46% 18% Direct cost of. expenses. functions held

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1 The Hong Kong Institute of Chartered Secretaries (Incorporated in Hong Kong with limited liability by guarantee) Financial Highlights of 2012/ /2013 Income Portion (% to total income) 2012/13 Expenditure Portion (% to total expenditure) 60% 50% 40% 30% 20% 10% 0% 56% Subscriptions 9% Examination fees received 32% Revenue from functions held 3% Other net income 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 46% Staff costs 2% Depreciation expenses 18% Direct cost of functions held 3% 2% Institute's service charges Promotion & public relations 11% Publications and printing 4% Student services 14% Other expenses Surplus/(Deficit) Comparison 2009 to 2013 (in HK$'000) Total income 30,340 26,402 25,287 23,130 23,013 Total expenditure 29,502 27,195 24,964 22,394 23,009 Surplus/(Deficit) 838 (793) Non-operating losses 416 (1,162) Surplus/(Deficit) for the year 1 1,255 (1,956) Income Distribution comparison 2009 to 2013 (in HK$'000) Subscriptions 2 16,995 16,415 16,123 15,271 14,916 Examination fees received 2,745 2,605 2,525 2,390 2,276 Revenue from functions held 3 9,676 5,714 5,469 4,346 4,832 Other net income ,667 1,170 1, Expenditure Distribution Comparison 2009 to 2013 (in HK$'000) Staff costs 5 13,484 12,690 12,236 11,577 11,187 Depreciation expenses Direct cost of functions held 5,365 3,292 3,226 1,680 1,705 Institute's service charges 834 1, Promotion & public relations 737 1,047 1, ,580 Publications and printing 3,386 3,618 3,385 3,263 3,333 Student services 6 1,183 1,122 1,185 1, Other expenses 7 4,012 3,775 2,763 2,716 2,639 Footnotes: 1 The surplus for the year (2013) is HK$1,254,876 (2012 deficit: HK$1,955,549). Taking into account the property revaluation surplus of HK$197,856 (2012: HK$1,175,340), the total comprehensive income for the year recorded is HK$1,452,732 (2012: loss of HK$780,209). 2 Subscriptions include subscription fees received and receivable from members, graduates and students. 3 Revenue from functions held includes income received from all events and activities organised by the Institute. 4 5 Other net income includes bank interest, foreign exchange gain (loss), investment income (loss), sales of goods, over-provision and sundry income. Staff costs include salaries, allowances, other benefits and contributions to Mandatory Provident Fund Scheme for full-time and part-time staff in Hong Kong and Mainland China. 6 Student services include expenses to organise the IQS examinations. 7 Other expenses include operating leases, legal and professional fees, utilities and sundry expenses.

2 THE HONG KONG INSTITUTE OF CHARTERED SECRETARIES (Incorporated in Hong Kong with limited liability by guarantee) Management Discussion and Analysis Revenue The Institute s total revenue and other income recorded strong growth to reach HK$30,340,205 representing an increase of approximately 14.9% from HK$26,401,836 in 2011/12. The revenue is largely attributable to three streams: membership subscriptions; student subscriptions and examination fees; and continuing professional development activities in Hong Kong and Mainland China. Amongst continuing professional development activities, seminars and conferences, in particular, made a remarkable contribution to the increase in revenue for the year. With a steady 2.5% growth in the number of members, graduates and students, income from subscription fees rose to HK$16,994,502 (2012: HK$16,415,400) a rise of approximately 3.5%, without any increase in the membership subscription fees. The number of IQS examination enrollment slightly decreased by 2%. However, the examination fee income maintained a modest increase at HK$2,745,650 (2012: HK$2,605,140), by 5.4%, as a result of a moderate increase in examination fees to catch up with cost increment running the examinations during the financial year. The continuous implementation of the Institute s Mandatory Continuing Professional Development (MCPD) Programme with a wider coverage of members in the second year from inception, the Listing Rules requirements for listed company secretaries to take not less than 15 hours CPD training per annum, together with the requisite training for listed company directors contributed to the surge in enrollment by approximately 36% in the Institute s continuing professional development programmes. These programmes included the regular CPD seminars and signature events such as the Annual Corporate and Regulatory Update Conference, the biennial Corporate Governance Conference and five Affiliated Persons ECPD seminars in Mainland China with a total of 10,542 participants (2012: 7,776 participants). The ECPD seminars and other membership activities together brought in an increase in income of HK$9,676,116 (2012: HK$5,713,997) which marked an extraordinary rise of 70%. Included in other net income of HK$923,937 is an amount of HK$730,067 which mainly represents commission derived from the Institute s co-brand cards with American Express issued to members, application fees for practitioner s endorsement, career classified advertisement income and other one-off reimbursements added to the revenue growth. Expenses Total expenses in the year were HK$29,501,794 (2012: HK$27,195,016), a rise of approximately 8.5%.

3 Staff costs Staff costs were recorded at HK$13,484,022 (2012: HK$12,689,674) representing a rise of approximately 6.3%. The increase in staff costs was mainly due to moderate salary increments, and additional part-time staff to support the increased number of functions and activities, in particular the professional development seminars. Staff costs represent a substantial portion of the Institute s operating expenses and are incurred to enable the Institute s secretariat, headed by the Chief Executive, to operate effectively. Notwithstanding the service quality pledged to a sizable group of over 9,000 members and students, and the initiatives set by Council each year, Council strives to maintain a secretariat that is both lean and efficient, with a total of 32 staff members in Hong Kong and Beijing Offices. Other operating expenses Expenses relating to other operating items had increased to HK$15,517,115 (2012: HK$13,967,627) at approximately 11%. The increase was mainly attributable to the additional operating expenses for increased professional development seminars together with the Annual Corporate Regulatory Update Conference, biennial Corporate Governance Conference and Members and Students activities during the year. Direct cost of major activities and functions held amounted to HK$5,365,154 (2012: HK$3,291,595), a rise of approximately 63%. 2012/ /12 HK$ HK$ Seminar venue and related expenses 1,585, ,949 Corporate Governance Conference expenses 1,040, ,767 Affiliated Persons ECPD seminar expenses 1,686,115 1,452,548 In addition, there were increases in certain expenses items, such as donations, rental of the Beijing office, legal and professional fees and decreases in certain expenses items, such as charges to ICSA International, promotion and public relations and publication and printing, which altogether recorded a net reduction of other operating expenses of approximately HK$500,000. Amongst the increased expenses items, the legal and professional fees were HK$842,604 (2012: HK$694,594), a rise of 21%, comprising consulting fees in the aggregate amount of HK$625,000 relating to the Institute s IT/CRM upgrade project, organisational structure and human resources review and legal and professional fees incurred in the course of the Institute s normal operations, albeit the fees of HK$106,000 (2012: HK$233,184) on the investigation and related works due to the accounting discrepancies are non-recurrent. Amongst the decreased expenses items, the Institute s service charges to ICSA International reduced to HK$834,046 (2012: HK$1,114,765) of 25.2% due to a reduction in the cost recovery contribution made to ICSA International. The cost recovery for 2012/13 consisted of both the normal capitation fees paid by the Institute to ICSA International as well as legal charges incurred due to the proposed ICSA governance reforms and constitutional changes during the financial year. Charges

4 incurred by ICSA International Council are spread across all divisions proportionally. Sundry expenses which cover office administrative expenses of the Institute s office in Hong Kong, running expenses of the Institute s Beijing Representative Office and traveling expenses reduced to HK$1,964,023 (2012: HK$2,098,002), a reduction of 6.4%. Operating results The Institute made an operating surplus of HK$838,411 compared to a deficit for the previous year of HK$793,180. The remarkable performance was achieved as a result of the dedicated contributions from the Council, all Committees and its sub-committees, working groups and panels, as well as the committed secretariat staff in Hong Kong and Beijing. During the year, the Institute had recovered non-operating losses of HK$416,465, making a surplus for the year of HK$1,254,876. Liquidity and financial resources The Institute adopts prudent funding and treasury management policies and continued to maintain a healthy financial position. The Institute s source of funding comprises receipts generated from membership and studentship subscriptions, examination fees, income from continuing professional development activities and other sundry income. During the year, the Institute recorded a cash inflow from operating activities of HK$1,891,778 compared to a cash outflow of HK$1,333,520 last year. As at 31 July 2013, cash and cash equivalents were HK$5,017,738 compared with HK$3,219,571 in the preceding year. The increase in cash and cash equivalents is mainly due to the better operation performance. The Institute manages its available cash reserves prudently. It holds financial assets, which at 31 July 2013 comprised principal guaranteed short-term investments at a fair value of HK$10,270,415 (31 July 2012: HK$10,352,726). These funds are managed by an independent external professional fund manager on behalf of the Institute. The financial assets reported an unrealised loss of HK$82,311 in 2012/13. The balance of the general funds stood at HK$30,439,904 as of 31 July 2013 (31 July 2012: HK$29,185,028) which is adequate for both operational and capital needs. Nevertheless, the Council regularly reviews the need to increase revenue and cost effectiveness from various means to ensure requisite and proper operational and capital needs are fully covered. Non-current assets For the year ended 31 July 2013, the property revaluation surplus stood at HK$197,856 (2012: HK$1,175,340). Details of movements of property, plant and equipment are included in note 12 to the financial statements. Donations The Institute has donated HK$210,500 (2012: HK$300,000) to The Chartered Secretaries Foundation Limited (the Foundation), a company limited by guarantee,

5 whose purpose is to raise funds to support education and research in company secretarial, legal, accounting and business studies generally, and in particular in the area of corporate governance. The Foundation is awarding annually the Chartered Secretaries Scholarships and Chartered Secretaries Subject Prize Awards to selected local university students who have reached certain criteria set out by the Foundation. The donation transferred in the year was recorded as an operating expense. 3/F, Hong Kong Diamond Exchange Building, 8 Duddell Street, Central, Hong Kong Tel: (852) Fax: (852) Website: