occupation Permit No. NT 84/94 vide Memorial No. ST dated 13 July 1994; (ii) A Letter of Compliance vide Memorial No. ST dated 29 September 1994; (iii) A Deed of Mutual Covenant and Management Agreement vide Memorial No. ST dated 10 October 1994; and (iv) A Mortgage in favour of Bank of China (Hong Kong) Limited vide Memorial No dated 28 March (3) The property lies within an area zoned as Other Specified Uses (Business) under Approved Sha Tin Outline Zoning Plan No. S/ST/32 dated 11 December (4) Our inspection was performed by Mr. Charles Choi, BSc (Hons) in February III-5

342 APPENDIX IV SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANY LAW Set out below is a summary of certain provisions of the Memorandum and Articles of Association of the Company and of certain aspects of Cayman Islands company law. The Company was incorporated in the Cayman Islands as an exempted company with limited liability on 16 October 2015 under the Companies Law. The Company s constitutional documents consist of its Amended and Restated Memorandum of Association (Memorandum) and the Amended and Restated Articles of Association (Articles). 1. MEMORANDUM OF ASSOCIATION (a) (b) The Memorandum provides, inter alia, that the liability of members of the Company is limited and that the objects for which the Company is established are unrestricted (and therefore include acting as an investment company), and that the Company shall have and be capable of exercising any and all of the powers at any time or from time to time exercisable by a natural person or body corporate whether as principal, agent, contractor or otherwise and since the Company is an exempted company that the Company will not trade in the Cayman Islands with any person, firm or corporation except in furtherance of the business of the Company carried on outside the Cayman Islands. By special resolution the Company may alter the Memorandum with respect to any objects, powers or other matters specified therein. 2. ARTICLES OF ASSOCIATION The Articles were adopted on 24 March The following is a summary of certain provisions of the Articles: (a) Shares (i) Classes of shares The share capital of the Company consists of ordinary shares. (ii) Share certificates Every person whose name is entered as a member in the register of members shall be entitled to receive a certificate for his shares. No shares shall be issued to bearer. Every certificate for shares, warrants or debentures or representing any other form of securities of the Company shall be issued under the seal of the Company, and shall be signed autographically by one Director and the Secretary, or by 2 Directors, or by some other person(s) appointed by the Board for the purpose. As regards any certificates for shares or debentures or other securities of the Company, the Board may by resolution determine that such signatures or either of them shall be dispensed with or affixed by some method or system of mechanical IV-1

343 APPENDIX IV SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANY LAW signature other than autographic or may be printed thereon as specified in such resolution or that such certificates need not be signed by any person. Every share certificate issued shall specify the number and class of shares in respect of which it is issued and the amount paid thereon and may otherwise be in such form as the Board may from time to time prescribe. A share certificate shall relate to only one class of shares, and where the capital of the Company includes shares with different voting rights, the designation of each class of shares, other than those which carry the general right to vote at general meetings, must include the words restricted voting or limited voting or non-voting or some other appropriate designation which is commensurate with the rights attaching to the relevant class of shares. The Company shall not be bound to register more than 4 persons as joint holders of any share. (b) Directors (i) Power to allot and issue shares and warrants Subject to the provisions of the Companies Law, the Memorandum and Articles and without prejudice to any special rights conferred on the holders of any shares or class of shares, any share may be issued with or have attached thereto such rights, or such restrictions, whether with regard to dividend, voting, return of capital, or otherwise, as the Company may by ordinary resolution determine (or, in the absence of any such determination or so far as the same may not make specific provision, as the Board may determine). Any share may be issued on terms that upon the happening of a specified event or upon a given date and either at the option of the Company or the holder thereof, they are liable to be redeemed. The Board may issue warrants to subscribe for any class of shares or other securities of the Company on such terms as it may from time to time determine. Where warrants are issued to bearer, no certificate thereof shall be issued to replace one that has been lost unless the Board is satisfied beyond reasonable doubt that the original certificate thereof has been destroyed and the Company has received an indemnity in such form as the Board shall think fit with regard to the issue of any such replacement certificate. Subject to the provisions of the Companies Law, the Articles and, where applicable, the rules of any stock exchange of the Relevant Territory (as defined in the Articles) and without prejudice to any special rights or restrictions for the time being attached to any shares or any class of shares, all unissued shares in the Company shall be at the disposal of the Board, which may offer, allot, grant options over or otherwise dispose of them to such persons, at such times, for such consideration and on such terms and conditions as it in its absolute discretion thinks fit, but so that no shares shall be issued at a discount. IV-2

344 APPENDIX IV SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANY LAW Neither the Company nor the Board shall be obliged, when making or granting any allotment of, offer of, option over or disposal of shares, to make, or make available, any such allotment, offer, option or shares to members or others whose registered addresses are in any particular territory or territories where, in the absence of a registration statement or other special formalities, this is or may, in the opinion of the Board, be unlawful or impracticable. However, no member affected as a result of the foregoing shall be, or be deemed to be, a separate class of members for any purpose whatsoever. (ii) Power to dispose of the assets of the Company or any subsidiary While there are no specific provisions in the Articles relating to the disposal of the assets of the Company or any of its subsidiaries, the Board may exercise all powers and do all acts and things which may be exercised or done or approved by the Company and which are not required by the Articles or the Companies Law to be exercised or done by the Company in general meeting, but if such power or act is regulated by the Company in general meeting, such regulation shall not invalidate any prior act of the Board which would have been valid if such regulation had not been made. (iii) Compensation or payments for loss of office Payments to any present Director or past Director of any sum by way of compensation for loss of office or as consideration for or in connection with his retirement from office (not being a payment to which the Director is contractually or statutorily entitled) must be approved by the Company in general meeting. (iv) Loans and provision of security for loans to Directors There are provisions in the Articles prohibiting the making of loans to Directors and their close associates which are equivalent to provisions of Hong Kong law prevailing at the time of adoption of the Articles. The Company shall not directly or indirectly make a loan to a Director or a director of any holding company of the Company or any of their respective close associates, enter into any guarantee or provide any security in connection with a loan made by any person to a Director or a director of any holding company of the Company or any of their respective close associates, or if any one or more of the Directors hold (jointly or severally or directly or indirectly) a controlling interest in another company, make a loan to that other company or enter into any guarantee or provide any security in connection with a loan made by any person to that other company. IV-3

345 APPENDIX IV SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANY LAW (v) Disclosure of interest in contracts with the Company or with any of its subsidiaries With the exception of the office of auditor of the Company, a Director may hold any other office or place of profit with the Company in conjunction with his office of Director for such period and, upon such terms as the Board may determine, and may be paid such extra remuneration therefor (whether by way of salary, commission, participation in profits or otherwise) in addition to any remuneration provided for by or pursuant to any other Articles. A Director may be or become a director or other officer or member of any other company in which the Company may be interested, and shall not be liable to account to the Company or the members for any remuneration or other benefits received by him as a director, officer or member of such other company. The Board may also cause the voting power conferred by the shares in any other company held or owned by the Company to be exercised in such manner in all respects as it thinks fit, including the exercise thereof in favour of any resolution appointing the Directors or any of them to be directors or officers of such other company. No Director or intended Director shall be disqualified by his office from contracting with the Company, either as vendor, purchaser or otherwise, nor shall any such contract or any other contract or arrangement in which any Director is in any way interested be liable to be avoided, nor shall any Director so contracting or being so interested be liable to account to the Company for any profit realised by any such contract or arrangement by reason only of such Director holding that office or the fiduciary relationship thereby established. A Director who is, in any way, materially interested in a contract or arrangement or proposed contract or arrangement with the Company shall declare the nature of his interest at the earliest meeting of the Board at which he may practically do so. There is no power to freeze or otherwise impair any of the rights attaching to any Share by reason that the person or persons who are interested directly or indirectly therein have failed to disclose their interests to the Company. A Director shall not vote (nor shall he be counted in the quorum) on any resolution of the Board in respect of any contract or arrangement or other proposal in which he or his close associate(s) is/are materially interested, and if he shall do so his vote shall not be counted nor shall he be counted in the quorum for that resolution, but this prohibition shall not apply to any of the following matters namely: (aa) the giving of any security or indemnity to the Director or his close associate(s) in respect of money lent or obligations incurred or undertaken by him or any of them at the request of or for the benefit of the Company or any of its subsidiaries; IV-4

346 APPENDIX IV SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANY LAW (bb) the giving of any security or indemnity to a third party in respect of a debt or obligation of the Company or any of its subsidiaries for which the Director or his close associate(s) has/have himself/themselves assumed responsibility in whole or in part whether alone or jointly under a guarantee or indemnity or by the giving of security; (cc) any proposal concerning an offer of shares or debentures or other securities of or by the Company or any other company which the Company may promote or be interested in for subscription or purchase, where the Director or his close associate(s) is/are or is/are to be interested as a participant in the underwriting or sub-underwriting of the offer; (dd) any proposal or arrangement concerning the benefit of employees of the Company or its subsidiaries including (i) the adoption, modification or operation of any employees share scheme or any share incentive or share option scheme under which the Director or his close associate(s) may benefit; or (ii) the adoption, modification or operation of a pension fund or retirement, death or disability benefits scheme which relates both to Directors, his close associates and employees of the Company or any of its subsidiaries and does not provide in respect of any Director or his close associate(s), as such any privilege or advantage not generally accorded to the class of persons to which such scheme or fund relates; or (ee) any contract or arrangement in which the Director or his close associate(s) is/are interested in the same manner as other holders of shares or debentures or other securities of the Company by virtue only of his/their interest in shares or debentures or other securities of the Company. (vi) Remuneration The Directors shall be entitled to receive, as ordinary remuneration for their services, such sums as shall from time to time be determined by the Board, or the Company in general meeting, as the case may be, such sum (unless otherwise directed by the resolution by which it is determined) to be divided amongst the Directors in such proportions and in such manner as they may agree or failing agreement, equally, except that in such event any Director holding office for only a portion of the period in respect of which the remuneration is payable shall only rank in such division in proportion to the time during such period for which he has held office. The Directors shall also be entitled to be repaid all travelling, hotel and other expenses reasonably incurred by them in attending any Board meetings, committee meetings or general meetings or otherwise in connection with the discharge of their duties as Directors. Such remuneration shall be in IV-5

347 APPENDIX IV SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANY LAW addition to any other remuneration to which a Director who holds any salaried employment or office in the Company may be entitled by reason of such employment or office. Any Director who, at the request of the Company performs services which in the opinion of the Board go beyond the ordinary duties of a Director may be paid such special or extra remuneration (whether by way of salary, commission, participation in profits or otherwise) as the Board may determine and such extra remuneration shall be in addition to or in substitution for any ordinary remuneration as a Director. An executive Director appointed to be a managing director, joint managing director, deputy managing director or other executive officer shall receive such remuneration (whether by way of salary, commission or participation in profits or otherwise or by all or any of those modes) and such other benefits (including pension and/or gratuity and/or other benefits on retirement) and allowances as the Board may from time to time decide. Such remuneration shall be in addition to his ordinary remuneration as a Director. The Board may establish, either on its own or jointly in concurrence or agreement with other companies (being subsidiaries of the Company or with which the Company is associated in business), or may make contributions out of the Company s monies to, such schemes or funds for providing pensions, sickness or compassionate allowances, life assurance or other benefits for employees (which expression as used in this and the following paragraph shall include any Director or former Director who may hold or have held any executive office or any office of profit with the Company or any of its subsidiaries) and former employees of the Company and their dependents or any class or classes of such persons. In addition, the Board may also pay, enter into agreements to pay or make grants of revocable or irrevocable, whether or not subject to any terms or conditions, pensions or other benefits to employees and former employees and their dependents, or to any of such persons, including pensions or benefits additional to those, if any, to which such employees or former employees or their dependents are or may become entitled under any such scheme or fund as mentioned above. Such pension or benefit may, if deemed desirable by the Board, be granted to an employee either before and in anticipation of, or upon or at any time after, his actual retirement. (vii) Appointment, retirement and removal At any time or from time to time, the Board shall have the power to appoint any person as a Director either to fill a casual vacancy on the Board or as an additional Director to the existing Board subject to any maximum number of Directors, if any, as may be determined by the members in general meeting. Any Director appointed by the Board to fill a casual vacancy shall hold office only until the first general meeting of the Company after his appointment and be subject to re-election at such meeting. Any Director appointed by the Board as an IV-6

348 APPENDIX IV SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANY LAW addition to the existing Board shall hold office only until the next following annual general meeting of the Company and shall then be eligible for re-election. Any Director so appointed by the Board shall not be taken into account in determining the Directors or the number of Directors who are to retire by rotation at an annual general meeting. At each annual general meeting, one third of the Directors for the time being will retire from office by rotation. However, if the number of Directors is not a multiple of three, then the number nearest to but not less than one third shall be the number of retiring Directors. The Directors who shall retire in each year will be those who have been longest in the office since their last re-election or appointment but as between persons who become or were last re-elected Directors on the same day those to retire will (unless they otherwise agree among themselves) be determined by lot. No person, other than a retiring Director, shall, unless recommended by the Board for election, be eligible for election to the office of Director at any general meeting, unless notice in writing of the intention to propose that person for election as a Director and notice in writing by that person of his willingness to be elected shall have been lodged at the head office or at the registration office. The period for lodgment of such notices will commence no earlier than the day after the despatch of the notice of the meeting appointed for such election and end no later than 7 days prior to the date of such meeting and the minimum length of the period during which such notices to the Company may be given must be at least 7 days. A Director is not required to hold any shares in the Company by way of qualification nor is there any specified upper or lower age limit for Directors either for accession to the Board or retirement therefrom. A Director may be removed by an ordinary resolution of the Company before the expiration of his term of office (but without prejudice to any claim which such Director may have for damages for any breach of any contract between him and the Company) and the Company may by ordinary resolution appoint another in his place. Any Director so appointed shall be subject to retirement by rotation provisions in the articles of association. The number of Directors shall not be less than two. In addition to the foregoing, the office of a Director shall be vacated: (aa) if he resigns his office by notice in writing delivered to the Company at the registered office or head office of the Company for the time being or tendered at a meeting of the Board; IV-7

349 APPENDIX IV SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANY LAW (bb) if he dies or becomes of unsound mind as determined pursuant to an order made by any competent court or official on the grounds that he is or may be suffering from mental disorder or is otherwise incapable of managing his affairs and the Board resolves that his office be vacated; (cc) if, without special leave, he is absent from meetings of the Board for six (6) consecutive months, and the Board resolves that his office is vacated; (dd) if he becomes bankrupt or has a receiving order made against him or suspends payment or compounds with his creditors generally; (ee) if he is prohibited from being a director by law; (ff) if he ceases to be a director by virtue of any provision of law or is removed from office pursuant to the Articles; (gg) if he has been validly required by the stock exchange of the Relevant Territory (as defined in the Articles) to cease to be a Director and the relevant time period for application for review of or appeal against such requirement has lapsed and no application for review or appeal has been filed or is underway against such requirement; or (hh) if he is removed from office by notice in writing served upon him signed by not less than three-fourths in number (or, if that is not a round number, the nearest lower round number) of the Directors (including himself) then in office. From time to time the Board may appoint one or more of its body to be managing director, joint managing director, or deputy managing director or to hold any other employment or executive office with the Company for such period and upon such terms as the Board may determine and the Board may revoke or terminate any of such appointments. The Board may also delegate any of its powers to committees consisting of such Director or Directors and other person(s) as the Board thinks fit, and from time to time it may also revoke such delegation or revoke the appointment of and discharge any such committees either wholly or in part, and either as to persons or purposes, but every committee so formed shall, in the exercise of the powers so delegated, conform to any regulations that may from time to time be imposed upon it by the Board. (viii) Borrowing powers Pursuant to the Articles, the Board may exercise all the powers of the Company to raise or borrow money, to mortgage or charge all or any part of the undertaking, property and uncalled capital of the Company and, subject to the Companies Law, to issue debentures, debenture stock, bonds and other securities of the Company, whether outright or as collateral security for any debt, liability or IV-8

350 APPENDIX IV SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANY LAW obligation of the Company or of any third party. The provisions summarized above, in common with the Articles of Association in general, may be varied with the sanction of a special resolution of the Company. (ix) Register of Directors and officers Pursuant to the Companies Law, the Company is required to maintain at its registered office a register of directors, alternate directors and officers which is not available for inspection by the public. A copy of such register must be filed with the Registrar of Companies in the Cayman Islands and any change must be notified to the Registrar within 30 days of any change in such directors or officers, including a change of the name of such directors or officers. (x) Proceedings of the Board Subject to the Articles, the Board may meet anywhere in the world for the despatch of business and may adjourn and otherwise regulate its meetings as it thinks fit. Questions arising at any meeting shall be determined by a majority of votes. In the case of an equality of votes, the chairman of the meeting shall have a second or casting vote. (c) Alterations to the constitutional documents To the extent that the same is permissible under Cayman Islands law and subject to the Articles, the Memorandum and Articles of the Company may only be altered or amended, and the name of the Company may only be changed by the Company by special resolution. (d) Variation of rights of existing shares or classes of shares Subject to the Companies Law, if at any time the share capital of the Company is divided into different classes of shares, all or any of the special rights attached to any class of shares may (unless otherwise provided for by the terms of issue of the shares of that class) be varied, modified or abrogated either with the consent in writing of the holders of not less than three-fourths in nominal value of the issued shares of that class or with the sanction of a special resolution passed at a separate general meeting of the holders of the shares of that class. To every such separate general meeting the provisions of the Articles relating to general meetings shall mutatis mutandis apply, but so that the necessary quorum (other than at an adjourned meeting) shall be not less than two persons together holding (or in the case of a shareholder being a corporation, by its duly authorised representative) or representing by proxy not less than one-third in nominal value of the issued shares of that class. Every holder of shares of the class shall be entitled on a poll to one vote for every such share held by him, and any holder of shares of the class present in person or by proxy may demand a poll. IV-9

351 APPENDIX IV SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANY LAW Any special rights conferred upon the holders of any shares or class of shares shall not, unless otherwise expressly provided in the rights attaching to the terms of issue of such shares, be deemed to be varied by the creation or issue of further shares ranking pari passu therewith. (e) Alteration of capital The Company may, by an ordinary resolution of its members, (a) increase its share capital by the creation of new shares of such amount as it thinks expedient; (b) consolidate or divide all or any of its share capital into shares of larger or smaller amount than its existing shares; (c) divide its unissued shares into several classes and attach thereto respectively any preferential, deferred, qualified or special rights, privileges or conditions; (d) subdivide its shares or any of them into shares of an amount smaller than that fixed by the Memorandum; and (e) cancel shares which, at the date of the passing of the resolution, have not been taken or agreed to be taken by any person and diminish the amount of its share capital by the amount of the shares so cancelled; (f) make provision for the allotment and issue of shares which do not carry any voting rights; (g) change the currency of denomination of its share capital; and (h) reduce its share premium account in any manner authorised and subject to any conditions prescribed by law. Reduction of share capital subject to the Companies Law and to confirmation by the court, a company limited by shares may, if so authorised by its Articles of Association, by special resolution, reduce its share capital in any way. (f) Special resolution majority required In accordance with the Articles, a special resolution of the Company must be passed by a majority of not less than three-fourths of the votes cast by such members as, being entitled so to do, vote in person or by proxy or, in the case of members which are corporations, by their duly authorised representatives or, where proxies are allowed, by proxy at a general meeting of which notice specifying the intention to propose the resolution as a special resolution has been duly given. Under Companies Law, a copy of any special resolution must be forwarded to the Registrar of Companies in the Cayman Islands within 15 days of being passed. An ordinary resolution, by contrast, is defined in the Articles to mean a resolution passed by a simple majority of the votes of such members of the Company as, being entitled to do so, vote in person or, in the case of members which are corporations, by their duly authorised representatives or, where proxies are allowed, by proxy at a general meeting of which not less than 14 clear days notice has been given and held in accordance with the Articles. A resolution in writing signed by or on behalf of all members shall be treated as an ordinary resolution duly passed at a general meeting of the Company duly convened and held, and where relevant as a special resolution so passed. IV-10

352 APPENDIX IV SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANY LAW (g) Voting rights (generally and on a poll) and right to demand a poll Subject to any special rights, restrictions or privileges as to voting for the time being attached to any class or classes of shares at any general meeting on a poll every member present in person or by proxy or, in the case of a member being a corporation, by its duly authorised representative shall have one vote for every share which is fully paid or credited as fully paid registered in his name in the register of members of the Company but so that no amount paid up or credited as paid up on a share in advance of calls or instalments is treated for the foregoing purpose as paid up on the share, on a show of hands every member who is present in person (or, in the case of a member being a corporation, by its duly authorised representative) or by proxy shall have one vote. Notwithstanding anything contained in the Articles, where more than one proxy is appointed by a member which is a Clearing House (as defined in the Articles) (or its nominee(s)), each such proxy shall have one vote on a show of hands. On a poll, a member entitled to more than one vote need not use all his votes or cast all the votes he does use in the same way. At any general meeting a resolution put to the vote of the meeting is to be decided by poll save that the chairman of the meeting may, pursuant to the GEM Listing Rules, allow a resolution to be voted on by a show of hands. Where a show of hands is allowed, before or on the declaration of the result of the show of hands, a poll may be demanded by: (i) (ii) at least two members present in person or, in the case of a member being a corporation, by its duly authorised representative or by proxy for the time being entitled to vote at the meeting; or any member or members present in person or, in the case of a member being a corporation, by its duly authorised representative or by proxy and representing not less than one-tenth of the total voting rights of all the members having the right to vote at the meeting; or (iii) a member or members present in person or, in the case of a member being a corporation, by its duly authorised representative or by proxy and holding shares in the Company conferring a right to vote at the meeting being shares on which an aggregate sum has been paid equal to not less than one-tenth of the total sum paid up on all the shares conferring that right. Should a Clearing House or its nominee(s), be a member of the Company, such person or persons may be authorised as it thinks fit to act as its representative(s) at any meeting of the Company or at any meeting of any class of members of the Company provided that, if more than one person is so authorised, the authorisation shall specify the number and class of shares in respect of which each such person is so authorised. A person authorised in accordance with this provision shall be deemed to have been duly authorised without further evidence of the facts and be entitled to exercise the IV-11

353 APPENDIX IV SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANY LAW same rights and powers on behalf of the Clearing House or its nominee(s), as if such person were an individual member including the right to vote individually on a show of hands. Where the Company has knowledge that any member is, under the GEM Listing Rules, required to abstain from voting on any particular resolution of the Company or restricted to voting only for or only against any particular resolution of the Company, any votes cast by or on behalf of such member in contravention of such requirement or restriction shall not be counted. (h) Annual general meetings The Company must hold an annual general meeting each year other than the year of the Company s adoption of the Articles. Such meeting must be held not more than 15 months after the holding of the last preceding annual general meeting, or such longer period as may be authorised by the Stock Exchange at such time and place as may be determined by the Board. (i) Accounts and audit The Board shall cause proper books of account to be kept of the sums of money received and expended by the Company, and the matters in respect of which such receipt and expenditure take place, and of the assets and liabilities of the Company and of all other matters required by the Companies Law necessary to give a true and fair view of the state of the Company s affairs and to show and explain its transactions. The books of accounts of the Company shall be kept at the head office of the Company or at such other place or places as the Board decides and shall always be open to inspection by any Director. No member (other than a Director) shall have any right to inspect any account or book or document of the Company except as conferred by the Companies Law or ordered by a court of competent jurisdiction or authorised by the Board or the Company in general meeting. The Board shall from time to time cause to be prepared and laid before the Company at its annual general meeting balance sheets and profit and loss accounts (including every document required by law to be annexed thereto), together with a copy of the Directors report and a copy of the auditors report not less than 21 days before the date of the annual general meeting. Copies of these documents shall be sent to every person entitled to receive notices of general meetings of the Company under the provisions of the Articles together with the notice of annual general meeting, not less than 21 days before the date of the meeting. Subject to the rules of the stock exchange of the Relevant Territory (as defined in the Articles), the Company may send summarized financial statements to shareholders who has, in accordance with the rules of the stock exchange of the Relevant Territory (as defined in the Articles), consented and elected to receive summarized financial statements instead of the full financial statements. The summarized financial statements IV-12

354 APPENDIX IV SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANY LAW must be accompanied by any other documents as may be required under the rules of the stock exchange of the Relevant Territory (as defined in the Articles), and must be sent to the shareholders not less than 21 days before the general meeting to those shareholders that have consented and elected to receive the summarised financial statements. The Company shall appoint auditor(s) to hold office until the conclusion of the next annual general meeting on such terms and with such duties as may be agreed with the Board. The auditors remuneration shall be fixed by the Company in general meeting or by the Board if authority is so delegated by the members. The auditors shall audit the financial statements of the Company in accordance with generally accepted accounting principles of Hong Kong, the International Accounting Standards or such other standards as may be permitted by the Stock Exchange. (j) Notices of meetings and business to be conducted thereat An annual general meeting of the Company must be called by at least 21 days notice in writing, and a general meeting of the Company, other than an annual general meeting, shall be called by at least 14 days notice in writing. The notice shall be exclusive of the day on which it is served or deemed to be served and of the day for which it is given, and must specify the time, place and agenda of the meeting, and particulars of the resolution(s) to be considered at that meeting, and, in the case of special business, the general nature of that business. Except where otherwise expressly stated, any notice or document (including a share certificate) to be given or issued under the Articles shall be in writing, and may be served by the Company on any member either personally or by sending it through the post in a prepaid envelope or wrapper addressed to such member at his registered address as appearing in the Company s register of members or by leaving it at such registered address as aforesaid or (in the case of a notice) by advertisement in the newspapers. Any member whose registered address is outside Hong Kong may notify the Company in writing of an address in Hong Kong which for the purpose of service of notice shall be deemed to be his registered address. Where the registered address of the member is outside Hong Kong, notice, if given through the post, shall be sent by prepaid airmail letter where available. Subject to the Companies Law and the GEM Listing Rules, a notice or document may be served or delivered by the Company to any member by electronic means to such address as may from time to time be authorised by the member concerned or by publishing it on a website and notifying the member concerned that it has been so published. IV-13

355 APPENDIX IV SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANY LAW Although a meeting of the Company may be called by shorter notice than as specified above, such meeting may be deemed to have been duly called if it is so agreed: (i) (ii) in the case of a meeting called as an annual general meeting, by all members of the Company entitled to attend and vote thereat; and in the case of any other meeting, by a majority in number of the members having a right to attend and vote at the meeting, being a majority together holding not less than 95% of the total voting rights at the meeting of all the members of the Company. All business transacted at an extraordinary general meeting shall be deemed special business and all business shall also be deemed special business where it is transacted at an annual general meeting with the exception of the following, which shall be deemed ordinary business: (aa) the declaration and sanctioning of dividends; (bb) the consideration and adoption of the accounts and balance sheet and the reports of the directors and the auditors; (cc) the election of Directors in place of those retiring; (dd) the appointment of auditors; (ee) the fixing of the remuneration of the Directors and of the auditors; (ff) the granting of any mandate or authority to the Board to offer, allot, grant options over, or otherwise dispose of the unissued shares of the Company representing not more than 20% in nominal value of its existing issued share capital (or such other percentage as may from time to time be specified in the rules of the Stock Exchange) and the number of any securities repurchased by the Company since the granting of such mandate; and (gg) the granting of any mandate or authority to the Board to repurchase securities in the Company. (k) Transfer of shares Subject to the Companies Law, all transfers of shares shall be effected by an instrument of transfer in the usual or common form or in such other form as the Board may approve provided always that it shall be in such form prescribed by the Stock Exchange and may be under hand or, if the transferor or transferee is a Clearing House or its nominee(s), under hand or by machine imprinted signature or by such other manner of execution as the Board may approve from time to time. IV-14

356 APPENDIX IV SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANY LAW Execution of the instrument of transfer shall be by or on behalf of the transferor and the transferee provided that the Board may dispense with the execution of the instrument of transfer by the transferor or transferee or accept mechanically executed transfers in any case in which it in its discretion thinks fit to do so, and the transferor shall be deemed to remain the holder of the share until the name of the transferee is entered in the register of members of the Company in respect thereof. The Board may, in its absolute discretion, at any time and from time to time remove any share on the principal register to any branch register or any share on any branch register to the principal register or any other branch register. Unless the Board otherwise agrees, no shares on the principal register shall be removed to any branch register nor shall shares on any branch register be removed to the principal register or any other branch register. All removals and other documents of title shall be lodged for registration and registered, in the case of shares on any branch register, at the relevant registration office and, in the case of shares on the principal register, at the place at which the principal register is located. The Board may, in its absolute discretion, decline to register a transfer of any share (not being a fully paid up share) to a person of whom it does not approve or any share issued under any share option scheme upon which a restriction on transfer imposed thereby still subsists, and it may also refuse to register any transfer of any share to more than four joint holders or any transfer of any share (not being a fully paid up share) on which the Company has a lien. The Board may decline to recognize any instrument of transfer unless a fee of such maximum sum as the Stock Exchange may determine to be payable or such lesser sum as the Board may from time to time require is paid to the Company in respect thereof, the instrument of transfer is properly stamped (if applicable), is in respect of only one class of share and is lodged at the relevant registration office or the place at which the principal register is located accompanied by the relevant share certificate(s) and such other evidence as the Board may reasonably require to show the right of the transferor to make the transfer (and if the instrument of transfer is executed by some other person on his behalf, the authority of that person so to do). The register of members may, subject to the GEM Listing Rules (as defined in the Articles), be closed at such time or for such period not exceeding in the whole 30 days in each year as the Board may determine. Fully paid shares shall be free from any restriction with respect to the right of the holder thereof to transfer such shares (except when permitted by the Stock Exchange) and shall also be free from all liens. IV-15

357 APPENDIX IV SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANY LAW (l) Power of the Company to purchase its own shares The Company is empowered by the Companies Law and the Articles to purchase its own shares subject to certain restrictions and the Board may only exercise this power on behalf of the Company subject to any applicable requirement imposed from time to time by the Articles, code, rules or regulations issued from time to time by the Stock Exchange and/or the Securities and Futures Commission of Hong Kong. Where the Company purchases for redemption a redeemable Share, purchases not made through the market or by tender shall be limited to a maximum price, and if purchases are by tender, tenders shall be available to all members alike. (m) Power of any subsidiary of the Company to own shares in the Company There are no provisions in the Articles relating to the ownership of shares in the Company by a subsidiary. (n) Dividends and other methods of distribution The Company in general meeting may declare dividends in any currency to be paid to the members but no dividend shall be declared in excess of the amount recommended by the Board. Except in so far as the rights attaching to, or the terms of issue of, any share may otherwise provide: (i) (ii) all dividends shall be declared and paid according to the amounts paid up on the shares in respect whereof the dividend is paid, although no amount paid up on a share in advance of calls shall for this purpose be treated as paid up on the share; and all dividends shall be apportioned and paid pro rata in accordance with the amount paid up on the shares during any portion or portions of the period in respect of which the dividend is paid. The Board may deduct from any dividend or other monies payable to any member all sums of money (if any) presently payable by him to the Company on account of calls, instalments or otherwise. Where the Board or the Company in general meeting has resolved that a dividend should be paid or declared on the share capital of the Company, the Board may resolve: (aa) that such dividend be satisfied wholly or in part in the form of an allotment of shares credited as fully paid up, provided that the members entitled thereto will be entitled to elect to receive such dividend (or part thereof) in cash in lieu of such allotment; or IV-16

358 APPENDIX IV SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANY LAW (bb) that the members entitled to such dividend will be entitled to elect to receive an allotment of shares credited as fully paid up in lieu of the whole or such part of the dividend as the Board may think fit. Upon the recommendation of the Board, the Company may by ordinary resolution in respect of any one particular dividend of the Company determine that it may be satisfied wholly in the form of an allotment of shares credited as fully paid up without offering any right to members to elect to receive such dividend in cash in lieu of such allotment. Any dividend, bonus or other sum payable in cash to the holder of shares may be paid by cheque or warrant sent through the post addressed to the holder at his registered address, but in the case of joint holders, shall be addressed to the holder whose name stands first in the register of members of the Company in respect of the shares at his address as appearing in the register, or addressed to such person and at such address as the holder or joint holders may in writing so direct. Every such cheque or warrant shall be made payable to the order of the person to whom it is sent and shall be sent at the holder s or joint holders risk and payment of the cheque or warrant by the bank on which it is drawn shall constitute a good discharge to the Company. Any one of two or more joint holders may give effectual receipts for any dividends or other monies payable or property distributable in respect of the shares held by such joint holders. Whenever the Board or the Company in general meeting has resolved that a dividend be paid or declared, the Board may further resolve that such dividend be satisfied wholly or in part by the distribution of specific assets of any kind. The Board may, if it thinks fit, receive from any member willing to advance the same, and either in money or money s worth, all or any part of the money uncalled and unpaid or instalments payable upon any shares held by him, and in respect of all or any of the monies so advanced may pay interest at such rate (if any) not exceeding 20 % per annum, as the Board may decide, but a payment in advance of a call shall not entitle the member to receive any dividend or to exercise any other rights or privileges as a member in respect of the share or the due portion of the shares upon which payment has been advanced by such member before it is called up. All dividends, bonuses or other distributions unclaimed for one year after having been declared may be invested or otherwise made use of by the Board for the benefit of the Company until claimed and the Company shall not be constituted a trustee in respect thereof. All dividends, bonuses or other distributions unclaimed for six years after having been declared may be forfeited by the Board and, upon such forfeiture, shall revert to the Company. No dividend or other monies payable by the Company on or in respect of any share shall bear interest against the Company. IV-17

359 APPENDIX IV SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANY LAW The Company may exercise the power to cease sending cheques for dividend entitlements or dividend warrants by post if such cheques or warrants remain uncashed on two consecutive occasions or after the first occasion on which such a cheque or warrant is returned undelivered. (o) Proxies Any member of the Company entitled to attend and vote at a meeting of the Company is entitled to appoint another person as his proxy to attend and vote instead of him. A member who is the holder of two or more shares may appoint more than one proxy to represent him and vote on his behalf at a general meeting of the Company or at a class meeting. A proxy need not be a member of the Company and shall be entitled to exercise the same powers on behalf of a member who is an individual and for whom he acts as proxy as such member could exercise. In addition, a proxy shall be entitled to exercise the same powers on behalf of a member which is a corporation and for which he acts as proxy as such member could exercise if it were an individual member. On a poll or on a show of hands, votes may be given either personally (or, in the case of a member being a corporation, by its duly authorised representative) or by proxy. The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney duly authorised in writing, or if the appointor is a corporation, either under seal or under the hand of an officer or attorney duly authorised. Every instrument of proxy, whether for a specified meeting or otherwise, shall be in such form as the Board may from time to time approve, provided that it shall not preclude the use of the two-way form. Any form issued to a member for use by him for appointing a proxy to attend and vote at an extraordinary general meeting or at an annual general meeting at which any business is to be transacted shall be such as to enable the member, according to his intentions, to instruct the proxy to vote in favour of or against (or, in default of instructions, to exercise his discretion in respect of) each resolution dealing with any such business. (p) Calls on shares and forfeiture of shares The Board may from time to time make such calls as it may think fit upon the members in respect of any monies unpaid on the shares held by them respectively (whether on account of the nominal value of the shares or by way of premium) and not by the conditions of allotment thereof made payable at fixed times. A call may be made payable either in one sum or by instalments. If the sum payable in respect of any call or instalment is not paid on or before the day appointed for payment thereof, the person or persons from whom the sum is due shall pay interest on the same at such rate not exceeding 20% per annum as the Board shall fix from the day appointed for the payment thereof to the time of actual payment, but the Board may waive payment of such interest wholly or in part. The Board may, if it thinks fit, receive from any member willing to advance the same, either in money or money s worth, all or any part IV-18

360 APPENDIX IV SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANY LAW of the money uncalled and unpaid or instalments payable upon any shares held by him, and in respect of all or any of the monies so advanced the Company may pay interest at such rate (if any) not exceeding 20% per annum as the Board may decide. If a member fails to pay any call or instalment of a call on the day appointed for payment thereof, the Board may, at any time thereafter during such time as any part of the call or instalment remains unpaid, serve not less than 14 days notice on him requiring payment of so much of the call or instalment as is unpaid, together with any interest which may have accrued and which may still accrue up to the date of actual payment. The notice will name a further day (not earlier than the expiration of 14 days from the date of the notice) on or before which the payment required by the notice is to be made, and it shall also name the place where payment is to be made. The notice shall also state that, in the event of non-payment at or before the time appointed, the shares in respect of which the call was made will be liable to be forfeited. If the requirements of any such notice are not complied with, any share in respect of which the notice has been given may at any time thereafter, before the payment required by the notice has been made, be forfeited by a resolution of the Board to that effect. Such forfeiture will include all dividends and bonuses declared in respect of the forfeited share and not actually paid before the forfeiture. A person whose shares have been forfeited shall cease to be a member in respect of the forfeited shares but shall, nevertheless, remain liable to pay to the Company all monies which, at the date of forfeiture, were payable by him to the Company in respect of the shares together with (if the Board shall in its discretion so require) interest thereon from the date of forfeiture until payment at such rate not exceeding 20% per annum as the Board may prescribe. (q) Inspection of corporate records Members of the Company have no general right under the Companies Law to inspect or obtain copies of the register of members or corporate records of the Company. However, the members of the Company will have such rights as may be set forth in the Articles. The Articles provide that for so long as any part of the share capital of the Company is listed on the Stock Exchange, any member may inspect any register of members of the Company maintained in Hong Kong (except when the register of member is closed) without charge and require the provision to him of copies or extracts thereof in all respects as if the Company were incorporated under and were subject to the Hong Kong Companies Ordinance. An exempted company may, subject to the provisions of its articles of association, maintain its principal register of members and any branch registers at such locations, whether within or outside the Cayman Islands, as its directors may, from time to time, think fit. IV-19

361 APPENDIX IV SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANY LAW (r) Quorum for meetings and separate class meetings No business shall be transacted at any general meeting unless a quorum is present when the meeting proceeds to business, and continues to be present until the conclusion of the meeting. The quorum for a general meeting shall be two members present in person (or in the case of a member being a corporation, by its duly authorised representative) or by proxy and entitled to vote. In respect of a separate class meeting (other than an adjourned meeting) convened to sanction the modification of class rights the necessary quorum shall be two persons holding or representing by proxy not less than one-third in nominal value of the issued shares of that class. (s) Rights of minorities in relation to fraud or oppression There are no provisions in the Articles concerning the rights of minority members in relation to fraud or oppression. However, certain remedies may be available to members of the Company under Cayman Islands law, as summarized in paragraph 3(f) of this Appendix. (t) Procedures on liquidation A resolution that the Company be wound up by the court or be wound up voluntarily shall be a special resolution. Subject to any special rights, privileges or restrictions as to the distribution of available surplus assets on liquidation for the time being attached to any class or classes of shares: (i) (ii) if the Company shall be wound up and the assets available for distribution amongst the members of the Company shall be more than sufficient to repay the whole of the capital paid up at the commencement of the winding up, then the excess shall be distributed pari passu amongst such members in proportion to the amount paid up on the shares held by them respectively; and if the Company shall be wound up and the assets available for distribution amongst the members as such shall be insufficient to repay the whole of the paid-up capital, such assets shall be distributed so that, as nearly as may be, the losses shall be borne by the members in proportion to the capital paid up, on the shares held by them respectively. In the event that the Company is wound up (whether the liquidation is voluntary or compelled by the court) the liquidator may, with the sanction of a special resolution and any other sanction required by the Companies Law divide among the members in specie or kind the whole or any part of the assets of the Company whether the assets shall consist of property of one kind or shall consist of properties of different kinds IV-20

362 APPENDIX IV SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANY LAW and the liquidator may, for such purpose, set such value as he deems fair upon any one or more class or classes of property to be divided as aforesaid and may determine how such division shall be carried out as between the members or different classes of members and the members within each class. The liquidator may, with the like sanction, vest any part of the assets in trustees upon such trusts for the benefit of members as the liquidator shall think fit, but so that no member shall be compelled to accept any shares or other property upon which there is a liability. (u) Untraceable members The Company may exercise the power to cease sending cheques for dividend entitlements or dividend warrants by post if such cheques or warrants remain uncashed on two consecutive occasions or after the first occasion on which such a cheque or warrant is returned undelivered. In accordance with the Articles, the Company is entitled to sell any of the shares of a member who is untraceable if: (i) (ii) all cheques or warrants, being not less than three in total number, for any sum payable in cash to the holder of such shares have remained uncashed for a period of 12 years; upon the expiry of the 12 years and 3 months period (being the 3 months notice period referred to in sub-paragraph (iii)), the Company has not during that time received any indication of the existence of the member; and (iii) the Company has caused an advertisement to be published in accordance with the rules of the stock exchange of the Relevant Territory (as defined in the Articles) giving notice of its intention to sell such shares and a period of three months has elapsed since such advertisement and the stock exchange of the Relevant Territory (as defined in the Articles) has been notified of such intention. The net proceeds of any such sale shall belong to the Company and upon receipt by the Company of such net proceeds, it shall become indebted to the former member of the Company for an amount equal to such net proceeds. (v) Subscription rights reserve Pursuant to the Articles, provided that it is not prohibited by and is otherwise in compliance with the Companies Law, if warrants to subscribe for shares have been issued by the Company and the Company does any act or engages in any transaction which would result in the subscription price of such warrants being reduced below the par value of the shares to be issued on the exercise of such warrants, a subscription rights reserve shall be established and applied in paying up the difference between the subscription price and the par value of such shares. IV-21

363 APPENDIX IV SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANY LAW 3. CAYMAN ISLANDS COMPANY LAW The Company was incorporated in the Cayman Islands as an exempted company on 16 October 2015 subject to the Companies Law. Certain provisions of Cayman Islands company law are set out below but this section does not purport to contain all applicable qualifications and exceptions or to be a complete review of all matters of the Companies Law and taxation, which may differ from equivalent provisions in jurisdictions with which interested parties may be more familiar. (a) Company operations As an exempted company, the Company must conduct its operations mainly outside the Cayman Islands. Moreover, the Company is required to file an annual return each year with the Registrar of Companies of the Cayman Islands and pay a fee which is based on the amount of its authorised share capital. (b) Share capital In accordance with the Companies Law, a Cayman Islands company may issue ordinary, preference or redeemable shares or any combination thereof. The Companies Law provides that where a company issues shares at a premium, whether for cash or otherwise, a sum equal to the aggregate amount or value of the premiums on those shares shall be transferred to an account, to be called the share premium account. At the option of a company, these provisions may not apply to premiums on shares of that company allotted pursuant to any arrangements in consideration of the acquisition or cancellation of shares in any other company and issued at a premium. The Companies Law provides that the share premium account may be applied by the company subject to the provisions, if any, of its memorandum and articles of association, in such manner as the company may from time to time determine including, but without limitation, the following: (i) (ii) paying distributions or dividends to members; paying up unissued shares of the company to be issued to members as fully paid bonus shares; (iii) any manner provided in section 37 of the Companies Law; (iv) (v) writing-off the preliminary expenses of the company; and writing-off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the company. IV-22

364 APPENDIX IV SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANY LAW Notwithstanding the foregoing, the Companies Law provides that no distribution or dividend may be paid to members out of the share premium account unless, immediately following the date on which the distribution or dividend is proposed to be paid, the company will be able to pay its debts as they fall due in the ordinary course of business. It is further provided by the Companies Law that, subject to confirmation by the court, a company limited by shares or a company limited by guarantee and having a share capital may, if authorised to do so by its articles of association, by special resolution reduce its share capital in any way. The Articles include certain protections for holders of special classes of shares, requiring their consent to be obtained before their rights may be varied. The consent of the specified proportions of the holders of the issued shares of that class or the sanction of a resolution passed at a separate meeting of the holders of those shares is required. (c) Financial assistance to purchase shares of a company or its holding company There are no statutory prohibitions in the Cayman Islands on the granting of financial assistance by a company to another person for the purchase of, or subscription for, its own, its holding company s or a subsidiary s shares. Therefore, a company may provide financial assistance provided the directors of the company when proposing to grant such financial assistance discharge their duties of care and acting in good faith, for a proper purpose and in the interests of the company. Such assistance should be on an arm s-length basis. (d) Purchase of shares and warrants by a company and its subsidiaries A company limited by shares or a company limited by guarantee and having a share capital may, if so authorised by its articles of association, issue shares which are to be redeemed or are liable to be redeemed at the option of the company or a member and, for the avoidance of doubt, it shall be lawful for the rights attaching to any shares to be varied, subject to the provisions of the company s articles of association, so as to provide that such shares are to be or are liable to be so redeemed. In addition, such a company may, if authorised to do so by its articles of association, purchase its own shares, including any redeemable shares. Nonetheless, if the articles of association do not authorise the manner and terms of purchase, a company cannot purchase any of its own shares without the manner and terms of purchase first being authorised by an ordinary resolution of the company. A company may not redeem or purchase its shares unless they are fully paid. Furthermore, a company may not redeem or purchase any of its shares if, as a result of the redemption or purchase, there would no longer be any issued shares of the company other than shares held as treasury shares. In addition, a payment out of capital by a company for the redemption or purchase of its own shares is not lawful unless immediately following the date on which the payment is proposed to be made, the company shall be able to pay its debts as they fall due in the ordinary course of business. IV-23

365 APPENDIX IV SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANY LAW Under Section 37A(1) the Companies Law, shares that have been purchased or redeemed by a company or surrendered to the company shall not be treated as cancelled but shall be classified as treasury shares if (a) the memorandum and articles of association of the company do not prohibit it from holding treasury shares; (b) the relevant provisions of the memorandum and articles of association (if any) are complied with; and (c) the company is authorised in accordance with the company s articles of association or by a resolution of the directors to hold such shares in the name of the company as treasury shares prior to the purchase, redemption or surrender of such shares. Shares held by a company pursuant to section 37A(1) of the Companies Law shall continue to be classified as treasury shares until such shares are either cancelled or transferred pursuant to the Companies Law. A Cayman Islands company may be able to purchase its own warrants subject to and in accordance with the terms and conditions of the relevant warrant instrument or certificate. Thus there is no requirement under Cayman Islands law that a company s memorandum or articles of association contain a specific provision enabling such purchases. The directors of a company may under the general power contained in its memorandum of association be able to buy and sell and deal in personal property of all kinds. Under Cayman Islands law, a subsidiary may hold shares in its holding company and, in certain circumstances, may acquire such shares. (e) Dividends and distributions With the exception of sections 34 and 37A(7) of the Companies Law, there are no statutory provisions relating to the payment of dividends. Based upon English case law which is likely to be persuasive in the Cayman Islands, dividends may be paid only out of profits. In addition, section 34 of the Companies Law permits, subject to a solvency test and the provisions, if any, of the company s memorandum and articles of association, the payment of dividends and distributions out of the share premium account (see sub-paragraph 2(n) of this Appendix for further details). Section 37A(7)(c) of the Companies Law provides that for so long as a company holds treasury shares, no dividend may be declared or paid, and no other distribution (whether in cash or otherwise) of the company s assets (including any distribution of assets to members on a winding up) may be made to the company, in respect of a treasury share. (f) Protection of minorities and shareholders suits It can be expected that the Cayman Islands courts will ordinarily follow English case law precedents (particularly the rule in the case of Foss v. Harbottle and the exceptions thereto) which permit a minority member to commence a representative action against or derivative actions in the name of the company to challenge: (i) an act which is ultra vires the company or illegal; IV-24

366 APPENDIX IV SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANY LAW (ii) an act which constitutes a fraud against the minority and the wrongdoers are themselves in control of the company; and (iii) an irregularity in the passing of a resolution the passage of which requires a qualified (or special) majority which has not been obtained. Where a company (not being a bank) is one which has a share capital divided into shares, the court may, on the application of members thereof holding not less than one-fifth of the shares of the company in issue, appoint an inspector to examine the affairs of the company and, at the direction of the court, to report thereon. Moreover, any member of a company may petition the court which may make a winding up order if the court is of the opinion that it is just and equitable that the company should be wound up. In general, claims against a company by its members must be based on the general laws of contract or tort applicable in the Cayman Islands or be based on potential violation of their individual rights as members as established by a company s memorandum and articles of association. (g) Disposal of assets There are no specific restrictions in the Companies Law on the power of directors to dispose of assets of a company, however the directors have certain duties of care, diligence and skill and also fiduciary duties to act in good faith, for proper purpose and in the best interests of the company under English common law (which the Cayman Islands courts will ordinarily follow). (h) Accounting and auditing requirements Section 59 of the Companies Law provides that a company shall cause proper records of accounts to be kept with respect to (i) all sums of money received and expended by the company and the matters with respect to which the receipt and expenditure takes place; (ii) all sales and purchases of goods by the company and (iii) the assets and liabilities of the company. Section 59 of the Companies Law further states that proper books of account shall not be deemed to be kept if there are not kept such books as are necessary to give a true and fair view of the state of the company s affairs and to explain its transactions. If the Company keeps its books of account at any place other than at its registered office or at any other place within the Cayman Islands, it shall, upon service of an order or notice by the Tax Information Authority pursuant to the Tax Information Authority Law (2013 Revision) of the Cayman Islands, make available, in electronic form or any other medium, at its registered office copies of its books of account, or any part or parts thereof, as are specified in such order or notice. IV-25

367 APPENDIX IV SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANY LAW (i) Exchange control There are no exchange control regulations or currency restrictions in effect in the Cayman Islands. (j) Taxation Pursuant to section 6 of the Tax Concessions Law (2011 Revision) of the Cayman Islands, the Company has obtained an undertaking from the Governor-in-Cabinet: (i) (ii) that no law which is enacted in the Cayman Islands imposing any tax to be levied on profits or income or gains or appreciation shall apply to the Company or its operations; and in addition, that no tax be levied on profits, income gains or appreciations or which is in the nature of estate duty or inheritance tax shall be payable by the Company: (aa) on or in respect of the shares, debentures or other obligations of the Company; or (bb) by way of withholding in whole or in part of any relevant payment as defined in section 6(3) of the Tax Concessions Law (2011 Revision). The undertaking for the Company is for a period of twenty years from 3 November The Cayman Islands currently levy no taxes on individuals or corporations based upon profits, income, gains or appreciations and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to the Company levied by the Government of the Cayman Islands save certain stamp duties which may be applicable, from time to time, on certain instruments. (k) Stamp duty on transfers There is no stamp duty payable in the Cayman Islands on transfers of shares of Cayman Islands companies save for those which hold interests in land in the Cayman Islands. (l) Loans to directors The Companies Law contains no express provision prohibiting the making of loans by a company to any of its directors. However, the Articles provide for the prohibition of such loans under specific circumstances. IV-26

368 APPENDIX IV SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANY LAW (m) Inspection of corporate records The members of the company have no general right under the Companies Law to inspect or obtain copies of the register of members or corporate records of the company. They will, however, have such rights as may be set out in the company s articles of association. (n) Register of members A Cayman Islands exempted company may maintain its principal register of members and any branch registers in any country or territory, whether within or outside the Cayman Islands, as the company may determine from time to time. The Companies Law contains no requirement for an exempted company to make any returns of members to the Registrar of Companies in the Cayman Islands. The names and addresses of the members are, accordingly, not a matter of public record and are not available for public inspection. However, an exempted company shall make available at its registered office, in electronic form or any other medium, such register of members, including any branch register of member, as may be required of it upon service of an order or notice by the Tax Information Authority pursuant to the Tax Information Authority Law (2013 Revision) of the Cayman Islands. (o) Winding up A Cayman Islands company may be wound up either by (i) an order of the court; (ii) voluntarily by its members; or (iii) under the supervision of the court The court has authority to order winding up in a number of specified circumstances including where, in the opinion of the court, it is just and equitable that such company be so wound up. A voluntary winding up of a company occurs where the Company so resolves by special resolution that it be wound up voluntarily, or, where the company in general meeting resolves that it be wound up voluntarily because it is unable to pay its debt as they fall due; or, in the case of a limited duration company, when the period fixed for the duration of the company by its memorandum or articles expires, or where the event occurs on the occurrence of which the memorandum or articles provides that the company is to be wound up. In the case of a voluntary winding up, such company is obliged to cease to carry on its business from the commencement of its winding up except so far as it may be beneficial for its winding up. Upon appointment of a voluntary liquidator, all the powers of the directors cease, except so far as the company in general meeting or the liquidator sanctions their continuance. In the case of a members voluntary winding up of a company, one or more liquidators shall be appointed for the purpose of winding up the affairs of the company and distributing its assets. IV-27

369 APPENDIX IV SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANY LAW As soon as the affairs of a company are fully wound up, the liquidator must make a report and an account of the winding up, showing how the winding up has been conducted and the property of the company has been disposed of, and thereupon call a general meeting of the company for the purposes of laying before it the account and giving an explanation thereof. When a resolution has been passed by a company to wind up voluntarily, the liquidator or any contributory or creditor may apply to the court for an order for the continuation of the winding up under the supervision of the court, on the grounds that (i) the company is or is likely to become insolvent; or (ii) the supervision of the court will facilitate a more effective, economic or expeditious liquidation of the company in the interests of the contributories and creditors. A supervision order shall take effect for all purposes as if it was an order that the company be wound up by the court except that a commenced voluntary winding up and the prior actions of the voluntary liquidator shall be valid and binding upon the company and its official liquidator. For the purpose of conducting the proceedings in winding up a company and assisting the court, there may be appointed one or more persons to be called an official liquidator or official liquidators; and the court may appoint to such office such person or persons, either provisionally or otherwise, as it thinks fit, and if more than one persons are appointed to such office, the court shall declare whether any act required or authorised to be done by the official liquidator is to be done by all or any one or more of such persons. The court may also determine whether any and what security is to be given by an official liquidator on his appointment; if no official liquidator is appointed, or during any vacancy in such office, all the property of the company shall be in the custody of the court. (p) Reconstructions Reconstructions and amalgamations are governed by specific statutory provisions under the Companies Law whereby such arrangements may be approved by a majority in number representing 75% in value of members or creditors, depending on the circumstances, as are present at a meeting called for such purpose and thereafter sanctioned by the courts. Whilst a dissenting member would have the right to express to the court his view that the transaction for which approval is being sought would not provide the members with a fair value for their shares, nonetheless the courts are unlikely to disapprove the transaction on that ground alone in the absence of evidence of fraud or bad faith on behalf of management and if the transaction were approved and consummated the dissenting member would have no rights comparable to the appraisal rights (i.e. the right to receive payment in cash for the judicially determined value of their shares) ordinarily available, for example, to dissenting members of a United States corporation. IV-28

370 APPENDIX IV SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANY LAW (q) Take-overs Where an offer is made by a company for the shares of another company and, within four months of the offer, the holders of not less than 90% of the shares which are the subject of the offer accept, the offeror may at any time within two months after the expiration of the said four months, by notice require the dissenting members to transfer their shares on the terms of the offer. A dissenting member may apply to the court of the Cayman Islands within one month of the notice objecting to the transfer. The burden is on the dissenting member to show that the court should exercise its discretion, which it will be unlikely to do unless there is evidence of fraud or bad faith or collusion as between the offeror and the holders of the shares who have accepted the offer as a means of unfairly forcing out minority members. (r) Indemnification Cayman Islands law does not limit the extent to which a company s articles of association may provide for indemnification of officers and directors, save to the extent any such provision may be held by the court to be contrary to public policy, for example, where a provision purports to provide indemnification against the consequences of committing a crime. 4. GENERAL Appleby, the Company s legal adviser on Cayman Islands law, has sent to the Company a letter of advice which summarises certain aspects of the Cayman Islands company law. This letter, together with a copy of the Companies Law, is available for inspection as referred to in the paragraph headed Documents Available for Inspection in Appendix VI. Any person wishing to have a detailed summary of Cayman Islands company law or advice on the differences between it and the laws of any jurisdiction with which he is more familiar is recommended to seek independent legal advice. IV-29

371 APPENDIX V STATUTORY AND GENERAL INFORMATION A. FURTHER INFORMATION ABOUT THE COMPANY 1. Incorporation Our Company was incorporated in the Cayman Islands under the Companies Law as an exempted company with limited liability on 16 October Our Company was registered as a non-hong Kong company in Hong Kong under Part 16 of the Companies Ordinance on 23 November 2015 and establishes a principal place of business in Hong Kong at Unit 1505, 15/F, Delta House, 3 On Yiu Street, Shatin, New Territories, Hong Kong. Mr. Woo Yuen Fai and Mr. CK Wong have been appointed as the authorised representatives of our Company for the acceptance of service of process and notices on behalf of our Company in Hong Kong. As our Company is incorporated in the Cayman Islands, it is subject to the Cayman Islands law and to its constitution, which comprises the Memorandum and the Articles. A summary of various provisions of its constitution and relevant aspects of the Companies Law is set out in Appendix IV Summary of the constitution of our Company and Cayman Islands Company Law to this prospectus. 2. Changes in share capital of our Company (a) (b) (c) As at the date of incorporation, our Company had an authorised share capital of HK$380,000 divided into 38,000,000 Shares of HK$0.01 each. 1 Share was allotted and issued nil-paid to the subscriber on 16 October 2015, and was subsequently transferred to Blooming Union on the same day. Pursuant to the Reorganisation and as consideration for the acquisition by our Company of the entire issued share capital of Super Pioneer from Blooming Union on 22 February 2016, (i) the 1 nil paid Share held by Blooming Union was credited as fully paid, and (ii) 9,999 Shares, all credited as fully paid, were allotted and issued to Blooming Union. On 24 March 2016, our sole Shareholder resolved to increase the authorised share capital of our Company from HK$380,000 to HK$20,000,000 by the creation of an additional of 1,962,000,000 Shares, each ranking pari passu with the Shares then in issue in all respects. (d) Immediately following completion of the Capitalisation Issue and the Placing, and taking no account of any Share to be issued upon exercise of any options which may be granted under the Share Option Scheme, 1,248,000,000 Shares will be issued fully paid or credited as fully paid, and 752,000,000 Shares will remain unissued. V-1

372 APPENDIX V STATUTORY AND GENERAL INFORMATION (e) (f) Other than pursuant to the general mandate to issue Shares referred to in the paragraph headed A. Further information about the Company 3. Written resolutions of our sole Shareholder passed on 24 March 2016 in this appendix and pursuant to the Share Option Scheme, our Company does not have any present intention to issue any of the authorised but unissued share capital of our Company and, without prior approval of our Shareholders in general meeting, no issue of Shares will be made which would effectively alter the control of our Company. Save as disclosed in this prospectus, there has been no alteration in the Company s share capital since its incorporation. 3. Written resolutions of our sole Shareholder passed on 24 March 2016 On 24 March 2016, resolutions in writing were passed by our sole Shareholder pursuant to which, among other things: (a) (b) our Company approved and adopted the Memorandum and the Articles; conditional on the Listing Division granting the listing of, and permission to deal in, the Shares in issue and to be issued as mentioned in this prospectus (including any Shares to be issued upon exercise of any options which may be granted under the Share Option Scheme) and on the obligations of the Underwriters under the Underwriting Agreement becoming unconditional and the Underwriting Agreement not being terminated in accordance with its terms or otherwise, in each case on or before the date falling 30 days after the date of the issue of this prospectus: (i) (ii) the Placing was approved and our Directors were authorised to allot and issue the Placing Shares pursuant to the Placing to rank pari passu with the then existing Shares in all respects; the rules of the Share Option Scheme, the principal terms of which are set out in the paragraph headed D. Share Option Scheme below in this appendix, were approved and adopted and our Directors were authorised, at their absolute discretion but subject to the terms and conditions of the Share Option Scheme, to grant options to subscribe for Shares thereunder and to allot, issue and deal with the Shares pursuant to the exercise of subscription rights attaching to any options which may be granted under the Share Option Scheme and to take all such actions as they consider necessary or desirable to implement the Share Option Scheme; (iii) conditional further on the share premium account of our Company being credited as a result of the Placing, the Capitalisation Issue was approved, and our Directors were authorised to capitalise an amount of HK$10,399,900 standing to the credit of the share premium account of our Company and to appropriate such amount as to capital to pay up in V-2

373 APPENDIX V STATUTORY AND GENERAL INFORMATION full at par 1,039,990,000 Shares for allotment and issue to Blooming Union, each ranking pari passu in all respects with the then existing issued Shares, and our Directors were authorised to give effect to such capitalisation and distributions; (c) a general unconditional mandate was given to our Directors to exercise all powers of our Company to allot, issue and deal with, otherwise than by way of rights issue or an issue of Shares pursuant to the exercise of any options which may be granted under the Share Option Scheme or any other share option scheme of our Company or any Shares allotted and issued in lieu of the whole or part of a dividend on Shares or similar arrangement in accordance with the Memorandum and the Articles or pursuant to a specific authority granted by our Shareholders in general meeting or pursuant to the Placing, Shares or securities convertible into Shares or options, warrants or similar rights to subscribe for shares or securities convertible into Shares or options, warrants or similar rights to subscribe for Shares or such convertible securities, and to make or grant offers, agreements or options which might require the exercise of such power, with an aggregate nominal value not exceeding 20% of the aggregate nominal value of the share capital of our Company in issue immediately following completion of the Capitalisation Issue and the Placing (excluding any Shares to be issued upon exercise of any options which may be granted under the Share Option Scheme), such mandate to remain in effect until the earliest of: (i) (ii) the conclusion of the next annual general meeting of our Company; the expiration of the period within which the next annual general meeting of our Company is required by the Memorandum and the Articles or the Companies Law or any other applicable laws of the Cayman Islands to be held; or (iii) the time when such mandate is revoked or varied by an ordinary resolution of our Shareholders in general meeting; (d) a general unconditional mandate was given to our Directors authorising them to exercise all powers of our Company to repurchase on GEM or on any other stock exchange on which the securities of our Company may be listed and which is recognised by the SFC and the Stock Exchange for this purpose such number of Shares as will represent up to 10% of the aggregate nominal value of the share capital of our Company in issue immediately following completion of the Capitalisation Issue and the Placing (excluding any Shares to be issued upon exercise of any options which may be granted under the Share Option Scheme), such mandate to remain in effect until the earliest of: (i) the conclusion of the next annual general meeting of our Company; V-3

374 APPENDIX V STATUTORY AND GENERAL INFORMATION (ii) the expiration of the period within which the next annual general meeting of our Company is required by the Memorandum and the Articles or the Companies Law or any other applicable laws of the Cayman Islands to be held; or (iii) the time when such mandate is revoked or varied by an ordinary resolution of our Shareholders in general meeting; and (e) the general unconditional mandate mentioned in sub-paragraph (c) above was extended by the addition to the aggregate nominal value of the share capital of our Company which may be allotted or agreed to be allotted by our Directors pursuant to such general mandate of an amount representing the aggregate nominal value of the share capital of our Company repurchased by our Company pursuant to the mandate to repurchase Shares referred to in sub-paragraph (d) above, provided that such extended amount shall not exceed 10% of the aggregate nominal value of the share capital of our Company in issue immediately following completion of the Capitalisation Issue and the Placing (excluding any Shares to be issued upon exercise of any options which may be granted under the Share Option Scheme). 4. Corporate reorganisation In preparing for the Listing, the companies comprising our Group underwent the Reorganisation to rationalise the corporate structure of our Group and our Company became the holding company of our Group. The Reorganisation involved the following major steps: (a) On 1 July 2015, Blooming Union was incorporated in the BVI and is authorised to issue a maximum of 50,000 shares of US$1.00 each. One share and one share of Blooming Union (representing 50% and 50% of the entire issued share capital of Blooming Union, respectively, at the relevant time) were allotted and issued to Mr. CK Wong and Mr. WW Wong, respectively, on 31 July (b) On 1 July 2015, Super Pioneer was incorporated in the BVI and is authorised to issue a maximum of 50,000 shares of US$1.00 each. One share of Super Pioneer (representing the entire issued share capital of Super Pioneer at the relevant time) was allotted and issued to Blooming Union on 31 July (c) On 16 October 2015, our Company was incorporated in the Cayman Islands with an authorised share capital of HK$380,000 divided into 38,000,000 Shares of HK$0.01 each. 1 nil-paid Share was allotted and issued to the subscriber, and was subsequently transferred to Blooming Union on the same day. V-4

375 APPENDIX V STATUTORY AND GENERAL INFORMATION (d) On 29 October 2015, Super Pioneer acquired 1,900,000 shares and 1,900,000 shares of Luen Hing (which, in aggregate, represents the entire issued shares of Luen Hing at the relevant time) from Mr. CK Wong and Mr. WW Wong, respectively, and in consideration, Super Pioneer issued and allotted 2 shares in Super Pioneer, credited as fully paid, to Blooming Union. After the aforesaid share transfer, Super Pioneer held 3,800,000 shares of Luen Hing (representing the entire issued shares of Luen Hing at the relevant time). (e) On 29 October 2015, Super Pioneer acquired 10,000 shares and 10,000 shares of Hop Fung (which, in aggregate, represents the entire issued shares of Hop Fung at the relevant time) from Mr. CK Wong and Mr. WW Wong, respectively, and in consideration, Super Pioneer issued and allotted 2 shares in Super Pioneer, credited as fully paid, to Blooming Union. After the aforesaid share transfer, Super Pioneer held 20,000 shares of Hop Fung (representing the entire issued shares of Hop Fung at the relevant time). (f) (g) (h) Pursuant to the sale and purchase agreement dated 22 February 2016 referred to in item (1) of the paragraph headed B. Further information about the business 1. Summary of material contracts in this appendix, our Company agreed to acquire 5 share of Super Pioneer (representing the entire issued shares of Super Pioneer at the relevant time) from Blooming Union, and in consideration thereof, (i) the 1 nil-paid Share held by Blooming Union was credited as fully paid; and (ii) 9,999 Shares were allotted and issued to Blooming Union, and will be credited as fully paid. On 21 March 2016, by way of loans capitalisation, Luen Hing applied HK$280,000 owed to Mr. CK Wong and HK$5,200,000 owed to Mr. WW Wong toward the satisfaction of the issue and allotment of 5,480,000 new shares of Luen Hing at a subscription price of HK$1 each to Super Pioneer (as directed by Mr. CK Wong and Mr. WW Wong, respectively). After the aforesaid loans capitalisation and issue and allotment of shares of Luen Hing remains a wholly-owned subsidiary of Super Pioneer. On 21 March 2016, by way of loan capitalisation, Hop Fung applied HK$4,920,000 owed to Mr. CK Wong toward the satisfaction of the issue and allotment of 4,920,000 new shares of Hop Fung at a subscription price of HK$1 each to Super Pioneer (as directed by Mr. CK Wong). After the aforesaid loan capitalisation and issue and allotment of shares of Hop Fung remains a wholly-owned subsidiary of Super Pioneer. Immediately after completion of the share transfer referred to in item (f) above, our Company then became the holding company of our Group. 5. Changes in share capital of subsidiaries The subsidiaries of our Company are listed in the Accountant s Report of the Company, the text of which is set out in Appendix I to this prospectus. V-5

376 APPENDIX V STATUTORY AND GENERAL INFORMATION Save as disclosed in the paragraph headed A. Further information about the Company 4. Corporate reorganisation in this appendix and in the section headed History and Development in this prospectus, there has been no alteration in the share capital of any of the subsidiaries of our Company within the two years immediately preceding the date of this prospectus. 6. Repurchase of Shares by our Company This section contains information required by the Stock Exchange to be included in this prospectus concerning the repurchase of Shares by our Company. (a) Provisions of the GEM Listing Rules The GEM Listing Rules permit companies whose primary listing is on GEM to repurchase their securities on GEM subject to certain restrictions, a summary of which is set out below: (i) Shareholders approval The GEM Listing Rules provide that all proposed repurchases of shares, which must be fully paid up in the case of shares, by a company with a primary listing on GEM must be approved in advance by an ordinary resolution of the shareholders, either by way of general mandate or by specific approval of a particular transaction. Note: (ii) Pursuant to the written resolutions passed by our sole Shareholder on 24 March 2016, a general unconditional mandate (the Repurchase Mandate ) was given to our Directors authorising them to exercise all powers of our Company to repurchase Shares on GEM or on any other stock exchange on which the securities of our Company may be listed and which is recognised by the SFC and the Stock Exchange for this purpose, such number of Shares as will represent up to 10% of the aggregate nominal value of the share capital of our Company in issue immediately following completion of the Capitalisation Issue and the Placing (excluding any Shares to be issued upon exercise of any options which may be granted under the Share Option Scheme), and the Repurchase Mandate shall remain in effect until the earliest of the conclusion of the next annual general meeting of our Company, or the expiration of the period within which the next annual general meeting of our Company is required by the Memorandum and the Articles or the Companies Law or any other applicable laws of the Cayman Islands to be held or the time when the Repurchase Mandate is revoked or varied by an ordinary resolution of our Shareholders in a general meeting. Source of funds Any repurchase by our Company must be funded out of funds legally available for the purpose in accordance with the Articles, the applicable laws of the Cayman Islands and the GEM Listing Rules. Our Company may not repurchase its own Shares on GEM for a consideration other than cash or for settlement otherwise than in accordance with the trading rules of the Stock Exchange from time to time. V-6

377 APPENDIX V STATUTORY AND GENERAL INFORMATION Any repurchases by our Company may be made out of profits or out of the proceeds of a fresh issue of Shares made for the purpose of the repurchase or, if authorised by the Articles and subject to the Companies Law, out of capital and, in the case of any premium payable on the repurchase, out of profits of our Company or out of our Company s share premium account before or at the time the Shares are repurchased or, if authorised by the Articles and subject to the Companies Law, out of capital. (iii) Connected parties The GEM Listing Rules prohibit our Company from knowingly repurchasing the Shares on GEM from a core connected person (as defined in the GEM Listing Rules), which includes a Director, chief executive or substantial shareholder of our Company or any of its subsidiaries or a close associate of any of them, and a core connected person shall not knowingly sell Shares to our Company on GEM. (b) Exercise of the Repurchase Mandate On the basis of 1,248,000,000 Shares in issue immediately after completion of the Capitalisation Issue and the Placing, our Directors would be authorised under the Repurchase Mandate to repurchase up to 124,800,000 Shares during the period in which the Repurchase Mandate remains in force. Any Shares repurchased pursuant to the Repurchase Mandate must be fully paid-up. (c) Reasons for repurchases Our Directors believe that it is in the best interests of our Company and our Shareholders for our Directors to have a general authority from Shareholders to enable our Company to repurchase Shares in the market. Such repurchases may, depending on market conditions and funding arrangements at the time, lead to an enhancement of our Company s net asset value and/or earnings per Share and will only be made when our Directors believe that such repurchases will benefit our Company and our Shareholders. (d) Funding of repurchases In repurchasing the Shares, our Company may only apply funds legally available for such purpose in accordance with the Articles, the GEM Listing Rules and the applicable laws and regulations of the Cayman Islands. Our Directors do not propose to exercise the Repurchase Mandate to such extent as would, in the circumstances, have a material adverse effect on the working capital requirements of our Company or the gearing levels which in the opinion of our Directors are from time to time appropriate for our Company. V-7

378 APPENDIX V STATUTORY AND GENERAL INFORMATION (e) General None of our Directors nor, to the best of their knowledge, having made all reasonable enquiries, any of their close associates (as defined in the GEM Listing Rules), has any present intention to sell any Shares to our Company or any of its subsidiaries if the Repurchase Mandate is exercised. Our Directors have undertaken to the Stock Exchange that, so far as the same may be applicable, they will exercise the Repurchase Mandate in accordance with the GEM Listing Rules, the Articles and the applicable law and regulations from time to in force in the Cayman Islands. If as a result of a repurchase of Shares pursuant to the Repurchase Mandate, a Shareholder s proportionate interest in the voting rights of our Company increases, such increase will be treated as an acquisition for the purpose of the Takeovers Code. In certain circumstances, a Shareholder or a group of Shareholders acting in concert (as defined in the Takeovers Code) depending on the level of increase of our Shareholders interest, could obtain or consolidate control of our Company and may become obliged to make a mandatory offer in accordance with Rule 26 of the Takeovers Code as a result of any such increase. Save as disclosed above, our Directors are not aware of any consequences which may arise under the Takeovers Code as a consequence of any repurchase of Shares if made immediately after the Listing pursuant to the Repurchase Mandate. At present, so far as is known to the Directors, no Shareholder may become obliged to make a mandatory offer in accordance with Rule 26 of the Takeovers Code in the event that our Directors exercise the power in full to repurchase the Shares pursuant to the Repurchase Mandate. Our Directors will not exercise the Repurchase Mandate if the repurchase would result in the number of Shares which are in the hands of the public falling below 25% of the total number of Shares in issue (or such other percentage as may be prescribed as the minimum public shareholding under the GEM Listing Rules). No core connected person has notified our Company that he has a present intention to sell Shares to our Company or any of its subsidiaries, or has undertaken not to do so, if the Repurchase Mandate is exercised. V-8

379 APPENDIX V STATUTORY AND GENERAL INFORMATION B. FURTHER INFORMATION ABOUT THE BUSINESS 1. Summary of material contracts The following contracts (not being contracts entered into in the ordinary course of business) have been entered into by our Group within the two years preceding the date of this prospectus and are or may be material in relation to the business of our Company taken as a whole: (a) a sale and purchase agreement dated 18 September 2015 entered into between Hop Fung as vendor and an independent third party as purchaser, pursuant to which Hop Fung agreed to dispose of its property located at Flat C of North Court on the 5th Floor of Tower 5 of Phase 1, Festival City, No.1 Mei Tin Road, Tai Wai, Sha Tin, New Territories, Hong Kong for an aggregate consideration of HK$12,700,000; (b) (c) (d) (e) (f) (g) a sale and purchase agreement dated 29 October 2015 entered into among Mr. CK Wong, Mr. WW Wong and Super Pioneer, pursuant to which Super Pioneer agreed to acquire 1,900,000 shares and 1,900,000 shares of Luen Hing from Mr. CK Wong and Mr. WW Wong, respectively, and in consideration thereof, Super Pioneer issued and allotted 2 shares in Super Pioneer, credited as fully paid, to Blooming Union; an instrument of transfer dated 29 October 2015 entered into between Super Pioneer and Mr. CK Wong for the transfer of 1,900,000 shares of Luen Hing as referred to item (b) above; bought and sold notes dated 29 October 2015 executed by Super Pioneer and Mr. CK Wong for the transfer of 1,900,000 shares of Luen Hing as referred to item (b) above; an instrument of transfer dated 29 October 2015 entered into between Super Pioneer and Mr. WW Wong for the transfer of 1,900,000 shares of Luen Hing as referred to item (b) above; bought and sold notes dated 29 October 2015 executed by Super Pioneer and Mr. WW Wong for the transfer of 1,900,000 shares of Luen Hing as referred to item (b) above; a sale and purchase agreement dated 29 October 2015 entered into among Mr. CK Wong, Mr. WW Wong and Super Pioneer, pursuant to which Super Pioneer agreed to acquire 10,000 shares and 10,000 shares of Hop Fung from Mr. CK Wong and Mr. WW Wong, respectively, and in consideration thereof, Super Pioneer issued and allotted 2 shares in Super Pioneer, credited as fully paid, to Blooming Union; V-9

380 APPENDIX V STATUTORY AND GENERAL INFORMATION (h) (i) (j) (k) (l) (m) (n) (o) (p) (q) (r) an instrument of transfer dated 29 October 2015 entered into between Super Pioneer and Mr. CK Wong for the transfer of 10,000 shares of Hop Fung as referred to item (g) above; bought and sold notes dated 29 October 2015 executed by Super Pioneer and Mr. CK Wong for the transfer of 10,000 shares of Hop Fung as referred to item (g) above; an instrument of transfer dated 29 October 2015 entered into between Super Pioneer and Mr. WW Wong for the transfer of 10,000 shares of Hop Fung as referred to item (g) above; bought and sold notes dated 29 October 2015 executed by Super Pioneer and Mr. WW Wong for the transfer of 10,000 shares of Hop Fung as referred to item (g) above; a sale and purchase agreement dated 22 February 2016 entered into between our Company and Blooming Union, pursuant to which our Company agreed to acquire 5 shares of Super Pioneer from Blooming Union, and in consideration thereof, (i) the 1 nil paid Share held by Blooming Union was credited as fully paid; and (ii) 9,999 Shares, all credited as fully paid, were allotted and issued to Blooming Union; an instrument of transfer dated 22 February 2016 entered into between our Company and Blooming Union for the transfer of 5 shares of Super Pioneer as referred to item (l) above; a loan capitalisation agreement dated 21 March 2016 entered into between Super Pioneer and Luen Hing, pursuant to which Luen Hing applied HK$280,000 owed to Mr. CK Wong and HK$5,200,000 owed to Mr. WW Wong, respectively, toward the satisfaction of the issue and allotment of 5,480,000 new shares of Luen Hing at a subscription price of HK$1 per share to Super Pioneer (as directed by Mr. CK Wong and Mr. WW Wong, respectively); a loan capitalisation agreement dated 21 March 2016 entered into between Super Pioneer and Hop Fung, pursuant to which Hop Fung applied HK$4,920,000 owed by Hop Fung to Mr. CK Wong toward the satisfaction of the issue and allotment of 4,920,000 new shares of Hop Fung at a subscription price of HK$1 per share to Super Pioneer (as directed by Mr. CK Wong); the Deed of Non-competition; the Deed of Indemnity; and the Underwriting Agreement. V-10

381 APPENDIX V STATUTORY AND GENERAL INFORMATION 2. Intellectual property rights of our Group (a) Trademark As at the Latest Practicable Date, our Group has registered a trade mark as follow: Trademark Place of application Application number Class Date of application/ registration Name of applicant Hong Kong , February 2016 Luen Hing (b) Domain name(s) As at the Latest Practicable Date, our Group has registered the following domain name: Domain name Registrant Registration date Expiry date luenwong.hk Luen Hing 20 November November 2017 C. FURTHER INFORMATION ABOUT SUBSTANTIAL SHAREHOLDERS, DIRECTORS AND EXPERTS 1. Disclosure of Interests (a) Interests of Directors and chief executive in shares, underlying shares and debentures of our Company and our associated corporations Immediately following completion of the Capitalisation Issue and the Placing (without taking account any Shares to be issued upon exercise of any options which may be granted under the Share Option Scheme), the interests and short positions of our Directors or chief executive of our Company in shares, underlying shares and debentures of our Company or any of its associated corporations (within the meaning of Part XV of the SFO) which, once the Shares are listed on GEM, would have to be notified to our Company and the Stock Exchange under Divisions 7 and 8 of Part XV of the SFO (including any interests and short positions which they are taken or deemed to have under such provisions of the SFO) or would be required, pursuant to section 352 of the SFO, to be entered in the register referred to therein, or would be required pursuant to the V-11